Question 1

The basic economic problem of ________ has always existed and will continue to exist.

Accepted Answer

A)  scarcity 
B)  efficiency 
C)  inflation 
D)  recession 
A)  scarcity 
B)  efficiency 
C)  inflation 
D)  recession

Question 2

Automobile manufacturers produce a range of automobiles such as sports utility vehicles, luxury sedans, pickup trucks and compact cars. What fundamental economic question are they addressing by making this range of products?

Accepted Answer

A)  How should we produce goods that consumers want? 
B)  Why should we produce a variety of automobiles? 
C)  What goods should we produce? 
D)  For whom should we produce automobiles? 
A)  How should we produce goods that consumers want? 
B)  Why should we produce a variety of automobiles? 
C)  What goods should we produce? 
D)  For whom should we produce automobiles?

Question 3

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

Accepted Answer

1. What goods and services wil

Question 4

What is a mixed economy?

Accepted Answer

A mixed economy is an economy in which m

Question 5

What does the term "marginal" mean in economics?

Accepted Answer

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

Question 6

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

Accepted Answer

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

Question 7

The ________ the sale of an additional unit of a product is a marginal benefit to the firm.

Accepted Answer

A)  revenue received from 
B)  extra cost of 
C)  total value of 
D)  sales tax on 
A)  revenue received from 
B)  extra cost of 
C)  total value of 
D)  sales tax on

Question 8

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

Accepted Answer

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

Question 9

Scenario 1-1
Suppose a cell phone manufacturer currently sells 20,000 cell phones per week and makes a profit of $5,000 per week. A manager at the plant observes, "Although the last 3,000 cell phones we produced and sold increased our revenue by $6,000 and our costs by $6,700, we are still making an overall profit of $5,000 per week so I think we're on the right track. We are producing the optimal number of cell phones."
-Refer to Scenario 1-1. Using marginal analysis terminology, what is another economic term for the incremental cost of producing the last 3,000 cell phones?

Accepted Answer

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

Question 10

An economic model is a complex version of reality used to analyze real-world economic situations.

Accepted Answer

A) True 
 B)False

Question 11

In a centrally planned economy, the government decides how economic resources will be allocated.

Accepted Answer

A) True 
 B)False

Question 12

Lionel's Lawn Care is a company that maintains residential yards. Lionel's cost for his standard package of mowing, edging, and trimming is $15, and he charges $25 for this service. For a total price of $40, Lionel will also trim shrubs, a service that adds an additional $10 to the total cost of the standard package. What is Lionel's marginal benefit if he sells the standard package?

Accepted Answer

A)  $10 
B)  $15 
C)  $25 
D)  $40 
A)  $10 
B)  $15 
C)  $25 
D)  $40

Question 13

All of the following contributed to the downfall of the Soviet Union in 1991 except

Accepted Answer

A)  public dissatisfaction with low living standards and political repression. 
B)  an inability to produce low-cost consumer goods that households wanted. 
C)  lack of high-quality goods and services. 
D)  lack of a strong dictator who can coordinate economic activities. 
A)  public dissatisfaction with low living standards and political repression. 
B)  an inability to produce low-cost consumer goods that households wanted. 
C)  lack of high-quality goods and services. 
D)  lack of a strong dictator who can coordinate economic activities.

Question 14

Pookie's Pinball Palace restores old Pinball machines. Pookie has just spent $300 purchasing and cleaning a 1960s-era machine which he expects to sell for $2,000 once he is finished with the restoration. After having spent $300, Pookie discovers that he will need to rewire the entire machine at a cost of $1,100 in order to finish the restoration. Alternatively, he can sell the machine "as is" now for $1,000. What is his marginal benefit if he sells the machine "as is" now?

Accepted Answer

A)  $300 
B)  $900 
C)  $1,000 
D)  The marginal benefit cannot be determined. 
A)  $300 
B)  $900 
C)  $1,000 
D)  The marginal benefit cannot be determined.

Question 15

The number of people who have gray hair is very high among residents living in Florida. A student concludes that living in Florida causes hair to turn gray. What is the flaw in this student's reasoning?

Accepted Answer

A)  The student is drawing a false conclusion by making the mistake of omitting critical variables such as the age and gender of the residents. 
B)  The student is using an inadequate sample size. 
C)  The student is drawing a false conclusion; he is confusing cause and effect. 
D)  The student has failed to take into account other causes of gray hair. 
A)  The student is drawing a false conclusion by making the mistake of omitting critical variables such as the age and gender of the residents. 
B)  The student is using an inadequate sample size. 
C)  The student is drawing a false conclusion; he is confusing cause and effect. 
D)  The student has failed to take into account other causes of gray hair.

Question 16

Which of the following statements is true?

Accepted Answer

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

Question 17

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

Accepted Answer

A)  $35 
B)  $60 
C)  $95 
D)  The marginal benefit cannot be determined. 
A)  $35 
B)  $60 
C)  $95 
D)  The marginal benefit cannot be determined.

Question 18

Consider the following statements: a. Car owners purchase more gasoline from a gas station that sells gasoline at a lower price than other rival gas stations in the area.
B. Banks do not take steps to increase security since they believe it is less costly to allow some bank robberies than to install expensive security monitoring equipment.
C. Firms produce more of a particular DVD when its selling price rises.
Which of the above statements demonstrates that economic agents respond to incentives?

Accepted Answer

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

Question 19

In the market for factors of production, firms earn income by selling factors of production to households.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

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

Exam 1: Economics: Foundations and Models

The basic economic problem of ________ has always existed and will continue to exist.

Automobile manufacturers produce a range of automobiles such as sports utility vehicles, luxury sedans, pickup trucks and compact cars. What fundamental economic question are they addressing by making this range of products?

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

What is a mixed economy?

What does the term "marginal" mean in economics?

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

The ________ the sale of an additional unit of a product is a marginal benefit to the firm.

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

An economic model is a complex version of reality used to analyze real-world economic situations.

In a centrally planned economy, the government decides how economic resources will be allocated.

All of the following contributed to the downfall of the Soviet Union in 1991 except

The number of people who have gray hair is very high among residents living in Florida. A student concludes that living in Florida causes hair to turn gray. What is the flaw in this student's reasoning?

Which of the following statements is true?

In the market for factors of production, firms earn income by selling factors of production to households.

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

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

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