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economics chapter 1 test questions

economics chapter 1 test questions

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Macroeconomics – Testbank 2, (Hubbard/O’Brien) Chapter 1 Economics: Foundations and Models

1)

1

The

fundamental question in economics is how to A)

eliminate B)

poverty.

make the C)

best use of scarce resources to satisfy our unlimited wants.

how to D)

reduce the consumption of oil in wealthy nations.

find more resources to satisfy everyone's wants. Answer:

B

Diff: 1

Type: MC Topic: Scarcity Skill: Definition

2)

The A)

problem of determining what goods and services society should produce

exists b B)

ecause with technological advancements we can produce far more than we need.

exists because

C)

there are insufficient resources to provide all the goods and services that people want to purchase.

would not D)

exist if government owned all of the resources.

exist

because people in wealthy nations have too much money Answer:

B

Diff: 1

Type: MC Topic: Scarcity Skill: Definition

3)

To say

that a good is scarce means A)

that at the current

B)

market price of that good, the quantity demanded exceeds the quantity supplied.

the price of the good is too high. C)

that the people want exceeds the limited resources available to fulfill those wants. amount that D)

the good is unavailable. Answer:

C

Diff: 1

Type: MC Topic: Scarcity Skill: Definition

4)

Econom reasoning is based on the premise that any activity involves a trade-off. What does ic this mean? A)

It means that individuals choose activities that make them better off. B)

It means that people act in their own self interest. C)

It means that undertaking one activity necessitates giving up something else. D)

It means

there's always room for improvement. Answer:

C

Diff: 1

Type: MC Topic: Trade-off Skill: Definition

5)

Which

of the following is not a factor of production? A)

a buyer for

B)

Nordstrom’s

a cash

C)

register machine at Home Depot

$1,000 in D)

your savings account

an acre of land that your family owns Answer:

C

Diff: 1

Type: MC Topic: Factors of Production Skill: Definition

6)

An

example of a capital input is A)

furniture and fittings in a store. B)

stocks, C)

bonds, and money market mutual funds.

deposits of D)

crude oil in the ground.

all of the

above Answer:

A

Diff: 2

Type: MC Topic: Factors of Production, Capital Skill: Definition

7)

An

example of a factor of production is A)

a loan taken out by Sara to open her hairdressing salon. B)

a haircut C)

service rendered by Sara to a customer.

the D)

professional hair dryers Sara purchased for her new salon.

All of the

above are factors of production. Answer:

C

Diff: 1

Type: MC Topic: Factors of Production Skill: Conceptual

8)

Which

of the following is not classified as a factor of production? A)

land B)

labor C)

money D)

entrepreneur ship Answer:

C

Diff: 1

Type: MC Topic: Factors of Production Skill: Definition

9)

Factors production, such as labor, capital, natural resources and entrepreneurial ability are of traded in A)

product B)

markets.

output C)

markets.

factor D)

markets.

competitive markets. Answer:

C

Diff: 1

Type: MC Topic: Factors of Production Skill: Definition

10)

Which following is the best example of an activity that would be undertaken by an of the entrepreneur? A)

Running for the position of mayor in your country B)

buying and selling of stocks and bonds C)

starting your own car wash business D)

All of the

above are activities undertaken by an entrepreneur. Answer:

C

Diff: 1

Type: MC Topic: Factors of Production, Entrepreneurship Skill: Conceptual

11)

The

total amount of physical capital available in a country is called A)

capital stock. B)

wealth. C)

net worth. D)

total assets. Answer:

A

Diff: 1

Type: MC Topic: Factors of Production, Capital Skill: Definition

12)

Which

of the following best defines rational behavior? A)

pursuing an action as long as the marginal benefits exceed the marginal costs B)

pursuing an action as long as the marginal costs exceed the associated marginal benefits C)

seeking to D)

minimize total cost regardless of the benefit of an activity

seeking to maximize total benefits regardless of the cost of an activity Answer:

A

Diff: 1

Type: MC Topic: Rationality Skill: Definition

13)

When

economists say that people act rationally, they mean that A)

people rarely make errors when they are looking out for themselves. B)

people select only those activities that minimize their costs. C)

people D)

consider only the benefits when making a decision.

people consider

both the relevant costs and relevant benefits of a decision and select actions for which relevant benefit exceeds or at best, equal the relevant cost. Answer:

D

Diff: 2

Type: MC Topic: Rationality Skill: Conceptual

14)

Which

of the following statements relates to microeconomics? A)

Unemployme nt rises during a recession and falls during an expansion. B)

Excessive C)

growth in money supply may create inflation.

Government spending tends to increase during an economy-wide recession. D)

Sharp

increases in labor costs have increased production costs in the steel industry. Answer:

D

Diff: 1

Type: MC Topic: Microeconomics Skill: Conceptual

15)

Macroec onomics can best be described as the study of A)

the behavior of large firms in the marketplace. B)

the behavior of individual decision makers. C)

the behavior of the economy as a whole. D)

fluctuations in the stock market. Answer:

C

Diff: 1

Type: MC Topic: Macroeconomics Skill: Definition

16)

Which

of the following topics is a macroeconomics question? A)

your decision about how B)

many hours to work per week

the effect of government regulations on testing pharmaceutical drugs C)

the impact of higher saving on economic growth D)

Wal-Mart’s decision about how many workers to hire Answer:

C

Diff: 1

Type: MC Topic: Macroeconomics Skill: Conceptual

17)

Which

of the following topics is a macroeconomics question? A)

a family’s decision about B)

how much income to save

the effect of a tax on cigarettes C)

the impact of increases in money supply on the market interest rate D)

the impact of raising the quota on imports of cane sugar on the domestic cane sugar market Answer:

C

Diff: 1

Type: MC Topic: Macroeconomics Skill: Conceptual

18)

An A)

answer to the question "How are goods produced?" determines

who receives B)

the goods that are produced.

how tastes C)

and preferences are determined.

how D)

resources are combined in the production of goods.

the types Answer:

and quantities of goods and services produced.

C

Diff: 1

Type: MC Topic: Fundamental Economic Questions Skill: Definition

19)

Which

of the following government policies is motivated by a concern about equity? A)

regulating B)

the price of a product produced by a natural monopoly

prohibiting C)

smoking in public places

instituting D)

laws against driving while intoxicated

providing the poor with vouchers that can be used to buy food Answer:

D

Diff: 2

Type: MC Topic: Equity Skill: Conceptual

20)

What is the difference between efficiency and equity? A)

Efficiency is about income distribution and equity is about eliminating poverty. B)

There is no difference.

C)

Both efficiency and equity are about getting maximum output from scarce resources.

Efficiency is fairness in distribution of resources and goods and services and equity is about about maximizing value from scarce resources. D)

Efficiency is getting the most value from scarce resources and equity is about fairness in about distribution. Answer:

D

Diff: 1

Type: MC Topic: Efficiency and Equity Skill: Definition

21)

Which

of the following is motivated by an equity concern? A)

offering B)

scholarships to students based solely on merit

imposing a maximum

C)

price that apartment owners can charge tenants in an attempt to provide affordable housing

regulating D)

pharmaceutical drugs prices

instituting laws governing salmon fishing in Alaska in order to prevent overfishing Answer:

B

Diff: 2

Type: MC Topic: Equity Skill: Conceptual

22)

Which

of the following is motivated by an efficiency concern? A)

The State Government subsidizes low income households for utilities consumption. Pennsylvania B)

The of Justice files an antitrust suit against Samsung for price fixing in the computer Department chip market. C)

The U.S. reinstates a quota on clothing items from China to protect the domestic garment government industry. D)

All of the

above are motivated by an efficiency concern. Answer:

B

Diff: 2

Type: MC Topic: Efficiency and Equity Skill: Conceptual

23)

What is efficiency criterion that describes a situation where goods and services are produced the at the lowest possible cost? A)

allocative B)

efficiency

productive C)

efficiency

normative D)

efficiency

positive

efficiency Answer:

B

Diff: 1

Type: MC Topic: Productive Efficiency Skill: Definition

24)

What is efficiency criterion that describes a situation where the marginal benefit of the last the unit consumed is equal to the marginal cost of producing that last unit? A)

allocative B)

efficiency

productive C)

efficiency

distributive efficiency D)

positive

efficiency Answer:

A

Diff: 1

Type: MC Topic: Allocative Efficiency Skill: Definition

25)

The s during the year at a local resort. If the marginal cost of a weekend vacation is table constant and equal to $500, how many weekends at the local resort is she likely to below enjoy? shows the Number of margina Weekend Marginal l benefit Vacations Benefit ($) to Illana 1 600 of 2 550 weeken 3 475 d 4 325 vacation 5 250 A)

2 B)

3 C)

4 D)

5 Answer:

A

Diff: 2

Type: MC Topic: Marginal Analysis Skill: Conceptual

26)

Javier has spent $400

purchasing and restoring a piece of antique furniture that he expect to sell for $800 once the job is complete. After he has spent $400, he discovers that he needs an additional part, which will cost $200, in order to complete the restoration. Javier can sell the piece of furniture as it is now for $300. What should he do? A)

Javier should complete the restoration and sell the piece of furniture. B)

Javier should cut his losses and take the $300. C)

Javier should never sell something for less than it costs. D)

It doesn’t matter which action Javier takes; the outcome is the same either way. Answer:

A

Diff: 3

Type: MC Topic: Marginal Analysis Skill: Analytical

27)

You subscribe to Time magazine and are trying to decide whether you should subscribe currentl to the National Geographic as well. What variables should influence your decision, y given that you are rational? A)

the total cost of the both magazines compared to the total enjoyment I would receive B)

the cost of C)

the second magazine, including the time it takes to read it

the D)

enjoyment I would get out of the second magazine

the cost of the second magazine compared to the additional enjoyment I would get additional from it Answer:

D

Diff: 2

Type: MC Topic: Marginal Analysis Skill: Conceptual

28)

The

marginal benefit from consuming another unit of a good A)

is always the same thing as the total benefit received from consuming that unit. B)

is the difference

C)

between the incremental benefit received and the incremental cost incurred in consuming that unit.

the D)

additional benefit one gains from consuming that good.

must always equal the marginal cost of consuming that good. Answer:

C

Diff: 1

Type: MC Topic: Marginal Analysis Skill: Definition

29)

To say

that people make marginal decisions suggests that A)

given a people would prefer to exercise control over the things that affect their lives. choice, most B)

they weigh the

additional costs and additional benefits of an item before purchasing that item. C)

most people D)

live from paycheck to paycheck on the very edge of making ends meet.

they total cost and benefit of various activities before they make a purchase. consider the Answer:

B

Diff: 1

Type: MC Topic: Marginal Analysis Skill: Definition

30)

The

marginal cost of consuming another unit of a good is A)

always equal to the total benefit from consuming that unit. B)

the C)

additional cost one incurs from consuming that unit.

the difference

D)

between the incremental benefit and the incremental cost of consuming that unit.

always equal to the additional benefit of consuming that good. Answer:

B

Diff: 1

Type: MC Topic: Marginal Analysis Skill: Definition

31)

In

making "how much" decisions, an individual must consider A)

the total B)

benefits and the total cost of the activity.

the C)

incremental benefits and the incremental costs of that activity.

the total D)

benefits only of that activity and decide if it is worthwhile.

the total

costs only of that activity and decide if it is worthwhile. Answer:

B

Diff: 1

Type: MC Topic: Marginal Analysis Skill: Conceptual

32)

The ce between a positive economic analysis and a normative economic analysis is differen A)

positive analysis

B)

deals with issues that improve the welfare of individuals while normative analysis deals with issues that are subjective to interpretation.

positive analysis

C)

reaches conclusions based on verifiable statements while normative analysis reaches conclusions based on opinions.

positive D)

analysis cannot be tested while normative analysis can be tested.

positive analysis

adopts an optimistic forecast for an economy while normative analysis adopts a conservative forecast for an economy. Answer:

B

Diff: 2

Type: MC Topic: Normative and Positive Analysis Skill: Definition

33)

Which

of the following is an example of a normative statement? A)

If the price of a good decreases, quantity demanded of that good increases. B)

Reducing tax rates on the wealthy would be good for the country. C)

Increases in productivity are a source of economic growth. D)

One source of inflation is an excessive growth rate in money supply. Answer:

B

Diff: 1

Type: MC Topic: Normative Analysis Skill: Conceptual

34)

An

example of a positive statement is: A)

A minimum wage law is highly beneficial to unskilled workers. B)

The rate of C)

unemployment in Las Vegas is lower than the national average.

The U.S. D)

trade deficit is out of control.

All of the

above are positive statements. Answer:

B

Diff: 1

Type: MC Topic: Positive Analysis Skill: Conceptual

35)

An

example of a positive statement is: A)

The rate of B)

unemployment is 4 percent.

A high rate C)

of economic growth is a must for any country.

Everyone in the country should have access to health insurance. D)

Movie stars should not be paid higher salaries than the president of the United States. Answer:

A

Diff: 1

Type: MC Topic: Positive Analysis Skill: Conceptual

36)

Which

of the following best describes the characteristics of models used in economics? A)

Models are B)

approximations to reality that capture as many details as possible.

Models are s of reality that include only essential elements and exclude less relevant simplification details. C)

Models are us D)

ually complex descriptions of reality that simulate practical problems.

Models are prototypes of the real world that economists use to conduct experiments. physical Answer:

B

Diff: 1

Type: MC Topic: Economic Models Skill: Definition

37)

An

economic theory is tested by A)

assessing B)

how realistic its assumptions are.

assessing C)

how simple its equations are.

comparing D)

its complexity with the real world.

comparing its predictions with real-world data. Answer:

D

Diff: 1

Type: MC Topic: Economic Models Skill: Conceptual

38)

All

economic models must be simplified versions of reality because A)

human B)

behavior is very unpredictable.

reality is too comprehend in its entirety, so we must reduce it to a level that we can complex to understand. C)

economics has not

D)

made the leaps in knowledge unlike the hard sciences such as physics and chemistry, whose models depict reality very accurately.

all economic models need to be expressed in graphs. Answer:

B

Diff: 2

Type: MC Topic: Economic Models Skill: Conceptual

39)

The of developing models, testing hypotheses and revising models is often referred to as process A)

the scientific method of analysis. B)

the positive method of analysis. C)

the D)

normative method of analysis.

the ceteris paribus method of analysis. Answer:

A

Diff: 1

Type: MC Topic: Economic Models Skill: Definition

40)

A

hypothesis proposed in an economic model A)

can never be tested. B)

will C)

ultimately be converted to a law in economics.

could turn D)

out to be incorrect.

cannot be confirmed by statistical analysis. Answer:

C

Diff: 1

Type: MC Topic: Economic Models Skill: Conceptual

41)

Which

of the following statements about economic models is true? A)

Economists use an economic model if it leads to hypotheses that are confirmed by statistical accept and analyses. B)

Economic C)

models must mirror reality or they are of no use

The fewer D)

the assumptions the more reliable the economic model.

All of the Answer:

above statements are true.

A

Diff: 1

Type: MC Topic: Economic Models Skill: Conceptual

42)

Suppos e you have a choice

of working full-time during the summer or attending summer school full-time. Summer tuition and books are $3,000. If you worked, you could make$5,000. Your rent is $1,000 for the summer, regardless of your choice. The opportunity cost of going to summer school is A)

$9,000. B)

$8,000. C)

$5,000. D)

$3,000. Answer:

B

Diff: 2

Type: MC Topic: Opportunity Cost Skill: Conceptual

43)

Krista nd the same college and incur the same expenses for tuition, and books, and school supplies. Krista gave up a lucrative job as a personal assistant to a Migu famous el designer in New York to attend school full-time and Miguel gave up his job as a store both clerk atte in Home Depot. It follows that A)

the cost of attending college is the same for both since they are enrolled at the opportunity same academic institution. B)

the cost is minimal for both since it is well known that people with college degrees opportunity earn much higher salaries than those without. C)

the D)

opportunity cost of attending college is likely greater for Miguel than for Krista.

the

opportunity cost of attending college is likely greater for Krista than for Miguel. Answer:

D

Diff: 2

Type: MC Topic: Opportunity Cost Skill: Conceptual

44)

Yvonne m in Las Vegas which she can rent out for $48,000 per own year. Recently, she received an offer from Citibank to lease her property for $60,000 sa a year. cond Based on these two alternative uses for her property, what is the opportunity cost of omi her niu property? A)

$12,000 B)

$48,000 C)

$60,000 D)

$108,000 Answer:

C

Diff: 2

Type: MC Topic: Opportunity Cost Skill: Conceptual

45)

Market

economies rely primarily on A)

governments to produce goods and services and decide how to produce them. B)

wealthy C)

individuals to produce goods and services and decide how to produce them.

privately D)

owned firms to produce goods and services and decide how to produce them.

publicly

owned firms to produce goods and services and decide how to produce them. Answer:

C

Diff: 1

Type: MC Topic: Market Economy Skill: Definition

46)

A

market is A)

a physical B)

building where trade takes place.

an C)

institutional arrangement that brings together buyers and sellers.

a place D)

where people congregate to discuss economic policies.

all of the

above Answer:

B

Diff: 1

Type: MC Topic: Market Economy Skill: Definition

47)

In a

mixed economy, economic decisions are made by private individuals and by A)

the B)

government.

the military. C)

the wealthy. D)

the working class. Answer:

A

Diff: 1

Type: MC Topic: Modern Mixed Economy Skill: Definition

48)

Which

of the following correctly describes a market economy? A)

It is not B)

necessary to make sacrifices in a market economy.

The market system is based on preserving past methods of production. C)

A market D)

economy provides little opportunity for technological advance.

A market responds to consumers' preferences as indicated by the prices they are willing economy to pay for goods and services. Answer:

D

Diff: 1

Type: MC Topic: Market Economy Skill: Definition

49)

What is term that describes the act of both the buyer and seller freely and willingly engaging the in market transactions such that at the end of the transaction both have benefited? A)

voluntary B)

exchange

equilibrium C)

fair trade D)

productive efficiency Answer:

A

Diff: 1

Type: MC Topic: Voluntary Exchange Skill: Definition

50)

For a

market system to work well, it must be based on A)

voluntary B)

exchange.

coercion. C)

command D)

and control mechanisms.

unselfish

actions on the part of the people. Answer:

A

Diff: 1

Type: MC Topic: Voluntary Exchange Skill: Conceptual

51)

In a

market economy how are goods and services distributed? A)

They are B)

distributed to those who need the goods and services most.

They are C)

distributed by the government in an equitable way.

They are D)

distributed to those who have the ability to buy the goods and services.

They are according to the size of the family: larger families get more good and services. distributed Answer:

C

Diff: 1

Type: MC Topic: Fundamental Economic Questions Skill: Conceptual

52)

An y in which the government decides how economic resources will be allocated is econom called a A)

centrally B)

planned economy.

capitalist C)

economy.

libertarian D)

economy.

welfare

economy. Answer:

A

Diff: 1

Type: MC Topic: Centrally Planned Economy Skill: Definition

53)

What

are the three fundamental questions that all economies must answer? A)

How much will be

B)

saved; what will be produced; and how can these goods and services be fairly distributed?

Who gets C)

jobs; what wages do workers earn; and who owns what property?

What will be how will these goods and services be produced; and who receives them? produced; D)

What will be goods and services; how will these goods and services be produced; and who the prices of will receive them? Answer:

C

Diff: 1

Type: MC Topic: Fundamental Economic Questions Skill: Conceptual

54)

When builds a dam in Chittagong using few machines and a great deal of labor, it is Pakistan answering the ________ question. A)

"what to B)

produce"

"who to C)

produce for"

"where to D)

produce"

"how to

produce" Answer:

D

Diff: 2

Type: MC Topic: Fundamental Economic Questions Skill: Conceptual

55)

Cuddle Soft, a maker

of children's products, has decided to discontinue the production of plastic bath tubs and baby bath products. This decision is a response to the ________ question. A)

"what to B)

produce"

"how to C)

produce"

"who to D)

produce for"

"why to

produce" Answer:

A

Diff: 2

Type: MC Topic: Fundamental Economic Questions Skill: Conceptual

56)

Which of the

following is not an example of the idea that people respond to economic incentives? A)

Syed Abbas breed camels rather than horses because the government of Qatar offers free decides to land, free veterinary care and free camel food to camel breeders. B)

Allison works overtime editing her book so that she can collect her bonus for early submission. C)

Richard Harris buy

D)

his deck chairs online because the company offers customers a 20 percent discount if they order online.

Steven turns down an invitation to dinner because he is under the weather. Answer:

D

Diff: 2

Type: MC Topic: Economic Incentives Skill: Conceptual

57)

Which of the

following is likely to provide underage college students with the greatest incentive not to consume alcoholic beverages? A)

mandatory B)

classes on "The Dangers of Drinking".

a $6.00 unit tax on alcoholic beverages C)

Scarlet Johansson

D)

announces that she will not play any part in which she will be portrayed drinking alcoholic beverages

public service

television advertisement featuring Orlando Bloom urging college students to refrain from consuming alcoholic beverages Answer:

B

Diff: 2

Type: MC Topic: Economic Incentives Skill: Conceptual

58)

In a economy, what is the incentive that encourages firms to produce what consumers market want? A)

profit B)

the joy of C)

giving consumers what they want

consumer D)

sovereignty

the ability to produce Answer:

A

Diff: 1

Type: MC Topic: Economic Incentives Skill: Conceptual

59)

Which A)

of the following is an example of human capital?

sound proof B)

cubicles provided by your company to enhance productivity

understandi C)

ng how to use your company’s new software

free parking D)

privileges offered by your employer

All of the Answer:

above are correct.

B

Diff: 1

Type: MC Topic: Human Capital Skill: Conceptual

60)

Human ca

A)

pital is a factor of production. Which of the following is considered human capital?

libraries B)

machinery C)

and equipment used to produce goods and services

knowledge D)

and skills acquired from on-the-job training

inventions Answer:

C

Diff: 1

Type: MC Topic: Human Capital Skill: Definition

61)

Technol A)

ogy refers to

the kno B)

wledge and skills that workers acquire through education, training, and experience.

the stock of C)

equipment and machinery used to produce goods and services.

the process D)

used to produce goods and services.

All of the

above are correct. Answer:

C

Diff: 1

Type: MC Topic: Technology Skill: Definition

62)

The

difference between revenue and cost is A)

profit. B)

net revenue. C)

net cost. D)

opportunity cost. Answer:

A

Diff: 1

Type: MC Topic: Profit Skill: Definition

63)

Which

of the following statements is true? A)

An invention is the development of a new good or a new process for making a good. B)

An invention is the practical application of a new process. C)

All D)

inventions result in marketable new goods.

All of the

above are true. Answer:

A

Diff: 1

Type: MC Topic: Inventions Skill: Definition

64)

The

statement that there is a positive relationship between X and Y means that A)

X and Y B)

move in the same direction.

X causes Y. C)

Y causes X. D)

either Y

causes X or X causes Y. Answer:

A

Diff: 1

Type: MC Topic: Positive relationship Skill: Definition

65)

Which

A)

of the following graphs or charts must add up to one hundred percent?

a pie chart B)

a bar graph C)

a time-series graph D)

all of the

above Answer:

A

Diff: 1

Type: MC Topic: Bar Graph Skill: Factual

66)

You carpet in your bedroom which measures 15 feet by 20 feet. The cost to install new want to carpet is $2.50 per square foot. How much will it cost you to carpet your bedroom? install A)

$750 B)

$87.50 C)

$875 D)

$300 Answer:

A

Diff: 1

Type: MC Topic: Area of a rectangle Skill: Conceptual

67)

A graph shows how the value of a particular variable has changed over a period of time is that called A)

a pie chart. B)

a bar graph. C)

a time-series graph. D)

a non-linear graph. Answer:

C

Diff: 1

Type: MC Topic: Time-series graph Skill: Definition

68)

Refer to the figure above. The area of the rectangle W is ________ and corresponds to ________. A)

$450; total B)

expenditure on mittens.

$450; total C)

price of mittens

75; total D)

quantity of mittens

75; total

demand for mittens Answer:

A

Diff: 1

Type: MC Topic: Area of a rectangle Skill: Conceptual

69)

Refer to the figure above. What is the area of the triangle Z? A)

$150 B)

$400 C)

$300 D)

$100 Answer:

A

Diff: 1

Type: MC Topic: Area of triangle Skill: Conceptual

70)

Refer to the figure above. What is the area of the triangle X? A)

$400 B)

$600 C)

$1,200 D)

$3,600 Answer:

B

Diff: 1

Type: MC Topic: Area of triangle Skill: Conceptual

71)

Refer to the figure above. What is the area of the triangle Y? A)

$75 B)

$360 C)

$720 D)

There is

insufficient information to calculate the area. Answer:

A

Diff: 2

Type: MC Topic: Area of triangle Skill: Conceptual

72)

You own a small avocado orchard.

Currently, you employ one worker. You've had an exceptional season this year and you're considering hiring an additional worker. The figure above shows the relationship between labor and total output of avocados. What is the change in output by hiring a second worker? A)

250 pounds B)

150 pounds C)

125 pounds D)

350 pounds Answer:

B

Diff: 1

Type: MC Topic: Slope Skill: Conceptual

73)

Econom ists often disagree over positive rather than normative economic issues. Answer:

True

F Diff a
:1

T Mark ets guarantee efficient outcomes. y Topic: A Normati n ve and s Positive w Analysis er Skill: : Concept ual

True

F Diff a
:1

T Some , government intervention can improve the efficiency of y Topic: resoource allocation. times Market A Failure ns Skill: w Concept er ual

:

True

F Dif a
f: 1

T y

The

rtunity cost of an activity is the sum of the benefits of

Top oppo all alternatives foregone. ic: A Mar n ket s Fail w ure e Skil r l: : Co nce ptu al

True

F Diff a
:1

T Mone y y Topic: Opportu nity Cost Skill: Definitio n

is one of our nation's most important resource. A n s w er :

True

F Diff a
:1

T By ng inventions and innovations that increase the y Topic: productivity of resources, an economy can eliminate the enco Factors problem of scarcity. uragi of A Producti n on s Skill: Definitio w er n

:

True

F Diff a
:1

T 7 y Topic: 9) Inventio ns Skill: Concept ual

An e distribution of economic benefits is also an efficient distribution of economic equitabl benefits. Answer:

True

F Diff a
:1

T All economic decisions involve a trade-off. y Topic: A Equity ns Skill: w Concept er ual

:

True

F Dif a
f: 1

T y

Micr cs studies how households and firms make choices
Top oeco and how they interact in markets and how ic: nomi government attempts to influence their choices. Tra A den off s Skil w l: e Co r: nce ptu al

True

F Dif a
f: 1

T y

The

a non-linear curve is measured by the slope of a

Top slop tangent line to a point on the ic: e of curve. Mic A roe n con s omi w cs e Skil r: l: Def initi on

True

F Dif a
f: 1

T y

The
Top ic: Slo pe Skil l: Co nce ptu al

slope of a non-linear curve is constant. A n s w e r :

True

F Diff a
:1

T A tive relationship between two variables can be shown y Topic: with a downward sloping curve in a graph. nega Slope A Skill: ns Concept w ual

er :

True

F Dif a
f: 1

T y

Top ic: Ne gati ve rela tion shi p Skil l: Co nce ptu al

Whic decisions has the greater opportunity cost? (a) A h of decision to use an undeveloped lot in Shanghai's the business district for an apartment building,or (b) a follo decision to use a lot of the same size in the desert for wing a gas station. Explain your answer. Answ er:

The opportunity cost is higher for the undeveloped lot in Shanghai's business district because there are far greater alternative uses for this piece of land than for the land in the desert.

Diff: 2

Type: SA Topic: Opportunity Cost Skill: Analytical

86)

What type of relation ship would you expect betwee

n the following, that is, a positive relationship, a negative relationship or no relationship? a. b. c. price of winter coats and quantity demanded of winter coats the price of computers and the production of computers sales of toothbrushes and sale of cat food

d. consumption and income Answer:

a. negative relationship; b. positive relationship; c. no relationship; d. positive relationship

Diff: 1

Type: SA Topic: Positive and negative relationships Skill: Conceptual

87)

Determi ne if each of the followin g stateme nts is a

positive statement or a normative statement. a. U.S. trade restrictions cost consumers $19 billion annually in higher prices. b. Rent control leads to a shortage in quantity of housing. c. The United States spends too much money on medical care. d. If labor markets are flexible, new jobs will be created as old jobs are destroyed. e. The government should impose taxes on cigarettes to discourage consumption. Answer:

a. positive; b. positive, c. normative; d. positive; e. normative

Diff: 1

Type: SA Topic: Normative and Positive Analysis Skill: Conceptual

88)

Indicate how each of the followin g changes would influenc e the incentiv e of the

decision maker to undertake the action in question. a. The meeting time for an introductory Economics course has been changed from 11 am to 7.30 am. b. Sparky's introduces early bird dinner specials between 5 and 7 p.m when entrees are "twofor the price of one". c. The Singapore government raises the vehicle toll from $6 to $10. to enter the city during peak commute hours d. Lord and Taylor, an upscale department store, holds a "3-hour Sunday Morning Madness" sale from 7 to 10 am when all clothing and household products are 20% off. e. The owner of an apartment complex assesses a late fee of $10 per day for rents received after the three-day grace period. Answer:

a. Less people are likely to sign up for a 7.30 am class compared to an 11 am class. The early morning hour is a negative incentive for most students. b. Because the cost of eating out is now lower (a positive incentive), more people are likely to eat at Sparky's between 5 and 7 p.m. c. The higher toll is a negative incentive and will discourage vehicle owners from entering the city during peak hours. d. The "20% off" is a positive incentive that is likely to draw customers to the store. e. The late fee is a negative incentive that discourages late payment.

Diff: 2

Type: SA Topic: Economic Incentives Skill: Analytical

89)

Your Cynthia Gibson, a sociology major announced, "Positive economics cannot tell us roomma whether outsourcing is good or bad for the economy so it is really quite useless for te, policymakers." Do you agree or disagree with her? Explain your answer. Answer:

I disagree with her. To make an informed decision, the policymaker must understand the costs and benefits of different courses of action. Positive analysis enables this. It uses an economic model to estimate say, the value of jobs lost, the increase in exports that come from rising incomes in the economies of our trading partners. Even if a policy maker has a normative goal in mind, positive analysis can assist a policy maker to decide how best to pursue that normative goal.

Diff: 3

Type: SA Topic: Positive Analysis Skill: Analytical

90)

Drug trafficki ng carries a

mandatory death sentence in Singapore. Anyone over the age of 18 found in possession of more than 15 grams of heroin, 30 grams of morphine or cocaine, or 500 grams of cannabis, is presumed to be trafficking in the drug, unless the contrary can be proved, and faces a mandatory death sentence. What is the likely impact of this law on the amount of drug trafficking in Singapore? Answer:

The harsh sentence is likely to deter drug trafficking.

Diff: 2

Type: SA Topic: Economic Incentives Skill: Analytical

91)

What three fundamental questions that an economic system must answer. How are these are the questions answered in a market economy? in a centrally planned economy? Answer:

The three fundamental questions are: what to produce, how to produce and for whom to produce. In a market economy these questions are answered by buyers and sellers interacting in the market. In a centrally planned economy, the central planner (government) answers these questions.

Diff: 2

Type: SA Topic: Fundamental Economic Questions Skill: Conceptual

92)

What is the difference between accounting profit and economic profit? Answer:

Accounting profits excludes the cost of some economic resources that the firm does not pay for explicitly. Economic profit includes the opportunity cost of all resources used by a firm.

Diff: 2

Type: SA Topic: Accounting and Economic profit Skill: Definition

93)

Clay of the Land is a manufa cturer

of glazed clay pots. Currently, it produces 300 clay pots per month which it sells through nurseries at a constant price of $5 per pot. Current demand for clay pots is such that the company can easily sell 400 clay pots per month. Lyn Nguyen, the manager of the company estimates that it would cost the firm $480 to increase the output from 300 to 400 clay pots per month. Should Clay of Land increase its production from 300 to 400 clay pots per month? Answer:

The expected marginal cost of the additional 100 pots =$480. The marginal revenue = $5 x 100 = $500. Yes, the company should produce the additional 100 pots.

Diff: 2

Type: SA Topic: Marginal Analysis Skill: Analytical

94)

What is the difference between a hypothesis and a theory? Answer:

A hypothesis is a statement about the relationships between two or more variables that could be proven to be false.A hypothesis that has not been rejected after statistical testing and is widely accepted is called a theory.

Diff: 2

Type: SA Topic: Economic Models Skill: Definition

95)

In nothing") decisions and "how much" decisions. In each of the following statements, economi identify whether the event involves an "either-or" or a "how much" decision. cs there a. The state government is considering whether to build a public library or a new are two elementary school. types of b. Executives at Apple Computer are debating whether or not to produce an decision additional 300,000 iPods this year. s: c. You have been accepted into the Peace Corp and will be posted to the Czech "either- Republic. You must now decide whether to join the Peace Corp or to go school full or" (also time at Arizona State University. known d. You have decided to cut back your working hours from 30 hours a week to 20 as "all hours a week so that you can take an evening class at your local college. or Answer:

a. either-or; b. how much; c. either-or; d. howmuch

Diff: 1

Type: SA Topic: Economic Decisions Skill: Conceptual

96)

Since 1960, the share of GDP spent on health care

services in the United States has more than doubled. In fact, in real terms, health care spending per person in the mid-1990s has increased by more than 300 percent since 1960. One suggestion put forth to address health care cost containment is to raise the price of services to consumers. Predict what is likely to happens to average frequency of doctor visits per patient if HMOs raise their copayment rate required for a doctor’s visit from $5 to $25. Will this change in copayment be likely to decrease health plans’ total expenditures for the health care of its members? Answer:

The average frequency of doctor visits per patient is likely to fall. Yes, health plans' total expenditures for the health care of its members is also likely to fall.

Diff: 2

Type: SA Topic: Economic Incentives Skill: Analytical

97)

Refer to frequently used in microeconomics. The diagram shows the relationship between the total revenue and output. figure a. To calculate the slope at points A, B and C, we draw tangents to these points. above, Describe the slope at these points, that is, is the slope positive, negative or zero at A, which B and C? depicts b. What is the meaning of a positive slope? Explain in terms of output and total a typical revenue. dome- c. What is the meaning of a negative slope? Explain in terms of output and total shaped revenue. curve d. What is the slope of the function when the revenue is maximized? Answer:

a. A: positive slope; B:slope = 0; C: negative slope b. Positive slope means output and total revenue move in the same direction. c. Negative slope means output and total revenue move in opposite directions. d. slope = 0

Diff: 2

Type: SA Topic: Slope Skill: Conceptual

98)

At a recent student union

meeting, Isidro Ortis, a student representative said, "Our new student center was built on land that was donated to the college by a generous philanthropist. The college did not have to buy the land, so the cost of the student center is only its construction cost." Evaluate this statement. Do you agree with him? Answer:

It is true that the college did not incur a monetary cost for the land but that does not imply that the land is free. The land that was donated could have been used for other purposes. Hence, there is an implicit cost to the land. The true cost of student center should reflect the cost of all resources used.

Diff: 3

Type: SA Topic: Opportunity Cost Skill: Analytical

99)

Mariela s producing hand-made sweaters. In 2003, her sales revenue amounted to $56,000. runs a In 2004, her revenues rose to $84,000. What is the percentage increase in her busines revenues during this period? Answer:

Percentage increase in revenues = [($84,000 $56,000) / $56,000] x 100 = 50%.

Diff: 1

Type: SA Topic: Percentage change Skill: Conceptual

100)

Draw graphs showing the likely relation

ship between each of the following pairs of variables. In each case, put the first variable in the statement on the horizontal axis and the second on the vertical axis. a. cocaine consumption among teenagers and academic performance b. cigarette consumption and lung cancer c. household income and consumption Answer:

Diff: 2

Type: SA Topic: Positive and negative relationships Skill: Conceptual

101)

The Republi c of Scaros is made up of five prefectu res. You are a

member of a team that has been assigned the task of presenting some economic information to the President of the Republic. Present the following data using a bar graph. Prefecture Akron Bugis Calla Danay Ellie Answer: RGDP per person ($) 8,400 12,500 14,000 6,600 10,800

Diff: 1

Type: SA Topic: Bar Graph Skill: Conceptual

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