1. Incomes of U.S. households in the 1970s and 1980s (Points : 5) grew rapidly, due to the widespread success of labor unions in pushing up wages during those decades.

grew rapidly, due to several increases in the minimum wage during those decades.

grew rapidly, due to government policies that discouraged the importation of foreign products during those decades.

grew slowly, due to slow growth of the output of goods and services per hour of U.S. workers’ time during those decades.

Question 2. 2. To improve living standards, policymakers should (Points : 5)
impose restrictions on foreign competition.

formulate policies designed to increase productivity.

impose tougher immigration policies.

provide tax breaks for the middle class.

Question 3. 3. The opportunity cost of an item is (Points : 5)
the number of hours needed to earn money to buy the item.

what you give up to get that item.

usually less than the dollar value of the item.

the dollar value of the item.

Question 4. 4. Figure 2-4

Refer to Figure 2-4This economy cannot currently produce 30 notepads and 45 lamps because (Points : 5)
some of its resources are unemployed.

inefficiencies exist in this economy’s production process.

given its current technology, it does not have the resources to produce that level of output.

All of the above are correct.

Question 5. 5. Which of the following is the most correct statement about the relationship between inflation and unemployment? (Points : 5)
In the short run, falling inflation is associated with falling unemployment.

In the short run, falling inflation is associated with rising unemployment.

In the long run, falling inflation is associated with falling unemployment.

In the long run, falling inflation is associated with rising unemployment.

Question 6. 6. The phrase “no such thing as a free lunch” means (Points : 5)
people must face tradeoffs.

rational people think at the margin.

people respond to incentives.

trade can make everyone better off.

Question 7. 7. Economic models (Points : 5)
are constructed to mirror reality as closely as possible, and in this respect economic models are no different from other scientific models.

are constructed to mirror reality as closely as possible, and in this respect economic models are very different from other scientific models.

are simplifications of reality, and in this respect economic models are no different from other scientific models.

are simplifications of reality, and in this respect economic models are very different from other scientific models.

Question 8. 8. As a result of a successful attempt by government to cut the economic pie into more equal slices, (Points : 5)
the pie gets larger, and there will be more pie overall.

the pie gets smaller, and there will be less pie overall.

it increases the reward for working hard, resulting in people producing more goods and services.

those who earn more income pay less in taxes.

Question 9. 9. Table 2-5

Cookies (in dozens)

Coffee (in pounds)

1000

0

800

350

600

650

400

800

200

1000

0

1150

Refer to Table 2-5. Table 2-5 shows one set of production possibilities. What is the opportunity cost of in-creasing the production of cookies from 200 dozen to 400 dozen? (Points : 5)
100 pounds of coffee

200 pounds of coffee

300 pounds of coffee

400 pounds of coffee

Question 10. 10. Figure 2-4

Refer to Figure 2-4It is possible for this economy to produce (Points : 5)
40 notepads and 20 lamps.

50 notepads and 30 lamps.

70 notepads and 40 lamps.

All of the above.

Question 11. 11. Productivity is defined as the (Points : 5)
amount of goods and services produced from each unit of labor input.

number of workers required to produce a given amount of goods and services.

amount of labor that can be saved by replacing workers with machines.

actual amount of effort workers put into an hour of working time.

Question 12. 12. The famous observation that households and firms interacting in markets act as if they are guided by an “invisible hand” that leads them to desirable market outcomes comes from whose 1776 book? (Points : 5)
David Ricardo

Thorstein Veblen

John Maynard Keynes

Adam Smith

Question 13. 13. A production possibilities frontier shifts outward when (Points : 5)
the economy experiences economic growth.

the desires of the economy’s citizens change.

at least one of the basic principles of economics is violated.

opportunity costs are lessened.

Question 14. 14. Bill is restoring a car and has already spent $4000 on the restoration. He expects to be able to sell the car for $6200. Bill discovers that he needs to do an additional $2400 of work to make the car worth $6200 to potential buyers. He could also sell the car now, without completing the additional work, for $3800. What should he do? (Points : 5)
He should sell the car now for $3800.

He should keep the car since it wouldn’t be rational to spend $6400 restoring a car and then sell it for only $6200.

He should complete the additional work and sell the car for $6200.

It does not matter if Bill sells the car now or completes the work and then sells it at the higher price because the outcome will be the same either way.

Question 15. 15. Central planning refers to (Points : 5)
markets guiding economic activity. Today many countries that had this system have abandoned it.

markets guiding economic activity. Today many countries that did not have this system have implemented it.

government guiding economic activity. Today many countries that had this system have abandoned it.

government guiding economic activity. Today many countries that did not have this system have implemented it.

Question 16. 16. Rick buys a 1966 Mustang for $3,000, planning to restore and sell the car. He goes on to spend $9,000 restoring the car. At this point he can sell the car for $10,000. As an alternative, he can spend an additional $3,000 replacing the engine. With a new engine the car would sell for $13,000. Rick should (Points : 5)
complete the repairs and sell the car for $13,000.

sell the car now for $10,000.

never try such an expensive project again.

be indifferent between (i) selling the car now and (ii) replacing the engine and then selling it.

Question 17. 17. If the price of visiting a doctor were fixed below the current price, then we would expect (Points : 5)
an increase in the number of visits people want to make and an increase in the number of visits health care providers want to provide.

an increase in the number of visits people want to make and a decrease in the number of visits health care providers want to provide.

a decrease in the number of visits people want to make and an increase in the number of visits health care providers want to provide.

a decrease in the number of visits people want to make and a decrease in the number of visits health care providers want to provide.

Question 18. 18. When the government attempts to improve equality in an economy the result is often (Points : 5)
an increase in overall output in the economy.

additional government revenue since overall income will increase.

a reduction in equality.

a reduction in efficiency.

Question 19. 19. Prices usually reflect (Points : 5)
only the value of a good to society.

only the cost to society of making a good.

both the value of a good to society and the cost to society of making the good.

neither the value of a good to society nor the cost to society of making the good.

Question 20. 20. Figure 2-3

Refer to Figure 2-3. This economy cannot produce at which point(s)? (Points : 5)
J

J, L

J, L, M

L

Question 21. 21. In the circular-flow diagram, in the markets for (Points : 5)
goods and services, households and firms are both sellers.

goods and services, households are buyers and firms are sellers.

the factors of production, households are buyers and firms are sellers.

the factors of production, households and firms are both buyers.

Question 22. 22. Unemployment would cause an economy to (Points : 5)
produce inside its production possibilities frontier.

produce on its production possibilities frontier.

produce outside its production possibilities frontier.

experience an inward shift of its production possibilities frontier.

Question 23. 23. The ability of an individual to own and exercise control over scarce resources is called (Points : 5)
market failure.

property rights.

externality.

market power.

Question 24. 24. A model can be accurately described as a (Points : 5)
theoretical abstraction with very little value.

device that is useful only to the people who created it.

realistic and carefully constructed theory.

simplification of reality.

Question 25. 25. The economy of the former Soviet Union is best described as a (Points : 5)
primitive economy.

market economy.

hybrid economy.

centrally-planned economy.

Question 26. 26. In a particular country in 1999, the average worker had to work 20 hours to produce 55 units of output. In that same country in 2009, the average worker needed to work 28 hours to produce 77 units of output. In that country, the productivity of the average worker (Points : 5)
increased by 2 percent between 1999 and 2009.

increased by 5 percent between 1999 and 2009.

remained unchanged between 1999 and 2009.

decreased by 3 percent between 1999 and 2009.

Question 27. 27. The property of society getting the most it can from its scarce resources is called (Points : 5)
equity.

efficiency.

equality.

efficacy.

Question 28. 28. A certain production possibilities frontier shows production possibilities for two goods, jewelry and clothing. Which of the following concepts cannot be illustrated by this model? (Points : 5)
the flow of dollars between sellers of jewelry and clothing and buyers of jewelry and clothing

the tradeoff between production of jewelry and production of clothing

the opportunity cost of clothing in terms of jewelry

the effect of economic growth on production possibilities involving jewelry and clothing

Question 29. 29. Which of the following areas of study typifies microeconomics as opposed to macroeconomics? (Points : 5)
the impact of minimum-wage laws on employment in the fast food industry

the effect of changes in household saving rates on the growth rate of national income

the impact of faster money growth on the rate of inflation

a comparison of alternative tax policies and their respective impacts on the rate of the nation’s economic growth

Question 30. 30. In the early 1920s, (Points : 5)
Germany experienced a very high rate of inflation.

the quantity of German money was declining rapidly.

the value of German money remained almost constant.

All of the above are correct.

Question 31. 31. Communist countries worked under the premise that (Points : 5)
markets were the best way to organize economic activity.

central planners were in the best position to determine the allocation of scarce resources in the economy.

households and firms, guided by an “invisible hand,” could achieve the most efficient allocation of scarce resources.

allowing the market forces of supply and demand to operate with no government intervention would achieve the most efficient allocation of scarce resources.

Question 32. 32. When computing the opportunity cost of attending a concert you should include (Points : 5)
the price you pay for the ticket and the value of your time.

the price you pay for the ticket, but not the value of your time.

the value of your time, but not the price you pay for the ticket.

neither the price of the ticket nor the value of your time.

Question 33. 33. The business cycle is the (Points : 5)
relationship between unemployment and inflation.

irregular fluctuations in economic activity.

positive relationship between the quantity of money in an economy and inflation.

predictable changes in economic activity due to changes in government spending and taxes.

Question 34. 34. You have eaten two bowls of ice cream at Sundae School Ice Cream store. You consider eating a third. As a ra-tional consumer you should make your choice by comparing (Points : 5)
the benefits from eating all three bowls of ice cream to how much three bowls of ice cream costs.

the benefits from eating all three bowls of ice cream to how much one more bowl of ice cream costs.

the benefits from eating one more bowl of ice cream to how much three bowls of ice cream costs.

the benefits from eating one more bowl of ice cream to how much one more bowl of ice cream costs.

Question 35. 35. Figure 2-6

Refer to Figure 2-6. If this economy devotes all of its resources to the production of clocks, then it will pro-duce (Points : 5)
0 clocks and 35 candles.

10 clocks and 25 candles.

16 clocks and 0 candles.

16 clocks and 35 candles.

Question 36. 36. President Gerald Ford referred to inflation as (Points : 5)
a blight on our nation’s economy.

a necessary evil to combat high unemployment.

public enemy number one.

a fly in the ointment.

Question 37. 37. For a very long time Treeland has had an inflation rate of 9%. Suddenly its inflation rate drops to 3%. The drop in the inflation rate (Points : 5)
could be due to slower money supply growth. We would expect unemployment to be higher.

could be due to slower money supply growth. We would expect unemployment to be lower.

could be due to higher money supply growth. We would expect unemployment to be higher.

could be due to higher money supply growth. We would expect unemployment to be lower.

Question 38. 38. In the markets for goods and services in the circular-flow diagram, (Points : 5)
households and firms are both buyers.

households and firms are both sellers.

households are buyers and firms are sellers.

households are sellers and firms are buyers.

Question 39. 39. Suppose that a country that has a high average wage level agrees to trade with a country that has a low average wage level. Which country can benefit? (Points : 5)
only the one with a low level of output per person.

only the one with a high level of output per person.

both

neither

Question 40. 40. Catherine buys and sells real estate. Two weeks ago, she paid $300,000 for a house on Pine Street, intending to spend $50,000 on repairs and then sell the house for $400,000. Last week, the city government announced a plan to build a new landfill on Pine Street just down the street from the house Catherine purchased. As a result of the city’s announced plan, Catherine is weighing two alternatives: She can go ahead with the $50,000 in repairs and then sell the house for $290,000, or she can forgo the repairs and sell the house as it is for $250,000. She should (Points : 5)
keep the house and live in it.

go ahead with the $50,000 in repairs and sell the house for $290,000.

forgo the repairs and sell the house as it is for $250,000.

move the house from Pine Street to a more desirable location, regardless of the cost of doing so.

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