Micro
Legislators often gain by bundling together a number of projects benefiting local districts at the expense of taxpayers in all districts. Such legislation is called Select one: a. pork-barrel legislation. CorrectCorrect b. the rational ignorance effect. c. market failure legislation. d. public goods legislation.
A
According to the economic way of thinking, personal benefits and costs influence the actions of Select one: a. consumers, producers, voters, and politicians in both the private and the public sectors. CorrectCorrect b. consumers in the private sector but not voters in the public sector. c. producers in the private sector but not politicians in the public sector. d. taxpayers but not recipients of government-provided goods and services.
A
Because of the free-rider problem, Select one: a. competitive markets will tend to undersupply public goods. CorrectCorrect b. the federal government spends too much on national defense. c. fireworks displays have become increasingly dangerous. d. poverty has increased.
A
Competition is vitally important in a market economy because Select one: a. it weeds out high-cost producers and directs production toward firms providing quality goods at economical prices. b. it directs resources toward firms producing low quality goods. c. it makes it possible for even inefficient producers to earn high profits. d. it makes it possible for inefficient producers to earn profits if they supply only high quality goods.
A
Doomsday forecasts projecting that a consumable resource will soon be depleted, fail to account for Select one: a. the role of prices in conservation; as the supply of the resource decreases, the price increases and people will turn to alternative resources. CorrectCorrect b. public pressure to conserve usage of the resource. c. government regulation of the resource. d. supply and demand; as supply of a resource decreases, the demand will also decrease.
A
Economic growth is important because Select one: a. it increases the availability of goods and services, which are necessary for the achievement of higher living standards. CorrectCorrect b. it provides more jobs, and jobs are the key to higher living standards. c. of its adverse impact on the environment: if we do not halt economic growth, the environment will continue to deteriorate. d. it expands the tax base and makes it possible for the government to increase the supply of money needed to support higher living standards.
A
Economic progress comes about mainly through Select one: a. market prices that direct resource suppliers and producers toward production of goods that are highly valued relative to cost. CorrectCorrect b. a democratically elected government. c. centrally planned government investments. d. government programs that guarantee jobs.
A
Economics is primarily the study of Select one: a. how individuals make choices because of scarcity. CorrectCorrect b. how to succeed in business. c. how the values and preferences of people are formed. d. how to make money in the stock market.
A
Gains from trade are highest when: Select one: a. producers trade freely and on the basis of comparative advantage. CorrectCorrect b. an economy is closed to trade with others. c. production is based on government interests and not consumer values. d. tariffs, quotas and other trade restrictions are in place to protect domestic industries.
A
How will a reduction in the price of cotton influence the market for blue jeans? Select one: a. The cost of producing blue jeans will fall, and the supply curve for blue jeans will shift to the right. CorrectCorrect b. The cost of producing blue jeans will fall, and the supply curve for blue jeans will shift to the left. c. The cost of producing blue jeans will rise, and the supply curve for blue jeans will shift to the right. d. The cost of producing blue jeans will rise, and the supply curve for blue jeans will shift to the left.
A
If a nation is rich in natural resources, that nation will increase its wealth if Select one: a. it is willing to sell the resources to buyers offering the highest prices even if some of the buyers live in other countries. CorrectCorrect b. it keeps the resources for its own use and prevents them from being exported. c. the resources are transformed into products domestically even if the domestic producers of the products have high costs. d. the resources are protected and left untouched so they will be available for future generations.
A
If higher tariffs, such as those enacted by the Smoot-Hawley trade bill, reduce the imports of the United States, which of the following will be most likely to occur? Select one: a. U.S. exports will decline because foreigners will be earning fewer of the dollars needed to purchase goods and services from Americans. CorrectCorrect b. U.S. exports will increase because foreigners will want to buy more from U.S. producers. c. The unemployment rate of the United States will decline. d. U.S. employment will increase.
A
In a market economy, if the supply of oil declines relative to demand, Select one: a. oil prices will rise, increasing the incentive to conserve, discover new oil reserves, and develop alternative technologies. CorrectCorrect b. the price of gas will rise, and therefore price controls should be imposed in order to assure efficient allocation of petroleum resources. c. oil prices will fall, reducing the incentive to find new oil reserves and alternative technologies. d. it will only be a matter of time until we run out of oil.
A
In a market economy, the income you earn is determined Select one: a. by the market value of the productive resources you sell. CorrectCorrect b. by the U.S. Bureau of Labor Statistics. c. solely by your number of years of schooling. d. by a central planning committee.
A
Starting a new business takes much longer in some countries than in others. Which of the following statements is correct? Select one: a. This is due to regulations, which require people to get permission from several different regulatory authorities before starting a business. CorrectCorrect b. This is due to tariffs and quotas imposed by the United States. c. This is due to the structure of languages, as some languages make transactions more difficult than others. d. This is due to regulations imposed by Hernando de Soto.
A
Suppose the market equilibrium price of corn is $5 per bushel, and the government sets a price ceiling of $4 per bushel. What is the most likely result of this action? Select one: a. There will be a shortage of corn. CorrectCorrect b. There will be a decrease in the quantity of corn demanded as the result of the price ceiling. c. There will be a surplus of corn. d. There will be an increase in the quantity of corn supplied as the result of the price ceiling.
A
The Economic Freedom of the World index indicates that countries with more economic freedom Select one: a. grow more rapidly than those that are less free. CorrectCorrect b. have lower investment rates than those that are less free. c. have lower levels of per capita income than those that are less free. d. are mostly large countries with vast natural resources.
A
The construction and development of machines, buildings, and equipment that will produce consumer goods, is known as Select one: a. capital investment. b. consumption. c. creative destruction. d. capital flight. IncorrectIncorrect
A
The invisible hand principle indicates that individuals will have a strong incentive to Select one: a. cooperate with others by helping them in exchange for income. b. produce low quality goods because production of these goods will be more profitable. c. produce items for themselves and become self-sufficient in production. IncorrectIncorrect d. charge high prices for their services so they will be able to benefit at the expense of others.
A
The market price of a good, service or resource rests at equilibrium when Select one: a. the amount produced equals the amount purchased. CorrectCorrect b. there is a surplus but not a shortage. c. there is a shortage but not a surplus. d. quantity produced is greater than the quantity consumers want to purchase.
A
The opportunity cost of an action is Select one: a. the value of the best opportunity that was sacrificed because the action was taken. CorrectCorrect b. the total time spent by all parties in carrying out the action. c. the cost of all alternative actions that could have been taken, added together. d. the monetary payment the action required.
A
The success of self-employed entrepreneurs depends on Select one: a. an ability to discover and act on valuable opportunities overlooked by others. CorrectCorrect b. high personal consumption rates. c. the government and its investment in research and development. d. a strong need to stay with tried and true ways of doing things.
A
The supply curve of a good or service is Select one: a. the various amounts producers are willing to supply at alternative prices. CorrectCorrect b. the amount that is physically available for sale at any time. c. the amount producers are willing to supply at the equilibrium price. d. downward-sloping, illustrating a negative relationship between price and quantity supplied.
A
The table below indicates the benefits and costs associated with expansion in the scale of the clean-up efforts for a lake. Which of the four levels of clean-up would be most efficient? Policy Total Cost Total Benefit 1 $20,000 $80,000 2 $30,000 $95,000 3 $40,000 $110,000 4 $50,000 $115,000 Select one: a. Policy 3 because the net marginal benefits are positive as the project is expanded to this level, but negative thereafter. CorrectCorrect b. Policy 2 because the marginal benefits would be less than marginal costs if the scale of the operation was larger. c. Policy 4 because it generates the most total benefits. d. Policy 1 because it is the least costly.
A
To say that Canada has a comparative advantage in the production of wheat is similar to saying that Select one: a. Canada produces wheat at a lower opportunity cost than other countries. CorrectCorrect b. Canada produces more wheat than other countries. c. Canada uses less land to produce wheat than other countries. d. Canada pays farmers lower wages than other countries.
A
Under current legislation, Americans can place a fraction of their incomes into non-taxable, qualified college accounts. This policy _________ the incentive to save for college education. (Fill in the blank) Select one: a. increases CorrectCorrect b. decreases c. does not impact d. has an indeterminate impact on
A
What would be a secondary effect of increasing the tariff rate imposed on foreign-made automobiles? Select one: a. Fewer exports of U.S.-made goods and services b. Lower domestic prices of U.S.-made autos IncorrectIncorrect c. An increase in the imports of foreign-made automobiles d. An increase in employment in the United States, particularly in sectors other than the auto industry
A
When a minimum wage law forces employers to pay wages above the market equilibrium for unskilled workers, then Select one: a. unemployment among unskilled workers will rise. CorrectCorrect b. a shortage of unskilled workers will develop. c. the number of unskilled workers wanting to work will be less than the number employed. d. the employment of unskilled workers will increase.
A
When an externality exists, Select one: a. some of the benefits or costs of an action are enjoyed or suffered by people who did not consent to that action. CorrectCorrect b. a good is joint in consumption, and nonexcludable. c. the market for the good generating the externality will be less competitive. d. all of the benefits or costs of an action are enjoyed or suffered by people who agreed to that action. Feedback
A
When central planning replaces market forces, the political process will favor which type of firm? Select one: a. older and more politically-influential firms CorrectCorrect b. newer, growth-oriented firms c. small, privately-owned firms d. technologically-innovative firms
A
Public choice theory suggests politicians will be most likely to favor redistribution of income from Select one: a. middle-income taxpayers to both the rich and the poor. b. the rich to the poor. c. unorganized taxpayers to well-organized interest groups. CorrectCorrect d. well-organized businesses and labor groups to consumers.
C
When the government finances a job creation project through taxes or borrowing, Select one: a. the reduction in private sector employment will partially, if not entirely, offset the jobs created by government. CorrectCorrect b. private sector employment will increase, in addition to the jobs created by the government spending. c. if government employment increases, total employment must also increase. d. there is no effect on employment in the private sector.
A
When the government levies taxes to subsidize the producers of corn-based sugar, the subsidies will Select one: a. exert little impact on net employment because expansion of employment in corn production will be partially offset by less employment in other sectors as the result of the taxes. CorrectCorrect b. increase net employment and improve the efficiency of resource use. c. expand the output of a good that consumers value highly relative to cost. d. expand total employment if employment in the production of corn increases.
A
Which of the following describes the relationship between interest rates and interest-sensitive goods, such as housing? Select one: a. As interest rates decline, the demand for interest-sensitive goods increases. CorrectCorrect b. As interest rates increase, the demand for interest-sensitive goods increases, driving prices upward. c. As interest rates decline, the demand for interest-sensitive goods decreases. d. As interest rates increase, the demand for interest-sensitive goods decreases, driving prices upward.
A
Which of the following is a key element of the economic way of thinking? Select one: a. Incentives influence behavior in a predictable manner. CorrectCorrect b. Economic propositions can only be proven with the use of mathematics. c. Something that is true for the individual will also be true for the aggregate. d. Good intentions lead desirable outcomes.
A
Which of the following is an example of an externality that creates spillover benefits? Select one: a. When you take care of your house and lawn, your neighbors' property values rise. CorrectCorrect b. When you take a computer class that improves your skills, your income rises. c. When you take the bus to work, the bus produces pollutants that mostly harm other people. d. When a business uses regulations to drive out a competitor, it is able to raise prices and earn greater profits.
A
Which of the following is the best place to set funds aside for "surprise" expenditures? Select one: a. a savings account CorrectCorrect b. your regular checking account. c. ownership of real estate d. the stock market
A
Which of the following is true? Select one: a. There are good reasons to expect that majority voting will sometimes result in the approval of projects that are inefficient. CorrectCorrect b. If we want to get the most from our resources, the pricing of goods and allocation of investment should be decided by majority voting. c. In a representative democracy, majority voting will assure that approved projects are productive. d. Private firms can force their customers to pay for products they produce, but the government cannot do so.
A
Which of the following statements is true? Select one: a. Individuals will be better off if they are really good at something that is highly valued by others. CorrectCorrect b. Most millionaires are born rich. c. It is more difficult to be successful today because the world is running out of nonrenewable resources. d. Life is a lottery.
A
Which of the following will help you generate income and accumulate wealth? Select one: a. Budgeting in order to regularly contribute to savings and investments. CorrectCorrect b. Making only the minimum monthly payment on your outstanding credit card balances. c. Borrowing funds in order to increase your current consumption. d. Getting another credit card so you will have more borrowing power in the future.
A
Which of the following would be most likely to reduce budget deficits and special interest federal spending? Select one: a. a constitutional rule requiring the approval of three-fourths of the members of both Houses of Congress before the federal government is permitted to run a budget deficit CorrectCorrect b. Congressional control of the growth rate of the money supply c. an increase in tax rates d. a constitutional rule requiring the Federal Reserve to finance the budget deficits of the federal government by expanding the money supply
A
Who is most likely to face the highest finance charges? Select one: a. a person with a bad credit history and a lot of debt CorrectCorrect b. an employed individual who makes timely payments c. a customer who pays bills online d. a person who pays off a credit card balance each month
A
A monopoly is Select one: a. a cost imposed on people who did not consent to the action that created that cost. b. a market dominated by a single firm. CorrectCorrect c. a market dominated by ten or fewer firms. d. a government that imposes taxes that are too high.
B
A recent study by Isabel Sawhill and Ron Haskins of the Brookings Institution found that a person could reduce their chances of living in poverty from 12 percent to 2 percent by Select one: a. moving to states with higher minimum wages, joining a labor union, and obtaining better access to health care. b. completing high school (at a minimum), working full time, and getting married before having a child. CorrectCorrect c. lobbying more intensely for anti-poverty transfer payments. d. moving to states with higher minimum wages, having an annual health care check-up and reducing the number of children they have.
B
Assume there is an increase in the demand for fuel-efficient cars and a reduction in the demand for gas-guzzling vehicles. All other things equal, which of the following combinations below is correct? Price of Fuel-Efficient Cars Price of Gasoline Price of Gas-Guzzling Cars Select one: a. Increase Increase Increase b. Decrease Decrease Decrease c. Decrease Increase Increase IncorrectIncorrect d. Increase Decrease Decrease
B
Celina worked her way through law school as a typist. She now makes $200 per hour as a lawyer. As the result of a heavy workload, she hires a typist at $25 per hour, but Celina discovers she can type twice as fast as her new employee. Should Celina do her own typing? Select one: a. Yes, because it will cost less to do her own typing than to hire someone to do it. b. No, even though Celina types faster than her new employee, her opportunity cost of doing any given amount of typing will exceed that of her new employee. CorrectCorrect c. Yes, if she does not, she will waste the time invested developing her typing skills. d. Yes, if she can continue to type twice as fast as her new employee.
B
Financial insecurity in America is primarily the result of Select one: a. the huge amount of time and complex knowledge required for basic financial planning. b. a low rate of personal saving and poor financial planning. CorrectCorrect c. the low incomes of Americans. d. a shortage of financial planners and portfolio managers.
B
If a country with a centrally planned economy (such as Cuba or North Korea) were to convert to a market-based economy, the country would have to Select one: a. encourage people to become more selfish. b. develop a system of clearly defined property rights. CorrectCorrect c. increase taxes to develop public services. d. abandon government aid to poor people.
B
If a firm is going to be successful in a competitive market, it must Select one: a. eliminate all other competitors. b. offer consumers at least as much value per dollar as is available from rival firms. CorrectCorrect c. pay its employees low wages. d. be the largest firm in the market.
B
If government is going to promote gains from trade and economic progress, it must Select one: a. protect domestic firms from foreign competition. b. uphold a legal system that is unambiguous and nondiscriminatory. CorrectCorrect c. have substantial discretionary authority to make changes quickly. d. regulate entry into the market in order to make sure that efficient firms will be able to compete effectively.
B
In the invisible hand principle, the word invisible refers to the Select one: a. role of government central planners, which is largely unseen by the average person. b. directions provided by prices in competitive markets, which are largely taken for granted. CorrectCorrect c. behind the scene activities of large corporations, that quietly direct the allocation of resources. d. chaotic and unpredictable nature of a market economy.
B
Individuals with higher saving and investment rates will more likely Select one: a. earn poverty level incomes. b. have higher incomes in the future. CorrectCorrect c. have higher current consumption rates. d. experience financial difficulties.
B
It is costly to purchase a new car every two or three years because Select one: a. the maintenance cost of a new car is generally higher than for a used one. b. a new car will depreciate rapidly in value during the first few years of use. CorrectCorrect c. the gasoline tax for the fuel of a new car is generally higher than for a used one. d. the financing cost is significantly higher for a new car than for a used one.
B
Kelly is an architect and she is trying to decide whether to hire Mike, a draftsman, to assist with her work. Kelly could hire Mike at $20 per hour but it would take him three times as long to complete a task as it takes Kelly. Kelly is able to earn $90 per hour and has more architectural jobs than she is able to handle. Which of the following is true? Select one: a. Kelly should do the drafting work herself because she has the lower opportunity cost. b. Mike should be hired at the $20 per hour wage rate. CorrectCorrect c. Mike should be hired, but only if he is paid more than $30 per hour. d. Kelly should not hire Mike because it would be faster for her to do the work herself.
B
People who spend more time researching cars they may want to buy than researching the positions of Presidential candidates are Select one: a. illustrating that a good car is more important to society than a good President. b. demonstrating that time spent researching cars is more likely to improve their life than casting a well-informed vote for President. c. indicating that government policy exerts little or no impact on their life. d. irrational. Incorrect
B
Private entrepreneurs are likely to make better investment decisions than central planners because Select one: a. failure of a government project will reduce the personal wealth of the planners involved in the decision. b. the entrepreneurs who make mistakes must bear the costs of these mistakes personally. CorrectCorrect c. the entrepreneurs seek ever larger budgets, while planners will be more focused on cost reductions and efficiency. d. the entrepreneurs can often turn a project's failure into a request for additional funding to rectify the problem.
B
Professional sports teams will trade the services of players only if Select one: a. the additional wins of one of the teams more than offsets the additional losses of the other team. b. both teams expect to benefit from the trade. CorrectCorrect c. one of the teams is losing and therefore has no other option but to engage in a trade. d. one of the teams fails to recognize that they are being taken advantage of by the other.
B
Sound career decision-making involves Select one: a. finding the things you enjoy without regard for whether you do them well. b. figuring out the things you do best, enjoy, and find fulfilling. CorrectCorrect c. only monetary considerations. d. figuring out the things you do best without regard to whether you find them personally enjoyable or fulfilling.
B
The demand for a good refers to the amount of the good people Select one: a. need to achieve a minimum standard of living. b. are willing to buy at various prices. CorrectCorrect c. will buy at alternative income levels. d. would like to have if the good were free.
B
The experience of the 1930s indicates that substantial tax increases during a severe recession will result in Select one: a. an increase in the incentive to earn. b. a reduction in output and employment. CorrectCorrect c. smaller budget deficits, which will speed an economic recovery. d. an increase in tax revenues that will lead to a balanced budget. Feedback
B
The price of a good will tend to rise when Select one: a. there is excess supply of the good. b. there is excess demand for the good. CorrectCorrect c. the supply of the good increases. d. demand for the good decreases.
B
When policymakers impose price controls, they Select one: a. usually improve the efficiency of economic activity. b. distort the signals that normally guide the allocation of resources. CorrectCorrect c. demonstrate a willingness to sacrifice fairness in order to improve efficiency. d. are usually following the advice of mainstream economists.
B
Which of the following are scarce? Select one: a. pleasant working conditions b. all of the above CorrectCorrect c. low-cost housing d. free time for recreation
B
Which of the following is a risk associated with investing in bonds? Select one: a. If the firm issuing the bond goes bankrupt, bondholders may lose all or most of their investment. b. All of the above are risks associated with bond investments. CorrectCorrect c. Unanticipated inflation lessens the value of both principal and fixed-interest income. d. Increases in interest rates can reduce the market value of a bond.
B
Which of the following is the primary source of high earnings among physicians and surgeons in a market economy? Select one: a. a willingness to exploit workers and consumers b. the ability to provide others with things that they value highly CorrectCorrect c. a willingness to work hard even if you are not productive d. a willingness to engage in actions where you gain at the expense of others
B
Which of the following is true of central planning? Select one: a. Private investors risking their own money are likely to make better investment decisions than central planners. b. All of the above. CorrectCorrect c. Central planning merely substitutes politics for market verdicts. d. Central planners will be unable to acquire the information necessary to create, maintain, and update a plan that will allocate resources efficiently.
B
Which of the following is true of profits and losses? Select one: a. Profits indicate that the consumer is getting a bad deal, while losses indicate that the consumer values the product highly relative to its cost. b. Profits direct entrepreneurs toward production of goods that are highly valued relative to their cost, while losses direct them away from wealth-reducing activities. CorrectCorrect c. Profits indicate that the suppliers of resources are underpaid, while losses indicate they are overpaid. d. Profits indicate that the firm is charging prices that are too high, while losses indicate that the firm needs to raise its prices.
B
Which of the following is true? Select one: a. An ordinary person cannot expect to earn an attractive return from investments in stocks unless they are willing to engage in intense stock market research. b. Indexed equity mutual funds allow the ordinary investor to earn the attractive long-term returns yielded by stocks. CorrectCorrect c. Historically, bonds have generally earned a higher rate of return than equity investments. d. Equity mutual funds managed by professionals have generally outperformed indexed equity mutual funds.
B
Which of the following is true? Select one: a. Entrepreneurs are under-represented among millionaires. b. Successful entrepreneurs are good at discovering profitable opportunities that have been overlooked by others. CorrectCorrect c. All of the above are true. d. The parents of successful entrepreneurs almost always have at least a college education.
B
Which of the following statements is correct? Select one: a. If the buyer of a good gains, the seller must lose an equal amount. b. Opportunity costs will always be incurred when scarce resources are used to produce a good. CorrectCorrect c. The value of goods is objective; it is equal to the cost of supplying the good. d. Changes in incentives generally have no effect on human behavior.
B
Which of the following would cause an increase in the price of gasoline and an expansion in the equilibrium quantity? Select one: a. A recession that substantially reduces the income of households. b. An increase in the popularity and use of sport utility vehicles (SUVs) that consume a lot of gasoline per mile driven. CorrectCorrect c. An increase in the price of crude oil, a key ingredient required for the production of gasoline. d. The introduction of a miracle carburetor that substantially improves the gas mileage of automobiles
B
Which of the following would cause an increase in the price of gasoline and an expansion in the equilibrium quantity? Select one: a. the introduction of a miracle carburetor that substantially improves the gas mileage of automobiles b. an increase in the popularity and use of Sport Utility Vehicles that consume a lot of gasoline per mile driven CorrectCorrect c. a recession that substantially reduces the income of households d. an increase in the price of crude oil, a key ingredient required for the production of gasoline
B
n a market economy, why will some people earn higher incomes than others? Select one: a. The higher incomes reflect the market power of people who have formed unions and monopolies. b. The high earners find ways to provide valuable goods and services to others in exchange for income. CorrectCorrect c. The high earners focus only on themselves rather than providing others with goods and services of value. d. The high earners exploit workers by paying them only low wages and exploit consumers by charging them high prices.
B
When an American buys a good from someone in China rather than buying the good from an American, which of the following is true? Select one: a. the American is worse off when he or she buys from a person in China, but the person in China is better off. b. Both trading partners benefit from voluntary exchange, regardless of their nationality. CorrectCorrect c. both trading partners are worse off when an American buys from someone in China, but better off when an American buys from another American. d. both trading partners are better off when an American buys from someone in China, but worse off when an American buys from another American.
B
A nation benefits from international trade if it Select one: a. imports more than it exports. b. imports goods for which it is a low opportunity cost producer. c. exports goods for which it is a low opportunity cost producer. CorrectCorrect d. exports more than it imports.
C
A prudent person is most likely to find the use of financing attractive when purchasing which one of the following items? Select one: a. entertainment b. rental housing c. a college education CorrectCorrect d. clothes
C
Brazil spent billions of dollars to host the Soccer World Cup and the Summer Olympics. The opportunity cost of hosting these events is Select one: a. the monetary cost expressed in reals (Brazilian currency). b. the opportunity to host these events in the future. c. the next best alternative bundle of goods and services that could be provided. CorrectCorrect d. increased taxes to pay for the events.
C
Credit cards Select one: a. make it easy for people to borrow funds at a low rate of interest. b. are just like money because funds can be used to purchase things up to the credit limit. c. make it easy for people to run up sizeable debt. CorrectCorrect d. can help you get more from your money because they make it possible for you to spend more than you earn.
C
Despite being a college graduate, Jack Adams cannot name any of his representatives in Congress and he has no idea which issues are being debated and voted on this week in Congress. According to public choice analysis, Jack is Select one: a. considering only the welfare of society and not his own personal interests. b. not intelligent enough to understand the issues. c. making a rational personal choice because knowing these things gives him little personal benefit. CorrectCorrect d. irrational.
C
Diversification puts the law of large numbers to work for you because it Select one: a. eliminates all asset risk. b. increases the chance that a single bond will substantially improve the overall performance of your portfolio. IncorrectIncorrect c. lowers the chance that a reduction in the market value of a single asset like a corporate stock will significantly reduce your overall portfolio return. d. reduces tax liabilities on earned dividends.
C
Given your knowledge of the incentives created by private ownership, which of the following statements is true? Select one: a. People will take better care of a rental home than one they own. b. People will take better care of a rental car than they will the one they own personally. c. People will be more likely to pick up dog droppings in their front lawn than in a common area. CorrectCorrect d. Property owned publically or in common will tend to be better conserved and kept than private property.
C
Governments encourage lobbying and favor seeking when they Select one: a. impose user charges that force individuals and businesses benefiting from government services to also pay the cost of the services. b. protect property rights and enforce contracts in an evenhanded manner. c. are heavily involved in the granting of subsidies and tax breaks that favor some segments of the population at the expense of others. d. provide government employees with compensation similar to what they could earn in the private sector.
C
Harold, a delivery man, washes and irons his own shirts. Sarah, his boss, sends her clothes to a laundry. Which is the most plausible economic explanation for this difference? Select one: a. The opportunity cost of ironing is greater for Harold. b. Harold must be better at ironing than Sarah is. c. Sarah has a higher opportunity cost of laundering her clothes than Harold does. CorrectCorrect d. Harold must enjoy ironing more than Sarah does.
C
How do marginal tax rates influence consumption decisions? Select one: a. As marginal tax rates rise people will purchase fewer tax-deductible goods. b. As marginal tax rates fall people will purchase more tax-deductible goods. c. As marginal tax rates rise people will purchase more tax-deductible goods. CorrectCorrect d. Marginal tax rates do not influence the incentive to purchase tax-deductible goods.
C
If an investor's primary stock holding is currently Exxon Mobil, the purchase of which of the following stocks would provide the investor with the largest reduction in risk? Select one: a. Texaco b. Chevron c. Wal-Mart CorrectCorrect d. Shell Oil Corporation
C
If people work fewer hours, retire early, or forego risky business ventures because of high marginal tax rates, Select one: a. unproductive workers and projects are avoided, leading to an increase in productivity. b. these workers are simply replaced by other workers, resulting in no real change in output. c. the size and productivity of the labor supply will be reduced and output will decline. CorrectCorrect d. the decrease in output will be offset by the increase in tax revenue and the corresponding output of government services.
C
If students who earn an A in a class were asked to transfer some of their points to low-performing students, which of the following would be most likely to occur? Select one: a. The overall academic performance of the students would increase. b. Low-performing students would work harder to earn additional points, but this would be partially offset by a decline in the work effort of the high-performing students. c. Neither high nor low-performing students would work as hard to earn additional points. CorrectCorrect d. Both high and low-performing students would work harder to earn additional points.
C
If the construction of a bridge project creates benefits of $20 billion while the cost is $15 billion to construct, this indicates the project Select one: a. will decrease the welfare of society. b. is counter-productive. c. should be built. CorrectCorrect d. should not be built.
C
If you are using a credit card prudently, you should Select one: a. make only the minimum payment each month. b. pay only the interest on any outstanding balance. c. pay the balance in full each month. CorrectCorrect d. gradually expand the amount borrowed to the card's credit limit.
C
In general, people trade with each other because Select one: a. it decreases economies of scale. b. it increases tax revenue. c. it allows them to give up something they value less, in exchange for something they value more. CorrectCorrect d. it allows them to socialize.
C
Increases in per capita GDP are Select one: a. not important, as governments take the increased output and waste it. b. important, because it means governments have more resources. c. important, because they generally improve our living standards. CorrectCorrect d. not important, because increases in per capita GDP do not affect our living standards
C
Individuals are more likely to engage in productive activities when institutions and policies Select one: a. are used to centrally plan the economy. b. result in high and variable rates of inflation. c. create a fair and unbiased judicial system. CorrectCorrect d. transfer a large share of income through the political process.
C
Individuals are more likely to engage in productive activities when institutions and policies Select one: a. transfer a large share of income through the political process. b. result in high and variable rates of inflation. c. create a fair and unbiased judicial system. CorrectCorrect d. are used to centrally plan the economy.
C
Investments and improvements in technology are primarily the result of Select one: a. large-scale government investments. b. corporate monopolies that can innovate without being under pressure from competition. c. the actions of entrepreneurs who take risks in the hope of profit. CorrectCorrect d. government subsidies that make it possible for businesses making losses to continue operating.
C
Natalie Stanton is the president of the Association to Preserve Our Future. She states that "only the government has the ability to preserve scarce resources for future generations." Use the economic way of thinking to evaluate her statement. Select one: a. Ms. Stanton is wrong because government workers aren't as smart as people who work in the private sector. b. Ms. Stanton is correct because government cares for all the people, not just rich people. c. Ms. Stanton is wrong because private ownership of property creates incentives to conserve resources for the future. CorrectCorrect d. Ms. Stanton is correct because while the private sector does a good job of producing goods and services, it has a poor record of conserving resources for the future.
C
Standby passengers on airlines who pay low rates for seats benefit from the low price. How are the airlines affected? Select one: a. They gain as long as the price paid by the standby passengers exceeds the average cost of providing the seats. b. They lose, because the gain of the standby passengers must necessarily come at the expense of the airline. c. They benefit as long as the additional revenue derived from the standby passengers exceeds the marginal cost. CorrectCorrect d. They lose, because the standby passengers do not cover the full cost of the seats.
C
The argument that import restrictions save jobs and promote prosperity fails to recognize that Select one: a. import restrictions cannot create jobs in any industry. b. import restrictions will lower prices in the protected industries. c. U.S. imports provide people in other countries with the purchasing power required for the purchase of U.S. exports. CorrectCorrect d. there are no secondary effects of import restrictions.
C
The interest rates on outstanding credit card balances are generally high because Select one: a. the administrative costs associated with these loans are low. b. there is little competition in this lending market. c. the default rate on credit card loans is high and there are no assets backing these loans. CorrectCorrect d. the banks price gouge consumers in this market.
C
The miracle of compound interest is best described by which of the following? Select one: a. Interest is paid only on the original principal deposited in an account. b. Interest is paid on the prior interest earned, but not the principal. c. Interest is paid on the principal plus the prior interest earned. CorrectCorrect d. Interest is paid on any currency held in your pockets.
C
The opportunity cost of building a civic center in your hometown would be the Select one: a. money cost of constructing the civic center. b. expenditures on events held at the civic center after its construction. c. highest valued bundle of other goods and services that must be forgone because of the civic center construction. CorrectCorrect d. necessary increase in tax revenues to finance the civic center construction.
C
The random walk theory indicates that Select one: a. future movements of stock prices are predictable. b. all of the above are true. c. changes in stock prices are driven by surprise occurrences. CorrectCorrect d. the expected future earnings of a company will not impact the current price of the company's stock.
C
Volatility in the inflation rate will undermine prosperity because Select one: a. people will save more and there will be less money available for investment. b. foreign investors will undertake more investment activity and keep a larger share of the wealth. c. it will generate uncertainty and therefore individuals will spend less time producing and more time attempting to protect their wealth against inflation and the fluctuations in the value of the currency. CorrectCorrect d. businesses will focus more on long term projects rather than short term projects.
C
When the nation of Duxembourg allows trade and as a result becomes an importer of software, Select one: a. residents who produce software become better off; residents who buy software become worse off; and the economic well-being of Duxembourg falls. b. residents who produce software become better off; residents who buy software become worse off; and the economic well-being of Duxembourg rises. c. residents who produce software become worse off; residents who buy software become better off; and the economic well-being of Duxembourg rises. CorrectCorrect d. residents who produce software become worse off; residents who buy software become better off; and the economic well-being of Duxembourg falls.
C
When you pay for items that are consumed immediately or wear out quickly by financing them with your credit card, your wealth Select one: a. expands. b. is non-taxable. c. decreases. CorrectCorrect d. is saved for future use.
C
Which of the following is an example of regulations restricting entry into a market? Select one: a. Customers prefer Apple smartphones to Microsoft smartphones, so Microsoft sells very few smartphones. b. Occupational licenses are not required for economists, and therefore anyone can call him or herself an economist. c. Uber seeks to compete with local taxis and buses to provide transportation, but local transportation regulations require Uber to comply with costly regulations that make it less attractive to customers. CorrectCorrect d. Standard Oil has innovative refinery technology which gives it a cost advantage over competing oil refineries.
C
Which of the following quotation best describes the operation of a market economy? Select one: a. "In the long run we are all dead." b. "From each according to his abilities; to each according to his needs." c. "Markets reward people who supply things others value highly relative to cost." CorrectCorrect d. "The rich are different from you and me; they have more money."
C
Which of the following would be most likely to improve the efficiency of the capital market? Select one: a. taxes that reduce the level both of saving and investment b. the allocation of capital based on political influence c. a legal system that clearly defines and enforces property rights CorrectCorrect d. an increase in the authority of elected representatives to determine which investment projects should be undertaken
C
Which of the following would most likely increase the demand for pizza? Select one: a. The introduction of a new menu item that consumers think is a great substitute for pizza b. Crop failures that raise the price of flour IncorrectIncorrect c. An increase in income d. The discovery that excessive consumption of pizza is harmful to one's health
C
Why is there little incentive for legislators to fight for an overall reduction in government spending? Select one: a. Spending cuts will only benefit the constituents of the legislators who favor them. IncorrectIncorrect b. Spending cuts are always followed by tax increases, which voters do not like. c. If a legislator is able to achieve overall spending cuts, most of the benefits will accrue to voters in other districts. d. Spending cuts will not reduce the overall cost of government.
C
Which of the following would lead to an increase in the demand for rental apartments in your area? Select one: a. a reduction in the rental price of apartments b. an increase in the cost of the materials used to construct apartment units. c. a sharp increase in the number of out-of-town students attending the local college CorrectCorrect d. an increase in unemployment and reduction in the income of people in your area
C
A marginal change usually is a Select one: a. change for the worse, and so it is usually a short-term change. b. change that involves little, if anything, that is important. c. large, significant adjustment. d. small, incremental adjustment. Correct
D
A marginal change usually is a Select one: a. large, significant adjustment. b. change that involves little, if anything, that is important. c. change for the worse, and so it is usually a short-term change. d. small, incremental adjustment. CorrectCorrect
D
A price ceiling set below an equilibrium price tends to cause persistent imbalances in the market because Select one: a. quantity supplied exceeds quantity demanded but price cannot fall to remove the surplus. b. quantity supplied exceeds quantity demanded but price cannot rise to remove the shortage. c. quantity demanded exceeds quantity supplied but price cannot fall to remove the surplus. d. quantity demanded exceeds quantity supplied but price cannot rise to remove the shortage.
D
What is the invisible hand that coordinates the actions of individuals referred to by Adam Smith? Select one: a. government policies. b. the vast coordination of citizens voting in democratic elections. c. individuals who put aside their own self-interest for the general welfare. d. market prices. CorrectCorrect
D
Can U.S. workers effectively compete with foreigners who make as little as $2 or $3 per day? Select one: a. No, U.S. production would increase if the low wage jobs were kept for U.S. workers. b. No, because the U.S. will continually lose jobs to foreign workers who are willing to accept lower wages. c. Yes, but only with the aid of minimum wage requirements and trade restrictions. d. Yes, because wages reflect productivity and the greater productivity in the U.S. is the source of the higher wages.
D
Entrepreneurs are vitally important for economic progress because they Select one: a. stick with the tried and true methods rather than experimenting with new ways of doing things. b. rely on government grants and subsidies for the funding of research and development. c. rely on price controls to determine the prices charged for the items they bring to market. d. innovate and discover new ways of bringing items of value to consumers willing to pay for them.
D
Firms will exit an industry and the remaining firms will contract the scale of their operations when Select one: a. consumers are unaware of substitutes and therefore pay too much for the products. b. the value of the product is more than the value of the resources required for its production. c. the world economy is healthy and prosperous. d. economic losses are present. CorrectCorrect
D
Governments are most likely to discourage plunder and promote economic prosperity when they Select one: a. pay high wages and employ a large share of the labor force. b. manage the economy by imposing regulations, and granting subsidies and tax breaks that favor business. c. impose heavy taxation on the rich in order to finance sizeable transfer payments to other segments of the population. d. are neutral among the citizenry, protect property rights, and enforce contracts in an evenhanded manner. Correct
D
Henry Hazlitt believed that when analyzing an economic proposal, the most common source of economic error was Select one: a. the failure of a proposal to clearly define the beneficiaries. b. the lack of adequate political support backing a proposal. c. the lack of quantifiable data backing up a proposal. d. the failure to consider long-run results and secondary consequences. CorrectCorrect
D
High transaction costs will tend to Select one: a. increase the number of mutually beneficial exchanges that occur. b. allow easier specialization according to the law of comparative advantage c. increase the value created by exchanges in an economy. d. reduce the number of mutually beneficial exchanges that occur.
D
How does the invisible hand principle explain why self-interested individuals will generally pursue activities that benefit others? Select one: a. Social Good will result from products or services made available to others, even if sellers reduce their output so they will be able to charge excessively high prices. b. Social pressure from fellow citizens will cause most individuals to pursue activities that benefit others rather than earning profit and income. c. The invisible hand will cause a certain percentage of individuals to put aside their own self-interest and pursue activities that benefit others. d. The pursuit of profit and income gives individuals a strong incentive to provide goods and services that are highly valued by others. CorrectCorrect
D
If the Federal Reserve is going to establish an environment for economic growth and prosperity, it should focus on Select one: a. monetary expansion in order to reduce unemployment. b. keeping short-term interest rates low in order to stimulate real output and economic growth. c. providing the U.S. Treasury with funds to finance budget deficits. d. keeping inflation low and the general price level relatively stable. CorrectCorrect
D
It makes sense for you to channel funds regularly into a "real world" savings account so you will Select one: a. have funds for a catastrophic expense that is likely to occur only once or twice during your lifetime. b. have these funds during your retirement years. c. be prepared to purchase items like gasoline and food that you buy regularly. d. be prepared to deal with expenses like repairs that you know will occur in the future. CorrectCorrect
D
Lobbying efforts that erect roadblocks that limit entry into markets, Select one: a. are necessary to ensure fair trade and competition. b. are generally ineffective and therefore they do not influence the level of productive activity. c. result in legislation that promotes economic growth and saves jobs. d. consume valuable resources that could have been used for productive activities. Correct
D
Other things constant, which of the following would most likely cause the supply of garden hoses to decrease? Select one: a. A technological advance that lowers the cost of producing garden hoses. b. The occurrence of a very dry year with little rain. c. A decrease in the price of grass seed. d. An increase in the price of plastic used to make garden hoses. CorrectCorrect
D
Since 1871, the average rate of return for stock holdings, adjusted for inflation, has been approximately Select one: a. 2.7 percent. b. 30 percent. c. 15 percent. d. 7 percent. CorrectCorrect
D
The invisible hand principle indicates that competitive markets can help promote the efficient use of resources Select one: a. only if buyers and sellers really care, personally, about economic efficiency. b. even if business firms fail to produce goods efficiently. c. if, and only if, businesses recognize their social obligation to keep costs low and use resources wisely. d. even when each market participant cares only about their own self interest rather than about the overall efficiency of resource use. CorrectCorrect
D
The main postulate of economics is based on the premise that Select one: a. people act only out of selfish motives. b. most human behavior is unpredictable. c. people are always fully informed when making choices. d. changes in personal benefits or costs of an action influence behavior in predictable ways. CorrectCorrect
D
Under a system of private property, could a 60-year-old owner of a tree farm benefit by planting and caring for a crop of Douglas firs, most of which will not be ready to harvest for 50 years? Select one: a. No, the value of the land will decline since the farmer is taking it out of production for the next 50 years. b. Yes, but only if the project is subsidized by the government or private conservation groups. c. No, the farmer will be dead before the crop will be ready for harvest. d. Yes, the farmer will benefit from increased valuation of the land as the trees grow and the harvest moves closer. CorrectCorrect
D
What is the main benefit derived from production of goods and services? Select one: a. Production creates jobs for workers and this will automatically lead to higher living standards. b. More production means higher tax revenues for the government. c. More production means higher profits for businesses. d. Production of goods and services people value makes higher living standards possible
D
When rent control pushes the price of apartments below the market equilibrium, then Select one: a. the scarcity of apartments will be eliminated. b. a surplus of apartments will emerge. IncorrectIncorrect c. everyone who would like a rent-controlled apartment will be able to find one. d. a shortage of the apartments will develop. Feedback
D
Which of the following describes the relationship between interest rates and interest-sensitive goods, such as housing? Select one: a. As interest rates decline, the demand for interest-sensitive goods decreases. b. As interest rates increase, the demand for interest-sensitive goods increases, driving prices upward. c. As interest rates increase, the demand for interest-sensitive goods decreases, driving prices upward. d. As interest rates decline, the demand for interest-sensitive goods increases. CorrectC
D
Which of the following economic environments is most consistent with economic growth and prosperity? Select one: a. Widespread use of government subsidies, tax breaks, tariffs and quotas that favor some businesses relative to others b. Monetary policy that keeps interest rates low in order to push the prices of assets upward c. Central planning that directs resources into the production of goods and services in targeted industries d. Open markets and a legal system that enforces contracts in an even-handed manner CorrectCorrect
D
Which of the following factors explains why the incentive of public sector managers to operate agencies and enterprises efficiently is weak? Select one: a. The salaries of public sector managers are closely tied to the profitability of the firm or agency they operate. b. It is relatively easy for voters to detect operational inefficiency in the public sector and take action to correct it. c. Government agencies and enterprises face fierce competition. d. Public-sector managers have no fear of losses and bankruptcy when operational efficiency is not achieved.
D
Which of the following has made it possible for investors without any special business skills to benefit from the ownership of corporate America? Select one: a. all of the above b. an increased tendency of small investors to buy and sell stock frequently c. the virtual disappearance of business failures among corporations with publicly traded stock shares d. the availability of mutual funds, which make it possible for even small investors to purchase a diverse stock portfolio at a low cost CorrectCorrect
D
Which of the following is a private owner prohibited from doing? Select one: a. erecting a fence designed to keep others from using the property b. painting the property a color that others do not like c. selling the property to another person d. using the property in a manner that invades or infringes on the property of another CorrectCorrect
D
Which of the following is a reason why the political process sometimes results in inefficient or counter-productive outcomes? Select one: a. Voters are generally well-informed about candidates and policies. b. The majority can be counted on to adopt productive policies even when they impose large costs on minorities. IncorrectIncorrect c. The political process makes it possible for each voter to have the policy they want, rather than a one-size-fits-all policy. d. Politicians have a strong incentive to support policies favored by well-organized interest groups.
D
Which of the following is most important if money is going to promote trade and act as an efficient means of exchange? Select one: a. regulation of its value by elected political officials b. rapid growth in the supply of money c. frequent changes in monetary policy in response to changing economic conditions IncorrectIncorrect d. the stability of its purchasing power across time periods
D
Which of the following is the best example of a protective function of government? Select one: a. Provision of free health care to the poor and elderly. b. Imposition of price ceilings on essential goods and services. c. Imposition of price controls on natural resources. d. Unbiased enforcement of contracts and protection of property rights. CorrectCor
D
Which of the following is the most likely result of a quota that limits the importation of steel into the United States? Select one: a. a reduction in the cost of producing goods that utilize steel as a resource b. an increase in U.S. exports of steel IncorrectIncorrect c. a reduction in the price of steel in the U.S. market d. a reduction in output and employment in domestic industries that utilize steel as a resource
D
Which of the following is the most likely result of a rapid increase in the money supply? an increase in the inflation rate fewer beneficial exchanges fewer investments in capital projects Select one: a. II only b. I and III c. I only IncorrectIncorrect d. I, II, and III
D
Which of the following is true of profits and losses? Select one: a. Profits indicate that the consumer is getting a bad deal, while losses indicate that the consumer values the product highly relative to its cost. b. Profits indicate that the firm is charging prices that are too high, while losses indicate that the firm needs to raise its prices. c. Profits indicate that the suppliers of resources are underpaid, while losses indicate they are overpaid. d. Profits direct entrepreneurs toward production of goods that are highly valued relative to their cost, while losses direct them away from wealth-reducing activities. CorrectCorrect
D
Which of the following items would be least prudent to purchase on credit Select one: a. an automobile b. a house c. a college education d. a vacation
D
Which of the following most accurately illustrates the impact of price incentives? Select one: a. The price of a product is unable to bring quantity demanded and quantity supplied into balance. b. As the price of a product rises, suppliers will be less willing to produce that product. c. People usually buy products regardless of price. d. Consumers will adjust the amount they purchase in response to changes in prices. Correct
D
Which of the following most clearly performs the function of a middleman? Select one: a. a middle infielder for a professional baseball team b. the Internal Revenue Service c. an Iowa corn farmer d. eBay CorrectCorrect
D
Which of the following statements is good investment advice? Select one: a. Invest most funds in government bonds. IncorrectIncorrect b. Invest most funds in 30-year corporate bonds. c. Do not invest until you have paid off the mortgage on your house. d. Hold a large number of unrelated assets.
D
Which of the following will increase the national debt? Select one: a. a budget surplus b. an increase in tax revenues c. an increase in the money supply d. a budget deficit
D
Why do individuals have a strong incentive to develop skills that enhance their productivity? Select one: a. More productive people are generally more greedy. b. Hard work will guarantee success. c. Higher productivity will make it possible for you to work more hours. d. Increased productivity will generally lead to higher earnings. Correct
D
Why is the market process more likely to approve productive, and reject unproductive, projects than the political process? Select one: a. In the market, a project will earn a profit regardless of whether people value it. b. When the political process is used, legislators have a strong incentive to oppose unproductive projects favored by well-organized interest groups. c. When the political process is used, if a project is favored by the majority, it must be productive. d. In the market, projects will continue to be undertaken only if they generate revenues that are sufficient to cover their costs.
D
The good news about the relationship between "success attitudes" such as honesty, dependability, and an ability to work with others is Select one: a. large employers do not really care about these attitudes. b. if you do not have these attitudes, it will not significantly affect your earning opportunities. c. almost everyone already has these attitudes. d. you can choose these attitudes, even if you have a difficult or disadvantaged background.
D
