Q&A Hero

Q: Without scarcity, the study of ________ would be unnecessary.a. positive incentives b. negative incentives c. resource allocationd. economicse. productivity

Q: An economist is most capable of determining a. how worker productivity affects the output of an economy. b. psychological factors that contribute to worker productivity. c. interior paint colors that boost business revenue. d. which individuals are allowed to make decisions. e. why some consumers prefer emeralds over diamonds.

Q: The allocation of limited resources within an environment of almost unlimited wants is the focus ofa. capitalism. b. fiscal policy. c. economics.d. scarcity.e. altruism.

Q: According to economic thinking, the presence of scarcity requiresa. incentives. b. choices. c. intelligence.d. a dismal outlook.e. unintended consequences.

Q: Saudi Arabia has a comparative advantage in producing oil because it a. has specialized in the production of oil given its natural resources. b. has forced other countries not to sell their oil. c. has specialized in the production of all goods. d. forces the use of oil for the production of all electricity. e. benefits from the heavy use of oil for transportation.

Q: The United States is able to experience economic growth to the extent that a. specialization and trade are encouraged. b. the government involves itself in the economy. c. trade is restricted. d. jobs are protected from outsourcing. e. consumers are encouraged to buy domestically produced goods.

Q: More oranges are grown in Florida than North Dakota because Floridas warm climate gives it a ________ advantage in growing oranges.a. comparative b. public c. revenued. producere. planning

Q: When trade is voluntary, who benefits?a. the seller b. the buyerc. No one benefits.d. both the buyer and the seller e. Trade is never voluntary.

Q: A person has a comparative advantage in the production of a good when she or he canproduce the product at a(n) ________ opportunity cost compared to another person.a. higher b. lower c. equald. diminishinge. increasing

Q: The opportunity cost to free trade isa. economic growth. b. government involvement. c. domestic jobs.d. lower prices.e. greater efficiency.

Q: Comparative advantage emerges because of the presence of a. trade. b. differing opportunity costs. c. marginal benefits that equal marginal costs. d. scarcity. e. incentives.

Q: What creates comparative advantage?a. lower costsb. higher opportunity costs c. specializationd. scarcitye. population growth

Q: Who benefits from voluntary trade?a. buyers b. sellers c. the governmentd. buyers and sellerse. buyers and the government

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Q: In 2009, the federal government created a program called Cash for Clunkers whereby consumers could trade in a less efficient car for a more efficient car and receive a higher value than they would have otherwise. How would an economist understand the decision that consumers faced? a. Consumers would compare the marginal benefits to the marginal costs of replacing their cars, and this program made sure that marginal benefits would exceed marginal costs. b. Consumers would compare the marginal benefits to the marginal costs of replacing their cars, and this program made sure that marginal costs would exceed marginal benefits. c. The Cash for Clunkers program increased the opportunity cost of replacing a car. d. The Cash for Clunkers program served as a negative incentive to replacing a fuel-inefficient car. e. The Cash for Clunkers program served as an indirect incentive to replacing a fuel-inefficient car.

Q: 24. Distinguish between a direct incentive and an indirect incentive.

Q: Many stores are open 24 hours a day. When store managers make the decision to stay open 24 hours, it must be the case that a. the marginal benefit of staying open all day and the marginal cost to remaining open all day are at least equal. b. the marginal benefit of staying open all day must always be greater than the marginal cost to remaining open all day. c. the marginal cost of staying open all day must always be greater than the marginal benefit to remaining open all day. d. the calculation of marginal benefits or marginal costs of remaining open all day plays no role. e. the marginal benefit of remaining open all day is zero.

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Q: Instead of deciding to finish high school, Cecily could have decided to work full-time. How would an economist explain her decision to receive her high school degree? a. The cost of going to high school was greater than the benefit of working full-time. b. The benefit of working full-time was greater than the benefit of going to high school. c. The benefit of going to high school was greater than the benefit of working full-time. d. The cost of working full-time was greater than the benefit of going to high school. e. The benefit of working full-time was greater than the cost of going to high school.

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Q: One way to promote a new business is to offer free items. If Jayleen were to open a restaurant and offer free food, she likely would have a line out the door. How would an economist understand the behavior of those standing in line? a. Those waiting in line place a high value on the use of their time. b. Those waiting in line believe that the marginal cost of waiting in line exceeds the marginal benefit of waiting in line. c. Those waiting in line place a low value on the use of their time. d. Those waiting in line believe that the marginal cost of waiting in line is zero. e. Those waiting in line believe that the marginal benefit of waiting in line is zero.

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Q: When most economists wake up in the morning, their first decision is whether to hit the snooze bar on the alarm clock. What statement best represents their thought process as rational decision makers? a. Sal had a really late night grading exams, and he deserves 10 more minutes of sleep. b. The total amount of work Sal has to do today is rather small, so the total benefit to going to work for a full eight hours is also small. c. The total amount of work Sal has to do today is rather small, so the marginal cost of going to work 10 minutes late is small. d. The total amount of work Sal has to do today is rather small, so the marginal benefit of sleeping 10 more minutes is rather large. e. The marginal benefit of sleeping 10 more minutes is greater than the marginal benefit of 10 more minutes of work.

Q: 20. Explain why every decision requires some sort of trade-off.

Q: An activitys marginal benefit is ________ at the optimal quantity.a. zero b. greater than zero c. less than zerod. equal to the marginal coste. greater than the marginal cost

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Q: Economists believe that optimal decisions are made up to the point where a. marginal benefit is zero. b. marginal cost is zero. c. marginal benefits are greater than marginal costs. d. marginal costs are greater than marginal benefits. e. marginal benefits are equal to marginal costs.

Q: 18. It can be said that voluntary trade will not occur unless all parties involved believe that they will be better off after trading than they were before. Considering that the supply of goods and services does not change in trade and only changes hands, how is it possible that each party improves? Shouldnt one party benefit at the expense of another?

Q: The term ________ means additional.a. marginal b. comparative c. incentived. opportunity coste. trade-off

Q: 17. Many car insurance companies offer discounts for safe drivers. The promise is lower premiums or a reduction in deductibles for customers that remain accident-free for a specified period of time. The discounts are not without a cost, however. Policyholders must pay an additional premium (periodic fee paid for insurance coverage) in order to participate in the program. Understanding opportunity cost, explain how safe-driver programs might be beneficial for some customers but not others.

Q: Economists believe that individuals compare the benefits and costs of various options when making decisions and in so doing acta. fairly. b. selfishly. c. collectively.d. unpredictably.e. rationally.

Q: 16. When the Federal Reserve, the entity that manages money and banking in the United States, announces changes in the supply of money it makes available to banks, it often causes a significant response in financial markets. Based on an understanding of incentives, why is this not surprising?

Q: According to economists, one reason few professional athletes have PhDs is that the a. opportunity cost of going to graduate school is too high. b. marginal benefit of going to graduate school is too high. c. marginal cost of going to graduate school is too high. d. comparative cost of going to graduate school is too high. e. explicit cost of going to graduate school would be too high.

Q: 15. Explain how a market might develop naturally without planning by government.

Q: The government has been trying to mint dollar coins instead of printing paper dollar bills, but people have been reluctant to use coins instead of paper bills. How would an economist explain this reluctance? a. More people are using credit and debit cards, so people are not accustomed to using change. b. Retailers find it too expensive to deal with coins and would have to raise their prices if consumers used coins more. c. The opportunity cost of carrying around large quantities of coins is too large. d. Prices have increased over time, and the opportunity cost of carrying around a large number of coins would be low. e. People who receive a dollar coin are more likely to collect than spend the money, and the economy wont grow as quickly because less is being spent.

Q: 14. If opportunity cost is the value of the best alternative not chosen, why is a rejected option important?

Q: The government has been considering doing away with minting pennies because they are rarely used for purchases (with most people collecting them or throwing them away). How would an economist best explain this consumer behavior? a. More people are using credit and debit cards, so they are not in the habit of using monetary change. b. Prices have increased over time, and it would take far too many pennies to buy anything of value. c. Prices have increased over time, and the opportunity cost of carrying around large quantities of pennies has become too large. d. Prices have increased over time, and the opportunity cost of carrying around pennies has fallen. e. People who use pennies probably arent spending enough money; removing the penny will force people to spend more.

Q: 13. Economics is divided into two subfields: microeconomics and macroeconomics. Why is this separation necessary?

Q: Restaurants, bars, and convenience stores are often located near college campuses. These businesses frequently charge higher than normal prices. They are taking advantage of the fact that students a. are able to pay higher prices than the rest of the population, so the businesses can charge higher prices than they otherwise would have been able to charge. b. are unable to pay higher prices than the rest of the population, but they are able to succeed because they can sell to a large number of people. c. place a high value on their scarce time and are willing to pay higher prices than they would at locations farther from campus. d. place a low value on their scarce time and are willing to pay higher prices than they would at locations farther from campus. e. place a high value on their scarce time and are unwilling to pay higher prices.

Q: 12. Explain how abundant resources such as water can be considered scarce.

Q: When Lucy chose a major, she likely thought about her skills. Lets say Lucy doesnt enjoy dealing with numbers. How could she explain to her parents, using logic from economics, why she chose to major in English instead of mathematics? a. The opportunity cost of learning mathematics is too high. b. The opportunity cost of learning to appreciate literature is too high. c. The expected value of a major in English after graduation is low. d. The expected value of a major in mathematics after graduation is high. e. The opportunity cost of going to college is too low.

Q: 11. Explain why economics is not such a dismal science.

Q: The opportunity cost of working rather than going to school is a. the cost of food and housing. b. the cost of clothing and transportation. c. zero because the person is earning an income by working. d. the higher wages that come with additional education. e. the annual wages earned by working.

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Q: The opportunity cost of going to school rather than working is the cost ofa. food. b. housing. .c. clothing.d. health care.e. potential wages

Q: 9. One of the first major decisions that one faces after graduation is getting an apartment. Describe how someone might employ the concepts of trade-offs, opportunity costs, and making decisions at the margin in deciding which apartment to rent.

Q: Why would economists find it surprising if the CEO of a large company does his or her own housework? a. The opportunity cost of a CEOs time is quite high because they have an abundance of time to spend on housework. b. The opportunity cost of a CEOs time is quite low because they have a scarcity of time to spend on housework. c. The opportunity cost of a CEOs time is quite low because they have an abundance of time to spend on housework. d. The opportunity cost of a CEOs time is quite high because they have a scarcity of time to spend on housework. e. The opportunity cost of a CEOs time is equal to that of everyone else that works at the same company.

Q: 8. What are opportunity costs, and why do economists spend so much time talking about them?

Q: The opportunity cost for Jeremiah of going to a water park is a. the price of the admission pass. b. zero, if he can go with his parents who will pay. c. zero, if it is raining that day and the water park is closed. d. the price of the admission pass plus the highest valued alternative activity Jeremiah could have done instead. e. the highest valued alternative activity Jeremiah could have done instead.

Q: 7. Due to the fact that firms concern themselves primarily with earning profits, a common complaint is that they often damage the environment in the process. More recently, markets have been set up so that firms can actually reduce their costs and profit more by damaging the environment less and selling their right to pollute to other companies. Discuss how this serves as a positive incentive for a firm to act in an environmentally responsible manner. What would be a way to discourage firms from polluting through the use of negative incentives?

Q: Instead of taking an economics course, Adam could have taken a history course that meets at the exact same time. The total cost of taking the economics course would be a. the tuition cost for the economics course. b. the fact that Adam could not take the history course at the same time. c. the tuition cost for the economics course plus the price of the textbook and a notebook for the economics course. d. the tuition cost, the cost of the textbook and notebook, and the fact that Adam could not take the history course at the same time. e. the price of the textbook and a notebook for the economics course.

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Q: Nicole asked her neighbor to rake the leaves on his lawn because they were blowing into her yard. It takes an hour to rake the yard, regardless of who performs the task. He responded that it wouldnt be rational for him to do so, but he would be willing to hire someone else to rake. Why would this be the case? a. Her neighbor lacks the equipment to rake leaves and thinks it would take too long to do the job. b. Her neighbor is a busy person and doesnt have time to rake leaves. c. Her neighbor is getting revenge on her because Nicole didnt rake the leaves on her lawn last year. d. Her neighbor is a lawyer who values his time at $200 an hour and knows that he can hire a high school kid to rake leaves for $20 an hour. e. Her neighbor is a high school teacher and values his time at $15 an hour, and he knows that he can hire one of his students to rake leaves for $20 an hour.

Q: 5. The discipline of economics is largely based on encouraging individuals to engage in certain activities and discouraging them from engaging in others. Why is encouraging or discouraging individuals through incentives so important?

Q: How are changes in opportunity cost related to decision-making behavior? a. The lower the opportunity cost of doing activity X, the more likely activity X will be done. b. The higher the opportunity cost of doing activity X, the more likely activity X will be done. c. Changes in the opportunity cost play no role in decision making. d. The lower the opportunity cost of doing activity Y, the more likely activity X will be done. e. The higher the opportunity cost of doing activity Y, the less likely activity X will be done.

Q: 4. Economic growth in developed countries has been altered by the increased popularity of the Internet. How has the Internet, in terms of both negative and positive incentives, promoted but also discouraged economic growth?

Q: The trade-offs that are made because of scarcity a. are important in developing economies, but they do not apply to developed economies. b. are important in developed economies, but they do not apply to developing economies. c. are different when they involve the wants of people, but they are similar when they involve the needs of people. d. can be accurately made to the extent that they can be quantified. e. depend on the decision makers value judgments about the relative importance of the alternatives.

Q: 3. Health insurance companies have the goal of reducing payments to doctors and hospitals. One way they have done this is by requiring individuals to pay a deductible. For example, a $1,000 deductible means that individuals are responsible for the first $1,000 in health care expenses over the course of a year. In terms of incentives, explain how the presence of a deductible reduces expenses for the health insurance company

Q: An opportunity cost a. can be measured only when the decision involves expenditures of money. b. can be measured only when the decision involves spending time on one thing and not on another. c. is impossible to measure. d. is equal to the value of what is given up to make a purchase or take an action. e. exists for every decision made by individuals and businesses, but not by the government.

Q: 2. Using any of the five foundations of economic thought, explain why farms are not located in major metropolitan areas.

Q: The opportunity cost of a purchase is a. zero if the item is what someone wants most. b. always equal to the selling price of what someone purchased. c. always greater for people who are out of work than for people who are working. d. the alternative good or service that one sacrifices because a different good was purchased. e. the lowest possible price.

Q: An opportunity cost is the a. lowest possible cost. b. highest possible cost. c. monetary price paid for a good or service. d. cost of a purchase or decision as measured by what is given up. e. cost of finding the lowest price for a product.

Q: SHORT ANSWER1. List and briefly explain each of the five foundations of economic thought.

Q: Opportunity cost is the ________ alternative forfeited when a choice is made.a. least-valued b. highest-valued c. most recently consideredd. most conveniente. first

Q: The two highest paid midcareer jobs with only a bachelors degree area. business management and accounting.b. criminal justice and psychology.c. civil engineering and math.d. economics and computer engineering.e. economics and business management.

Q: The cost of a trade-off is known as the ________ cost of that decision.a. marginal b. net c. opportunityd. comparativee. explicit

Q: Kelly is an architect, and she is trying to decide whether to hire Lawrence, a draftsman, to assist with her work. Kelly could hire Lawrence 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? a. Kelly should not hire Lawrence because it would be faster for her to do the work herself. b. Kelly should do the drafting work herself because she has the lower opportunity cost. c. Lawrence should be hired at the $20 per hour wage rate. d. Lawrence should be hired, but only if he is paid more than $30 per hour. e. Kelly should hire someone who earns minimum wage instead of Lawrence.

Q: What is the opportunity cost of taking an exam? a. all of the things that someone could have done by not studying b. each of the questions that someone misses on the exam c. the highest valued alternative that someone gave up to prepare for and attend the exam d. the money someone spent purchasing the textbook and the other materials with which he or she studies e. the money someone spent on tuition

Q: Economics is concerned with the trade-offs that emerge because of scarcity. The term trade-offs refers to a. the decision about whether households or businesses should bear the entire burden of the scarcity problem. b. the buying and selling that occur as unwanted goods are exchanged for goods that are desired. c. the alternatives given up when making choices. d. recycling and transforming old goods into new goods to reduce scarcity problems. e. forcing businesses to produce some goods and services and not others.

Q: Rational decision making under conditions of scarcity requires individuals to a. place a monetary value on everything. b. know the prices of all goods they might buy. c. be alert to price reductions on desired products. d. understand that trade-offs are necessary. e. earn as much income as possible.

Q: 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? a. a population that is willing to take risks and whose people believe that they will not be caught if they dont pay their fare b. a population that places a high opportunity cost on taking time to purchase a ticket c. a population whose people are willing to take risks, believe that they will not be caught if they dont pay their fare, and treat fines for not paying a fare as a nuisance d. a population that is unwilling to take risks and whose people believe there is a high chance that they will be caught if they dont pay their fare e. a population whose people are unwilling to take risks, believe there is a high chance that they will not be caught if they dont pay their fare, and place a low value on doing the right thing

Q: 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? a. those that are willing to take risks and believe that they will not be caught if they dont place change in the meter b. those that place a high opportunity cost on making sure they have change and placing change in the meter c. those that are willing to take risks, believe that they will not be caught if they dont place change in the meter, and disregard any possible $5 ticket for parking illegally d. those that are unwilling to take risks and believe there is a high chance that they will not be caught if they dont pay for parking e. those that are unwilling to take risks, believe there is a high chance that they will be caught if they dont pay for parking, and place a high value on doing the right thing

Q: 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 a. those who place a high value on their scarce time may be encouraged to buy a fuel-efficient car to take advantage of the separate highway lane. b. those who place a low value on their scarce time may be encouraged to buy a fuel-efficient car to take advantage of the separate highway lane. c. those who are more concerned about the environment are also those who happen to place a high value on their time. d. those who purchase a fuel-efficient car are forced to pay more for a new car, and the use of the separate highway lane compensates them for this. e. those who purchase a fuel-efficient car are likely to be unhappy because it is less powerful or more cramped inside; use of the separate highway lane compensates them for this.

Q: Although 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)a. direct incentive. b. indirect incentive. c. positive incentive.d. innovation.e. marginal cost.

Q: 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 homes. If the tax deduction caused people who otherwise would have rented to own, the tax deduction serves as a(n) ________ incentive.a. direct b. indirect c. neutrald. complementarye. unintended

Q: What is the indirect incentive in the unemployment insurance program? a. Workers get paid when they are laid off. b. Workers face an incentive to find a new job as quickly as possible. c. Workers have a reduced incentive to find a new job until the insurance runs out. d. Workers are paid all of their wages by the unemployment insurance program. e. Workers on unemployment insurance are given training opportunities.

Q: The government controls for some indirect incentives in safety net social programs by a. limiting payment to a specified time period. b. providing only a partial payment. c. allowing individuals to apply to only a certain number of safety net social programs. d. requiring individuals to repay the benefits they received. e. establishing income limits for those who apply for safety net social programs.

Q: Indirect incentives create ________ consequences.a. positive b. negative c. indirectd. directe. unintended

Q: 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?a. directb. indirect c. neutrald. complementarye. unintended

Q: If Alexander doesnt like changing the oil in his car and pays his father to do it for him, he has provided his father with a(n) ________ incentive.a. directb. indirect c. neutrald. complementarye. unintended