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Microeconomics 9e (Parkin) Chapter 1 What Is Economics? 1 Definition of Economics 1) All economic questions are about A) how to make money. B) what to produce. C) how to cope with scarcity. D) how to satisfy all our wants. Answer: C Topic: Definition of Economics Skill: Recognition AACSB: Reflective Thinking 2) An incentive A) could be a reward but could not be a penalty. B) could be a penalty but could not be a reward. C) could be either a reward or a penalty. D) is the opposite of a tradeoff. Answer: C Topic: Definition of Economics Skill: Recognition AACSB: Reflective Thinking 3) An inducement to take a particular action is called A) the marginal benefit. B) the marginal cost. C) opportunity cost. D) an incentive. Answer: D Topic: Incentive Skill: Recognition AACSB: Reflective Thinking 4) All economic questions arise because we A) want more than we can get. B) want more than we need. C) have an abundance of resources. D) have limited wants that need to be satisfied. Answer: A Topic: Scarcity Skill: Recognition AACSB: Reflective Thinking

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5) The most fundamental economic problem is A) security. B) scarcity. C) health. D) the fact the United States buys more goods from foreigners than we sell to foreigners. Answer: B Topic: Scarcity Skill: Recognition AACSB: Reflective Thinking 6) Economics is best defined as the study of how people, businesses, governments, and societies A) choose abundance over scarcity. B) make choices to cope with scarcity. C) use their infinite resources. D) attain wealth. Answer: B Topic: Scarcity Skill: Conceptual AACSB: Reflective Thinking 7) Scarcity is a situation in which A) people cannot satisfy all their wants. B) most people can get only bare necessities. C) people can satisfy all their wants. D) some people can get all they want and some cannot. Answer: A Topic: Scarcity Skill: Recognition AACSB: Reflective Thinking 8) Economists point out that scarcity confronts A) neither the poor nor the rich. B) the poor but not the rich. C) the rich but not the poor. D) both the poor and the rich. Answer: D Topic: Scarcity Skill: Conceptual AACSB: Ethical Reasoning

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9) Scarcity requires that people must A) cooperate. B) compete. C) trade. D) make choices. Answer: D Topic: Scarcity Skill: Conceptual AACSB: Reflective Thinking 10) All economic questions arise because A) people are greedy. B) production possibilities are unlimited. C) we want more than we can get. D) people are irrational. Answer: C Topic: Scarcity Skill: Recognition AACSB: Reflective Thinking 11) Scarcity is A) our inability to satisfy all our wants. B) a situation that exists during economic recessions but not during economic booms. C) when a child wants a $ can of soda and two 50¢ packs of gum and has $ in her pocket. D) an economic problem only for poor people. Answer: A Topic: Scarcity Skill: Recognition AACSB: Reflective Thinking 12) Scarcity arises from A) inefficient production. B) exploration. C) limited resources and limitless wants. D) limited wants and limitless resources. Answer: C Topic: Scarcity Skill: Recognition AACSB: Reflective Thinking

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13) When an economist talks of scarcity, the economist is referring to the A) ability of society to employ all of its resources. B) ability of society to consume all that it produces. C) inability of society to satisfy all human wants because of limited resources. D) ability of society to continually make technological breakthroughs and increase production. Answer: C Topic: Scarcity Skill: Recognition AACSB: Reflective Thinking 14) Scarcity is experienced by A) only the wealthy. B) only the poor. C) only producers. D) everyone. Answer: D Topic: Scarcity Skill: Recognition AACSB: Ethical Reasoning 15) Fundamental economic problems basically arise from A) the fact that society has more than it needs. B) turmoil in the stock market. C) the unequal distribution of income. D) our wants exceeding our scarce resources. Answer: D Topic: Scarcity Skill: Recognition AACSB: Reflective Thinking 16) Scarcity exists because A) society and people are greedy and wasteful. B) our wants exceed the resources available to satisfy them. C) of the inefficient choices we make. D) poor people need more food and other goods. Answer: B Topic: Scarcity Skill: Recognition AACSB: Reflective Thinking

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17) Scarcity can be eliminated through A) the use of market mechanisms. B) exploration that helps us find new resources. C) wise use of our resources. D) None of the above because scarcity cannot be eliminated. Answer: D Topic: Scarcity Skill: Recognition AACSB: Reflective Thinking 18) As an economic concept, scarcity applies to A) both money and time. B) money but not time. C) time but not money. D) neither time nor money. Answer: A Topic: Scarcity Skill: Conceptual AACSB: Reflective Thinking 19) Scarcity is common to all economic systems because resources are A) unlimited due to constant technological advances. B) limited and so are human desires and wants. C) unlimited and so are human desires and wants. D) limited, but human desires and wants are unlimited. Answer: D Topic: Scarcity Skill: Conceptual AACSB: Reflective Thinking 20) People must make choices because A) most people enjoy shopping. B) of scarcity. C) there are many goods available. D) None of the above answers is correct. Answer: B Topic: Scarcity Skill: Conceptual AACSB: Reflective Thinking

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21) The problem of "scarcity" applies A) only in industrially developed countries because resources are scarce in these countries. B) only in underdeveloped countries because there are few productive resources in these countries. C) only in economic systems that are just beginning to develop because specialized resources are scarce. D) to all economic systems, regardless of their level of development. Answer: D Topic: Scarcity Skill: Conceptual AACSB: Reflective Thinking 22) When a wealthy businessman is unable to buy tickets to the Super Bowl, he or she experiences ________. A) economics B) scarcity C) opportunity costs D) the fallacy of composition Answer: B Topic: Scarcity Skill: Conceptual AACSB: Reflective Thinking 23) In every economic system, choices must be made because resources are ________ and our wants are ________. A) unlimited; limited B) limited; unlimited C) unlimited; unlimited D) limited; limited Answer: B Topic: Scarcity Skill: Conceptual AACSB: Reflective Thinking 24) The fundamental questions in economics result from A) an excess of production over the wants of society. B) technological progress. C) distribution of income. D) scarcity of resources relative to the wants of society. Answer: D Topic: Definition of Economics Skill: Recognition AACSB: Ethical Reasoning

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25) Economics is best defined as A) how people make money and profits in the stock market. B) making choices from an unlimited supply of goods and services. C) making choices with unlimited wants but facing a scarcity of resources. D) controlling a budget for a household. Answer: C Topic: Definition of Economics Skill: Recognition AACSB: Reflective Thinking 26) The study of economics A) focuses mainly on individual consumers. B) arises from the fact that our wants exceed available resources. C) recognizes that scarcity does not affect rich nations. D) deals mainly with microeconomics. Answer: B Topic: Definition of Economics Skill: Recognition AACSB: Reflective Thinking 27) Economics is best defined as the science of choice and how people cope with A) differences in wants. B) differences in needs. C) scarcity. D) different economic systems. Answer: C Topic: Definition of Economics Skill: Recognition AACSB: Reflective Thinking 28) Which of the following best defines the subject of economics? A) the science that studies unemployment, inflation, and economic stability B) the art of making money C) the study of choices that businesses make to maximize profit D) the study of choices made to cope with scarcity Answer: D Topic: Definition of Economics Skill: Recognition AACSB: Reflective Thinking

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29) Economics is the study of A) the distribution of surplus goods to those in need. B) affluence in a morally bankrupt world. C) the choices we make because of scarcity. D) ways to reduce wants to eliminate the problem of scarcity. Answer: C Topic: Definition of Economics Skill: Conceptual AACSB: Reflective Thinking 30) Which of the following is a macroeconomic topic? A) the reasons for a rise in the price of orange juice B) the reasons for the rise in average prices C) why plumbers earn more than janitors D) whether the army should buy more tanks or more rockets Answer: B Topic: Microeconomics and Macroeconomics Skill: Recognition AACSB: Reflective Thinking 31) The study of the choices made by individuals is part of the definition of A) microeconomics. B) positive economics. C) macroeconomics. D) normative economics. Answer: A Topic: Microeconomics and Macroeconomics Skill: Recognition AACSB: Reflective Thinking 32) In part, microeconomics is concerned with A) how a business firm decides upon the amount it produces and the price it sets. B) changes in the economy's total output of goods and services over long periods of time. C) factors that explain changes in the unemployment rate over time. D) the Federal Reserve's policy decisions. Answer: A Topic: Microeconomics and Macroeconomics Skill: Recognition AACSB: Reflective Thinking

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33) The study of the decisions of individual units in the economy is known as A) macroeconomics. B) microeconomics. C) the study of incentives. D) ceteris paribus study. Answer: B Topic: Microeconomics and Macroeconomics Skill: Recognition AACSB: Reflective Thinking 34) Which of the following is an example of a microeconomic decision? A) an individual deciding how to allocate the time he or she has for work and leisure B) a small shoe factory deciding how much leather to purchase for the next quarter's production need C) a multinational company deciding where to relocate its world headquarter D) All of the above answers are correct. Answer: D Topic: Microeconomics and Macroeconomics Skill: Recognition AACSB: Reflective Thinking 35) Which term best describes the study of the decisions of people and businesses and the interaction of these decisions? A) marginal study B) macroeconomics C) microeconomics D) scarcity science Answer: C Topic: Microeconomics and Macroeconomics Skill: Recognition AACSB: Reflective Thinking 36) Which of the following questions is a topic that would be studied by microeconomics? A) Why did production and the number of jobs shrink in ? B) Will the current budget deficit affect the well-being of the next generation? C) How will a lower price of digital cameras affect the quantity of cameras sold? D) What is the current unemployment rate in the United States? Answer: D Topic: Microeconomics and Macroeconomics Skill: Conceptual AACSB: Reflective Thinking

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37) An example of a question that might be explored in microeconomics is to determine A) the number of workers employed by Intel. B) savings by the household sector. C) why the U.S. economy has grown more rapidly than the Japanese economy. D) the total employment within the U.S. economy. Answer: A Topic: Microeconomics and Macroeconomics Skill: Conceptual AACSB: Reflective Thinking 38) One topic of study for a microeconomist would be the A) factors that lead to inflation. B) factors that affect aggregate unemployment. C) effects an increase in the price of gasoline has on an individual. D) effects of an increase in government spending on the nation's production. Answer: C Topic: Microeconomics and Macroeconomics Skill: Conceptual AACSB: Reflective Thinking 39) In part, microeconomics is concerned with the study of A) unemployment and economic growth. B) the Federal Reserve's policies. C) the effect government regulation has on the price of a product. D) national output of goods and services. Answer: C Topic: Microeconomics and Macroeconomics Skill: Conceptual AACSB: Reflective Thinking 40) The branch of economics that deals with the analysis of the whole economy is called A) macroeconomics. B) marginal analysis. C) microeconomics. D) metroanalysis. Answer: A Topic: Microeconomics and Macroeconomics Skill: Recognition AACSB: Reflective Thinking

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41) Macroeconomics is concerned with A) individual consumers. B) government decision making concerning farm price supports. C) economy-wide variables. D) the effects on Ford Motor of a strike by the United Auto Workers. Answer: C Topic: Microeconomics and Macroeconomics Skill: Recognition AACSB: Reflective Thinking 42) Macroeconomics differs from microeconomics in that: A) macroeconomics studies the decisions of individuals. B) microeconomics looks at the economy as a whole. C) macroeconomics studies the behavior of government while microeconomics looks at private corporations. D) macroeconomics focuses on the national economy and the global economy. Answer: D Topic: Microeconomics and Macroeconomics Skill: Recognition AACSB: Reflective Thinking 43) Which of the following is a macroeconomic decision or concept? A) the price of oil B) how many television sets to produce C) the unemployment rate for the entire economy D) the unemployment rate for each firm Answer: C Topic: Microeconomics and Macroeconomics Skill: Conceptual AACSB: Reflective Thinking 44) Which of the following questions is a macroeconomic issue? A) How many more pounds of cookies will a consumer purchase if the price of cookies decreases? B) What effect would a cure for Mad Cow Disease have on the market for beef? C) What is the future growth prospect for an economy? D) How many workers should the owner of a business hire? Answer: C Topic: Microeconomics and Macroeconomics Skill: Conceptual AACSB: Reflective Thinking

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45) Which of the following is a microeconomic topic? A) The reasons why Kathy buys less orange juice. B) The reasons for a decline in average prices. C) The reasons why total employment decreases. D) The effect of the government budget deficit on inflation. Answer: A Topic: Microeconomics and Macroeconomics Skill: Recognition AACSB: Reflective Thinking 46) Microeconomics focuses on all of the following EXCEPT the A) purchasing decisions made by an individual consumer. B) effect on inflation of increasing the money supply. C) hiring decisions made by a business. D) effect on cigarette sales of an increase in the tax on cigarettes. Answer: B Topic: Microeconomics and Macroeconomics Skill: Recognition AACSB: Reflective Thinking 47) In broad terms the difference between microeconomics and macroeconomics is that A) they use different sets of tools and ideas. B) microeconomics studies decisions of individual people and firms and macroeconomics studies the entire national economy. C) macroeconomics studies the effects of government regulation and taxes on the price of individual goods and services whereas microeconomics does not. D) microeconomics studies the effects of government taxes on the national unemployment rate. Answer: B Topic: Microeconomics and Macroeconomics Skill: Recognition AACSB: Reflective Thinking 48) Studying the determination of prices in individual markets is primarily a concern of A) positive economics. B) negative economics. C) macroeconomics. D) microeconomics. Answer: D Topic: Microeconomics and Macroeconomics Skill: Recognition AACSB: Reflective Thinking

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49) The analysis of the behavior of individual decision-making units is the definition of A) microeconomics. B) positive economics. C) macroeconomics. D) normative economics. Answer: A Topic: Microeconomics and Macroeconomics Skill: Recognition AACSB: Reflective Thinking 50) Which of the following is a microeconomic topic? A) How a trade agreement between the United States and Mexico affects both nations' unemployment rates. B) Comparing inflation rates across countries. C) How rent ceilings impact the supply of apartments. D) How a tax rate increase will impact total production. Answer: C Topic: Microeconomics and Macroeconomics Skill: Conceptual AACSB: Reflective Thinking 51) Which of the following questions is NOT a microeconomic question? A) Can the Federal Reserve keep income growing by cutting interest rates? B) How would a tax on e-commerce affect eBay? C) What is Britney's opportunity cost of having another baby? D) Does the United States have a comparative advantage in information technology services? Answer: A Topic: Microeconomics and Macroeconomics Skill: Conceptual AACSB: Reflective Thinking 52) Which of the following is a macroeconomic issue? A) How a rise in the price of sugar affects the market for sodas. B) How federal government budget deficits affect interest rates. C) What determines the amount a firm will produce. D) The cause of a decline in the price of peanut butter. Answer: B Topic: Microeconomics and Macroeconomics Skill: Conceptual AACSB: Reflective Thinking

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53) Which of the following is a macroeconomic issue? A) The purchasing decisions that an individual consumer makes. B) The effect of increasing the money supply on inflation. C) The hiring decisions that a business makes. D) The effect of an increase in the tax on cigarettes on cigarette sales. Answer: B Topic: Microeconomics and Macroeconomics Skill: Conceptual AACSB: Reflective Thinking 54) Macroeconomic topics include A) total, nationwide employment. B) studying what factors influence the price and quantity of automobiles. C) studying the determination of wages and production costs in the software industry. D) the impact of government regulation of markets. Answer: A Topic: Microeconomics and Macroeconomics Skill: Conceptual AACSB: Reflective Thinking 55) Macroeconomics is the branch of economics that studies A) prices of individual goods. B) the way individual markets work. C) the economy as a whole. D) important, as opposed to trivial, issues. Answer: C Topic: Microeconomics and Macroeconomics Skill: Recognition AACSB: Reflective Thinking 56) The fact that wants cannot be fully satisfied with available resources reflects the definition of A) the what tradeoff. B) scarcity. C) the big tradeoff. D) for whom to produce. Answer: B Topic: Study Guide Question, Definition of Economics Skill: Recognition AACSB: Reflective Thinking

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57) Studying the effects choices have on the individual markets within the economy is part of A) scarcity. B) microeconomics. C) macroeconomics. D) incentives. Answer: B Topic: Study Guide Question, Macroeconomics Skill: Recognition AACSB: Reflective Thinking 58) Economics can be defined as the social science that explains the ________. A) choices made by politicians B) choices we make when we trade in markets C) choices that we make as we cope with scarcity D) choices made by households Answer: C Topic: MyEconLab Questions Skill: Conceptual AACSB: Reflective Thinking 59) Scarcity is a situation in which ________. A) some people are poor and others are rich B) something is being wasted C) we are unable to satisfy all our wants D) long lines form at gas stations Answer: C Topic: MyEconLab Questions Skill: Conceptual AACSB: Reflective Thinking 60) Microeconomics is the study of ________. A) the choices that individuals and businesses make B) all aspects of scarcity C) the global economy D) the national economy Answer: A Topic: MyEconLab Questions Skill: Conceptual AACSB: Reflective Thinking

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2 Two Big Economic Questions 1) When an economy produces more houses and fewer typewriters, it is answering the ________ question. A) "what" B) "how" C) "where" D) "for whom" Answer: A Topic: What Goods and Services Are Produced? Skill: Conceptual AACSB: Reflective Thinking 2) When firms in an economy start producing more computers and fewer televisions, they are answering the ________ question. A) "when" B) "for whom" C) "what" D) "where" Answer: C Topic: What Goods and Services Are Produced? Skill: Conceptual AACSB: Reflective Thinking 3) ________ all the objects that we value and are willing to pay for. A) Resources are B) Goods and services are C) Wants are D) Capital is Answer: B Topic: What Goods and Services Are Produced? Skill: Conceptual AACSB: Reflective Thinking 4) If Taco Bell decides to produce more tacos and fewer burritos, Taco Bell is answering the ________ question. A) "what" B) "why" C) "when" D) "scarcity" Answer: C Topic: What Goods and Services Are Produced? Skill: Conceptual AACSB: Reflective Thinking

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5) When a farmer decides to raise hogs instead of cattle, the farmer is answering the ________ question. A) "what" B) "for whom" C) "how" D) "why" Answer: A Topic: What Goods and Services Are Produced? Skill: Conceptual AACSB: Reflective Thinking 6) When a farmer decides to grow sugar cane instead of radishes, the farmer is answering the ________ question. A) "what" B) "when" C) "for whom" D) "why" Answer: A Topic: What Goods and Services Are Produced? Skill: Conceptual AACSB: Reflective Thinking 7) When a country decides to produce fewer bombers and more public housing projects, it is answering the ________ question. A) "how" B) "what" C) "defense" D) "for whom" Answer: B Topic: What Goods and Services Are Produced? Skill: Conceptual AACSB: Reflective Thinking 8) When a firm decides to produce more electric cars and fewer gas guzzlers, it is most directly answering the ________ question. A) "how" B) "scarcity" C) "what" D) "for whom" Answer: C Topic: What Goods and Services Are Produced? Skill: Conceptual AACSB: Reflective Thinking

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9) When a textile firm decides to produce more cotton fabric and less synthetic fabric, it is most directly answering the ________ question. A) "how" B) "for whom" C) "why" D) "what" Answer: D Topic: What Goods and Services Are Produced? Skill: Conceptual AACSB: Reflective Thinking 10) U.S. producers decide to produce more compact cars and fewer SUVs as the price of gasoline rises. Producers are answering the ________ question. A) "what" B) "how" C) "when" D) "how many" Answer: A Topic: What Goods and Services Are Produced? Skill: Conceptual AACSB: Reflective Thinking 11) The question "Should CDs or DVDs be produced?" is an example of the A) "what" question. B) "how" question. C) "where" question. D) "for whom" question. Answer: A Topic: What Goods and Services Are Produced? Skill: Conceptual AACSB: Reflective Thinking 12) Which of the following statements is correct? A) The United States produces more goods than services. B) The United States produces more services than goods. C) The percentage of people producing goods in the United States has steadily increased over the last 60 years. D) The United States produces an equal amount of goods and services. Answer: B Topic: Trends in Production Skill: Recognition AACSB: Reflective Thinking

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13) In the United States, the percentage of people employed in ________ over the last 60 years. A) farming has increased B) manufacturing has increased C) construction has increased D) services has decreased Answer: A Topic: Trends in Production Skill: Recognition AACSB: Reflective Thinking 14) In the U.S. economy, which of the following statements is true? A) More goods are produced than services. B) More services are produced than goods. C) Production is divided evenly between goods and services. D) The economy is too complex to determine the proportion of production that is devoted to producing services. Answer: B Topic: Trends in Production Skill: Recognition AACSB: Reflective Thinking 15) Over the last 60 years, as a proportion of total production, the U.S. economy has produced more A) goods. B) agricultural products. C) services. D) goods and services. Answer: C Topic: Trends in Production Skill: Recognition AACSB: Reflective Thinking 16) In the U.S. economy, a recent trend has been that A) employment in agriculture has been increasing. B) employment in mining, construction, and manufacturing has been increasing. C) employment in the service industry has been increasing. D) employment in both agriculture and the service industry has been decreasing. Answer: C Topic: Trends in Production Skill: Recognition AACSB: Reflective Thinking

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17) The largest part of what the United States produces today is ________ such as ________. A) goods; food and electronic equipment B) goods; education and entertainment C) services; trade and health care D) services; textbooks and computers Answer: C Topic: Trends in Production Skill: Recognition AACSB: Reflective Thinking 18) When China builds a dam using few machines and a great deal of labor, it is answering the ________ question. A) "what" B) "how" C) "where" D) "for whom" Answer: B Topic: How Are Goods and Services Produced? Skill: Conceptual AACSB: Reflective Thinking 19) When a textile company keeps track of its inventory using a computer and its competitor uses a spreadsheet and pencil, they are both answering the ________ question. A) "what" B) "how" C) "for whom" D) "where" Answer: B Topic: How Are Goods and Services Produced? Skill: Conceptual AACSB: Reflective Thinking 20) Whether a company produces fishing rods mostly by hand or using high-tech machinery is a question of A) for whom will goods be produced. B) why will the goods be produced. C) where will the goods be produced. D) how will the goods be produced. Answer: D Topic: How Are Goods Produced? Skill: Recognition AACSB: Reflective Thinking

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21) When a California farmer decides to harvest lettuce by the use of machines instead of by migrant workers, the farmer is answering the ________ question. A) "how" B) "for whom" C) "scarcity" D) "what" Answer: A Topic: How Are Goods Produced? Skill: Conceptual AACSB: Reflective Thinking 22) When a farmer decides to harvest oranges by huge machines instead of by migrant workers, the farmer is answering the ________ question. A) "how" B) "scarcity" C) "why" D) "what" Answer: A Topic: How Are Goods and Services Produced? Skill: Conceptual AACSB: Reflective Thinking 23) When a lawyer decides to type a brief on a computer rather than use a typewriter, the lawyer is answering the ________ question. A) "how" B) "scarcity" C) "why" D) "what" Answer: A Topic: How Are Goods and Services Produced? Skill: Conceptual AACSB: Reflective Thinking 24) When a firm decides to produce computers using robots instead of people, it is answering the ________ question. A) "scarcity" B) "how" C) "what" D) "why" Answer: B Topic: How Are Goods and Services Produced? Skill: Conceptual AACSB: Reflective Thinking

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25) To meet increased demand for its good, a firm decides to hire a few high-skilled workers rather than hire many low-skilled workers. The firm is answering the ________ question. A) "how" B) "when" C) "what" D) "scarcity" Answer: A Topic: How Are Goods and Services Produced? Skill: Conceptual AACSB: Reflective Thinking 26) An art museum decides to offer tours by having visitors listen to cassette tapes rather than have tour guides. The museum is answering the ________ question. A) "scarcity" B) "what" C) "why" D) "how" Answer: D Topic: How Are Goods and Services Produced? Skill: Conceptual AACSB: Reflective Thinking 27) Human capital is A) all capital owned by individuals, but not by corporations or governments. B) all capital owned by individuals or corporations, but not by governments. C) machinery that meets or exceeds federal safety standards for use by humans. D) the skill and knowledge of workers. Answer: D Topic: Human Capital Skill: Recognition AACSB: Reflective Thinking 28) Entrepreneurs do all of the following EXCEPT A) organize labor, land, and capital. B) come up with new ideas about what and how to produce. C) bear risk from business decisions. D) own all the other resources used in the production process. Answer: D Topic: Entrepreneurship Skill: Recognition AACSB: Reflective Thinking

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29) To answer the "for whom" question, we study A) the global economy. B) income differences. C) business cycles. D) technological change. Answer: B Topic: For Whom Are Goods and Services Produced? Skill: Conceptual AACSB: Reflective Thinking 30) The fact that people with higher incomes get to consume more goods and services addresses the ________ question. A) "for whom" B) "when" C) "where" D) "how" Answer: A Topic: For Whom Are Goods and Services Produced? Skill: Conceptual AACSB: Ethical Reasoning 31) Which of the following is NOT a factor of production? A) the water used to cool a nuclear power plant. B) the effort of farmers raising cattle. C) the wages paid to workers. D) the management skill of a small business owner. Answer: C Topic: Factors of Production Skill: Conceptual AACSB: Reflective Thinking 32) Which of the following are considered factors of production used to produce goods and services? I. Land II. Labor III. Capital IV. Entrepreneurship A) I and II only B) I and III only C) I, II and III only D) I, II, III and IV Answer: D Topic: Factors of Production Skill: Recognition AACSB: Reflective Thinking 23 Copyright Š Pearson Education, Inc.

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33) Factors of production include all of the following EXCEPT A) labor. B) land. C) capital. D) None of the above answers are correct because all are factors of production. Answer: D Topic: Factors of Production Skill: Recognition AACSB: Reflective Thinking 34) What are the four categories into which factors of production are grouped? A) profit, wages, rent, and interest B) land, labor, capital, and entrepreneurship C) capital, human capital, land, and labor D) entrepreneurship, profit, labor, and wages Answer: B Topic: Factors of Production Skill: Recognition AACSB: Reflective Thinking 35) Factors of production include all of the following EXCEPT ________. A) machines made in past years B) money C) entrepreneurship D) an wheat field that is not irrigated Answer: B Topic: Factors of Production Skill: Recognition AACSB: Reflective Thinking 36) The income earned by the people who sell the services of the factor of production ________ is called ________. A) capital; rent B) entrepreneurship; wages C) land; profit D) entrepreneurship; profit Answer: D Topic: Factors of Production Skill: Recognition AACSB: Reflective Thinking

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37) Factors of production are grouped into four categories: A) land, labor, capital, entrepreneurship B) land, labor, capital, money C) land, capital, money, entrepreneurship D) labor, capital, money, entrepreneurship Answer: A Topic: Factors of Production Skill: Recognition AACSB: Reflective Thinking 38) Which of the following is NOT a factor of production? A) vans used by a bakery company for deliveries B) a person developing a production schedule for a new product C) shares of Microsoft stock D) wilderness areas that have yet to be developed Answer: C Topic: Factors of Production Skill: Conceptual AACSB: Reflective Thinking 39) Which of the following is correct? Factors of production are A) land, labor, the price system, and capital. B) the inputs used to produce goods and services. C) the fundamental source of abundance. D) only land and labor. Answer: B Topic: Factors of Production Skill: Recognition AACSB: Reflective Thinking 40) Factors of production include A) the economic system. B) land, labor, capital and entrepreneurship. C) labor and capital (not land, which is fixed). D) only capital, land, and labor. Answer: B Topic: Factors of Production Skill: Recognition AACSB: Reflective Thinking

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41) Keeping in mind economists' definition of factors of production, which of the following is NOT a factor of production? A) money B) low-skilled labor C) coal D) an engineer Answer: A Topic: Factors of Production Skill: Recognition AACSB: Reflective Thinking 42) Which of the following is NOT a factor of production? A) mineral resources B) a university professor C) an apartment building D) shares of Microsoft stock Answer: D Topic: Factors of Production Skill: Recognition AACSB: Reflective Thinking 43) Which factor of production earns profit? A) land B) human capital C) money D) entrepreneurship Answer: D Topic: Factors of Production Skill: Recognition AACSB: Reflective Thinking 44) Which factor of production earns most income in the United States? A) capital B) labor C) money D) entrepreneurship Answer: B Topic: Factors of Production Skill: Recognition AACSB: Reflective Thinking

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45) Which of the following best defines capital as a factor of production? A) The gifts of nature that businesses use to produce goods and services. B) The knowledge and skills that people obtain from education and use in production of goods and services. C) Financial assets used by businesses. D) Instruments, machines, and buildings used in production. Answer: D Topic: Capital Stock Skill: Conceptual AACSB: Reflective Thinking 46) Which of the following is NOT a factor of production? A) a new computer used by a small business owner. B) the time worked by elementary school teachers. C) a tractor used by a wheat farmer. D) a share of stock issued by a firm. Answer: D Topic: Factors of Production Skill: Conceptual AACSB: Reflective Thinking 47) In economics, the term "land" means A) only land that is used in agricultural production. B) land, mineral resources, and nature's other bounties. C) land that is devoted to economic pursuits. D) land used for agricultural and urban purposes. Answer: B Topic: Land Skill: Recognition AACSB: Reflective Thinking 48) A natural resource, such as fishing territories, is considered an example of A) both land and labor. B) land, labor, capital and entrepreneurship. C) land only. D) only capital. Answer: C Topic: Land Skill: Recognition AACSB: Reflective Thinking

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49) The "gifts of nature" are included as part of which factor of production? A) labor B) land C) capital D) entrepreneurship Answer: B Topic: Land Skill: Conceptual AACSB: Reflective Thinking 50) Copper falls into which factor of production category? A) land B) labor C) capital D) entrepreneurship Answer: A Topic: Land Skill: Conceptual AACSB: Reflective Thinking 51) An auto worker is an example of ________ and earns ________. A) labor; rent. B) entrepreneurship; wages. C) labor; wages. D) capital; rent. Answer: C Topic: Labor Skill: Conceptual AACSB: Reflective Thinking 52) Overtime worked by a JCPenney associate is considered ________ and earns ________. A) labor; wages. B) entrepreneurship; profit. C) human capital; interest. D) labor; profit. Answer: A Topic: Labor Skill: Conceptual AACSB: Reflective Thinking

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53) The term human capital refers to A) labor resources used to make capital equipment. B) buildings and machinery. C) people's knowledge and skill. D) entrepreneurship and risk-taking. Answer: C Topic: Human Capital Skill: Recognition AACSB: Reflective Thinking 54) In the United States, the quality of labor has been increasing, based on evidence that over time A) a larger percentage of the adult population has completed high school or 4 years or more of college. B) the percentage of the adult population that has had some high school has been increasing. C) the percentage of the adult population that has completed high school has been decreasing. D) the percentage of the adult population that has had 4 years or more of college has been decreasing. Answer: A Topic: Human Capital Skill: Recognition AACSB: Reflective Thinking 55) Joy is training to become a chef. The skills she is obtaining from her training and education will increase what type of resource? A) land B) physical capital C) entrepreneurship D) human capital Answer: D Topic: Human Capital Skill: Conceptual AACSB: Reflective Thinking 56) Which of the following is NOT an investment in human capital? A) a business student takes a seminar in using a laptop computer B) a student purchases a laptop computer C) a computer science student learns how to repair a laptop computer D) a computer science student takes a course on programming a laptop computer Answer: B Topic: Human Capital Skill: Conceptual AACSB: Reflective Thinking

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57) Which of the following is NOT an investment in human capital? A) a medical student's internship B) a student's purchase of a personal computer C) a mechanic attends a training workshop on a new type of engine D) Johnny learns how to read Answer: B Topic: Human Capital Skill: Conceptual AACSB: Reflective Thinking 58) A person goes to college to become an engineer. This is an example of an A) investment in physical capital. B) investment in human capital. C) increase in entrepreneurship. D) increase in labor. Answer: B Topic: Human Capital Skill: Conceptual AACSB: Reflective Thinking 59) Pete has just decided to go to college to learn how to become a certified public accountant. Pete has made a decision that will increase the nation's A) physical capital. B) human capital. C) labor supply today. D) ALL of the above answers are correct. Answer: B Topic: Human Capital Skill: Conceptual AACSB: Reflective Thinking 60) In economics, the term "capital" refers to A) the money in one's pocket. B) buildings and equipment. C) mineral resources. D) consumer goods. Answer: B Topic: Capital Skill: Recognition AACSB: Reflective Thinking

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61) Jon works in an automobile factory. He operates a machine that makes the fenders for automobiles. The machine Jon operates is what type of resource? A) capital B) land C) labor D) entrepreneurship Answer: A Topic: Capital Skill: Recognition AACSB: Reflective Thinking 62) Which of the following is a type of capital? A) machine B) acre of land C) mineral resource D) low-skilled labor Answer: A Topic: Capital Skill: Recognition AACSB: Reflective Thinking 63) Human resources that perform the functions of organizing, managing, and assembling the other resources are called A) physical capital. B) venture capital. C) entrepreneurship. D) productive capital. Answer: C Topic: Entrepreneurship Skill: Recognition AACSB: Reflective Thinking 64) The economic resource that organizes the use of other economic resources is A) labor. B) capital. C) entrepreneurship. D) land. Answer: C Topic: Entrepreneurship Skill: Recognition AACSB: Reflective Thinking

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65) Entrepreneurs directly do all of the following except A) create new ideas about what and how to produce. B) make business decisions. C) face risks that arise from making business decisions. D) decide for whom goods and services are produced. Answer: D Topic: Entrepreneurship Skill: Recognition AACSB: Reflective Thinking 66) Carl, who is an attorney, earns $ an hour while Ken, who is an auto mechanic, earns $25 an hour. This income difference is most directly an example of an economy answering the ________ question. A) "when" B) "scarcity" C) "for whom" D) "how" Answer: C Topic: For Whom Are Goods and Services Produced? Skill: Conceptual AACSB: Reflective Thinking 67) Differences in income are most directly related to which of the following big economic question? A) What goods and services are produced? B) In what quantities are various goods and services produced? C) How are goods and services produced? D) Who consumes the goods and services that are produced? Answer: D Topic: For Whom Are Goods and Services Produced? Skill: Conceptual AACSB: Reflective Thinking 68) The fact that some people can afford to live in beautiful homes while others are homeless, is most directly an example of an economy facing the ________ question. A) "for whom" B) "when" C) "how" D) "why" Answer: A Topic: For Whom Are Goods and Services Produced? Skill: Conceptual AACSB: Ethical Reasoning

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69) The fact that a rock star earns $5 million a year while a teacher earns $25, annually is most directly an example of an economy answering the ________ question. A) "when" B) "for whom" C) "how" D) "why" Answer: B Topic: For Whom Are Goods and Services Produced? Skill: Conceptual AACSB: Ethical Reasoning 70) Sue, who has a law degree, earns $, a year while Chris, a high school dropout earns $ an hour. This situation most directly reflects an example of an economy answering the ________ question. A) "when" B) "why" C) "for whom" D) "how" Answer: C Topic: For Whom Are Goods and Services Produced? Skill: Conceptual AACSB: Ethical Reasoning 71) A star athlete can afford a garage full of exotic cars while other people can only afford to take a city bus for transportation. This is most directly an example of an economy answering the ________ question. A) "what" B) "when" C) "why" D) "for whom" Answer: D Topic: For Whom Are Goods and Services Produced? Skill: Conceptual AACSB: Ethical Reasoning 72) One economist says that raising taxes on gas would be in the social interest. What does this economist mean? A) Higher taxes on gas would benefit society as a whole. B) Raising taxes on gas would benefit most of the people. C) Higher taxes on gas would benefit everyone. D) Raising taxes on gas would benefit some social groups. Answer: A Topic: Social Interest Skill: Conceptual AACSB: Reflective Thinking 33 Copyright Š Pearson Education, Inc.

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73) In a market economy, what people do in the pursuit of their self-interest A) is usually in conflict with the social interest. B) usually forwards the social interest. C) always forwards the social interest. D) is always in conflict with the social interest. Answer: B Topic: Social Interest Skill: Conceptual AACSB: Reflective Thinking 74) Which of the following is NOT part of the first big economic question? A) What goods and services are produced? B) How are goods and services produced? C) For whom are goods and services produced? D) Why do incentives affect only marginal costs? Answer: D Topic: Study Guide Question, Two Big Economic Questions Skill: Analytical AACSB: Reflective Thinking 75) The question, "Should Taco Bell produce more tacos or more burritos?" is an example of the A) "what" question. B) "how" question. C) "where" question. D) "for whom" question. Answer: A Topic: Study Guide Question, What Goods and Services Are Produced? Skill: Analytical AACSB: Reflective Thinking 3 The Economic Way of Thinking 1) The concept of tradeoffs concerns all of the following questions except: A) What goods and services should be produced? B) How should goods and services be produced? C) For whom should goods and services be produced? D) Why should goods and services be produced? Answer: D Topic: Tradeoffs Skill: Recognition AACSB: Reflective Thinking

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2) In economics we learn that A) sometimes there is such a thing as a "free lunch." B) tradeoffs allow us to avoid the problem of opportunity cost. C) opportunity costs are all of the possible alternatives given up when we make a choice. D) None of the above answers is correct. Answer: D Topic: Tradeoffs Skill: Conceptual AACSB: Reflective Thinking 3) When a university decides to add to the football stadium instead of adding to the baseball stadium, it faces the A) "what" tradeoff. B) "how" tradeoff. C) "for whom" tradeoff. D) macroeconomic question. Answer: A Topic: What Tradeoff Skill: Conceptual AACSB: Reflective Thinking 4) Congress votes for more national defense but cuts back on educational programs. This choice involves A) no tradeoff. B) a "what" tradeoff. C) a "how" tradeoff. D) a "for whom" tradeoff. Answer: B Topic: What Tradeoff Skill: Conceptual AACSB: Reflective Thinking 5) When a farmer decides to increase the amount of acreage devoted to wheat and grow fewer acres of soybeans, the farmer is facing the A) "what" tradeoff. B) "how" tradeoff. C) "for whom" tradeoff. D) microeconomic question. Answer: A Topic: What Tradeoff Skill: Conceptual AACSB: Reflective Thinking

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6) When a photographer decides to use a digital camera to take shots versus using film, the photographer is facing the A) "what" tradeoff. B) "how" tradeoff. C) "for whom" tradeoff. D) microeconomic question. Answer: B Topic: How Tradeoff Skill: Conceptual AACSB: Reflective Thinking 7) The "how" tradeoff occurs when A) a firm decides to produce refrigerators instead of dishwashers. B) a farm uses machinery to pick oranges instead of employing migrant workers. C) the government increases income taxes paid by the rich. D) we answer the macroeconomic question. Answer: B Topic: How Tradeoff Skill: Conceptual AACSB: Reflective Thinking 8) When the government decides to provide tax relief for small businesses while placing higher taxes on large corporations, it is facing the A) "what" tradeoff. B) "how" tradeoff. C) "for whom" tradeoff. D) macroeconomic question. Answer: C Topic: For Whom Question Skill: Conceptual AACSB: Reflective Thinking 9) Because we face scarcity, every choice involves A) money B) the question "what." C) giving up something for nothing. D) an opportunity cost Answer: D Topic: Tradeoff and Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking

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10) The term used to emphasize that making choices in the face of scarcity involves a cost is A) substitution cost. B) opportunity cost. C) utility cost. D) accounting cost. Answer: B Topic: Opportunity Cost Skill: Recognition AACSB: Reflective Thinking 11) The loss of the highest-valued alternative defines the concept of A) marginal benefit. B) scarcity. C) entrepreneurship. D) opportunity cost. Answer: D Topic: Opportunity Cost Skill: Recognition AACSB: Reflective Thinking 12) When an action is chosen, the highest-valued alternative NOT chosen is called the A) implicit cost. B) explicit cost. C) accounting cost. D) opportunity cost. Answer: D Topic: Opportunity Cost Skill: Recognition AACSB: Reflective Thinking 13) Opportunity cost means the A) accounting cost minus the marginal cost. B) highest-valued alternative forgone. C) accounting cost minus the marginal benefit. D) monetary costs of an activity. Answer: B Topic: Opportunity Cost Skill: Recognition AACSB: Reflective Thinking

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14) The opportunity cost of any action is A) all the possible alternatives forgone. B) the highest-valued alternative forgone. C) the time required but not the monetary cost. D) the monetary cost but not the time required. Answer: B Topic: Opportunity Cost Skill: Recognition AACSB: Reflective Thinking 15) The opportunity cost of something you decide to get is A) all the possible alternatives that you give up to get it. B) the highest valued alternative you give up to get it. C) the lowest valued alternative you give up to get it. D) the amount of money you pay to get it. Answer: B Topic: Opportunity Cost Skill: Recognition AACSB: Reflective Thinking 16) Opportunity cost is best defined as A) how much money is paid for something. B) how much money is paid for something, taking inflation into account. C) the highest-valued alternative that is given up to get something. D) all the alternatives that are given up to get something. Answer: C Topic: Opportunity Cost Skill: Recognition AACSB: Reflective Thinking 17) Which of the following statements are correct? I. The "highest-valued alternative given up to get something" is the opportunity cost. II. Wealthy economies don't experience opportunity costs. III. Scarcity creates opportunity costs. A) I only B) I and II C) I and III D) I, II, and III Answer: C Topic: Opportunity Cost Skill: Recognition AACSB: Reflective Thinking

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18) Opportunity cost is best defined as A) how much money is paid for something. B) how much money and time it takes to consume something. C) the value of the next best alternative that is given up in making a choice. D) the total of all other alternatives that are given up in making a choice. Answer: C Topic: Opportunity Cost Skill: Recognition AACSB: Reflective Thinking 19) Which of the following best describe(s) opportunity costs? I. An opportunity cost is the next best alternative a person has given up when he or she makes a choice to do something else. II. Opportunity costs are always measured in terms of dollars. III. Opportunity costs are higher for U.S.-made goods. A) I only B) I and II C) I and III D) II and III Answer: A Topic: Opportunity Cost Skill: Recognition AACSB: Reflective Thinking 20) Opportunity cost is defined as A) all the possible alternatives given up. B) the amount of money spent to take part in the activity chosen. C) the highest-valued alternative given up. D) the top two alternatives given up. Answer: C Topic: Opportunity Cost Skill: Recognition AACSB: Reflective Thinking 21) Opportunity cost is defined as the A) total value of all the alternatives given up. B) highest-valued alternative given up. C) cost of not doing all of the things you would like to do. D) lowest-valued alternative given up. Answer: B Topic: Opportunity Cost Skill: Recognition AACSB: Reflective Thinking

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22) The ultimate cost of any choice is A) the dollars expended. B) the highest-valued alternative forgone. C) the after-tax cost. D) what someone else would be willing to pay. Answer: B Topic: Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking 23) Opportunity cost is measured in terms of A) only monetary value. B) only time. C) both monetary value and time. D) either monetary value or time. Answer: C Topic: Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking 24) You have the choice of going on vacation to Florida for one week, staying at work for the week, or spending the week doing fix-up projects around your house. If you decide to go to Florida, the opportunity cost of the trip is A) working and doing fix-up projects. B) working or doing fix-up projects, depending on which you would have done otherwise. C) working, because you would be giving up dollars. D) nothing because you will enjoy the trip to Florida. Answer: B Topic: Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking 25) The night before a midterm exam, you decide to go to the movies instead of studying for the exam. You score 60 percent on your exam. If you had studied the night before, you'd have scored 70 percent. What was the opportunity cost of your evening at the movies? A) 10 percent off your grade. B) 60 percent. C) 70 percent D) Zero. Answer: A Topic: Opportunity Cost Skill: Conceptual AACSB: Analytical Skills

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26) On Saturday morning, you rank your choices for activities in the following order: go to the library, work out at the gym, have breakfast with friends, and sleep late. Suppose you decide to go to the library. Your opportunity cost is A) working out at the gym, having breakfast with friends, and sleeping late. B) working out at the gym. C) zero because you do not have to pay money to use the library. D) not clear because not enough information is given. Answer: B Topic: Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking 27) Fred and Ann are both given free tickets to see a movie. Both decide to see the same movie. We know that A) both bear an opportunity cost of seeing the movie because they could have done other things instead of seeing the movie. B) both bear the same opportunity cost of seeing the movie because they are doing the same thing. C) it is not possible to calculate the opportunity cost of seeing the movie because the tickets were free. D) it is possible to calculate the opportunity cost of seeing the movie and it is zero because the tickets were free. Answer: A Topic: Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking 28) You have the choice of going to Hawaii for a week, staying at work for the week, or spending the week skiing. If you decide to go to Hawaii, the opportunity cost is A) the value of working and skiing. B) the value of working or skiing, depending on which you would have done rather than go to Hawaii. C) working, because you would be giving up a week's pay. D) None of the above if you enjoy the time spent in Hawaii. Answer: B Topic: Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking

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29) The opportunity cost of attending college includes the cost of A) the tuition but not the job at which you would otherwise have worked. B) the highest valued alternative to attending college. C) the highest valued alternative to attending college plus the cost of tuition. D) tuition, books, and the lost wages for the hours spent studying. Answer: C Topic: Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking 30) Today, Julie attended her Economics class. If she hadn't gone to class, Julie would have gone out to lunch with friends. She had other options; she could have worked or slept in. Julie's opportunity cost of going to class is the A) income she gave up. B) lunch she gave up. C) sleep she gave up. D) income, pleasure, and sleep she gave up. Answer: B Topic: Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking 31) Joe likes to sleep late in the mornings and play tennis in the afternoons. The opportunity cost of Joe attending his morning class for one hour is A) an hour of tennis given up. B) an hour of sleep given up. C) both the tennis given up and the sleep given up. D) nothing because he is paying for his class. Answer: B Topic: Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking 32) By choosing to come to class, you know you are giving up the ability to watch television. In doing so, you are applying the concept of A) opportunity cost. B) the fallacy of composition. C) the post hoc fallacy. D) involuntary exchange. Answer: A Topic: Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking

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33) John has two hours of free time this evening. He ranked his alternatives, first go to a concert, second go to a movie, third study for an economics exam, and fourth answer his e-mail. What is the opportunity cost of attending the concert for John? A) attending a movie B) studying for an economics exam C) answering his e-mail D) attending a movie, studying for an economics exam, and answering his e-mail Answer: A Topic: Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking 34) You decide to take a vacation and the trip costs you $2, While you are on vacation, you do not report to work where you could have earned $ The opportunity cost of the vacation is A) $2, B) $ C) $2, D) $1, Answer: C Topic: Opportunity Cost Skill: Conceptual AACSB: Analytical Skills 35) The term "opportunity cost" points out that A) there may be such a thing as a free lunch. B) not all individuals will make the most of life's opportunities because some will fail to achieve their goals. C) executives do not always recognize opportunities for profit as quickly as they should. D) any decision regarding the use of a resource involves a costly choice. Answer: D Topic: Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking 36) During the next hour John can play basketball, watch television, or read a book. The opportunity cost of reading a book A) is how much the book cost when it was purchased. B) is the value of playing basketball if John prefers that to watching television. C) is the value of playing basketball and the value of watching television. D) equals how much John enjoys the book. Answer: B Topic: Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking

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37) Misty has the option of purchasing one of three products: Brand A, Brand B, or Brand C. Each costs ten dollars. If she decides that Brand A meets her needs best, then the opportunity cost of this decision is A) Brand B plus Brand C. B) twenty dollars. C) Brand A. D) Brand B or Brand C, depending on which is considered the highest-value alternative forgone. Answer: D Topic: Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking 38) Which of the following is NOT an example of an opportunity cost? A) By spending Thursday night studying for an economics exam, a student was unable to complete a homework assignment for calculus class. B) Because David used all of his vacation time to paint his house, he was unable to visit the Caribbean last year. C) Because Mary is now being paid a higher wage, she can afford to buy a new car even though she is moving into a bigger apartment. D) By choosing to attend college, Jean was not able to continue working as an electrician; as a result, she gave up more than $85, in earnings while she was in college. Answer: C Topic: Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking 39) From 8 to 11 p.m., Sam can either attend a basketball game, a hockey match or the symphony. Suppose that Sam decides to attend the hockey match and thinks to herself that if she did not go to the match she would go to the symphony. Then the opportunity cost of attending the hockey match is A) going to the symphony and the basketball game. B) going to the symphony. C) going to the basketball game. D) three hours of time. Answer: B Topic: Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking

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40) When the government chooses to use resources to build a dam, these sources are no longer available to build a highway. This choice illustrates the concept of A) a market mechanism. B) macroeconomics. C) opportunity cost. D) a fallacy of composition. Answer: C Topic: Opportunity Cost Skill: Analytical AACSB: Reflective Thinking 41) Suppose you plan to take summer courses. The cost of tuition and textbooks is $1,, housing will cost you $, and you'll spend $ on food. If you decide not to take courses in the summer, you'll live in your parents' house for free and spend only $ on food. Also, if you don't take courses in the summer, you'll work full time and could earn at least $5, You can still work part time while taking courses, but the most you can earn is $1, What is your opportunity cost of taking courses in the summer? A) $4, B) $1, C) $6, D) $5, Answer: D Topic: Opportunity Cost Skill: Analytical AACSB: Analytical Skills 42) After you graduate, you have decided to accept a position working at the Bureau of Labor Statistics for $45, a year. The two other offers you received were working for Wal-Mart for $38, and working for Ernst and Young consulting for $42, Of these two offers, you would have preferred the job at Ernst and Young. What is the opportunity cost of accepting the position at the Bureau of Labor Statistics? A) the $45, you are paid for working at the Bureau of Labor Statistics B) the $42, you would have been paid working for Ernst and Young C) the $38, you would have been paid working for Wal-Mart D) the $42, you would have been paid working for Ernst and Young and the $38, you would have been paid working for Wal-Mart Answer: B Topic: Opportunity Cost Skill: Analytical AACSB: Analytical Skills

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43) Bill Bonecrusher graduates from college with a choice of playing professional football at $2 million a year or coaching for $50, a year. He decides to play football, but eight years later, though he could continue to play football at $2 million a year, he quits football to make movies for $3 million a year. His opportunity cost of playing football at graduation was ________ and eight years later the opportunity cost of making movies was ________. A) $50,; $2 million B) $2 million; $2 million C) $2 million; $3 million D) $50,; $50, Answer: A Topic: Opportunity Cost Skill: Analytical AACSB: Analytical Skills 44) During the summer you have made the decision to attend summer school, which prevents you from working at your usual summer job in which you normally earn $6, for the summer. Your tuition cost is $3, and books and supplies cost $1, The opportunity cost of attending summer school is A) $10, B) $6, C) $4, D) $3, Answer: A Topic: Opportunity Cost Skill: Analytical AACSB: Analytical Skills 45) Jill, an economics student, has already spent 5 hours cleaning her room. In deciding whether or not to continue cleaning for another hour, she applies the economic principle(s) of A) scarcity. B) ceteris paribus. C) choosing at the margin. D) productivity. Answer: C Topic: Choices at the Margin Skill: Conceptual AACSB: Reflective Thinking

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46) Marginal benefit is the benefit A) that your activity provides to someone else. B) of an activity that exceeds its cost. C) that arises from the secondary effects of an activity. D) that arises from an increase in an activity. Answer: D Topic: Marginal Benefit and Marginal Cost Skill: Recognition AACSB: Reflective Thinking 47) The benefit that arises from an increase in an activity is called A) the marginal benefit. B) the marginal cost. C) opportunity cost. D) an incentive. Answer: A Topic: Marginal Benefit Skill: Recognition AACSB: Reflective Thinking 48) A benefit from an increase in activity is called A) a marginal benefit. B) an economic benefit. C) a total benefit. D) an opportunity gain. Answer: A Topic: Marginal Benefit Skill: Recognition AACSB: Reflective Thinking 49) The marginal benefit is the A) additional gain from one more unit of an activity. B) additional cost from one more unit of an activity. C) loss of the highest-valued alternative. D) forgone opportunity. Answer: A Topic: Marginal Benefit Skill: Recognition AACSB: Reflective Thinking

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50) The additional benefit of increasing some activity is called the A) marginal benefit. B) marginal opportunity cost. C) marginal opportunity benefit. D) scarcity benefit. Answer: A Topic: Marginal Benefit Skill: Recognition AACSB: Reflective Thinking 51) In terms of dollars, the marginal benefit of working five days a week instead of four days a week is A) the wages received for the fifth day of work. B) the wages received for 5 days of work. C) the wages received for 4 days of work. D) None of the above answers is correct. Answer: A Topic: Marginal Benefit Skill: Recognition AACSB: Reflective Thinking 52) Your employer has asked you to start working overtime and has offered to pay $18 per hour for every hour you work beyond forty hours a week. The wage rate for each of the first forty hours will continue to be the usual $15 per hour. In terms of dollars, what is the marginal benefit of working each hour of overtime? A) zero B) $ C) $ D) $ Answer: D Topic: Marginal Benefit Skill: Analytical AACSB: Reflective Thinking 53) A student is studying for an exam 2 hours a day and is debating whether to study an extra hour. The student's marginal benefit A) depends on the grade the student earns on the exam. B) is the benefit the student receives from studying all 3 hours. C) is the benefit the student receives from studying the extra hour. D) is greater than the student's marginal cost. Answer: C Topic: Marginal Benefit Skill: Analytical AACSB: Reflective Thinking

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54) A student athlete is deciding whether to work out for an extra hour. Her marginal benefit from another hour of exercise A) is the benefit she gets from all the hours she's worked out all week. B) is the benefit she receives from exercising the additional hour. C) is less than the marginal cost of the additional hour. D) depends on the cost of the workout. Answer: B Topic: Marginal Benefit Skill: Analytical AACSB: Reflective Thinking 55) Suppose that you are spending two hours a day studying economics, and your grade is 85 percent. You want a higher grade and decide to study for an extra hour a day. As a result, your grade rises to 90 percent. Your marginal benefit is the A) higher grade that you get. B) extra hour per day you spend on studying. C) 5 point increase in your grade. D) three hours per day you spend on studying. Answer: C Topic: Marginal Benefit Skill: Conceptual AACSB: Reflective Thinking 56) Marginal cost is the cost A) that your activity imposes on someone else. B) that arises from an increase in an activity. C) of an activity that exceeds its benefit. D) that arises from the secondary effects of an activity. Answer: B Topic: Marginal Cost Skill: Recognition AACSB: Reflective Thinking 57) A cost due to an increase in activity is called A) an incentive loss. B) a marginal cost. C) a negative marginal benefit. D) the total cost. Answer: B Topic: Marginal Cost Skill: Recognition AACSB: Reflective Thinking

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58) The cost of an increase in an activity is called A) the marginal benefit. B) the marginal cost. C) opportunity cost. D) an incentive. Answer: B Topic: Marginal Cost Skill: Recognition AACSB: Reflective Thinking 59) Marginal cost is the A) cost of a small increase in an activity. B) total cost of an activity. C) cost of an activity minus the benefits of the activity. D) cost of all forgone alternatives. Answer: A Topic: Marginal Cost Skill: Recognition AACSB: Reflective Thinking 60) Laura is a manager for HP. When Laura must decide whether to produce a few additional printers, she is choosing at the margin when she compares A) the total revenue from sales of printers to the total cost of producing all the printers. B) the extra revenue from selling a few additional printers to the extra costs of producing the printers. C) the extra revenue from selling a few additional printers to the average cost of producing the additional printers. D) HP's printers to printers from competing companies, such as Lexmark. Answer: B Topic: Marginal Analysis Skill: Conceptual AACSB: Reflective Thinking

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61) Managers at Dell are deciding whether to increase their production of Inspiron laptops by 4, per month. With the increased production, the company's revenue will increase by $10 million a month, its cost will increase by $9 million a month, and its total monthly profit will be $30 million. Dell's managers A) should approve producing 4, more laptops because this will result in a substantial total profit. B) should approve producing 4, more laptops because the marginal benefit of this action exceeds the marginal cost. C) should not approve producing 4, more laptops because it will cost the company too much. D) cannot make a rational decision unless they know what the company's total profit is before the increase in production. Answer: B Topic: Marginal Analysis Skill: Analytical AACSB: Analytical Skills 62) A lawn service is deciding whether to add an additional employee to its summer crew. The marginal cost of hiring this worker depends on the A) total amount paid to the new worker. B) total amount paid to all previously hired workers. C) the total amount paid to all the workers, both the new one and the previously hired workers. D) the additional revenue created by having an additional worker. Answer: A Topic: Marginal Cost Skill: Analytical AACSB: Analytical Skills 63) Suppose the cost of 5 pencils is $ The cost of 6 pencils is $ The marginal cost of the sixth pencil is A) $ B) $ C) $ D) $ Answer: A Topic: Marginal Cost Skill: Analytical AACSB: Analytical Skills

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64) If the marginal cost of an activity exceeds the marginal benefit, then A) the activity will occur because of the high marginal cost. B) the forgone alternatives' costs must be increased. C) an alternative action will be selected. D) the person must concentrate on the activity's total benefits. Answer: C Topic: Marginal Benefit and Marginal Cost Skill: Conceptual AACSB: Analytical Skills 65) To decide whether to go to the beach for spring break, you should A) compare marginal cost to the marginal benefit of taking the trip. B) not make the fallacy of composition. C) not make the post hoc fallacy. D) unscramble cause and effect. Answer: A Topic: Marginal Benefit and Marginal Cost Skill: Conceptual AACSB: Reflective Thinking 66) A store remains open from 8 a.m. to 4 p.m. each weekday. The store owner is deciding whether to stay open an extra hour each evening. The owner's marginal benefit A) is the benefit the owner receives from staying open from 8 a.m. to 5 pm. B) depends on the revenues the owner makes during the day. C) must be greater than or equal to the owner's marginal cost if the owner decides to stay open. D) is the benefit the owner receives from staying open from 8 a.m. to 6 pm. Answer: C Topic: Marginal Benefit and Marginal Cost Skill: Analytical AACSB: Reflective Thinking 67) If the marginal cost of an activity falls or the marginal benefit rises, then you would A) undertake less of the activity. B) undertake more of the activity. C) not change your participation. D) cease participation in the activity. Answer: B Topic: Incentives, Marginal Cost and Marginal Benefit Skill: Conceptual AACSB: Reflective Thinking

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68) Which of the following creates an incentive to increase the amount of an activity? A) an increase in the marginal cost of the activity and a decrease in the marginal benefit of the activity B) a decrease in the marginal cost of the activity and an increase in the marginal benefit of the activity C) constant marginal cost and constant marginal benefit of the activity D) None of the above create an incentive to increase the amount of an activity. Answer: B Topic: Incentives, Marginal Cost and Marginal Benefit Skill: Conceptual AACSB: Reflective Thinking 69) Suppose that the government of New York state promises to decrease taxes to a firm if it decides to stay in New York instead of moving to another state. This policy on the part of the state constitutes ________, to make the ________ of the firm remaining in New York. A) an incentive; marginal benefit exceed the marginal cost B) an incentive; marginal cost exceed the marginal benefit C) a command; marginal benefit exceed the marginal cost D) a command; marginal cost exceed the marginal benefit Answer: A Topic: Incentives, Marginal Cost and Marginal Benefit Skill: Conceptual AACSB: Reflective Thinking 70) Jed had an exam score of 50 percentage points. There is an extra credit assignment that Jed can complete that will raise his exam score by 20 percentage points. Jed has determined that the extra credit assignment will take 10 hours of his time. Jed will complete the assignment he values the A) 20 percentage points more than the 10 hours of his time. B) 10 hours of his time more than the 20 percentage points. C) 70 percentage points more than the 10 hours of his time. D) wants a higher score. Answer: A Topic: Incentives, Marginal Cost and Marginal Benefit Skill: Analytical AACSB: Analytical Skills

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71) The fact that KFC decides to produce chicken rather than meat loaf best reflects ________ tradeoff. A) a what B) a how C) a for whom D) an incentive Answer: A Topic: Study Guide Question, "What" Tradeoff Skill: Conceptual AACSB: Reflective Thinking 72) From 8 P.M. to 10 P.M.., Susan can attend a movie, study, or talk with friends. Suppose that Susan decides to go to the movie but thinks that, if she hadn't, she would otherwise have talked with friends. The opportunity cost of attending the movie is A) talking with friends and studying. B) studying. C) talking with friends. D) two hours of time. Answer: C Topic: Study Guide Question, Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking 73) When the government hires people to serve in the army, these people are no longer available to do other work. This choice illustrates the concept of A) an incentive. B) a social interest/private interest conflict. C) opportunity cost. D) marginal benefit. Answer: C Topic: Study Guide Question, Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking 74) When the government chooses to spend the tax dollars that it collects on homeland security, its choice ________. A) involves a tradeoff of other goods and services such as education for more homeland security B) illustrates that scarcity does not always exist C) involves no tradeoff because the defense is necessary D) primarily affects who gets the goods and services produced. Answer: A Topic: MyEconLab Questions Skill: Conceptual AACSB: Reflective Thinking

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75) Making a choice at the margin means ________. A) letting someone else choose for you B) waiting until the last minute to make a choice C) deciding to do a little bit more or a little bit less of an activity D) making a choice by comparing the total benefit and the total cost Answer: C Topic: MyEconLab Questions Skill: Recognition AACSB: Reflective Thinking 76) Suppose that for the past two months, you have studied economics one hour a day. You now decide to study economics two hours a day. For the past two months, ________. A) your marginal cost of studying economics for an hour must have exceeded its marginal benefit B) the marginal cost of studying economics must have fallen C) your marginal benefit from studying economics an hour must have been greater than its marginal cost D) the opportunity cost of studying economics must have risen. Answer: C Topic: MyEconLab Questions Skill: Recognition AACSB: Reflective Thinking 4 Economics as a Social Science and Policy Tool 1) In economics, positive statements are about A) the way things ought to be. B) the way things are. C) macroeconomics, not microeconomics. D) microeconomics, not macroeconomics. Answer: B Topic: Positive and Normative Skill: Recognition AACSB: Reflective Thinking 2) A positive statement is A) about what ought to be. B) about what is. C) the result of a model's normative assumptions. D) valid only in the context of a model with simple assumptions. Answer: B Topic: Positive and Normative Skill: Recognition AACSB: Reflective Thinking

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3) A positive statement is A) about what ought to be. B) about what is. C) always true. D) one that does not use marginal concepts. Answer: B Topic: Positive and Normative Skill: Recognition AACSB: Reflective Thinking 4) A positive statement A) is an affirming statement that is strongly worded. B) is a statement of what ought to be. C) is a statement of what is. D) cannot be tested by checking it against the facts. Answer: C Topic: Positive and Normative Skill: Recognition AACSB: Reflective Thinking 5) Which of the following are true regarding "positive" statements? I. They describe what "ought to be." II. They describe what is believed about how the world appears. III. They can be tested as to their truthfulness. A) I and II. B) II and III. C) I and III. D) I, II and III. Answer: B Topic: Positive and Normative Skill: Recognition AACSB: Reflective Thinking 6) Positive and normative statements differ in that A) positive statements can be tested, whereas normative statements cannot. B) normative statements can be tested, whereas positive statements cannot. C) normative statements depict "what is" and positive statements depict "what ought to be." D) normative statements never use the word "should." Answer: A Topic: Positive and Normative Skill: Recognition AACSB: Reflective Thinking

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