Quiz 1: What is Economics

Question 1

One of the basic facts of life is that people must make choices as they try to attain their goals. This unavoidable fact is what economists call

Answer 1

Scarcity

Question 2

Opportunity cost is

Answer 2

the highest valued alternative that must be given up to engage in an activity

Question 3

Opportunity costs arise due to

Answer 3

scarcity of resource and alternatives uses for the given resources

Question 4

We can improve tradeoffs and living standard if we

Answer 4

improve productivity

Question 5

The Scottish philosopher Adam Smith argued in 1776 that

Answer 5

prices would be a better job of coordinating the activities of buyers and sellers than guilds could

Question 6

the biggest advantage of a market system is that

Answer 6

it is self regulating with prices adjusting to affect behavior
it allows a person to follow his or her self interests
and it allows voluntary transactions, which create wealth

Question 7

Economic decisions are evaluated by considering the incentives they created rather than simply the goals they pursue. The consequences of a decision matter more than the intentions.

Answer 7

True

Question 8

Which of the following transactions create value?

Answer 8

A great football team drawing paying fans to the stadium.
Buying a firm and selling off its assets for more than the purchase price
A student increasing his or her decision making ability by taking an econ class.

Question 9

Wealth creating transactions are more likely to occur

Answer 9

with strong contract and law enforcement
and strong private property rights

Question 10

Government intervention like price controls, taxes, and subsidies

Answer 10

Impedes the movement of assets to higher-valued uses.
Can reduce incentives to work.
Reduces the number of wealth creating transactions.
Can produce undesired consequences.