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Econ 1 Midterm 1 Practice Problems 1. The overriding reason why households and societies face many decisions is that a. resources are scarce. b. goods and services are not scarce. c. incomes fluctuate with business cycles. d. people, by nature, tend to disagree. 2. Sophia is planning her activities for a hot summer day. She would like to go to the local swimming pool and see the latest blockbuster movie, but because she can only get tickets to the movie for the same time that the pool is open she can only choose one activity. This illustrates the basic principle that a. people respond to incentives. b. rational people think at the margin. c. people face tradeoffs. d. improvements in efficiency sometimes come at the expense of equality. 3. Efficiency a. and equality both refer to how much a society can produce with its resources. b. and equality both refer to how fairly the benefits from using resources are distributed between members of a society. c. refers to how much a society can produce with its resources. Equality refers to how evenly the benefits from using resources are distributed among members of society. d. refers to how evenly the benefits from using resources are distributed between members of society. Equality refers to how much a society can produce with its resources 4. When the government implements programs such as progressive income tax rates, which of the following is likely to occur? a. equality is increased and efficiency is increased. b. equality is increased and efficiency is decreased. c. equality is decreased and efficiency is increased. d. equality is decreased and efficiency is decreased. 5. Senator Brown wants to increase taxes on people with high incomes and use the money to help the poor. Senator Johnson argues that such a tax will discourage successful people from working and will therefore make society worse off. An economist would say that a. we should agree with Senator Brown. b. we should agree with Senator Johnson. c. a good decision requires that we recognize both viewpoints. d. there are no tradeoffs between equity and efficiency. 6. Ellie decides to spend two hours taking a nap rather than attending her classes. Her opportunity cost of napping is a. the value of the knowledge she would have received had she attended class. b. the $24 she could have earned if she had worked at her job for those two hours. c. the value of her nap less the value of attending class. d. nothing, since she valued sleep more than attendance at class. 7. Suppose after graduating from college you get a job working at a bank earning $30,000 per year. After two years of working at the bank earning the same salary, you have an opportunity to enroll in a one-year graduate program that would require you to quit your job at the bank. Which of the following should not be included in a calculation of your opportunity cost?... View Full Document

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