1. When an economy is operating inside its production possibilities frontier, we know that

A. there are unused resources or inefficiencies in the economy.

b. all of the economy's resources are fully employed.

C. economic growth would have to occur in order for the economy to move to a point on the frontier.

D. in order to produce more of one good, the economy would have to give up some of the other good.

2. In the circular-flow diagram, which of the following items flows from households to firms through the markets for goods and services?

A. goods and services

B. dollars paid to land, labor, and capital

C. dollars spent on goods and services

D. wages, rent, and profit

3. When the France trades with Russia,

A. both countries are likely made better off.

B.only Russia benefits since France can produce all goods at a higher level of quality than Russia.

C. only France benefits since Russia's low wages guarantee profitable firms in Russia regardless of trade.

D.neither country will benefit since France is more efficient than Russia at producing all goods.

4. Suppose the cost of operating a 100 room hotel for a night is $10,000 and there are 5 empty rooms for tonight. If the marginal cost of operating one room for one night is $30 and a customer is willing to pay $60 for the night, the hotel manager should

A. rent the room because the marginal benefit exceeds the marginal cost.

B. rent the room because the marginal benefit exceeds the average cost.

C. not rent the room because the marginal benefit is less than the marginal cost.

D.not rent the room because the marginal benefit is less than the average cost.

5. 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.

6. A construction company has built 25 houses so far this year at a total cost to the company of $7.2 million. If the company builds a 26th house, its total cost will increase to $7.5 million. Which of the following statements is correct?

A. For the first 25 houses, the average cost per house was $288,000.

B. The marginal cost of the 26th house, if it is built, will be equal to the average cost per house.

C. If the company can experience a marginal benefit of $288,000 by building the 26th house, then the company should build it.

D.All of the above are correct.

7. A barber currently cuts hair for 50 clients per week and earns a profit. He is considering expanding his operation in order to serve more clients. Should he expand?

A. Yes, because cutting hair is profitable.

B. No, because he may not be able to sell more services.

C. It depends on the marginal cost of serving more clients and the marginal revenue he will earn from serving more clients.

D. It depends on the average cost of serving more clients and the average revenue he will earn from serving more clients.

8. Senator Bright, who understands economic principles, is trying to convince workers in her district that trade with other countries is beneficial. Senator Bright should argue that trade can be beneficial

A. only if it allows us to obtain things that we couldn't make for ourselves.

B. because it allows specialization, which increases total output.

C. to us if we can gain and the others involved in the trade lose.

D.in only a limited number of circumstances because others are typically self-interested.

9. Slow growth in US incomes during the 1970s and 1980s was primarily due to

A. slow productivity growth in the US.

B. increased competition from Japan.

C. increased competition from European countries.

D.a rapid decrease in the quantity of money in the economy.

10. In the markets for goods and services in the circular-flow diagram,

A. households provide firms with savings for investment.

B. households provide firms with labor, land, and capital.

C. firms provide households with output.

D. firms provide households with profit.

11. For economists, statements about the world are of two types:

A. assumptions and theories.

B. true statements and false statements.

specific statements and general statements.

positive statements and normative statements.

12. In a particular country in 1998, the average worker needed to work 40 hours to produce 100 units of output. In that same country in 2008, the average worker needed to work 36 hours to produce 72 units of output. In that country, the productivity of the average worker

A. decreased between 1998 and 2008, so we would expect the standard of living to have decreased accordingly.

B. increased between 1998 and 2008, so we would expect the standard of living to have increased accordingly.

C.decreased between 1998 and 2008, so we would expect inflation to have decreased accordingly.

D. increased between 1998 and 2008, so we would expect inflation to have increased accordingly.

13. A statement describing how the world is

A. is a normative statement.

B. is a positive statement.

C. would only be made by an economist speaking as a policy adviser.

D. would only be made by an economist employed by the government.

14. In the simple circular-flow diagram, the participants in the economy are

A. firms and government.

B. households and firms.

C. households and government.

D. households, firms, and government

15. Economists speaking like scientists make

A. normative statements.

B. prescriptive statements.

C. claims about how the world is.

D. claims about how the world should be.

16. A statement describing how the world should be

A. is a normative statement.

B. is a positive statement.

C. would only be made by an economist speaking as a scientist.

D.would only be made by an economist employed by the government.

17. The term market failure refers to

A. a situation in which the market on its own fails to allocate resources efficiently.

B. an unsuccessful advertising campaign which reduces demand for a product.

C. a situation in which competition among firms becomes ruthless.

D. a firm which is forced out of business because of losses.