Macro Chapter 1

When a society cannot produce all the goods and services people wish to have, the economy is experiencing a. scarcity. b. surpluses. c. inefficiencies. d. inequalities.

a. scarcity.

Barb's aunt gave her $100 for her birthday with the condition that Barb buy herself something. In deciding how to spend the money, Barb narrows her options down to four choices: Option A, Option B, Option C, and Option D. Each option costs $100. Finally she decides on Option B. The opportunity cost of this decision is a. the value to Barb of the option she would have chosen had Option B not been available. b. the value to Barb of Options A, C and D combined. c. the average of the values to Barb of Options A, C, and D. d. $100.

a. the value to Barb of the option she would have chosen had Option B not been available.

Suppose one county in Missouri decides it wants to reduce alcohol consumption, so the county passes a law that raises the price of a bottle of beer by $1. As a result, people drive to other counties to drink alcohol, which results in an increase in drunk driving. This illustrates the principle that people respond to incentives. a. True b. False

a. True

Trade allows each person to specialize in the activities he or she does best, thus increasing each individual's productivity. a. True b. False

a. True

When society gets the most it can from its scarce resources, then the outcome is called a. equitable. b. efficient. c. normal. d. efficacious.

b. efficient.

Billie Jean has $120 to spend and wants to buy either a new amplifier for her guitar or a new mp3 player to listen to music while working out. Both the amplifier and the mp3 player cost $120, so she can only buy one. This illustrates the basic concept that a. trade can make everyone better off. b. people face trade-offs. c. rational people think at the margin. d. decisions made at the margin are not particularly important.

b. people face trade-offs.

The income of a typical worker in a country is most closely linked to which of the following? a. population b. productivity c. market power d. government policies

b. productivity

Consider Mandy'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. Mandy's cost of going to college is a. $32,000. b. $42,000. c. $50,000. d. $58,000.

b. $42,000.

An increase in the marginal cost of an activity necessarily means that people will no longer engage in any of that activity. a. True b. False

b. False

Inflation is the primary determinant of a country's living standards. a. True b. False

b. False

With careful planning, we can usually get something that we like without having to give up something else that we like. a. True b. False

b. False

In the broadest sense, economics is the study of a. production methods. b. how society manages its scarce resources. c. how households decide who performs which tasks. d. the interaction of business and government.

b. how society manages its scarce resources.

Which of the following is not an example of a group responding to an incentive? a. Students attend class because of an attendance policy that reduces their grade for absences. b. Consumers buy more of a product when it is on sale at a reduced price. c. Universities offer fewer online classes when they generate more revenue than traditional classes. d. Employees work harder to earn higher commissions.

c. Universities offer fewer online classes when they generate more revenue than traditional classes.

In the former Soviet Union, producers were paid for meeting output targets, not for selling products. Under those circumstances, what were the economic incentives for producers? a. to produce good quality products so that society would benefit from the resources used b. to conserve on costs, so as to maintain efficiency in the economy c. to produce enough to meet the output target, without regard for quality or cost d. to produce those products that society desires most

c. to produce enough to meet the output target, without regard for quality or cost

Mary and Martha both can make cookies and cakes of the same quality, though Mary can make more of both cookies and cakes per hour than Martha. With the bake-sale quickly approaching, they want to make as many cookies and cakes as possible. In which of the following situations will the most cookies and cakes be made? a. Mary makes as many cookies and cakes as she can, while Martha does nothing. b. Martha makes as many cookies and cakes as she can, while Mary does nothing. c. ​Mary and Martha both specialize in what they are better at making. d. There is not enough information.

c. ​Mary and Martha both specialize in what they are better at making.

According to Adam Smith, the success of decentralized market economies is primarily due to a. the basic benevolence of society. b. society's legal system. c. individuals' pursuit of self-interest. d. partnerships that are forged between business and government.

c. individuals' pursuit of self-interest.

When the government redistributes income from the wealthy to the poor, a. efficiency is improved, but equality is not. b. both wealthy people and poor people benefit directly. c. people work less and produce fewer goods and services. d. the government collects more revenue in total.

c. people work less and produce fewer goods and services.

A construction company has built 30 houses so far this year at a total cost to the company of $7.5 million. If the company builds a 31st house, its total cost will increase to $7.76 million. Which of the following statements is correct? a. For the first 30 houses, the average cost per house was $250,000. b. The marginal cost of the 31st house, if it is built, will be $260,000. c. If the company can experience a marginal benefit of $275,000 by building the 31st house, then the company should build it. d. All of the above are correct.

d. All of the above are correct.

Incomes of U.S. households in the 1970s and 1980s a. grew rapidly, due to the widespread success of labor unions in pushing up wages during those decades. b. grew rapidly, due to several increases in the minimum wage during those decades. c. grew rapidly, due to government policies that discouraged the importation of foreign products during those decades. d. grew slowly, due to slow growth of the output of goods and services per hour of U.S. workers' time during those decades.

d. grew slowly, due to slow growth of the output of goods and services per hour of U.S. workers' time during those decades.

In a market economy, economic activity is guided by a. the government. b. central planners. c. large businesses. d. prices and self-interest.

d. prices and self-interest.