Economics Week 1
How are changes in opportunity cost related to decision-making behavior?
The lower the opportunity cost of doing an activity X, the more likely activity X will be done.
When most economists wake up in the morning, their first decision is whether to hit the snooze bar on the alarm clock. What statement best represents their thought process as rational decision-makers?
The marginal benefit of sleeping 10 more minutes is greater than the marginal benefit of 10 more minutes of work.
Why would economists find it surprising if the CEO of a large company does his or her own housework?
The opportunity cost of a CEO's time is quite high because he or she has a scarcity of time to spend on housework.
The government has been trying to mint dollar coins instead of printing paper dollar bills, but people have been reluctant to use coins instead of paper bills. How would an economist explain this reluctance?
The opportunity cost of carrying around large quantities of coins is too large.
When a parent tells you not to study economics because it is a pointless discipline, why is he or she INCORRECT?
There are not enough resources to produce all the goods and services that are wanted and needed.
One way to promote a new business is to offer free items. If you were to open a new restaurant and offer free food, you likely would have a line out the door. How would an economist understand the behavior of those standing in line?
Those waiting in line place a low value on the use of their time.
Many professors have a policy that punishes individuals if they do not come to class. Instead of punishing students who do not attend class, what could the professor do to provide a positive incentive to come to class?
Those who come to class are given extra points
Public buildings in the United States are required to be accessible to the disabled and, as a result, almost all have an elevator. What would be an example of a positive, direct incentive for those who can use stairs?
Using the stairs will give you some exercise and make you healthier.
Which of the following is a microeconomic question?
What are the variables that determine the price of a specific good?
Which of the following is a macroeconomic question?
What is the rate of unemployment?
Some public transit systems use an "honor system" whereby patrons have to show that they have paid their fare only when asked for it by an enforcement officer. With what population would such a system be successful?
a population that is unwilling to take risks and believes there is a high chance that they will be caught if they do not pay their fare
A car insurance company is willing to offer accident-free drivers a discount. This is an example of:
a positive incentive
The basic goal of economics is:
addressing the scarcity problem created because the population's desire for goods exceeds the ability to produce them.
When trade is voluntary, who benefits?
both the buyer and the seller
Microeconomics is the branch of economics that focuses on the:
choices and decision-making of individuals and firms.
More oranges are grown in Florida than North Dakota because Florida's warm climate gives it a ________ advantage in growing oranges.
comparative
Which of the following is NOT a type of incentive?
complementary
An opportunity cost is the:
cost of a purchase or decision as measured by what is given up.
As a new firm in the apple-picking business, you have considered adding an economist to your management team. With what would this economist be UNABLE to help your managerial team?
determining why people eat apples
Comparative advantage emerges because of the presence of:
differing opportunity costs.
A health insurance company may offer its policyholders a discount on their premiums if they prove that they have stopped smoking. What type of incentive is the health insurance company offering?
direct
If you do not like changing the oil in your car and pay your father to do it for you, you have provided him with a(n) ________ incentive.
direct
In a growing number of cities, stores are required either not to make available plastic or paper bags or to do so only for an additional fee. If this fee can be refunded when you recycle the bag, the refund acts as a(n) ________ incentive.
direct
In a growing number of cities, stores are required either not to make available plastic or paper bags or to do so only for an additional fee. What kind of incentive is this fee?
direct
The U.S. federal government offers homeowners a tax deduction for their home loan interest payments. This reduction in taxes serves as a(n) ________ incentive to buy a house.
direct
Saudi Arabia has a comparative advantage in producing oil because it:
has specialized in the production of oil given its natural resources
Opportunity cost is the ________ alternative forfeited when a choice is made.
highest-valued
An economist is an individual who would be LEAST able to answer which research question?
how the tastes and preferences of consumers are determined
Economics is the study of:
how to allocate resources to satisfy wants and needs.
Which of the following is the primary concept that economists use to explain how humans make decisions?
incentives.
The U.S. federal government offers homeowners a tax deduction for their home loan interest payments. This reduction in taxes may have encouraged too many people to own a home. If the tax deduction caused people to buy who otherwise could not have afforded to own, the tax deduction serves as a(n) ________ incentive.
indirect
While generous disability insurance can help those who have been permanently injured, it can also increase the likelihood that individuals will falsely claim to be disabled. This likelihood is a(n):
indirect incentive.
Microeconomics is the study of:
individual decision-making units.
Because of scarcity:
individuals and societies must choose which wants and needs to satisfy
The government controls for many indirect incentives in safety net social programs by
limiting payment to a specified time period.
The government controls for many indirect incentives in safety net social programs by:
limiting payment to a specified time period.
A person has a comparative advantage in the production of a good when he or she can produce the product at a(n) ________ opportunity cost compared to another person.
lower
The term ________ means "additional."
marginal
Many stores are open 24 hours a day. When store managers make the decision to stay open 24 hours, it must be the case that the:
marginal benefit of staying open all day and the marginal cost to remaining open all day are at least equal.
Actions and activities are discouraged with which type of incentive?
negative
When a ticket is given to a pedestrian for jaywalking, what type of incentive exists?
negative
A camera takes a picture of drivers who do not stop at a red light, and this practice is used to issue a traffic ticket. These red light cameras can be understood as serving a(n):
negative incentive to discourage individuals from driving through a red light.
The government places warnings on cigarette and liquor packages. These warnings serve as a(n):
negative incentive.
The cost of a trade-off is known as the ________ cost of that decision.
opportunity
According to economists, one reason few professional athletes have PhD's is that the:
opportunity cost of going to graduate school is too high.
Restaurants, bars, and convenience stores are often located near college campuses. These businesses frequently charge higher-than-normal prices. They are taking advantage of the fact that students:
place a high value on their scarce time and are willing to pay higher prices than they would at locations farther from campus.
The government has been trying to encourage the use of fuel-efficient cars. One way it has been doing this has been by allowing fuel-efficient cars to use a separate highway lane. This encourages people to use fuel-efficient cars because those who:
place a high value on their scarce time may be encouraged to buy a fuel-efficient car to take advantage of the speedier separate highway lane.
A parent that pays a child an allowance for doing chores is providing a(n) ________ incentive.
positive
Actions and activities are encouraged with which type of incentive?
positive
The opportunity cost of going to school rather than working is the cost of:
potential wages.
Thomas Malthus's prediction of mass starvation failed to come true because of increases in:
productivity.
An example of a direct, positive incentive is:
providing a commission for sales.
Economists believe that individuals compare the benefits and costs of various options when making a decision and in so doing act:
rationally
A good is ________ even if it takes a small amount of time, energy, or money to acquire.
scarce
In economics, choices are necessary because of the presence of:
scarcity
The opportunity cost to free trade is:
some domestic jobs
The United States is able to experience economic growth to the extent that:
specialization and trade are encouraged.
Economics is concerned with the trade-offs that emerge because of scarcity. The term "trade-offs" refers to:
the alternatives given up when making choices.
The opportunity cost of working rather than going to school is:
the higher wages that come with additional education.
What is the opportunity cost of taking this exam?
the highest-valued alternative that you gave up to prepare for and attend the exam
Macroeconomics is the study of:
the operation of the economy as a whole.
As a discipline, economics is best described by which of the following?
the study of how to use scarce resources to satisfy unlimited wants and needs
The need to study economics would cease to exist if:
there were enough resources to produce all the goods and services people would like to obtain.
An example of a direct, negative incentive is:
threatening to fire those who do not perform well
Instead of taking an economics course, you could have taken a history course that meets at the exact same time. The total cost of taking the economics course would be the:
tuition cost, the cost of the textbook and notebook, and the fact that you could not take the history course at the same time.
Indirect incentives create ________ consequences.
unintended
In 2009, the federal government created a program called Cash for Clunkers whereby consumers could trade in a less efficient car for a more efficient car and receive a higher value than they would have otherwise. How would an economist understand the decision that consumers faced?
Consumers would compare the marginal benefits to the marginal costs of replacing their cars, and this program made sure that marginal benefits would exceed marginal costs.
What is the strongest argument for why we need more economists today than ever before?
Economists are needed to address the allocation of scarce resources as a result of the world's growing population.
Kelly is an architect, and she is trying to decide whether to hire Mike, a draftsman, to assist with her work. Kelly could hire Mike at $20 per hour, but it would take him three times as long to complete a task as it takes Kelly. Kelly is able to earn $90 per hour and has more architectural jobs than she is able to handle. Which of the following is true?
Kelly should hire Mike at the $20 per hour wage rate.
I asked my neighbor to rake the leaves on his lawn because they were blowing into my yard. He responded that it would not be rational for him to do so. Why would this be the case?
My neighbor is a lawyer who values his time at $200 an hour and knows that he can hire a high school kid to rake leaves for $20 an hour.
You could quit high school and work full-time, but you decide to finish high school and get your high school degree. How would an economist explain your decision?
The benefit of going to high school was greater than the benefit of working full-time
Which of the following statements best represents the fact that I cannot put in extra hours of work because of scarcity?
I do not have enough time for additional work because I need to spend time with my family and there are only so many hours in the day.
Which scenario describes studying for an economics course WITHOUT applying the scarcity principle?
I study for this course and do nothing else.
Google has started a project to scan all books and make those that are not copyrighted available to people free of charge. Why is it important that only books without a copyright are available?
If all books were scanned and available free of charge, copyright holders would face a negative incentive to continue writing and publishing books.
The government has been considering doing away with minting pennies because they are rarely used for purchases (with most people collecting them or throwing them away). How would an economist best explain this?
Prices have increased over time, and the opportunity cost of carrying around large quantities of pennies has become too large.
