Question 1

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

Accepted Answer

The value of the next best alternative that is forgone when a decision is made.

Question 2

Suppose you are deciding whether to spend $$600 to repair your car’s transmission. If you can sell the car for 6500 if $$repaired, or $5700 if not, what is the marginal benefit of repairing the transmission?

Accepted Answer

$800

Question 3

According to the Ten Principles of Economics, which principle explains why markets are usually a good way to organize economic activity?

Accepted Answer

Principle 6

Question 4

A rational decision maker will take an action if and only if:

Accepted Answer

The marginal benefit exceeds the marginal cost.

Question 5

Which of the following is NOT a reason why governments may intervene in a market economy?

Accepted Answer

To ensure all citizens receive the same income.

Question 6

If a central bank increases the money supply rapidly, what is the most likely effect in the short run?

Accepted Answer

Higher inflation and lower unemployment.

Question 7

Which equation best represents the opportunity cost of attending university for one year?

Accepted Answer

$$OC = C_{tuition} + C_{books} + C_{living} + E_{foregone}$$

Question 8

Which of the following best illustrates the concept of marginal change?

Accepted Answer

A student chooses to study one extra hour for an exam.

Question 9

Why do economists generally support international trade between countries?

Accepted Answer

It allows countries to specialize in what they do best, increasing overall welfare.

Question 10

Which of the following is an example of a market failure?

Accepted Answer

A factory polluting a river, affecting nearby residents.

Question 11

According to Principle 8, what is the main reason some nations have higher average living standards than others?

Accepted Answer

They have higher levels of productivity.

Question 12

If the government prints too much money, what is the most likely long-term consequence?

Accepted Answer

Inflation

Question 13

Which of the following best describes the business cycle?

Accepted Answer

The irregular and largely unpredictable fluctuations in economic activity.

Question 14

Suppose a government wants to increase equity in society by redistributing income. What is a likely tradeoff according to economic principles?

Accepted Answer

Redistribution may reduce the incentive to work, lowering efficiency.

Question 15

Which of the following is NOT considered a scarce resource in economics?

Accepted Answer

Unlimited wants

Question 16

A policymaker fails to consider how a new tax will affect consumer behavior. Which principle is being ignored?

Accepted Answer

People respond to incentives.

Question 17

Which formula best expresses the relationship between productivity and standard of living?

Accepted Answer

$$Standard\ of\ Living \propto Productivity$$

Question 18

If the marginal cost of producing one more unit is $$MC$$ and the marginal benefit is $$MB$$, what should a rational producer do if $$MB \u003e MC$$?

Accepted Answer

Increase production.

Question 19

Which of the following is an example of an incentive?

Accepted Answer

A tax rebate offered to consumers who buy electric cars.

Question 20

Which principle explains why there is no such thing as a free lunch?

Accepted Answer

People face tradeoffs.

Chapter 1: Ten Principles of Economics – Foundations of Macroeconomic Thinking

Study Guide - Practice Questions

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