Question 1

Indirect incentives create:
A)positive consequences.
B)negative consequences.
C)indirect consequences.
D)direct consequences.
E)unintended consequences.

Accepted Answer

Indirect incentives often have unintended consequences, meaning that the outcomes are not what was originally intended or predicted. Direct incentives, on the other hand, create more predictable outcomes, and can be either positive or negative. Indirect consequences are a result of a variety of factors, not necessarily related to incentives. Therefore, the best choice is E, as indirect incentives are most likely to create unintended consequences.

Question 2

A health insurance company may offer its policy-holders a discount on their premiums if they prove that they have stopped smoking.What type of incentive is the health insurance company offering?
A)a direct incentive.
B)an indirect incentive.
C)a neutral incentive.
D)a complementary incentive.
E)an unintended incentive.

Accepted Answer

The health insurance company is directly incentivizing their policy-holders to quit smoking by offering a discount on their premiums. This is a direct incentive because the reward (discount on premiums) is directly tied to the behavior they want to encourage (quitting smoking).

Question 3

If you don't like changing the oil in your car and pay your father to do it for you,you have provided him with a(n):
A)direct incentive.
B)indirect incentive.
C)neutral incentive.
D)complementary incentive.
E)unintended incentive.

Accepted Answer

The answer of If you don't like changing the oil...

Question 4

The U.S.federal government offers homeowners a tax deduction for their home loan interest payments.This reduction in taxes may have encouraged too many people to own a home.If the tax deduction caused people who otherwise would have rented to own,the tax deduction serves as a(n):
A)direct incentive.
B)indirect incentive.
C)neutral incentive.
D)complementary incentive.
E)unintended incentive.

Accepted Answer

The tax deduction for home loan interest payments is an indirect incentive, as it does not directly encourage homeownership but rather makes it more financially attractive by reducing the cost of owning a home. If this incentive has caused people who would have otherwise rented to choose homeownership, it only indirectly influenced their decision. Therefore, it is an indirect incentive.

Question 5

While generous disability insurance can help those who have been permanently injured,it can also increase the likelihood that individuals will falsely claim to be disabled.This likelihood is a(n):
A)direct incentive.
B)indirect incentive.
C)positive incentive.
D)innovation.
E)marginal cost.

Accepted Answer

An indirect incentive is something that increases the likelihood of a certain behavior without directly causing it. In this case, generous disability insurance may indirectly incentivize individuals to falsely claim disability, as they may see it as an easier way to obtain financial support. This is different from a direct incentive, which would directly reward the behavior being incentivized (e.g. a cash bonus for claiming disability). Therefore, the best choice is B.

Question 6

An opportunity cost is the:
A)lowest possible cost.
B)highest possible cost.
C)monetary price paid for a good or service.
D)cost of a purchase or decision as measured by what is given up.
E)cost of finding the lowest price for a product.

Accepted Answer

Opportunity cost is the cost of a decision measured by what is given up.

Question 7

The cost of a trade-off is known as the ________ of that decision.
A)marginal cost
B)net cost
C)opportunity cost
D)comparative cost
E)explicit cost

Accepted Answer

The cost of a trade-off is known as the opportunity cost, which is the value of the best alternative foregone. In other words, it is the cost of what must be given up in order to pursue a certain action. Therefore, in order to make an informed decision, it is crucial to consider the opportunity cost of each option.

Question 8

Rational decision-making under conditions of scarcity requires individuals to:
A)place a monetary value on everything.
B)know the prices of all goods they might buy.
C)be alert to price reductions on desired products.
D)understand that trade-offs are necessary.
E)earn as much income as possible.

Accepted Answer

Rational decision-making under conditions of scarcity requires individuals to understand that trade-offs are necessary. When resources are limited and choices must be made, individuals must weigh the costs and benefits of each option and make the best decision based on their personal preferences and needs. This involves considering the opportunity cost of each choice, which is the next best alternative that must be given up in order to choose a particular option. This requires an understanding of the concept of scarcity and the need for trade-offs, rather than a focus on monetary values, prices or income.

Question 9

Kelly is an architect,and she is trying to decide whether to hire Mike,a draftsman,to assist with her work.Kelly could hire Mike at $20 per hour,but it would take him three times as long to complete a task as it takes Kelly.Kelly is able to earn $90 per hour and has more architectural jobs than she is able to handle.Which of the following is true?
A)Kelly should not hire Mike because it would be faster for her to do the work herself.
B)Kelly should do the drafting work herself because she has the lower opportunity cost.
C)Mike should be hired at the $20 per hour wage rate.
D)Mike should be hired,but only if he is paid more than $30 per hour.
E)Kelly should hire someone who earns minimum wage instead of Mike.

Accepted Answer

The answer of Kelly is an architect,and she is trying...

Question 10

In a growing number of cities,stores are required either not to make available plastic or paper bags or to do so only for an additional fee.If this fee can be refunded when you recycle the bag,the refund acts as a(n):
A)direct incentive.
B)indirect incentive.
C)neutral incentive.
D)complementary incentive.
E)unintended incentive.

Accepted Answer

The fee refund acts as a direct incentive to encourage the customer to recycle the bag, as they will receive money back for doing so.

Question 11

In the area of many college campuses,parking spaces are often scarce.If these parking spaces have parking meters,which population described below would pay for parking?
A)A population that is willing to take risks and believes that they will not be caught if they don't place change in the meter
B)A population that places a high opportunity cost on making sure they have change and placing change in the meter
C)A population that is willing to take risks,believes that they will not be caught if they don't place change in the meter,and disregards any possible $5 ticket for parking illegally
D)A population that is unwilling to take risks and believes there is a high chance that they will not be caught if they don't pay for parking
E)A population that is unwilling to take risks,believes there is a high chance that they will be caught if they don't pay their share,and places a high value on doing the "right" thing

Accepted Answer

The population that is unwilling to take risks, believes there is a high chance that they will be caught if they don't pay their share, and places a high value on doing the "right" thing would be the most likely population to pay for parking. These individuals are risk-averse and are less likely to risk getting a ticket or breaking the law. Additionally, they value doing the right thing and may feel a social or moral obligation to pay for parking.

Question 12

What is the opportunity cost of taking this exam?
A)all of the things that you could have done by not studying
B)each of the questions that you miss on the exam
C)the highest valued alternative that you gave up to prepare for and attend the exam
D)the money you spent purchasing the textbook and the other materials you study with
E)the money you spent on tuition

Accepted Answer

The opportunity cost of taking this exam is the highest valued alternative that you gave up to prepare for and attend the exam. The other options do not fully encompass the concept of opportunity cost.

Question 13

The government has been trying to encourage the use of fuel-efficient cars.One way it has been doing this has been by allowing fuel-efficient cars to use a separate highway lane.This encourages people to use fuel-efficient cars because:
A)those who place a high value on their scarce time may be encouraged to buy a fuel-efficient car to take advantage of the speedier separate highway lane.
B)those who place a low value on their scarce time may be encouraged to buy a fuel-efficient car to take advantage of the speedier separate highway lane.
C)those who are more concerned about the environment are also those who happen to place a high value on their time.
D)those who purchase a fuel-efficient car are forced to pay more for a new car,and the use of the separate highway lane compensates them for this.
E)those who purchase a fuel-efficient car are likely to be unhappy because it is less powerful or more cramped inside; use of the separate highway lane compensates them for this.

Accepted Answer

By allowing fuel-efficient cars to use a separate highway lane, the government is creating an incentive for individuals who place a high value on their scarce time to purchase a fuel-efficient car in order to take advantage of the speedier lane. This particular group of individuals may be more likely to make decisions based on time savings rather than solely on environmental concerns.

Question 14

What is the indirect incentive in the unemployment insurance program?
A)Workers get paid when they are laid off.
B)Workers face an incentive to find a new job as quickly as possible.
C)Workers face no incentive to find a new job until the insurance runs out.
D)Workers are paid only a portion of their wages by the unemployment insurance program.
E)Workers on unemployment insurance are given training opportunities.

Accepted Answer

The answer of What is the indirect incentive in the...

Question 15

Economics is concerned with the trade-offs that emerge because of scarcity.The term "trade-offs" refers to:
A)the decision about whether households or businesses should bear the entire burden of the scarcity problem.
B)the buying and selling that occur as unwanted goods are exchanged for goods that are desired.
C)the alternatives given up when making choices.
D)recycling and transforming old goods into new goods to reduce scarcity problems.
E)forcing businesses to produce some goods and services and not others.

Accepted Answer

Trade-offs refer to the alternatives that are given up when making choices due to scarcity. Each decision involves an opportunity cost, which is the value of the next best alternative that is forgone. Therefore, trade-offs are an inherent part of making economic choices and occur because of the scarcity of resources. The other options do not accurately define the concept of trade-offs in economics.

Question 16

The government controls for many indirect incentives in safety net social programs by:
A)limiting payment to a specified time period.
B)providing only a partial payment.
C)allowing individuals to apply to only a certain number of safety net social programs.
D)requiring individuals to repay the benefits they received.
E)establishing income limits for those who apply for safety net social programs.

Accepted Answer

The answer of The government controls for many indirect incentives...

Question 17

The opportunity cost of a purchase is:
A)zero if the item is what you want most.
B)always equal to the selling price of what you purchased.
C)always greater for people who are out of work than for people who are working.
D)the alternative good or service that one sacrifices because a different good was purchased.
E)the lowest possible price.

Accepted Answer

The definition of opportunity cost is the alternative good or service that one sacrifices because a different good was purchased. Therefore, the correct answer is D.

Question 18

Some public transit systems use an "honor system" whereby patrons have to show that they have paid their fare only when asked for it by an enforcement officer.With what population would such a system be successful?
A)a population that is willing to take risks and believes that they will not be caught if they don't pay their fare
B)a population that places a high opportunity cost on taking time to purchase a ticket
C)a population that is willing to take risks,believes that they will not be caught if they don't pay their fare,and treats fines for not paying a fare as a nuisance
D)a population that is unwilling to take risks and believes there is a high chance that they will be caught if they don't pay their fare
E)a population that is unwilling to take risks,believes there is a high chance that they will not be caught if they don't pay their fare,and places a low value on doing the right thing

Accepted Answer

The answer of Some public transit systems use an "honor...

Question 19

An opportunity cost:
A)can be measured only when the decision involves expenditures of money.
B)can be measured only when the decision involves spending time on one thing and not on another.
C)is impossible to measure.
D)is equal to the value of what is given up to make a purchase or take an action.
E)exists for every decision made by individuals and businesses,but not by the government.

Accepted Answer

Opportunity cost is defined as the value of the next best alternative that must be forgone to pursue a certain action or purchase. It is not limited to monetary expenditures or time spent, but encompasses all resources or alternatives that could have been chosen instead. Therefore, option D is the best choice as it accurately defines opportunity cost.

Question 20

Opportunity cost is the ________ alternative forfeited when a choice is made.
A)least-valued
B)highest-valued
C)most recently considered
D)most convenient
E)first

Accepted Answer

Opportunity cost is the highest-valued alternative forfeited when a choice is made. This means that the option that is most valuable or desirable, but not chosen, is the opportunity cost. Therefore, the best choice is the one that has the lowest opportunity cost, which is the option that gives up the least valuable alternative.

Quiz 1: The Five Foundations of Economics

Indirect incentives create:

A health insurance company may offer its policy-holders a discount on their premiums if they prove that they have stopped smoking.What type of incentive is the health insurance company offering?

If you don't like changing the oil in your car and pay your father to do it for you,you have provided him with a(n) :

The U.S.federal government offers homeowners a tax deduction for their home loan interest payments.This reduction in taxes may have encouraged too many people to own a home.If the tax deduction caused people who otherwise would have rented to own,the tax deduction serves as a(n) :

While generous disability insurance can help those who have been permanently injured,it can also increase the likelihood that individuals will falsely claim to be disabled.This likelihood is a(n) :

An opportunity cost is the:

The cost of a trade-off is known as the ________ of that decision.

Rational decision-making under conditions of scarcity requires individuals to:

In a growing number of cities,stores are required either not to make available plastic or paper bags or to do so only for an additional fee.If this fee can be refunded when you recycle the bag,the refund acts as a(n) :

In the area of many college campuses,parking spaces are often scarce.If these parking spaces have parking meters,which population described below would pay for parking?

What is the opportunity cost of taking this exam?

The government has been trying to encourage the use of fuel-efficient cars.One way it has been doing this has been by allowing fuel-efficient cars to use a separate highway lane.This encourages people to use fuel-efficient cars because:

What is the indirect incentive in the unemployment insurance program?

Economics is concerned with the trade-offs that emerge because of scarcity.The term "trade-offs" refers to:

The government controls for many indirect incentives in safety net social programs by:

The opportunity cost of a purchase is:

Some public transit systems use an "honor system" whereby patrons have to show that they have paid their fare only when asked for it by an enforcement officer.With what population would such a system be successful?

An opportunity cost:

Opportunity cost is the ________ alternative forfeited when a choice is made.