Question 1

Which of the following best illustrates the concept of opportunity cost?

Accepted Answer

Choosing to spend an evening studying instead of going to a concert, thereby missing out on the enjoyment of the concert.

Question 2

A government program that redistributes income from the wealthy to the poor is most likely to:

Accepted Answer

Increase equality but potentially decrease efficiency.

Question 3

Suppose you have already spent $$1000 repairing your car. The transmission fails and will cost 600 to $$fix. If the car is worth $$6500 with a working transmission and 5700 $$without, what should you do?

Accepted Answer

Repair the transmission because the benefit ($$800) exceeds the cost (600).$$

Question 4

Which of the following is an example of a positive incentive?

Accepted Answer

A company offers a bonus to employees who exceed sales targets.

Question 5

According to the principle that 'rational people think at the margin,' which decision is most rational?

Accepted Answer

A student decides to study one more hour if the expected improvement in their grade outweighs the value of an hour of leisure.

Question 6

Which of the following is a likely unintended consequence of a government price ceiling on gasoline?

Accepted Answer

A shortage of gasoline as quantity demanded exceeds quantity supplied.

Question 7

Which of the following best describes the 'invisible hand' as proposed by Adam Smith?

Accepted Answer

Self-interested actions of individuals can lead to positive outcomes for society through the price system.

Question 8

Which scenario is an example of market failure?

Accepted Answer

A factory pollutes a river, harming nearby residents who are not compensated.

Question 9

Why does productivity play a crucial role in determining a country's standard of living?

Accepted Answer

Higher productivity allows more goods and services to be produced per worker, increasing average income.

Question 10

If the government rapidly increases the money supply, what is the most likely long-term effect?

Accepted Answer

An increase in the general price level (inflation).

Question 11

During a recession, college enrollment tends to increase. Which economic principle does this illustrate?

Accepted Answer

People respond to changes in opportunity cost.

Question 12

Which of the following is NOT a cause of market failure?

Accepted Answer

Perfect competition among many small firms.

Question 13

Suppose a country can produce either 100 units of wheat or 50 units of steel with its resources. If it chooses to produce 60 units of wheat, what is the opportunity cost in terms of steel?

Accepted Answer

$$Opportunity\ cost = \frac{50}{100} 	imes 60 = 30$$ units of steel

Question 14

Which of the following best explains why trade can make everyone better off?

Accepted Answer

Trade allows people and countries to specialize in what they do best and obtain other goods at lower opportunity costs.

Question 15

Which policy tool is used to moderate the ups and downs of the business cycle?

Accepted Answer

Monetary and fiscal policy.

Question 16

If a country experiences a boom followed by a bust, what is this an example of?

Accepted Answer

The business cycle.

Question 17

Which of the following is an example of a marginal change?

Accepted Answer

A firm decides to produce one more unit of output.

Question 18

Which of the following is most likely to increase a country's productivity?

Accepted Answer

Investing in new technology and worker education.

Question 19

If the value of money falls rapidly in a country, which of the following is most likely occurring?

Accepted Answer

The government is printing too much money, causing inflation.

Ten Big Ideas in Economics: Foundations and Principles

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