Economics Chapter 1

Why might studying economics be particularly good preparation for being the top manager of a corporation or a leader in​ government?

Economics teaches us how to look at the tradeoffs involved in every decision.

Scarcity is central to the study of economics because it implies that

Every choice involves an opportunity cost

Which of the following is a microeconomic question?

How does Fiat decide on the price of the 500 Pop model?

Which of the following is a positive economic statement?

If minimum wage rates rise, then unemployment will rise.

Which of the following contributes to the efficiency of markets?

Markets promote competition and voluntary

Which of the following is not a possible opportunity cost of attending college?

The cost of housing

Tangible products like cars and televisions are referred to as __________.

goods

Macroeconomics can be used to understand all of the topics listed below, except:

how a consumer decides between the purchase of two different cars

Economics:

is concerned with how people respond to incentives

The effect of higher income taxes on the total amount of consumer spending.

macroeconomics

Which of the following statements about the idea that people are rational is​ correct?

. The idea assumes that consumers and firms use all available information as they act to achieve their goals.

Centrally planned economies allocate resources based on decisions by _____________, while market economies answer these questions through decisions made by ____________

1. government 2. households and firms

Efficiency means that goods are distributed in a way that ______________, while equity means that goods are distributed in a way that______________________

1. maximizes benefits to society, 2. is fair

The Stogie Shop, a cigar store in the mall, sells hand-rolled cigars for $10.00 and machine-made cigars for $2.50 each. What is the opportunity cost of buying a hand-rolled cigar?

4 machine-made cigars

When you think of an arrangement or institution that brings buyers and sellers of a good or service together, what are you thinking of?

A market

__________ goods and services are those bought by businesses to be used to increase efficiency or enhance production.

Capital

Which of the following is motivated by an efficiency concern?

Following a six-month drought, a city banned homeowners from watering their lawns in an effort to conserve water.

Economic decisions are made at every level in society. When we try to decide which production method to use among several alternatives, which of the following key economic questions are we trying to answer?

How do we produce the products?

What is the name given to the development of a new good?

Invention

Which of the following areas of economics studies issues such as whether government intervention is capable of reducing the severity of​ recessions?

Macroeconomics

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.Refer to Scenario 1-2. Using marginal analysis terminology, what is another economic term for the incremental cost of producing the last 500 cigars?

Marginal Cost

The three economic questions that every society must answer are

What goods will be produced, how will they be produced, and who will receive the goods.

In what type of economy does the government decide how economic resources will be allocated?

a centrally planned economy

Productive efficiency means that

a good or service is produced at the lowest possible cost.

If teachers put too little weight in the grading scale on a certain part of the​ course, like readings outside the​ textbook, students might respond by__________ that part of the course

de-emphazing`

Allocative efficiency means that

every good or service is produced up to the point where marginal benefit is equal to marginal cost.

What do economists mean by the word​ "marginal"?

extra or additional

In economics, tangible merchandise is referred to as

goods

The reasons for the economies of East Asian countries growing faster than the economies of​ sub-Saharan African countries.

macroeconomics

The branch of economics which studies the behavior of entire economies and policies that affect the economy as a whole is called

macroeconomics.

Many universities and corporations offer a health wellness program that helps their employees improve or maintain their health and get paid​ (a relatively small​ amount) for doing so. The programs​ vary, but typically consist of employees completing a health​ assessment, receiving a healthy living​ program, and monitoring their monthly health activities. Corporations and universities are willing to pay employees to take care of themselves because a healthier workforce

performs more​ efficiently, thereby improving overall productivity in the workplace. translates into lower​ costs, in part by reducing​ illness-related absenteeism and premature retirements. A and B only

The stock of computers, factory buildings and machine tools used to produce goods is known as:

physical capital

Macroeconomics is the study of

the economy as a whole, including topics such as inflation, unemployment, and economic growth

Opportunity cost is defined as

the highest valued alternative that must be given up to engage in an activity.

Economists believe that an activity should be continued up to the point where

the marginal benefit from the activity is equal to the marginal cost.

Macroeconomics is

the study of economy-wide phenomena, including inflation, unemployment, and economic growth

Economists assume that people are rational in the sense that

they use all available information as they take actions intended to achieve their goals.

President Obama and his advisers have failed to correctly forecast the effects of the 2011 changes to the loan programs because they

underestimated the number of students who would take advantage of the programs.

Which of the following generates allocative efficiency in a market economy?

voluntary exchange between buyers and sellers

Ivan runs a custom jewelry shop in Sparkle City. He is debating whether he should extend his hours of operation. Ivan figures that his sales revenue will depend on the number of additional hours the jewelry shop is open as shown in the table above. He would have to hire a worker for those hours at a wage rate of $25 per hour. Hours open 5 - 530$ 6 - 550$

20

Which of the following areas of economics studies issues such as ways to reduce teenage​ smoking?

Microeconomics

As part of his 2016 federal budget​ proposals, President Obama recommended significant changes to the federal student loan programs. Given your answer to the previous​ question, do you think President Obama was likely to have recommended changes that would​ increase, or changes that would​ decrease, the payments that borrowers would have to​ make? President Obama was likely to have recommended changes that would

increase the payments that borrowers would have to make so that the government would be paid back sooner.

Teachers often wish that students came to class prepared having read the upcoming material. A teacher could design the grading system to motivate students to come to class prepared by ____________ the grade weight assigned to being prepared.

increasing

Which of the following is an example of an activity undertaken by an entrepreneur?

starting a snow cone business

The level of total investment by firms in new machinery and equipment helps to determine how rapidly the economy grows. This is a ___________ issue. However, to understand how much new machinery and equipment firms decide to​ purchase, one must analyze the incentives individual firms​ face, which is a __________ issue

1. macroecnomics 2. microeconomics

According to the rationality assumption, people:

Do not intentionally make decisions that would leave them worse off.

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

Tabitha figures that the additional benefit of having her own booth (as opposed to sharing) is at least $300.

Which of the following best describes scarcity?

Unlimited wants exceed the limited resources available

The term "market" in economics refers to

a group of buyers and sellers of a product and the arrangement by which they come together to trade.

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 only.

One of the first steps in deciding whether to complete your education is to:

evaluate the marginal cost and marginal benefit of that decision.

Competition among sellers generates

productive efficiency

Which of the following statements is​ correct? A. An innovation is the practical application of an invention. B. The word​ "technology" and the word​ "invention" have the same meaning. C.The word​ "technology" and the word​ "innovation" have the same meaning. D.An invention is the practical application of an innovation.

A. An innovation is the practical application of an invention.

The grading system plays an important role in student learning. In their book Effective​ Grading: A Tool for Learning and Assessment in College​, Barbara Walvoord and Virginia Anderson state that ​"grading infuses everything that happens in the​ classroom." They also argue that grading​ "needs to be acknowledged and managed from the first moment that an instructor begins planning a​ class." ​ The grading system used by a teacher can affect the incentives of students to learn the course material by

Altering the payoffs to achieving success on the various components of the course

Consider the following statement: "The problem with economics is that it assumes that consumers and firms always make the correct decisions. But we know that everyone makes mistakes."

Economics assumes that consumers and firms are rational, not that they always make the right decisions.

Which of the following statements is true? A business has multiple​ locations, while a company has only a single location. B.Economists use the terms​ firm, company, and business interchangeably. C.A business is always larger than a firm. D.A company is owned by one​ person, while a firm is owned by more than one person.

Economists use the terms firm, company, and business interchangeably

Economists assume that the only reason people take the actions they do is in response to economic incentives.

False

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. Using marginal analysis terminology, what is another economic term for the incremental revenue received from the sale of the last 500 cigars?

Marginal revenue

A primary difference between macroeconomics and microeconomics is

Microeconomics examines individual markets while macroeconomics examines the economy as a whole.

Which of the following countries has an economy where most of the resource allocation is determined by a central planning authority?

North Korea

In 2017, President Trump considered imposing a tariff on automobiles assembled by U.S. manufacturers in Mexico that were to be sold in the United States. If this tariff was imposed and as a result, some of these manufacturers moved their automobile assembly from Mexico back to the United States, these firms would be reacting to which of the three key economic ideas?

People respond to economic incentives.

Jim declined to take part in a health study on a free basis but changed his mind after being offered $1,000 to participate in the study. Jim's behavior best illustrates which economic principle?

People respond to economic incentives.

In economics, activities done for others, such as providing house cleaning or dental work, are referred to as

Services

Cassie's Quilts alters, reconstructs, and restores heirloom quilts. Cassie has just spent $800 purchasing, cleaning, and reconstructing an antique quilt which she expects to sell for $1,500 once she is finished. After having spent $800, Cassie discovers that she would need some special period fabric that would cost her $200 in material and time in order to complete the task. Alternatively, she can sell the quilt "as is" now for $900. What should she do?

She should purchase the period fabric, complete the task and then sell the quilt.

Fast food restaurants produce a range of menu items such as hamburgers, chicken sandwiches, salads, and french fries. What fundamental economic question are they addressing by offering this range of items?

What to produce?

When an employer offers a wellness program to its​ employees, the health insurance premiums the employer pays on behalf of the employees are likely to

decrease

Microeconomics is the study of

how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices

Microeconomics is the study of

how households and firms make​ choices, how they interact in​ markets, and how the government attempts to influence their choices.

Jay Bhattacharya and M. Kate Bundorf of Stanford University have found evidence that people who are obese and work for firms that have​ employer-provided health insurance receive lower wages than people working at those firms who are not obese. At firms that do not provide health​ insurance, obese workers do not receive lower wages than workers who are not obese. Firms that provide workers with health insurance may pay a lower wage to obese workers than to workers who are not obese because the Former Former tend to be less healthyand consequently _____________________

less productive at work experience higher rates of absenteeism and early retirement. more costly to insure and therefore employ due to their higher claim submission rate.

Economists believe that an individual or firm should continue any activity until:

marginal benefit is equal to marginal cost.

The effect of higher cigarette taxes on the quantity of cigarettes sold. This is a ____________ issue.

microeconomics

The reasons for low rates of profit in the airline industry.

microeconomics

The United States economy is best classified as a:

mixed economy.

The incentive of employees to improve or maintain their health once they obtain health insurance may be __________ impacted

negatively

Regarding the question of whether health insurance provides people with an incentive to become​ obese, the finding of Bhattacharya and Bundorf seems

relevant since the link between insurance and obesity was established while holding many other variables constant.

Economics is the study of choice under conditions of:

scarcity

The principle of opportunity cost evolves from the concept of:

scarcity

For many​ years, McDonald's used frozen beef in its hamburgers. It recently began market testing how consumers in the United States would respond to hamburgers made of fresh beef that had never been frozen. In early​ 2017, McDonald's expanded the market test from only 55 restaurants to over 300. The switch to​ fresh, never-frozen beef patties would be a huge undertaking involving​ "how [the​ beef] is transported to the​ restaurants, how it is stored when it arrives and how much it affects​ employees' process of making​ burgers." If you were a manager at​ McDonald's, how would you go about analyzing whether to switch to​ fresh, never-frozen beef​ patties? In your​ answer, consider whether your decision would have to be all or nothing—all fresh, never-frozen beef patties in all​ McDonald's hamburgers, and whether you would have to switch in all​ McDonald's locations around the world​ (they are in 119​ countries), or just in certain countries.

You would want to compare the marginal benefits and marginal costs of serving hamburgers made with fresh beef.

Macroeconomics is concerned with all of the following except:

political party affiliation

According to the FBI Bank Crime​ Statistics, there were more than​ 4,000 bank robberies in the United States in​ 2015, an increase of 3.9 percent over 2014. The FBI claims that banks have made themselves easy targets by refusing to install clear acrylic​ partitions, called bandit barriers​, that separate bank tellers from the public. According to a special agent with the​ FBI, ​"Bandit barriers are a great deterrent.​ We've talked to guys who rob​ banks, and as soon as they see a bandit​ barrier, they go find another​ bank." ​ Despite this​ finding, many banks have been reluctant to install these barriers.​ Wouldn't banks have a strong incentive to install bandit barriers to deter​ robberies? Why,​ then, do so many banks not do​ so?

Banks have no economic incentive to install the barriers.

Late in the​ semester, a friend tells​ you, ​"I was going to drop my psychology course so I could concentrate on my other​ courses, but I had already put so much time into the course I decided not to drop​ it." Your​ friend's reasoning is

incorrect

The federal government subsidizes some loans to college students.​ Typically, the more students who participate in these programs and the more they​ borrow, the higher the cost to the federal government. In​ 2011, President Barack Obama convinced Congress to pass these changes to the federal student loan​ programs: ​(1) Payments were capped at 10 percent of a​ borrower's discretionary​ income; ​(2) any unpaid balances for people working for the government or in the​ non-profit sector were forgiven after 10​ years; and ​(3) people working in the private sector had their loans forgiven after 20 years As a result of these changes in the federal student loan​ program, you would predict that the total amount​ students' borrowed under these programs would have

increased because the terms of repayment have been made more generous.

The resources provided by nature and used to produce goods and services are also known as:

natural resources