Chapter 1 - Thinking Like an Economist

According to the Cost-Benefit Principle, you should go see the latest Star Wars movie with your friends this week-end if: A. the extra benefits of seeing the movie are greater than the extra costs of seeing the movie. B. you really like Star Wars. C. you can afford to go to the movies. D. the average benefit you get from going to the movies is greater than the average cost of a ticket.

A

If all the world's resources were to magically increase one hundredfold, then: A. people would still have to make trade-offs. B. economics would no longer be relevant. C. scarcity would disappear. D. trade-offs would become unnecessary.

A

The Scarcity Principle applies to: A. all decisions. B. only market decisions, e.g., buying a car. C. only non-market decisions, e.g., watching a sunset. D. only the poor.

A

The Scarcity Principle tells us ______, and the Cost-Benefit Principle tells us ______. A. that choices must be made; how to make good choices B. that good choices eliminate scarcity; how to make good choices C. how to make choices; that choices must be made. D. how to make good choices; that choices involve costs and benefits.

A

A rational person: A. makes choices based on total benefits and total costs. B. makes choices based on added benefits and added costs. C. undertakes activities until the net benefits become less than zero. D. considers the financial benefits and financial costs of making a choice.

B

Choosing to study for an exam until the extra benefit (e.g., improved score) equals the extra cost (e.g., the value of foregone activities) is: A. not an economic choice. B. an application of the Cost-Benefit Principle. C. an application of the Scarcity Principle. D. not rational because it ignores the importance of total benefits and total costs.

B

Economists recognize that because people have limited resources: A. government intervention is necessary. B. they have to make trade-offs. C. they will never be happy. D. our future is bleak.

B

Janie must choose to either mow the lawn or wash clothes. If she mows the lawn, she will earn $30, and if she washes clothes, she will earn $45. She dislikes both tasks equally and they both take the same amount of time. Janie will therefore choose to ______ because it generates a ______ economic surplus. A. mow the lawn; bigger B. wash clothes; bigger C. mow the law; smaller D. wash clothes; smaller

B

Suppose that the extra cost to Tim of a third glass of soda is zero because he's at a restaurant that gives free refills. According to the Cost-Benefit Principle Tim should: A. drink a third glass of soda. B. drink a third glass of soda if the extra benefit of doing so is positive. C. drink a third glass of soda if his total benefit from drinking soda is positive. D. not drink a third glass of soda.

B

Whether studying the output of the U.S. economy or how many classes a student will take, a unifying concept is that: A. wants are limited and resources are unlimited, so trade-offs are unnecessary. B. wants are unlimited and resources are scarce, so trade-offs have to be made. C. wants are limited and resources are unlimited, so trade-offs have to be made. D. both wants and resources are unlimited, so trade-offs are unnecessary.

B

Economics is best defined as the study of: A. inflation, interest rates and the stock market. B. supply and demand. C. how people make choices in the face of scarcity and the implications of those choices for society as a whole. D. the financial concerns of businesses and individuals.

C

Economics is best defined as the study of: A. the financial concerns of businesses and individuals. B. the role of government in limiting the choices people make. C. choice in the face of limited resources. D. whether we will have enough resources in the future.

C

Forest lives in complete isolation in Montana. He is self-sufficient and feeds himself through hunting, fishing, and farming. Which of the following statements about Forest is true? A. Forest has unlimited resources. B. Forest is not required to make trade-offs because he is self-sufficient. C. Forest has to make trade-offs. D. Forest doesn't have to consider costs and benefits.

C

If a person takes an action if, and only if, the extra benefits from taking that action are at least as great as the extra costs, then that person is: A. not following the Cost-Benefit Principle. B. following the Scarcity Principle. C. following the Cost-Benefit Principle. D. not rational

C

Josh wants to go to the football game this weekend, but he has a paper due on Monday. It will take him the whole weekend to write the paper. Josh decides to stay home and work on the paper. According to the Scarcity Principle, the reason Josh doesn't go to the game is that: A. Josh prefers schoolwork to football games. B. writing the paper is easier than going to the game. C. Josh can't go the game and finish the paper. D. going to the game won't be fun.

C

The Scarcity Principle states that: A. people don't have enough money to buy what they want. B. society will eventually run out of resources. C. with limited resources, having more of one thing means having less of another. D. some countries have fewer resources than others.

C

An implication of scarcity is that: A. people will never be happy. B. making trade-offs becomes unnecessary as wealth increases. C. some people will always be poor. D. people must make trade-offs.

D

Chris has a one-hour break between classes every Wednesday. Chris can either stay at the library and study or go to the gym and work out. The decision Chris must make is: A. not an economic problem because neither activity costs money. B. not an economic problem because it's an hour that Chris has no matter what he does. C. an economic problem because the tuition Chris pays covers the cost of both the gym and the library. D. an economic problem because Chris has only one hour, and engaging in one activity means giving up the other.

D

The Cost-Benefit Principle indicates that an action should be taken if: A. its total benefits exceed its total costs. B. its average benefits exceed its average costs. C. its net benefit (benefit minus cost) is zero. D. its extra benefit is greater than or equal to its extra cost.

D

The Scarcity Principle applies to: A. poor people primarily. B. consumers primarily. C. firms primarily. D. everyone.

D