ECON 1000 (Summer 2020 – Section 05) Quiz #1

ECON 1000 (Summer 2020 ? Section 05) Quiz #1

Multiple Choice Questions: (10 points each)

1. The ________________ states that an individual should undertake an activity if and only if the additional benefit of doing so is greater than the additional cost of doing so. A. Law of Economic Self-Interest. B. Theory of Relative Economic Value. C. Incentive Principle. D. Cost-Benefit Principle.

2. Positive Statements A. attempt to describe how the world actually is or actually functions. B. can never be proven right or wrong, since they are grounded in opinion. C. attempt to assess the desirability of how the world is or functions, often with suggestions of things that could be done to improve outcomes. D. More than one (perhaps all) of the above answers is correct.

3. Ryan states that, "Single round tickets to The Masters golf tournament can sell for over $2,000 a piece on StubHub. At such a high price, the only people who would ever buy these tickets are clearly irrational." The primary problem with this statement is that it: A. fails to recognize that many people who attend major tournament golf are often "die-hard fans," and would therefore be willing to pay any price to attend the event. B. fails to account for the fact that everyone selling tickets on StubHub can charge any price they want for tickets (and still have people buy them). C. implicitly assumes that people behave rationally when making consumption decisions, which is never true. D. only focuses on one particular cost and ignores the benefits of going to the golf tournament.

4. Consider the following two statements. Statement 1: "The U.S. should restrict employers from outsourcing work to foreign countries." Statement 2: "Local and state governments in the U.S. should provide a greater amount of subsidies to professional sports franchises." Most economists would A. disagree with both Statement 1 and Statement 2. B. agree with both Statement 1 and Statement 2. C. agree with Statement 1, but disagree with Statement 2. D. disagree with Statement 1, but agree with Statement 2.

5. Last year Mary went to Cancun with her friends over Spring Break. Her Total Benefits from this trip were $1,800, while her Total Costs were $2,200. From this information alone, it follows that her Economic Surplus from this trip was A. $1,800 ? $2,200 = ? $400 (i.e., negative $400). B. $2,200 ? $1,800 = $400. C. ($1,800 + $2,200) ? 2 = $2,000. D. $1,800 + $2,200 = $4,000.

6. The "Patient Protection and Affordable Care Act" was signed into law by President Barack Obama on 3/23/10. As this legislation was being debated, A. all educated and respected economists supported the legislation. B. all educated and respected economists opposed the legislation. C. no economists expressed any opinion on the legislation (upholding a long standing tradition within the profession of never getting involved in matters of public policy). D. educated and respected economists had differing opinions on the legislation (evidenced by the fact that 40+ economists wrote a letter to President Obama in support of the legislation, while 130+ economists wrote a letter to Rep. John Boehner opposing the legislation).

7. Economics is the social science that A. studies the allocation and transfer of power in decision-making, systems of governance, and the effects of public policy. B. studies how people make decisions in the face of scarcity and the resulting impact of such decisions on both society as a whole and on the individual members therein. C. focuses exclusively on determining how businesses can earn larger profits. D. focuses exclusively on determining how households can make good consumption decisions.

Answer Questions 8 through 10 based upon the information conveyed in the following graph (which illustrates the Marginal Benefits and two different levels of Marginal Costs of an activity for a decision maker):

$

62.75 MC2

MC1

35.00

16.25 10.50

0

Q

0

415 510

730 815 1,020 1,105

MB

8. Suppose Marginal Benefits are given by MB and Marginal Costs are given by MC1. Total Benefits (i.e., Total Benefits, not Total Economic Surplus) would be maximized by choosing Q equal to A. 415 (the quantity at which MB is largest). B. 815 (the quantity at which MB is equal to MC1). C. 1,020 (the quantity at which MC1 is equal to the value of MB at q=0). D. 1,105 (the quantity at which MB is equal to zero).

9. Again suppose Marginal Benefits are given by MB and Marginal Costs are given by MC1. If the decision maker increased Q from Q=730 to Q=815, then A. Total Costs would increase, but Total Benefits and Total Economic Surplus would both decrease. B. Total Costs and Total Benefits would both increase, but Total Economic Surplus would decrease. C. Total Costs, Total Benefits, and Total Economic Surplus would all decrease. D. Total Costs, Total Benefits, and Total Economic Surplus would all increase.

10. Finally suppose that Marginal Costs change from MC1 to MC2 (with Marginal Benefits still given by MB). It follows that as a result of this change in Marginal Costs, A. the optimal choice of Q would increase, consistent with the Incentive Principle. B. the optimal choice of Q would increase, contradicting the Incentive Principle. C. the optimal choice of Q would decrease, consistent with the Incentive Principle. D. the optimal choice of Q would decrease, contradicting the Incentive Principle.

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