Deck 1: Economics: Foundations and Models

Question 1

Holding all other personal characteristics-such as age,gender,and income-constant,economists would expect that

A)people without health insurance will be less likely to be overweight than people with health insurance.
B)people without health insurance will be more likely to be overweight than people with health insurance.
C)people without health insurance will be equally likely to be overweight as people with health insurance.
D)there is no correlation between not having health insurance and being overweight.

Answer 1

people without health insurance will be less likely to be overweight than people with health insurance.

Question 2

The study of economics arises due to

A)money.
B)scarcity.
C)greed.
D)resources.

Answer 2

scarcity.

Question 3

The term "market" in economics refers to

A)a place where money changes hands.
B)a legal institution where exchange can take place.
C)a group of buyers and sellers of a product and the arrangement by which they come together to trade.
D)an organization which sells goods and services.

Answer 3

a group of buyers and sellers of a product and the arrangement by which they come together to trade.

Question 4

Scarcity refers to the situation in which

A)unlimited wants exceed limited resources.
B)unlimited resources exceed limited wants.
C)a country's population is larger than its resource base.
D)a nation's poverty level increases faster than its population.

Question 5

In the first six months of 2003,branches of Commerce Bank in New York City were robbed 14 times.The New York City Police recommended steps the bank could take to deter robberies,including the installation of plastic barriers called "bandit barriers." The police were surprised the bank did not take their advice.According to a deputy commissioner of police,"Commerce does very little of what we recommend.They've told our detectives they have no interest in ever putting in the barriers." It would seem that Commerce bank would have a strong incentive to install "bandit barriers" to deter robberies.Why wouldn't they do it?

A)The banks would rather delay installation of any theft deterring equipment in anticipation of new lower cost innovations in the security devices market.
B)The banks must have weighed the cost of installing bandit barriers against the benefits and decided that they have "no interest in ever putting in the barriers."
C)The banks are concerned that "bandit barriers" would send the wrong message to customers -- that the bank is unsafe.
D)The banks probably resent any interference from the police department.

Question 6

Economists assume that

A)individuals behave in unpredictable ways.
B)consumer behavior is explained by the existence of unlimited resources.
C)people put other people's interests ahead of their own.
D)optimal decisions are made at the margin.

Question 7

The revenue received from the sale of an additional unit of a product

A)is a marginal benefit to the firm.
B)is called profit.
C)is called gross sales.
D)is called a net gain.

Question 8

Economists assume that rational people

A)never use all available information as they act to achieve their goals.
B)undertake activities that benefit others and hurt themselves.
C)only weigh the benefits and costs of the most desirable alternative actions.
D)respond to economic incentives.

Question 9

An office supply store sells a ream of printer paper at a fixed price of $4.50.Which of the following is a term used by economists to describe the money received from the sale of an additional ream of paper?

A)marginal revenue
B)gross earnings
C)pure profit
D)marginal costs
E)net benefit

Question 10

According to the Centers for Disease Control and Prevention,the only state in 2009 in which less than 20 percent of the population was considered obese was

A)Colorado.
B)Maine.
C)Missouri.
D)Oregon.

Question 11

As recently as 2002,________ medical practices were owned by doctors as by hospitals,and by 2008,________ medical practices were owned by doctors as by hospitals.

A)less than half as many; less than one-quarter as many
B)more than three times as many; less than half as many
C)more than half as many; more than five times as many
D)less than one-third as many; more than half as many

Question 12

Which of the following best describes an assumption economists make about human behavior?

A)They assume that individuals act rationally all the time in all circumstances.
B)They assume that rational behavior is useful in explaining choices people make even though people may not behave rationally all the time.
C)They assume that people take into account the question of fairness in all decisions they make.
D)They assume that individuals act randomly.

Question 13

What is an economic model?

A)It is a description of an economic issue that includes all possible related information.
B)It is a description of an economic issue based on official government information.
C)It is a detailed version of some aspect of economic life used to analyze an economic issue.
D)It is a simplified version of some aspect of economic life used to analyze an economic issue.

Question 14

________ involves undertaking an activity until its marginal benefits equal marginal costs.

A)Scarcity reduction
B)Central planning
C)Marginal analysis
D)Market intervention

Question 15

Consider the following statements: a.Consumers rent more DVDs from a video store that rents DVDs at a lower price than other rival video stores in the area.
B.Department stores take steps to increase security since they believe it is more costly to allow shoplifting than to install expensive security monitoring equipment.
C.Farmers produce more cotton when its selling price falls.
Which of the above statements demonstrates that economic agents respond to incentives?

A)a only.
B)b only.
C)c only.
D)a and b.
E)a,b,and c.

Question 16

The basic economic problem of scarcity

A)has always existed and will continue to exist.
B)will eventually disappear as technology continues to advance.
C)is a problem only in developing economies.
D)does not apply to the wealthy in society.

Question 17

Economics promotes which of the following as the way to make the best decision?

A)Continue an enjoyable activity as long as you do not have to pay for it.
B)Continue an enjoyable activity until it is no longer enjoyable.
C)Continue an enjoyable activity until you cannot afford to pursue it.
D)Continue an enjoyable activity up to the point where its marginal benefit equals its marginal cost.

Question 18

Economics is the study of the ________ people make to attain their goals,given their ________ resources.

A)purchases; unlimited
B)choices; scarce
C)income; available
D)decisions; household

Question 19

What does the term "marginal" mean in economics?

A)the edge of a market
B)an additional or extra
C)illegal
D)secondary
E)trivial

Question 20

Your roommate,Serafina,a psychology major,said,"The problem with economics is that it assumes that consumers and firms always make the correct decision.But we know that everyone's human,and we all make mistakes." Do you agree with her comment?

A)Yes,I agree with her.One cannot make predictions about economic behavior because in reality people make incorrect choices in many situations.
B)I disagree with her.Economics does not study correct or incorrect behaviors but rather it assumes that economic agents behave rationally,meaning they make the best decisions given their knowledge of the costs and benefits.
C)Yes,I agree with her.Economic theory should allow for irrational behavior so that we can have more reliable predictions.
D)I disagree with her.If we cannot assume that decisions are correct,then we will not be able to examine the moral implications of these decisions.

Question 21

Cassie's Quilts alters,reconstructs and restores heirloom quilts.Cassie has just spent $800 purchasing,cleaning and reconstructing an antique quilt which she expects to sell for $1,500 once she is finished.After having spent $800,Cassie discovers that she would need some special period fabric that would cost her $200 in material and time in order to complete the task.Alternatively,she can sell the quilt "as is" now for $900.What is the marginal cost of completing the task?

A)$200
B)$500
C)$1,000
D)$1,000 plus the value of her time

Question 22

The sales revenue a seller receives from the sale of an additional unit of goods is called the marginal cost.

Question 23

As population declines,scarcity eventually disappears.

Question 24

The term "market" refers only to trading arrangements that have been approved by the government.

Question 25

All economic questions arise from the fact that resources are scarce.

Question 26

If the marginal cost of producing a television is constant at $200,then a firm should produce this item

A)only if the marginal benefit it receives is greater than $200 plus an acceptable profit margin.
B)as long as the marginal benefit it receives is just equal to or greater than $200.
C)as long as its marginal cost does not rise.
D)until the marginal benefit it receives reaches zero.

Question 27

The cost incurred from the production of an additional unit of a product

A)is a marginal cost to the firm.
B)is called a loss.
C)is called opportunity cost.
D)must be zero for a firm to be efficient.

Question 28

Scenario 1-1
Suppose a t-shirt manufacturer currently sells 5,000 t-shirts per week and makes a profit of $10,000 per week. A manager at the plant observes, "Although the last 400 t-shirts we produced and sold increased our revenue by $4,000 and our costs by $4,800, we are still making an overall profit of $10,000 per week so I think we're on the right track. We are producing the optimal number of t-shirts."
Refer to Scenario 1-1.Using marginal analysis terminology,what is another economic term for the incremental revenue received from the sale of the last 400 t-shirts?

A)gross earnings
B)marginal revenue
C)sales revenue
D)gross profit

Question 29

Marginal cost is the ________ associated with undertaking an activity.

A)total cost
B)extra cost.
C)opportunity cost.
D)foregone cost.

Question 30

Cassie's Quilts alters,reconstructs and restores heirloom quilts.Cassie has just spent $800 purchasing,cleaning and reconstructing an antique quilt which she expects to sell for $1,500 once she is finished.After having spent $800,Cassie discovers that she would need some special period fabric that would cost her $200 in material and time in order to complete the task.Alternatively,she can sell the quilt "as is" now for $900.What should she do?

A)She should cut her losses and sell the quilt now.
B)It does not matter what she does; she is going to take a loss on her project.
C)She should purchase the period fabric,complete the task and then sell the quilt.
D)She should not do anymore work on the quilt because she has already spent too much time on it and has not been paid for that time.

Question 31

Before a doctor decides to keep her office open on Saturdays,she should

A)make sure that the marginal cost of doing so will exceed the marginal benefit.
B)only consider the increase in total profit from doing so.
C)weigh the costs and benefits of staying open on Saturdays before deciding if she should go through with this idea.
D)only look at the marginal benefit of doing so,because marginal cost will not change.

Question 32

Cassie's Quilts alters,reconstructs and restores heirloom quilts.Cassie has just spent $800 purchasing,cleaning and reconstructing an antique quilt which she expects to sell for $1,500 once she is finished.After having spent $800,Cassie discovers that she would need some special period fabric that would cost her $200 in material and time in order to complete the task.Alternatively,she can sell the quilt "as is" now for $900.What is her marginal benefit if she sells the quilt "as is" now?

A)$100
B)$900
C)She makes a marginal loss of $600,not a marginal benefit.
D)The marginal benefit cannot be determined.

Question 33

Table 1-1
Eva runs a small bakery in the village of Roggerli.She is debating whether she should extend her hours of operation.Eva figures that her sales revenue will depend on the number of hours the bakery is open as shown in the table above.She would have to hire a worker for those hours at a wage rate of $12 per hour.
Refer to Table 1-1.Using marginal analysis,determine how many hours should Eva extend her bakery's hours of operations?

A)2 hours
B)3 hours
C)4 hours
D)5 hours
E)6 hours

Question 34

Which of the following is an example of a "how much" decision?

A)The Pleasantville movie theatre is open only in the evenings.The theatre's manager is debating whether to add daily matinee shows.
B)The Zhous have demolished their old home and are debating whether to build a ranch-style house or a Craftsman home.
C)You're planning to hold a graduation party and must decide between having your party catered or having a pot-luck.
D)Chelsea has withdrawn from the swim team to take up a full-time job.

Question 35

Scenario 1-1
Suppose a t-shirt manufacturer currently sells 5,000 t-shirts per week and makes a profit of $10,000 per week. A manager at the plant observes, "Although the last 400 t-shirts we produced and sold increased our revenue by $4,000 and our costs by $4,800, we are still making an overall profit of $10,000 per week so I think we're on the right track. We are producing the optimal number of t-shirts."
Refer to Scenario 1-1.Had the firm not produced and sold the last 400 t-shirts,would its profit be higher or lower,and if so by how much?

A)Its profit will be $4,800 higher.
B)Its profit will be $800 higher.
C)Its profit will be $800 lower.
D)Its profit will be $4,000 lower.

Question 36

Table 1-1
Eva runs a small bakery in the village of Roggerli.She is debating whether she should extend her hours of operation.Eva figures that her sales revenue will depend on the number of hours the bakery is open as shown in the table above.She would have to hire a worker for those hours at a wage rate of $12 per hour.
Refer to Table 1-1.What is Eva's marginal benefit if she decides to stay open for two hours instead of one hour?

A)$25
B)$36
C)$60
D)$95

Question 37

Tabitha shares a flea market booth with her sister.Her share of the rent is $150 per month.She is considering moving to her own,larger booth which she will not have to share with anyone.The larger booth rents for $450 per month.Recently,you ran into Tabitha in the grocery store and she tells you that she has rented the larger booth.Tabitha is as rational as any other person.As an economics major,you rightly conclude that

A)Tabitha did not have a choice; her sister was overcharging her.
B)Tabitha figures that the additional benefit of having her own booth (as opposed to sharing)is at least $300.
C)Tabitha figures that the benefit of having her own booth (as opposed to sharing)is at least $450.
D)the cost of having one's own booth outweighs the benefits.

Question 38

Table 1-1
Eva runs a small bakery in the village of Roggerli.She is debating whether she should extend her hours of operation.Eva figures that her sales revenue will depend on the number of hours the bakery is open as shown in the table above.She would have to hire a worker for those hours at a wage rate of $12 per hour.
Refer to Table 1-1.What is Eva's marginal cost if she decides to stay open for two hours instead of one hour?

A)$12
B)$24
C)$36
D)$71

Question 39

Scenario 1-1
Suppose a t-shirt manufacturer currently sells 5,000 t-shirts per week and makes a profit of $10,000 per week. A manager at the plant observes, "Although the last 400 t-shirts we produced and sold increased our revenue by $4,000 and our costs by $4,800, we are still making an overall profit of $10,000 per week so I think we're on the right track. We are producing the optimal number of t-shirts."
Refer to Scenario 1-1.Using marginal analysis terminology,what is another economic term for the incremental cost of producing the last 400 t-shirts?

A)marginal cost
B)operating cost
C)explicit cost
D)Any of the above terms are correct.

Question 40

Marginal benefit is the benefit that your activity provides to someone else.

Question 41

Which of the following is correct about the economic decisions consumers,firms,and the government have to make?

A)Governments may face the problem of shortages but not scarcity in making economic decisions.
B)Only individuals face scarcity; firms and the government do not.
C)Firms and the government face scarcity,individuals only face shortages.
D)Each faces the problem of scarcity which necessitates trade-offs in making economic decisions.

Question 42

It is necessary for all economic systems to provide people with goods and services and also restrict them from getting as much of these goods and services as they wish,because failure to do this could ________ the efficiency of the system by producing some goods and services that are ________.

A)reduce; not as highly valued as others
B)increase; not as highly valued as others
C)reduce; valued more than others
D)increase; valued more than others

Question 43

What is an economic market?

Question 44

Fast food restaurants produce a range of menu items such as hamburgers,chicken sandwiches,salads,and french fries.What fundamental economic question are they addressing by offering this range of items?

A)How to produce goods that consumers want?
B)Why produce a variety of menu items?
C)What to produce?
D)Who to produce the menu items for?

Question 45

Every society faces economic trade-offs.This means

A)some people live better than others do.
B)not everyone can have enough goods to survive.
C)producing more of one good means less of another good can be produced.
D)society's output cannot be made available to all.

Question 46

What is scarcity,and why is it a fundamental concept in economics?

Question 47

Who receives the goods and services produced in the United States depends largely on

A)how income is distributed.
B)how the goods and services are produced.
C)what goods and services are produced.
D)government redistribution.

Question 48

Which of the following is an example of an economic trade-off that a firm has to make?

A)whether it is cheaper to produce with more machines or with more workers
B)deciding why consumers want its products
C)whether or not consumers will buy its products
D)deciding what profit margin it desires for its products

Question 49

Trade-offs force society to make choices when answering what three fundamental questions?

A)What will be the prices of goods and services; how will these goods and services be produced; and who will receive them?
B)What goods and services to produce; how will these goods and services be produced; and who receives them?
C)Who gets jobs; what wages do workers earn; and who owns what property?
D)How much will be saved; what will be produced; and how can these goods and services be fairly distributed?

Question 50

Suppose the extra cost to a doctor of keeping her office open on Saturdays is $800.Then,the doctor should not stay open on Saturdays if keeping the office open can only bring in additional revenue of $800.

Question 51

Which of the following statements is false?

A)Anytime you have to decide which action to take you are facing an economic trade-off.
B)Trade-offs do not apply when the consumers purchase a product for which there is excess supply,such as a stock clearance sale.
C)Every individual,no matter how rich or poor,is faced with making trade-offs.
D)Economics is a social science that studies the trade-offs we are forced to make because of scarcity.

Question 52

What does the word "marginal" mean in economics? What is a marginal benefit? What is a marginal cost? What is marginal analysis?

Question 53

How does a market system prevent people from getting as many goods and services as they wish?

A)Governments interfere with the market mechanism to influence the allocation of goods and services.
B)In a market system,firms can charge any price they want,thus preventing poor people from getting as many goods and services as they wish.
C)The market system allocates goods and services to those who are able to pay for those products and therefore income is a limiting factor.
D)The government imposes taxes on those who earn beyond a certain amount of income.

Question 54

Opportunity cost is defined as

A)the benefit of an activity.
B)the monetary expense associated with an activity.
C)the highest valued alternative that must be given up to engage in an activity.
D)the total value of all alternatives that must be given up to engage in an activity.

Question 55

Ted quits his $60,000-a-year job to be a stay-at-home dad.What is the opportunity cost of his decision?

A)0 since he will no longer be earning a salary
B)depends on the "going rate" for stay-at-home dads
C)at least $60,000
D)the value he attributes to the joy of parenting

Question 56

The Stogie Shop,a cigar store in the mall,sells hand-rolled cigars for $10.00 and machine-made cigars for $2.50 each.What is the opportunity cost of buying a hand-rolled cigar?

A)4 machine-made cigars
B)1/4 of a machine-made cigar
C)$10.00
D)$2.50

Question 57

Suppose a doctor can earn an additional $10,000 in revenue per year from keeping her office open on Saturdays.What must the additional cost of keeping the office open on Saturdays be to make this decision economically rational?

Question 58

Consider the following economic agents: a.the government
B.consumers
C.producers
Who,in a modern mixed 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
E)the government,consumers and producers

Question 59

In a market economy,who decides what goods and services will be produced?

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

Question 60

If it costs Vijay $150 to design 5 websites and $175 to design 6 websites,then $175 is the marginal cost of producing the 6th Websites.

Question 61

Competition forces firms to produce and sell products as long as the ________ to consumers exceeds the ________ of production.

A)marginal benefit; marginal cost
B)marginal benefit; marginal benefit
C)marginal cost; marginal cost
D)marginal cost; marginal benefit

Question 62

Productive efficiency is achieved when firms produce goods and services

A)most desired by society.
B)at the highest profit margin.
C)at the lowest cost.
D)of the highest quality.

Question 63

Which of the following contributed to the downfall of the Soviet Union in 1991?

A)public dissatisfaction with low living standards and political repression
B)producing higher-quality goods than were desired by consumers
C)the rapidly increasing standard of living
D)the lack of a strong dictator who can coordinate economic activities

Question 64

________ occurs when economic benefits are distributed fairly.

A)Productive efficiency
B)Allocative efficiency
C)Equality
D)Equity

Question 65

In a market economy,________ interact in markets to decide the answers to the fundamental economic questions.

A)state and local governments
B)large corporations
C)households and firms
D)the judicial and legislative branches of the federal government

Question 66

Dr.Goldfinger decides to invest in companies which he believes can "improve the productivity and efficiency" of health care services.What would Dr.Goldfinger need to do to try to achieve allocative efficiency?

A)invest in companies that produce goods and services based on consumer preferences
B)invest in companies that produce goods and services at the lowest possible cost
C)invest in companies that fairly distribute their products and services
D)invest in companies that produce up to the point where the marginal cost of the last unit produced is zero.

Question 67

Which of the following is motivated by an equity concern?

A)Some U.S.colleges have cut back on merit scholarships since these programs siphon money from need-based programs,thus harming lower-income students with greater financial need.
B)Following the removal of subsidies in urban water use,household demand for water decreased quite significantly in Bogor,Indonesia.
C)In November 2003,the Federal Communications Commission implemented the "local number portability" rule which gives cell phone customers the option of keeping their number when they switch carriers within the same geographic region.
D)The United States protects intellectual property rights,allowing inventors to prevent others from using their inventions without payment.

Question 68

Which of the following generates allocative efficiency in a market economy?

A)national government intervention
B)voluntary exchange between buyers and sellers
C)United Nations rules for competition
D)equity

Question 69

Which of the following contributes to the efficiency of markets?

A)Governments play an active role in the day-to-day operations of markets.
B)Markets are able to bring about an equitable distribution of goods and services.
C)Markets promote equal standards of living.
D)Markets promote competition and voluntary exchange.

Question 70

Allocative efficiency is achieved when

A)goods and services are fairly distributed among consumers in an economy.
B)firms produce the goods and services that consumers value most.
C)firms produce goods and services at the lowest cost.
D)there are no shortages or surpluses in the market.

Question 71

Dr.Goldfinger decides to invest in companies which he believes can "improve the productivity and efficiency" of health care services.How can Dr.Goldfinger strive to achieve this productive efficiency?

A)by investing in companies that produce goods and services based on consumer preferences
B)by investing in companies that produce goods and services at the lowest possible cost
C)by investing in companies that fairly distribute their products and services
D)by investing in companies that produce up to the point where the marginal benefit of the last unit produced is equal to the marginal cost of producing it.

Question 72

Voluntary exchange increases economic efficiency

A)because neither the buyer nor the seller would agree to a trade unless they both benefit.
B)because voluntary exchange only takes place with government permission.
C)because it is free and consequently does not cost anything.
D)because it allows wealthy individuals to act altruistically and give to the poor.

Question 73

In a market economy,those who are willing and able to buy what is produced

A)receives what the government allows them to receive.
B)receive the most of what is produced.
C)receive no more than everyone else in the market.
D)solely determine what is produced.

Question 74

When goods and services are produced at the lowest possible cost,________ occurs.

A)allocative efficiency
B)productive efficiency
C)equity
D)efficient central planning

Question 75

When every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it,________ occurs.

A)allocative efficiency
B)productive efficiency
C)equity
D)efficient central planning

Question 76

Selling tickets to graduation ceremonies has long been a tradition among students at institutions that limit the number of guests.Suppose your classmate,Heidi purchased two tickets for $40 each.Is this transaction economically efficient?

A)No,people should never be allowed to sell items they received for free.
B)Yes,it was a voluntary exchange that benefited both parties.
C)No,Heidi paid too much for the tickets.
D)Yes,it is efficient only from the perspective of the seller and not from the perspective of the buyer.

Question 77

Competition among sellers generates

A)productive efficiency.
B)allocative efficiency.
C)equity.
D)scarcity.

Question 78

All ________ economies have been political dictatorships.

A)centrally planned
B)mixed
C)market
D)mixed and market

Question 79

Which of the following is a problem inherent in centrally planned economies?

A)There are no problems and everyone,including consumers,is satisfied.
B)There is too much production of low-cost,high-quality goods and services.
C)Production managers are more concerned with satisfying government's orders than with satisfying consumer wants.
D)Unemployment is too high.

Question 80

How are the fundamental economic decisions determined in Cuba?

A)Individuals,firms,and the government interact in a market to make these economic decisions.
B)These decisions are made by the country's elders who have had much experience in answering these questions.
C)The government decides because Cuba is a centrally planned economy.
D)The United Nations decides because Cuba is a developing economy.