CHAPTER 1: REVIEW QUESTIONS

A cell phone plan costs $50 per month for 1,000 minutes, and $.30 per minute for each additional minute after 1,000. What is the marginal fee for the 1,001st minute used? A. $0.30 B. $0.35 C. $0.40 D. $0.25

A. $0.30

One benefit of trade is that it: A. Allows for increased specialization and mass-production techniques that lower per unit costs of production. B. Decreases economies of scale, making production more efficient. C. Increases the division of knowledge because trade makes people more self-sufficient, producing more of what they consume. D. Lowers productivity, leading to greater domestic employment.

A. Allows for increased specialization and mass-production techniques that lower per unit costs of production.

Booms and busts refer to the: A. Fluctuations in economic activity over time. B. Decreases in a nation's output growth over time. C. Theory of the second best. D. Monetary inflation and deflation caused by the central bank.

A. Fluctuations in economic activity over time.

Fluctuations in graduate school enrollment correlate positively with fluctuations in unemployment. What is the most likely reason why? A. The opportunity cost of going to graduate school is low when jobs are hard to find. B. When jobs are difficult to find, the opportunity cost of going to grad school is high. 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 so low that going to graduate school is worth the effort.

A. The opportunity cost of going to graduate school is low when jobs are hard to find.

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 overestimating opportunity costs. He is doing this by assuming that: A. All the Google visitors do not sleep. B. All those man-hours would have been spent working if not for the doodle. C. That labor is not making a marginal decision. D. labor has no incentive to work.

B. All those man-hours would have been spent working if not for the doodle.

The economics of trade depends on whether the trading partners live in the same country and share the same language and religion. A. True B. False

B. False

When the government decreases the supply of money, there is an increase in the general level of prices. A. True B. False

B. False

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

B. Federal Rererve

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. High-interest payments mean that no one has to work anymore. B. People work for the benefit of others because it benefits them to do so. C. Butchers, brewers, and bakers are not productive members of society. D. Most of us no longer get out dinner directly from the butcher, the brewer, and the baker.

B. People work for the benefit of others because it benefits them to do so.

According to economists, when the Food and Drug Administration raises the approval requirements for new drugs: A. Everyone but the drug makers will lose. B. Society potentially loses a new drug approval. C. People will only demand more drug testing. D. Everyone will benefit and be better off.

B. Society potentially loses a new drug approval.

Economists assume that people respond to: A. Other people B. Social interest C. Incentives D. Benevolence

C. Incentives

Most people do not buy the safest car they can find. Why not? A. Consumers are unaware of the risks of different cars. B. The statement is false. People do buy the safest car they can find. C. Other factors matter besides safety, such as comfort, cost, and fuel economy. D. People do not take the time to understand the safety features of cars.

C. Other factors matter besides safety, such as comfort, cost, and fuel economy.

A customer at a fast-food restaurant may choose to order a burger for $4.00 and fries for $ 1.50, or order a value meal (that includes the burger, fries, and a drink) for $6.00. What is the marginal cost of the drink if the customer orders the value meal? A. $0.00 B. $1.50 C. $6.00 D. $0.50

D. $0.50

What are the institutions that help foster the appropriate incentives for economic growth? A. Regulated labor and credit markets; and unions. B. Production and export quotas; and supply and demand. C. Communal property rights and absence of a profit-loss system. D. A dependable legal system, property rights, and competitive and open markets.

D. A dependable legal system, property rights, and competitive and open markets.

Wealthy countries tend to have ____ physical capital per worker and ____ human capital per worker. A. No; a lot of B. A lot of; little C. Little; a lot of D. A lot of; a lot of

D. A lot of; a lot of

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

D. Are motivated by self-interest.

Which of the following statements is TRUE about trade? A. If a person can do everything better than anyone else, there is no reason for that person to trade with others. B. Comparative advantage is based on specializing in products that have a high opportunity cost of production. C. Trade makes one party better off but the other party worse off, so there is no net gain to society. D. Everyone can benefit from trade, even people who trade with someone from a foreign country.

D. Everyone can benefit from trade, even people who trade with someone from a foreign country.

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. Marginal thinking B. Sunk costs C. Trade-offs D. Incentives

D. Incentives

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

D. Must rise

In the opening story, the payment to captains of prisoner transport ships for each convict who arrived in Australia instead of for each convict who boarded the ship: A. Made no difference B. increased the volume of slave trafficking. C. Shows that people care more about morality than about their self-interest. D. Saved the lives of hundreds of convicts.

D. Save the lives of hundreds of convicts.

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

D. Searching for food in one direction means an ant cannot search in another direction.

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

D. Too little of the good.

When two people voluntarily trade with each other: A. One person will be better off and the other person will be worse off. B. Whether they will be better off or worse off depends on how they negotiate with each other. C. Both of them will be worse off. D. Both of them will be better off.

D. both of them will be better off.