Deck 1: The Big Ideas

Question 1

What is the "invisible hand"?

A) The idea that government economic planning tends to benefit not only the individual but also all of society.
B) The principle that most people avoid economic transactions with so-called "outsiders."
C) The idea that people pursuing their own self-interest actually benefit the public at large.
D) The notion that the pursuit of profit leads to the exploitation of consumers.

Answer 1

C

Question 2

Recall Chapter 1's opening story about the British sea captains and the convicted felons. Instead of paying the sea captains for each prisoner placed on board the ships in Great Britain, an economist suggested:

A) paying for each prisoner who walked off the ship in Australia.
B) paying for food and water to reduce costs of caring for prisoners during the transit.
C) doing nothing, since the suggested change would not matter.
D) that new regulations be passed to require prisoner safety and health.

Answer 2

A

Question 3

In several cities around the country, schools are paying cash awards to students who do well on English and Math tests. This practice highlights the idea of:

A) pedagogical economics-the continuous assessment of student performance in an effort to maximize student efficiency.
B) hidden costs-the costs borne by taxpayers in the form of wasteful school spending.
C) incentives-the rewards and penalties that motivate behavior.
D) screening theory-the identification of individuals or groups based on various performance measures.

Answer 3

C

Question 4

In the 1800s, the federal government paid railroad companies for each mile of track built. This payment scheme created incentives for railroad companies to lay track:

A) between points A and B using the most direct route.
B) between points A and B using the most indirect route.
C) as slowly as possible.
D) using the best materials possible.

Question 5

Recall Chapter 1's opening story about the British sea captains and the convicted felons. In what way were incentives used to solve the problem of the high mortality rate on board the ships?

A) Payment (to ship captains) was to be offered for each prisoner that was taken aboard the ships.
B) Payment (to ship captains) was made independent of the regulations passed for prisoner welfare.
C) Regulations were passed so that prisoners could get better food, water, and medical care.
D) Payment (to ship captains) was made dependent on the survival rate of prisoners.

Question 6

If there was no ______, the "invisible hand" would not function as Adam Smith describes.

A) money
B) self-interest
C) trade
D) inflation

Question 7

Based on the ideas of Adam Smith, it is ______ dentists clean and repair teeth, but ______.

A) not out of benevolence that; from their regard for their own self-interest
B) out of benevolence that; sometimes from their regard for their own self-interest
C) not out of self-interest that; out of their benevolence
D) from charity and good will that; only if they can charge high prices

Question 8

Adam Smith coined the term "invisible hand" to mean:

A) a physical hand that leads individuals to promote social interest by pursuing self-interest.
B) a metaphorical hand that leads individuals to promote social interest by pursuing self-interest.
C) a physical hand that leads individuals to promote self-interest by pursuing social interest.
D) a metaphorical hand that leads individuals to promote self-interest by pursuing social interest.

Question 9

In his book The Wealth of Nations, Adam Smith claimed that individuals:

A) always act in an altruistic way.
B) always consider the effect of their actions on others.
C) are motivated by self-interest.
D) are not concerned with resources.

Question 10

Every day people rely on the work of others to provide us with food, clothing, and shelter. These people work for our benefit because:

A) people think at the margin.
B) trade-offs are everywhere.
C) they benefit by doing so.
D) institutions require them to do so.

Question 11

Adam Smith wrote, "It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest." He meant that:

A) most of us no longer get our dinner directly from the butcher, the brewer, and the baker.
B) butchers, brewers, and bakers are not productive members of society.
C) high-interest payments mean that no one has to work anymore.
D) people work for the benefit of others because it benefits them to do so.

Question 12

Adam Smith's "invisible hand" refers to:

A) people's pursuit of their own self-interest.
B) people's pursuit of the social interest.
C) social justice.
D) government control.

Question 13

The main incentive for business activity is:

A) government subsidies.
B) technological advancement.
C) profit.
D) employment.

Question 14

Many companies pay their sales employees based on commissions-the more they sell, the more they get paid. This practice highlights the role of:

A) marginal thinking.
B) incentives.
C) trade-offs.
D) sunk costs.

Question 15

The basic postulate of economics indicates that changes in incentives influence the:

A) actions of producers but not consumers.
B) actions of consumers but not producers.
C) choices of individuals only when they buy and sell goods in the marketplace.
D) choices of individuals with regard to a wide range of activities, including those generally perceived as social or political.

Question 16

Economists assume that people respond to:

A) other people.
B) social interest.
C) benevolence.
D) incentives.

Question 17

Which financing method for transporting prisoners from point A to B will result in the greatest number of prisoners surviving the trip? Assume there are 50 prisoners being transported.

A) The ship's captain is paid $100 by the government for every live prisoner that is loaded on board at Point A.
B) The ship's captain is paid $100 by the government for every live prisoner that is unloaded at Point B.
C) The ship's captain is paid $400 by the government for every live prisoner that is loaded on board at Point A.
D) The ship's captain is paid a flat rate of $3,000 for the trip, rather than being paid per prisoner.

Question 18

In the opening story, the payment to captains of prisoner transport ships for each convict who arrived in Australia instead of for each convict who boarded the ship:

A) made no difference.
B) saved the lives of hundreds of convicts.
C) increased the volume of slave trafficking.
D) shows that people care more about morality than about their self-interest.

Question 19

Suppose the United States government wants to encourage individuals to save more of their income. The easiest way for the government to realize this goal is to:

A) pass a law requiring people to save a larger percentage of their income.
B) decrease government spending in order to set an example for individuals.
C) increase the tax rate on savings in order to encourage more savings.
D) develop incentives such as tax breaks on savings in order to encourage more savings.

Question 20

Economists think that people are self-interested:

A) only when monetary incentives are present.
B) because they respond to incentives in predictable ways.
C) only rarely in response to incentives.
D) unless they are being altruistic.

Question 21

When private interests in markets are not aligned with the social interest:

A) the free market functions in the best interest of society.
B) regulatory action may improve upon the free market outcome.
C) the relevant market should be banned.
D) the relevant production process should be outsourced.

Question 22

When the unemployment rate rises, college enrollment tends to:

A) rise.
B) remain the same.
C) fall.
D) defy prediction.

Question 23

Adam Smith's metaphor of the "invisible hand" refers to the notion that:

A) greed is always good when externally motivated.
B) behavior based on self-interest can lead to an overall benefit to society.
C) market incentive can lead to negative side effects.
D) markets always align self-interest with social interest.

Question 24

The idea that markets work efficiently:

A) refers to the fact that self-interest can be aligned with social interest.
B) means that trade-offs can be reduced by channeling greed toward good ends.
C) suggests that there is never any need for government regulation, taxes, or subsidies.
D) has been known for many centuries.

Question 25

If market incentives to produce are too weak, the market will end up producing:

A) too much of the good.
B) too little of the good.
C) a quantity equal to the efficient outcome, as any incentive will result in economic efficiency.
D) zero output.

Question 26

It takes approximately _______ years and _______ to bring a new drug to the market.

A) 12; $1 billion
B) 2; $100,000
C) 4; $5 million
D) 6; $20 billion

Question 27

Which of the following is an example of self-interest that attempts to promote the public interest?

A) A mother prevents her children from becoming vaccinated against measles, mumps, and rubella because of fears of autism.
B) The President of the United States restricts American consumers from buying foreign-made products.
C) The New York Yankees beat the Boston Red Sox.
D) An entrepreneur risks his life savings to open up a grocery store in an underserved area.

Question 28

Which of the following choices best illustrates the concept of Adam Smith's "invisible hand"?

A) A Vietnamese farmer grows rice; an exporter ships it to the United States, and a grocer in New York sells it to a customer.
B) A fishery's stock of fish becomes depleted due to overfishing as boats from around the world converge.
C) A government regulates a firm to clean up the pollutants the firm has released as part of its production process.
D) An apartment building that provides much-needed housing is built on the site of the only playground for children in that town.

Question 29

When markets don't align self-interest with social interest:

A) markets will still manage to reach an efficient outcome.
B) governments may improve the situation by changing incentives.
C) societal costs will always exceed individual benefits.
D) individual benefits will exceed societal benefits.

Question 30

The invisible hand concept is:

A) always present as a force in market outcomes.
B) never present as a force in market outcomes.
C) frequently present as a force in market outcomes.
D) not well understood as it relates to market outcomes.

Question 31

If market incentives to produce are too strong, the market will end up producing:

A) too much of the good.
B) too little of the good.
C) a quantity equal to the efficient outcome, as market incentives can never be considered too strong.
D) zero output.

Question 32

The opportunity cost of a choice is:

A) the value of the opportunities lost.
B) the net value of the opportunities gained.
C) the difference between the benefits and costs of the choice.
D) sometimes positive or negative.

Question 33

When it comes to getting the flu shot, most people consider _______, not _________.

A) the social interest; their self-interest
B) their public interest; their social interest
C) their costs; their benefits
D) their self-interest; the social interest

Question 34

Suppose that you study hard, master the principles of economics, and earn a good grade in your economics class. This is an example of a good institution because:

A) your school is selective; not everyone can get in.
B) your self-interest in getting good grades aligns with the social interest of having people who understand economics.
C) everybody gets good grades.
D) sometimes the invisible hand is absent, not just invisible.

Question 35

The legendary rock band KISS, which sold more than 100 million albums worldwide, is often said to be only concerned about making as much money as possible. This example highlights the idea that:

A) greed is bad.
B) markets align self-interest with the social interest.
C) government can sometimes improve market outcomes.
D) incentives are not always important.

Question 36

In the market for pharmaceuticals, the issue of "drug lag" illustrates which of the following ideas?

A) The longer a drug is tested for safety, the lower the opportunity cost in terms of lives lost.
B) If a drug is not tested for safety, it might kill more people.
C) Because of the higher the cost of testing a drug, it takes longer to make it, and more lives are lost.
D) Lives are being lost because safe drugs that are still in the testing stage have not yet been approved.

Question 37

Self-interest can be aligned with the social interest by:

A) the enactment of government policies that increase incentives to work and trade.
B) increasing international trade.
C) promoting benevolence.
D) banning free markets by the government.

Question 38

Economists believe that socially good outcomes arise whenever:

A) self-interest is pursued.
B) either self-interest or social interest are pursued.
C) self-interest is pursued and it aligns with social interest.
D) self-interest is pursued and it does not align with social interest.

Question 39

Which of the following statements reflects Adam Smith's important insight into marketplace behavior?

A) Society benefits when people and firms pursue their own self-interests.
B) Markets are usually an inefficient way of organizing economic activity.
C) Greedy, self-interested behavior needs to be constrained to ensure strong economic growth.
D) Trade restrictions on imported goods increase domestic employment.

Question 40

Adam Smith sought to explain the concept of aligning self-interest with the promotion of society's overall interest by:

A) using an analysis of wealth as productivity.
B) suggesting markets are led by an invisible hand.
C) arguing that markets were ineffective institutions.
D) suggesting that government increase regulations.

Question 41

The opportunity cost of a choice is:

A) the opportunity of using the money to buy something else cheaper.
B) the money cost that a person does not have to pay when doing something.
C) the money that a buyer has to pay for an item.
D) the value of the next best opportunity foregone.

Question 42

Most people do not buy the safest car they can find. Why not?

A) Other factors matter besides safety, such as comfort, cost, and fuel economy.
B) People do not take the time to understand the safety features of cars.
C) Consumers are unaware of the risks of different cars.
D) The statement is false. People do buy the safest car they can find.

Question 43

According to economists, when the Food and Drug Administration raises the approval requirements for new drugs:

A) everyone will benefit and be better off.
B) society potentially loses a new drug approval.
C) everyone but the drug makers will lose.
D) people will only demand more drug testing.

Question 44

Estimates suggest that tens of thousands of people have died because the FDA withheld beta-blockers from the market while testing to determine whether the drugs were safe and effective. This is an example of:

A) drug lag.
B) drug loss.
C) bureaucratic incompetence.
D) market failure.

Question 45

When the opportunity cost of a choice increases:

A) individuals are more likely to choose that same option.
B) individuals are less likely to choose that same option.
C) the marginal benefits of that choice increase, as well.
D) the marginal benefits of that choice decrease.

Question 46

What you give up to obtain an item is called your:

A) opportunity cost.
B) explicit cost.
C) true cost.
D) direct cost.

Question 47

You must decide whether to attend class tomorrow morning or take your friend to the airport. Your decision highlights the following "big idea" in economics.

A) Institutions matter.
B) Incentives matter.
C) Economics is fun.
D) Trade-offs are everywhere.

Question 48

Why do you think researchers sometimes find a positive relationship between the unemployment rate and college enrollment rates?

A) The opportunity cost of attending college rises during economic booms, leading to higher college enrollment rates.
B) The opportunity cost of attending college rises during recessions, leading to higher college enrollment rates.
C) The opportunity cost of attending college falls during recessions, leading to higher college enrollment rates.
D) The opportunity cost of attending college falls during economic booms, leading to higher college enrollment rates.

Question 49

The opportunity cost of attending college is:

A) tuition and books.
B) travel expenses, tuition, and books.
C) psychic costs of missing your family and friends while in school.
D) lost wages from not working full time.

Question 50

Each of the following ideas is central to economics, EXCEPT:

A) "good institutions can eliminate economic trade-offs."
B) "people react to incentives."
C) "specialization and trade benefit everyone."
D) "prices rise when the government prints too much money."

Question 51

As the FDA uses ______ time and resources to ensure the safety of new drugs, _________.

A) more; more people will die from taking unsafe drugs
B) less; fewer people will die waiting for access to life-saving medicine
C) more; fewer people will die waiting for access to life-saving medicine
D) less; fewer people will die from taking unsafe drugs

Question 52

Dropping out of college to devote time to a promising business start-up is most directly an application of the principle of:

A) gains from trade.
B) returns from specialization.
C) marginal thinking.
D) opportunity cost.

Question 53

During the middle ages, expensive castle-based warfare was the dominant method of conflict. Warfare was also the main function of government. Which reason best explains why few universities were built during this time?

A) The lack of professors meant there was no incentive to create universities.
B) The opportunity cost of building universities was fewer castles.
C) There were no benefits to attending college at the time.
D) Local rulers did not care about long-term growth.

Question 54

In the market for pharmaceuticals, the issue of "drug loss" illustrates which of the following ideas?

A) The longer a drug is tested for safety, the lower is the opportunity cost in terms of lives lost.
B) If a drug is not tested for safety, it might kill more people.
C) Because of the higher the cost of testing a drug, fewer drugs are made, and more lives are lost.
D) Lives are being lost because safe drugs that are still in the testing stage have not been approved.

Question 55

In an effort to clean the air, many communities impose restrictions on the burning of garbage. This policy causes more garbage to be buried underground, potentially increasing groundwater contamination. What concept does this example represent?

A) trade-offs
B) marginal pollution
C) sunk costs
D) public provision

Question 56

During a recession, we expect that the opportunity cost of attending college:

A) rises.
B) falls.
C) remains the same.
D) cannot be determined from the information given.

Question 57

Bill Gates dropped out of college and founded Microsoft. His opportunity cost of continuing to attend college was

A) tuition, the cost of books, and room and board.
B) tuition, the cost of books, and a low-paying job.
C) tuition, the cost of books, and the income from his Microsoft pursuits.
D) only the income from his Microsoft pursuits.

Question 58

If the FDA enacts more stringent pharmaceutical drug tests, two costs of this policy would be:

A) drug lag and drug lapse.
B) drug lapse and drug misallocation.
C) drug loss and drug lag.
D) drug misallocation and drug loss.

Question 59

Economics is the study of:

A) what is good and what is bad.
B) how to make everyone rich.
C) how to make the world most productive.
D) trade-offs when making decisions.

Question 60

The opportunity cost of winning a free ticket to the Super Bowl worth $950 and choosing to attend the game is:

A) zero, since the ticket was free.
B) priceless, if the person really loves football.
C) at least $950, the lost market value of selling the ticket, and the time to go.
D) zero, if the person would rather go to the game than do anything else.

Question 61

When deciding whether or not to undertake an activity, economists compare:

A) the total cost of the activity against the total benefit received.
B) the total benefit of the activity against the total cost of production.
C) the additional cost of the activity against the additional benefits received.
D) the average cost of the activity versus the total benefits received.

Question 62

What is meant by the term "marginal revolution"?

A) the public disdain at the institution of marginal tax rates
B) the transformation in economic thought that occurred with the discovery of marginal thinking
C) the institution of the death penalty for drug dealers
D) the effect of policies on crime

Question 63

In the 2 hours between classes a student can do one of three things, ranking them from most to least desirable as: (1) chat with friends, (2) study economics, or (3) eat lunch. This student's opportunity cost of chatting with friends is:

A) the total value of studying economics and eating lunch.
B) the value of studying economics.
C) the value of chatting with friends.
D) There is no opportunity cost because students do not pay their friends to chat with them.

Question 64

What is thinking on the margin?

A) Making decisions that are of noneconomic importance.
B) Making choices that are based on historical precedents.
C) Making choices that ignore the marginal benefits, but not the marginal costs, of some activity.
D) Making choices by comparing the additional benefits and additional costs from doing a little bit more of some activity.

Question 65

On June 13, 2011, writer Sebastian Anthony at Extreme Tech wrote, "During the two days that the Les Paul [Google] doodle was online, those 740 million visitors spent 26 seconds more on the Google home page than normal. That's a total of almost 10.7 million man-hours spent playing with the Les Paul Google Doodle. Assuming the average Google user earns $25/hour, the doodle cost companies around the world $268 million in lost productivity." Mr. Anthony's mistake is overestimating opportunity costs. He is doing this by assuming that:

A) labor has no incentive to work.
B) all those man-hours would have been spent working if not for the doodle.
C) all the Google visitors do not sleep.
D) that labor is not making a marginal decision.

Question 66

Air travel from Chicago to Los Angeles costs $800 and takes four hours. A bus ticket between the cities costs $100 and takes 104 hours. Other things constant, the minimum value of one's time that would induce a rational individual to fly rather than drive would be:

A) $1 per hour.
B) $7 per hour.
C) $12 per hour.
D) $120 per hour.

Question 67

Economists believe people make decisions by:

A) comparing marginal costs with marginal benefits.
B) thinking about costs but not benefits.
C) thinking about benefits but not costs.
D) comparing total costs with total benefits.

Question 68

Susan quits her administrative job, which pays $40,000 a year, to finish her four-year college degree. Her annual college expenses are $8,000 for tuition, $900 for books, and $2,500 for food. The opportunity cost of attending college for the year is:

A) $11,400.
B) $8,900.
C) $48,900.
D) $51,400.

Question 69

You are given a ticket to a Bob Dylan concert with a face value of $50. You only value the ticket at $40, sell it to a friend for $40, and attend a U2 concert priced at $60. The opportunity cost of attending the U2 concert is:

A) $20 worth of alternative goods and services.
B) $40 worth of alternative goods and services.
C) $50 worth of alternative goods and services.
D) $60 worth of alternative goods and services.

Question 70

Why is it less costly to attend college during a recession?

A) Tuition is much lower during a recession.
B) The opportunity cost is higher during a recession because there are more labor market opportunities.
C) The opportunity cost is lower during a recession because there are fewer labor market opportunities.
D) Colleges give out better grades during recessions, so the opportunity cost is lower.

Question 71

Deciding whether to study an additional hour for an exam by comparing the additional benefits to the additional costs of an extra hour of study is an example of:

A) the social interest.
B) the invisible hand.
C) marginal thinking.
D) the power of trade.

Question 72

Fluctuations in graduate school enrollment correlate positively with fluctuations in unemployment. What is the most likely reason why?

A) When jobs are difficult to find, the opportunity cost of going to grad school is high.
B) When jobs are easy to find, there are strong incentives to go to grad school.
C) The opportunity cost of going to graduate school is low when jobs are hard to find.
D) Even if you have a job, the salary will be low that going to graduate school is worth the effort.

Question 73

Manuel insists he places an infinite value on his life. Stefan is suspicious of this claim and points out to Manuel that he sometimes eats ice cream when broccoli would be much better for him. What Big Idea is Stefan using?

A) The Power of Trade: Manuel could not make his own ice cream, though he could grow his own broccoli; Manuel must be trading for ice cream.
B) Incentives: No one is paying Manuel to be healthy.
C) Thinking on the Margin: "Infinite value" is too much to be on the margin.
D) Trade-offs: Gaining some enjoyment is worth giving up some safety.

Question 74

In The Economics of Nonhuman Societies, economist Gordon Tullock describes the economics hidden in biology (e.g., ants and bees). One of the lessons of the book is opportunity cost. In what way does an animal, such as an ant, face opportunity costs?

A) An ant suffers a large initial cost to find food.
B) Because an ant starves if it does not find food, it has a strong incentive to search.
C) Ants face increasing marginal costs while searching for food in one direction as they get farther from the anthill.
D) Searching for food in one direction means an ant cannot search in another direction.

Question 75

What should happen to crime rates when the unemployment rate rises?

A) Crime rates should fall because the economic gains to property crime will be lower when incomes are lower.
B) Crime rates should rise because the opportunity cost of crime (i.e., getting a legitimate job) has fallen.
C) Crime rates should fall because the opportunity cost of crime (i.e., getting a legitimate job) has risen.
D) Crime rates should rise because the trade-offs have been eliminated.

Question 76

How is the unemployment rate related to the opportunity cost of college?

A) As the unemployment rate increases, the opportunity cost of attending college falls because fewer opportunities for employment exist.
B) As the unemployment rate decreases, the opportunity cost of attending college falls since it becomes easier to pay for tuition when employed.
C) As the unemployment rate increases, the opportunity cost of attending college increases because fewer people are giving up the opportunity of working to attend college.
D) As the unemployment rate increases, the opportunity cost of attending college increases because more people are giving up the opportunity of working to attend college.

Question 77

The opportunity cost of committing a crime and spending 5 years in jail:

A) is the same for everyone.
B) is higher for people who are employed than for the unemployed.
C) is zero because the costs of jail are paid for by the government.
D) equals the fines and legal fees.

Question 78

A student at a party deciding whether to stay a few more minutes is:

A) thinking on the margin.
B) increasing the rate of unemployment.
C) aligning her self-interest with the social interest.
D) paying high interest rates.

Question 79

Economists Jevons, Menger, and Walras are credited with:

A) explaining the limitations of monetary policy.
B) formulating the theory of comparative advantage.
C) developing the concept of opportunity cost.
D) starting the "marginal revolution."

Question 80

Why might the FDA err on the side of "overtesting" pharmaceutical drugs compared with the level of testing that is economically efficient?

A) Dangerous side effects are more important than drug loss and drug lag.
B) Dangerous side effects are less important than drug loss and drug lag.
C) Drug lag and drug loss are not significant concerns in the case of most pharmaceutical drugs.
D) Dangerous side effects are not relevant in most pharmaceutical drug cases.