Hubbard 4e Practice Quizzes

Chapter1Economics:FoundationsandModels

1.1 ThreeKeyEconomicIdeas

1) RecentchangesoccurringwithintheU.S.healthcaresystem,includinglowerinsurancereimbursementrates,haveresultedin

A) agrowingnumberofdoctorschoosingtoopenprivatepractices.B) moremedicalpracticesbeingownedbyhospitalsthanbyindividualdoctors.C) amajorityofhospitalsclosingroutinemedicalpracticesinordertofocusonlyon

emergencycarefacilities.D) amajorityofdoctorsworkingdirectlyforinsurancecompanies.

Answer: BDiff:2 PageRef:3/3Topic: ScarcityLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

2) Ineconomics,choicesmustbemadebecauseweliveinaworldofA) unemployment. B) scarcity.C) greed. D) unlimitedresources.

Answer: BDiff:1 PageRef:4/4Topic: ScarcityLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

3) Whichofthefollowingstatementsistrue aboutscarcity?A) Scarcityreferstothesituationinwhichunlimitedwantsexceedlimitedresources.B) Scarcityisnotaproblemforthewealthy.C) Scarcityisonlyaproblemwhenacountryhastoolargeapopulation.D) Scarcityariseswhenthereisawidedisparityinincomedistribution.

Answer: ADiff:1 PageRef:4/4Topic: ScarcityLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

4) Thebasiceconomicproblemof________hasalwaysexistedandwillcontinuetoexist.A) scarcity B) efficiency C) inflation D) recession

Answer: ADiff:1 PageRef:4/4Topic: ScarcityLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

Copyright2013PearsonEducation,Inc.

2Hubbard/OBrienEconomics,FourthEdition

5) Bydefinition,economicsisthestudyofA) howtomakemoneyinthestockmarket.B) howtomakemoneyinamarketeconomy.C) thechoicespeoplemaketoattaintheirgoals,giventheirscarceresources.D) supplyanddemand.

Answer: CDiff:1 PageRef:4/4Topic: ScarcityLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking,Communication

6) Aneconomic________isasimplifiedversionofsomeaspectofeconomiclifeusedtoanalyzeaneconomicissue.

A) market B) trade-off C) variable D) modelAnswer: DDiff:1 PageRef:4/4Topic: EconomicModelsLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

7) Wheredoeconomicagentssuchasindividuals,firmsandnations,interactwitheachother?A) inpubliclocationsmonitoredbythegovernmentB) inanyarenathatbringstogetherbuyersandsellersC) inanyphysicallocationpeoplewherepeoplecanphysicallygettogetherforsellinggoods,

suchasshoppingmallsD) inanylocationwheretransactionscanbemonitoredbyconsumergroupsandtaxedbythe

governmentAnswer: BDiff:1 PageRef:4/4Topic: MarketsLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

8) Theterm________ineconomicsreferstoagroupofbuyersandsellersofaproductandthearrangementbywhichtheycometogethertotrade.

A) collective B) cooperative C) market D) trade-offAnswer: CDiff:1 PageRef:4/4Topic: MarketsLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking


Chapter1Economics:FoundationsandModels3

9) EconomistsassumethatindividualsA) behaveinunpredictableways.B) willnevertakeactionstohelpothers.C) prefertoliveinasocietythatvaluesfairnessaboveallelse.D) arerationalandrespondtoincentives.

Answer: DDiff:1 PageRef:5/5Topic: PeopleAreRationalLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

10) EconomistsassumethatrationalbehaviorisusefulinexplainingchoicespeoplemakeA) becauseirrationalpeopledonotmakeeconomicchoices.B) eventhoughpeoplemaynotbehaverationallyallthetime.C) becauseindividualsactrationallyallthetimeinallcircumstances.D) eventhoughpeoplerarely,ifever,behaveinarationalmanner.

Answer: BDiff:2 PageRef:5/5Topic: PeopleAreRationalLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

11) EconomistsassumethatrationalpeopledoallofthefollowingexceptA) useallavailableinformationastheyacttoachievetheirgoals.B) undertakeactivitiesthatbenefitothersandhurtthemselves.C) weighthebenefitsandcostsofallpossiblealternativeactions.D) respondtoeconomicincentives.

Answer: BDiff:2 PageRef:5/5Topic: PeopleAreRationalLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

12) Economicsdoesnotstudycorrectorincorrectbehaviorsbutratheritassumesthateconomicagentsbehave________,meaningtheymakethebestdecisionsgiventheirknowledgeofthecostsandbenefits.

A) equitably B) rationally C) emotionally D) selfishlyAnswer: BDiff:2 PageRef:5/5Topic: PeopleAreRationalLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking



13) Considerthefollowingstatements:a. Carownerspurchasemoregasolinefromagasstationthatsellsgasolineatalowerpricethanotherrivalgasstationsinthearea.b. Banksdonottakestepstoincreasesecuritysincetheybelieveitislesscostlytoallowsomebankrobberiesthantoinstallexpensivesecuritymonitoringequipment.c. FirmsproducemoreofaparticularDVDwhenitssellingpricerises.

Whichoftheabovestatementsdemonstratesthateconomicagentsrespondtoincentives?A) aonly.B) bonly.C) conly.D) aandb.E) a,b,andc.

Answer: EDiff:3 PageRef:5/5Topic: PeopleRespondtoEconomicIncentivesLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: AnalyticSkills

14) Supposethatsometeachershavedecidedthateconomicandfinancialuncertaintyhavemadetheprospectofretiringmorerisky,andthereforecarryahighercostthannotretiring.Byusingallavailableinformationastheyacttoachievetheirgoals,theseteachersareexemplifyingtheeconomicideathat

A) peoplearerational.B) peoplerespondtoeconomicincentives.C) optimaldecisionsaremadeatthemargin.D) equityismoreimportantthanefficiency.

Answer: ADiff:2 PageRef:5/5Topic: PeopleAreRationalLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

15) SupposetheU.S.governmentencouragednewmedicalschoolgraduatestotakeoverexistingpracticesfromdoctorswishingtoretirebypayingboththenewandretiringdoctors$100,000.Thesedoctorswouldbeexemplifyingtheeconomicideathat

A) peoplearerational.B) peoplerespondtoeconomicincentives.C) optimaldecisionsaremadeatthemargin.D) equityismoreimportantthanefficiency.

Answer: BDiff:2 PageRef:5/5Topic: PeopleRespondtoEconomicIncentivesLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking



16) Holdingallotherpersonalcharacteristics-suchasage,gender,andincome-constant,economistswouldexpectthat

A) peoplewithhealthinsurancewillbelesslikelytobeoverweightthanpeoplewithouthealthinsurance.

B) peoplewithhealthinsurancewillbemorelikelytobeoverweightthanpeoplewithouthealthinsurance.

C) peoplewithhealthinsurancewillbeequallylikelytobeoverweightaspeoplewithouthealthinsurance.

D) thereisnocorrelationbetweenhavinghealthinsuranceandbeingoverweight.Answer: BDiff:2 PageRef:5-7/5-7Topic: PeopleRespondtoEconomicIncentivesLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

17) Since1994,obesityratesintheUnitedStatesA) havebeenonaslowandsteadydecline.B) haveincreasedinall50states.C) haveprimarilyincreasedintheSoutheastandremainedconstantorslightlydecreasedin

theremainderofthecountry.D) haveremainedfairlyconstantthroughoutthecountry.

Answer: BDiff:1 PageRef:5-7/5-7Topic: PeopleRespondtoEconomicIncentivesLearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist

18) Ineconomics,theterm________meansadditionalorextra.A) allocative B) marginal C) equity D) optimal

Answer: BDiff:1 PageRef:7/7Topic: OptimalDecisionsAreMadeattheMarginLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

19) Agrocerystoresellsabagofpotatoesatafixedpriceof$2.30.Whichofthefollowingisatermusedbyeconomiststodescribethemoneyreceivedfromthesaleofanadditionalbagofpotatoes?

A) marginalrevenueB) grossearningsC) pureprofitD) marginalcostsE) netbenefit

Answer: ADiff:1 PageRef:7/7Topic: OptimalDecisionsAreMadeattheMarginLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking



20) EconomistsreasonthattheoptimaldecisionistocontinueanyactivityuptothepointwheretheA) marginalbenefitiszero.B) marginalbenefitisgreaterthanthemarginalcost.C) marginalcostiszero.D) marginalbenefitequalsthemarginalcost.

Answer: DDiff:2 PageRef:7/7Topic: OptimalDecisionsAreMadeattheMarginLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

21) MarginalanalysisinvolvesundertakinganactivityA) untilitsmarginalcostsstartdeclining.B) onlywhenitsmarginalbenefitsarepositive.C) untilitsmarginalbenefitsequalmarginalcosts.D) onlyifitsmarginalcostsaregreaterthanitsmarginalbenefits.

Answer: CDiff:1 PageRef:7/7Topic: OptimalDecisionsAreMadeattheMarginLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

22) Therevenuereceivedfromthesaleof________ofaproductisamarginalbenefittothefirm.A) anadditionalunit B) thetotalnumberofunitsC) nounits D) onlyprofitableunits


23) MakingoptimaldecisionsatthemarginrequiresA) makingdecisionsaccordingtooneswhimsandfancies.B) makingconsistentlyirrationaldecisions.C) weighingthecostsandbenefitsofadecisionbeforedecidingifitshouldbepursued.D) makingborderlinedecisions.

Answer: CDiff:1 PageRef:7/7Topic: OptimalDecisionsAreMadeattheMarginLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking



24) MakinghowmuchdecisionsinvolveA) calculatingthetotalbenefitsoftheactivityanddeterminingifyouaresatisfiedwiththat

amount.B) calculatingthetotalcostsoftheactivityanddeterminingifyoucanaffordtoincurthat

expenditure.C) calculatingtheaveragebenefitandtheaveragecostofanactivitytodetermineifitis

worthwhileundertakingthatactivity.D) determiningtheadditionalbenefitsandtheadditionalcostsofthatactivity.

Answer: DDiff:2 PageRef:7/7Topic: OptimalDecisionsAreMadeattheMarginLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

25) TheextracostassociatedwithundertakinganactivityiscalledA) netloss. B) marginalcost.C) opportunitycost. D) foregonecost.


26) DeShawnsDetailingisaservicethatdetailscarsatthecustomershomesorplacesofwork.DeShawnscostforabasicdetailingpackageis$40,andhecharges$75forthisservice.Foratotalpriceof$90,DeShawnwillalsodetailthecarsengine,aservicethataddsanadditional$20tothetotalcostofthepackage.WhatisDeShawnsmarginalbenefitifhesellsabasicdetailingpackage?

A) $35B) $75C) Hemakesamarginallossof$15,notamarginalbenefit.D) Themarginalbenefitcannotbedetermined.

Answer: BDiff:2 PageRef:7/7Topic: OptimalDecisionsAreMadeattheMarginLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: AnalyticSkills

27) DeShawnsDetailingisaservicethatdetailscarsatthecustomershomesorplacesofwork.DeShawnscostforabasicdetailingpackageis$40,andhecharges$75forthisservice.Foratotalpriceof$90,DeShawnwillalsodetailthecarsengine,aservicethataddsanadditional$20tothetotalcostofthepackage.Whatisthemarginalcostofaddingtheenginedetailingtothebasicdetailingpackage?

A) $20 B) $30C) $60 D) $60plusthevalueofhistime

Answer: ADiff:2 PageRef:7/7Topic: OptimalDecisionsAreMadeattheMarginLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: AnalyticSkills



28) DeShawnsDetailingisaservicethatdetailscarsatthecustomershomesorplacesofwork.DeShawnscostforabasicdetailingpackageis$40,andhecharges$75forthisservice.Foratotalpriceof$90,DeShawnwillalsodetailthecarsengine,aservicethataddsanadditional$20tothetotalcostofthepackage.ShouldDeShawncontinuetooffertheenginedetailingservice?

A) yes,hestillmakesaprofitbysellingtheenginedetailingservicewiththebasicdetailingpackage

B) yes,butonlyifheraisesthepriceofthebasicdetailingpackageC) no,hismarginalbenefitislessthanhismarginalcostD) MoreinformationisneededforDeShawntomakethisdecision.

Answer: CDiff:3 PageRef:7/7Topic: OptimalDecisionsAreMadeattheMarginLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: AnalyticSkills

Scenario1-1

Supposeacellphonemanufacturercurrentlysells20,000cellphonesperweekandmakesaprofitof$5,000perweek.Amanagerattheplantobserves,Althoughthelast3,000cellphonesweproducedandsoldincreasedourrevenueby$6,000andourcostsby$6,700,wearestillmakinganoverallprofitof$5,000perweeksoIthinkwereontherighttrack.Weareproducingtheoptimalnumberofcellphones.

29) RefertoScenario1-1.Usingmarginalanalysisterminology,whatisanothereconomictermfortheincrementalrevenuereceivedfromthesaleofthelast3,000cellphones?

A) grossearnings B) marginalrevenueC) salesrevenue D) grossprofit


30) RefertoScenario1-1.Usingmarginalanalysisterminology,whatisanothereconomictermfortheincrementalcostofproducingthelast3,000cellphones?

A) marginalcost B) operatingcostC) explicitcost D) Anyoftheabovetermsarecorrect.


31) RefertoScenario1-1.Hadthefirmnotproducedandsoldthelast3,000cellphones,woulditsprofitbehigherorlower,andifsobyhowmuch?

A) Itsprofitwillbe$6,700higher. B) Itsprofitwillbe$700higher.C) Itsprofitwillbe$700lower. D) Itsprofitwillbe$6,000lower.




Table1-1

HoursOpen

TotalRevenue(dollars)

1 $502 753 954 1105 1206 125

LydiarunsasmallnailsaloninthetownofNewHope.Sheisdebatingwhethersheshouldextendherhoursofoperation.Lydiafiguresthathersalesrevenuewilldependonthenumberofhoursthenailsalonisopenasshowninthetableabove.Shewouldhavetohireaworkerforthosehoursatawagerateof$10perhour.

32) RefertoTable1-1.Usingmarginalanalysis,determinehowmanyhoursshouldLydiaextendhernailsalonshoursofoperations?

A) 2hours B) 3hours C) 4hours D) 5hours E) 6hoursAnswer: DDiff:3 PageRef:7/7Topic: OptimalDecisionsAreMadeattheMarginLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: AnalyticSkills

33) RefertoTable1-1.WhatisLydiasmarginalbenefitifshedecidestostayopenfortwohoursinsteadofonehour?

A) $25 B) $50 C) $75 D) $125Answer: ADiff:2 PageRef:7/7Topic: OptimalDecisionsAreMadeattheMarginLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: AnalyticSkills

34) RefertoTable1-1.WhatisLydiasmarginalcostifshedecidestostayopenfortwohoursinsteadofonehour?

A) $10 B) $20 C) $25 D) $40Answer: ADiff:2 PageRef:7/7Topic: OptimalDecisionsAreMadeattheMarginLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: AnalyticSkills



35) SooJinsharesaone-bedroomapartmentwithherclassmate.Hershareoftherentis$700permonth.Sheisconsideringmovingtoastudioapartmentwhichshewillnothavetosharewithanyone.Thestudioapartmentrentsfor$950permonth.Recently,youranintoSooJinoncampusandshetellsyouthatshehasmovedintothestudioapartment.SooJinisasrationalasanyotherperson.Asaneconomicsmajor,yourightlyconcludethat

A) SooJindidnothaveachoice;herroommatewasaslob.B) SooJinfiguresthattheadditionalbenefitofhavingherownplace(asopposedtosharing)

isatleast$250.C) SooJinfiguresthatthebenefitofhavingherownplace(asopposedtosharing)isatleast

$950.D) thecostofhavingonesownspaceoutweighsthebenefits.


36) Ifthemarginalcostofkeepingadoctorsofficeopenoneadditionalhourperdayis$200,thenthedoctorshouldkeeptheofficeopenforoneextrahour

A) onlyifthemarginalbenefitshereceivesisgreaterthan$200plusanacceptableprofitmargin.

B) aslongasthemarginalbenefitshereceivesisjustequaltoorgreaterthan$200.C) aslongasthemarginalcostdoesnotrise.D) untilthemarginalbenefitshereceivesreacheszero.


37) Scarcityreferstoasituationinwhichunlimitedwantsexceedthelimitedresourcesavailabletofulfillthosewants.Answer: TRUEDiff:1 PageRef:4/4Topic: ScarcityLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

38) Scarcityisaproblemthatwilleventuallydisappearastechnologyadvances.Answer: FALSEDiff:1 PageRef:4/4Topic: ScarcityLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking



39) Aneconomicmodelisasimplifiedversionofrealityusedtoanalyzereal-worldeconomicsituations.Answer: TRUEDiff:1 PageRef:4/4Topic: EconomicModelsLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

40) Thesalesrevenueasellerreceivesfromthesaleofanadditionalunitofgoodsiscalledthemarginalbenefit.Answer: TRUEDiff:1 PageRef:7/7Topic: OptimalDecisionsAreMadeattheMarginLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

41) Optimaldecisionsaremadeatthepointwheremarginalcostequalszero.Answer: FALSEDiff:1 PageRef:7/7Topic: OptimalDecisionsAreMadeattheMarginLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

42) IfitcostsSinclair$300toproduce3suedejacketsand$420toproduce4suedejackets,thenthedifferenceof$120isthemarginalcostofproducingthe4thsuedejacket.Answer: TRUEDiff:1 PageRef:7/7Topic: OptimalDecisionsAreMadeattheMarginLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

43) Supposetheextracostforadoctortokeephisofficeopenforoneextrahouris$200.Then,thedoctorshouldstayopenfortheextrahourevenifhecangenerateadditionalrevenueof$200forthathour.Answer: TRUEDiff:2 PageRef:8/8Topic: OptimalDecisionsAreMadeattheMarginLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: AnalyticSkills

44) Explaintheeconomicassumptionthatpeoplearerational.Answer: Peoplearerationalmeansthateconomistsassumeconsumersandfirmswilluseall

availableinformationastheyacttoachievetheirgoals.Rationalindividualsweighthebenefitsandcostsofeachaction,andtheychooseanactiononlyifthebenefitsexceedthecosts.

Diff:2 PageRef:5/5Topic: PeopleAreRationalLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking



45) Explaintheeconomicideathatpeoplerespondtoincentives.Answer: Humanbeingsactfromavarietyofmotives,includingreligiousbelief,envy,and

compassion.Peoplerespondtoincentivesmeansthatpeoplewillactiftheyfeelitisintheirbesteconomicinteresttodoso.

Diff:2 PageRef:5/5Topic: PeopleRespondtoEconomicIncentivesLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

46) Whatismeantbythestatementthatoptimaldecisionsaremadeatthemargin?Answer: Ineconomics,thewordmarginalmeansextraoradditional.Economistsreasonthat

theoptimaldecisionistocontinueanyactivityuptothepointwherethemarginalbenefitequalsthemarginalcost,sooptimaldecisionsaremadeatthepointwheretheextrabenefitreceivedfromanactivityisequaltotheextracostassociatedwiththatactivity.

Diff:2 PageRef:7/7Topic: OptimalDecisionsAreMadeattheMarginLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

47) Assumethatadoctorcanearnanadditional$20,000ofrevenueeachyearfromkeepinghisofficeopenforoneadditionalhourperweek.Whatmusttheadditionalcostofkeepingtheofficeopenthisadditionalhourperweekbetomakestayingopenfortheextrahoureconomicallyrational?Answer: Theadditionalcostofstayingopenforoneadditionalhourperweekmustbenomore

than$20,000fortheyeartomakestayingopenfortheextrahoureconomicallyrational.Diff:2 PageRef:7/7Topic: PeopleAreRationalLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: AnalyticSkills

1.2 TheEconomicProblemThatEverySocietyMustSolve

1) Thethreefundamentalquestionsthatanyeconomymustaddressare:A) Whatwillbethepricesofgoodsandservices;howwillthesegoodsandservicesbe

produced;andwhowillreceivethem?B) Whatgoodsandservicestoproduce;howwillthesegoodsandservicesbeproduced;and

whoreceivesthem?C) Whogetsjobs;whatwagesdoworkersearn;andwhoownswhatproperty?D) Howmuchwillbesaved;whatwillbeproduced;andhowcanthesegoodsandservicesbe

fairlydistributed?Answer: BDiff:1 PageRef:8/8Topic: Trade-offsLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking



2) Theideathatbecauseofscarcity,producingmoreofonegoodorservicemeansproducinglessofanothergoodorservicereferstotheeconomicconceptof

A) optimization. B) efficiency. C) trade-off. D) equity.Answer: CDiff:1 PageRef:8/8Topic: Trade-offsLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

3) Societyfacesatrade-offinallofthefollowingsituationsexceptA) whendecidingwhowillreceivethegoodsandservicesproduced.B) whendecidingwhatgoodsandserviceswillbeproduced.C) whendecidinghowgoodsandserviceswillbeproduced.D) whensomepreviouslyunemployedworkersfindjobs.

Answer: DDiff:2 PageRef:8/8Topic: Trade-offsLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

4) Whichofthefollowingstatementsistrue?A) Anytimeyouhavetodecidewhichactiontotakeyouareexperiencingeconomicequity.B) Trade-offsdonotapplywhentheconsumerspurchaseaproductforwhichthereisexcess

supply,suchasastockclearancesale.C) Everyindividual,nomatterhowrichorpoor,isfacedwithmakingtrade-offs.D) Economicsisasocialsciencethatstudiesthetrade-offsweareforcedtomakebecause

resourcesareunlimited.Answer: CDiff:2 PageRef:8/8Topic: Trade-offsLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

5) Whichofthefollowingisnot anexampleofaneconomictrade-offthatafirmhastomake?A) whetheritischeapertoproducewithmoremachinesorwithmoreworkersB) whetheritistooutsourcetheproductionofagoodorserviceC) whetherornotconsumerswillbuyitsproductsD) whetheritshouldproducemoreofitsproduct

Answer: CDiff:1 PageRef:8/8Topic: Trade-offsLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking



6) ThehighestvaluedalternativethatmustbegivenuptoengageinanactivityisthedefinitionofA) economicequity. B) marginalbenefit.C) opportunitycost. D) marginalcost.

Answer: CDiff:1 PageRef:9/9Topic: OpportunityCostLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

7) TheCoffeeNook,asmallcafenearcampus,sellscappuccinosfor$2.50andRussianteacakesfor$1.00each.Whatistheopportunitycostofbuyingacappuccino?

A) 21/2Russianteacakes B) 2/5ofaRussianteacakeC) $2.50 D) $1.00

Answer: ADiff:1 PageRef:9/9Topic: OpportunityCostLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: AnalyticSkills

8) Arlenequitsher$125,000-a-yearjobtotakecareofherailingparents.Whatistheopportunitycostofherdecision?

A) zero,sinceshewillnolongerbeearningasalaryB) Itdependsonthegoingrateforhome-careproviders.C) atleast$125,000D) thevaluesheattributestothesatisfactionshereceivesfromtakingcareofherparents

Answer: CDiff:1 PageRef:9/9Topic: OpportunityCostLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: AnalyticSkills

9) Thedistributionofincomeprimarilydetermineswhichofthefundamentaleconomicquestions?A) Whatgoodsandservicesaretobeproduced?B) Howthegoodsandservicesaretobeproduced?C) Whowillreceivethegoodsandservicesproduced?D) Howtoplantheeconomy?

Answer: CDiff:2 PageRef:9/9Topic: WhoWillReceivetheGoodsandServicesProduced?LearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking



10) Automobilemanufacturersproducearangeofautomobilessuchassportsutilityvehicles,luxurysedans,pickuptrucksandcompactcars.Whatfundamentaleconomicquestionaretheyaddressingbymakingthisrangeofproducts?

A) Howtoproducegoodsthatconsumerswant?B) Whyproduceavarietyofautomobiles?C) Whattoproduce?D) Whotoproduceautomobilesfor?

Answer: CDiff:1 PageRef:9/9Topic: WhatGoodsandServicesWillBeProduced?LearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

11) Considerthefollowingeconomicagents:a. thegovernmentb. consumersc. producers

Who,inacentrallyplannedeconomy,decideswhatgoodsandserviceswillbeproducedwiththescarceresourcesavailableinthateconomy?

A) thegovernmentB) producersC) consumersD) consumersandproducersE) thegovernment,consumersandproducers

Answer: ADiff:1 PageRef:9/9Topic: WhatGoodsandServicesWillBeProduced?LearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

12) Thedecisionaboutwhatgoodsandserviceswillbeproducedmadeinamarketeconomyismadeby

A) lawmakersinthegovernmentvotingonwhatwillbeproduced.B) workersdecidingtoproduceonlywhatthebosssaysmustbeproduced.C) producersdecidingwhatsocietywantsmost.D) consumersandfirmschoosingwhichgoodsandservicestobuyorproduce.E) consumersdictatingtofirmswhattheyneedmost.

Answer: DDiff:1 PageRef:9/9Topic: WhatGoodsandServicesWillBeProduced?LearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking



13) Whichofthefollowingstatementsabouttheeconomicdecisionsconsumers,firms,andthegovernmenthavetomakeisfalse?

A) Governmentsfacetheproblemofscarcityinmakingeconomicdecisions.B) Onlyindividualsfacescarcity;firmsandthegovernmentdonot.C) Bothfirmsandindividualsfacescarcity.D) Eachfacestheproblemofscarcitywhichnecessitatestrade-offsinmakingeconomic

decisions.Answer: BDiff:1 PageRef:9/9Topic: WhatGoodsandServicesWillBeProduced?LearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

14) Whyisitnecessaryforalleconomicsystemstonotonlyprovidepeoplewithgoodsandservices,butalsorestrictthemfromgettingasmuchofthesegoodsandservicesastheywish?

A) Failuretodothiscouldreducetheefficiencyofthesystembyproducingsomegoodsandservicesthatarenotashighlyvaluedasothers.

B) Failuretodothiscouldleadtoaninequitableallocationofgoodsandservicesproduced.C) Failuretodothiscouldleadtodrasticshortagesofgoodandservices.D) Failuretodothiscouldreducesefficiencyandleadstoaninequitableallocationofoutput.

Answer: ADiff:3 PageRef:9/9Topic: WhoWillReceivetheGoodsandServicesProduced?LearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: AnalyticSkills

15) Whoreceivesthemostofwhatisproducedinamarketeconomy?A) lawmakersandotherpoliticallyfavoredgroupsB) thosewhoarewillingandabletobuythemC) everyonereceivesanequalamountD) peoplewhoearnthehighestincomes

Answer: BDiff:1 PageRef:9/9Topic: WhoWillReceivetheGoodsandServicesProduced?LearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

16) HowarethefundamentaleconomicdecisionsdeterminedinNorthKorea?A) Individuals,firms,andthegovernmentinteractinamarkettomaketheseeconomic

decisions.B) Thesedecisionsaremadebythecountryselderswhohavehadmuchexperiencein

answeringthesequestions.C) ThegovernmentdecidesbecauseNorthKoreaisacentrallyplannedeconomy.D) TheUnitedNationsdecidesbecauseNorthKoreaisadevelopingeconomy.

Answer: CDiff:1 PageRef:10/10Topic: CentrallyPlannedEconomiesLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking



17) Howarethefundamentaleconomicquestionsansweredinamarketeconomy?A) Thegovernmentalonedecidestheanswers.B) Individuals,firms,andthegovernmentinteractinmarketstodecidetheanswerstothese

questions.C) Householdsandfirmsinteractinmarketstodecidetheanswerstothesequestions.D) Largecorporationsalonedecidetheanswers.

Answer: CDiff:2 PageRef:10/10Topic: MarketEconomiesLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

18) Whichofthefollowingisaprobleminherentincentrallyplannedeconomies?A) Householdsandfirmsmakepoordecisionsinchoosinghowresourcesareallocated.B) Thereistoolittleproductionoflow-cost,high-qualitygoodsandservices.C) Productionmanagersaremoreconcernedwithsatisfyingconsumerwantsthanwith

satisfyinggovernmentsorders.D) Exportstendtoexceedimports.

Answer: BDiff:2 PageRef:10/10Topic: CentrallyPlannedEconomiesLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

19) AllofthefollowingcontributedtothedownfalloftheSovietUnionin1991exceptA) publicdissatisfactionwithlowlivingstandardsandpoliticalrepression.B) aninabilitytoproducelow-costconsumergoodsthathouseholdswanted.C) lackofhigh-qualitygoodsandservices.D) lackofastrongdictatorwhocancoordinateeconomicactivities.

Answer: DDiff:2 PageRef:10/10Topic: CentrallyPlannedEconomiesLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

20) ________isasituationinwhichagoodorserviceisproducedatthelowestpossiblecost.A) Allocativeefficiency B) ProductiveefficiencyC) Equity D) Optimalmarginalism

Answer: BDiff:1 PageRef:11/11Topic: EfficiencyLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking



21) ProductiveefficiencyisachievedwhenA) firmsaddalowprofitmargintothegoodsandservicestheyproduce.B) firmsproducethegoodsandservicesthatconsumersvaluemost.C) firmsproducegoodsandservicesatthelowestcost.D) therearenoshortagesorsurplusesinthemarket.

Answer: CDiff:1 PageRef:11/11Topic: EfficiencyLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

22) Whenproductionreflectsconsumerpreferences,________occurs.A) allocativeefficiency B) productiveefficiencyC) equity D) efficientcentralplanning

Answer: ADiff:1 PageRef:11/11Topic: EfficiencyLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

23) AllocativeefficiencyisachievedwhenfirmsproducegoodsandservicesA) atthelowestpossiblecost. B) thatconsumersvaluemost.C) atthelowestopportunitycost. D) atamarginalcostofzero.


24) MarketspromoteA) equityandcompetition. B) voluntaryexchangeandequality.C) equityandequality. D) competitionandvoluntaryexchange.

Answer: DDiff:2 PageRef:10/10Topic: MarketEconomiesLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

25) Whichofthefollowingstatementsistrueaboutcompetitioninamarket?A) Competitionforcesfirmstooutsourcetheproductionoftheirlabor-intensiveproducts.B) Competitionforcesfirmstoundercuttheirsellingprice,thusbenefitingconsumerswho

willbeabletopurchaseproductsatthelowestpricepossible.C) Competitionforcesfirmstoproduceandsellproductsaslongasthemarginalbenefitto

consumersexceedsthemarginalcostofproduction.D) Competitionforcesfirmstoaddonlylowprofitmarginstotheircostsofproduction.

Answer: CDiff:2 PageRef:10/10Topic: MarketEconomiesLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking



26) ________increaseseconomicefficiencybecauseitforcesfirmstoproduceandsellgoodsandservicesaslongastheadditionalbenefittoconsumersisgreaterthantheadditionalcostofproduction.

A) Competition B) VoluntaryexchangeC) Equity D) Acentrallyplannedeconomy

Answer: ADiff:1 PageRef:10/10Topic: MarketEconomiesLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

27) Whichofthefollowinggeneratesproductiveefficiency?A) competitionamongsellersB) competitionamongbuyersC) governmentinspectorsD) governmentproductionrulesandregulations

Answer: ADiff:1 PageRef:11/11Topic: EfficiencyLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

28) Voluntaryexchangebetweenbuyersandsellersgenerates________inamarketeconomy.A) scarcity B) allocativeefficiencyC) productiveefficiency D) equity


29) Whichofthefollowingisaresultofamarketeconomy?A) environmentalprotection B) anequalincomedistributionC) agreementonequity D) voluntaryexchange

Answer: DDiff:1 PageRef:10/10Topic: MarketEconomiesLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking



30) Politicalcandidatesoftenholdfundraisersbychargingperplatefordinner.Wendypurchasedfourticketstoa$1,000perplatedinnerforalocalcitycouncilcandidate.Isthistransactioneconomicallyefficient?

A) No,politicalcandidatesshouldneverbeallowedtooverchargeforafundraisingdinner.B) Yes,itwasavoluntaryexchangethatbenefitedbothparties.C) No,Wendypaidtoomuchforfourdinners.D) Yes,itisefficientonlyfromtheperspectiveofthecandidatebutnotfromtheperspective

ofWendy.Answer: BDiff:2 PageRef:10/10Topic: MarketEconomiesLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: AnalyticSkills

31) Ineconomics,thetermequitymeansA) everyonehasanequalstandardofliving.B) thehardestworkingindividualsconsumealltheywant.C) onlyelectedofficialshavehighstandardsofliving.D) economicbenefitsaredistributedfairly.

Answer: DDiff:1 PageRef:11/11Topic: EquityLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

32) Whichofthefollowingismotivatedbyanequityconcern?A) Somestateshavetransferredfundstofoodbankprogramsinordertoincreasebenefitsto

lower-incomefamilies.B) Followingtheimplementationofsubsidiesforenergyconservation,householddemand

forrooftopsolarpanelsincreasedquitesignificantlyinCalifornia.C) TheUnitedNetworkforOrganSharingadvocatesasystemofrationingscarcekidneys

thatwouldfavoryoungpatientsoveroldinanefforttowringmorelifeoutofdonatedorgans.

D) TheUnitedStatesofferspatentprotectiontopharmaceuticalmanufacturerstopreventothersfromduplicatingtheirproducts.

Answer: ADiff:3 PageRef:11/11Topic: EquityLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking,EthicalReasoning



33) Whichofthefollowingismotivatedbyanefficiencyconcern?A) InDecember2006,theBushadministrationrestartedashort-termhousingassistance

programforvictimsofHurricaneKatrina.B) Eachyear,theUniversityofNotreDameconductsalotterytoparceloutthe30,000seats

availabletocontributors,formerathletesandparentsinthe80,000-seatstadium.C) TheUnitedNetworkforOrganSharingadvocatesasystemofrationingscarcekidneys

thatwouldfavoryoungpatientsoveroldinanefforttowringmorelifeoutofdonatedorgans.

D) Thefederalgovernmentshousingchoicevoucherprogramassistsverylow-incomefamilies,theelderly,andthedisabledtoafforddecent,safe,andsanitaryhousingintheprivatemarket.

Answer: CDiff:3 PageRef:11/11Topic: EfficiencyLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking,EthicalReasoning

34) Whichofthefollowingisanexampleofanefficiency-equitytrade-offfacedbyeconomicagents?

A) AccordingtoanarticlebyintheAmericanJournalofPublicHealthbyEdwardKaplanandMichaelMersonofYaleUniversitySchoolofMedicine,thefederalgovernmentscurrentmethodofallocatingHIV-preventionresourcesisnotcost-effective.InsteadofallocatingresourcestostatesinproportiontoreportedAIDScases,resourcesshouldflowfirsttothoseactivitiesthatpreventmoreinfectionsperdollarandthentolessandlesseffectivecombinationsofprogramsandpopulationsuntilfundsareexhausted,evenifitmeansthatsomepopulationswouldbeleftwithoutanypreventionservices.

B) Concernedaboutthefallingbirthrate,theFrenchgovernmenthaspledgedmoremoneyforfamilieswiththreechildren,inanefforttoencourageworkingwomentohavemorebabies.

C) SomeU.S.collegesareactivelyrecruitingforeignstudentsfortheirtechnology-basedprograms.

D) AllNewYorkCityartmuseumsareconsideringadoptingafree-admissionpolicyforlocalresidentsoneweekendpermonth.

Answer: ADiff:3 PageRef:11/11Topic: EfficiencyLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: AnalyticSkills,EthicalReasoning

35) Whichofthefollowingcorrectlydescribestherelationshipbetweeneconomicefficiencyandeconomicequity?

A) Theyarebothautomaticallyachievedinafreemarketeconomy.B) Theyalwayscallforoppositeoutcomes.C) Thereisnoconflictbetweenthetwogoals.D) Thereisoftenatrade-offbetweenthetwo.

Answer: DDiff:2 PageRef:11/11Topic: EfficiencyLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking



36) Allocativeefficiencybestexplains________,andproductiveefficiencybestexplains________.A) howsomethingwillbeproduced;whensomethingwillbeproducedB) whensomethingwillbeproduced;whysomethingwillbeproducedC) whysomethingwillbeproduced;whatwillbeproducedD) whatwillbeproduced;howsomethingwillbeproduced

Answer: DDiff:2 PageRef:11/11Topic: EfficiencyLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

37) Thegovernmentmakesalleconomicdecisionsinamixedeconomy.Answer: FALSEDiff:1 PageRef:10/10Topic: MixedEconomiesLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

38) Whenvoluntaryexchangetakesplace,bothpartiesgainfromtheexchange.Answer: TRUEDiff:1 PageRef:10/10Topic: MarketEconomiesLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

39) AcollegemustdecideifitwantstooffermoreInternet-basedclasses.Thisdecisioninvolvesansweringtheeconomicquestionofwhattoproduce.Answer: TRUEDiff:1 PageRef:9/9Topic: WhatGoodsandServicesWillBeProduced?LearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

40) Onedesirableoutcomeofamarketeconomyisthatitleadstoamoreequitabledistributionofincome.Answer: FALSEDiff:1 PageRef:10/10Topic: MarketEconomiesLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

41) Whatisequity,andhowdoesitdifferfromefficiency?Answer: Equityreferstothefairdistributionofeconomicbenefits.Ineconomics,efficiencyrefers

toleastcostproduction(productiveefficiency)andproducingaccordingtohumanpreferences(allocativeefficiency).

Diff:2 PageRef:11/11Topic: EquityLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking



42) Whatisopportunitycost?Answer: Opportunitycostreferstothehighest-valuedalternativethatmustbegivenuptoengage

inanactivity.Forexample,theopportunitycostoftakingthiseconomicsclassiswhatyouaregivinguptotaketheclass,whichmaybetakinganotherclasssuchasaccountingorpsychology,workingextrahoursatyourjob,orextrasleep(whicheverisyourhighest-valuedalternative).

Diff:2 PageRef:9/9Topic: OpportunityCostLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

43) Defineproductiveefficiency.Doesproductiveefficiencyimplyallocativeefficiency?Explain.Answer: Productiveefficiencyisanefficiencycriterionthatdescribesasituationinwhichgoods

andservicesareproducedatthelowestpossiblecost.Itdoesnotimplyallocativeefficiencywhichisacriterionassociatedwithproducinggoodsandservicesthatconsumersvaluemost.Forexample,amanufacturermaybeabletoproducetypewritersatthelowestpossiblecostofsay,$200butthisdoesnotnecessarilymeanthatconsumersarewillingtopay$200foratypewriter.

Diff:3 PageRef:11/11Topic: EfficiencyLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: AnalyticSkills

44) Whatisacentrallyplannedeconomy?Answer: Acentrallyplannedeconomyisaneconomyinwhichthegovernmentdecideshow

economicresourceswillbeallocated.Diff:3 PageRef:10/10Topic: CentrallyPlannedEconomiesLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

1.3 EconomicModels

1) EconomicmodelsdoallofthefollowingexceptA) answereconomicquestions.B) portrayrealityinallitsminutedetails.C) makeeconomicideasexplicitandconcreteforusebydecisionmakers.D) simplifysomeaspectofeconomiclife.

Answer: BDiff:1 PageRef:12/12Topic: EconomicModelsLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

2) AllofthefollowingarepartofaneconomicmodelexceptA) assumptions. B) hypotheses. C) data. D) opinions.

Answer: DDiff:1 PageRef:12/12Topic: EconomicModelsLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking



3) Whichofthefollowingstatementsaboutpositiveeconomicanalysisisfalse?A) Positiveanalysisusesaneconomicmodeltoestimatethecostsandbenefitsofdifferent

courseofactions.B) Thereismuchmoredisagreementamongeconomistsovernormativeeconomicanalysis

thanoverpositiveeconomicanalysis.C) Thereismuchmoredisagreementamongeconomistsoverpositiveeconomicanalysisthan

overnormativeeconomicanalysis.D) Unlikenormativeeconomicanalysis,positiveeconomicanalysiscanbetested.

Answer: CDiff:2 PageRef:14/14Topic: NormativeandPositiveAnalysisLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

4) Whichofthefollowingisapositiveeconomicstatement?A) ThestandardoflivingintheUnitedStatesshouldbehigher.B) IfthepriceofiPhonesfalls,alargerquantityofiPhoneswillbepurchased.C) Thegovernmentshouldrevampthehealthcaresystem.D) TheU.S.governmentshouldnothavebailedoutU.S.automanufacturers.

Answer: BDiff:2 PageRef:14/14Topic: NormativeandPositiveAnalysisLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

5) Whichofthefollowingisapositiveeconomicstatement?A) PeopleshouldnotbuySUVs.B) Thegovernmentshouldmandateelectricautomobiles.C) Scarcitynecessitatesthatpeoplemaketrade-offs.D) Foreignworkersshouldnotbeallowedtoworkforlowerwagesthanthecitizensofa

country.Answer: CDiff:2 PageRef:14/14Topic: NormativeandPositiveAnalysisLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

6) Whichofthefollowingisanormativeeconomicstatement?A) Risingglobaldemandforcoalhasledtoincreasesinthepriceofcoal.B) Withrisingmortgageratesandrisingunemploymentrates,thenumberofunsoldhomes

hasincreased.C) ThestateofTexasisconsideringincreasingfundsforlight-raildevelopmenttopromote

theuseofpublictransportation.D) Pharmaceuticalmanufacturersshouldnotbeallowedtopatenttheirproductsso

prescriptiondrugswouldbemoreaffordable.Answer: DDiff:2 PageRef:14/14Topic: NormativeandPositiveAnalysisLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking



7) Whichofthefollowingisanormativeeconomicstatement?A) Thepriceofgasolineistoohigh.B) Thecurrenthighpriceofgasolineistheresultofstrongworldwidedemand.C) Whenthepriceofgasolinerises,thequantityofgasolinepurchasedfalls.D) Whenthepriceofgasolinerises,transportationcostsrise.

Answer: ADiff:2 PageRef:14/14Topic: NormativeandPositiveAnalysisLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

8) Whichofthefollowingquestionsorstatementsregardingmedicalschoolisnormative?A) Howdochangesinexpectedfutureincomesaffectthedecisionsofmedicalstudentsabout

whichspecialtytochoose?B) Medicalstudentswhoenterspecializedfieldsmakealargercontributiontosocietythan

dostudentwhoenterprimarycare.C) Whatroledoestuitionplayinastudentsdecisionaboutwhethertoattendmedical

school?D) Havetuitionincreaseshadalargeeffectorasmalleffectonthenumberofapplicationsto

medicalschool?Answer: BDiff:2 PageRef:15-16/15-16Topic: NormativeandPositiveAnalysisLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

9) Theeconomicanalysisofminimumwageinvolvesbothnormativeandpositiveanalysis.Considerthefollowingconsequencesofaminimumwage:a. Theminimumwagelawcausesunemployment.b. Aminimumwagelawbenefitssomegroupsandhurtsothers.c. InsomecitiessuchasSanFranciscoandNewYork,itwouldbeimpossibleforlow-skilledworkerstoliveinthecitywithoutminimumwagelaws.d. Thegainstowinnersofaminimumwagelawshouldbevaluedmorehighlythanthelossestolosersbecausethelatterprimarilycomprisesbusinesses.

Whichoftheconsequencesabovearepositivestatementsandwhicharenormativestatements?A) a,b,andcarepositivestatementsanddisanormativestatement.B) aandbarepositivestatements,canddarenormativestatement.C) Onlyaisapositivestatement,b,canddarenormativestatements.D) aandcarepositivestatements,banddarenormativestatements.

Answer: BDiff:2 PageRef:15/15Topic: NormativeandPositiveAnalysisLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: AnalyticSkills



10) Anincreaseinthepriceofgasolinewillincreasethedemandforhybridvehicles.Thisstatementisanexampleofapositiveeconomicstatement.Answer: TRUEDiff:1 PageRef:14/14Topic: NormativeandPositiveAnalysisLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

11) Thedistributionofincomeshouldbelefttothemarketisanexampleofapositiveeconomicstatement.Answer: FALSEDiff:1 PageRef:14/14Topic: NormativeandPositiveAnalysisLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

12) Positiveanalysisisconcernedwithwhatoughttobe,whilenormativeanalysisisconcernedwithwhatis.Answer: FALSEDiff:2 PageRef:14/14Topic: NormativeandPositiveAnalysisLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

13) Whatisthedifferencebetweenpositiveeconomicanalysisandnormativeeconomicanalysis?Giveoneexampleeachofapositiveandnormativeeconomicissueorquestionorstatement.Answer: Positiveeconomicanalysisisconcernedwithwhatis.Positiveeconomicanalysisreaches

conclusionsbasedonverifiablestatements.Normativeeconomicanalysis,ontheotherhand,isconcernedwithwhatoughttobe.Normativeanalysisreachesconclusionsbasedonopinions.(Studentswillgivemanydifferentexamples.)

Diff:2 PageRef:14/14Topic: NormativeandPositiveAnalysisLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

14) Explainwhyeconomicsisconsideredasocialscience.Answer: Economicsisasocialsciencebecauseitstudiestheactionsofindividuals.Asasocial

science,economicsconsidershumanbehavior,particularlydecision-makingbehavior,ineverycontext.

Diff:2 PageRef:14/14Topic: EconomicsasaSocialScienceLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking



1.4 MicroeconomicsandMacroeconomics

1) Whichofthefollowingisamicroeconomicsquestion?A) Howmuchwillbesavedandhowmuchwillbeproducedintheentireeconomy?B) Whatwillthelevelofeconomicgrowthbeintheentireeconomy?C) Whatfactorsdeterminethepriceofcarrots?D) Whatdeterminestheaveragepricelevelandinflation?

Answer: CDiff:2 PageRef:17/17Topic: MicroeconomicsLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

2) MicroeconomicsisthestudyofA) howhouseholdsandfirmsmakechoices.B) theeconomyasawhole.C) theglobaleconomy.D) topicssuchasunemployment,inflation,andeconomicgrowth.

Answer: ADiff:1 PageRef:17/17Topic: MicroeconomicsLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

3) Whichofthefollowingisamacroeconomicsquestion?A) Whatdeterminestheinflationrate?B) WhatdeterminestheproductionofDVDs?C) Whatfactorsdeterminethepriceofcarrots?D) Whatdeterminesthewageofautoworkers?

Answer: ADiff:2 PageRef:17/17Topic: MacroeconomicsLearningOutcome: Macro1:DefinemacroeconomicsandidentifyitsbasicconcernsAACSB: ReflectiveThinking

4) MacroeconomicsisthestudyofA) howhouseholdsmakechoices.B) howfirmsmakechoices.C) howhouseholdsandfirmsmakechoices.D) theeconomyasawhole.

Answer: DDiff:1 PageRef:17/17Topic: MacroeconomicsLearningOutcome: Macro1:DefinemacroeconomicsandidentifyitsbasicconcernsAACSB: ReflectiveThinking



5) Examiningtheconditionsthatcouldleadtoarecessioninaneconomyisanexampleofmacroeconomicstopic.Answer: TRUEDiff:1 PageRef:17/17Topic: MacroeconomicsLearningOutcome: Macro1:DefinemacroeconomicsandidentifyitsbasicconcernsAACSB: ReflectiveThinking

6) ThedecisionsApplemakesindeterminingproductionlevelsforitsiPhoneisanexampleofamicroeconomicstopic.Answer: TRUEDiff:1 PageRef:17/17Topic: MicroeconomicsLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

7) Whichofthefollowingareprimarilymacroeconomictopicsandwhichareprimarilymicroeconomictopics?

a. gasolinepricesb.unemploymentc. inflationd.healthcarecostse. airpollutionf. economicgrowthAnswer: b,c,andfareprimarilymacroeconomictopics.

a,d,andeareprimarilymicroeconomictopics.Diff:2 PageRef:17/17Topic: MicroeconomicsLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

1.5 APreviewofImportantEconomicTerms

1) Whichofthefollowingstatementsistrueaboutprofit?A) Profitreferstotherevenuereceivedfromthesaleofaquantityofgoods.B) Profitiscalculatedbymultiplyingpriceandquantitysold.C) Thetermsaccountingprofitandeconomicprofitcanbeusedinterchangeably.D) Profitisthedifferencebetweenrevenueandcost.

Answer: DDiff:2 PageRef:18/18Topic: ProfitLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking



2) Ineconomics,theaccumulatedskillsandtrainingthatworkershaveisknownasA) humancapital. B) entrepreneurship.C) physicalcapital. D) innovation.

Answer: ADiff:1 PageRef:18/18Topic: HumanCapitalLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

3) Whichofthefollowingisanexampleofanactivityundertakenbyanentrepreneur?A) designingyourlandscapingforyournewhomeB) holdingapositionasthepresidentofaliberalartscollegeC) runningforthepresidentoftheUnitedStatesD) startingyourownpetsittingbusiness

Answer: DDiff:1 PageRef:17/17Topic: EntrepreneurLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

4) ThemachinesworkershavetoworkwithareconsideredA) humancapital. B) physicalcapital.C) entrepreneurship. D) financialcapital.

Answer: BDiff:2 PageRef:18/18Topic: CapitalLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

5) TechnologyisdefinedasA) theprocessofdevelopingandrevisingmodels.B) newinnovationsandcreations.C) theprocessesusedtoproducegoodsandservices.D) theprocessofrecyclingproducts.

Answer: CDiff:1 PageRef:17/17Topic: TechnologyLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

6) Whichofthefollowingstatementsabouteconomicresourcesistrue?A) Economicresourcesincludefinancialcapitalandmoney.B) Economicresourcesarealsocalledfactorsofproduction.C) Economicresourcesareusedonlybybusinesses.D) Alleconomicresourcesareman-made.

Answer: BDiff:1 PageRef:18/18Topic: ResourcesLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking



7) TheU.S.HealthResourcesandServicesAdministration(HRSA)forecaststhatin2020A) therewillbeashortageofdoctorsintheUnitedStates.B) thenumberofdoctorsintheUnitedStateswilldecreaseandthenumberofdoctorsneeded

willincrease.C) thenumberofdoctorsintheUnitedStateswillincreaseandthenumberofdoctorsneeded

willdecrease.D) therewillbeasurplusofdoctorsintheUnitedStates.

Answer: ADiff:1 PageRef:18/18Topic: HumanCapitalLearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist

8) Accordingtocensusfigures,between1970and2007thenumberofdoctorswhodescribedthemselvesasself-employed

A) fellbymorethan50percent.B) morethandoubled.C) hasremainedfairlyconstant.D) felltoalmostzerobeforerisingbacktoitsoriginallevel.

Answer: ADiff:2 PageRef:20-21/20-21Topic: HumanCapitalLearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist

9) Inthemarketforfactorsofproduction,firmsearnincomebysellinggoodsandservicestohouseholds.Answer: FALSEDiff:1 PageRef:18/18Topic: ResourcesLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

10) Oneexampleofhumancapitalistheamountofskillsthatyouhave.Answer: TRUEDiff:1 PageRef:18/18Topic: HumanCapitalLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

11) Listthefivemainfactorsofproduction.Answer: Thefivemainfactorsofproductionarelabor,capital,humancapital,naturalresources,

andentrepreneurialability.Diff:1 PageRef:18/18Topic: ResourcesLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking



12) Whatisthedifferencebetweenaninventionandaninnovation?Answer: Aninventionisthedevelopmentofanewgoodoranewprocessformakingagood.An

innovationisthepracticalapplicationofaninvention.Innovationcouldalsorefertoanysignificantimprovementinagoodorinthemeansofproducingagood.

Diff:1 PageRef:17/17Topic: InnovationLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

13) Explainthedifferencebetweenafirmsrevenueanditsprofit.Answer: Afirmsrevenueisthetotalamountreceivedforsellingagoodorservice.Itiscalculated

bymultiplyingthepriceperunitbythenumberofunitssold.Afirmsprofitisthedifferencebetweenitsrevenueanditscosts.

Diff:1 PageRef:18/18Topic: RevenueLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

14) Whataresomeofthereasonsgivenforthethedeclineinthenumberofphysicianschoosingtoenterprivatepractices?Answer: Thereasonsincludelowerinsurancereimbursementrates,inflexibleschedules,lower

incomes,highmedicalschooldebtloads,longerworkhours,andprovisionsofthenewhealthcarelaw.

Diff:2 PageRef:20-21/20-21Topic: HumanCapitalLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

1.6 Appendix:UsingGraphsandFormulas

1) Ifagraphhasalinethatshowstheamountofoutsourcinginthelasttenyears,itisknownasA) apiechart. B) atime-seriesgraph.C) ademandcurveforoutsourcing. D) asupplycurveofoutsourcing.

Answer: BDiff:1 PageRef:27/27Topic: GraphsLearningOutcome: Micro2:InterpretandanalyzeinformationpresentedindifferenttypesofgraphsAACSB: ReflectiveThinking

2) ________haveahorizontalandaverticalaxisandareusedineconomicstoillustraterelationshipsbetweentwoeconomicvariables.

A) Two-dimensionalgraphs B) One-dimensionalgraphsC) PieCharts D) Bargraphs

Answer: ADiff:1 PageRef:28/28Topic: GraphsLearningOutcome: Micro2:InterpretandanalyzeinformationpresentedindifferenttypesofgraphsAACSB: ReflectiveThinking



3) Ifastraightlinepassesthroughthepointx = 14andy = 3andalsothroughthepointx=4andy=10,theslopeofthislineis

A) negative11dividedby6. B) seventenths.C) negativeseventenths. D) 6dividedby11.

Answer: CDiff:2 PageRef:29/29Topic: SlopeLearningOutcome: Micro2:InterpretandanalyzeinformationpresentedindifferenttypesofgraphsAACSB: AnalyticSkills

4) Onatwo-dimensionalgraph,________allowsfortheeffectsofadditionalvariables.A) movingalongacurve B) shiftingcurvesC) eliminatingacurve D) addinganadditionalcurve

Answer: BDiff:3 PageRef:30/30Topic: GraphsLearningOutcome: Micro2:InterpretandanalyzeinformationpresentedindifferenttypesofgraphsAACSB: AnalyticSkills

5) Whichofthefollowingstatementsisfalse?A) Aninverserelationshiphasanegativeslopevalue.B) Adirectrelationshiphasapositiveslopevalue.C) Acurvedlinehasslopevaluesthatchangeateverypoint.D) Astraightlinehasaslopeofzero.

Answer: DDiff:2 PageRef:30/30Topic: SlopeLearningOutcome: Micro2:InterpretandanalyzeinformationpresentedindifferenttypesofgraphsAACSB: ReflectiveThinking

6) TherelationshipbetweenconsumerspendinganddisposablepersonalincomeisA) aninverserelationship. B) adirectrelationship.C) anegativerelationship. D) independent.

Answer: BDiff:1 PageRef:30/30Topic: PositiveandNegativeRelationshipsLearningOutcome: Micro2:InterpretandanalyzeinformationpresentedindifferenttypesofgraphsAACSB: ReflectiveThinking



7) Supposewhenthepriceoflaptopsfall,collegestudentsbuymorelaptops.ThisimpliesthatA) thereisapositiverelationshipbetweenlaptoppricesandquantitiespurchasedbycollege

students.B) thereisanegativerelationshipbetweenlaptoppricesandquantitiespurchasedbycollege

students.C) thereisadirectrelationshipbetweenlaptoppricesandquantitiespurchasedbycollege

students.D) thereisaone-to-onerelationshipbetweenlaptoppricesandquantitiespurchasedby

collegestudents.Answer: BDiff:1 PageRef:30/30Topic: PositiveandNegativeRelationshipsLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

8) Ifthepriceofmilkwas$2.50agallonanditisnow$3.25agallon,whatisthepercentagechangeinprice?

A) 13percent B) 30percent C) 75percent D) 77percentAnswer: BDiff:2 PageRef:32/32Topic: FormulasLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: AnalyticSkills

9) In2010,Hoovervilleconsumed205,000tonsofsugar.In2011,sugarconsumptionroseto245,000tons.Calculatethepercentagechangeinsugarconsumption.

A) 8.37% B) 11.95% C) 19.51% D) 26.33%Answer: CDiff:2 PageRef:34/34Topic: FormulasLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: AnalyticSkills

10) Atarecentfacultymeeting,LorraineWaverly,presidentofSkywalkerCollege,announcedthatenrollmentisupby12percentovertheprevioussemester.Ifenrollmenttheprevioussemesterwas3,250students,whatisthestudentenrollmentthissemester?

A) 390 B) 2,860 C) 3,640 D) 4,030Answer: CDiff:2 PageRef:34/34Topic: FormulasLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: AnalyticSkills



Figure1-1

11) RefertoFigure1-1.Usingtheinformationinthefigureabove,calculatethepercentagechangeinsalesofalcoholicbeveragesbetween2008and2011.

A) 23.1% B) 23.8% C) 30% D) 42.9%Answer: DDiff:1 PageRef:34/34Topic: FormulasLearningOutcome: Micro2:InterpretandanalyzeinformationpresentedindifferenttypesofgraphsAACSB: AnalyticSkills



Figure1-2

12) RefertoFigure1-2.CalculatetheareaofthetriangleA.A) $1.3million B) $2.6million C) $3.4million D) $5.2million

Answer: BDiff:1 PageRef:35/35Topic: FormulasLearningOutcome: Micro2:InterpretandanalyzeinformationpresentedindifferenttypesofgraphsAACSB: AnalyticSkills

Figure1-3

13) RefertoFigure1-3.CalculatetheareaofthetrapezoidX.A) $270 B) $720 C) $810 D) $2,520

Answer: CDiff:2 PageRef:35/35Topic: FormulasLearningOutcome: Micro2:InterpretandanalyzeinformationpresentedindifferenttypesofgraphsAACSB: AnalyticSkills



Figure1-4

14) RefertoFigure1-4.Whichofthefollowingstatementsisfalse?A) TheslopeofthetangentatEispositive.B) TheslopeofthetangentatFisnegative.C) TheslopeofthetangentatEandtheslopeofthetangentatF areequal.D) NeithertheslopeofthetangentatE northeslopeofthetangentatF areequaltozero.

Answer: CDiff:1 PageRef:34/34Topic: SlopeLearningOutcome: Micro2:InterpretandanalyzeinformationpresentedindifferenttypesofgraphsAACSB: AnalyticSkills

15) Whatistheomittedvariableproblemindeterminingcauseandeffect?A) Itisaproblemthatariseswhenaninsignificantvariableisgiventoomuchweightinan

economicanalysisleadingtoskewedconclusionsaboutcauseandeffect.B) Itisaproblemthatariseswhenasignificantvariableisnotgivenenoughweightinan

economicexperimentleadingtoskewedconclusionsaboutcauseandeffect.C) Itisaproblemthatariseswhenaninsignificanteconomicvariablethatshouldhavebeen

omittedisincludedinaneconomicexperimentleadingtofalseconclusionsaboutcauseandeffect.

D) Itisaproblemthatariseswhenaneconomicvariablethataffectsothervariablesisomittedfromananalysisanditsomissionleadstofalseconclusionsaboutcauseandeffect.

Answer: DDiff:1 PageRef:31/31Topic: CauseandEffectLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking



16) ________isaproblemthatoccurswhenoneconcludesthatachangeinvariableXcausedachangeinvariableYwheninactualfact,itisachangeinvariableYthatcausedachangeinvariableX.

A) Theomittedvariable B) Thepositive-to-negativerelationshipC) Reversecausality D) Nonlinearslope

Answer: CDiff:1 PageRef:31/31Topic: CauseandEffectLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking

17) TheprevalenceofAlzheimersdementiaisveryhighamongresidentslivinginnursinghomes.AstudentconcludesthatitislikelythatlivinginnursinghomecausesAlzheimersdementia.Whatistheflawinthestudentsreasoning?

A) ThestudenthasfailedtotakeintoaccountothercausesofAlzheimersdisease.B) Thestudentisdrawingafalseconclusion;heisconfusingcauseandeffect.C) Thestudentisusinganinadequatesamplesize.D) Thestudentisdrawingafalseconclusionbymakingthemistakeofomittingcritical

variablessuchastheageandgenderoftheresidents.Answer: BDiff:2 PageRef:31/31Topic: CauseandEffectLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: AnalyticSkills

18) YouexplaintoyourroommateSurya,whomakesbeadedheadbands,aboutaneconomictheorywhichassertsthatconsumerswillpurchasemoreofaproductatlowerpricesthantheywillathigherprices.Shecontendsthatthetheoryisincorrectbecauseoverthepasttwoyearsshehasloweredthepriceofherheadbandsandyethasseenadecreaseinsales.HowwouldyourespondtoSurya?

A) Suryaisright;shehasevidencetobackherclaim.Thetheorymustbeerroneous.B) Suryaismakingthemistakeofassumingthatcorrelationimpliescausation.C) Iwillexplaintoherthatsheismakingtheerrorofreversecausality:itisthedecreasein

demandthathascausedhertolowerherprices.D) Iwillexplaintoherthattherearesomeomittedvariablesthathavecontributedtoa

decreaseinhersalessuchaschangesinincome.Answer: DDiff:2 PageRef:31/31Topic: CauseandEffectLearningOutcome: Micro1:IdentifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomistAACSB: ReflectiveThinking



Table1-2

YearDVD

Recorders(millions)

2007 12.52008 14.02009 17.22010 20.02011 21.7

19) RefertoTable1-2.ThetableaboveshowsthesalesofDVDrecordersinNorthAmerica.Presenttheinformationusingabargraph.Answer:

Diff:1 PageRef:27/27Topic: GraphsLearningOutcome: Micro2:InterpretandanalyzeinformationpresentedindifferenttypesofgraphsAACSB: AnalyticSkills


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