Question 1

Explain the economic idea that "people respond to incentives."

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Question 2

What is a marginal cost?

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Question 3

What is scarcity, and why is it a fundamental concept in economics?

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Question 4

The three fundamental questions that any economy must address are:
A) What will be the prices of goods and services; how will these goods and services be produced; and who will receive them?
B) What goods and services to produce; how will these goods and services be produced; and who receives them?
C) Who gets jobs; what wages do workers earn; and who owns what property?
D) How much will be saved; what will be produced; and how can these goods and services be fairly distributed?

Accepted Answer

The three fundamental questions that any economy must address are what goods and services to produce, how will these goods and services be produced, and who receives them. The other options are either incomplete or not accurate. Choice A focuses on prices, not goods and services, and assumes that the prices will already be determined before any other factors. Choice C only focuses on the distribution of goods and services, not their production or what is produced. Choice D only focuses on savings and fairness and does not address the production and allocation of goods and services.

Question 5

Assume that an additional $50,000 in benefits will be received each year if a town hires an additional police officer whose only job would be to catch drivers who drive over the speed limit on its only street. What must the additional cost of this additional police officer be to make this hiring economically rational?

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Question 6

Explain the economic assumption that "people are rational."

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Question 7

The idea that because of scarcity, producing more of one good or service means producing less of another good or service refers to the economic concept of
A) optimization.
B) efficiency.
C) a trade-off.
D) equity.

Accepted Answer

The concept of trade-offs involves making choices between two or more options, where choosing one option means giving up something else. In this case, the choice to produce more of one good or service means giving up the production of another good or service because resources are limited or scarce. Therefore, the correct answer is C - a trade-off.

Question 8

What is a marginal benefit?

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Question 9

What is meant by the statement that "optimal decisions are made at the margin"?

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Question 10

Suppose a town can earn an additional $10,000 per year in revenue if it installs a red-light camera at its busiest intersection. At what additional cost would installing this camera not be considered economically rational?

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Question 11

Suppose the extra annual cost to a nation to enact a mandatory seat belt law for motorcycles is $850. Then, the nation should enact this seat belt law if doing so results in an additional benefit of $850 or more each year.

Accepted Answer

If the additional benefit of enacting the seat belt law is $850 or more annually, it matches or exceeds the extra annual cost, making it economically justifiable to enact the law.

Question 12

Describe what has happened to state obesity rates in the United States since 1994.

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Question 13

Society faces a trade-off in all of the following situations except
A) when deciding who will receive the goods and services produced.
B) when deciding what goods and services will be produced.
C) when deciding how goods and services will be produced.
D) when some previously unemployed workers find jobs.

Accepted Answer

When previously unemployed workers find jobs, there is no obvious trade-off that society faces. This is because employment generally leads to higher overall economic output and benefits society as a whole. In contrast, choices A, B, and C all involve making trade-offs that prioritize certain groups or methods over others, which can have both positive and negative consequences.

Question 14

What does the word "marginal" mean in economics? What is a marginal benefit? What is a marginal cost? What is marginal analysis?

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Question 15

Assume that a city can earn an additional $100,000 of revenue each year from using drones to catch speeding drivers. What must the additional cost of using drones to catch speeders be to make this economically rational?

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Question 16

What is an economic model?

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Question 17

Which of the following is not an example of an economic trade-off that a firm has to face?
A) whether it is cheaper to produce with more machines or with more workers
B) whether it is to outsource the production of a good or service
C) whether or not consumers will buy its products
D) whether it should produce more of its product

Accepted Answer

Consumer demand is not a trade-off decision that a firm makes, it is an external factor that influences the firm's decisions. Trade-offs typically involve choosing between different options, such as the cost-benefit analysis of producing with machines or workers (A), deciding whether to outsource or produce in-house (B), or choosing how much to produce (D).

Question 18

What is an economic market?

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Question 19

Explain the term "economics."

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Question 20

Which of the following statements is true?
A) Any time you have to decide which action to take you are experiencing economic equity.
B) Trade-offs do not apply when the consumers purchase a product for which there is excess supply, such as with a stock clearance sale.
C) Every individual, no matter how rich or poor, is faced with situations that require trade-offs.
D) Economics is a social science that studies the trade-offs we are forced to make because resources are unlimited.

Accepted Answer

Trade-offs are situations where we have to give up something in order to get something else, due to limited resources. This applies to every individual, regardless of their wealth or social status. Option A is incorrect because economic equity refers to fairness in the distribution of goods and resources, not decision-making. Option B is incorrect because trade-offs apply to all economic transactions, including stock clearance sales. Option D is incorrect because economics is a social science that studies the allocation of scarce resources, not unlimited resources.

Quiz 1: Economics: Foundations and Models