Micro Quiz 1

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. people face trade-offs b. trade can make everyone better off. c. rational people think at the margin. d. people respond to incentives.

A - people face tradeoffs

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. people face tradeoffs. b. rational people think at the margin. c. people respond to incentives. d. trade can make everyone better off.

A - people face tradeoffs

The amount of goods and services produced from each unit of labor input is called a. productivity. b. externality. c. opportunity cost. d. marginal benefit.

A - productivity

Suppose after graduating from college you get a job working at a bank earning $30,000 per year. After two years of working at the bank earning the same salary, you have an opportunity to enroll in a one-year graduate program that would require you to quit your job at the bank. Which of the following should not be included in a calculation of your opportunity cost? a. the $45,000 salary that you will be able to earn after having completed your graduate program b. the cost of tuition and books to attend the graduate program c. the $30,000 salary that you could have earned if you retained your job at the bank d. the value of insurance coverage and other employee benefits you would have received if you retained your job at the bank

A - the $45,000 salary that you will be able to earn after having completed your graduate program

If the United States decides to trade with Mexico, we know that a. it will not benefit Mexico because workers in the United States are more productive. b. Mexico and the United States can both benefit. c. Mexico will benefit, but trade with a less developed country could not benefit the United States. d. it will not benefit either country because their cultural differences are too vast.

B - Mexico and the United States can both benefit.

The word "economy" comes from the Greek word oikonomos, which means a. "production." b. "one who manages a household." c. "environment." d. "one who makes decisions."

B - one who manages a household

The adage, "There is no such thing as a free lunch," is used to illustrate the principle that a. households face many decisions. b. people face tradeoffs. c. income must be earned. d. goods are scarce.

B - people face tradeoffs

People are willing to pay more for a diamond than for a bottle of water because a. water prices are held artificially low by governments, since water is necessary for life. b. the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water. c. producers of diamonds have a much greater ability to manipulate diamond prices than producers of water have to manipulate water prices. d. the marginal cost of producing an extra diamond far exceeds the marginal cost of producing an extra bottle of water.

B - the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water.

Senator Green argues that replacing the income tax with a national sales tax would increase the level of output. Senator Brown objects that this policy would benefit the rich at the expense of the poor. a. Both Senators' arguments are primarily about equality. b. Both Senators' arguments are primarily about efficiency. c. Senator Green's argument is primarily about efficiency, while Senator Brown's argument is primarily about equality. d. Senator Green's argument is primarily about equality, while Senator Brown's argument is primarily about efficiency.

C - Senator Green's argument is primarily about efficiency, while Senator Brown's argument is primarily about equality.

After much consideration, you have chosen Ireland over Spain for your Study Abroad program next year. However, the deadline for your final decision is still months away and you may reverse this decision. Which of the following events would prompt you to reverse this decision? a. The marginal benefit of going to Ireland increases. b. The marginal cost of going to Spain increases. c. The marginal benefit of going to Spain increases. d. The marginal cost of going to Ireland decreases.

C - The marginal benefit of going to Spain increases.

According to a recent study of Chilean bus drivers, drivers who are paid by the number of passengers they transport have higher productivity than drivers who are paid by the hour. This result is an example of which principle of economics? a. People face tradeoffs. b. The cost of something is what you give up to get it. c. People respond to incentives. d. Rational people think at the margin.

C - people respond to incentives

The ability of an individual to own and exercise control over scarce resources is called a. market power. b. externality. c. property rights. d. market failure.

C - property rights

Resources are a. plentiful for households and plentiful for economies. b. scarce for households but plentiful for economies. c. scarce for households and scarce for economies. d. plentiful for households but scarce for economies.

C - scarce for households and scarce for economies

Denise decides to spend three hours working overtime rather than watching a video with her friends. She earns $10 an hour. Her opportunity cost of working is a. the $30 minus the enjoyment she would have received from watching the video. b. the $30 she earns working. c. the enjoyment she would have received had she watched the video. d. nothing, since she would have received less than $30 of enjoyment from the video.

C - the enjoyment she would have received had she watched the video.

The opportunity cost of an item is a. usually less than the dollar value of the item. b. the number of hours needed to earn money to buy the item. c. what you give up to get that item. d. the dollar value of the item.

C - what you give up to get that item

Mark is refinishing an antique china cabinet and has already spent $180 on the restoration. He expects to be able to sell the cabinet for $360. Mark discovers that he needs to do an additional $200 of work to make the cabinet worth $360 to potential buyers. He could also sell the cabinet now, without completing the additional work, for $100. What should he do? a. It does not matter which action he takes since the outcome will be the same either way. b. He should keep the cabinet since it wouldn't be rational to spend $380 restoring a cabinet and then sell it for only $360. c. He should sell the cabinet now for $100. d. He should complete the additional work and sell the cabinet for $360.

D - He should complete the additional work and sell the cabinet for $360.

A likely effect of government policies that redistribute income and wealth from the wealthy to the poor is that those policies a. enhance equality. b. reduce efficiency. c. reduce the reward for working hard. d. All of the above are correct.

D - all of the above

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

D - all of the above

The principle that "trade can make everyone better off" applies to interactions and trade between a. families. b. states within the United States. c. nations. d. All of the above are correct.

D - all of the above

Making rational decisions "at the margin" means that people a. evaluate how easily a decision can be reversed if problems arise. b. make those decisions that do not impose a marginal cost. c. always calculate the dollar costs for each decision. d. compare the marginal costs and marginal benefits of each decision.

D - compare the marginal costs and marginal benefits of each decision.

A typical society strives to get the most it can from its scarce resources. At the same time, the society attempts to distribute the benefits of those resources to the members of the society in a fair manner. In other words, the society faces a tradeoff between a. work and leisure. b. guns and butter. c. inflation and unemployment. d. efficiency and equality.

D - efficiency and equality

Economics is the study of a. how households decide who performs which tasks. b. the interaction of business and government. c. production methods. d. how society manages its scarce resources.

D - how society manages its scarce resources

What is the most important factor that explains differences in living standards across countries? a. the quantity of money b. the level of unemployment c. equality d. productivity

D - productivity

The overriding reason why households and societies face many decisions is that a. people, by nature, tend to disagree. b. goods and services are not scarce. c. incomes fluctuate with business cycles. d. resources are scarce.

D - resources are scarce

Economics deals primarily with the concept of a. money. b. poverty. c. banking. d. scarcity.

D - scarcity

Efficiency means that a. society's goods and services are distributed equally among society's members. b. society is conserving resources in order to save them for the future. c. society's goods and services are distributed fairly, though not necessarily equally, among society's members. d. society is getting the maximum benefits from its scarce resources.

D - society is getting maximum benefits from its scarce resources

Ellie decides to spend two hours taking a nap rather than attending her classes. Her opportunity cost of napping is a. the $24 she could have earned if she had worked at her job for those two hours. b. nothing, since she valued sleep more than attendance at class. c. the value of her nap less the value of attending class. d. the value of the knowledge she would have received had she attended class.

D - the value of the knowledge she would have received had she attended class.