Chapter 1 (Theories of Value, Basic Principles)

Mark quit his job, which paid an annual salary of $40,000 to get his bachelor's degree. His annual college expenses are $16,000 for tuition; $200 for books; and $1,500 for food. What is his annual opportunity cost of attending college?

$56,200

Because of scarcity

we face tradeoffs in nearly every choice we make

What are the four categories of resources? Give an example of a resource from each category.

1. Land (oil, cotton, wood, iron, water, ...) 2. Labor (time spent flipping a burger) 3. Human capital (a BA or MA degree) 4. Physical capital (printer, laptop, power tools, truck, ...)

In his book The Wealth of Nations, Adam Smith claimed that individuals: A) always act in an altruistic way B) always consider the effect of their actions on others. C) are motivated by self-interest. D) are not concerned with resources.

C) are motivated by self-interest.

Suppose the U.S. government wants to encourage individuals to save more of their income. The easiest way for the government to realize this goal is to: A) pass a law requiring people to save a larger percentage of their income. B) decrease government spending in order to set an example for individuals. C) increase the tax rate on savings in order to encourage more savings. D) develop incentives such as tax breaks on savings in order to encourage more savings.

D) develop incentives such as tax breaks on savings in order to encourage more savings.

It makes sense that Martha Stewart hires another person to do her ironing because: A) she rather hang out with Snoop Dogg. B) her opportunity cost of ironing is the same as the opportunity cost for the person she hires. C) her opportunity cost of ironing is lower than the opportunity cost for the person she hires. D) her opportunity cost of ironing is higher than the opportunity cost for the person she hires.

D) her opportunity cost of ironing is higher than the opportunity cost for the person she hires.

The question "How do interest rates influence employment?" is an example of a normative question.

False

A pie-baking contest offers the winner a ribbon, a $1,000 check, and the opportunity to be featured in the local newspaper. The contest organizers are using (a) __________ incentive(s).

Financial and social

Name at least one factor that has allowed South Korea to grow faster economically than North Korea.

Inclusive institutions (most important). Social capital.

What other country had internal differences in growth due to (one of) the factors mentioned in your answer above?

Italy

A delivery truck is an example of:

Physical Capital

François Quesnay was a lead thinker in the _________ era.

Physiocrat

_________ was found to follow financialization of the real economy.

all of the above

opportunity cost

explicit (direct) costs + implicit costs (missed opportunities)

According to Adam Smith, this type of worker was considered a productive member of society:

factory worker

The _____ the opportunity cost of an activity, the _____ a person will do that activity.

higher, less

The field of economics that is concerned about the broader issues in the economy, such as inflation, unemployment, and national output of goods and services is called:

macroeconomics

Both Sir William Petty and Gregory King thought ________ were productive members of society.

merchants

When specialization is used:

there are greater gains in material goods

Opportunity costs exist because:

using resources for one activity means that their use elsewhere must be given up (i.e. there is a tradeoff).