ECON 1000 Chapter 1 – Study Guide Multiple Choice Questions:

The Incentive Principle states that

• A society can produce a greater amount of total output when individuals focus their production on those activities for which they have a comparative advantage.

• Having more of one thing usually means getting by with less of something else.

• An action should be taken if and only if the additional benefits from taking the action are at least as great as the additional costs of doing so.

• If the marginal benefit of an activity increases, then a rational person will engage in more of the activity.

Economics is

• The social science that studies human mental functions and behavior, with a focus on phenomena such as perception, cognition, personality, and interpersonal relationships.

• The social science that studies decision making in the face of scarcity and the resulting impact of such decisions on both society as a whole and on the individual members therein.

• The social science that studies the allocation and transfer of power in decision-making, systems of governance, and the effects of public policy.

• The art of communicating financial information about a business entity to stake holders, such as employees, managers, shareholders, and customers.

In July 2012, professional golfer Adam Scott bogeyed the last four holes of the British Open to lose the tournament to Ernie Els by one stroke. Around the same time, flooding in Beijing, China, resulted in the death of at least 77 people. If Adam were more upset about the outcome of the British Open than about the loss of life from the flooding in Beijing, it would seemingly suggest that he.

• Is not as good of a person as Ernie Els.

• Does not care about anyone other than himself.

• Is an irrational individual.

• Is a self-interested individual.

Alex recently saw the comedian Ron White perform at the Topeka Performing Arts Centerin Topeka, KS. His Total Benefits from seeing this show were $120, while his Total Costswere $70. From this information, it follows that his Economic Surplus

• From attending the show was ($120)–($70) = ($50).

• From attending the show was ($70)–($120) = ($–50) (i.e., negative $50).

• From attending the show was ($70)+($120) = ($190).

• Would have been greater if he had instead spent the $120 on Ron White DVDs.

Positive Statements

• Attempt to describe how the world actually is or actually functions.

• Are scientific in nature, in that given enough research, evidence, and data, they can potentially be shown to be either true or false.

• Are not supported (either implicitly or explicitly) by the priorities, goals, and value judgments of the person making the statement.

• More than one (perhaps all) of the above answers is correct.

A “Rational Decision Maker” should

• Always take every action for which there is a positive Marginal Benefit.

• Never take any action for which there is a positive Marginal Cost.

• Take an action if and only if the Marginal Benefit of the action is at least as great as the Marginal Cost of the action.

• More than one (perhaps all) of the above answers is correct.

The quote on page 17 of the course textbook suggests that Milton Friedmanbelieved that Mother Theresa was

• Rational and self-interested.

• Rational but not self-interested.

• Irrational and not self-interested.

• Irrational but self-interested.

Which of the following statements is a “Positive Statement”?

• Elvis Presley died on August 16, 1977.

• The possession and use of all “recreational drugs” should be legal.

• Our country would be a better place to live if we decreased spending on national defense and increased spending on healthcare for low income families.

• More than one (perhaps all) of the above answers is correct.

Armen Alchain and Gordon Tullock

• Wrote a letter to FDR in 1939, advising him to have the U.S. government assist physicists in the U.S. working on research related to the creation of a uranium bomb.

• Were the first to recognize that increasing the minimum wage would decrease the unemployment rate of young and unskilled workers.

• Argued that automobile accident rates could be decreased by installing “five point harness” seat belts and improved airbags in every car.

• Argued that automobile accident rates could be decreased by installing a sharp, irremovable, foot long, iron spike to the steering wheel of every car.

_____ is the branch of economics which studies how individual decision-makers behave and interact with each other, often with a focus on how householdsand firms behave and interact with each other in markets.