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Exam 1: Ten Principles of Economics

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Question 1

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The government enforces property rights by

A) requiring property owners to pay property taxes.
B) providing police and courts.
C) forcing people to own property.
D) providing public parks and recreation facilities.

E) A) and C)
F) C) and D)

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Question 2

Multiple Choice

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Which of the following is an example of an externality?

A) A paper mill dumps waste into the river.
B) A neighbor's loud music disrupts sleep.
C) A drunk driver causes an accident that injures another person.
D) All of the above are correct.

E) B) and C)
F) C) and D)

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D

Question 3

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Equality refers to how the pie is divided, and efficiency refers to the size of the economic pie.

Give an example of a trade-off faced by society.

Which of the following is a principle concerning how people interact?

Approximately what percentage of the world's economies experience scarcity?

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

The "invisible hand" directs economic activity through

When calculating the cost of college, which of the following should you probably include?

Which of the following statements does not apply to a market economy?

Explain how an attempt by the government to lower inflation could cause unemployment to increase in the short-run.

Stephen is restoring a car and has already spent $4,000 on the restoration. He expects to be able to sell the car for $5,800. Stephen discovers that he needs to do an additional $2,400 of work to make the car worth $5,800 to potential buyers. He could also sell the car now, without completing the additional work, for $3,800. What should he do?

Suppose the state of Wyoming passes a law that increases the tax on cigarettes. As a result, smokers who live in Wyoming start purchasing their cigarettes in surrounding states. Which of the following principles does this best illustrate?

Market failure refers to a situation in which the market does not allocate resources efficiently.

In the context of decisionmaking, the word "marginal" is most closely associated with the word

To say people respond to incentives means that people may alter their decisions when the costs and benefits of an action change.

One effect of the government-imposed seat belt law in the U.S. has been

Scenario 1-5 Suppose that you have a choice between going to the movies with a friend for three hours or working at your job. If you go to the movies, you will spend $12 on a ticket and $6 on popcorn. If you choose to work, you will earn $10 an hour. -Refer to Scenario 1-5. What is your opportunity cost of going to the movies?

Economists use the term to refer to fluctuations in economic activity, such as employment and production.

Suppose that you have received $300 as a birthday gift. You can spend it today or you can put the money in a bank account for a year and earn 5 percent interest. The opportunity cost of spending the money today, in terms of what you could have after one year, is