Question 1

The town of Harmonia gives away all 500 tickets to its annual Founder's Day Free Concert-in-the-Park to local residents.Each year,more than 500 people wish to attend the concert,so some of the residents who receive the free tickets sell them for as much as $75 each.Is a transaction where someone pays a resident $75 for a "free ticket" economically efficient?
A) No, people should never be allowed to sell items they received for free.
B) Yes, it was a voluntary exchange that benefited both parties.
C) No, the buyer paid too much for the ticket.
D) Yes, but it is efficient only from the perspective of the seller and not from the perspective of the buyer.

Accepted Answer

The voluntary exchange between the seller and the buyer is economically efficient as both parties benefit from the transaction. The seller receives a profit for a resource (the ticket) they possess, and the buyer gains access to the concert they otherwise would not have been able to attend. The fact that the ticket was initially obtained for free does not prohibit the seller from selling it for a mutually agreed-upon price. Therefore, the transaction is economically efficient.

Question 2

Trade-offs force society to make choices when answering what three fundamental questions?
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 of economics are what goods and services to produce, how will these goods and services be produced, and who receives them. B accurately reflects these questions and is therefore the best choice. A refers only to prices, which is only one aspect of the "who receives them" question. C refers only to one aspect of "how will these goods and services be produced" question. D does not accurately reflect any of the three fundamental questions.

Question 3

Opportunity cost is defined as
A) the benefit of an activity.
B) the monetary expense associated with an activity.
C) the highest valued alternative that must be given up to engage in an activity.
D) the total value of all alternatives that must be given up to engage in an activity.

Accepted Answer

Opportunity cost is the highest valued alternative that must be given up to engage in an activity. It is not the benefit or expense associated with the activity, nor is it the total value of all alternatives. Therefore, the best choice is C.

Question 4

Skeeter's Skeeball Castle has seen its business slow down ever since Kerrie's Off-Key Karaoke opened up next door.Since the opening of Kerrie's Off-Key Karaoke,the opportunity cost of playing skeeball at Skeeter's has
A) decreased.
B) increased.
C) fallen to zero.
D) not changed.

Accepted Answer

The opportunity cost of playing skeeball at Skeeter's has increased because customers now have another option (Karaoke) that they could choose instead of playing skeeball. They have to weigh the benefits of playing skeeball against the benefits of singing karaoke, and this makes the opportunity cost of playing skeeball higher.

Question 5

Ted quits his $60,000-a-year job to be a stay-at-home dad.What is the opportunity cost of his decision?
A) zero, since he will no longer be earning a salary
B) depends on the "going rate" for stay-at-home dads
C) at least $60,000
D) the value he attributes to the joy of parenting

Accepted Answer

The opportunity cost of Ted's decision to become a stay-at-home dad is the value of the next best alternative that he has foregone. In this case, that alternative is his $60,000-a-year job. Even though Ted may not be earning a salary as a stay-at-home dad, his foregone salary is still considered an opportunity cost. Option A is incorrect because Ted giving up his salary is the opportunity cost. Option B is incorrect because the going rate for stay-at-home dads is not relevant to the opportunity cost. Option D is incorrect because the value he attributes to the joy of parenting is a subjective value and not a relevant factor in determining opportunity cost.

Question 6

Which of the following statements is false?
A) Anytime you have to decide which action to take you are facing an economic trade-off.
B) Trade-offs do not apply when the consumers purchase a product for which there is excess supply, such as a stock clearance sale.
C) Every individual, no matter how rich or poor, is faced with making trade-offs.
D) Economics is a social science that studies the trade-offs we are forced to make because of scarcity.

Accepted Answer

Trade-offs still exist even in scenarios where there is excess supply. For example, even if a product is heavily discounted, consumers still have to decide whether they want to spend their money on that item or save it for something else.

Question 7

Article Summary
In a January, 2017 report, the World Economic Forum stated that the growing income gap has become one of the biggest threats to the global economy and cannot be remedied solely by higher economic growth. Although income inequality has fallen over the past 30 years on a global level, in high-income countries like the United States and the United Kingdom, the top 1% of income earners have benefitted disproportionately from economic growth. This has led a growing belief that the traditional model for economic growth does not result in a population-wide increase in income. According to the report, "The growing mood of anti-establishment populism suggests we may have passed the stage where [reviving economic growth] alone would remedy fractures in society: reforming market capitalism must also be added to the agenda." 
Source: Lauren Gensler, "Rising Income Inequality Is Throwing The Future Of Capitalism Into Question, Says World Economic Forum," Forbes, January 11, 2017.
-Refer to the Article Summary.The article discusses income inequality and how economic growth alone is no longer resulting in a more equitable distribution of income.What is meant by a more equitable distribution of income?
A) a more allocatively efficient distribution of income
B) a more productively efficient distribution of income
C) a more fair distribution of income
D) income distributed based on wealth levels

Accepted Answer

A more equitable distribution of income means a more fair distribution of income where the benefits of economic growth are more evenly shared among the population.

Question 8

Mr.Peabody chooses to invest in companies that produce goods and services based on consumer preferences.Mr.Peabody is investing in companies that are attempting to be
A) allocatively efficient.
B) productively efficient.
C) guaranteed to make a profit.
D) all of the above.

Accepted Answer

Mr. Peabody's investment strategy is based on consumer preferences, indicating he is prioritizing allocative efficiency. This means he is allocating resources towards the goods and services that consumers value the most, which maximizes social welfare. Productive efficiency, on the other hand, focuses on producing goods and services at the lowest possible cost, but this alone does not guarantee consumer demand or satisfaction. While investment in companies that prioritize consumer preferences may lead to profits, the main goal of allocating resources towards what is most valued by society is not necessarily to guarantee profits. Therefore, option D is not correct.

Question 9

Consider the following economic agents:
A.the government
B.consumers
C.producers
Who,in a modern mixed economy,decides what goods and services will be produced with the scarce resources available in that economy?
A) the government
B) producers
C) consumers
D) consumers and producers
E) the government, consumers, and producers

Accepted Answer

In a modern mixed economy, the allocation of resources is determined by a combination of government, consumers, and producers. The government sets regulations and policies that affect the market, consumers express their preferences and demands through the choices they make in the marketplace, and producers respond to those demands by producing the goods and services that are most profitable. Therefore, all three agents play a role in determining what goods and services are produced in the economy.

Question 10

All centrally planned economies
A) have been political dictatorships.
B) started out as market economies.
C) began as mixed economies.
D) have become mixed economies.

Accepted Answer

All centrally planned economies have been political dictatorships. This is because central planning requires a high level of government control over economic decision-making, which can lead to authoritarianism and a lack of individual freedoms.

Question 11

Fast food restaurants produce a range of menu items such as hamburgers,chicken sandwiches,salads,and french fries.What fundamental economic question are they addressing by offering this range of items?
A) How to produce goods that consumers want?
B) Why produce a variety of menu items?
C) What to produce?
D) Who to produce the menu items for?

Accepted Answer

Fast food restaurants decide on the variety of menu items to offer based on consumer demand and preferences, addressing the fundamental economic question of "What to produce?" to meet market needs.

Question 12

Article Summary
In a January, 2017 report, the World Economic Forum stated that the growing income gap has become one of the biggest threats to the global economy and cannot be remedied solely by higher economic growth. Although income inequality has fallen over the past 30 years on a global level, in high-income countries like the United States and the United Kingdom, the top 1% of income earners have benefitted disproportionately from economic growth. This has led a growing belief that the traditional model for economic growth does not result in a population-wide increase in income. According to the report, "The growing mood of anti-establishment populism suggests we may have passed the stage where [reviving economic growth] alone would remedy fractures in society: reforming market capitalism must also be added to the agenda." 
Source: Lauren Gensler, "Rising Income Inequality Is Throwing The Future Of Capitalism Into Question, Says World Economic Forum," Forbes, January 11, 2017.
-Refer to the Article Summary.The article discusses income inequality and how economic growth alone is no longer resulting in a more equitable distribution of income.If governments increased equity by reducing the incomes of high-income people and increasing the incomes of the poor,would it be possible that fewer goods and services would be produced and less saving would take place?
A) No, an increase in equity will result in a more efficient level of production and saving.
B) No, greater production and saving will take place regardless of the level of equity.
C) Yes, there is often a trade-off between efficiency and equity.
D) Yes, a reduction of the income gap necessitates a reduction in production and saving.

Accepted Answer

There is often a trade-off between equity and efficiency, meaning that policies aimed at increasing equity may result in a decrease in production and saving. This can occur because reducing the incomes of high-income earners may decrease their incentives to innovate and produce, while increasing the incomes of the poor may decrease their incentives to save and work. Therefore, policymakers must carefully balance the goals of equity and efficiency to achieve the best possible outcome for society.

Question 13

Who receives the goods and services produced in the United States depends largely on
A) how income is distributed.
B) how the goods and services are produced.
C) what goods and services are produced.
D) government redistribution.

Accepted Answer

The distribution of income plays a crucial role in determining who receives the goods and services produced in the United States. Those with higher incomes have greater purchasing power and ability to buy more goods and services, while those with lower incomes may struggle to afford basic necessities. This income inequality can lead to disparities in access to goods and services, as well as economic opportunities and resources.

Question 14

Which of the following is an example of an economic trade-off that a firm has to make?
A) whether it is cheaper to produce with more machines or with more workers
B) deciding why consumers want its products
C) whether or not consumers will buy its products
D) deciding what profit margin it desires for its products

Accepted Answer

An economic trade-off involves a firm having to choose between two or more options that each have benefits and drawbacks. In this example, the firm must decide whether it is cheaper to produce with more machines or with more workers, which will impact their costs, productivity, and ultimately their profit margins. The other options listed do not involve a trade-off between two or more options.

Question 15

Which of the following is correct about the economic decisions consumers,firms,and the government have to make?
A) Governments may face the problem of shortages but not scarcity in making economic decisions.
B) Only individuals face scarcity; firms and the government do not.
C) Firms and the government face scarcity, individuals only face shortages.
D) Each faces the problem of scarcity which necessitates trade-offs in making economic decisions.

Accepted Answer

Scarcity is a fundamental economic problem faced by all individuals, firms, and governments. It means that there are limited resources to satisfy unlimited wants and needs. Therefore, each party has to make trade-offs and choices in their economic decisions to allocate these scarce resources efficiently.

Question 16

The Stogie Shop,a cigar store in the mall,sells hand-rolled cigars for $10.00 and machine-made cigars for $2.50 each.What is the opportunity cost of buying a hand-rolled cigar?
A) 4 machine-made cigars
B) one-quarter of a machine-made cigar
C) $10.00
D) $2.50

Accepted Answer

The opportunity cost of buying a hand-rolled cigar is the value of the next best alternative, which is the machine-made cigar. To determine the opportunity cost, we divide the cost of the hand-rolled cigar by the cost of the machine-made cigar. $10/$2.50 = 4. Therefore, the opportunity cost of buying a hand-rolled cigar is 4 machine-made cigars. So, the best choice is A.

Question 17

In a market economy,who decides what goods and services will be produced?
A) only the producers
B) only consumers
C) consumers and producers
D) the government

Accepted Answer

In a market economy, producers decide what goods and services to produce based on consumer demand, while consumers decide what they want to buy based on their own preferences and budget. It's a decentralized system where prices and competition help to shape the market. The government's role is limited to regulating and enforcing laws to ensure fair competition and protect consumer rights. Therefore, the correct answer is C - consumers and producers.

Question 18

Mr.Peabody chooses to invest in companies that produce goods and services at the lowest possible cost.Mr.Peabody is investing in companies that are
A) allocatively efficient.
B) productively efficient.
C) guaranteed to make a profit.
D) all of the above.

Accepted Answer

Mr. Peabody's investment strategy is focused on companies that produce goods and services at the lowest possible cost, which indicates a focus on maximizing productivity and efficiency. Therefore, the best choice is B. While it is possible that investing in these companies may lead to profitability, it is not a guarantee. Furthermore, Mr. Peabody's investment strategy does not necessarily prioritize allocative efficiency, which is concerned with achieving the optimal distribution of resources.

Question 19

Voluntary exchange ________ economic efficiency because neither the buyer nor the seller would agree to a trade unless ________.
A) increases; they both benefit
B) increases; only one party benefits
C) decreases; neither benefit
D) decreases; they both benefit

Accepted Answer

Voluntary exchange increases economic efficiency because neither the buyer nor the seller would agree to a trade unless they both benefit. This means that resources are being allocated to the most valued uses, resulting in maximum satisfaction for both parties involved.

Question 20

Every society faces economic trade-offs.This means
A) some people live better than others do.
B) not everyone can have enough goods to survive.
C) producing more of one good means less of another good can be produced.
D) society's output cannot be made available to all.

Accepted Answer

Economic trade-offs refers to the idea that in order to produce more of one good, society must give up the opportunity to produce some quantity of another good, resulting in a trade-off between the two goods. Therefore, producing more of one good means less of another good can be produced.

Quiz 1: Economics: Foundations and Models

Trade-offs force society to make choices when answering what three fundamental questions?

Opportunity cost is defined as

Skeeter's Skeeball Castle has seen its business slow down ever since Kerrie's Off-Key Karaoke opened up next door.Since the opening of Kerrie's Off-Key Karaoke,the opportunity cost of playing skeeball at Skeeter's has

Ted quits his $60,000-a-year job to be a stay-at-home dad.What is the opportunity cost of his decision?

Which of the following statements is false?

Mr.Peabody chooses to invest in companies that produce goods and services based on consumer preferences.Mr.Peabody is investing in companies that are attempting to be

Consider the following economic agents: A.the government B.consumers C.producers Who,in a modern mixed economy,decides what goods and services will be produced with the scarce resources available in that economy?

All centrally planned economies

Fast food restaurants produce a range of menu items such as hamburgers,chicken sandwiches,salads,and french fries.What fundamental economic question are they addressing by offering this range of items?

Who receives the goods and services produced in the United States depends largely on

Which of the following is an example of an economic trade-off that a firm has to make?

Which of the following is correct about the economic decisions consumers,firms,and the government have to make?

The Stogie Shop,a cigar store in the mall,sells hand-rolled cigars for $10.00 and machine-made cigars for $2.50 each.What is the opportunity cost of buying a hand-rolled cigar?

In a market economy,who decides what goods and services will be produced?

Mr.Peabody chooses to invest in companies that produce goods and services at the lowest possible cost.Mr.Peabody is investing in companies that are

Voluntary exchange economic efficiency because neither the buyer nor the seller would agree to a trade unless .

Every society faces economic trade-offs.This means