True/False
Indicate whether the
sentence or statement is true or false.
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1.
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If there were no scarcity, economics would still give valuable insights.
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2.
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When economists say, "There is no such thing
as a free lunch," they mean that all economic decisions involve trade-offs.
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3.
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The expected value of a variable
is the sum of all possible values which this variable can take, weighted with the probability that the variable takes each value.
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4.
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Rational people act only when the marginal benefit
of the action exceeds the marginal cost.
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5.
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If the opportunity cost of going to prison for some person falls, this person is less likely to commit a criminal act.
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6.
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When there are more policemen on the ground, the probability of getting caught when committing a crime increases, hence the expected cost of committing a crime increases as well.
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7.
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Rioting can be explained as a "tipping-point" phenomenon.
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8.
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An unintended consequence of public support for
higher education is that low tuition provides an incentive for many people to attend state
universities even if they have no desire to learn anything.
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9.
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Sue is better at cleaning and Bob is better at
cooking. It will take fewer hours to eat and clean if Bob specializes in cooking and Sue specializes
in cleaning than if they share the household duties evenly.
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10.
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Scientists collect and analyze data to verify or refute their theories.
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11.
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A successful scientist formulates theories such that under no circumstances can they be falsified.
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12.
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A car manufacturer should continue to produce
additional cars as long as the firm is profitable, even if the cost of the additional units exceeds
the price received.
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13.
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To the statistician, CAUSE is essentially the same thing as CORRELATION.
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14.
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To a student, the opportunity cost of going to a
football match would include the price of the ticket and the value of the time that could have been
spent studying.
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15.
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In a natural experiment, some exogenous force (i.e. something which is itself unaffected by what we want to explain) changes only the factor which the econometrician believes to be the cause of some observed result.
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Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question.
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16.
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Which of the following involve a
trade-off?
a. | Taking a nap | b. | All of these answers involve trade-offs. | c. | Watching a football game on Saturday afternoon | d. | Going to university | e. | Buying a new
car |
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17.
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Trade-offs are required because wants are unlimited
and resources are
a. | economical. | b. | unlimited. | c. | efficient. | d. | marginal. | e. | scarce. |
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18.
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Economics is the study of
a. | how society manages its unlimited
resources. | b. | how to reduce our
wants until we are satisfied. | c. | how society
manages its scarce resources. | d. | how to fully
satisfy our unlimited wants. | e. | how to avoid
having to make trade-offs. |
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19.
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A rational person does not act unless
a. | the action is ethical. | b. | the action produces marginal costs that exceed marginal
benefits. | c. | the action produces marginal benefits that exceed
marginal costs. | d. | the action makes
money for the person. | e. | none of these
answers. |
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20.
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Which of the following is NOT a natural experiment capable of verifying or refuting the theory you want to test?
a. |
Theory: Immigration has a negative effect on the wages of the local workforce. Experiment: For political reasons, there is a sudden influx of people from Cuba into Miami which is unparalleled in any other major American city.
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Theory: A law which forces employers to pay a minimum wage reduces employment. Experiment: The state of New Jersey introduces a minimum wage law but Pennsylvania does not.
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Theory: Legalising abortion has a negative effect on crime rates one generation later. Experiment: Some American states legalize abortion in 1970, three years before abortion is made legal in all American states.
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All the cases produce natural experiments which are capable of explaining the respective theory.
| e. |
Your theory: Incomes in university towns are higher than in other towns. Experiment: The government runs a program to build new universities mainly in poor regions.
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21.
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Suppose you find €20. If you choose to use
the €20 to go to a football match, your opportunity cost of going to the game is
a. | nothing, because you found the
money. | b. | €20 (because you could have used the €20 to
buy other things) plus the value of your time spent at the game. | c. | €20 (because you could have used the €20 to buy other things) plus
the value of your time spent at the game, plus the cost of the dinner you purchased at the
game. | d. | €20 (because you could have used the €20 to
buy other things). | e. | none of these
answers |
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22.
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Since people respond to incentives, we would expect
that, if the average salary of accountants increases by 50% while the average salary of teachers
increases by 20%, then
a. | fewer students will take degree courses in accounting
and more will take education courses. | b. | fewer students
will take degree courses in education and more will take accounting
courses. | c. | fewer students will attend
university. | d. | none of these
answers. |
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23.
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Which of the following is not part of the opportunity cost of going on holiday?
a. | the money you spent on a theatre show there. | b. | the money you could have made if you had stayed at home and worked. | c. | the money you spent on food. | d. | the money you spent on airline tickets. |
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24.
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Which of the following statements is true about a
market economy?
a. | With a large enough computer, central planners could
guide production more efficiently than markets. | b. | In a market the self-interested actions of market participants are
co-ordinated in such a way as to bring about an outcome from which everybody benefits. | c. | The strength of a market system is that it tends to
distribute resources evenly across consumers. | d. | Taxes help prices
communicate costs and benefits to producers and consumers. |
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25.
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You are planning to run a hot dog stand during a
forthcoming fair. You originally estimated that you will generate sales revenue of €2000 and
you have already spent €1000 building the hot dog stand. The hot dog stand is nearly completed
but now you estimate total sales to be only €800 because the fair clashes with a major music
festival in a nearby location.. You can complete the hot dog stand for another €300. Should you
complete the hot dog stand? (Assume that there are no other costs - the hot dogs are costless to
you.)
a. | There is not enough information to answer this
question. | b. | Yes. | c. | No. |
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26.
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You are planning to run a hot dog stand during a
forthcoming fair. You originally estimated that you will generate sales revenue of €2000 and
you have already spent €1000 building the hot dog stand. The hot dog stand is nearly completed
but now you estimate total sales to be only €800 because the fair clashes with a major music
festival in a nearby location.. You can complete the hot dog stand for another €300. Your
decision rule should be to complete the hot dog stand as long as the cost to complete the stand is
less than
a. | €300 | b. | €100 | c. | €500 | d. | none of these
answers. | e. | €800 |
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