Chapter 1

5. Most individuals choose careers in which they specialize in producing only one type of good or service, yet as consumers they have access to a wide variety of goods and services. What principle allows for this? a. trade b. equity c. scarcity d. opportunity cost

A. Trade

8. Exchanges taking place in a market system: a. are voluntary. b. are inefficient. c. will benefit one party at the expense of another. d. are monitored by the government to ensure that scarce resources are being used wisely.

A. are voluntary

13. An economy is ________ if it has exploited all opportunities to benefit someone without making anyone else worse off. a. efficient b. equitable c. wealthy d. failing

A. efficient

15. An equilibrium outcome is one in which: a. no one has as incentive to change his or her decisions or behavior. b. there is no scarcity. c. there is no opportunity cost. d. the distribution of wealth is fair

A. no one has as incentive to change his or her decisions or behavior.

20. If market failures exist, it becomes more economically efficient for: a. the government to intervene to improve society's welfare. b. people just to ignore the problem. c. for the government to eliminate all market transactions. d. for all citizens to immigrate to a country where the market failure does not exist

A. the government to intervene to improve society's welfare.

17. Market failure results when: a. the pursuit of individual self-interest leads to bad results for society as a whole. b. the market fails to create an equal distribution of wealth. c. the market fails to create an equal distribution of income. d. the market fails to eliminate scarcity.

A. the pursuit of individual self-interest leads to bad results for society as a whole.

3. Economists generally agree that people are most likely to change their behavior when they: a. are asked to do so voluntarily. b. are given incentives to do so. c. live in a world without scarcity. d. live in a world without opportunity costs.

B. are given incentives to do so.

9. The condition of scarcity means that: a. when the government produces something, there is no opportunity cost. b. choices must be made in the allocation of productive resources. c. you will not incur an opportunity cost if you make the right choice. d. only a command economy can make efficient use of resources.

B. choices must be made in the allocation of productive resources.

6. In his book The Wealth of Nations, Adam Smith used the example of pin-making to illustrate the advantages of: a. equity. b. specialization. c. marginal analysis. d. interaction of choices.

B. specialization

14. Economic theory asserts that people will behave in ways that: a. will be unfair to others. b. will enhance their own overall well-being. c. will not take advantage of opportunities for self-improvement. d. do not follow generally predictable patterns.

B. will enhance their own overall well-being.

16. Which one of the following statements is not true of a market economy? a. Productive resources are scarce. b. Every choice involves an opportunity cost. c. A central planning authority makes decisions about production and consumption. d. People will respond to incentives.

C. A central planning authority makes decisions about production and consumption.

4. With which one of the following statements would economists be most likely to agree? a. When transactions occur voluntarily, the seller gains and the buyer loses. b. Market economies generate economic growth, but they do not promote efficiency. c. People usually exploit opportunities to make themselves better off. d. If people make wise decisions, they can avoid incurring any opportunity cost.

C. People usually exploit opportunities to make themselves better off.

10. The purpose of an economic system is to: a. eliminate scarcity. b. protect the environment. c. allocate scarce resources. d. create an equal distribution of wealth.

C. allocate scarce resources.

18. Adam Smith used the idea of the invisible hand to refer to the ability of market economies to: a. recover from recessions. b. solve the problem of market failure. c. harness the power of individual self-interest for the good of society as a whole. d. convince people that society is better off if its members sacrifice their own self-interest for the cause of the greater good.

C. harness the power of individual self-interest for the good of society as a whole.

11. The focal point of economic inquiry is: a. the stock market. b. the value of the dollar. c. individual choice. d. business ethics.

C. individual choice.

1. With which one of the following statements would economists be most likely to disagree? a. People respond to incentives. b. Making a choice involves an opportunity cost. c. Markets move towards equilibrium. d. Resources and inputs used in production are unlimited.

D. Resources and inputs used in production are unlimited.

12. An economic system is in ________ when no individual would be better off by making a different choice. a. chaos b. decline c. jeopardy d. equilibrium

D. equilibrium

2. Macroeconomics is the branch of economics studying: a. how prices are determined. b. why trade-offs exist. c. how decisions are made at the margin. d. fluctuations in the overall level of business activity.

D. fluctuations in the overall level of business activity.

19. After finishing high school, LeBron James decided to enter the NBA rather that going to college to begin his studies to become a doctor. This choice between the two careers can best be described by: a. equilibrium. b. scarcity. c. market failure. d. opportunity cost.

D. opportunity cost.

7. An opportunity cost arises: a. only when a monetary cost is incurred. b. only when a time cost is incurred. c. only when the wrong decision is made. d. whenever any choice is made.

D. whenever any choice is made.