Deck 1: Economics: Foundations and Models

Question 1

Apple assembles most iPhones in China because the lower wages earned by Chinese workers and their experience in electronics manufacturing reduce the costs of assembling iPhones. This is an example of Apple reacting to which of the three key economic ideas?

A) People are rational.
B) People respond to economic incentives.
C) Optimal decisions are made at the margin.
D) Firms attempt to maximize revenues.

Answer 1

People respond to economic incentives.

Question 2

One reason some manufacturing companies have moved production from China to other overseas locations is because of the tariffs implemented by the Trump administration on Chinese imports. Company managers using all available information, including the tariffs on Chinese imports, when making the decision to move production out of China and into other foreign nations exemplifies which key economic idea?

A) People are rational.
B) People respond to economic incentives.
C) Optimal decisions are made at the margin.
D) The market system relies on the principle of voluntary exchange.

Answer 2

People are rational.

Question 3

The Trump administration promoted the tariffs on Chinese imports as a reason for firms to return manufacturing jobs to the United States from China. The administration's desire to get firms to return manufacturing to the United States through the implementation of tariffs was an attempt to get firms to follow which key economic idea?

A) People are rational.
B) People respond to economic incentives.
C) Optimal decisions are made at the margin.
D) The market system relies on the principle of voluntary exchange.

Answer 3

People respond to economic incentives.

Question 4

In 2018, two members of Congress introduced the Stop Bad Employers by Zeroing Out Subsidies Act, which would tax firms whose employees receive government assistance. These members of Congress thought this legislation would give firms a reason to raise employee wages so fewer employees would receive the government assistance. These members of Congress were counting on firms reacting to which key economic idea?

A) People are allocatively efficient.
B) People respond to economic incentives.
C) Optimal decisions are made at the margin.
D) The market system relies on the principle of voluntary exchange.

Question 5

In 2018, two members of Congress introduced the Stop Bad Employers by Zeroing Out Subsidies Act, which would tax firms whose employees receive government assistance. These members of Congress thought this legislation would give firms a reason to raise employee wages so fewer employees would receive the government assistance. Economists at the Center on Budget and Policy Studies believed that the implementation of this legislation would

A) result in most employers raising employee wages substantially.
B) result in many employers likely seeking to reduce the number of low-wage workers they employ.
C) actually reduce the wages of all workers.
D) have little to no impact on the number of low-wage workers being employed.

Question 6

DeShawn's Detailing is a service that details cars at the customers' homes or places of work. DeShawn's cost for a basic detailing package is $40, and he charges $75 for this service. For a total price of $90, DeShawn will also detail the car's engine, a service that adds an additional $20 to the total cost of the package. What is DeShawn's marginal benefit if he sells a basic detailing package?

A) $35
B) $75
C) He makes a marginal loss of $15, not a marginal benefit.
D) The marginal benefit cannot be determined.

Question 7

DeShawn's Detailing is a service that details cars at the customers' homes or places of work. DeShawn's cost for a basic detailing package is $40, and he charges $75 for this service. For a total price of $90, DeShawn will also detail the car's engine, a service that adds an additional $20 to the total cost of the package. What is the marginal cost of adding the engine detailing to the basic detailing package?

A) $20
B) $30
C) $60
D) $60 plus the value of his time

Question 8

DeShawn's Detailing is a service that details cars at the customers' homes or places of work. DeShawn's cost for a basic detailing package is $40, and he charges $75 for this service. For a total price of $90, DeShawn will also detail the car's engine, a service that adds an additional $20 to the total cost of the package. Should DeShawn continue to offer the engine detailing service?

A) Yes, he still makes a profit by selling the engine detailing service with the basic detailing package.
B) yes, but only if he raises the price of the basic detailing package
C) No, his marginal benefit is less than his marginal cost.
D) More information is needed for DeShawn to make this decision.

Question 9

Allison's Auto Art is a company that applies pinstripes to vehicles. Allison's cost for a basic 1-color pinstriping job is $35, and she charges $95 for this service. For a total price of $175, Allison will apply a fancier 3-color pinstripe application to an automobile, a service that adds an additional $40 to the total cost of the package. Should Allison continue to offer the 3-color pinstripe application?

A) Yes, she still makes a profit by selling the 3-color application.
B) Yes, but only if she lowers the price of the 1-color application.
C) No, her marginal benefit is less than her marginal cost.
D) More information is needed for Allison to make this decision.

Question 10

The prime minister of the tiny island nation of Wowza has proposed that the Wowzian Postal Service reduce mail delivery to its residents from 5 days a week to 3 days a week. Enacting this proposal would be optimal

A) only if the marginal cost of reducing the number of mail delivery days to 3 days a week falls to zero.
B) as long as the marginal benefit of reducing mail delivery to 3 days a week is just equal to or greater than the marginal cost of reducing mail delivery to 3 days a week.
C) as long as the marginal cost does not rise.
D) until the marginal benefit of this action is maximized.

Question 11

Suppose the extra cost for a small nation to increase its mail delivery from six to seven days a week is $3,200 per year. Then, the nation should increase mail delivery to seven days a week if it can generate an additional benefit of $3,200 per year.

Question 12

Suppose the extra cost to a small country of increasing mail delivery from 4 to 5 days a week is $60,000 per year. Then, the country should increase mail delivery from 4 to 5 days a week if doing so results in an additional benefit of less than $60,000 per year.

Question 13

Assume that an additional $800,000 in benefits will be received each year from the U.S. Postal Service delivering packages for Amazon on Sundays. What must the additional cost of this Sunday delivery policy be to make this policy economically rational?

Question 14

Consider the following economic agents:
A. the government
B. consumers
C. Producers
Who, in a market economy, decides what goods and services will be produced with the scarce resources available in that economy?

A) the government
B) producers
C) consumers
D) consumers and producers

Question 15

According to the U.S. Census Bureau, income inequality in the United States was "significantly higher" in 2018 than in 2017, with the gap between the richest and poorest households the largest it has been in the last 50 years. At the same time, median U.S. income hit its highest level ever, with a national economy experiencing low unemployment and more than 10 years of consecutive GDP growth. According to Rutgers University Professor William M. Rogers III, the most troubling aspect of this report is that it "clearly illustrates the inability of the current economic expansion, the longest on record, to lessen inequality." The Census Bureau report also states that the nation's poverty rate fell in 14 states and Puerto Rico, and that for the 25 largest U.S. cities, the poverty rate either remained the same or fell in 2018.
Source: Bill Chappell, "U.S. Income Inequality Worsens, Widening To A New Gap", NPR, September 26, 2019.

-Refer to the Article Summary. The article discusses income inequality and how economic growth alone has not resulted in a more equitable distribution of income. What is meant by a more equitable distribution of income?

A) a more allocatively efficient distribution of income
B) a more productively efficient distribution of income
C) a more fair distribution of income
D) income distributed based on wealth levels

Question 16

According to the U.S. Census Bureau, income inequality in the United States was "significantly higher" in 2018 than in 2017, with the gap between the richest and poorest households the largest it has been in the last 50 years. At the same time, median U.S. income hit its highest level ever, with a national economy experiencing low unemployment and more than 10 years of consecutive GDP growth. According to Rutgers University Professor William M. Rogers III, the most troubling aspect of this report is that it "clearly illustrates the inability of the current economic expansion, the longest on record, to lessen inequality." The Census Bureau report also states that the nation's poverty rate fell in 14 states and Puerto Rico, and that for the 25 largest U.S. cities, the poverty rate either remained the same or fell in 2018.
Source: Bill Chappell, "U.S. Income Inequality Worsens, Widening To A New Gap", NPR, September 26, 2019.

-Refer to the Article Summary. The article discusses income inequality and how economic growth alone has not resulted in a more equitable distribution of income. If governments increased equity by reducing the incomes of high-income people and increasing the incomes of the poor, would it be possible that fewer goods and services would be produced and less saving would take place?

A) No, an increase in equity will result in a more efficient level of production and saving.
B) No, greater production and saving will take place regardless of the level of equity.
C) Yes, there is often a trade-off between efficiency and equity.
D) Yes, a reduction of the income gap necessitates a reduction in production and saving.

Question 17

The economic analysis of minimum wage involves both normative and positive analysis. Consider the following consequences of a minimum wage:
A. The minimum wage law causes unemployment.
B. A minimum wage law benefits some groups and hurts others.
C. In some cities such as San Francisco and New York, it would be impossible for low-skilled workers to live comfortably in the city without minimum wage laws.
D. The gains to winners of a minimum wage law should be valued more highly than the losses to losers because the latter primarily comprises businesses.
Which of the consequences above are positive statements and which are normative statements?

A) a, b, and c are positive statements and d is a normative statement.
B) a and b are positive statements, c and d are normative statement.
C) Only a is a positive statement, b, c, and d are normative statements.
D) a and c are positive statements, b and d are normative statements.

Question 18

Which of the following are primarily macroeconomic topics and which are primarily microeconomic topics?
a. gasoline prices
b. unemployment
c. inflation
d. health care costs
e. air pollution
f. economic growth

Question 19

Define microeconomics.

Question 20

The U.S. Bureau of Labor Statistics forecasts that by 2026, total employment in U.S. manufacturing will

A) decline to 11.6 million.
B) increase to 12.8 million.
C) remain the same as it was in 2019.
D) virtually cease to exist.

Question 21

In 2019, Hooverville consumed 205,000 tons of sugar. In 2020, sugar consumption rose to 245,000 tons. Calculate the percentage change in sugar consumption.

A) 8.37%
B) 11.95%
C) 19.51%
D) 26.33%

Question 22

-Refer to Figure 1-2. Calculate the area of the triangle A.

A) $1.3 million
B) $2.6 million
C) $3.4 million
D) $5.2 million

Question 23

In 2019, Smileytown consumed 12,000 gallons of mouthwash. In 2020, mouthwash consumption rose to 17,000 gallons. Calculate the percentage change in mouthwash consumption.

A) 17.2%
B) 29.4%
C) 41.7%
D) 70.6%

Question 24

If the price of gasoline was $3.25 a gallon and it is now $3.75 a gallon, what is the percentage change in price?

A) 7.1 percent
B) 13.3 percent
C) 15.4 percent
D) 33.3 percent