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Finley
Finley, Professor
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1. Which of the following statements is true about scarcity?

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1. Which of the following statements is true about scarcity? (Points : 1) Scarcity refers to the situation in which unlimited wants exceed limited resources. Scarcity is not a problem for the wealthy. Scarcity is only a problem when a country has too large a population. Scarcity arises when there is a wide disparity in income distribution. 2. Cassie's Quilts alters, reconstructs and restores heirloom quilts. Cassie has just spent $800 purchasing, cleaning and reconstructing an antique quilt which she expects to sell for $1,500 once she is finished. After having spent $800, Cassie discovers that she would need some special period fabric that would cost her $200 in material and time order to complete the task. Alternatively, she can sell the quilt "as is" now for $900. What is her marginal benefit if she sells the quilt "as is" now? (Points : 1) $100 $900 She makes a marginal loss of $600, not a marginal benefit. The marginal benefit cannot be determined. 3. Over the past decade, health plans have sought to contain rising health care costs by raising premiums and encouraging the use of lower-cost generic drugs. Recently, some health insurers have implemented plans that involve lowering or eliminating co-payments on medications for chronic illnesses. Source: Vanessa Fuhrmans, "New Tack on Copays: Cutting Them", Wall Street Journal, Tuesday, May 8 2007, Page D1. Which of the following best explains why employers and health insurers might choose to adopt this radical approach? (Points : 1) These health plans are trying to persuade employers and consumers to bear a greater share of rising health care costs. They believe that this will give consumers incentives to take better care of their health which in turn, will enable health plans to save even more money by preventing costly health crises down the road. Health insurers have an incentive to institute plans that promote equity. Health insurers are finally recognizing that many, especially the elderly, are not getting the care they need. 4. Which of the following best describes an assumption economists make about human behavior? (Points : 1) They assume that individuals act rationally all the time in all circumstances. They assume that rational behavior is useful in explaining choices people make even though people may not behave rationally all the time. They assume that people take into account the question of fairness in all decisions they make. They assume that individuals act randomly. 5. Your roommate, Serafina, a psychology major, said, "The problem with economics is that it assumes that consumers and firms always make the correct decision. But we know that everyone's human, and we all make mistakes." Do you agree with her comment? (Points : 1) Yes, I agree with her. One cannot make predictions about economic behavior because in reality people make incorrect choices in many situations. I disagree with her. Economics does not study correct or incorrect behaviors but rather it assumes that economic agents behave rationally, meaning they make the best decisions given their knowledge of the costs and benefits. Yes, I agree with her. Economic theory should allow for irrational behavior so that we can have more reliable predictions. I disagree with her. If we cannot assume that decisions are correct, then we will not be able to examine the moral implications of these decisions. 6. Hurricane Katrina which hit the Gulf Coast region in August 2005, resulted in massive flooding which destroyed large sections of New Orleans. Suppose prior to this event, New Orleans was producing an output combination given by a point on its production possibilities frontier. How did the hurricane affect its production possibilities frontier? (Points : 1) New Orleans' output combination moved from a point on the frontier to a point given by one of the intercepts. The production possibilities frontier does not shift but there is a movement from a point on the frontier to a point inside the frontier. The production possibilities frontier shifts inwards. The production possibilities frontier no longer exists. 8. Figure 2-3






















8.



Figure 2-3



Refer to Figure 2-3. Carlos Vanya grows tomatoes and strawberries on his land. A portion of his land is more suitable for growing tomatoes and the other portion is better suited for strawberry cultivation. Which of the graphs in Figure 2-3 represent his production possibilities frontier? (Points : 1)




Graph A
Graph B
Graph C
either Graph A or Graph B
either Graph B or Graph C




var questionIndex = "7";

























9. A successful market economy requires well defined property rights and (Points : 1)




balanced supplies of all factors of production.
an independent court system to adjudicate disputes based on the law.
detailed government regulations.
a safety net to ensure that those who cannot participate in the market economy can earn an income.




var questionIndex = "8";
























10. An example of a factor of production is (Points : 1)


a car produced by an auto manufacturer.
a worker hired by an auto manufacturer.
a loan granted to an auto manufacturer.
the automobiles exported by an auto manufacturer.



1. Scarcity refers to the situation in which unlimited wants exceed limited resources.

2. $900

3. They believe that this will give consumers incentives to take better care of their health which in turn, will enable health plans to save even more money by preventing costly health crises down the road.

4. They assume that rational behavior is useful in explaining choices people make even though people may not behave rationally all the time.

5. I disagree with her. Economics does not study correct or incorrect behaviors but rather it assumes that economic agents behave rationally, meaning they make the best decisions given their knowledge of the costs and benefits.

6. The production possibilities frontier shifts inwards.

7. movement from J to H in Graph B.
Here's the rest:

8. Graph A

9. an independent court system to adjudicate disputes based on the law.

10. a worker hired by an auto manufacturer.
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