chap 1

The overriding reason why households and societies face many decisions is that

• resources are scarce.

• goods and services are not scarce.

• incomes fluctuate with business cycles.

• people, by nature, tend to disagree.

Economics is the study of

• production methods

• how society manages its scarce resources.

• how households decide who performs which tasks.

• the interaction of business and government.

Denise decides to spend three hours working overtime rather than watching a video with her friends. She earns $10 an hour. Her opportunity cost of working is :

• the $30 she earns working.

• the $30 minus the enjoyment she would have received from watching the video.

• the enjoyment she would have received had she watched the video.

• nothing, since she would have received less than $30 of enjoyment from the video.

The adage, "There is no such thing as a free lunch," means

• even people on welfare have to pay for food.

• the cost of living is always increasing.

• people face tradeoffs.

• all costs are included in the price of a product.

A rational decision maker takes an action only if the

• marginal benefit is less than the marginal cost.

• marginal benefit is greater than the marginal cost.

• average benefit is greater than the average cost.

• marginal benefit is greater than both the average cost and the marginal cost.

Economists are particularly adept at understanding that people respond to

• laws.

• incentives.

• punishments more than rewards.

• rewards more than punishments.

Which of the following is a principle concerning how people interact?

• Markets are usually a good way to organize economic activity.

• Rational people think at the margin.

• People respond to incentives.

• All of the above are correct.

Which of the following statements about trade is false?

• Trade increases competition.

• With trade, one country wins and one country loses.

• Bulgaria can benefit, potentially, from trade with any other country.

• Trade allows people to buy a greater variety of goods and services at lower cost.

Trade makes costs

• higher and reduces the variety of goods and services available.

• higher but raises the variety of goods and services available.

• lower but reduces the variety of goods and services available.

• lower and raises the variety of goods and services available.

The invisible hand refers to

• how central planners made economic decisions.

• how the decisions of households and firms lead to desirable market outcomes.

• the control that large firms have over the economy.

• government regulations without which the economy would be less efficient.