Question 1

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 healthcare 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 2

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

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Question 3

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 4

When trade is voluntary,who benefits?

Accepted Answer

When trade is voluntary, meaning both parties willingly agree to the terms of the exchange, both the buyer and the seller benefit. The buyer receives the goods or services they desire, and the seller receives payment for providing those goods or services. This exchange results in mutual benefit and increased satisfaction for both parties involved.

Question 5

What creates comparative advantage?

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...

Question 6

A person has a comparative advantage in the production of a good when she or he can produce the product at a(n) ________ opportunity cost compared to another person.

Accepted Answer

A person has comparative advantage in the production of a good when she or he can produce the product at a lower opportunity cost compared to another person. This means that the person can forego producing less of another good in order to produce more of the given good. This results in a more efficient use of resources and a higher overall output.

Question 7

A dangerous habit among those who own cell phones is driving while talking or texting.While 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 8

Who benefits from voluntary trade?

Accepted Answer

Both buyers and sellers benefit from voluntary trade. Buyers are able to acquire goods or services they desire, while sellers are able to generate revenue and possibly expand their business. The government may benefit indirectly through taxation or economic growth, but they are not direct beneficiaries of voluntary trade.

Question 9

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

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Question 10

Comparative advantage emerges because of the presence of:

Accepted Answer

Comparative advantage is based on the concept of opportunity cost, which means the cost of one alternative in terms of the forgone opportunity to pursue the next best alternative. Therefore, differences in opportunity costs between two countries or individuals create the potential for mutual gains from trade, resulting in comparative advantage. The presence of trade, marginal benefits equaling marginal costs, scarcity, and incentives may facilitate comparative advantage, but they are not the root cause of it.

Question 11

In 2009,the federal government created a program called Cash for Clunkers whereby consumers could trade in a less efficient car for a more efficient car and receive a higher value than they would have otherwise.How would an economist understand the decision that consumers faced?

Accepted Answer

An economist would understand that consumers faced a decision between the marginal benefits and marginal costs of replacing their car. The Cash for Clunkers program ensured that the marginal benefits of getting a more efficient car would exceed the marginal costs, which incentivized consumers to participate in the program.

Question 12

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

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Question 13

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 14

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 15

Saudi Arabia has a comparative advantage in producing oil because it:

Accepted Answer

Saudi Arabia has specialized in the production of oil given its natural resources, thus giving it a comparative advantage in producing oil.

Question 16

One of the first major decisions that one faces after graduation is getting an apartment.Describe how you 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 17

The opportunity cost to free trade is:

Accepted Answer

Free trade can lead to a loss of domestic jobs as industries face competition from foreign markets, which is the opportunity cost.

Question 18

The United States is able to experience economic growth to the extent that:

Accepted Answer

Specialization and trade allow for countries to produce the goods and services that they are most efficient at, which leads to increased productivity and economic growth. Restricting trade or protecting jobs from outsourcing can limit economic growth by preventing countries from taking advantage of comparative advantages. While consumer preference for domestic goods can provide some support for the domestic economy, it is not enough to drive sustained economic growth. Government involvement in the economy can have both positive and negative effects, depending on the specific policies and how they are implemented. Overall, an emphasis on specialization and trade is the most reliable way to achieve sustained economic growth.

Question 19

More oranges are grown in Florida than North Dakota because Florida's warm climate gives it a ________ in growing oranges.

Accepted Answer

A comparative advantage refers to the ability of an individual, firm or country to produce a good or service at a lower opportunity cost than other producers. In this case, Florida's warm climate is better suited for growing oranges compared to North Dakota, giving it a comparative advantage in the production of oranges.

Question 20

Many stores are open 24 hours a day.When store managers make the decision to stay open 24 hours,it must be the case that:

Accepted Answer

When store managers make the decision to stay open 24 hours, they consider the marginal benefit of having additional sales and serving customers at odd hours, and the marginal cost of paying additional wages, utility bills, and associated expenses. The decision to stay open all day must depend on whether the marginal benefit of staying open all day is at least equal to the marginal cost of remaining open all day. Therefore, choice A is the best answer.

Quiz 1: The Five Foundations of Economics