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Exam 1: Five Foundations of Economics

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Question 91

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Kelly is an architect,and she is trying to decide whether to hire Lawrence,a draftsman,to assist with her work.Kelly could hire Lawrence at $20 per hour,but it would take him three times as long to complete a task as it takes Kelly.Kelly is able to earn $90 per hour and has more architectural jobs than she is able to handle.Which of the following is true?

A) Kelly should not hire Lawrence because it would be faster for her to do the work herself.
B) Kelly should do the drafting work herself because she has the lower opportunity cost.
C) Lawrence should be hired at the $20 per hour wage rate.
D) Lawrence should be hired,but only if he is paid more than $30 per hour.
E) Kelly should hire someone who earns minimum wage instead of Lawrence.

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Question 92

Multiple Choice

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A good is ________ if it takes even a small amount of time,energy,or money to acquire.

A) abundant
B) in shortage
C) cheap
D) scarce
E) virtually free

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Question 93

Multiple Choice

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Which of the following is a microeconomic question?

Economics is divided into two subfields: microeconomics and macroeconomics.Why is this separation necessary?

A car insurance company is willing to offer accident-free drivers a discount.This is an example of

Which of the following is NOT a type of incentive?

It can be said that voluntary trade will not occur unless all parties involved believe that they will be better off after trading than they were before.Considering that the supply of goods and services does not change in trade and only changes hands,how is it possible that each party improves? Shouldn't one party benefit at the expense of another?

The U.S.federal government offers homeowners a tax deduction for their home loan interest payments.This reduction in taxes may have encouraged too many people to own homes.If the tax deduction caused people who otherwise would have rented to own,the tax deduction serves as a(n) ________ incentive.

Why do incentives matter to economists?

Coastal regions have stronger commercial fishing economies because they have a ________ in the production of seafood.

When the Federal Reserve,the entity that manages money and banking in the United States,announces changes in the supply of money it makes available to banks,it often causes a significant response in financial markets.Based on an understanding of incentives,why is this not surprising?

The government places warnings on cigarette and liquor packages.These warnings serve as a(n)

Low prices for water in the developed world may lead individuals to believe it is NOT a ________ resource.

Many car insurance companies offer discounts for safe drivers.The promise is lower premiums or a reduction in deductibles for customers that remain accident-free for a specified period of time.The discounts are not without a cost,however.Policyholders must pay an additional premium (periodic fee paid for insurance coverage)in order to participate in the program.Understanding opportunity cost,explain how safe-driver programs might be beneficial for some customers but not others.

Some parents discourage their college student children from taking economics,saying it is not a useful discipline.Why are they incorrect?