Econ 003 chapters(1,2,3,)

Which of the following is not scarce? a. an individual's time b. air c. pencils d. automobiles

B

The basic difference between macroeconomics and microeconomics is that a. macroeconomics looks at how people make choices, and microeconomics looks at why they make those choices. b. macroeconomics is concerned with economic policy, and microeconomics is concerned with economic theory. c. macroeconomics focuses on the aggregate economy, and microeconomics focuses on small components of that economy. d. macroeconomics is associated with the fallacy of composition, and microeconomics has little to do with the fallacy of composition.

C. macroeconomics focuses on the aggregate economy, and microeconomics focuses on small components of that economy.

Joe and Ed go to a diner that sells hamburgers for $5 and hot dogs for $3. They agree to split the lunch bill evenly. Ed chooses a hot dog. The marginal cost to Joe then of ordering a hamburger instead of a hot dog is (hint: compare Joe's share of the bill when he orders a hamburger versus Joe's share of the bill when he orders a hotdog) a. $1. b. $2. c. $2.50. d. $3.

a. $1.

Which of the following would be the best example of consumer surplus? a. Jane only has to pay $30 a month for phone service even though it is worth $70 to her. b. Sam refuses to pay $10 for a haircut because it is only worth $8 to him. c. Fred buys a car for $4,000, the maximum amount that he would be willing to pay for it. d. When Sue purchases a candy bar for $.50, she uses a $20 bill to pay for it.

a. Jane only has to pay $30 a month for phone service even though it is worth $70 to her

Which one of the following is a positive economic statement? a. The average earnings of those with college degrees exceeds the earnings of those without college degrees. b. A college education is too expensive. c. Social justice will be served by forgiving everyone's student loan debt. d. The federal government should pay for everyone's college education.

a. The average earnings of those with college degrees exceeds the earnings of those without college degrees.

"The national debt is too large. The government must stop spending so much money." This statement is a. a normative statement. b. a positive statement. c. a testable hypothesis. d. both b and c.

a. a normative statement.

____ 4. If cigars and cigarettes are substitute goods, an increase in the price of cigars would result in a. an increase in the demand for cigarettes. b. a decrease in the price of cigarettes. c. a decrease in the demand for cigarettes. d. a decrease in the demand for cigars.

a. an increase in the demand for cigarettes.

6. Which of the following would be most likely to cause the demand for Miller beer (a normal good) to increase? a. an increase in the price of Budweiser beer (a substitute good) b. a decrease in consumer income c. a decrease in the price of barley used to make Miller beer d. a decrease in the price of Miller beer

a. an increase in the price of Budweiser beer (a substitute good)

The economic way of thinking stresses that a. changes in personal costs and benefits will exert a predictable influence on the choices of human decision makers. b. only direct monetary costs matter in making decisions. c. if a good is provided free to an individual, its production will not consume valuable scarce resources. d. secondary effects are not important to consider when making decisions.

a. changes in personal costs and benefits will exert a predictable influence on the choices of human decision makers.

Economics is the study of how a. individuals make choices because of scarcity. b. to succeed in business. c. to make money in the stock market. d. the morals and values of people are formed.

a. individuals make choices because of scarcity.

20. Which of the following would most likely decrease the price of beef? a. lower prices of grains used to produce cattle feed b. higher prices for chicken, a substitute for beef c. a cow disease that destroys millions of cattle (and makes their meat unfit for consumption) before they are ready for market d. an increase in consumer income

a. lower prices of grains used to produce cattle feed

The basic difference between macroeconomics and microeconomics is that a. macroeconomics is concerned with the forest (aggregate markets), while microeconomics is concerned with the individual trees (subcomponents). b. macroeconomics is concerned with policy decisions, while microeconomics applies only to theory. c. microeconomics is concerned with the forest (aggregate markets), while macroeconomics is concerned with the trees (subcomponents). d. opportunity cost is applicable to macroeconomics, and the fallacy of composition relates to microeconomics.

a. macroeconomics is concerned with the forest (aggregate markets), while microeconomics is concerned with the individual trees (subcomponents).

Competitive behavior a. occurs as a reaction to scarcity. b. occurs only in a market system. c. occurs only when the government allocates goods and services. d. always generates waste.

a. occurs as a reaction to scarcity.

The highest valued alternative that must be given up in order to choose an action is called its a. opportunity cost. b. utility. c. scarcity. d. ceteris paribus.

a. opportunity cost.

8. All things constant, a decrease in bus, train, and airplane fares will a. shift the demand curve for automobiles to the left. b. cause a movement along the demand curve for automobiles. c. shift the demand curve for automobiles to the right. d. have no impact on the demand curve for automobiles.

a. shift the demand curve for automobiles to the left.

If Susan bought nine gallons of gasoline at $1.50 per gallon, the car wash cost $1, but if she bought 10 gallons of gasoline, the car wash was free. Given that Susan is going to get the car wash, the marginal cost of the tenth gallon of gasoline is a. zero. b. $.50. c. $1.00. d. $1.50.

b. $.50.

While waiting in line to buy two tacos at 75 cents each, and a medium drink for 80 cents, Jordan notices that the restaurant has a value meal containing three tacos and a medium drink all for $2.50. For Jordan, the marginal cost of purchasing the third taco would be a. zero. b. 20 cents. c. 75 cents. d. 80 cents.

b. 20 cents

Which one of the following states a central element of the economic way of thinking? a. Scarce goods are priceless. b. Incentives matter—human choice is influenced in predictable ways by changes in personal costs and benefits. c. The realism of the assumptions is the best test of an economic theory. d. When deciding how to allocate time, the concept of opportunity cost is meaningless

b. Incentives matter—human choice is influenced in predictable ways by changes in personal costs and benefits.

In economics, the statement, "There is no such thing as a free lunch," refers to which of the following? a. Individuals must always pay personally for the lunch they consume. b. Production of a good requires the use of scarce resources regardless of whether it is supplied free to the consumers. c. Restaurant owners would never give away free lunches. d. All good theories are testable.

b. Production of a good requires the use of scarce resources regardless of whether it is supplied free to the consumers.

Which of the following is true? a. Scarcity and poverty are basically the same thing. b. Scarcity leads to competition c. Scarcity is the result of prices being set too high. d. All of the above are true.

b. Scarcity leads to competition

16. "Falling consumer income from the recent recession has hurt automakers in more ways than one. Not only have sales of new cars fallen, but car prices have fallen as well. As a result, the major automakers have announced cutbacks in production and layoffs of workers." Which of the following places these statements in the proper economic terminology within the context of the supply and demand model? [Note: It may help to graph this first.] a. a decrease in demand and a decrease in supply b. a decrease in demand and a decrease in quantity supplied c. a decrease in quantity demanded and a decrease in quantity supplied d. a decrease in quantity demanded and a decrease in supply

b. a decrease in demand and a decrease in quantity supplied

Positive economics differs from normative economics in that a. positive economics deals with how people react to changes in benefits, and normative economics deals with how people react to changes in costs. b. positive economic statements are testable, and normative statements are not. c. positive economic statements tell us what we should be doing, and normative economics tells us what we should have done. d. positive economic statements focus on the application of the theory, and normative economic statements are theoretical.

b. positive economic statements are testable, and normative statements are not.

9. If coffee and cream are complements, a decrease in the price of coffee will cause a. the demand for cream to decrease. b. the demand for cream to increase. c. the demand for coffee to increase. d. no change in the demand for cream; only quantity demanded would be affected.

b. the demand for cream to increase.

10. If the market price is above the equilibrium price, there will be a tendency for price to decrease, causing a. the quantity demanded to decrease and the quantity supplied to increase until they are equal. b. the quantity demanded to increase and the quantity supplied to decrease until they are equal. c. both quantity demanded and quantity supplied to decrease until they are equal. d. both quantity demanded and quantity supplied to increase until they are equal.

b. the quantity demanded to increase and the quantity supplied to decrease until they are equal

22. When Adam Smith said economic activity was directed by an "invisible hand," he was referring to the fact that a. competitive markets motivate altruistic individuals to pursue productive activities that only serve their private interests. b. when economic activity is directed by competitive markets, the actions of self-interested individuals will generally serve the public interest. c. invisible forces will lead to economic chaos unless wise central planning directs economic activity. d. scarcity is largely the result of invisible forces that would be eliminated if individuals were free to pursue their own self-interests.

b. when economic activity is directed by competitive markets, the actions of self-interested individuals will generally serve the public interest.

15. In Figure 3-24, which of the following is true? a. At P3, consumer surplus and producer surplus are equal. b. At P2, consumer surplus is greater than producer surplus. c. At P3, consumer surplus is greater than producer surplus. d. At P2, consumer surplus and producer surplus are equal.

c. At P3, consumer surplus is greater than producer

25. A freeze in Florida devastates the orange crop at the same time a new study is released showing the health benefits of vitamin C (leading consumers to want to buy more orange juice). How will the equilibrium price and quantity of orange juice change in response to the combination of these two events? a. Equilibrium quantity will decrease, equilibrium price will increase. b. Equilibrium price will decrease, the effect on quantity is ambiguous. c. Equilibrium price will increase, the effect on quantity is ambiguous. d. Equilibrium quantity will increase, the effect on price is ambiguous.

c. Equilibrium price will increase, the effect on quantity is ambiguous.

Which of the following is a positive economic statement? a. The federal minimum wage should be raised to $15.00 per hour. b. The United States spends too much on national defense. c. Higher rates of investment lead to higher rates of economic growth. d. Economics is more interesting to study than history.

c. Higher rates of investment lead to higher rates of economic growth.

____ 6. Which of the following is a guidepost to economic thinking? a. The value of a good can be objectively measured. b. Individuals should never make a decision without having complete information. c. Incentives matter. d. Goods are scarce for the poor but not for the rich.

c. Incentives matter.

Which of the following represents a normative statement? a. Your textbook costs $120. b. The temperature in this room is 120 degrees. c. It is too hot in this room. d. People will buy less butter at $1.50 per pound than they will at $1.00 per pound.

c. It is too hot in this room

Which of the following is most clearly consistent with the basic postulate of economics regarding the reaction of people to a change in incentives. a. Farmers produce fewer bushels of wheat in response to an increase in the price of wheat. b. People will buy more milk at a price of $2 per gallon than at $1 per gallon. c. People will buy less gas if the price of gas increases by $.20 per gallon. d. People will consume more beef if the price increases from $1 to $2 per pound.

c. People will buy less gas if the price of gas increases by $.20 per gallon.

24. If the demand for a good increases, which of the following will generally occur in a market setting? a. The price of the good will decrease. b. The supply of the good will increase. c. The quantity supplied will increase. d. Producer profits will fall.

c. The quantity supplied will increase.

When economists use the term ceteris paribus, they indicate a. the causal relationship between two economic variables cannot be determined. b. the analysis is true for the individual but not for the economy as a whole. c. all other factors are assumed to be constant. d. their conclusions are based on normative economics rather than positive economic analysis.

c. all other factors are assumed to be constant.

18. Over the past 20 years both the quantity of health care provided and health care prices have been rising rapidly. Economic theory would suggest that the observed data could best be explained as a. an increase in supply, while demand remained relatively constant. b. a decrease in both supply and demand. c. an increase in demand, while supply remained relatively constant. d. a sharp increase in both supply and demand.

c. an increase in demand, while supply remained relatively constant.

3. When an economist states a good is scarce, she means that a. production cannot expand the availability of the good. b. it is rare. c. desire for the good exceeds the amount that is freely available from nature. d. people would want to purchase more of the good at any price.

c. desire for the good exceeds the amount that is freely available from nature.

17. "If gasoline were taxed, the price of gasoline would rise. Consequently, the demand for gasoline would fall, causing the price to fall to the original level." This statement is a. essentially correct. b. incorrect--after the demand falls, the price would fall but to some level higher than the original level. c. incorrect--demand and quantity demanded are confused. The price increase would reduce quantity demanded, not demand. d. incorrect--after the demand falls, the price would fall but to some level lower than the original level.

c. incorrect--demand and quantity demanded are confused. The price increase would reduce quantity demanded, not demand.

19. A decrease in the supply of a good will a. decrease the demand for the good. b. cause the price of the good to fall. c. lead to an increase in the price of the good. d. increase the quantity of the good bought and sold.

c. lead to an increase in the price of the good

The expression, "There's no such thing as a free lunch," implies that a. everyone has to pay for his own lunch. b. the person consuming a good must always pay for it. c. opportunity costs are incurred when resources are used to produce goods and services. d. no one has time for a good lunch anymore.

c. opportunity costs are incurred when resources are used to produce goods and services.

14. If the demand for beer increased, what would be the effect on the equilibrium price and quantity of beer? a. price increases, quantity decreases b. price decreases, quantity decreases c. price increases, quantity increases d. price decreases, quantity increases

c. price increases, quantity increase

12. John advertises his used car for $3,000 in the newspaper. He would be willing to sell his used car for as low as $2,000. He is offered $2,600 for it from a buyer and accepts it. In this trade, John receives a. producer surplus of $3,000. b. producer surplus of $2,600. c. producer surplus of $600. d. consumer surplus of $400.

c. producer surplus of $600.

21. A decrease in the price of flour will shift the supply curve for donuts a. leftward, causing the equilibrium price to increase and quantity to decrease. b. leftward, causing the equilibrium price and quantity to decrease. c. rightward, causing the equilibrium price to decrease and equilibrium quantity to increase. d. rightward, causing the equilibrium price and quantity to increase.

c. rightward, causing the equilibrium price to decrease and equilibrium quantity to increase.

Economics is primarily the study of a. how to make money in the stock market. b. how to find lower cost methods of production. c. the choices we must make among alternatives because of scarcity. d. the proper form of industrial structure for the United States.

c. the choices we must make among alternatives because of scarcity.

Which of the following actions is consistent with the basic economic postulate (the guidepost) that incentives matter? a. Consumers buy fewer potatoes when the price of potatoes increases. b. A politician votes against a pay raise for himself because most of his constituents are strongly opposed to it and would vote against him in the next election. c. Farmers produce less corn because corn prices have declined. d. All of the above.

d. All of the above.

7. (I) The height of the demand curve for a commodity indicates the maximum amount the consumer would be willing to pay for each unit of the good. (II) The height of the supply curve for a commodity indicates the minimum price the seller would accept for each unit of the good. a. I is true; II is false. b. I is false; II is true. c. Both I and II are false. d. Both I and II are true.

d. Both I and II are true.

What do economists mean when they state that a good is scarce? a. There is a shortage or insufficient supply of the good at the existing price. b. It is impossible to expand the availability of the good beyond the current amount. c. People will want to buy more of the good regardless of the price of the good. d. The amount of the good that people would like exceeds the supply freely available from nature.

d. The amount of the good that people would like exceeds the supply freely available from nature

13. Economic efficiency requires that a. individuals take all actions within their power. b. only long-lasting, high-quality products be produced. c. income be distributed equally among individuals. d. all economic activity generating more benefits than costs to individuals in the economy be undertaken.

d. all economic activity generating more benefits than costs to individuals in the economy be undertaken.

2. Which of the following would cause the price of new automobiles (a normal good) to rise? a. a decrease in the wages of autoworkers b. a reduction in the price of bus travel c. an increase in the price of gasoline d. an increase in consumer income

d. an increase in consumer income

23. A hurricane damaged much of the housing in Miami. Shortly thereafter, the price of plywood rose significantly. The events suggest that a. a decrease in the supply of plywood caused the price of plywood to rise. b. an increase in the supply of plywood caused the price of plywood to rise. c. a decrease in the demand for plywood caused the price of plywood to rise. d. an increase in the demand for plywood caused the price of plywood to rise.

d. an increase in the demand for plywood caused the price of plywood to rise.

Economic analysis assumes that a. individuals act only out of selfish motives. b. although individuals are at times selfish and at times unselfish, only their selfish actions may be predicted. c. people are basically humanitarian, and their actions are, therefore, impossible to predict. d. changes in the personal benefits and costs associated with a choice will exert a predictable influence on human behavior.

d. changes in the personal benefits and costs associated with a choice will exert a predictable influence on human behavior.

"If income were redistributed in favor of the poor, we would eliminate scarcity." The preceding statement is a. essentially correct. b. incorrect because scarcity has already been eliminated among the poor in wealthy countries such as the United States. c. incorrect; it fails to recognize that poverty will be present as long as resources are scarce. d. incorrect; it confuses the elimination of poverty with the elimination of the constraint imposed by scarcity.

d. incorrect; it confuses the elimination of poverty with the elimination of the constraint imposed by scarcity.

4. When economists say an individual displays economizing behavior, they simply mean that the individual is a. making a lot of money. b. purchasing only those products that are cheap and of low quality. c. learning how to run a business more effectively. d. making choices to gain the maximum benefit at the least possible cost.

d. making choices to gain the maximum benefit at the least possible cost.

Economic choice and competitive behavior are the result of a. basic human greed. b. poverty. c. private ownership of resources. d. scarcity.

d. scarcity.

11. According to the law of supply, as the price of a good decreases a. buyers will buy more of the good. b. sellers will produce more of the good. c. buyers will buy less of the good. d. sellers will produce less of the good.

d. sellers will produce less of the good.

People make decisions at the margin. Thus, when deciding whether to purchase a second car, they would compare a. the total benefits expected from two cars with the costs of the two cars. b. the additional benefits expected from a second car with the total cost of the two cars. c. the dollar cost of the two cars with the potential income that the two cars will generate. d. the additional benefits of the second car with the additional costs of the second car.

d. the additional benefits of the second car with the additional costs of the second car.

5. Which of the following would most likely cause the current demand for DVD players to fall? a. an increase in consumer income b. an increase in the price of DVD players c. an increase in the price of Blu-ray players, a substitute good d. the expectation that the price of DVD players will decrease sharply during the next six months

d. the expectation that the price of DVD players will decrease sharply during the next six months

If the price of tickets to the World Series were set below the equilibrium price, a. the quantity demanded would be smaller than the quantity supplied. b. the demand for World Series tickets would be highly responsive to the price. c. there would be no transactions between buyers and sellers of the tickets. d. the number of persons seeking to obtain tickets to World Series games would be greater than the number of tickets available.

d. the number of persons seeking to obtain tickets to World Series games would be greater than the number of tickets available.