Econ 202 - Exam 1

Economics deal primarily with the concept of __________. A. Scarcity B. Money C. Poverty D. Banking

A. Scarcity

Economics

The study of how society manages its scarce resources; Unlimited wants and limited resources

"There ain't no such thing as a free lunch"

To get something that we like, we usually have to give up something else that we also like

Opportunity Cost

What you give up to get an item

Incentive

Something (prospect of punishment or reward) that induces a person to act

The Get-There-Safe Bus company incurs an average cost of $45 for each passenger it carries on its trip from Atlanta to Chattanooga. In advance of a particular trip, four seats remain unsold. The bus company could increase its profit only if it __________. A. Charged any ticket price above $0 for the four remaining seats. B. Charged at least $11.25 for each of the four remaining seats. C. Charged at least $45 for each of the four remaining seats. D. Paid four people to occupy the four remaining seats.

A. Charged any ticket price above $0 for the four remaining seats.

Which of the following is correct concerning opportunity cost? A. Except to the extent that you pay more for them, opportunity costs should not include the cost of things you would have purchased anyway. B. To compute opportunity costs, you should subtract benefits from costs. C. Opportunity costs and the idea of trade-offs are not closely related. D. Rational people should compare various options without considering opportunity costs.

A. Except to the extent that you pay more for them, opportunity costs should not include the cost of things you would have purchased anyway.

Which of the following does not illustrate the principle represented by the adage, "There is no such thing as a free lunch"? A. Melissa needs to pay her rent and her electric bill B. Kevin must choose between buying a new flat screen television and buying his textbooks for this semester C. Robert must decide between studying for his psychology exam and working at his part-time job D. Lisa can spend her money on a new smart phone or on a weekend trip

A. Melissa needs to pay her rent and her electric bill

Suppose the cost of flying a 200-seat plane for an airline is $100,000 and there are 10 empty seats on a flight. If the marginal cost of flying a passenger is $200 and a standby passenger is willing to pay $300, the airline should __________. A. Sell the ticket because the marginal benefit exceeds the marginal cost. B. Sell the ticket because the marginal benefit exceeds the average cost. C. Not sell the ticket because the marginal benefit is less than the marginal cost. D. Not sell the ticket because the marginal benefit is less than the average cost.

A. Sell the ticket because the marginal benefit exceeds the marginal cost.

When computing the opportunity cost of attending a basketball game you should include __________. A. The price you pay for the ticket and the value of your time B. The price you pay for the ticket, but not the value of your time C. The value of your time, but not the price you pay for the ticket D. Neither the price you pay for the ticket and the value of your time

A. The price you pay for the ticket and the value of your time

For most students, the largest single cost of a college education is __________. A. The wages given up to attend school B. Tuition, fees, and books C. Room and board D. Transportation, parking, and entertainment

A. The wages given up to attend school

The opportunity cost of going to college is __________. A. The total spent on food, clothing, books, transportation, tuition, lodging, and other expenses B. The value of the best opportunity a student gives up to attend college C. Zero for students who are fortunate enough to have all of their college expenses paid for by someone else D. Zero, since a college education will allow a student to earn a larger income after graduation

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

Rational people make decisions "at the margin" by comparing __________. A. Average costs and benefits. B. Total costs and benefits. C. Additional costs and benefits. D. Opportunity costs and benefits.

C. Additional costs and benefits.

A barber currently cuts hair for 50 clients per week and earns a profit. He is considering expanding his operation in order to serve more clients. Should he expand? A. Yes, because cutting hair is profitable. B. No, because he may not be able to sell more services. C. It depends on the marginal cost of serving more clients and the marginal revenue he will earn from serving more clients. D. It depends on the average cost of serving more clients and the average revenue he will earn from serving more clients.

C. It depends on the marginal cost of serving more clients and the marginal revenue he will earn from serving more clients.

The word economy comes from the Greek word oikonomos, which means __________. A. Environment B. Production C. One who manages a household D. One who makes decisions

C. One who manages a household

Resources are __________. A. Scarce for households but plentiful for economies B. Plentiful for households but scarce for economies C. Scarce for households and scarce for economies D. Plentiful for households and plentiful for economies

C. Scarce for households and scarce for economies

You have driven 800 miles on a vacation and then you notice that you are only 15 miles from an attraction you hadn't known about, but would really like to see. In computing the opportunity cost of visiting this attraction you had not planned to visit, you should include __________. A. Both the cost of driving the first 800 miles and the next 15 miles. B. The cost of driving the first 800 miles, but not the cost of driving the next 15 miles. C. The cost of driving the next 15 miles, but not the cost of driving the first 800 miles. D. Neither the cost of driving the first 800 miles nor the cost of driving the next 15 miles.

C. The cost of driving the next 15 miles, but not the cost of driving the first 800 miles.

Melody decides to spend three hours working overtime rather than going to the park with her friends. She earns $20 per hour for overtime work. Her opportunity cost of working is __________. A. The $60 she earns working. B. The $60 minus the enjoyment she would have received from going to the park. C. The enjoyment she would have received had she gone to the park. D. Nothing, since she would have received less than $60 worth of enjoyment from going to the park.

C. The enjoyment she would have received had she gone to the park.

Kyle is planning to take a road trip. After he makes plans he has to make some unexpected auto repairs. Also, he sees the price of gas has gone up. Which of these two events should Kyle consider in deciding if it is still worthwhile to go on the trip? A. The unexpected repairs and the increase in the price of gas B. The unexpected increase for repairs, but not the increase in the price of gas C. The increase in the price of gas, but not the unexpected repairs D. Neither the unexpected increase in the price of gas nor the unexpected repairs

C. The increase in the price of gas, but not the unexpected repairs

In economics, the cost of something is __________. A. The dollar amount of obtaining it B. Always measured in units of time given up to get it C. What you give up to get it D. Often impossible to quantify, even in principle

C. What you give up to get it

A society allocates its scarce resources to various jobs. These scares resources include: A. Land B. People C. Machines D. All of the above

D. All of the above

Bridget drinks three sodas during a particular day. The marginal benefit she enjoys from drinking the third soda ___________. A. can be thought of as the total benefit Bridget enjoys by drinking three sodas minus the total benefit she would have enjoyed by drinking just two sodas. B. determines Bridget's willingness to pay for the third soda. C. is likely different from the marginal benefit provided to Bridget by the second soda. D. All of the above

D. All of the above

Economists study __________. A. How people understand decisions B. How people interact with one another C. Analyze forces and trends that affect the economy as a whole D. All of the above

D. All of the above

The principle that "people face tradeoffs" applies to __________. A. Individuals B. Families C. Societies D. All of the above

D. All of the above

Which of the following is an example of something economists study? A. Mitch chooses to work overtime to earn extra income for his family B. Megan sells her physics textbook from last semester to her roommate for half the price of a new textbook C. The unemployment rate in the US has fallen by two percentage points in the last few years D. All of the above

D. All of the above

Which of the following statements best represents the principle represented by the adage, "There is no such thing as a free lunch"? A. Michelle can attend the concert only if she takes she sister with her B. Michael is hungry and homeless C. Andrea much repair the tire on her bike before she can ride it to class D. Dani must decide between going to Florida or Brazil for spring break

D. Dani must decide between going to Florida or Brazil for spring break

A tax on gasoline encourages people to drive smaller, more fuel-efficient cars. Which principle of economics does this illustrate? A. People face tradeoffs. B. The cost of something is what you give up to get it. C. Rational people think at the margin. D. People respond to incentives.

D. People respond to incentives.

The phenomenon of scarcity stems from the fact that __________. A. Most economies' production methods are not very good B. In most economies, wealthy people consume disproportionate quantities of goods and services C. Governments restrict production of too many goods and services D. Resources are limited

D. Resources are limited

Which of the following is not an example of the opportunity cost of going to school? A. The money a student could have earned by working if he had not gone to college. B. The nap a student could have enjoyed if he had not attended class. C. The party a student could have enjoyed if he had not stayed in to study for his exam. D. The money a student spends on rent for his apartment while attending school.

D. The money a student spends on rent for his apartment while attending school.

Suppose the cost of flying a 100-seat plane for an airline is $50,000 and there are 10 empty seats on a flight. The marginal cost of flying a passenger is __________. A. $50. B. $500. C. $50,000. D. This cannot be determined from the information given.

D. This cannot be determined from the information given.

Marginal Change

Describes a small incremental adjustment to an existing plan of action; Marginal means "edge"; Adjustments around the edges of what you are doing

Opportunity Cost vs. Marginal Cost

Opportunity cost is the sacrifice to the highest value of a good that one has forego to obtain another; Marginal cost is the most incurred on producing or consuming an additional unit

Scarcity

Society has limited resources and therefore cannot produce all the goods and services people wish to have

Which of the following is not an example of a group responding to an incentive? a. Students attend class because of an attendance policy that reduces their grade for absences. b. Consumers buy more of a product when it is on sale at a reduced price. c. Universities offer fewer online classes when they generate more revenue than traditional classes. d. Employees work harder to earn higher commissions.

c. Universities offer fewer online classes when they generate more revenue than traditional classes.

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 are correct.

People are likely to respond to a policy change a. only if they think the policy is a good one. b. only if the policy change changes the costs of their behavior. c. only if the policy change changes the benefits of their behavior. d. if the policy changes either the costs or benefits of their behavior.

d. if the policy changes either the costs or benefits of their behavior.