Macroeconomics midterm 1.1 studyguide
21) The cost incurred from the production of an additional unit of a product A) is a marginal cost to the firm. B) is called a loss. C) is called opportunity cost. D) must be zero for a firm to be efficient.
Answer: A Diff: 2 Page Ref: 7/7 Topic: Optimal Decisions Are Made at the Margin Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
2) The study of economics arises due to A) money. B) scarcity. C) greed. D) resources.
Answer: B Diff: 1 Page Ref: 4/4 Topic: Scarcity Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
19) ________ involves undertaking an activity until its marginal benefits equal marginal costs. A) Scarcity reduction B) Central planning C) Marginal analysis D) Market intervention
Answer: C Diff: 1 Page Ref: 7/7 Topic: Optimal Decisions Are Made at the Margin Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
70) Explain the termȱȈeconomics.Ȉ
Answer: Economics is the study of the choices people make to attain their goals, given their scarce resources
55) All economic questions arise from the fact that resources are scarce.
TRUE
3) Scarcity refers to the situation in which A) unlimited wants exceed limited resources. B) unlimited resources exceed limited wants. C) a countryȇs population is larger than its resource base. D) a nationȇs poverty level increases faster than its population
Answer: A Diff: 1 Page Ref: 4/4 Topic: Scarcity Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
4) The basic economic problem of scarcity A) has always existed and will continue to exist. B) will eventually disappear as technology continues to advance. C) is a problem only in developing economies. D) does not apply to the wealthy in society.
Answer: A Diff: 1 Page Ref: 4/4 Topic: Scarcity Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
17) An office supply store sells a ream of printer paper at a fixed price of $4.50. Which of the following is a term used by economists to describe the money received from the sale of an additional ream of paper? A) marginal revenue B) gross earnings C) pure profit D) marginal costs E) net benefit
Answer: A Diff: 1 Page Ref: 7/7 Topic: Optimal Decisions Are Made at the Margin Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
Suppose a cigar manufacturer currently sells 1,500 cigars per week and makes a profit of $3,000 per week. The plant foreman observes,ȱȈAlthough the last 500 cell 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. 49) Refer to Scenario 1-1. Using marginal analysis terminology, what is another economic term for the incremental cost of producing the last 500 cigars? A) marginal cost B) operating cost C) explicit cost D) Any of the above terms are correct.
Answer: A Diff: 1 Page Ref: 7/7 Topic: Optimal Decisions Are Made at the Margin Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
Suppose a t-shirt manufacturer currently sells 5,000 t-shirts per week and makes a profit of $10,000 per week. A manager at the plant observes,Although the last 400 t-shirts we produced and sold increased our revenue by $4,000 and our costs by $4,800, we are still making an overall profit of $10,000 per week so I think were on the right track. We are producing the optimal number of t-shirts. 34) Refer to Scenario 1-1. Using marginal analysis terminology, what is another economic term for the incremental cost of producing the last 400 t-shirts? A) marginal cost B) operating cost C) explicit cost D) Any of the above terms are correct
Answer: A Diff: 1 Page Ref: 7/7 Topic: Optimal Decisions Are Made at the Margin Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
14) Holding all other personal characteristics-such as age, gender, and income-constant, economists would expect that A) people without health insurance will be less likely to be overweight than people with health insurance. B) people without health insurance will be more likely to be overweight than people with health insurance. C) people without health insurance will be equally likely to be overweight as people with health insurance. D) there is no correlation between not having health insurance and being overweight.
Answer: A Diff: 2 Page Ref: 5-7/5-7 Topic: People Respond to Economic Incentives Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
20) The revenue received from the sale of an additional unit of a product A) is a marginal benefit to the firm. B) is called profit. C) is called gross sales. D) is called a net gain.
Answer: A Diff: 2 Page Ref: 7/7 Topic: Optimal Decisions Are Made at the Margin Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
24) Which of the following is an example of aȱȈhow muchȈȱdecision? A) The Pleasantville movie theatre is open only in the evenings. The theatreȇs manager is debating whether to add daily matinee shows. B) The Zhous have demolished their old home and are debating whether to build a ranch-style house or a Craftsman home. C) Youȇre planning to hold a graduation party and must decide between having your party catered or having a pot-luck. D) Chelsea has withdrawn from the swim team to take up a full -time job.
Answer: A Diff: 2 Page Ref: 7/7 Topic: Optimal Decisions Are Made at the Margin Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
28) Cassieȇs 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 quiltȱȈas isȈȱnow for $900.ȱȱWhat is the marginal cost of completing the task? A) $200 B) $500 C) $1,000 D) $1,000 plus the value of her time
Answer: A Diff: 2 Page Ref: 7/7 Topic: Optimal Decisions Are Made at the Margin Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
Hours Open Total Revenue (dollars) 1 40 2 65 3 80 4 90 5 95 6 98 Julius runs a small tailor shop in the city of Bloomfield. He is debating whether he should extend his hours of operation. Julius figures that his sales revenue will depend on the number of hours the tailor shop is open as shown in the table above. He would have to hire a worker for those hours at a wage rate of $18 per hour. 40) Refer to Table 1-2.ȱȱWhat is Juliusȇs marginal benefit if he decides to stay open for three hours instead of two hours? A) $15 B) $25 C) $65 D) $80
Answer: A Diff: 2 Page Ref: 7/7 Topic: Optimal Decisions Are Made at the Margin Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
Hours Open Total revenue (dollars) 1 35 2 60 3 80 4 92 5 100 6 105 Eva runs a small bakery in the village of Roggerli. She is debating whether she should extend her hours of operation. Eva figures that her sales revenue will depend on the number of hours the bakery is open as shown in the table above. She would have to hire a worker for those hours at a wage rate of $12 per hour. 37) Refer to Table 1-1.ȱȱWhat is Evaȇs marginal benefit if she decides to stay open for two hours instead of one hour? A) $25 B) $36 C) $60 D) $95
Answer: A Diff: 2 Page Ref: 7/7 Topic: Optimal Decisions Are Made at the Margin Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
Hours Open Total revenue (dollars) 1 35 2 60 3 80 4 92 5 100 6 105 Eva runs a small bakery in the village of Roggerli. She is debating whether she should extend her hours of operation. Eva figures that her sales revenue will depend on the number of hours the bakery is open as shown in the table above. She would have to hire a worker for those hours at a wage rate of $12 per hour. 38) Refer to Table 1-1. What is Evaȇs marginal cost if she decides to stay open for two hours instead of one hour? A) $12 B) $24 C) $36 D) $71
Answer: A Diff: 2 Page Ref: 7/7 Topic: Optimal Decisions Are Made at the Margin Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
43) 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) a only. B) b only. C) c only. D) a and b. E) a, b, and c.
Answer: A Diff: 3 Page Ref: 5/5 Topic: People Respond to Economic Incentives Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
31) Lionelȇs Lawn Care is a company that maintains residential yards. Lionelȇs cost for his standard package of mowing, edging, and trimming is $15, and he charges $25 for this service. For a total price of $40, Lionel will also trim shrubs, a service that adds an additional $10 to the total cost of the standard package. What is Lionelȇs marginal cost of adding the shrub -trimming service to the standard package? A) $10 B) $15 C) $25 D) $40
Answer: A Diff: 3 Page Ref: 7/7 Topic: Optimal Decisions Are Made at the Margin Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
32) Lionelȇs Lawn Care is a company that maintains residential yards. Lionelȇs cost for his standard package of mowing, edging, and trimming is $15, and he charges $25 for this service. For a total price of $40, Lionel will also trim shrubs, a service that adds an additional $10 to the total cost of the standard package. Should Lionel continue to offer the shrub-trimming service? A) yes, his marginal benefit is greater than his marginal cost B) yes, but only if he raises the price of the standard package C) no, his marginal benefit is less than his marginal cost D) More information is needed for Lionel to make this decision
Answer: A Diff: 3 Page Ref: 7/7 Topic: Optimal Decisions Are Made at the Margin Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
Hours Open Total Revenue (dollars) 1 40 2 65 3 80 4 90 5 95 6 98 Julius runs a small tailor shop in the city of Bloomfield. He is debating whether he should extend his hours of operation. Julius figures that his sales revenue will depend on the number of hours the tailor shop is open as shown in the table above. He would have to hire a worker for those hours at a wage rate of $18 per hour. 39) Refer to Table 1-2. Using marginal analysis, determine how many hours should Julius extend his shopȇs hours of operations? A) 2 hours B) 3 hours C) 4 hours D) 5 hours E) 6 hours
Answer: A Diff: 3 Page Ref: 7/7 Topic: Optimal Decisions Are Made at the Margin Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
67) What is an economic market?
Answer: An economic market refers to a group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade.
1) As recently as 2000, ________ percent of doctors were in private practice and by 2013, ________ percent of doctors were in private practice. A) only 20; more than 70 B) nearly 60; less than 40 C) about 50; about 50 D) over 80; less than 15
Answer: B Diff: 1 Page Ref: 3/3 Topic: Scarcity Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
5) Economics is the study of the ________ people make to attain their goals, given their ________ resources. A) purchases; unlimited B) choices; scarce C) income; available D) decisions; household
Answer: B Diff: 1 Page Ref: 4/4 Topic: Scarcity Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
16) What does the termȱȈmarginalȈȱmean in economics? A) the edge of a market B) an additional or extra C) illegal D) secondary E) trivial
Answer: B Diff: 1 Page Ref: 7/7 Topic: Optimal Decisions Are Made at the Margin Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
26) Marginal cost is the ________ associated with undertaking an activity. A) total cost B) extra cost C) opportunity cost D) foregone cost
Answer: B Diff: 1 Page Ref: 7/7 Topic: Optimal Decisions Are Made at the Margin Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
Suppose a cigar manufacturer currently sells 1,500 cigars per week and makes a profit of $3,000 per week. The plant foreman observes,ȱȈAlthough the last 500 cell 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. 48) Refer to Scenario 1-1. Using marginal analysis terminology, what is another economic term for the incremental revenue received from the sale of the last 500 cigars? A) gross earnings B) marginal revenue C) sales revenue D) gross profit
Answer: B Diff: 1 Page Ref: 7/7 Topic: Optimal Decisions Are Made at the Margin Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
Suppose a t-shirt manufacturer currently sells 5,000 t-shirts per week and makes a profit of $10,000 per week. A manager at the plant observes,ȱȈAlthough the last 400 t-shirts we produced and sold increased our revenue by $4,000 and our costs by $4,800, we are still making an overall profit of $10,000 per week so I think weȇre on the right track. We are producing the optimal number of t-shirts.Ȉ 33) Refer to Scenario 1-1. Using marginal analysis terminology, what is another economic term for the incremental revenue received from the sale of the last 400 t-shirts? A) gross earnings B) marginal revenue C) sales revenue D) gross profit
Answer: B Diff: 1 Page Ref: 7/7 Topic: Optimal Decisions Are Made at the Margin Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
11) Your roommate, Serafina, a psychology major, said,ȱȈThe problem with economics is that it assumes that consumers and firms always make the correct decision. But we know that everyoneȇs human, and we all make mistakes.ȈȱDo you agree with her comment? A) Yes, I agree with her. One cannot make predictions about economic behavior because in reality people make incorrect choices in many situations. B) I disagree with her. Economics does not study correct or incorrect behaviors but rather it assumes that economic agents behave rationally, meaning they make the best decisions given their knowledge of the costs and benefits. C) Yes, I agree with her. Economic theory should allow for irrational behavior so that we can have more reliable predictions. D) I disagree with her. If we cannot assume that decisions are correct, then we will not be able to examine the moral implications of these decisions.
Answer: B Diff: 2 Page Ref: 5/5 Topic: People Are Rational Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
9) Which of the following best describes an assumption economists make about human behavior? A) They assume that individuals act rationally all the time in all circumstances. B) They assume that rational behavior is useful in explaining choices people make even though people may not behave rationally all the time. C) They assume that people take into account the question of fairness in all decisions they make. D) They assume that individuals act randomly.
Answer: B Diff: 2 Page Ref: 5/5 Topic: People Are Rational Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
13) In the first six months of 2003, branches of Commerce Bank in New York City were robbed 14 times. The New York City Police recommended steps the bank could take to deter robberies, including the installation of plastic barriers calledȱȈbandit barriers.ȈȱThe police were surprised the bank did not take their advice. According to a deputy commissioner of police,ȱȈCommerce does very little of what we recommend. Theyȇve told our detectives they have no interest in ever putting in the barriers.Ȉȱ It would seem that Commerce bank would have a strong incentive to installȱȈbandit barriersȈȱto deter robberies. Why wouldnȇt they do it? A) The banks would rather delay installation of any theft deterring equipment in anticipation of new lower cost innovations in the security devices market. B) The banks must have weighed the cost of installing bandit barriers against the benefits and decided that they haveȱȈno interest in ever putting in the barriers.Ȉ C) The banks are concerned thatȱȈbandit barriersȈȱwould send the wrong message to customers N that the bank is unsafe. D) The banks probably resent any interference from the police department.
Answer: B Diff: 2 Page Ref: 5/5 Topic: People Respond to Economic Incentives Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
44) Suppose the U.S. government encouraged new teachers to take jobs in underperforming schools by paying the new teachers a $20,000 bonus. These teachers would be exemplifying the economic idea that A) people are rational. B) people respond to economic incentives. C) optimal decisions are made at the margin. D) equity is more important than efficiency.
Answer: B Diff: 2 Page Ref: 5/5 Topic: People Respond to Economic Incentives Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
23) If the marginal cost of producing a television is constant at $200, then a firm should produce this item A) only if the marginal benefit it receives is greater than $200 plus an acceptable profit margin. B) as long as the marginal benefit it receives is just equal to or greater than $200. C) as long as its marginal cost does not rise. D) until the marginal benefit it receives reaches zero
Answer: B Diff: 2 Page Ref: 7/7 Topic: Optimal Decisions Are Made at the Margin Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
27) Cassieȇs 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 quiltȱȈas isȈȱnow for $900. What is her marginal benefit if she sells the quiltȱȈas isȈȱnow? A) $100 B) $900 C) She makes a marginal loss of $600, not a marginal benefit. D) The marginal benefit cannot be determined.
Answer: B Diff: 2 Page Ref: 7/7 Topic: Optimal Decisions Are Made at the Margin Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
54) Fiona shares an office with her ex-husband. Her share of the rent and utilities are $625 per month. She is considering moving to a home office which she will not have to share with anyone. The home office will not cost her anything as far as extra rent or utilities. Recently, you ran into Fiona at the gym and she tells you that she has moved into her home office.ȱȱFiona is as rational as any other person. As an economics major, you rightly conclude that A) Fiona did not have a choice; her ex-husband was a jerk. B) Fiona figures that the additional benefit of having her own office (as opposed to sharing) is at least $625. C) Fiona figures that the benefit of having her own office (as opposed to sharing) is zero, since she is no longer paying rent and utilities. D) The cost of having oneȇs own space outweighs the benefits.
Answer: B Diff: 2 Page Ref: 7/7 Topic: Optimal Decisions Are Made at the Margin Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
Hours Open Total Revenue (dollars) 1 275 2 375 3 450 4 500 5 530 6 550 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 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. 52) Refer to Table 1-3.ȱȱWhat is Ivanȇs marginal benefit if he decides to stay open for six hours instead of five hours? A) $10 B) $20 C) $30 D) $91.67
Answer: B Diff: 2 Page Ref: 7/7 Topic: Optimal Decisions Are Made at the Margin Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
Hours Open Total Revenue (dollars) 1 40 2 65 3 80 4 90 5 95 6 98 Julius runs a small tailor shop in the city of Bloomfield. He is debating whether he should extend his hours of operation. Julius figures that his sales revenue will depend on the number of hours the tailor shop is open as shown in the table above. He would have to hire a worker for those hours at a wage rate of $18 per hour. 41) Refer to Table 1-2. What is Juliusȇs marginal cost if he decides to stay open for three hours instead of two hours? A) $0 B) $18 C) $54 D) $65
Answer: B Diff: 2 Page Ref: 7/7 Topic: Optimal Decisions Are Made at the Margin Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
Hours Open Total Revenue (dollars) 1 40 2 65 3 80 4 90 5 95 6 98 Julius runs a small tailor shop in the city of Bloomfield. He is debating whether he should extend his hours of operation. Julius figures that his sales revenue will depend on the number of hours the tailor shop is open as shown in the table above. He would have to hire a worker for those hours at a wage rate of $18 per hour. 42) 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.ȱȱTabitha is as rational as any other person. As an economics major, you rightly conclude that A) Tabitha did not have a choice; her sister was overcharging her. B) Tabitha figures that the additional benefit of having her own booth (as opposed to sharing) is at least $300. C) Tabitha figures that the benefit of having her own booth (as opposed to sharing) is at least $450. D) the cost of having oneȇs own booth outweighs the benefits.
Answer: B Diff: 2 Page Ref: 7/7 Topic: Optimal Decisions Are Made at the Margin Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
Suppose a t-shirt manufacturer currently sells 5,000 t-shirts per week and makes a profit of $10,000 per week. A manager at the plant observes,ȱȈAlthough the last 400 t-shirts we produced and sold increased our revenue by $4,000 and our costs by $4,800, we are still making an overall profit of $10,000 per week so I think weȇre on the right track. We are producing the optimal number of t-shirts. 35) Refer to Scenario 1-1. Had the firm not produced and sold the last 400 t-shirts, would its profit be higher or lower, and if so by how much? A) Its profit will be $4,800 higher. B) Its profit will be $800 higher. C) Its profit will be $800 lower. D) Its profit will be $4,000 lower.
Answer: B Diff: 2 Page Ref: 7/7 Topic: Optimal Decisions Are Made at the Margin Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
7) The termȱȈmarketȈȱin economics refers to A) a place where money changes hands. B) a legal institution where exchange can take place. C) a group of buyers and sellers of a product and the arrangement by which they come together to trade. D) an organization which sells goods and services.
Answer: C Diff: 1 Page Ref: 4/4 Topic: Markets Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
22) Before a doctor decides to keep her office open on Saturdays, she should A) make sure that the marginal cost of doing so will exceed the marginal benefit. B) only consider the increase in total profit from doing so. C) weigh the costs and benefits of staying open on Saturdays before deciding if she should go through with this idea. D) only look at the marginal benefit of doing so, because marginal cost will not change
Answer: C Diff: 2 Page Ref: 7-8/7-8 Topic: Optimal Decisions Are Made at the Margin Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
45) Zaneȇs Vanes is a service that restores old weather vanes. Zane has just spent $125 purchasing a 1920s era weather vane which he expects to restore and sell for $500 once the work is completed. After having spent $125, Zane realizes that he will need to spend an additional $200 on materials to complete the restoration. Alternatively, he can sell the weather vane without restoring it for $200. What is his marginal benefit if he sells the weather vane without restoring it? A) $75 B) $125 C) $200 D) $300
Answer: C Diff: 2 Page Ref: 7/7 Topic: Optimal Decisions Are Made at the Margin Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
46) Zaneȇs Vanes is a service that restores old weather vanes. Zane has just spent $125 purchasing a 1920s era weather vane which he expects to restore and sell for $500 once the work is completed. After having spent $125, Zane realizes that he will need to spend an additional $200 on materials to complete the restoration. Alternatively, he can sell the weather vane without restoring it for $200. What is his marginal cost to complete the restoration? A) $75 B) $125 C) $200 D) $300
Answer: C Diff: 2 Page Ref: 7/7 Topic: Optimal Decisions Are Made at the Margin Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
47) Zaneȇs Vanes is a service that restores old weather vanes. Zane has just spent $125 purchasing a 1920s era weather vane which he expects to restore and sell for $500 once the work is completed. After having spent $125, Zane realizes that he will need to spend an additional $200 on materials to complete the restoration. Alternatively, he can sell the weather vane without restoring it for $200. What should he do? A) He should sell the weather vane now to make the most profit. B) It does not matter what he does; he is going to take a loss on the project. C) He should finish the restoration and then sell the weather vane. D) He should sell the weather vane back to the party he purchased it from and cut his losses.
Answer: C Diff: 2 Page Ref: 7/7 Topic: Optimal Decisions Are Made at the Margin Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
Hours Open Total Revenue (dollars) 1 275 2 375 3 450 4 500 5 530 6 550 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 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. 53) Refer to Table 1-3. What is Ivanȇs marginal cost if he decides to stay open for six hours instead of five hours? A) $10 B) $20 C) $25 D) $91.67
Answer: C Diff: 2 Page Ref: 7/7 Topic: Optimal Decisions Are Made at the Margin Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
Suppose a cigar manufacturer currently sells 1,500 cigars per week and makes a profit of $3,000 per week. The plant foreman observes,ȱȈAlthough the last 500 cell 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. 50) Refer to Scenario 1-1. Had the firm not produced and sold the last 500 cigars, would its profit be higher or lower, and if so by how much? A) Its profit will be $500 higher. B) Its profit will be $1,000 higher. C) Its profit will be $500 lower. D) Its profit will be $1,500 lower.
Answer: C Diff: 2 Page Ref: 7/7 Topic: Optimal Decisions Are Made at the Margin Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
29) Cassieȇs 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 quiltȱȈas isȈȱnow for $900. What should she do? A) She should cut her losses and sell the quilt now. B) It does not matter what she does; she is going to take a loss on her project. C) She should purchase the period fabric, complete the task and then sell the quilt. D) She should not do anymore work on the quilt because she has already spent too much time on it and has not been paid for that time.
Answer: C Diff: 3 Page Ref: 7/7 Topic: Optimal Decisions Are Made at the Margin Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
30) Lionelȇs Lawn Care is a company that maintains residential yards. Lionelȇs cost for his standard package of mowing, edging, and trimming is $15, and he charges $25 for this service. For a total price of $40, Lionel will also trim shrubs, a service that adds an additional $10 to the total cost of the standard package. What is Lionelȇs marginal benefit if he sells the standard package? A) $10 B) $15 C) $25 D) $40
Answer: C Diff: 3 Page Ref: 7/7 Topic: Optimal Decisions Are Made at the Margin Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
Hours Open Total revenue (dollars) 1 35 2 60 3 80 4 92 5 100 6 105 Eva runs a small bakery in the village of Roggerli. She is debating whether she should extend her hours of operation. Eva figures that her sales revenue will depend on the number of hours the bakery is open as shown in the table above. She would have to hire a worker for those hours at a wage rate of $12 per hour. 36) Refer to Table 1-1. Using marginal analysis, determine how many hours should Eva extend her bakeryȇs hours of operations? A) 2 hours B) 3 hours C) 4 hours D) 5 hours E) 6 hours
Answer: C Diff: 3 Page Ref: 7/7 Topic: Optimal Decisions Are Made at the Margin Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
12) Consider the following statements: a. Consumers rent more DVDs from a video store that rents DVDs at a lower price than other rival video stores in the area. b. Department stores take steps to increase security since they believe it is more costly to allow shoplifting than to install expensive security monitoring equipment. c. Farmers produce more cotton when its selling price falls. Which of the above statements demonstrates that economic agents respond to incentives? A) a only. B) b only. C) c only. D) a and b. E) a, b, and c.
Answer: D
6) What is an economic model? A) It is a description of an economic issue that includes all possible related information. B) It is a description of an economic issue based on official government information. C) It is a detailed version of some aspect of economic life used to analyze an economic issue. D) It is a simplified version of some aspect of economic life used to analyze an economic issue.
Answer: D Diff: 1 Page Ref: 4/4 Topic: Economic Models Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
8) Economists assume that A) individuals behave in unpredictable ways. B) consumer behavior is explained by the existence of unlimited resources. C) people put other peopleȇs interests ahead of their own. D) optimal decisions are made at the margin.
Answer: D Diff: 1 Page Ref: 7/7 Topic: Optimal Decisions Are Made at the Margin Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
15) According to the Centers for Disease Control and Prevention, ________ in 2013 in which less than 20 percent of the population was considered obese. A) Colorado was the only state B) there were only 5 states C) there were more than 25 states D) there were no states
Answer: D Diff: 2 Page Ref: 5-7/5-7 Topic: People Respond to Economic Incentives Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
10) Economists assume that rational people A) never use all available information as they act to achieve their goals. B) undertake activities that benefit others and hurt themselves. C) only weigh the benefits and costs of the most desirable alternative actions. D) respond to economic incentives.
Answer: D Diff: 2 Page Ref: 5/5 Topic: People Are Rational Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
18) Economics promotes which of the following as the way to make the best decision? A) Continue an enjoyable activity as long as you do not have to pay for it. B) Continue an enjoyable activity until it is no longer enjoyable. C) Continue an enjoyable activity until you cannot afford to pursue it. D) Continue an enjoyable activity up to the point where its marginal benefit equals its marginal cost.
Answer: D Diff: 2 Page Ref: 7/7 Topic: Optimal Decisions Are Made at the Margin Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
25) Which of the following is an example of aȱȈhow muchȈȱdecision? A) Octavia is debating whether to buy a pair of Jimmy Choo shoes or Steve Madden boots. B) Humberto has taken a second job to earn money to buy a Harley-Davidson SuperLow Sportster. C) You plan on going to Las Vegas for your birthday and are deciding if you should fly or drive. D) Diana is trying to decide if she should open her pet shop on Sundays.
Answer: D Diff: 2 Page Ref: 7/7 Topic: Optimal Decisions Are Made at the Margin Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
Hours Open Total Revenue (dollars) 1 275 2 375 3 450 4 500 5 530 6 550 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 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. 51) Refer to Table 1-3. Using marginal analysis, determine how many hours should Ivan extend his hours of operations? A) 2 hours B) 3 hours C) 4 hours D) 5 hours E) 6 hours
Answer: D Diff: 3 Page Ref: 7/7 Topic: Optimal Decisions Are Made at the Margin Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
68) What does the wordȱȈmarginalȈȱmean in economics? What is a marginal benefit? What is a marginal cost? What is marginal analysis?
Answer: In economics, the wordȱȈmarginalȈȱmeansȱȈextraȈȱorȱȈadditional.ȈȱMarginal benefit is the additional benefit received from continuing with an activity. Marginal cost is the additional cost associated with continuing with an activity. Marginal analysis involves comparing marginal benefits and marginal costs.
66) What is scarcity, and why is it a fundamental concept in economics?
Answer: Scarcity refers to a situation in which unlimited wants exceed the limited resources available to fulfill those wants. Scarcity is a fundamental concept in economics, because economics is the study of the choices people make to attain their goals, given their scarce resources.
69) Suppose a doctor can earn an additional $10,000 in revenue per year from keeping her office open on Saturdays. What must the additional cost of keeping the office open on Saturdays be to make this decision economically rational?
Answer: The additional cost of keeping the office open on Saturdays must be no more than $10,000 per year to make this decision economically rational.
72) Assume that it will cost a plumber an additional $35,000 each year by keeping her shop open for one additional hour per week.ȱȱWhat must the additional revenue from keeping the shop open this additional hour per week be to make staying open for the extra hour economically rational?
Answer: The additional revenue from staying open for one additional hour per week must be no less than $35,000 for the year to make staying open for the extra hour economically rational.
71) Describe what has happened to state obesity rates in the United States since 1994.
Answer: There has been a dramatic increase in obesity between 1994 and 2011. In 1994, in a majority of states between 10 percent and 14 percent of the adult population was obese, and in no state was more than 20 percent of the adult population obese. By 2011, in every state at least 20 percent of the adult population was obese, and in about three-quarters of the states, at least 25 percent of the adult population was obese.
56) As population declines, scarcity eventually disappears.
FALSE
57) The termȱȈmarketȈȱrefers only to trading arrangements that have been approved by the government.
FALSE
58) The sales revenue a seller receives from the sale of an additional unit of goods is called the marginal cost.
FALSE
59) Marginal benefit is the benefit that your activity provides to someone else.
FALSE
60) If it costs Vijay $150 to design 5 websites and $175 to design 6 websites, then $175 is the marginal cost of producing the 6th Websites.
FALSE
61) Suppose the extra cost to a doctor of keeping her office open on Saturdays is $800. Then, the doctor should not stay open on Saturdays if keeping the office open can only bring in additional revenue of $800.
FALSE
62) An economic model is a complex version of reality used to analyze real-world economic situations.
FALSE
63) Optimal decisions are made at the point where marginal benefit is maximized.
FALSE
64) If it costs Hobie $900 to produce 5 lamps and $1,200 to produce 6 lamps, then the difference of $300 is the marginal cost of producing the 5th lamp.
FALSE
65) Suppose the extra cost for a plumber to keep her shop open for one extra hour is $145. Then, the plumber should not stay open for the extra hour if she can only generate additional revenue of $145 for that hour.
FALSE