Quiz #1

By convention, there are two major divisions in economics:

Microeconomics & Macroeconomics

During times of high unemployment, colleges often observe an increase in enrollment even if tuition remains unchanged

The opportunity cost of attending college is lower because students are less likely to have good full-time jobs.

The last time gas prices increased drastically, sales of large SUVs fell. What economic reason would explain this decrease in sales?

higher gas prices increased the cost of owning a SUV

An economic naturalist is described as someone who:

Applies economic insights to everyday life

Every time you go to the grocery store, you try to choose the shortest line. But all the lines seem to be the same length. Why?

Everyone else is trying to choose the shortest line too.

If the government wanted to use the incentive principle for smoking, it could:

Increase taxes on cigarettes, effectively raising the price.

An editorial in the paper argues that students should only be allowed to attend school as long as the marginal cost of educating that student is less than the marginal benefit of that student's education. The writer's reasoning is an application of:

Normative Economics

According to the incentive principle:

People tend to do more of something, when the benefits are greater.

Suppose there are two parallel highways between two cities with approximately equal traffic. What would you expect to happen if the state began charging tolls to drive on one of those highways?

more drivers would drive on the non-toll road, making the toll road less congested

Would not be answered in macroeconomics?

Did the sharp increase in gasoline price alter SUVs?

One thing that distinguishes Normative Principle from Positive Principle is that:

NP- How people SHOULD make economic decisions. PP- How people actually DO make economic decisions.

Positive Economics Principles are those that:

Predicts HOW people WILL behave.

Normative Economics is concerned with how people ___ make decisions while Positive Economics is concerned with how people ____ make decisions.

Should; Do

The incentive principle is an example of:

A positive economic principle

Last year interest rates fell. The field of economics that this would most interest:

Macroeconomics

The impact of government policies on the building of new roads and highways would be considered:

Macroeconomics

A study that deals with the salaries of professors would be considered?

Microeconomics

Studying how Pat allocates her time between teaching classes and assisting undergraduate students is an example of:

Microeconomics

Curly used his frequent flyer miles to visit Moe. Curly told Moe that it didn't cost him anything to visit. Is Curly correct?

No, because Curly could have used his frequent flyer miles to go somewhere else, but chose to visit Moe

The incentive principle states that a person is more likely to do something if:

The benefit of doing it increases

With ATM's, it is possible to retrieve cash from the bank at any time. One hundred years ago, one could only get cash from the bank during business hours, 9am to 3pm. The difference has arisen because:

The cost of providing 24hour service is much lower today.

Would not be analyzed in microeconomics?

Whether the federal budget should always be balanced

The number of US households with access to the Internet and those with broadband connections is growing rapidly. As an economic naturalist, one could predict that when a major purchase is being considered, families will

collect more info before making the purchase before the cost of finding and acquiring it is lower

Several years ago there were two systems for viewing movies at home: Sony's BetaMax machines and VCR machines that played VHS tapes. Despite the higher quality of BetaMax video, VHS became the dominant format. Once VHS tapes were the dominant format, BetaMax virtually disappeared from consumer markets. Why?

consumers gained more benefit by using the same system that others used, allowing them to share movies

Some states have started giving tax credits to homeowners who install solar panels. This is an example of:

using the incentive principle to encourage homeowners to switch to solar energy