Question 1

Economic analysis is based on the premise that

Accepted Answer

Economic analysis assumes that changes in personal benefits or costs of an action will influence behavior in a predictable way. This is the basis for the law of demand, which states that as the price of a good or service increases, the quantity demanded will decrease, all else being equal. It also assumes that individuals are rational and will make choices based on their best interests given the information and resources available to them. However, it does not assume that people act only out of selfish motives or that they are always fully informed when making choices.

Question 2

What is the best test of an economic theory?

Accepted Answer

The ability of the theory to predict real-world events is the most important test of an economic theory because it demonstrates the practical usefulness of the theory. While the accuracy of the assumptions behind the theory and the implications of the theory for current public policy are also important, they do not necessarily demonstrate the theory's efficacy in a real-world setting. The level of mathematical detail behind the theory is also important but is not the most important test of the theory's usefulness.

Question 3

Isabella wishes to buy gasoline and have her car washed. She finds that if she buys 9 gallons of gasoline at $1.50 per gallon, the car wash costs $1, but if she buys 10 gallons of gasoline, the car wash is free. For Isabella, the marginal cost of the tenth gallon of gasoline is

Accepted Answer

If Isabella buys 9 gallons, the total cost is $13.50 ($1.50 per gallon of gasoline and $1 for the car wash). If she buys 10 gallons, the total cost is $15. Since the cost difference between buying 9 and 10 gallons is $1.50, this means that the marginal cost of the tenth gallon of gasoline is $1.50. However, because Isabella also gets a free car wash if she buys 10 gallons, the marginal cost of the tenth gallon of gasoline is reduced by the value of the car wash ($1). Therefore, the marginal cost of the tenth gallon of gasoline is $0.50, or 50 cents. The best choice is B.

Question 4

A restaurant offers an "all you can eat" meal for $9. Tyrone has eaten three servings and is trying to decide whether or not to go back for a fourth. The economic way of thinking suggests that Tyrone should go back for the fourth serving if and only if

Accepted Answer

The economic way of thinking suggests that an individual should continue consuming a good or service as long as the marginal benefit (satisfaction) of each additional unit consumed is greater than or equal to the marginal cost (price). In this case, the marginal cost of the fourth serving is zero since it is included in the "all you can eat" price of $9. Therefore, Tyrone should go back for the fourth serving if and only if his marginal benefit (satisfaction) from the fourth serving is greater than zero.

Question 5

Santiago wants to buy some milk and a box of cereal. If he buys 2 quarts of milk at $1 per quart, the box of cereal costs 75 cents. If he buys 3 quarts of milk at $1 per quart, the box of cereal is free. For Santiago, the marginal cost of the third quart of milk is

Accepted Answer

If Santiago buys 2 quarts of milk and a box of cereal, he will pay $2 for the milk and 75 cents for the cereal, for a total of $2.75.

If he buys 3 quarts of milk and a box of cereal, he will pay $3 for the milk and get the cereal for free, for a total of $3.

Therefore, the marginal cost of the third quart of milk is $3 - $2.75 = 25 cents.

Question 6

The unintended consequences of an economic change that are not immediately identifiable but are felt only with time are known in economics as

Accepted Answer

Secondary effects refer to the unintended and often unseen consequences of an economic change that only become apparent with time. These effects can impact various aspects of the economy and society, and are often not accounted for in initial economic analyses.

Question 7

Economists are generally opposed to tariffs or other restrictions on imported goods because of the negative secondary effects they create that more than offset the benefits to employment in the domestic industry. Which of the following could be considered a secondary effect of these trade restrictions?

Accepted Answer

All of the given options are potential secondary effects of trade restrictions. Higher prices for consumers means that they will have less money to spend on other things, potentially leading to employment losses in other domestic industries. Additionally, countries tend to restrict imports in response to other countries doing the same, thus lowering demand for exports and negatively affecting employment in export industries as well.

Question 8

A firm producing cans buys three tons of aluminum per day at $200 per ton. If it buys four tons per day, it receives a quantity discount on all units and pays only $175 per ton. The marginal cost of the fourth ton per day is

Accepted Answer

The answer of A firm producing cans buys three tons...

Question 9

Because information is costly to acquire,

Accepted Answer

It is rational for individuals to make decisions based on incomplete information because the cost of acquiring all of the relevant information can often outweigh the potential benefits of making a fully informed decision. Therefore, people may choose not to become fully informed when making decisions.

Question 10

All but one of the following are elements of the economic way of thinking. Which one is not part of the economic way of thinking?

Accepted Answer

The economic way of thinking recognizes that the value of goods is subjective and depends on individual preferences and circumstances. Therefore, the statement that "the value of goods can be determined objectively" is not part of the economic way of thinking.

Question 11

While waiting in line to buy one cheeseburger for $1.50 and a medium drink for $1.00, Sally notices that she could get a value meal that contains both the cheeseburger and medium drink and also a medium order of fries for $2.75. She thinks to herself, "Is it worth the extra 25 cents to get the medium fries?" To an economist, Sally's decision is an example of

Accepted Answer

Sally is weighing the marginal cost of adding the medium fries to her purchase to determine if it is worth the extra 25 cents. This is an example of marginal decision making, where an individual considers the additional benefits and costs of a specific decision.

Question 12

Which of the following could be considered to be a secondary effect caused by making drugs such as cocaine illegal?

Accepted Answer

All of the choices listed could be considered secondary effects of making drugs such as cocaine illegal. The higher prices could lead to property theft, the usage of resources to enforce drug laws takes away from enforcement of other crimes, and the lack of legal contract enforcement can lead to violence in drug deals.

Question 13

While waiting in line to buy two tacos at 80 cents each and a medium drink for 90 cents, Kayla notices that the restaurant has a value meal containing three tacos and a medium drink all for $3. For Kayla, the marginal cost of the third taco would be

Accepted Answer

Kayla could buy the value meal for $3 and get three tacos and a medium drink. However, if she only wants two tacos and a medium drink, buying them separately would cost her $2.50 ($0.80 per taco + $0.90 for drink). The marginal cost of the third taco in this case would be the difference between the value meal and the cost of buying two tacos and a drink separately, which is $0.50. So, the best choice for Kayla would be to buy two tacos and a drink separately for $2.50.

Question 14

Which of the following is consistent with the implications of the economic guidepost that information is costly to acquire?

Accepted Answer

The answer of Which of the following is consistent with...

Question 15

A local restaurant offers an "all you can eat" buffet for $15. Mia eats four servings but leaves half of a fifth helping uneaten. Why?

Accepted Answer

The answer of A local restaurant offers an "all you...

Question 16

People are more likely to purchase a consumer ratings magazine that reviews new automobiles before buying a new car than they are to purchase a consumer ratings magazine that reviews pens and pencils before buying a new pen or pencil. Which of the following best explains this behavior?

Accepted Answer

The value of the information provided by the consumer ratings magazine is higher for an expensive purchase like an automobile, where the cost of making a mistake is greater.

Question 17

What is the best test of an economic theory?

Accepted Answer

The answer of What is the best test of an...

Question 18

In economics, secondary effects refer to the

Accepted Answer

Secondary effects refer to the unintended consequences of a change that are not immediately identifiable but are felt only with time. They may be positive or negative and can include ripple effects throughout the economy or other sectors. For example, increasing the minimum wage may have the intended consequence of raising incomes for low-wage workers, but it could also have secondary effects such as increased prices for goods and services, automation or job loss, and decreases in hours worked.

Question 19

"Mediocre economists often consider only the immediate apparent effects of a change, whereas a good economist will also consider effects that may only become observable over time." This statement most clearly emphasizes

Accepted Answer

The statement emphasizes the importance of secondary effects, meaning that a good economist will look beyond the immediate apparent effects of a change and consider how it may impact other factors over time. This suggests that a thorough analysis of economic changes should consider not only the primary effects but also the indirect, long-term effects that may only become observable later on.

Question 20

The value of a good

Accepted Answer

The value of a good is subjective and depends on many factors, such as the buyer's needs, preferences, and circumstances. Therefore, option A is the correct answer. The other options are not accurate as the cost of production or labor required may not necessarily determine the value of a good, and a survey of manufacturers may not provide an objective measure of value.

Quiz 1: The Economic Approach

Economic analysis is based on the premise that

What is the best test of an economic theory?

Isabella wishes to buy gasoline and have her car washed. She finds that if she buys 9 gallons of gasoline at $1.50 per gallon, the car wash costs $1, but if she buys 10 gallons of gasoline, the car wash is free. For Isabella, the marginal cost of the tenth gallon of gasoline is

A restaurant offers an "all you can eat" meal for $9. Tyrone has eaten three servings and is trying to decide whether or not to go back for a fourth. The economic way of thinking suggests that Tyrone should go back for the fourth serving if and only if

Santiago wants to buy some milk and a box of cereal. If he buys 2 quarts of milk at $1 per quart, the box of cereal costs 75 cents. If he buys 3 quarts of milk at $1 per quart, the box of cereal is free. For Santiago, the marginal cost of the third quart of milk is

The unintended consequences of an economic change that are not immediately identifiable but are felt only with time are known in economics as

A firm producing cans buys three tons of aluminum per day at $200 per ton. If it buys four tons per day, it receives a quantity discount on all units and pays only $175 per ton. The marginal cost of the fourth ton per day is

Because information is costly to acquire,

All but one of the following are elements of the economic way of thinking. Which one is not part of the economic way of thinking?

Which of the following could be considered to be a secondary effect caused by making drugs such as cocaine illegal?

While waiting in line to buy two tacos at 80 cents each and a medium drink for 90 cents, Kayla notices that the restaurant has a value meal containing three tacos and a medium drink all for $3. For Kayla, the marginal cost of the third taco would be

Which of the following is consistent with the implications of the economic guidepost that information is costly to acquire?

A local restaurant offers an "all you can eat" buffet for $15. Mia eats four servings but leaves half of a fifth helping uneaten. Why?

People are more likely to purchase a consumer ratings magazine that reviews new automobiles before buying a new car than they are to purchase a consumer ratings magazine that reviews pens and pencils before buying a new pen or pencil. Which of the following best explains this behavior?

What is the best test of an economic theory?

In economics, secondary effects refer to the

"Mediocre economists often consider only the immediate apparent effects of a change, whereas a good economist will also consider effects that may only become observable over time." This statement most clearly emphasizes

The value of a good