Chapter 1 Quiz Ten Principles of Economics

Macroeconomics Module 1 Chapter 1 Quiz 1. Which of the following involves a trade-off? e. All the above involve trade-offs. 2. Trade-offs are required because wants are unlimited, and resources are c. scarce. 3. Economics is the study of how a. society manages its scarce resources. 4. A rational person does not act unless d. the action produces marginal benefits that exceed marginal costs. 5. Raising taxes and increasing welfare payments d. improves equality at the expense of efficiency. 6. Suppose you find $20. If you choose to use the $20 to go to the football game, your opportunity cost of going to the game is c. $20 (because you could have used the $20 to buy other things) plus the value of your time spent at the game. 7. Foreign trade a. allows a country to have a greater variety of products at a lower cost than if it tried to produce everything at home. 8. Because people respond to incentives, we would expect that if the average salary of accountants increases by 50 percent while the average salary of teachers increases by 20 percent, a. students will shift majors from education to accounting. 9. Which of the following activities is most likely to produce an externality? b. A student has a party in her dorm room. 10. Which of the following products would be least capable of producing an externality? d. Food 11. Which of the following situations describes the greatest market power? a. Microsoft's impact on the price of desktop operating systems 12. Which of the following statements is true about a market economy? a. Market participants act as if guided by an "invisible hand" to produce outcomes that promote general economic well-being. 13. Workers in the United States enjoy a high standard of living because d. workers in the United States are highly productive. 14. High and persistent inflation is caused by d. governments increasing the quantity of money too much. 15. In the short run, b. a decrease in inflation temporarily increases unemployment. 16. An increase in the price of beef provides d. information that tells producers to produce more beef. 17. You have spent $1,000 building a hot dog stand based on estimates of sales of $2,000. The hot dog stand is nearly completed, but now you estimate total sales to be only $800. You can complete the hot dog stand for another $300. Should you complete the hot dog stand? (Assume that the hot dogs cost you nothing.) c. Yes. 18. Referring to question 17, your decision rule should be to complete the hot dog stand if the cost to complete the stand is less than d. $800. 19. Which of the following is not part of the opportunity cost of going on vacation? a. the money you spent on food 20. Productivity can be increased by b. improving the education of workers.