Question 1

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

Accepted Answer

The value of the next best alternative that must be forgone to obtain something.

Question 2

Suppose you are deciding whether to spend an extra hour studying for your macroeconomics exam or working at your part-time job, which pays $15 per hour. What is the opportunity cost of studying for an extra hour?

Accepted Answer

The $15 you could have earned working.

Question 3

Which principle of economics explains why people respond to changes in prices?

Accepted Answer

People respond to incentives.

Question 4

A government decides to print a large amount of money to pay off its debts. According to economic principles, what is the most likely consequence?

Accepted Answer

An increase in the overall price level, known as inflation.

Question 5

Which of the following equations correctly represents the calculation of opportunity cost when choosing between two alternatives?

Accepted Answer

$$Opportunity\ Cost = Value\ of\ Next\ Best\ Alternative$$

Question 6

Which principle of economics is illustrated when a country specializes in producing goods for which it has a comparative advantage and trades with other countries?

Accepted Answer

Trade can make everyone better off.

Question 7

Adam Smith’s concept of the 'invisible hand' is most closely associated with which principle?

Accepted Answer

Markets are usually a good way to organize economic activity.

Question 8

If a central bank increases the amount of money in the economy, what is the short-run effect according to macroeconomic principles?

Accepted Answer

Higher inflation and lower unemployment.

Question 9

Which of the following best defines the term 'scarcity' in economics?

Accepted Answer

Resources are limited and cannot satisfy all wants.

Question 10

A student has already spent $$1000 on car repairs. The transmission fails, and fixing it costs 600. $$The car can be sold for $$4000 if fixed, or 3700 if $$not. Should the student fix the transmission? Use marginal analysis.

Accepted Answer

No, because the marginal benefit ($$4000 - 3700$$ = $$300) is less than the marginal cost (600).$$

Question 11

Which principle explains why governments may intervene in markets?

Accepted Answer

Governments can sometimes improve market outcomes.

Question 12

Which of the following is NOT a reason why markets may fail to allocate resources efficiently?

Accepted Answer

Scarcity.

Question 13

According to macroeconomic principles, what is the main reason some nations have higher average living standards than others?

Accepted Answer

They have higher levels of productivity.

Question 14

Which equation best represents the marginal benefit of an action?

Accepted Answer

$$Marginal\ Benefit = Total\ Benefit\ after\ Action - Total\ Benefit\ before\ Action$$

Question 15

Which of the following is an example of an incentive?

Accepted Answer

A decrease in the price of a good, leading consumers to buy more.

Question 16

Which principle is illustrated by the statement: 'There is no such thing as a free lunch'?

Accepted Answer

People face tradeoffs.

Question 17

If a country’s productivity increases, what is the most likely effect on its standard of living?

Accepted Answer

Its standard of living will increase.

Question 18

Which of the following best describes the business cycle?

Accepted Answer

The irregular and largely unpredictable fluctuations in economic activity.

Question 19

Which principle is most directly related to the concept of marginal analysis?

Accepted Answer

Rational people think at the margin.

Question 20

Suppose a government sets a price ceiling below the equilibrium price in a market. According to economic principles, what is the most likely outcome?

Accepted Answer

A shortage of the good.

Chapter 1: Ten Principles of Economics – Foundations of Macroeconomics

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