Chapter 1

18. Suppose that a store sells candy bars for $0.89 for one and $1.50 for two. The marginal cost of the second candy bar is: $1.50. $0.61. $0.75. $0.89.

$0.61

16. If you were not studying economics, you could be doing one of the following: sleeping in (which you value at $5), playing cards with your friends (which you value at $10), or working (you would have earned an extra $8). The opportunity cost of studying economics is therefore: $10. $5. $8. $23.

10

Malika wants to study the effect of rising textbook prices on the number of books students purchase. In planning her study she realizes there are other variables besides price that can affect this decision. To help her in building her model she can: A) use a complicated, detailed model. B) use the ceteris paribus assumption. C) make it as realistic as possible. D) focus on microeconomic factors but not macroeconomic factors.

B) use the ceteris paribus assumption. To aid in her model building, Malika can use the ceteris paribus assumption: "Holding all other things equal" means she will hold some important variables constant.

16. Which of these is NOT an example of market failure? Consumers must buy water from one local water utility. Competition leads firms to provide products at the lowest possible price. Air is polluted by a manufacturing firm. Water is polluted by a paper company located by a river.

Competition leads firms to provide products at the lowest possible price.

The term marginal is the same as A. additional. B. extra. C. doing a little more or a little less. D. additional, extra, and doing a little more or a little less.

D. additional, extra, and doing a little more or a little less.

4. _____ is the fairness of various issues and policies. Choice Efficiency Equity Scarcity

Equity

5. Efficiency in markets is generally increased by the discipline of: production and planning. prices and planning. planning and profits. prices and profits.

Prices and Profits? (NOT production and planning.)

17. When the individuals who get a good or service are the ones who desire that product the most, the economy is experiencing: equity. deflation. production efficiency. allocative efficiency.

allocative efficiency.

Which of the following is an example of a macroeconomic topic? a) a person's career choice b) a government program that is designed to lower the unemployment rate c) a business decision to increase the price of a product due to increased manufacturing costs. d) the fact that a business has decided to expand into Asia

b) a government program that is designed to lower the unemployment rate

Microeconomics is concerned with how much you plan to spend on travel this year. ________ is(are) concerned with how high unemployment will get during a recession. Microeconomics Macroeconomics Neither macroeconomics nor microeconomics Both macroeconomics and microeconomics

b) macroeconomics

7. Economic models must: rely on the ceteris paribus assumption. include all relationships that exist in the relevant issue to be modeled. completely represent the real world. be completely realistic to be useful.

completely represent the real world. ?

11. Government intervention in the market is helpful when: business firms always use the cleanest technologies available to mitigate pollution. consumers are forced to buy from just one firm. business firms face increasing competition from new entrants into the market. consumers are free to buy from many different firms.

consumers are forced to buy from just one firm.

18. Government intervention in the market is helpful when: business firms always use the cleanest technologies available to mitigate pollution. consumers are free to buy from many different firms. business firms face increasing competition from new entrants into the market. consumers are forced to buy from just one firm.

consumers are forced to buy from just one firm.

15. In the study of economics, the goals of efficiency and equity are often: given equal emphasis. in conflict with one another. compatible. objectively definable.

in conflict with one another.

10. It must be recognized that private markets: will never produce the most rational outcome. can fail. satisfy everyone. will always produce the most rational level of production.

satisfy everyone. ?

Which of the following is an example of a microeconomic topic? the effect of exchange rates on international trade why a movie theater charges different prices to different groups of people. how national debt affects economic growth the effect of monetary policy on interest rates

why a movie theater charges different prices to different groups of people. (Microeconomists study how an individual business decides on a price for its product.)

1. Economists generally do NOT define an institution as a: government that controls resource allocation. strong monetary system. government free of corruption. legal system that enforces contracts and laws.

government that controls resource allocation.

At your local family fun center, miniature golf is $12 per person for an unlimited number of rounds in a day, while each go-kart session is $8. The total cost of playing 2 rounds of miniature golf is $_______ and the total cost of playing 3 rounds of miniature golf is $ _____. The marginal cost for the third round of golf is $ ______.

$12 $12 $0 (Marginal Cost) Remember, the marginal cost is just the additional cost. Since after paying $12 you can play an unlimited number of rounds of miniature golf, the total cost to play 2 rounds is the same as the cost to play three rounds. Therefore, the marginal cost to play the third round is $0.

6. Which scenario can occur when specialization in tasks is coupled with trade? It leads to losses for all parties. It leads to gains for one party and losses for the other parties. It can lead to gains for all parties. It works only with government intervention.

It can lead to gains for all parties.

17. Which statement is NOT a key principle of economics? Rational thinking requires perfect information. Government can sometimes correct market failure. Productivity determines our standard of living. People follow incentives.

Rational thinking requires perfect information. ?

What is the Marginal Cost?

The additional cost or extra cost for one more.

To study the effect of price on Brett's demand for rock climbing lessons economists hold his monthly income constant. This is an example of a(n) _______ assumption. a) e pluribus unum b) ceteris paribus c) carpe vinum d) carpe diem

b) ceteris paribus

5. A basic belief of economics is that: in general, people respond to economic incentives. people always, and in every case, respond to economic incentives. history shows that tax incentives rarely work. people do not respond to changes in costs and prices.

in general, people respond to economic incentives.

15. Opportunity costs: are generally the same from individual to individual. decrease as individuals become wealthier. influence all economic decisions. involve monetary rather than non-monetary costs.

influence all economic decisions.

14. Resources are: unlimited, but wants are limited. limited, but wants are unlimited. unlimited, but efficiency is limited. limited, but efficiency is unlimited.

limited, but wants are unlimited.

13. The field of economics that is concerned about the broader issues in the economy, such as inflation, unemployment, and national output of goods and services is called: national economics. microeconomics. labor force economics. macroeconomics.

macroeconomics.

8. A theory composed of a number of assumptions and facts boiled down to their basic relevant elements is called a: model. metaphor. conclusion. practice.

model.

13. Because people make decisions at the margin, when deciding whether to purchase a second car, they would therefore compare: the additional benefits expected from a second car with the total cost of the two cars. the dollar cost of having two cars with the potential income the two cars may generate. the additional benefits expected from a second car with the additional costs of the second car. None of the answers is correct.

the additional benefits expected from a second car with the additional costs of the second car. (NOT None of the answers is correct.)

20. The basic idea of opportunity cost is that: using resources in an activity imposes costs on other people. buyers miss opportunities to find better bargains. the decision to use resources in one activity means that the resources cannot be used elsewhere. economic agents are always looking for better opportunities.

the decision to use resources in one activity means that the resources cannot be used elsewhere.

At your local family fun center, miniature golf is $12 per person for an unlimited number of rounds in a day, while each go-kart session is $8. The total cost of 2 go-kart sessions is $_____ and the total cost of 3 go-kart sessions is $_____. The marginal cost for the third go-kart session is $_____.

$16 $24 $8 (Marginal Cost) The total cost for 2 go-kart sessions is $8 × 2 = $16. The total cost for 3 go-kart sessions is $8 × 3 = $24. The marginal cost is the additional cost to ride a go-kart one more time. Thus, the marginal cost for the third session can be calculated by subtracting the total cost for three sessions by the total cost for two sessions, $24 - $16 = $8.

Suppose you decide to go to a concert. It is on a day that you would not have worked anyway, but your daily earnings are usually $80. Your friend gave you the concert ticket, which would have cost you $40, and you can resell it for $40. You can expect to spend $40 on food and beverages. What is the opportunity cost of going to the concert?

$80 Opportunity costs refer to what you give up to do something or purchase something. In this case, it is the food and what you could have sold the ticket for.

3. Which statement does NOT involve thinking at the margin? If I work on my day off, I will make an additional $300. I worked eight hours today. If I work another hour, I will beat traffic. My supervisor asked me to work an extra four hours this week.

I worked eight hours today.

9. Why is it important for students to study economics? Most students will work as professional economists. There is no long-term benefit to studying economics. It helps us make better and wiser decisions, given our limited resources. It helps us reduce our personal income taxes.

It helps us make better and wiser decisions, given our limited resources.

Sally has a higher income than Tim, even though they both have the same job. One of the major reasons that this happens is that: Sally is more productive than Tim. Tim is more productive than Sally. Sally has to pay more taxes because her income is higher. Tim has to pay more taxes because his income is lower.

Sally is more productive than Tim. (High productivity results in high wages.)

12. Which question is NOT an example involving marginal analysis? Should a university offer another section of a class? Should Boeing hire another assembly-line worker? Should K-Mart rebrand all its stores to using the Sears name? Should a restaurant stay open another hour?

Should K-Mart rebrand all its stores to using the Sears name?

2. Which scenario does NOT fall under the category of microeconomics? Jonathan decided to go to the movies instead of going to work. The cost of living has risen due to rising housing and food prices. Cooks at McDonalds supply labor in return for wages. Pepsi experienced an increase in revenue last quarter.

The cost of living has risen due to rising housing and food prices.

14. Which statement describes a time in the economy when the government should intervene? Producers use the least-cost methods of production. Consumers cannot make up their minds what they want to purchase. Sellers make poor business decisions. The market fails to provide goods efficiently.

The market fails to provide goods efficiently.

Which is the BEST example of a microeconomic issue? The Federal Reserve will raise interest rates this week. The country's price level has increased over the last quarter. The production of automobiles decreased last year. The unemployment rate will exceed 6% this month.

The production of automobiles decreased last year.

8. Which statement is TRUE about specialization and exchange between two individuals? They generally benefit neither the poorer individual nor the richer individual. They generally benefit the poorer individual as well as the richer individual. They generally benefit the poorer individual at the expense of the richer individual. They generally benefit the richer individual at the expense of the poorer individual.

They generally benefit the poorer individual as well as the richer individual.

19. Scarcity refers to the fact that: some goods are scarce. a person must make choices given the resource limitations he or she faces. there is no long-term benefit to studying economics. something is scarce.

a person must make choices given the resource limitations he or she faces. ? (NOT something is scarce)

10. Which policy is MOST likely to contribute to improved standards of living over time? addressing teacher shortages by closing schools and busing students to other schools allowing individuals the freedom to circumvent laws due to personal objections to them reducing the years that drug patents are valid to speed up production of generic versions adding after-school art and music programs to promote creativity

adding after-school art and music programs to promote creativity

9. Employers give stock options to full-time employees who have been on the job more than three years. This is an example of: thinking on the margin. opportunity costs. irrational behavior. people following incentives.

people following incentives.

3. When an economy uses the most efficient means of farming to grow as much corn as possible, this economy has achieved: allocative efficiency but not necessarily production efficiency. production efficiency but not necessarily allocative efficiency. neither production efficiency nor allocative efficiency. production efficiency and allocative efficiency.

production efficiency but not necessarily allocative efficiency.

19. A nation's standard of living is primarily a function of: government benefits. productivity. natural resource availability. national defense.

productivity.

Lyla is a little more efficient at making potato soup than Jose. She is a lot more efficient than Jose at making bread. Lyla decides to make only bread and trade bread for soup. This is an example of: market failure. specialization. opportunity cost. marginal analysis.

specialization (Specialization occurs when people (or countries) engage in the economic activity in which they have the greatest advantage over others.)

11. In which market is government most likely to intervene to prevent a market failure? the market for designer clothing the jewelry market the restaurant market the market for college education

the market for college education

Alex goes to the store to buy snacks. While he's there he remembers he also has run out of deodorant. When Alex gets to the cashier, he finds that he's forgotten his wallet and only has $5 in cash to spend. Alex has to choose which items to buy. Which of the following key ideas of economics does this illustrate? marginal analysis market failure tradeoffs incentives

tradeoffs Alex has found himself with only $5 to spend and must decide among the items. This illustrates the idea that scarcity forces tradeoffs.

12. Microeconomics is concerned with issues such as: interest rates. unemployment. inflation. which job to take.

which job to take.