1. You and other college students are deciding whether to major in music or engineering. You learn that there is a shortage of engineers making it easy for engineering graduates to find employment while there is a glut of musicians for whom finding a job is difficult. As a result, you and many other college students decide to major in engineering. What economic principle does this illustrate?
a. Specialization leads to economic efficiency
b. Government intervention can improve efficiency when there is a market failure
c. Individuals do not normally take into account the decisions of other individuals
d. Markets tend to move towards equilibrium as individuals respond to incentives
e. Changes in incentives are unlikely to change the decisions people make
2. Which of the following describes the equity-efficiency trade-off?
a. Actions intended to make economic outcomes fairer can cause efficiency to decrease
b. Government intervention can increase efficiency in a market
c. There is always a more equitable outcome that is also more efficient
d. The least efficient economic outcome is the fairest outcome
3. John works eight hours per day. Today he has to decide whether to work overtime and stay one more hour in the office, or go back home and spend that hour studying for his economics exam. His company pays him $70 per day if he works 8 hours, and $100 per day if he works nine hours. Assuming that, if John studies one more hour, his exam score increases from 75 to 80, what is John's rational decision?
a. John decides to work overtime only if he values getting a 5 point increase on his exam score less than $30
b. John decides to work overtime only if he values getting an 80 on his exam more than $100
c. John decides to work overtime only if he values getting an 80 on his exam less than $100
d. John decides to work overtime only if he values getting a 5 point increase on his exam score more than $30
