34) The term human capital refers to
A) labor resources used to make capital equipment.
B) buildings and machinery.
C) people’s knowledge and skill.
D) entrepreneurship and risk-taking.
35) Human capital is
A) all capital owned by individuals, but not by corporations or governments.
B) all capital owned by individuals or corporations, but not by governments.
C) machinery that meets or exceeds federal safety standards for use by humans.
D) the skill and knowledge of workers.
36) Joy is training to become a chef. The skills she is obtaining from her training and education
will increase Joy’s ________.
A) human capital
B) physical capital
C) entrepreneurship
D) None of the above answers are correct.
37) Which of the following is NOT an investment in human capital?
A) A business student takes a seminar in using a laptop computer.
B) A student purchases a laptop computer.
C) A computer science student learns how to repair a laptop computer.
D) A computer science student takes a course on programming a laptop computer.
38) Samantha goes to college to become an engineer. This is an example of an
A) investment in physical capital.
B) investment in human capital.
C) increase in entrepreneurship.
D) increase in labor.
39) In economics, the term “capital” refers to
A) the money in one’s pocket.
B) buildings and equipment.
C) mineral resources.
D) consumer goods.
40) Human resources that perform the functions of organizing, managing, and assembling the
other resources are called
A) physical capital.
B) venture capital.
C) entrepreneurship.
D) productive capital.
41) The economic resource that organizes the use of other economic resources is called
A) labor.
B) capital.
C) entrepreneurship.
D) land.
42) Entrepreneurs do all of the following EXCEPT
A) organize labor, land, and capital.
B) come up with new ideas about what and how to produce.
C) bear risk from business decisions.
D) own all the other resources used in the production process.
43) Entrepreneurs directly do all of the following EXCEPT
A) create new ideas about what and how to produce.
B) make business decisions.
C) face risks that arise from making business decisions.
D) decide for whom goods and services are produced.
44) Differences in income are most directly related to which of the following economic
question?
A) What goods and services are produced?
B) In what quantities are various goods and services produced?
C) How are goods and services produced?
D) Who consumes the goods and services that are produced?
45) The fact that some people can afford to live in beautiful homes while others are homeless, is
most directly an example of an economy facing the ________ part of one of the two big
economic questions.
A) “for whom”
B) “when”
C) “how”
D) “why”
46) The fact that a rock star earns $5 million a year while a teacher earns $25,000 annually is
most directly an example of an economy answering the ________ part of one of the two big
economic questions.
A) “when”
B) “for whom”
C) “how”
D) “why”
47) One economist says that raising taxes on gas would be in the social interest. What does this
economist mean?
A) Higher taxes on gas would benefit society as a whole.
B) Raising taxes on gas would benefit most of the people.
C) Higher taxes on gas would benefit everyone.
D) Both answers A and C are correct.
48) An outcome is considered efficient if
A) it is not possible to make someone better off without making anyone else worse off.
B) it is the best available choice for an individual.
C) it results in fair shares for everyone involved.
D) it is possible to make someone better off without making anyone else worse off.
49) Suppose Company A’s profits increase by $10 million and nobody is made worse off. The
CEO of Company A keeps all $10 million for herself. This situation
A) is definitely efficient.
B) is definitely not in the self-interest of Company A.
C) is definitely not in the social interest.
D) is definitely fair.
50) The Occupy Wall Street movement advocates
A) a shift away from market capitalism.
B) a shift towards more market capitalism.
C) centrally planned socialism.
D) following the teachings of Adam Smith.
51) An economic system in which the government decides what, how, and for whom to produce,
directs workers to jobs, and owns all the land and capital is
A) centrally planned socialism.
B) market capitalism.
C) mixed economy.
D) supported by economists as the best system available.
52) According to Adam Smith
A) government intervention in markets is not desirable because an invisible hand leads decisions
made in pursuit of self-interest to unintentionally promote the social interest.
B) politicians are well-equipped to regulate corporations and intervene in markets to improve
market outcomes.
C) when big corporations pursue their self-interest of maximum profit, they will inevitably
conflict with social interest.
D) in a market transaction buyers can either get what they want for less than they would be
willing to pay or sellers can earn a profit, but both buyers and sellers can’t gain simultaneously.
53) The 2010 Patient Protection and Affordable Care Act (Obamacare) contains a provision that
may require individuals to either purchase private health insurance or pay a tax. This is an
example of
A) a mixed economy.
B) market capitalism.
C) centrally planned socialism.
D) the invisible hand.
54) According to economists
A) market capitalism is the best system available and some government intervention and
regulation can either help or harm the social interest.
B) market capitalism is the best system available and any government intervention and
regulation will inevitably harm the social interest.
C) centrally planned socialism is the best system available since governments generally make
decisions that are in social interest.
D) centrally planned socialism and pure market capitalism are equally capable of promoting
social interest, but a mixed economy is an undesirable compromise between the two that will
harm social interest.
55) Which of the following is NOT part of the first big economic question?
A) What goods and services are produced?
B) How are goods and services produced?
C) For whom are goods and services produced?
D) Why do incentives affect only marginal costs?
3 The Economic Way of Thinking
1) In economics we learn that
A) tradeoffs allow us to have more of everything we value.
B) tradeoffs allow us to avoid the problem of opportunity cost.
C) opportunity costs are all of the possible alternatives given up when we make a choice.
D) None of the above answers is correct.
2) Because we face scarcity, every choice involves
A) money.
B) the question “what.”
C) giving up something for nothing.
D) an opportunity cost.
3) The term used to emphasize that making choices in the face of scarcity involves a cost is
A) substitution cost.
B) opportunity cost.
C) utility cost.
D) accounting cost.
4) The loss of the highest-valued alternative defines the concept of
A) marginal benefit.
B) scarcity.
C) entrepreneurship.
D) opportunity cost.
5) Opportunity cost means the
A) accounting cost minus the marginal cost.
B) highest-valued alternative forgone.
C) accounting cost minus the marginal benefit.
D) monetary costs of an activity.
6) The opportunity cost of any action is
A) all the possible alternatives given up.
B) the highest-valued alternative given up.
C) the benefit from the action minus the cost of the action.
D) the dollars the action cost.
7) The opportunity cost of something you decide to get is
A) all the possible alternatives that you give up to get it.
B) the highest valued alternative you give up to get it.
C) the value of the item minus the cost you paid for it.
D) the amount of money you pay to get it.
8) Opportunity cost is best defined as
A) how much money is paid for something.
B) how much money is paid for something, taking inflation into account.
C) the highest-valued alternative that is given up to get something.
D) all the alternatives that are given up to get something.
9) Which of the following statements are CORRECT?
I. The “highest-valued alternative given up to get something” is the opportunity cost.
II. Wealthy economies don’t experience opportunity costs.
III. Scarcity creates opportunity costs.
A) I only
B) I and II
C) I and III
D) I, II, and III
10) Opportunity cost is defined as the
A) total value of all the alternatives given up.
B) highest-valued alternative given up.
C) cost of not doing all of the things you would like to do.
D) lowest-valued alternative given up.
11) You have the choice of going on vacation to Florida for one week, staying at work for the
week, or spending the week doing fix-up projects around your house. If you decide to go to
Florida, the opportunity cost of the trip is
A) working and doing fix-up projects.
B) working or doing fix-up projects, depending on which you would have done otherwise.
C) working, because you would be giving up income.
D) nothing because you will enjoy the trip to Florida.
12) The night before a midterm exam, you decide to go to the movies instead of studying for the
exam. You score 60 percent on your exam. If you had studied the night before, you’d have scored
70 percent. What was the opportunity cost of your evening at the movies?
A) 10 percent off your grade
B) 60 percent
C) 70 percent
D) zero
13) On Saturday morning, you rank your choices for activities in the following order: go to the
library, work out at the gym, have breakfast with friends, and sleep late. Suppose you decide to
go to the library. Your opportunity cost is
A) working out at the gym, having breakfast with friends, and sleeping late.
B) working out at the gym.
C) zero because you do not have to pay money to use the library.
D) not clear because not enough information is given.
14) Fred and Ann are both given free tickets to see a movie. Both decide to see the same movie.
We know that
A) both bear an opportunity cost of seeing the movie because they could have done other things
instead of seeing the movie.
B) both bear the same opportunity cost of seeing the movie because they are doing the same
thing.
C) it is not possible to calculate the opportunity cost of seeing the movie because the tickets were
free.
D) the opportunity cost of seeing the movie is zero because the tickets were free.
15) You have the choice of going to Hawaii for a week, staying at work for the week, or
spending the week skiing. If you decide to go to Hawaii, the opportunity cost is
A) the value of working and skiing.
B) the value of working or skiing, depending on which you would have done rather than go to
Hawaii.
C) working, because you would be giving up a week’s pay.
D) none of the above if you enjoy the time spent in Hawaii.
16) Today, Julie attended her 12:30 Economics class. If she hadn’t gone to class, Julie would
have gone out to lunch with friends. She had other options; she could have worked or slept in.
Julie’s opportunity cost of going to class is the
A) income from working she gave up.
B) lunch she gave up.
C) sleep she gave up.
D) income from working, lunch, and sleep she gave up.
17) Joe likes to sleep late in the mornings and play tennis in the afternoons. The opportunity cost
of Joe attending his morning class for one hour is
A) an hour of tennis given up.
B) an hour of sleep given up.
C) both the tennis given up and the sleep given up.
D) nothing because he is paying for his class.
18) John has two hours of free time this evening. He ranked his alternatives, first go to a concert,
second go to a movie, third study for an economics exam, and fourth answer his e-mail. What is
the opportunity cost of attending the concert for John?
A) attending a movie
B) studying for an economics exam
C) answering his e-mail
D) attending a movie, studying for an economics exam, and answering his e-mail
19) You decide to take a vacation and the trip costs you $2,000. While you are on vacation, you
do not go to work where you could have earned $750. In terms of dollars, the opportunity cost of
the vacation is
A) $2,000.
B) $750.
C) $2,750.
D) $1,250
20) The opportunity cost of attending college includes the cost of
A) the tuition but not the job at which you would otherwise have worked.
B) the highest valued alternative to attending college.
C) the highest valued alternative to attending college plus the cost of tuition.
D) tuition, books, and the lost wages for the hours spent studying.
21) Misty has the option of purchasing one of three products: Brand A, Brand B, or Brand C.
Each costs ten dollars. If she decides that Brand A meets her needs best, then the opportunity
cost of this decision is
A) Brand B plus Brand C.
B) twenty dollars.
C) Brand A.
D) Brand B or Brand C, depending on which is considered the highest-value alternative forgone.
22) Which of the following is NOT an example of an opportunity cost?
A) By spending Thursday night studying for an economics exam, a student was unable to
complete a homework assignment for calculus class.
B) Because David used all of his vacation time to paint his house, he was unable to visit the
Caribbean last year.
C) Because Mary is now being paid a higher wage, she can afford to buy a new car even though
she is moving into a bigger apartment.
D) By choosing to attend college, Jean was not able to continue working as an electrician; as a
result, she gave up more than $85,000 in earnings while she was in college.
23) From 8 to 11 p.m., Sam can either attend a basketball game, a hockey match or the
symphony. Suppose that Sam decides to attend the hockey match and thinks to herself that if she
did not go to the match she would go to the symphony. Then the opportunity cost of attending
the hockey match is
A) going to the symphony and the basketball game.
B) going to the symphony.
C) going to the basketball game.
D) three hours of time.
24) After you graduate, you have decided to accept a position working at the Bureau of Labor
Statistics for $45,000.00 a year. The two other offers you received were working for Wal-Mart
for $38,000 and working for Ernst and Young consulting for $42,000. Of these two offers, you
would have preferred the job at Ernst and Young. What is the opportunity cost of accepting the
position at the Bureau of Labor Statistics?
A) the $45,000 you are paid for working at the Bureau of Labor Statistics
B) the $42,000 you would have been paid working for Ernst and Young
C) the $38,000 you would have been paid working for Wal-Mart
D) the $42,000 you would have been paid working for Ernst and Young and the $38,000 you
would have been paid working for Wal-Mart
25) Bill Bonecrusher graduates from college with a choice of playing professional football at $2
million a year or coaching for $50,000 a year. He decides to play football, but eight years later,
though he could continue to play football at $2 million a year, he quits football to make movies
for $3 million a year. His opportunity cost of playing football at graduation was ________ and
eight years later the opportunity cost of making movies was ________.
A) $50,000; $2 million
B) $2 million; $2 million
C) $2 million; $3 million
D) $50,000; $50,000
26) During the summer you have made the decision to attend summer school, which prevents
you from working at your usual summer job in which you normally earn $6,000 for the summer.
Your tuition cost is $3,000 and books and supplies cost $1,300. In terms of dollars, the
opportunity cost of attending summer school is
A) $10,300.
B) $6,000.
C) $4,300.
D) $3,300.
27) The term “opportunity cost” points out that
A) there may be such a thing as a free lunch.
B) not all individuals will make the most of life’s opportunities because some will fail to achieve
their goals.
C) executives do not always recognize opportunities for profit as quickly as they should.
D) any decision regarding the use of a resource involves a costly choice.
28) When the government chooses to use resources to build a dam, these sources are no longer
available to build a highway. This choice illustrates the concept of
A) a market mechanism.
B) macroeconomics.
C) opportunity cost.
D) a fallacy of composition.
29) Jill, an economics student, has already spent 5 hours cleaning her room. In deciding whether
or not to continue cleaning for another hour, she applies the economic principle of
A) scarcity.
B) ceteris paribus.
C) choosing at the margin.
D) productivity.
30) Marginal benefit is the benefit
A) that your activity provides to someone else.
B) of an activity that exceeds its cost.
C) that arises from the secondary effects of an activity.
D) that arises from an increase in an activity.
31) A benefit from an increase in activity is called the
A) marginal benefit.
B) economic benefit.
C) total benefit.
D) opportunity benefit.
32) The marginal benefit is the
A) additional gain from one more unit of an activity.
B) additional cost from one more unit of an activity.
C) loss of the highest-valued alternative.
D) additional gain from one more unit of an activity minus the additional cost from one more
unit of the activity.
33) In terms of dollars, the marginal benefit of working five days a week instead of four days a
week is
A) the wages received for the fifth day of work.
B) the wages received for 5 days of work.
C) the wages received for 4 days of work.
D) None of the above answers is correct.
34) Your employer has asked you to start working overtime and has offered to pay $18 per hour
for every hour you work beyond forty hours a week. The wage rate for each of the first forty
hours will continue to be the usual $15 per hour. In terms of dollars, what is the marginal benefit
of working each hour of overtime?
A) zero
B) $3.00
C) $15.00
D) $18.00
35) A student is studying for an exam 2 hours a day and is debating whether to study an extra
hour. The student’s marginal benefit
A) depends on the grade the student earns on the exam.
B) is the benefit the student receives from studying all 3 hours.
C) is the benefit the student receives from studying the extra hour.
D) is greater than the student’s marginal cost.
36) A student athlete is deciding whether to work out for an extra hour. Her marginal benefit
from another hour of exercise
A) is the benefit she gets from all the hours she’s worked out all week.
B) is the benefit she receives from exercising the additional hour.
C) is less than the marginal cost of the additional hour.
D) depends on the cost of the workout.
37) Suppose that you are spending two hours a day studying economics, and your grade is 85
percent. You want a higher grade and decide to study for an extra hour a day. As a result, your
grade rises to 90 percent. Your marginal benefit is the
A) 5 point increase in your grade minus the opportunity cost to you of spending the hour
studying.
B) extra hour per day you spend on studying.
C) 5 point increase in your grade.
D) three hours per day you spend on studying.
38) Marginal cost is the cost
A) that your activity imposes on someone else.
B) that arises from an increase in an activity.
C) of an activity that exceeds its benefit.
D) that arises from the secondary effects of an activity.
39) A cost due to an increase in activity is called
A) an incentive loss.
B) a marginal cost.
C) a negative marginal benefit.
D) the total cost.
40) Marginal cost is the
A) cost of an increase in an activity.
B) total cost of an activity.
C) cost of an activity minus the benefits of the activity.
D) cost of all forgone alternatives.
41) Laura is a manager for HP. When Laura must decide whether to produce a few additional
printers, she is choosing at the margin when she compares
A) the total revenue from sales of printers to the total cost of producing all the printers.
B) the extra revenue from selling a few additional printers to the extra costs of producing the
printers.
C) the extra revenue from selling a few additional printers to the average cost of producing the
additional printers.
D) HP’s printers to printers from competing companies, such as Lexmark.
42) A lawn service is deciding whether to add an additional employee to its summer crew. The
marginal cost of hiring this worker depends on the
A) total amount paid to only the new worker.
B) total amount paid to all previously hired workers.
C) the total amount paid to all the workers, both the new one and the previously hired workers.
D) the additional revenue created by having an additional worker minus the cost of hiring the
worker.
43) If the marginal cost of an activity exceeds the marginal benefit, then
A) the activity will occur because the high marginal cost means it must be highly valued.
B) the forgone alternatives’ costs must be increased.
C) an alternative action will be selected.
D) the person must concentrate on the activity’s total benefits.
44) A store remains open from 8 a.m. to 4 p.m. each weekday. The store owner is deciding
whether to stay open an extra hour each evening. The owner’s marginal benefit
A) is the benefit the owner receives from staying open from 8 a.m. to 5 pm.
B) depends on the revenues the owner makes during the day.
C) must be greater than or equal to the owner’s marginal cost if the owner decides to stay open.
D) is the benefit the owner receives from staying open from 8 a.m. to 6 pm.
45) Which of the following creates an incentive to increase the amount of an activity?
A) an increase in the marginal cost of the activity and a decrease in the marginal benefit of the
activity
B) a decrease in the marginal cost of the activity and an increase in the marginal benefit of the
activity
C) constant marginal cost and constant marginal benefit of the activity
D) None of the above create an incentive to increase the amount of an activity.
46) Suppose that the government of New York state promises to decrease taxes to a firm if it
decides to stay in New York instead of moving to another state. This policy on the part of the
state constitutes ________, to make the ________ of the firm remaining in New York.
A) an incentive; marginal benefit exceed the marginal cost
B) an incentive; marginal cost exceed the marginal benefit
C) a command; marginal benefit exceed the marginal cost
D) a command; marginal cost exceed the marginal benefit
47) Jed had an exam score of 50 percentage points. There is an extra credit assignment that Jed
can complete that will raise his exam score by 20 percentage points. Jed has determined that the
extra credit assignment will take 10 hours of his time. Jed will complete the assignment he
values the
A) 20 percentage points more than the 10 hours of his time.
B) 10 hours of his time more than the 20 percentage points.
C) 70 percentage points more than the 10 hours of his time.
D) wants a higher score.
48) From 8 P.M. to 10 P.M., Susan can attend a movie, study, or talk with friends. Suppose that
Susan decides to go to the movie but thinks that, if she hadn’t, she would otherwise have talked
with friends. The opportunity cost of attending the movie is
A) talking with friends and studying.
B) studying.
C) talking with friends.
D) two hours of time.
49) When the government hires people to serve in the army, these people are no longer available
to do other work. This choice illustrates the concept of
A) an incentive.
B) a social interest/private interest conflict.
C) opportunity cost.
D) marginal benefit.
50) When the government chooses to spend the tax dollars that it collects on homeland security,
its choice
A) involves a tradeoff of other goods and services such as education for more homeland security.
B) illustrates that scarcity does not always exist.
C) involves no tradeoff because the defense is necessary.
D) primarily affects who gets the goods and services produced.
51) Making a choice at the margin means
A) letting someone else choose for you.
B) waiting until the last minute to make a choice.
C) deciding to do a little bit more or a little bit less of an activity.
D) making a choice by comparing the total benefit and the total cost.
52) Suppose that for the past two months, you have studied economics one hour a day. You now
decide to study economics two hours a day. For the past two months
A) your marginal cost of studying economics for an hour must have exceeded its marginal
benefit.
B) the marginal cost of studying economics must have fallen.
C) your marginal benefit from studying economics an hour must have been greater than its
marginal cost.
D) the opportunity cost of studying economics must have risen.
4 Economics as Social Science and Policy Tool
1) In economics, positive statements are about
A) the way things ought to be.
B) the way things are.
C) macroeconomics, not microeconomics.
D) microeconomics, not macroeconomics.
2) A positive statement is
A) about what ought to be.
B) about what is.
C) the result of a model’s normative assumptions.
D) valid only in the context of a model with simple assumptions.