Question 1

Adam Smith's metaphor of the ―invisible hand‖ refers to the notion that:

Accepted Answer

A)   greed is always good when externally motivated.
B)   behavior based on self-interest can lead to an overall benefit to society.
C)   market incentive can lead to negative side effects.
D)   markets always align self-interest with social interest.

Question 2

Using the concepts of incentives and good institutions, explain how a country might achieve economic growth.

Accepted Answer

Economic growth stems from having well-f...

Question 3

The historical rise in living standards of American workers is primarily a result of:

Accepted Answer

A)   the influence of labor unions in America.
B)   tariff protection imposed by the American government.
C)   the enactment of minimum wage laws in America.
D)   the rise in American productivity. D

Question 4

Economists think that people are self-interested:

Accepted Answer

A)   only when monetary incentives are present.
B)   because they respond to incentives in predictable ways.
C)   only rarely in response to incentives.
D)   unless they are being altruistic.

Question 5

Marginal thinking was simultaneously discovered by three economists-Stanley Jevons, Carl Menger, and Adam Smith.

Accepted Answer

A) True 
 B)False

Question 6

Among the most powerful institutions for supporting good incentives are: I. property rights. II. political stability. III. honest government.

Accepted Answer

A)   I only
B)   I and II only
C)   II and III only
D)   I, II, and III

Question 7

Joe runs a landscape business. He knows that providing landscaping services costs him $100 per hour on average, while the cost of providing such services is $150 per hour after 5 PM (due to overtime pay, reduced productivity, and the added wear and tear on his equipment) . A potential client offers Joe $130 per hour to provide services but needs him to provide the services after 5PM due to circumstances at the property.

Accepted Answer

A)   Joe should take the job, since $130 exceeds his average cost of production.
B)   Joe should take the job, since he is making a $30 profit per hour.
C)   Joe should decline the job, since he would lose $150 per hour worked on the job.
D)   Joe should decline the job, since he would lose $20 per hour worked.

Question 8

Which of the following choices describes why the Fed might find it difficult to combat recessions? I. lags in the effects of monetary policy II. continuously changing economic conditions III. changes in the money supply, which do not always lead to expected changes in economic conditions.

Accepted Answer

A)   I and II only
B)   II and III only
C)   I and III only
D)   I, II, and III

Question 9

Wherein lies the power of trade?

Accepted Answer

The power of trade comes from people specializing in the activity of their comparative advantage and trading for more things than they could produce on their own.

Question 10

The basic postulate of economics indicates that changes in incentives influence the:

Accepted Answer

A)   actions of producers but not consumers.
B)   actions of consumers but not producers.
C)   choices of individuals only when they buy and sell goods in the marketplace.
D)   choices of individuals with regard to a wide range of activities, including those generally perceived as social or political.

Question 11

Inflation can be defined as:

Accepted Answer

A)   the general rise in the level of output in an economy.
B)   the boom and bust cycles of an economy.
C)   the rise and fall of the general level of prices in an economy.
D)   the increase in the general level of prices in an economy.

Question 12

In the market for pharmaceuticals, the issue of ―drug loss‖ illustrates which of the following ideas?

Accepted Answer

A)   The longer a drug is tested for safety, the lower is the opportunity cost in terms of lives lost.
B)   If a drug is not tested for safety, it might kill more people.
C)   Because of the higher the cost of testing a drug, fewer drugs are made, and more lives are lost.
D)   Lives are being lost because safe drugs that are still in the testing stage have not been approved.

Question 13

In the long run, excess money printing by the government always causes inflation and economic busts.

Accepted Answer

A) True 
 B)False

Question 14

Recall the chapter opening story about the British sea captains and the convicted felons. In what way did economics use the idea of incentives to solve the problem of the high mortality rate on board the ships?

Accepted Answer

A)   Payment (to ship captains)  was to be offered for each prisoner that was taken aboard the ships.
B)   Payment (to ship captains)  was made independent of the regulations passed for prisoner welfare.
C)   Regulations were passed so that prisoners could get better food, water, and medical care.
D)   Payment (to ship captains)  was made dependent on the survival rate of prisoners. D

Question 15

Why are more people unhealthy in developing countries than in developed countries? I. Wealthier people are not attacked by mosquitoes. II. Wealthier people can pay for better treatments. III. Wealthier people can pay for better prevention of disease.

Accepted Answer

A)   I only
B)   II only
C)   III only
D)   II and III only

Question 16

You must decide whether to attend class tomorrow morning or take your friend to the airport. Your decision highlights the following ―big idea‖ in economics.

Accepted Answer

A)   Institutions matter.
B)   Incentives matter.
C)   Economics is fun.
D)   Trade-offs are everywhere.

Question 17

With careful planning, we can usually get something that we like without having to give up something else that we like.

Accepted Answer

A) True 
 B)False

Question 18

In an effort to clean the air, many communities impose restrictions on the burning of garbage. This policy causes more garbage to be buried underground, potentially increasing groundwater contamination. What concept does this example represent?

Accepted Answer

A)   trade-offs
B)   marginal pollution
C)   sunk costs
D)   public provision

Question 19

What is one cause of inflation?

Accepted Answer

A)   the persistent rise in prices in the economy
B)   production's inability to keep up with spending in the economy
C)   increased spending by people and the government.
D)   economic growth without money growth

Question 20

Which of the following statements is FALSE? I. The Federal Reserve can micromanage the economy with great precision. II. The Federal Reserve's decisions usually have an immediate effect on the economy's unemployment rate. III. Most economists believe that the Federal Reserve does more harm than good.

Accepted Answer

A)   I and II only
B)   II only
C)   II and III only
D)   I, II, and III

Exam 1: The Big Ideas in Economics

Adam Smith's metaphor of the ―invisible hand‖ refers to the notion that:

Correct Answer
verified

Using the concepts of incentives and good institutions, explain how a country might achieve economic growth.

Correct Answer
verified
Economic growth stems from having well-f...
View Answer

The historical rise in living standards of American workers is primarily a result of:

Correct Answer
verified
D

Economists think that people are self-interested:

Correct Answer
verified

Marginal thinking was simultaneously discovered by three economists-Stanley Jevons, Carl Menger, and Adam Smith.

Correct Answer
verified

Among the most powerful institutions for supporting good incentives are: I. property rights. II. political stability. III. honest government.

Correct Answer
verified

Correct Answer
verified

Which of the following choices describes why the Fed might find it difficult to combat recessions? I. lags in the effects of monetary policy II. continuously changing economic conditions III. changes in the money supply, which do not always lead to expected changes in economic conditions.

Correct Answer
verified

Wherein lies the power of trade?

Correct Answer
verified
The power of trade comes from people specializing in the activity of their comparative advantage and trading for more things than they could produce on their own.

The basic postulate of economics indicates that changes in incentives influence the:

Correct Answer
verified

Inflation can be defined as:

Correct Answer
verified

In the market for pharmaceuticals, the issue of ―drug loss‖ illustrates which of the following ideas?

Correct Answer
verified

In the long run, excess money printing by the government always causes inflation and economic busts.

Correct Answer
verified

Recall the chapter opening story about the British sea captains and the convicted felons. In what way did economics use the idea of incentives to solve the problem of the high mortality rate on board the ships?

Correct Answer
verified
D

Why are more people unhealthy in developing countries than in developed countries? I. Wealthier people are not attacked by mosquitoes. II. Wealthier people can pay for better treatments. III. Wealthier people can pay for better prevention of disease.

Correct Answer
verified

You must decide whether to attend class tomorrow morning or take your friend to the airport. Your decision highlights the following ―big idea‖ in economics.

Correct Answer
verified

With careful planning, we can usually get something that we like without having to give up something else that we like.

Correct Answer
verified

In an effort to clean the air, many communities impose restrictions on the burning of garbage. This policy causes more garbage to be buried underground, potentially increasing groundwater contamination. What concept does this example represent?

Correct Answer
verified

What is one cause of inflation?

Correct Answer
verified

Correct Answer
verified

Exam 1: The Big Ideas in Economics

Adam Smith's metaphor of the ―invisible hand‖ refers to the notion that:

Correct AnswerverifiedShow Answer

Using the concepts of incentives and good institutions, explain how a country might achieve economic growth.

Correct AnswerverifiedEconomic growth stems from having well-f...View AnswerShow Answer

The historical rise in living standards of American workers is primarily a result of:

Correct AnswerverifiedD

Economists think that people are self-interested:

Correct AnswerverifiedShow Answer

Marginal thinking was simultaneously discovered by three economists-Stanley Jevons, Carl Menger, and Adam Smith.

Correct AnswerverifiedShow Answer

Among the most powerful institutions for supporting good incentives are: I. property rights. II. political stability. III. honest government.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following choices describes why the Fed might find it difficult to combat recessions? I. lags in the effects of monetary policy II. continuously changing economic conditions III. changes in the money supply, which do not always lead to expected changes in economic conditions.

Correct AnswerverifiedShow Answer

Wherein lies the power of trade?

Correct AnswerverifiedThe power of trade comes from people specializing in the activity of their comparative advantage and trading for more things than they could produce on their own.

The basic postulate of economics indicates that changes in incentives influence the:

Correct AnswerverifiedShow Answer

Inflation can be defined as:

Correct AnswerverifiedShow Answer

In the market for pharmaceuticals, the issue of ―drug loss‖ illustrates which of the following ideas?

Correct AnswerverifiedShow Answer

In the long run, excess money printing by the government always causes inflation and economic busts.

Correct AnswerverifiedShow Answer

Recall the chapter opening story about the British sea captains and the convicted felons. In what way did economics use the idea of incentives to solve the problem of the high mortality rate on board the ships?

Correct AnswerverifiedD

Why are more people unhealthy in developing countries than in developed countries? I. Wealthier people are not attacked by mosquitoes. II. Wealthier people can pay for better treatments. III. Wealthier people can pay for better prevention of disease.

Correct AnswerverifiedShow Answer

You must decide whether to attend class tomorrow morning or take your friend to the airport. Your decision highlights the following ―big idea‖ in economics.

Correct AnswerverifiedShow Answer

With careful planning, we can usually get something that we like without having to give up something else that we like.

Correct AnswerverifiedShow Answer

In an effort to clean the air, many communities impose restrictions on the burning of garbage. This policy causes more garbage to be buried underground, potentially increasing groundwater contamination. What concept does this example represent?

Correct AnswerverifiedShow Answer

What is one cause of inflation?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
Economic growth stems from having well-f...
View Answer

Correct Answer
verified
D

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Correct Answer
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Correct Answer
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The power of trade comes from people specializing in the activity of their comparative advantage and trading for more things than they could produce on their own.

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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D

Correct Answer
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Correct Answer
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Correct Answer
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