Deck 1: Economics: Foundations and Models

Question 1

In economics, the place where buyers and sellers come together to trade is called a

A)market.
B)cooperative.
C)collective.
D)trade-off.

Answer 1

market.

Question 2

Holding all other personal characteristics-such as age, gender and income-constant, economists would expect that:

A)people with health insurance will be less likely to be overweight than people without health insurance.
B)people with health insurance will be more likely to be overweight than people without health insurance.
C)people with health insurance will be equally likely to be overweight as people without health insurance.
D)there is no correlation between having health insurance and being overweight.

Answer 2

people with health insurance will be more likely to be overweight than people without health insurance.

Question 3

By definition, economics is the study of:

A)how to make money in the stock market.
B)how to make money in a market economy.
C)the choices people make to attain their goals, given their scarce resources.
D)supply and demand.

Answer 3

the choices people make to attain their goals, given their scarce resources.

Question 4

Economists assume that rational behaviour is useful in explaining choices people make:

A)because irrational people do not make economic choices.
B)even though people may not behave rationally all the time.
C)because individuals act rationally all the time in all circumstances.
D)even though people rarely, if ever, behave in a rational manner.

Question 5

What term, in economics, means 'extra' or 'additional'?

A)Allocative.
B)Optimal.
C)Equity.
D)Marginal.

Question 6

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

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

Question 7

Where do economic agents, such as individuals, firms and nations, interact with each other?

A)In public locations monitored by the government.
B)In any arena that brings together buyers and sellers.
C)In any physical location people where people can physically get together for selling goods, such as shopping malls.
D)In any location where transactions can be monitored by consumer groups and taxed by the government.

Question 8

An economic ________ is a simplified version of some aspect of economic life used to analyse an economic issue.

A)market
B)trade-off
C)variable
D)model

Question 9

Economists assume that rational people do all of the following except:

A)use all available information as they act to achieve their goals.
B)undertake activities that benefit others and hurt themselves.
C)weigh the benefits and costs of all possible alternative actions.
D)respond to economic incentives.

Question 10

Economists reason that the optimal decision is to continue any activity up to the point where the:

A)marginal benefit is zero.
B)marginal benefit is greater than the marginal cost.
C)marginal cost is zero.
D)marginal benefit equals the marginal cost.

Question 11

Suppose that some teachers have decided that economic and financial uncertainty have made the prospect of retiring more risky, and therefore carry a higher cost than not retiring. By using all available information as they act to achieve their goals, these teachers are exemplifying the economic idea that:

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 12

'Marginal analysis' involves undertaking an activity:

A)until its marginal costs start declining.
B)only when its marginal benefits are positive.
C)until its marginal benefits equal marginal costs.
D)only if its marginal costs are greater than its marginal benefits.

Question 13

Which of the following statements is true about scarcity?

A)Scarcity refers to the situation in which unlimited wants exceed limited resources.
B)Scarcity is not a problem for the wealthy.
C)Scarcity is only a problem when a country has too large a population.
D)Scarcity arises when there is a wide disparity in income distribution.

Question 14

The revenue received from the sale of ________ of a product is a marginal benefit to the firm.

A)an additional unit
B)the total number of units
C)no units
D)only profitable units

Question 15

Economics does not study correct or incorrect behaviours but rather it assumes that economic agents behave ________, meaning they make the best decisions given their knowledge of the costs and benefits.

A)equitably
B)rationally
C)emotionally
D)selfishly

Question 16

What do economists assume about individuals?

A)That they are rational and respond to incentives.
B)That they prefer to live in a society that values fairness above all else.
C)That they will never take action to help others.
D)That they behave in unpredictable ways.

Question 17

A farmers' market sells a bag of apples at a fixed price of $3.60. Which of the following is a term used by economists to describe the money received from the sale of an additional bag of apples?

A)Pure profit.
B)Gross earnings.
C)Marginal revenue.
D)Marginal costs.

Question 18

Suppose that some investors have decided that economic and financial uncertainty have made the prospect of investing in domestic stock markets more risky than investing in foreign stock markets, and therefore choose to invest in foreign markets. By using all available information as they act to achieve their goals, these investors are exemplifying the economic idea that:

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 19

In economics, choices must be made because we live in a world of:

A)unemployment.
B)scarcity.
C)greed.
D)unlimited resources.

Question 20

Consider the following statements:
A.Car owners purchase more petrol from a petrol station that sells petrol at a lower price than other rival petrol 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?

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

Question 21

The sales revenue a seller receives from the sale of an additional unit of goods is called the 'marginal benefit'.

Question 22

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

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

Question 23

A restaurant sells a large lemonade at a fixed price of $2.59. A term used by economists to describe the money received from the sale of an additional lemonade is:

A)gross earnings.
B)marginal revenue.
C)pure profit.
D)net benefit.

Question 24

Abigail's Auto Art is a company that applies pinstripes to vehicles. Abigail's cost for a basic 1-colour pinstriping job is $40, and she charges $100 for this service. For a total price of $185, Abigail will apply a fancier 3-colour pinstripe application to an automobile, a service that adds an additional $50 to the total cost of the package. Should Abigail continue to offer the 3-colour pinstripe application?

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

Question 25

'Scarcity' refers to a situation in which unlimited wants exceed the limited resources available to fulfil those wants.

Question 26

Soo Jin shares a one-bedroom apartment with her classmate. Her share of the rent is $600 per month. She is considering moving to a studio apartment which she will not have to share with anyone. The studio apartment rents for $950 per month. Recently, you ran into Soo Jin on campus and she tells you that she has moved into the studio apartment. Soo Jin is as rational as any other person. As an economics major, you rightly conclude that:

A)Soo Jin did not have a choice; her roommate was a slob.
B)Soo Jin figures that the additional benefit of having her own place (as opposed to sharing)is at least $350.
C)Soo Jin figures that the benefit of having her own place (as opposed to sharing)is at least $950.
D)the cost of having one's own space outweighs the benefits.

Question 27

DeShawn's Detailing is a service that details cars at the customers' homes or places of work. DeShawn's cost for a basic detailing package is $45, and he charges $80 for this service. For a total price of $95, DeShawn will also detail the car's engine, a service that adds an additional $20 to the total cost of the package. What is DeShawn's marginal benefit if he sells a basic detailing package?

A)$80
B)$45
C)He incurs a marginal loss of $15, not a marginal benefit.
D)The marginal benefit cannot be determined.

Question 28

DeShawn's Detailing is a service that details cars at the customers' homes or places of work. DeShawn's cost for a basic detailing package is $45, and he charges $80 for this service. For a total price of $95, DeShawn will also detail the car's engine, a service that adds an additional $20 to the total cost of the package. What is the marginal cost of adding the engine detailing to the basic detailing package?

A)$20
B)$45
C)$80
D)$95 plus the value of his time

Question 29

Scarcity is a problem that will eventually disappear as technology advances.

Question 30

Daniel shares a small food truck with his sister. His share of the expenses is $600 per month. He has decided to get his own, newer food truck which he will not have to share with anyone. His expenses for the newer truck are $1 500 per month. Daniel is as rational as any other person. As an economics major, you rightly conclude that:

A)Daniel cannot afford the newer truck and will have to go back to sharing a truck with his sister.
B)Daniel figures that the additional benefit of having his own truck (as opposed to sharing)is at least $900.
C)Daniel figures that the benefit of having his own truck (as opposed to sharing)is at least $1 500.
D)the cost of having one's own truck outweighs the benefits.

Question 31

DeShawn's Detailing is a service that details cars at the customers' homes or places of work. DeShawn's cost for a basic detailing package is $45, and he charges $80 for this service. For a total price of $95, DeShawn will also detail the car's engine, a service that adds an additional $20 to the total cost of the package. Should DeShawn continue to offer the engine detailing service?

A)Yes, he still makes a profit by selling the engine detailing service with the basic detailing package.
B)Yes, but only if he raises the price of the basic detailing package.
C)No, his marginal benefit is less than his marginal cost.
D)More information is needed for DeShawn to make this decision.

Question 32

Abigail's Auto Art is a company that applies pinstripes to vehicles. Abigail's cost for a basic 1-colour pinstriping job is $40, and she charges $100 for this service. For a total price of $180, Abigail will apply a fancier 3-colour pinstripe application to an automobile, a service that adds an additional $50 to the total cost of the package. What is Abigail's marginal benefit if she sells a basic 1-colour job?

A)$40
B)$50
C)$100
D)The marginal benefit cannot be determined.

Question 33

If the marginal cost of keeping a dentist's office open one additional hour per day is $300, then the dentist should keep the office open for one extra hour:

A)only if the marginal benefit she receives is greater than $300 plus an acceptable profit margin.
B)as long as the marginal benefit she receives is just equal to or greater than $300.
C)as long as the marginal cost does not rise.
D)until the marginal benefit she receives reaches zero.

Question 34

What does making 'how much' decisions involve?

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 35

An 'economic model' is a simplified version of reality used to analyse real-world economic situations.

Question 36

Abigail's Auto Art is a company that applies pinstripes to vehicles. Abigail's cost for a basic 1-colour pinstriping job is $40, and she charges $100 for this service. For a total price of $185, Abigail will apply a fancier 3-colour pinstripe application to an automobile, a service that adds an additional $50 to the total cost of the package. What is the marginal cost of moving up from the 1-colour application to the 3-colour application?

A)$40
B)$50
C)$100
D)$175

Question 37

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?

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

Question 38

Making optimal decisions 'at the margin' requires:

A)making decisions according to one's whims and fancies.
B)making consistently irrational decisions.
C)weighing the costs and benefits of a decision before deciding if it should be pursued.
D)making borderline decisions.

Question 39

What do economists call the extra cost associated with undertaking an activity?

A)Net loss.
B)Opportunity cost.
C)Marginal cost.
D)Forgone cost.

Question 40

Optimal decisions are made at the point where marginal cost equals zero.

Question 41

Suppose a doctor can earn an additional $25 000 per year in revenue by keeping her office open on Sundays. At what additional cost would keeping the office open on Sundays not be considered economically rational?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question 42

All economic questions arise from the fact that resources are unlimited.

Question 43

'Marginal benefit' refers to the additional benefit that your activity provides to you.

Question 44

Even if the population declines, scarcity will still exist.

Question 45

What is meant by the statement that 'optimal decisions are made at the margin'?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question 46

The idea that because of scarcity, producing more of one good or service means producing less of another good or service refers to the economic concept of:

A)optimisation.
B)efficiency.
C)trade-off.
D)equity.

Question 47

The term 'market' refers to trading arrangements by which buyers and sellers come together.

Question 48

The three fundamental questions that any economy must address are:

A)What will be the prices of goods and services; how will these goods and services be produced; and who will receive them?
B)What goods and services will be produced; how will these goods and services be produced; and who receives them?
C)Who gets jobs; what wages do workers earn; and who owns what property?
D)How much will be saved; what will be produced; and how can these goods and services be fairly distributed?

Question 49

What is a 'marginal benefit'?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question 50

Society faces a trade-off in all of the following situations except:

A)when deciding who will receive the goods and services produced.
B)when deciding what goods and services will be produced.
C)when deciding how goods and services will be produced.
D)when some previously unemployed workers find jobs.

Question 51

Explain the economic assumption that 'people are rational'.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question 52

If it costs Sinclair $300 to produce 3 suede jackets and $450 to produce 4 suede jackets, then the difference of $150 is the marginal cost of producing the fourth suede jacket.

Question 53

What is an 'economic model'?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question 54

Explain the economic idea that 'people respond to incentives'.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question 55

Suppose the extra cost for an orthodontist to keep his office open for one extra hour is $300. Then, the orthodontist should stay open for the extra hour if he can generate additional revenue of $300 for that hour.

Question 56

If it costs Danitra $225 to create 4 necklaces and $275 to create 5 necklaces, then $50 is the marginal cost of producing the fifth necklace.

Question 57

The additional cost to a producer of hiring an additional unit of labour is called the 'marginal cost'.

Question 58

Suppose the extra cost to a doctor of keeping his office open on Saturdays is $1 200. Then, the doctor should stay open on Saturdays if keeping the office open brings in additional revenue of $1 200 or more.

Question 59

Assume that a doctor can earn an additional $20 000 of revenue each year from keeping his office open for one additional hour per week. What must the additional cost of keeping the office open this additional hour per week be to make staying open for the extra hour economically rational?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question 60

What is a 'marginal cost'?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question 61

A(n)_________________ cost is the highest valued alternative that must be given up to engage in an activity.

A)economic equity
B)opportunity cost
C)marginal benefit
D)marginal cost

Question 62

The distribution of income primarily determines which of the fundamental economic questions?

A)What goods and services are to be produced?
B)How are the goods and services to be produced?
C)Who will receive the goods and services produced?
D)How will the economy be planned?

Question 63

Which of the following statements is true?

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 64

Who receives the most of what is produced in a market economy?

A)Lawmakers and other politically favoured groups.
B)Those who are willing and able to buy them.
C)People who earn the highest incomes.
D)Everyone receives an equal amount.

Question 65

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

A)Whether it is cheaper to produce with more machines or with more workers.
B)Whether it is cheaper 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 66

How are the fundamental economic questions answered in a market economy?

A)The government alone decides the answers.
B)Individuals, firms and the government interact in markets to decide the answers to these questions.
C)Households and firms interact in markets to decide the answers to these questions.
D)Large corporations alone decide the answers.

Question 67

Consider the following economic agents:
A.the government
B.consumers
C.producers
Who, in a centrally planned economy, decides what goods and services will be produced with the scarce resources available in that economy?

A)the government
B)producers
C)consumers
D)consumers and producers

Question 68

The Coffee Korner, a small cafe near campus, sells lattes for $3.00 and biscotti for $1.50 each. What is the opportunity cost of buying a biscotti?

A)2 lattes
B)1/5 of a latte
C)$3.00
D)$1.50

Question 69

When production reflects consumer preferences, ________ occurs.

A)allocative efficiency
B)productive efficiency
C)equity
D)efficient central planning

Question 70

Which of the following is a problem inherent in centrally planned economies?

A)Households and firms make poor decisions in choosing how resources are allocated.
B)There is too little production of low-cost, high-quality goods and services.
C)Production managers are more concerned with satisfying consumer wants than with satisfying government's orders.
D)Exports tend to exceed imports.

Question 71

The Coffee Korner, a small cafe near campus, sells lattes for $3.00 and biscotti for $1.50 each. What is the opportunity cost of buying a latte?

A)2 biscotti
B)2/5 of a biscotti
C)$3.00
D)$1.50

Question 72

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?

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

Question 73

Why is it necessary for all economic systems to not only provide people with goods and services, but also restrict them from getting as much of these goods and services as they wish?

A)Failure to do this could reduce the efficiency of the system by producing some goods and services that are not as highly valued as others.
B)Failure to do this could lead to an inequitable allocation of goods and services produced.
C)Failure to do this could lead to drastic shortages of goods and services.
D)Failure to do this could reduces efficiency and leads to an inequitable allocation of output.

Question 74

Productive efficiency is achieved when:

A)firms add a low profit margin to the goods and services they produce.
B)firms produce the goods and services that consumers value most.
C)firms produce goods and services at the lowest cost.
D)there are no shortages or surpluses in the market.

Question 75

'Allocative efficiency' is achieved when firms produce goods and services:

A)at the lowest possible cost.
B)that consumers value most.
C)at the lowest opportunity cost.
D)at a marginal cost of zero.

Question 76

Annie quits her $150 000-a-year job to take care of her ailing parents. What is the opportunity cost of her decision?

A)Zero, since she will no longer be earning a salary.
B)It depends on the 'going rate' for home-care providers.
C)At least $150 000.
D)The value she attributes to the satisfaction she receives from taking care of her parents.

Question 77

A situation in which a good or service is produced at the lowest possible cost is:

A)productive efficiency.
B)allocative efficiency.
C)equity.
D)optimal marginalism.

Question 78

The decision about what goods and services will be produced in a market economy is made by:

A)lawmakers in the government voting on what will be produced.
B)workers deciding to produce only what the boss says must be produced.
C)producers deciding what society wants most.
D)consumers and firms choosing which goods and services to buy or produce.

Question 79

What does the existence of markets promote?

A)equity and competition
B)voluntary exchange and competition
C)equity and equality
D)competition and equality

Question 80

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

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