Question 1

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 2

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?
A) $45,000 plus the three weeks of vacation
B) $45,000 per year
C) one week of vacation
D) two weeks of vacation

Accepted Answer

The opportunity cost for Alison is the benefits lost by choosing the higher-paying job with only two weeks of vacation instead of the lower-paying job with three weeks of vacation. Therefore, the best choice is to choose the job that offers $54,000 and forfeit one week of vacation as the salary difference is significant.

Question 3

When someone says resources are scarce, this suggests that:
A) lower-income individuals must be especially careful about the choices they make.
B) choices must be made to utilize resources in the best manner possible.
C) additional resources could be found if there were additional funds allocated to the effort.
D) we have enough resources to meet all of our needs and wants.

Accepted Answer

When resources are scarce, it means that there is a limited amount of resources available. This necessitates making choices on how to use them in the most efficient and effective way possible. Choosing the best possible utilization of resources is imperative to ensure that the needs and wants of society are met.

Question 4

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 5

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 6

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?
A) Julie is not that smart and cannot study that long.
B) Julie is slacking off and will most likely fail all of her finals.
C) Julie realizes that there are benefits to leisure time that outweigh the costs of constant studying.
D) Julie does not understand the importance of studying.

Accepted Answer

Julie realizes that taking some time for leisure can actually benefit her by allowing her brain to rest and recharge, which can lead to better focus and retention during her study sessions. This can ultimately help her perform better on her exams.

Question 7

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:
A) the time spent listening to the lecture.
B) not relevant, since no money is involved.
C) the cost of getting to the lecture itself plus the reduction in her physics exam grade as a result of not studying tonight.
D) the time spent getting to the lecture.

Accepted Answer

The opportunity cost is the highest valued alternative that is forgone, so in this case it would be the cost of attending the lecture instead of studying for the exam. This includes the cost of getting to the lecture and also the reduction in grade from not studying for the exam. The time spent listening to the lecture and getting to the lecture are not the only costs involved in this decision.

Question 8

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 9

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 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 true according to the circular flow model of the economy. When one group spends more, it creates a ripple effect on other groups, leading to an increase in their incomes.

Question 11

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 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

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:
A) like all economic beings, she faces constraints and cannot have everything she wants.
B) she doesn't realize she can have everything she wants.
C) she is the only one who faces constraints in life.
D) she really doesn't want anything.

Accepted Answer

Martha's frustrations stem from the fact that she faces constraints and cannot have everything she wants, which is a fundamental concept in economics. It is important to make decisions based on the resources available and prioritize wants and needs.

Question 14

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 15

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:
A) that he should not purchase the truck, since the costs outweigh the benefits.
B) that he should purchase the truck, since the benefits outweigh the costs.
C) that he should purchase the truck, since his profits will rise by $250.
D) to purchase several trucks with the same costs and benefits.

Accepted Answer

Based on the given information, Mr. Freezee should not purchase the additional truck as the cost of $1,000 outweighs the additional revenue of $750. Therefore, purchasing the truck would result in a loss of $250. Marginal analysis involves comparing the marginal benefit (additional revenue) to the marginal cost (additional cost) of a decision, and in this case, the marginal cost exceeds the marginal benefit.

Question 16

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:
A) given a parking pass along with their ticket.
B) required to pay for parking.
C) able to purchase an annual pass which allows them to park at the train station.
D) exempt from parking lot fees.

Accepted Answer

By requiring commuters to pay for parking, it will discourage non-train users from taking up the limited parking spaces. It will also ensure that those who do park at the station are serious about taking the train and are willing to pay for the convenience. This may lead to higher revenue for the train company as well. Giving all commuters a parking pass or exempting them from parking fees will not solve the issue of limited parking spaces. Allowing commuters to purchase an annual pass may be an option, but it will not address the issue of non-train users taking up the spaces.

Question 17

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 18

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 19

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 20

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.

Quiz 1: First Principles

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?

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?

When someone says resources are scarce, this suggests that: