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Survey of Economics: Principles, Applications, and Tools, 8e (O'Sullivan/Sheffrin/Perez) Chapter 1 Introduction: What Is Economics? 1.1 What Is Economics? 1) Economics is best defined as the study of: A) financial decision-making. B) how consumers make purchasing decisions. C) the choices made by people faced with scarcity. D) inflation, unemployment, and economic growth. Answer: C Diff: 1 Topic: What Is Economics? Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 2) Economics is the study of: A) how to invest in the stock market. B) how society uses limited resources. C) the role of money in markets. D) how government officials decide which goods and services are produced. Answer: B Diff: 1 Topic: What Is Economics? Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 3) Scarcity can best be defined as a situation in which: A) there are no buyers willing to purchase what sellers have produced. B) there are not enough goods to satisfy all of the buyers' demand. C) the resources we use to produce goods and services are limited. D) there is more than enough money to satisfy consumers' wants. Answer: C Diff: 1 Topic: What Is Economics? Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist

4) An arrangement that allows buyers and sellers to exchange things is called: A) a contract. B) a market. C) money. D) efficient. Answer: B Diff: 1 Topic: What Is Economics? Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 5) Because resources are limited: A) only the very wealthy can get everything they want. B) firms will be forced out of business. C) the availability of goods will be limited but the availability of services will not. D) people must make choices. Answer: D Diff: 1 Topic: What Is Economics? Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 6) A trade-off refers to: A) allowing the government and other organizations to choose for us. B) sacrificing one thing for another. C) deciding who consumes the products produced in an economy. D) holding other variables fixed. Answer: B Diff: 1 Topic: What Is Economics? Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist

7) Resources are all of the following EXCEPT: A) unlimited and in abundance. B) the things we use to produce goods and services. C) limited in quantity and can be used in different ways. D) scarce and therefore require choices to be made. Answer: A Diff: 1 Topic: What Is Economics? Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 8) The knowledge and skills acquired by a worker through education and experience is a description of which factor of production? A) physical capital B) human capital C) labor D) entrepreneurship Answer: B Diff: 1 Topic: What Is Economics? Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 9) The physical and mental effort people use to produce goods and services is a description of which factor of production? A) physical capital B) human capital C) labor D) entrepreneurship Answer: C Diff: 1 Topic: What Is Economics? Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist

10) The effort used to coordinate the factors of production is a description of: A) physical capital. B) human capital. C) labor. D) entrepreneurship. Answer: D Diff: 1 Topic: What Is Economics? Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 11) All of the following are considered natural resources EXCEPT: A) a coral reef. B) gold. C) labor. D) a redwood forest. Answer: C Diff: 1 Topic: What Is Economics? Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 12) Normative economics: A) is the focus of most modern economic reasoning. B) answers the question "What ought to be?" C) predicts the consequences of alternative actions. D) answers the question "What is?" Answer: B Diff: 1 Topic: Positive versus Normative Analysis Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist

13) Which of the following is an example of a normative question? A) How will an increase in the inheritance tax affect tax revenues? B) What fraction of an income tax cut will be spent on imported goods? C) Should Florida implement a state income tax to reduce its deficit? D) How will an increase in unemployment benefits affect the unemployment rate? Answer: C Diff: 1 Topic: Positive versus Normative Analysis Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 14) Which of the following is a question answered with positive economic analysis? A) Should the college reduce tuition for out-of-state residents? B) Should the college charge higher tuition for part-time students? C) If the college increased its eligibility requirements for enrollment, will class sizes decline? D) Should the college eliminate its athletic program to cut its costs? Answer: C Diff: 2 Topic: Positive versus Normative Analysis Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 15) Which of the following is a question answered with normative economic reasoning? A) If the college offers free textbooks for students, will more students read their textbooks? B) If the college provided less financial aid for out-of-state students, would more in-state students benefit? C) If the college increased its enrollment requirements, would class size decline? D) Should the college increase tuition to fund its athletic programs? Answer: D Diff: 2 Topic: Positive versus Normative Analysis Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist

16) The 3 key economic questions include all of the following EXCEPT: A) "What products do we produce?" B) "How do we produce these products?" C) "Where should these products be produced?" D) "Who consumes the products?" Answer: C Diff: 1 Topic: The Three Key Economic Questions: What, How, and Who? Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 17) Deciding how a society's products are distributed among its citizens answers the economic question of: A) "Who consumes the products produced?" B) "What products will be produced?" C) "Where will the products be consumed?" D) "How will the products be produced?" Answer: A Diff: 1 Topic: The Three Key Economic Questions: What, How, and Who? Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 18) Deciding if a company will produce automobiles by robotics or manual labor answers the economic question of: A) "Who consumes the products produced?" B) "What products will be produced?" C) "Where will the products be consumed?" D) "How will the products be produced?" Answer: D Diff: 1 Topic: The Three Key Economic Questions: What, How, and Who? Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist

19) Deciding if a power company will generate electricity from wind power or coal answers the economic question of: A) "Who consumes the products produced?" B) "What products will be produced?" C) "Where will the products be consumed?" D) "How will the products be produced.?" Answer: D Diff: 1 Topic: The Three Key Economic Questions: What, How, and Who? Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 20) An economic model is a: A) realistic version of an economic environment. B) detailed version of an economic issue. C) fictional representation of an entire economy. D) simplified representation of an economic environment. Answer: D Diff: 1 Topic: Economic Models Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 21) Economic models are used to: A) explain every detail of an economic theory. B) explore decision making by individuals, firms and other organizations. C) build physical renditions of government construction projects. D) represent the complexities of economic environments. Answer: B Diff: 1 Topic: Economic Models Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist

22) Talking about alternatives is the first step in a process that helps us make better choices about how we use our resources. Answer: TRUE Diff: 1 Topic: What Is Economics? Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 23) In the past few centuries, choices have led to a substantial decline in the standards of living around the globe. Answer: FALSE Diff: 1 Topic: What Is Economics? Skill: Fact AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 24) Scarcity is a situation in which resources are unlimited in quantity and can be used in different ways. Answer: FALSE Diff: 1 Topic: What Is Economics? Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 25) Positive economics answers the question, "What ought to be?" Normative economics predicts the consequences of alternative actions, answering the questions, "What is?" or "What will be?" Answer: FALSE Diff: 1 Topic: Positive versus Normative Analysis Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist

26) Normative economics answers the question, "What ought to be?" Positive economics predicts the consequences of alternative actions, answering the questions, "What is?" or "What will be?" Answer: TRUE Diff: 1 Topic: Positive versus Normative Analysis Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 27) Most modern economic analysis is normative in nature, but involves questions with positive aspects. Answer: FALSE Diff: 1 Topic: Positive versus Normative Analysis Skill: Fact AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 28) Economists will always reach the same conclusion in their positive analyses. Answer: FALSE Diff: 1 Topic: Positive versus Normative Analysis Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 29) One of the key economic questions is, "Where should products be produced?" Answer: FALSE Diff: 1 Topic: The Three Key Economic Questions: What, How, and Who? Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 30) One of the key economic questions is, "Who consumes the products?" Answer: TRUE Diff: 1 Topic: The Three Key Economic Questions: What, How, and Who? Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 9 Copyright © 2020 Pearson Education, Inc.

31) An economic model is a detailed version of an economic environment. Answer: FALSE Diff: 1 Topic: The Three Key Economic Questions: What, How, and Who? Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 32) Economic models explore decision making by individuals, firms and other organizations. Answer: TRUE Diff: 1 Topic: The Three Key Economic Questions: What, How, and Who? Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 33) Would an economist consider clean air a scarce resource? Explain. Answer: Yes, because the air has alternative uses. We can choose to use it to either breathe or to undertake activities that pollute it. The more we want to breathe clean air the more we must limit the production of pollutants. The more we pollute the air the less we can breathe clean air. Diff: 2 Topic: What Is Economics? Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 34) List and briefly describe the five factors of production. Answer: Natural resources—those resources provided by nature. Labor—the physical and mental effort used by people to produce goods and services. Physical capital—the infrastructure, equipment, machines and structures used to produce goods and services. Human capital—the knowledge and skills obtained by workers through education and experience. Entrepreneurship—the organizing and coordination of the other four factors of production needed to produce and sell products. Diff: 2 Topic: What Is Economics? Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist

35) Give an example of something that is scarce in your life and explain the choices you've made because of scarcity. Answer: Responses are numerous and will vary by students. Diff: 1 Topic: What Is Economics? Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 36) Positive economic analysis answers what question? Answer: Positive economic analysis answers the question "what is?" or "what will be?" Diff: 1 Topic: Positive versus Normative Analysis Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 37) Normative economic analysis answers what question? Answer: Normative economic analysis answers the question "what ought to be?" Diff: 1 Topic: Positive versus Normative Analysis Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 38) Richard runs a pizza delivery restaurant. List the three basic types of decisions studied in economics and give an example from Richard's restaurant. Answer: How to produce? With what resources will the pizzas be produced? What to produce? What sorts of pizza do people order? Who consumes the products? Which people decided to come to the restaurant on a given day? Diff: 2 Topic: The Three Key Economic Questions: What, How, and Who? Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist

1.2 Economic Analysis and Modern Problems 1) According to the Texas Transportation Institute, the typical U.S. commuter wastes approximately how much time per year due to traffic congestion? A) 47 hours B) 22 hours C) 42 hours D) 96 hours Answer: C Diff: 1 Topic: Economic View of Traffic Congestion Skill: Fact AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 2) In the U.S., which of the following government programs assist workers find jobs when they lose their jobs due to trade? A) Trade Adjustment Assistance program B) Social Security C) workers' compensation D) Obamacare Answer: A Diff: 1 Topic: Trade-offs from International Trade Skill: Fact AACSB: Analytical Thinking Learning Outcome: Micro-5: List ways in which governments intervene in markets and explain the consequences of such intervention 3) When Canada buys lemons from Mexico instead of growing lemons in heated greenhouses: A) Canadian consumers will gain because lemon prices will drop. B) Canadian lemon producers will gain because lemon prices will drop. C) Canadian consumers will gain because lemon prices will rise. D) Mexican lemon producers will lose because lemon prices in Canada will rise. Answer: A Diff: 1 Topic: Trade-offs from International Trade Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-3: Discuss different types of market systems and the gains that can be made from trade

4) When countries trade with each other, does it result in a gain for everybody? A) No. Producers of a good that is imported would be hurt. B) No. Consumers of a good that is imported would be hurt. C) No. Producers of a good that is exported would be hurt. D) Yes. All producers and consumers from both exporting and importing countries will gain. Answer: A Diff: 1 Topic: Trade-offs from International Trade Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-3: Discuss different types of market systems and the gains that can be made from trade 5) The financial crisis and recession which began in 2007: A) impacted only high-income countries. B) did not impact the United States. C) impacted many countries in the world. D) impacted only low-income countries. Answer: C Diff: 1 Topic: Economic View of the Managing the U.S. Economy Skill: Fact AACSB: Reflective Thinking Learning Outcome: Macro-1: Define macroeconomics and identify its basic concerns 6) To combat the financial crisis and recession which began in 2007, governments worldwide made it: A) easier for firms and households to borrow money for investment and consumer goods. B) easier for other countries to borrow money for infrastructure projects. C) easier for firms to pay their taxes by providing a tax amnesty. D) easier for workers to purchase health insurance through their employers. Answer: A Diff: 1 Topic: Economic View of the Managing the U.S. Economy Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Macro-12: Explain how monetary policy influences interest rates, aggregate demand, real GDP and inflation 7) Congestion taxes tend to cause an increase in traffic volume during rush hours. Answer: FALSE Diff: 1 Topic: Economic View of Traffic Congestion Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-5: List ways in which governments intervene in markets and explain the consequences of such intervention 13 Copyright © 2020 Pearson Education, Inc.

8) Economic expansion and growth are the only objectives that U.S. policymakers consider when they implement tax, spending and financial policies that affect the U.S. economy. Answer: FALSE Diff: 1 Topic: Economic View of the Managing the U.S. Economy Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Macro-1: Define macroeconomics and identify its basic concerns 1.3 The Economic Way of Thinking 1) Who is associated with the following summary of the economic way of thinking: "The theory of economics does not furnish a body of settled conclusions immediately acceptable to policy. It is a method rather than a doctrine, an apparatus of the mind, a technique of thinking which helps its processer draw correct conclusions." A) John Maynard Keynes B) Alfred Marshall C) Adam Smith D) President Harry Truman Answer: A Diff: 1 Topic: The Economic Way of Thinking Skill: Fact AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 2) To make things simpler and focus attention on what really matters, economists: A) use assumptions. B) ignore all variables. C) think at the margin. D) respond to incentives. Answer: A Diff: 1 Topic: Use Assumptions to Simplify Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist

3) A variable measures: A) something that always has the same value. B) something that can take on different values. C) factors that occur with high degrees of uncertainty. D) the degree to which something varies over time. Answer: B Diff: 1 Topic: Isolate Variables - Ceteris Paribus Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-2: Interpret and analyze information presented in different types of graphs 4) The Latin phrase ceteris paribus means that when a relationship between two variables is being studied: A) both are treated as unpredictable. B) neither of those two variables is allowed to change. C) all other variables are held fixed. D) we recognize that some factors are unknown. Answer: C Diff: 1 Topic: Isolate Variables - Ceteris Paribus Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 5) To think at the margin means to consider: A) how nothing remains constant over time. B) how a small change in one variable affects another variable. C) how people behave in their own self-interest. D) how people will decide what to purchase. Answer: B Diff: 1 Topic: Think at the Margin Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions

6) Jerome has a "C" average in his philosophy course and a "B" average in his economics course. He decides to study an extra hour for his philosophy exam. This is an example of: A) thinking at the margin. B) using assumptions to simplify. C) ceteris paribus. D) caveat emptor. Answer: A Diff: 1 Topic: Think at the Margin Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-2: Interpret and analyze information presented in different types of graphs 7) A small change in a variable is: A) an average change. B) a ceteris paribus change. C) an efficient change. D) a marginal change. Answer: D Diff: 1 Topic: Think at the Margin Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 8) Adam Smith: A) is considered the founder of economics. B) introduced the concept of ceteris paribus to the discussion of supply and demand. C) is responsible for refining the model of supply and demand. D) is the author of this text. Answer: A Diff: 1 Topic: Rational People Respond to Incentives Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist

9) When economists assume that people are rational and respond to incentives, they mean: A) people act with kindness. B) people are altruistic. C) people act in their own self-interest. D) people are selfish. Answer: C Diff: 1 Topic: Rational People Respond to Incentives Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 10) When deciding to implement a congestion tax, economists and the government would use the elements of the economic way of thinking to primarily determine: A) if the tax would be allocated equitably. B) what congestion tax amount should be charged. C) who should be exempt from the tax. D) where to spend the revenue generated. Answer: B Diff: 1 Topic: Example: Southern California addresses its Congestion Problem Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-5: List ways in which governments intervene in markets and explain the consequences of such intervention 11) The book cites a result where after of the implementation of the congestion tax in Stockholm, Sweden of $1.50-$3.00, traffic volume was reduced and travel time for cars and buses was cut in half. This is an example of: A) responding to incentives. B) the role of pricing in allocating resources. C) caveat emptor. D) comparative advantage. Answer: A Diff: 1 Topic: Example: Southern California addresses its Congestion Problem Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-5: List ways in which governments intervene in markets and explain the consequences of such intervention

12) To reduce traffic congestion, the Southern California Council of Governments (SCAG) advocate the implementation of: A) a congestion tax. B) a gas tax C) a bus subsidy D) a car sales tax. Answer: A Diff: 1 Topic: Example: Southern California addresses its Congestion Problem Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-5: List ways in which governments intervene in markets and explain the consequences of such intervention Recall the Application about the incentives to install rooftop solar panels to answer the following question(s). 13) According to the Application, a 10 percent increase in the tax credits for solar panels results in an increase in the number of households that install solar panels by 7.6 percent. The increase in sales due to this subsidy is an example of which element of the economic way of thinking? A) responding to incentives B) isolating variables C) thinking at the margin D) using assumptions to simplify Answer: A Diff: 1 Topic: Application 1, Incentives to Install Rooftop Solar Panels Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-5: List ways in which governments intervene in markets and explain the consequences of such intervention 14) According to the Application, another factor that was responsible for solar power deployment was the rising price of electricity. The increase in sales due to higher electricity prices describes the economic concept of: A) using assumptions to simplify. B) ceteris paribus. C) rational self-interest. D) marginal thinking. Answer: C Diff: 1 Topic: Application 1, Incentives to Install Rooftop Solar Panels Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-5: List ways in which governments intervene in markets and explain the consequences of such intervention 18 Copyright © 2020 Pearson Education, Inc.

15) According to the Application, the value of the federal tax credits equaled 30 percent of solar panel installation costs. If you purchase a rooftop solar panel for $20,000, then on the year you installed your solar panels, you should expect a decrease in your liabilities to the federal taxes by: A) $6,000 B) $12,000 C) $15,000 D) $1,500 Answer: A Diff: 1 Topic: Application 1, Incentives to Install Rooftop Solar Panels Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-5: List ways in which governments intervene in markets and explain the consequences of such intervention Recall the Application about housing prices in Cuba to answer the following question(s). 16) According to the Application, in 1960 the Cuban government: A) confiscated most housing in the country. B) did not allow people to sell or rent their homes. C) caused a large shortage of housing as a result of its policies. D) all of the above. Answer: D Diff: 1 Topic: Application 2, Housing Prices in Cuba Skill: Fact AACSB: Reflective Thinking Learning Outcome: Micro-5: List ways in which governments intervene in markets and explain the consequences of such intervention 17) Recent housing reforms in Cuba should give homeowners ________ incentives to repair their homes and therefore ________ construction of new homes. A) more; decrease B) more; increase C) fewer; decrease D) fewer; increase Answer: B Diff: 2 Topic: Application 2, Housing Prices in Cuba Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-5: List ways in which governments intervene in markets and explain the consequences of such intervention

18) Using assumptions to make things simpler and focus attention on what really matters is like using a road map to plan a trip. Answer: TRUE Diff: 1 Topic: Use Assumptions to Simplify Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 19) Ceteris paribus means "Let the buyer beware." Answer: FALSE Diff: 1 Topic: Isolate Variables - Ceteris Paribus Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 20) Ceteris paribus is the same as rise / run. Answer: FALSE Diff: 1 Topic: Isolate Variables - Ceteris Paribus Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 21) A small, one-unit change in value is called a marginal change. Answer: TRUE Diff: 1 Topic: Think at the Margin Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 22) A key assumption of most economic analysis is that people act rationally, meaning they respond to incentives. Answer: TRUE Diff: 1 Topic: Rational People Respond to Incentives Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 20 Copyright © 2020 Pearson Education, Inc.

23) A key assumption of most economic analysis is that people are altruistic, meaning that they act in their own self-interest. Answer: FALSE Diff: 1 Topic: Rational People Respond to Incentives Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 24) Economists assume that individuals make informed decisions and act in their own selfinterest. Answer: TRUE Diff: 1 Topic: Rational People Respond to Incentives Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 25) The congestion tax implemented in Stockholm reduced traffic volume and cut travel time for cars and buses by 20%. Answer: TRUE Diff: 1 Topic: Example: Southern California addresses its Congestion Problem Skill: Fact AACSB: Reflective Thinking Learning Outcome: Micro-5: List ways in which governments intervene in markets and explain the consequences of such intervention 26) To determine an appropriate congestion tax, an economist has to assume that people respond to incentives. Answer: TRUE Diff: 1 Topic: Example: Southern California addresses its Congestion Problem Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-5: List ways in which governments intervene in markets and explain the consequences of such intervention

Recall the Application about housing prices in Cuba to answer the following question(s). 27) According to the Application, recent reforms in Cuba have relied less on the free market in determining prices in the housing market. Answer: FALSE Diff: 1 Topic: Application 2, Housing Prices in Cuba Skill: Fact AACSB: Reflective Thinking Learning Outcome: Micro-5: List ways in which governments intervene in markets and explain the consequences of such intervention 28) What is meant by the term "marginal change"? Answer: A marginal change is a small, one unit change in value. Diff: 1 Topic: Think at the Margin Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 1.4 Employability: Economic Logic on the Job 1) Which of the following occupations would a major in economics be useful for? A) management-analyst B) real estate appraiser C) financial analyst D) All of the above are correct. Answer: D Diff: 1 Topic: Employability: Economic Logic on the Job Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist

2) Which of the following occupations would use economic analyses in their real world jobs? A) store manager B) teacher C) environmental regulator D) All of the above are correct. Answer: D Diff: 1 Topic: Employability: Economic Logic on the Job Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 3) Which of the following skills would the study of economics help promote? A) problem solving B) memorization C) critical thinking D) A and C only Answer: D Diff: 1 Topic: Employability: Economic Logic on the Job Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 4) Which of the following occupations would a major in economics be least useful for? A) management-analyst B) real estate appraiser C) financial analyst D) medical doctor Answer: D Diff: 1 Topic: Employability: Economic Logic on the Job Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist

5) Why does economics fit well as a liberal arts education? Answer: A liberal arts education provides broad knowledge and thinking skills, so a worker is more flexible in responding to changes in the workplace. Economics fits naturally into the liberal arts because it provides a framework for problem-solving that can be applied everywhere, from making a personal decision about where to live, to a national decision about when to stimulate the economy with a tax cut, to a global decision about how to respond to climate change. Diff: 1 Topic: Employability: Economic Logic on the Job Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 1.5 Preview of Coming Attractions: Macroeconomics 1) Macroeconomics is best described as the study of: A) very large issues. B) the choices made by individual households, firms, and governments. C) the nation's economy as a whole. D) the relationship between inflation and wage inequality. Answer: C Diff: 1 Topic: Preview of Coming Attractions: Macroeconomics Skill: Definition AACSB: Reflective Thinking Learning Outcome: Macro-1: Define macroeconomics and identify its basic concerns 2) Which of the following is a macroeconomic question? A) Should we have a constitutional amendment requiring the government to implement a national consumption tax to replace the current income tax? B) Why did a leading computer manufacturer establish call centers in India? C) Why does a pharmaceutical manufacturer try to lower its production costs? D) Should the government put a tax on alcohol in an attempt to assist in the funding of support groups like Alcoholics Anonymous? Answer: A Diff: 2 Topic: Preview of Coming Attractions: Macroeconomics Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Macro-1: Define macroeconomics and identify its basic concerns

3) Which of the following is NOT a macroeconomic question? A) Should we have a constitutional amendment requiring the federal government to balance the budget each year? B) Should restaurants be required to list the number of calories for each product on their menus? C) How does a fiscal stimulus package affect gross domestic product? D) Should Congress enact tougher immigration laws to reduce unemployment? Answer: B Diff: 2 Topic: Preview of Coming Attractions: Macroeconomics Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Macro-1: Define macroeconomics and identify its basic concerns 4) We can use macroeconomic analysis to: A) learn how to balance a checkbook. B) study the choices made by households. C) understand marginal changes in the macroeconomy. D) understand why economies grow. Answer: D Diff: 2 Topic: Using Macroeconomics to Understand Why Economies Grow Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Macro-1: Define macroeconomics and identify its basic concerns 5) Macroeconomics involves the study of the decision-making of individual firms or individuals. Answer: FALSE Diff: 1 Topic: Preview of Coming Attractions: Macroeconomics Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Macro-1: Define macroeconomics and identify its basic concerns 6) Macroeconomics helps explain economic fluctuations, why the economy shrinks and expands and why some of the economy's resources are idle. Answer: TRUE Diff: 1 Topic: Using Macroeconomics to Understand Economic Fluctuations Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Macro-1: Define macroeconomics and identify its basic concerns

7) Define the field of economics known as macroeconomics. Answer: Macroeconomics is the study of the nation's economy as a whole. Macroeconomics focuses on the issues of inflation, unemployment and economic growth. Diff: 1 Topic: Preview of Coming Attractions: Macroeconomics Skill: Definition AACSB: Reflective Thinking Learning Outcome: Macro-1: Define macroeconomics and identify its basic concerns 8) Identify and explain the three ways we can use macroeconomic analysis. Answer: Macroeconomics explains why some resources increase over time and how an increase in these resources translates into a higher standard of living. In the fastest-growing countries, citizens save a large fraction of the money they earn. Firms can then borrow the funds saved to purchase machinery and equipment that make their workers more productive. The fastest growing countries also have well-educated workforces, allowing firms to quickly adopt new technologies that increase worker productivity. All economies, including ones that experience a general trend of growth, are subject to economic fluctuations including periods when the economy shrinks. During an economic downturn, some of the economy's resources are idle. Many workers are unemployed, and many factories and stores are closed. By contrast, sometimes the economy grows too rapidly, causing inflation. Macroeconomics helps us understand why these fluctuations occur, why the economy sometimes cools and sometimes overheats and what we can do to moderate the fluctuations. A third reason for studying macroeconomics is to make informed business decisions. A manager who intends to borrow money for a new factory or store could use her knowledge of macroeconomics to predict the effects of current public policies on interest rates and then decide whether to borrow the money now or later. Diff: 2 Topic: Preview of Coming Attractions: Macroeconomics Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Macro-1: Define macroeconomics and identify its basic concerns 1.6 Preview of Coming Attractions: Microeconomics 1) The study of the choices made by individual households, firms, and government is called: A) macroeconomics. B) microeconomics. C) managerial economics. D) market economics. Answer: B Diff: 1 Topic: Preview of Coming Attractions: Microeconomics Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist

2) Microeconomics is best described as the study of: A) the choices made by individual households, firms, and governments. B) inflation, unemployment, gross national product, and the nation's economy as a whole. C) how markets interact in the aggregate economy. D) marginal changes in the economy. Answer: A Diff: 1 Topic: Preview of Coming Attractions: Microeconomics Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 3) Which of the following is a microeconomic question? A) Should companies pay for employees' health insurance? B) Why do some countries have higher economic growth rates than other countries? C) Should Congress and the president take action to reduce the unemployment rate? D) Should the Fed attempt to influence the interest rate to control potential inflation? Answer: A Diff: 1 Topic: Using Microeconomics to Evaluate Public Policies Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 4) Which of the following is a microeconomic question? A) Should the government decrease unemployment benefits to reduce the unemployment rate? B) Why do some countries have higher inflation rates than other countries? C) Should the government subsidize corn farmers to encourage the production of ethanol? D) Should congress decrease taxes to help stimulate the economy? Answer: C Diff: 2 Topic: Using Microeconomics to Evaluate Public Policies Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist

5) Microeconomics helps explain economic fluctuations, why the economy shrinks and expands and why some of the economy's resources are idle. Answer: FALSE Diff: 1 Topic: Preview of Coming Attractions: Microeconomics Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 6) Microeconomics is the study of aggregate behavior in the economy. Answer: FALSE Diff: 1 Topic: Preview of Coming Attractions: Microeconomics Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 7) One example of a microeconomic question is, "How will prices in the clothing industry change if the government bans imports from China?" Answer: TRUE Diff: 1 Topic: Preview of Coming Attractions: Microeconomics Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-5: List ways in which governments intervene in markets and explain the consequences of such intervention 8) One example of a microeconomic question is, "Should unemployment benefits be increased?" Answer: FALSE Diff: 1 Topic: Preview of Coming Attractions: Microeconomics Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-5: List ways in which governments intervene in markets and explain the consequences of such intervention 9) Describe the field of economics known as microeconomics. Answer: Microeconomics is the study of the choices made by individual households, firms and government and how these choices affect the markets for goods and services. Diff: 1 Topic: Preview of Coming Attractions: Microeconomics Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 28 Copyright © 2020 Pearson Education, Inc.

10) Identify and explain the three ways we can use microeconomic analysis. Answer: 1. To understand markets and predict changes: One reason for studying microeconomics is to better understand how markets work. Once you know how markets operate, you can use economic analysis to predict how various events affect product prices and quantities. 2. To make personal and managerial decisions: On the personal level, we use economic analysis to decide how to spend our time, what career to pursue, and how to spend and save the money we earn. As workers, we use economic analysis to decide how to produce goods and services, how much to produce, and how much to charge for them. 3. To evaluate public policies: While societies use markets to make the most of decisions concerning production and consumption, the government has several important roles in a marketbased society. We can use economic analysis to determine how well the government performs its roles in the market economy. We can also explore the trade-offs associated with various public policies. Diff: 2 Topic: Preview of Coming Attractions: Microeconomics Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 1.7 Appendix: Using Graphs and Percentages 1) There is a positive relationship between two variables if: A) they move in opposite directions. B) they move in the same direction. C) one variable changes and the other does not. D) neither variable moves. Answer: B Diff: 1 Topic: Graphing Two Variables Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-2: Interpret and analyze information presented in different types of graphs

2) There is a negative relationship between two variables if: A) they move in opposite directions. B) they move in the same direction. C) one variable changes and the other does not. D) neither variable moves. Answer: A Diff: 1 Topic: Graphing Two Variables Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-2: Interpret and analyze information presented in different types of graphs 3) The slope of a curve measures: A) the change in the vertical variable in response to the change in the horizontal variable. B) the length of the curve. C) only the change in the horizontal variable. D) only the change in the vertical variable. Answer: A Diff: 1 Topic: Computing the Slope Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-2: Interpret and analyze information presented in different types of graphs 4) Slope is calculated as the: A) change in the vertical variable divided by the change in the horizontal variable. B) change in the horizontal variable divided by the change in the vertical variable. C) the vertical axis divided by the horizontal axis. D) change in the vertical variable. Answer: A Diff: 1 Topic: Computing the Slope Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-2: Interpret and analyze information presented in different types of graphs

5) The slope of a straight line: A) is constant. B) is negative. C) is zero. D) changes along the curve. Answer: A Diff: 1 Topic: Computing the Slope Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-2: Interpret and analyze information presented in different types of graphs 6) If the variable on the vertical axis increases by 20 and the variable on the horizontal axis increases by 5, the slope of the line is: A) 0.25. B) 4. C) 15. D) 100. Answer: B Diff: 1 Topic: Computing the Slope Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-2: Interpret and analyze information presented in different types of graphs 7) If the variable on the vertical axis increases by 24 and the variable on the horizontal axis decreases by 3, the slope of the line is: A) -24. B) -8. C) 3. D) 72. Answer: B Diff: 1 Topic: Computing the Slope Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-2: Interpret and analyze information presented in different types of graphs

Figure 1A.1 8) Refer to Figure 1A.1. If the hours worked per week are 20, the income per week is: A) 50. B) 100. C) 150. D) 200. Answer: C Diff: 1 Topic: Graphing Two Variables, graphing Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-2: Interpret and analyze information presented in different types of graphs 9) Refer to Figure 1A.1. If the hours worked per week are 30, the income per week is: A) 50. B) 100. C) 150. D) 200. Answer: D Diff: 1 Topic: Graphing Two Variables, graphing Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-2: Interpret and analyze information presented in different types of graphs

10) Refer to Figure 1A.1. The slope of the line between the points where income equals 50 and income equals 200 is: A) 0.2. B) 5. C) 10. D) 50. Answer: B Diff: 1 Topic: Computing the Slope, graphing Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-2: Interpret and analyze information presented in different types of graphs 11) Refer to Figure 1A.1. The slope of the line between the points where hours worked per week are 20 and hours worked per week are 30 is: A) 0.2. B) 5. C) 10. D) 50. Answer: B Diff: 1 Topic: Computing the Slope, graphing Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-2: Interpret and analyze information presented in different types of graphs

Figure 1A.2 12) Refer to Figure 1A.2. If this consumer rents zero DVDs, how many movie tickets will she purchase? A) 0 B) 5 C) 10 D) 15 Answer: D Diff: 1 Topic: Graphing Negative Relationships, graphing Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-2: Interpret and analyze information presented in different types of graphs 13) Refer to Figure 1A.2. If this consumer rents 60 DVDs, how many movie tickets will she purchase? A) 0 B) 5 C) 10 D) 15 Answer: B Diff: 1 Topic: Graphing Negative Relationships, graphing Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-2: Interpret and analyze information presented in different types of graphs 34 Copyright © 2020 Pearson Education, Inc.

14) Refer to Figure 1A.2. The slope of the curve: A) is negative. B) is positive. C) is zero. D) changes along the curve. Answer: A Diff: 1 Topic: Computing the Slope, graphing Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-2: Interpret and analyze information presented in different types of graphs 15) Refer to Figure 1A.2. The slope between points a and c is: A) -5. B) -6. C) 10. D) 30. Answer: B Diff: 1 Topic: Computing the Slope, graphing Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-2: Interpret and analyze information presented in different types of graphs 16) The slope of a nonlinear curve: A) is constant. B) is negative. C) is zero. D) changes along the curve. Answer: D Diff: 1 Topic: Graphing Nonlinear Relationships Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-2: Interpret and analyze information presented in different types of graphs

17) If the price of monthly satellite TV service increases from $40 to $50, the percentage change is: A) 5 percent. B) 20 percent. C) 25 percent. D) 45 percent. Answer: C Diff: 2 Topic: Computing Percentage Changes Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-2: Interpret and analyze information presented in different types of graphs 18) If the price of monthly satellite TV service increases from $50 to $60, the percentage change (using the average value (or the midpoint) is: A) 18.2%. B) 16.7%. C) 10%. D) 60%. Answer: A Diff: 2 Topic: Computing Percentage Changes Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-2: Interpret and analyze information presented in different types of graphs 19) If the price of a 32 GB memory card decreases from $25 to $20, the percentage change is: A) -20 %. B) -33 %. C) -50 %. D) -60 %. Answer: A Diff: 2 Topic: Computing Percentage Changes Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-2: Interpret and analyze information presented in different types of graphs

20) If the price of a 32 GB memory card decreases from $25 to $20, the percentage change using the average value (or the midpoint) is: A) -22.2%. B) -20%. C) -25%. D) -5%. Answer: A Diff: 2 Topic: Computing Percentage Changes Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-2: Interpret and analyze information presented in different types of graphs Recall the Application about the government of Mexico City repainting highway lane lines to transform a 4-lane highway into a 6-lane highway to answer the following question(s). 21) When the government converted the highway from 4 lanes into 6 lanes, they claimed the capacity had increased by 50 percent. When the government switched the highway back from 6 lanes to 4 lanes, they claimed the capacity had been decreased by 33 percent. Had the government used the midpoint method, the percentage increase would have been ________ percent and the percentage decrease would have been ________ percent. A) 33; 50 B) 33; 33 C) 40; 40 D) 50; 50 Answer: C Diff: 2 Topic: Application 3, The Perils of Percentages Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-5: List ways in which governments intervene in markets and explain the consequences of such intervention 22) When computing percentage changes, using the simple approach results in increases and decreases which are: A) identical. B) symmetric. C) not symmetric. D) more accurate than using the midpoint method. Answer: C Diff: 1 Topic: Application 3, The Perils of Percentages Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-2: Interpret and analyze information presented in different types of graphs 37 Copyright © 2020 Pearson Education, Inc.

23) If you work 4 extra hours, and the slope of the curve showing the relationship between your income and work hours is 8, your income will increase by: A) $2. B) $4. C) $12. D) $32. Answer: D Diff: 2 Topic: Using Equations to Compute Missing Values Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-2: Interpret and analyze information presented in different types of graphs 24) To increase income by $120 when the slope of the curve showing the relationship between your income and work hours is 8, how many extra hours will you need to work? A) 8 B) 15 C) 112 D) 960 Answer: B Diff: 2 Topic: Using Equations to Compute Missing Values Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-2: Interpret and analyze information presented in different types of graphs 25) Suppose you find that by studying one extra hour for your exam, you can increase your score by 4 points. How many hours of studying do you need it you want to increase your score from 60 to 80 points (assuming that the relationship is linear)? A) 5 hours B) 6 hours C) 20 hours D) 80 hours Answer: A Diff: 2 Topic: Using Equations to Compute Missing Values Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-2: Interpret and analyze information presented in different types of graphs

26) The origin of a graph is the intersection of the two axes, where the value of both variables is zero. Answer: TRUE Diff: 1 Topic: Graphing Two Variables Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-2: Interpret and analyze information presented in different types of graphs 27) Positive relationships are also referred to as inverse relationships. Answer: FALSE Diff: 1 Topic: Graphing Two Variables Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-2: Interpret and analyze information presented in different types of graphs 28) Negative relationships are also referred to as inverse relationships. Answer: TRUE Diff: 1 Topic: Graphing Two Variables Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-2: Interpret and analyze information presented in different types of graphs 29) Slope is calculated as rise / run. Answer: TRUE Diff: 1 Topic: Computing the Slope Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-2: Interpret and analyze information presented in different types of graphs 30) Slope is calculated as a change in the variable on the horizontal axis divided by a change in the variable on the vertical axis. Answer: FALSE Diff: 1 Topic: Computing the Slope Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-2: Interpret and analyze information presented in different types of graphs 39 Copyright © 2020 Pearson Education, Inc.

31) The relationship between the number of hours you study and your economics score is linear. Answer: FALSE Diff: 1 Topic: Graphing Nonlinear Relationships Skill: Conceptual AACSB: Analytical Thinking Learning Outcome: Micro-2: Interpret and analyze information presented in different types of graphs

Survey of Economics: Principles, Applications, and Tools, 8e (O'Sullivan/Sheffrin/Perez) Chapter 2 The Key Principles of Economics 2.1 The Principle of Opportunity Cost 1) The opportunity cost of something is: A) the cost of the labor used to produce it. B) what you sacrifice to get it. C) the price charged for it. D) the search cost required to find it. Answer: B Diff: 1 Topic: The Principle of Opportunity Cost Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 2) The principle of opportunity cost: A) is more relevant for firms than for individuals. B) only refers to monetary payments. C) is only relevant in economics. D) is applicable to all decision-making. Answer: D Diff: 2 Topic: The Principle of Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 3) The principle that the cost of something is equal to what is sacrificed to get it is known as the: A) marginal principle. B) principle of opportunity cost. C) principle of diminishing returns. D) reality principle. Answer: B Diff: 1 Topic: The Principle of Opportunity Cost Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions

4) The saying that "There's no such thing as a free lunch" refers to the: A) marginal principle. B) spillover principle. C) principle of opportunity cost. D) reality principle. Answer: C Diff: 1 Topic: The Principle of Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 5) Jacinda quit her job as a blackjack dealer where she made $42,000 per year to start her own florist business. Her business expenses are $14,000 per year on rent, $21,000 per year on supplies, and $9,000 per year on part time help. As for her personal expenses, her apartment costs her $12,000 per year and her personal bills are an extra $6,000 per year. What is Jacinda's opportunity cost of running the business? A) $104,000 B) $86,000 C) $62,000 D) $44,000 Answer: B Diff: 2 Topic: The Principle of Opportunity Cost Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 6) An unemployed individual decides to spend the day fishing. The opportunity cost of fishing is: A) the cost of bait and any other monetary expenses. B) zero, because the person doesn't have a job. C) the cost of bait, any other monetary expenses, and the value of the individual's wages while he was working. D) the cost of bait, any other monetary expenses, and the value of the best alternative use of the individual's time. Answer: D Diff: 2 Topic: The Principle of Opportunity Cost Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions

7) Suppose that you own a house. What is the opportunity cost of living in the house? A) There is no opportunity cost because you own the house. B) There is no opportunity cost unless you could set up a business in the house. C) The opportunity cost is the rent you could have received from a tenant if you didn't live there. D) The opportunity cost is the cost of your monthly mortgage payment plus bills. Answer: C Diff: 2 Topic: The Principle of Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 8) Steven lives in a big city where there is a shortage of parking spots. He has a parking spot in his driveway where he parks his car. Which of the following statements is most correct? A) Steven has a lower opportunity cost of owning a car than his neighbor, who must rent a parking spot. B) The opportunity cost of using the spot is zero, because Steven owns the house. C) The opportunity cost of using the parking spot is the price he could charge someone else for using the spot. D) The opportunity cost depends on how much Steven's mortgage payment is. Answer: C Diff: 2 Topic: The Principle of Opportunity Cost Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 9) You rent a DVD of The Dark Knight Rises. The rental is for seven days and you watch the movie on the first day. You tell a friend about the film and your friend asks to come over and watch the movie with you before it is due back. What is your opportunity cost if you decide to watch the movie a second time instead of going to a football game? A) the entire cost of the movie rental, since you have already watched the movie B) one half the rental cost, because you have already watched the movie one time C) zero, because you already paid for the rental. D) the football game you forego by watching the movie again Answer: D Diff: 2 Topic: The Principle of Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions

10) Angelina, age seven, decides to dress up like Princess Fiona for Halloween. What is the opportunity cost of her decision? A) the cost of the costume B) the fact that she can't dress up like Dora the Explorer, her second choice C) zero, because seven-year-olds don't have opportunity costs D) the cost of the Lady Gaga costume which she did not want Answer: B Diff: 2 Topic: The Principle of Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 11) Spending money on a new car instead of a used car when you are on a fixed budget is an example of: A) the incursion of an opportunity cost. B) isolating variables. C) a bad thing to do because you run out of money. D) living on the edge. Answer: A Diff: 1 Topic: The Principle of Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 12) Suppose that your tuition to attend college is $24,000 per year and you spend $8,000 per year on room and board. If you were working full time, you could earn $30,000 per year. What is your opportunity cost of attending college for one year? A) $32,000 B) $38,000 C) $54,000 D) $62,000 Answer: C Diff: 1 Topic: The Cost of College Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions

13) Suppose that your tuition to attend college is $14,000 per year and you spend $5,000 per year on room and board. If you were working full time, you could earn $26,000 per year. What is your opportunity cost of attending college? A) $19,000 B) $31,000 C) $40,000 D) $45,000 Answer: C Diff: 1 Topic: The Cost of College Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 14) The opportunity cost of going to college: A) is zero if your parents pay your tuition. B) is equal to the cost of tuition, room and board, and other expenses. C) includes wages you lose by going to school instead of working. D) is the same for all students at a particular school who pay full tuition. Answer: C Diff: 1 Topic: The Cost of College Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 15) You have an hour between your economics and math classes. What is the opportunity cost of that time if you use it to complete your math homework instead of your economics homework? A) the economics homework you could have completed B) the math homework you chose to complete C) the cost of your calculator and math textbook D) zero, because it doesn't cost any money to do your math homework Answer: A Diff: 2 Topic: The Cost of College Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions

16) The sacrifices made by societies in order to engage in military spending represent: A) the nominal costs of military spending. B) the real costs of military spending. C) the opportunity costs of military spending. D) the excessive costs of military spending. Answer: C Diff: 1 Topic: The Cost of Military Spending Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 17) The trade-offs made by the U.S. government to fund the war in Iraq: A) prove that the government is spending too much on the war. B) show that the government is justified in its war spending. C) exceed the benefits derived from the war. D) represent what was potentially sacrificed to engage in the war. Answer: D Diff: 1 Topic: The Cost of Military Spending Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 18) According to the possible trade-off example between warships and drinking water in the text, the policy question that should be considered in Malaysia is: A) Do the opportunity costs of the warships exceed their nominal costs? B) Do the nominal costs of the warships exceed their real costs? C) Do the benefits of the warships exceed their opportunity costs? D) Do the real costs of the warships exceed their nominal costs? Answer: C Diff: 1 Topic: The Cost of Military Spending Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions

Bathe Groom 0 6 7 5 13 4 18 3 22 2 25 1 27 0 Table 2.1 19) Kaitlyn and Larissa have formed a dog bathing and grooming business. The number of dogs they can bathe or groom in any given day is depicted in Table 2.1. The opportunity cost of grooming the first dog in a day is bathing ________ dog(s). A) 1 B) 2 C) 24 D) 25 Answer: B Diff: 1 Topic: Opportunity Cost and the Production Possibilities Curve Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 20) Kaitlyn and Larissa have formed a dog bathing and grooming business. The number of dogs they can bathe or groom in any given day is depicted in Table 2.1. The opportunity cost of grooming the third dog in a day is bathing ________ dog(s). A) 3 B) 4 C) 5 D) 18 Answer: B Diff: 1 Topic: Opportunity Cost and the Production Possibilities Curve Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions

21) Kaitlyn and Larissa have formed a dog bathing and grooming business. The number of dogs they can bathe or groom in any given day is depicted in Table 2.1. The opportunity cost of grooming the sixth dog in a day is bathing ________ dog(s). A) 0 B) 5 C) 6 D) 7 Answer: D Diff: 1 Topic: Opportunity Cost and the Production Possibilities Curve Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 22) Kaitlyn and Larissa have formed a dog bathing and grooming business. The number of dogs they can bathe or groom in any given day is depicted in Table 2.1. As they groom more dogs, the opportunity cost of grooming additional dogs: A) falls. B) rises. C) remains constant. D) depends on the prices being charged. Answer: B Diff: 2 Topic: Opportunity Cost and the Production Possibilities Curve Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 23) Kaitlyn and Larissa have formed a dog bathing and grooming business. The number of dogs they can bathe or groom in any given day is depicted in Table 2.1. As they groom more dogs, the opportunity cost of bathing additional dogs: A) falls. B) rises. C) remains constant. D) depends on the prices being charged. Answer: A Diff: 2 Topic: Opportunity Cost and the Production Possibilities Curve Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions

Figure 2.1 24) Referring to Figure 2.1, if you increase the production of agricultural goods, what other area is affected? A) the price of produce B) the production of manufactured goods C) how much people can purchase D) the wages earned by agricultural workers Answer: B Diff: 1 Topic: Opportunity Cost and the Production Possibilities Curve, graphing Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 25) The production possibilities curve in Figure 2.1 illustrates the notion of: A) increased factory goods production. B) increased agricultural production. C) diminishing resources. D) opportunity cost. Answer: D Diff: 1 Topic: Opportunity Cost and the Production Possibilities Curve, graphing Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions

26) Refer to Figure 2.1. If you are producing 600 tons of agricultural products per year, what is the maximum amount of manufactured products you can produce per year? A) 300 tons B) 500 tons C) 600 tons D) 700 tons Answer: A Diff: 1 Topic: Opportunity Cost and the Production Possibilities Curve, graphing Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 27) Refer to Figure 2.1. If you choose to produce only agricultural products, what is the maximum quantity you can produce per year? A) 200 tons B) 400 tons C) 600 tons D) > 600 tons Answer: D Diff: 1 Topic: Opportunity Cost and the Production Possibilities Curve, graphing Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 28) Refer to Figure 2.1. What is the opportunity cost of increasing production of manufactured products from 500 tons to 600 tons per year? A) 200 tons of agricultural products per year B) 400 tons of agricultural products per year C) 500 tons of agricultural products per year D) 600 tons of agricultural products per year Answer: A Diff: 2 Topic: Opportunity Cost and the Production Possibilities Curve, graphing Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions

29) If an economy is fully utilizing its resources, it can produce more of one product only if it: A) doubles manufacturing of the product. B) produces less of another product. C) adds more people to the labor force. D) reduces the prices of the most expensive products. Answer: B Diff: 1 Topic: Opportunity Cost and the Production Possibilities Curve Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 30) If you remove resources from factory production, the quantity of factory goods will: A) increase. B) decrease. C) remain the same but their price will decrease. D) be diverted to other production. Answer: B Diff: 1 Topic: Opportunity Cost and the Production Possibilities Curve Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 31) If an economy is represented by a point inside its production possibilities curve: A) it can produce more of one product even if it does not produce less of another product. B) it can produce more of one product only if it produces less of another product. C) it cannot produce more of one product unless it stops producing the other product entirely. D) it cannot possibly produce more of one product, even if it produces less of another product. Answer: A Diff: 1 Topic: Opportunity Cost and the Production Possibilities Curve Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions

32) If an economy is represented by a point along its production possibilities curve: A) it can produce more of one product even if it does not produce less of another product. B) it can produce more of one product only if it produces less of another product. C) it cannot produce more of one product unless it stops producing the other product entirely. D) it cannot possibly produce more of one product, even if it produces less of another product. Answer: B Diff: 1 Topic: Opportunity Cost and the Production Possibilities Curve Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 33) Points outside the production possibilities curve represent combinations of products that are: A) attainable only if the economy's resources are fully employed. B) attainable only if the economy's resources are not fully employed. C) attainable if the economy's resources are either fully employed or not fully employed. D) unattainable. Answer: D Diff: 1 Topic: Opportunity Cost and the Production Possibilities Curve Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions Recall the Application about running a software programming business to answer the following question(s). 34) The time and invested funds involved in starting a software (app) development business addresses the economic concept of: A) the marginal principle. B) opportunity cost. C) the real-nominal principle. D) the principle of diminishing returns. Answer: B Diff: 1 Topic: Application 1, Don't Forget the Costs of Time and Invested Funds Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions

35) If by starting your own software development business you are forced give up your job as a janitor, then the income you could have earned as a janitor is: A) part of the opportunity cost of operating your software business. B) not part of the opportunity cost of operating your software business. C) part of the benefit of operating your software business. D) is an example of the principle of diminishing returns. Answer: A Diff: 1 Topic: Application 1, Don't Forget the Costs of Time and Invested Funds Skill: Conceptual AACSB: Analytical Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 36) The current income you would sacrifice to start your own software development business is part of the: A) opportunity cost of invested funds. B) opportunity cost of starting a business. C) cost of doing business. D) present value of your initial investment. Answer: B Diff: 1 Topic: Application 1, Don't Forget the Costs of Time and Invested Funds Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 37) If you have $10,000 to start a software development business, the interest rate is 4 percent, your cost of your computer is $5,000, and the earnings you sacrifice from working at another job are $32,000, your yearly cost of doing business would be: A) $47,000. B) $47,400. C) $37,400. D) $37,000. Answer: C Diff: 2 Topic: Application 1, Don't Forget the Costs of Time and Invested Funds Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions

38) A principle is a self-evident truth that most people readily understand and accept. Answer: TRUE Diff: 1 Topic: The Key Principles of Economics Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 39) Opportunity cost is the difference between the nominal and real cost of some action. Answer: FALSE Diff: 1 Topic: The Principle of Opportunity Cost Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 40) The opportunity cost of something is the gain you receive as a result of your sacrifice. Answer: FALSE Diff: 1 Topic: The Principle of Opportunity Cost Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 41) The opportunity cost of something is the nominal price paid for the product. Answer: FALSE Diff: 1 Topic: The Principle of Opportunity Cost Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 42) Trade-offs involve an exchange of one thing for another because resources are limited and can be used in different ways. Answer: TRUE Diff: 1 Topic: The Principle of Opportunity Cost Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions

43) The notion of opportunity cost allows the measurement of trade-offs. Answer: TRUE Diff: 1 Topic: The Principle of Opportunity Cost Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 44) In order to get his bachelor's degree, Timothy gave up an offer for a full time job as a bartender. Therefore, Timothy incurred an opportunity cost. Answer: TRUE Diff: 1 Topic: The Cost of College Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 45) The opportunity cost of going to a particular college is not the same for everyone. Answer: TRUE Diff: 1 Topic: The Cost of College Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 46) The cost of a bachelor's degree in philosophy equals the tuition plus the cost of room and board. Answer: FALSE Diff: 1 Topic: The Cost of College Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 47) What is an opportunity cost? Answer: An opportunity cost is what you sacrifice to get something. Diff: 1 Topic: The Principle of Opportunity Cost Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 15 Copyright © 2020 Pearson Education, Inc.

48) Suppose that you lend $5,000 to a friend who pays you back $5,400 the next year. Suppose that prices that year rose by six percent and the real rate of return in the stock market was five percent. Your friend says that he or she was being more than fair by giving you more than the rate of inflation as a return. What do you think? Answer: The opportunity cost of that money was not just the six percent inflation, but also the real rate of return that would have been enjoyed had the money been put in the stock market. For you to have been indifferent between loaning your money versus keeping it, your friend should have reimbursed you by $5,550, or an 11% return. This is another example of considering all the costs, both the loss in purchasing power of the money due to inflation and the implicit cost of the return that could have been earned if the money was invested in the stock market. Diff: 2 Topic: The Principle of Opportunity Cost Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 49) What is the opportunity cost of investing $10,000 of your own money into a business you wish to start? Answer: The opportunity cost of your $10,000 is the monetary gain you forego because you cannot invest the money elsewhere. Diff: 1 Topic: The Principle of Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 50) What do economists mean when they say that "there is no such thing as a free lunch?" Answer: Everything has a cost, even when you do not pay money for it. Suppose that somebody bought you lunch. Resources from the economy were used to make that lunch, even though those resources may not belong to you. Consequently, the economy gave up anything else it could have made with the resources it used to make the lunch. The opportunity cost of that lunch is the lost opportunity to use those resources in some other way. Diff: 2 Topic: The Principle of Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions

51) What is the opportunity cost of your college degree? Answer: A quick answer would be to say that the cost is the tuition, room and board, and books expenditures that are borne during the college years. But such a statement would be incorrect. First, it understates one aspect of costs: one is giving up income while a student. But it also overstates the costs in another dimension: people would eat and sleep somewhere regardless of their attendance in college. Therefore, one should not consider room and board to be part of the cost of college attendance. Diff: 1 Topic: The Cost of College Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 2.2 The Marginal Principle 1) The extra benefit resulting from a small increase in an activity is called the: A) opportunity cost. B) marginal benefit. C) marginal cost. D) diminishing returns of the activity. Answer: B Diff: 1 Topic: The Marginal Principle Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 2) The additional cost resulting from a small increase in some activity is called the: A) opportunity cost. B) marginal benefit. C) marginal cost. D) diminishing returns of the activity. Answer: C Diff: 1 Topic: The Marginal Principle Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions

3) The principle that individuals and firms pick the activity level where the incremental benefit of that activity equals the incremental cost of that activity is known as the: A) marginal principle. B) principle of opportunity cost. C) principle of diminishing returns. D) spillover principle. Answer: A Diff: 1 Topic: The Marginal Principle Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 4) The marginal principle implies that an individual should produce or consume where: A) marginal benefit exceeds marginal cost. B) marginal benefit is less than marginal cost. C) marginal benefit equals marginal cost. D) total benefit equals total cost. Answer: C Diff: 1 Topic: The Marginal Principle Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions

5) Joe runs a business and needs to decide how many hours to stay open. Figure 2.2 illustrates his marginal benefit of staying open for each additional hour. Suppose that Joe's marginal cost of staying open per hour is $24. How many hours should Joe stay open? A) 3 hours B) 4 hours C) 5 hours D) 6 hours Answer: D Diff: 1 Topic: The Marginal Principle, graphing Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions

6) Joe runs a business and needs to decide how many hours to stay open. Figure 2.2 illustrates his marginal benefit of staying open for each additional hour. Suppose that Joe's marginal cost of staying open per hour is $32. How many hours should Joe stay open? A) 4 hours B) 5 hours C) 6 hours D) 7 hours Answer: B Diff: 1 Topic: The Marginal Principle, graphing Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 7) Joe runs a business and needs to decide how many hours to stay open. Figure 2.2 illustrates his marginal benefit of staying open for each additional hour. Suppose that we observe Joe staying open 5 hours per day. If he is following the marginal principle, what must his marginal cost per hour be? A) $16 B) $24 C) $32 D) $40 Answer: C Diff: 1 Topic: The Marginal Principle, graphing Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 8) Joe runs a business and needs to decide how many hours to stay open. Figure 2.2 illustrates his marginal benefit of staying open for each additional hour. Suppose that we observe Joe staying open 3 hours per day. If he is following the marginal principle, what must his marginal cost per hour be? A) $24 B) $32 C) $40 D) $48 Answer: D Diff: 1 Topic: The Marginal Principle, graphing Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 20 Copyright © 2020 Pearson Education, Inc.

9) Joe runs a business and needs to decide how many hours to stay open. Figure 2.2 illustrates his marginal benefit of staying open for each additional hour. Suppose that we observe Joe staying open 6 hours per day. If he is following the marginal principle, what must his marginal cost per hour be? A) $16 B) $24 C) $32 D) $48 Answer: B Diff: 1 Topic: The Marginal Principle, graphing Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions Hours of Operation 1 2 3 4 5 6 7

Marginal Cost 6 12 18 24 30 36 42

Table 2.2 10) Krystal runs a nail salon and needs to decide how many hours to stay open. Table 2.2 illustrates her marginal costs of staying open for each additional hour. Suppose that Krystal's marginal benefit of staying open per hour is $30. If she is following the marginal principle, how many hours should Krystal stay open? A) 4 hours B) 5 hours C) 6 hours D) 7 hours Answer: B Diff: 1 Topic: The Marginal Principle Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions

11) Krystal runs a nail salon and needs to decide how many hours to stay open. Table 2.2 illustrates her marginal costs of staying open for each additional hour. Suppose that Krystal's marginal benefit of staying open per hour is $18. If she is following the marginal principle, how many hours should Krystal stay open? A) 3 hours B) 4 hours C) 6 hours D) 7 hours Answer: A Diff: 1 Topic: The Marginal Principle Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 12) Krystal runs a nail salon and needs to decide how many hours to stay open. Table 2.2 illustrates her marginal costs of staying open for each additional hour. Suppose that we observe Krystal staying open 4 hours per day. If she is following the marginal principle, what must her marginal benefit be? A) $12 B) $18 C) $24 D) $30 Answer: C Diff: 1 Topic: The Marginal Principle Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 13) Krystal runs a nail salon and needs to decide how many hours to stay open. Table 2.2 illustrates her marginal costs of staying open for each additional hour. Suppose that we observe Krystal staying open 2 hours per day. If she is following the marginal principle, what must her marginal benefit be? A) $6 B) $12 C) $15 D) $18 Answer: B Diff: 1 Topic: The Marginal Principle Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 22 Copyright © 2020 Pearson Education, Inc.

14) Krystal runs a nail salon and needs to decide how many hours to stay open. Table 2.2 illustrates her marginal costs of staying open for each additional hour. Suppose that we observe Krystal staying open 5 hours and her marginal benefit of staying open per hour is $18. If she is following the marginal principle, Krystal should: A) stay open 2 more hours. B) stay open 3 more hours. C) stay open 2 fewer hours. D) stay open 3 fewer hours. Answer: C Diff: 2 Topic: The Marginal Principle Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 15) Krystal runs a nail salon and needs to decide how many hours to stay open. Table 2.2 illustrates her marginal costs of staying open for each additional hour. Suppose that we observe Krystal staying open 5 hours and her marginal benefit of staying open per hour is $36. If she is following the marginal principle, Krystal should: A) stay open 1 more hour. B) stay open 2 more hours. C) stay open 1 fewer hour. D) stay open 2 fewer hours. Answer: A Diff: 2 Topic: The Marginal Principle Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 16) Considering how a change in one variable affects the value of another variable is called: A) the Peter Principle. B) the marginal principle. C) the principle of supply and demand. D) functional decision making. Answer: B Diff: 1 Topic: The Marginal Principle Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions

17) When referring to "marginal" changes, the economic focus is on: A) changes which affect only a few people or products. B) large changes on the low end. C) graduated changes on the high end. D) small or incremental changes. Answer: D Diff: 1 Topic: The Marginal Principle Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 18) When deciding whether to engage in an activity or how much to do, people should follow: A) the principle of microeconomics. B) the principle of macroeconomics. C) the marginal principle. D) the law of supply and demand. Answer: C Diff: 1 Topic: The Marginal Principle Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions Recall the Application about the best speed at which to sail an ocean cargo ship to answer the following question(s). 19) Weighing the benefits and costs of the different speeds at which to sail an ocean cargo ship addresses the economic concept known as: A) the principle of opportunity cost. B) the marginal principle. C) the principle of voluntary exchange. D) the principle of diminishing returns. Answer: B Diff: 1 Topic: Application 2, How Fast to Sail? Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions

20) Sailing an ocean cargo ship slower to save on the expense of fuel as opposed to sailing it faster to save time and therefore allow it to make more deliveries makes sense if the ________ of sailing slower is less than the ________ of sailing slower. A) marginal benefit; marginal cost B) marginal cost; marginal benefit C) marginal benefit; opportunity cost D) marginal cost; opportunity cost Answer: B Diff: 1 Topic: Application 2, How Fast to Sail? Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 21) The use of seat belts and other automobile safety features making bicycling more hazardous can be explained by the economic concept known as: A) the real-nominal principle. B) the marginal principle. C) the principle of voluntary exchange. D) the principle of diminishing returns. Answer: B Diff: 1 Topic: Driving Speed and Safety Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 22) Saving time by driving faster is an example of a ________ of driving faster. Increasing the severity of injuries from a potential accident due to driving faster is a(n) ________ of driving faster. A) nominal cost; real cost B) marginal cost; nominal cost C) marginal benefit; marginal cost D) normative benefit; opportunity cost Answer: C Diff: 1 Topic: Driving Speed and Safety Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions

23) When applying the marginal principle, you should pick the level at which the activity's marginal benefit equals its marginal cost. Answer: TRUE Diff: 1 Topic: The Marginal Principle Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 24) When applying the marginal principle, you should pick the level at which the activity's marginal benefit is less than its marginal cost. Answer: FALSE Diff: 1 Topic: The Marginal Principle Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 25) Basically, the marginal principle helps us to evaluate the factors involved in taking an action or if doing something is worth the effort. Answer: TRUE Diff: 1 Topic: The Marginal Principle Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 26) When Lonnie produces 1 pair of cowboy boots his costs total $300. When he produces 2 pairs of cowboy boots his total costs are $500. This means that Lonnie's marginal cost of producing the second pair of cowboy boots is $200. Answer: TRUE Diff: 2 Topic: The Marginal Principle Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions

27) Economists argue that individuals should continue to consume until total benefit equals total cost. Answer: FALSE Diff: 1 Topic: The Marginal Principle Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 28) If a company's total costs per day increase from $200 to $400 by adding another worker, but its additional benefits are $300, it is sensible to add that additional worker. Answer: TRUE Diff: 2 Topic: The Marginal Principle Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 29) What is a marginal cost? Answer: A marginal cost is the additional cost resulting from a small increase in the production of a good. Diff: 1 Topic: The Marginal Principle Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 30) What is a marginal benefit? Answer: A marginal benefit is the additional benefit resulting from a small increase in the production of a good. Diff: 1 Topic: The Marginal Principle Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions

31) When a firm hired its tenth worker, its factory output increased by four units per month. Would you expect the firm's output to increase by eight more units per month if the firm hired two more workers? Answer: No. The principle of diminishing marginal returns suggests that after some point of increasing returns, each incremental worker should have a progressively lower level of marginal productivity. Diff: 2 Topic: Marginal Principle Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 32) Consider a firm that is trying to determine how many hours to remain open in a day. How would the firm make this decision? Answer: The firm would continue to stay open as long as the marginal benefit of staying open (say, the increased revenues) each extra hour exceeds (or at least equals) the incremental, or marginal, costs (e.g., electricity, wages, etc.) incurred from staying open that hour. Diff: 2 Topic: Marginal Principle Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 33) Different people eat different amounts of food when they go to buffet restaurants, even though they all pay the same price. Explain how this relates to the marginal principle. Answer: The marginal monetary cost of eating more is zero, so people will eat until they would not enjoy eating another bite. There is an implicit cost of eating more once you are full (such as extra weight gain and physical discomfort). Therefore, people will eat until the marginal benefit equals the marginal cost, and this will occur at different amounts of food for different people. Diff: 2 Topic: The Marginal Principle Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions

34) Use the marginal principle to explain why government mandated safety features in automobiles during the 1960s and 1970s resulted in an increase in collisions between automobiles and bicycles. Answer: The mandated safety features decreased the marginal cost of speed: People who wear seat belts suffer less severe injuries in a collision, so every additional unit of speed is less costly to the driver. Drivers felt more secure because they were better insulated from harm in the event of a collision, and so they drove faster. As a result, the number of collisions between cars and bicycles increased, meaning that a safer environment for drivers led to a more hazardous environment for bicyclists. Diff: 2 Topic: Driving Speed and Safety Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and present value to make decisions 2.3 The Principle of Voluntary Exchange 1) People acting in their own self-interest is the basis of the: A) principle of supply and demand. B) principle of voluntary exchange. C) real-nominal principle. D) principle of scarcity. Answer: B Diff: 1 Topic: The Principle of Voluntary Exchange Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-3: Discuss different types of market systems and the gains that can be made from trade 2) The principle of voluntary exchange is based on the idea of: A) making assumptions. B) isolating variables. C) thinking at the margin. D) rational self-interest. Answer: D Diff: 1 Topic: The Principle of Voluntary Exchange Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-3: Discuss different types of market systems and the gains that can be made from trade

3) Who among the following stressed the importance the voluntary exchange as a distinctly human trait? A) Adam Smith B) Alfred Marshall C) John Keynes D) Karl Marx Answer: A Diff: 1 Topic: The Principle of Voluntary Exchange Skill: Fact AACSB: Reflective Thinking Learning Outcome: Micro-3: Discuss different types of market systems and the gains that can be made from trade 4) The alternative to voluntary exchange is: A) self-sufficiency B) dependency C) cooperation D) marginal analysis. Answer: A Diff: 1 Topic: The Principle of Voluntary Exchange Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-3: Discuss different types of market systems and the gains that can be made from trade Recall the Application about Rory McIlroy and weed-whacking to answer the following question(s). The Application assumes that Rory McIlroy could whack down all the weeds on his estate in one hour at an opportunity cost of $1,000, but it would take 20 hours for a gardener to do it at a price of $10 per hour. 5) This Application addresses the economic concept of: A) the marginal principle. B) diminishing returns. C) specialization and exchange. D) real versus nominal costs. Answer: C Diff: 1 Topic: Application 3, Rory McIlroy and Weed-Whacking Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-5: List ways in which governments intervene in markets and explain the consequences of such intervention

6) Based on the assumptions in the Application, should Rory hire a gardener or cut the weeds himself? A) He should hire the gardener because he would save $1,000. B) He should hire the gardener because he would save $800. C) He should cut the weeds himself because he would save $200. D) He should cut the weeds himself because he would save $1,000. Answer: B Diff: 2 Topic: Application 3, Rory McIlroy and Weed-Whacking Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-3: Discuss different types of market systems and the gains that can be made from trade 7) If Rory McIlroy only earned $500 per hour playing golf instead of $1,000 per hour, what should he do? A) He should still hire the gardener. B) He should do the weed-whacking himself. C) He should hire a less-productive gardener. D) He should be indifferent as to who does the weed-whacking, for the difference in hourly earnings would now be insignificant. Answer: A Diff: 2 Topic: Application 3, Rory McIlroy and Weed-Whacking Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-3: Discuss different types of market systems and the gains that can be made from trade 8) When you have a job and your employer compensates you for your time with money, resulting in both of you being better off, it is an example of a voluntary exchange. Answer: TRUE Diff: 1 Topic: The Principle of Voluntary Exchange Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-3: Discuss different types of market systems and the gains that can be made from trade

9) The principle of voluntary exchange is the concept that a voluntary exchange between two people makes both people better off. Answer: TRUE Diff: 1 Topic: The Principle of Voluntary Exchange Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-3: Discuss different types of market systems and the gains that can be made from trade 10) A "market" is an arrangement that allows people to exchange things. Answer: TRUE Diff: 1 Topic: Exchange and Markets Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-3: Discuss different types of market systems and the gains that can be made from trade 11) The alternative to voluntary exchange is self-sufficiency. Answer: TRUE Diff: 1 Topic: The Principle of Voluntary Exchange Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-3: Discuss different types of market systems and the gains that can be made from trade 2.4 The Principle of Diminishing Returns 1) The principle of diminishing returns implies that as one input increases while the other inputs are held fixed, output: A) increases at an increasing rate. B) increases at a decreasing rate. C) decreases at a decreasing rate. D) decreases at an increasing rate. Answer: B Diff: 1 Topic: The Principle of Diminishing Returns Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist

2) The principle that "as one input increases while the other inputs are held fixed, output increases at a decreasing rate" is known as the: A) marginal principle. B) principle of opportunity cost. C) principle of diminishing returns. D) spillover principle. Answer: C Diff: 1 Topic: The Principle of Diminishing Returns Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 3) According to the principle of diminishing returns, if all factors of production but one are held constant and if that one factor is doubled, then eventually output will most likely: A) double too. B) less than double. C) more than double. D) remain unchanged. Answer: B Diff: 2 Topic: The Principle of Diminishing Returns Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 4) A firm produces its product using both capital and labor. When it does not change its capital usage, but doubles its labor input, its output increases by less than 50 percent. Which of the following is the most likely explanation of this finding? A) the principle of opportunity cost B) the principle of diminishing returns C) the marginal principle D) the spillover principle Answer: B Diff: 2 Topic: The Principle of Diminishing Returns Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist

5) According to the principle of diminishing returns, if the number of workers is increased beyond the point of diminishing returns, then the additional worker: A) increases total output by the same amount as previous workers. B) increases total output by more than the amount of previous workers. C) increases total output by less than the amount of previous workers. D) decreases total output. Answer: C Diff: 2 Topic: The Principle of Diminishing Returns Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist Units of Capital 5 5 5 5 5 5

Number of Workers Output/Day 0 0 1 40 2 90 3 150 4 200 5 235 Table 2.3

6) Refer to Table 2.3. What can be observed about the given resources? A) Capital and labor are both fixed. B) Capital is variable. C) Capital is fixed. D) Labor is fixed. Answer: C Diff: 1 Topic: The Principle of Diminishing Returns Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist

7) Refer to Table 2.3. Increasing the number of workers from 2 to 3 will increase output per day by: A) 60 units. B) 90 units. C) 150 units. D) 240 units. Answer: A Diff: 1 Topic: The Principle of Diminishing Returns Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 8) Refer to Table 2.3. The principle of diminishing returns first occurs when how many workers are hired? A) 2 B) 3 C) 4 D) 5 Answer: C Diff: 2 Topic: The Principle of Diminishing Returns Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist

Acres of Land Tanks of Fertilizer 20 0 20 1 20 2 20 3 20 4 20 5

Truckloads of Potatoes 28 70 105 135 152 141

Table 2.4 9) Refer to Table 2.4. What can be observed about the given resources? A) Land is variable but fertilizer is fixed. B) Land and fertilizer are both fixed. C) Land and fertilizer are both variable. D) Land is fixed but fertilizer is variable. Answer: D Diff: 1 Topic: The Principle of Diminishing Returns Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 10) Refer to Table 2.4. Increasing the tanks of fertilizer from 3 to 4 will increase the truckloads of potatoes by: A) 152. B) 35. C) 17. D) 11. Answer: C Diff: 1 Topic: The Principle of Diminishing Returns Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist

11) Refer to Table 2.4. Increasing the tanks of fertilizer from 4 to 5 will: A) increase truckloads of potatoes. B) decrease truckloads of potatoes. C) have no effect on truckloads of potatoes. D) require more acres of land. Answer: B Diff: 1 Topic: The Principle of Diminishing Returns Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 12) Refer to Table 2.4. The principle of diminishing returns sets in with the addition of the ________ tank of fertilizer. A) second B) third C) fourth D) fifth Answer: A Diff: 2 Topic: The Principle of Diminishing Returns Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 13) Diminishing returns occurs because: A) not enough people have jobs. B) one of the inputs in the production process is fixed. C) consumers don't buy enough of the products produced. D) two people have not satisfied their self-interests. Answer: B Diff: 1 Topic: The Principle of Diminishing Returns Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist

Recall the Application about the use of fertilizer and its impact on crop yields to answer the following question(s). The table is taken from this Application. Fertilizer and Corn Yield Bags of Fertilizer Bushels of Corn 0 85 1 120 2 135 3 144 4 147 14) Based on the data in the table, this Application addresses the economic concept of: A) the marginal principle. B) the principle of voluntary exchange. C) the principle of diminishing returns. D) the real-nominal principle. Answer: C Diff: 1 Topic: Application 4, Fertilizer and Crop Yields Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 15) Refer to the table above. After applying the second bag of fertilizer, the farmer experienced: A) increasing returns. B) diminishing returns. C) constant returns. D) negative returns. Answer: B Diff: 1 Topic: Application 4, Fertilizer and Crop Yields Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist

16) Refer to the table above. The farmer increased his total production of corn by 9 bushels per acre after applying: A) the first bag of fertilizer. B) the second bag of fertilizer. C) the third bag of fertilizer. D) the fourth bag of fertilizer. Answer: C Diff: 2 Topic: Application 4, Fertilizer and Crop Yields Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 17) Refer to the table above. The farmer began to experience diminishing returns after applying how many bags of fertilizer? A) 1 B) 2 C) 3 D) 4 Answer: A Diff: 2 Topic: Application 4, Fertilizer and Crop Yields Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 18) According to the principle of diminishing returns, an additional worker decreases total output. Answer: FALSE Diff: 1 Topic: The Principle of Diminishing Returns Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist

19) Explain the concept of diminishing returns. Answer: The principle of diminishing returns shows that in the short run, beyond some point, output will increase at a decreasing rate. For example, producing more output in an existing production facility by increasing the number of workers sharing the facility will bring into effect the principle of diminishing returns, as output will eventually increase but at a decreasing rate. Diff: 1 Topic: The Principle of Diminishing Returns Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 20) You are running a small yard maintenance business for the summer. What do you expect to happen to the number of yards you can maintain in a day as you add workers if you don't purchase more capital equipment (like mowers and leaf blowers)? Answer: It is likely that as you add workers, you will get incrementally less output out of each additional worker. Holding constant your materials, such as trucks, lawnmowers, etc., you'll almost surely be able to maintain more yards per day. But as you hire more workers, there might be waits for use of the tools, or for transportation to the next job. This is the prediction of the principle of diminishing returns. Diff: 2 Topic: The Principle of Diminishing Returns Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist 2.5 The Real-Nominal Principle 1) The real-nominal principle states that: A) people respond more to explicit, or real, costs than to implicit costs. B) people respond more to implicit costs than to explicit costs. C) what matters to people is the face value of money or income. D) what matters to people is the purchasing power of money or income. Answer: D Diff: 1 Topic: The Real-Nominal Principle Skill: Definition AACSB: Reflective Thinking Learning Outcome: Macro-13: Discuss the key measures, theories, and effects of inflation and deflation

2) The principle that states that what matters to people is the real value or purchasing power of money is the: A) marginal principle. B) principle of diminishing returns. C) spillover principle. D) real-nominal principle. Answer: D Diff: 1 Topic: The Real-Nominal Principle Skill: Definition AACSB: Reflective Thinking Learning Outcome: Macro-13: Discuss the key measures, theories, and effects of inflation and deflation 3) The face value of money or income is called its ________ value. A) real B) marginal C) nominal D) external Answer: C Diff: 1 Topic: The Real-Nominal Principle Skill: Definition AACSB: Reflective Thinking Learning Outcome: Macro-13: Discuss the key measures, theories, and effects of inflation and deflation 4) The value of money or income in terms of the quantity of goods the money can buy is called its: A) real value. B) marginal value. C) nominal value. D) implicit value. Answer: A Diff: 1 Topic: The Real-Nominal Principle Skill: Definition AACSB: Reflective Thinking Learning Outcome: Macro-13: Discuss the key measures, theories, and effects of inflation and deflation

5) The real value of money: A) is another word for the face value. B) reflects the purchasing power of money. C) matters less to people than its nominal value. D) is the same as its nominal value. Answer: B Diff: 1 Topic: The Real-Nominal Principle Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Macro-13: Discuss the key measures, theories, and effects of inflation and deflation 6) If real salaries increase but nominal salaries do not, this means that: A) the purchasing power of money has decreased. B) prices have not changed. C) prices have risen. D) prices have fallen. Answer: D Diff: 2 Topic: The Real-Nominal Principle Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Macro-13: Discuss the key measures, theories, and effects of inflation and deflation 7) If real salaries decrease but nominal salaries do not, this means that: A) the purchasing power of money has increased. B) prices have not changed. C) prices have risen. D) prices have fallen. Answer: C Diff: 2 Topic: The Real-Nominal Principle Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Macro-13: Discuss the key measures, theories, and effects of inflation and deflation

8) A Major League Baseball player signs a contract that pays $27 million over 5 years. The $27 million is the contract's ________ value. A) real B) implicit C) external D) nominal Answer: D Diff: 1 Topic: The Real-Nominal Principle Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Macro-13: Discuss the key measures, theories, and effects of inflation and deflation 9) Suppose your bank pays you 4 percent interest per year on your savings account, so that $1,000 grows to $1,040 over a one-year period. If prices increase by 1 percent per year over that time, approximately how much real value do you gain by keeping $1000 in the bank for a year? A) $0 B) $10 C) $30 D) $50 Answer: C Diff: 2 Topic: The Real-Nominal Principle Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Macro-13: Discuss the key measures, theories, and effects of inflation and deflation 10) Suppose your bank pays you 5 percent interest per year on your savings account. If prices increase by 5 percent per year over that time, approximately how much real value do you gain by keeping $100 in the bank for a year? A) $0 B) $1 C) $3 D) $6 Answer: A Diff: 2 Topic: The Real-Nominal Principle Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Macro-13: Discuss the key measures, theories, and effects of inflation and deflation

11) Suppose that you lend $1,000 to a friend and he or she pays you back one year later. What is the opportunity cost of lending the money? A) There is no cost. B) the real interest rate that would have been earned on the money C) the nominal interest rate that would have been earned on the money D) the implicit cost of the money Answer: B Diff: 3 Topic: The Real-Nominal Principle Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Macro-13: Discuss the key measures, theories, and effects of inflation and deflation 12) You borrow money to buy a house in 2009 at a fixed interest rate of 5.5 percent. By 2012, the inflation rate has steadily fallen to 1.5 percent from the recent high of 3.0 percent in 2009. Considering only your mortgage, is inflation good news or bad news for you? A) bad news, because inflation hurts everyone B) bad news, because it makes the real value of your mortgage payments increase C) good news, because it makes the real value of your mortgage payments decrease D) bad news, because it makes the nominal value of your mortgage payments increase Answer: B Diff: 2 Topic: The Real-Nominal Principle Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Macro-13: Discuss the key measures, theories, and effects of inflation and deflation 13) What is the nominal value of money? A) what can be purchased with the money B) discounts taken by multiple purchases C) savings by shopping on specific days of the week D) its actual face value Answer: D Diff: 1 Topic: The Real-Nominal Principle Skill: Definition AACSB: Reflective Thinking Learning Outcome: Macro-13: Discuss the key measures, theories, and effects of inflation and deflation

14) What is the real value of money? A) its face value B) its compounded earnings in banks C) the quantity of goods it can buy D) the ability of shop at market prices Answer: C Diff: 1 Topic: The Real-Nominal Principle Skill: Definition AACSB: Reflective Thinking Learning Outcome: Macro-13: Discuss the key measures, theories, and effects of inflation and deflation

Minimum wage per hour Weekly income from minimum wage Cost of a standard basket of goods Number of baskets per week

1974 $ 2.00 $80.00 $47.00 1.70

2015 $ 7.25 $290.00 $236 1.23

Table 2.5 15) Use Table 2.5 above to answer the question. Comparing the minimum wages between 1974 and 2015 addresses the economic concept of: A) the marginal principle. B) the principle of voluntary exchange. C) the principle of diminishing returns. D) the real-nominal principle. Answer: D Diff: 1 Topic: The Value of the Minimum Wage Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Macro-13: Discuss the key measures, theories, and effects of inflation and deflation

16) Use Table 2.5 above to answer the question. The nominal value of the minimum wage in 2015 was: A) $2.00 per hour. B) $3.63 per hour. C) $5.62 per hour. D) $7.25 per hour. Answer: D Diff: 1 Topic: The Value of the Minimum Wage Skill: Fact AACSB: Reflective Thinking Learning Outcome: Macro-13: Discuss the key measures, theories, and effects of inflation and deflation 17) Use Table 2.5 above to answer the question. What happened to the real value of the minimum wage between 1974 and 2015? A) It remained the same. B) It increased. C) It decreased. D) It could not be determined from the given information. Answer: C Diff: 2 Topic: The Value of the Minimum Wage Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Macro-13: Discuss the key measures, theories, and effects of inflation and deflation 18) Use Table 2.5 above to answer the question. By what percentage did the federal minimum wage increase between 1974 to 2015? A) 72.41 percent B) 262.5 percent C) 362.5 percent D) 525.0 percent Answer: B Diff: 2 Topic: The Value of the Minimum Wage Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Macro-13: Discuss the key measures, theories, and effects of inflation and deflation

19) Use Table 2.5 above to answer the question. By what percentage did the real value of the federal minimum wage change between 1974 to 2015? A) -38.5% B) 38.5% C) 262.5% D) -262.5% Answer: A Diff: 2 Topic: The Value of the Minimum Wage Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Macro-13: Discuss the key measures, theories, and effects of inflation and deflation Recall the Application about the impact inflation has on your potential future salary and the repayment of student loans to answer the following question(s). 20) In analyzing the costs involved for student loans in the face of rising prices, this Application is addressing the economic concept of: A) the marginal principle. B) the principle of voluntary exchange. C) the principle of diminishing returns. D) the real-nominal principle. Answer: D Diff: 1 Topic: Application 5, Repaying Student Loans Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Macro-13: Discuss the key measures, theories, and effects of inflation and deflation 21) According to this Application, more years of work would be required to pay off a student loan if all prices (including your salary): A) remained stable. B) increased by 20 percent. C) decreased by 10 percent. D) increased by 40 percent. Answer: C Diff: 1 Topic: Application 5, Repaying Student Loans Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Macro-13: Discuss the key measures, theories, and effects of inflation and deflation

22) According to this Application, if you earn a salary of $80,000 in the first year and all prices (including your salary) decrease by half in the next 5 years, what will your nominal annual salary be in 5 years? A) $8,000 B) $10,000 C) $20,000 D) $40,000 Answer: D Diff: 2 Topic: Application 5, Repaying Student Loans Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Macro-13: Discuss the key measures, theories, and effects of inflation and deflation 23) According to this Application, if you earn a salary of $40,000 in the first year and all prices (including your salary) triple in the next 10 years, what will your nominal annual salary be in 10 years? A) $20,000 B) $60,000 C) $120,000 D) $180,000 Answer: C Diff: 2 Topic: Application 5, Repaying Student Loans Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Macro-13: Discuss the key measures, theories, and effects of inflation and deflation 24) According to this Application, if you earn a salary of $40,000 in the first year and all prices triple in the next year. How will this affect the time it takes to pay off your school loans, assuming that you put all your earnings into paying it off? Assume that your debt is $40,000. A) It will cut the payoff time to 1/3 of the original time. B) It will cut the payoff time to 1/2 of the original time. C) It will cut the payoff time to 2/3 of the original time. D) It will triple your payoff time. Answer: A Diff: 2 Topic: Application 5, Repaying Student Loans Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Macro-13: Discuss the key measures, theories, and effects of inflation and deflation

25) According to this Application, if you earn a salary of $40,000 in the first year and all prices are cut in half in the next year. How will this affect the time it takes to pay off your school loans, assuming that you put all your earnings into paying it off? Assume that your debt is $40,000. A) It will cut the payoff time to 1/3 of the original time. B) It will cut the payoff time to 1/2 of the original time. C) It will cut the payoff time to 2/3 of the original time. D) It will double your payoff time. Answer: B Diff: 2 Topic: Application 5, Repaying Student Loans Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Macro-13: Discuss the key measures, theories, and effects of inflation and deflation 26) If product prices increase slower than nominal wages increase, then the real value of wages decreases. Answer: FALSE Diff: 2 Topic: The Real-Nominal Principle Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Macro-13: Discuss the key measures, theories, and effects of inflation and deflation 27) If product prices decrease more than nominal wages decrease, then the real value of wages will increase. Answer: TRUE Diff: 2 Topic: The Real-Nominal Principle Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Macro-13: Discuss the key measures, theories, and effects of inflation and deflation 28) What matters to people is the face value of money or income. Answer: FALSE Diff: 1 Topic: The Real-Nominal Principle Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Macro-13: Discuss the key measures, theories, and effects of inflation and deflation

29) What matters to people is the real value of money or income. Answer: TRUE Diff: 1 Topic: The Real-Nominal Principle Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Macro-13: Discuss the key measures, theories, and effects of inflation and deflation 30) The government uses the buying power of wages rather than face value or nominal value in reporting changes in "real wages" in the economy. Answer: TRUE Diff: 1 Topic: The Real-Nominal Principle Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Macro-13: Discuss the key measures, theories, and effects of inflation and deflation 31) The government uses the buying power of wages in reporting changes in "nominal wages" in the economy. Answer: FALSE Diff: 1 Topic: The Real-Nominal Principle Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Macro-13: Discuss the key measures, theories, and effects of inflation and deflation 32) Is it possible for nominal wages to decrease while real wages increase? Answer: Yes, though unlikely. This would imply that prices have fallen, and that the decrease is sufficiently negative to offset any losses in nominal wages. Diff: 2 Topic: The Real-Nominal Principle Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Macro-13: Discuss the key measures, theories, and effects of inflation and deflation

33) Explain the real-nominal principle. Answer: The real-nominal principle explains that what matters to people is the real value of money or income, its purchasing power and not the face value of money or income. Diff: 1 Topic: The Real-Nominal Principle Skill: Definition AACSB: Reflective Thinking Learning Outcome: Macro-13: Discuss the key measures, theories, and effects of inflation and deflation 34) How would an increase in prices in retail stores change the real value of the money you earn as wages? Answer: The real value would decrease. Diff: 1 Topic: The Real-Nominal Principle Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Macro-13: Discuss the key measures, theories, and effects of inflation and deflation 35) If your salary increases at a slower rate than prices are increasing, what would happen to your buying power? Answer: Your money would have less buying power. Diff: 1 Topic: The Real-Nominal Principle Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Macro-13: Discuss the key measures, theories, and effects of inflation and deflation 36) Explain why an increase in a person in debt who experiences a wage increase that is exactly equal to the inflation rate may make him or her better off. Answer: If prices and wages increase at the same rate, a person may end up being able to afford exactly what they could buy before the price increase. However, a person in debt will see their nominal wages increase but have their debt (measured also in nominal terms) not change. This will make it easier for the debtor to pay their debts off when they experience inflation. Diff: 2 Topic: The Real-Nominal Principle Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Macro-13: Discuss the key measures, theories, and effects of inflation and deflation

Survey of Economics: Principles, Applications, and Tools, 8e (O'Sullivan/Sheffrin/Perez) Chapter 3 Demand, Supply, and Market Equilibrium 3.1 The Demand Curve 1) If a competitive market operates perfectly, it relies on: A) the number of people buying goods. B) the laws of supply and demand. C) how many products can be produced for sale. D) how much people are willing to pay for the products. Answer: B Diff: 1 Topic: Demand, Supply and Market Equilibrium Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-4: Explain how supply and demand function in competitive markets 2) A change in the quantity demanded of a product is the result of a change in: A) the price of the product. B) the price of related goods. C) consumer income. D) the cost of producing the product. Answer: A Diff: 1 Topic: The Demand Curve Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-4: Explain how supply and demand function in competitive markets 3) A demand curve is defined as the relationship between: A) the price of a good and the quantity of that good that consumers are willing to buy. B) the price of a good and the quantity of that good that producers are willing to sell. C) the income of consumers and the quantity of a good that consumers are willing to buy. D) the income of consumers and the quantity of a good that producers are willing to sell. Answer: A Diff: 1 Topic: The Demand Curve Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-4: Explain how supply and demand function in competitive markets

4) The quantity demanded of a product increases as: A) consumer income rises. B) the prices of other products fall. C) the price of the product rises. D) the price of the product falls. Answer: D Diff: 1 Topic: The Demand Curve Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-4: Explain how supply and demand function in competitive markets 5) The law of demand can be explained as: A) a lot of people wanting the same thing. B) the higher the price, the smaller the quantity demanded, ceteris paribus. C) people are willing to make limited sacrifices to acquire products. D) legal reasons people make purchases in the marketplace. Answer: B Diff: 2 Topic: The Individual Demand Curve and the Law of Demand Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-4: Explain how supply and demand function in competitive markets 6) In considering the relationships between price and quantity demanded, ceteris paribus directs the economist to assume that: A) price increases affect quantity. B) quantity increases affect prices. C) neither price nor quantity affect demand. D) all other variables remain unchanged. Answer: D Diff: 2 Topic: The Individual Demand Curve and the Law of Demand Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-4: Explain how supply and demand function in competitive markets

7) When there is a change in the quantity demanded it means that: A) the hours the customer can buy products each day have increased. B) the number of products in inventory have increased. C) the quantity a consumer is willing to buy changes when the price changes. D) the selling price of the products has not changed. Answer: C Diff: 2 Topic: The Individual Demand Curve and the Law of Demand Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-4: Explain how supply and demand function in competitive markets 8) The market demand curve: A) shows the relationship between the price of a good and the quantity that all consumers together are willing to buy. B) is drawn assuming that variables such as income and tastes are variable. C) is drawn assuming that the number of consumers is variable. D) is drawn assuming that the selling price is fixed. Answer: A Diff: 1 Topic: From Individual Demand to Market Demand Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-4: Explain how supply and demand function in competitive markets 9) Suppose that there are only three consumers of a product. At a price of $6 per unit, the first consumer would buy 12 units of the product, the second consumer would buy 8 units of the product, and the third consumer would buy 3 units of the product. If you drew a market demand curve for this product, the quantity demanded at a price of $6 would be: A) 23 units. B) 20 units. C) 12 units. D) 11 units. Answer: A Diff: 1 Topic: From Individual Demand to Market Demand Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-4: Explain how supply and demand function in competitive markets

Figure 3.1 10) Refer to Figure 3.1, which shows Molly's and Ryan's individual demand curves for compact discs per month. Assuming Molly and Ryan are the only consumers in the market, what is the market quantity demanded at a price of $3? A) 6 B) 9 C) 15 D) 20 Answer: D Diff: 1 Topic: From Individual Demand to Market Demand, graphing Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-4: Explain how supply and demand function in competitive markets 11) Refer to Figure 3.1, which shows Molly's and Ryan's individual demand curves for compact discs per month. Assuming Molly and Ryan are the only consumers in the market, what is the market quantity demanded at a price of $9? A) 2 B) 4 C) 6 D) 10 Answer: D Diff: 1 Topic: From Individual Demand to Market Demand, graphing Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-4: Explain how supply and demand function in competitive markets 4 Copyright © 2020 Pearson Education, Inc.

12) Refer to Figure 3.1, which shows Molly's and Ryan's individual demand curves for compact discs per month. Assuming Molly and Ryan are the only consumers in the market, if the market quantity demanded is 15, the price must be: A) $0. B) $6. C) $9. D) $15. Answer: B Diff: 1 Topic: From Individual Demand to Market Demand, graphing Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-4: Explain how supply and demand function in competitive markets 13) Refer to Figure 3.1, which shows Molly's and Ryan's individual demand curves for compact discs per month. Assuming Molly and Ryan are the only consumers in the market, if the market quantity demanded is 5, the price must be: A) $3. B) $6. C) $9. D) $12. Answer: D Diff: 1 Topic: From Individual Demand to Market Demand, graphing Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-4: Explain how supply and demand function in competitive markets Recall the Application about the decrease in taxes on cigarettes in several Canadian provinces in 1994 to answer the following question(s). 14) According to this Application, after the government deceased cigarette taxes in several Canadian provinces, demand for cigarettes ________ in these provinces, shifting the demand curve to the ________. A) increased; right B) increased; left C) decreased; right D) decreased; left Answer: A Diff: 1 Topic: Application 1, The Law of Demand for Young Smokers Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-4: Explain how supply and demand function in competitive markets

15) Recall the Application. The change in demand for cigarettes resulting from the decrease in taxes would normally create, ceteris paribus: A) an increase in their supply. B) a decrease in their supply. C) an increase in their quantity supplied. D) a decrease in their quantity supplied. Answer: C Diff: 2 Topic: Application 1, The Law of Demand for Young Smokers Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-4: Explain how supply and demand function in competitive markets 16) According to this Application, after the government deceased cigarette taxes in several Canadian provinces in 1994, the price of cigarettes in these provinces decreased by roughly ________ percent. A) 8 B) 17 C) 50 D) 88 Answer: C Diff: 1 Topic: Application 1, The Law of Demand for Young Smokers Skill: Fact AACSB: Reflective Thinking Learning Outcome: Micro-4: Explain how supply and demand function in competitive markets 17) According to this Application, after the government deceased cigarette taxes in several Canadian provinces in 1994, the decrease in the price of cigarettes in these provinces: A) more than doubled the smoking rate. B) created no noticeable change in the smoking rate. C) increased the smoking rate by roughly 17 percent. D) was accompanied by a slight decrease in the rate of smoking. Answer: C Diff: 1 Topic: Application 1, The Law of Demand for Young Smokers Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-4: Explain how supply and demand function in competitive markets 18) As the price of a product falls, the demand for the product increases, ceteris paribus. Answer: FALSE Diff: 1 Topic: The Demand Curve Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-4: Explain how supply and demand function in competitive markets 6 Copyright © 2020 Pearson Education, Inc.

19) On the "demand side" of a market, consumers indicate what they are willing to buy, in what quantity and at what price. Answer: TRUE Diff: 1 Topic: The Demand Curve Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-4: Explain how supply and demand function in competitive markets 20) The law of demand states that there is a negative relationship between price and quantity demanded, ceteris paribus. Answer: TRUE Diff: 1 Topic: The Individual Demand Curve and the Law of Demand Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-4: Explain how supply and demand function in competitive markets 21) The market demand curve shows the relationship between the price and the quantity demanded by all consumers, everything else being equal. Answer: TRUE Diff: 2 Topic: From Individual Demand to Market Demand Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-4: Explain how supply and demand function in competitive markets 3.2 The Supply Curve 1) A supply curve is defined as the relationship between: A) the price of a good and the quantity that consumers are willing to buy. B) the price of a good and the quantity that producers are willing to sell. C) the income of consumers and the quantity of a product that consumers are willing to buy. D) the income of consumers and the quantity of a product that producers are willing to sell. Answer: B Diff: 1 Topic: The Supply Curve Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-4: Explain how supply and demand function in competitive markets

2) A change in quantity supplied of a product is the result of a change in: A) consumer income. B) the state of production technology. C) the cost of producing the product. D) the price of the product. Answer: D Diff: 1 Topic: The Supply Curve Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-4: Explain how supply and demand function in competitive markets 3) The law of supply states that: A) producers should only produce what they can sell. B) producers should only sell the items when the price is right. C) there is a positive relationship between price and quantity supplied, ceteris paribus. D) producers are legally required to make necessary items available in the marketplace. Answer: C Diff: 1 Topic: The Individual Supply Curve and the Law of Supply Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-4: Explain how supply and demand function in competitive markets Quantity of Frozen Latte-On-A-Stick Supplied Price Flo's Supply Rita's Supply 1 0 0 2 0 3 3 4 6 4 9 9 5 15 12 Table 3.1 4) Refer to Table 3.1, which shows Flo's and Rita's individual supply schedules for frozen latteon-a-stick. Assuming Flo and Rita are the only suppliers in the market, what is the market quantity supplied at a price of $2? A) 0 B) 2 C) 3 D) 5 Answer: C Diff: 1 Topic: From Individual Supply to Market Supply Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-4: Explain how supply and demand function in competitive markets 8 Copyright © 2020 Pearson Education, Inc.

5) Refer to Table 3.1, which shows Flo's and Rita's individual supply schedules for frozen latteon-a-stick. Assuming Flo and Rita are the only suppliers in the market, what is the market quantity supplied at a price of $5? A) 3 B) 12 C) 15 D) 27 Answer: D Diff: 1 Topic: From Individual Supply to Market Supply Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-4: Explain how supply and demand function in competitive markets 6) Refer to Table 3.1, which shows Flo's and Rita's individual supply schedules for frozen latteon-a-stick. Assuming Flo and Rita are the only suppliers in the market, what is the market quantity supplied at a price of $1? A) 0 B) 1 C) 3 D) 5 Answer: A Diff: 1 Topic: From Individual Supply to Market Supply Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-4: Explain how supply and demand function in competitive markets 7) Refer to Table 3.1, which shows Flo's and Rita's individual supply schedules for frozen latteon-a-stick. Assuming Flo and Rita are the only suppliers in the market, if the market quantity supplied is 18, the price must be: A) $2. B) $3. C) $4. D) $5. Answer: C Diff: 1 Topic: From Individual Supply to Market Supply Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-4: Explain how supply and demand function in competitive markets

8) Refer to Table 3.1, which shows Flo's and Rita's individual supply schedules for frozen latteon-a-stick. Assuming Flo and Rita are the only suppliers in the market, if the market quantity supplied is 3, the price must be: A) $0. B) $2. C) $4. D) $5. Answer: B Diff: 1 Topic: From Individual Supply to Market Supply Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-4: Explain how supply and demand function in competitive markets

David's Supply Schedule

Celeste's Supply Schedule

Figure 3.2 9) Refer to Figure 3.2, which shows David's and Celeste's individual supply curves for flower arrangements per week. Assuming David and Celeste are the only producers in the market, what is the market quantity supplied at a price of $30? A) 200 B) 250 C) 300 D) 350 Answer: B Diff: 1 Topic: From Individual Supply to Market Supply, graphing Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-4: Explain how supply and demand function in competitive markets

10) Refer to Figure 3.2, which shows David's and Celeste's individual supply curves for flower arrangements per week. Assuming David and Celeste are the only producers in the market, what is the market quantity supplied at a price of $20? A) 0 B) 100 C) 150 D) 200 Answer: B Diff: 1 Topic: From Individual Supply to Market Supply, graphing Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-4: Explain how supply and demand function in competitive markets 11) Refer to Figure 3.2, which shows David's and Celeste's individual supply curves for flower arrangements per week. Assuming David and Celeste are the only producers in the market, if the market quantity supplied is 350, the price must be: A) $10. B) $20. C) $30. D) $40. Answer: D Diff: 1 Topic: From Individual Supply to Market Supply, graphing Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-4: Explain how supply and demand function in competitive markets 12) Refer to Figure 3.2, which shows David's and Celeste's individual supply curves for flower arrangements per week. Assuming David and Celeste are the only producers in the market, if the market quantity supplied is 50, the price must be: A) $0. B) $10. C) between $10 and $20. D) $30. Answer: C Diff: 2 Topic: From Individual Supply to Market Supply, graphing Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-4: Explain how supply and demand function in competitive markets

Recall the Application about the decrease in the price of wool in the 1990s to answer the following question(s). In the 1990s, the world price of wool decreased by about 30 percent and prices have remained relatively low since then. In 2012, an organization in New Zealand proposed that sheep shearing be added to the Commonwealth Games and the Olympics as a spectator sport in an effort to increase the awareness and the demand for wool. 13) Recall the Application. As the world price of wool decreased, the quantity of wool supplied by individual ranchers would ________, and the quantity supplied in the world market would ________. A) increase; increase B) increase; decrease C) decrease; decrease D) decrease; increase Answer: C Diff: 1 Topic: Application 2, Law of Supply and Woolympics Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-4: Explain how supply and demand function in competitive markets 14) Recall the Application. The decrease in the price of wool would be reflected by a movement ________ on the market supply curve for wool. A) down and to the right B) down and to the left C) up and to the right D) up and to the left Answer: B Diff: 1 Topic: Application 2, Law of Supply and Woolympics Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-4: Explain how supply and demand function in competitive markets

15) Recall the Application. If the organization in New Zealand was successful in getting the Olympics to include sheep shearing as a spectator sport, and this helped to raise the world price of wool, the quantity of wool supplied would ________ because the market supply curve for wool is ________ sloped. A) increase; positively B) increase; negatively C) decrease; positively D) decrease; negatively Answer: A Diff: 1 Topic: Application 2, Law of Supply and Woolympics Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-4: Explain how supply and demand function in competitive markets 16) As the price of a product rises, the quantity supplied decreases. Answer: FALSE Diff: 1 Topic: The Supply Curve Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-4: Explain how supply and demand function in competitive markets 17) On the "supply side" of a market, producers indicate to consumers what they are willing to sell, in what quantity and at what price. Answer: TRUE Diff: 1 Topic: The Supply Curve Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-4: Explain how supply and demand function in competitive markets 18) The law of supply states that there is a positive relationship between price and quantity supplied, ceteris paribus. Answer: TRUE Diff: 1 Topic: The Individual Supply Curve and the Law of Supply Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro-4: Explain how supply and demand function in competitive markets

3.3 Market Equilibrium: Bringing Demand and Supply Together

Figure 3.3 1) Figure 3.3 illustrates the supply and demand for t-shirts. If the actual price of t-shirts is $7, there is an: A) excess demand of 8 t-shirts. B) excess supply of 8 t-shirts. C) excess demand of 10 t-shirts. D) excess supply of 10 t-shirts. Answer: A Diff: 1 Topic: Market Equilibrium: Bringing Demand and Supply Together Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-4: Explain how supply and demand function in competitive markets

2) Figure 3.3 illustrates the supply and demand for t-shirts. If the actual price of t-shirts is $15, there is an: A) excess demand of 8 t-shirts. B) excess supply of 8 t-shirts. C) excess demand of 10 t-shirts. D) excess supply of 10 t-shirts. Answer: B Diff: 1 Topic: Market Equilibrium: Bringing Demand and Supply Together, graphing Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-4: Explain how supply and demand function in competitive markets 3) Figure 3.3 illustrates the supply and demand for t-shirts. If the actual price of t-shirts is $7, we would expect that: A) demand will decrease until quantity demanded equals quantity supplied. B) supply will increase until quantity demanded equals quantity supplied. C) price will increase until quantity demanded equals quantity supplied. D) there will be no change in the price since the market is in equilibrium. Answer: C Diff: 1 Topic: Market Equilibrium: Bringing Demand and Supply Together, graphing Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-4: Explain how supply and demand function in competitive markets 4) Figure 3.3 illustrates the supply and demand for t-shirts. If the actual price of t-shirts is $15, we would expect that: A) demand will decrease until quantity demanded equals quantity supplied. B) supply will increase until quantity demanded equals quantity supplied. C) price will decrease until quantity demanded equals quantity supplied. D) there will be no change in the price since the market is in equilibrium. Answer: C Diff: 1 Topic: Market Equilibrium: Bringing Demand and Supply Together, graphing Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro-4: Explain how supply and demand function in competitive markets