Question 1

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

Accepted Answer

The cost of a trade-off is known as the opportunity cost, which refers to the value of the next best alternative foregone in making a decision. Therefore, the best choice is C.

Question 2

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):

Accepted Answer

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

Question 3

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):

Accepted Answer

An indirect incentive is a consequence that arises in response to a policy or action that may have unintended or unforeseen consequences. In this case, the availability of generous disability insurance can indirectly incentivize people to falsely claim to be disabled in order to receive benefits.

Question 4

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

Accepted Answer

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

Question 5

An opportunity cost:

Accepted Answer

An opportunity cost is the value of the next best alternative foregone in order to undertake a certain action or purchase something. This applies to all decisions made by individuals, businesses, and governments, not just those involving money or time. Therefore, choice (D) is the best answer.

Question 6

What is the opportunity cost of taking this exam?

Accepted Answer

Opportunity cost refers to the value of the next best alternative that is forgone. Therefore, the correct answer is the highest valued alternative that was given up to prepare for and attend the exam.

Question 7

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):

Accepted Answer

The tax deduction for home loan interest payments is an indirect incentive because it does not directly encourage people to buy homes, but it makes owning a home more financially attractive compared to renting. This can lead to more people choosing to own a home even if it may not be the best financial decision for them. Additionally, the unintended consequence of the tax deduction may be that it has encouraged too many people to own a home.

Question 8

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

Accepted Answer

Trade-offs refer to the alternatives that are given up when making a choice. Because resources are limited (scarcity), individuals, businesses, and governments must choose between different alternatives, and the choice usually involves sacrificing one thing for another. Therefore, economics is concerned with the study of trade-offs and how individuals, businesses, and governments make choices under conditions of scarcity.

Question 9

What is the indirect incentive in the unemployment insurance program?

Accepted Answer

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

Question 10

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

Accepted Answer

The health insurance company is directly incentivizing its policyholders by offering them a discount on premiums if they can demonstrate that they have stopped smoking. This is a clear and direct incentive for people to quit smoking, as it directly benefits them financially.

Question 11

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?

Accepted Answer

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

Question 12

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?

Accepted Answer

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

Question 13

The opportunity cost of a purchase is:

Accepted Answer

Opportunity cost is the next best alternative forgone when a choice is made. So, the correct answer is D, which mentions that the opportunity cost of a purchase is the alternative good or service that one sacrifices because a different good was purchased.

Question 14

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):

Accepted Answer

The refund for recycling a bag acts as a direct incentive because it directly rewards the behavior of recycling the bag.

Question 15

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?

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 is the most likely to pay for parking. This population values following the rules and avoiding potential consequences of not paying, such as receiving a ticket.

Question 16

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

Accepted Answer

Opportunity cost refers to the highest-valued alternative forfeited when a choice is made. Therefore, the best choice is the one that maximizes the value or benefit obtained and minimizes the opportunity cost. Choosing the highest-valued alternative ensures that the opportunity cost is minimized.

Question 17

Indirect incentives create:

Accepted Answer

Indirect incentives can lead to unintended consequences, as they may influence behavior in ways that were not initially anticipated. These consequences may be positive or negative, but they are indirect because they are not the intended result of the incentive.

Question 18

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:

Accepted Answer

By allowing fuel-efficient cars to use a separate highway lane, the government is providing an incentive for those who place a high value on their time to purchase fuel-efficient cars. These individuals may be more likely to prioritize arriving at their destination quickly and therefore be willing to pay more for a fuel-efficient car to take advantage of the speedier lane.

Question 19

An opportunity cost is the:

Accepted Answer

Opportunity cost is the cost of a purchase or decision as measured by what is given up. It is the value of the foregone alternative that could have been chosen instead. Option A and E are incorrect because opportunity cost is not necessarily the lowest price or cost. Option B is incorrect because it is not about the highest possible cost. Option C is incorrect because it refers to the monetary price paid for a good or service, which is not the same as opportunity cost.

Question 20

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

Accepted Answer

Rational decision-making under conditions of scarcity requires individuals to understand that trade-offs are necessary. This means that individuals must prioritize their wants and needs, recognize that they cannot have everything they want, and make choices that best satisfy their most important needs and wants. While financial considerations such as knowing prices and earning income may be factors in decision-making, they are not the sole determinants of rational decision-making.

Quiz 1: The Five Foundations of Economics