AP Micro: Unit 1

The assertion by economists that "there is no free lunch" is: A) contradicted by the presence of free goods offered by firms. B) applies to goods that have prices, not to goods given away free by firms. C) remains true even for goods given away free by firms. D) applies to agricultural goods, but not to manufactured goods. Answer: C

) The assertion by economists that "there is no free lunch" is: A) contradicted by the presence of free goods offered by firms. B) applies to goods that have prices, not to goods given away free by firms. C) remains true even for goods given away free by firms. D) applies to agricultural goods, but not to manufactured goods. Answer: C

For economists, the word "utility" means: A) versatility and flexibility. B) rationality. C) pleasure and satisfaction. D) purposefulness. Answer: C

C) pleasure and satisfaction.

If a positive relationship exists between x and y: A) an increase in x will cause y to decrease. B) a decrease in x will cause y to increase. C) the relationship will graph as an upsloping line. D) the vertical intercept must be positive.

C) the relationship will graph as an upsloping line.

Economics involves marginal analysis because: A) most decisions involve changes from the present situation. B) marginal benefits always exceed marginal costs. C) marginal costs always exceed marginal benefits. D) much economic behavior is irrational. Answer: A

The economic perspective refers to: A) macroeconomic phenomena, but not microeconomic phenomena. B) microeconomic phenomena, but not macroeconomic phenomena. C) the making of rational decisions in a context of marginal costs and marginal benefits. D) unlimited resources in a context of limited economic wants. Answer: C

Economics may best be defined as the: A) interaction between macro and micro considerations. B) social science concerned with the efficient use of scarce resources to achieve maximum satisfaction of economic wants. C) empirical testing of value judgments through the use of logic. D) use of policy to refute facts and hypotheses. Answer: B

Microeconomics is concerned with: A) the aggregate or total levels of income, employment, and output. B) a detailed examination of specific economic units that make up the economic system. C) positive economics, but not normative economics. D) the establishing of an overall view of the operation of the economic system. Answer: B

Rational behavior suggests that: A) everyone will make identical choices. B) resource availability exceeds economic wants. C) individuals will make different choices because their preferences and circumstances differ. D) an individual's economic goals cannot involve tradeoffs. Answer: C

Refer to the above diagram. The equation that shows the relationship between Y and X is: A) Y = 50 + 1/4 X . B) X = 1/4 Y . C) Y = .4X . D) Y = 1/4 X - 50. Answer: A

Refer to the above diagram. The slope of the line: A) is - 1/4. B) is + 1/4. C) is .40. D) cannot be determined from the information given. Answer: B

Refer to the above diagram. The variables X and Y are: A) inversely related. B) directly related. C) unrelated. D) negatively related. Answer: B

Refer to the above diagram. The variables X and Y are: A) inversely related. Answer: B

Refer to the above diagram. The vertical intercept: A) is 40. B) is 50. C) is 60. D) cannot be determined from the information given. Answer: B

Refer to the above diagram. Which line(s) show(s) a negative relationship between x and y? A) A only B) both A and D C) A, B, and D D) both C and E Answer: D

Refer to the above diagram. Which line(s) show(s) a negative vertical intercept? A) C only B) both C and E C) B, C, and E D) both B and C Answer: D

Refer to the above diagram. Which line(s) show(s) a positive relationship between x and y? A) A only B) both A and D C) A, B, and D D) both C and E Answer: C

Refer to the above diagram. Which line(s) show(s) a positive vertical intercept? A) A and D only B) B and C only C) A, D, and E D) A, D, and B Answer: C

Refer to the above graph. Which of the following statements is correct? A) Quantity demanded and quantity supplied are independent of price. B) Price and quantity demanded are directly related. C) Price and quantity supplied are directly related. D) Price and quantity supplied are inversely related. Answer: C

Refer to the above information. Which of the following correctly expresses the indicated relationship as an equation? A) i = 20 - 4I. B) i = 20 - .4I. C) i = 24 - .4I. D) i = 20 - 10I. Answer: B

Studying economics: A) helps one become a better-informed citizen and voter. B) is detrimental to good citizenship because economics emphasizes individualism. C) is a waste of time since we all participate in the economy whether we understand it or not. D) is important because economics is the science of earning money. Answer: A

The above data indicate that: A) consumers spend 80 percent of their after-tax incomes. B) consumers spend 90 percent of their after-tax incomes. C) a tax reduction will reduce consumption. D) the relationship between consumption and after-tax income is random. Answer: B

The above data suggest that: A) a policy of tax reduction will increase consumption. B) a policy of tax increases will increase consumption. C) tax changes will have no impact on consumption. D) after-tax income should be lowered to increase consumption. Answer: A

The above data suggest that: A) consumption varies inversely with after-tax income. B) consumption varies directly with after-tax income. C) consumption and after-tax income are unrelated. D) a tax increase will increase consumption. Answer: B

The assertion that "There is no free lunch" means that: A) there are always tradeoffs between economic goals. B) all production involves the use of scarce resources and thus the sacrifice of alternative goods. C) marginal analysis is not used in economic reasoning. D) choices need not be made if behavior is rational. Answer: B

The economic perspective entails: A) irrational behavior by individuals and institutions. B) a comparison of marginal benefits and marginal costs in decision making. C) short-term but not long-term thinking. D) rejection of the scientific method. Answer: B

Answer on the basis of the relationships shown in the above four figures. The amount of Y is directly related to the amount of X in: A) both 1 and 3. B) both 1 and 2. C) 2 only. D) l only. Answer: D

Answer on the basis of the relationships shown in the above four figures. The amount of Y is inversely related to the amount of X in: A) 2 only. B) both 1 and 3. C) 3 only. D) 1 only. Answer: C

Answer on the basis of the relationships shown in the above four figures. The amount of Y is unrelated to the amount of X in: A) both 2 and 4. B) 3 only. C) 2 only. D) 1. Answer: C

Assume that if the interest rate that businesses must pay to borrow funds were 20 percent, it would be unprofitable for businesses to invest in new machinery and equipment so that investment would be zero. But if the interest rate were 16 percent, businesses will find it profitable to invest $10 billion. If the interest rate were 12 percent, $20 billion would be invested. Assume that total investment continues to increase by $10 billion for each successive 4 percentage point decline in the interest rate. Refer to the above graph. Which of the following is the correct graphical presentation of the indicated relationship? A) line 4 B) line 3 C) line 2 D) line 1 Answer: D

At fast-food restaurants: A) consumers enjoy complete and accurate information. B) decisions are usually made by trial and error. C) decisions entail comparisons of marginal costs and marginal benefits. D) benefits always exceed costs. Answer: C

The economic perspective used in customer decision making at fast-food restaurants is reflected in: A) customers selecting the shortest line. B) decisions for which marginal costs exceed marginal benefits. C) all customer lines tending to be of different length. D) irrational purchasing of high-fat-content food. Answer: A

Consumers might leave a fast-food restaurant without being served because: A) they are misinformed about the marginal cost and marginal benefits of the food being served. B) they conclude that the marginal cost (monetary plus time costs) exceeds the marginal benefit. C) the environment is not conducive to a rational choice. D) the lines waiting for service are not of equal length. Answer: B

Consumers spend their incomes to get the maximum benefit or satisfaction from the goods and services they purchase. This is a reflection of: A) resource scarcity and the necessity of choice. B) rational behavior. C) marginal costs that exceed marginal benefits. D) the tradeoff problem that exists between competing goals. Answer: B

Economists: A) always put the independent variable on the horizontal axis and the dependent variable on the vertical axis. B) always put the dependent variable on the horizontal axis and the independent variable on the vertical axis. C) are somewhat arbitrary in assigning independent and dependent variables to the horizontal and vertical axes. D) measure the slope of a line differently than do mathematicians. Answer: C

Even though local newspapers are very inexpensive, people rarely buy more than one of them each day. This fact: A) is an example of irrational behavior. B) implies that reading should be taught through phonics rather than the whole language method. C) contradicts the economic perspective. D) implies that, for most people, the marginal benefit of reading a second newspaper is less than the marginal cost. Answer: D

Free products offered by firms: A) may or may not be free to society, but are never free to individuals. B) may or may not be free to individuals, but are never free to society. C) are produced and distributed at no cost to society. D) usually are items nobody wants. Answer: B

If price (P) and quantity (Q) are directly related, this means that: A) a change in Q will alter P, but a change in P will not alter Q. B) if P increases, Q will decrease. C) if P increases, Q will also increase. D) an increase in P will cause Q to change, but the direction in which Q changes cannot be predicted. Answer: C

If two variables are inversely related, then as the value of one variable: A) increases, the value of the other may either increase or decrease. B) decreases, the value of the other decreases. C) increases, the value of the other decreases. D) increases, the value of the other increases. Answer: C

If we say that two variables are directly related, this means that: A) the relationship between the two is purely random. B) an increase in one variable is associated with a decrease in the other variable. C) an increase in one variable is associated with an increase in the other variable. D) the two graph as a downsloping line. Answer: C

If we say that two variables are inversely related, this means that: A) the two graph as an upsloping line. B) an increase in one variable is associated with a decrease in the other. C) an increase in one variable is associated with an increase in the other. D) the resulting relationship can be portrayed by a straight line parallel to the horizontal axis. Answer: B

In economics, the pleasure, happiness, or satisfaction received from a product is called: A) marginal cost. B) rational outcome. C) status fulfillment. D) utility. Answer: D

Joe sold gold coins for $1000 that he bought a year ago for $1000. He says, "At least I didn't lose any money on my financial investment." His economist friend points out that in effect he did lose money, because he could have received a 3 percent return on the $1000 if he had bought a bank certificate of deposit instead of the coins. The economist's analysis in this case incorporates the idea of: A) opportunity costs C) imperfect information. B) marginal benefits that exceed marginal costs. D) normative economics. Answer: A

Marginal costs exist because: A) the decision to produce more of some product means the sacrifice of other products. B) wants are scarce relative to resources. C) households and businesses make rational decisions. D) most decisions do not involve sacrifices or tradeoffs. Answer: A

The slope of a straight line can be determined by: A) comparing the absolute horizontal change to the absolute vertical change between two points on the line. B) comparing the absolute vertical change to the absolute horizontal change between two points on the line. C) taking the reciprocal of the vertical intercept. D) comparing the percentage vertical change to the percentage horizontal change between two points on the line. Answer: B

The study of economics is primarily concerned with: A) keeping private businesses from losing money. B) demonstrating that capitalistic economies are superior to socialistic economies. C) choices that are made in seeking to use scarce resources efficiently. D) determining the most equitable distribution of society's output. Answer: C

There can be too much of a good thing. This statement suggests that: A) rational choice cannot be applied to many economic decisions. B) a good may be produced to the point where its marginal cost exceeds its marginal benefit. C) certain goods and services such as education and health care are inherently desirable and should be produced regardless of costs and benefits. D) a good may be produced to the point where its marginal benefit exceeds its marginal cost. Answer: B

There is too little of a good thing when its marginal: A) benefit exceeds its marginal cost. B) cost exceeds its marginal benefit. C) cost equals its marginal benefit. D) benefit is still positive. Answer: A

There is too little of a good thing when its marginal: A) benefit exceeds its marginal cost. B) cost exceeds its marginal benefit. Answer: A

When economists say that people act rationally in their self interest, they mean that individuals: A) look for and pursue opportunities to increase their utility. B) generally disregard the interests of others. C) are mainly creatures of habit. D) are unpredictable. Answer: A

When entering a building, Sam diverts his path to go through an open door rather than make the physical effort to open the closed door that is directly in his path. This is an example of: A) irrational behavior. B) a lazy person. C) marginal benefit-marginal cost analysis. D) programmed learning. Answer: C

You should decide to go to a movie: A) if the marginal cost of the movie exceeds its marginal benefit. B) if the marginal benefit of the movie exceeds its marginal cost. C) if your income will allow you to buy a ticket. D) because movies are enjoyable. Answer: B

AP Micro: Unit 1

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