CHAPTER 1 MICRO QUIZ

Economic theory suggests that purposeful behavior and economic growth will eventually solve the problem of scarcity. A) True B) False

False

In studying economic principles, economists make use of: A) both the economic perspective and the scientific method B) the economic perspective but not the scientific method C) the scientific method but not the economic perspective D) neither the scientific method nor the economic perspective

a

Macroeconomics mainly focuses upon: A) the economy as a whole B) international trade and foreign exchange markets C) specific product and resource markets D) individual consumers and producers

a

Moving from left to right, the typical production possibilities curve has: A) an increasingly steep negative slope B) a decreasingly steep negative slope C) an increasingly steep positive slope D) a constant and negative slope

a

Answer the next question on the basis of the data given in the following production possibilities table: PRODUCT TABLE......A....B....C....D....E.....F CAPITOL GOODS.....5....4.....3.....2.....1......0 CONSU GOODS........0....5.....9...12...14....15 Refer to the above table. These data indicate that increasing production of capital goods requires: A) increasing sacrifices of consumer goods B) decreasing sacrifices of consumer goods C) constant sacrifices of consumer goods D) no sacrifices of consumer goods

a As capital goods production increases by one unit, production of consumer goods initially decreases by one unit (moving from combination F to combination E), then 2 units (E to D), and so on. This reflects the principle of increasing costs.

A nation's production possibilities curve is "bowed out" from the origin because: A) resources are not perfectly adaptable to production of alternative goods B) capital goods and consumer goods utilize the same production technology C) resources are scarce relative to human wants D) opportunity costs are decreasing

a As resources are typically not perfectly adaptable to production of alternative goods, increased production of one good will require increasing sacrifices of the other.

When an economist concludes that there is not enough of some activity, the economist is suggesting that: A) the marginal benefit of the activity exceeds its marginal cost B) the cost of the activity has increased C) the benefit of the activity has decreased D) the marginal cost of the activity exceeds its marginal benefit

a If the marginal benefit of an activity exceeds its marginal cost, then more of the activity is warranted.

Consider the choice Marsha faces of how to allocate her weekly allowance between books and CDs. An increase in Marsha's income will: A) shift her budget line to the right B) shift her budget line to the left C) rotate her budget line, allowing her to buy more books but not more CDs D) rotate her budget line, allowing her to buy more CDs but not more books

a Increased income allows Marsha to purchase additional books and CDs, but does not change the opportunity cost of one in terms of the other.

A microeconomist would most likely study: A) how consumers respond to a change in gasoline prices B) the effects of an income tax reduction on the size of the national budget deficit C) the effects of aggregate consumer debt on overall consumption spending D) the relationship between the size of the money supply and the rate of inflation

a Microeconomics is concerned with specific economic units and the operation of individual markets.

Microeconomics: A) is particularly subject to the "fallacy of composition" B) is concerned with the economy as a whole C) studies how supply and demand determine prices in individual markets D) describes the aggregate flows of output and income

a Microeconomics is the study of specific economic units such as particular firms, households, or markets.

The two major features of the economic perspective are: A) purposeful behavior and marginal analysis B) normative and positive analysis C) benefit and cost D) consumers and producers

a Purposeful behavior and comparing costs and benefits at the margin are the key features of the economic perspective.

According to economists, human wants will never be fulfilled completely because: A) people are greedy B) productive resources are scarce C) people are not capable of fully rational thought D) people's wants are manipulated by advertising

b

Purposeful behavior and marginal analysis: A) explain why there is "no free lunch" B) are part of the economic perspective C) are relevant in short-term but not long-term analysis D) explain the "fallacy of composition"

b

Two rational individuals will always make the same choices when faced with the same circumstances. A) True B) False

b

Suppose you can purchase milk for $3 a gallon or eggs for $1.50 per dozen. Your opportunity cost of a gallon of milk is: A) one dozen eggs B) two dozen eggs C) one half dozen eggs D) $1.50

b Another gallon of milk costs $3.00. At $1.50 per dozen, two dozen eggs would have to be given up to be able to afford another gallon of milk.

The negative slope of the production possibilities curve illustrates that: A) some resources are always unemployed B) an economy can produce more of one thing only by producing less of something else C) opportunity costs are constant D) business can sell more when prices are low

b Each point on the production possibilities curve represents some maximum output of the two goods—the economy has achieved maximum production of one good for a given amount of the other. Increased production of any good requires sacrificing some of the other; the production possibilities curve will exhibit an inverse relationship between the two goods.

You should decide to study an extra hour tonight A) if the marginal cost of studying an extra hour exceeds its marginal benefit B) if the marginal benefit of studying an extra hour exceeds its marginal cost C) if you got a lower than expected grade on your last exam D) because studying harder will improve your test scores

b Purposeful behavior in the face of scarcity entails comparing marginal benefit to marginal cost. Any activity whose marginal benefit exceeds its marginal cost should be expanded.

The scarcity problem: A) can be eliminated if all countries adopt laissez-faire capitalism B) will persist so long as productive resources are limited C) persists only in the developing countries D) will be eliminated if full employment is achieved

b The problem of scarcity arises because resources are limited relative to human wants. This condition will persist because our productive resources are limited while our wants are without limit.

Refer to the following diagram: The slope of curve ZZ at point C is: A) positive B) negative C) zero D) undefined

b The slope at point C is the same as the slope of the tangent line cc. From the diagram, it is clear that line cc has a negative slope.

In the equation y = a + bx, where y is the dependent variable and x is the independent variable, the slope of line is given by: A) a B) b C) y/x D) a/b

b The slope of a straight line is given by the change in the dependent variable divided by the change in the independent variable. In the equation, this is given by "b."

The role of theorizing is to: A) substitute for "policy economics" B) arrange and interpret facts C) lend practical support to the "economic perspective" D) refute marginal analysis

b Theories and principles bring order and meaning to a wide variety of observations by arranging them in cause-effect order.

The production possibilities curve: A) shows all combinations of goods that society most desires B) indicates that any combination of goods lying outside the curve is attainable C) separates all combinations of two goods that can be produced from those that cannot D) is bowed in toward the origin

c

Which of the following would lead to an inward shift of a nation's production possibilities curve? A) Immigration of skilled workers into the nation B) An increase in the average skill level of the population C) a decrease in the size of the working-age population D) Increased production of capital goods

c The availability of additional resources will shift the curve out; a reduction in available resources will shift it in.

When constructing a typical production possibilities curve, economists assume: A) economic resources are underutilized B) resources are equally productive in many alternative uses C) all available resources are fully employed D) production technology is allowed to vary

c The production possibilities curve represents the maximum possible production of one good for a given amount of the other. This requires that all resources be fully employed.

Economics is primarily the study of: A) how scarcity can be eliminated B) how firms manipulate prices C) how government influence resource allocation decisions D) the problem of scarce resources relative to human wants

d

Suppose you have a $20 iTunes gift card with which you can buy (download) songs or videos. Songs cost $1.00 each and videos cost $2.00 each. The opportunity cost of one video: A) increases as more videos are purchased B) is $1.00 C) is constant and equal to ½ song D) is constant and equal to 2 songs

d

Margaret decides to stay home and study for her exam rather than going out with her friends to a movie. Her dilemma is an example of: A) the economic perspective B) marginal analysis C) allocative efficiency D) opportunity cost

d Opportunity cost is defined as the value of the best foregone alternative. In this case, Margaret has foregone the movie in order to study.

The fundamental problem of economics implies that: A) governments must be relied upon to supply essential goods and services B) inflation and unemployment are unavoidable C) growing populations will deplete natural resources D) individuals and communities must make choices among competing alternatives

d The fundamental economic problem is one of scarce resources relative to human wants. Such scarcity can never be eliminated; it implies we must make choices.

Refer to the following: Which of the points on the production possibilities curve in the diagram is currently unattainable given the economy's resources? A) Point A B) Point B C) Point C D) Point D

d The production possibilities curve shows the greatest attainable combinations of goods and services given available resources. Point D lies outside this boundary and is therefore unattainable.

"Rational self-interest is the same as selfishness." A) True B) False

false Self-interested behavior is any behavior that provides personal satisfaction to the individual, including such unselfish acts as giving to charities