Ten principles

of economics

1. Government policies designed to

promote efficiency:
a. usually do so at the expense of equity.
b. tend to cause the economy to grow
more slowly.
c. always fail.
d. require very high taxes.

2. All of the following can be

considered a student's costs of going
to college, EXCEPT:
a. textbooks.
b. tuition and fees.
c. room and board (that costs her about
the same as she was paying before
entering college).
d. the student's time, which can no longer
be devoted to earning a salary.

3. An airline's plane from Los Angeles to

New York is about to take off, but it still
has a few seats empty. If the average
cost per seat is $500, what price should
the airline charge passengers in
standby to fill in those remaining seats?
(Consider that quantitative decisions
are made at the margin)
a. At least $500.
b. Exactly $500.
c. Any price above zero that will entice
standby passengers to take the flight.
d. Slightly less than $500.

4. The Federal government enacted

regulation in the 1960s requiring
people to wear seatbelts in their
cars. All of the following resulted
from this regulation, EXCEPT:
a. overall deaths due to car accidents
changed very little in the United States.
b. fewer deaths occurred per accident.
c. fewer pedestrians were killed in car
accidents.
d. the frequency of accidents increased

5. When two persons trade goods:

a.one person always gains at the expense
of the other.
b. both persons usually gain from the
exchange.
c. one person usually gains at the
expense of the other.
d. the overall well being of the two
persons remains unchanged.

6. In a market economy, the

decisions of what and how much to
produce are made by:
a. voters in elections.
b. all producers and consumers.
c. the government only.
d. non governmental agencies.

7. Even though markets do a great

job in organizing economic activity,
governments are needed to do all of
the following EXCEPT:
a. establish and enforce property rights.
b. intervene when markets fail due to
externalities.
c. intervene when markets fail due to
market power.
d. decide what and how much should be
produced.

8. Living standards in the United

States have risen tremendously over
the years, mainly due to:
a. relentless increases in the productivity
of labor over the years.
b. the forceful efforts of labor unions.
c. successive increases in the minimum
wage.
d. trade protection from competition from
countries with low wages, such as China.

9. Rapid and persistent inflation

occurs mainly due to:
a. high wage increases demanded by
labor unions.
b. greedy firms that abuse consumers
with higher-than-necessary prices.
c. rapid increases in the quantity of
money in the economy.
d. trade with other countries.

10. A government that implements a

policy designed to reduce inflation
can expect unemployment to:
a. increase in the short-run.
b. decrease in the short-run.
c. increase in the long-run.
d. decrease in the long-run.