Exercise 1: The Principles of Microeconomics
1.  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.
2. Which of the following statements best represents the principle represented by the adage, "There is no such thing as a free lunch"?
a.	Melissa can attend the concert only on Mondays.
b.	Greg is hungry and homeless.
c.	Brian rides his bike every day to class.
d.	Kendra must decide between going to Colorado or Cancun for spring break.
3. You have driven 500 miles on a vacation and then you notice that you are only 25 miles from an attraction you hadn’t known about, but would really like to see.  In computing the opportunity cost of visiting this attraction you had not planned to visit, you should include
a.	both the cost of driving the first 500 and the next 25 miles.
b.	the cost of driving the first 500 miles, but not the cost of driving the next 25.
c.	the cost of driving the next 25 miles, but not the cost of driving the first 500.
d.	neither the cost of driving the first 500 miles nor the cost of driving the next 25 miles.
4. The marginal benefit Colin gets from eating a fourth slice of pizza is
a.	the total benefit Colin gets from eating four slices of pizza minus the total benefit Colin gets from eating three slices of pizza.
b.	the same as the total benefit of eating four slices of pizza.
c.	less than the marginal cost of eating the fourth slice of pizza since he chose to eat the fourth slice.
d.	the total benefit Colin gets from eating five slices of pizza minus the total benefit Colin gets from eating four slices of pizza.
5. 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.
6. In an economy in which decisions are guided by prices and individual self-interest, there is
a.	a good potential to achieve efficiency in production.
b.	a strong need for government intervention in the market.
c.	less efficiency than would be observed in a centrally-planned economy.
d.	more need for a strong legal system to control individual greed than would be needed in a centrally-planned economy.

7. Thousands of people develop lung cancer from second-hand exposure to cigarette smoke.  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.
8. Denise decides to spend three hours working overtime rather than watching a video with her friends. She earns $10 an hour. Her opportunity cost of working is
a.	the $30 she earns working.
b.	the $30 minus the enjoyment she would have received from watching the video.
c.	the enjoyment she would have received had she watched the video.
d.	nothing, since she would have received less than $30 of enjoyment from the video.