Economics is the study of how society manages its a. limited wants and unlimited resources. b. unlimited wants and unlimited resources. c. limited wants and limited resources. d. unlimited wants and limited resources. 2. John is an athlete. He has $120 to spend and wants to buy either a heart rate monitor or new running shoes. Both the heart rate monitor and running shoes cost $120, so he can only buy one. This illustrates the principle that a. trade can make everyone better off. b. people face trade-offs. c. rational people think at the margin. d. people respond to incentives. 3. Consider Deborah’s decision to go to college. If she goes to college, she will spend $20,000 on tuition, $10,000 on room and board, and $2,000 on books. If she does not go to college, she will earn $18,000 working in a store and spend $8,000 on room and board. Deborah’s cost of going to college is a. $32,000. b. $42,000. c. $50,000. d. $58,000. 4. Suppose that you have received $200 as a birthday gift. You can spend it today or you can put the money in a bank account for a year and earn 4 percent interest. The opportunity cost of spending the money today is a. $0. b. $8. c. $200. d. $208. 5. Rational people make decisions “at the margin” by comparing a. average costs and benefits. b. total costs and benefits. c. additional costs and benefits. d. opportunity costs and benefits. 6. Suppose the cost of flying a 200-seat plane for an airline is $100,000 and there are 10 empty seats on a flight. If the marginal cost of flying a passenger is $200 and a standby passenger is willing to pay $300, the airline should a. sell the ticket because the marginal benefit exceeds the marginal cost. b. sell the ticket because the marginal benefit exceeds the average cost. c. not sell the ticket because the marginal benefit is less than the marginal cost. d. not sell the ticket because the marginal benefit is less than the average cost. 7. Suppose the cost of flying a 100-seat plane for an airline is $50,000 and there are 10 empty seats on a flight. The average cost per seat is a. $50. b. $500. c. $50,000. d. This cannot be determined from the information given. 8. Suppose the cost of flying a 100-seat plane for an airline is $50,000 and there are 10 empty seats on a flight. The marginal cost of flying a passenger is a. $50. b. $500. c. $50,000. d. This cannot be determined from the information given. 9. Suppose the cost of flying a 200-seat plane for an airline is $100,000 and there are 10 empty seats on a flight. The airline should sell a ticket to a standby passenger only if the passenger is willing to pay a. more than $200. b. more than $300. c. more than $500. d. This cannot be determined from the information given. 10. It costs a company $35,000 to produce 500 graphing calculators. The company’s cost will be $35,050 if it produces an additional graphing calculator. If the company produces 500 graphing calculators then a. its average cost is greater than its marginal cost. b. its average cost and its marginal cost are equal. c. its average cost is less than its marginal cost. d. This cannot be determined from the information given. 11. Something that induces a person to act is called a. a trade-off. b. a policy. c. an incentive. d. an opportunity cost. 12. When United States trades with China, a. both countries will likely benefit. b. only United States will benefit. c. only China will benefit. d. neither country will benefit. 13. The "invisible hand" refers to a. the government. b. the free market. c. central planners. d. large businesses. 14. Air pollution from burning fossil fuels causes damages to crops and public health. This is an example of a. a market failure caused by an externality. b. a market failure caused by market power. c. a market failure caused by equality. d. There is no market failure in this case. 15. Which of the following is an example of an externality? a. A paper mill dumps waste into the river. b. A neighbor’s loud music disrupts sleep. c. A drunk driver causes an accident that injures another person. d. All of the above are correct.