Unit 1: Quiz 1

The principle that "trade can make everyone better off" applies to interactions and trade between

a) families. b) states within the United States. c) nations. d) All of the above are correct.

Rational people make decisions at the margin by

a) following marginal traditions. b) behaving in a random fashion. c) thinking in black-and-white terms. d) comparing marginal costs and marginal benefits.

In the broadest sense, economics is the study of

a) how society manages its scarce resources. b) the interaction of business and government. c) how households decide who performs which tasks. d) production methods.

A company that formerly produced music CDs went out of business because too many potential customers bought illegally-produced copies of the CDs instead of buying the product directly from the company. This instance serves as an example of

a) market power. b) inefficient trade. c) inadequate enforcement of property rights. d) the invisible hand at work.

A rationale for government involvement in a market economy is

a) markets sometimes fail to produce a fair distribution of economic well-being. b) markets sometimes fail to produce an efficient allocation of resources. c) property rights have to be enforced. d) All of the above are correct

People are likely to respond to a policy change

a) only if they think the policy is a good one. b) only if the policy change changes the costs of their behavior. c) only if the policy change changes the benefits of their behavior. d) if the policy changes either the costs or benefits of their behavior.

The adage, "There is no such thing as a free lunch," means

a) people face tradeoffs. b) the cost of living is always increasing. c) even people on welfare have to pay for food. d) all costs are included in the price of a product.

John is an athlete. He has $120 to spend and wants to buy either a heart rate monitor or new running shoes. Both the heart rate monitor and running shoes cost $120, so he can only buy one. This illustrates the principle that

a) people respond to incentives. b) trade can make everyone better off. c) rational people think at the margin. d) people face trade-offs.

Resources are

a) plentiful for households but scarce for economies. b) scarce for households and scarce for economies. c) scarce for households but plentiful for economies. d) plentiful for households and plentiful for economies.

One advantage market economies have over centrally-planned economies is that market economies

a) provide an equal distribution of goods and services to households. b) establish a significant role for government in the allocation of resources. c) solve the problem of scarcity. d) are more efficient

Benefits from trade would not include

a) the ability of people and nations to specialize. b) a greater variety of goods and services becoming available. c) less competition. d) lower prices.

You go to the movieplex where movies ordinarily cost $9. You are intending to see a movie for which you have a $3 off coupon good for only that movie at that time. However, when you get there you see a friend who asks if you would rather see a new release. Both movies start and end at the same time. If you decide to see the new release with your friend, what is your opportunity cost?

a) the amount you value the first movie + $3 b) the amount you value the first movie + $9 c) $3 d) $9

In a market economy, economic activity is guided by

a) the government. b) public-interest groups. c) central planners. d) self-interest and prices.

The opportunity cost of an item is

a) the number of hours needed to earn money to buy the item. b) what you give up to get that item. c) usually less than the dollar value of the item. d) the dollar value of the item.

A friend of yours asks you why market prices are better than government-determined prices. Because you understand economic principles, you say that market-determined prices are better because they generally reflect

a) the value of a good to society, but not the cost of making it. b) the cost of making a good to society, but not its value. c) both the value of a good to society and the cost of making it. d) neither the value of a good to society nor the cost of making it.