Question 1

In the area of many college campuses,parking spaces are often scarce.If these parking spaces have parking meters,which population described below would pay for parking?
A) those that are willing to take risks and believe that they will not be caught if they don't place change in the meter
B) those that place a high opportunity cost on making sure they have change and placing change in the meter
C) those that are willing to take risks,believe that they will not be caught if they don't place change in the meter,and disregard any possible $5 ticket for parking illegally
D) those that are unwilling to take risks and believe there is a high chance that they will not be caught if they don't pay for parking
E) those that are unwilling to take risks,believe there is a high chance that they will be caught if they don't pay for parking,and place a high value on doing the "right" thing

Accepted Answer

This population is described as "unwilling to take risks, believe there is a high chance that they will be caught if they don't pay for parking, and place a high value on doing the 'right' thing." This suggests that they prioritize following the rules and avoiding potential consequences over the small cost of paying for parking.

Question 2

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) a population that is willing to take risks and whose people believe that they will not be caught if they don't pay their fare
B) a population that places a high opportunity cost on taking time to purchase a ticket
C) a population whose people are willing to take risks,believe that they will not be caught if they don't pay their fare,and treat fines for not paying a fare as a nuisance
D) a population that is unwilling to take risks and whose people believe there is a high chance that they will be caught if they don't pay their fare
E) a population whose people are unwilling to take risks,believe there is a high chance that they will not be caught if they don't pay their fare,and place a low value on doing the right thing

Accepted Answer

An honor system in public transit is more likely to be successful in a population that is risk-averse and believes in the high likelihood of being caught for fare evasion. This mindset encourages compliance with the system's rules, as individuals would prefer to pay their fare rather than face the consequences of being caught without a valid ticket.

Question 3

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?
A) direct
B) indirect
C) neutral
D) complementary
E) unintended

Accepted Answer

The health insurance company is offering a direct incentive by providing a discount on premiums for policyholders who have stopped smoking.

Question 4

Although 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)
A) direct incentive.
B) indirect incentive.
C) positive incentive.
D) innovation.
E) marginal cost.

Accepted Answer

An indirect incentive is one that promotes a certain behavior without directly rewarding it. In this case, the generous disability insurance could indirectly incentivize individuals to fake injuries or disabilities in order to receive the benefits.

Question 5

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 homes.If the tax deduction caused people who otherwise would have rented to own,the tax deduction serves as a(n)________ incentive.
A) direct
B) indirect
C) neutral
D) complementary
E) unintended

Accepted Answer

The tax deduction for home loan interest payments is an indirect incentive because it indirectly encourages people to buy homes by reducing the cost of homeownership. It is not a direct incentive, as the government is not providing a direct payment or subsidy for homeownership. It is not neutral, as it does have an impact on the decision to rent or own. It is not complementary, as it does not work in conjunction with another policy or program. While the tax deduction may have unintended consequences, this is not the best choice as it does not accurately describe the nature of the incentive.

Question 6

What is the opportunity cost of taking an exam?
A) all of the things that someone could have done by not studying
B) each of the questions that someone misses on the exam
C) the highest valued alternative that someone gave up to prepare for and attend the exam
D) the money someone spent purchasing the textbook and the other materials with which he or she studies
E) the money someone spent on tuition

Accepted Answer

Opportunity cost is defined as the highest valued alternative that someone gave up to choose a particular course of action. In the case of taking an exam, the opportunity cost would be the value of the next best alternative use of the time and resources that were spent studying and preparing for the exam. Therefore, the correct answer is C.

Question 7

The cost of a trade-off is known as the ________ cost of that decision.
A) marginal
B) net
C) opportunity
D) comparative
E) explicit

Accepted Answer

The cost of a trade-off is known as the opportunity cost of that decision. This is because when we make a decision, we give up the opportunity to choose an alternative option. The opportunity cost is the value of that opportunity and what we are giving up by choosing one option over another. Therefore, C is the best choice because it accurately reflects the concept of trade-offs and the cost associated with them.

Question 8

Economics is concerned with the trade-offs that emerge because of scarcity.The term "trade-offs" refers to
A) the decision about whether households or businesses should bear the entire burden of the scarcity problem.
B) the buying and selling that occur as unwanted goods are exchanged for goods that are desired.
C) the alternatives given up when making choices.
D) recycling and transforming old goods into new goods to reduce scarcity problems.
E) forcing businesses to produce some goods and services and not others.

Accepted Answer

Economics deals with scarcity and how individuals, businesses, and governments make choices about how to allocate limited resources. When making these choices, individuals have to give up or trade-off one thing for another due to the scarcity of resources. This is what is meant by the term "trade-offs". Options A, B, D, and E do not accurately capture the concept of "trade-offs" in economics.

Question 9

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
A) those who place a high value on their scarce time may be encouraged to buy a fuel-efficient car to take advantage of the separate highway lane.
B) those who place a low value on their scarce time may be encouraged to buy a fuel-efficient car to take advantage of the separate highway lane.
C) those who are more concerned about the environment are also those who happen to place a high value on their time.
D) those who purchase a fuel-efficient car are forced to pay more for a new car,and the use of the separate highway lane compensates them for this.
E) those who purchase a fuel-efficient car are likely to be unhappy because it is less powerful or more cramped inside; use of the separate highway lane compensates them for this.

Accepted Answer

Allowing fuel-efficient cars to use a separate highway lane gives them a time advantage over cars stuck in traffic, which encourages people who value their time to buy fuel-efficient cars. This is because fuel-efficient cars can drive in the separate lane, which is typically less congested and allows for faster travel times.

Question 10

Opportunity cost is the ________ alternative forfeited when a choice is made.
A) least-valued
B) highest-valued
C) most recently considered
D) most convenient
E) first

Accepted Answer

The opportunity cost is the highest-valued alternative that is forfeited when a choice is made. This means that it is the option that would have brought the most benefit or value, but had to be given up in order to pursue a different option. Therefore, the best choice is one that minimizes the opportunity cost by choosing the option that provides the most value without sacrificing too much of the other possible options.

Question 11

The opportunity cost of a purchase is
A) zero if the item is what someone wants most.
B) always equal to the selling price of what someone purchased.
C) always greater for people who are out of work than for people who are working.
D) the alternative good or service that one sacrifices because a different good was purchased.
E) the lowest possible price.

Accepted Answer

The opportunity cost of a purchase is the alternative good or service that one sacrifices because a different good was purchased. This is the definition of opportunity cost and is only provided in option D.

Question 12

If Alexander doesn't like changing the oil in his car and pays his father to do it for him,he has provided his father with a(n)________ incentive.
A) direct
B) indirect
C) neutral
D) complementary
E) unintended

Accepted Answer

The incentive provided is direct because Alexander is directly paying his father to perform the task he doesn't like.

Question 13

What is the indirect incentive in the unemployment insurance program?
A) Workers get paid when they are laid off.
B) Workers face an incentive to find a new job as quickly as possible.
C) Workers have a reduced incentive to find a new job until the insurance runs out.
D) Workers are paid all of their wages by the unemployment insurance program.
E) Workers on unemployment insurance are given training opportunities.

Accepted Answer

The indirect incentive in the unemployment insurance program is that workers have a reduced incentive to find a new job until the insurance runs out. This is because as long as they are receiving unemployment benefits, they may have less urgency to search for work, since they are still receiving payment. This can lead to a longer period of unemployment for some workers.

Question 14

Rational decision making under conditions of scarcity requires individuals to
A) place a monetary value on everything.
B) know the prices of all goods they might buy.
C) be alert to price reductions on desired products.
D) understand that trade-offs are necessary.
E) earn as much income as possible.

Accepted Answer

Rational decision making under conditions of scarcity means making choices between different options, all of which have costs and benefits. This requires individuals to understand that they cannot have everything they want and must make trade-offs between competing goals. Placing a monetary value on everything or earning as much income as possible are not necessarily the most important factors in making rational decisions, as non-monetary considerations such as personal values, preferences, and needs may also play a role. Knowing the prices of goods and being alert to price reductions are useful but not essential for making rational decisions. Therefore, the most important factor in rational decision making under conditions of scarcity is understanding that trade-offs are necessary.

Question 15

An opportunity cost is the
A) lowest possible cost.
B) highest possible cost.
C) monetary price paid for a good or service.
D) cost of a purchase or decision as measured by what is given up.
E) cost of finding the lowest price for a product.

Accepted Answer

Opportunity cost is the cost of a purchase or decision measured by what is given up or the next best alternative forgone. It is not necessarily the lowest or highest possible cost and may not be related to the monetary price of a good or service. The cost of finding the lowest price for a product is not the same as opportunity cost.

Question 16

The government controls for some indirect incentives in safety net social programs by
A) limiting payment to a specified time period.
B) providing only a partial payment.
C) allowing individuals to apply to only a certain number of safety net social programs.
D) requiring individuals to repay the benefits they received.
E) establishing income limits for those who apply for safety net social programs.

Accepted Answer

The answer of The government controls for some indirect incentives...

Question 17

Kelly is an architect,and she is trying to decide whether to hire Lawrence,a draftsman,to assist with her work.Kelly could hire Lawrence 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?
A) Kelly should not hire Lawrence because it would be faster for her to do the work herself.
B) Kelly should do the drafting work herself because she has the lower opportunity cost.
C) Lawrence should be hired at the $20 per hour wage rate.
D) Lawrence should be hired,but only if he is paid more than $30 per hour.
E) Kelly should hire someone who earns minimum wage instead of Lawrence.

Accepted Answer

Hiring Lawrence allows Kelly to focus on higher-paying tasks ($90/hour) while paying Lawrence $20/hour, even if he takes longer. This is more efficient than doing the work herself, as it maximizes her earnings potential by focusing on tasks only she can do at a higher rate.

Question 18

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 someone recycles the bag,the refund acts as a(n)________ incentive.
A) direct
B) indirect
C) neutral
D) complementary
E) unintended

Accepted Answer

The refund acts as a direct incentive as it directly encourages individuals to recycle the bag in order to receive the refund.

Question 19

An opportunity cost
A) can be measured only when the decision involves expenditures of money.
B) can be measured only when the decision involves spending time on one thing and not on another.
C) is impossible to measure.
D) is equal to the value of what is given up to make a purchase or take an action.
E) exists for every decision made by individuals and businesses,but not by the government.

Accepted Answer

Opportunity cost is the value of the next best alternative that must be given up in order to pursue a certain action or decision. It is not just limited to decisions involving money, but can also involve time, resources, or any other scarce commodity. Therefore, option A and B are not correct. While it may be difficult to measure opportunity costs precisely, it is not impossible, making option C incorrect. Finally, opportunity cost exists in all decision-making scenarios, including those made by governments, so option E is also not correct.

Question 20

Indirect incentives create ________ consequences.
A) positive
B) negative
C) indirect
D) direct
E) unintended

Accepted Answer

Indirect incentives can have unintended consequences, meaning they can lead to outcomes that were not intended or anticipated. This can lead to negative, neutral, or positive consequences depending on the situation.

Quiz 1: Five Foundations of Economics

In the area of many college campuses,parking spaces are often scarce.If these parking spaces have parking meters,which population described below would pay for parking?

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 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?

Although 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)

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 homes.If the tax deduction caused people who otherwise would have rented to own,the tax deduction serves as a(n) ________ incentive.

What is the opportunity cost of taking an exam?

The cost of a trade-off is known as the ________ cost of that decision.

Economics is concerned with the trade-offs that emerge because of scarcity.The term "trade-offs" refers to

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

Opportunity cost is the ________ alternative forfeited when a choice is made.

The opportunity cost of a purchase is

If Alexander doesn't like changing the oil in his car and pays his father to do it for him,he has provided his father with a(n) ________ incentive.

What is the indirect incentive in the unemployment insurance program?

Rational decision making under conditions of scarcity requires individuals to

An opportunity cost is the

The government controls for some indirect incentives in safety net social programs by

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 someone recycles the bag,the refund acts as a(n) ________ incentive.

An opportunity cost

Indirect incentives create ________ consequences.