Econ 102 - Exam 1

Bill Bonecrusher graduates from college with a choice of playing professional football at $2 million a year or coaching for $50,000 a year. He decides to play football, but eight years later he quits football to make movies for $3 million a year. His opportunity cost at graduation was ________ and eight years later was ________.: $2 million; $2 million $50,000; $2 million $50,000; $50,000 $2 million; $3 million

Correct Answer: $50,000; $2 million

Which of the following statements is TRUE about scarcity?: Scarcity exists only when a shortage exists. Both rich and poor people face the problem of scarcity. Scarcity exists only when supply is insufficient to meet demand. Scarcity can be eliminated when a country becomes richer.

Correct Answer: Both rich and poor people face the problem of scarcity.

Which of the following statements is a positive economic statement?: The President's budget included an increase in unemployment insurance payments. The Congress should pass the president's tax package. Tax rebates always give too much favor to rich people. none of the above

Correct Answer: The President's budget included an increase in unemployment insurance payments.

"No individual should have less than $20,000 income in the United States in 2010" is an example of: a positive statement. a normative statement. a truism. an illogical and refutable statement

Correct Answer: a normative statement.

Marginal utility is the ________ satisfaction gained by consuming ________ of a good.: additional; one more unit total; all units total; one more unit additional; all units

Correct Answer: additional; one more unit

Economists assume that individuals: are rational and respond to incentives. will never take actions to help others. behave in unpredictable ways. prefer to live in a society that values fairness above all else.

Correct Answer: are rational and respond to incentives.

The marginal utility of the first cup of coffee that Tom drinks in the morning is worth $2.00. The marginal utility of the 9th cup of coffee he drinks is positive while the marginal utility of the 10th cup of coffee he drinks in the morning is worth $0. This implies that at a price of $0, Tom would drink: zero cups of coffee per morning. at most 10 cups of coffee per morning. more than 10 cups of coffee per morning, but the actual number is indeterminate from this information. an infinite number of cups of coffee each morning.

Correct Answer: at most 10 cups of coffee per morning.

"Wants" as an economic concept includes: only the purchase of necessary basic goods. only the desire for luxury goods. only those goods that can be purchased with one's paycheck. both material and nonmaterial desires.

Correct Answer: both material and nonmaterial desires.

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

Correct Answer: consumers and firms choosing which goods and services to buy or produce.

Consider the following economic agents: a. the government b. consumers c. producers Who, in a market economy, decides what goods and services will be produced with the scarce resources available in that economy?: producers the government consumers the government, consumers and producers consumers and producers

Correct Answer: consumers and producers

Demands differ from wants because: demands are unlimited, whereas wants are limited by income. demands reflect a decision about which wants to satisfy and a plan to buy the good, while wants are unlimited and involve no specific plan to acquire the good. wants imply a decision about which demands to satisfy, while demands involve no specific plan to acquire the good. wants require a plan to acquire a good but demands require no such plan.

Correct Answer: demands reflect a decision about which wants to satisfy and a plan to buy the good, while wants are unlimited and involve no specific plan to acquire the good.

According to Adam Smith,: when big corporations pursue their self-interest of maximum profit, they will inevitably conflict with social interest. in a market transaction buyers can either get what they want for less than they would be willing to pay or sellers can earn a profit, but both buyers and sellers can't gain simultaneously. politicians are well-equipped to regulate corporations and intervene in markets to improve market outcomes. government intervention in markets is not desirable because an invisible hand leads decisions made in pursuit of self-interest to unintentionally promote the social interest.

Correct Answer: government intervention in markets is not desirable because an invisible hand leads decisions made in pursuit of self-interest to unintentionally promote the social interest.

The law of demand implies that the demand curve: has a positive slope. shifts to the left when the price of a good decreases. has a negative slope. shifts to the right when the price of a good increases.

Correct Answer: has a negative slope.

The concept of marginality is important in economics because: marginal decisions indicate a lack of importance. large expenditures are the only factor influencing consumption. individuals make decisions at the margin. individuals make decisions based on tastes only.

Correct Answer: individuals make decisions at the margin.

Refer to Figure 6.10. The current price of a turkey sandwich is $6. If Kyle is currently buying five turkey sandwiches a week, he ________ maximizing utility because the marginal utility ________ than its price.: is; from the fifth sandwich is less is not; gained from the fifth sandwich is greater is not; gained from the fifth sandwich is less is; from the fifth sandwich is greater

Correct Answer: is not; gained from the fifth sandwich is greater

Voluntary exchange: is a nonprice rationing device. will eliminate scarcity. never involves transactions costs. is trading so that the consumer and producers are better off.

Correct Answer: is trading so that the consumer and producers are better off.

In economic analysis, people's resources are: limited and their wants are also limited. limited and their wants are unlimited. unlimited and their wants are also unlimited. unlimited and their wants are limited.

Correct Answer: limited and their wants are unlimited.

A rational individual will never consume a unit of a good if its: marginal utility is diminishing. marginal utility is increasing. marginal utility is negative. marginal utility is less than average utility.

Correct Answer: marginal utility is negative.

If someone complains that she doesn't feel very well because she ate too much pizza, we would conclude that the marginal utility of the last piece of pizza eaten was: very large. positive. zero. negative.

Correct Answer: negative.

The saying that "You cannot have your cake and eat it too" illustrates the economic concept of opportunity cost. a positive statement. a normative statement. physical capital.

Correct Answer: opportunity cost.

Ceteris paribus, as the price of a good or service increases,: people will buy more of it. people will want more of it. people will buy less of it. people will want less of it.

Correct Answer: people will buy less of it.

"If A occurs then B will follow" is a: non-testable statement. positive statement. normative statement. statement lacking in logic.

Correct Answer: positive statement.

When people donate money to a charity, they behave: in a way that only makes themselves worse off. in an unpredictable manner because the act involves no incentive. irrationally because the act does not benefit anyone. rationally if the act gives them satisfaction.

Correct Answer: rationally if the act gives them satisfaction.

The real value of money: reflects the purchasing power of money. is the same as its nominal value. matters less to people than its nominal value. is another word for the face value.

Correct Answer: reflects the purchasing power of money.

For every choice a person makes it can be assumed that: some opportunity cost was involved. the chooser has full knowledge of the situation. a good is involved and satisfaction is gained. there is a fifty-fifty chance the choice was the wrong one.

Correct Answer: some opportunity cost was involved.

In a laissez-faire economy, ________ what gets produced, how it is produced, and who gets it.: the central government authority determines the behavior of buyers and sellers determines consumers but not firms determine firms but not consumers determine

Correct Answer: the behavior of buyers and sellers determines

Consider the following economic agents: a. the government b. consumers c. producers Who, in a centrally planned economy, decides what goods and services will be produced with the scarce resources available in that economy?: the government producers consumers the government, consumers and producers consumers and producers

Correct Answer: the government

Refer to Figure 6.10. Kyle would increase his consumption of turkey sandwiches from 7 to 9 per week if their price fell from $6 to $4. This illustrates the idea of: cross-price elasticity of demand. the law of diminishing marginal utility. technical efficiency. consumer surplus.

Correct Answer: the law of diminishing marginal utility.

Market demand is: a movement along the demand curve in response to the market. the demand for and supply of a good or service. the total quantities demanded of all consumers of a particular item at given prices. total equilibrium demand for the market.

Correct Answer: the total quantities demanded of all consumers of a particular item at given prices.

The price system features: voluntary exchange that makes both the consumer and producer better off. exchanges made only on a barter basis. exchanges made in currency only. an exchange in which consumer is made better off and the producer is made worse off.

Correct Answer: voluntary exchange that makes both the consumer and producer better off.

Normative economics involves: a statement of "what should be." a statement of fact. a statement that is purely descriptive. a statement of "what is."

Correct Answer: a statement of "what should be."

A theory or a model: captures all aspects of the real world. is a detailed analysis of what ought to be. is a simplified, abstract view of reality. is based on each economist's value judgments.

Correct Answer: is a simplified, abstract view of reality.

Economists assume that people are motivated by: greed. altruism. rational self-interest. benevolence.

Correct Answer: rational self-interest.