Econ Chapter 1

Marginal thinking is best demonstrated by: A. choosing to spend one more hour studying economics because you think the improvement in your score on the next quiz will be worth the time sacrificed B. deciding to never purchase a coat made of animal skin or fur C. acquiring all the information relevant to a choice before making that choice D. measuring all the costs of a meal against all its benefits when deciding on whether to order a second milkshake E. deciding to never buy an airline ticket during the holiday

A

Specialization is a way: A. for individuals to make the best use of resources by devoting themselves to one primary productive activity B. for society to become wealthier while not using their resources C. for people to avoid trade D. of increasing the opportunity cost of an activity E. for society to become more self-sufficient

A

The circular Flow of economic activity is a model that shows: A. The exchange of goods, services and income between households and firms B. the influence of government on the level of economic activity in a country. C. The role of labor unions and government in the economy D. the interaction among taxes, prices, and profits in an economy E. the taxes levied by the government and the revenue earned by the government

A

The opportunity cost of going to college includes: A. both tuition and the value of the students time B. tuition, but not the value of the students time C. neither tuition nor the value of the student's time since obtaining a college degree makes one's income higher in the future D. neither tuition nor the value of the student's time E. all the costs of living for that period

A

Two goods are substitutes when a decrease in the price of one good: A. decreases the demand for the other good B. decreases the quantity demanded of the other good C. increases the demand for the other good D. increases the quantity demanded of the other good E. increases the quantity demanded supplied of the other good

A

Which of the following is a difference between a change in quantity demanded and a change in demand? A. A change in quantity demanded is caused by a change in a good's own current price, while change in demand is caused by a change in some other variable, such as income, tastes, or expectations B. A change in demand is caused by a change in a good's own current price, while change in demand is caused by a change in some other variable, such as income, tastes, or expectations C. A change in the quantity demanded is a change in the amount people actually buy, while a change in demand is a change in the amount they want to buy D. A change in the quantity demanded of a good is caused by a change in the availability of the good, while a change in demand is caused by a change in the price of the good

A

Which of the following is a difference between positive economics and normative economics? A. positive economics helps us understand an economy's response to a particular policy, while normative economics reflects value judgements. B. positive economics helps us understand the positive effects of a policy change, while normative economics help us understand the negative results of a policy change. C. positive economics is a branch of macroeconomics, while normative economics is a branch of microeconomics. D. positive economics is a branch of microeconomics, while normative economics is a branch of macroeconomics.

A

In markets, prices move toward equilibrium because of: A. the actions of buyers and sellers B. government regulations imposed on the market participants C. decreased competition among sellers D. buyers' ability to affect the market outcomes E. sellers' ability to affect market outcomes

A

In the process of economic growth, achieving a perfectly clean atmosphere is not possible because: A. the marginal cost of achieving perfectly clean air would outweigh the marginal benefits of achieving it B. the total benefit to zero pollution would just be equal to the total cost of pollution reduction C. scientifically it is impossible to achieve a zero level of air pollution D. the marginal benefits of achieving perfectly clean air would outweigh the marginal costs of achieving it E. the average benefit of achieving perfectly clean air outweighs the total benefit of achieving it

A

Individuals: A. respond to incentives in predictable ways B. increase the level of an activity in response to negative incentives C. decrease the level of an activity in response to positive incentives D. respond to incentives in unpredictable ways E. offer more help when the cost of helping other is high

A

10 year old Josh observes that people who play football are taller than other people and tells his mom that he is going to play football because it will make him big and strong. Josh is: A. committing the fallacy of composition B. violating the ceteris paribus assumption C. mistaking correlation for assumption D. performing hypothesis testing E. comparing the marginal benefits and the marginal costs of playing football.

C

A decrease in the price of a good will: A. increase the demand for the good B. decrease the demand for a good C. increase the quantity demanded of the good D. decrease the quantity demanded of the good E. decrease the slope of the demand curve

C

A supply curve illustrates a(n) ______________ relationship between _______ and ________. A. direct; price; supply B. direct; price; quantity demanded C. direct; price; quantity supplied D. inverse; price; quantity demanded E. inverse; price; supply

C

Economics believe that individuals: A. aim to maximize welfare B. aim to maximize their material consumption C. are motivated by self-interest and rational behavior D. are motivated by altruism and selfishness E. always ensure an efficient allocation of resources in the market economy

C

Economists assume that when people act rationally they: A. make decisions based on complete and accurate information B. make decisions that they will not regret later on C. make decisions based on what they believe is best for themselves, using available information D. make decisions based on what they believe is bad for themselves, using available information E. make decisions that cannot be altered in the future

C

Opportunity cost includes: A. monetary costs only B. non-monetary costs only C. both monetary and non-monetary costs D. neither monetary nor non-monetary costs E. all the costs of living

C

Scarcity is: A. a problem only in the modern industrialized economy B. a problem only in undeveloped countries C. a problem that necessitates tradeoffs D. a problem that can only be eliminated by the government

C

The law of demand refers to the: A. decrease in price that occurs as more units of a product are demanded B. increase in the price that results from an increase in demand for a good in limited supply C. inverse relationship between the price of a good and the quantity demanded D. increase the quantity of a good made available when its price increases E. direct relationship between the price of a good and the quantity demanded

C

The market supply schedule reflects the total quantity: A. supplied at the market price B. supplied by all of the producers at the equilibrium price C. supplied at each price by all of the producers D. supplied by an individual firm at each price E. supplied by an individual firm at the equilibrium price

C

The opportunity cost of an action is equal to: A. the monetary payment received for the action B. the total time spent by all parties in carrying out the action C. the highest valued opportunity that must be sacrificed in order to take the action D. the value of all of alternative actions that could have taken. E. zero if the action yields an income

C

The production possibilities curve illustrates: A. the minimum quantity of two resources necessary to produce a given level of output. B. that when resources are currently being used inefficiently, it is possible to increase the production of one good only by sacrificing another good C. that when resources are currently being used efficiently, it is possible to increase the production of one good only by sacrificing another good D. the minimum quantities of output that can be produced using available resources E. the law of diminishing returns to scale

C

The term ceteris paribus means that: A. the causal relationship between two economic variables cannot be determined. B. an analysis is true for the individual but not for the economy as a whole. C. all other variables except the ones specified are assumed to be constant D. conclusions are based on normative rather than on positive economic analysis. E. one variable causes another to occur if certain conditions are satisfied.

C

What is the most likely effect of reducing costly regulations on the supply curve for a good? A. The supply curve for the good will shift to the left B. The quantity supplied for the good will reduce C. The supply curve for the good will shift to the right D. The supply curve for the good will not be affected E. The quantity supplied of the good will increase

C

Which of the following serves as a language of the market system? A. Fiscal policies B. Monetary policies C. Market prices D. Governments E. Exchange rates

C

A decrease in the price of a good will: A. increase the supply of the good B. decrease the supply of the good C. increase the quantity supplied of the good D. decrease the quantity supplied of the good E. increase the slope of the supply curve of the good

D

A person behaving rationally will: A. always avoid illegal actions B. explain or rationalize his or her decision C. refrain normative analysis and base his or her decisions of facts D. consider the future consequences of his or her behavior E. never face scarcity

D

A technological advancement in recycling made it possible to produce a greater quantity of paper from a given quantity of recycled newspapers. Recycled paper is used to produce notebooks. According to the given scenario, which of the following statements will be true? A. There will be a movement down along the supply curve of notebooks B. There will be a movement up along the supply curve of notebooks C. The supply curve for notebooks will shift to the left D. The supply curve for notebooks will shift to the right E. The supply curve for notebooks will become steeper

D

A technological advancement that increases the productivity of all inputs is best illustrated as: A. movement along the production possibilities curve B. a flattening of the production possibilities curve C. an inward shift of the production possibilities curve D. an outward shift of the production possibilities curve E. a change in the curvature of the production possibilities curve

D

If people follow the rule of rational choice, they will choose options that they think will: A. create more average benefits than average costs B. create more additional costs than additional benefits C. create equivalent additional benefits and additional costs D. create more additional benefits than additional costs E. crate more average costs than average benefits

D

Resources are used more efficiently if people, regions, and countries specialize in goods for which they have a(n): A. disincentive to trade with others B. higher opportunity cost C. absolute advantage in production D. comparative advantage in production E. comparative disadvantage in production

D

Suppose senators, members of Congress, and other experts made the following five statements in a congressional debate about agricultural price supports. Which of these is a normative statement? A. Without price supports, the price of wheat and corn will decrease by over 20 percent. B. The decrease in commodity prices caused by the removal of price supports will result in fewer but larger farms. C. The decrease in commodity prices caused by the removal of price supports will reduce the number of tractors sold in the U.S. D. Price supports are important because America should preserve small family farms.

D

Three economic questions must be determined in all societies. What are they? A. How much will be produced? When will it be produced? How much will it cost? B. What the price of each good will be? Who will produce each good? Who will consume each good? C. What is the opportunity cost of production? Does the society have a comparative advantage in production? Will consumers desire the goods being produced? D. What goods will be produced? How will goods be produced? Who will get the goods produced? E. Who needs the goods the most? Who will produce the goods? How will the goods be produced?

D

Which of the following best defines rational behavior? A. Analyzing the total costs of a decision B. Analyzing the total benefits of a decision C. Undertaking an activity as long as the total benefit of all activities exceeds the total cost of all activities D. Undertaking activities whenever the marginal expected benefit exceeds the marginal expected cost E. Undertaking activities whenever the average expected benefit exceeds the average expected cost

D

A good economic theory: A. must be based on assumptions B. explains economic behavior and predicts well. C. can always be proved by past economic events D. always provides a highly detailed analysis of an economic sector. E. must be based on rigorous mathematical calculations.

B

Along with the supply curve of a good, the: A. supply of the good changes as its price changes B. quantity supplied of the good changes as its price changes C. supply of the good changes as technology changes D. quantity supplied of the good changes as technology changes E. quantity supplied of the good changes as income changes

B

An economic study concludes that an investment tax credit would increase business investment next year. This is an example of: A. normative analysis B. positive analysis C. Mistaking correlation for causation. D. The fallacy of composition.

B

At the equilibrium price, the quantity of the good that buyers are willing to and able to buy: A. is greater than the quantity that sellers are willing to and able to sell B. exactly equals the quantity that sellers are willing and able sell C. is less than the quantity that sellers are willing and able to sell D. equals the maximum quantity that producers could produce E. equals the minimum quantity that producers need to produce

B

In economics, the demand for a good refers to the amount of the good that people: A. would like to have if the good were free B. will buy at various prices C. need to achieve a minimum standard of living D. will buy at alternative income levels E. will receive from a welfare state

B

Jamie and Danny both attend the same college and incur the same expenses for tuition, books, and school supplies. Jamie gave up a lucrative modeling job in Paris to attend school full-time and Danny gave up a part-time job as a sales clerk in a department store. It follows that: A. the opportunity cost of attending college is the same for both since they are enrolled at the same academic institution B. the opportunity cost of attending college is likely greater for Jamie than for Danny C. the opportunity cost of attending college is likely greater for Danny that for Jamie D. the opportunity cost is minimal for both, since, on average, college graduates are paid much higher than high school graduates E. the opportunity cost for attending college for both Jamie and Danny is equal to zero

B

Ted has decided to buy a burger and fries at a restaurant but is considering whether to buy a drink. If the price of a burger is $2, fries $1, and a drink is $1, but a value meal with all three is $3.80, the marginal cost to Ted of the drink is: A. $.20 B. $.80 C. $1.00 D. $3.80 E. $0.

B

The central question in economics is how to: A. regulate the supply of money in an economy B. make the best use of scarce resources to satisfy our unlimited wants C. find more resources to satisfy everyone's wants D. restrict the role of the government in economic activities

B

Which of the following is an example of a positive incentive? A. Jim expects to be grounded if his grades slip below a B average B. Sam expects to receive a scholarship if his grades remain high C. Desserts will be unavailable at the cafeteria if you arrive after 7:00 pm D. The college campus police institutes a policy of impounding cars parked in the delivery zone spaces E. Sam choose the piano lessons over martial arts classes

B

Which of the following is true of a market equilibrium? A. At equilibrium, demand equals supply B. At equilibrium, quantity demanded equals quantity supplied C. At equilibrium, market forces no loner apply D. At equilibrium, the "fairest" price for output is achieved E. At equilibrium, all the producers maximize their profits

B

Which of the following would cause the demand curve for DVD's to shift to the right? A. a decrease in the price of DVD's B. A decrease in the price of DVD players C. A decrease in the demand for watching movies in movie theaters D. A decrease in the number of buyers in the market for DVD's E. A decrease in the number of sellers in the market for DVD's

B