Question

9) Which of the following statements demonstrates that economic agents rationally respond to incentives?

A) when citrus fruits become more expensive, people don’t change their demand for it because we need vitamin C. B) Although it is cheaper to install security monitoring equipment than allowing burglaries to happen, most people don’t install it. C) When the price of iOS phones goes up, people may consider buying Android phones. D) More efficient batteries allow us to charge cell phones less often.

10) Every society faces economic trade-offs. This means A) Some people live better than others do. B) Not everyone can have enough goods to survive. C) Producing more of one good means less of another good can be produced. D) Society's output cannot be made available to all.

11) Opportunity cost is defined as

A) the benefit of an activity. B) the monetary expense associated with an activity. C) the highest valued alternative that must be given up to engage in an activity. D) the total value of all alternatives that must be given up to engage in an activity.

12) Suppose you have a large mansion of your own that is worth $20 million. Currently, you live in your own mansion. You can rent it to someone and earn a monthly paycheck of $180,000. Alternatively, you can sell it and deposit the money in a savings account and receive $60,000. So, your monthly opportunity cost is _____.

A) $180,000 because your best alternative pays $180,000. B) $60,000 because the only safe alternative is the savings account and it pays $60,000. C) $240,000 because your two alternatives are worth $240,000 together. D) $0 because the mansion entirely belongs to you.

13) Is it a good assumption if we assume people are rational?

A) No, because there are numerous examples such as smoking, addiction, binge drinking, and reckless driving showing that humans behave irrationally. B) No, because human behavior is very complicated and such assumptions are very unlikely to hold. C) Yes, although humans are not perfectly rational, for the most part they are. D) Yes, because humans are always rational.

15) Which of the following is NOT an example of an efficiency-equity trade-off faced by economic agents?

A) HIV prevention medicines should be allocated to those activities that prevent more infections per dollar and then to less and less effective combinations of programs and populations until funds are exhausted, even if it means that some populations would be left without any prevention services. B) Concerned about the falling birth rate, the French government is trying to encourage working women to have more babies. C) The growing demand for corn by ethanol producers has led to a surge in the price of tortillas, a staple in the Mexican diet. The Mexican government should allocate subsidies to corn to make sure that all Mexican people afford to buy sufficient corn. D) Medicare and Medicaid provide crucial healthcare services to the elderly and certain vulnerable populations. As a result, all Americans have access to basic healthcare services regardless of their financial status.

16) suppose you are the only survivor of a shipwreck, and you are stranded on a deserted island. You have some survival skills. You can collect coconuts and hunt birds. If you spend time on coconuts, you can collect 8 coconuts every hour. If you spend your time hunting, you can hunt 4 birds per hour. Given the information, your opportunity cost of 1 coconut is _____ birds, and your opportunity cost of 1 bird is _____ coconuts.

A) 0.5, 2 B) 2, 0.5 C) 4, 8 D) 8, 4

17) Which of the following is a microeconomics question?

A) Why do economies experience periods of recession? B) Will government intervention lower the unemployment rate? C) Why has growth in the economy slowed down over the past decade? D) How will Apple decide on a selling price for the iPad?

18) Which of the following is a macroeconomics question?

A) What determines the unemployment rate? B) How is the production quantity of digital cameras determined? C) What factors determine the price of iPhones? D) What determines the wages and benefits of flight attendants?

19) Which of the following is a microeconomics question?

A) When will the government better secure the borders? B) Why hasn't the federal government raised the minimum wage? C) How does Fiat decide on the price of the 500 Pop model? D) What determines the level of U.S. imports and exports?

20) Which of the following is a macroeconomics question?

A) What determines the minimum wage? B) What determines the production of video game consoles? C) What factors determine the price of Oreo cookies? D) What determines the salaries of college professors?

21) This question revisits the idea discussed in questions 4 through 8. It is a very important and potentially confusing topic. So, make sure you master it: Imagine that you have a restaurant and you want to decide how many hours a day you want to keep it open. The longer the restaurant is open, the more revenues you make. Your total revenues (TR) as a function of hours open are shown in column 2 below: Hours TR TC TR-TC MR MC 0 0 1 30 2 57 3 80 4 95 5 106 6 113 7 118 8 120 For each hour the restaurant is open, you pay a $6 wage to your employee. So, your cost per hour is $6. To maximize your profits, how many hours you should keep the restaurant open?

A) 3 hours B) 4 hours C) 5 hours D) 6 hours E) 7 hours F) 8 hours

Answer 1

10)  C) Producing more of one good means less of another good can be produced.

Human wants are unlimited but resources are scarce which means person has to make choices between production of different goods. To produce more of one, person has to give up some units of other.

11) C) the highest valued alternative that must be given up to engage in an activity.

Opportunity cost is the value of next best alternative foregone.

12) A) $180,000 because your best alternative pays $180,000

Opportunity cost is the value of next best alternative foregone which is equal to $ 180,000.

13) C) Yes, although humans are not perfectly rational, for the most part they are.

16) 8 coconut = 4 birds

1 coconut = 4/8 = 0.5 bird

1 bird = 8/4 = 2 coconuts

A) 0.5, 2