ANSWER: b
60. If China decides to trade with France, we know that
a. France will benefit, but trade with a less developed country could not benefit China.
b. it will not benefit France because workers in China are more productive.
c. France and China can both benefit.
d. it will not benefit either country because their cultural differences are too vast.
ANSWER: c
61. Dee is an accomplished actress and a homeowner who pays a landscaper to maintain her lawn rather than do it herself.
Dee has determined that she can earn more in the hour it would take her to work on her lawn than she must pay her
landscaper. This scenario is an example of which principle of economics?
a. Trade can make everyone better off.
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b. Markets are usually a good way to organize economic activity.
c. Governments can sometimes improve market outcomes.
d. Prices rise when the government prints too much money.
ANSWER: a
62. Dale is a guitar teacher and Terrence is a tile layer. If Dale teaches Terrence's daughter to play the guitar in exchange
for Terrence tiling Dale's kitchen floor,
a. only Dale is made better off by trade.
b. only Terrence is made better off by trade.
c. both Dale and Terrence are made better off by trade.
d. neither Dale nor Terrence are made better off by trade.
ANSWER: c
63. Trade between countries tends to
a. reduce both competition and specialization.
b. reduce competition and increase specialization.
c. increase competition and reduce specialization.
d. increase both competition and specialization.
ANSWER: d
64. Trade
a. allows specialization, which increases costs.
b. allows specialization, which reduces costs.
c. reduces specialization, which increases costs.
d. reduces specialization, which reduces costs.
ANSWER: b
65. Central planning refers to
a. markets guiding economic activity. Today many countries that had this system have abandoned it.
b. markets guiding economic activity. Today many countries that did not have this system have implemented it.
c. government guiding economic activity. Today many countries that had this system have abandoned it.
d. government guiding economic activity. Today many countries that did not have this system have implemented
it.
ANSWER: c
66. The basic principles of economics suggest that
a. markets are seldom, if ever, a good way to organize economic activity.
b. government should become involved in markets when trade between countries is involved.
c. government should become involved in markets when those markets fail to produce efficient or fair outcomes.
d. government should never become involved in markets.
ANSWER: c
67. Communist countries worked under the premise that
a. people, when left on their own without government intervention, will find the best use of available resources
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b. central planners were in the best position to determine the allocation of scarce resources in the economy.
c. households and firms, guided by an "invisible hand," could achieve the most efficient allocation of scarce
resources.
d. allowing the market forces of supply and demand to operate with no government intervention would achieve
the most efficient allocation of scarce resources.
ANSWER: b
68. Prior to the collapse of communism, communist countries worked on the premise that economic well-being could be
best attained by
a. a market economy.
b. a strong reliance on prices and individuals' self-interests.
c. a system of large privately owned firms.
d. the actions of government central planners.
ANSWER: d
69. Which of the following observations was made famous by Adam Smith in his book The Wealth of Nations?
a. There is no such thing as a free lunch.
b. People buy more when prices are high than when prices are low.
c. No matter how much people earn, they tend to spend more than they earn.
d. Households and firms interacting in markets are guided by an "invisible hand" that leads them to desirable
market outcomes.
ANSWER: d
70. The famous observation that households and firms interacting in markets act as if they are guided by an "invisible
hand" that leads them to desirable market outcomes comes from whose 1776 book?
a. David Ricardo