TABLE OF CONTENTS Chapter 1 First Principles Chapter 2 Economic Models: Trade-offs and Trade Chapter 3 Supply and Demand Chapter 4 Consumer and Producer Surplus Chapter 5 Price Controls and Quotas: Meddling with Markets Chapter 6 Elasticity Chapter 7 Taxes Chapter 8 International Trade Chapter 9 Decision Making by Individuals and Firms Chapter 10 The Rational Consumer Chapter 11 Behind the Supply Curve: Inputs and Costs Chapter 12 Perfect Competition and the Supply Curve Chapter 13 Monopoly Chapter 14 Oligopoly Chapter 15 Monopolistic Competition and Product Differentiation Chapter 16 Externalities Chapter 17 Public Goods and Common Resources Chapter 18 The Economics of the Welfare State Chapter 19 Factor Markets and the Distribution of Income Chapter 20 Uncertainty, Risk, and Private Information
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Chapter 01 1. Which of the following topics would be studied in macroeconomics? a. changes in airline travelers’ vacation plans due to changes in the prices of airline tickets b. the effects of a tax reduction on the profits of Home Depot c. recessions d. unemployment among workers displaced as more firms move to cloud-based applications ANSWER: c 2. The basic concern of microeconomics is to: a. ensure that the government pursues the public good during pandemics. b. make sure small businesses thrive. c. study the choices people make, given unlimited wants. d. determine how unlimited resources can best be used to satisfy limited wants. ANSWER: c 3. How people choose among the alternatives available to them is: a. not part of the study of economics. b. impossible to describe. c. studied in microeconomics. d. unimportant to the study of microeconomics. ANSWER: c 4. Which of the following is a microeconomic topic? a. reasons why a consumer buys more cheese b. reasons why inflation is rising c. what the government will do to address unemployment d. the effect of the budget deficit on the rate of interest ANSWER: a 5. Scarcity occurs in economics because: a. we often do not have sufficient resources to achieve our objectives. b. the wants of individual consumers are limited. c. there are poor people even in rich countries. d. taxes keep prices higher than they would otherwise be. ANSWER: a 6. If resources are scarce: a. they are insufficient to provide enough goods and services to satisfy all human material wants and
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Chapter 01 needs. b. there are not enough of them for firms to produce goods and services. c. they are probably overvalued by consumers. d. their supply is unlimited. ANSWER: a 7. A central and fundamental theme in economics is that: a. for me to have something, someone else must be willing to give it up. b. the United States is a rich country, but we are simply not aware of it. c. there are not enough resources available to satisfy all the ways a society wants to use them. d. we can build as much as we want, since resources are unlimited. ANSWER: c 8. In a society with a market economy, decisions made by society as a whole emerge from many individual choices. Which of the following exemplifies this phenomenon? a. The volume of work performed by the American workforce. b. The market demand for oranges. c. Whether a firm is profitable enough to remain in business. d. All of these exemplify this phenomenon. ANSWER: d 9. _____________, that is, decisions by an individual about what to do and what not to do, is the basis for economics. a. Opportunity cost b. Utility c. Marginal choice d. Individual choice ANSWER: d 10. _____________ forces us to make choices. a. Opportunity cost b. Marginal decision making c. Scarcity d. Market failure ANSWER: c Copyright Macmillan Learning. Powered by Cognero.
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Chapter 01 11. In our interactions with other consumers (or individuals), we are forced to make choices because of: a. utility and demand exploitation. b. efficiency considerations. c. scarcity. d. decisions made at the margin. ANSWER: c 12. Scarcity exists when: a. making choices among two or more alternatives is unnecessary (i.e., there is no opportunity cost). b. individuals can have as much of any good as they wish without giving up anything else. c. individuals can have more of a good only by giving up something else. d. the trade-off that arises because resources are limited is not a consideration. ANSWER: c 13. There are many freshwater lakes in the United States. However, freshwater is scarce because: a. it has no alternative uses. b. there is not enough of it to meet all needs. c. the government limits its use through regulations. d. it has a high opportunity cost. ANSWER: b 14. Fresh water is considered a scarce good because: a. not enough of it is available to meet all needs. b. it has limited uses. c. most fresh water is hard to access. d. it is mostly privately owned. ANSWER: a 15. The problem of determining what goods and services society should produce: a. exists because we can produce any amount of a good we need or want, making choice difficult. b. exists because there are not enough resources to provide all the goods and services that people want. c. would not exist if all levels of government would agree to supply goods and services to those that do not have enough. d. would not exist if a central planning bureau were to decide how to allocate resources. ANSWER: b 16. Which resource does NOT pertain to the production of avocados? Copyright Macmillan Learning. Powered by Cognero.
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Chapter 01 a. fertile land on which to grow avocado trees b. workers to tend the land and water the plants c. equipment to aid planting and harvesting avocado trees d. income obtained from the sale of avocados ANSWER: d 17. A resource is anything that: a. can be used to produce of goods and services. b. you pay for. c. must be given up to get something else. d. can be consumed readily by a market participant. ANSWER: a 18. We have to make choices because: a. we have unlimited income and must decide what to purchase. b. the resources available to us are scarce. c. the resources we would like to use in production are infinite. d. with good planning, trade-offs can be avoided. ANSWER: b 19. A sushi chef prepares a California roll for a customer. Which of the following factors is physical capital? a. the sushi chef b. the knife use to cut the sushi c. the ingredients used to prepare the dish d. the skills the sushi chef has acquired that enables him to perform this feat ANSWER: b 20. Susan is attending university and majoring in actuarial mathematics. Susan is thereby accumulating: a. land. b. labor. c. physical capital. d. human capital. ANSWER: d 21. Which item is NOT an example of a resource? a. land Copyright Macmillan Learning. Powered by Cognero.
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Chapter 01 b. employees working for wages at your local McDonald’s c. a factory used to make airplane engines d. a loaf of bread purchased at your local grocery store ANSWER: d 22. Which factor can BEST be described as a resource used to produce iPhones? a. money from investors b. wages of software engineers who code iPhones c. software engineers who code iPhones d. taxes on profits from the sale of iPhones ANSWER: c 23. Opportunity cost is: a. the amount you pay to take advantage of a lucrative opportunity. b. a payment not made for a product. c. the benefit derived from a product. d. the value of the best alternative forgone in making a choice between alternatives.. ANSWER: d 24. The opportunity cost of a good is: a. smaller during periods of economic recession. b. equal to the monetary cost of the good. c. larger during economic booms. d. what is given up to acquire the good. ANSWER: d 25. Whenever a good is purchased: a. the cost of the good is its opportunity cost. b. the cost of the good is easy to measure in terms of the price paid for it. c. overall efficiency increases. d. scarcity will increasingly constrain the future availability of the good. ANSWER: a 26. You can spend $300 on either a pair of new Air Jordan sneakers or a new skateboard. If you choose to buy the Air Jordans, the opportunity cost is: a. $300. Copyright Macmillan Learning. Powered by Cognero.
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Chapter 01 b. your enjoyment of the new skateboard. c. both the $300 and your enjoyment of the new skateboard. d. impossible to determine. ANSWER: b 27. Emma spends $40,000 for one year’s tuition at university. The opportunity cost of one year at university for Emma is: a. $40,000. b. whatever she would have purchased with the $40,000 had she not attended university. c. whatever she would have earned had she not attended university. d. whatever she would have purchased with the $40,000 plus whatever she would have earned had she not attended university. ANSWER: d 28. If the state of New York allocates additional spending on after-school programs for at-risk youths, then the opportunity cost of these expenditures is: a. zero, if the state is running a budget surplus. b. the dollar amount of the additional spending. c. relevant only if taxes must be raised to fund the spending. d. the value of alternative expenditures forgone in making this allocation. ANSWER: d 29. Ralph is offered a free ticket to a Yankees game—a ticket he cannot resell. His opportunity cost of going to the baseball game is: a. zero—the ticket was free. b. the price listed on the ticket. c. whatever Ralph would have done had he not gone to the game. d. the price listed on the ticket and whatever Ralph would have done had he not gone to the game. ANSWER: c 30. A new Subway location has offered a prize—a free meal (valued at $5) each week for a year—to its first 100 customers on opening day. Isabella camped out for 48 hours before the opening to be one of the first 100 customers and successfully obtained the prize. The cost to Isabella of obtaining the “free meal a week for a year” prize was: a. zero, since it was free. b. $260—the amount that would have to be paid if it were not free. c. whatever else she would have done with the 48 hours. Copyright Macmillan Learning. Powered by Cognero.
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Chapter 01 d. the amount that would have to be paid if it were not free plus whatever else she would have done with the 48 hours. ANSWER: c 31. King Taco charges the same price for everything on its menu: $5 will buy a taco, a burrito, or nachos. You buy the burrito and think that if you had not purchased the burrito, you would have purchased the taco. The opportunity cost of the burrito is: a. $5. b. your forgone enjoyment of the taco. c. $5 and your forgone enjoyment of the taco. d. $5 and your forgone enjoyment of the taco and the nachos. ANSWER: b 32. For an economist, the cost of a good is: a. the dollar amount of money you paid to get it. b. what you gave up to get it. c. always equal to the true market value of the good. d. the quantity of resources used to produce it. ANSWER: b 33. The BEST measure of the opportunity cost of a choice is: a. the dollar value of the cost of that choice. b. whatever you gave up to make that choice, even if no monetary costs are involved. c. the cost associated with not taking full advantage of the opportunity offered by that choice. d. the salary you did not make as a result of the choice. ANSWER: b 34. The cost of postponing the Tokyo Olympics to 2021 in the wake of the Covid-19 virus outbreak ________ an opportunity cost of hosting the 2020 Olympic Games ________. a. is not; because few people attending the 2020 Olympics will spend much time outside Olympic venues b. is; if the costs of the Tokyo postponement are equal to a significant percentage of the total amount spent by Tokyo taxpayers to host the 2020 Olympics c. is; if the cost of postponing the Tokyo games would not occur unless Tokyo was hosting the 2020 Olympic games. d. is not; because the cost of postponing the Tokyo Olympics is a necessary expense ANSWER: c Copyright Macmillan Learning. Powered by Cognero.
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Chapter 01 35. While buying refreshments for an upcoming party, you notice that a six-pack of Bud Lite Beer costs $6 and that a six-pack of Miller Lite Beer costs $8. You buy the six-pack of Miller Lite Beer, although you wonder if maybe two six-packs of Bud Lite Beer would have been a better choice. The opportunity cost of the Miller Lite Beer is: a. $8. b. a six-pack of Bud Lite Beer. c. two six-packs of Bud Lite Beer. d. $8 and the six-pack of Bud Lite Beer. ANSWER: c 36. Your sister tells you, “I haven’t been running the half marathon as before because I’m concerned about reinjuring my knee. See, there is always a cost to doing something. But if you don’t do anything, then there is no cost.” Your sister does not understand the economic concept of: a. scarcity. b. efficiency. c. opportunity cost. d. marginal analysis. ANSWER: c 37. Savannah’s grandparents are excited about finally paying off their car because, as they say, “Our cost of driving is now zero.” Savannah should explain to them the economic concept of: a. marginal analysis: if the additional cost of driving is zero, then their additional benefit is also zero. b. opportunity cost: by driving the car, they are giving up the opportunity to sell it, buy a smaller one, and pocket the difference. c. efficiency: if their cost of driving is now zero, they should let Savannah and her sisters drive the car whenever they want. Savannah is better off, and her grandparents aren’t hurt. d. equity: it is unfair that some people are still paying their car loans, while others are not. ANSWER: b 38. The University of Georgia recently received a large donation from a wealthy alumnus in the form of an old heritage mansion. The university plans to use the mansion for faculty parties and to house distinguished guests. The opportunity cost of the mansion to the university is: a. zero, because it was a gift. b. the original cost of building the mansion. c. the amount the university would receive if it sold the mansion. d. the cost of catering parties at the mansion. ANSWER: c Copyright Macmillan Learning. Powered by Cognero.
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Chapter 01 39. Ryanair is considering offering discounted flights from New York to Honolulu. The airline is offering a free round-trip ticket to Hawaii to the first 600 people who show up at the new Honolulu counter in the airline’s main office, starting Monday, the first day of business. You arrive 24 hours before it is scheduled to open to be sure to get the free ticket, and you buy food from airport vendors while waiting in line. You successfully obtain the ticket. What was the cost to you of obtaining the ticket? a. the actual value of the ticket b. the cost of food while you waited in line c. the cost of food while you waited in line and the opportunity cost of the time you spent in line d. the actual value of the ticket and the cost of food while you waited in line. ANSWER: c 40. A friend comes up to you and offers you a free ticket to a Yankees game that night, and you decide to attend the game. The game takes five hours and costs you $25 for transportation. If you had not attended the game, you would have worked at your part-time job for $12 an hour. What is the cost to you of attending the game? a. The cost is zero—the ticket is free. b. $85 c. $60 d. $55 ANSWER: b 41. For a student who owns his or her own apartment near the university campus and so does not need to live in a dorm, the cost of going to university is: a. tuition and the cost of housing. b. tuition, the cost of housing, and the cost of school supplies. c. tuition, the cost of school supplies, and forgone income. d. forgone income only. ANSWER: c 42. You have $5 to spend on a vending machine snack. A pack of gum will cost you $2.50, and a chocolate bar will also cost you $2.50. If you choose to buy the pack of gum, the opportunity cost of the gum is: a. $2.50 plus the enjoyment you would have received from the chocolate bar. b. $5 minus the enjoyment you received from the pack of gum. c. $2.50. d. the enjoyment you would have received from the chocolate bar. ANSWER: d 43. A university student faces the difficult decision of how to spend one hour tonight. She could babysit her professor’s child at an hourly wage of $6; she could work at the college library at a wage of $12; or she could Copyright Macmillan Learning. Powered by Cognero.
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Chapter 01 finish her economics homework assignment. If she chooses to complete her homework assignment, she has incurred an opportunity cost equal to: a. $6. b. $12. c. $18. d. $0. ANSWER: b 44. If you decide to go to Daytona with your friends during spring break, you cannot go to London with your brother in the summer. Which economic principle does this statement BEST represent? a. The true cost of something is its opportunity cost. b. “How much” is a decision at the margin. c. People usually respond to incentives, exploiting opportunities to make themselves better off. d. There are gains from trade. ANSWER: a 45. You decide to join the football team, but this means you can’t join the basketball team, as the practices for the two teams occur at the same time. Which economic principle does this statement BEST represent? a. The true cost of something is its opportunity cost. b. “How much” is a decision at the margin. c. People usually respond to incentives, exploiting opportunities to make themselves better off. d. There are gains from trade. ANSWER: a 46. The student center on campus has tacos, nachos, or club sandwiches for lunch, and they all cost the same. You decide to have a club sandwich today, but if they were out of club sandwiches, you would have had nachos. Your opportunity cost of buying a club sandwich is your foregone enjoyment of the: a. club sandwich. b. nachos. c. taco. d. nachos and the taco. ANSWER: b 47. The economic way of thinking entails: a. the analysis of costs, benefits, and trade-offs. b. the analysis of prices and opportunity costs. c. making choices at the margin. Copyright Macmillan Learning. Powered by Cognero.
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Chapter 01 d. distinguishing between microeconomics and macroeconomics. ANSWER: c 48. A choice made at the margin: a. involves distinguishing between microeconomics and macroeconomics. b. is an analysis of costs, benefits, and trade-offs. c. is a choice regarding whether to do a little more or a little less of an activity. d. involves comparing the costs and benefits of an activity. ANSWER: c 49. Which decision is the BEST example of making a choice at the margin? a. buying a new backpack b. not renewing your gym membership c. drinking another cup of matcha tea d. attending university ANSWER: c 50. You decide whether to eat one more slice of cheesecake based on how hungry you feel. Which economic principle does this statement BEST represent? a. Choices are necessary because resources are scarce. b. The true cost of something is its opportunity cost. c. “How much” is a decision at the margin. d. People respond to incentives, exploiting opportunities to make themselves better off. ANSWER: c 51. The notion of decisions at the margin concerns: a. making incremental choices. b. choosing all or none of something. c. buying stocks on margin. d. making difficult choices. ANSWER: a 52. Scarlet is a manager at the local Apple store. In determining whether to buy a few additional iPhones, Scarlet chooses at the margin when she compares a. the total revenue from sales of iPhones to the total cost of buying iPhones. b. the extra revenue from selling a few additional iPhones to the extra cost of buying those iPhones. c. the extra revenue from selling a few additional iPhones to the average cost of buying those iPhones. Copyright Macmillan Learning. Powered by Cognero.
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Chapter 01 d. the revenue from selling iPods to the revenue from selling iPhones. ANSWER: b 53. The BEST example of choosing at the margin is deciding whether to: a. buy a new tablet. b. change your job. c. eat another burger. d. attend a Lakers game. ANSWER: c 54. Ivanka will make $20 by working an additional hour, but she will lose an hour of studying for her economics test. Ivanka decides to study rather than work. Ivanka’s choice indicates that she: a. values an additional hour of studying more than the $20 she would earn working. b. values an hour of studying less than the $20 she would earn working. c. does not understand that there is no benefit from studying. d. knows that she can make up the missing hours once the test is over. ANSWER: a 55. Thinking in economic terms, when Abigail decides whether to eat another banana split, she: a. considers only the price of the banana split. b. considers only how much additional exercise she will need to work off the calories gained by eating another banana split. c. compares all of the benefits and costs of eating another banana split. d. considers whether she can do so without anyone else noticing. ANSWER: c 56. For which decision would marginal analysis be MOST relevant? a. Should I go to university or get a job after finishing high school? b. Should I eat another waffle? c. Should I use my $200,000 inheritance as a down payment on a house or invest in the stock market? d. Should I get married? ANSWER: b 57. For which decision would marginal analysis be MOST relevant? a. Should Georgina accept a job with American Airlines or with the Humane Society? b. Should Martin go to graduate school after finishing university? c. Should Natalia emigrate to Canada or stay in Spain? Copyright Macmillan Learning. Powered by Cognero.
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Chapter 01 d. Should Abby work an additional hour or take a short nap? ANSWER: d 58. Which of the following questions would NOT involve marginal analysis: a. How many minutes should I exercise? b. How many workers should I hire? c. What is an acceptable rate of negative side effects from a new medicine?. d. Should I attend college? ANSWER: d 59. Which of the following questions would NOT involve marginal analysis: a. How many minutes should I train at the gym? b. How many workers should I fire? c. What is an acceptable rate of absorption of a new medicine into the bloodstream? d. Should I attend the Lakers game? ANSWER: d 60. Marginal analysis: a. refers to decisions about whether or not to engage in a particular activity. b. is primarily used when making an either–or choice. c. is used primarily when deciding how much of an activity to undertake. d. does not help when making a “how much” choice. ANSWER: c 61. Your neighbor is planting her garden one afternoon when she stops to have a beer. She drinks one glass and is now deciding whether to have a second glass. This is an example of _____ analysis. a. marginal b. individual choice c. economic d. equilibrium ANSWER: a 62. After eating three churros, you decide to eat one more. Your choice is a(n): a. opportunity-cost decision. b. either–or decision. c. equity decision. Copyright Macmillan Learning. Powered by Cognero.
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Chapter 01 d. marginal decision. ANSWER: d 63. You are planning to study 12 hours this week for your mathematics final and are considering studying a 13th hour. You should: a. compare the benefits of one more hour of study with the cost of one less hour of sleep. b. compare the benefits of one more hour of study with the cost of one less hour of studying calculus. c. compare the benefits of one more hour of study with the cost of one less hour of work at Starbucks, your part-time job. d. make your decision based on the cost of the next best alternative use of your time compared to the benefit of one more hour of study. ANSWER: d 64. Marginal analysis is the study how of individuals decide: a. whether to live on the margins of society. b. whether to do a bit more of an activity or a bit less of it. c. whether to attend a university or not. d. how large a down payment to make when buying a new house. ANSWER: b 65. You are analyzing a trade-off when you compare the _____ and _____ of doing something. a. direct costs; opportunity costs b. marginal benefits; total benefits c. costs; benefits d. money costs; marginal benefits ANSWER: c 66. For which decision would marginal analysis be MOST relevant? a. Should I invest my inheritance in real estate or put it all in the stock market? b. After I graduate from college, should I go to graduate school or go directly into the job market? c. What is the right amount of hours to study for my exam? d. Should I get a dog? ANSWER: c 67. Some football fans leave the game at the two-minute warning (especially when the outcome is pretty assured) to avoid the postgame traffic. These fans are: a. not considering that they have already paid for their tickets. Copyright Macmillan Learning. Powered by Cognero.
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Chapter 01 b. making a marginal decision by comparing the cost of leaving early to the benefit of leaving early. c. thinking only about the benefits of avoiding traffic. d. underestimating the value of staying for the rest of the game. ANSWER: b 68. Which question is an example of marginal analysis? a. How many more houses can I build if I hire another building crew? b. How do tax cuts change investment opportunities to middle income Americans? c. What would be the impact of a trade embargo with China on labor costs? d. Should a commuter take the subway to work instead of driving. ANSWER: a 69. Which decision is an example of marginal analysis? a. ordering Mexican food rather than eating leftover meatloaf b. deciding whether to eat one more taco c. using a coupon to save $2 on a burrito d. writing a check to pay for Mexican delivery rather than using a credit card ANSWER: b 70. Which statement demonstrates how people respond to incentives to make themselves better off? a. More students major in mathematics when they hear that the salaries of statisticians are rising. b. Students are assigned lab partners through a lottery system. c. Students are encouraged to donate blood because it is the right thing to do. d. Students and faculty are encouraged to wear school colors during annual alumni week to support the college athletic teams. ANSWER: a 71. Given that people usually exploit opportunities to make themselves better off, which of the following policies is MOST likely to reduce road congestion in Los Angeles (the worst traffic city in America)? a. a limited number of free parking passes for the first 100 who arrive prior to 6 A.M. b. a toll road that requires each car to pay a congestion fee to enter the city center c. an increase in the price of bus fare to and from the city d. allowing electric cars to ride in the reserved bus lanes ANSWER: b 72. Which method will MOST effectively encourage people to reduce their carbon footprint, given that people usually exploit opportunities to make themselves better off? Copyright Macmillan Learning. Powered by Cognero.
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Chapter 01 a. appealing to consumers to be good citizens b. publicizing the environmental benefits of a reduced carbon footprint c. imposing a tax per unit of estimated car emissions generated d. advertising different ways an individual can reduce one’s carbon footprint ANSWER: c 73. Which method of discouraging speeding is likely to be MOST effective, given that people usually exploit opportunities to make themselves better off? a. increasing the posted speed limit b. increasing the fines associated with speeding c. reminding drivers of the dangers of speeding d. asking drivers to reduce speed because it makes the roads safer ANSWER: b 74. In an attempt to reduce accidental driving deaths, some cities have offered money to people who phone in illegal driving behaviors to a telephone tip line. Under this program, the government uses _____ to influence behavior. a. financial incentives b. law c. marginal analysis d. the gains from trade ANSWER: a 75. Because people usually exploit opportunities to make themselves better off, if the price of gasoline falls and stays low for an extended period (as has been generally seen in the time of the coronavirus pandemic), we expect people to: a. decrease the number of miles they drive. b. buy smaller and more fuel-efficient cars. c. use less public transportation. d. ride their bicycles more. ANSWER: c 76. Because people usually exploit opportunities to make themselves better off, if the price of gasoline falls and stays low for an extended period, we expect people to: a. reduce their reliance on gasoline-powered cars. b. buy larger and less fuel-efficient cars. c. use more public transportation. Copyright Macmillan Learning. Powered by Cognero.
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Chapter 01 d. ride bicycles. ANSWER: b 77. Given that people usually exploit opportunities to make themselves better off, to encourage people to retire sooner, the government could: a. increase Social Security benefits. b. decrease the tax rate on older, unretired individuals. c. eliminate tax benefits for retirees d. decrease Social Security benefits. ANSWER: a 78. Because people usually exploit opportunities to make themselves better off, to encourage young people to attend a university in their hometown or home state, local and in-state universities can: a. charge higher tuition to in-state students. b. award special scholarships to out-of-state students. c. offer high-interest loans to in-state students. d. offer lower tuition to in-state students. ANSWER: d 79. Given that people usually exploit opportunities to make themselves better off, which method of energy conservation is likely to be MOST effective? a. appealing to individuals to be good citizens b. asking citizens to voluntarily reduce their energy consumption c. imposing a per-unit tax on energy consumption d. advertising the negative environmental impact of overuse of energy ANSWER: c 80. Economists tend to believe that to change people’s behavior, you must: a. make the cost associated with the behavior small. b. change people’s incentives. c. legislate that people act so as to bring about a desired outcome. d. appeal to people’s general societal values. ANSWER: b 81. Which statement is true, according to standard economic theory? a. Resources are scarce when they can satisfy everyone’s wants. b. The true cost of a choice is what you must give up when choosing between alternatives. Copyright Macmillan Learning. Powered by Cognero.
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