Homework #1

Choose the one alternative that best completes the statement or answers the question. (Each question is worth 2 points. Due by Jan. 22, 11:59pm) 1) In economics, choices must be made because we live in a world of A) unemployment. B) scarcity. C) greed. D) unlimited resources. 2) Which of the following statements is true about scarcity? A) Scarcity refers to the situation in which unlimited wants exceed limited resources. B) Scarcity is not a problem for the wealthy. C) Scarcity is only a problem when a country has too large a population. D) Scarcity arises when there is a wide disparity in income distribution. 3) By definition, economics is the study of A) how to make money in the stock market. B) how to make money in a market economy. C) the choices people make to attain their goals, given their scarce resources. D) supply and demand. 4) The term ________ in economics refers to a group of buyers and sellers of a product and the arrangement by which they come together to trade. A) collective B) cooperative C) market D) trade-off 5) Economists assume that rational people do all of the following except A) use all available information as they act to achieve their goals. B) undertake activities that benefit others and hurt themselves. C) weigh the benefits and costs of all possible alternative actions. D) respond to economic incentives. 6) Consider the following statements: a. Car owners purchase more gasoline from a gas station that sells gasoline at a lower price than other rival gas stations in the area. b. Banks do not take steps to increase security since they believe it is less costly to allow some bank robberies than to install expensive security monitoring equipment. c. Firms produce more of a particular DVD 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. 7) Economists reason that the optimal decision is to continue any activity up to the point where the A) marginal benefit is zero. B) marginal benefit is greater than the marginal cost. C) marginal cost is zero. D) marginal benefit equals the marginal cost. 8) If the marginal cost of producing an iPhone is constant at $75, then Apple should produce this item A) only if the marginal benefit it receives is greater than $75 plus an acceptable profit margin. B) as long as the marginal benefit it receives is just equal to or greater than $75. C) as long as its marginal cost does not rise. D) until the marginal benefit it receives reaches zero. 9) The idea that because of scarcity, producing more of one good or service means producing less of another good or service refers to the economic concept of A) optimization. B) efficiency. C) trade-off. D) equity. 10) The highest valued alternative that must be given up to engage in an activity is the definition of A) economic equity. B) marginal benefit. C) opportunity cost. D) marginal cost. 11) The Coffee Nook, a small cafe near campus, sells cappuccinos for $2.50 and Russian tea cakes for $1.00 each. What is the opportunity cost of buying a cappuccino? A) 2 1/2 Russian tea cakes B) 2/5 of a Russian tea cake C) $2.50 D) $1.00 12) Arlene quits her $125,000-a-year job to take care of her ailing parents. What is the opportunity cost of her decision?

A) zero, since she will no longer be earning a salary B) It depends on the "going rate" for home-care providers. C) at least $125,000 D) the value she attributes to the satisfaction she receives from taking care of her parents 13) Automobile manufacturers produce a range of automobiles such as sports utility vehicles, luxury sedans, pickup trucks and compact cars. What fundamental economic question are they addressing by making this range of products? A) How to produce goods that consumers want? B) Why produce a variety of automobiles? C) What to produce? D) Who to produce automobiles for? 14) How are the fundamental economic questions answered in a market economy? A) The government alone decides the answers. B) Individuals, firms, and the government interact in markets to decide the answers to these questions. C) Households and firms interact in markets to decide the answers to these questions. D) Large corporations alone decide the answers. 15) ________ is a situation in which a good or service is produced at the lowest possible cost. A) Allocative efficiency B) Productive efficiency C) Equity D) Optimal marginalism 16) Markets promote A) equity and competition. B) voluntary exchange and equality. C) equity and equality. D) competition and voluntary exchange. 17) Which of the following correctly describes the relationship between economic efficiency and economic equity? A) They are both automatically achieved in a free market economy. B) They always call for opposite outcomes. C) There is no conflict between the two goals. D) There is often a trade-off between the two. 18) Which of the following is a positive economic statement? A) The standard of living in the United States should be higher. B) If the price of iPhones falls, a larger quantity of iPhones will be purchased.

C) The government should revamp the health care system. D) The U.S. government should not have bailed out U.S. auto manufacturers. 19) Which of the following is a normative economic statement? A) Rising global demand for coal has led to increases in the price of coal. B) With rising mortgage rates and rising unemployment rates, the number of unsold homes has increased. C) The state of Texas is considering increasing funds for light-rail development to promote the use of public transportation. D) Pharmaceutical manufacturers should not be allowed to patent their products so prescription drugs would be more affordable. 20) The production possibilities frontier shows the ________ combinations of two products that may be produced in a particular time period with available resources. A) minimum attainable B) maximum attainable C) only D) equitable 21) The attainable production points on a production possibility curve are A) the horizontal and vertical intercepts. B) the points along the production possibilities frontier. C) the points outside the area enclosed by the production possibilities frontier. D) the points along and inside the production possibility frontier. 22) In a production possibilities frontier model, a point ________ the frontier is productively inefficient. A) along B) inside C) outside D) at either intercept of 23) Bella can produce either a combination of 60 silk roses and 80 silk leaves or a combination of 70 silk roses and 55 silk leaves. If she now produces 60 silk roses and 80 silk leaves, what is the opportunity cost of producing an additional 10 silk roses? A) 2.5 silk leaves B) 10 silk leaves C) 25 silk leaves D) 55 silk leaves

Figure 2-2

Figure 2-2 above shows the production possibilities frontier for Mendonca, an agrarian nation that produces two goods, meat and vegetables. 24) Refer to Figure 2-2. What is the opportunity cost of one pound of vegetables? A)
3 pound of meat 4

B) 1.2 pounds of meat C) 1
1 pounds of meat 3

D) 12 pounds of meat 25) An outward shift of a nation's production possibilities frontier represents A) economic growth. B) rising prices of the two goods on the production possibilities frontier model. C) an impossible situation. D) a situation in which a country produces more of one good and less of another. 26) You have an absolute advantage whenever you A) are better educated than someone else. B) can produce more of something than others with the same resources. C) prefer to do one particular activity. D) can produce something at a lower opportunity cost than others.

Table 2-3

Bracelets Necklaces

Serena 8 16

Haley 9 12

Table 2-3 shows the output per week of two jewelers, Serena and Haley. They can either devote their time to making bracelets or making necklaces. 27) Refer to Table 2-3. Which of the following statements is true? A) Haley has an absolute advantage in making both products. B) Serena has an absolute advantage in making both products. C) Haley has an absolute advantage in making bracelets and Serena in making necklaces. D) Haley has an absolute advantage in making necklaces and Serena in making bracelets. 28) Refer to Table 2-3. What is Haley's opportunity cost of making a bracelet? A) 3/4 of a bracelet B) 3 bracelets C) 1 1/3 necklaces D) 2 necklaces 29) Refer to Table 2-3. What is Haley's opportunity cost of making a necklace? A) 3/4 of a bracelet B) 3 bracelets C) 1 1/3 necklaces D) 2 necklaces 30) Refer to Table 2-3. What is Serena's opportunity cost of making a bracelet? A) 2 necklaces B) 1/2 of a bracelet C) 1/2 of a necklace D) 3/4 of a bracelet 31) Refer to Table 2-3. What is Serena's opportunity cost of making a necklace? A) 2 necklaces B) 1/2 of a bracelet C) 1/2 of a necklace D) 3/4 of a bracelet 32) Refer to Table 2-3. Which of the following statements is true? A) Haley has a comparative advantage in making both products. B) Serena has a comparative advantage in making both products. C) Haley has a comparative advantage in making bracelets and Serena in making necklaces. D) Haley has a comparative advantage in making necklaces and Serena in making

bracelets. 33) The market for energy drinks has grown rapidly over the past several years. One report predicts that energy drinks might replace coffee for the current generation of teens and young adults. This report implies that energy drinks and coffee are A) complements. B) substitutes. C) both inferior goods. D) both normal goods. 34) If Red Bull and Monster Energy are considered substitutes, then, other things equal, an increase in the price of Red Bull will A) decrease the demand for Red Bull. B) increase the demand for Monster. C) increase the quantity demanded for Monster. D) increase the quantity demanded for Red Bull. 35) What is the difference between an "increase in demand" and an "increase in quantity demanded"? A) There is no difference between the two terms; they both refer to a shift of the demand curve. B) An "increase in demand" is represented by a rightward shift of the demand curve while an "increase in quantity demanded" is represented by a movement along a given demand curve. C) There is no difference between the two terms; they both refer to a movement downward along a given demand curve. D) An "increase in demand" is represented by a movement along a given demand curve, while an "increase in quantity demanded" is represented by a rightward shift of the demand curve. 36) The law of demand implies, holding everything else constant, that A) as the price of bagels increases, the quantity of bagels demanded will decrease. B) as the price of bagels increases, the demand for bagels will decrease. C) as the price of bagels increases, the quantity of bagels demanded will increase. D) as the price of bagels increases, the demand for bagels will increase. 37) When the price of a good falls, consumers buy a larger quantity because of the ________ effect and the ________ effect. A) substitution; income B) normal; inferior C) substitute; complement; D) supply; demand Figure 3-1

38) Refer to Figure 3-1. An increase in population would be represented by a movement from A) A to B. B) B to A. C) D1 to D2. D) D2 to D1. 39) Refer to Figure 3-1. A decrease in taste or preference would be represented by a movement from A) A to B. B) B to A. C) D1 to D2. D) D2 to D1. 40) Refer to Figure 3-1. A decrease in the price of the product would be represented by a movement from A) A to B. B) B to A. C) D1 to D2. D) D2 to D1.

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