Question 1

When every good or service is produced up to the point where the last unit provides ________,allocative efficiency occurs.

Accepted Answer

A) a marginal benefit to society equal to the marginal cost of producing it 
B) a marginal benefit to society greater than the marginal cost of producing it 
C) a marginal benefit to society less than the marginal cost of producing it 
D) a marginal benefit to society equal to zero 
A) a marginal benefit to society equal to the marginal cost of producing it 
B) a marginal benefit to society greater than the marginal cost of producing it 
C) a marginal benefit to society less than the marginal cost of producing it 
D) a marginal benefit to society equal to zero

Question 2

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

Accepted Answer

A) only the producers 
B) only consumers 
C) only the government 
D) all of the above 
A) only the producers 
B) only consumers 
C) only the government 
D) all of the above

Question 3

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

Accepted Answer

A) government dissatisfaction with high living standards and political freedom 
B) an inability to produce low-cost consumer goods that households wanted 
C) an overabundance of high-quality goods and services 
D) the lack of a strong dictator who could coordinate economic activities 
A) government dissatisfaction with high living standards and political freedom 
B) an inability to produce low-cost consumer goods that households wanted 
C) an overabundance of high-quality goods and services 
D) the lack of a strong dictator who could coordinate economic activities

Question 4

You explain to your roommate Surya,who makes beaded headbands,about an economic theory which asserts that consumers will purchase more of a product at lower prices than they will at higher prices.She contends that the theory is incorrect because over the past two years she has lowered the price of her headbands and yet has seen a decrease in sales.How would you respond to Surya?

Accepted Answer

A) Surya is right;she has evidence to back her claim.The theory must be erroneous. 
B) Surya is making the mistake of assuming that correlation implies causation. 
C) I will explain to her that she is making the error of reverse causality: it is the decrease in demand that has caused her to lower her prices. 
D) I will explain to her that there are some omitted variables that have contributed to a decrease in her sales such as changes in income. 
A) Surya is right;she has evidence to back her claim.The theory must be erroneous. 
B) Surya is making the mistake of assuming that correlation implies causation. 
C) I will explain to her that she is making the error of reverse causality: it is the decrease in demand that has caused her to lower her prices. 
D) I will explain to her that there are some omitted variables that have contributed to a decrease in her sales such as changes in income.

Question 5

Consider the following statements:
A.Consumers buy more MP3 players from an electronics store that sells MP3 players at a lower price than other rival electronics stores in the area.
B.Schools take steps to increase security since they believe it is more costly to allow vandalism than to hire additional security guards.
C.Citrus growers produce more oranges when the selling price of oranges falls.
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 6

Jewelry manufacturers produce a range of products such as rings,necklaces,bracelets,and brooches.What fundamental economic question are they addressing by offering this range of items?

Accepted Answer

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

Question 7

Which of the following statements is true?

Accepted Answer

A) Any time 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 with a stock clearance sale. 
C) Every individual,no matter how rich or poor,is faced with situations that require trade-offs. 
D) Economics is a social science that studies the trade-offs we are forced to make because resources are unlimited. 
A) Any time 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 with a stock clearance sale. 
C) Every individual,no matter how rich or poor,is faced with situations that require trade-offs. 
D) Economics is a social science that studies the trade-offs we are forced to make because resources are unlimited.

Question 8

Which of the following questions or statements regarding medical school is normative?

Accepted Answer

A) How do changes in expected future incomes affect the decisions of medical students about which specialty to choose? 
B) Medical students who enter specialized fields make a larger contribution to society than do student who enter primary care. 
C) What role does tuition play in a student's decision about whether to attend medical school? 
D) Have tuition increases had a large effect or a small effect on the number of applications to medical school? 
A) How do changes in expected future incomes affect the decisions of medical students about which specialty to choose? 
B) Medical students who enter specialized fields make a larger contribution to society than do student who enter primary care. 
C) What role does tuition play in a student's decision about whether to attend medical school? 
D) Have tuition increases had a large effect or a small effect on the number of applications to medical school?

Question 9

"The distribution of income should be left to the market" is an example of a positive economic statement.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

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

Question 11

Every society faces economic trade-offs.This means

Accepted Answer

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

Question 12

"A decrease in the price of tablet computers will decrease the demand for desktop computers." This statement is an example of a normative economic statement.

Accepted Answer

A) True 
 B)False

Question 13

What is the difference between an invention and an innovation?

Accepted Answer

An invention is the development of a new

Question 14

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.
-Should Allison continue to offer the 3-color pinstripe application?

Accepted Answer

A) Yes,she still makes a profit by selling the 3-color application. 
B) yes,but only if she lowers the price of the 1-color application 
C) No,her marginal benefit is less than her marginal cost. 
D) More information is needed for Allison to make this decision. 
A) Yes,she still makes a profit by selling the 3-color application. 
B) yes,but only if she lowers the price of the 1-color application 
C) No,her marginal benefit is less than her marginal cost. 
D) More information is needed for Allison to make this decision.

Question 15

Suppose the U.S.government encouraged new teachers to take jobs in underperforming schools by paying the new teachers a $20,000 bonus.These teachers would be exemplifying the economic idea that

Accepted Answer

A) people are rational. 
B) people respond to economic incentives. 
C) optimal decisions are made at the margin. 
D) equity is more important than efficiency. 
A) people are rational. 
B) people respond to economic incentives. 
C) optimal decisions are made at the margin. 
D) equity is more important than efficiency.

Question 16

Making "how much" decisions involves

Accepted Answer

A) calculating the total benefits of the activity and determining if you are satisfied with that amount. 
B) calculating the total costs of the activity and determining if you can afford to incur that expenditure. 
C) calculating the average benefit and the average cost of an activity to determine if it is worthwhile undertaking that activity. 
D) determining the additional benefits and the additional costs of that activity. 
A) calculating the total benefits of the activity and determining if you are satisfied with that amount. 
B) calculating the total costs of the activity and determining if you can afford to incur that expenditure. 
C) calculating the average benefit and the average cost of an activity to determine if it is worthwhile undertaking that activity. 
D) determining the additional benefits and the additional costs of that activity.

Question 17

What is voluntary exchange?

Accepted Answer

Voluntary exchange is a situat

Question 18

Which of the following is a macroeconomics question?

Accepted Answer

A) What determines the growth rate of gross domestic product? 
B) How is the production quantity of snowboards determined? 
C) What factors determine the price of electronic cigarettes? 
D) What determines the salaries of Wall Street executives? 
A) What determines the growth rate of gross domestic product? 
B) How is the production quantity of snowboards determined? 
C) What factors determine the price of electronic cigarettes? 
D) What determines the salaries of Wall Street executives?

Question 19

Which of the following is not an example of an economic trade-off that a firm has to face?

Accepted Answer

A) whether it is cheaper to produce with more machines or with more workers 
B) whether it is to outsource the production of a good or service 
C) whether or not consumers will buy its products 
D) whether it should produce more of its product 
A) whether it is cheaper to produce with more machines or with more workers 
B) whether it is to outsource the production of a good or service 
C) whether or not consumers will buy its products 
D) whether it should produce more of its product

Question 20

Table 1-2
 $$\begin{array} { | c | c | } 
\hline \begin{array} { c } 
\text { Extra Hours } \
\text { Open }
\end{array} & \begin{array} { c } 
\text { Total Revenue } \
\text { (dollars) }
\end{array} \
\hline 1 & \mathbf { \$ 2 5 } \
\hline \mathbf { 2 } & 45 \
\hline \mathbf { 3 } & 70 \
\hline 4 & 90 \
\hline 5 & 105 \
\hline 6 & 110 \
\hline
\end{array}$$ Thuy Anh runs a small flower shop in the town of Florabunda.She is debating whether she should extend her hours of operation.Thuy Anh figures that her sales revenue will depend on the number of extra hours the flower shop is open as shown in the table above.She would have to hire a worker for those extra hours at a wage rate of $16 per hour.
-Refer to Table 1-2.What is Thuy Anh's marginal cost if she decides to stay open for an extra three hours instead of two hours?

Accepted Answer

A) $0 
B) $16 
C) $25 
D) $32 
E) $45 
A) $0 
B) $16 
C) $25 
D) $32 
E) $45

Exam 1: Economics: Foundations and Models

When every good or service is produced up to the point where the last unit provides ________,allocative efficiency occurs.

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

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

Jewelry manufacturers produce a range of products such as rings,necklaces,bracelets,and brooches.What fundamental economic question are they addressing by offering this range of items?

Which of the following statements is true?

Which of the following questions or statements regarding medical school is normative?

"The distribution of income should be left to the market" is an example of a positive economic statement.

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

Every society faces economic trade-offs.This means

"A decrease in the price of tablet computers will decrease the demand for desktop computers." This statement is an example of a normative economic statement.

What is the difference between an invention and an innovation?

Suppose the U.S.government encouraged new teachers to take jobs in underperforming schools by paying the new teachers a $20,000 bonus.These teachers would be exemplifying the economic idea that

Making "how much" decisions involves

What is voluntary exchange?

Which of the following is a macroeconomics question?

Which of the following is not an example of an economic trade-off that a firm has to face?

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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