Question 1

If a motorist is stranded in front of a pay phone and has only dollar bills, and he ends up buying a quarter from a passerby for $1,
A)the stranded motorist must not understand that four quarters are worth $1.
B)economic theory is unable to explain this transaction.
C)both parties have gained from this exchange.
D)the passerby was made better off and the motorist worse off.

Accepted Answer

Both parties have gained from this exchange. The passerby has made a profit of 75 cents (the cost of a quarter is 25 cents, but he received $1), while the stranded motorist was able to use the pay phone with the quarter he needed. Therefore, both parties benefited from the transaction.

Question 2

An economics professor points to a student in the front row and announces that "sitting in class is the thing you value most during this time period." Is the professor correct? Why or why not?

Accepted Answer

If the student is rational (and this is an assumption made in economics), he allocates time to its highest valued use. By attending class, the student has revealed that this activity was valued most during that time period. If this were not True, the student wouldn't be there.

Question 3

Suppose an airline ticket from Charlotte to Dallas costs $525. A bus ticket is $325. Traveling by plane will take 5 hours, compared with 25 hours by bus. Thus, the plane costs $200 more but saves 20 hours of time (Hint: Note how we are "thinking at the margin" here by looking at the changes). Other things constant, an individual will gain by choosing air travel if, and only if, each hour of her time is valued at more than
A)$10 per hour.
B)$13 per hour.
C)$20 per hour.
D)$105 per hour.

Accepted Answer

A

Question 4

In a market economy,
A)a larger income for one person means a smaller one for another.
B)the government answers all the basic economic questions.
C)a larger income for one person means it is possible for others to earn more too.
D)economic output shrinks as we discover better ways of doing things.

Accepted Answer

In a market economy, a larger income for one person does not necessarily mean a smaller one for another. It is possible for others to earn more too if they have the skills and resources to do so. This is because the market rewards individuals based on their productivity and contribution to society. Therefore, a dynamic and growing economy can lead to increased opportunities for everyone to earn more.

Question 5

Which of the following attributes of trade explain why it is important for economic prosperity?
A)Trade moves goods from people who value them less to people who value them more.
B)Trade makes it possible to produce a larger output as a result of lower per unit costs that often accompany large-scale production.
C)Trade makes it possible to produce a larger output as a result of gains from division of labor and specialization.
D)All of the above.

Accepted Answer

All the attributes listed (A, B, and C) are important reasons why trade contributes to economic prosperity. By allowing goods to move from those who value them less to those who value them more, trade leads to a more efficient allocation of resources and increased welfare. Large-scale production through trade allows for lower per unit costs and more efficient use of resources. Gains from division of labor and specialization through trade allow for increased productivity and higher output levels.

Question 6

When private ownership rights are well-defined and enforced, owners
A)can ignore the wishes of others, without bearing the cost.
B)have little incentive to take care of things.
C)can do anything they want with their property.
D)can be held accountable for damage to others through misuse of their property.

Accepted Answer

Well-defined and enforced private ownership rights provide accountability for damage done to others through misuse of the property. This creates a financial incentive for owners to take good care of their property and to consider how their actions may impact neighboring properties. Option A is incorrect because private ownership should not allow owners to ignore the wishes of others without consequences. Option B is also incorrect because owners have a financial stake in the care and maintenance of their property. Option C is incorrect because there may be laws and regulations that restrict what owners can do with their property, such as zoning laws or environmental regulations.

Question 7

After the terrorist attacks on September 11, 2001, the United States began devoting substantial resources toward the War on Terrorism, homeland security, and relief efforts. Use the production possibilities curve to demonstrate how this might affect the production of other goods in the United States.

Accepted Answer

The answer of After the terrorist attacks on September 11,...

Question 8

Sophia is an architect and she is trying to decide whether to hire Jacob, a draftsman, to assist with her work. Sophia could hire Jacob at $20 per hour but it would take him three times as long to complete a task as it takes Sophia. Sophia 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)Sophia should not hire Jacob because it would be faster for her to do the work herself.
B)Sophia should do the drafting work herself because she has the lower opportunity cost.
C)Jacob should be hired at the $20 per hour wage rate.
D)Jacob should be hired, but only if he is paid more than $30 per hour.

Accepted Answer

The answer of Sophia is an architect and she is...

Question 9

Middlemen, such as grocers, stockbrokers, and realtors
A)specialize in reducing transactions costs.
B)provide nothing of value to either the buyer or the seller.
C)have no effect on economic output in society.
D)do not exist in capitalist economies.

Accepted Answer

Middlemen provide value by reducing transactions costs. For example, grocers reduce the time and effort required for a consumer to obtain food directly from a farmer or producer, while stockbrokers reduce the information and transaction costs involved in buying and selling financial assets. Realtors reduce the costs of selling and buying real estate by marketing properties, conducting viewings, and facilitating negotiations. Therefore, they provide valuable services and are not simply unnecessary intermediaries.

Question 10

Melanie decided to sleep in today rather than attend her 9 a.m.economics class.According to economic analysis, her choice was
A)irrational, because economic analysis suggests you should always attend classes that you have already paid for.

B)irrational, because oversleeping is not in Melanie's self-interest.
C)rational if Melanie has not missed any other classes.
D)rational if Melanie values sleep more highly than the benefit she expects to receive from attending the class.

Accepted Answer

Melanie's decision is rational if she values the additional sleep more than the benefit she would gain from attending the class, as economic analysis considers individual preferences and opportunity costs.

Question 11

A production possibilities curve graphically represents the maximum quantities of two products produced when all resources in the economy are being used efficiently. If an economy operates at a point inside its production possibilities curve,
A)it lacks the resources necessary to produce at full employment.
B)it is utilizing some resources inefficiently.
C)it does not confront the problem of scarce goods relative to unlimited wants.
D)it does not exist in the real world since it is impossible for an economy to operate inside its production possibilities curve.

Accepted Answer

Operating inside the production possibilities curve indicates that the economy is not producing at its fullest potential, indicating inefficient use of resources. Therefore, the correct answer is B. The other options are incorrect because an economy may operate inside the PPC due to various reasons such as a lack of demand for the product or technological limitations, and it is possible for an economy to operate inside PPC in the short run.

Question 12

The president of a large public university proclaims, "If we can get the state government to fund our new football stadium, it will not cost us anything." Evaluate this view from an economic perspective.

Accepted Answer

The answer of The president of a large public university...

Question 13

Given freedom of movement for both goods and resources, if Florida producers specialize in oranges and Georgia producers specialize in peaches, then it would be reasonable to conclude that
A)the opportunity cost of growing oranges is higher in Florida than in Georgia.
B)Georgia has a comparative advantage in producing peaches.
C)Florida has a comparative advantage in producing peaches.
D)total output will be expanded when Georgia allocates more resources to producing oranges and Florida allocates more resources to producing peaches.

Accepted Answer

Specialization according to comparative advantage involves allocating resources to the production of goods for which a country or region has a lower opportunity cost compared to other goods. If Florida specializes in oranges, it means that the opportunity cost of producing oranges is lower in Florida compared to peaches. Likewise, if Georgia specializes in peaches, it means that the opportunity cost of producing peaches is lower in Georgia compared to oranges. Therefore, Georgia has a comparative advantage in producing peaches, and Florida has a comparative advantage in producing oranges. Allocating more resources to goods for which a region has a comparative advantage leads to increased efficiency and overall output. However, allocating more resources to goods for which a region does not have a comparative advantage can lead to inefficiency and reduced total output.

Question 14

The size of a country's "economic pie" is thought of as the total dollar value of all goods and services produced during some period of time. The economic pie
A)is a fixed total waiting to be divided up among people.
B)determines how much wealth an individual can obtain.
C)is variable, not fixed, across time periods.
D)depends solely upon the natural resources of a country.

Accepted Answer

The economic pie is not a fixed total waiting to be divided up among people (A) as it can vary across time periods due to factors such as technological advancements, changes in productivity levels, and shifts in demand and supply. The size of the economic pie also does not solely depend upon the natural resources of a country (D) as it can be influenced by other factors such as human capital and infrastructure. While the size of the economic pie can impact the wealth an individual can obtain, it does not determine it (B).

Question 15

The production possibilities curve illustrates the basic principle that
A)an economy's capacity to produce increases in proportion to its population.
B)if the resources of an economy are being used efficiently, more of one good can be produced only if less of another is produced.
C)an economy will automatically seek the output at which all of its resources are fully employed.
D)the distribution of income among households is the major determinant of the economic welfare of a nation.

Accepted Answer

The production possibilities curve (PPC) shows the various combinations of two goods that a society can produce given its available resources and technology. It illustrates the tradeoff between producing one good versus another. If a society is producing at a point on the PPC, it means it is using its resources efficiently. Moving from that point to produce more of one good requires giving up some production of the other good, thus illustrating the principle of opportunity cost. Therefore, option B is the correct answer.

Question 16

The law of comparative advantage indicates that
A)a group of people will reduce their output when each good or service is supplied by the low opportunity cost producer.
B)trading partners lose when they can acquire a good through trade cheaper than they can produce it.
C)trade is most effective when people trade only among those in their own nation.
D)a group of people can increase their output when each good or service is supplied by the low opportunity cost producer.

Accepted Answer

The law of comparative advantage states that a group of people can increase their output when each good or service is supplied by the low opportunity cost producer. This means that by specializing in the production of the good or service they have the lowest opportunity cost in producing, individuals can produce more efficiently and increase overall output. This leads to increased trade, as countries can specialize in producing certain goods and services and then trade with other countries for goods and services they cannot produce as efficiently themselves.

Question 17

Explain the idea of capital investment by using the story of Robinson Crusoe. What is sacrificed, and what is gained?

Accepted Answer

The answer of Explain the idea of capital investment by...

Question 18

A popular video program used to teach economics to primary school children defines opportunity cost as "what you give up to get something." In light of your understanding of opportunity cost, how would you modify this definition?

Accepted Answer

The answer of A popular video program used to teach...

Question 19

Which of the following is NOT true of opportunity cost?
A)Opportunity costs are subjective because they depend upon how the decision-maker values his or her options.
B)Opportunity costs are only the monetary costs of lost options.
C)Opportunity costs are the highest-valued alternative sacrificed in order to choose an option.
D)Only the decision-maker can determine his or her opportunity costs for any particular action.

Accepted Answer

Opportunity costs are not only limited to monetary costs, but also include non-monetary costs such as time and effort. Therefore, option B is not true.

Question 20

According to the law of comparative advantage, a particular task is performed most efficiently by the individual with the lowest
A)wage rate.
B)tax liability.
C)net worth.
D)opportunity cost.

Accepted Answer

According to the law of comparative advantage, a particular task is performed most efficiently by the individual with the lowest opportunity cost. Opportunity cost is the cost of foregone alternatives, and the individual with the lowest opportunity cost of producing a good or service should specialize in producing it, while others specialize in the production of other goods and services. Therefore, the answer is D.

Quiz 2: Some Tools of the Economist

If a motorist is stranded in front of a pay phone and has only dollar bills, and he ends up buying a quarter from a passerby for $1,

An economics professor points to a student in the front row and announces that "sitting in class is the thing you value most during this time period." Is the professor correct? Why or why not?

In a market economy,

Which of the following attributes of trade explain why it is important for economic prosperity?

When private ownership rights are well-defined and enforced, owners

Middlemen, such as grocers, stockbrokers, and realtors

Melanie decided to sleep in today rather than attend her 9 a.m.economics class.According to economic analysis, her choice was

A production possibilities curve graphically represents the maximum quantities of two products produced when all resources in the economy are being used efficiently. If an economy operates at a point inside its production possibilities curve,

The president of a large public university proclaims, "If we can get the state government to fund our new football stadium, it will not cost us anything." Evaluate this view from an economic perspective.

Given freedom of movement for both goods and resources, if Florida producers specialize in oranges and Georgia producers specialize in peaches, then it would be reasonable to conclude that

The size of a country's "economic pie" is thought of as the total dollar value of all goods and services produced during some period of time. The economic pie

The production possibilities curve illustrates the basic principle that

The law of comparative advantage indicates that

Explain the idea of capital investment by using the story of Robinson Crusoe. What is sacrificed, and what is gained?

A popular video program used to teach economics to primary school children defines opportunity cost as "what you give up to get something." In light of your understanding of opportunity cost, how would you modify this definition?

Which of the following is NOT true of opportunity cost?

According to the law of comparative advantage, a particular task is performed most efficiently by the individual with the lowest