Test Bank For Economics 11th Global Edition By Michael Parkin by welldoneassistant

Test Bank For th Economics 11 Global Edition By Michael Parkin (All Chapters, 100% Original Verified, A+ Grade)

Economics, 11e, Global Edition (Parkin) Chapter 1 What Is Economics? 1 Definition of Economics 1) All economic questions are about A) how to make money. B) what to produce. C) how to cope with scarcity. D) how to satisfy all our wants. Answer: C Topic: Scarcity Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

2) All economic questions arise because we A) want more than we can get. B) want more than we need. C) have an abundance of resources. D) have limited wants that need to be satisfied. Answer: A Topic: Scarcity Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

3) Economics is best defined as the study of how people, businesses, governments, and societies A) choose abundance over scarcity. B) make choices to cope with scarcity. C) use their infinite resources. D) attain wealth. Answer: B Topic: Scarcity Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

4) Scarcity is a situation in which A) people cannot satisfy all their wants. B) most people can get only bare necessities. C) people can satisfy all their wants. D) some people can get all they want and some cannot. Answer: A Topic: Scarcity Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

5) Economists point out that scarcity confronts A) neither the poor nor the rich. B) the poor but not the rich. C) the rich but not the poor. D) both the poor and the rich. Answer: D Topic: Scarcity Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Ethical Reasoning

6) Scarcity is A) our inability to satisfy all our wants. B) a situation that exists during economic recessions but not during economic booms. C) eliminated by choices. D) an economic problem only for poor people. Answer: A Topic: Scarcity Skill: Recognition Status: Modified 10th edition AACSB: Reflective Thinking

7) When an economist talks of scarcity, the economist is referring to the A) ability of society to employ all of its resources. B) ability of society to consume all that it produces. C) inability of society to satisfy all human wants because of limited resources. D) ability of society to continually make technological breakthroughs and increase production. Answer: C Topic: Scarcity Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

8) Fundamental economic problems basically arise from A) the fact that society has more than it needs. B) turmoil in the stock market. C) the unequal distribution of income. D) our wants exceeding our scarce resources. Answer: D Topic: Scarcity Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

9) Scarcity exists because A) society and people are greedy and wasteful. B) our wants exceed the resources available to satisfy them. C) of the inefficient choices we make. D) poor people need more food and other goods. Answer: B Topic: Scarcity Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

10) Scarcity can be eliminated through A) the use of market mechanisms. B) exploration that helps us find new resources. C) wise use of our resources. D) None of the above because scarcity cannot be eliminated. Answer: D Topic: Scarcity Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

11) As an economic concept, scarcity applies to A) both money and time. B) money but not time. C) time but not money. D) neither time nor money. Answer: A Topic: Scarcity Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

12) In every economic system, choices must be made because resources are ________ and our wants are ________. A) unlimited; limited B) limited; unlimited C) unlimited; unlimited D) limited; limited Answer: B Topic: Scarcity Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

13) The problem of "scarcity" applies A) only in industrially developed countries because resources are scarce in these countries. B) only in underdeveloped countries because there are few productive resources in these countries. C) only in economic systems that are just beginning to develop because specialized resources are scarce. D) to all economic systems, regardless of their level of development. Answer: D Topic: Scarcity Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

14) Scarcity requires that people must A) cooperate. B) compete. C) trade. D) make choices. Answer: D Topic: Scarcity Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

15) People must make choices because A) most people enjoy shopping. B) of scarcity. C) there are many goods available. D) None of the above answers is correct. Answer: B Topic: Scarcity Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

16) An incentive A) could be a reward but could not be a penalty. B) could be a penalty but could not be a reward. C) could be either a reward or a penalty. D) is the opposite of a tradeoff. Answer: C Topic: Incentive Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

17) An inducement to take a particular action is called A) the marginal benefit. B) the marginal cost. C) opportunity cost. D) an incentive. Answer: D Topic: Incentive Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

18) Economics is best defined as A) how people make money and profits in the stock market. B) making choices from an unlimited supply of goods and services. C) making choices with unlimited wants but facing a scarcity of resources. D) controlling a budget for a household. Answer: C Topic: Definition of Economics Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

19) The study of economics A) focuses mainly on individual consumers. B) arises from the fact that our wants exceed available resources. C) recognizes that scarcity does not affect rich nations. D) deals mainly with microeconomics. Answer: B Topic: Definition of Economics Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

20) Economics is best defined as the science of choice and how people cope with A) differences in wants. B) differences in needs. C) scarcity. D) different economic systems. Answer: C Topic: Definition of Economics Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

21) Economics is the study of A) the distribution of surplus goods to those in need. B) affluence in a morally bankrupt world. C) the choices we make because of scarcity. D) ways to reduce wants to eliminate the problem of scarcity. Answer: C Topic: Definition of Economics Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

22) The study of the choices made by individuals is part of the definition of A) microeconomics. B) positive economics. C) macroeconomics. D) normative economics. Answer: A Topic: Microeconomics and Macroeconomics Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

23) In part, microeconomics is concerned with A) how a business firm decides upon the amount it produces and the price it sets. B) changes in the economy's total output of goods and services over long periods of time. C) factors that explain changes in the unemployment rate over time. D) the Federal Reserve's policy decisions. Answer: A Topic: Microeconomics and Macroeconomics Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

24) The study of the decisions of individual units in the economy is known as A) macroeconomics. B) microeconomics. C) the study of incentives. D) ceteris paribus study. Answer: B Topic: Microeconomics and Macroeconomics Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

25) Studying the determination of prices in individual markets is primarily a concern of A) positive economics. B) negative economics. C) macroeconomics. D) microeconomics. Answer: D Topic: Microeconomics and Macroeconomics Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

26) The analysis of the behavior of individual decision-making units is the definition of A) microeconomics. B) positive economics. C) macroeconomics. D) normative economics. Answer: A Topic: Microeconomics and Macroeconomics Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

27) Which of the following is a microeconomic topic? A) How a trade agreement between the United States and Mexico affects both nations' unemployment rates. B) Comparing inflation rates across countries. C) How rent ceilings impact the supply of apartments. D) How a tax rate increase will impact total production. Answer: C Topic: Microeconomics and Macroeconomics Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

28) Which of the following questions is NOT a microeconomic question? A) Can the Federal Reserve keep income growing by cutting interest rates? B) How would a tax on e-commerce affect eBay? C) What is Britney's opportunity cost of having another baby? D) Does the United States have a comparative advantage in information technology services? Answer: A Topic: Microeconomics and Macroeconomics Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

29) Which of the following is an example of a microeconomic decision? A) an individual deciding how to allocate the time he or she has for work and leisure B) a small shoe factory deciding how much leather to purchase for the next quarter's production need C) a multinational company deciding where to relocate its world headquarter D) All of the above answers are correct. Answer: D Topic: Microeconomics and Macroeconomics Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

30) Which of the following is a microeconomic topic? A) The reasons why Kathy buys less orange juice. B) The reasons for a decline in average prices. C) The reasons why total employment decreases. D) The effect of the government budget deficit on inflation. Answer: A Topic: Microeconomics and Macroeconomics Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

31) Which of the following questions is a topic that would be studied by microeconomics? A) Why did production and the number of jobs shrink in 2009? B) Will the current budget deficit affect the well-being of the next generation? C) How will a lower price of digital cameras affect the quantity of cameras sold? D) What is the current unemployment rate in the United States? Answer: C Topic: Microeconomics and Macroeconomics Skill: Conceptual Status: Modified 10th edition AACSB: Reflective Thinking

32) An example of a question that might be explored in microeconomics is to determine A) the number of workers employed by Intel. B) savings by the household sector. C) why the U.S. economy has grown more rapidly than the Japanese economy. D) the total employment within the U.S. economy. Answer: A Topic: Microeconomics and Macroeconomics Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

33) In part, microeconomics is concerned with the study of A) unemployment and economic growth. B) the Federal Reserve's policies. C) the effect government regulation has on the price of a product. D) national output of goods and services. Answer: C Topic: Microeconomics and Macroeconomics Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

34) The branch of economics that deals with the analysis of the whole economy is called A) macroeconomics. B) marginal analysis. C) microeconomics. D) metroanalysis. Answer: A Topic: Microeconomics and Macroeconomics Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

35) Macroeconomics is concerned with A) individual consumers. B) government decision making concerning farm price supports. C) economy-wide variables. D) the effects on Ford Motor of a strike by the United Auto Workers. Answer: C Topic: Microeconomics and Macroeconomics Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

36) Macroeconomics differs from microeconomics in that: A) macroeconomics studies the decisions of individuals. B) microeconomics looks at the economy as a whole. C) macroeconomics studies the behavior of government while microeconomics looks at private corporations. D) macroeconomics focuses on the national economy and the global economy. Answer: D Topic: Microeconomics and Macroeconomics Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

37) Which of the following is a macroeconomic decision or concept? A) the price of oil B) how many television sets to produce C) the unemployment rate for the entire economy D) the unemployment rate for each firm Answer: C Topic: Microeconomics and Macroeconomics Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

38) Which of the following questions is a macroeconomic issue? A) How many more pounds of cookies will a consumer purchase if the price of cookies decreases? B) What effect would a cure for Mad Cow Disease have on the market for beef? C) What is the future growth prospect for an economy? D) How many workers should the owner of a business hire? Answer: C Topic: Microeconomics and Macroeconomics Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

39) In broad terms the difference between microeconomics and macroeconomics is that A) they use different sets of tools and ideas. B) microeconomics studies decisions of individual people and firms and macroeconomics studies the entire national economy. C) macroeconomics studies the effects of government regulation and taxes on the price of individual goods and services whereas microeconomics does not. D) microeconomics studies the effects of government taxes on the national unemployment rate. Answer: B Topic: Microeconomics and Macroeconomics Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

40) Which of the following is a macroeconomic issue? A) How a rise in the price of sugar affects the market for sodas. B) How federal government budget deficits affect interest rates. C) What determines the amount a firm will produce. D) The cause of a decline in the price of peanut butter. Answer: B Topic: Microeconomics and Macroeconomics Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

41) Which of the following is a macroeconomic issue? A) The purchasing decisions that an individual consumer makes. B) The effect of increasing the money supply on inflation. C) The hiring decisions that a business makes. D) The effect of an increase in the tax on cigarettes on cigarette sales. Answer: B Topic: Microeconomics and Macroeconomics Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

42) Macroeconomic topics include A) total, nationwide employment. B) studying what factors influence the price and quantity of automobiles. C) studying the determination of wages and production costs in the software industry. D) the impact of government regulation of markets. Answer: A Topic: Microeconomics and Macroeconomics Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

43) The fact that wants cannot be fully satisfied with available resources reflects the definition of A) the what tradeoff. B) scarcity. C) the big tradeoff. D) for whom to produce. Answer: B Topic: Study Guide Question, Definition of Economics Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

44) Studying the effects choices have on the individual markets within the economy is part of A) scarcity. B) microeconomics. C) macroeconomics. D) incentives. Answer: B Topic: Study Guide Question, Macroeconomics Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

45) Economics can be defined as the social science that explains the ________. A) choices made by politicians B) choices we make when we trade in markets C) choices that we make as we cope with scarcity D) choices made by households Answer: C Topic: MyEconLab Questions Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

46) Scarcity is a situation in which ________. A) some people are poor and others are rich B) something is being wasted C) we are unable to satisfy all our wants D) long lines form at gas stations Answer: C Topic: MyEconLab Questions Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

47) Microeconomics is the study of ________. A) the choices that individuals and businesses make B) all aspects of scarcity C) the global economy D) the national economy Answer: A Topic: MyEconLab Questions Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

2 Two Big Economic Questions 1) When an economy produces more houses and fewer typewriters, it is answering the ________ part of one of the two big economic questions. A) "what" B) "how" C) "where" D) "for whom" Answer: A Topic: What Goods and Services Are Produced? Skill: Conceptual Status: Modified 10th edition AACSB: Reflective Thinking

2) When firms in an economy start producing more computers and fewer televisions, they are answering the ________ part of one of the two big economic questions. A) "when" B) "for whom" C) "what" D) "where" Answer: C Topic: What Goods and Services Are Produced? Skill: Conceptual Status: Modified 10th edition AACSB: Reflective Thinking

3) If Taco Bell decides to produce more tacos and fewer burritos, Taco Bell is answering the ________ part of one of the two big economic questions. A) "what" B) "why" C) "when" D) "scarcity" Answer: C Topic: What Goods and Services Are Produced? Skill: Conceptual Status: Modified 10th edition AACSB: Reflective Thinking

4) When a farmer decides to raise hogs instead of cattle, the farmer is answering the ________ part of one of the two big economic questions. A) "what" B) "for whom" C) "how" D) "why" Answer: A Topic: What Goods and Services Are Produced? Skill: Conceptual Status: Modified 10th edition AACSB: Reflective Thinking

5) When a country decides to produce fewer bombers and more public housing projects, it is answering the ________ part of one of the two big economic questions. A) "how" B) "what" C) "defense" D) "for whom" Answer: B Topic: What Goods and Services Are Produced? Skill: Conceptual Status: Modified 10th edition AACSB: Reflective Thinking

6) When a firm decides to produce more electric cars and fewer gas guzzlers, it is most directly answering the ________ part of one of the two big economic questions. A) "how" B) "scarcity" C) "what" D) "for whom" Answer: C Topic: What Goods and Services Are Produced? Skill: Conceptual Status: Modified 10th edition AACSB: Reflective Thinking

7) U.S. producers decide to produce more compact cars and fewer SUVs as the price of gasoline rises. Producers are answering the ________ part of one of the two big economic questions. A) "what" B) "how" C) "when" D) "how many" Answer: A Topic: What Goods and Services Are Produced? Skill: Conceptual Status: Modified 10th edition AACSB: Reflective Thinking

8) Which of the following statements is correct? A) The United States produces more goods than services. B) The United States produces more services than goods. C) The percentage of people producing goods in the United States has steadily increased over the last 60 years. D) The United States produces an equal amount of goods and services. Answer: B Topic: Trends in Production Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

9) In the U.S. economy, which of the following statements is true? A) More goods are produced than services. B) More services are produced than goods. C) Production is divided evenly between goods and services. D) The economy is too complex to determine the proportion of production that is devoted to producing services. Answer: B Topic: Trends in Production Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

10) The largest part of what the United States produces today is ________ such as ________. A) goods; food and electronic equipment B) goods; education and entertainment C) services; trade and health care D) services; textbooks and computers Answer: C Topic: Trends in Production Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

11) When China builds a dam using few machines and a great deal of labor, it is answering the ________ part of one of the two big economic questions. A) "what" B) "how" C) "where" D) "for whom" Answer: B Topic: How Are Goods and Services Produced? Skill: Conceptual Status: Modified 10th edition AACSB: Reflective Thinking

12) When a textile company keeps track of its inventory using a computer and its competitor uses a pad of paper and a pencil, they are both answering the ________ part of one of the two big economic questions. A) "what" B) "how" C) "for whom" D) "where" Answer: B Topic: How Are Goods and Services Produced? Skill: Conceptual Status: Modified 10th edition AACSB: Reflective Thinking

13) When a California farmer decides to harvest lettuce using machines instead of by migrant workers, the farmer is answering the ________ part of one of the two big economic questions. A) "how" B) "for whom" C) "scarcity" D) "what" Answer: A Topic: How Are Goods Produced? Skill: Conceptual Status: Modified 10th edition AACSB: Reflective Thinking

14) An art museum decides to offer tours by having visitors listen to cassette tapes rather than have tour guides. The museum is answering the ________ part of one of the two big economic questions. A) "scarcity" B) "what" C) "why" D) "how" Answer: D Topic: How Are Goods and Services Produced? Skill: Conceptual Status: Modified 10th edition AACSB: Reflective Thinking

15) The fact that people with higher incomes get to consume more goods and services addresses the ________ part of one of the two big economic questions. A) "for whom" B) "when" C) "where" D) "how" Answer: A Topic: For Whom Are Goods and Services Produced? Skill: Conceptual Status: Modified 10th edition AACSB: Ethical Reasoning

16) Which of the following is NOT a factor of production? A) the water used to cool a nuclear power plant B) the effort of farmers raising cattle C) the wages paid to workers D) the management skill of a small business owner Answer: C Topic: Factors of Production Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

17) Which of the following are considered factors of production used to produce goods and services? I. Land II. Labor III. Capital IV. Entrepreneurship A) I and II only B) I and III only C) I, II and III only D) I, II, III and IV Answer: D Topic: Factors of Production Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

18) Which of the following is correct? Factors of production are A) land, labor, the price system, and capital. B) the inputs used to produce goods and services. C) the fundamental source of abundance. D) only land and labor. Answer: B Topic: Factors of Production Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

19) Factors of production include A) the economic system. B) land, labor, capital and entrepreneurship. C) labor and capital (not land, which is fixed). D) only capital, land, and labor. Answer: B Topic: Factors of Production Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

20) Factors of production include all of the following EXCEPT A) machines made in past years. B) money. C) entrepreneurship. D) a wheat field that is not irrigated. Answer: B Topic: Factors of Production Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

21) Factors of production are grouped into four categories: A) land, labor, capital, entrepreneurship. B) land, labor, capital, money. C) land, capital, money, entrepreneurship. D) labor, capital, money, entrepreneurship. Answer: A Topic: Factors of Production Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

22) Which of the following is NOT a factor of production? A) vans used by a bakery company for deliveries B) a person developing a production schedule for a new product C) 175 shares of Microsoft stock D) wilderness areas that have yet to be developed Answer: C Topic: Factors of Production Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

23) Keeping in mind economists' definition of factors of production, which of the following is NOT a factor of production? A) money B) low-skilled labor C) coal D) an engineer Answer: A Topic: Factors of Production Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

24) Which of the following is NOT a factor of production? A) mineral resources B) a university professor C) an apartment building D) 100 shares of Microsoft stock Answer: D Topic: Factors of Production Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

25) The income earned by the people who sell the services of the factor of production ________ is called ________. A) capital; rent B) entrepreneurship; wages C) land; profit D) entrepreneurship; profit Answer: D Topic: Factors of Production Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

26) Which factor of production earns profit? A) land B) human capital C) money D) entrepreneurship Answer: D Topic: Factors of Production Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

27) Which factor of production earns most income in the United States? A) capital B) labor C) money D) entrepreneurship Answer: B Topic: Factors of Production Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

28) Which of the following best defines capital as a factor of production? A) The gifts of nature that businesses use to produce goods and services. B) The knowledge and skills that people obtain from education and use in production of goods and services. C) Financial assets used by businesses. D) Instruments, machines, and buildings used in production. Answer: D Topic: Capital Stock Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

29) In economics, the term "land" means A) only land that is used in agricultural production. B) land, mineral resources, and nature's other bounties. C) land that is devoted to economic pursuits. D) land used for agricultural and urban purposes. Answer: B Topic: Land Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

30) A natural resource, such as fishing territories, is considered an example of A) both land and labor. B) land, labor, capital and entrepreneurship. C) land only. D) only capital. Answer: C Topic: Land Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

31) The "gifts of nature" are included as part of which factor of production? A) labor B) land C) capital D) entrepreneurship Answer: B Topic: Land Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

32) Copper falls into which factor of production category? A) land B) labor C) capital D) entrepreneurship Answer: A Topic: Land Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

33) Overtime worked by a JCPenney associate is considered ________ and earns ________. A) labor; wages B) entrepreneurship; profit C) human capital; interest D) labor; profit Answer: A Topic: Labor Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

34) The term human capital refers to A) labor resources used to make capital equipment. B) buildings and machinery. C) people's knowledge and skill. D) entrepreneurship and risk-taking. Answer: C Topic: Human Capital Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

35) Human capital is A) all capital owned by individuals, but not by corporations or governments. B) all capital owned by individuals or corporations, but not by governments. C) machinery that meets or exceeds federal safety standards for use by humans. D) the skill and knowledge of workers. Answer: D Topic: Human Capital Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

36) Joy is training to become a chef. The skills she is obtaining from her training and education will increase Joy's ________. A) human capital B) physical capital C) entrepreneurship D) None of the above answers are correct. Answer: A Topic: Human Capital Skill: Conceptual Status: Modified 10th edition AACSB: Reflective Thinking

37) Which of the following is NOT an investment in human capital? A) a business student takes a seminar in using a laptop computer B) a student purchases a laptop computer C) a computer science student learns how to repair a laptop computer D) a computer science student takes a course on programming a laptop computer Answer: B Topic: Human Capital Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

38) Samantha goes to college to become an engineer. This is an example of an A) investment in physical capital. B) investment in human capital. C) increase in entrepreneurship. D) increase in labor. Answer: B Topic: Human Capital Skill: Conceptual Status: Modified 10th edition AACSB: Reflective Thinking

39) In economics, the term "capital" refers to A) the money in one's pocket. B) buildings and equipment. C) mineral resources. D) consumer goods. Answer: B Topic: Capital Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

40) Human resources that perform the functions of organizing, managing, and assembling the other resources are called A) physical capital. B) venture capital. C) entrepreneurship. D) productive capital. Answer: C Topic: Entrepreneurship Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

41) The economic resource that organizes the use of other economic resources is called A) labor. B) capital. C) entrepreneurship. D) land. Answer: C Topic: Entrepreneurship Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

42) Entrepreneurs do all of the following EXCEPT A) organize labor, land, and capital. B) come up with new ideas about what and how to produce. C) bear risk from business decisions. D) own all the other resources used in the production process. Answer: D Topic: Entrepreneurship Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

43) Entrepreneurs directly do all of the following EXCEPT A) create new ideas about what and how to produce. B) make business decisions. C) face risks that arise from making business decisions. D) decide for whom goods and services are produced. Answer: D Topic: Entrepreneurship Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

44) Differences in income are most directly related to which of the following economic question? A) What goods and services are produced? B) In what quantities are various goods and services produced? C) How are goods and services produced? D) Who consumes the goods and services that are produced? Answer: D Topic: For Whom Are Goods and Services Produced? Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

45) The fact that some people can afford to live in beautiful homes while others are homeless, is most directly an example of an economy facing the ________ part of one of the two big economic questions. A) "for whom" B) "when" C) "how" D) "why" Answer: A Topic: For Whom Are Goods and Services Produced? Skill: Conceptual Status: Modified 10th edition AACSB: Ethical Reasoning

46) The fact that a rock star earns $5 million a year while a teacher earns $25,000 annually is most directly an example of an economy answering the ________ part of one of the two big economic questions. A) "when" B) "for whom" C) "how" D) "why" Answer: B Topic: For Whom Are Goods and Services Produced? Skill: Conceptual Status: Modified 10th edition AACSB: Ethical Reasoning

47) One economist says that raising taxes on gas would be in the social interest. What does this economist mean? A) Higher taxes on gas would benefit society as a whole. B) Raising taxes on gas would benefit most of the people. C) Higher taxes on gas would benefit everyone. D) Both answers A and C are correct. Answer: A Topic: Social Interest Skill: Conceptual Status: Modified 10th edition AACSB: Reflective Thinking

48) An outcome is considered efficient if A) it is not possible to make someone better off without making anyone else worse off. B) it is the best available choice for an individual. C) it results in fair shares for everyone involved. D) it is possible to make someone better off without making anyone else worse off. Answer: A Topic: Self-Interest and Social Interest Skill: Definition Status: New AACSB: Reflective Thinking

49) Suppose Company A's profits increase by $10 million and nobody is made worse off. The CEO of Company A keeps all $10 million for herself. This situation A) is definitely efficient. B) is definitely not in the self-interest of Company A. C) is definitely not in the social interest. D) is definitely fair. Answer: A Topic: Self-Interest and Social Interest Skill: Conceptual Status: New AACSB: Analytical Skills

50) The Occupy Wall Street movement advocates A) a shift away from market capitalism. B) a shift towards more market capitalism. C) centrally planned socialism. D) following the teachings of Adam Smith. Answer: A Topic: At Issue: The Protest Against Market Capitalism Skill: Conceptual Status: New AACSB: Analytical Skills

51) An economic system in which the government decides what, how, and for whom to produce, directs workers to jobs, and owns all the land and capital is A) centrally planned socialism. B) market capitalism. C) mixed economy. D) supported by economists as the best system available. Answer: A Topic: At Issue: The Protest Against Market Capitalism Skill: Definition Status: New AACSB: Reflective Thinking

52) According to Adam Smith, A) government intervention in markets is not desirable because an invisible hand leads decisions made in pursuit of self-interest to unintentionally promote the social interest. B) politicians are well-equipped to regulate corporations and intervene in markets to improve market outcomes. C) when big corporations pursue their self-interest of maximum profit, they will inevitably conflict with social interest. D) in a market transaction buyers can either get what they want for less than they would be willing to pay or sellers can earn a profit, but both buyers and sellers can't gain simultaneously. Answer: A Topic: At Issue: The Protest Against Market Capitalism Skill: Conceptual Status: New AACSB: Reflective Thinking

53) The 2010 Patient Protection and Affordable Care Act (Obamacare) contains a provision that may require individuals to either purchase private health insurance or pay a tax. This is an example of A) a mixed economy. B) market capitalism. C) centrally planned socialism. D) the invisible hand. Answer: A Topic: At Issue: The Protest Against Market Capitalism Skill: Conceptual Status: New AACSB: Analytical Skills

54) According to economists, A) market capitalism is the best system available and some government intervention and regulation can either help or harm the social interest. B) market capitalism is the best system available and any government intervention and regulation will inevitably harm the social interest. C) centrally planned socialism is the best system available since governments generally make decisions that are in social interest. D) centrally planned socialism and pure market capitalism are equally capable of promoting social interest, but a mixed economy is an undesirable compromise between the two that will harm social interest. Answer: A Topic: At Issue: The Protest Against Market Capitalism Skill: Conceptual Status: New AACSB: Reflective Thinking

55) Which of the following is NOT part of the first big economic question? A) What goods and services are produced? B) How are goods and services produced? C) For whom are goods and services produced? D) Why do incentives affect only marginal costs? Answer: D Topic: Study Guide Question, Two Big Economic Questions Skill: Analytical Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

3 The Economic Way of Thinking 1) In economics we learn that A) tradeoffs allow us to have more of everything we value. B) tradeoffs allow us to avoid the problem of opportunity cost. C) opportunity costs are all of the possible alternatives given up when we make a choice. D) None of the above answers is correct. Answer: D Topic: Tradeoffs Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

2) Because we face scarcity, every choice involves A) money. B) the question "what." C) giving up something for nothing. D) an opportunity cost. Answer: D Topic: Tradeoff and Opportunity Cost Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking 26 Copyright © 2014 Pearson Education, Inc.

3) The term used to emphasize that making choices in the face of scarcity involves a cost is A) substitution cost. B) opportunity cost. C) utility cost. D) accounting cost. Answer: B Topic: Opportunity Cost Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

4) The loss of the highest-valued alternative defines the concept of A) marginal benefit. B) scarcity. C) entrepreneurship. D) opportunity cost. Answer: D Topic: Opportunity Cost Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

5) Opportunity cost means the A) accounting cost minus the marginal cost. B) highest-valued alternative forgone. C) accounting cost minus the marginal benefit. D) monetary costs of an activity. Answer: B Topic: Opportunity Cost Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

6) The opportunity cost of any action is A) all the possible alternatives given up. B) the highest-valued alternative given up. C) the benefit from the action minus the cost of the action. D) the dollars the action cost. Answer: B Topic: Opportunity Cost Skill: Recognition Status: Modified 10th edition AACSB: Reflective Thinking

7) The opportunity cost of something you decide to get is A) all the possible alternatives that you give up to get it. B) the highest valued alternative you give up to get it. C) the value of the item minus the cost you paid for it. D) the amount of money you pay to get it. Answer: B Topic: Opportunity Cost Skill: Recognition Status: Modified 10th edition AACSB: Reflective Thinking

8) Opportunity cost is best defined as A) how much money is paid for something. B) how much money is paid for something, taking inflation into account. C) the highest-valued alternative that is given up to get something. D) all the alternatives that are given up to get something. Answer: C Topic: Opportunity Cost Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

9) Which of the following statements are correct? I. The "highest-valued alternative given up to get something" is the opportunity cost. II. Wealthy economies don't experience opportunity costs. III. Scarcity creates opportunity costs. A) I only B) I and II C) I and III D) I, II, and III Answer: C Topic: Opportunity Cost Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

10) Opportunity cost is defined as the A) total value of all the alternatives given up. B) highest-valued alternative given up. C) cost of not doing all of the things you would like to do. D) lowest-valued alternative given up. Answer: B Topic: Opportunity Cost Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

11) You have the choice of going on vacation to Florida for one week, staying at work for the week, or spending the week doing fix-up projects around your house. If you decide to go to Florida, the opportunity cost of the trip is A) working and doing fix-up projects. B) working or doing fix-up projects, depending on which you would have done otherwise. C) working because you would be giving up dollars. D) nothing because you will enjoy the trip to Florida. Answer: B Topic: Opportunity Cost Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

12) The night before a midterm exam, you decide to go to the movies instead of studying for the exam. You score 60 percent on your exam. If you had studied the night before, you'd have scored 70 percent. What was the opportunity cost of your evening at the movies? A) 10 percent off your grade B) 60 percent C) 70 percent D) zero Answer: A Topic: Opportunity Cost Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Analytical Skills

13) On Saturday morning, you rank your choices for activities in the following order: go to the library, work out at the gym, have breakfast with friends, and sleep late. Suppose you decide to go to the library. Your opportunity cost is A) working out at the gym, having breakfast with friends, and sleeping late. B) working out at the gym. C) zero because you do not have to pay money to use the library. D) not clear because not enough information is given. Answer: B Topic: Opportunity Cost Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

14) Fred and Ann are both given free tickets to see a movie. Both decide to see the same movie. We know that A) both bear an opportunity cost of seeing the movie because they could have done other things instead of seeing the movie. B) both bear the same opportunity cost of seeing the movie because they are doing the same thing. C) it is not possible to calculate the opportunity cost of seeing the movie because the tickets were free. D) the opportunity cost of seeing the movie is zero because the tickets were free. Answer: A Topic: Opportunity Cost Skill: Conceptual Status: Modified 10th edition AACSB: Reflective Thinking

15) You have the choice of going to Hawaii for a week, staying at work for the week, or spending the week skiing. If you decide to go to Hawaii, the opportunity cost is A) the value of working and skiing. B) the value of working or skiing, depending on which you would have done rather than go to Hawaii. C) working, because you would be giving up a week's pay. D) None of the above if you enjoy the time spent in Hawaii. Answer: B Topic: Opportunity Cost Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

16) Today, Julie attended her 12:30 Economics class. If she hadn't gone to class, Julie would have gone out to lunch with friends. She had other options; she could have worked or slept in. Julie's opportunity cost of going to class is the A) income she gave up. B) lunch she gave up. C) sleep she gave up. D) income, pleasure, and sleep she gave up. Answer: B Topic: Opportunity Cost Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

17) Joe likes to sleep late in the mornings and play tennis in the afternoons. The opportunity cost of Joe attending his morning class for one hour is A) an hour of tennis given up. B) an hour of sleep given up. C) both the tennis given up and the sleep given up. D) nothing because he is paying for his class. Answer: B Topic: Opportunity Cost Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

18) John has two hours of free time this evening. He ranked his alternatives, first go to a concert, second go to a movie, third study for an economics exam, and fourth answer his e-mail. What is the opportunity cost of attending the concert for John? A) attending a movie B) studying for an economics exam C) answering his e-mail D) attending a movie, studying for an economics exam, and answering his e-mail Answer: A Topic: Opportunity Cost Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

19) You decide to take a vacation and the trip costs you $2,000. While you are on vacation, you do not go to work where you could have earned $750. In terms of dollars, the opportunity cost of the vacation is A) $2,000. B) $750. C) $2,750. D) $1,250 Answer: C Topic: Opportunity Cost Skill: Conceptual Status: Modified 10th edition AACSB: Analytical Skills

20) The opportunity cost of attending college includes the cost of A) the tuition but not the job at which you would otherwise have worked. B) the highest valued alternative to attending college. C) the highest valued alternative to attending college plus the cost of tuition. D) tuition, books, and the lost wages for the hours spent studying. Answer: C Topic: Opportunity Cost Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

21) Misty has the option of purchasing one of three products: Brand A, Brand B, or Brand C. Each costs ten dollars. If she decides that Brand A meets her needs best, then the opportunity cost of this decision is A) Brand B plus Brand C. B) twenty dollars. C) Brand A. D) Brand B or Brand C, depending on which is considered the highest-value alternative forgone. Answer: D Topic: Opportunity Cost Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

22) Which of the following is NOT an example of an opportunity cost? A) By spending Thursday night studying for an economics exam, a student was unable to complete a homework assignment for calculus class. B) Because David used all of his vacation time to paint his house, he was unable to visit the Caribbean last year. C) Because Mary is now being paid a higher wage, she can afford to buy a new car even though she is moving into a bigger apartment. D) By choosing to attend college, Jean was not able to continue working as an electrician; as a result, she gave up more than $85,000 in earnings while she was in college. Answer: C Topic: Opportunity Cost Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

23) From 8 to 11 p.m., Sam can either attend a basketball game, a hockey match or the symphony. Suppose that Sam decides to attend the hockey match and thinks to herself that if she did not go to the match she would go to the symphony. Then the opportunity cost of attending the hockey match is A) going to the symphony and the basketball game. B) going to the symphony. C) going to the basketball game. D) three hours of time. Answer: B Topic: Opportunity Cost Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

24) After you graduate, you have decided to accept a position working at the Bureau of Labor Statistics for $45,000.00 a year. The two other offers you received were working for Wal-Mart for $38,000 and working for Ernst and Young consulting for $42,000. Of these two offers, you would have preferred the job at Ernst and Young. What is the opportunity cost of accepting the position at the Bureau of Labor Statistics? A) the $45,000 you are paid for working at the Bureau of Labor Statistics B) the $42,000 you would have been paid working for Ernst and Young C) the $38,000 you would have been paid working for Wal-Mart D) the $42,000 you would have been paid working for Ernst and Young and the $38,000 you would have been paid working for Wal-Mart Answer: B Topic: Opportunity Cost Skill: Analytical Status: Previous edition, Chapter 1 AACSB: Analytical Skills

25) Bill Bonecrusher graduates from college with a choice of playing professional football at $2 million a year or coaching for $50,000 a year. He decides to play football, but eight years later, though he could continue to play football at $2 million a year, he quits football to make movies for $3 million a year. His opportunity cost of playing football at graduation was ________ and eight years later the opportunity cost of making movies was ________. A) $50,000; $2 million B) $2 million; $2 million C) $2 million; $3 million D) $50,000; $50,000 Answer: A Topic: Opportunity Cost Skill: Analytical Status: Previous edition, Chapter 1 AACSB: Analytical Skills

26) During the summer you have made the decision to attend summer school, which prevents you from working at your usual summer job in which you normally earn $6,000 for the summer. Your tuition cost is $3,000 and books and supplies cost $1,300. In terms of dollars, the opportunity cost of attending summer school is A) $10,300. B) $6,000. C) $4,300. D) $3,300. Answer: A Topic: Opportunity Cost Skill: Analytical Status: Modified 10th edition AACSB: Analytical Skills

27) The term "opportunity cost" points out that A) there may be such a thing as a free lunch. B) not all individuals will make the most of life's opportunities because some will fail to achieve their goals. C) executives do not always recognize opportunities for profit as quickly as they should. D) any decision regarding the use of a resource involves a costly choice. Answer: D Topic: Opportunity Cost Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

28) When the government chooses to use resources to build a dam, these sources are no longer available to build a highway. This choice illustrates the concept of A) a market mechanism. B) macroeconomics. C) opportunity cost. D) a fallacy of composition. Answer: C Topic: Opportunity Cost Skill: Analytical Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

29) Jill, an economics student, has already spent 5 hours cleaning her room. In deciding whether or not to continue cleaning for another hour, she applies the economic principle of A) scarcity. B) ceteris paribus. C) choosing at the margin. D) productivity. Answer: C Topic: Choices at the Margin Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

30) Marginal benefit is the benefit A) that your activity provides to someone else. B) of an activity that exceeds its cost. C) that arises from the secondary effects of an activity. D) that arises from an increase in an activity. Answer: D Topic: Marginal Benefit/Marginal Cost Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

31) A benefit from an increase in activity is called the A) marginal benefit. B) economic benefit. C) total benefit. D) opportunity benefit. Answer: A Topic: Marginal Benefit Skill: Recognition Status: Modified 10th edition AACSB: Reflective Thinking

32) The marginal benefit is the A) additional gain from one more unit of an activity. B) additional cost from one more unit of an activity. C) loss of the highest-valued alternative. D) additional gain from one more unit of an activity minus the additional cost from one more unit of the activity. Answer: A Topic: Marginal Benefit Skill: Recognition Status: Modified 10th edition AACSB: Reflective Thinking

33) In terms of dollars, the marginal benefit of working five days a week instead of four days a week is A) the wages received for the fifth day of work. B) the wages received for 5 days of work. C) the wages received for 4 days of work. D) None of the above answers is correct. Answer: A Topic: Marginal Benefit Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

34) Your employer has asked you to start working overtime and has offered to pay $18 per hour for every hour you work beyond forty hours a week. The wage rate for each of the first forty hours will continue to be the usual $15 per hour. In terms of dollars, what is the marginal benefit of working each hour of overtime? A) zero B) $3.00 C) $15.00 D) $18.00 Answer: D Topic: Marginal Benefit Skill: Analytical Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

35) A student is studying for an exam 2 hours a day and is debating whether to study an extra hour. The student's marginal benefit A) depends on the grade the student earns on the exam. B) is the benefit the student receives from studying all 3 hours. C) is the benefit the student receives from studying the extra hour. D) is greater than the student's marginal cost. Answer: C Topic: Marginal Benefit Skill: Analytical Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

36) A student athlete is deciding whether to work out for an extra hour. Her marginal benefit from another hour of exercise A) is the benefit she gets from all the hours she's worked out all week. B) is the benefit she receives from exercising the additional hour. C) is less than the marginal cost of the additional hour. D) depends on the cost of the workout. Answer: B Topic: Marginal Benefit Skill: Analytical Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

37) Suppose that you are spending two hours a day studying economics, and your grade is 85 percent. You want a higher grade and decide to study for an extra hour a day. As a result, your grade rises to 90 percent. Your marginal benefit is the A) 5 point increase in your grade minus the opportunity cost to you of spending the hour studying. B) extra hour per day you spend on studying. C) 5 point increase in your grade. D) three hours per day you spend on studying. Answer: C Topic: Marginal Benefit Skill: Conceptual Status: Modified 10th edition AACSB: Reflective Thinking

38) Marginal cost is the cost A) that your activity imposes on someone else. B) that arises from an increase in an activity. C) of an activity that exceeds its benefit. D) that arises from the secondary effects of an activity. Answer: B Topic: Marginal Cost Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

39) A cost due to an increase in activity is called A) an incentive loss. B) a marginal cost. C) a negative marginal benefit. D) the total cost. Answer: B Topic: Marginal Cost Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

40) Marginal cost is the A) cost of an increase in an activity. B) total cost of an activity. C) cost of an activity minus the benefits of the activity. D) cost of all forgone alternatives. Answer: A Topic: Marginal Cost Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

41) Laura is a manager for HP. When Laura must decide whether to produce a few additional printers, she is choosing at the margin when she compares A) the total revenue from sales of printers to the total cost of producing all the printers. B) the extra revenue from selling a few additional printers to the extra costs of producing the printers. C) the extra revenue from selling a few additional printers to the average cost of producing the additional printers. D) HP's printers to printers from competing companies, such as Lexmark. Answer: B Topic: Marginal Analysis Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

42) A lawn service is deciding whether to add an additional employee to its summer crew. The marginal cost of hiring this worker depends on the A) total amount paid to only the new worker. B) total amount paid to all previously hired workers. C) the total amount paid to all the workers, both the new one and the previously hired workers. D) the additional revenue created by having an additional worker minus the cost of hiring the worker. Answer: A Topic: Marginal Cost Skill: Analytical Status: Previous edition, Chapter 1 AACSB: Analytical Skills

43) If the marginal cost of an activity exceeds the marginal benefit, then A) the activity will occur because the high marginal cost means it must be highly valued. B) the forgone alternatives' costs must be increased. C) an alternative action will be selected. D) the person must concentrate on the activity's total benefits. Answer: C Topic: Marginal Benefit/Marginal Cost Skill: Conceptual Status: Modified 10th edition AACSB: Analytical Skills

44) A store remains open from 8 a.m. to 4 p.m. each weekday. The store owner is deciding whether to stay open an extra hour each evening. The owner's marginal benefit A) is the benefit the owner receives from staying open from 8 a.m. to 5 pm. B) depends on the revenues the owner makes during the day. C) must be greater than or equal to the owner's marginal cost if the owner decides to stay open. D) is the benefit the owner receives from staying open from 8 a.m. to 6 pm. Answer: C Topic: Marginal Benefit/Marginal Cost Skill: Analytical Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

45) Which of the following creates an incentive to increase the amount of an activity? A) an increase in the marginal cost of the activity and a decrease in the marginal benefit of the activity B) a decrease in the marginal cost of the activity and an increase in the marginal benefit of the activity C) constant marginal cost and constant marginal benefit of the activity D) None of the above create an incentive to increase the amount of an activity. Answer: B Topic: Incentives, Marginal Cost and Marginal Benefit Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

46) Suppose that the government of New York state promises to decrease taxes to a firm if it decides to stay in New York instead of moving to another state. This policy on the part of the state constitutes ________, to make the ________ of the firm remaining in New York. A) an incentive; marginal benefit exceed the marginal cost B) an incentive; marginal cost exceed the marginal benefit C) a command; marginal benefit exceed the marginal cost D) a command; marginal cost exceed the marginal benefit Answer: A Topic: Incentives, Marginal Cost and Marginal Benefit Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

47) Jed had an exam score of 50 percentage points. There is an extra credit assignment that Jed can complete that will raise his exam score by 20 percentage points. Jed has determined that the extra credit assignment will take 10 hours of his time. Jed will complete the assignment he values the A) 20 percentage points more than the 10 hours of his time. B) 10 hours of his time more than the 20 percentage points. C) 70 percentage points more than the 10 hours of his time. D) wants a higher score. Answer: A Topic: Incentives, Marginal Cost and Marginal Benefit Skill: Analytical Status: Previous edition, Chapter 1 AACSB: Analytical Skills

48) From 8 P.M. to 10 P.M.., Susan can attend a movie, study, or talk with friends. Suppose that Susan decides to go to the movie but thinks that, if she hadn't, she would otherwise have talked with friends. The opportunity cost of attending the movie is A) talking with friends and studying. B) studying. C) talking with friends. D) two hours of time. Answer: C Topic: Study Guide Question, Opportunity Cost Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

49) When the government hires people to serve in the army, these people are no longer available to do other work. This choice illustrates the concept of A) an incentive. B) a social interest/private interest conflict. C) opportunity cost. D) marginal benefit. Answer: C Topic: Study Guide Question, Opportunity Cost Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

50) When the government chooses to spend the tax dollars that it collects on homeland security, its choice ________. A) involves a tradeoff of other goods and services such as education for more homeland security B) illustrates that scarcity does not always exist C) involves no tradeoff because the defense is necessary D) primarily affects who gets the goods and services produced. Answer: A Topic: MyEconLab Questions Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

51) Making a choice at the margin means ________. A) letting someone else choose for you B) waiting until the last minute to make a choice C) deciding to do a little bit more or a little bit less of an activity D) making a choice by comparing the total benefit and the total cost Answer: C Topic: MyEconLab Questions Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

52) Suppose that for the past two months, you have studied economics one hour a day. You now decide to study economics two hours a day. For the past two months, ________. A) your marginal cost of studying economics for an hour must have exceeded its marginal benefit B) the marginal cost of studying economics must have fallen C) your marginal benefit from studying economics an hour must have been greater than its marginal cost D) the opportunity cost of studying economics must have risen. Answer: C Topic: MyEconLab Questions Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

4 Economics as Social Science and Policy Tool 1) In economics, positive statements are about A) the way things ought to be. B) the way things are. C) macroeconomics, not microeconomics. D) microeconomics, not macroeconomics. Answer: B Topic: Positive and Normative Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

2) A positive statement is A) about what ought to be. B) about what is. C) the result of a model's normative assumptions. D) valid only in the context of a model with simple assumptions. Answer: B Topic: Positive and Normative Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

3) A positive statement is A) about what ought to be. B) about what is. C) always true. D) one that does not use marginal concepts. Answer: B Topic: Positive and Normative Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

4) Which of the following are true regarding "positive" statements? I. They describe what "ought to be." II. They describe what is believed about how the world appears. III. They can be tested as to their truthfulness. A) I and II B) II and III C) I and III D) I, II and III Answer: B Topic: Positive and Normative Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

5) Positive and normative statements differ in that A) positive statements can be tested, whereas normative statements cannot. B) normative statements can be tested, whereas positive statements cannot. C) normative statements depict "what is" and positive statements depict "what ought to be." D) normative statements never use the word "should." Answer: A Topic: Positive and Normative Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

6) Positive economic statements A) prescribe what should be. B) are related only to microeconomics. C) can be tested against the facts. D) cannot be tested against the facts. Answer: C Topic: Positive and Normative Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

7) Which of the following is a positive statement? A) An unemployment rate of 9 percent is a national disgrace. B) Unemployment is a more important problem than inflation. C) When the national unemployment rate is 9 percent, the unemployment rate for inner-city youth is often close to 40 percent. D) Unemployment and inflation are equally important problems. Answer: C Topic: Positive and Normative Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

8) Which of the following is a positive statement? A) The United States should fight inflation even if it raises unemployment. B) What to do with Social Security is the most important economic issue today. C) A 5 percent increase in income leads to a 3 percent increase in the consumption of orange juice. D) Because they decrease productivity, labor unions should be eliminated. Answer: C Topic: Positive and Normative Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

9) Which of the following is a positive statement? A) People buy more of a good or service when its price falls. B) The distribution of income is fair. C) The government ought to provide health care to everyone. D) Corporations should be more socially responsible. Answer: A Topic: Positive and Normative Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

10) Which of the following is an example of a positive statement? A) Government should not redistribute income. B) Business firms ought to contribute more to charities. C) Households are the primary source of saving. D) The foreign sector should be more tightly controlled. Answer: C Topic: Positive and Normative Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

11) Which of the following is an example of a positive statement? A) We should cut back on our use of carbon-based fuels such as coal and oil. B) Increasing the minimum wage results in more unemployment. C) Every American should have equal access to health care. D) The Federal Reserve ought to cut the interest rate. Answer: B Topic: Positive and Normative Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

12) Which of the following is a positive statement? A) Taxes should be lower because then people get to keep more of what they earn. B) My economics class should last for two terms because it is my favorite class. C) A 10 percent increase in income leads to a 4 percent increase in the consumption of beef. D) Given their negative impact on productivity, the government should eliminate labor unions. Answer: C Topic: Positive and Normative Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

13) Which of the following is a positive statement? A) Our planet is warming because of an increased carbon dioxide buildup in the atmosphere. B) A minimum wage of $7.50 per hour is a shame for a rich country like the United States. C) Both of these statements are positive. D) Neither of these statements is positive. Answer: A Topic: Positive and Normative Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

14) Which of the following is a positive statement? A) The government must lower the price of a pizza so that more students can afford to buy it. B) The best level of taxation is zero percent because then people get to keep everything they earn. C) My economics class should last for two terms because it is my favorite class. D) An increase in tuition means fewer students will apply to college. Answer: D Topic: Positive and Normative Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

15) Which of the following is a positive statement? A) Low rents decrease the amount of housing landlords make available for rent. B) Low rents are good because they make apartments more affordable. C) Housing costs too much. D) Owners of apartment buildings ought to be free to charge whatever rent they want. Answer: A Topic: Positive and Normative Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

16) When Al makes the statement, "The cost of living has increased 10 percent over the past 10 years," he is A) making a normative statement. B) making a positive statement. C) testing an economic model. D) facing the standard of living tradeoff. Answer: B Topic: Positive and Normative Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

17) Which of the following is a positive statement? A) State lotteries are good methods to use for raising revenues. B) Increased prison sentences are the best way to reduce the crime rate. C) An increase in gas prices leads people to car pool more. D) Inflation is a more serious problem than is deflation. Answer: C Topic: Positive and Normative Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

18) The statement "Managers with a college education earn $18 an hour while ski instructors who did not complete college earn $10" is A) a political statement. B) a positive statement. C) a normative statement. D) an ethical statement. Answer: B Topic: Positive and Normative Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

19) The statement "An increase in the price of gasoline will lead to a decrease in the amount purchased" is A) a political statement. B) a positive statement. C) a normative statement. D) a scientific statement. Answer: B Topic: Positive and Normative Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

20) The statement "The unemployment rate for teens is higher than that for adults" is A) a political statement. B) a positive statement. C) a normative statement. D) an ethical statement. Answer: B Topic: Positive and Normative Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

21) Which of the following is NOT a normative statement? A) People buy more of a good or service when its price falls. B) The distribution of income is fair. C) The government ought to provide health care to everyone. D) Corporations should be more socially responsible. Answer: A Topic: Positive and Normative Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

22) A normative statement concerns A) what is provable. B) what is correct. C) what is incorrect. D) a value judgment. Answer: D Topic: Positive and Normative Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

23) Normative economic statements A) describe what ought to be. B) describe what is rather than what ought to be. C) describe the process of economic policy-making. D) deal with economic hypotheses that are not well-established laws. Answer: A Topic: Positive and Normative Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

24) The statement that "peach ice cream is better than chocolate ice cream" A) can be tested using the scientific approach. B) is a normative statement. C) is a positive statement. D) provides a basis for predicting which type of ice cream will exhibit the most sales. Answer: B Topic: Positive and Normative Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

25) The statement "Unemployment should be below 6 percent" is A) a positive statement. B) a normative statement. C) a prediction. D) an assumption. Answer: B Topic: Positive and Normative Skill: Conceptual Status: Modified 10th edition AACSB: Reflective Thinking

26) Statements about what ought to be are called A) positive statements. B) normative statements. C) assumptions. D) implications. Answer: B Topic: Positive and Normative Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

27) Normative statements are statements about A) prices. B) quantities. C) what is. D) what ought to be. Answer: D Topic: Positive and Normative Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

28) A normative statement is A) about what ought to be. B) about what is. C) always true. D) one that does not use marginal concepts. Answer: A Topic: Positive and Normative Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

29) In economics, normative statements are about A) the way things ought to be. B) the way things are. C) marginal benefits, not marginal costs. D) marginal costs, not marginal benefits. Answer: A Topic: Positive and Normative Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

30) Which of the following is a normative statement? A) The price of candy bars is $1.25 each. B) Candy bars are more expensive than newspapers. C) You should eat less candy. D) Popcorn and candy are sold in movie theaters. Answer: C Topic: Positive and Normative Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

31) Which of the following is a normative statement? A) The unemployment rate is too high. B) Forty percent of the public believes that the unemployment rate is too high. C) The unemployment rate rose last month. D) None of the above are normative statements. Answer: A Topic: Positive and Normative Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

32) Which of the following is a normative statement? A) The United States has a comparative advantage compared to the European Union in the production of wheat. B) The main reason why the United States has a trade deficit with China is because China's trade practices are unfair. C) Both these statements are normative. D) Neither of these statements is normative. Answer: B Topic: Positive and Normative Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

33) "Government should act to reduce poverty levels." A) This statement is a normative statement. B) This statement is a positive statement. C) This statement is an example of the fallacy of composition. D) This statement is an example of the post hoc fallacy. Answer: A Topic: Positive and Normative Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

34) When Susan makes the statement, "The government should spend less money to take care of national parks," she is A) making a normative statement. B) making a positive statement. C) testing an economic model. D) not dealing with scarcity. Answer: A Topic: Positive and Normative Skill: Conceptual Status: Modified 10th edition AACSB: Reflective Thinking

35) "The rich should pay higher income tax rates than the poor" is an example of a A) normative statement. B) positive statement. C) descriptive statement. D) theoretical statement. Answer: A Topic: Positive and Normative Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

36) Which of the following is a normative statement? A) Studying more hours leads to an increase in your GPA. B) An increase in tax rates means people work fewer hours. C) Taking extra vitamin C prevents catching a cold. D) States should require all motorcycle riders to wear helmets to reduce the number of riders killed. Answer: D Topic: Positive and Normative Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

37) Which of the following is a normative statement? A) Low rents will restrict the supply of housing. B) Low rents are good because they make apartments more affordable. C) Housing costs are rising. D) Owners of apartment buildings are free to charge whatever rent they want. Answer: B Topic: Positive and Normative Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

38) Which of the following is a normative statement? A) Next year's inflation rate will be under 4 percent. B) Consumers will buy more gasoline over the Christmas holiday even if the price of gas is 10 cents higher than it was during the Thanksgiving holiday. C) The government's cuts in welfare spending impose an unfair hardship on the poor. D) The current butter surplus is the result of federal policies. Answer: C Topic: Positive and Normative Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

39) Economic models A) are essentially different from those used in other sciences. B) always use graphs. C) simplify reality. D) include all relevant facts. Answer: C Topic: Model Building Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

40) A good economic model A) describes every aspect of the economic world, with no exception. B) includes all those features of the world that can be described numerically. C) includes only those features of the world that are needed for the purpose at hand. D) should not include more than two variables. Answer: C Topic: Model Building Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

41) An economic model is A) a generalization that summarizes all the normative assumptions we make about a particular issue. B) a description of some aspect of the economic world that includes only those features of the world that are needed for the purpose at hand. C) a statement that describes how the world should be. D) a collection of facts that describe the real world. Answer: B Topic: Models Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

42) A normative statement is A) about what ought to be. B) about what is. C) always true. D) one that is based on an economic experiment. Answer: A Topic: Study Guide Question, Positive and Normative Skill: Recognition Status: Modified 10th edition AACSB: Reflective Thinking

43) Which of the following is a positive statement? A) The government must provide health insurance so that the poor can obtain decent medical treatment. B) The government should spend more on education. C) My favorite dinner is pizza and soda. D) An increase in the price of pizza will lead fewer students to buy pizza. Answer: D Topic: Study Guide Question, Positive and Normative Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

44) An economic model includes A) only normative statements. B) no use of marginal concepts. C) all known details in order to increase its accuracy. D) only details considered essential. Answer: D Topic: Study Guide Question, Economic Model Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

45) The statement that ________ is a positive statement. A) more students should study economics B) the price of gasoline is too high C) too many people in the United States have no health care insurance D) the price of sugar in the United States is higher than the price in Australia Answer: D Topic: MyEconLab Questions Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

5 News Based Questions 1) Ben Bernanke, Chairman of the Federal Reserve, must choose whether tomorrow he meets with the Secretary of the Treasury or with the Congress regarding the financial crisis. This choice reflects the A) fact that Bernanke faces scarcity. B) concept of entrepreneurship. C) fact that Bernanke responds to incentives D) use of capital. Answer: A Topic: Scarcity Skill: Conceptual Status: Modified 10th edition AACSB: Reflective Thinking

2) When the president of the Bank of America addresses Congress regarding lending standards in that industry, he is discussing A) a macroeconomic topic. B) a microeconomic topic. C) incentives. D) the big tradeoff. Answer: B Topic: Microeconomics and Macroeconomics Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

3) When Ben Bernanke, Chairman of the Federal Reserve, addresses Congress regarding the United States role in the world economy, he is discussing A) a macroeconomic topic. B) a microeconomic topic. C) scarcity. D) incentives. Answer: A Topic: Microeconomics and Macroeconomics Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

4) Dell Computers decides to produce PCs and sell them directly over the Internet and via Best Buy. This is an example of A) incentives. B) a microeconomic decision. C) a macroeconomic decision. D) scarcity. Answer: B Topic: Microeconomics Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

5) Consider the following events: I. Samsung hires associates to market their HDTV sets to Best Buy. II. The Dallas Cowboys build a new football stadium. III. eBay fires 10 percent of its workforce. IV. Ten million stocks were traded on the New York Stock Exchange in one day. V. Pennsylvania builds a new state park. Which of the events describe use of factors of production? A) I, II, III, and V B) II, IV, and V C) I and III only D) IV only Answer: A Topic: Factors of Production Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

6) Panasonic sends its HDTV salespeople to training sessions. This is an example of A) a macroeconomic decision. B) scarcity. C) a firm investing in workers' human capital D) entrepreneurship. Answer: C Topic: Human Capital Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

7) "When OPEC increases the supply of oil to the market, the price of gasoline falls." This is an example of A) a normative statement. B) the failure of opportunity cost to determine prices. C) a positive statement. D) a macroeconomic statement. Answer: C Topic: Positive and Normative Skill: Conceptual Status: Modified 10th edition AACSB: Reflective Thinking

8) "As part of the financial crisis bailout plan in 2009, the Federal Reserve bought stakes in banks. This policy will result in an increase in the inflation rate." This is an example of A) a positive statement. B) a normative statement. C) a microeconomic statement. D) an economic model. Answer: A Topic: Positive and Normative Skill: Conceptual Status: Modified 10th edition AACSB: Reflective Thinking

9) "As part of the financial crisis bailout plan in 2008, the Federal Reserve should not bail out banks that made risky loans." This is an example of A) a positive statement. B) the Federal Reserve taking actions that are not at the margin. C) opportunity costs. D) a normative statement. Answer: D Topic: Positive and Normative Skill: Conceptual Status: Modified 10th edition AACSB: Reflective Thinking

10) "OPEC should supply more oil so that the world's economies can grow more rapidly." This is an example of A) a normative statement. B) a positive statement. C) a decision at the margin. D) OPEC overcoming scarcity Answer: A Topic: Positive and Normative Skill: Conceptual Status: Modified 10th edition AACSB: Reflective Thinking

6 Essay Questions 1) What do economists mean when they discuss "scarcity"? Answer: Scarcity occurs whenever people's wants exceed the ability of the available resources to meet these wants. Because people's wants are effectively infinite—it is always possible to imagine more good things to want to have—wants will always exceed what can be produced with the available resources, and so scarcity will always be present. Topic: Scarcity Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Communication

2) What is the relationship between wants, factors of production, scarcity, and choices? Discuss the relationship for an individual and for a society. Answer: A person faces scarcity whenever his or her wants exceed what he or she can obtain using his or her resources. Because the person cannot fulfill all of his or her wants, the person is forced to choose which wants will be satisfied and which wants will remain unsatisfied. The same results hold true for a society. All societies face scarcity because people's wants are essentially infinite, so that the factors of production available are not sufficient to fulfill everyone's wants. Because of this fact, societies must make choices about which (and whose) wants will be satisfied and which (and whose) wants will remain unsatisfied. Topic: Scarcity Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Communication

3) Why do economists say that even very rich people face scarcity? Answer: A person faces scarcity whenever his or her wants exceed what he or she can obtain using his or her resources. Even very rich people want things that they cannot have. An older rich person, for instance, might want to have all of his or her youthful energy, but medical science cannot (yet) provide this service. Alternatively, another rich person might enjoy life so much that he or she wants 25 hours in a day in order to have more time for more enjoyment. But, such a want is impossible. By way of another, perhaps more realistic example, Malcolm Forbes was the founder of Forbes magazine and was very rich. However, he did not win every piece of art that he bid upon at auctions. Even though Mr. Forbes was very rich, he still passed on some art when the price got so high that he thought given his resources, the price exceeded what he was willing to pay. Mr. Forbes wanted the art, but he was not willing to bid higher in order to win it. Mr. Forbes faced scarcity. Topic: Scarcity Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Ethical Reasoning

4) Explain why both rich and poor people experience scarcity. Answer: Scarcity exists when people's wants exceed their ability to satisfy the wants. People's wants are literally infinite, so just as a poor person can want more, so too can a richer person. Therefore, both rich and poor experience scarcity. Topic: Scarcity Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Ethical Reasoning

5) What is the difference between scarcity and poverty? Answer: Scarcity exists when availability is less than people want. Poverty exists when availability is less than people need. Everyone suffers scarcity; only an unfortunate minority suffers poverty. Topic: Scarcity Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Ethical Reasoning

6) Define economics and describe its branches of study. Answer: Economics is the social science that studies the choices made by individuals, businesses, government, and entire societies as they cope with scarcity. It has two branches, microeconomics and macroeconomics. Microeconomics is the study of the choices made by individuals and businesses, the way they interact, and the influence that governments exert on these choices. Macroeconomics is the study of the aggregate (total) effects on the national economy and the global economy of the choices that individuals, businesses, and governments make. Topic: Definition of Economics Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Communication

7) What is the difference between microeconomics and macroeconomics? Answer: Microeconomics studies the decisions of smaller economic actors, such as individual consumers or individual firms, and how the government can affect these decisions, say through how it regulates an industry. Macroeconomics studies the aggregate, or economy-wide, consequences of the decisions made by individuals and firms. Macroeconomics also studies the aggregate effects of government policies, such as the Federal Reserve's decisions to raise or lower interest rates. Topic: Microeconomics and Macroeconomics Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Communication

8) What is the difference between microeconomics and macroeconomics? Give an example of an issue each studies. Answer: Essentially microeconomics studies individual units within the economy, such as the choices made by individual consumers or individual firms. Macroeconomics studies the overall or aggregate economy. Microeconomics examines the factors that affect employment at an individual firm. Macroeconomics examines the factors that affect economy-wide unemployment. Topic: Microeconomics and Macroeconomics Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Communication

9) Below is a student's answer to the question "What is microeconomics?" If you were the instructor, how would you correct the student's answer? "Microeconomics is the study of how government influences the choices made by individuals and businesses and of the performance of the whole national economy." Answer: The answer is partially correct. Microeconomics is the study of the choices that individuals and businesses make, the way these choices interact in markets, and the influence of the government. But the performance of the national economy is the subject of macroeconomics, not microeconomics. Topic: Microeconomics and Macroeconomics Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Communication

10) China's population is over 1.5 billion, while the population of the United States is about 300 million. This fact means that China has much more human capital than the U.S. does. True or false? Explain your answer. Answer: False. Population can measure the quantity of a nation's labor resource, but the population numbers don't tell us anything about skills that this labor force obtained from education, on-the-job training, and work experience, which are called human capital. Thus, the population numbers in the statement only tell us that China is likely to have more labor than the United States, but it does not necessarily mean that it also has more human capital. Topic: Human Capital Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Communication

11) Explain what entrepreneurship is and why it is considered a factor of production. Answer: Entrepreneurship is the resource (the people) that runs businesses. Entrepreneurs organize the other resources, land, labor, and capital. It is a factor of production because people with the desire and talent to successfully organize a business are needed to run businesses. Topic: Entrepreneurship Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Communication

12) An analyst on a local news channel argues that the recent corporate scandals "demonstrated very clearly that self-interest always contradicts social interest." Do you agree or disagree? Substantiate your answer. Answer: You should disagree. The recent corporate scandals only show that self-interest might contradict social interest. But they don't prove that this is necessarily the case as we can find many real-world examples of how people guided by self-interest promote society's well-being. In fact, under the market system the whole economy operates through the decisions made by self-interested individuals. And countries such as the United States have proven to be more successful in promoting social interest than were centrally planned, or communist, economies where people's self-interest was suppressed and all important economic decisions were made by government. Topic: Self-Interest and Social Interest Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Ethical Reasoning

13) What is a tradeoff? Give an example. Answer: A tradeoff occurs when one thing must be given up to get another. Tradeoffs are pervasive; at the personal level, students trade off time spent studying for time they otherwise could have spent socializing. Topic: Tradeoffs Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Communication

14) What is opportunity cost? Answer: Opportunity cost is the highest-valued alternative given up when selecting an action. For instance, the opportunity cost of studying an hour is whatever the highest-valued alternative would have been for the hour spent studying. Topic: Opportunity Cost Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Communication

15) Your friend is preparing for this exam and in your practice session makes the following statement: "Instead of attending microeconomics class for two hours, Kiki could have played tennis or watched a movie. Therefore, the opportunity cost of attending class is the tennis and the movie she had to give up." Is your friend's analysis correct or not? Explain your answer. Answer: Your friend's analysis is incorrect. The opportunity cost of an action is the highest-valued alternative forgone, not all alternatives forgone. Kiki's opportunity cost of studying for her exam is either the tennis or the movie, whichever she would have done had she not studied. Topic: Opportunity Cost Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Communication

16) Rather than go out to eat by yourself, you decide to stay at home and fix dinner for yourself and your two roommates. Your roommates applaud your decision. Your first roommate tells you that your decision to eat at home has no opportunity cost because you already have all the dinner ingredients in your pantry. Is this roommate's comment correct? Answer: Your first roommate's comment is incorrect. The opportunity cost of preparing dinner at home is whatever is the highest-valued alternative forgone, which, given your choice boiled down to staying home or going out, is going out to eat. Hence the opportunity cost of fixing dinner at home is going out to eat. Topic: Opportunity Cost Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Communication

17) Define marginal cost and marginal benefit. Answer: Marginal cost is the opportunity cost of an increase in an activity. Marginal benefit is the benefit of an increase in an activity. Topic: Marginal Benefit and Marginal Cost Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Communication

18) In New State, the bottling law requires that people get a refund of five cents when they return an empty bottle or can. Why does the state pay people to return bottles? In your answer, be sure to mention the role played by incentives. Answer: Policy makers know that people making choices respond to incentives. Instead of throwing away bottles and cans, people will now bring the used bottles and cans to the designated areas for recycling in order to receive their payment. Thus policy makers have taken advantage of people's decision making by increasing the marginal benefit of returning bottles in order to reduce litter and clean the environment. Topic: Incentives, Marginal Cost and Marginal Benefit Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Communication

19) If the government raises the tax on cigarettes, what is the effect on people's incentives and choices? Answer: The government raises the tax on cigarettes to discourage smoking. With a higher tax the price of cigarettes rises. The opportunity cost of smoking increases, which gives people incentive to cut their consumption of cigarettes. Topic: Incentives, Marginal Cost and Marginal Benefit Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Communication

20) What is the difference between positive and normative statements? Answer: Positive statements tell what is and normative statements tell what ought to be. Positive statements can be tested to determine if they are correct or not, while normative statements use value judgments and so cannot be tested. For example, two economists might agree on the positive assertion that if the government spent its funds purchasing pharmaceutical drugs for poor older Americans rather than poor children, then poor older Americans would use more drugs and poor children would use fewer. But they might disagree on the normative conclusion of whether the government should pursue this policy. One economist might argue "It is not fair to have senior citizens suffer because they cannot afford medicine" and the other economist might argue "It is not fair to have children suffer because their parents cannot afford medicine." Topic: Positive and Normative Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Communication

21) "The difference between positive and normative statements is that a positive statement is always true while a normative statement might or might not be true." True or false? Explain. Answer: False. The difference between positive and normative statements is that a positive statement is about what is, while a normative statement is about what ought to be. A positive statement can be tested against the facts and may be proved to be right or wrong, whereas a normative statement depends on values and cannot be tested. Topic: Positive and Normative Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Communication

22) Two economists can agree that raising the minimum wage creates unemployment yet one might argue that raising the minimum wage is a good policy and the other that it is a bad policy. Why can this difference exist? Be sure to use the terms positive and normative in your answer. Answer: Positive statements are statements that describe how the world is. Positive statements can be tested and so, ultimately, any disagreements about positive statements should be resolved. The statement that "Raising the minimum wage creates unemployment" is a positive statement and, on the basis of repeated testing, most economists agree that it is a correct positive statement. Normative statements, however, are statements that describe how the world ought to be. Normative statements depend on people's values and cannot be tested. So one economist might argue that raising the minimum wage is a good policy because this economist thinks that, although it is unfortunate that some people lose their jobs, the fact that others retain their jobs and their wages rise more than outweighs the harm created by the unemployment. Another economist might strongly differ because the second economist thinks that the harm inflicted on people who lose their jobs more than outweighs any good from some workers being paid more. This difference of opinion can last indefinitely because there is no way to test the two economists' beliefs to determine which is correct. Topic: Positive and Normative Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Ethical Reasoning

23) Explain whether the statement, "There is life on Mars," is a normative or positive statement. Answer: The statement is a positive statement because it does not depend on a value judgment. Instead, it is a statement that tries to describe "what is" and hence is testable. Of course, in order to test the assertion, it would be necessary to go to Mars to ascertain if there is life present. While it is difficult (!) at present to actually carry out the test, nonetheless the statement is testable and hence is a positive statement. Topic: Positive and Normative Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Communication

24) Explain whether the statement, "Hillary Clinton was elected President of the United States in 2012," is a normative or positive statement. Answer: The statement is a positive statement because it does not depend on a value judgment. Instead, it is a statement that tries to describe "what is" and hence is testable. Now, it is indeed the case that Hillary Clinton was not elected president in 2012, so when we test the statement we discover that it is incorrect. But, whether the statement is correct or not has no bearing on whether the statement is positive or normative. Thus, the statement "Hillary Clinton was elected President in 2012" is a positive, albeit incorrect, statement. Topic: Positive and Normative Skill: Conceptual Status: Revised AACSB: Communication

25) What is a normative statement? Give an example. Answer: A normative statement is a statement about what ought to be. It is a value judgment or opinion and so cannot be proven true or false. An example of a normative statement is "Students should attend school year round to receive a better education." Topic: Positive and Normative Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Communication

26) Explain whether the statement "The government should increase tariffs on Japanese cars to protect the American car industry from competition," is a normative or positive statement. Answer: The statement is normative. The statement is a normative statement because it depends on a value judgment, namely that the government should protect the American car industry from competition. Topic: Positive and Normative Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Communication

7 Numeric and Graphing Questions 1) Suppose you are working four nights per week at your courses and your grade point average is 3.5. You want a higher grade and decide to study an extra night each week. Your GPA now rises to 3.8. What is your marginal benefit from studying for one additional night a week? Answer: Marginal benefit is the benefit that arises from an increase in an activity. Your marginal benefit is the 0.3 increase in your grade. It's not the 3.8 grade because you already have the benefit from studying for four nights a week and should not count this benefit as resulting from the decision you are now making. Topic: Marginal Benefit Skill: Analytical Status: Previous edition, Chapter 1 AACSB: Analytical Skills

2) Jerry is studying three nights per week and his grade point average is 3.1. He wants a higher GPA and decides to study an extra night each week. His GPA now rises to 3.5. Had Jerry not decided to study an extra night, he would have spent this night with his friends. What is Jerry's marginal benefit from studying for one additional night a week? What is his marginal cost of increasing the study time by one night per week? Why does Jerry decide to study an extra night? Answer: Marginal benefit is the benefit that arises from an increase in an activity. Jerry's marginal benefit is the 0.4 increase in his grade. Marginal cost is the opportunity cost of an increase in an activity. Jerry's marginal cost is a night spent with his friends that he gives up. Jerry decides to stud an extra night because he values the marginal benefit from it (the 0.4 increase in his grade) more highly than its marginal cost (a night spent with his friends). Topic: Marginal Benefit and Marginal Cost Skill: Analytical Status: Previous edition, Chapter 1 AACSB: Analytical Skills

8 True or False 1) Scarcity applies to both the rich and the poor. Answer: TRUE Topic: Scarcity Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

2) Scarcity affects only those who are in need. Answer: FALSE Topic: Scarcity Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

3) Microeconomics is the study of topics such as national production and unemployment. Answer: FALSE Topic: Microeconomics Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

4) Macroeconomics is the study of aggregate variables such as national production and unemployment. Answer: TRUE Topic: Macroeconomics Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

5) The tools, instruments, machines, and buildings that people use to produce goods and services are called human capital. Answer: FALSE Topic: Human Capital Skill: Recognition Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

6) Most income in the United States is earned by business owners as profit. Answer: FALSE Topic: Labor Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

7) The United States produces more services than goods. Answer: TRUE Topic: Production Trends Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking 62 Copyright © 2014 Pearson Education, Inc.

8) When I buy an $8.00 movie ticket rather than two paperback books, the opportunity cost of going to the movie is the two paperback books I did not buy. Answer: TRUE Topic: Opportunity Cost Skill: Conceptual Status: Previous edition, Chapter 1 AACSB: Reflective Thinking

9 Extended Problems 1) Suppose you plan to go to school this summer. The cost of tuition and textbooks is $1,400 and housing, board, and entertainment will cost you $500. If you didn't go to school, you'd live in your parents' house for free, but your other living expenses would be about the same. Also, if you didn't go to school you'd work full time and could earn $8,000. You can still work part time while attending the summer school, but you will earn only $3,000. a) What will the summer school cost you in terms of money explicitly paid? b) What are the opportunity costs of going to summer school that you don't pay explicitly? Explain. c) What is your total opportunity costs of going to school this summer? Explain your answer. Answer: a) You explicitly pay the cost of tuition and textbooks ($1,400) and the cost of housing ($500), so your total explicit costs are $1,900. b) Your opportunity cost is what your give up to go to summer school. You forego a fulltime job, at which you would earn $8,000, in exchange for a part-time job, where you earn $3,000, which means you give up $5,000. Although you don't pay this money explicitly, you lose the opportunity to earn it and so it's an opportunity cost of attending summer school. c) First, your opportunity cost includes the cost that you pay explicitly ($1,900), which you have to pay only if you go to school. If you decide not to go to school, you can use this money to buy something else—an opportunity you are giving up. Second, as explained in the previous part, you are also giving up $5,000, although not paying this money explicitly. So your full opportunity cost of going to school is $1,900 + $5,000 = $6,900. Topic: Opportunity Cost Skill: Analytical Status: Previous edition, Chapter 1 AACSB: Analytical Skills