Economics Test

A theory composed of a number of assumptions and facts boiled down to their basic relevant elements is called a:

model

Which statement is TRUE about specialization and exchange between two individuals?

They generally benefit the poorer individual as well as the richer individual.

Because of scarcity:

we face tradeoffs in nearly every choice we make.

Assume that a student attends a four-year college with tuition costs of $20,000 per year, room and board costs of $5,000 per year, and books/entertainment costs of $1,000 per year. If the student did not go to college, she would work at a job that pays $25,000 per year but still face the same room and board and entertainment expenses. The opportunity cost of attending college for this student for four years is:

100000 because you are losing the opportunity to make four years of making 25000 per year.

Heather has one employee in her sweater shop who can sew six sweaters a day. When she hires a second person, the two employees can make ten sweaters together. Thinking at the margin, the extra benefit received from hiring a second worker is _____ sweaters.

4

An airline finds that its 6 A.M. flights are half-empty but the mid-afternoon flights are full. Which would be the MOST plausible statement for an economist to make?

Cut the price of the early morning flight and raise the price of the afternoon flight.

Consider the following statements. Which, if any, are positive statements? I. Main Street needs more coffee shops. II. A new parking garage on campus will reduce parking congestion. III. Last winter, the state should have spent more money on snow removal.

II only

Which statement is a key idea in economic thinking?

Incentives matter

Some colleges and universities charge tuition by the credit hour, while others charge tuition by the term, allowing students to take as many classes as they desire. How do these tuition structures affect the incentives students face when deciding how many classes to take?

Students are encouraged to take more courses if they are charged by the semester.

When economists assume people make rational decisions, it means that:

a rational person will respond to the benefits and costs associated with incentives

Paying a salesperson more for increased sales is an example of:

an incentive

Rational behavior requires thinking at the margin. Which example represents this type of thinking?

deciding whether a second burger is worth the extra $2 deciding whether the overtime pay is worth working on your day off deciding whether to pay a fine for polluting the local harbor or installing antipollution machinery

The _____ the opportunity cost of an activity, the _____ a person will do that activity.

higher, less

In the study of economics, the goals of efficiency and equity are often:

in conflict with one another.

People use _____ to determine how many hours to work, and businesses use _____ to determine how much of their product they are willing to supply to the market.

marginal analysis; marginal analysis

When the government chooses to use resources to build tourist centers, the selected resources are no longer available to build highways. This BEST illustrates the concept of:

opportunity cost

The opportunity costs of attending college do NOT include:

the expenditures for food.