Core Economics 3e

Key Principles

Multiple Choice Questions

After watching the Key Principles video lecture, consider the question(s) below. Then “submit” your response.

Question

1. Economics is defined as:

the study of how individuals, businesses, and societies make decisions to maximize their well-being given limited resources.

the study of the fundamental nature of problems, such as those connected to reality and existence.

the study of human culture and its evolution over time around different regions across the world.

study of how individuals and society use unlimited resources to fulfill their needs and wants.

Question

2. Opportunity cost is the value of the:

best alternative which is given up when a decision is made.

alternative that is selected when a decision is made.

alternative that is selected and the next best alternative.

worst alternative available to the decision maker.

Question

3. Specialization leads to gains for:

only the seller in a transaction.

only the buyer in a transaction.

both the buyer and the seller involved in a transaction.

neither the buyer or seller in a transaction, but the government that is authorizing the transaction.

Question

4. Which of the following statements is true of incentives?

People respond to financial incentives only.

People respond to good incentives but ignore bad incentives.

Rules can be established to prevent people from acting on certain incentives.

Stealing is an outcome of a response to a good incentive.

Question

5. When a customer chooses to accept an item of value from a business because it requires no incremental spending on the part of the customer, the customer is demonstrating the principle that:

markets are an efficient way to organize economic activity.

specialization produces benefits for society.

customers are smarter than businesses.

rational people think at the margin.

Question

6. Which of the following statements is true of markets?

Government intervention in markets should always be avoided.

There are no disadvantages of having free markets.

Markets discourage competition among firms.

Free markets sometimes fail to produce best results for society, but such failure can be reduced by government intervention.

Question

7. Which of the following statements is true?

A government free of corruption is an example of a bad institution.

Human creativity allows for existing products to improve.

Wealthy countries tend to have fewer innovative individuals.

Wealthy nations tend to have weak institutions.

True/False Questions

After watching the Key Principles video lecture, consider the question(s) below. Then “submit” your response.

Question

1. A tradeoff analysis entails assessing the costs and benefits of different alternatives.

True

False

Question

2. Thinking at the margin means that decision makers think about all costs associated with an action, both those that may change as a result of a decision and those that won’t change.

True

False

Question

3. A country that is normally strong in human capital has a weak educational system.

True

False

Short Answer/Discussion Questions

After watching the Key Principles video lecture, consider the question(s) below. Then “submit” your response.

Question

1. List four key principles of economics.

Suggested Solution:
a. Economics is concerned with making choices with limited resources.
b. While making decisions an individual should consider tradeoffs and opportunity costs.
c. Specialization leads to gains for all involved.
d. People respond to incentives, both good and bad.
e. Rational people think at the margin.
f. Markets are an efficient way to organize economic activity.
g. Institutions and human creativity help explain the wealth of nations. (Answers may vary, only four are necessary for a correct response)

Question

2. What should be included in determining the opportunity cost of an action?

Suggested solution: The opportunity cost of an action is the value of the next best option that is not selected as a result of the option that is selected. In assessing this value, the costs and benefits of the option should include all the benefits and costs of the action not selected, both financial and nonfinancial. (Answers may vary.)

Question

3. Describe characteristics of wealthy countries that lead to new ideas.

Suggested solution: Wealthy countries tend to have strong educational systems and provide incentives for its citizens to work hard. These qualities along with a government free of corruption, a strong legal system, and a strong monetary system enable its citizens to create new or improved products and to benefit from inventions, now and in the future. (Answers may vary.)