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Extensive Summary Modern Principles of Economics - Principles of Economics and Business 1 (6011P0200Y)
Complete exam material Moral Limits of Markets
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Name: Class: Date:
chapter 1
Indicate the answer choice that best completes the statement or answers the question.
1. It makes sense that Martha Stewart hires another person to do her ironing because:
a. she never learned how to iron.
b. her opportunity cost of ironing is the same as the opportunity cost for the person she hires.
c. her opportunity cost of ironing is lower than the opportunity cost for the person she hires.
d. her opportunity cost of ironing is higher than the opportunity cost for the person she hires.
2. Some people take jobs that are dangerous, but such jobs pay well. For example, oil rig workers make $78,000
per year on average. Why?
a. Oil rig workers are accepting of the danger in trade for higher salaries.
b. Oil rig workers do not understand the danger involved in the job.
c. Oil rig workers are assessing the opportunity cost of the danger in the job.
d. Oil rig workers only care about the positive characteristics of the job.
3. Economies MUST experience both booms and busts. All economists can do is work to limit the extent of the
economic fluctuations.
a. True
b. False
4. Among other things, an understanding of economics can help you better manage your finances.
a. True
b. False
5. If the costs of studying for your economics test for 30 more minutes are higher than the benefits, you should:
a. continue to study.
b. quit studying.
c. not study in the first place.
d. study for another hour.
6. A student spends 4 years in college. College tuition, fees, and room and board cost $10,000 per year. This
student's opportunity cost of attending college is $10,000.
a. True
b. False
7. The opportunity cost of playing 2 hours of Fortnite is the value of the opportunity lost from the 2 hours of
play.
a. True
b. False
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chapter 1
8. A period marked by falling wages, falling national output, and rising unemployment is called a recession.
a. True
b. False
9. One of the effects of economic growth is:
a. a higher rate of infant mortality.
b. less leisure time.
c. a lower level of reported happiness.
d. better sanitation and health outcomes.
10. What is thinking on the margin?
a. making decisions that are of noneconomic importance
b. making choices that are based on historical precedents
c. making choices that ignore the marginal benefits, but not the marginal costs, of some activity
d. making choices by comparing the additional benefits and additional costs from doing a little bit more
of some activity
11. The Great Depression:
a. was the normal response of an economy to changing economic conditions.
b. could not have been lessened with appropriate monetary policy.
c. generated unemployment rates of more than 20%.
d. was not an important economic event.
12. Mark Zuckerberg dropped out of college and founded Facebook. His opportunity cost of attending college
was:
a. tuition, the cost of books, and room and board.
b. tuition, the cost of books, and a low-paying job.
c. tuition, the cost of books, and the income from his Facebook pursuits.
d. only the income from his Facebook pursuits.
13. If there were no _____, the “invisible hand” would not function as Adam Smith describes.
a. money
b. self-interest
c. trade
d. inflation
14. If the costs of staying at a party a few more minutes are higher than the benefits, you should:
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,Name: Class: Date:
chapter 1
a. stay longer.
b. leave the party.
c. never have attended the party in the first place.
d. have thrown your own party.
15. Government can help to align self-interest with the social interest by:
a. enacting policies that increase incentives to work and trade.
b. decreasing international trade.
c. promoting charity work.
d. banning free markets.
16. In Zimbabwe, price increases of 150,000% per year were caused by:
a. the country's unsustainable trade deficit.
b. marginal tax rates as high as 90%.
c. large increases in the money supply.
d. deregulated prices.
17. The FDA faces societal trade-offs when it decides how safe drugs need to be before allowing patients to use
them. For example, if the FDA raises the cost of testing for drug safety, some safe drugs will never be
developed, and people will unnecessarily die.
a. True
b. False
18. Opportunity costs are important because:
a. monetary costs are higher than opportunity costs.
b. only monetary costs should be considered when making choices.
c. they determine how to make the world more productive.
d. people change their behavior when opportunity costs change.
19. Which of the following statements reflects Adam Smith's important insight into marketplace behavior?
a. Society benefits when people and firms pursue their own self-interest.
b. Markets are usually an inefficient way of organizing economic activity.
c. Greedy, self-interested behavior needs to be constrained to ensure strong economic growth.
d. Trade restrictions on imported goods increase domestic employment.
20. An example of a marginal decision is deciding whether to:
a. invest half your savings in Google or Microsoft.
b. buy one more apple or one more banana.
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chapter 1
c. commit your life to economics or biology.
d. study for 5 hours or for 10 hours.
21. When the government decreases the supply of money, there is an increase in the general level of prices.
a. True
b. False
22. Economists think that people are self-interested:
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.
23. Economists believe that people will not respond to nonmonetary incentives, like love or status.
a. True
b. False
24. Which option best explains why firms develop new ideas for production techniques and product features?
a. because they are interested in sharing their new ideas with the world
b. because they are interested in making a profit
c. because it will be in the social interest
d. because doing so will make their customers happy
25. During the period of dramatic inflation in Zimbabwe, if you had 1 trillion Zimbabwean dollars, you still
were not very rich.
a. True
b. False
26. Institutions that support economic growth are the ones that:
a. encourage consumption and discourage savings.
b. give the government more control over what is produced and how it is produced.
c. require companies to act in the social interest.
d. provide incentives for entrepreneurs to take risks and innovate.
27. What is a plausible economic explanation for why Braille “dots” are commonly found on drive-up
automatic teller machines even though blind customers likely will not use a drive-up automatic teller machine?
a. Blind people must be able to use such machines because the Americans with Disabilities Act requires
such dots on the keys.
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