1. Which of the following terms are most closely associated with the study of economics?

a. force and acceleration
b. torts and venues
c. ego and cognitive dissonance
d. comparative advantage and deadweight loss

2. Economists, like mathematicians, physicists, and psychologists,

a. make use of the scientific method.
b. make use of their own language.
c. devise theories, and collect and analyze data.
d. All of the above are correct.

3. One thing economists do to help them understand how the real world works is as follows:

a. They make assumptions.
b. They ignore the past.
c. They try to capture every aspect of the real world in the models they construct.
d. All of the above are correct.

4. Economists make use of assumptions, some of which are unrealistic, for the purpose of

a. teaching economics to people who have never before studied economics.
b. society's goods and services are distributed equally among society's members.
c. society's goods and services are distributed fairly, though not necessarily equally, among society's members.
d. society is getting the maximum benefits from its scarce resources.

5. When government policies are enacted,

a. equity can usually be enhanced without an efficiency loss, but efficiency can never be enhanced without an equity loss.
b. efficiency can usually be enhanced without an equity loss, but equity can never be enhanced without an efficiency loss.
c. it is always the case that either efficiency and fairness are both enhanced, or efficiency and equity are both diminished.
d. None of the above are correct.

6. The opportunity cost of going to college is

a. the total spent on food, clothing, books, transportation, tuition, lodging, and other expenses.
b. the value of the best opportunity a student gives up to attend college.
c. zero for students who are fortunate enough to have all of their college expenses paid by someone else.
d. zero, since a college education will allow a student to earn a larger income after graduation.

7. For a college student who wishes to calculate the true costs of going to college, the costs of room and board

a. should be counted in full, regardless of the costs of eating and sleeping elsewhere.
b. should be counted only to the extent that they are more expensive at college than elsewhere.
b. should be counted only to the extent that they are more expensive at college than elsewhere.
d. plus the cost of tuition, equals the opportunity cost of going to college.

8. Mallory decides to spend three hours working overtime rather than watching a video with her friends.She earns $8 an hour. Her opportunity cost of working is

a. the $24 she earns working.
b. the $24 minus the enjoyment she would have received from watching the video.
c. the enjoyment she would have received had she watched the video.
d. nothing, since she would have received less than $24 of enjoyment from the video.

9. Rational people make decisions at the margin by

a. following marginal traditions.
b. behaving in a random fashion.
c. thinking in black-and-white terms.
d. comparing marginal costs and marginal benefits.

10. To say that "people respond to incentives" is to say that

a. changes in costs (but not changes in benefits) influence people's decisions and their behavior.
b. changes in benefits (but not changes in costs) influence people's decisions and their behavior.
c. changes in benefits or changes in costs influence people's decisions and their behavior.
d. tradeoffs can be eliminated by rational people who think at the margin.

11. A marginal change is best illustrated by which of the following?

a. Nancy retires and takes a part-time job. She was working 40 hours per week and now works 15 hours per week.
b. A large, state-supported university has announced that due to state budget deficits, tuition must rise by 20 percent next year.
c. Ryan moved to a new apartment and now pays 40 percent more rent than before.
d. Arizona, which usually receives 10 inches of rain per year, received 11 inches last year..

12. The average cost per seat on the 50-passenger Floating-On-Air Bus company's trip from Kansas City to St. Louis, on which no refreshments are served, is $45. In advance of a particular trip, three seats remain unsold. The bus company could increase its profit only if it

a. charged any ticket price above $0 for the three remaining seats.
b. charged at least $15 for each of the three remaining seats.
c. charged at least $45 for each of the three remaining seats
d. paid three people to occupy the three remaining seats.

13. Mike has spent $500 purchasing and repairing an old fishing boat, which he expects to sell for $800 once the repairs are complete. Mike discovers that, in addition to the $500 he has already spent, he needs to make an additional repair, which will cost another $400, in order to make the boat worth $800 to potential buyers. He can sell the boat as it is now for $300. What should he do?

a. He should sell the boat as it is now for $300.
b. He should keep the boat since it would not be rational to spend $900 on repairs and then sell the boat for $800.
c. He should complete the repairs and sell the boat for $800.
d. It does not matter which action he takes; the outcome is the same either way.

14. People are willing to pay more for a diamond than for a bottle of water because

a. the marginal cost of producing an extra diamond far exceeds the marginal cost of producing an extra bottle of water.
b. the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water.
c. producers of diamonds have a much greater ability to manipulate diamond prices than producers of water have to manipulate water prices.
d. water prices are held artificially low by governments, since water is necessary for life.

15. 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.

16. Based on the available evidence, which of the following groups benefits most from man-datory seat belt laws?

a. automakers
b. pedestrians
c. drivers
d. owners of collision-repair shops

17. When policymakers implement policies that alter incentives, they usually

a. have carefully weighed the direct and indirect effects of the policy.
b. do not observe the intended result of the policies.
c. have considered all possible effects of the incentive changes when they developed the policy, which will make the policy effective.
d. correctly anticipate the indirect effects, but often miss the direct effects.

18. Which is the most accurate statement about trade?

a. Trade can make every nation better off.
b. Trade makes some nations better off and others worse off.
c. Trading for a good can make a nation better off only if the nation cannot produce that good itself.
d. Trade helps rich nations and hurts poor nations.

19. Benefits from trade would not include

a. the ability of people and nations to specialize.
b. a greater variety of goods and services becoming available.
c. less competition.
d. lower prices.

20. If the United States decides to trade with Mexico, we know that

a. Mexico will benefit, but trade with a less developed country could not benefit the United States.
b. it will not benefit Mexico because workers in the United States are more productive.
c. Mexico and the United States can both benefit.
d. it will not benefit either country because their cultural differences are too vast.

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