Chapter 1: Economics Basics - Scarcity, Choice, and Incentives
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Chapter 1: Introduction to Economics
1. Scarcity
What do economists mean when they state that a good is scarce?
d. The amount of the good that people would like exceeds the supply freely available from nature.
2. Economic Choice and Competitive Behavior
Economic choice and competitive behavior are the result of:
d. scarcity.
3. Marginal Cost
Joe and Ed go to a diner that sells hamburgers for $5 and hot dogs for $3. They agree to split the lunch bill evenly. Ed chooses a hot dog. The marginal cost to Joe then of ordering a hamburger instead of a hot dog is:
$1.
4. Opportunity Costs
The expression, "There's no such thing as a free lunch," implies that:
c. opportunity costs are incurred when resources are used to produce goods and services.
5. Economic Way of Thinking
Which one of the following states a central element of the economic way of thinking?
b. Incentives matter--human choice is influenced in predictable ways by changes in personal costs and benefits.
6. Incentives and Behavior
Which of the following is most clearly consistent with the basic postulate of economics regarding the reaction of people to a change in incentives?
c. People will buy less gas if the price of gas increases by $.20 per gallon.
7. Positive Economic Statements
Which one of the following is a positive economic statement?
a. An increase in the minimum wage will reduce employment.
8. Macroeconomics vs. Microeconomics
The basic difference between macroeconomics and microeconomics is that:
a. macroeconomics is concerned with the forest (aggregate markets), while microeconomics is concerned with the individual trees (subcomponents).
9. Economic Analysis
Economic analysis assumes that:
d. changes in the personal benefits and costs associated with a choice will exert a predictable influence on human behavior.
10. Marginal Cost Example
While waiting in line to buy two tacos at 75 cents each, and a medium drink for 80 cents, Jordan notices that the restaurant has a value meal containing three tacos and a medium drink all for $2.50. For Jordan, the marginal cost of purchasing the third taco would be:
b. 20 cents.
11. Adam Smith and Self-Interest
Adam Smith believed that if people were free to pursue their own interests:
a. public interest would be served quite well.
12. Origins of Modern Economics
Modern economics as a field of study is usually thought to have begun with:
a. Adam Smith and the writing of The Wealth of Nations.
13. Individual Self-Interest
According to Adam Smith, individual self-interest:
a. is a powerful force for economic progress when it is directed by competitive markets.
14. Basic Ingredients of Economic Decisions
The basic ingredients in any economic decision are:
a. scarcity and choice.
15. Scarcity and Choice
Economic choice and competitive behavior are the result of:
a. scarcity.