ECON Chapter 1 Quiz

You order a $20 sweatshirt online for a Father's Day gift. The shipping charge is $10. You can get free shipping if you order totals $25 or more. Consequently, you order a $5 bobble head doll, even though neither you nor your father really likes bobble head dolls. This is an example of A) incentives B) trade-offs C) opportunity cost D) macroeconomics

A) Incentives Spending $25 gets you free shipping. If shipping on the $20 item is greater than $5, you may find something else to buy for $5, even if it is something you may not want. This is an example of incentives, because the web site offers you an incentive to spend more in order to save on shipping costs.

A friend of yours has an interview with an economics consulting firm and has been asked to discuss a microeconomics topic. Which of the following topics would you recommend that your friend discuss? A) the study of how prices are determined in the baseball card industry B) how unemployment is falling in the national economy C) what the Federal Reserve will do with interest rates D) what the next president will do to stimulate the national economy

A) the study of how prices are determined in the baseball card industry Microeconomics is the study of the individual units that make up the economy, such as households and businesses. The baseball card industry is a specific industry, so this is microeconomics. The other three topics involve broader workings of the economy, and are macroeconomics

What is the term for the voluntary exchange of goods and services between two or more parties? A) trade B) trade-offs C) specialization D) opportunity cost

A) trade Trade is the voluntary exchange of goods and services between two or more parties

Judy spent 8 hours studying for an exam. Normally, she would have spent that time watching TV instead of studying. She figures she could have made a "B" after only studying 4 hours, but she really wanted an "A." What is Judy's marginal cost in terms of TV viewing to improve her grade from a "B" to an "A"? A) 1 hour B) 4 hours C) 8 hours D) $8

B) 4 hours If Judy feels that 4 hours of studying would allow her to receive a "B," and she studies 8 hours to get an "A," then the marginal cost of the "A" is (8 hours - 4 hours) or 4 hours of additional study time. Marginal cost is the additional cost of consuming one more unit. In this case, "one more unit" refers to increasing a grade by one letter.

A physician who hires a plumber to fix a broken toilet is an example of A) Scarcity B) Comparative Advantage C) Marginal Thinking D) Laziness

B) Comparative Advantage Comparative advantage refers to a situation in which an individual can produce a good or service at a lower opportunity cost than another individual. The physician is specialized in dispensing medical advice. He or she would have to give up more time spent dispensing medical advice in order to fix a broken toilet than the plumber, who specializes in fixing toilets and has a lower opportunity cost (in terms of medical advice dispensed) for this task.

The concept of scarcity in economics refers to A) unlimited resources and limited wants B) limited resources and unlimited wants C) the fact that resources can sometimes be limited D) limited resources and limited wants

C) Limited resources and unlimited wants Even the most abundant physical resources, like the water we drink and the air we breathe, are limited in their use. A particular cup of water, for example, can only be used for one purpose at a time. Scarcity refers to the limited nature of society's resources, given society's unlimited wants and needs.

What role does money play in the circular flow model? A) It allows the households to bribe the firms into giving them what they want B) it increases the need for a barter economy C) it increases the efficiency of a market D) it increases the chances of having a double coincidence of wants other than money

C) it increases the efficiency of a market Instead of bartering for goods and services, people use money to make transactions more likely since goods can be exchanged for money rather than only other goods. Money acts as a medium of exchange, enabling the economy to avoid the double-coincidence-of-wants problem.

Alison goes to an all-you-can-eat restaurant. She has eaten three slices of pizza and is considering having another, but she is quite full from the first three slices. Alison's consideration is an example of A) Incentives B) Scarcity C) Barter D) Marginal thinking

D) Marginal Thinking Marginal thinking requires a decision-maker to weigh the benefits and costs of an additional unit of action, rather than the action as a whole. Workers employing marginal thinking make the decision to work another hour, for example. Using marginal thinking, Alison weighs the benefit of the extra slice of pizza (how much enjoyment she gets) against its cost (feeling bloated and sick)

Suppose that Tegan is good at cooking but not very good at cleaning up the kitchen afterward and that Sara is good at cleaning the kitchen but not very good at cooking. Which of the following statements is true with regard to Tegan and Sara? A) Tegan should cook and clean up the kitchen B) Sara should cook and clean up the kitchen C) Sara should cook and Tegan should clean up the kitchen D) Tegan should cook and Sara should clean up the kitchen

D) Tegan should cook and Sara should clean up the kitchen If Tegan decided to specialize in cooking, she could trade meals to Sara in exchange for having the kitchen nice and clean. This shows gains from specialization and trade. Both people have a comparative advantage in doing one particular task. Since both people can specialize in what they do best, they are able to produce more value than if they tried to do both things themselves.

Suppose a student has 3 hours of time to spend at her apartment before afternoon classes. She has the option of doing laundry, studying for a test, or watching television. If she decides to do laundry, then her opportunity cost is A) watching television B) studying for the test C) watching television and studying for the test D) either watching television or studying for the test, whichever would have been her second choice to doing laundry

D) either watching television or studying for the test, whichever would have been her second choice to doing laundry Opportunity cost is the highest valued alternative that must be sacrificed in order to get something else. In this case, we can't say which activity will be her opportunity cost since we don't know which activity the student prefers between watching television and studying for the test.

The difference between the study of microeconomics and the study of macroeconomics is a difference between A) individuals and families B) single individuals and large companies C) the study of government policy and the study of the private sector D) the study of individual economic units and the study of aspects of the economy as a whole

D) the study of individual economic units and the study of aspects of the economy as a whole Microeconomics is the study of the individual units that make up the economy, whereas macroeconomics is the study of the overall aspects and workings of an economy.

What is the term for the voluntary exchange of goods and services between two or more parties? a. trade b. trade-offs c. specialization d. opportunity cost

a. trade Trade is the voluntary exchange of goods and services between two or more parties.

Sam has two options this weekend. He could work at his job and earn $9/hour for three hours, or he could go to a show at the theater for that three hours. A ticket to the theater costs $30. What is the opportunity cost of going to the theater? a. $27 b. $57 c. $47 d. $90

b. $57 The opportunity cost will contain both the price of the ticket ($30) and the lost wages (3 hours x $9/hour = $27). Therefore, the opportunity cost is $57.

Which of the following is a type of incentive? a. scarce b. direct c. limited d. unconditional

b. direct Incentives can be classified as positive or negative and direct or indirect. All incentives encourage action. Positive incentives are rewards for taking actions, while negative incentives are an unpleasant consequence to taking actions. Direct incentives are often easier to see than indirect incentives.

Suppose that government officials want to increase the population, so they offer a $1,000 payment to the parents of each child born. Which of the five foundations of economics best describes the thinking of these government officials? a. opportunity cost b. incentives c. trade creates value d. marginal thinking

b. incentives The government payment is an incentive. These government officials understand that by offering a payment for having a child, parents have an additional incentive to have children.

Economics is the study of how people allocate their ________ resources to satisfy their nearly _________ wants. a. limited; limited b. limited; unlimited c. unlimited; unlimited d. unlimited; limited

b. limited; unlimited The basic question economists seek to answer is how individuals and societies make decisions about scarce resources, given the fact that there are nearly unlimited wants.

Suppose there is a country where factory production creates a lot of the air pollution. What could be a possible trade-off if the country wanted to lower the levels of pollution? a. higher national income b. lower national income c. more factory jobs d. heavily polluted air

b. lower national income To decrease pollution, the factories could cut production, which would lower income. The country might be able to change the production process to reduce pollution, which would likely come at a higher production cost, decreasing incomes.

Which of the following statements refers to a macroeconomic issue? a. John was recently hired at a new job and starts next week. b. H&M decides to open 50 new stores. c. The national unemployment rate is currently 7.7%. d. Sears and Kmart are closing stores nationwide.

c. The national unemployment rate is currently 7.7%. The national unemployment rate is a statistic based on the number of unemployed workers in the United States and the total number of people in the U.S. labor force. This is a broad measure of employment, which is one of the major concerns of macroeconomics. Information about specific companies, even if they are large, does not give us a picture of the state of the macroeconomy because we do not know all the relevant information.

Opportunity cost is the ______________ alternative that must be sacrificed in order to get something else. Select one: a. lowest-valued b. middle-valued c. highest-valued d. median-valued

c. highest-valued No matter what choice you make, there is an opportunity cost, or next-best alternative option, that must be sacrificed. Every time we make a choice, we experience an opportunity cost. An example of an opportunity cost is the income you give up when you choose to spend time in school that you could have spent working.

The circular flow model shows how resources and final goods and services flow through the economy. There are two groups in the circular flow model. Which of the following make up the two groups? a. government and households b. government and firms c. households and firms d. households and the rest of the world

c. households and firms There are two groups in the circular flow model, households and firms, that want to trade with each other. Households are consumers. Firms are businesses. Households want the goods and services produced by the firms, and firms want the resources owned by the households in order to make goods and provide services.

The field of economics that studies the decisions of individuals and firms is called a. macroeconomics. b. macroeconomics and microeconomics, depending on the economist you ask. c. microeconomics. d. normative economics.

c. microeconomics. Microeconomics deals with decisions on an individual level, such as how much a firm should price a certain product or the behavior of a particular market segment. Macroeconomics deals with aggregate economies, and studies economy-wide ideas, such as the unemployment rate.

Suppose your friend can obtain concert tickets for $100 but you can't get them for less than $300. Your friend sells the tickets to you for $200. Which of the five foundations of economics best describes this activity? a. opportunity cost b. incentives c. trade creates value d. marginal thinking

c. trade creates value Your friend receives $200 for the ticket when the cost to him for the ticket was $100; so, he gains $100 in value. You would have paid $300 for the ticket, but you obtain the ticket for $200; so, you also gain $100 in value. This is an example of how trade creates value.

Suppose that Marie is buying bananas. She decides that she would like to purchase three bananas at the price of $0.25/banana but not a fourth banana. Which of the five foundations of economics best describes Marie's thinking? a. opportunity cost b. incentives c. trade creates value d. marginal thinking

d. marginal thinking Marie is thinking about the extra benefit and cost of purchasing each additional banana. This is what economists would describe as "thinking on the margin," or marginal thinking.

The opportunity cost of attending college is likely to be highest for a high school graduate a. who has access to student loans. b. whose family is extremely wealthy. c. who is very intelligent. d. who is capable of playing a well-paid professional sport.

d. who is capable of playing a well-paid professional sport. The opportunity cost of going to college is highest for the person who can make the most money without a college education. Opportunity cost is the highest-valued alternative that must be sacrificed in order to get something else, such as the sacrifice of having a full-time job or going to college full-time.