Test Bank 2(e) BONUS.docx

Test Bank 2(e) BONUS.docx Chapter 1 1 The potential rewards that a person receives for taking a particular action are called:  altruism. Incorrect. Incentives are potential rewards that motivate people. Please see the introductory section for an explanation of incentives.  opportunity costs. Incorrect. Incentives are potential rewards that motivate people. Please see the introductory section for an explanation of incentives.  incentives. (True Answer )Correct. Incentives are potential rewards that motivate people.  trade-offs. Incorrect. Incentives are potential rewards that motivate people. Please see the introductory section for an explanation of incentives. 2 Economists assume that people are motivated by:  incentives. (True Answer )Correct. In economics, people respond to incentives.  social justice. Incorrect. In economics, people respond to incentives. Please see the section “Big Idea One: Incentives Matter” for an explanation of how people respond to incentives.  benevolence. Incorrect. In economics, people respond to incentives. Please see the section “Big Idea One: Incentives Matter” for an explanation of how people respond to incentives.  altruism. Incorrect. In economics, people respond to incentives. Please see the section “Big Idea One: Incentives Matter” for an explanation of how people respond to incentives. 3 In Adam Smith’s book The Wealth of Nations, he observed that people often promote the social interest by their:  benevolence. Incorrect. People often promote the social interest through their own self-interest. Please see the section “Big Idea Two: Good Institutions Align Self-Interest with the Social Interest” for an explanation of the relationship between self-interest and the social interest.  own self-interest. (True Answer )Correct. People often promote the social interest through their own self-interest.  trust in the government. Incorrect. People often promote the social interest through their own self-interest. Please see the section “Big Idea Two: Good Institutions Align Self-Interest with the Social Interest” for an explanation of the relationship between self-interest and the social interest.  lack of trust in other people. Incorrect. People often promote the social interest through their own self-interest. Please see the section “Big Idea Two: Good Institutions Align Self-Interest with the Social Interest” for an explanation of the relationship between self-interest and the social interest. 4 Adam Smith argued that if people pursue their own interests:  their actions will have no impact on the economy. Incorrect. Adam Smith’s view was that people’s pursuit of their own selfinterest often produced outcomes that promote the socialinterest. Please see the section “Big Idea Two: Good Institutions Align Self-Interest with the Social Interest” for an explanation of Adam Smith’s view.  their actions will be in conflict with the social interest. Incorrect. Adam Smith’s view was that people’s pursuit of their own self-interest often produced outcomes that promote the social-interest. Please see the section “Big Idea Two: Good Institutions Align Self-Interest with the Social Interest” for an explanation of Adam Smith’s view.  their actions will often end up promoting the social interest. (True Answer )Correct. Adam Smith’s view was that people’s pursuit of their own self-interest often produced outcomes that promote the social-interest.  they will always fail. Incorrect. Adam Smith’s view was that people’s pursuit of their own self-interest often produced outcomes that promote the social-interest. Please see the section “Big Idea Two: Good Institutions Align Self-Interest with the Social Interest” for an explanation of Adam Smith’s view. 5 Which of the following is TRUE about markets?  Markets always align self-interest with the social interest. Incorrect. Markets reflect outcomes of self-interest. Please see the section “Big Idea Two: Good Institutions Align Self-Interest with the Social Interest” for an explanation market incentives.  Markets always produce outcomes in line with self-interest but not necessarily the social interest. (True Answer )Correct. Markets reflect outcomes of self-interest.  Markets always produce outcomes in line with the social interest but not necessarily self-interest. Incorrect. Markets reflect outcomes of self-interest. Please see the section “Big Idea Two: Good Institutions Align Self-Interest with the Social Interest” for an explanation market incentives.  None of the answers are correct. Incorrect. Markets reflect outcomes of self-interest. Please see the section “Big Idea Two: Good Institutions Align Self-Interest with the Social Interest” for an explanation market incentives. 6 Opportunity cost is:  the value of the opportunities lost when a choice is made. (True Answer )Correct. The opportunity cost of a choice is the value of the opportunities lost.  the rewards of making a choice. Incorrect. The opportunity cost of a choice is the value of the opportunities lost. Please see the section “Big Idea Three: Trade-offs Are Everywhere” for an explanation of opportunity cost.  the money cost that a person has to incur when making a choice. Incorrect. The opportunity cost of a choice is the value of the opportunities lost. Please see the section “Big Idea Three: Trade-offs Are Everywhere” for an explanation of opportunity cost.  the incentive for a person to do anything. Incorrect. The opportunity cost of a choice is the value of the opportunities lost. Please see the section “Big Idea Three: Trade-offs Are Everywhere” for an explanation of opportunity cost. 7 Which of the following is NOT an opportunity cost of going to college?  the tuition cost Incorrect. You would pay for food and shelter anyway, so it is not part of the opportunity cost of going to college. Please see the section “Big Idea Three: Trade-offs Are Everywhere” for an explanation of opportunity cost.  the cost of textbooks Incorrect. You would pay for food and shelter anyway, so it is not part of the opportunity cost of going to college. Please see the section “Big Idea Three: Trade-offs Are Everywhere” for an explanation of opportunity cost.  the costs of food and shelter (True Answer )Correct. You would pay for food and shelter anyway, so it is not part of the opportunity cost of going to college.  the lost employment opportunities while in college Incorrect. You would pay for food and shelter anyway, so it is not part of the opportunity cost of going to college. Please see the section “Big Idea Three: Trade-offs Are Everywhere” for an explanation of opportunity cost. 8 People make decisions by comparing:  marginal benefits with marginal costs. (True Answer )Correct. People think on the margin.  total benefits with total costs. Incorrect. People think on the margin. Please see the section “Big Idea Four: Thinking on the Margin” for an explanation of the concept of “thinking on the margin.”  total benefits to them personally with the marginal cost to other people. Incorrect. People think on the margin. Please see the section “Big Idea Four: Thinking on the Margin” for an explanation of the concept of “thinking on the margin.”  marginal benefits to them personally with the total cost to other people. Incorrect. People think on the margin. Please see the section “Big Idea Four: Thinking on the Margin” for an explanation of the concept of “thinking on the margin.” 9 A new college graduate decides to go to graduate school instead of accepting a job offer. Which of the following would be a major factor for that decision?  The amount of additional income he or she will earn after completing the graduate degree as compared with the income from the job offer. (True Answer )Correct. The decision is based on the marginal income from earning the graduate degree.  Only the total income from getting the graduate degree. Incorrect. The decision is based on the marginal income from earning the graduate degree. Please see the section “Big Idea Four: Thinking on the Margin” for an explanation of “thinking on the margin.”  Only the total income from that job offer. Incorrect. The decision is based on the marginal income from earning the graduate degree. Please see the section “Big Idea Four: Thinking on the Margin” for an explanation of “thinking on the margin.”  None of the answers are correct. Incorrect. The decision is based on the marginal income from earning the graduate degree. Please see the section “Big Idea Four: Thinking on the Margin” for an explanation of “thinking on the margin.” 10 Which of the following is NOT a reason that specialization and trade are beneficial?  product variety (True Answer )Correct. Specialization and trade allow for higher productivity thanks to the division of knowledge and economies of scale.  division of knowledge Incorrect. Specialization and trade allow for higher productivity thanks to the division of knowledge and economies of scale. Please see the section “Big Idea Five: The Power of Trade” for an explanation of the