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,TESTBANK FOR Principles of Macroeconomics , 9th
Edition N. Gregory Mankiw
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,Name: Class: Date:

Chapter 1 - Ten Principles of Economics
1. What does scarcity mean?
a. a consumer can chose one product from many b. It is too costly to produce some goods.
available products.
c. no society can produce all goods and services d. only some societies can produce all
goods and services.

ANSWER: c

2. What of the following is NOT analyzed by economists?
a. growth in average income
b. inflation
c. unemployment
d. international behaviour of economic agents

ANSWER: d

3. Which word comes from the Greek word for “one who manages a household”?
a. market
b. bank
c. government
d. economy

ANSWER: d

4. From which of the following is the word “economy” derived?
a. one who consumes goods b. one who manages a household
c. one who participates in a market d. one who governs a country

ANSWER: b

5. What do households and economies have in common?
a. They both must allocate scarce resources.
b. They both face difficulties saving money.
c. They both must sell the goods and services they produce.
d. They both must have a central decision maker.

ANSWER: a

6. What concept does economics primarily deal with?
a. scarcity b. poverty
c. change d. power

ANSWER: a

7. What is NOT included in the decisions that every society must make?
a. what goods will be produced b. who will produce the goods
c. what determines consumer preferences d. who will consume the goods

ANSWER: c

8. Why do both households and societies face many decisions?
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,Name: Class: Date:

Chapter 1 - Ten Principles of Economics
a. Resources are scarce.
b. Populations may fluctuate over time.
c. Wages for households and therefore society fluctuate with business cycles.
d. People, by nature, tend to disagree.

ANSWER: a

9. When is a good considered scarce in a society?
a. when more output of the good is possible
b. when everyone in that society cannot have all they want of the good
c. when the government restricts production of the good
d. when only the richest people in the economy can buy all they want of the good

ANSWER: b

10. When does scarcity exist?
a. when there is less than an infinite amount of a resource or good
b. when society can meet the wants of every individual
c. when there are fewer goods or resources available than people wish to have
d. when the government fails to produce goods

ANSWER: c

11. How are goods and services allocated in a market economy?
a. by government decisions
b. by giving each individual just enough for a decent standard of living
c. by the actions of all firms and consumers
d. by inherited rights and properties

ANSWER: c

12. Approximately what percentage of the world’s economies experience scarcity?
a. 30 b. 45
c. 60 d. 100

ANSWER: d

13. What is an economy experiencing when a society cannot produce all the goods and services people
wish to have?
a. scarcity b. economic growth
c. competition d. market failure

ANSWER: a

14. For society, when is a good NOT scarce?
a. if at least one individual in society can obtain all he or she wants of the good
b. if firms are producing at full capacity
c. if all members of society can have all they want of the good
d. if those who have enough income can buy all they want of the good

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,Name: Class: Date:

Chapter 1 - Ten Principles of Economics
ANSWER: c

15. Which good best meets the definition of scarcity?
a. air b. water in the ocean
c. electricity in a city d. sunlight

ANSWER: c

16. What does economics study?
a. finance
b. how society manages its scarce resources
c. central planning
d. government regulation

ANSWER: b

17. In most societies, who allocates resources?
a. a single central planner
b. those who own the resources
c. those firms that use resources to provide goods and services
d. the combined actions of millions of households and firms

ANSWER: d

18. What do economists study?
a. how people make decisions
b. how governments interact with one another
c. the forces and trends that affect only the economy as a whole
d. how societies change over time

ANSWER: a

19. Which of the following is NOT a major area of study for economists?
a. how people make decisions
b. how countries choose national leaders
c. how people interact with each other
d. how forces and trends affect the overall economy

ANSWER: b

20. What concept is illustrated by the old saying, “There is no such thing as a free lunch”?
a. tradeoffs b. scarcity
c. productivity d. efficiency

ANSWER: a

21. Which statement best describes the concept represented by the old saying “There is no such thing as a
free lunch”?
a. Melissa can only attend the concert if she takes her sister with her.
b. Greg is hungry and homeless.
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,Name: Class: Date:

Chapter 1 - Ten Principles of Economics
c. Brian must repair the tire on his bike before he can ride it to class.
d. Olivia must decide between skiing at Whistler or Lake Louise for spring break.

ANSWER: d

22. Guns and butter represent the classic societal tradeoff between spending on which two items?
a. durable and nondurable goods b. imports and exports
c. national defence and consumer goods d. law enforcement and agriculture

ANSWER: c

23. Henry decides to spend two hours swimming at the beach rather than working at his job, which pays
$16 per hour. What is Henry’s tradeoff?
a. the $32 he could have earned working for two hours
b. nothing, because he enjoys going to the beach more than working
c. the increase in skill he obtains from swimming for those two hours
d. nothing, because he spent $32 on new swim shorts

ANSWER: a

24. What happens when society requires that firms reduce pollution?
a. There is a tradeoff because of reduced incomes to the firms' owners, workers, and customers.
b. There is no tradeoff, since everyone benefits from reduced pollution.
c. There is no tradeoff for society as a whole because the cost of reducing pollution falls only on
the firms affected by the requirements.
d. There is a tradeoff only if some firms are forced to close.

ANSWER: a

25. Aimee decides to spend the last two hours of the night before her economics exam studying instead of
sleeping. For Aimee, what would her tradeoff be?
a. nothing, because no dollar value can be put on sleep
b. nothing, because studying would be more beneficial than sleep
c. the six hours of sleep she could have had if she had gone to bed before midnight
d. the two hours of rest she would have gotten

ANSWER: d

26. How does a tradeoff exist between a clean environment and a higher level of income?
a. Studies show that individuals with higher levels of income purchase more environmentally
friendly products than low-income individuals.
b. To pay for pollution cleanup, the government must increase taxes, which lowers income.
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.

ANSWER: c

27. Which of the following would NOT be a result of laws that require firms to reduce pollution?
a. lower spending by government b. higher prices to consumers
c. lower wages to workers d. smaller profit to firms
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,Name: Class: Date:

Chapter 1 - Ten Principles of Economics

ANSWER: a

28. What will pollution regulations do?
a. increase profit to firms b. impose a tradeoff on society
c. allow firms to raise workers’ wages d. lower prices for consumers

ANSWER: b

29. Which concept best defines efficiency?
a. absolute fairness b. equal distribution
c. maximum benefits from resources d. consumer satisfaction

ANSWER: c

30. What does efficiency mean?
a. Society is conserving resources in order to save them for the future.
b. Society’s goods and services are distributed fairly among society’s members.
c. Society has lessened its dependence on non-renewable energy sources.
d. Society is getting the most it can from its scarce resources.

ANSWER: d

31. Which of the following does NOT necessarily promote equity?
a. cash transfers during the COVID-19 pandemic
b. employment insurance
c. increase in income taxes
d. ensuring property rights

ANSWER: d

32. In which situation would economists use the word equity?
a. Each member of society has the same income.
b. Society is getting the most it can from its scarce resources.
c. Those in society who have the least will receive the most.
d. The benefits of society’s resources are distributed fairly among society’s members.

ANSWER: d

33. What is one definition of equity?
a. equality b. efficiency
c. fairness d. similarity

ANSWER: c

34. What happens when government policies are being designed?
a. There is usually a tradeoff between equity and efficiency.
b. Equity and efficiency goals are usually independent of each other.
c. Equity can usually be achieved without an efficiency loss.
d. Increasing efficiency usually results in more equity.
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,Name: Class: Date:

Chapter 1 - Ten Principles of Economics

ANSWER: a

35. What happens when government policies such as the welfare system try to help the neediest members
of society?
a. It increases equity and reduces efficiency.
b. It reduces charitable contributions in an economy.
c. It increases the productivity of the needy in society.
d. It causes market failure to occur.

ANSWER: a

36. What is likely to occur when the government implements programs such as progressive income tax
rates?
a. Equity and efficiency are increased.
b. Equity is increased and efficiency is decreased.
c. Equity is decreased, and efficiency is increased.
d. Equity is decreased, and efficiency is decreased.

ANSWER: b

37. What happens when the government attempts to cut the economic pie into more equal slices?
a. It is easier to cut the pie, and therefore the economy can produce a larger pie.
b. The government can more easily allocate the pie to those most in need.
c. The pie gets smaller, and there will be less pie for everyone.
d. The economy will spend too much time cutting the pie and lose the ability to produce enough
pie for everyone.

ANSWER: c

38. When the government attempts to improve equity in an economy, what is often the result?
a. an increase in overall output in the economy
b. additional government revenue since overall income will increase
c. an actual reduction in equity
d. reduced efficiency in the economy

ANSWER: d

39. When the government redistributes income from the rich to the poor, what is the result?
a. Efficiency is improved, but equity is not.
b. Both rich people and poor people benefit directly.
c. People work less and produce fewer goods and services.
d. Rich people consume fewer goods, but poor people consume more goods, resulting in no real
change.

ANSWER: c

40. In economics, what is the cost of something?
a. the dollar amount of obtaining it
b. the value of the resources needed to produce it
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,Name: Class: Date:

Chapter 1 - Ten Principles of Economics
c. what you give up to obtain it
d. the amount of labour to produce it

ANSWER: c

41. What is the term for what you give up to obtain an item?
a. opportunity cost b. implicit cost
c. applied cost d. variable cost

ANSWER: a

42. In your economics assignment, you add up the money you spend on tuition, books, and room and
board to calculate the cost of going to university. What have you ignored in your calculation?
a. the support you receive from the university
b. the time you spend on acquiring education
c. stress
d. the cost of tfood when you are a student

ANSWER: b

43. David receives $200 as a birthday gift. In deciding how to spend the money, he narrows his options
down to four: A, B, C, and D. The price of each option is $100, but David prefers B to C, C to A, and A
to D. What is the opportunity cost of option B?
a. It is David’s valuation of C.
b. It is David’s valuation of A, C, and D together.
c. It is $200.
d. It is $100.

ANSWER: a

44. What is the opportunity cost of going to university?
a. the total spent on food, clothing, books, transportation, tuition, lodging, and other expenses
b. the value of what a student gives up to attend university
c. zero, for students who are fortunate enough to attend on a scholarship
d. zero, because a college education will allow a student to earn a larger income after graduation

ANSWER: b

45. For most students, what is the largest single cost of a university education?
a. the wages given up to attend school b. tuition, fees, and books
c. room and board d. transportation, parking, and entertainment

ANSWER: a

46. What is the opportunity cost of an item?
a. the number of hours needed to earn money to buy it
b. what you give up to get that item
c. usually more than the dollar value of the item
d. the value of the resources needed to produce the item


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, Name: Class: Date:

Chapter 1 - Ten Principles of Economics
ANSWER: b

47. George receives $50 as a birthday gift. In deciding how to spend the money, he narrows his options
down to four choices: A, B, C, and D. Each option costs $50, but George values each option differently.
Finally, he decides on C. What is the opportunity cost of C?
a. $50
b. $100
c. the value to him of options A, B, and D combined
d. the value to him of the option he would have chosen if C was not available

ANSWER: d

48. Montana decides to spend three hours working overtime rather than watching Netflix with her friends.
She earns $15 an hour. What is her opportunity cost of working?
a. the $45 she earns working
b. the $45 minus the enjoyment she would have received from watching Netflix
c. the enjoyment she would have received had she watched Netflix
d. nothing, because she would have received less than $45 of enjoyment from Netflix

ANSWER: c

49. Stephen spends an hour studying instead of playing soccer with his friends. What is the opportunity
cost to him of studying?
a. the improvement in his grades from studying for the hour
b. the difference between the improvement in his grades from studying minus the enjoyment of
playing soccer
c. the enjoyment and exercise he would have received had he played soccer
d. nothing, because Stephen chose to study rather than to play soccer so the value of studying
must have been greater than the value of playing soccer

ANSWER: c

50. Why do college-age athletes drop out of college to play professional sports?
a. They are not rational decision makers.
b. Their opportunity cost of attending college is very high.
c. They are concerned more about present circumstances than their future.
d. They underestimate the value of a college education.

ANSWER: b

51. How do people make decisions at the margin?
a. by following the business cycle b. by experience
c. by calculating dollar costs d. by comparing costs and benefits

ANSWER: d

52. What does the word “margin” mean?
a. edge b. distance
c. inside d. measure


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