106. A bagel shop sells fresh baked bagels from 5 a.m. until 7 p.m. every day. The shop does not sell day-old bagels, so
all unsold bagels are thrown away at 7 p.m. each day. The cost of making and selling a dozen bagels is $1.00; there are no
costs associated with throwing bagels away. If the manager has 8 dozen bagels left at 6:30 p.m. on a particular day, which
of the following alternatives is most attractive?
a.
Lower the price of the remaining bagels, even if the price falls below $1.00 per dozen.
b.
Lower the price of the remaining bagels, but under no circumstances should the price fall below $1.00 per
dozen.
c.
Throw the bagels away and produce 8 fewer dozen bagels tomorrow.
d.
Starting tomorrow, lower the price on all bagels so they will all be sold earlier in the day.
107. Rick buys a 1966 Mustang for $3,000, planning to restore and sell the car. He goes on to spend $9,000 restoring the
car. At this point he can sell the car for $10,000. As an alternative, he can spend an additional $3,000 replacing the engine.
With a new engine the car would sell for $13,000. Rick should
a.
complete the repairs and sell the car for $13,000.
b.
sell the car now for $10,000.
c.
never try such an expensive project again.
d.
be indifferent between (i) selling the car now and (ii) replacing the engine and then selling it.
108. Yvette buys and sells real estate. Two weeks ago, she paid $300,000 for a house on Pine Street, intending to spend
$50,000 on repairs and then sell the house for $400,000. Last week, the city government announced a plan to build a new
landfill on Pine Street just down the street from the house Yvette purchased. As a result of the city’s announced plan,
Yvette is weighing two alternatives: She can go ahead with the $50,000 in repairs and then sell the house for $290,000, or
she can forgo the repairs and sell the house as it is for $250,000. She should
a.
b.
c.
d.
109. You are considering staying in college another semester so that you can complete a major in economics. In deciding
whether or not to stay you should
a.
compare the total cost of your education to the total benefits of your education.
b.
compare the total cost of your education to the benefits of staying one more semester.
c.
compare the cost of staying one more semester to the benefits of staying one more semester.
d.
compare the total benefits of your education to the cost of staying one more semester.
110. Kyle is planning to take a roadtrip. After he makes his plans, he has to make some unexpected auto repairs. Also, he
sees the price of gas has gone up. Which of these two events should Kyle consider in deciding if it is still worthwhile to go
on the trip?
a.
the unexpected repairs and the increase in the price of gas
b.
the unexpected increase for repairs, but not the increase in the price of gas
c.
the increase in the price of gas, but not the unexpected repairs
d.
neither the unexpected increase in the price of gas nor the unexpected repairs
111. You have eaten two bowls of ice cream at Sundae School Ice Cream store. You consider eating a third. As a rational
consumer you should make your choice by comparing
a.
the benefits from eating all three bowls of ice cream to how much three bowls of ice cream costs.
b.
the benefits from eating all three bowls of ice cream to how much one more bowl of ice cream costs.
c.
the benefits from eating one more bowl of ice cream to how much three bowls of ice cream costs.
d.
the benefits from eating one more bowl of ice cream to how much one more bowl of ice cream costs.
112. Olivia was accepted by Northwestern and by another university. She is trying to decide where to go. Which of the
following should influence her decision?
a.
how much she spent applying to Northwestern, and the difference between living expenses at Northwestern
and the other university
b.
how much she spent applying to Northwestern, but not the difference between living expenses at Northwestern
and the other university
c.
the difference between living expenses at Northwestern and her second choice, but not how much she spent
applying to Northwestern
d.
neither how much she spent applying to Northwestern nor the difference between living expenses at
Northwestern and her second choice
113. You go to the movieplex where movies ordinarily cost $9. You are intending to see a movie for which you have a $3
off coupon good for only that movie at that time. However, when you get there you see a friend who asks if you would
rather see a new release. Both movies start and end at the same time. If you decide to see the new release with your friend,
what is your opportunity cost?
a.
the amount you value the first movie + $3
b.
the amount you value the first movie + $9
c.
$3
d.
$9
114. Max and Maddy charge people to park on their lawn while attending a nearby craft fair. At the current price of $10,
seven people park on their lawn. If they raise the price to $15, they know that only five people will want to park on their
lawn. Whether they have seven or five cars parked on their lawn does not affect their costs. From this information it
follows that
a.
they should leave the price at $10.
b.
it does not matter if they charge $10 or $15.
c.
they would do better charging $15 than $10.
d.
they should raise the price even more.
115. Your professor loves her work, teaching economics. She has been offered other positions in the corporate world that
would increase her income by 25 percent, but she has decided to continue working as a professor. Her decision would not
change unless the marginal
a.
cost of teaching increased.
b.
benefit of teaching increased.
c.
cost of a corporate job increased.
d.
benefit of a corporate job decreased.
116. Suppose your management professor has been offered a corporate job with a 30 percent pay increase. He has decided
to take the job. For him, the marginal
a.
cost of leaving was greater than the marginal benefit.
b.
benefit of leaving was greater than the marginal cost.
c.
benefit of teaching was greater than the marginal cost.
d.
All of the above are correct.
117. Something that induces a person to act is called
a.
a trade-off.
b.
a policy.
c.
an incentive.
d.
an opportunity cost.
118. Economists are particularly adept at understanding that people respond to
a.
laws.
b.
incentives.
c.
punishments more than rewards.
d.
rewards more than punishments.
119. A tax on gasoline encourages people to drive smaller, more fuel-efficient cars. Which principle of economics does
this illustrate?
a.
People face tradeoffs.
b.
The cost of something is what you give up to get it.
c.
Rational people think at the margin.
d.
People respond to incentives.
120. People are likely to respond to a policy change
a.
only if they think the policy is a good one.
b.
only if the policy change changes the costs of their behavior.
c.
only if the policy change changes the benefits of their behavior.
d.
if the policy changes either the costs or benefits of their behavior.
121. Suppose the state of Wyoming passes a law that increases the tax on cigarettes. As a result, smokers who live in
Wyoming start purchasing their cigarettes in surrounding states. Which of the following principles does this best
illustrate?
a.
People respond to incentives.
b.
Rational people think at the margin.
c.
Trade can make everyone better off.
d.
Markets are usually a good way to organize economic activity.
122. Government policies can change the costs and benefits that people face. Those policies have the potential to
a.
alter people’s behavior.
b.
alter people’s decisions at the margin.
c.
produce results that policymakers did not intend.
d.
All of the above are correct.
123. Ralph Nader’s book Unsafe at Any Speed caused Congress to require
a.
safety glass in all new cars.
b.
seat belts in all new cars.
c.
air bags in all new cars.
d.
stricter drunk driving laws in all states.
124. Following the implementation of laws requiring automobiles to have seat belts, which of the following occurred?
a.
An individual’s probability of surviving an auto accident rose.
b.
There was an increase in pedestrian deaths.
c.
There was an increase in automobile accidents.
d.
All of the above are correct.
125. U.S. laws requiring that drivers wear seat belts have resulted in
a.
a reduction in both driver deaths and pedestrian deaths.
b.
fewer accidents and fewer deaths per accident.
c.
fewer driver deaths, fewer accidents and fewer pedestrian deaths.
d.
little change in the number of driver deaths, but more accidents and more pedestrian deaths.
126. Evidence indicates that seat belt laws have led to
a.
fewer pedestrian deaths.
b.
fewer automobile accidents.
c.
fewer deaths per automobile accident.
d.
All of the above are correct.
127. One effect of the government-imposed seat belt law in the U.S. has been
a.
a dramatic decrease in the number of pedestrian deaths.
b.
safer driving.
c.
an increase in the number of accidents.
d.
a dramatic decrease in the number of driver deaths.
128. Based on the available evidence, which of the following groups benefits most from mandatory seat belt laws?
a.
automakers
b.
pedestrians
c.
drivers
d.
owners of collision-repair shops
129. Which of the following can policy do?
a.
alter incentives
b.
alter trade-offs
c.
change opportunity costs
d.
All of the above are correct.
130. Suppose the state of Illinois passes a law that bans smoking in restaurants. As a result, residents of Wisconsin who do
not like breathing second-hand smoke begin driving across the border to Illinois to eat at restaurants there. Which of the
following principles does this best illustrate?
a.
People respond to incentives
b.
Rational people think at the margin
c.
Trade can make everyone better off
d.
Markets are usually a good way to organize economic activity
131. In the former Soviet Union, producers were paid for meeting output targets, not for selling products. Under those
circumstances, what were the economic incentives for producers?
a.
to produce good quality products so that society would benefit from the resources used
b.
to conserve on costs, so as to maintain efficiency in the economy
c.
to produce enough to meet the output target, without regard for quality or cost
d.
to produce those products that society desires most
132. Which of the following is not one of the four principles of individual decision making?
a.
People face trade-offs.
b.
Trade can make everyone better off.
c.
People respond to incentives.
d.
Rational people think at the margin.
133. Which of the following statements exemplifies a principle of individual decisionmaking?
a.
Trade can make everyone better off.
b.
Governments can sometimes improve market outcomes.
c.
The cost of something is what you give up to get it.
d.
All of the above are correct.
134. Which of the following is not an example of a group responding to an incentive?
a.
Students attend class because of an attendance policy that reduces their grade for absences.
b.
Consumers buy more of a product when it is on sale at a reduced price.
c.
Universities offer fewer online classes when they generate more revenue than traditional classes.
d.
Employees work harder to earn higher commissions.
135. Michael is a college student. He can either buy a textbook for $100 or save up for a road trip he wants to take during
the summer. This illustrates the principle that
a.
trade can make everyone better off.
b.
people face trade-offs.
c.
rational people think at the margin.
d.
people respond to incentives.
136. The balance between maximizing a society’s income and an equal distribution of that income is an illustration of
a.
scarcity.
b.
trade-offs.
c.
the forces of supply and demand.
d.
none of the above.
137. The balance between efficiency and equality is an illustration of
a.
scarcity.
b.
trade-offs.
c.
the forces of supply and demand.
d.
none of the above.
138. Tim decides to spend four hours playing video games rather than attending his classes. His opportunity cost of
playing games is
a.
the value of the knowledge he would have received had he attended his classes.
b.
the $50 he could have earned if he had worked at his job for those four hours.
c.
the value of his time playing video games minus the value of attending classes.
d.
nothing, since he valued playing video games more than attending classes.
139. Jane decides to spend four hours working overtime rather than going to a family gathering. She earns $12.50 per hour
for overtime work. Her opportunity cost of working is
a.
the $50 she earns working.
b.
the $50 minus the enjoyment she would have received from going to the family gathering.
c.
the enjoyment she would have received had she gone to the family gathering
d.
nothing, since she wanted to work more than she wanted to attend the family gathering
140. Consider Larry’s decision to go to college. If he goes to college, he will spend a total of $120,000 on tuition, $30,000
on room and board, and $3,500 on books over four years. If he does not go to college, he will earn $30,000 annually
working in a store and spend $7,000 on room and board each year. Larry’s cost of going to college is
a.
$123,500.
b.
$153,500.
c.
$190,500
d.
$245,500
141. If Jane attends graduate school, it will take her two years, during which time she will earn no income. She will pay a
total of $100,000 for tuition, $20,000 for room and board, and $2,000 for books. If she spends the two years working
rather than attending college, she will pay a total of $18,000 for room and board, pay no intuition, and buy no books.
Based on this information, Jane’s economic cost of attending graduate school would be $175,000 if, over the two years,
she could earn a total of
a.
$53,000 instead of attending graduate school.
b.
$55,000 instead of attending graduate school.
c.
$71,000 instead of attending graduate school.
d.
$73,000 instead of attending graduate school.
142. Which of the following industries has a marginal cost that is close to zero?
a.
automobile
b.
aircraft
c.
software
d.
furniture