Economics Quiz

Which of the following involve a trade-off?

• Buying a new car

• Going to college

• Watching a football game on Saturday afternoon

• Taking a nap

• All of the answer choices involve trade-offs.

Answer explanation

All choices involve trade-offs: buying a car requires financial resources, going to college takes time and money, watching a game means missing other activities, and taking a nap sacrifices productivity.

Trade-offs are required because wants are unlimited and resources are _______.

• scarce

• economical

• efficient

• marginal

• unlimited

Answer explanation

Trade-offs occur because human wants are unlimited while resources are scarce. This scarcity necessitates making choices about how to allocate limited resources to satisfy various wants.

Economics is the study of how ________.

• to avoid having to make trade-offs

• to reduce our wants until we are satisfied

• society manages its scarce resources

• society manages its unlimited resources

• to fully satisfy our unlimited wants

Answer explanation

Economics studies how society manages its scarce resources, as resources are limited while human wants are unlimited. This choice accurately reflects the fundamental concept of economics.

A rational person does not act unless ________.

• the action makes money for the person

• the action is ethical

• the action produces marginal costs that exceed marginal benefits

• the action produces marginal benefits that exceed marginal costs

• none of the answer choices are correct

Answer explanation

A rational person acts when the benefits of an action outweigh the costs. Thus, the correct choice is that the action produces marginal benefits that exceed marginal costs, ensuring a net positive outcome.

Raising taxes and increasing welfare payments ________.

• reduces market power

• does none of the answer choices

• proves that there is such a thing as a free lunch

• improves efficiency at the expense of equality

• improves equality at the expense of efficiency

Answer explanation

Raising taxes can fund welfare payments, improving equality by redistributing wealth. However, this often leads to reduced efficiency in the economy, as higher taxes may discourage investment and work incentives.

Suppose you find $20. If you choose to use the $20 to go to the baseball game, your opportunity cost of going to the game is ________.

• nothing, because you found the money

• $20 (because you could have used the $20 to buy other things)

• $20 (because you could have used the $20 to buy other things) plus the value of your time spent at the game

• $20 (because you could have used the $20 to buy other things) plus the value of your time spent at the game, plus the cost of the dinner you purchased at the game

• none of the answer choices

Answer explanation

The opportunity cost of going to the game includes the $20 you could have spent on other things and the value of your time at the game, making the correct choice $20 plus the value of your time.

Foreign trade ________.

• increases the scarcity of resources

• allows a country to avoid trade-offs

• is none of the answer choices

• allows a country to have a greater variety of products at a lower cost than if it tried to produce everything at home

• makes the members of a country more equal

Answer explanation

Foreign trade allows countries to specialize in what they produce best, leading to a greater variety of products at lower costs than if they attempted to produce everything domestically.

Because people respond to incentives, we would expect that if the average salary of engineers increases by 50 percent while the average salary of teachers increases by 20 percent, ________.

• students will shift majors from education to engineering

• students will shift majors from engineering to education

• fewer students will attend college

• none of the answer choices are correct

Answer explanation

With a 50% salary increase for engineers compared to 20% for teachers, engineering becomes more financially attractive. Thus, we expect students to shift majors from education to engineering to pursue higher earnings.

The law of demand states that an increase in the price of a good ________.

• increases the supply of that good

• decreases the demand for that good

• increases the quantity supplied of that good

• decreases the quantity demanded for that good

• does none of the answer choices

Answer explanation

The law of demand indicates that as the price of a good increases, consumers will buy less of that good, leading to a decrease in the quantity demanded. Therefore, the correct choice is that an increase in price decreases the quantity demanded.

The law of supply states that an increase in the price of a good ________.

• decreases the demand for that good

• increases the supply of that good

• increases the quantity supplied of that good

• does none of the answer choices

• decreases the quantity demanded for that good

Answer explanation

The law of supply indicates that as the price of a good increases, producers are willing to supply more of that good, leading to an increase in the quantity supplied.