Chapter 1—What Is Economics?
TRUE/FALSE
1. Both parties gain in a voluntary exchange.
ANS: T PTS: 1 DIF: Easy NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
2. Even though international trade in undertaken voluntarily, a country that engages in trade may not
benefit from it.
ANS: F PTS: 1 DIF: Easy NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
3. In international trade, one country's gain is another country's loss.
ANS: F PTS: 1 DIF: Easy NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
4. It is impossible for both nations to gain when trading with one other.
ANS: F PTS: 1 DIF: Easy NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
5. In economics the true cost of making a choice is the value of what must be given up.
ANS: T PTS: 1 DIF: Easy NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
6. Opportunity cost is the value of the next best alternative to a given choice.
ANS: T PTS: 1 DIF: Easy NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
7. Opportunity cost is the highest possible price you can receive when you sell an object.
ANS: F PTS: 1 DIF: Moderate NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
8. As a student, one of the costs of sleeping in rather than going to class is likely to be a lower grade
in the class.
, ANS: T PTS: 1 DIF: Moderate NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
9. In her calculation of the cost of going to college, an economist would include the amount of
forgone earnings over the years spent at college.
ANS: T PTS: 1 DIF: Moderate NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
10. Government controls over market prices frequently "backfire."
ANS: T PTS: 1 DIF: Easy NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
11. There are never any adverse consequences of government attempts to modify the laws of supply
and demand.
ANS: F PTS: 1 DIF: Easy NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
12. Comparative advantage explains how two nations can benefit from trade.
ANS: T PTS: 1 DIF: Moderate NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
13. If Japan is twice as good at producing cameras and three times as good at producing TV sets as
the United States, Japan is said to have a comparative advantage in TV sets and the United States
has a comparative advantage in cameras.
ANS: T PTS: 1 DIF: Difficult NAT: Reflective
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
14. The marginal cost of an airline ticket is the total cost of flying the plane divided by the number of
passengers.
ANS: F PTS: 1 DIF: Difficult NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
15. Marginal analysis involves looking at the extra costs involved in a decision.
ANS: T PTS: 1 DIF: Easy NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
,16. There are frequently market solutions that the government can use to deal with externalities.
ANS: T PTS: 1 DIF: Moderate NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
17. Externalities are social costs that affect parties external to a particular economic transaction.
ANS: T PTS: 1 DIF: Moderate NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
18. Externalities affect only the buyer and seller involved in an exchange.
ANS: F PTS: 1 DIF: Moderate NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
19. Externalities are created when parties not involved in an economic transaction are affected by it.
ANS: T PTS: 1 DIF: Moderate NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
20. All economic transactions involve only buyers and sellers; no third parties are involved.
ANS: F PTS: 1 DIF: Moderate NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
21. The market mechanism provides a financial incentive for firms to minimize the pollution they
create.
ANS: F PTS: 1 DIF: Moderate NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
22. The relatively low rate of inflation coupled with a low unemployment rate that occurred in the
1990s represented a "normal" economic situation.
ANS: F PTS: 1 DIF: Moderate NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
23. In both the 1970s and the 1990s, extreme economic events caused unemployment to move in the
same direction as inflation.
ANS: T PTS: 1 DIF: Moderate NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
, 24. The high unemployment of 2008-2010 caused a substantial decrease in inflation which created
fears of deflation.
ANS: T PTS: 1 DIF: Easy NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
25. A small increase in productivity growth can have a huge impact on a country's standard of living.
ANS: T PTS: 1 DIF: Moderate NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
26. Greater economic efficiency often leads to greater economic inequality.
ANS: T PTS: 1 DIF: Moderate NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
27. The concept of economic efficiency refers to the size of the "economic pie" whereas the concept
of equality refers to how the "pie" is distributed.
ANS: T PTS: 1 DIF: Easy NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
28. There is no trade-off between efficiency and equality.
ANS: F PTS: 1 DIF: Easy NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
29. The United States has chosen to balance the competing claims of efficiency versus equality by
emphasizing greater efficiency over greater equality.
ANS: T PTS: 1 DIF: Moderate NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
30. The achievement of greater efficiency in the United States has been at the expense of growing
inequality.
ANS: T PTS: 1 DIF: Easy NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
31. One problem with the European Union's choice regarding equality versus efficiency is that it may
inadvertently shrink the size of its "economic pie".
ANS: T PTS: 1 DIF: Moderate NAT: Analytic
TRUE/FALSE
1. Both parties gain in a voluntary exchange.
ANS: T PTS: 1 DIF: Easy NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
2. Even though international trade in undertaken voluntarily, a country that engages in trade may not
benefit from it.
ANS: F PTS: 1 DIF: Easy NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
3. In international trade, one country's gain is another country's loss.
ANS: F PTS: 1 DIF: Easy NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
4. It is impossible for both nations to gain when trading with one other.
ANS: F PTS: 1 DIF: Easy NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
5. In economics the true cost of making a choice is the value of what must be given up.
ANS: T PTS: 1 DIF: Easy NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
6. Opportunity cost is the value of the next best alternative to a given choice.
ANS: T PTS: 1 DIF: Easy NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
7. Opportunity cost is the highest possible price you can receive when you sell an object.
ANS: F PTS: 1 DIF: Moderate NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
8. As a student, one of the costs of sleeping in rather than going to class is likely to be a lower grade
in the class.
, ANS: T PTS: 1 DIF: Moderate NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
9. In her calculation of the cost of going to college, an economist would include the amount of
forgone earnings over the years spent at college.
ANS: T PTS: 1 DIF: Moderate NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
10. Government controls over market prices frequently "backfire."
ANS: T PTS: 1 DIF: Easy NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
11. There are never any adverse consequences of government attempts to modify the laws of supply
and demand.
ANS: F PTS: 1 DIF: Easy NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
12. Comparative advantage explains how two nations can benefit from trade.
ANS: T PTS: 1 DIF: Moderate NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
13. If Japan is twice as good at producing cameras and three times as good at producing TV sets as
the United States, Japan is said to have a comparative advantage in TV sets and the United States
has a comparative advantage in cameras.
ANS: T PTS: 1 DIF: Difficult NAT: Reflective
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
14. The marginal cost of an airline ticket is the total cost of flying the plane divided by the number of
passengers.
ANS: F PTS: 1 DIF: Difficult NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
15. Marginal analysis involves looking at the extra costs involved in a decision.
ANS: T PTS: 1 DIF: Easy NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
,16. There are frequently market solutions that the government can use to deal with externalities.
ANS: T PTS: 1 DIF: Moderate NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
17. Externalities are social costs that affect parties external to a particular economic transaction.
ANS: T PTS: 1 DIF: Moderate NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
18. Externalities affect only the buyer and seller involved in an exchange.
ANS: F PTS: 1 DIF: Moderate NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
19. Externalities are created when parties not involved in an economic transaction are affected by it.
ANS: T PTS: 1 DIF: Moderate NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
20. All economic transactions involve only buyers and sellers; no third parties are involved.
ANS: F PTS: 1 DIF: Moderate NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
21. The market mechanism provides a financial incentive for firms to minimize the pollution they
create.
ANS: F PTS: 1 DIF: Moderate NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
22. The relatively low rate of inflation coupled with a low unemployment rate that occurred in the
1990s represented a "normal" economic situation.
ANS: F PTS: 1 DIF: Moderate NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
23. In both the 1970s and the 1990s, extreme economic events caused unemployment to move in the
same direction as inflation.
ANS: T PTS: 1 DIF: Moderate NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
, 24. The high unemployment of 2008-2010 caused a substantial decrease in inflation which created
fears of deflation.
ANS: T PTS: 1 DIF: Easy NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
25. A small increase in productivity growth can have a huge impact on a country's standard of living.
ANS: T PTS: 1 DIF: Moderate NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
26. Greater economic efficiency often leads to greater economic inequality.
ANS: T PTS: 1 DIF: Moderate NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
27. The concept of economic efficiency refers to the size of the "economic pie" whereas the concept
of equality refers to how the "pie" is distributed.
ANS: T PTS: 1 DIF: Easy NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
28. There is no trade-off between efficiency and equality.
ANS: F PTS: 1 DIF: Easy NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
29. The United States has chosen to balance the competing claims of efficiency versus equality by
emphasizing greater efficiency over greater equality.
ANS: T PTS: 1 DIF: Moderate NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
30. The achievement of greater efficiency in the United States has been at the expense of growing
inequality.
ANS: T PTS: 1 DIF: Easy NAT: Analytic
LOC: The Study of economics, and definitions in economics
TOP: Ideas for Beyond the Final Exam
31. One problem with the European Union's choice regarding equality versus efficiency is that it may
inadvertently shrink the size of its "economic pie".
ANS: T PTS: 1 DIF: Moderate NAT: Analytic
