Question 1

Going skiing will cost Adam $80 a day.He also loses $40 per day in wages because he has to take time off from work.Adam still decides to go skiing.
A) His decision is rational if Adam's marginal benefit of spending a day skiing is greater than his marginal cost.
B) The $80 price of skiing is a sunk cost and so did not affect Adam's decision.
C) He loses a total of $120 per day, so his decision is irrational.
D) Adam's lost $40 per day in wages is a sunk cost and so did not affect his decision.
E) Adam is definitely making a decision that is in the social interest.

Accepted Answer

Adam's decision is rational if his marginal benefit from skiing is greater than the total cost of $120 (skiing cost + lost wages). As long as the satisfaction or enjoyment he gets from skiing outweighs the monetary cost, his decision is rational. The $80 price of skiing is a sunk cost and does not affect Adam's decision since it cannot be recovered. However, the lost wages of $40 is not a sunk cost because he could have earned it if he had not gone skiing.

Question 2

Macroeconomics is the study of
A) the actions of individual consumers.
B) national or global economies.
C) the actions of individual businesses.
D) the government.
E) how ceteris paribus affects causation.

Accepted Answer

Macroeconomics is concerned with the overall performance of national or global economies, including factors such as inflation, unemployment, international trade, and economic growth. It focuses on aggregate variables such as gross domestic product (GDP), aggregate demand and supply, and government policies to manage the economy.

Question 3

The primary focus of microeconomics is
A) to examine the operation of the entire (aggregate) economy.
B) to examine the behavior and operation of the individual units or sectors that make up the economy.
C) our government's monetary policy.
D) the levels of employment and inflation.
E) to study how we managed to eliminate scarcity.

Accepted Answer

Microeconomics is the study of the behavior and operation of individual units or sectors that make up the economy, such as households, firms, and markets. It examines how these units make decisions regarding production, consumption, and pricing. Therefore, B is the correct option as it defines the primary focus of microeconomics.

Question 4

Microeconomics includes the study of the
A) aggregate effects on the national economy.
B) recessions and inflation in the global economy.
C) choices made by individuals and businesses.
D) reasons why the government changes interest rates.
E) nationwide unemployment rate.

Accepted Answer

Microeconomics focuses on the choices made by individuals and businesses, including how they allocate resources and make decisions related to production and consumption. It is distinct from macroeconomics, which examines the overall performance of the national or global economy. The other answer choices are not central topics within microeconomics.

Question 5

When Gabriel made a rational choice to spend his entire allowance on candy bars, he did so by comparing the
A) benefits of the candy bars to the desires he had for the candy bars.
B) marginal benefits of the candy bars to the marginal costs of the candy bars.
C) opportunity costs of the candy bars to the scarcity of the candy bars.
D) benefits of the candy bars to the scarcity candy bars.
E) self-interest to the social interest.

Accepted Answer

Gabriel made a rational choice by comparing the marginal benefits (satisfaction or enjoyment he would get from each additional candy bar) to the marginal costs (the cost of each additional candy bar) and choosing to spend his entire allowance on candy bars.

Question 6

In order to determine whether to major in economics, a rational individual compares the ________ of the decision.
A) marginal benefit and marginal cost
B) opportunity cost and the sunk cost
C) positive benefits and normative costs
D) normative benefits and positive costs
E) self-interest and social-interest

Accepted Answer

Rational decision-making involves comparing the marginal benefit of an action (in this case, majoring in economics) to the marginal cost. In other words, the individual should weigh the benefits they will receive from studying economics against the costs (e.g. time, effort, money) they will incur in pursuing this major. Therefore, option A is the best choice as it closely relates to the decision-making process.

Question 7

Your economics professor offers 10 points extra credit if you attend a review session before your next exam. This extra credit is an example of
A) a decrease in marginal benefit to attend the review session.
B) an increase in marginal cost to attend the review session.
C) a rational choice.
D) an incentive to attend the review session.
E) a sunk cost.

Accepted Answer

The extra credit offer is an incentive to attend the review session, and therefore, attending the review session would be a rational choice for students who value the extra credit more than the cost of attending the session.

Question 8

An incentive is
A) an inducement to take a particular action.
B) the marginal cost of some course of action.
C) the marginal benefit of some course of action.
D) the net gain of some course of action.
E) a constraint that society imposes on those who make self-interested choices.

Accepted Answer

An incentive is an inducement or motivation that encourages someone to take a particular action. It can be a positive incentive like a reward or a negative incentive like a punishment. It is not the marginal cost, benefit, or net gain itself, but rather a factor that influences those factors.

Question 9

Proponents of cuts in income tax rates argue that when income tax rates are cut, workers have an incentive to increase their work hours.This argument is based on the assumption that
A) workers are irrational.
B) workers make decisions based on the marginal benefit of each hour worked compared to the marginal cost of work.
C) the opportunity cost of working is negative.
D) the marginal cost of each additional work hour is not important to most workers.
E) workers make decisions based on the social interest.

Accepted Answer

This argument is based on the rational economic theory that workers make decisions based on the marginal benefit of each hour worked compared to the marginal cost of work. When tax rates are cut, workers can keep more of their earnings, which raises the marginal benefit of work and provides an incentive to work longer hours.

Question 10

Which of the following is a microeconomic issue?
A) The price of gasoline increases in the United States this year.
B) The Brazilian economy experiences rapid economic growth.
C) The unemployment rate soars in Spain.
D) Inflation skyrockets in Russia.
E) The U.S.government cuts taxes to combat a recession.

Accepted Answer

The price of gasoline increasing is a microeconomic issue as it directly affects consumers and their purchasing decisions. It is a specific market activity rather than a larger economic trend or issue.

Question 11

The decision to go to graduate school is a rational one for a college student if the
A) cost is not too great.
B) marginal cost exceeds the marginal benefit of graduate school.
C) marginal benefit of graduate school exceeds the marginal cost.
D) opportunity cost of graduate school equals zero.
E) student carefully compared the benefits of this decision to the sunk costs of the decision.

Accepted Answer

The rational decision to go to graduate school depends on whether the marginal benefit of attending graduate school is greater than the marginal cost. This means that the student should consider the additional cost of graduate school compared to the potential benefits such as higher salary, better job prospects, and more advanced knowledge and skills. If the marginal benefit is greater than the marginal cost, then it would be rational for the student to attend graduate school.

Question 12

Which of the following is a microeconomic topic?
I. K-Mart's decision to close stores that are not making a profit
Ii. Home Depot's choice to hire more full-time employees because its sales increased
Iii. Delta Airlines changes its fares
A) i only.
B) ii only.
C) i and iii.
D) ii and iii.
E) i, ii, and iii.

Accepted Answer

All three scenarios involve decisions made by individual businesses, which is a focus of microeconomics. Microeconomics studies the behavior of individuals and firms in making decisions regarding the allocation of scarce resources.

Question 13

An incentive is
A) a reward or a penalty that encourages or discourages an action.
B) when people make rational choices by comparing costs and benefits.
C) what you must give up to get something.
D) a choice is made on the margin.
E) a good or service that satisfies wants.

Accepted Answer

An incentive is a reward or penalty that encourages or discourages an action. This definition accurately describes what an incentive is, making A the best choice. B refers to rational decision-making, C is the definition of opportunity cost, D is a concept related to the margin, and E is the definition of a good or service.

Question 14

Which of the following is a microeconomic issue?
A) Growth in the U.S.economy slowed.
B) Increased federal government expenditures have lowered the unemployment rate.
C) The inflation rate fell this year.
D) The quantity of wheat grown in the United States increases this year.
E) The U.S.government cuts taxes to combat a recession.

Accepted Answer

The quantity of wheat grown in the United States increasing is a microeconomic issue because it pertains to a specific market (the wheat market) and focuses on supply and demand within that market. A microeconomic issue deals with individual markets and specific economic agents, while macroeconomic issues deal with the economy as a whole. The other options are macroeconomic issues as they focus on the economy as a whole or government-wide policies.

Question 15

A change in a marginal benefit or cost will
A) increase consumption.
B) decrease production.
C) cause an individual to make a rational choice.
D) increase sunk costs.
E) change incentives.

Accepted Answer

A change in marginal benefit or cost will change the incentives facing individuals, which will affect their behavior and decision-making. Therefore, the best choice is E, change incentives. The other choices are incorrect because they do not accurately reflect the relationship between changes in marginal benefits or costs and individual behavior.

Question 16

Which of the following is a microeconomic topic?
A) Northwest Airlines analyzes the benefits of adding one more flight to Salt Lake City.
B) Unemployment soars as taxes increase.
C) The government leaves interest rates unchanged as the economy improves.
D) Germany's government increases taxes to avoid a budget deficit.
E) Chinese economic growth slows.

Accepted Answer

Northwest Airlines analyzing the benefits of adding one more flight to Salt Lake City is a microeconomic topic because it is a decision made by a particular firm that affects their individual costs and revenues. The other options are macroeconomic topics because they deal with broader economic issues such as national unemployment rates, government policies, and international economic growth.

Question 17

The study of the choices of one individual or business is called
A) macroeconomics.
B) microeconomics.
C) scarcity.
D) finance.
E) ceteris paribus.

Accepted Answer

Microeconomics focuses on the individual choices of consumers, businesses, and workers, whereas macroeconomics looks at the economy as a whole. Since the question specifically asks about the choices of one individual or business, the correct answer is microeconomics (choice B).

Question 18

If the marginal benefit of getting a college degree rises, rational people will
A) attend college in greater numbers.
B) drop out of college.
C) not change their behavior.
D) require that college get easier.
E) raise the marginal cost of attending college.

Accepted Answer

When the marginal benefit of getting a college degree rises, it means that the additional benefit of getting a degree is greater than before. As rational individuals, they will attend college in greater numbers to take advantage of the higher benefit.

Question 19

In order to make a rational choice, people must
A) only know what they want.
B) be able to afford the choice decided upon.
C) decide quickly without wasting time.
D) compare marginal costs and marginal benefits.
E) determine what is in the social interest.

Accepted Answer

In order to make a rational choice, people must compare marginal costs and marginal benefits. This means they must weigh the additional cost of making a particular decision against the additional benefit that decision may provide. By doing this, they can make a rational and informed choice that maximizes their utility.

Question 20

Instead of studying for an additional two hours for the economics final, Leann decides to watch a movie.Leann is making
A) a decision that does not involve an opportunity cost.
B) a rational decision if her marginal cost from the movie is greater than her marginal benefit.
C) a rational decision if her marginal benefit from the movie is greater than her marginal cost.
D) an irrational decision because studying is more important than watching a movie.
E) a decision that is not on the margin because she will see the entire movie.

Accepted Answer

Leann is making a rational decision if her marginal benefit from the movie is greater than her marginal cost. This means that she is weighing the benefits of watching a movie versus the benefits of studying for an additional two hours for the economics final. If the marginal benefit of watching the movie outweighs the benefits of studying, then it makes sense for Leann to watch the movie instead. However, if the marginal cost (i.e. negative impact on her grade) of watching the movie outweighs the benefits, then she should study instead. Ultimately, it depends on Leann's individual preferences and circumstances.

Quiz 1: Getting Started

Going skiing will cost Adam $80 a day.He also loses $40 per day in wages because he has to take time off from work.Adam still decides to go skiing.

Macroeconomics is the study of

The primary focus of microeconomics is

Microeconomics includes the study of the

When Gabriel made a rational choice to spend his entire allowance on candy bars, he did so by comparing the

In order to determine whether to major in economics, a rational individual compares the ________ of the decision.

Your economics professor offers 10 points extra credit if you attend a review session before your next exam. This extra credit is an example of

An incentive is

Proponents of cuts in income tax rates argue that when income tax rates are cut, workers have an incentive to increase their work hours.This argument is based on the assumption that

Which of the following is a microeconomic issue?

The decision to go to graduate school is a rational one for a college student if the

Which of the following is a microeconomic topic? I. K-Mart's decision to close stores that are not making a profit Ii. Home Depot's choice to hire more full-time employees because its sales increased Iii. Delta Airlines changes its fares

An incentive is

Which of the following is a microeconomic issue?

A change in a marginal benefit or cost will

Which of the following is a microeconomic topic?

The study of the choices of one individual or business is called

If the marginal benefit of getting a college degree rises, rational people will

In order to make a rational choice, people must

Instead of studying for an additional two hours for the economics final, Leann decides to watch a movie.Leann is making