Macroeconomics Chapter 1 Review

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 is the marginal cost of completing the task? A) $200 B) $500 C) $1,000 D) $1,000 plus the value of her time

A) $200

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 is her marginal benefit if she sells the quilt "as is" now? A) $900 B) $100 C) She makes a marginal loss of $600, not a marginal benefit. D) The marginal benefit cannot be determined.

A) $900

Which of the following is a microeconomics question? A) Why do economies experience periods of recession? B) How will Apple decide on a selling price for the iPad? C) Why has growth in the economy slowed down over the past decade? D) Will government intervention lower the unemployment rate?

B) How will Apple decide on a selling price for the iPad?

Which of the following contributes to the efficiency of markets? A) Governments play an active role in the day-to-day operations of markets. B) Markets promote competition and voluntary exchange. C) Markets are able to bring about an equitable distribution of goods and services. D) Markets promote equal standards of living.

B) Markets promote competition and voluntary exchange.

In 2010, Smileytown consumed 50,000 tubes of toothpaste. In 2011, toothpaste consumption rose to 62,000 tubes. Calculate the percentage change in toothpaste consumption. A) 12% B) 16.42% C) 19.35% D) 24%

D) 24%

Economics promotes which of the following as the way to make the best decision? A) Continue an enjoyable activity up to the point where its marginal benefit equals its marginal cost. B) Continue an enjoyable activity as long as you do not have to pay for it. C) Continue an enjoyable activity until you cannot afford to pursue it. D) Continue an enjoyable activity until it is no longer enjoyable.

A) Continue an enjoyable activity up to the point where its marginal benefit equals its marginal cost.

________ occurs when economic benefits are distributed fairly. A) Equity B) Allocative efficiency C) Productive efficiency D) Equality

A) Equity

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." Refer to Scenario 1-1. 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 will be $800 higher. B) Its profit will be $800 lower. C) Its profit will be $4,000 lower. D) Its profit will be $4,800 higher.

A) Its profit will be $800 higher.

Which of the following is motivated by an equity concern? A) Some U.S. colleges have cut back on merit scholarships since these programs siphon money from need-based programs, thus harming lower-income students with greater financial need. B) The United States protects intellectual property rights, allowing inventors to prevent others from using their inventions without payment. C) In November 2003, the Federal Communications Commission implemented the "local number portability" rule which gives cell phone customers the option of keeping their number when they switch carriers within the same geographic region. D) Following the removal of subsidies in urban water use, household demand for water decreased quite significantly in Bogor, Indonesia.

A) Some U.S. colleges have cut back on merit scholarships since these programs siphon money from need-based programs, thus harming lower-income students with greater financial need.

What does the term "marginal" mean in economics? A) an additional or extra B) secondary C) illegal D) the edge of a market E) trivial

A) an additional or extra

Voluntary exchange increases economic efficiency A) because neither the buyer nor the seller would agree to a trade unless they both benefit. B) because it is free and consequently does not cost anything. C) because it allows wealthy individuals to act altruistically and give to the poor. D) because voluntary exchange only takes place with government permission.

A) because neither the buyer nor the seller would agree to a trade unless they both benefit.

Allocative efficiency is achieved when A) firms produce the goods and services that consumers value most. B) firms produce goods and services at the lowest cost. C) there are no shortages or surpluses in the market. D) goods and services are fairly distributed among consumers in an economy.

A) firms produce the goods and services that consumers value most.

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." Refer to Scenario 1-1. Using marginal analysis terminology, what is another economic term for the incremental revenue received from the sale of the last 400 t-shirts? A) marginal revenue B) gross earnings C) gross profit D) sales revenue

A) marginal revenue

When goods and services are produced at the lowest possible cost, ________ occurs. A) productive efficiency B) efficient central planning C) allocative efficiency D) equity

A) productive efficiency

Which of the following is an example of an activity undertaken by an entrepreneur? A) starting your own snow cone business B) being appointed to the U.S. Supreme Court C) being promoted to the position of Chief of Police D) choosing the color scheme for your renovated kitchen

A) starting your own snow cone business

The processes used to produce goods and services describes A) technology. B) entrepreneurship. C) innovation. D) capital.

A) technology.

Which of the following is counted as "capital" in economics? A) the machines workers have to work with B) the wealth people have C) the accumulated skills and training workers have D) the money people have

A) the machines workers have to work with

How are the fundamental economic decisions determined in Cuba? A) These decisions are made by the country's elders who have had much experience in answering these questions. B) The government decides because Cuba is a centrally planned economy. C) Individuals, firms, and the government interact in a market to make these economic decisions. D) The United Nations decides because Cuba is a developing economy.

B) The government decides because Cuba is a centrally planned economy.

Which of the following is a macroeconomics question? A) How is the production quantity of digital cameras determined? B) What determines the unemployment rate? C) What determines the wages and benefits of flight attendants? D) What factors determine the price of iPhones?

B) What determines the unemployment rate?

Which of the following is part of an economic model? A) norms B) assumptions C) opinions D) preferences of economic agents

B) assumptions

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." Refer to Scenario 1-1. Using marginal analysis terminology, what is another economic term for the incremental cost of producing the last 400 t-shirts? A) explicit cost B) marginal cost C) operating cost D) Any of the above terms are correct.

B) marginal cost

The branch of economics which studies how households and firms make choices, interact in markets and how government attempts to influence their choices is called A) macroeconomics. B) microeconomics. C) positive economics. D) normative economics.

B) microeconomics.

If a straight line passes through the point x = 12 and y = 4 and also through the point x = 4 and y = 8, the slope of this line is A) one and one half. B) negative one half. C) negative 8 divided by 4. D) seven tenths.

B) negative one half.

onomists assume that rational people A) never use all available information as they act to achieve their goals. B) respond to economic incentives. C) undertake activities that benefit others and hurt themselves. D) only weigh the benefits and costs of the most desirable alternative actions.

B) respond to economic incentives.

Human capital refers to A) the machines workers have to work with. B) the accumulated skills and training workers have. C) the wealth people have. D) the money people have.

B) the accumulated skills and training workers have.

Consider the following economic agents: a. the government b. consumers c. producers Who, in a modern mixed economy, decides what goods and services will be produced with the scarce resources available in that economy? A) consumers and producers B) the government, consumers and producers C) consumers D) the government E) producers

B) the government, consumers and producers

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.

B) unlimited wants exceed limited resources.

Refer to Figure 1-3. Calculate the area of the trapezoid X. A) $361 B) $450 C) $1,020 D) $1,140

C) $1,020

Refer to Figure 1-2. Calculate the area of the triangle A. A) $8.4 million B) $6.3 million C) $3.15 million D) $2.1 million

C) $3.15 million

Which of the following is a normative economic statement? A) The federal government is considering raising the gasoline tax to promote the use of public transportation. B) Rising global demand for diesel and heating oil has led to increases in the price of crude oil. C) Fashion designers should be allowed to copyright designs to promote innovation. D) With falling home prices and rising mortgage interest rates, the amount of foreclosures has increased.

C) Fashion designers should be allowed to copyright designs to promote innovation.

Which of the following is motivated by an efficiency concern? A) As part of an economic stimulus package, each taxpayer received a $3,000 tax rebate check. B) Some U.S. colleges have cut back on merit scholarships since these programs siphon money from need-based programs, thus harming lower-income students with greater financial need. C) Following a six-month drought, a city banned homeowners from watering their lawns in an effort to conserve water. D) In 2009, the Obama administration increased unemployment benefits.

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

What is an economic model? A) It is a description of an economic issue based on official government information. B) It is a description of an economic issue that includes all possible related information. C) It is a simplified version of some aspect of economic life used to analyze an economic issue. D) It is a detailed version of some aspect of economic life used to analyze an economic issue.

C) It is a simplified version of some aspect of economic life used to analyze an economic issue.

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? A) She should cut her losses and sell the quilt now. B) She should not do anymore work on the quilt because she has already spent too much time on it and has not been paid for that time. C) She should purchase the period fabric, complete the task and then sell the quilt. D) It does not matter what she does; she is going to take a loss on her project.

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

Refer to Figure 1-4. Which of the following statements is true? A) The slope of the tangent at E and the slope of the tangent at F are negative. B) The slope of the tangent at E is negative and the slope of the tangent at F is positive. C) The slope of the tangent at E is positive and the slope of the tangent at F is negative. D) The slope of the tangent at E and the slope of the tangent at F are positive.

C) The slope of the tangent at E is positive and the slope of the tangent at F is negative.

The term "market" in economics refers to A) a place where money changes hands. B) an organization which sells goods and services. C) a group of buyers and sellers of a product and the arrangement by which they come together to trade. D) a legal institution where exchange can take place.

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

Economics is the study of the ________ people make to attain their goals, given their ________ resources. A) income; available B) decisions; household C) choices; scarce D) purchases; unlimited

C) choices; scarce

In a market economy, who decides what goods and services will be produced? A) the government B) only consumers C) consumers and producers D) only the producers

C) consumers and producers

Economists assume that A) consumer behavior is explained by the existence of unlimited resources. B) individuals behave in unpredictable ways. C) optimal decisions are made at the margin. D) people put other people's interests ahead of their own.

C) optimal decisions are made at the margin.

Competition among sellers generates A) equity. B) scarcity. C) productive efficiency. D) allocative efficiency.

C) productive efficiency.

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) Yes, I agree with her. Economic theory should allow for irrational behavior so that we can have more reliable predictions. C) Yes, I agree with her. One cannot make predictions about economic behavior because in reality people make incorrect choices in many situations. D) 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.

D) 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.

Which of the following is a positive economic statement? A) U.S. firms should not be allowed to outsource production of goods and services. B) The government should close income tax loopholes. C) Everyone should live at the same standard of living. D) If the price of gasoline rises, a smaller quantity of it will be bought.

D) If the price of gasoline rises, a smaller quantity of it will be bought.

Which of the following statements is true about revenue? A) A firm's revenue will increase as its costs increase. B) Revenue is calculated by dividing the price per unit by the number of units sold. C) The terms "revenue" and "profit" can be used interchangeably. D) Revenue is the total amount received for selling a good or service.

D) Revenue is the total amount received for selling a good or service.

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) efficient central planning B) productive efficiency C) equity D) allocative efficiency

D) allocative efficiency

There is often a trade-off between A) limited and unlimited resources. B) productive efficiency and allocative efficiency. C) voluntary and involuntary exchanges. D) economic efficiency and economic equity.

D) economic efficiency and economic equity.

The branch of economics which studies the behavior of entire economies and policies that affect the economy as a whole is called A) microeconomics. B) public economics. C) normative economics. D) macroeconomics.

D) macroeconomics.

Competition forces firms to produce and sell products as long as the ________ to consumers exceeds the ________ of production. A) marginal benefit; marginal benefit B) marginal cost; marginal benefit C) marginal cost; marginal cost D) marginal benefit; marginal cost

D) marginal benefit; marginal cost