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 given up to obtain something.

Question 2

A student decides to spend an extra hour studying for an exam instead of going out with friends. According to the marginal principle, the student should study the extra hour if:

Accepted Answer

The marginal benefit of studying is equal to the marginal cost.

Question 3

Suppose the government increases the gasoline tax by $1 per gallon. Which of the following is NOT a likely response by consumers, according to the principle that people respond to incentives?

Accepted Answer

Driving longer distances for leisure.

Question 4

Which of the following equations correctly represents the opportunity cost of attending college for one year?

Accepted Answer

$$Opportunity\ Cost = Tuition + Books + Fees + Forgone\ Earnings$$

Question 5

Which of the following best illustrates the concept of a trade-off faced by society?

Accepted Answer

Choosing between spending on military defense and consumer goods.

Question 6

If the marginal benefit of hiring one more worker is $$400 per week and the marginal cost is 300 $$per week, what should a rational manager do?

Accepted Answer

Hire the worker because the marginal benefit exceeds the marginal cost.

Question 7

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

Accepted Answer

A bonus for employees who meet sales targets.

Question 8

According to the 'invisible hand' concept introduced by Adam Smith, markets tend to:

Accepted Answer

Guide self-interested individuals to promote overall economic well-being.

Question 9

Which of the following is a source of market failure that may justify government intervention?

Accepted Answer

Externalities, such as pollution.

Question 10

A country’s standard of living is most closely related to:

Accepted Answer

The productivity of its workers.

Question 11

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

Accepted Answer

A rise in prices, or inflation.

Question 12

Which of the following best describes the short-run trade-off society faces between inflation and unemployment?

Accepted Answer

Reducing inflation always increases unemployment in the short run.

Question 13

Which of the following is NOT a principle of how people make decisions?

Accepted Answer

Markets always require government intervention.

Question 14

Which of the following is an example of an externality?

Accepted Answer

A company pollutes a river, affecting nearby residents.

Question 15

Suppose you pay a flat monthly fee for a streaming service. According to the marginal principle, you should watch another movie if:

Accepted Answer

The marginal benefit of watching exceeds the opportunity cost of your time.

Question 16

Which of the following is a reason why governments enforce property rights?

Accepted Answer

To encourage people to work, produce, and invest by protecting their property.

Question 17

If a country wants to achieve greater equality, which of the following policies might it pursue?

Accepted Answer

Redistributing income from the wealthy to the poor.

Question 18

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

Accepted Answer

Trade allows countries to specialize in what they do best and enjoy a greater variety of goods and services.

Question 19

Which of the following is an example of a market failure due to market power?

Accepted Answer

A single firm controls the entire supply of a product and sets prices above competitive levels.

Question 20

Which of the following statements about the allocation of resources in a market economy is correct?

Accepted Answer

Resources are allocated through the decentralized decisions of many firms and households as they interact in markets.

Chap 1 Ec 201

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