Question 1

In considering how to allocate its scarce resources among its various members, a household considers
A)each member's abilities.
B)each member's efforts.
C)each member's desires.
D)All of the above are correct.

Accepted Answer

When a household allocates its resources among its members, it's important to take into consideration each member's abilities, efforts, and desires. Abilities may impact one's earning potential or ability to contribute to household chores; efforts may indicate willingness to contribute to household tasks or achieve personal goals; and desires may affect what resources each member needs or wants to fulfill their needs and wants. Therefore, all of the above factors are important to consider when allocating household resources.

Question 2

The phenomenon of scarcity stems from the fact that
A)most economies' production methods are not very good.
B)in most economies, wealthy people consume disproportionate quantities of goods and services.
C)governments restrict production of too many goods and services.
D)resources are limited.

Accepted Answer

Scarcity exists because resources are limited. There are not enough resources to produce everything that people want and need, so choices must be made about what to produce, how to produce it, and for whom to produce it. This is the fundamental economic problem that all societies face.

Question 3

The word "economy" comes from the Greek word oikonomos, which means
A)"environment."
B)"production."
C)"one who manages a household."
D)"one who makes decisions."

Accepted Answer

The word "oikonomos" means "one who manages a household" in Greek. This is where the word "economy" comes from, as it originally referred to the management of a household's resources. Over time, the definition of "economy" has expanded to include the management of a larger group's resources, such as a country or region.

Question 4

An example of a firm with market power is a
A)delicatessen in New York.
B)cable TV provider in Tulsa.
C)clothing store in Chicago.
D)family farm in Kansas.

Accepted Answer

A cable TV provider in Tulsa has market power as they are likely the only provider in the area with exclusive rights to provide service, giving them the ability to set prices without much competition. The other options do not necessarily have market power.

Question 5

Air pollution from burning fossil fuels causes damages to crops and public health. This is an example of
A)a market failure caused by an externality.
B)a market failure caused by market power.
C)a market failure caused by equality.
D)There is no market failure in this case.

Accepted Answer

This scenario involves a negative externality, where the negative effects of burning fossil fuels are not reflected in the market price of the fuels. As a result, people and crops are harmed by pollution, which is a market failure caused by the externality.

Question 6

Water pollution from pulp and paper mills harms plants, animals, and humans. This is an example of
A)a market failure caused by an externality.
B)a market failure caused by market power.
C)a market failure caused by equality.
D)There is no market failure in this case.

Accepted Answer

The negative externalities of water pollution from pulp and paper mills harm plants, animals, and humans who do not participate in the production or consumption of the product, and are not compensated for the harm caused. Therefore, this is an example of a market failure caused by an externality.

Question 7

The English word that comes from the Greek word for "one who manages a household" is
A)market.
B)consumer.
C)producer.
D)economy.

Accepted Answer

The Greek word for "one who manages a household" is "oikonomos," which is the root for the English word "economy." This is because the management of a household involves making decisions about how to allocate resources and manage finances, just as a national economy involves managing resources and finances on a larger scale.

Question 8

Adam Smith's insight was that prices adjust to guide individual buyers and sellers to reach outcomes where, in many cases,
A)opportunity cost is minimized for buyers.
B)scarcity is reduced for society.
C)well-being of society is maximized.
D)opportunity cost of production is maximized.

Accepted Answer

Adam Smith believed that the free market system, with its invisible hand, would lead to the well-being of society being maximized. In his view, when buyers and sellers freely interacted in the market, they would be guided by self-interest to make decisions that would benefit themselves, but also lead to a positive overall outcome for society as a whole. This is based on the idea that when individuals pursue their own self-interest, it leads to competition that drives innovation, efficiency, and ultimately, economic growth.

Question 9

Mary and Martha both can make cookies and cakes of the same quality, though Mary can make more of both cookies and cakes per hour than Martha. With the bake-sale quickly approaching, they want to make as many cookies and cakes as possible. In which of the following situations will the most cookies and cakes be made?
A)Mary makes as many cookies and cakes as she can, while Martha does nothing.
B)Martha makes as many cookies and cakes as she can, while Mary does nothing.
C)​Mary and Martha both specialize in what they are better at making.
D)There is not enough information.

Accepted Answer

Since Mary can make more of both cookies and cakes per hour than Martha, it's best for Mary to focus on making both cookies and cakes while Martha specializes in the one that she is best at making. This will maximize the number of cookies and cakes that can be made in a given amount of time.

Question 10

Which of the following is correct?
A)The word economy comes from the Greek word for "rational thinker."
B)Economists study the management of scarce resources.
C)Because economists believe that people pursue their best interests, they are not interested in how people interact.
D)All of the above are correct.

Accepted Answer

Option B is correct as it accurately describes the area of study of economists. Option A is incorrect as the word economy comes from the Greek word "oikonomia," which means household management. Option C is incorrect as economists are interested in studying how people interact in markets and how their individual behavior affects the overall economy. Therefore, the answer is B.

Question 11

The overriding reason why households and societies face many decisions is that
A)resources are scarce.
B)goods and services are not scarce.
C)incomes fluctuate with business cycles.
D)people, by nature, tend to disagree.

Accepted Answer

The scarcity of resources, such as time, money, and natural resources, is the primary reason why households and societies are required to make choices. Scarcity means that there are not enough resources to satisfy all of the wants and needs of people. Therefore, people must choose how to use their limited resources in the most efficient way possible.

Question 12

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.

Accepted Answer

Resources are scarce for both households and economies. This is because there are limited resources available to satisfy the unlimited wants and needs of individuals and societies. While some resources may be more plentiful than others, all resources are ultimately limited in availability.

Question 13

Which of the following firms is likely to have the greatest market power?
A)an electric company
B)a farmer
C)a grocery store
D)a local electronics retailer

Accepted Answer

An electric company is likely to have the greatest market power as they supply an essential product that is difficult for consumers to switch from. In many areas, electric companies are monopolies or part of an oligopoly, giving them significant pricing power and little competition.

Question 14

Which of the following is true about how the "invisible hand" influences economic activity through prices when a product has lower demand than supply?​
A)​The price must decrease, causing more buyers to buy and less sellers to sell.
B)​The price must decrease, causing more buyers to buy and more sellers to sell.
C)​The price must increase, causing less buyers to buy and more sellers to sell.
D)​The price must increase, causing less buyers to buy and less sellers to sell.

Accepted Answer

When there is lower demand than supply, the price must decrease according to the law of supply and demand. This will encourage more buyers to buy and fewer sellers to sell, eventually reaching a new equilibrium point where the quantity demand equals quantity supplied. This process is guided by the "invisible hand" of the market, where the actions of buyers and sellers interact to determine the price and quantity of a good or service.

Question 15

When a single person (or small group) has the ability to influence market prices, there is
A)competition.
B)market power.
C)an externality.
D)a lack of property rights.

Accepted Answer

When a single person or small group has the ability to influence market prices, it is a case of market power. This can come in the form of a monopoly, oligopoly, or even just a powerful individual or group that controls a significant portion of the market. Competition is the opposite of market power, and exists when there are many buyers and sellers in the market. An externality refers to a cost or benefit that affects a party who did not choose to incur that cost or benefit, and a lack of property rights refers to a situation where property rights are not clearly defined or enforced.

Question 16

Which of the following firms is most likely to have market power?
A)a grocery store in a metropolitan area
B)a convenience store in a suburb
C)a pub in a college town
D)the only gasoline station in a rural area

Accepted Answer

The only gasoline station in a rural area is most likely to have market power because it faces little to no competition in its area, giving it the ability to set prices higher than it would in a more competitive market.

Question 17

Market power refers to the
A)power of a single person or small group to influence market prices.
B)ability of a person or small group to successfully market new products.
C)power of the government to regulate a market.
D)importance of a certain market in relation to the overall economy.

Accepted Answer

Market power refers to the ability of a firm or a group of firms to affect the price or quantity of a product in the markets they serve. It means that they have the power to influence the market conditions to their advantage. This can be due to factors like monopoly or oligopoly, barriers to entry, patent protection, or superior technology.

Question 18

Fundamentally, economics deals with
A)scarcity.
B)money.
C)poverty.
D)banking.

Accepted Answer

Economics is the study of how society manages its scarce resources. Therefore, scarcity is at the core of economics. While money, poverty, and banking are all important concepts within economics, they are not fundamentally what economics is about.

Question 19

The price of diamonds is high, in part because the majority of the world's diamonds are controlled by a single firm. This is an example of
A)a market failure caused by an externality.
B)a market failure caused by market power.
C)a market failure caused by equality.
D)There is no market failure in this case.

Accepted Answer

The fact that a single firm controls the majority of the world's diamonds gives them market power, which allows them to set prices higher than they would be in a more competitive market. This is a type of market failure caused by market power.

Question 20

A society allocates its scarce resources to various uses. These scarce resources include
A)land.
B)people.
C)machines.
D)All of the above are correct.

Accepted Answer

A society allocates its scarce resources to various uses, which include land, people, and machines. Therefore, all of the above options are correct.

Quiz 1: Ten Principles of Economics

In considering how to allocate its scarce resources among its various members, a household considers

The phenomenon of scarcity stems from the fact that

The word "economy" comes from the Greek word oikonomos, which means

An example of a firm with market power is a

Air pollution from burning fossil fuels causes damages to crops and public health. This is an example of

Water pollution from pulp and paper mills harms plants, animals, and humans. This is an example of

The English word that comes from the Greek word for "one who manages a household" is

Adam Smith's insight was that prices adjust to guide individual buyers and sellers to reach outcomes where, in many cases,

Which of the following is correct?

The overriding reason why households and societies face many decisions is that

Resources are

Which of the following firms is likely to have the greatest market power?

Which of the following is true about how the "invisible hand" influences economic activity through prices when a product has lower demand than supply?​

When a single person (or small group) has the ability to influence market prices, there is

Which of the following firms is most likely to have market power?

Market power refers to the

Fundamentally, economics deals with

The price of diamonds is high, in part because the majority of the world's diamonds are controlled by a single firm. This is an example of

A society allocates its scarce resources to various uses. These scarce resources include

Which of the following is true about how the "invisible hand" influences economic activity through prices when a product has lower demand than supply?