Chapter 1 — Quiz

A short self-check. Answer these honestly before you check the answer key in appendices/answers-to-selected.md.

Multiple choice (12 questions)

Q1. Scarcity exists when: a) A country is poor b) People's wants exceed the resources available to satisfy them c) A natural disaster destroys resources d) The government rations a good

Q2. A billionaire faces scarcity because: a) They cannot have everything they want b) They have less money than everyone else c) Time is a limited resource even for them d) Both (a) and (c)

Q3. The opportunity cost of going to college is: a) Tuition only b) Tuition plus the wages you would have earned working full-time instead c) The wages you would have earned working full-time only d) Whatever you pay for textbooks

Q4. "There is no such thing as a free lunch" is an expression of which concept? a) Marginal thinking b) Opportunity cost c) Sunk cost d) Incentives

Q5. A sunk cost is: a) A cost that is paid in installments b) A cost that has already been paid and cannot be recovered c) A cost that is hidden from the consumer d) The largest possible cost

Q6. Marginal thinking asks: a) What is the cost of doing this at all? b) What is the additional cost and benefit of one more unit? c) What is the average cost across all units? d) What is the cost in the long run?

Q7. The optimum amount of an activity is: a) As much as possible b) As little as possible c) The amount where marginal benefit equals marginal cost d) The amount that maximizes total cost

Q8. The "cobra effect" describes a situation where: a) Snakes are killed for their venom b) A policy creates an incentive that produces the opposite of the intended outcome c) A bounty is paid for evidence of pest reduction d) Wild animals are protected by treaty

Q9. Positive economics: a) Always presents economics in a positive (favorable) light b) Makes claims about what is (and can in principle be checked against evidence) c) Makes claims about what should be (based on values) d) Is the opposite of behavioral economics

Q10. Normative economics: a) Is about average or "normal" outcomes b) Makes claims about what is, based on data c) Makes claims about what should be, based on values d) Is impossible because economists are supposed to be objective

Q11. Two economists who agree on every positive fact about a tax policy can still disagree about whether the tax should be enacted because: a) They are using different data b) One of them must be wrong c) They have different values about what economic outcomes are most desirable d) Tax policy is too complicated for economic analysis

Q12. The economic way of thinking is best described as: a) A set of mathematical proofs b) A way of describing what people should do morally c) A lens that helps reveal the structure of choices under scarcity d) The science of money

Short answer (5 questions)

SA1. In your own words, explain why scarcity applies to a billionaire. Use 2–3 sentences.

SA2. Give an example from your own life of a decision where the opportunity cost was much larger than the dollar price tag. Identify both costs.

SA3. What is the "sunk cost fallacy"? Give an example from your own life of when you have fallen into it (or watched someone else fall into it).

SA4. A school district wants to improve attendance and announces that the student with the most consecutive days of perfect attendance will receive a $500 prize. Predict one intended and one unintended consequence of this policy.

SA5. Distinguish positive economics from normative economics in one or two sentences each. Then write one positive statement and one normative statement about the same policy issue (your choice of issue).

True / False (5 questions)

TF1. Opportunity cost is the value of all the alternatives you give up when you make a choice. (True / False)

TF2. "I already paid for the gym membership, so I should keep going even though I hate it" is an example of correct economic reasoning. (True / False)

TF3. Economists generally agree that people respond to incentives, even though the response is sometimes hard to predict. (True / False)

TF4. A statement like "the unemployment rate in March 2020 was 14.7%" is a normative claim. (True / False)

TF5. The economic way of thinking can be applied to non-monetary decisions. (True / False)

Selected answers and worked explanations are in appendices/answers-to-selected.md.