1. While pollution regulations yield the benefit of a cleaner environment and the improved health that comes with

1. While pollution regulations yield the benefit of a cleaner environment and the improved health that comes with
it, the regulations come at the cost of reducing the incomes of the regulated firms’ owners, workers, and customers. This statement illustrates the principle that
a. trade can make everyone better off.
b. rational people think at the margin.
c. people face tradeoffs.
d. people respond to incentives.
2. Katie is planning to sell her house, and she is considering making two upgrades to the house before listing it for sale. Replacing the carpeting will cost her $2,500 and replacing the roof will cost her $9,000. Katie expects the new carpeting to increase the value of her house by $3,000 and the new roof to increase the value of her house by $7,000.
a. She should make both improvements to her house.
b. She should replace the carpeting but not replace the roof.
c. She should replace the roof but not replace the carpeting.
d. She should not make either improvement to her house.
3. The opportunity cost of an item is
a. the number of hours needed to earn money to buy the item.
b. what you give up to get that item.
c. usually less than the dollar value of the item.
d. the dollar value of the item.

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