1.

Guns and butter are used to represent the classic societal tradeoff
between spending on (4 Points)
A.law enforcement and agriculture.
B. durable and nondurable goods.
C.national defense and consumer goods.
D. imports and exports.
2.Which of the following could reduce economic efficiency? (4
Points)
A. laws that encourage lawsuits
B. policies that redistribute income
C. policies that impose significant restrictions on international trade
D. All of the above are correct
3.In the markets for goods and services in the circular-flow diagram
(4 Points)
A.households and firms are both sellers.
B. households are buyers and firms are sellers.
C. households and firms are both buyers.
D.households are sellers and firms are buyers.
4. A construction company has built 30 houses so far this year at a
total cost to the company of $7.5 million. If the company builds a
31st house, its total cost will increase to $7.76 million. Which of the
following statements is correct? (4 Points)
A. For the first 30 houses, the average cost per house was $250,000.
B. The marginal cost of the 31st house, if it is built, will be $260,000.
C. If the company can experience a marginal benefit of $275,000 by
building the 31st house, then the company should build it.
D. All of the above are correct.
5. The "invisible hand" directs economic activity through (4 Points)
A. advertising.
B. government regulations.
C. prices.
D. central planning.
6.The quantity demanded of a good is the amount that buyers are (4
Points)
A. willing to purchase.
B. willing and able to purchase.
C. able to purchase.
D. willing, able, and need to purchase.
7. Trade between countries tends to (4 Points)
A. reduce both competition and specialization.
B. increase both competition and specialization.
C. reduce competition and increase specialization.
D. increase competition and reduce specialization.
8. A rational decision maker takes an action if and only if (4 Points)
A. the average benefit of the action exceeds the average cost.
B. the average cost of the action exceeds the average benefit.
C.the marginal cost of the action exceeds the marginal benefit.
D.the marginal benefit of the action exceeds the marginal cost.
9. The unique point at which the supply and demand curves
intersect is called (4 Points)
A. equivalence.
B.market harmony.
C. coincidence.
D. equilibrium.
10. Which of the following statements is correct? (4 Points)
A. Economics is not a true science because economists are not usually
allowed to conduct experiments to test their theories.
B. Economics is a social science rather than a true science because it
cannot employ the scientific method.
C. Economists are usually not able to conduct experiments, so they must
rely on natural experiments offered by history.
D. Economists almost always find it easy to conduct experiments in
order to test their theories
11. If the government removes a binding price ceiling from a
market, then the price paid by buyers will (4 Points)
A. decrease, and the quantity sold in the market will decrease.
B. increase, and the quantity sold in the market will decrease.
C. increase, and the quantity sold in the market will increase.
D. decrease, and the quantity sold in the market will increase.
12. Prices direct economic activity in a market economy by (4
Points)
A. allocating goods and services in the most equitable way.
B. influencing the actions of buyers and sellers.
C. reducing scarcity of the goods and services produced.
D. reducing opportunity cost of goods and services produced.
13. The overriding reason why households and societies face many
decisions is that (4 Points)
a. incomes fluctuate with business cycles.
b. goods and services are not scarce.
c. people, by nature, tend to disagree.
d. resources are scarce.
14. A tradeoff exists between a clean environment and a higher level
of income in that (4 Points)
A. efforts to reduce pollution typically are not completely successful.
B. studies show that individuals with higher levels of income pollute less
than low-income individuals.
C. employing individuals to clean up pollution causes increases in
employment and income.
D. laws that reduce pollution raise costs of production and reduce
incomes.
15.In markets, prices move toward equilibrium because of (4 Points)
A. increased competition among sellers.
B. government regulations placed on market participants.
C. the actions of buyers and sellers.
D. buyers' ability to affect market outcomes.
16. A movement downward and to the right along a demand curve is
called a(n) (4 Points)
A. decrease in quantity demanded.
B. increase in demand.
C. decrease in demand.
D. increase in quantity demanded.
17. Buyers are able to buy all they want to buy and sellers are able
to sell all they want to sell at (4 Points)
A. prices at and below the equilibrium price.
B. prices above and below the equilibrium price, but not at the
equilibrium price.
C. the equilibrium price but not above or below the equilibrium price.
D. prices at and above the equilibrium price.
18. An increase in quantity demanded (4 Points)
A. shifts the demand curve to the right.
B. results in a movement upward and to the left along a demand curve.
C. shifts the demand curve to the left.
D. results in a movement downward and to the right along a demand
curve.
19. A legal maximum on the price at which a good can be sold is
called a price (4 Points)
A. floor.
B. subsidy.
C. ceiling.
D. support.
20. When consumers face rising gasoline prices, they typically (4
Points)
A. do not reduce their quantity demanded in the short run or the long
run.
B. reduce their quantity demanded more in the long run than in the short
run.
C.reduce their quantity demanded more in the short run than in the long
run.
D. increase their quantity demanded in the short run but reduce their
quantity demanded in the long run.
21.In general, elasticity is a measure of (4 Points)
A. the extent to which advances in technology are adopted by producers.
B. how much buyers and sellers respond to changes in market
conditions.
C. how firms’ profits respond to changes in market prices.
D. the extent to which a market is competitive.
22. The language of economics is (4 Points)
A. for a thorough unnecessary to learn understanding of economics.
B. needlessly arcane.
C. valuable because it provides a new and useful way of learning about
the world.
D. easy to learn within a day.
23. In the circular-flow diagram, (4 Points)
A. All of the above are correct.
B. profit flows from households to firms.
C. labor flows from households to firms.
D. services flow from households to firms.