Macroeconomics – Testbank 2, (Hubbard/O’Brien) Chapter 1 Economics: Foundations and Models 1) The fundamental question in economics is how to A) eliminate poverty. B) make the best use of scarce resources to satisfy our unlimited wants. C) how to reduce the consumption of oil in wealthy nations. D) find more resources to satisfy everyone's wants. Answer : B Diff: 1 Type: MC Topic: Scarcity Skill: Definition 2) The problem of determining what goods and services society should produce A) exists because with technological advancements we can produce far more than we need. B) exists because there are insufficient resources to provide all the goods and services that people want to purchase. C) 1
Transcript
Macroeconomics – Testbank 2, (Hubbard/O’Brien)Chapter 1 Economics: Foundations and Models
1)
The fundamental question in economics is how to A)
eliminate poverty. B)
make the best use of scarce resources to satisfy our unlimited wants. C)
how to reduce the consumption of oil in wealthy nations. D)
find more resources to satisfy everyone's wants. Answer:
B Diff: 1
Type: MC Topic: Scarcity Skill: Definition
2)
The problem of determining what goods and services society should produce A)
exists because with technological advancements we can produce far more than we need. B)
exists because there are insufficient resources to provide all the goods and services that people want to purchase.
C)
would not exist if government owned all of the resources. D)
exist because people in wealthy nations have too much money Answer:
B
1
Diff: 1
Type: MC Topic: Scarcity Skill: Definition
3)
To say that a good is scarce means A)
that at the current market price of that good, the quantity demanded exceeds the quantity supplied.
B)
the price of the good is too high. C)
that the amount that people want exceeds the limited resources available to fulfill those wants.
D)
the good is unavailable. Answer:
C Diff: 1
Type: MC Topic: Scarcity Skill: Definition
4)
Economic reasoning is based on the premise that any activity involves a trade-off. What does 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.
2
Answer:
C Diff: 1
Type: MC Topic: Trade-off Skill: Definition
3
5)
Which of the following is not a factor of production? A)
a buyer for Nordstrom’s B)
a cash register machine at Home Depot C)
$1,000 in your savings account D)
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, bonds, and money market mutual funds. C)
deposits of crude oil in the ground. D)
all of the above Answer:
A Diff: 2
Type: MC Topic: Factors of Production, Capital Skill: Definition
4
7)
An example of a factor of production is A)
a loan taken out by Sara to open her hairdressing salon. B)
a haircut service rendered by Sara to a customer. C)
the professional hair dryers Sara purchased for her new salon. D)
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)
entrepreneurship Answer:
C Diff: 1
Type: MC Topic: Factors of Production Skill: Definition
5
9)
Factors of production, such as labor, capital, natural resources and entrepreneurial ability are traded in
A)
product markets. B)
output markets. C)
factor markets. D)
competitive markets. Answer:
C Diff: 1
Type: MC Topic: Factors of Production Skill: Definition
10)
Which of the following is the best example of an activity that would be undertaken by an 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
6
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 minimize total cost regardless of the benefit of an activity D)
seeking to maximize total benefits regardless of the cost of an activity Answer:
A Diff: 1
Type: MC Topic: Rationality
7
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 consider only the benefits when making a decision. D)
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
8
14)
Which of the following statements relates to microeconomics? A)
Unemployment rises during a recession and falls during an expansion. B)
Excessive growth in money supply may create inflation. C)
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)
Macroeconomics 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
9
16)
Which of the following topics is a macroeconomics question? A)
your decision about how many hours to work per week B)
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 how much income to save B)
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
10
18)
An answer to the question "How are goods produced?" determines A)
who receives the goods that are produced. B)
how tastes and preferences are determined. C)
how resources are combined in the production of goods. D)
the types and quantities of goods and services produced. Answer:
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 the price of a product produced by a natural monopoly B)
prohibiting smoking in public places C)
instituting laws against driving while intoxicated D)
providing the poor with vouchers that can be used to buy food Answer:
D Diff: 2
Type: MC Topic: Equity Skill: Conceptual
11
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. Both efficiency and equity are about getting maximum output from scarce resources.
C)
Efficiency is about fairness in distribution of resources and goods and services and equity is about maximizing value from scarce resources.
D)
Efficiency is about getting the most value from scarce resources and equity is about fairness in 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 scholarships to students based solely on merit B)
imposing a maximum price that apartment owners can charge tenants in an attempt to provide affordable housing
C)
regulating pharmaceutical drugs prices D)
instituting laws governing salmon fishing in Alaska in order to prevent overfishing Answer:
B
12
Diff: 2
Type: MC Topic: Equity Skill: Conceptual
22)
Which of the following is motivated by an efficiency concern? A)
The Pennsylvania State Government subsidizes low income households for utilities consumption.
B)
The Department of Justice files an antitrust suit against Samsung for price fixing in the computer chip market.
C)
The U.S. government reinstates a quota on clothing items from China to protect the domestic garment industry.
D)
All of the above are motivated by an efficiency concern. Answer:
B Diff: 2
Type: MC Topic: Efficiency and Equity Skill: Conceptual
13
23)
What is the efficiency criterion that describes a situation where goods and services are produced at the lowest possible cost?
A)
allocative efficiency B)
productive efficiency C)
normative efficiency D)
positive efficiency Answer:
B Diff: 1
Type: MC Topic: Productive Efficiency Skill: Definition
24)
What is the efficiency criterion that describes a situation where the marginal benefit of the last unit consumed is equal to the marginal cost of producing that last unit?
A)
allocative efficiency B)
productive efficiency C)
distributive efficiency D)
positive efficiency Answer:
A Diff: 1
Type: MC Topic: Allocative Efficiency
14
Skill: Definition
25)
The table below shows the marginal benefit to Illana of weekend vacations during the year at a local resort. If the marginal cost of a weekend vacation is constant and equal to $500, how many weekends at the local resort is she likely to enjoy? Number of
Weekend Vacations
Marginal Benefit ($)
1 6002 5503 4754 3255 250
A)
2 B)
3 C)
4 D)
5 Answer:
A Diff: 2
Type: MC Topic: Marginal Analysis Skill: Conceptual
15
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 currently subscribe to Time magazine and are trying to decide whether you should subscribe to the National Geographic as well. What variables should influence your decision, 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 the second magazine, including the time it takes to read it C)
the enjoyment I would get out of the second magazine D)
the additional cost of the second magazine compared to the additional enjoyment I would get from it
Answer:
D 16
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 between the incremental benefit received and the incremental cost incurred in consuming that unit.
C)
the additional benefit one gains from consuming that good. D)
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 choice, most people would prefer to exercise control over the things that affect their lives.
B)
they weigh the additional costs and additional benefits of an item before purchasing that item.
C)
most people live from paycheck to paycheck on the very edge of making ends meet. D)
they consider the total cost and benefit of various activities before they make a purchase. Answer
17
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 additional cost one incurs from consuming that unit. C)
the difference between the incremental benefit and the incremental cost of consuming that unit.
D)
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 benefits and the total cost of the activity. B)
the incremental benefits and the incremental costs of that activity. C)
the total benefits only of that activity and decide if it is worthwhile. D)
the total costs only of that activity and decide if it is worthwhile. Answer:
18
B Diff: 1
Type: MC Topic: Marginal Analysis Skill: Conceptual
32)
The difference between a positive economic analysis and a normative economic analysis is A)
positive analysis deals with issues that improve the welfare of individuals while normative analysis deals with issues that are subjective to interpretation.
B)
positive analysis reaches conclusions based on verifiable statements while normative analysis reaches conclusions based on opinions.
C)
positive analysis cannot be tested while normative analysis can be tested. D)
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.
19
B Diff: 1
Type: MC Topic: Normative Analysis Skill: Conceptual
20
34)
An example of a positive statement is: A)
A minimum wage law is highly beneficial to unskilled workers. B)
The rate of unemployment in Las Vegas is lower than the national average. C)
The U.S. trade deficit is out of control. D)
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 unemployment is 4 percent. B)
A high rate of economic growth is a must for any country. C)
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
21
36)
Which of the following best describes the characteristics of models used in economics? A)
Models are approximations to reality that capture as many details as possible. B)
Models are simplifications of reality that include only essential elements and exclude less relevant details.
C)
Models are usually complex descriptions of reality that simulate practical problems. D)
Models are physical prototypes of the real world that economists use to conduct experiments.
Answer:
B Diff: 1
Type: MC Topic: Economic Models Skill: Definition
37)
An economic theory is tested by A)
assessing how realistic its assumptions are. B)
assessing how simple its equations are. C)
comparing its complexity with the real world. D)
comparing its predictions with real-world data. Answer:
D Diff: 1
Type: MC Topic: Economic Models
22
Skill: Conceptual
23
38)
All economic models must be simplified versions of reality because A)
human behavior is very unpredictable. B)
reality is too complex to comprehend in its entirety, so we must reduce it to a level that we can understand.
C)
economics has not made the leaps in knowledge unlike the hard sciences such as physics and chemistry, whose models depict reality very accurately.
D)
all economic models need to be expressed in graphs. Answer:
B Diff: 2
Type: MC Topic: Economic Models Skill: Conceptual
39)
The process of developing models, testing hypotheses and revising models is often referred to as
A)
the scientific method of analysis. B)
the positive method of analysis. C)
the normative method of analysis. D)
the ceteris paribus method of analysis. Answer:
A Diff: 1
Type: MC
24
Topic: Economic Models Skill: Definition
40)
A hypothesis proposed in an economic model A)
can never be tested. B)
will ultimately be converted to a law in economics. C)
could turn out to be incorrect. D)
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 accept and use an economic model if it leads to hypotheses that are confirmed by statistical analyses.
B)
Economic models must mirror reality or they are of no use C)
The fewer the assumptions the more reliable the economic model. D)
All of the above statements are true. Answer:
A Diff: 1
25
Type: MC Topic: Economic Models Skill: Conceptual
26
42)
Suppose 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 and Miguel both attend the same college and incur the same expenses for tuition, books, and school supplies. Krista gave up a lucrative job as a personal assistant to a
famous designer in New York to attend school full-time and Miguel gave up his job as a store clerk in Home Depot. It follows that
A)
the opportunity cost of attending college is the same for both since they are enrolled at the same academic institution.
B)
the opportunity cost is minimal for both since it is well known that people with college degrees earn much higher salaries than those without.
C)
the opportunity cost of attending college is likely greater for Miguel than for Krista. D)
the opportunity cost of attending college is likely greater for Krista than for Miguel. Answer
27
D Diff: 2
Type: MC Topic: Opportunity Cost Skill: Conceptual
44)
Yvonne owns a condominium in Las Vegas which she can rent out for $48,000 peryear. Recently, she received an offer from Citibank to lease her property for $60,000 a
year. Based on these two alternative uses for her property, what is the opportunity cost of herproperty?
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 individuals to produce goods and services and decide how to produce them. C)
privately owned firms to produce goods and services and decide how to produce them. D)
28
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 building where trade takes place. B)
an institutional arrangement that brings together buyers and sellers. C)
a place where people congregate to discuss economic policies. D)
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 government. B)
the military. C)
the wealthy. D)
29
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 necessary to make sacrifices in a market economy. B)
The market system is based on preserving past methods of production. C)
A market economy provides little opportunity for technological advance. D)
A market economy responds to consumers' preferences as indicated by the prices they are willing to pay for goods and services.
Answer:
D Diff: 1
Type: MC Topic: Market Economy Skill: Definition
49)
What is the term that describes the act of both the buyer and seller freely and willingly engaging in market transactions such that at the end of the transaction both have benefited?
A)
voluntary exchange B)
equilibrium C)
fair trade
30
D)
productive efficiency Answer:
A Diff: 1
Type: MC Topic: Voluntary Exchange Skill: Definition
31
50)
For a market system to work well, it must be based on A)
voluntary exchange. B)
coercion. C)
command and control mechanisms. D)
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 distributed to those who need the goods and services most. B)
They are distributed by the government in an equitable way. C)
They are distributed to those who have the ability to buy the goods and services. D)
They are distributed according to the size of the family: larger families get more good and services.
Answer:
C Diff: 1
Type: MC Topic: Fundamental Economic Questions Skill: Conceptual
32
52)
An economy in which the government decides how economic resources will be allocated is called a
A)
centrally planned economy. B)
capitalist economy. C)
libertarian economy. D)
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 saved; what will be produced; and how can these goods and services be fairly distributed?
B)
Who gets jobs; what wages do workers earn; and who owns what property? C)
What will be produced; how will these goods and services be produced; and who receives them?
D)
What will be the prices of goods and services; how will these goods and services be produced; and who will receive them?
Answer:
C
33
Diff: 1
Type: MC Topic: Fundamental Economic Questions Skill: Conceptual
34
54)
When Pakistan builds a dam in Chittagong using few machines and a great deal of labor, it is answering the ________ question.
A)
"what to produce" B)
"who to produce for" C)
"where to produce" D)
"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 produce" B)
"how to produce" C)
"who to produce for" D)
"why to produce" Answer:
A Diff: 2
Type: MC
35
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 decides to breed camels rather than horses because the government of Qatar offers free 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 his deck chairs online because the company offers customers a 20 percent discount if they order online.
D)
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 classes on "The Dangers of Drinking". B)
a $6.00 unit tax on alcoholic beverages C)
Scarlet Johansson announces that she will not play any part in which she will be portrayed drinking alcoholic beverages
D)
public service television advertisement featuring Orlando Bloom urging college students
36
to refrain from consuming alcoholic beverages Answer:
B Diff: 2
Type: MC Topic: Economic Incentives Skill: Conceptual
58)
In a market economy, what is the incentive that encourages firms to produce what consumers want?
A)
profit B)
the joy of giving consumers what they want C)
consumer sovereignty D)
the ability to produce Answer:
A Diff: 1
Type: MC Topic: Economic Incentives Skill: Conceptual
59)
Which of the following is an example of human capital? A)
sound proof cubicles provided by your company to enhance productivity B)
understanding how to use your company’s new software C)
free parking privileges offered by your employer D)
37
All of the above are correct. Answer:
B Diff: 1
Type: MC Topic: Human Capital Skill: Conceptual
60)
Human capital is a factor of production. Which of the following is considered human capital?
A)
libraries B)
machinery and equipment used to produce goods and services C)
knowledge and skills acquired from on-the-job training D)
inventions Answer:
C Diff: 1
Type: MC Topic: Human Capital Skill: Definition
61)
Technology refers to A)
the knowledge and skills that workers acquire through education, training, and experience. B)
the stock of equipment and machinery used to produce goods and services. C)
the process used to produce goods and services. D)
38
All of the above are correct. Answer:
C Diff: 1
Type: MC Topic: Technology Skill: Definition
39
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 inventions result in marketable new goods. D)
All of the above are true. Answer:
A Diff: 1
Type: MC Topic: Inventions Skill: Definition
40
64)
The statement that there is a positive relationship between X and Y means that A)
X and Y move in the same direction. B)
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 of the following graphs or charts must add up to one hundred percent? A)
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
41
66)
You want to install carpet in your bedroom which measures 15 feet by 20 feet. The cost to install new carpet is $2.50 per square foot. How much will it cost you to carpet your bedroom?
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 that shows how the value of a particular variable has changed over a period of time is 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
42
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 expenditure on mittens. B)
$450; total price of mittens C)
75; total quantity of mittens D)
75; total demand for mittens Answer:
A Diff: 1
Type: MC Topic: Area of a rectangle Skill: Conceptual
43
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
44
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
45
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
46
47
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)
Economists often disagree over positive rather than normative economic issues. Answer:
True
False Diff: 1
Type: TF Topic: Normative and Positive Analysis Skill: Conceptual
74)
Markets guarantee efficient outcomes. Answer:
True
48
False Diff: 1
Type: TF Topic: Market Failure Skill: Conceptual
75)
Sometimes, government intervention can improve the efficiency of resoource allocation. Answer:
True
False Diff: 1
Type: TF Topic: Market Failure Skill: Conceptual
76)
The opportunity cost of an activity is the sum of the benefits of all alternatives foregone. Answer:
Which of the following decisions has the greater opportunity cost? (a) A decision to use an undeveloped lot in Shanghai's business district for an apartment building,or (b) a decision to use a lot of the same size in the desert for a gas station. Explain your answer.
Answer:
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
52
Topic: Opportunity Cost Skill: Analytical
53
86)
What type of relationship would you expect between the following, that is, a positive relationship, a negative relationship or no relationship?
a. price of winter coats and quantity demanded of winter coats
b. the price of computers and the production of computers
c. 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)
Determine if each of the following statements 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 following changes would influence the incentive 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.
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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 roommate, Cynthia Gibson, a sociology major announced, "Positive economics cannot tell us whether outsourcing is good or bad for the economy so it is really quite useless for 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 trafficking 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 are the three fundamental questions that an economic system must answer. How are these 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
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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
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93)
Clay of the Land is a manufacturer 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 economics there are two types of decisions: "either-or" (also known as "all or nothing") decisions and "how much" decisions. In each of the following statements, identify whether the event involves an "either-or" or a "how much" decision. a. The state government is considering whether to build a public library or a new elementary school. b. Executives at Apple Computer are debating whether or not to produce an additional 300,000 iPods this year. c. You have been accepted into the Peace Corp and will be posted to the Czech Republic. You must now decide whether to join the Peace Corp or to go school full time at Arizona State University. d. You have decided to cut back your working hours from 30 hours a week to 20 hours a week so that you can take an evening class at your local college.
Answer:
a. either-or; b. how much; c. either-or; d. how-much Diff: 1
Type: SA Topic: Economic Decisions Skill: Conceptual
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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 the figure above, which depicts a typical dome-shaped curve frequently used in microeconomics. The diagram shows the relationship between total revenue and output.a. To calculate the slope at points A, B and C, we draw tangents to these points. Describe the slope at these points, that is, is the slope positive, negative or zero at A, B and C?b. What is the meaning of a positive slope? Explain in terms of output and total revenue.c. What is the meaning of a negative slope? Explain in terms of output and total revenue.d. What is the slope of the function when the revenue is maximized?
Answer:
a. A: positive slope; B:slope = 0; C: negative slopeb. 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
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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 runs a business producing hand-made sweaters. In 2003, her sales revenue amounted to $56,000. In 2004, her revenues rose to $84,000. What is the percentage increase in her 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 relationship 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 performanceb. cigarette consumption and lung cancerc. household income and consumption
Answer:
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Diff: 2
Type: SA Topic: Positive and negative relationships Skill: Conceptual
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101)
The Republic of Scaros is made up of five prefectures. 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.
