,Chapter 1
Ten Principles of Economics
TRUE/FALSE
1. Scarcity means that there is less of a good or resource available than people wish to have.
ANS: T DIF: 1 REF: 1-0
NAT: Analytic LOC: Scarcity, tradeoffs, and opportunity cost
TOP: Scarcity MSC: Definitional
2. Economics is the study of how evenly goods and services are distributed within society.
ANS: F DIF: 1 REF: 1-0
NAT: Analytic LOC: The Study of economics, and definitions in economics
TOP: Economics MSC: Definitional
3. Economics is the study of how society allocates its unlimited resources.
ANS: F DIF: 1 REF: 1-0
NAT: Analytic LOC: The Study of economics, and definitions in economics
TOP: Economics MSC: Definitional
4. With careful planning, we can usually get something that we like without having to give up something else
that we like.
ANS: F DIF: 2 REF: 1-1
NAT: Analytic LOC: Scarcity, tradeoffs, and opportunity cost
TOP: Tradeoffs MSC: Interpretive
5. Choosing not to attend a concert so that you can study for your exam is an example of a tradeoff.
ANS: T DIF: 2 REF: 1-1
NAT: Analytic LOC: Scarcity, tradeoffs, and opportunity cost
TOP: Tradeoffs MSC: Applicative
6. Efficiency means everyone in the economy should receive an equal share of the goods and services produced.
ANS: F DIF: 2 REF: 1-1
NAT: Analytic LOC: Efficiency and Equity TOP: Equality
MSC: Definitional
7. Equality refers to how the pie is divided, and efficiency refers to the size of the economic pie.
ANS: T DIF: 2 REF: 1-1
NAT: Analytic LOC: Efficiency and Equity TOP: Equality | Efficiency
MSC: Definitional
8. Government policies that improve equality usually increase efficiency at the same time.
ANS: F DIF: 1 REF: 1-1
NAT: Analytic LOC: Efficiency and Equity TOP: Efficiency | Equality
MSC: Interpretive
9. An individual deciding how to allocate her limited time is dealing with both scarcity and trade-offs.
ANS: T DIF: 1 REF: 1-1
NAT: Analytic LOC: Scarcity, tradeoffs, and opportunity cost
TOP: Opportunity cost MSC: Interpretative
10. The cost of an action is measured in terms of foregone opportunities.
ANS: T DIF: 1 REF: 1-1
NAT: Analytic LOC: Scarcity, tradeoffs, and opportunity cost
TOP: Opportunity cost MSC: Interpretive
11. Tuition is the single-largest cost of attending college for most students.
ANS: F DIF: 1 REF: 1-1
NAT: Analytic LOC: Scarcity, tradeoffs, and opportunity cost
TOP: Opportunity cost MSC: Interpretive
This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied,
or distributed without the prior consent of the publisher.
1
,2 Chapter 1/Ten Principles of Economics
12. If wages for accountants rose, then accountants’ leisure time would have a lower opportunity cost.
ANS: F DIF: 1 REF: 1-1
NAT: Analytic LOC: Scarcity, tradeoffs, and opportunity cost
TOP: Opportunity cost MSC: Applicative
13. A marginal change is a small incremental adjustment to an existing plan of action.
ANS: T DIF: 1 REF: 1-1
NAT: Analytic LOC: Marginal costs & benefits TOP: Marginal changes
MSC: Definitional
14. An increase in the marginal cost of an activity necessarily means that people will no longer engage in any of
that activity.
ANS: F DIF: 2 REF: 1-1
NAT: Analytic LOC: Marginal costs & benefits TOP: Marginal changes
MSC: Applicative
15. If the average cost of transporting a passenger on the train from Chicago to St. Louis is $75, it would be
irrational for the railroad to allow any passenger to ride for less than $75.
ANS: F DIF: 2 REF: 1-1
NAT: Analytic LOC: Marginal costs & benefits TOP: Marginal changes
MSC: Applicative
16. The fact that people are willing to pay much more for a diamond, which is not needed for survival, than they
are willing to pay for a cup of water, which is needed for survival, is an example of irrational behavior.
ANS: F DIF: 2 REF: 1-1
NAT: Analytic LOC: Marginal costs & benefits TOP: Marginal changes
MSC: Interpretive
17. A rational decisionmaker takes an action if and only if the marginal cost exceeds the marginal benefit.
ANS: F DIF: 2 REF: 1-1
NAT: Analytic LOC: Marginal costs & benefits TOP: Marginal changes
MSC: Interpretive
18. Suppose one county in Missouri decides it wants to reduce alcohol consumption, so the county passes a law
that raises the price of a bottle of beer by $1. As a result, people drive to other counties to drink alcohol,
which results in an increase in drunk driving. This illustrates the principle that people respond to incentives.
ANS: T DIF: 2 REF: 1-1
NAT: Analytic LOC: The role of incentives TOP: Incentives
MSC: Applicative
19. A tax on gasoline is an incentive that encourages people to drive smaller more fuel-efficient cars.
ANS: T DIF: 1 REF: 1-1
NAT: Analytic LOC: The role of incentives TOP: Incentives
MSC: Applicative
20. Trade allows each person to specialize in the activities he or she does best, thus increasing each individual's
productivity.
ANS: T DIF: 2 REF: 1-2
NAT: Analytic LOC: Gains from trade, specialization and trade
TOP: Trade | Productivity MSC: Interpretive
21. Trade with any nation can be mutually beneficial.
ANS: T DIF: 2 REF: 1-2
NAT: Analytic LOC: Gains from trade, specialization and trade
TOP: Trade MSC: Interpretive
22. Trade can make everyone better off except in the case where one person is better at doing everything.
ANS: F DIF: 1 REF: 1-2
NAT: Analytic LOC: Gains from trade, specialization and trade
TOP: Trade MSC: Interpretive
This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied,
or distributed without the prior consent of the publisher.
, Chapter 1/Ten Principles of Economics 3
23. The invisible hand ensures that economic prosperity is distributed equally.
ANS: F DIF: 2 REF: 1-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: The invisible hand MSC: Definitional
24. A market economy cannot produce a socially desirable outcome because individuals are motivated by their
own selfish interests.
ANS: F DIF: 2 REF: 1-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Market economy MSC: Interpretive
25. The government can potentially improve market outcomes if market inequalities or market failure exists.
ANS: T DIF: 2 REF: 1-2
NAT: Analytic LOC: Markets, market failure, and externalities | The role of government
TOP: Government | Market economy MSC: Interpretive
26. One way that governments can improve market outcomes is to ensure that individuals are able to own and
exercise control over their scarce resources.
ANS: T DIF: 2 REF: 1-2
NAT: Analytic LOC: Markets, market failure, and externalities | The role of government
TOP: Property rights MSC: Interpretive
27. Market failure refers to a situation in which the market does not allocate resources efficiently.
ANS: T DIF: 1 REF: 1-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Market failure MSC: Definitional
28. Market power and externalities are two possible causes of market failure.
ANS: T DIF: 1 REF: 1-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Market failure MSC: Definitional
29. Productivity is defined as the quantity of goods and services produced from each unit of labor input.
ANS: T DIF: 1 REF: 1-3
NAT: Analytic LOC: Productivity and growthTOP: Productivity
MSC: Definitional
30. Inflation is the primary determinant of a country's living standards.
ANS: F DIF: 2 REF: 1-3
NAT: Analytic LOC: Productivity and growth
TOP: Productivity | Standard of living MSC: Interpretive
31. Inflation increases the value of money.
ANS: F DIF: 2 REF: 1-3
NAT: Analytic LOC: Unemployment and Inflation TOP: Inflation
MSC: Interpretive
32. Inflation measures the increase in the quantity of goods and services produced from each hour of a worker’s
time.
ANS: F DIF: 1 REF: 1-3
NAT: Analytic LOC: Unemployment and Inflation TOP: Inflation | Productivity
MSC: Definitional
33. In the long run the primary effect of increasing the quantity of money is higher prices.
ANS: T DIF: 2 REF: 1-3
NAT: Analytic LOC: Unemployment and Inflation TOP: Inflation
MSC: Interpretative
This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied,
or distributed without the prior consent of the publisher.
Ten Principles of Economics
TRUE/FALSE
1. Scarcity means that there is less of a good or resource available than people wish to have.
ANS: T DIF: 1 REF: 1-0
NAT: Analytic LOC: Scarcity, tradeoffs, and opportunity cost
TOP: Scarcity MSC: Definitional
2. Economics is the study of how evenly goods and services are distributed within society.
ANS: F DIF: 1 REF: 1-0
NAT: Analytic LOC: The Study of economics, and definitions in economics
TOP: Economics MSC: Definitional
3. Economics is the study of how society allocates its unlimited resources.
ANS: F DIF: 1 REF: 1-0
NAT: Analytic LOC: The Study of economics, and definitions in economics
TOP: Economics MSC: Definitional
4. With careful planning, we can usually get something that we like without having to give up something else
that we like.
ANS: F DIF: 2 REF: 1-1
NAT: Analytic LOC: Scarcity, tradeoffs, and opportunity cost
TOP: Tradeoffs MSC: Interpretive
5. Choosing not to attend a concert so that you can study for your exam is an example of a tradeoff.
ANS: T DIF: 2 REF: 1-1
NAT: Analytic LOC: Scarcity, tradeoffs, and opportunity cost
TOP: Tradeoffs MSC: Applicative
6. Efficiency means everyone in the economy should receive an equal share of the goods and services produced.
ANS: F DIF: 2 REF: 1-1
NAT: Analytic LOC: Efficiency and Equity TOP: Equality
MSC: Definitional
7. Equality refers to how the pie is divided, and efficiency refers to the size of the economic pie.
ANS: T DIF: 2 REF: 1-1
NAT: Analytic LOC: Efficiency and Equity TOP: Equality | Efficiency
MSC: Definitional
8. Government policies that improve equality usually increase efficiency at the same time.
ANS: F DIF: 1 REF: 1-1
NAT: Analytic LOC: Efficiency and Equity TOP: Efficiency | Equality
MSC: Interpretive
9. An individual deciding how to allocate her limited time is dealing with both scarcity and trade-offs.
ANS: T DIF: 1 REF: 1-1
NAT: Analytic LOC: Scarcity, tradeoffs, and opportunity cost
TOP: Opportunity cost MSC: Interpretative
10. The cost of an action is measured in terms of foregone opportunities.
ANS: T DIF: 1 REF: 1-1
NAT: Analytic LOC: Scarcity, tradeoffs, and opportunity cost
TOP: Opportunity cost MSC: Interpretive
11. Tuition is the single-largest cost of attending college for most students.
ANS: F DIF: 1 REF: 1-1
NAT: Analytic LOC: Scarcity, tradeoffs, and opportunity cost
TOP: Opportunity cost MSC: Interpretive
This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied,
or distributed without the prior consent of the publisher.
1
,2 Chapter 1/Ten Principles of Economics
12. If wages for accountants rose, then accountants’ leisure time would have a lower opportunity cost.
ANS: F DIF: 1 REF: 1-1
NAT: Analytic LOC: Scarcity, tradeoffs, and opportunity cost
TOP: Opportunity cost MSC: Applicative
13. A marginal change is a small incremental adjustment to an existing plan of action.
ANS: T DIF: 1 REF: 1-1
NAT: Analytic LOC: Marginal costs & benefits TOP: Marginal changes
MSC: Definitional
14. An increase in the marginal cost of an activity necessarily means that people will no longer engage in any of
that activity.
ANS: F DIF: 2 REF: 1-1
NAT: Analytic LOC: Marginal costs & benefits TOP: Marginal changes
MSC: Applicative
15. If the average cost of transporting a passenger on the train from Chicago to St. Louis is $75, it would be
irrational for the railroad to allow any passenger to ride for less than $75.
ANS: F DIF: 2 REF: 1-1
NAT: Analytic LOC: Marginal costs & benefits TOP: Marginal changes
MSC: Applicative
16. The fact that people are willing to pay much more for a diamond, which is not needed for survival, than they
are willing to pay for a cup of water, which is needed for survival, is an example of irrational behavior.
ANS: F DIF: 2 REF: 1-1
NAT: Analytic LOC: Marginal costs & benefits TOP: Marginal changes
MSC: Interpretive
17. A rational decisionmaker takes an action if and only if the marginal cost exceeds the marginal benefit.
ANS: F DIF: 2 REF: 1-1
NAT: Analytic LOC: Marginal costs & benefits TOP: Marginal changes
MSC: Interpretive
18. Suppose one county in Missouri decides it wants to reduce alcohol consumption, so the county passes a law
that raises the price of a bottle of beer by $1. As a result, people drive to other counties to drink alcohol,
which results in an increase in drunk driving. This illustrates the principle that people respond to incentives.
ANS: T DIF: 2 REF: 1-1
NAT: Analytic LOC: The role of incentives TOP: Incentives
MSC: Applicative
19. A tax on gasoline is an incentive that encourages people to drive smaller more fuel-efficient cars.
ANS: T DIF: 1 REF: 1-1
NAT: Analytic LOC: The role of incentives TOP: Incentives
MSC: Applicative
20. Trade allows each person to specialize in the activities he or she does best, thus increasing each individual's
productivity.
ANS: T DIF: 2 REF: 1-2
NAT: Analytic LOC: Gains from trade, specialization and trade
TOP: Trade | Productivity MSC: Interpretive
21. Trade with any nation can be mutually beneficial.
ANS: T DIF: 2 REF: 1-2
NAT: Analytic LOC: Gains from trade, specialization and trade
TOP: Trade MSC: Interpretive
22. Trade can make everyone better off except in the case where one person is better at doing everything.
ANS: F DIF: 1 REF: 1-2
NAT: Analytic LOC: Gains from trade, specialization and trade
TOP: Trade MSC: Interpretive
This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied,
or distributed without the prior consent of the publisher.
, Chapter 1/Ten Principles of Economics 3
23. The invisible hand ensures that economic prosperity is distributed equally.
ANS: F DIF: 2 REF: 1-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: The invisible hand MSC: Definitional
24. A market economy cannot produce a socially desirable outcome because individuals are motivated by their
own selfish interests.
ANS: F DIF: 2 REF: 1-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Market economy MSC: Interpretive
25. The government can potentially improve market outcomes if market inequalities or market failure exists.
ANS: T DIF: 2 REF: 1-2
NAT: Analytic LOC: Markets, market failure, and externalities | The role of government
TOP: Government | Market economy MSC: Interpretive
26. One way that governments can improve market outcomes is to ensure that individuals are able to own and
exercise control over their scarce resources.
ANS: T DIF: 2 REF: 1-2
NAT: Analytic LOC: Markets, market failure, and externalities | The role of government
TOP: Property rights MSC: Interpretive
27. Market failure refers to a situation in which the market does not allocate resources efficiently.
ANS: T DIF: 1 REF: 1-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Market failure MSC: Definitional
28. Market power and externalities are two possible causes of market failure.
ANS: T DIF: 1 REF: 1-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Market failure MSC: Definitional
29. Productivity is defined as the quantity of goods and services produced from each unit of labor input.
ANS: T DIF: 1 REF: 1-3
NAT: Analytic LOC: Productivity and growthTOP: Productivity
MSC: Definitional
30. Inflation is the primary determinant of a country's living standards.
ANS: F DIF: 2 REF: 1-3
NAT: Analytic LOC: Productivity and growth
TOP: Productivity | Standard of living MSC: Interpretive
31. Inflation increases the value of money.
ANS: F DIF: 2 REF: 1-3
NAT: Analytic LOC: Unemployment and Inflation TOP: Inflation
MSC: Interpretive
32. Inflation measures the increase in the quantity of goods and services produced from each hour of a worker’s
time.
ANS: F DIF: 1 REF: 1-3
NAT: Analytic LOC: Unemployment and Inflation TOP: Inflation | Productivity
MSC: Definitional
33. In the long run the primary effect of increasing the quantity of money is higher prices.
ANS: T DIF: 2 REF: 1-3
NAT: Analytic LOC: Unemployment and Inflation TOP: Inflation
MSC: Interpretative
This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied,
or distributed without the prior consent of the publisher.
