Econ Ch 1
________ involves undertaking an activity until its marginal benefits equal marginal costs.
A. Scarcity reduction *B* Marginal analysis C. Central planning D. Market intervention
Which of the following is an example of how much decision?
A. You plan on going to Las Vegas for your bday and your birthday and are deciding if you should fly or drive. B. Humberto has taken a second job to earn money to buy a Harley-Davidson SuperLow Sportster. C. Octavia is debating whether to buy a pair of Jimmy Choo shoes or Steve Madden Boots. *D* Diana is trying to decide if she should open her pet ship on Sundays.
Suppose a cigar manufacturer currently sells 1,500 cigars per week and makes a profit of $3,000 per week. The plant foreman observes, "Although the last 500 cigars we produced and sold increased our revenue by $7,500 and our costs by $7,000, we are only making an overall profit of $3,000 per week so I think we need to cut back on production. Had the firm not produced and sold the last 500 cigars, would its profit be higher or lower, and if so by how much?
*A* Its profit would be $500 lower. B. Its profit would be $1,000 higher. C. Its profit would be $500 higher. D. Its profit would be $1,500 lower.
Which of the following best describes an assumption economists make about human behavior?
*A* The assume that rational behavior is useful in explaining choice people make even though people may not behave rationally all the time. B. They assume that people take into account the question of fairness in all decisions they make. C. They assume that individuals act rationally all the time in all circumstances. D. They assume that individuals act randomly.
Consider the following statements: a. Soda drinkers purchase more soda from a grocery store that sells soda at a lower price than other rival grocery stores in the area. b. Homeowners do not take steps to increase security even though they believe it is more costly to allow burglaries than to install security monitoring equipment. c. Manufacturers produce less of a particular cell phone 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 and b
When every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it, ________ occurs.
*A* allocative efficiency B. productive efficiency C. equity D. efficient central planning
Lionel's Lawn Care is a company that maintains residential yards. Lionel's cost for his standard package of mowing, edging, and trimming is $15, and he charges $25 for this service. For a total price of $40, Lionel will also trim shrubs, a service that adds an additional $10 to the total cost of the standard package. What is Lionel's marginal benefit if he sells the standard package?
*A* $25 B. $40 C. $15 D. $10
The study of economics arises due to
A) money. *B) scarcity* C) greed. D) resources.
Julius runs a small tailor shop in the city of Bloomfield. He is debating whether he should extend his hours of operation. Julius figures that his sales revenue will depend on the number of additional hours the tailor shop is open as shown in the table to the right. He would have to hire a worker for those hours at a wage rate of $18 per hour. What is Julius's marginal cost if he decides to stay open for three hours instead of two hours?
A. $0 *B* $18 C. $54 D. $65
Using marginal analysis, how many hours should Ivan extend his hours of operations?
A. 2 hours B. 3 hours C. 4 hours *D* 5 hours
How does a market system prevent people from getting as many goods and services as they wish?
A. Governments interfere with the market mechanism to influence the allocation of goods and services. B. In a market system, firms can charge any price they want, thus preventing poor people from getting as many goods and services as they wish. C. The government imposes taxes on those who earn beyond a certain amount of income. *D* The market system allocates goods and services to those who are able to pay for those products and therefore income is a limiting factor.
Your roommate, Serafina, a psychology major, said, "The problem with economics is that it assumes that consumers and firms always make the correct decision. But we know that everyone's human, and we all make mistakes." Do you agree with her comment?
A. I disagree with her. If we cannot assume that decisions are correct, then we will not be able to examine the moral implications of these decisions. *B* I disagree with her. Economics does not study correct or incorrect behaviors but rather it assumes that economic agents behave rationally, meaning they make the best decisions given their knowledge of the costs and benefits. C. Yes, I agree with her. Economic theory should allow for irrational behavior so that we can have more reliable predictions. D. Yes, I agree with her. One cannot make predictions about economic behavior because in reality people make incorrect choices in many situations.
Suppose a t−shirt manufacturer currently sells 5,000 t−shirts per week and makes a profit of $10,000 per week. A manager at the plant observes, "Although the last 400 t−shirts we produced and sold increased our revenue by $4,000 and our costs by $4,800, we are still making an overall profit of $10,000 per week so I think we're on the right track. We are producing the optimal number of t−shirts." Had the firm not produced and sold the last 400 t−shirts, would its profit be higher or lower, and if so by how much?
A. Its profit would be $4,800 higher. *B* Its profit would be $800 higher. C. Its profit would be $4,000 lower. D. Its profit would be $800 lower.
Suppose a cigar manufacturer currently sells 1,500 cigars per week and makes a profit of $3,000 per week. The plant foreman observes, "Although the last 500 cigars we produced and sold increased our revenue by $7,500 and our costs by $7,000, we are only making an overall profit of $3,000 per week so I think we need to cut back on production. Had the firm not produced and sold the last 500 cigars, would its profit be higher or lower, and if so by how much?
A. Its profit would be $500 higher. *B* Its profit would be $500 lower. C. Its profit would be $1,000 higher. D. Its profit would be $1,500 lower.
Tabitha shares a flea market booth with her sister. Her share of the rent is $150 per month. She is considering moving to her own, larger booth which she will not have to share with anyone. The larger booth rents for $450 per month. Recently, you ran into Tabitha in the grocery store and she tells you that she has rented the larger booth. Tabitha is as rational as any other person. As an economics major, you rightly conclude that
A. Tabitha figures that the additional benefit of having her own booth (as opposed to sharing) is at least $450. B. the cost of having one's own booth outweighs the benefits. C. Tabitha did not have a choice; her sister was overcharging her. *D* Tabitha figures that the additional benefit of having her own booth (as opposed to sharing) is at least $300.
The article discusses income inequality and how economic growth alone has not resulted in a more equitable distribution of income. If governments increased equity by reducing the incomes of high-income people and increasing the incomes of the poor, would this necessarily increase efficiency?
A. Yes, efficiency always increases when the income gap between the rich and poor is reduced. B. Yes, because equity and efficiency are the same. *C* No, a more equitable distribution of income may reduce efficiency. D. No, it is impossible to have an equitable distribution of income which is also efficient.
Scarcity refers to the situation in which
A. a country's population is larger than its resource base. *B* unlimited wants exceed limited resources. C. a nation's poverty level increases faster than its population. D. unlimited resources exceed limited wants.
Dr. Goldfinger decides to invest in companies which he believes can "improve the productivity and efficiency" of health care services. How can Dr. Goldfinger strive to achieve this productive efficiency?
A. by investing in companies that produce goods and services based on consumer preferences B. by investing in companies that produce up to the point where the marginal benefit of the last unit produced is equal to the marginal cost of producing it C. by investing in companies that fairly distribute their products and services *D* by investing in companies that produce goods and services at the lowest possible cost
Which of the following is an example of an economic trade−off that a firm has to make?
A. deciding why consumers want its products B. deciding what profit margin it desires for its products *C* whether it is cheaper to produce with more machines or with more workers D. whether or not consumers will buy its products
Economists assume that
A. individuals behave in unpredictable ways. B. people put other people's interests ahead of their own. *C* optimal decisions are made at the margin. D. consumer behavior is explained by the existence of unlimited resources.
In 2018, two members of Congress introduced the Stop Bad Employers by Zeroing Out Subsidies Act, legislation they hoped would increase wages of employees who were receiving government assistance. These members of Congress thought this legislation would give firms a reason to raise employee wages so fewer employees would receive the government assistance. Under the act, firms whose employees received assistance from government programs such as Medicaid and SNAP would be required to
A. offer these employees comprehensive health insurance coverage for everyone in their immediate families. B. pay a minimum wage equal to twice the federal minimum wage. *C* pay a tax equal to the cost of the assistance. D. all of the above
Economists assume that rational people
A. only weigh the benefits and costs of the most desirable alternative actions. B. never use all available information as they act to achieve their goals. C. undertake activities that benefit others and hurt themselves. *D* respond to economic incentives.
In a market economy, those who are willing and able to buy what is produced
A. receive no more than everyone else in the market. B. solely determine what is produced. C. receive what the government allows them to receive. *D* receive the most of what is produced.
Opportunity cost is defined as
A. the monetary expense associated with an activity. B. the total value of all alternatives that must be given up to engage in an activity. C. the benefit of an activity. *D* the highest valued alternative that must be given up to engage in an activity.
Zane's Vanes is a service that restores old weather vanes. Zane has just spent $125 purchasing a 1920s-era weather vane which he expects to restore and sell for $500 once the work is completed. After having spent $125, Zane realizes that he will need to spend an additional $200 on materials to complete the restoration. Alternatively, he can sell the weather vane without restoring it for $200. What is his marginal cost to complete the restoration?
A. $75 B. $125 *C* $200 D. $300
Selling tickets to graduation ceremonies has long been a tradition among students at institutions that limit the number of guests. Suppose your classmate, Heidi, purchased two tickets for $40 each. Is this transaction economically efficient?
A. Yes, it is efficient only from the perspective of the seller and not from the perspective of the buyer. *B* Yes, it was a voluntary exchange that benefited both parties. C. No, Heidi paid too much for the tickets. D. No, people should never be allowed to sell items they received for free.
T/F? Suppose the extra cost for a municipality to enact a "no texting while driving" law is $15,000 per year. Then, the municipality should enact the law if it receives a total benefit from all of its traffic laws of $15,000 per year.
False