Microeconomics chapter 1

Which one of the following expressions best states the idea of opportunity cost?

"There is no such thing as a free lunch."

68. Suppose you have a money income of $10, all of which you spend on Coke and popcorn. In the above diagram, the prices of Coke and popcorn respectively are: A. $.50 and $1.00. B. $1.00 and $.50. C. $1.00 and $2.00. D. $.40 and $.50.

A. $.50 and $1.00.

62. Refer to the budget line shown in the diagram above. If the consumer's money income is $20, which of the following combination of goods is unattainable? A. 4 units of C, and 6 units of D. B. 5 units of C, and no units of D. C. 1 unit of C, and 8 units of D. D. 2 units of C, and 6 units of D.

A. 4 units of C, and 6 units of D.

Which of the following statements is true? A. Microeconomics focuses on specific decision-making units of the economy; macroeconomics examines the economy as a whole. B. Macroeconomics focuses on specific decision-making units of the economy; microeconomics examines the economy as a whole. C. Every topic in economics is either a microeconomic or a macroeconomic issue; a topic cannot be both. D. Topics in microeconomics have public policy implications; topics in macroeconomics do not.

A. Microeconomics focuses on specific decision-making units of the economy; macroeconomics examines the economy as a whole.

Which of the following is a macroeconomic statement? A. The gross profits of all U.S. businesses were $182 billion last year. B. The price of beef declined by 3 percent last year. C. General Motors' profits increased last year. D. The productivity of steelworkers increased by 1 percent last year.

A. The gross profits of all U.S. businesses were $182 billion last year.

Which of the following is a labor resource? A. a computer programmer B. a computer C. silicon (sand) used to make computer chips D. a piece of software used by a firm

A. a computer programmer

95. Refer to the above table. For this economy to produce a total output of 3 units of capital goods and 13 units of consumer goods it must: A. achieve economic growth. B. use its resources more efficiently than the data in the table now indicate. C. allocate its available resources most efficiently among alternative uses. D. achieve the full employment of available resources.

A. achieve economic growth.

Which of the following is not a main function of the entrepreneur? A. make routine pricing decisions. B. innovate. C. assume the risk of economic losses. D. makes strategic business decisions.

A. make routine pricing decisions.

93. Refer to the above table. As compared to production alternative D, the choice of alternative C would: A. tend to generate a more rapid growth rate. B. be unattainable. C. entail unemployment. D. tend to generate a slower growth rate.

A. tend to generate a more rapid growth rate.

Which of the following is real capital? A. a pair of stockings B. a construction crane C. a savings account D. a share of IBM stock

B. a construction crane

96. Refer to the above table. For these data the law of increasing opportunity costs is reflected in the fact that: A. the amount of consumer goods that must be sacrificed to get more capital goods diminishes beyond a point. B. larger and larger amounts of capital goods must be sacrificed to get additional units of consumer goods. C. the production possibilities data would graph as a straight downsloping line. D. the economy's resources are presumed to be scarce.

B. larger and larger amounts of capital goods must be sacrificed to get additional units of consumer goods.

Which of the following will not produce an outward shift of the production possibilities curve? A. an upgrading of the quality of a nation's human resources B. the reduction of unemployment C. an increase in the quantity of a society's labor force D. the improvement of a society's technological knowledge

B. the reduction of unemployment

Which of the following is a normative statement? A. The temperature is high today. B. The humidity is high today. C. It is too hot to play tennis today. D. It will cool off later this evening.

C. It is too hot to play tennis today.

Which of the following statements pertains to macroeconomics? A. Because the minimum wage was raised, Mrs. Olsen decided to enter the labor force. B. A decline in the price of soybeans caused farmer Wanek to plant more land in wheat. C. National income grew by 2.7 percent last year. D. The Pumpkin Center State Bank increased its interest rate on consumer loans by 1 percentage point.

C. National income grew by 2.7 percent last year.

Which of the following is a microeconomic statement? A. The real domestic output increased by 2.5 percent last year. B. Unemployment was 6.8 percent of the labor force last year. C. The price of personal computers declined last year. D. The general price level increased by 4 percent last year.

C. The price of personal computers declined last year.

Which of the following is a positive statement? A. The humidity is too high today. B. It is too hot to jog today. C. The temperature is 92 degrees today. D. Summer evenings are nice when it cools off.

C. The temperature is 92 degrees today.

Which of the following is a land resource? A. a computer programmer B. a computer C. silicon (sand) used to make computer chips D. a piece of software used by a firm

C. silicon (sand) used to make computer chips

94. Refer to the above table. A total output of 3 units of capital goods and 4 units of consumer goods: A. is irrelevant because the economy is capable of producing a larger total output. B. will result in the maximum rate of growth available to this economy. C. would involve an inefficient use of the economy's scarce resources. D. is unobtainable in this economy.

C. would involve an inefficient use of the economy's scarce resources.

92. Refer to the above table. If the economy is producing at production alternative C, the opportunity cost of the tenth unit of consumer goods will be: A. 4 units of capital goods. B. 2 units of capital goods. C. 3 units of capital goods. D. 1/3 of a unit of capital goods.

D. 1/3 of a unit of capital goods.

63. Refer to the budget line shown in the diagram above. The absolute value of the slope of the budget line is: A. MUC/MUD. B. one-half. C. PD/PC. D. PC/PD.

D. PC/PD.

Which of the following is a capital resource? A. a computer programmer B. a corporate bond issued by a computer manufacturer C. silicon (sand) used to make computer chips D. a piece of software used by a firm

D. a piece of software used by a firm

Which of the following lists includes only capital resources (and therefore no labor or land resources)? A. an ice arena; a professional hockey player; hockey uniforms. B. the owner of a new startup firm; a chemistry lab; a researcher. C. a hydroelectric dam; water behind the dam; power lines. D. autos owned by a car rental firm; computers at the car rental agency; the vans that shuffle rental customers to and from the airport.

D. autos owned by a car rental firm; computers at the car rental agency; the vans that shuffle rental customers to and from the airport.

61. Refer to the budget line shown in the diagram above. If the consumer's money income is $20, the: A. prices of C and D cannot be determined. B. price of C is $2 and the price of D is $4. C. consumer can obtain a combination of 5 units of both C and D. D. price of C is $4 and the price of D is $2.

D. price of C is $4 and the price of D is $2.

Ben says that "An increase in the tax on beer will raise its price." Holly argues that "Taxes should be increased on beer because college students drink too much." We can conclude that:

Holly's statement is normative, but Ben's is positive.

Most of the disagreement among economists involves:

Normative statements

Suppose that a university decides to spend $1 million to upgrade personal computers and scientific equipment for faculty rather than spend $1 million to expand parking for students. This example illustrates what?

Opportunity costs

A production possibilities curve illustrates:

Scarcity

The alternative combination of two goods which a consumer can purchase with a given money income is shown by what?

a budget line.

what does the economic perspective entail?

a comparison of marginal benefits and marginal costs in decision making

66. The shift of the budget line from cd to ab in the above figure is consistent with: A. decreases in the prices of both M and N. B. an increase in the price of M and a decrease in the price of N. C. a decrease in money income. D. an increase in money income.

a decrease in money income.

What is Microeconomics is concerned with?

a detailed examination of specific economic units that make up the economic system.

The production possibilities curve is a frontier between what?

a frontier between all combinations of two goods that can be produced and those combinations that cannot be produced.

The term "other things equal" means that:

a number of relevant variables are assumed to be constant

According to economists, economic self-interest is what?

a reality that underlies economic behavior

Suppose an economist says that "Other things equal, the lower the price of bananas, the greater the amount of bananas purchased." This statement indicates that:

all factors other than the price of bananas (for example, consumer tastes and incomes) are assumed to be constant.

What does a budget line show?

all possible combinations of two goods that can be purchased, given money income and the prices of the goods.

The assertion that "There is no free lunch" means what?

all production involves the use of scarce resources and thus the sacrifice of alternative goods.

What is the basic purpose of the other-things-equal assumption?

allow one to reason about the relationship between variables X and Y without the intrusion of variable Z.

A budget line shows the:

alternative combinations of two goods that a consumer can purchase with a given money income.

What is associated with macroeconomics?

an empirical investigation of the general price level and unemployment rates since 1990

What are Economic theories?

are generalizations based on a careful observation of facts.

72. Suppose Elroy's budget line is as shown on the above diagram. If his tastes change in favor of Coke and against popcorn, the budget line will:

be unaffected.

A person should consume more of something when its marginal means what?

benefit exceeds its marginal cost

Unemployment is illustrated by what?

by a point inside the production possibilities curve.

Suppose that Julia receives a $20 gift card for the local coffee shop, where she only buys lattes and muffins. If the price of a latte is $4 and the price of a muffin is $2, then we can conclude that Julia:

can buy 5 lattes or 10 muffins if she chooses to buy only one of the two goods.

The study of economics is primarily concerned with what?

choices that are made in seeking the best use of resources

Kara was out jogging and despite being tired, decided to run one more mile. Based on her actions, economists would conclude that Kara:

decided that the marginal benefit of running one more mile would outweigh the cost of the additional mile.

If the production possibilities curve is a straight line:

economic resources are perfectly substitutable between the production of the two products.

What do Economic models do?

emphasize basic economic relationships by purposefully simplifying the complexities of the real world.

Economic resources are also called:

factors of production.

The production possibilities curve illustrates the basic principle that:

if all the resources of an economy are in use, more of one good can be produced only if less of another good is produced.

Why should you decide to go to a movie?

if the marginal benefit of the movie exceeds its marginal cost.

Even though local newspapers are very inexpensive, people rarely buy more than one of them each day. What does this fact imply?

implies that, for most people, the marginal benefit of reading a second newspaper is less than the marginal cost.

What does purposeful behavior suggest?

individuals will make different choices because of different desired outcomes

The main function of the entrepreneur is to:

innovate

Assume the price of product Y (the quantity of which is on the vertical axis) is $15 and the price of product X (the quantity of which is on the horizontal axis) is $3. Also assume that money income is $60. The absolute value of the slope of the resulting budget line:

is 1/5.

A normative statement is one that:

is based on value judgments.

Microeconomics:

is concerned with individual economic units and specific markets.

Any combination of goods lying outside of the budget line is what?

is unattainable, given the consumer's income.

The four factors of production are:

land, labor, capital, and entrepreneurial ability

The economizing problem is one of deciding how to make the best use of:

limited resources to satisfy virtually unlimited wants.

When economists say that people act rationally in their self interest, they mean that individuals do what?

look for and pursue opportunities to increase their utility

The problems of aggregate inflation and unemployment are:

major topics of macroeconomics.

In constructing models, what do economists do?

make simplifying assumptions

When entering a building, Sam diverts his path to go through an open door rather than make the physical effort to open the closed door that is directly in his path. This is an example of what?

marginal benefit-marginal cost analysis

Why is money not an economic resource?

money, as such, is not productive.

Economics involves marginal analysis because:

most decisions involve changes from the present situation

Assume an economy is operating at some point on its production possibilities curve, which shows civilian and military goods. If the output of military goods is increased, the output of civilian goods:

must be decreased.

A positive statement is one that is:

objective and is based on facts.

Joe sold gold coins for $1000 that he bought a year ago for $1000. He says, "At least I didn't lose any money on my financial investment." His economist friend points out that in effect he did lose money, because he could have received a 3 percent return on the $1000 if he had bought a bank certificate of deposit instead of the coins. The economist's analysis in this case incorporates the idea of what?

opportunity costs

What does the term "ceteris paribus" mean?

other things equal

Purposeful behavior means that:

people weigh costs and benefits to make decisions.

Why does the scarcity problem persist?

persists because economic wants exceed available productive resources.

For economists, the word "utility" means

pleasure and satisfaction

What does the slope of a budget line reflect?

price ratio of the two products

According to Emerson: "Want is a growing giant whom the coat of Have was never large enough to cover." According to economists, "Want" exceeds "Have" because what?

productive resources are limited

Economists contend that most economic decisions are what?

purposeful

Consumers spend their incomes to get the maximum benefit or satisfaction from the goods and services they purchase. What is this a reflection of?

purposeful behavior

Alex sees that his neighbors' lawns all need mowing. He offers to provide the service in exchange for a wage of $20 per hour. Some neighbors accept Alex's offer and others refuse. Economists would describe Alex's behavior as:

rational self-interest, because he attempting to increase his own income by identifying and satisfying someone else's wants.

When an economy is operating under conditions of full employment, the production of more of commodity A will mean the production of less of commodity B because:

resources are limited.

A nation's production possibilities curve is bowed out from the origin because:

resources are not equally efficient in producing every good.

In deciding whether to study for an economics quiz or go to a movie, one is confronted by the idea(s) of what?

scarcity and opportunity costs

Other things equal, an increase in a consumer's money income does what?

shifts her budget line rightward because she can now purchase more of both products.

An increase in money income does what?

shifts the consumer's budget line to the right.

What can Macroeconomics best be described as?

study of the large aggregates of the economy or the economy as a whole.

Any point inside the production possibilities curve indicates:

that more output could be produced with available resources.

Marginal costs exist because:

the decision to engage in one activity means forgoing some other activity.

Macroeconomics approaches the study of economics from the viewpoint of:

the entire economy

If someone produced too much of a good, this would suggest that:

the good was produced to the point where its marginal cost exceeded its marginal benefit.

The economic perspective refers to what?

the making of purposeful decisions in a context of marginal costs and marginal benefits.

A production possibilities curve shows:

the maximum amounts of two goods that can be produced assuming the full use of available resources.

What is the economizing problem?

the need to make choices because economic wants exceed economic means.

What is an economic explanation for why most college-aged movie stars do not attend college?

the opportunity cost in terms of reduced income is too great

In moving along a given budget line:

the prices of both products and money income are assumed to be constant.

Economics may best be defined as what?

the social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity

When the economist says that economic wants are insatiable, this means that:

these wants are virtually unlimited and therefore incapable of complete satisfaction.

Which of the following most closely relates to the idea of opportunity costs?

tradeoffs

In economics, the pleasure, happiness, or satisfaction received from a product is called what?

utility

What are Positive statements concerned with?

what is.

What are Normative statements concerned with?

what ought to be.