Economics Chapter 1: Five Foundations

Questions and Answers

What do incentives matter?

Incentives are factors that motivate you to act or exert effort.

What are positive incentives?

Factors that encourage action by offering rewards (correct)

Factors that have no impact

Factors that only apply to monetary value

Factors that discourage action

What are negative incentives?

Factors that only apply to rewards

Factors that have no impact

Factors that encourage action

Factors that discourage action (correct)

What is an example of a direct incentive?

Paying students for grades. Signup and view all the answers

What is an indirect incentive?

A secondary change in behavior due to an initial incentive. Signup and view all the answers

What is an unintended consequence?

An unplanned result, usually negative and unwanted. Signup and view all the answers

What does marginal thinking refer to?

Making decisions based on the additional benefit versus the additional cost. Signup and view all the answers

What describes the thinking of government officials offering a payment for each child born?

Incentives Signup and view all the answers

What is the opportunity cost of going to the theatre?

$57 Signup and view all the answers

What does trade create?

Value. Signup and view all the answers

Scarcity refers to the __________ nature of society's resources.

limited Signup and view all the answers

Which of the following best illustrates a macroeconomic issue?

National unemployment rate Signup and view all the answers

Economics is the study of how people allocate their resources to satisfy their nearly _ wants.

limited; unlimited Signup and view all the answers

Incentives can be classified as:

Positive or negative, direct or indirect Signup and view all the answers

Opportunity cost is the ______________ alternative that must be sacrificed in order to get something else.

highest-valued Signup and view all the answers

Who has the highest opportunity cost of attending college?

A high school graduate capable of playing a well-paid professional sport. Signup and view all the answers

What is Judy's marginal cost in terms of TV viewing?

Four hours. Signup and view all the answers

What is the opportunity cost for Jewell if she chooses pasta?

Either chicken or steak - whichever was her second choice. Signup and view all the answers

What does scarcity in economics refer to?

Limited resources and unlimited wants. Signup and view all the answers

What is an example of comparative advantage?

A physician hiring a plumber. Signup and view all the answers

What is the term for the voluntary exchange of goods and services?

Trade. Signup and view all the answers

What is the difference between microeconomics and macroeconomics?

The study of individual economic units versus the study of the economy as a whole. Signup and view all the answers

The concept of _________________ refers to weighing the costs and benefits of an action.

marginal thinking Signup and view all the answers

What is the example of incentives in your online order?

Free shipping offer. Signup and view all the answers

What is the opportunity cost if you choose the cruise over a service trip?

Alternative Spring Break. Signup and view all the answers

Study Notes

Incentives Matter

Incentives are motivating factors that influence actions and effort.

Types of Incentives

Positive incentives promote actions through rewards, such as grades or bonuses.
Negative incentives deter actions through consequences, like bad grades or fines.

Direct and Indirect Incentives

Direct incentives are clear rewards for specific actions, e.g., paying for grades.
Indirect incentives can lead to unforeseen behaviors, such as cheating for financial gains.

Unintended Consequences

Unintended consequences refer to unplanned outcomes, often negative, like higher food prices due to reduced corn supply.

Marginal Thinking

Marginal thinking involves making decisions based on the additional benefits versus the additional costs.

Opportunity Cost

Opportunity cost is the value of the next best alternative forgone when making a choice.
High opportunity costs can arise for individuals with lucrative alternatives, such as professional athletes considering college.

Trade Creates Value

Trade enhances value as both parties can benefit from exchanging goods or services at different costs.

Scarcity

Scarcity highlights the limited nature of resources versus limitless societal wants, necessitating economic decision-making.

Economic Studies

Microeconomics focuses on individual units in the economy, while macroeconomics examines the economy as a whole.

Marginal Thinking and Decision-Making

Marginal thinking assesses cost-benefit analyses to facilitate informed decisions, measuring added benefits against potential sacrifices.

Comparative Advantage

Comparative advantage allows entities to engage in tasks more efficiently than competitors, fostering specialization.

Voluntary Exchange

Trade involves the voluntary exchange of goods and services among parties, fostering economic interaction.

Application Examples

Real-world scenarios, like SAM’s weekend choices or Judy’s study commitments, illustrate opportunity costs and marginal costs in action.

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Description

Explore the key concepts of Chapter 1 in Economics, focusing on the five fundamental foundations that guide economic behavior. This quiz covers essential terms such as incentives, both positive and negative, that motivate individuals to take action. Enhance your understanding of how incentives shape decision-making in economic contexts.