Economics Chapter 1
Why might studying economics be particularly good preparation for being the top manager of a corporation or a leader in government?
Economics teaches us how to look at the tradeoffs involved in every decision.
Scarcity is central to the study of economics because it implies that
Every choice involves an opportunity cost
Which of the following is a microeconomic question?
How does Fiat decide on the price of the 500 Pop model?
Which of the following is a positive economic statement?
If minimum wage rates rise, then unemployment will rise.
Which of the following contributes to the efficiency of markets?
Markets promote competition and voluntary
Which of the following is not a possible opportunity cost of attending college?
The cost of housing
Tangible products like cars and televisions are referred to as __________.
goods
Macroeconomics can be used to understand all of the topics listed below, except:
how a consumer decides between the purchase of two different cars
Economics:
is concerned with how people respond to incentives
The effect of higher income taxes on the total amount of consumer spending.
macroeconomics
Which of the following statements about the idea that people are rational is correct?
. The idea assumes that consumers and firms use all available information as they act to achieve their goals.
Centrally planned economies allocate resources based on decisions by _____________, while market economies answer these questions through decisions made by ____________
1. government 2. households and firms
Efficiency means that goods are distributed in a way that ______________, while equity means that goods are distributed in a way that______________________
1. maximizes benefits to society, 2. is fair
The Stogie Shop, a cigar store in the mall, sells hand-rolled cigars for $10.00 and machine-made cigars for $2.50 each. What is the opportunity cost of buying a hand-rolled cigar?
4 machine-made cigars
When you think of an arrangement or institution that brings buyers and sellers of a good or service together, what are you thinking of?
A market
__________ goods and services are those bought by businesses to be used to increase efficiency or enhance production.
Capital
Which of the following is motivated by an efficiency concern?
Following a six-month drought, a city banned homeowners from watering their lawns in an effort to conserve water.
Economic decisions are made at every level in society. When we try to decide which production method to use among several alternatives, which of the following key economic questions are we trying to answer?
How do we produce the products?
What is the name given to the development of a new good?
Invention
Which of the following areas of economics studies issues such as whether government intervention is capable of reducing the severity of recessions?
Macroeconomics
Suppose a cigar manufacturer currently sells 1,500 cigars per week and makes a profit of $3,000 per week. The plant foreman observes, "Although the last 500 cigars we produced and sold increased our revenue by $7,500 and our costs by $7,000, we are only making an overall profit of $3,000 per week so I think we need to cut back on production.Refer to Scenario 1-2. Using marginal analysis terminology, what is another economic term for the incremental cost of producing the last 500 cigars?
Marginal Cost
The three economic questions that every society must answer are
What goods will be produced, how will they be produced, and who will receive the goods.
In what type of economy does the government decide how economic resources will be allocated?
a centrally planned economy
Productive efficiency means that
a good or service is produced at the lowest possible cost.
If teachers put too little weight in the grading scale on a certain part of the course, like readings outside the textbook, students might respond by__________ that part of the course
de-emphazing`
Allocative efficiency means that
every good or service is produced up to the point where marginal benefit is equal to marginal cost.
What do economists mean by the word "marginal"?
extra or additional
In economics, tangible merchandise is referred to as
goods
The reasons for the economies of East Asian countries growing faster than the economies of sub-Saharan African countries.
macroeconomics
The branch of economics which studies the behavior of entire economies and policies that affect the economy as a whole is called
macroeconomics.
Many universities and corporations offer a health wellness program that helps their employees improve or maintain their health and get paid (a relatively small amount) for doing so. The programs vary, but typically consist of employees completing a health assessment, receiving a healthy living program, and monitoring their monthly health activities. Corporations and universities are willing to pay employees to take care of themselves because a healthier workforce
performs more efficiently, thereby improving overall productivity in the workplace. translates into lower costs, in part by reducing illness-related absenteeism and premature retirements. A and B only
The stock of computers, factory buildings and machine tools used to produce goods is known as:
physical capital
Macroeconomics is the study of
the economy as a whole, including topics such as inflation, unemployment, and economic growth
Opportunity cost is defined as
the highest valued alternative that must be given up to engage in an activity.
Economists believe that an activity should be continued up to the point where
the marginal benefit from the activity is equal to the marginal cost.
Macroeconomics is
the study of economy-wide phenomena, including inflation, unemployment, and economic growth
Economists assume that people are rational in the sense that
they use all available information as they take actions intended to achieve their goals.
President Obama and his advisers have failed to correctly forecast the effects of the 2011 changes to the loan programs because they
underestimated the number of students who would take advantage of the programs.
Which of the following generates allocative efficiency in a market economy?
voluntary exchange between buyers and sellers
Ivan runs a custom jewelry shop in Sparkle City. He is debating whether he should extend his hours of operation. Ivan figures that his sales revenue will depend on the number of additional hours the jewelry shop is open as shown in the table above. He would have to hire a worker for those hours at a wage rate of $25 per hour. Hours open 5 - 530$ 6 - 550$
20
Which of the following areas of economics studies issues such as ways to reduce teenage smoking?
Microeconomics
As part of his 2016 federal budget proposals, President Obama recommended significant changes to the federal student loan programs. Given your answer to the previous question, do you think President Obama was likely to have recommended changes that would increase, or changes that would decrease, the payments that borrowers would have to make? President Obama was likely to have recommended changes that would
increase the payments that borrowers would have to make so that the government would be paid back sooner.
Teachers often wish that students came to class prepared having read the upcoming material. A teacher could design the grading system to motivate students to come to class prepared by ____________ the grade weight assigned to being prepared.
increasing
Which of the following is an example of an activity undertaken by an entrepreneur?
starting a snow cone business
The level of total investment by firms in new machinery and equipment helps to determine how rapidly the economy grows. This is a ___________ issue. However, to understand how much new machinery and equipment firms decide to purchase, one must analyze the incentives individual firms face, which is a __________ issue
1. macroecnomics 2. microeconomics
According to the rationality assumption, people:
Do not intentionally make decisions that would leave them worse off.
Tabitha shares a flea market booth with her sister. Her share of the rent is $150 per month. She is considering moving to her own, larger booth which she will not have to share with anyone. The larger booth rents for $450 per month. Recently, you ran into Tabitha in the grocery store and she tells you that she has rented the larger booth. Tabitha is as rational as any other person. As an economics major, you rightly conclude that
Tabitha figures that the additional benefit of having her own booth (as opposed to sharing) is at least $300.
Which of the following best describes scarcity?
Unlimited wants exceed the limited resources available
The term "market" in economics refers to
a group of buyers and sellers of a product and the arrangement by which they come together to trade.
Consider the following statements:a. Soda drinkers purchase more soda from a grocery store that sells soda at a lower price than other rival grocery stores in the area. b. Homeowners do not take steps to increase security even though they believe it is more costly to allow burglaries than to install security monitoring equipment. c. Manufacturers produce less of a particular cell phone when its selling price rises.Which of the above statements demonstrates that economic agents respond to incentives?
a only.
One of the first steps in deciding whether to complete your education is to:
evaluate the marginal cost and marginal benefit of that decision.
Competition among sellers generates
productive efficiency
Which of the following statements is correct? A. An innovation is the practical application of an invention. B. The word "technology" and the word "invention" have the same meaning. C.The word "technology" and the word "innovation" have the same meaning. D.An invention is the practical application of an innovation.
A. An innovation is the practical application of an invention.
The grading system plays an important role in student learning. In their book Effective Grading: A Tool for Learning and Assessment in College, Barbara Walvoord and Virginia Anderson state that "grading infuses everything that happens in the classroom." They also argue that grading "needs to be acknowledged and managed from the first moment that an instructor begins planning a class." The grading system used by a teacher can affect the incentives of students to learn the course material by
Altering the payoffs to achieving success on the various components of the course
Consider the following statement: "The problem with economics is that it assumes that consumers and firms always make the correct decisions. But we know that everyone makes mistakes."
Economics assumes that consumers and firms are rational, not that they always make the right decisions.
Which of the following statements is true? A business has multiple locations, while a company has only a single location. B.Economists use the terms firm, company, and business interchangeably. C.A business is always larger than a firm. D.A company is owned by one person, while a firm is owned by more than one person.
Economists use the terms firm, company, and business interchangeably
Economists assume that the only reason people take the actions they do is in response to economic incentives.
False
Suppose a cigar manufacturer currently sells 1,500 cigars per week and makes a profit of $3,000 per week. The plant foreman observes, "Although the last 500 cigars we produced and sold increased our revenue by $7,500 and our costs by $7,000, we are only making an overall profit of $3,000 per week so I think we need to cut back on production. Using marginal analysis terminology, what is another economic term for the incremental revenue received from the sale of the last 500 cigars?
Marginal revenue
A primary difference between macroeconomics and microeconomics is
Microeconomics examines individual markets while macroeconomics examines the economy as a whole.
Which of the following countries has an economy where most of the resource allocation is determined by a central planning authority?
North Korea
In 2017, President Trump considered imposing a tariff on automobiles assembled by U.S. manufacturers in Mexico that were to be sold in the United States. If this tariff was imposed and as a result, some of these manufacturers moved their automobile assembly from Mexico back to the United States, these firms would be reacting to which of the three key economic ideas?
People respond to economic incentives.
Jim declined to take part in a health study on a free basis but changed his mind after being offered $1,000 to participate in the study. Jim's behavior best illustrates which economic principle?
People respond to economic incentives.
In economics, activities done for others, such as providing house cleaning or dental work, are referred to as
Services
Cassie's Quilts alters, reconstructs, and restores heirloom quilts. Cassie has just spent $800 purchasing, cleaning, and reconstructing an antique quilt which she expects to sell for $1,500 once she is finished. After having spent $800, Cassie discovers that she would need some special period fabric that would cost her $200 in material and time in order to complete the task. Alternatively, she can sell the quilt "as is" now for $900. What should she do?
She should purchase the period fabric, complete the task and then sell the quilt.
Fast food restaurants produce a range of menu items such as hamburgers, chicken sandwiches, salads, and french fries. What fundamental economic question are they addressing by offering this range of items?
What to produce?
When an employer offers a wellness program to its employees, the health insurance premiums the employer pays on behalf of the employees are likely to
decrease
Microeconomics is the study of
how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices
Microeconomics is the study of
how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.
Jay Bhattacharya and M. Kate Bundorf of Stanford University have found evidence that people who are obese and work for firms that have employer-provided health insurance receive lower wages than people working at those firms who are not obese. At firms that do not provide health insurance, obese workers do not receive lower wages than workers who are not obese. Firms that provide workers with health insurance may pay a lower wage to obese workers than to workers who are not obese because the Former Former tend to be less healthyand consequently _____________________
less productive at work experience higher rates of absenteeism and early retirement. more costly to insure and therefore employ due to their higher claim submission rate.
Economists believe that an individual or firm should continue any activity until:
marginal benefit is equal to marginal cost.
The effect of higher cigarette taxes on the quantity of cigarettes sold. This is a ____________ issue.
microeconomics
The reasons for low rates of profit in the airline industry.
microeconomics
The United States economy is best classified as a:
mixed economy.
The incentive of employees to improve or maintain their health once they obtain health insurance may be __________ impacted
negatively
Regarding the question of whether health insurance provides people with an incentive to become obese, the finding of Bhattacharya and Bundorf seems
relevant since the link between insurance and obesity was established while holding many other variables constant.
Economics is the study of choice under conditions of:
scarcity
The principle of opportunity cost evolves from the concept of:
scarcity
For many years, McDonald's used frozen beef in its hamburgers. It recently began market testing how consumers in the United States would respond to hamburgers made of fresh beef that had never been frozen. In early 2017, McDonald's expanded the market test from only 55 restaurants to over 300. The switch to fresh, never-frozen beef patties would be a huge undertaking involving "how [the beef] is transported to the restaurants, how it is stored when it arrives and how much it affects employees' process of making burgers." If you were a manager at McDonald's, how would you go about analyzing whether to switch to fresh, never-frozen beef patties? In your answer, consider whether your decision would have to be all or nothing—all fresh, never-frozen beef patties in all McDonald's hamburgers, and whether you would have to switch in all McDonald's locations around the world (they are in 119 countries), or just in certain countries.
You would want to compare the marginal benefits and marginal costs of serving hamburgers made with fresh beef.
Macroeconomics is concerned with all of the following except:
political party affiliation
According to the FBI Bank Crime Statistics, there were more than 4,000 bank robberies in the United States in 2015, an increase of 3.9 percent over 2014. The FBI claims that banks have made themselves easy targets by refusing to install clear acrylic partitions, called bandit barriers, that separate bank tellers from the public. According to a special agent with the FBI, "Bandit barriers are a great deterrent. We've talked to guys who rob banks, and as soon as they see a bandit barrier, they go find another bank." Despite this finding, many banks have been reluctant to install these barriers. Wouldn't banks have a strong incentive to install bandit barriers to deter robberies? Why, then, do so many banks not do so?
Banks have no economic incentive to install the barriers.
Late in the semester, a friend tells you, "I was going to drop my psychology course so I could concentrate on my other courses, but I had already put so much time into the course I decided not to drop it." Your friend's reasoning is
incorrect
The federal government subsidizes some loans to college students. Typically, the more students who participate in these programs and the more they borrow, the higher the cost to the federal government. In 2011, President Barack Obama convinced Congress to pass these changes to the federal student loan programs: (1) Payments were capped at 10 percent of a borrower's discretionary income; (2) any unpaid balances for people working for the government or in the non-profit sector were forgiven after 10 years; and (3) people working in the private sector had their loans forgiven after 20 years As a result of these changes in the federal student loan program, you would predict that the total amount students' borrowed under these programs would have
increased because the terms of repayment have been made more generous.
The resources provided by nature and used to produce goods and services are also known as:
natural resources
