Microeconomics Ch. 1-2

Hours Open --> Total Revenue (dollars) 1 $50 2 $75 3 $95 4 $110 5 $120 6 $125 What is Lydia's marginal benefit if she decides to stay open for two hours instead of one hour? A) $25 B) $50 C) $75 D) $125

A) $25

Which of the following statements is true about scarcity? A) Scarcity refers to the situation in which unlimited wants exceed limited resources. B) Scarcity is not a problem for the wealthy. C) Scarcity is only a problem when a country has too large a population. D) Scarcity arises when there is a wide disparity in income distribution.

A) Scarcity refers to the situation in which unlimited wants exceed limited resources.

Which of the following is a macroeconomics question? A) What determines the growth rate of gross domestic product? B) How is the production quantity of snowboards determined? C) What factors determine the price of electronic cigarettes? D) What determines the salaries of Wall Street executives?

A) What determines the growth rate of gross domestic product?

Which of the following is a factor of production? A) an oven in a bakery B) a share of General Motors' stock C) a credit card D) a $500 Treasury bond

A) an oven in a bakery

A grocery store sells a bag of potatoes at a fixed price of $2.30. Which of the following is a term used by economists to describe the money received from the sale of an additional bag of potatoes? A) marginal revenue B) gross earnings C) pure profit D) marginal costs E) net benefit

A) marginal revenue

When Mr. Peabody decides on the companies to which he will donate his time and money, a ________ issue is being addressed. A) microeconomic B) macroeconomic C) positive economic D) normative economic

A) microeconomic

Which of the following is not a factor of production? A) an acre of farmland B) a drill press in a machine shop C) the manager of the local tire shop D) $1,000 in cash

D) $1,000 in cash

Hours Open --> Total Revenue (dollars) 1 $50 2 $75 3 $95 4 $110 5 $120 6 $125 Lydia runs a small nail salon in the town of New Hope. She is debating whether she should extend her hours of operation. Lydia figures that her sales revenue will depend on the number of hours the nail salon is open as shown in the table above. She would have to hire a worker for those hours at a wage rate of $10 per hour. Using marginal analysis, how many hours should Lydia extend her nail salon's hours of operations? A) 2 hours B) 3 hours C) 4 hours D) 5 hours

D) 5 hours

Which of the following is a positive economic statement? A) The standard of living in the United States should be higher. B) If the price of iPhones falls, a larger quantity of iPhones will be purchased. C) The government should revamp the health care system. D) The U.S. government should not have bailed out U.S. auto manufacturers.

B) If the price of iPhones falls, a larger quantity of iPhones will be purchased.

Which of the following statements about the economic decisions consumers, firms, and the government have to make is false? A) Governments face the problem of scarcity in making economic decisions. B) Only individuals face scarcity; firms and the government do not. C) Both firms and individuals face scarcity. D) Each faces the problem of scarcity which necessitates trade-offs in making economic decisions.

B) Only individuals face scarcity; firms and the government do not.

Economists assume that rational behavior is useful in explaining choices people make A) because irrational people do not make economic choices. B) even though people may not behave rationally all the time. C) because individuals act rationally all the time in all circumstances. D) even though people rarely, if ever, behave in a rational manner.

B) even though people may not behave rationally all the time.

In economics, the term ________ means "additional" or "extra." A) allocative B) marginal C) equity D) optimal

B) marginal

The extra cost associated with undertaking an activity is called A) net loss. B) marginal cost. C) opportunity cost. D) foregone cost.

B) marginal cost.

The production possibilities frontier shows the ________ combinations of two products that may be produced in a particular time period with available resources. A) minimum attainable B) maximum attainable C) only D) equitable

B) maximum attainable

Mr. Peabody chooses to invest in companies that produce goods and services at the lowest possible cost. Mr. Peabody is investing in companies that are A) allocatively efficient. B) productively efficient. C) guaranteed to make a profit. D) all of the above.

B) productively efficient.

The principle of opportunity cost is that A) in a market economy, taking advantage of profitable opportunities involves some money cost. B) the economic cost of using a factor of production is the alternative use of that factor that is given up. C) taking advantage of investment opportunities involves costs. D) the cost of production varies depending on the opportunity for technological application.

B) the economic cost of using a factor of production is the alternative use of that factor that is given up.

Allison's Auto Art is a company that applies pinstripes to vehicles. Allison's cost for a basic 1-color pinstriping job is $35, and she charges $95 for this service. For a total price of $175, Allison will apply a fancier 3-color pinstripe application to an automobile, a service that adds an additional $40 to the total cost of the package. What is Allison's marginal benefit if she sells a basic 1-color job? A) $35 B) $60 C) $95 D) The marginal benefit cannot be determined.

C) $95

All of the following are examples of spending on factors of production in the circular flow model except A) Bima hires two students to work at his ice-cream store. B) "Get Fit Together" purchases 3 new treadmills for its gym. C) Iris buys a dozen roses for her mother's birthday. D) The Banyan Tree rents a much larger property so that it can add a restaurant to its facilities.

C) Iris buys a dozen roses for her mother's birthday.

The term ________ in economics refers to a group of buyers and sellers of a product and the arrangement by which they come together to trade. A) collective B) cooperative C) market D) trade-off

C) market

Making optimal decisions "at the margin" requires A) making decisions according to one's whims and fancies. B) making consistently irrational decisions. C) weighing the costs and benefits of a decision before deciding if it should be pursued. D) making borderline decisions.

C) weighing the costs and benefits of a decision before deciding if it should be pursued.

a. Car owners purchase more gasoline from a gas station that sells gasoline at a lower price than other rival gas stations in the area. b. Banks do not take steps to increase security since they believe it is less costly to allow some bank robberies than to install expensive security monitoring equipment. c. Firms produce more of a particular DVD when its selling price rises. Which of the above statements demonstrates that economic agents respond to incentives? A) a only. B) b only. C) c only. D) a, b, and c.

D) a, b, and c.

The decision about what goods and services will be produced made in a market economy is made by A) lawmakers in the government voting on what will be produced. B) workers deciding to produce only what the boss says must be produced. C) producers deciding what society wants most. D) consumers and firms choosing which goods and services to buy or produce.

D) consumers and firms choosing which goods and services to buy or produce.

Making "how much" decisions involve A) calculating the total benefits of the activity and determining if you are satisfied with that amount. B) calculating the total costs of the activity and determining if you can afford to incur that expenditure. C) calculating the average benefit and the average cost of an activity to determine if it is worthwhile undertaking that activity. D) determining the additional benefits and the additional costs of that activity.

D) determining the additional benefits and the additional costs of that activity.

If the production possibilities frontier is ________, then opportunity costs are constant as more of one good is produced. A) bowed out B) bowed in C) non-linear D) linear

D) linear

The points outside the production possibilities frontier are A) efficient. B) attainable. C) inefficient. D) unattainable.

D) unattainable.