Question: the most fundamental concept of economics is that...

Answer: changes in incentives influence behavior in a predictable way-people will be less likely to chose an option as it becomes more expensive

Question: the economic way of thinking stresses that

Answer: Incentives matter--individuals respond in predictable ways to changes in personal costs and benefits.

Question: Which of the following is most clearly consistent with the basic postulate of economics- namely that incentives matter?

Answer: People buy more beef in response to a rise in the price of beef.bA politician votes in favor of a bill because most of her constituents are strongly in favor of it.cFarmers produce fewer bushels of wheat in response to an increase in the price of wheat.Your answerdPeople drive more because of higher gas prices.answer: C

Question: The economic way of thinking suggests that if the government imposed a $500 tax on owners of red automobiles,

Answer: fewer red automobiles would be produced and sold.

Question: If a college enforces a new policy where anyone caught cheating is immediately expelled, the basic postulate of economics suggests that

Answer: fewer students will attempt to cheat.

Question: Which one of the following statements most accurately indicates the basic motivation for behavior?

Answer: Individuals are motivated by a variety of forces; however, changes in personal benefits and costs influence the choices of both selfish and humanitarian individuals.

Question: Which of the following is true?Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer.aHuman choice is generally not influenced by changes in incentives.bWhat is true for the individual must be true for the group as a whole.cUsing scarce resources to meet one need reduces our ability to meet needs in other areas.dThe economic way of thinking stresses that good intentions usually lead to sound economic policy.

Answer: C Using scarce resources to meet one need reduces our ability to meet needs in other areas.

Question: It has been said that all economists share a common ground. What is this common ground?

Answer: a theoretical framework based on the premise that incentives influence behavior in a predictable manner

Question: When economists say an individual displays economizing behavior, they simply mean that she is

Answer: seeking the lowest cost method to accomplish her objectives.

Question: Economics is the study of how

Answer: individuals make choices because of incentives and scarcity.

Question: Harold, a delivery man, washes and irons his own shirts. Sarah, his boss, sends her clothes to a laundry. Which is the most plausible economic explanation for this difference?

Answer: Sarah has a higher opportunity cost of laundering her clothes than Harold does.

Question: The opportunity cost of an action is

Answer: the value of the best opportunity that must be sacrificed in order to take the action.

Question: The opportunity cost of going to college is

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

Question: Which of the following is most consistent with economizing behavior?

Answer: Even if you know how to paint, hiring someone to do the job is consistent with economizing behavior, if your opportunity cost is high enough.Your answer

Question: Which of the following is most inconsistent with economizing behavior?

Answer: It never makes sense to hire someone to do something for you that you could do yourself.

Question: Which one of the following items best reflects the concept of opportunity cost?

Answer: The fact that many of the best college basketball players drop out of college to pursue a professional career.

Question: Which of the following sayings best reflects the concept of opportunity cost?

Answer: "Time is money."

Question: The opportunity cost of an activity

Answer: is subjective and can only be determined by the person who chooses the alternative.

Question: Hutch Technology makes computer monitors, which sell for $500 each. What is the opportunity cost of producing ten monitors?

Answer: the other goods that could be produced with the resources that produce the ten monitors

Question: Statistical data provided by the U.S. Department of Transportation shows that the median income of individuals traveling on the nation's bus systems is $18,000 compared to$65,000 for those who normally travel by air. This finding is best explained by which of the following statements?

Answer: Persons with high income are more likely to fly because the opportunity cost of their time is generally higher than those with lesser income.

Question: In economics, the term marginal refers to

Answer: the change or difference between two alternatives

Question: A marginal change usually is a

Answer: small, incremental adjustment

Question: People are willing to pay more for a diamond than for a bottle of water because

Answer: the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water.Your answer

Question: If an airline company has several empty seats on a flight and the full price of an air ticket is $500 and the marginal cost per passenger is $100, then it will be profitable for the airline to

Answer: charge a stand-by (last second) passenger more than $100

Question: Sarah, a wheat farmer, is deciding whether or not to add fertilizer to his crops. If he adds 1 pound of fertilizer per acre, the value of the resulting crops rises from $80 to $100 per acre. According to marginal analysis, Harry should add fertilizer if it costs less than:

Answer: $20 per pound.

Question: According to marginal analysis, you should spend more time studying economics if the extra benefit from an additional hour of study

Answer: outweighs the extra cost

Question: Just before class, Jim tells Stuart, "Stuart, you shouldn't skip class today because you have paid tuition to enroll in the class." Stuart ignores Jim's advice, and instead makes the decision of whether to attend based on what he feels he'd be missing that day in class relative to his value of the extra time he could have to finish the video game he is playing. To an economist, Stuart is

Answer: using marginal decision making

Question: Susan wishes to buy gasoline and have her car washed. She finds that if she buys 9 gallons of gasoline at $1.50 per gallon, the car wash costs $1, but if she buys 10 gallons of gasoline, the car wash is free. For Susan, the marginal cost of the tenth gallon of gasoline is

Answer: 50 cents.

Question: A restaurant offers an "all you can eat" lunch buffet for $12. Jim has eaten three servings and is trying to decide whether or not to go back for a fourth. The economic way of thinking suggests that Jim should go back for the fourth serving if and only if

Answer: his marginal benefit of the additional serving is greater than zero

Question: A rational decision maker takes an action if and only if

Answer: the marginal benefit of the action exceeds the marginal cost of the action.

Question: When economists say that people choose rationally, this means

Answer: people respond in predictable ways to changes in costs and benefits

Question: Which of the following is an example of a rational decision?aJim enjoys the feeling of wind in his hair enough to ride his motorcycle without a helmet, even though he fully realizes the potential for injury it creates by not wearing one in the unlikely event he is in an accident.bFrank decides to not pay attention to his health and well-being because every male in his family has died before the age of forty.cBrandon, a drug user, chooses to buy his cocaine from Pablo, because Pablo's cocaine is as good as the cocaine from other dealers, but Pablo has lower prices.dAll of the above are examples of rational choices.

Answer: All of the above are examples of rational choices.

Question: Doris, a burglar who breaks into houses, decides to break into the house at 265 Elm Street, rather than the house next door because the house next door has a sign in the yard that says "home protected by a security system." To an economist, Doris is

Answer: making a rational choice.

Question: Because information is costly to acquire,

Answer: people will rationally choose not to become fully informed when making decisions

Question: When economists say an individual has made a rational choice, they mean the individual has

Answer: made the choice by weighing their own subjective costs and benefits.

Question: The fact that some people love tomatoes while others dislike them illustrates thatatomatoes have a value that is determined by their cost of production rather than by the value to the consumer of the tomatoes.bthe value of a tomato cannot be determined by the person consuming it.cthe value created by a good does not depend on who consumes it.dthe value of a good is subjective.

Answer: the value of a good is subjective.

Question: The subjective benefit (or satisfaction) that an individual expects to derive from an activity is called

Answer: utility.

Question: In economics the term utility refers to

Answer: the subjective benefit or satisfaction a person expects to receive from a choice or course of action.

Question: The opportunity cost of an alternative

Answer: is subjective and can only be determined by the person who chooses the alternative

Question: We see white t-shirts, identical except for the logo, selling for different prices. A white t-shirt with an small green duck on the pocket sells for twice the price of a t-shirt that has a small yellow bird. What are we to make of this as economists?

Answer: People must really value small green ducks compared to little yellow birds.

Question: The difference between a positive economic statement and a normative statement is that

Answer: a positive statement must be true; a normative statement is often not true

Question: The difference between positive economic statements and normative economic statements is thatapositive statements are based on opinion while normative statements are based on factbpositive statements are true and normative statements are often falsecpositive statements are based on fact while normative statements are based on opiniondpositive statements are often false and normative statements are true

Answer: positive statements are based on fact while normative statements are based on opinion

Question: Which of the following is a statement of positive economics?aToo much government spending is the biggest problem facing the U.S. economy.bCreating jobs is the most serious problem facing the U.S. economy.cRaising taxes provides additional revenue that should be used to finance health care.dIf taxes are over 50 percent of national income, job creation falls.

Answer: If taxes are over 50 percent of national income, job creation falls.

Question: Which of the following is a statement of positive economics?aGovernment control of rent is a fair way to help poor people afford housing.bGovernment control of rent keeps landlords from charging too much rent.cGovernment control of rent decreases the number of new apartments constructed.dGovernment control of rent is an injustice.

Answer: Government control of rent decreases the number of new apartments constructed.

Question: The Secretary of Labor states that wage rates in the country have risen by 2 percent this past year. The head of a local labor union states that wage gains should have been higher. The Secretary's statement is a (n) ______ economic statement, and the labor head's statement is a (n)______ economic statement.

Answer: positive; normative

Question: Which of the following is an example of a normative economic statement?aThe inflation rate in the United States decreased from 4 percent last year to 3 percent this year as a result of lower energy prices.bThe economy grew at an annual rate of 5 percent during the first quarter of this year.cIf two automobile companies merge, it is likely that the price of automobiles will rise.dThe minimum wage should be increased so that low income workers can afford to keep up with the cost of living.

Answer: The minimum wage should be increased so that low income workers can afford to keep up with the cost of living.

Question: Which of the following most clearly distinguishes between positive and normative economics?aPositive economics is the study of what ought to be; normative economics is concerned with the facts.bPositive economics is the study of the facts; normative economics is concerned with what ought to be.cPositive economics is the study of supply and demand in narrowly defined markets such as the market for shoes; normative economics focuses on highly aggregated markets such as the market for all consumer products.dPositive economics is the study of goods that are scarce; normative economics is concerned with goods that are not scarce.

Answer: Positive economics is the study of the facts; normative economics is concerned with what ought to be.

Question: Which of the following represents a positive statement?aA higher income tax rate will reduce the amount of time that people spend working.bTeenage unemployment should be reduced.cWe should raise the standard of living for the elderly.dA decrease in tax rates is needed to help the poor.

Answer: A higher income tax rate will reduce the amount of time that people spend working.

Question: Which of the following is a normative statement?aA decrease in price leads to an increase in quantity consumed.bIncomes grow more rapidly in high-tax states than low-tax states.cPeople would be better off if government expenditures were higher.dPeople will buy less butter at $1.50 per pound than they will at $1 per pound.

Answer: People would be better off if government expenditures were higher.

Question: The statement, "Violent crime has decreased in the last five years,"

Answer: is positive because it is testable.