Question 1

One reason some manufacturing companies have moved production from overseas locations back to the United States is an increasing preference by U.S. consumers for products made in the United States. If buyers have increased their preference for domestically produced goods and manufacturers believe they can increase revenues by supplying more of these goods, firms are following which key economic idea when they return production to the United States?
A) People are rational.
B) People respond to economic incentives.
C) Optimal decisions are made at the margin.
D) The market system relies on the principle of voluntary exchange.

Accepted Answer

By moving production back to the United States, manufacturers are responding to the economic incentive of increased consumer preference for domestically produced goods. This decision aligns with the key economic idea that people respond to economic incentives.

Question 2

Suppose the U.S. government encouraged new medical school graduates to take over existing practices from doctors wishing to retire by paying both the new and retiring doctors $100,000. These doctors would be exemplifying the economic idea that
A) people are rational.
B) people respond to economic incentives.
C) optimal decisions are made at the margin.
D) equity is more important than efficiency.

Accepted Answer

The fact that the U.S. government is providing a financial incentive for new medical school graduates to take over existing practices exemplifies the economic idea that people respond to economic incentives. In this case, the monetary incentive is encouraging new doctors to enter the workforce while also allowing retiring doctors to exit at a profit.

Question 3

One reason some manufacturing companies have moved production from overseas locations back to the United States is rising foreign labor costs. Assuming that managers at these companies used all available information, including the rising cost of foreign labor, when making the decision to move production back to the United States exemplifies which key economic idea?
A) People are rational.
B) People respond to economic incentives.
C) Optimal decisions are made at the margin.
D) The market system relies on the principle of voluntary exchange.

Accepted Answer

A

Question 4

Suppose that some investors have decided that economic and financial uncertainty have made the prospect of investing in domestic stock markets more risky than investing in foreign stock markets, and therefore choose to invest in foreign markets. By using all available information as they act to achieve their goals, these investors are exemplifying the economic idea that
A) people are rational.
B) people respond to economic incentives.
C) optimal decisions are made at the margin.
D) equity is more important than efficiency.

Accepted Answer

The behavior of the investors in this situation exemplifies the economic idea that people are rational. This is because the investors are using available information to make decisions that they believe will best achieve their goals.

Question 5

Economists assume that individuals
A) behave in unpredictable ways.
B) will never take actions to help others.
C) prefer to live in a society that values fairness above all else.
D) are rational and respond to incentives.

Accepted Answer

Economists assume that individuals are rational and respond to incentives. This means that individuals make decisions based on their own self-interest and will weigh the potential costs and benefits before taking action.

Question 6

Which of the following statements about scarcity is true?
A) Scarcity refers to the situation in which unlimited wants exceed limited resources.
B) Scarcity is not a problem for the wealthy.
C) Scarcity is only a problem when a country has too large a population.
D) Scarcity only arises when there is a wide disparity in income distribution.

Accepted Answer

Scarcity refers to the situation in which unlimited wants exceed limited resources. It is a universal economic problem faced by all individuals, organizations, and countries, regardless of their level of wealth or population size.

Question 7

Ford assembles some cars in Mexico because the lower wages the company pays to Mexican workers and the lower prices it pays for auto parts in Mexico reduces Ford's costs. This is an example of Ford reacting to which of the three key economic ideas?
A) People are rational.
B) People respond to economic incentives.
C) Optimal decisions are made at the margin.
D) Firms attempt to maximize revenues.

Accepted Answer

Ford's decision to assemble cars in Mexico is based on the economic incentive of reducing costs by taking advantage of lower wages and prices for auto parts in Mexico. This is an example of the concept that people respond to economic incentives, as Ford is choosing to act in a way that will increase profits by reducing costs.

Question 8

By definition, economics is the study of
A) how to make money in the stock market.
B) how to make money in a market economy.
C) the choices people make to attain their goals, given their scarce resources.
D) supply and demand.

Accepted Answer

Economics is the study of how individuals, businesses, governments, and societies make choices about how to allocate their limited resources effectively in order to fulfill their unlimited wants and needs. This involves analyzing the production, distribution, and consumption of goods and services, as well as the factors that influence these economic activities. While making money in the stock market and market economies are related to economics, they do not reflect the full scope of the discipline. Supply and demand is an important concept in economics, but it is not the sole focus of the field.

Question 9

An economic ________ is a simplified version of some aspect of economic life used to analyze an economic issue.
A) market
B) trade-off
C) variable
D) model

Accepted Answer

A model is a simplified version of some aspect of economic life used to analyze an economic issue. Option A is a type of economic institution while option B and C are terms used in economic analysis, but do not fully capture the definition of an economic model.

Question 10

In economics, choices must be made because we live in a world of
A) unemployment.
B) scarcity.
C) greed.
D) unlimited resources.

Accepted Answer

The term "scarcity" refers to the fact that there are limited resources to satisfy unlimited wants and needs. As a result, we must make choices about how to allocate these resources. This is a fundamental concept in economics, and it underlies many of the decisions that individuals, businesses, and governments must make. By understanding the concept of scarcity, we can better understand the tradeoffs that are involved in any economic decision, and make more informed choices about how to use our resources.

Question 11

Suppose the U.S. government encouraged consumers to trade in their old automobiles for more efficient, new models by paying up to $5,000 for the old automobiles. These consumers who did trade in their old automobiles to take advantage of the government offer would be exemplifying the economic idea that
A) people are rational.
B) people respond to economic incentives.
C) optimal decisions are made at the margin.
D) equity is more important than efficiency.

Accepted Answer

The economic idea exemplified here is that people respond to economic incentives. The government is offering an economic incentive for consumers to trade in their old automobiles for more efficient ones. This is a clear example of how economic incentives can change behavior.

Question 12

Holding all other personal characteristics-such as age, gender, and income-constant, economists would expect that
A) people with health insurance are less likely to be overweight than people without health insurance.
B) people with health insurance are more likely to be overweight than people without health insurance.
C) people with health insurance are equally likely to be overweight as people without health insurance.
D) there is no correlation between having health insurance and being overweight.

Accepted Answer

Economists have found that people with health insurance are more likely to be overweight than people without health insurance. This may be because people with health insurance have greater access to healthcare services, including prescription medication and surgeries, which can lead to weight gain as a side effect. Additionally, people with health insurance may be less likely to engage in preventative health behaviors, such as exercise and healthy eating, because they feel that they can rely on their insurance to cover any health issues that arise.

Question 13

Where do economic agents such as individuals, firms, and nations interact with each other?
A) in public locations monitored by the government
B) in any arena that brings together buyers and sellers
C) in any physical location where people can physically get together for selling goods, such as shopping malls
D) in any location where transactions can be monitored by consumer groups and taxed by the government

Accepted Answer

Economic agents interact with each other in any arena that brings together buyers and sellers, such as markets, exchanges, and online platforms. This encompasses a wide range of locations, including physical marketplaces, virtual trading floors, and auction sites. These interactions are typically guided by the laws of supply and demand, and the prices that emerge from these interactions serve as signals for allocating resources and shaping economic activity.

Question 14

In economics, the term ________ refers to a group of buyers and sellers of a product and the arrangement by which they come together to trade.
A) collective
B) cooperative
C) market
D) trade-off

Accepted Answer

The term that refers to a group of buyers and sellers of a product and the arrangement by which they come together to trade is the market. Option A, collective, refers to a group of individuals or organizations that come together for a common purpose, and option B, cooperative, refers to a business organization owned and operated by a group of individuals for their mutual benefit. Option D, trade-off, refers to the concept of giving up one thing in order to gain something else.

Question 15

Economists assume that rational behavior is useful in explaining choices people make
A) because irrational people do not make economic choices.
B) even though people may not behave rationally all the time.
C) because individuals act rationally all the time in all circumstances.
D) even though people rarely, if ever, behave in a rational manner.

Accepted Answer

Economists recognize that people sometimes do not behave rationally, but they assume that rational behavior is still a useful framework for explaining and predicting economic choices.

Question 16

Economists assume that rational people do all of the following except
A) use all available information as they act to achieve their goals.
B) undertake activities that benefit others and hurt themselves.
C) weigh the benefits and costs of all possible alternative actions.
D) respond to economic incentives.

Accepted Answer

Economists assume that rational people aim to maximize their own well-being or utility. They weigh the benefits and costs of all possible alternative actions, respond to economic incentives, and use all available information as they act to achieve their goals. However, economists do not assume that individuals undertake activities that benefit others and hurt themselves - this is contrary to the rationality assumption.

Question 17

Economics does not study correct or incorrect behaviors but rather it assumes that economic agents behave ________, meaning they make the best decisions given their knowledge of the costs and benefits.
A) equitably
B) rationally
C) emotionally
D) selfishly

Accepted Answer

Economics assumes that economic agents behave rationally, meaning they make the best decisions given their knowledge of the costs and benefits. This does not necessarily mean that they behave selfishly or with any particular moral or ethical considerations - it simply means that they are making decisions that, given their own personal beliefs and constraints, are the most beneficial for themselves. Therefore, B is the best choice as it accurately represents the assumption of rational behavior in economics.

Question 18

The basic economic problem of ________ has always existed and will continue to exist.
A) scarcity
B) efficiency
C) inflation
D) recession

Accepted Answer

Scarcity is the basic economic problem that exists as resources are limited while wants and needs are unlimited. This means that choices and trade-offs have to be made to satisfy unlimited wants and needs with limited resources. Efficiency, inflation, and recession are economic concepts that are related to scarcity but not the basic economic problem itself.

Question 19

Consider the following statements:
a.	Car owners purchase more gasoline from a gas station that sells gasoline at a lower price than other rival gas stations in the area.
b.	Banks do not take steps to increase security since they believe it is less costly to allow some bank robberies than to install expensive security monitoring equipment.
c.	Firms produce more of a particular DVD when its selling price rises.
Which of the above statements demonstrates that economic agents respond to incentives? 
A) a only
B) b only
C) c only
D) a and b
E) a, b, and c

Accepted Answer

All statements demonstrate that economic agents respond to incentives: a) consumers buy more when prices are lower, b) banks weigh costs and benefits of security measures, and c) firms increase production when prices rise.

Question 20

Suppose that some teachers have decided that economic and financial uncertainty have made the prospect of retiring more risky, and therefore carry a higher cost than not retiring. By using all available information as they act to achieve their goals, these teachers are exemplifying the economic idea that
A) people are rational.
B) people respond to economic incentives.
C) optimal decisions are made at the margin.
D) equity is more important than efficiency.

Accepted Answer

The answer of Suppose that some teachers have decided that...

Quiz 1: Economics: Foundations and Models

Suppose the U.S. government encouraged new medical school graduates to take over existing practices from doctors wishing to retire by paying both the new and retiring doctors $100,000. These doctors would be exemplifying the economic idea that

Economists assume that individuals

Which of the following statements about scarcity is true?

Ford assembles some cars in Mexico because the lower wages the company pays to Mexican workers and the lower prices it pays for auto parts in Mexico reduces Ford's costs. This is an example of Ford reacting to which of the three key economic ideas?

By definition, economics is the study of

An economic ________ is a simplified version of some aspect of economic life used to analyze an economic issue.

In economics, choices must be made because we live in a world of

Holding all other personal characteristics-such as age, gender, and income-constant, economists would expect that

Where do economic agents such as individuals, firms, and nations interact with each other?

In economics, the term ________ refers to a group of buyers and sellers of a product and the arrangement by which they come together to trade.

Economists assume that rational behavior is useful in explaining choices people make

Economists assume that rational people do all of the following except

Economics does not study correct or incorrect behaviors but rather it assumes that economic agents behave ________, meaning they make the best decisions given their knowledge of the costs and benefits.

The basic economic problem of ________ has always existed and will continue to exist.