Chapter 1 Homework

Economists assume that people are motivated by: A. incentives. B. social justice. C. benevolence. D. altruism.

A

A new college graduate decides to go to graduate school instead of accepting a job offer. Which of the following would be a major factor for that decision? A. The amount of additional income he or she will earn after completing the graduate degree as compared with the income from the job offer. B. Only the total income from getting the graduate degree. C. Only the total income from that job offer. D. None of the answers are correct.

A

According to the text, malaria ended in the United States because: A. people could afford to pay for the prevention of the disease. B. of a government health care program. C. of technological advances in medical treatments. D. of the growth of other countries.

A

Adam Smith wrote, "It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest." He meant that: A. people work for the benefit of others because it benefits them to do so. B. most of us no longer get our dinner directly from the butcher, the brewer, and the baker. C. butchers, brewers, and bakers are not productive members of society. D. high-interest payments mean that no one has to work anymore.

A

All of the following are institutions that provide people with good incentives, EXCEPT: A. government control of markets. B. property rights. C. political stability. D. a dependable legal system.

A

If market incentives to produce are too weak, the market will end up producing: A. too little of the good. B. a quantity equal to the efficient outcome, as any incentive will result in economic efficiency. C. too much of the good. D. zero output.

A

In The Economics of Nonhuman Societies, economist Gordon Tullock describes the economics hidden in biology (e.g., ants and bees). One of the lessons of the book is opportunity cost. In what way does an animal, such as an ant, face opportunity costs? A. Searching for food in one direction means an ant cannot search in another direction. B. An ant suffers a large initial cost to find food. C. Because an ant starves if it does not find food, it has a strong incentive to search. D. Ants face increasing marginal costs while searching for food in one direction as they get farther from the anthill.

A

Inflation refers to: A. an increase in the general price level. B. an increase in the value of money. C. an increase in price of one good. D. an increase in the money supply.

A

Manuel insists he places an infinite value on his life. Stefan is suspicious of this claim and points out to Manuel that he sometimes eats ice cream when broccoli would be much better for him. What Big Idea is Stefan using? A. Trade-offs: Gaining some enjoyment is worth giving up some safety. B. Thinking on the Margin: "Infinite value" is too much to be on the margin. C. Incentives: No one is paying Manuel to be healthy. D. The Power of Trade: Manuel could not make his own ice cream, though he could grow his own broccoli; Manuel must be trading for ice cream.

A

Many companies pay their sales employees based on commissions—the more they sell, the more they get paid. This practice highlights the role of: A. incentives. B. trade-offs. C. marginal thinking. D. sunk costs.

A

Most economists believe that wealth generally: A. leads to more fulfilled human lives. B. has nothing to do with human well-being. C. reduces human well-being. D. leads to conflicts among nations.

A

Most people do not buy the safest car they can find. Why not? A. Other factors matter besides safety, such as comfort, cost, and fuel economy. B. Other things equal, people prefer cars that are less safe. C. The statement is false. People do buy the safest car they can find. D. Consumers are unaware of the risks of different cars and car companies trick people into buying the unsafe cars.

A

Opportunity cost is: A. the value of the opportunities lost when a choice is made. B. the rewards of making a choice. C. the money cost that a person has to incur when making a choice. D. the incentive for a person to do anything.

A

Paying the captains of prisoner transport ships for each convict who arrived in Australia instead of for each convict who boarded the ship: A. saved the lives of hundreds of convicts. B. increased volume of slave trafficking. C. shows that people care more about morality than about their self-interest. D. made no difference.

A

People make decisions by comparing: A. marginal benefits with marginal costs. B. total benefits with total costs. C. total benefits to them personally with the marginal cost to other people. D. marginal benefits to them personally with the total cost to other people.

A

The opportunity cost of committing a crime and spending 5 years in jail: A. is higher for people who are employed than for the unemployed. B. is zero because the costs of jail are paid for by the government. C. is the same for everyone. D. equals the fines and legal fees.

A

Which of the following is NOT a reason that specialization and trade are beneficial? A. product variety B. division of knowledge C. economies of scale D. higher productivity

A

Which of the following is TRUE about the tasks of a central bank? A. It is difficult to supply the right amount of money without leading the economy to a recession or having too much inflation. B. The central bank can always supply a large amount of money to keep the economy expanding. C. The central bank can always supply more money to save the economy from having too much inflation. D. The central bank does nothing beneficial for the economy.

A

Which of the following is TRUE of the economics discipline? A. Economics helps us understand how the world functions. B. Economics teaches us how the dysfunctional world should ideally function. C. Economics is all about the theory of how people should behave. D. Economics is a science that explains the world only through math and equations.

A

According to the text, the main reason for the substantial income gap between South and North Korea is: A. the civil war in North Korea. B. differences in institutions. C. interventions from foreign governments. D. differences in natural resources.

B

Fluctuations in graduate school enrollment correlate positively with fluctuations in unemployment. What is the most likely reason why? A. When jobs are difficult to find, the opportunity cost of going to grad school is high. B. The opportunity cost of going to graduate school is low when jobs are hard to find. C. When jobs are easy to find, there are strong incentives to go to grad school. D. Even if you have a job, the salary will be low, so going to graduate school is worth the effort.

B

Historically, the U.S. economy has: A. grown at a constant pace. B. experienced both growth and contraction. C. experienced only rapid growth. D. remained at a constant level over time.

B

In Adam Smith's book The Wealth of Nations, he observed that people often promote the social interest by their: A. benevolence. B. own self-interest. C. trust in the government. D. lack of trust in other people.

B

The better Martha Stewart is at running her business: A. the more it makes sense for her to spend her time away from her business. B. the higher her opportunity cost of ironing her own shirts. C. the more it makes sense for her to iron her own shirts, because she will have more time. D. the lower her opportunity cost of ironing her own shirts.

B

Wealthy countries tend to have ______ physical capital per worker and _______ human capital per worker. A. a lot of; little B. a lot of; a lot of C. no; a lot of D. little; a lot of

B

When people spend more money without an increase in the supply of goods, prices: A. must stay the same. B. must rise. C. must fall. D. may rise or fall.

B

Which of the following is NOT a good institution? A. property rights B. political turnover C. a dependable legal system D. honest government

B

Which of the following is TRUE about markets? A. Markets always align self-interest with the social interest. B. Markets always produce outcomes in line with self-interest but not necessarily the social interest. C. Markets always produce outcomes in line with the social interest but not necessarily self-interest. D. None of the answers are correct.

B

Adam Smith argued that if people pursue their own interests: A. their actions will have no impact on the economy. B. their actions will be in conflict with the social interest. C. their actions will often end up promoting the social interest. D. they will always fail.

C

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

C

It takes approximately _______ years and _______ to bring a new drug to the market. A. 2; $100,000 B. 4; $5 million C. 12; $900 million D. 6; $20 billion

C

On June 13, 2011, writer Sebastian Anthony at Extreme Tech wrote, "During the two days that the Les Paul [Google] doodle was online, those 740 million visitors spent 26 seconds more on the Google home page than normal. That's a total of almost 10.7 million man hours spent playing with the Les Paul Google Doodle. Assuming the average Google user earns $25/hour, the doodle cost companies around the world $268 million in lost productivity." Mr. Anthony's mistake is ignoring opportunity costs. He is doing this by assuming A. that labor is not making a marginal decision. B. all the Google visitors are at work. C. all those man hours would have been spent working if not for the doodle. D. labor has no incentive to work.

C

The Zimbabwean government printed money as fast as it could for years. As a result: A. the Zimbabwean economy grew rapidly. B. Zimbabwe experienced mild inflation. C. Zimbabwe experienced inflation at a rate of billions of percent per month. D. prices fell rapidly in Zimbabwe.

C

The potential rewards that a person receives for taking a particular action are called: A. altruism. B. opportunity costs. C. incentives. D. trade-offs.

C

When the government prints too much money: A. some prices increase while other prices decrease. B. the general level of prices decreases. C. the general level of prices increases. D. inflation becomes negative.

C

Which of the following is NOT an opportunity cost of going to college? A. the tuition cost B. the cost of textbooks C. the costs of food and shelter D. the lost employment opportunities while in college

C

Each of the following ideas is central to economics, EXCEPT: A. "people react to incentives." B. "specialization and trade benefit everyone." C. "good institutions can eliminate economic trade-offs." D. "prices rise when the government prints too much money."

C.

According to the textbook, all of the following are Big Ideas in economics, EXCEPT: A. "prices rise when the government prints too much money." B. "good institutions align self-interest with the social interest." C. "trade-offs are everywhere." D. "economic booms and busts can always be avoided by the government."

D

The central bank of the United States is known as the: A. Financier. B. Central Reserve Union. C. Freddie Mac. D. Federal Reserve System.

D

When markets don't align self-interest with social interest: A. markets will still manage to reach an efficient outcome. B. societal costs will always exceed individual benefits. C. individual benefits will exceed societal benefits. D. governments may improve the situation by changing incentives.

D