Chapter 1: Ten Principles of Economics
MULTIPLE CHOICE
1. The word that comes from the Greek word for “one who manages a household” is
a. market. c. producer.
b. consumer. d. economy.
ANS: D PTS: 1 DIF: 1 REF: 1-0
TOP: Economy MSC: Definitional
2. The word “economy” comes from the Greek word oikonomos, which means
a. “environment.” c. “one who manages a household.”
b. “production.” d. “one who makes decisions.”
ANS: C PTS: 1 DIF: 1 REF: 1-0
TOP: Economy MSC: Definitional
3. Resources are
a. scarce for households but plentiful for economies.
b. plentiful for households but scarce for economies.
c. scarce for households and scarce for economies.
d. plentiful for households and plentiful for economies.
ANS: C PTS: 1 DIF: 1 REF: 1-0
TOP: Resources | Scarcity MSC: Interpretive
4. Economics deals primarily with the concept of
a. scarcity. c. change.
b. poverty. d. power.
ANS: A PTS: 1 DIF: 1 REF: 1-0
TOP: Scarcity MSC: Definitional
5. Which of the following questions is not answered by the decisions that every society must make?
a. What determines consumer preferences? c. Who will produce the goods?
b. What goods will be produced? d. Who will consume the goods?
ANS: A PTS: 1 DIF: 2 REF: 1-0
TOP: Economies MSC: Interpretive
6. The overriding reason as to why households and societies face many decisions is that
a. resources are scarce. c. incomes fluctuate with business cycles.
b. goods and services are not scarce. d. people, by nature, tend to disagree.
ANS: A PTS: 1 DIF: 2 REF: 1-0
TOP: Scarcity MSC: Interpretive
7. The phenomenon of scarcity stems from the fact that
a. the production methods of most economies are not very good.
b. in most economies, wealthy people consume disproportionate quantities of goods and
services.
c. governments restrict the production of too many goods and services.
d. resources are limited.
ANS: D PTS: 1 DIF: 2 REF: 1-0
TOP: Scarcity MSC: Interpretive
, 8. Approximately what percentage of the world’s economies experience scarcity?
a. 25% c. 75%
b. 50% d. 100%
ANS: D PTS: 1 DIF: 1 REF: 1-0
TOP: Scarcity MSC: Interpretive
9. When a society cannot produce all the goods and services people wish to have, it is said that the
economy is experiencing
a. scarcity. c. inefficiencies.
b. shortages. d. inequities.
ANS: A PTS: 1 DIF: 2 REF: 1-0
TOP: Scarcity MSC: Interpretive
10. For society, a good is not scarce if
a. at least one individual in society can obtain all he or she wants of the good.
b. firms are producing the good at full capacity.
c. all members of society can have all they want of the good.
d. those who have enough income can buy all they want of the good.
ANS: C PTS: 1 DIF: 1 REF: 1-0
TOP: Scarcity MSC: Interpretive
11. Which of the following products would be considered scarce?
a. golf clubs c. apples
b. Picasso paintings d. All the above are correct.
ANS: D PTS: 1 DIF: 2 REF: 1-0
TOP: Scarcity MSC: Interpretive
12. Economics is the study of
a. production methods.
b. how society manages its scarce resources.
c. how households decide who performs which tasks.
d. the interaction of business and government.
ANS: B PTS: 1 DIF: 1 REF: 1-0
TOP: Economies | Scarcity MSC: Definitional
13. Economics is the study of
a. how society manages its scarce resources. c. how a market system functions.
b. the government’s role in society. d. how to increase production.
ANS: A PTS: 1 DIF: 1 REF: 1-0
TOP: Economies | Scarcity MSC: Definitional
14. In most societies, resources are allocated by
a. a single central planner.
b. a small number of central planners.
c. those firms that use resources to provide goods and services.
d. the combined actions of millions of households and firms.
ANS: D PTS: 1 DIF: 1 REF: 1-0
TOP: Resource allocation MSC: Interpretive
15. The adage, “There is no such thing as a free lunch,” is used to illustrate the principle that
a. goods are scarce. c. income must be earned.
b. people face tradeoffs. d. households face many decisions.
, ANS: B PTS: 1 DIF: 2 REF: 1-1
TOP: Tradeoffs MSC: Interpretive
16. The adage, “There is no such thing as a free lunch,” means
a. even people on welfare have to pay for food.
b. the cost of living is always increasing.
c. to get something we like, we usually have to give up another thing we like.
d. all costs are included in the price of a product.
ANS: C PTS: 1 DIF: 1 REF: 1-1
TOP: Tradeoffs MSC: Definitional
17. Economists use the phrase “There is no such thing as a free lunch,” to illustrate the principle that
a. inflation almost always results in higher prices over time.
b. nothing is free in a market economy.
c. making decisions requires trading off one goal against another.
d. if something looks too good to be true, it probably is not worth pursuing.
ANS: C PTS: 1 DIF: 2 REF: 1-1
TOP: Tradeoffs MSC: Interpretive
18. Which of the following statements best represents the principle represented by the adage, “There is
no such thing as a free lunch?”
a. Kaylin can attend the concert only if she takes her sister with her.
b. Ali is hungry and homeless.
c. Brian must repair the tire on his bicycle before he can ride it to class.
d. Sharon must decide between going to Cambodia or Bali during her summer holidays.
ANS: D PTS: 1 DIF: 3 REF: 1-1
TOP: Tradeoffs MSC: Applicative
19. The principle that “people face tradeoffs” applies to
a. individuals. c. societies.
b. families. d. All the above are correct.
ANS: D PTS: 1 DIF: 1 REF: 1-1
TOP: Tradeoffs MSC: Applicative
20. A typical society strives to get the most it can from its scarce resources. At the same time, the society
attempts to distribute the benefits of those resources to the members of the society in a fair manner.
In other words, the society faces a tradeoff between
a. guns and butter. c. inflation and unemployment.
b. efficiency and equity. d. work and leisure.
ANS: B PTS: 1 DIF: 1 REF: 1-1
TOP: Efficiency | Equity MSC: Interpretive
21. Guns and butter are used to represent the classic societal tradeoff between spending on
a. durable and nondurable goods. c. national defense and consumer goods.
b. imports and exports. d. law enforcement and agriculture.
ANS: C PTS: 1 DIF: 1 REF: 1-1
TOP: Tradeoffs MSC: Interpretive
22. When society requires that firms reduce pollution, there is
a. a tradeoff because of reduced incomes to the firms’ owners and workers.
b. a tradeoff only if some firms are forced to close.
c. no tradeoff, since the cost of reducing pollution falls only on the firms affected by the
, requirements.
d. no tradeoff, since everyone benefits from reduced pollution.
ANS: A PTS: 1 DIF: 3 REF: 1-1
TOP: Tradeoffs MSC: Applicative
23. A tradeoff exists between a clean environment and a higher level of income in that
a. studies show that individuals with higher levels of income actually pollute less than low-
income individuals.
b. efforts to reduce pollution typically are not completely successful.
c. laws that reduce pollution raise costs of production and reduce incomes.
d. by employing individuals to clean up pollution, employment and income both rise.
ANS: C PTS: 1 DIF: 2 REF: 1-1
TOP: Tradeoffs MSC: Applicative
24. Which of the following phrases best captures the notion of efficiency?
a. absolute fairness c. minimum waste
b. equal distribution d. equitable outcome
ANS: C PTS: 1 DIF: 1 REF: 1-1
TOP: Efficiency MSC: Interpretive
25. Which of the following is true?
a. Efficiency refers to the size of the economic pie; equity refers to how the pie is divided.
b. Government policies usually improve upon both equity and efficiency.
c. As long as the economic pie continually gets larger, no one will have to go hungry.
d. Efficiency and equity can both be achieved if the economic pie is cut into equal pieces.
ANS: A PTS: 1 DIF: 2 REF: 1-1
TOP: Efficiency | Equity MSC: Interpretive
26. Efficiency means that
a. society is conserving resources in order to save them for the future.
b. society’s goods and services are distributed equally among society’s members.
c. society’s goods and services are distributed fairly, though not necessarily equally, among
society’s members.
d. society is getting the maximum benefits from its scarce resources.
ANS: D PTS: 1 DIF: 1 REF: 1-1
TOP: Efficiency MSC: Definitional
27. Economists use the word equity to describe a situation in which
a. each member of society has the same income.
b. each member of society has access to abundant quantities of goods and services,
regardless of his or her income.
c. society is getting the maximum benefits from its scarce resources.
d. the benefits of society’s resources are distributed fairly among society’s members.
ANS: D PTS: 1 DIF: 2 REF: 1-1
TOP: Equity MSC: Interpretive
28. Member of Parliament John Chiu wants to increase taxes on people with high incomes and use the
money to help the poor. Member of Parliament Steven Png argues that such a tax will discourage
successful people from working and will therefore make society worse off. An economist would say
that
a. we should agree with Member of Parliament John Chiu.
b. we should agree with Member of Parliament Steven Png.
MULTIPLE CHOICE
1. The word that comes from the Greek word for “one who manages a household” is
a. market. c. producer.
b. consumer. d. economy.
ANS: D PTS: 1 DIF: 1 REF: 1-0
TOP: Economy MSC: Definitional
2. The word “economy” comes from the Greek word oikonomos, which means
a. “environment.” c. “one who manages a household.”
b. “production.” d. “one who makes decisions.”
ANS: C PTS: 1 DIF: 1 REF: 1-0
TOP: Economy MSC: Definitional
3. Resources are
a. scarce for households but plentiful for economies.
b. plentiful for households but scarce for economies.
c. scarce for households and scarce for economies.
d. plentiful for households and plentiful for economies.
ANS: C PTS: 1 DIF: 1 REF: 1-0
TOP: Resources | Scarcity MSC: Interpretive
4. Economics deals primarily with the concept of
a. scarcity. c. change.
b. poverty. d. power.
ANS: A PTS: 1 DIF: 1 REF: 1-0
TOP: Scarcity MSC: Definitional
5. Which of the following questions is not answered by the decisions that every society must make?
a. What determines consumer preferences? c. Who will produce the goods?
b. What goods will be produced? d. Who will consume the goods?
ANS: A PTS: 1 DIF: 2 REF: 1-0
TOP: Economies MSC: Interpretive
6. The overriding reason as to why households and societies face many decisions is that
a. resources are scarce. c. incomes fluctuate with business cycles.
b. goods and services are not scarce. d. people, by nature, tend to disagree.
ANS: A PTS: 1 DIF: 2 REF: 1-0
TOP: Scarcity MSC: Interpretive
7. The phenomenon of scarcity stems from the fact that
a. the production methods of most economies are not very good.
b. in most economies, wealthy people consume disproportionate quantities of goods and
services.
c. governments restrict the production of too many goods and services.
d. resources are limited.
ANS: D PTS: 1 DIF: 2 REF: 1-0
TOP: Scarcity MSC: Interpretive
, 8. Approximately what percentage of the world’s economies experience scarcity?
a. 25% c. 75%
b. 50% d. 100%
ANS: D PTS: 1 DIF: 1 REF: 1-0
TOP: Scarcity MSC: Interpretive
9. When a society cannot produce all the goods and services people wish to have, it is said that the
economy is experiencing
a. scarcity. c. inefficiencies.
b. shortages. d. inequities.
ANS: A PTS: 1 DIF: 2 REF: 1-0
TOP: Scarcity MSC: Interpretive
10. For society, a good is not scarce if
a. at least one individual in society can obtain all he or she wants of the good.
b. firms are producing the good at full capacity.
c. all members of society can have all they want of the good.
d. those who have enough income can buy all they want of the good.
ANS: C PTS: 1 DIF: 1 REF: 1-0
TOP: Scarcity MSC: Interpretive
11. Which of the following products would be considered scarce?
a. golf clubs c. apples
b. Picasso paintings d. All the above are correct.
ANS: D PTS: 1 DIF: 2 REF: 1-0
TOP: Scarcity MSC: Interpretive
12. Economics is the study of
a. production methods.
b. how society manages its scarce resources.
c. how households decide who performs which tasks.
d. the interaction of business and government.
ANS: B PTS: 1 DIF: 1 REF: 1-0
TOP: Economies | Scarcity MSC: Definitional
13. Economics is the study of
a. how society manages its scarce resources. c. how a market system functions.
b. the government’s role in society. d. how to increase production.
ANS: A PTS: 1 DIF: 1 REF: 1-0
TOP: Economies | Scarcity MSC: Definitional
14. In most societies, resources are allocated by
a. a single central planner.
b. a small number of central planners.
c. those firms that use resources to provide goods and services.
d. the combined actions of millions of households and firms.
ANS: D PTS: 1 DIF: 1 REF: 1-0
TOP: Resource allocation MSC: Interpretive
15. The adage, “There is no such thing as a free lunch,” is used to illustrate the principle that
a. goods are scarce. c. income must be earned.
b. people face tradeoffs. d. households face many decisions.
, ANS: B PTS: 1 DIF: 2 REF: 1-1
TOP: Tradeoffs MSC: Interpretive
16. The adage, “There is no such thing as a free lunch,” means
a. even people on welfare have to pay for food.
b. the cost of living is always increasing.
c. to get something we like, we usually have to give up another thing we like.
d. all costs are included in the price of a product.
ANS: C PTS: 1 DIF: 1 REF: 1-1
TOP: Tradeoffs MSC: Definitional
17. Economists use the phrase “There is no such thing as a free lunch,” to illustrate the principle that
a. inflation almost always results in higher prices over time.
b. nothing is free in a market economy.
c. making decisions requires trading off one goal against another.
d. if something looks too good to be true, it probably is not worth pursuing.
ANS: C PTS: 1 DIF: 2 REF: 1-1
TOP: Tradeoffs MSC: Interpretive
18. Which of the following statements best represents the principle represented by the adage, “There is
no such thing as a free lunch?”
a. Kaylin can attend the concert only if she takes her sister with her.
b. Ali is hungry and homeless.
c. Brian must repair the tire on his bicycle before he can ride it to class.
d. Sharon must decide between going to Cambodia or Bali during her summer holidays.
ANS: D PTS: 1 DIF: 3 REF: 1-1
TOP: Tradeoffs MSC: Applicative
19. The principle that “people face tradeoffs” applies to
a. individuals. c. societies.
b. families. d. All the above are correct.
ANS: D PTS: 1 DIF: 1 REF: 1-1
TOP: Tradeoffs MSC: Applicative
20. A typical society strives to get the most it can from its scarce resources. At the same time, the society
attempts to distribute the benefits of those resources to the members of the society in a fair manner.
In other words, the society faces a tradeoff between
a. guns and butter. c. inflation and unemployment.
b. efficiency and equity. d. work and leisure.
ANS: B PTS: 1 DIF: 1 REF: 1-1
TOP: Efficiency | Equity MSC: Interpretive
21. Guns and butter are used to represent the classic societal tradeoff between spending on
a. durable and nondurable goods. c. national defense and consumer goods.
b. imports and exports. d. law enforcement and agriculture.
ANS: C PTS: 1 DIF: 1 REF: 1-1
TOP: Tradeoffs MSC: Interpretive
22. When society requires that firms reduce pollution, there is
a. a tradeoff because of reduced incomes to the firms’ owners and workers.
b. a tradeoff only if some firms are forced to close.
c. no tradeoff, since the cost of reducing pollution falls only on the firms affected by the
, requirements.
d. no tradeoff, since everyone benefits from reduced pollution.
ANS: A PTS: 1 DIF: 3 REF: 1-1
TOP: Tradeoffs MSC: Applicative
23. A tradeoff exists between a clean environment and a higher level of income in that
a. studies show that individuals with higher levels of income actually pollute less than low-
income individuals.
b. efforts to reduce pollution typically are not completely successful.
c. laws that reduce pollution raise costs of production and reduce incomes.
d. by employing individuals to clean up pollution, employment and income both rise.
ANS: C PTS: 1 DIF: 2 REF: 1-1
TOP: Tradeoffs MSC: Applicative
24. Which of the following phrases best captures the notion of efficiency?
a. absolute fairness c. minimum waste
b. equal distribution d. equitable outcome
ANS: C PTS: 1 DIF: 1 REF: 1-1
TOP: Efficiency MSC: Interpretive
25. Which of the following is true?
a. Efficiency refers to the size of the economic pie; equity refers to how the pie is divided.
b. Government policies usually improve upon both equity and efficiency.
c. As long as the economic pie continually gets larger, no one will have to go hungry.
d. Efficiency and equity can both be achieved if the economic pie is cut into equal pieces.
ANS: A PTS: 1 DIF: 2 REF: 1-1
TOP: Efficiency | Equity MSC: Interpretive
26. Efficiency means that
a. society is conserving resources in order to save them for the future.
b. society’s goods and services are distributed equally among society’s members.
c. society’s goods and services are distributed fairly, though not necessarily equally, among
society’s members.
d. society is getting the maximum benefits from its scarce resources.
ANS: D PTS: 1 DIF: 1 REF: 1-1
TOP: Efficiency MSC: Definitional
27. Economists use the word equity to describe a situation in which
a. each member of society has the same income.
b. each member of society has access to abundant quantities of goods and services,
regardless of his or her income.
c. society is getting the maximum benefits from its scarce resources.
d. the benefits of society’s resources are distributed fairly among society’s members.
ANS: D PTS: 1 DIF: 2 REF: 1-1
TOP: Equity MSC: Interpretive
28. Member of Parliament John Chiu wants to increase taxes on people with high incomes and use the
money to help the poor. Member of Parliament Steven Png argues that such a tax will discourage
successful people from working and will therefore make society worse off. An economist would say
that
a. we should agree with Member of Parliament John Chiu.
b. we should agree with Member of Parliament Steven Png.
