Q: A rational decision-maker will continue to engage in an activity as long as:

$$\text{Marginal Benefit} \u003e \text{Marginal Cost}$$

Question 1

Which of the following best describes the concept of opportunity cost?

Accepted Answer

The value of the next best alternative that must be forgone.

Question 2

Suppose a government increases the tax on cigarettes to discourage smoking. According to economic theory, what is the most likely outcome?

Accepted Answer

People will smoke less because the higher cost acts as a disincentive.

Question 3

A rational decision-maker will continue to engage in an activity as long as:

Accepted Answer

$$	ext{Marginal Benefit} \u003e 	ext{Marginal Cost}$$

Question 4

Which of the following is an example of a positive economic statement?

Accepted Answer

Raising taxes will reduce consumer spending.

Question 5

In a market economy, who primarily makes decisions about what goods and services are produced?

Accepted Answer

Firms and households

Question 6

Which of the following best illustrates the trade-off between efficiency and equity?

Accepted Answer

A government policy that redistributes income from the wealthy to the poor may reduce incentives to work, but increases fairness.

Question 7

Which of the following is NOT one of the three fundamental economic questions every society must answer?

Accepted Answer

How much money should be printed each year?

Question 8

A student decides to spend an extra hour studying for an exam instead of watching a movie. The opportunity cost of this decision is:

Accepted Answer

The enjoyment they would have received from watching the movie.

Question 9

Which of the following statements about economic models is correct?

Accepted Answer

Economic models are simplified representations used to explain and predict economic behavior.

Question 10

Which of the following best describes the difference between microeconomics and macroeconomics?

Accepted Answer

Microeconomics studies individual households and firms, while macroeconomics studies the economy as a whole.

Question 11

Suppose a city government offers a cash reward for recycling plastic bottles. According to the concept of incentives, what is the most likely result?

Accepted Answer

People will recycle more bottles because the reward increases the benefit of recycling.

Question 12

Which of the following is an example of a normative economic statement?

Accepted Answer

The government should reduce taxes to stimulate the economy.

Question 13

A centrally planned economy is characterized by:

Accepted Answer

Resource allocation decisions made primarily by the government.

Question 14

If the marginal benefit of producing one more unit of a good is $$50 and the marginal cost is 40$$, what should a rational producer do?

Accepted Answer

Produce more units because $$	ext{Marginal Benefit} \u003e 	ext{Marginal Cost}.$$

Question 15

Which of the following best describes scarcity?

Accepted Answer

Resources are limited and wants are unlimited.

Question 16

Which of the following is an example of thinking at the margin?

Accepted Answer

Deciding whether to study one more hour for an exam.

Question 17

Which of the following is a possible unintended consequence of a government policy that sets a maximum price for rental apartments (rent control)?

Accepted Answer

A shortage of available apartments.

Question 18

Which of the following best describes a mixed economy?

Accepted Answer

An economy that combines market forces with significant government involvement.

Question 19

A firm is considering hiring one more worker. The marginal benefit of hiring the worker is $$100, and the marginal cost is 120. $$What should the firm do?

Accepted Answer

Not hire the worker because marginal cost exceeds marginal benefit.

Question 20

Which of the following is an example of microeconomics?

Accepted Answer

Studying how a firm sets the price of its product.

Economics: Foundations and Models – Chapter 1 Study Notes

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