45-52 1-7

The adage, "There ain't no such thing as a free lunch,"

	A.	means people always have to pay for the scarce goods and services they receive.
	B.	means someone, somewhere, always pays for scarce goods and services.
	C.	does not apply to intangible things, like romantic relationships.
	D.	all of the above.

Market failure means:

	A.	Government solutions will definitely improve economic outcomes
	B.	The market mechanism does not produce the correct amount of goods and services from society's point of view
	C.	The market needs to be regulated
	D.	All of the above

Productive efficiency is achieved when:

	A.	firms produce the correct amount of goods and services from societies point of view
	B.	firms produce at their lowest possible average cost
	C.	firms have an incentive to innovate
	D.	all of the above

John Smith operates his own business. He makes $1000 of total revenue. He has a payroll cost of $300. He pays $0 of rent because he does not have to pay the market rent $500 because he owns his own building. He also could earn $400 if he worked for another company, but cannot work there because he runs this business. The interest rate is currently zero.

	A.	John Smith is earning an accounting loss and an economic profit
	B.	John Smith is earning an accounting profit and an economic profit
	C.	John Smith is earning an accounting profit but an economic loss
	D.	John Smith is earning an accounting loss and an economic loss

John is currently deciding how to spend his night. He can work and make $100, or watch a videotape of the greatest collapse in sports history (the 2004 NY Yankees loss to the Red Sox) or study economics. He chooses to watch the videotape. His second choice was studying economics. His third choice was working. John's opportunity cost for watching the videotape is:

	A.	A) his lost satisfaction from notstudying
	B.	his lost satisfaction from not watching thevideotape
	C.	his lost $100 of income from notworking
	D.	Both A and C

Which of the following is an example of a market failure, but not a government failure?

	A.	Externalities
	B.	Lack of competition
	C.	Poor information
	D.	None of the above. (They are all failures of government as well.)

In class, your professor offered money for students to shave their heads. He had to offer increasing amounts of money per shaved head in order to get additional students to do this. Which of the following is the best explanation of why he had to offer increasing amount of money per shaved head?.

	A.	Resources are scarce
	B.	Resources are specialized
	C.	Students had a constant opportunity cost for shaving their head
	D.	Students are irrational.

Deadweightloss:

	A.	is the lost surplus from efficient trades that do not occur
	B.	the losses that occur when output is produced a cost that is higher than its minimum point
	C.	the lost innovation that occurs when there are not strong incentives to innovate
	D.	All of the above

Which of the following is not an economic resource?

	A.	Money
	B.	Labor
	C.	Entrepreneurship
	D.	Capital

Economists believe all of the following except:

	A.	Incentives usually influence people's behavior
	B.	Individuals are generally motivated by the public interest
	C.	There ain't no such thing as a free lunch
	D.	Individuals use marginal analysis when making a decision.

John is deciding whether to go to college. He knows that if he goes, he will have to quit his $15,000 a year job. He needs to know what is the true cost of attending his first year of college. John's expenses of going to college of college tuition are: $10,000 ( $7000 tuition, $1000 for books, and $2000, for extra transportation costs.) John could have invested his $10,000 atayearly interest rateis 10%. An economist wouldcalculate the cost ofof going to college for one year.

	A.	$10,000
	B.	$25,000
	C.	$11,000
	D.	$26,000

Which of the following is the correct positive economic analysis of the following scenario?10 people go out to dinner. In order to keep the total cost of the bill down, the people need to decide beforehand to split the total bill by the number 10. (Not separate checks, simply total up the bill and divide by the number 10.)

	A.	This statement isfalse, because this is an unfair way to divide the bill
	B.	This statement istrue, because this is the fairest way to divide the bill
	C.	This statement istrue, because each individual will be careful not to order too much food.
	D.	This statement is false, because each individual will have an incentive to order extra food.

Competitive markets tend to:

	A.	reduce deadweight loss
	B.	increase bargaining costs
	C.	Both A and B
	D.	Neither A nor B

If a market produces a correct amount of goods and services from society's point of view then the market is said to be:

	A.	allocatively efficient
	B.	productively efficient
	C.	dynamically effiicent
	D.	all of the above

Consider the following two-person society. Bob has two healthy kidneys. He values this second (back-up) kidney at $100,000. Barbara has two unhealthy kidneys and values a new kidney (which will save her life) at $500,000. Barbara agrees to buy the kidney from Bob for a price of $300,000. From an economist's perspective:

	A.	Barbara is worse off by$300,000
	B.	producer surplus is$300,000
	C.	the size of the economic pie (total surplus)increases by$400,000
	D.	Both B and C

"Every night before a test, John eats a pizza. Every test John gets an A. Therefore, John must be getting an A because he eats pizza." The preceding quote is an example of:

	A.	A Normative Economic Statement
	B.	The Fallacy that Association is Causation
	C.	Both A and B
	D.	Neither A nor B