Question 1

The opportunity cost of an item is

Accepted Answer

A) the number of hours needed to earn money to buy the item. 
B) what you give up to get that item. 
C) usually less than the dollar value of the item. 
D) the dollar value of the item. 
A) the number of hours needed to earn money to buy the item. 
B) what you give up to get that item. 
C) usually less than the dollar value of the item. 
D) the dollar value of the item. B

Question 2

Katie is planning to sell her house,and she is considering making two upgrades to the house before listing it for sale.Replacing the carpeting will cost her $2,500 and replacing the roof will cost her $9,000.Katie expects the new carpeting to increase the value of her house by $3,000 and the new roof to increase the value of her house by $7,000.

Accepted Answer

A) She should make both improvements to her house. 
B) She should replace the carpeting but not replace the roof. 
C) She should replace the roof but not replace the carpeting. 
D) She should not make either improvement to her house. 
A) She should make both improvements to her house. 
B) She should replace the carpeting but not replace the roof. 
C) She should replace the roof but not replace the carpeting. 
D) She should not make either improvement to her house. B

Question 3

A rational decisionmaker

Accepted Answer

A) ignores marginal changes and focuses instead on "the big picture." 
B) ignores the likely effects of government policies when he or she makes choices. 
C) takes an action only if the marginal benefit of that action exceeds the marginal cost of that action. 
D) takes an action only if the combined benefits of that action and previous actions exceed the combined costs of that action and previous actions. 
A) ignores marginal changes and focuses instead on "the big picture." 
B) ignores the likely effects of government policies when he or she makes choices. 
C) takes an action only if the marginal benefit of that action exceeds the marginal cost of that action. 
D) takes an action only if the combined benefits of that action and previous actions exceed the combined costs of that action and previous actions. C

Question 4

Which of the following is not one of the four principles of individual decision making?

Accepted Answer

A) People face trade-offs. 
B) Trade can make everyone better off. 
C) People respond to incentives. 
D) Rational people think at the margin. 
A) People face trade-offs. 
B) Trade can make everyone better off. 
C) People respond to incentives. 
D) Rational people think at the margin.

Question 5

When you calculate your true costs of going to college,what portion of your room-and-board expenses should be included?

Accepted Answer

A) Your full room-and-board expenses should always be included. 
B) None of your room-and-board expenses should ever be included. 
C) You should include only the amount by which your room-and-board expenses exceed the income you earn while attending college. 
D) You should include only the amount by which your room-and-board expenses exceed the expenses for rent and food if you were not in college. 
A) Your full room-and-board expenses should always be included. 
B) None of your room-and-board expenses should ever be included. 
C) You should include only the amount by which your room-and-board expenses exceed the income you earn while attending college. 
D) You should include only the amount by which your room-and-board expenses exceed the expenses for rent and food if you were not in college.

Question 6

When the government implements programs such as progressive income tax rates,which of the following is likely to occur?

Accepted Answer

A) equality is increased and efficiency is increased. 
B) equality is increased and efficiency is decreased. 
C) equality is decreased and efficiency is increased. 
D) equality is decreased and efficiency is decreased. 
A) equality is increased and efficiency is increased. 
B) equality is increased and efficiency is decreased. 
C) equality is decreased and efficiency is increased. 
D) equality is decreased and efficiency is decreased.

Question 7

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

Accepted Answer

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. 
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.

Question 8

If Faith attends college,it will take her four years,during which time she will earn no income.She will pay $50,000 for tuition,$12,000 for room and board,and $5,000 for books.If she spends the four years working rather than attending college,she will pay $18,000 for room and board,pay no intuition,and buy no books.Based on this information,Faith's economic cost of attending college would be $67,000 if,over the four years,she could earn

Accepted Answer

A) $12,000 instead of attending college. 
B) $14,000 instead of attending college. 
C) $16,000 instead of attending college. 
D) $18,000 instead of attending college. 
A) $12,000 instead of attending college. 
B) $14,000 instead of attending college. 
C) $16,000 instead of attending college. 
D) $18,000 instead of attending college.

Question 9

Something that induces a person to act is called

Accepted Answer

A) a trade-off. 
B) a policy. 
C) an incentive. 
D) an opportunity cost. 
A) a trade-off. 
B) a policy. 
C) an incentive. 
D) an opportunity cost.

Question 10

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?

Accepted Answer

A) to produce good quality products so that society would benefit from the resources used 
B) to conserve on costs,so as to maintain efficiency in the economy 
C) to produce enough to meet the output target,without regard for quality or cost 
D) to produce those products that society desires most 
A) to produce good quality products so that society would benefit from the resources used 
B) to conserve on costs,so as to maintain efficiency in the economy 
C) to produce enough to meet the output target,without regard for quality or cost 
D) to produce those products that society desires most

Question 11

Guns and butter are used to represent the classic societal tradeoff between spending on

Accepted Answer

A) durable and nondurable goods. 
B) imports and exports. 
C) national defense and consumer goods. 
D) law enforcement and agriculture. 
A) durable and nondurable goods. 
B) imports and exports. 
C) national defense and consumer goods. 
D) law enforcement and agriculture.

Question 12

The adage,"There is no such thing as a free lunch," is used to illustrate the principle that

Accepted Answer

A) goods are scarce. 
B) people face tradeoffs. 
C) income must be earned. 
D) households face many decisions. 
A) goods are scarce. 
B) people face tradeoffs. 
C) income must be earned. 
D) households face many decisions.

Question 13

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?

Accepted Answer

A) The marginal benefit of going to Spain increases. 
B) The marginal cost of going to Spain increases. 
C) The marginal benefit of going to Ireland increases. 
D) The marginal cost of going to Ireland decreases. 
A) The marginal benefit of going to Spain increases. 
B) The marginal cost of going to Spain increases. 
C) The marginal benefit of going to Ireland increases. 
D) The marginal cost of going to Ireland decreases.

Question 14

Lawrence is a photographer.He has $230 to spend and wants to buy either a flash for his camera or a new tripod.Both the flash and tripod cost $230,so he can only buy one.This illustrates the principle that

Accepted Answer

A) trade can make everyone better off. 
B) people face trade-offs. 
C) rational people think at the margin. 
D) people respond to incentives. 
A) trade can make everyone better off. 
B) people face trade-offs. 
C) rational people think at the margin. 
D) people respond to incentives.

Question 15

Making rational decisions "at the margin" means that people

Accepted Answer

A) make those decisions that do not impose a marginal cost. 
B) evaluate how easily a decision can be reversed if problems arise. 
C) compare the marginal costs and marginal benefits of each decision. 
D) always calculate the dollar costs for each decision. 
A) make those decisions that do not impose a marginal cost. 
B) evaluate how easily a decision can be reversed if problems arise. 
C) compare the marginal costs and marginal benefits of each decision. 
D) always calculate the dollar costs for each decision.

Question 16

Which of the following is not an example of the opportunity cost of going to school?

Accepted Answer

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. 
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.

Question 17

Acme Home Builders,Inc. ,has built 24 houses so far this year at a total cost to the company of $4.80 million.If the company builds a 25th house,its total cost will increase to $5.05 million.Which of the following statements is correct?

Accepted Answer

A) For the first 24 houses,the average cost per house was $205,000. 
B) The marginal cost of the 25th house,if it is built,will equal $250,000. 
C) If the company can sell the 25th house for at least $202,000,then it should build it. 
D) All of the above are correct. 
A) For the first 24 houses,the average cost per house was $205,000. 
B) The marginal cost of the 25th house,if it is built,will equal $250,000. 
C) If the company can sell the 25th house for at least $202,000,then it should build it. 
D) All of the above are correct.

Question 18

Economists are particularly adept at understanding that people respond to

Accepted Answer

A) laws. 
B) incentives. 
C) punishments more than rewards. 
D) rewards more than punishments. 
A) laws. 
B) incentives. 
C) punishments more than rewards. 
D) rewards more than punishments.

Question 19

Bill is restoring a car and has already spent $4000 on the restoration.He expects to be able to sell the car for $6200.Bill discovers that he needs to do an additional $2400 of work to make the car worth $6200 to potential buyers.He could also sell the car now,without completing the additional work,for $3800.What should he do?

Accepted Answer

A) He should sell the car now for $3800. 
B) He should keep the car since it wouldn't be rational to spend $6400 restoring a car and then sell it for only $6200. 
C) He should complete the additional work and sell the car for $6200. 
D) It does not matter if Bill sells the car now or completes the work and then sells it at the higher price because the outcome will be the same either way. 
A) He should sell the car now for $3800. 
B) He should keep the car since it wouldn't be rational to spend $6400 restoring a car and then sell it for only $6200. 
C) He should complete the additional work and sell the car for $6200. 
D) It does not matter if Bill sells the car now or completes the work and then sells it at the higher price because the outcome will be the same either way.

Question 20

High-school athletes who skip college to become professional athletes

Accepted Answer

A) obviously do not understand the value of a college education. 
B) usually do so because they cannot get into college. 
C) understand that the opportunity cost of attending college is very high. 
D) are not making a rational decision since the marginal benefits of college outweigh the marginal costs of college for high-school athletes. 
A) obviously do not understand the value of a college education. 
B) usually do so because they cannot get into college. 
C) understand that the opportunity cost of attending college is very high. 
D) are not making a rational decision since the marginal benefits of college outweigh the marginal costs of college for high-school athletes.

Exam 1: Ten Principles of Economics: How People Make Decisions

The opportunity cost of an item is

A rational decisionmaker

Which of the following is not one of the four principles of individual decision making?

When you calculate your true costs of going to college,what portion of your room-and-board expenses should be included?

When the government implements programs such as progressive income tax rates,which of the following is likely to occur?

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

Something that induces a person to act is called

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?

Guns and butter are used to represent the classic societal tradeoff between spending on

The adage,"There is no such thing as a free lunch," is used to illustrate the principle that

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?

Lawrence is a photographer.He has $230 to spend and wants to buy either a flash for his camera or a new tripod.Both the flash and tripod cost $230,so he can only buy one.This illustrates the principle that

Making rational decisions "at the margin" means that people

Which of the following is not an example of the opportunity cost of going to school?

Acme Home Builders,Inc. ,has built 24 houses so far this year at a total cost to the company of $4.80 million.If the company builds a 25th house,its total cost will increase to $5.05 million.Which of the following statements is correct?

Economists are particularly adept at understanding that people respond to

High-school athletes who skip college to become professional athletes

Ten Principles of Economics

Ten Principles of Economics: How People Interact

Ten Principles of Economics: How the Economy As a Whole Works

Ten Principles of Economics: Part A

Ten Principles of Economics: Part B

Thinking Like an Economist

Thinking Like an Economist: The Economist As Scientist

Thinking Like an Economist: The Economist As Policy Adviser

Thinking Like an Economist: Why Economists Disagree

Thinking Like an Economist: Lets Get Going

Thinking Like an Economist: Graphing a Brief Review

Thinking Like an Economist: Part A

Thinking Like an Economist: Part B

Interdependence and the Gains From Trade

Interdependence and the Gains From Trade: A Parable for the Modern Economy

Interdependence and the Gains From Trade: Comparative Advantage the Driving Force of Specialization

Interdependence and the Gains From Trade: Applications of Comparative Advantage

Interdependence and the Gains From Trade: Conclusion

Interdependence and the Gains From Trade: Part A

Interdependence and the Gains From Trade: Part B

The Market Forces of Supply and Demand

The Market Forces of Supply and Demand:Markets and Competition

The Market Forces of Supply and Demand: Demand

The Market Forces of Supply and Demand: Supply

The Market Forces of Supply and Demand: Supply and Demand Together

The Market Forces of Supply and DemandConclusion How Prices Allocate Resources

The Market Forces of Supply and Demand: Part A

The Market Forces of Supply and Demand: Part B

Elasticity and Its Applications

Elasticity and Its Applications: The Elasticity of Demand

Elasticity and Its Applications: The Elasticity of Supply

Elasticity and Its Applications: Three Applications of Supply,demand,and Elasticity

Elasticity and Its Applications: Part A

Elasticity and Its Applications: Part B

Supply Demand and Government Policies

Supply Demand and Government Policies: Controls on Prices

Supply Demand and Government Policies: Taxes

Supply Demand and Government Policies: Part A

Supply Demand and Government Policies: Part B

Consumers Producers and the Efficiency of Markets

Consumers Producers and the Efficiency of Markets: Consumer Surplus

Consumers Producers and the Efficiency of Markets: Producer Surplus

Consumers Producers and the Efficiency of Markets: Market Efficiency

Consumers Producers and the Efficiency of Markets: Conclusion Market Efficiency and Market Failure

Consumers Producers and the Efficiency of Markets: Part A

Consumers Producers and the Efficiency of Markets: Part B

Application the Cost of Taxation

Application the Cost of Taxation: The Deadweight Loss of Taxation

Application the Cost of Taxation: The Determinants of the Deadweight Loss

Application the Cost of Taxation: Deadweight Loss and Tax Revenue As Taxes Vary

Application the Cost of Taxation: Conclusion

Application the Cost of Taxation: Part A

Application the Cost of Taxation: Part B

Application International Trade

Application International Trade: The Determinants of Trade

Application International Trade: The Winners and Losers From Trade

Application International Trade: The Arguments for Restricting Trade

Application International Trade: Conclusion

Application International Trade: Part A

Application International Trade: Part B

Measuring a Nations Income

Measuring a Nations Income: The Economy's Income and Expenditure

Acme Home Builders,Inc. ,has built 24 houses so far this year at a total cost to the company of $4.80 million.If the company builds a 25^th house,its total cost will increase to $5.05 million.Which of the following statements is correct?