ECON CH1 TEST Q's

A tractor is used by a farmer who plants and harvests wheat. The tractor is considered a. capital. b. a service. c. past labor. d. similar to entrepreneurship.

a. capital.

***The student whose marginal benefits and marginal costs are illustrated here will maximize the net benefits of exercising when she has exercised a. 1.0 hours b. 2.2 hours c. 3.2 hours d. 5.1 hours

c. 3.2 hours

To an economist, a ______________is defined as anything from which individuals receive ______________. a.bad, utility b.bad, satisfaction c.good, utility d.good, disutility

c. good, utility

Which of the following is a condition often used in economics to isolate the relationship between two variables? a. ceteris paribus b. utility c. efficiency d. abstraction

a. ceteris paribus <The phrase ceteris paribus means "nothing else changes" or "all other things constant." Economists will often add that phrase to the end of a statement in order to isolate the impact that one variable has on another variable.>

The need for a rationing device is a consequence of a. scarcity. b. decisions being made at the margin. c. utility and disutility.

a. scarcity

For Maria, the marginal benefit of spending a third hour studying for an economics test is greater than the marginal cost of studying for the test. Maria will achieve the efficient amount of time spent studying by a. increasing the number of hours spent studying for the test until the marginal benefit is equal to the marginal cost. b. decreasing the number of hours spent studying for the test so that the marginal benefit exceeds the marginal cost by the greatest amount. c. studying for three hours. d. increasing the number of hours spent studying for the test until the marginal cost of studying exceeds the marginal benefit by a substantial amount.

a. increasing the number of hours spent studying for the test until the marginal benefit is equal to the marginal cost.

Economics is the science of how individuals and societies deal with the fact that a. wants are greater than the limited resources available to satisfy those wants. b. wants are less than the limited resources available to satisfy those wants c. wants are less than the unlimited resources available to satisfy those wants. d. Wants are greater than the unlimited resources available to satisfy those wants.

a. wants are greater than the limited resources available to satisfy those wants.

A person goes into a store and buys a printer for $300. In this case, price is acting as a a. resource. b. good. c. rationing device. d. capital good. e. input.

c. rationing device

Scarcity affects a. only the poor. b. only the middle class. c. only the poor and the middle class. d. everyone.

d. everyone

Ceteris paribus is a Latin phrase meaning a. "an abstract." b. "nothing else changes." c. "from one, many." d. "satisfaction."

b. "nothing else changes."

Something that provides utility is called a __________ and something that provides disutility is called a __________. a. bad, good b. good, bad c. want, need d. need, want e. b and d

b. good, bad

In economics, which of the following is the best example of the resource capital for a given company? a. computer system b. company issued stock c. company issued bonds d. raw land

a. computer system

Efficiency exists when a. marginal benefits equal marginal costs. b. marginal benefits are greater than marginal costs c. total benefits are less than total costs. d. total costs are more than total benefits. e. none of the above

a. marginal benefits equal marginal costs.

Which of the following is the best example of making decisions at the margin? a. John has been taking 15 units of college classes and then he decides to drop out of school to pursue professional surfing. b. Marisa has signed up for 16 units of college classes and then she decides to drop a one-unit class. c. Pekkei was not planning to attend college this semester, but then she decides to take 12 units worth of classes. d. Jacob was taking 12 units of college classes and then he drops out of school to work at his father's bakery full-time.

b. Marisa has signed up for 16 units of college classes and then she decides to drop a one-unit class. <The term marginal means additional or extra. Analyzing decisions made at the margin revolve around making small changes, such as taking or dropping one more college class. According to economists, when people make decisions they do so by considering marginal, not total, benefits and costs.>

When economists speak of scarcity, they are referring to the a. condition that exists when both resources and wants are infinite. b. condition in which people's wants outstrip the limited resources available to satisfy those wants. c. condition that exists in only very poor countries of the world, where there is greater disutility than utility. d. condition in which society produces too many frivolous goods and not enough socially desirable goods.

b. condition in which people's wants outstrip the limited resources available to satisfy those wants.

If George trades his $40 for Ian's book, we can surmise that a. he expects to get greater utility from $40 than from the book. b. he expects to get greater utility from the book than from $40. c. he expects to get the same utility from the book as from $40. d. he expects to get less utility from the book than from $40. e. he expects to get twice the utility from the book than from $40.

b. he expects to get greater utility from the book than from $40.

The opportunity cost of attending a concert is a. the money one spends to attend the concert minus the dollar value of the benefits one receives from attending the concert. b. the highest valued alternative one forfeits to attend the concert. c. the least valued alternative one forfeits to attend the concert. d. the money one spends to attend the concert.

b. the highest valued alternative one forfeits to attend the concert. <ex. watching a movie is the OPPORTUNITY COST of studying>

Here are three things you could do if you do not go swimming with a friend: study for an upcoming test (you value this at $10), read a good novel (you value this at $18), or go in to work (you could earn $16 during the time you swim with your friend). The opportunity cost of going swimming is a. $16, because this is the only alternative of the three for which you actually receive a monetary payment. b. $10, because this is the lowest valued alternative forfeited. c. $18, because this is the highest valued alternative forfeited. d. $44, because this is the total dollar sum of the alternatives forfeited.

c. $18, because this is the highest valued alternative forfeited.

Alicia is a college sophomore studying drama at her local community college in Texas. Halfway through the school year, Alicia is offered a job in Hollywood as an actress on a soap opera which will pay her $72,800 per year. Douglas is a college sophomore studying sociology at Alicia's college. Douglas does not have any work experience, and he would earn $18,000 per year if he were to quit school and get a full-time job. If we assume that Douglas and Alicia only have a choice of either staying in school or dropping out and working full time, an economist would most likely predict that _________________ is more likely to drop out of school this year because _________________________. a. Douglas, his opportunity cost of staying in school is higher than Alicia's b. Douglas, his opportunity cost of staying in school is lower than Alicia's c. Alicia, her opportunity cost of staying in school is higher than Douglas's d. Alicia, her opportunity cost of staying in school is lower than Douglas's.

c. Alicia, her opportunity cost of staying in school is higher than Douglas's <Opportunity cost is the most highly valued alternative that is sacrificed when a choice is made. The opportunity cost for Alicia of staying in school is the amount of money that she would forego from going to school rather than acting on the soap opera ($72,800). For Douglas, the opportunity cost of staying in school is the amount that he would forego from going to school rather than working full time ($18,000). Since the opportunity cost of staying in school is higher for Alicia than for Douglas, Alicia is more likely to drop out of school this year than Douglas.>

The attempt to determine "what is" in economics always involves a. macroeconomic issues. b. microeconomic issues. c. positive economics. d. normative economics.

c. positive economics

The term ______________________ refers to the means used to determine how available goods and resources will be allocated. a.positive economics b.marginal c.rationing device d.normative economics

c. rationing device

If you are inefficient (not efficient) at activity X, then it follows that a. you might have maximized net benefits. b. you definitely have maximized net benefits. c. you have not maximized net benefits. d. you have minimized marginal benefits.

c. you have not maximized net benefits. <You maximize net benefits when you are efficient.>

Scarcity implies that people must make __________, and every time they do, they incur a (an) __________. a. decisions; unintended effect b. decisions; mistake c. competitive moves; price d. choices; opportunity cost e. none of the above

d. choices; opportunity cost

Price is a rationing device and is a consequence of a. the economy being organized around markets, where individuals can buy various quantities of what they want. b. an economy being centrally planned, where individuals cannot always buy various quantities of what they want. c. an increasing world population. d. the fact that peoples' wants are greater than the resources available to satisfy those wants.

d. the fact that peoples' wants are greater than the resources available to satisfy those wants.

***A mandatory seatbelt law ends up raising the number of traffic fatalities if it lowers fatalities per accident from 0.09 to 0.06 while raising the number of accidents per period from 35,000 to any more than a. 52,500. b. 38,500. c. 57,450. d. 53,500.

a. 52,500. 35,000 x .09 = 3,150 3,150 ÷ .06 = 52,500

An economist who is examining the effect of higher tax rates on the economy is practicing a. microeconomics. b. macroeconomics. c. normative economics. d. the economics of "what should be."

b. macroeconomics

Which of the following questions is most closely related to microeconomics, as opposed to macroeconomics? a. Why has the national unemployment rate risen this year? b. Why has the inflation rate risen in our nation this year? c. What wage should a firm pay its new accountant? d. How much output did the U.S. economy produce last year?

c. What wage should a firm pay its new accountant?

Suppose the marginal costs of exercising are constant and the marginal benefits of exercising decline over time. With marginal costs and benefits placed on the vertical axis and time placed on the horizontal axis, the resulting marginal cost curve would be a ____________________ line and the resulting marginal benefit curve would be _____________________. a. horizontal, vertical b. vertical, downward-sloping c. horizontal, downward-sloping d. horizontal, upward-sloping

c. horizontal, downward-sloping

In economics, which of the following is an example of the resource land? a. minerals b. animals c. water d. all of the above

d. all of the above

Suppose that a town council plans to raise the tax charged on each pack of cigarettes sold by 20 percent in order to raise its tax revenues. An economist points out to the council that the tax increase could possibly lead to a decrease in packs sold of more than 20 percent, and thus ultimately reduce the city's tax revenues. Which of the key concepts in economics is best represented by the economist's observation? a. looking for unintended effects b. efficiency c. opportunity cost d. decisions made at the margin

a. looking for unintended effects. <Economists often think in terms of causes and effects, which may be both intended and unintended.>

An economist who is analyzing the impact that an increase in the federal minimum wage has had on the national unemployment rate and the country's economic growth is practicing a. positive macroeconomics. b. normative macroeconomics. c. positive microeconomics. d. normative microeconomics.

a. positive macroeconomics

The best way to evaluate a theory is according to a. how reasonable it sounds to you. b. how well it predicts. c. the level of mathematics contained within the theory. d. how simple it is to understand.

b. how well it predicts. <Theories are best evaluated based on how well they predict, irrespective of how they "sound" to someone.>

Which of the following terms might an economist use as a synonym for resources? a. outputs b. inputs c. utilities d. marginals

b. inputs <Resources are services or other assets used to produce goods and services that meet human needs and wants. Economists will often use the term inputs as a synonym for resources. Another term that is frequently used as a synonym for resources is factors of production.>

Two economists are arguing over how unemployment will be affected by an income tax cut. This is an issue of a. normative economics b. non-scientific economics c. positive economics d.ceteris paribus e. none of the above

b. positive economics

John has three options for how to spend the day. He can take an extra shift at work and earn $100, he can hang out with his friends (which he values at $40), or he can go to the beach (which he values at $50). What is John's opportunity cost of taking the extra shift at work? a. $100 b. $40 c. $50 d. $90

c. $50 <Opportunity cost is the most highly valued alternative that is sacrificed when a choice is made. If John chooses to go to work he is giving up his opportunity to hang out with his friends and to he is giving up his opportunity to go to the beach. Since John values going to the beach more highly than hanging out with his friends, the opportunity cost would the value that he places on going to the beach.>

Which of the following would be the best example of making decisions at the margin for a company that currently employs 100 workers? a. Determining the impact on the company of hiring 40 more employees. b. Determining the impact on the company of cutting its number of employees to 75. c. Determining the impact on the company of hiring one additional worker. d. Determining the impact on the company of hiring 25 more workers.

c. Determining the impact on the company of hiring one additional worker.

The question of how a subsidy might impact U.S. economic output is most closely associated with the study of a. microeconomics. b. managerial economics. c. macroeconomics. d. consumer economics.

c. macroeconomics

***A mandatory airbag law ends up raising the number of traffic fatalities if it lowers fatalities per accident from 0.05 to 0.03 while raising the number of accidents per period from 25,000 to any more than around __________________ accidents per period. a. 43,500 b. 38,500 c. 57,450 d. 41,667

d. 41,667 25,000 x .05 = 1,250 1,250 ÷ .03 = 41,667

Which of the following is not one of the four broad categories of resources? a. land b. labor c. capital d. animals

d. animals <land, labor, capital, entrepreneurship>

Person 1 receives utility from X, so X is a good for person 1; person 2 receives disutility from Y, so Y is a bad for person 2. It follows that a. X is a good for person 2 and Y is a bad for person 1. b. X is a bad for person 2. c. Y is a good for person 1. d. none of the above

d. none of the above Without knowing if each person receives utility or disutility from X and Y, we cannot label X or Y a good or a bad for the person.

Saying "the marginal benefits are greater than the marginal costs" is the same as saying a. the average costs are greater than the average benefits. b. the total costs are greater than the average benefits. c. the benefits are greater than the costs. d. the additional benefits are greater than the additional costs. e. the costs minus the benefits equal the net costs.

d. the additional benefits are greater than the additional costs.

An example of the opportunity cost of producing an additional truck is a. the price charged for the truck. b. the difference in cost between producing a truck this year compared to last year. c. the amount of metal, glass, rubber, and other resources used to produce the truck. d. the number of alternative vehicles that could not be produced because the extra truck was produced.

d. the number of alternative vehicles that could not be produced because the extra truck was produced.