Question 1

Mr. Freezee operates a fleet of ice cream trucks that drive around neighborhoods selling ice cream. He is trying to decide whether he should buy another ice cream truck to add to his fleet. He determines that one more truck will add $750 to his revenue but that the truck will also increase his costs by $1,000. Based on marginal analysis, Mr. Freezee decides:

Accepted Answer

According to marginal analysis, Mr. Freezee should only make a decision based on how the additional unit (in this case, the additional ice cream truck) will affect his revenue and costs. Since the additional revenue of $750 is overshadowed by the additional cost of $1,000, Mr. Freezee should not purchase the truck as the costs outweigh the benefits. Therefore, the best choice is A, that he should not purchase the truck.

Question 2

An apartment complex included a fixed price of water in the monthly rent. One day the city decided to attach a water meter to each individual apartment and charge the tenant for actual water usage. As a result, water usage in the apartment complex went way down. Explain this situation using a principle of economics.

Accepted Answer

The answer of An apartment complex included a fixed price...

Question 3

A college student stays up late writing a history paper and as a result sleeps through her morning economics class. What is the cost of sleeping through the class?

Accepted Answer

The answer of A college student stays up late writing...

Question 4

When hurricane Katrina devastated the Gulf coast, the businesses in the area, even those not physically damaged by the storm, had losses. Explain how this illustrates the principle that "one person's spending is another person's income."

Accepted Answer

The answer of When hurricane Katrina devastated the Gulf coast,...

Question 5

Many college freshmen describe themselves as pre-med, but a very small percentage of these freshmen will ever attend medical school. After the first course in biology or chemistry, many decide to major in something other than the natural sciences. Which of the 12 principles is at work here?

Accepted Answer

The answer of Many college freshmen describe themselves as pre-med,...

Question 6

You and your roommate are taking the same economics class. When it comes to doing homework assignments, your roommate draws beautifully precise graphs, while you are an extremely fast typist. Therefore, you and your roommate work on the assignments together. Which of the 12 principles is at work here?

Accepted Answer

The answer of You and your roommate are taking the...

Question 7

One day, Martha wakes up and in frustration yells, "Decisions, decisions, decisions! Why do I have to make decisions about everything?" Martha's frustrations stem from the fact that:

Accepted Answer

Martha's frustrations stem from the fact that she faces constraints as an economic being, meaning she cannot have everything she wants. This is a common experience for all individuals who have limited resources and must make choices about how to allocate them. Option B is incorrect because it suggests Martha can have everything she wants, which is not possible due to the constraints she faces. Option C is incorrect because everyone faces constraints in life, not just Martha. Option D is unlikely and unsupported by the information presented.

Question 8

The most efficient way to dispose of industrial waste is to dump it in a nearby river or parcel of land. Why is this illegal?

Accepted Answer

The answer of The most efficient way to dispose of...

Question 9

Julie is getting ready for final exams. She has three exams during the first three days of the exam period. To prepare, she has outlined a schedule that includes reviewing for her first exam on one day, her next exam on the following day, and her third exam on the third day. On each day, she has also allocated some time when she can watch TV or basically do nothing. Which best explains why Julie provides some time for leisure?

Accepted Answer

Julie recognizes that taking some time for leisure activities can actually benefit her overall productivity and mental well-being. It can help reduce stress and allow her to come back to her studying refreshed and focused. This is a common strategy used by successful students and professionals.

Question 10

Because one person's spending is another person's income, if one group in the economy spends more, the incomes of other groups will increase.

Accepted Answer

This statement is a basic principle of macroeconomics known as the multiplier effect. When one group spends more, it creates a ripple effect through the economy, leading to increased incomes for others.

Question 11

A college student waits in line for hours to purchase a ticket to the Rose Bowl, but an attorney does not. Rather than spend hours in line, he purchases a much more expensive ticket through a ticket broker. Why?

Accepted Answer

The answer of A college student waits in line for...

Question 12

At most airports there are multiple security guards ready to screen passengers and their luggage through the X-ray and metal detector checkpoints. The length of the wait for each line is about the same. Why?

Accepted Answer

The answer of At most airports there are multiple security...

Question 13

Because one person's spending is another person's income, if one group in the economy spends more, they increase their share of income and decrease the incomes of other groups.

Accepted Answer

When one group spends more, it does not necessarily decrease the incomes of other groups; instead, it can lead to an overall increase in economic activity and income distribution, benefiting multiple groups within the economy.

Question 14

When someone says resources are scarce, this suggests that:

Accepted Answer

When resources are scarce, it means that there are not enough resources available to fulfill all of our needs and wants. Therefore, we must make choices about how to allocate the resources in the most effective and efficient manner. Lower-income individuals may feel the effects of scarcity more acutely, but scarcity affects everyone. Allocating more funds to an effort may help to increase resources, but it is not always possible or practical. Option D is incorrect as it contradicts the premise that resources are scarce.

Question 15

A two-year-old child is eating raisins one at a time from a large box. Even though the child doesn't understand formal economic theory, he knows when to stop eating because he is full. Describe how this child has already mastered marginal analysis.

Accepted Answer

The answer of A two-year-old child is eating raisins one...

Question 16

Katherine has a physics exam tomorrow. However, a free lecture by one of her favorite authors is taking place this evening. Katherine decides to attend the lecture instead of studying for her exam. Katherine's opportunity cost is:

Accepted Answer

Opportunity cost is the value of the next best alternative that must be given up when making a choice. In this scenario, Katherine's next best alternative is studying for her physics exam. Therefore, her opportunity cost includes the cost of getting to the lecture and the reduction in her physics exam grade as a result of not studying tonight. Option A and D only consider the time spent on the lecture and getting there respectively, and option B is incorrect because opportunity cost is not limited to monetary costs alone in decision making.

Question 17

By early 2008 the U.S. economy was in a significant downturn. The unemployment rate began to increase, and home prices began to fall. Congress passed a stimulus package that gave tax rebates to virtually every person who paid taxes in 2007. Which of the 12 principles is described by this package?

Accepted Answer

The answer of By early 2008 the U.S. economy was...

Question 18

Some products, like tobacco, are taxed. Why would the government interfere in a market that if left untaxed would probably move to equilibrium on its own?

Accepted Answer

The answer of Some products, like tobacco, are taxed. Why...

Question 19

Alison is offered two jobs. One pays $45,000 per year and offers three weeks of vacation, while the other offer provides two weeks of vacation and a salary of $54,000. What is the opportunity cost for Alison if she chooses the job offer of $54,000?

Accepted Answer

The answer of Alison is offered two jobs. One pays...

Question 20

A popular train station has free parking for commuters who take the train. This often results in many people being unable to find a parking spot and missing their train. To solve this problem, all commuters should be:

Accepted Answer

Requiring commuters to pay for parking would help to ensure that those who use the lot are serious about taking the train, and would therefore be less likely to fill up the lot with cars that are not being used. It would also generate revenue to put towards maintaining and expanding the parking facilities as needed. Giving all commuters a parking pass or exempting them from fees could actually exacerbate the issue by attracting more cars to the lot than it can handle. Allowing travelers to purchase an annual pass might be a good option, but would still allow for overcrowding if too many people opted to buy one.

Quiz 1: First Principles