CH1: 10 Principles of Economics

Question 1

Economics is best defined as the study of

Answer 1

How society manages its scare resources

Question 2

Your opportunity cost of going to a movie is

Answer 2

The total cash expenditure needed to go to the movie plus the value of your time

Question 3

A marginal change is one that

Answer 3

Incrementally alters an exiting plan

Question 4

Because people respond to incentives,

Answer 4

Policy makers can alter outcomes by changing punishments or rewards, policies can have unintended consequences, society faces trade-off between efficiency and equality.

Question 5

International trade benefits a nation when

Answer 5

All nations are specializing in producing what they do best

Question 6

Adam Smith’s “invisible hand” refers to

Answer 6

The ability of free markets to reach desirable outcomes, despite the self-interest of market participants

Question 7

Governments may intervene in a market economy in order to

Answer 7

Protect property rights, correct a market failure due to externalities, achieve a more equal distribution of income

Question 8

The main reason that some nations have higher average living standards than others is that

Answer 8

some nations have higher levels of productivity

Question 9

If a nation has heightened and persistent inflation, the most likely explanation is

Answer 9

The central bank creating excessive amounts of money

Question 10

If a central bank uses the tools of monetary policy to reduce the demand for goods and services, the likely result is _____ inflation and _____ unemployment in the short run

Answer 10

Lower ; higher