Deck 1: The Big Ideas in Economics

Question 1

The opportunity cost of winning a free ticket to the Super Bowl worth $950 and attending the game is:

A) zero, since the ticket was free.
B) priceless, if the person really loves football.
C) at least $950, the lost market value of selling the ticket and the time to go.
D) zero, if the person would rather go to the game than do anything else.

Answer 1

C

Question 2

Susan quits her administrative job, which pays $40,000 a year, to finish her four-year college degree. Her annual college expenses are $8,000 for tuition, $900 for books, and $2,500 for food. The opportunity cost of attending college for the year is:

A) $11,400.
B) $8,900.
C) $48,700.
D) $51,400.

Answer 2

C

Question 3

Which of the following statements reflects Adam Smith's important insight into marketplace behavior?

A) Society benefits when people and firms pursue their own self interests.
B) Markets are usually an inefficient way of organizing economic activity.
C) Greedy, self-interested behavior needs to be constrained to ensure strong economic growth.
D) Trade restrictions on imported goods increase domestic employment.

Answer 3

A

Question 4

In an effort to clean the air, many communities impose restrictions on the burning of garbage. This policy causes more garbage to be buried underground, potentially increasing groundwater contamination. What concept does this example represent?

A) trade-offs
B) marginal pollution
C) sunk costs
D) public provision

Question 5

The idea that markets work efficiently:

A) refers to the fact that self-interest can be aligned with social interest.
B) means that trade-offs can be reduced through channeling greed toward good ends.
C) suggests that there is never any need for government regulation, taxes, or subsidies.
D) has been known for many centuries.

Question 6

Adam Smith's metaphor of the ―invisible hand‖ refers to the notion that:

A) greed is always good when externally motivated.
B) behavior based on self-interest can lead to an overall benefit to society.
C) market incentive can lead to negative side effects.
D) markets always align self-interest with social interest.

Question 7

The main incentive for business activity is:

A) government subsidies.
B) technological advancement.
C) profit.
D) employment.

Question 8

Which of the following choices best illustrates the concept of Adam Smith's ―invisible hand‖?

A) A Vietnamese farmer grows rice; an exporter ships it to the United States, and a grocer in New York sells it to a customer.
B) A fishery's stock of fish becomes depleted due to overfishing as boats from around the world converge.
C) A government regulates a firm to clean up the pollutants it has released as part of its production process.
D) An apartment building is built, which provides much needed housing, on the site of the only playground for children in that town.

Question 9

Suppose the U.S. government wants to encourage individuals to save more of their income. The easiest way for the government to realize this goal is to:

A) pass a law requiring people to save a larger percentage of their income.
B) decrease government spending in order to set an example for individuals.
C) increase the tax rate on savings in order to encourage more savings.
D) develop incentives such as tax breaks on savings in order to encourage more savings.

Question 10

When it comes to the safety of pharmaceutical drugs:

A) the government should spare no expense in determining whether drugs are safe.
B) the government's lengthy testing to ensure the safety of new drugs may cost lives.
C) economic cost benefit analysis informs us that more safety is always better.
D) profit-driven pharmaceutical companies have no incentive to produce safe drugs.

Question 11

Economists think that people are self-interested:

A) only when monetary incentives are present.
B) because they respond to incentives in predictable ways.
C) only rarely in response to incentives.
D) unless they are being altruistic.

Question 12

Adam Smith sought to explain the concept of aligning self- interest with the promotion of society's overall interest by:

A) using an analysis of wealth as productivity.
B) suggesting markets are led by an Invisible Hand.
C) arguing that markets were ineffective institutions.
D) admitting his own inability to explain how such alignment takes place.

Question 13

When it comes to getting the flu shot, most people consider _______, not _________.

A) the social interest; their self-interest
B) their public interest; their social interest
C) their costs; their benefits
D) their self-interest; the social interest

Question 14

In several cities around the country, schools are paying cash awards to students who do well on English and Math tests. This practice highlights the idea of:
B) pedagogical economics-the continuous assessment of student performance in an effort to maximize student efficiency.
C) hidden costs-the costs borne by taxpayers in the form of wasteful school spending.
D) incentives-the rewards and penalties that motivate behavior.
E) screening theory-the identification of individuals or groups based on various performance measures.

Question 15

The basic postulate of economics indicates that changes in incentives influence the:

A) actions of producers but not consumers.
B) actions of consumers but not producers.
C) choices of individuals only when they buy and sell goods in the marketplace.
D) choices of individuals with regard to a wide range of activities, including those generally perceived as social or political.

Question 16

Every day we rely on the work of millions of other people to provide us with food, clothing, and shelter. People work for our benefit because:

A) people think at the margin.
B) trade-offs are everywhere.
C) they benefit by doing so.
D) institutions require them to do so.

Question 17

In the market for pharmaceuticals, the issue of ―drug lag‖ illustrates which of the following ideas?

A) The longer a drug is tested for safety, the lower the opportunity cost in terms of lives lost.
B) If a drug is not tested for safety, it might kill more people.
C) Because of the higher the cost of testing a drug, it takes longer to make it, and more lives are lost.
D) Lives are being lost because safe drugs that are still in the testing stage have not yet been approved.

Question 18

Recall the chapter opening story about the British sea captains and the convicted felons. In what way did economics use the idea of incentives to solve the problem of the high mortality rate on board the ships?

A) Payment (to ship captains) was to be offered for each prisoner that was taken aboard the ships.
B) Payment (to ship captains) was made independent of the regulations passed for prisoner welfare.
C) Regulations were passed so that prisoners could get better food, water, and medical care.
D) Payment (to ship captains) was made dependent on the survival rate of prisoners.

Question 19

The opportunity cost of a choice is:

A) the value of the opportunities lost.
B) the net value of the opportunities gained.
C) the difference between the benefits and costs of the choice.
D) sometimes positive or negative.

Question 20

Recall the chapter opening story about the British sea captains and the convicted felons. Instead of paying the sea captains for each prisoner placed on board the ships in Great Britain, an economist suggested:

A) paying for each prisoner who walked off the ship in Australia.
B) paying for food and water to reduce costs of caring for prisoners during the transit.
C) doing nothing, since the suggested change would not matter.
D) that new regulations be passed to require prisoner safety and health.

Question 21

Joe runs a landscape business. He knows that providing landscaping services costs him $100 per hour on average, while the cost of providing such services is $150 per hour after 5 PM (due to overtime pay, reduced productivity, and the added wear and tear on his equipment). A potential client offers Joe $130 per hour to provide services but needs him to provide the services after 5PM due to circumstances at the property.

A) Joe should take the job, since $130 exceeds his average cost of production.
B) Joe should take the job, since he is making a $30 profit per hour.
C) Joe should decline the job, since he would lose $150 per hour worked on the job.
D) Joe should decline the job, since he would lose $20 per hour worked.

Question 22

You must decide whether to attend class tomorrow morning or take your friend to the airport. Your decision highlights the following ―big idea‖ in economics.

A) Institutions matter.
B) Incentives matter.
C) Economics is fun.
D) Trade-offs are everywhere.

Question 23

Suppose you have ordered a value meal at a local fast-food restaurant. The cashier asks if you would like to ―super-size‖ your meal. In order to make an efficient decision, you should compare:

A) the total cost of the larger, ―super-sized‖ meal versus the total benefits received.
B) the additional cost of the larger meal versus the additional benefits received.
C) the total cost of the larger meal versus the additional cost to the restaurant.
D) the benefits of the smaller meal versus the additional benefits obtained from consuming the ―super-sized‖ meal.

Question 24

Air travel from New York to Los Angeles costs $800 and takes four hours. A bus ticket between the cities costs $100 and takes 104 hours. Other things constant, the minimum value of one's time that would induce a rational individual to fly rather than drive would be:

A) $1 per hour.
B) $7 per hour.
C) $12 per hour.
D) $120 per hour.

Question 25

When deciding whether or not to undertake an activity, economists compare:

A) the total cost of the activity against the total benefit received.
B) the total benefit of the activity against the total cost of production.
C) the additional cost of the activity against the additional benefits received.
D) the average cost of the activity versus the total benefits received.

Question 26

Deciding whether to study an additional hour for an exam by comparing the additional benefits to the additional costs of an extra hour of study is an example of:

A) normative analysis.
B) transformational thought.
C) marginal thinking.
D) None of the answers is correct.

Question 27

What is meant by the term marginal revolution?

A) the public disdain at the institution of marginal tax rates
B) the transformation in economic thought that occurred with the discovery of marginal thinking
C) the institution of the death penalty for drug dealers
D) the effect of policies on crime

Question 28

Imposing the death penalty on rapists may increase the number of murders, because:

A) the death penalty is not a deterrent to the behavior of a rapist.
B) once a victim is raped there is no additional penalty imposed for also killing the victim.
C) rapists are irrational and place no value on the life of their victim.
D) rapists do not think about the consequences of their actions.

Question 29

What you give up to obtain an item is called your:

A) opportunity cost.
B) explicit cost.
C) true cost.
D) direct cost.

Question 30

Why do you think goods are sometimes marked in prices that end in 9s, for example ―$29.99‖ instead of $30, or ―$9.99‖ instead of $10? I. Consumers respond to incentives-they view the products as cheaper and so they buy more. II. Businesses are sneaky and add the extra cent onto taxes on the product. III. It is a sales strategy that makes people think the product is on sale.

A) I only
B) II only
C) III only
D) I and III

Question 31

Suppose your teacher finishes class 30 minutes early on the day before an exam. She indicates that you may leave, or stay on for an optional study period which will last for the remaining 30 minutes of the scheduled class time. You should:

A) always choose to stay for the study period, since you have already paid for the class time.
B) only choose to stay if you like the instructor, since the value obtained is higher than if you disliked the instructor.
C) only choose to stay if the benefits gained from the extra study session exceed the cost of another 30 minutes in class.
D) only choose to stay for the study session if you do not plan to study on your own for the exam.

Question 32

In the market for pharmaceuticals, the issue of ―drug loss‖ illustrates which of the following ideas?

A) The longer a drug is tested for safety, the lower is the opportunity cost in terms of lives lost.
B) If a drug is not tested for safety, it might kill more people.
C) Because of the higher the cost of testing a drug, fewer drugs are made, and more lives are lost.
D) Lives are being lost because safe drugs that are still in the testing stage have not been approved.

Question 33

Which of the following arise as benefits from trade? I. economies of scale II. cost reduction from mass production III. the division of knowledge

A) I only
B) II and III only
C) I and III only
D) I, II, and III

Question 34

The opportunity cost of attending college is:

A) tuition and books.
B) travel expenses, tuition, and books.
C) psychic costs of missing your family and friends while in school.
D) lost wages from not working full time.

Question 35

What is a plausible economic explanation as to why Braille ―dots‖ are commonly found on drive-up automatic teller machines?

A) Blind people must be able use such machines, due to government regulations requiring such dots on the keys under the Americans with Disabilities Act.
B) The marginal cost of making two different types of keypads is substantial, and the benefit of providing keypads without the Braille dots is a mere inconvenience to ATM users.
C) The marginal cost of making the keys with the Braille dots is less than making the keys without the Braille dots.
D) There is no economic concept that explains why the keypads have Braille dots.

Question 36

The average tax on a professor's income of $100,000 is 18 percent, and the marginal tax rate above $100,000 is 45 percent. If the professor teaches during the summer and earns an additional $10,000 (bringing her total earnings for the year to $110,000), how much of the summer income does she keep after paying taxes?

A) $4,500
B) $1,800
C) $6,300
D) $5,500

Question 37

Two people benefit from trade: I. if they both live in the same country. II. regardless of where they live. III. if they can negotiate directly with each other.

A) I only
B) I and III
C) II and III
D) II only

Question 38

You are given a ticket to a Bob Dylan concert with a face value of $50. You only value the ticket at $40, sell it to a friend for $40 and attend a U2 concert priced at $60. The opportunity cost of attending the U2 concert is:

A) $20 worth of alternative goods and services.
B) $40 worth of alternative goods and services.
C) $50 worth of alternative goods and services.
D) $60 worth of alternative goods and services.

Question 39

Why do grocery stores offer ―buy one, get one half off‖ specials? I. It's a way to offer an incentive to consumers (who might not ordinarily buy two units of the same item) to buy the extra item. II. They are thinking at the margin, and they stand to make additional profit even if they sell the second unit at a lower price than the first unit. III. Government regulations require them to hold such promotions from time to time.

A) I only
B) II only
C) III only
D) I and II

Question 40

Why do you think researchers sometimes find a positive relationship between the unemployment rate and college enrollment rates?

A) The opportunity cost of attending college rises during economic booms, leading to higher college enrollment rates.
B) The opportunity cost of attending college rises during recessions, leading to higher college enrollment rates.
C) The opportunity cost of attending college falls during recessions, leading to higher college enrollment rates.
D) The opportunity cost of attending college falls during economic booms, leading to higher college enrollment rates.

Question 41

What are the institutions that help foster the appropriate incentives for economic growth?

A) regulated labor and credit markets; and unions
B) communal property rights and absence of a profit-loss system
C) a dependable legal system, property rights, and competitive and open markets
D) production and export quotas; and supply and demand

Question 42

The historical rise in living standards of American workers is primarily a result of:

A) the influence of labor unions in America.
B) tariff protection imposed by the American government.
C) the enactment of minimum wage laws in America.
D) the rise in American productivity.

Question 43

How does self-interest relate to creativity by firms (in terms of production methods or product attributes)?

A) Firms are interested in sharing their new ideas with the world.
B) Firms innovate because they are interested in making a profit.
C) Ideas can be used by everyone at the same time.
D) All of the answers are correct.

Question 44

If North Korea and South Korea were both equally poor in 1950, why did South Korea develop so much faster?

A) The two countries have different language, cultural, and historical backgrounds.
B) North Korea has an economic system that develops incentives.
C) South Korea has a more market-based economic system.
D) South Korea began with a higher per capita GDP.

Question 45

An economy where entrepreneurs are free to experiment with new ideas and bring innovative products to the market will:

A) help economic growth but not affect living standards.
B) lead to improved living standards and increased economic growth.
C) lead to increased living standards but stagnate economic growth.
D) help stagnate living standards but increase economic growth.

Question 46

Booms and busts refer to the:

A) fluctuations in economic activity over time.
B) theory of the second best.
C) decreases in a nation's output growth over time.
D) monetary inflation and deflation caused by the central bank.

Question 47

Which of the following environments contains factors suitable for economic growth?

A) well-functioning markets, specialization in one's comparative advantage, and good health care systems
B) well-functioning competitive markets, property rights, and firm creativity
C) development of physical and human capital per worker, and technological advancement
D) All of the answers are correct.

Question 48

The Theory of Comparative Advantage recognizes that: I. very productive people can do everything. II. people can make more by specializing than by doing everything. III. the division of knowledge helps increase productivity.

A) I, II, and III
B) II and III only
C) I and II only
D) I and III only

Question 49

The real power of trade lies in people's ability to:

A) get things they can't produce.
B) get the lowest price possible.
C) increase their consumption.
D) specialize and increase production.

Question 50

Which of these groups can benefit from trade? I. firms II. consumers III. workers

A) I and II only
B) I and III only
C) II and III only
D) I, II, and III

Question 51

Wealthy countries tend to have ______ physical capital per worker and _______ human capital per worker.

A) little; a lot of
B) a lot of; little
C) a lot of; a lot of
D) no; a lot of

Question 52

What causes countries to become wealthier over time?

A) government central planning
B) economic growth
C) price controls on key natural resources
D) restrictions on imported goods

Question 53

How can ―good institutions‖ foster growth? I. They provide incentives for entrepreneurs to create and innovate. II. They provide financial support for organizations to acquire human and physical capital. III. They establish property rights, functioning legal systems, and open markets.

A) I and II only
B) II and III only
C) III only
D) I and III only

Question 54

A dependable legal system and competitive, open markets help to:

A) shape incentives that induce economic growth.
B) reduce liberty and varied freedoms.
C) bring about honest government and political stability.
D) increase inefficiencies.

Question 55

Why are more people unhealthy in developing countries than in developed countries? I. Wealthier people are not attacked by mosquitoes. II. Wealthier people can pay for better treatments. III. Wealthier people can pay for better prevention of disease.

A) I only
B) II only
C) III only
D) II and III only

Question 56

Among the most powerful institutions for supporting good incentives are: I. property rights. II. political stability. III. honest government.

A) I only
B) I and II only
C) II and III only
D) I, II, and III

Question 57

The Great Depression was:

A) a natural manifestation of competitive markets.
B) cut short because of well-thought-out monetary policy.
C) to date, the worst economic period in U.S. economic history.
D) about as severe as the 2008-2009 recession.

Question 58

A person has a comparative advantage in activity X when that person's:

A) opportunity cost of performing that activity is very high.
B) ability to perform that activity exceeds that of all other people.
C) government negotiates a favorable trade agreement.
D) opportunity cost is lower than other trading partners.

Question 59

Recessions are marked by which of the following phenomena?

A) falling wages
B) falling national output
C) rising unemployment
D) All of the answers are correct.

Question 60

What factor is responsible for ending malaria in the United States?

A) inflation
B) wealth
C) the gold standard
D) yardstick competition

Question 61

Inflation is primarily caused by:

A) businesses raising their prices in response to increasing energy prices.
B) the government printing too much money.
C) misguided fiscal policy.
D) economic downturns in GDP.

Question 62

What is one cause of inflation?

A) the persistent rise in prices in the economy
B) production's inability to keep up with spending in the economy
C) increased spending by people and the government.
D) economic growth without money growth

Question 63

Economists have discovered that economic booms and busts:

A) are needless and can be eliminated.
B) should be encouraged because they help make people better off.
C) can be moderated but not eliminated.
D) cause people to specialize so they become more productive.

Question 64

Inflation can be defined as:

A) the general rise in the level of output in an economy.
B) the boom and bust cycles of an economy.
C) the rise and fall of the general level of prices in an economy.
D) the increase in the general level of prices in an economy.

Question 65

A policymaker wants to reduce inflation. In order to make an intelligent decision about how to do so, the policymaker:

A) should use a simple rule: once inflation is gone, it will always be gone.
B) needs to know the causes of inflation, such as the government's printing too much money.
C) should find out if people are really better off as a result of the inflation.
D) should realize that inflation can be reduced without any costs.

Question 66

Which of the following choices explains why the Fed has a tough job?

A) lags in the effects of monetary policy
B) continuously changing economic conditions
C) the inability to perfectly forecast the future
D) All of the choices are correct.

Question 67

The opportunity cost of attending college includes tuition, room and board, cost of meals, and the lost opportunity to make money at a job.

Question 68

The central bank of the United States is:

A) the Senate.
B) the Department of Treasury.
C) the Federal Reserve.
D) Wall Street.

Question 69

In Zimbabwe, the government ______ the ______ money, which caused the country's severe inflation.

A) decreased; demand for
B) decreased; supply of
C) increased; supply of
D) increased; demand for

Question 70

The decisions made by the Federal Reserve Bank sometimes result in negative effects on the economy because:

A) the economy is weakened when the government interferes using monetary policy.
B) the government uses money inefficiently when it comes to fiscal policy.
C) the Fed finds that forecasting economic conditions is easy but controlling the money supply is difficult.
D) too much money or too little money might induce inflation or unemployment due to bad timing of decisions.

Question 71

Which of the following choices describes why the Fed might find it difficult to combat recessions? I. lags in the effects of monetary policy II. continuously changing economic conditions III. changes in the money supply, which do not always lead to expected changes in economic conditions.

A) I and II only
B) II and III only
C) I and III only
D) I, II, and III

Question 72

An example of Adam Smith's invisible hand is self-interested business people developing a better keyboard for the blind in hopes of making large profits.

Question 73

Which of the following statements is FALSE? I. The Federal Reserve can micromanage the economy with great precision. II. The Federal Reserve's decisions usually have an immediate effect on the economy's unemployment rate. III. Most economists believe that the Federal Reserve does more harm than good.

A) I and II only
B) II only
C) II and III only
D) I, II, and III

Question 74

Most economists believe that an increase in the supply of money results in:

A) an increase in the demand for goods and services.
B) higher unemployment in the short run.
C) higher inflation in the long run.
D) no change for the economy.

Question 75

With careful planning, we can usually get something that we like without having to give up something else that we like.

Question 76

Which of the following phenomena occurred during the Great Depression?

A) National output fell by 30 percent.
B) Unemployment rose by 20 percentage points.
C) The stock market fell to less than a third of its original value.
D) All of the answers are correct.

Question 77

According to Milton Friedman, ―Inflation is always and everywhere a _________.‖

A) capitalist problem
B) communist problem
C) monetary phenomenon
D) situation caused by haphazard technological growth

Question 78

Economics:

A) teaches us how to make the world a better place.
B) increases our understanding of historical events.
C) can help you better manage your finances.
D) All of the answers are correct.

Question 79

Monetary and fiscal policies:

A) can reduce the severity of economic busts.
B) have always been well understood and ultimately led to the end of the Great Depression.
C) when used properly, can end every recession.
D) All of the answers are correct.

Question 80

The Central Bank of the United States can:

A) minimize a recession.
B) regulate the money supply in the United States.
C) cause inflation if it increases the money supply too much and too fast.
D) All of the answers are correct.