Question 1

What is meant when one says that decisions are made at the margin? Provide an example of making a decision at the margin.

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Question 2

The discipline of economics is largely based on encouraging individuals to engage in certain activities and discouraging them from engaging in others. Why is encouraging or discouraging individuals through incentives so important?

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Question 3

Health insurance companies have the goal of reducing payments to doctors and hospitals. One way they have done this is by requiring individuals to pay a deductible. For example, a $1,000 deductible means that individuals are responsible for the first $1,000 in health care expenses over the course of a year. In terms of incentives, explain how the presence of a deductible reduces expenses for the health insurance company.

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Question 4

List and briefly explain each of the five foundations of economic thought.

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Question 5

If opportunity cost is the value of the best alternative not chosen, why is a rejected option important?

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Question 6

A dangerous habit among those who own cell phones is driving while talking or texting. Although a great deal has been done to inform drivers of the risks of doing multiple tasks while driving, this informational campaign has been ineffective in the face of increased ownership of cell phones. If you were a policymaker, what types of negative incentives would you suggest to discourage individuals from driving, talking, and texting at the same time?

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Question 7

Using any of the five foundations of economic thought, explain why farms are not located in major metropolitan areas.

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Question 8

Economic growth in developed countries has been altered by the increased popularity of the Internet. How has the Internet, in terms of both negative and positive incentives, promoted but also discouraged economic growth?

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Question 9

The two highest paid midcareer jobs with only a bachelor's degree are

Accepted Answer

According to a study by PayScale, the two highest paid midcareer jobs with only a bachelor's degree are economics and computer engineering. Both of these fields have an average midcareer salary of over $100,000.

Question 10

Due to the fact that firms concern themselves primarily with earning profits, a common complaint is that they often damage the environment in the process. More recently, markets have been set up so that firms can actually reduce their costs and profit more by damaging the environment less and selling their "right to pollute" to other companies. Discuss how this serves as a positive incentive for a firm to act in an environmentally responsible manner. What would be a way to discourage firms from polluting through the use of negative incentives?

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Question 11

One of the first major decisions that one faces after graduation is getting an apartment. Describe how someone might employ the concepts of trade-offs, opportunity costs, and making decisions at the margin in deciding which apartment to rent.

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Question 12

What are opportunity costs, and why do economists spend so much time talking about them?

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Question 13

Wages are higher in Country X than in Country Y. If the countries decide to trade, then who will benefit?

Accepted Answer

The country that can produce the product at a lower opportunity cost will benefit from trade because they can sell the product at a lower price while still making a profit. This allows them to specialize in producing the goods they can produce more efficiently and trade for goods they cannot.

Question 14

Explain how abundant resources such as water can be considered "scarce."

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Question 15

Explain why economics is not such a "dismal science."

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Question 16

Trade makes costs of goods and services

Accepted Answer

Trade allows for countries to specialize in producing certain goods and services, which lowers the cost of production and ultimately lowers the cost of goods and services for consumers. Additionally, trade also allows for a greater variety of goods and services to be available in markets as countries are able to trade for goods and services that they do not produce. Therefore, choice A is the best answer as it correctly states that trade lowers costs and raises the variety of goods and services in markets.

Question 17

Explain how a market might develop naturally without planning by government.

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Question 18

Choosing to trade _______specialization, _______opportunity costs.

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...

Question 19

Economics is divided into two subfields: microeconomics and macroeconomics. Why is this separation necessary?

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Question 20

Benefits from trade would NOT include

Accepted Answer

Trade usually promotes more competition and this often leads to lower prices and more variety of goods and services in the market. Trade also allows producers to specialize in the production of goods and services, which can lead to increased efficiency and productivity. The increase in productivity can create more employment opportunities.

Quiz 1: Five Foundations of Economics