Question 1

The notion of opportunity cost allows the measurement of tradeoffs.

Accepted Answer

A) True 
 B)False

Question 2

Different people eat different amounts of food when they go to buffet restaurants, even though they all pay the same price. Explain how this relates to the marginal principle.

Accepted Answer

The answer of Different people eat different amounts of food...

Question 3

Table 2.5
-Refer to the table above. By what percentage did the federal minimum wage increase from 1974 to 2011?

Accepted Answer

A)  72.41 percent 
B)  262.5 percent 
C)  362.5 percent 
D)  525.0 percent

Question 4

Suppose your bank pays you 5 percent interest per year on your savings account. If prices increase by 5 percent per year over that time, approximately how much real value do you gain by keeping $100 in the bank for a year?

Accepted Answer

A)  $0 
B)  $1 
C)  $3 
D)  $6

Question 5

The principle that individuals and firms pick the activity level where the incremental benefit of that activity equals the incremental cost of that activity is known as the

Accepted Answer

A)  marginal principle. 
B)  principle of opportunity cost. 
C)  principle of diminishing returns. 
D)  spillover principle.

Question 6

According to the principle of diminishing returns, if the number of workers is increased beyond the point of diminishing returns, then the additional worker

Accepted Answer

A)  increases total output by the same amount as previous workers. 
B)  increases total output by more than the amount of previous workers. 
C)  increases total output by less than the amount of previous workers. 
D)  decreases total output.

Question 7

The principle of opportunity cost

Accepted Answer

A)  is more relevant for firms than for individuals. 
B)  only refers to monetary payments. 
C)  is only relevant in economics. 
D)  is applicable to all decision-making.

Question 8

A Major League Baseball player signs a contract that pays $27 million over 5 years. The $27 million is the contract's ________ value.

Accepted Answer

A)  real 
B)  implicit 
C)  external 
D)  nominal

Question 9

When you have a job and your employer compensates you for your time with money, resulting in both of you being better off, it is an example of a voluntary exchange.

Accepted Answer

A) True 
 B)False

Question 10

Figure 2.1
-Referring to Figure 2.1, if you increase the production of farm goods, what other area is affected?

Accepted Answer

A)  the price of produce 
B)  the production of manufactured goods 
C)  how much people can purchase 
D)  the wages earned by farm workers

Question 11

Table 2.3
-Refer to Table 2.3. What can be observed about the given resources?

Accepted Answer

A)  Capital and labor are both fixed. 
B)  Capital is variable. 
C)  Capital is fixed. 
D)  Labor is fixed.

Question 12

When Lonnie produces 1 pair of cowboy boots his costs total $300. When he produces 2 pairs of cowboy boots his total costs are $500. This means that Lonnie's marginal cost of producing the second pair of cowboy boots is $200.

Accepted Answer

A) True 
 B)False

Question 13

Spending money on a new car instead of a used car when you are on a fixed budget is an example of

Accepted Answer

A)  the incursion of an opportunity cost. 
B)  isolating variables. 
C)  a bad thing to do because you run out of money. 
D)  living on the edge.

Question 14

Recall the Application about Rory McIlroy and weed-whacking to answer the following question(s). The Application assumes that Rory McIlroy could whack down all the weeds on his estate in one hour at an opportunity cost of $1,000, but it would take 20 hours for a gardener to do it at a price of $10 per hour.
-Based on the assumptions in the Application, should Rory hire a gardener or cut the weeds himself?

Accepted Answer

A)  He should hire the gardener because he would save $1,000. 
B)  He should hire the gardener because he would save $800. 
C)  He should cut the weeds himself because he would save $200. 
D)  He should cut the weeds himself because he would save $1,000.

Question 15

A "market" is an arrangement that allows people to exchange things.

Accepted Answer

A) True 
 B)False

Question 16

Recall the Application about the use of fertilizer and its impact on crop yields to answer the following question(s). The table is taken from this Application.
Fertilizer and Corn Yield
 
-Refer to the table above. After applying the second bag of fertilizer, the farmer experienced

Accepted Answer

A)  increasing returns. 
B)  diminishing returns. 
C)  constant returns. 
D)  negative returns.

Question 17

Table 2.4
-Refer to Table 2.4. Increasing the tanks of fertilizer from 3 to 4 will increase the truckloads of potatoes by

Accepted Answer

A)  152. 
B)  35. 
C)  17. 
D)  11.

Question 18

Suppose that you lend $1,000 to a friend and he or she pays you back one year later. What is the opportunity cost of lending the money?

Accepted Answer

A)  There is no cost. 
B)  the real interest rate that would have been earned on the money 
C)  the nominal interest rate that would have been earned on the money 
D)  the implicit cost of the money

Question 19

How would an increase in prices in retail stores change the real value of the money you earn as wages?

Accepted Answer

The answer of How would an increase in prices in...

Question 20

If Rory McIlroy only earned $500 per hour playing golf instead of $1,000 per hour, what should he do?

Accepted Answer

A)  He should still hire the gardener. 
B)  He should do the weed-whacking himself. 
C)  He should hire a less-productive gardener. 
D)  He should be indifferent as to who does the weed-whacking, for the difference in hourly earnings would now be insignificant.

Exam 2: The Key Principles of Economics

The notion of opportunity cost allows the measurement of tradeoffs.

Different people eat different amounts of food when they go to buffet restaurants, even though they all pay the same price. Explain how this relates to the marginal principle.

Table 2.5 -Refer to the table above. By what percentage did the federal minimum wage increase from 1974 to 2011?

Suppose your bank pays you 5 percent interest per year on your savings account. If prices increase by 5 percent per year over that time, approximately how much real value do you gain by keeping $100 in the bank for a year?

The principle that individuals and firms pick the activity level where the incremental benefit of that activity equals the incremental cost of that activity is known as the

According to the principle of diminishing returns, if the number of workers is increased beyond the point of diminishing returns, then the additional worker

The principle of opportunity cost

A Major League Baseball player signs a contract that pays $27 million over 5 years. The $27 million is the contract's ________ value.

When you have a job and your employer compensates you for your time with money, resulting in both of you being better off, it is an example of a voluntary exchange.

Figure 2.1 -Referring to Figure 2.1, if you increase the production of farm goods, what other area is affected?

Table 2.3 -Refer to Table 2.3. What can be observed about the given resources?

When Lonnie produces 1 pair of cowboy boots his costs total $300. When he produces 2 pairs of cowboy boots his total costs are $500. This means that Lonnie's marginal cost of producing the second pair of cowboy boots is $200.

Spending money on a new car instead of a used car when you are on a fixed budget is an example of

A "market" is an arrangement that allows people to exchange things.

Recall the Application about the use of fertilizer and its impact on crop yields to answer the following question(s) . The table is taken from this Application. Fertilizer and Corn Yield -Refer to the table above. After applying the second bag of fertilizer, the farmer experienced

Table 2.4 -Refer to Table 2.4. Increasing the tanks of fertilizer from 3 to 4 will increase the truckloads of potatoes by

Suppose that you lend $1,000 to a friend and he or she pays you back one year later. What is the opportunity cost of lending the money?

How would an increase in prices in retail stores change the real value of the money you earn as wages?

If Rory McIlroy only earned $500 per hour playing golf instead of $1,000 per hour, what should he do?