Question 1

Which principle of economics is illustrated by the cartoon where a child offers to mow the lawn for $5 a week so the parent can watch baseball without being nagged?

Accepted Answer

Principle #4: People respond to incentives

Question 2

In the context of the supply and demand graph, what happens if the government sets a price below the equilibrium point?

Accepted Answer

A shortage of goods will occur

Question 3

According to Principle #2, what is the opportunity cost of attending a concert if the ticket costs $$50 and you could have earned 30 $$working that night?

Accepted Answer

The total opportunity cost is $80

Question 4

Which equation best represents the equilibrium point in a market, as shown in the supply and demand graph?

Accepted Answer

$$Q_d = Q_s$$

Question 5

A government intervenes in a market to correct a negative externality. Which principle does this action illustrate?

Accepted Answer

Principle #7: Governments can sometimes improve market outcomes

Question 6

If a country increases its productivity, what is the most likely effect on its standard of living according to Principle #8?

Accepted Answer

Its standard of living will increase

Question 7

Which of the following best describes a marginal change?

Accepted Answer

A small incremental adjustment to an existing plan

Question 8

If the government prints too much money, what is the most likely macroeconomic outcome?

Accepted Answer

Inflation

Question 9

Suppose a central bank uses monetary policy to reduce the demand for goods and services. What is the likely short-run result?

Accepted Answer

Lower inflation and higher unemployment

Question 10

Which principle explains why international trade allows countries to enjoy a greater variety of goods and services?

Accepted Answer

Principle #5: Trade can make everyone better off

Question 11

A market failure occurs when:

Accepted Answer

A market left on its own fails to allocate resources efficiently

Question 12

Which of the following is NOT a reason why governments intervene in markets?

Accepted Answer

To maximize profits for private firms

Question 13

If the benefit of fixing a car’s transmission is $$500 and the cost is 600$$, what should a rational person do?

Accepted Answer

Sell the car as is

Question 14

Which principle is most directly related to the concept of 'the invisible hand' guiding market outcomes?

Accepted Answer

Principle #6: Markets are usually a good way to organize economic activity

Question 15

Which formula best represents productivity as described in Principle #8?

Accepted Answer

$$	ext{Productivity} = \frac{	ext{Total Output}}{	ext{Hours Worked}}$$

Question 16

Which scenario best illustrates the concept of market power?

Accepted Answer

A single firm controls the price of a unique product

Question 17

If a country specializes in producing goods for which it has a comparative advantage, what is the expected outcome?

Accepted Answer

It will enjoy a greater variety of goods and services

Question 18

Which principle is most relevant when analyzing the tradeoff between inflation and unemployment in the short run?

Accepted Answer

Principle #10: Society faces a short-run tradeoff between inflation and unemployment

Question 19

Which of the following is an example of an externality?

Accepted Answer

A factory pollutes a river, affecting nearby residents

Question 20

If the supply curve shifts to the right while the demand curve remains unchanged, what happens to the equilibrium price and quantity?

Accepted Answer

Equilibrium price falls, equilibrium quantity rises

Ten Principles of Economics: Foundations of Macroeconomic Thinking

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