Exam 1

1. Economics is the study of

A. money and financial instruments

B. stocks and bonds

C. choice under scarcity

D. rational incentives at the margin

2. Economists assume people are

A. rational, respond to incentives, and make decisions at the margin

B. rational optimizers, and selfish

C. logical, responsible, and irrational

D. marginal, chaotic, and rational

3. If you change someone’s incentives, you may change their________.

A. worldview

B. behavior

C. political view

D. none of the above

4. What is opportunity cost?

A. the lowest valued alternative

B. what your competitor does

C. the highest valued alternative

D. the actual cost in money

5. What is comparative advantage?

A. being better at everything

B. taking advantage of the competition

C. having a lower opportunity cost than someone else

D. foreign direct investment

6. What does a production possibilities curve illustrate?

A. the tradeoff between two alternatives

B. the tradeoff between three alternatives

C. the possible opportunity costs between four comparative advantages

D. the comparative advantages of three products

7. What is the difference between positive economics and normative economics?

A. positive is about good things, normative is about normal expectations

B. positive is about marginal utility and normative is about opportunity costs

C. positive is about what is imaginary and normative is about what is real

D. positive is about what is and normative is about what ought to be

8. What does the law of diminishing marginal utility mean for medical spending and health?

A. as I spend more and more, I tend to get less and less of a gain

B. health care is a right

C. health declines as you spend more money

D. happiness is achieved by spending more and more on medical care

9. Who wins when a trade occurs?

A. buyers

B. sellers

C. both buyers and sellers

D. neither

10. How many more people are on the earth today than in 1800?

A. similar number

B. 3 times more

C. 5 times more

D. 7 times more

11. How do you expand the production possibilities curve?

A. more shovels

B. innovation and more resources

C. more hard work

D. cannot change without government permission

12. What is more important; goals or incentives?

A. goals

B. incentives

C. both are equally important

D. neither are important to economists

13. What is wealth?

A. oil

B. money

C. what people want

D. health care

14. Where is the iPhone made?

A. California

B. China

C. all over the planet

D. Europe and Asia

15. Do people always have opportunity costs?

A. always

B. most of the time

C. sometimes

D. never, if they are rich

16. What is an economic model?

A. a simplified version of reality

B. a two-way matrix

C. a production impossibilities curve

D. a pattern of efficiency, inefficient, and unobtainable locations

17. What are the primary concerns with third-party arrangements?

A. costs and benefits

B. complexity and incentives

C. choice and scarcity

D. production and distribution

18. What else do we call benefits?

A. diverted costs

B. opportunities

C. utility index

D. none of the above

19. Where is the optimal amount of health care?

A. total costs equal total benefits

B. total benefits are maximized

C. marginal costs equal marginal costs

D. minimize costs and maximize benefits

20. What are two ways to value a life under cost-benefit analysis?

A. opportunity costs and human capital

B. willingness-to-sell and yield inversion

C. present value discounting and future value compounding

D. human capital approach and willingness-to-pay approach

21. What is the weakness of the human capital approach?

A. easy to estimate

B. ignores everything but income

C. HUI is too low

D. actuarial advantage

22. If I spend 100 riyals to reduce the risk of death by 1 in 2000, what value do I give my life?

A. 2,000

B. 20,000

C. 200,000

D. 500,000

23. When there is a new innovation in medicine, what two things can happen?

A. more life for the same cost or same life for lower cost

B. more cost for the same life or same cost for less life

C. actuarial advantage or inverted yields

D. positive economics and normative economics

24. Cost Effective Analysis does what?

A. compares the marginal costs of two treatments

B. compares the costs of one treatment to the benefits of a human capital estimate

C. compares the cost effectiveness of two or more options

D. compares the human capital estimate to the human utility index

25. Can something that is less costly and less effective and still be valuable?

A. yes

B. no