Basic Economic Concepts

Economics is BEST defined as the study of ________

• how human beings respond to incentives to meet their needs and wants

• how businesses enrich themselves at the expense of ordinary citizens

• how money circulates through the economy

• how government officials regulate individual economic behavior

Define "incentive."

• The cost of producing a good or service

• The fact that human wants are unlimited but resources are limited

• Something that motivates someone to do or not do something

• The price charged for a good or service

Which of the following is NOT an example of someone responding to an incentive?

• Alyza buys more candy because the price went down.

• Seeing that restaurants are making a lot of profit in his area, Jesse decides to open a new restaurant.

• When the government raises the gas tax by 50%, Jeremiah decides to drive less.

• Jose falls asleep because he is tired.

In economics, "scarcity" is best defined as the idea that ________.

• people respond to incentives

• human wants are greater than available resources

• a higher price decreases the quantity demanded

• supply and demand determine equilibrium prices

• opportunity costs are less than monetary costs

Because of the problem of scarcity, ______________.

• supply equals demand

• prices are above equilibrium

• socialism is superior to capitalism

• people must make choices about how to use their resources

• the government must impose high taxes on the citizenry

"Opportunity cost" is best defined as _____________.

• the value of the the second-best alternative that is given up when one alternative is chosen

• the cost of investing in a business opportunity

• the cost of producing a particular good or service

• the money that must be paid to do something

Esteban makes $300 per day at his job. He decides to take an unpaid day off of work to go to a Rangers game. He pays $100 total for the ticket, parking, transportation to and from the game, and concessions at the game. What is the value of Esteban's total "opportunity cost" of attending the game?

• $100

• $200

• $300

• $400

• $500

_____________ advantage refers to the ability of an individual or group to do something better overall than another individual or group.

• Absolute

• Comparative

• Competitive

• Superior

• Product

______________ advantage refers to the ability of an individual or group to do something at a lower opportunity cost than another individual or group

• Absolute

• Competitive

• Comparative

• Product

• Opportunity Cost

With the same number of labor hours, Guatemala can produce 100 bananas or 100 papayas, while Honduras can produce 50 bananas or 25 papayas. Which country has the absolute advantage in producing bananas and why?

• Guatemala because it can make more bananas

• Guatemala because its opportunity cost is lower

• Honduras because it can make more bananas

• Honduras because its opportunity cost is lower