Quiz 1

The opportunity cost of an item is

what you give up to get that item

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

people face trade-offs

Which of the following is an example of something economists study?

a. Kate chooses to work overtime to earn extra income for her family. b. Ryan sells his economics textbook from last semester to his roommate for half the price of a new textbook. c. The unemployment rate in the United States is at its highest level in over fifty years. d. All of the above are correct.

Which of the following is a decision that economists study?

a. how much people work b. what people buy c. how much money people save

Rational people make decisions at the margin by

comparing marginal costs and marginal benefits

A tradeoff exists between a clean environment and a higher level of income in that

laws that reduce pollution raise costs of production and reduce incomes.

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

people face trade-offs

Sophia is planning her activities for a hot summer day. She would like to go to the local swimming pool and see the latest blockbuster movie, but because she can only get tickets to the movie for the same time that the pool is open she can only choose one activity. This illustrates the basic principle that

people face tradeoffs

The adage, "There is no such thing as a free lunch," means

people face tradeoffs.

The phrase "no such thing as a free lunch" means

people must face tradeoffs

Equality

refers to how evenly the benefits from using resources are distributed among members of society.

Efficiency

refers to how much a society can produce with its resources.

The phenomenon of scarcity stems from the fact that

resources are limited

The overriding reason why households and societies face many decisions is that

resources are scare.

In the former Soviet Union, producers were paid for meeting output targets, not for selling products. Under those circumstances, what were the economic incentives for producers?

to produce enough to meet the output target, without regard for quality or cost.

A marginal change is a

small, incremental adjustment

Efficiency means that

society is getting the maximum benefits from its scarce resources

A rational decision maker takes an action if and only if

the marginal benefit of the action exceeds the marginal cost of the action

When computing the opportunity cost of attending a concert you should include

the price you pay for the ticket and the value of your time

The opportunity cost of going to college is

the value of the best opportunity a student gives up to attend college.