CHAPTER 1: Five Foundations of Economics
MULTIPLE CHOICE
1. In economics, choices are necessary because of the presence of
a. luxuries. d. scarcity.
b. inefficiency. e. incentives.
c. needs.
2. Economics is the study of
a. how to make money.
b. how to allocate resources to satisfy wants and needs.
c. capitalism.
d. how to make workers more productive and firms more profitable.
e. markets.
3. Thomas Malthus’s prediction of mass starvation failed to come true because of increases in
a. population. d. government involvement.
b. productivity. e. income.
c. temperature.
4. The basic goal of economics is to
a. control the effects of government action.
b. determine how to distribute all that is produced in an economy.
c. address the scarcity problem created because the population’s desire for goods exceeds the
ability to produce them.
d. match limited resources to people’s limited wants and needs.
e. control tastes and wishes so that there will be enough resources to produce all the goods and
services that people want.
5. An economist is an individual who would be LEAST able to answer which research question?
a. how much of a product is purchased at a specific price
b. how the tastes and preferences of consumers are determined
c. what firms decide to produce
d. how goods and services are distributed to the population
e. how firms decide to produce a good or service
6. The need to study economics would cease to exist if
a. the government stopped controlling people’s actions.
b. people were free to make decisions on their own.
c. people put forth the effort required to attain the goods and services they wanted.
d. people earned more than they spent.
e. there were enough resources to produce all the goods and services people would like to obtain.
7. As a discipline, economics is best described by which of the following?
a. the study of how to control the effects of government actions
b. the study of how to control the preferences of consumers so that there will be enough resources
to produce all the goods and services that consumers want
c. the study of how to use scarce resources to satisfy unlimited wants and needs
d. the study of how to dispose of excess goods and services that nobody wants
e. the study of how to maximize profits for firms
8. When Noah’s parent tells him not to study economics because it is a pointless discipline, why is he
or she INCORRECT?
a. The government continues to play a role in our daily lives.
b. People have the freedom to do whatever they want, and economists have nothing to add to
their decision-making process.
c. Economics is a tool used to understand what happens in a world where there are not enough
resources to produce all the goods and services that are wanted and needed.
d. Economics has nothing to offer in terms of understanding the stock market.
e. Economics has nothing to offer in terms of understanding government programs like Social
Security.
9. When consumers discard their gasoline-powered automobiles for electric-powered ones, this
partially reflects the ________ of gasoline.
a. scarcity d. specialization
b. luxury e. incentive
c. necessity
10. As a new firm in the apple-picking business, Nicolette has considered adding an economist to her
management team. This economist would be unable to help her managerial team determine
a. the lowest cost way of picking apples.
b. how many apples consumers will purchase at different prices.
c. why people eat apples.
d. the effect government regulations would have on the price of apples.
e. the lowest cost way of distributing apples.
11. A good is ________ if it takes even a small amount of time, energy, or money to acquire.
a. abundant d. scarce
b. in shortage e. virtually free
c. cheap
12. Because of scarcity
a. individuals and societies are allowed no choice about which wants and needs to satisfy.
b. individuals and societies must choose which wants and needs to satisfy.
c. all choices about wants and using resources must be made by the government.
d. choices can be made about which wants to satisfy, but not about which resources to use.
e. choices must be made about which resources to use, but not about which wants to satisfy.
13. Which of the following statements best represents the fact that Logan cannot put in extra hours of
work because of scarcity?
a. He doesn’t have enough time for additional work because he needs to spend time with his
family and there are only so many hours in the day.
b. He doesn’t like going to work, so why would he work more than he has to?
c. He doesn’t think that overtime pay is high enough.
d. He is worried that if he works extra hours, he will get bored with his job.
e. He doesn’t want his coworkers to feel pressure to work more because he is working additional
hours.
14. Which scenario describes studying for an economics course without applying the scarcity
principle?
a. Mary studies two hours for every one hour she is in the classroom.
b. Jonah studies three afternoons a week until he understands the material or until dinner,
whichever comes first.
c. Lucy studies with her roommate who is also taking the course, and they discuss economic
concepts during any free time they can find.
d. Chloe studies for this course and does nothing else.
e. Rafael talks to an economist whenever he has a chance to do so.
15. What is the strongest argument for why we need more economists today than ever before?
a. We have a need for more wealth given the higher standard of living that individuals demand.
b. Economists are needed to address the allocation of scarce resources as a result of the world’s
growing population.
c. Economists are needed to make sure that firms continue to make profits.
d. Economists are needed to make sure that consumers are well informed about their possible
purchase options and that they budget their finances appropriately.
e. Economists are needed to make sure that the government doesn’t involve itself too much in the
economy.
16. Macroeconomics is the study of
a. the economic motives of voters and elected officials.
b. individual decision-making units such as households and businesses.
c. how government purchases affect specific markets.
d. the operation of the economy as a whole.
e. the interaction between the government and businesses.
17. Which of the following is a macroeconomic question?
a. How many textbooks should be published by a publisher?
b. How much should English majors earn after college?
c. How do members of a household decide whether to clean their own houses or hire someone
else to do it?
d. What is the rate of unemployment?
e. What is the price of a new 40-inch television?
18. Microeconomics is the study of
a. how government activities affect the economy.
b. individual decision-making units.
c. collective decision making.
d. the operation of the economy as a whole.
e. the interaction between the government and businesses.
19. Microeconomics is the branch of economics that focuses on the
a. entire economy.
b. production side of the economy.
c. consumption side of the economy.
d. involvement of the government in the entire economy.
e. choices and decision making of individuals and firms.
20. Which of the following is a microeconomic question?
a. What are the total production levels in the economy?
b. How can we best encourage economic growth?
c. What is the overall price level in the economy?
d. What are the variables that determine the price of a specific good?
e. How can we reduce the unemployment rate among Hispanic men?
21. Which of the following is NOT a type of incentive?
a. positive d. indirect
b. negative e. direct
c. complementary
22. The patent system
a. acts as a direct positive incentive.
b. acts as a direct negative incentive.
c. acts as an indirect positive incentive.
d. acts as an indirect negative incentive.
e. does not provide an incentive.
23. On which of the following concepts do economists focus their study when explaining how humans
behave?
a. fairness d. incentives
b. money e. justice
c. emotions
24. Entrepreneurs are willing to take risks because
a. technology provides a way to sidestep the patent and copyright system.
b. the patent and copyright system provides an exclusive right to sell the product for a period of
time.
c. the patent and copyright system guarantees a certain level of profit.
d. technology always increases costs and prevents competitors from entering the market.
e. the patent and copyright system guarantees that the risks taken will be rewarded.
25. Public buildings in the United States are required to be accessible to the disabled and, as a result,
almost all have an elevator. What would be an example of a positive direct incentive for those who
can to use stairs?
a. Using the stairs will make it seem that they care about their health and that they aren’t lazy.
b. Using the stairs will increase the risk of tripping and falling.
c. Using the stairs will take more time than taking the elevator and will increase the risk of
missing an important meeting.
d. Using the stairs will give them some exercise and make them healthier.
e. Using the stairs will put elevator repair professionals out of work.
26. If the government wanted to give people a negative direct incentive not to save money, what would
be the appropriate policy?
a. providing individuals a subsidy to save their money
b. providing funding for an advertising campaign encouraging people to spend more money
c. informing individuals that saving money causes people not to spend money, which will cause
them to lose their jobs
d. imposing a tax on individuals for saving their money
e. informing consumers about all that they could buy with their money with the hope that they
spend more
27. An example of a direct negative incentive is
a. providing a commission for sales.
b. awarding a promotion for hard work.
c. threatening to fire those who do not perform well.
d. providing an orientation for new employees.
e. providing generous benefits and pay for employees.
28. An example of a direct positive incentive is
a. a prison sentence for committing a crime.
b. unemployment insurance for those who are laid off.
c. providing a workplace safety program.
d. providing a commission for sales.
e. threatening to fire those who do not perform well.
29. Actions and activities are encouraged with which type of incentive?
a. positive d. complementary
b. negative e. unintended
c. neutral
30. A parent that pays a child an allowance for doing chores is providing a(n) ________ incentive.
a. positive d. complementary
b. negative e. unintended
c. neutral
31. Economics professors are well aware of the importance of incentives. Which of the following
situations shows the use of a positive incentive?
a. Students who show up late to class will not be allowed in the classroom.
b. Students who do not have a doctor’s note will not be allowed to take an exam at a different
time.
c. Students can choose whether they want to attend class—there is no attendance policy.
d. Students can choose to get a higher grade by doing extra credit work.
e. The professor decides to teach the class by reading out of the textbook to the entire class.
32. A car insurance company is willing to offer accident-free drivers a discount. This is an example of
a. a positive incentive. d. a comparative advantage.
b. a negative incentive. e. scarcity.
c. an opportunity cost.
33. Many professors have a policy that punishes individuals if they don’t come to class. Instead of
punishing students who don’t attend class, what could the professor do to provide a positive
incentive to come to class?
a. Those who come to class are given extra points.
b. Those who do not come to class have their grades reduced.
c. Those who come to class will be asked questions, and if they answer them incorrectly, their
grades will be lowered.
d. Those who come to class will be ridiculed.
e. Those who do not come to class might be dropped from the course.
34. Actions and activities are discouraged with
a. positive incentives. d. indirect incentives.
b. negative incentives. e. unintended consequences.
c. direct incentives.
35. A camera takes pictures of drivers who do not stop at a red light, and this practice is used to issue
traffic tickets. These red light cameras can be understood as serving a(n)
a. positive incentive to encourage individuals to stop at a red light.
b. negative incentive to discourage individuals from driving through a red light.
c. indirect incentive to encourage individuals to stop at a red light.
d. direct incentive to encourage individuals to stop at a red light.
e. negative incentive to encourage individuals to drive through a red light.
36. The government places warnings on cigarette and liquor packages. These warnings serve as a(n)
a. positive incentive.
b. negative incentive.
c. indirect incentive.
d. opportunity cost.
e. way to make cigarettes and liquor more scarce.
37. When a ticket is given to a pedestrian for jaywalking, what type of incentive exists?
a. positive d. complementary
b. negative e. unintended
c. neutral
38. Google has started a project to scan all books and make those that are not copyrighted available to
people free of charge. Why is it important that only books without a copyright are available?
a. If all books were scanned and available free of charge, copyright holders would face a
positive incentive to continue writing and publishing books.
b. If all books were scanned and available free of charge, copyright holders would face a negative
incentive to continue writing and publishing books.
c. If only copyrighted texts were scanned and available free of charge, copyright holders would
face an indirect incentive to continue writing and publishing books.
d. If only non-copyrighted books were scanned and available free of charge, copyright holders
would face a negative incentive to continue writing and publishing books.
e. If only non-copyrighted books were scanned and available free of charge, copyright holders
would face an indirect incentive to continue writing and publishing books.
39. The U.S. federal government offers homeowners a tax deduction for their home loan interest
payments. This reduction in taxes serves as a(n) ________ incentive to buy a house.
a. direct d. complementary
b. indirect e. unintended
c. neutral
40. 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. What kind of incentive is this fee?
a. direct d. complementary
b. indirect e. unintended
c. neutral
41. 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 someone recycles the bag,
the refund acts as a(n) ________ incentive.
a. direct d. complementary
b. indirect e. unintended
c. neutral
42. If Alexander doesn’t 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. direct d. complementary
b. indirect e. unintended
c. neutral
43. 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. direct d. complementary
b. indirect e. unintended
c. neutral
44. Indirect incentives create ________ consequences.
a. positive d. direct
b. negative e. unintended
c. indirect
45. 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.
46. 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.
47. 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 d. complementary
b. indirect e. unintended
c. neutral
48. 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. d. innovation.
b. indirect incentive. e. marginal cost.
c. positive incentive.
49. 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.
50. 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 don’t 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 don’t 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 don’t pay for parking
e. those that are unwilling to take risks, believe there is a high chance that they will be caught if
they don’t pay for parking, and place a high value on doing the “right” thing
51. 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 don’t 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
don’t 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 don’t 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 don’t pay their fare, and place a low value on doing the right thing
52. 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.
53. 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.
54. 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
55. 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.
56. The cost of a trade-off is known as the ________ cost of that decision.
a. marginal d. comparative
b. net e. explicit
c. opportunity
57. Opportunity cost is the ________ alternative forfeited when a choice is made.
a. least-valued d. most convenient
b. highest-valued e. first
c. most recently considered
58. 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.
59. 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.
60. 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.
61. 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 maker’s value judgments about the relative importance of the
alternatives.
62. 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.
63. 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
wouldn’t 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 doesn’t have time to rake leaves.
c. Her neighbor is getting revenge on her because Nicole didn’t 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.
64. 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.
65. 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.
66. 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 CEO’s time is quite high because they have an abundance of time to
spend on housework.
b. The opportunity cost of a CEO’s time is quite low because they have a scarcity of time to
spend on housework.
c. The opportunity cost of a CEO’s time is quite low because they have an abundance of time to
spend on housework.
d. The opportunity cost of a CEO’s time is quite high because they have a scarcity of time to
spend on housework.
e. The opportunity cost of a CEO’s time is equal to that of everyone else that works at the same
company.
67. The opportunity cost of going to school rather than working is the cost of
a. food. d. health care.
b. housing. e. potential wages.
c. clothing.
68. 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.
69. When Lucy chose a major, she likely thought about her skills. Let’s say Lucy doesn’t 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.
70. 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.
71. 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 aren’t spending enough money; removing the penny will
force people to spend more.
72. 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 won’t grow as quickly because less is being spent.
73. According to economists, one reason few professional athletes have PhD’s 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.
74. Economists believe that individuals compare the benefits and costs of various options when
making decisions and in so doing act
a. fairly. d. unpredictably.
b. selfishly. e. rationally.
c. collectively.
75. The term ________ means “additional.”
a. marginal d. opportunity cost
b. comparative e. trade-off
c. incentive
76. 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.
77. An activity’s marginal benefit is ________ at the optimal quantity.
a. zero d. equal to the marginal cost
b. greater than zero e. greater than the marginal cost
c. less than zero
78. 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.
79. 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.
80. 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.
81. 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.
82. 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.
83. Who benefits from voluntary trade?
a. buyers d. buyers and sellers
b. sellers e. buyers and the government
c. the government
84. What creates comparative advantage?
a. lower costs d. scarcity
b. higher opportunity costs e. population growth
c. specialization
85. 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.
86. The opportunity cost to free trade is
a. economic growth. d. lower prices.
b. government involvement. e. greater efficiency.
c. domestic jobs.
87. A person has a comparative advantage in the production of a good when she or he can
produce the product at a(n) ________ opportunity cost compared to another person.
a. higher d. diminishing
b. lower e. increasing
c. equal
88. When trade is voluntary, who benefits?
a. the seller d. both the buyer and the seller
b. the buyer e. Trade is never voluntary.
c. No one benefits.
89. More oranges are grown in Florida than North Dakota because Florida’s warm climate gives it a
________ advantage in growing oranges.
a. comparative d. producer
b. public e. planning
c. revenue
90. 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.
91. 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.
92. According to economic thinking, the presence of scarcity requires
a. incentives. d. a dismal outlook.
b. choices. e. unintended consequences.
c. intelligence.