ECON 2100 Chapter 1

Kevin is the CEO of a large firm and a homeowner who pays a landscaper to maintain his lawn rather than do it himself. Kevin is determined that he can earn more in the hour it would take him to work on his lawn than he must pay his landscaper. This scenario is an example of which principle in economics a. trade can make everyone better off b. markets are usually a good way to organize economic activity c. governments can sometimes improve market outcomes. d. prices ride when the government prints too much money.

a. trade can make everyone better off

Economists are particularly adept at understanding that people respond to a. laws b. incentives c. punishments more than rewards. d. rewards more than punishments.

b. incentives

Mitch has $100 to spend and wants to buy either a new amplifier for his guitar or a new mp3 player to listen to music while working out. Both the amplifier and the mp3 player cost $100, so he can only buy one. This illustrates the basic concept that a. trade can make everyone better off b. people face trade-offs c. rational people think a the margin d. people respond to incentives

b. people face trade-offs

Katie is planning to sell her house, and she is considering making two upgrades to the house before listing it for sale. Replacing the carpeting will cost her $2,500 and replacing the roof will cost her $9,000. Katie expects the new carpeting to increase the value of her house by $3,000 and the new roof to increase the value of her house by $7,000. a. she should make both improvements to her house. b. she should replace the carpeting but not replace the roof. c. she should replace the roof but not the carpeting. d. she should not make either improvement to her house.

b. she should replace the carpeting but not replace the roof.

Brenda is an excellent baker and Floyd has a plentiful farm. If Floyd trades eggs and butter to Brenda for some of Brenda's bread and pastries, a. only Floyd is made better off by trade b. only Brenda is better off by trade c. both Floyd and Brenda are better off by trade d. neither Floyd nor Brenda are better off by trade

c. both Floyd and Brenda are better off by trade

The decisions of firms and households are guided by prices and self-interest in a a. command economy b. central planned economy c. market economy d. all of the above

c. market economy

The invisible hand works to promote general well-being in the economy primarily through a. government intervention b. the political process c. people's pursuit of self interest d. altruism.

c. people's pursuit of self interest

doramrkets to work well, there must be a. market power b. a central planner c. property rights d. abundant, not scarce, resources

c. property rights

While pollution regulations yield the benefit of a cleaner environment and the improved health that comes with it, the regulations come at the cost of reducing the incomes of the regulated firms' owners, workers, and customers. This statement illustrates the principle that a. trade can make people better off. b. people face trade-offs c. rational people think a the margin d. people respond to incentives

c. rational people think a the margin

Ed spends an hour studying instead of watching tv with his friends. The opportunity cost to him of studying is a. the improvement in his grades for studying for the hour. b. the improvement in his grades for studying minus the enjoyment of watching tv. c. the enjoyment he would receive if he had watched tv with his friends. d. zero, since ed chose to study rather than watch tv, the value of studying must have been greater than the value of watching tv.

c. the enjoyment he would receive if he had watched tv with his friends.

In economics, the cost of something is a. the dollar amount of obtaining it b. always measured in units of time given up to get it. c. what you give up to get it d. often impossible to quantify, even in principle

c. what you give up to get it

Approximately what percentage of the world's economies experience scarcity? a. 10% b. 40% c. 85% d. 100%

d. 100%

The principle that "people face tradeoffs" applies to a. individuals b. families c. societies d. all of the above

d. all of the above

The principle that trade can make everyone better applies to a. individuals b. families. c. countries d. all of the above

d. all of the above

People are likely to respond to a policy change a. only if they think the policy is a good one. b. only if the policy change changes the costs of the behavior c. only if the policy change changes the benefit of their behaviors. d. if the policy changes either the costs or benefits of their behavior.

d. if the policy changes either the costs or benefits of their behavior.

A marginal change is a a. change that involves little, if anything, that is important b. large significant adjustment c. change for the worse, and so it is usually a short-term change. d. small, incremental adjustment.

d. small, incremental adjustment.