Chapter1

Economics:FoundationsandModels
1.1 ThreeKeyEconomicIdeas
1) RecentchangesoccurringwithintheU.S.healthcaresystem,includinglowerinsurance
reimbursementrates,haveresultedin
A) agrowingnumberofdoctorschoosingtoopenprivatepractices.
B) moremedicalpracticesbeingownedbyhospitalsthanbyindividualdoctors.
C) amajorityofhospitalsclosingroutinemedicalpracticesinordertofocusonlyon
emergencycarefacilities.
D) amajorityofdoctorsworkingdirectlyforinsurancecompanies.
Answer: B
Diff:2 PageRef:3/3
Topic: Scarcity
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
2) Ineconomics,choicesmustbemadebecauseweliveinaworldof
A) unemployment. B) scarcity.
C) greed. D) unlimitedresources.
Answer: B
Diff:1 PageRef:4/4
Topic: Scarcity
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
3) Whichofthefollowingstatementsistrue aboutscarcity?
A) Scarcityreferstothesituationinwhichunlimitedwantsexceedlimitedresources.
B) Scarcityisnotaproblemforthewealthy.
C) Scarcityisonlyaproblemwhenacountryhastoolargeapopulation.
D) Scarcityariseswhenthereisawidedisparityinincomedistribution.
Answer: A
Diff:1 PageRef:4/4
Topic: Scarcity
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
4) Thebasiceconomicproblemof________hasalwaysexistedandwillcontinuetoexist.
A) scarcity B) efficiency C) inflation D) recession
Answer: A
Diff:1 PageRef:4/4
Topic: Scarcity
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
Copyright2013PearsonEducation,Inc.
2Hubbard/OBrienEconomics,FourthEdition
5) Bydefinition,economicsisthestudyof
A) howtomakemoneyinthestockmarket.
B) howtomakemoneyinamarketeconomy.
C) thechoicespeoplemaketoattaintheirgoals,giventheirscarceresources.
D) supplyanddemand.
Answer: C
Diff:1 PageRef:4/4
Topic: Scarcity
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking,Communication
6) Aneconomic________isasimplifiedversionofsomeaspectofeconomiclifeusedtoanalyzean
economicissue.
A) market B) trade-off C) variable D) model
Answer: D
Diff:1 PageRef:4/4
Topic: EconomicModels
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
7) Wheredoeconomicagentssuchasindividuals,firmsandnations,interactwitheachother?
A) inpubliclocationsmonitoredbythegovernment
B) inanyarenathatbringstogetherbuyersandsellers
C) inanyphysicallocationpeoplewherepeoplecanphysicallygettogetherforsellinggoods,
suchasshoppingmalls
D) inanylocationwheretransactionscanbemonitoredbyconsumergroupsandtaxedbythe
government
Answer: B
Diff:1 PageRef:4/4
Topic: Markets
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
8) Theterm________ineconomicsreferstoagroupofbuyersandsellersofaproductandthe
arrangementbywhichtheycometogethertotrade.
A) collective B) cooperative C) market D) trade-off
Answer: C
Diff:1 PageRef:4/4
Topic: Markets
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
Copyright2013PearsonEducation,Inc.
Chapter1Economics:FoundationsandModels 3
9) Economistsassumethatindividuals
A) behaveinunpredictableways.
B) willnevertakeactionstohelpothers.
C) prefertoliveinasocietythatvaluesfairnessaboveallelse.
D) arerationalandrespondtoincentives.
Answer: D
Diff:1 PageRef:5/5
Topic: PeopleAreRational
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
10) Economistsassumethatrationalbehaviorisusefulinexplainingchoicespeoplemake
A) becauseirrationalpeopledonotmakeeconomicchoices.
B) eventhoughpeoplemaynotbehaverationallyallthetime.
C) becauseindividualsactrationallyallthetimeinallcircumstances.
D) eventhoughpeoplerarely,ifever,behaveinarationalmanner.
Answer: B
Diff:2 PageRef:5/5
Topic: PeopleAreRational
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
11) Economistsassumethatrationalpeopledoallofthefollowing except
A) useallavailableinformationastheyacttoachievetheirgoals.
B) undertakeactivitiesthatbenefitothersandhurtthemselves.
C) weighthebenefitsandcostsofallpossiblealternativeactions.
D) respondtoeconomicincentives.
Answer: B
Diff:2 PageRef:5/5
Topic: PeopleAreRational
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
12) Economicsdoesnotstudycorrectorincorrectbehaviorsbutratheritassumesthateconomic
agentsbehave________,meaningtheymakethebestdecisionsgiventheirknowledgeofthe
costsandbenefits.
A) equitably B) rationally C) emotionally D) selfishly
Answer: B
Diff:2 PageRef:5/5
Topic: PeopleAreRational
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
Copyright2013PearsonEducation,Inc.
4Hubbard/OBrienEconomics,FourthEdition
13) Considerthefollowingstatements:
a. Carownerspurchasemoregasolinefromagasstationthatsellsgasolineatalowerprice
thanotherrivalgasstationsinthearea.
b. Banksdonottakestepstoincreasesecuritysincetheybelieveitislesscostlytoallowsome
bankrobberiesthantoinstallexpensivesecuritymonitoringequipment.
c. FirmsproducemoreofaparticularDVDwhenitssellingpricerises.
Whichoftheabovestatementsdemonstratesthateconomicagentsrespondtoincentives?
A) aonly.
B) bonly.
C) conly.
D) aandb.
E) a,b,andc.
Answer: E
Diff:3 PageRef:5/5
Topic: PeopleRespondtoEconomicIncentives
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: AnalyticSkills
14) Supposethatsometeachershavedecidedthateconomicandfinancialuncertaintyhavemade
theprospectofretiringmorerisky,andthereforecarryahighercostthannotretiring.Byusing
allavailableinformationastheyacttoachievetheirgoals,theseteachersareexemplifyingthe
economicideathat
A) peoplearerational.
B) peoplerespondtoeconomicincentives.
C) optimaldecisionsaremadeatthemargin.
D) equityismoreimportantthanefficiency.
Answer: A
Diff:2 PageRef:5/5
Topic: PeopleAreRational
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
15) SupposetheU.S.governmentencouragednewmedicalschoolgraduatestotakeoverexisting
practicesfromdoctorswishingtoretirebypayingboththenewandretiringdoctors$100,000.
Thesedoctorswouldbeexemplifyingtheeconomicideathat
A) peoplearerational.
B) peoplerespondtoeconomicincentives.
C) optimaldecisionsaremadeatthemargin.
D) equityismoreimportantthanefficiency.
Answer: B
Diff:2 PageRef:5/5
Topic: PeopleRespondtoEconomicIncentives
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
Copyright2013PearsonEducation,Inc.
Chapter1Economics:FoundationsandModels 5
16) Holdingallotherpersonalcharacteristics-suchasage,gender,andincome-constant,
economistswouldexpectthat
A) peoplewithhealthinsurancewillbelesslikelytobeoverweightthanpeoplewithout
healthinsurance.
B) peoplewithhealthinsurancewillbemorelikelytobeoverweightthanpeoplewithout
healthinsurance.
C) peoplewithhealthinsurancewillbeequallylikelytobeoverweightaspeoplewithout
healthinsurance.
D) thereisnocorrelationbetweenhavinghealthinsuranceandbeingoverweight.
Answer: B
Diff:2 PageRef:5-7/5-7
Topic: PeopleRespondtoEconomicIncentives
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
17) Since1994,obesityratesintheUnitedStates
A) havebeenonaslowandsteadydecline.
B) haveincreasedinall50states.
C) haveprimarilyincreasedintheSoutheastandremainedconstantorslightlydecreasedin
theremainderofthecountry.
D) haveremainedfairlyconstantthroughoutthecountry.
Answer: B
Diff:1 PageRef:5-7/5-7
Topic: PeopleRespondtoEconomicIncentives
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
18) Ineconomics,theterm________meansadditionalorextra.
A) allocative B) marginal C) equity D) optimal
Answer: B
Diff:1 PageRef:7/7
Topic: OptimalDecisionsAreMadeattheMargin
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
19) Agrocerystoresellsabagofpotatoesatafixedpriceof$2.30.Whichofthefollowingisaterm
usedbyeconomiststodescribethemoneyreceivedfromthesaleofanadditionalbagof
potatoes?
A) marginalrevenue
B) grossearnings
C) pureprofit
D) marginalcosts
E) netbenefit
Answer: A
Diff:1 PageRef:7/7
Topic: OptimalDecisionsAreMadeattheMargin
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
Copyright2013PearsonEducation,Inc.
6Hubbard/OBrienEconomics,FourthEdition
20) Economistsreasonthattheoptimaldecisionistocontinueanyactivityuptothepointwherethe
A) marginalbenefitiszero.
B) marginalbenefitisgreaterthanthemarginalcost.
C) marginalcostiszero.
D) marginalbenefitequalsthemarginalcost.
Answer: D
Diff:2 PageRef:7/7
Topic: OptimalDecisionsAreMadeattheMargin
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
21) Marginalanalysisinvolvesundertakinganactivity
A) untilitsmarginalcostsstartdeclining.
B) onlywhenitsmarginalbenefitsarepositive.
C) untilitsmarginalbenefitsequalmarginalcosts.
D) onlyifitsmarginalcostsaregreaterthanitsmarginalbenefits.
Answer: C
Diff:1 PageRef:7/7
Topic: OptimalDecisionsAreMadeattheMargin
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
22) Therevenuereceivedfromthesaleof________ofaproductisamarginalbenefittothefirm.
A) anadditionalunit B) thetotalnumberofunits
C) nounits D) onlyprofitableunits
Answer: A
Diff:2 PageRef:7/7
Topic: OptimalDecisionsAreMadeattheMargin
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
23) Makingoptimaldecisionsatthemarginrequires
A) makingdecisionsaccordingtooneswhimsandfancies.
B) makingconsistentlyirrationaldecisions.
C) weighingthecostsandbenefitsofadecisionbeforedecidingifitshouldbepursued.
D) makingborderlinedecisions.
Answer: C
Diff:1 PageRef:7/7
Topic: OptimalDecisionsAreMadeattheMargin
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
Copyright2013PearsonEducation,Inc.
Chapter1Economics:FoundationsandModels 7
24) Makinghowmuchdecisionsinvolve
A) calculatingthetotalbenefitsoftheactivityanddeterminingifyouaresatisfiedwiththat
amount.
B) calculatingthetotalcostsoftheactivityanddeterminingifyoucanaffordtoincurthat
expenditure.
C) calculatingtheaveragebenefitandtheaveragecostofanactivitytodetermineifitis
worthwhileundertakingthatactivity.
D) determiningtheadditionalbenefitsandtheadditionalcostsofthatactivity.
Answer: D
Diff:2 PageRef:7/7
Topic: OptimalDecisionsAreMadeattheMargin
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
25) Theextracostassociatedwithundertakinganactivityiscalled
A) netloss. B) marginalcost.
C) opportunitycost. D) foregonecost.
Answer: B
Diff:1 PageRef:7/7
Topic: OptimalDecisionsAreMadeattheMargin
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
26) DeShawnsDetailingisaservicethatdetailscarsatthecustomershomesorplacesofwork.
DeShawnscostforabasicdetailingpackageis$40,andhecharges$75forthisservice.Fora
totalpriceof$90,DeShawnwillalsodetailthecarsengine,aservicethataddsanadditional$20
tothetotalcostofthepackage.WhatisDeShawnsmarginalbenefitifhesellsabasicdetailing
package?
A) $35
B) $75
C) Hemakesamarginallossof$15,notamarginalbenefit.
D) Themarginalbenefitcannotbedetermined.
Answer: B
Diff:2 PageRef:7/7
Topic: OptimalDecisionsAreMadeattheMargin
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: AnalyticSkills
27) DeShawnsDetailingisaservicethatdetailscarsatthecustomershomesorplacesofwork.
DeShawnscostforabasicdetailingpackageis$40,andhecharges$75forthisservice.Fora
totalpriceof$90,DeShawnwillalsodetailthecarsengine,aservicethataddsanadditional$20
tothetotalcostofthepackage.Whatisthemarginalcostofaddingtheenginedetailingtothe
basicdetailingpackage?
A) $20 B) $30
C) $60 D) $60plusthevalueofhistime
Answer: A
Diff:2 PageRef:7/7
Topic: OptimalDecisionsAreMadeattheMargin
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: AnalyticSkills
Copyright2013PearsonEducation,Inc.
8Hubbard/OBrienEconomics,FourthEdition
28) DeShawnsDetailingisaservicethatdetailscarsatthecustomershomesorplacesofwork.
DeShawnscostforabasicdetailingpackageis$40,andhecharges$75forthisservice.Fora
totalpriceof$90,DeShawnwillalsodetailthecarsengine,aservicethataddsanadditional$20
tothetotalcostofthepackage.ShouldDeShawncontinuetooffertheenginedetailingservice?
A) yes,hestillmakesaprofitbysellingtheenginedetailingservicewiththebasicdetailing
package
B) yes,butonlyifheraisesthepriceofthebasicdetailingpackage
C) no,hismarginalbenefitislessthanhismarginalcost
D) MoreinformationisneededforDeShawntomakethisdecision.
Answer: C
Diff:3 PageRef:7/7
Topic: OptimalDecisionsAreMadeattheMargin
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: AnalyticSkills
Scenario1-1
Supposeacellphonemanufacturercurrentlysells20,000cellphonesperweekandmakesaprofitof$5,000
perweek.Amanagerattheplantobserves,Althoughthelast3,000cellphonesweproducedandsold
increasedourrevenueby$6,000andourcostsby$6,700,wearestillmakinganoverallprofitof$5,000per
weeksoIthinkwereontherighttrack.Weareproducingtheoptimalnumberofcellphones.
29) RefertoScenario1-1.Usingmarginalanalysisterminology,whatisanothereconomictermfor
theincrementalrevenuereceivedfromthesaleofthelast3,000cellphones?
A) grossearnings B) marginalrevenue
C) salesrevenue D) grossprofit
Answer: B
Diff:1 PageRef:7/7
Topic: OptimalDecisionsAreMadeattheMargin
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
30) RefertoScenario1-1.Usingmarginalanalysisterminology,whatisanothereconomictermfor
theincrementalcostofproducingthelast3,000cellphones?
A) marginalcost B) operatingcost
C) explicitcost D) Anyoftheabovetermsarecorrect.
Answer: A
Diff:1 PageRef:7/7
Topic: OptimalDecisionsAreMadeattheMargin
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
31) RefertoScenario1-1.Hadthefirmnotproducedandsoldthelast3,000cellphones,wouldits
profitbehigherorlower,andifsobyhowmuch?
A) Itsprofitwillbe$6,700higher. B) Itsprofitwillbe$700higher.
C) Itsprofitwillbe$700lower. D) Itsprofitwillbe$6,000lower.
Answer: B
Diff:2 PageRef:7/7
Topic: OptimalDecisionsAreMadeattheMargin
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: AnalyticSkills
Copyright2013PearsonEducation,Inc.
Chapter1Economics:FoundationsandModels 9
Table1-1
Hours
Open
Total
Revenue
(dollars)
1 $50
2 75
3 95
4 110
5 120
6 125
LydiarunsasmallnailsaloninthetownofNewHope.Sheisdebatingwhethersheshouldextendherhours
ofoperation.Lydiafiguresthathersalesrevenuewilldependonthenumberofhoursthenailsalonisopen
asshowninthetableabove.Shewouldhavetohireaworkerforthosehoursatawagerateof$10perhour.
32) RefertoTable1-1.Usingmarginalanalysis,determinehowmanyhoursshouldLydiaextend
hernailsalonshoursofoperations?
A) 2hours B) 3hours C) 4hours D) 5hours E) 6hours
Answer: D
Diff:3 PageRef:7/7
Topic: OptimalDecisionsAreMadeattheMargin
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: AnalyticSkills
33) RefertoTable1-1.WhatisLydiasmarginalbenefitifshedecidestostayopenfortwohours
insteadofonehour?
A) $25 B) $50 C) $75 D) $125
Answer: A
Diff:2 PageRef:7/7
Topic: OptimalDecisionsAreMadeattheMargin
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: AnalyticSkills
34) RefertoTable1-1.WhatisLydiasmarginalcostifshedecidestostayopenfortwohours
insteadofonehour?
A) $10 B) $20 C) $25 D) $40
Answer: A
Diff:2 PageRef:7/7
Topic: OptimalDecisionsAreMadeattheMargin
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: AnalyticSkills
Copyright2013PearsonEducation,Inc.
10Hubbard/OBrienEconomics,FourthEdition
35) SooJinsharesaone-bedroomapartmentwithherclassmate.Hershareoftherentis$700per
month.Sheisconsideringmovingtoastudioapartmentwhichshewillnothavetosharewith
anyone.Thestudioapartmentrentsfor$950permonth.Recently,youranintoSooJinon
campusandshetellsyouthatshehasmovedintothestudioapartment.SooJinisasrationalas
anyotherperson.Asaneconomicsmajor,yourightlyconcludethat
A) SooJindidnothaveachoice;herroommatewasaslob.
B) SooJinfiguresthattheadditionalbenefitofhavingherownplace(asopposedtosharing)
isatleast$250.
C) SooJinfiguresthatthebenefitofhavingherownplace(asopposedtosharing)isatleast
$950.
D) thecostofhavingonesownspaceoutweighsthebenefits.
Answer: B
Diff:2 PageRef:7/7
Topic: OptimalDecisionsAreMadeattheMargin
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: AnalyticSkills
36) Ifthemarginalcostofkeepingadoctorsofficeopenoneadditionalhourperdayis$200,then
thedoctorshouldkeeptheofficeopenforoneextrahour
A) onlyifthemarginalbenefitshereceivesisgreaterthan$200plusanacceptableprofit
margin.
B) aslongasthemarginalbenefitshereceivesisjustequaltoorgreaterthan$200.
C) aslongasthemarginalcostdoesnotrise.
D) untilthemarginalbenefitshereceivesreacheszero.
Answer: B
Diff:2 PageRef:8/8
Topic: OptimalDecisionsAreMadeattheMargin
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
37) Scarcityreferstoasituationinwhichunlimitedwantsexceedthelimitedresourcesavailableto
fulfillthosewants.
Answer: TRUE
Diff:1 PageRef:4/4
Topic: Scarcity
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
38) Scarcityisaproblemthatwilleventuallydisappearastechnologyadvances.
Answer: FALSE
Diff:1 PageRef:4/4
Topic: Scarcity
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
Copyright2013PearsonEducation,Inc.
Chapter1Economics:FoundationsandModels 11
39) Aneconomicmodelisasimplifiedversionofrealityusedtoanalyzereal-worldeconomic
situations.
Answer: TRUE
Diff:1 PageRef:4/4
Topic: EconomicModels
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
40) Thesalesrevenueasellerreceivesfromthesaleofanadditionalunitofgoodsiscalledthe
marginalbenefit.
Answer: TRUE
Diff:1 PageRef:7/7
Topic: OptimalDecisionsAreMadeattheMargin
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
41) Optimaldecisionsaremadeatthepointwheremarginalcostequalszero.
Answer: FALSE
Diff:1 PageRef:7/7
Topic: OptimalDecisionsAreMadeattheMargin
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
42) IfitcostsSinclair$300toproduce3suedejacketsand$420toproduce4suedejackets,thenthe
differenceof$120isthemarginalcostofproducingthe4thsuedejacket.
Answer: TRUE
Diff:1 PageRef:7/7
Topic: OptimalDecisionsAreMadeattheMargin
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
43) Supposetheextracostforadoctortokeephisofficeopenforoneextrahouris$200.Then,the
doctorshouldstayopenfortheextrahourevenifhecangenerateadditionalrevenueof$200for
thathour.
Answer: TRUE
Diff:2 PageRef:8/8
Topic: OptimalDecisionsAreMadeattheMargin
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: AnalyticSkills
44) Explaintheeconomicassumptionthatpeoplearerational.
Answer: Peoplearerationalmeansthateconomistsassumeconsumersandfirmswilluseall
availableinformationastheyacttoachievetheirgoals.Rationalindividualsweighthe
benefitsandcostsofeachaction,andtheychooseanactiononlyifthebenefitsexceedthe
costs.
Diff:2 PageRef:5/5
Topic: PeopleAreRational
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
Copyright2013PearsonEducation,Inc.
12Hubbard/OBrienEconomics,FourthEdition
45) Explaintheeconomicideathatpeoplerespondtoincentives.
Answer: Humanbeingsactfromavarietyofmotives,includingreligiousbelief,envy,and
compassion.Peoplerespondtoincentivesmeansthatpeoplewillactiftheyfeelitisin
theirbesteconomicinteresttodoso.
Diff:2 PageRef:5/5
Topic: PeopleRespondtoEconomicIncentives
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
46) Whatismeantbythestatementthatoptimaldecisionsaremadeatthemargin?
Answer: Ineconomics,thewordmarginalmeansextraoradditional.Economistsreasonthat
theoptimaldecisionistocontinueanyactivityuptothepointwherethemarginalbenefit
equalsthemarginalcost,sooptimaldecisionsaremadeatthepointwheretheextra
benefitreceivedfromanactivityisequaltotheextracostassociatedwiththatactivity.
Diff:2 PageRef:7/7
Topic: OptimalDecisionsAreMadeattheMargin
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
47) Assumethatadoctorcanearnanadditional$20,000ofrevenueeachyearfromkeepinghis
officeopenforoneadditionalhourperweek.Whatmusttheadditionalcostofkeepingthe
officeopenthisadditionalhourperweekbetomakestayingopenfortheextrahour
economicallyrational?
Answer: Theadditionalcostofstayingopenforoneadditionalhourperweekmustbenomore
than$20,000fortheyeartomakestayingopenfortheextrahoureconomicallyrational.
Diff:2 PageRef:7/7
Topic: PeopleAreRational
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: AnalyticSkills
1.2 TheEconomicProblemThatEverySocietyMustSolve
1) Thethreefundamentalquestionsthatanyeconomymustaddressare:
A) Whatwillbethepricesofgoodsandservices;howwillthesegoodsandservicesbe
produced;andwhowillreceivethem?
B) Whatgoodsandservicestoproduce;howwillthesegoodsandservicesbeproduced;and
whoreceivesthem?
C) Whogetsjobs;whatwagesdoworkersearn;andwhoownswhatproperty?
D) Howmuchwillbesaved;whatwillbeproduced;andhowcanthesegoodsandservicesbe
fairlydistributed?
Answer: B
Diff:1 PageRef:8/8
Topic: Trade-offs
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
Copyright2013PearsonEducation,Inc.
Chapter1Economics:FoundationsandModels 13
2) Theideathatbecauseofscarcity,producingmoreofonegoodorservicemeansproducingless
ofanothergoodorservicereferstotheeconomicconceptof
A) optimization. B) efficiency. C) trade-off. D) equity.
Answer: C
Diff:1 PageRef:8/8
Topic: Trade-offs
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
3) Societyfacesatrade-offinallofthefollowingsituationsexcept
A) whendecidingwhowillreceivethegoodsandservicesproduced.
B) whendecidingwhatgoodsandserviceswillbeproduced.
C) whendecidinghowgoodsandserviceswillbeproduced.
D) whensomepreviouslyunemployedworkersfindjobs.
Answer: D
Diff:2 PageRef:8/8
Topic: Trade-offs
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
4) Whichofthefollowingstatementsistrue?
A) Anytimeyouhavetodecidewhichactiontotakeyouareexperiencingeconomicequity.
B) Trade-offsdonotapplywhentheconsumerspurchaseaproductforwhichthereisexcess
supply,suchasastockclearancesale.
C) Everyindividual,nomatterhowrichorpoor,isfacedwithmakingtrade-offs.
D) Economicsisasocialsciencethatstudiesthetrade-offsweareforcedtomakebecause
resourcesareunlimited.
Answer: C
Diff:2 PageRef:8/8
Topic: Trade-offs
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
5) Whichofthefollowingisnot anexampleofaneconomictrade-offthatafirmhastomake?
A) whetheritischeapertoproducewithmoremachinesorwithmoreworkers
B) whetheritistooutsourcetheproductionofagoodorservice
C) whetherornotconsumerswillbuyitsproducts
D) whetheritshouldproducemoreofitsproduct
Answer: C
Diff:1 PageRef:8/8
Topic: Trade-offs
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
Copyright2013PearsonEducation,Inc.
14Hubbard/OBrienEconomics,FourthEdition
6) Thehighestvaluedalternativethatmustbegivenuptoengageinanactivityisthedefinitionof
A) economicequity. B) marginalbenefit.
C) opportunitycost. D) marginalcost.
Answer: C
Diff:1 PageRef:9/9
Topic: OpportunityCost
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
7) TheCoffeeNook,asmallcafenearcampus,sellscappuccinosfor$2.50andRussianteacakes
for$1.00each.Whatistheopportunitycostofbuyingacappuccino?
A) 21/2Russianteacakes B) 2/5ofaRussianteacake
C) $2.50 D) $1.00
Answer: A
Diff:1 PageRef:9/9
Topic: OpportunityCost
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: AnalyticSkills
8) Arlenequitsher$125,000-a-yearjobtotakecareofherailingparents.Whatistheopportunity
costofherdecision?
A) zero,sinceshewillnolongerbeearningasalary
B) Itdependsonthegoingrateforhome-careproviders.
C) atleast$125,000
D) thevaluesheattributestothesatisfactionshereceivesfromtakingcareofherparents
Answer: C
Diff:1 PageRef:9/9
Topic: OpportunityCost
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: AnalyticSkills
9) Thedistributionofincomeprimarilydetermineswhichofthefundamentaleconomicquestions?
A) Whatgoodsandservicesaretobeproduced?
B) Howthegoodsandservicesaretobeproduced?
C) Whowillreceivethegoodsandservicesproduced?
D) Howtoplantheeconomy?
Answer: C
Diff:2 PageRef:9/9
Topic: WhoWillReceivetheGoodsandServicesProduced?
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
Copyright2013PearsonEducation,Inc.
Chapter1Economics:FoundationsandModels 15
10) Automobilemanufacturersproducearangeofautomobilessuchassportsutilityvehicles,
luxurysedans,pickuptrucksandcompactcars.Whatfundamentaleconomicquestionarethey
addressingbymakingthisrangeofproducts?
A) Howtoproducegoodsthatconsumerswant?
B) Whyproduceavarietyofautomobiles?
C) Whattoproduce?
D) Whotoproduceautomobilesfor?
Answer: C
Diff:1 PageRef:9/9
Topic: WhatGoodsandServicesWillBeProduced?
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
11) Considerthefollowingeconomicagents:
a. thegovernment
b. consumers
c. producers
Who,inacentrallyplannedeconomy,decideswhatgoodsandserviceswillbeproducedwith
thescarceresourcesavailableinthateconomy?
A) thegovernment
B) producers
C) consumers
D) consumersandproducers
E) thegovernment,consumersandproducers
Answer: A
Diff:1 PageRef:9/9
Topic: WhatGoodsandServicesWillBeProduced?
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
12) Thedecisionaboutwhatgoodsandserviceswillbeproducedmadeinamarketeconomyis
madeby
A) lawmakersinthegovernmentvotingonwhatwillbeproduced.
B) workersdecidingtoproduceonlywhatthebosssaysmustbeproduced.
C) producersdecidingwhatsocietywantsmost.
D) consumersandfirmschoosingwhichgoodsandservicestobuyorproduce.
E) consumersdictatingtofirmswhattheyneedmost.
Answer: D
Diff:1 PageRef:9/9
Topic: WhatGoodsandServicesWillBeProduced?
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
Copyright2013PearsonEducation,Inc.
16Hubbard/OBrienEconomics,FourthEdition
13) Whichofthefollowingstatementsabouttheeconomicdecisionsconsumers,firms,andthe
governmenthavetomakeisfalse?
A) Governmentsfacetheproblemofscarcityinmakingeconomicdecisions.
B) Onlyindividualsfacescarcity;firmsandthegovernmentdonot.
C) Bothfirmsandindividualsfacescarcity.
D) Eachfacestheproblemofscarcitywhichnecessitatestrade-offsinmakingeconomic
decisions.
Answer: B
Diff:1 PageRef:9/9
Topic: WhatGoodsandServicesWillBeProduced?
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
14) Whyisitnecessaryforalleconomicsystemstonotonlyprovidepeoplewithgoodsand
services,butalsorestrictthemfromgettingasmuchofthesegoodsandservicesastheywish?
A) Failuretodothiscouldreducetheefficiencyofthesystembyproducingsomegoodsand
servicesthatarenotashighlyvaluedasothers.
B) Failuretodothiscouldleadtoaninequitableallocationofgoodsandservicesproduced.
C) Failuretodothiscouldleadtodrasticshortagesofgoodandservices.
D) Failuretodothiscouldreducesefficiencyandleadstoaninequitableallocationofoutput.
Answer: A
Diff:3 PageRef:9/9
Topic: WhoWillReceivetheGoodsandServicesProduced?
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: AnalyticSkills
15) Whoreceivesthemostofwhatisproducedinamarketeconomy?
A) lawmakersandotherpoliticallyfavoredgroups
B) thosewhoarewillingandabletobuythem
C) everyonereceivesanequalamount
D) peoplewhoearnthehighestincomes
Answer: B
Diff:1 PageRef:9/9
Topic: WhoWillReceivetheGoodsandServicesProduced?
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
16) HowarethefundamentaleconomicdecisionsdeterminedinNorthKorea?
A) Individuals,firms,andthegovernmentinteractinamarkettomaketheseeconomic
decisions.
B) Thesedecisionsaremadebythecountryselderswhohavehadmuchexperiencein
answeringthesequestions.
C) ThegovernmentdecidesbecauseNorthKoreaisacentrallyplannedeconomy.
D) TheUnitedNationsdecidesbecauseNorthKoreaisadevelopingeconomy.
Answer: C
Diff:1 PageRef:10/10
Topic: CentrallyPlannedEconomies
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
Copyright2013PearsonEducation,Inc.
Chapter1Economics:FoundationsandModels 17
17) Howarethefundamentaleconomicquestionsansweredinamarketeconomy?
A) Thegovernmentalonedecidestheanswers.
B) Individuals,firms,andthegovernmentinteractinmarketstodecidetheanswerstothese
questions.
C) Householdsandfirmsinteractinmarketstodecidetheanswerstothesequestions.
D) Largecorporationsalonedecidetheanswers.
Answer: C
Diff:2 PageRef:10/10
Topic: MarketEconomies
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
18) Whichofthefollowingisaprobleminherentincentrallyplannedeconomies?
A) Householdsandfirmsmakepoordecisionsinchoosinghowresourcesareallocated.
B) Thereistoolittleproductionoflow-cost,high-qualitygoodsandservices.
C) Productionmanagersaremoreconcernedwithsatisfyingconsumerwantsthanwith
satisfyinggovernmentsorders.
D) Exportstendtoexceedimports.
Answer: B
Diff:2 PageRef:10/10
Topic: CentrallyPlannedEconomies
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
19) AllofthefollowingcontributedtothedownfalloftheSovietUnionin1991 except
A) publicdissatisfactionwithlowlivingstandardsandpoliticalrepression.
B) aninabilitytoproducelow-costconsumergoodsthathouseholdswanted.
C) lackofhigh-qualitygoodsandservices.
D) lackofastrongdictatorwhocancoordinateeconomicactivities.
Answer: D
Diff:2 PageRef:10/10
Topic: CentrallyPlannedEconomies
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
20) ________isasituationinwhichagoodorserviceisproducedatthelowestpossiblecost.
A) Allocativeefficiency B) Productiveefficiency
C) Equity D) Optimalmarginalism
Answer: B
Diff:1 PageRef:11/11
Topic: Efficiency
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
Copyright2013PearsonEducation,Inc.
18Hubbard/OBrienEconomics,FourthEdition
21) Productiveefficiencyisachievedwhen
A) firmsaddalowprofitmargintothegoodsandservicestheyproduce.
B) firmsproducethegoodsandservicesthatconsumersvaluemost.
C) firmsproducegoodsandservicesatthelowestcost.
D) therearenoshortagesorsurplusesinthemarket.
Answer: C
Diff:1 PageRef:11/11
Topic: Efficiency
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
22) Whenproductionreflectsconsumerpreferences,________occurs.
A) allocativeefficiency B) productiveefficiency
C) equity D) efficientcentralplanning
Answer: A
Diff:1 PageRef:11/11
Topic: Efficiency
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
23) Allocativeefficiencyisachievedwhenfirmsproducegoodsandservices
A) atthelowestpossiblecost. B) thatconsumersvaluemost.
C) atthelowestopportunitycost. D) atamarginalcostofzero.
Answer: B
Diff:1 PageRef:11/11
Topic: Efficiency
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
24) Marketspromote
A) equityandcompetition. B) voluntaryexchangeandequality.
C) equityandequality. D) competitionandvoluntaryexchange.
Answer: D
Diff:2 PageRef:10/10
Topic: MarketEconomies
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
25) Whichofthefollowingstatementsistrueaboutcompetitioninamarket?
A) Competitionforcesfirmstooutsourcetheproductionoftheirlabor-intensiveproducts.
B) Competitionforcesfirmstoundercuttheirsellingprice,thusbenefitingconsumerswho
willbeabletopurchaseproductsatthelowestpricepossible.
C) Competitionforcesfirmstoproduceandsellproductsaslongasthemarginalbenefitto
consumersexceedsthemarginalcostofproduction.
D) Competitionforcesfirmstoaddonlylowprofitmarginstotheircostsofproduction.
Answer: C
Diff:2 PageRef:10/10
Topic: MarketEconomies
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
Copyright2013PearsonEducation,Inc.
Chapter1Economics:FoundationsandModels 19
26) ________increaseseconomicefficiencybecauseitforcesfirmstoproduceandsellgoodsand
servicesaslongastheadditionalbenefittoconsumersisgreaterthantheadditionalcostof
production.
A) Competition B) Voluntaryexchange
C) Equity D) Acentrallyplannedeconomy
Answer: A
Diff:1 PageRef:10/10
Topic: MarketEconomies
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
27) Whichofthefollowinggeneratesproductiveefficiency?
A) competitionamongsellers
B) competitionamongbuyers
C) governmentinspectors
D) governmentproductionrulesandregulations
Answer: A
Diff:1 PageRef:11/11
Topic: Efficiency
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
28) Voluntaryexchangebetweenbuyersandsellersgenerates________inamarketeconomy.
A) scarcity B) allocativeefficiency
C) productiveefficiency D) equity
Answer: B
Diff:1 PageRef:11/11
Topic: Efficiency
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
29) Whichofthefollowingisaresultofamarketeconomy?
A) environmentalprotection B) anequalincomedistribution
C) agreementonequity D) voluntaryexchange
Answer: D
Diff:1 PageRef:10/10
Topic: MarketEconomies
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
Copyright2013PearsonEducation,Inc.
20Hubbard/OBrienEconomics,FourthEdition
30) Politicalcandidatesoftenholdfundraisersbychargingperplatefordinner.Wendy
purchasedfourticketstoa$1,000perplatedinnerforalocalcitycouncilcandidate.Isthis
transactioneconomicallyefficient?
A) No,politicalcandidatesshouldneverbeallowedtooverchargeforafundraisingdinner.
B) Yes,itwasavoluntaryexchangethatbenefitedbothparties.
C) No,Wendypaidtoomuchforfourdinners.
D) Yes,itisefficientonlyfromtheperspectiveofthecandidatebutnotfromtheperspective
ofWendy.
Answer: B
Diff:2 PageRef:10/10
Topic: MarketEconomies
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: AnalyticSkills
31) Ineconomics,thetermequitymeans
A) everyonehasanequalstandardofliving.
B) thehardestworkingindividualsconsumealltheywant.
C) onlyelectedofficialshavehighstandardsofliving.
D) economicbenefitsaredistributedfairly.
Answer: D
Diff:1 PageRef:11/11
Topic: Equity
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
32) Whichofthefollowingismotivatedbyanequityconcern?
A) Somestateshavetransferredfundstofoodbankprogramsinordertoincreasebenefitsto
lower-incomefamilies.
B) Followingtheimplementationofsubsidiesforenergyconservation,householddemand
forrooftopsolarpanelsincreasedquitesignificantlyinCalifornia.
C) TheUnitedNetworkforOrganSharingadvocatesasystemofrationingscarcekidneys
thatwouldfavoryoungpatientsoveroldinanefforttowringmorelifeoutofdonated
organs.
D) TheUnitedStatesofferspatentprotectiontopharmaceuticalmanufacturerstoprevent
othersfromduplicatingtheirproducts.
Answer: A
Diff:3 PageRef:11/11
Topic: Equity
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking,EthicalReasoning
Copyright2013PearsonEducation,Inc.
Chapter1Economics:FoundationsandModels 21
33) Whichofthefollowingismotivatedbyanefficiencyconcern?
A) InDecember2006,theBushadministrationrestartedashort-termhousingassistance
programforvictimsofHurricaneKatrina.
B) Eachyear,theUniversityofNotreDameconductsalotterytoparceloutthe30,000seats
availabletocontributors,formerathletesandparentsinthe80,000-seatstadium.
C) TheUnitedNetworkforOrganSharingadvocatesasystemofrationingscarcekidneys
thatwouldfavoryoungpatientsoveroldinanefforttowringmorelifeoutofdonated
organs.
D) Thefederalgovernmentshousingchoicevoucherprogramassistsverylow-income
families,theelderly,andthedisabledtoafforddecent,safe,andsanitaryhousinginthe
privatemarket.
Answer: C
Diff:3 PageRef:11/11
Topic: Efficiency
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking,EthicalReasoning
34) Whichofthefollowingisanexampleofanefficiency-equitytrade-offfacedbyeconomic
agents?
A) AccordingtoanarticlebyintheAmericanJournalofPublicHealthbyEdwardKaplan
andMichaelMersonofYaleUniversitySchoolofMedicine,thefederalgovernments
currentmethodofallocatingHIV-preventionresourcesisnotcost-effective.Insteadof
allocatingresourcestostatesinproportiontoreportedAIDScases,resourcesshouldflow
firsttothoseactivitiesthatpreventmoreinfectionsperdollarandthentolessandless
effectivecombinationsofprogramsandpopulationsuntilfundsareexhausted,evenifit
meansthatsomepopulationswouldbeleftwithoutanypreventionservices.
B) Concernedaboutthefallingbirthrate,theFrenchgovernmenthaspledgedmoremoney
forfamilieswiththreechildren,inanefforttoencourageworkingwomentohavemore
babies.
C) SomeU.S.collegesareactivelyrecruitingforeignstudentsfortheirtechnology-based
programs.
D) AllNewYorkCityartmuseumsareconsideringadoptingafree-admissionpolicyfor
localresidentsoneweekendpermonth.
Answer: A
Diff:3 PageRef:11/11
Topic: Efficiency
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: AnalyticSkills,EthicalReasoning
35) Whichofthefollowingcorrectlydescribestherelationshipbetweeneconomicefficiencyand
economicequity?
A) Theyarebothautomaticallyachievedinafreemarketeconomy.
B) Theyalwayscallforoppositeoutcomes.
C) Thereisnoconflictbetweenthetwogoals.
D) Thereisoftenatrade-offbetweenthetwo.
Answer: D
Diff:2 PageRef:11/11
Topic: Efficiency
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
Copyright2013PearsonEducation,Inc.
22Hubbard/OBrienEconomics,FourthEdition
36) Allocativeefficiencybestexplains________,andproductiveefficiencybestexplains________.
A) howsomethingwillbeproduced;whensomethingwillbeproduced
B) whensomethingwillbeproduced;whysomethingwillbeproduced
C) whysomethingwillbeproduced;whatwillbeproduced
D) whatwillbeproduced;howsomethingwillbeproduced
Answer: D
Diff:2 PageRef:11/11
Topic: Efficiency
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
37) Thegovernmentmakesalleconomicdecisionsinamixedeconomy.
Answer: FALSE
Diff:1 PageRef:10/10
Topic: MixedEconomies
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
38) Whenvoluntaryexchangetakesplace,bothpartiesgainfromtheexchange.
Answer: TRUE
Diff:1 PageRef:10/10
Topic: MarketEconomies
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
39) AcollegemustdecideifitwantstooffermoreInternet-basedclasses.Thisdecisioninvolves
answeringtheeconomicquestionofwhattoproduce.
Answer: TRUE
Diff:1 PageRef:9/9
Topic: WhatGoodsandServicesWillBeProduced?
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
40) Onedesirableoutcomeofamarketeconomyisthatitleadstoamoreequitabledistributionof
income.
Answer: FALSE
Diff:1 PageRef:10/10
Topic: MarketEconomies
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
41) Whatisequity,andhowdoesitdifferfromefficiency?
Answer: Equityreferstothefairdistributionofeconomicbenefits.Ineconomics,efficiencyrefers
toleastcostproduction(productiveefficiency)andproducingaccordingtohuman
preferences(allocativeefficiency).
Diff:2 PageRef:11/11
Topic: Equity
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
Copyright2013PearsonEducation,Inc.
Chapter1Economics:FoundationsandModels 23
42) Whatisopportunitycost?
Answer: Opportunitycostreferstothehighest-valuedalternativethatmustbegivenuptoengage
inanactivity.Forexample,theopportunitycostoftakingthiseconomicsclassiswhat
youaregivinguptotaketheclass,whichmaybetakinganotherclasssuchasaccounting
orpsychology,workingextrahoursatyourjob,orextrasleep(whicheverisyour
highest-valuedalternative).
Diff:2 PageRef:9/9
Topic: OpportunityCost
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
43) Defineproductiveefficiency.Doesproductiveefficiencyimplyallocativeefficiency?Explain.
Answer: Productiveefficiencyisanefficiencycriterionthatdescribesasituationinwhichgoods
andservicesareproducedatthelowestpossiblecost.Itdoesnotimplyallocative
efficiencywhichisacriterionassociatedwithproducinggoodsandservicesthat
consumersvaluemost.Forexample,amanufacturermaybeabletoproducetypewriters
atthelowestpossiblecostofsay,$200butthisdoesnotnecessarilymeanthatconsumers
arewillingtopay$200foratypewriter.
Diff:3 PageRef:11/11
Topic: Efficiency
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: AnalyticSkills
44) Whatisacentrallyplannedeconomy?
Answer: Acentrallyplannedeconomyisaneconomyinwhichthegovernmentdecideshow
economicresourceswillbeallocated.
Diff:3 PageRef:10/10
Topic: CentrallyPlannedEconomies
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
1.3 EconomicModels
1) Economicmodelsdoallofthefollowingexcept
A) answereconomicquestions.
B) portrayrealityinallitsminutedetails.
C) makeeconomicideasexplicitandconcreteforusebydecisionmakers.
D) simplifysomeaspectofeconomiclife.
Answer: B
Diff:1 PageRef:12/12
Topic: EconomicModels
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
2) Allofthefollowingarepartofaneconomicmodelexcept
A) assumptions. B) hypotheses. C) data. D) opinions.
Answer: D
Diff:1 PageRef:12/12
Topic: EconomicModels
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
Copyright2013PearsonEducation,Inc.
24Hubbard/OBrienEconomics,FourthEdition
3) Whichofthefollowingstatementsaboutpositiveeconomicanalysisisfalse?
A) Positiveanalysisusesaneconomicmodeltoestimatethecostsandbenefitsofdifferent
courseofactions.
B) Thereismuchmoredisagreementamongeconomistsovernormativeeconomicanalysis
thanoverpositiveeconomicanalysis.
C) Thereismuchmoredisagreementamongeconomistsoverpositiveeconomicanalysisthan
overnormativeeconomicanalysis.
D) Unlikenormativeeconomicanalysis,positiveeconomicanalysiscanbetested.
Answer: C
Diff:2 PageRef:14/14
Topic: NormativeandPositiveAnalysis
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
4) Whichofthefollowingisapositiveeconomicstatement?
A) ThestandardoflivingintheUnitedStatesshouldbehigher.
B) IfthepriceofiPhonesfalls,alargerquantityofiPhoneswillbepurchased.
C) Thegovernmentshouldrevampthehealthcaresystem.
D) TheU.S.governmentshouldnothavebailedoutU.S.automanufacturers.
Answer: B
Diff:2 PageRef:14/14
Topic: NormativeandPositiveAnalysis
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
5) Whichofthefollowingisapositiveeconomicstatement?
A) PeopleshouldnotbuySUVs.
B) Thegovernmentshouldmandateelectricautomobiles.
C) Scarcitynecessitatesthatpeoplemaketrade-offs.
D) Foreignworkersshouldnotbeallowedtoworkforlowerwagesthanthecitizensofa
country.
Answer: C
Diff:2 PageRef:14/14
Topic: NormativeandPositiveAnalysis
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
6) Whichofthefollowingisanormativeeconomicstatement?
A) Risingglobaldemandforcoalhasledtoincreasesinthepriceofcoal.
B) Withrisingmortgageratesandrisingunemploymentrates,thenumberofunsoldhomes
hasincreased.
C) ThestateofTexasisconsideringincreasingfundsforlight-raildevelopmenttopromote
theuseofpublictransportation.
D) Pharmaceuticalmanufacturersshouldnotbeallowedtopatenttheirproductsso
prescriptiondrugswouldbemoreaffordable.
Answer: D
Diff:2 PageRef:14/14
Topic: NormativeandPositiveAnalysis
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
Copyright2013PearsonEducation,Inc.
Chapter1Economics:FoundationsandModels 25
7) Whichofthefollowingisanormativeeconomicstatement?
A) Thepriceofgasolineistoohigh.
B) Thecurrenthighpriceofgasolineistheresultofstrongworldwidedemand.
C) Whenthepriceofgasolinerises,thequantityofgasolinepurchasedfalls.
D) Whenthepriceofgasolinerises,transportationcostsrise.
Answer: A
Diff:2 PageRef:14/14
Topic: NormativeandPositiveAnalysis
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
8) Whichofthefollowingquestionsorstatementsregardingmedicalschoolisnormative?
A) Howdochangesinexpectedfutureincomesaffectthedecisionsofmedicalstudentsabout
whichspecialtytochoose?
B) Medicalstudentswhoenterspecializedfieldsmakealargercontributiontosocietythan
dostudentwhoenterprimarycare.
C) Whatroledoestuitionplayinastudentsdecisionaboutwhethertoattendmedical
school?
D) Havetuitionincreaseshadalargeeffectorasmalleffectonthenumberofapplicationsto
medicalschool?
Answer: B
Diff:2 PageRef:15-16/15-16
Topic: NormativeandPositiveAnalysis
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
9) Theeconomicanalysisofminimumwageinvolvesbothnormativeandpositiveanalysis.
Considerthefollowingconsequencesofaminimumwage:
a. Theminimumwagelawcausesunemployment.
b. Aminimumwagelawbenefitssomegroupsandhurtsothers.
c. InsomecitiessuchasSanFranciscoandNewYork,itwouldbeimpossibleforlow-skilled
workerstoliveinthecitywithoutminimumwagelaws.
d. Thegainstowinnersofaminimumwagelawshouldbevaluedmorehighlythanthelosses
tolosersbecausethelatterprimarilycomprisesbusinesses.
Whichoftheconsequencesabovearepositivestatementsandwhicharenormativestatements?
A) a,b,andcarepositivestatementsanddisanormativestatement.
B) aandbarepositivestatements,canddarenormativestatement.
C) Onlyaisapositivestatement,b,canddarenormativestatements.
D) aandcarepositivestatements,banddarenormativestatements.
Answer: B
Diff:2 PageRef:15/15
Topic: NormativeandPositiveAnalysis
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: AnalyticSkills
Copyright2013PearsonEducation,Inc.
26Hubbard/OBrienEconomics,FourthEdition
10) Anincreaseinthepriceofgasolinewillincreasethedemandforhybridvehicles.This
statementisanexampleofapositiveeconomicstatement.
Answer: TRUE
Diff:1 PageRef:14/14
Topic: NormativeandPositiveAnalysis
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
11) Thedistributionofincomeshouldbelefttothemarketisanexampleofapositiveeconomic
statement.
Answer: FALSE
Diff:1 PageRef:14/14
Topic: NormativeandPositiveAnalysis
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
12) Positiveanalysisisconcernedwithwhatoughttobe,whilenormativeanalysisisconcerned
withwhatis.
Answer: FALSE
Diff:2 PageRef:14/14
Topic: NormativeandPositiveAnalysis
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
13) Whatisthedifferencebetweenpositiveeconomicanalysisandnormativeeconomicanalysis?
Giveoneexampleeachofapositiveandnormativeeconomicissueorquestionorstatement.
Answer: Positiveeconomicanalysisisconcernedwithwhatis.Positiveeconomicanalysisreaches
conclusionsbasedonverifiablestatements.Normativeeconomicanalysis,ontheother
hand,isconcernedwithwhatoughttobe.Normativeanalysisreachesconclusionsbased
onopinions.(Studentswillgivemanydifferentexamples.)
Diff:2 PageRef:14/14
Topic: NormativeandPositiveAnalysis
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
14) Explainwhyeconomicsisconsideredasocialscience.
Answer: Economicsisasocialsciencebecauseitstudiestheactionsofindividuals.Asasocial
science,economicsconsidershumanbehavior,particularlydecision-makingbehavior,in
everycontext.
Diff:2 PageRef:14/14
Topic: EconomicsasaSocialScience
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
Copyright2013PearsonEducation,Inc.
Chapter1Economics:FoundationsandModels 27
1.4 MicroeconomicsandMacroeconomics
1) Whichofthefollowingisamicroeconomicsquestion?
A) Howmuchwillbesavedandhowmuchwillbeproducedintheentireeconomy?
B) Whatwillthelevelofeconomicgrowthbeintheentireeconomy?
C) Whatfactorsdeterminethepriceofcarrots?
D) Whatdeterminestheaveragepricelevelandinflation?
Answer: C
Diff:2 PageRef:17/17
Topic: Microeconomics
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
2) Microeconomicsisthestudyof
A) howhouseholdsandfirmsmakechoices.
B) theeconomyasawhole.
C) theglobaleconomy.
D) topicssuchasunemployment,inflation,andeconomicgrowth.
Answer: A
Diff:1 PageRef:17/17
Topic: Microeconomics
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
3) Whichofthefollowingisamacroeconomicsquestion?
A) Whatdeterminestheinflationrate?
B) WhatdeterminestheproductionofDVDs?
C) Whatfactorsdeterminethepriceofcarrots?
D) Whatdeterminesthewageofautoworkers?
Answer: A
Diff:2 PageRef:17/17
Topic: Macroeconomics
LearningOutcome: Macro1:Definemacroeconomicsandidentifyitsbasicconcerns
AACSB: ReflectiveThinking
4) Macroeconomicsisthestudyof
A) howhouseholdsmakechoices.
B) howfirmsmakechoices.
C) howhouseholdsandfirmsmakechoices.
D) theeconomyasawhole.
Answer: D
Diff:1 PageRef:17/17
Topic: Macroeconomics
LearningOutcome: Macro1:Definemacroeconomicsandidentifyitsbasicconcerns
AACSB: ReflectiveThinking
Copyright2013PearsonEducation,Inc.
28Hubbard/OBrienEconomics,FourthEdition
5) Examiningtheconditionsthatcouldleadtoarecessioninaneconomyisanexampleof
macroeconomicstopic.
Answer: TRUE
Diff:1 PageRef:17/17
Topic: Macroeconomics
LearningOutcome: Macro1:Definemacroeconomicsandidentifyitsbasicconcerns
AACSB: ReflectiveThinking
6) ThedecisionsApplemakesindeterminingproductionlevelsforitsiPhoneisanexampleofa
microeconomicstopic.
Answer: TRUE
Diff:1 PageRef:17/17
Topic: Microeconomics
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
7) Whichofthefollowingareprimarilymacroeconomictopicsandwhichareprimarily
microeconomictopics?
a. gasolineprices
b. unemployment
c. inflation
d.healthcarecosts
e. airpollution
f. economicgrowth
Answer: b,c,andfareprimarilymacroeconomictopics.
a,d,andeareprimarilymicroeconomictopics.
Diff:2 PageRef:17/17
Topic: Microeconomics
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
1.5 APreviewofImportantEconomicTerms
1) Whichofthefollowingstatementsistrueaboutprofit?
A) Profitreferstotherevenuereceivedfromthesaleofaquantityofgoods.
B) Profitiscalculatedbymultiplyingpriceandquantitysold.
C) Thetermsaccountingprofitandeconomicprofitcanbeusedinterchangeably.
D) Profitisthedifferencebetweenrevenueandcost.
Answer: D
Diff:2 PageRef:18/18
Topic: Profit
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
Copyright2013PearsonEducation,Inc.
Chapter1Economics:FoundationsandModels 29
2) Ineconomics,theaccumulatedskillsandtrainingthatworkershaveisknownas
A) humancapital. B) entrepreneurship.
C) physicalcapital. D) innovation.
Answer: A
Diff:1 PageRef:18/18
Topic: HumanCapital
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
3) Whichofthefollowingisanexampleofanactivityundertakenbyanentrepreneur?
A) designingyourlandscapingforyournewhome
B) holdingapositionasthepresidentofaliberalartscollege
C) runningforthepresidentoftheUnitedStates
D) startingyourownpetsittingbusiness
Answer: D
Diff:1 PageRef:17/17
Topic: Entrepreneur
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
4) Themachinesworkershavetoworkwithareconsidered
A) humancapital. B) physicalcapital.
C) entrepreneurship. D) financialcapital.
Answer: B
Diff:2 PageRef:18/18
Topic: Capital
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
5) Technologyisdefinedas
A) theprocessofdevelopingandrevisingmodels.
B) newinnovationsandcreations.
C) theprocessesusedtoproducegoodsandservices.
D) theprocessofrecyclingproducts.
Answer: C
Diff:1 PageRef:17/17
Topic: Technology
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
6) Whichofthefollowingstatementsabouteconomicresourcesistrue?
A) Economicresourcesincludefinancialcapitalandmoney.
B) Economicresourcesarealsocalledfactorsofproduction.
C) Economicresourcesareusedonlybybusinesses.
D) Alleconomicresourcesareman-made.
Answer: B
Diff:1 PageRef:18/18
Topic: Resources
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
Copyright2013PearsonEducation,Inc.
30Hubbard/OBrienEconomics,FourthEdition
7) TheU.S.HealthResourcesandServicesAdministration(HRSA)forecaststhatin2020
A) therewillbeashortageofdoctorsintheUnitedStates.
B) thenumberofdoctorsintheUnitedStateswilldecreaseandthenumberofdoctorsneeded
willincrease.
C) thenumberofdoctorsintheUnitedStateswillincreaseandthenumberofdoctorsneeded
willdecrease.
D) therewillbeasurplusofdoctorsintheUnitedStates.
Answer: A
Diff:1 PageRef:18/18
Topic: HumanCapital
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
8) Accordingtocensusfigures,between1970and2007thenumberofdoctorswhodescribed
themselvesasself-employed
A) fellbymorethan50percent.
B) morethandoubled.
C) hasremainedfairlyconstant.
D) felltoalmostzerobeforerisingbacktoitsoriginallevel.
Answer: A
Diff:2 PageRef:20-21/20-21
Topic: HumanCapital
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
9) Inthemarketforfactorsofproduction,firmsearnincomebysellinggoodsandservicesto
households.
Answer: FALSE
Diff:1 PageRef:18/18
Topic: Resources
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
10) Oneexampleofhumancapitalistheamountofskillsthatyouhave.
Answer: TRUE
Diff:1 PageRef:18/18
Topic: HumanCapital
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
11) Listthefivemainfactorsofproduction.
Answer: Thefivemainfactorsofproductionarelabor,capital,humancapital,naturalresources,
andentrepreneurialability.
Diff:1 PageRef:18/18
Topic: Resources
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
Copyright2013PearsonEducation,Inc.
Chapter1Economics:FoundationsandModels 31
12) Whatisthedifferencebetweenaninventionandaninnovation?
Answer: Aninventionisthedevelopmentofanewgoodoranewprocessformakingagood.An
innovationisthepracticalapplicationofaninvention.Innovationcouldalsorefertoany
significantimprovementinagoodorinthemeansofproducingagood.
Diff:1 PageRef:17/17
Topic: Innovation
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
13) Explainthedifferencebetweenafirmsrevenueanditsprofit.
Answer: Afirmsrevenueisthetotalamountreceivedforsellingagoodorservice.Itiscalculated
bymultiplyingthepriceperunitbythenumberofunitssold.Afirmsprofitisthe
differencebetweenitsrevenueanditscosts.
Diff:1 PageRef:18/18
Topic: Revenue
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
14) Whataresomeofthereasonsgivenforthethedeclineinthenumberofphysicianschoosingto
enterprivatepractices?
Answer: Thereasonsincludelowerinsurancereimbursementrates,inflexibleschedules,lower
incomes,highmedicalschooldebtloads,longerworkhours,andprovisionsofthenew
healthcarelaw.
Diff:2 PageRef:20-21/20-21
Topic: HumanCapital
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
1.6 Appendix:UsingGraphsandFormulas
1) Ifagraphhasalinethatshowstheamountofoutsourcinginthelasttenyears,itisknownas
A) apiechart. B) atime-seriesgraph.
C) ademandcurveforoutsourcing. D) asupplycurveofoutsourcing.
Answer: B
Diff:1 PageRef:27/27
Topic: Graphs
LearningOutcome: Micro2:Interpretandanalyzeinformationpresentedindifferenttypesofgraphs
AACSB: ReflectiveThinking
2) ________haveahorizontalandaverticalaxisandareusedineconomicstoillustrate
relationshipsbetweentwoeconomicvariables.
A) Two-dimensionalgraphs B) One-dimensionalgraphs
C) PieCharts D) Bargraphs
Answer: A
Diff:1 PageRef:28/28
Topic: Graphs
LearningOutcome: Micro2:Interpretandanalyzeinformationpresentedindifferenttypesofgraphs
AACSB: ReflectiveThinking
Copyright2013PearsonEducation,Inc.
32Hubbard/OBrienEconomics,FourthEdition
3) Ifastraightlinepassesthroughthepointx = 14andy = 3andalsothroughthepointx=4andy
=10,theslopeofthislineis
A) negative11dividedby6. B) seventenths.
C) negativeseventenths. D) 6dividedby11.
Answer: C
Diff:2 PageRef:29/29
Topic: Slope
LearningOutcome: Micro2:Interpretandanalyzeinformationpresentedindifferenttypesofgraphs
AACSB: AnalyticSkills
4) Onatwo-dimensionalgraph,________allowsfortheeffectsofadditionalvariables.
A) movingalongacurve B) shiftingcurves
C) eliminatingacurve D) addinganadditionalcurve
Answer: B
Diff:3 PageRef:30/30
Topic: Graphs
LearningOutcome: Micro2:Interpretandanalyzeinformationpresentedindifferenttypesofgraphs
AACSB: AnalyticSkills
5) Whichofthefollowingstatementsisfalse?
A) Aninverserelationshiphasanegativeslopevalue.
B) Adirectrelationshiphasapositiveslopevalue.
C) Acurvedlinehasslopevaluesthatchangeateverypoint.
D) Astraightlinehasaslopeofzero.
Answer: D
Diff:2 PageRef:30/30
Topic: Slope
LearningOutcome: Micro2:Interpretandanalyzeinformationpresentedindifferenttypesofgraphs
AACSB: ReflectiveThinking
6) Therelationshipbetweenconsumerspendinganddisposablepersonalincomeis
A) aninverserelationship. B) adirectrelationship.
C) anegativerelationship. D) independent.
Answer: B
Diff:1 PageRef:30/30
Topic: PositiveandNegativeRelationships
LearningOutcome: Micro2:Interpretandanalyzeinformationpresentedindifferenttypesofgraphs
AACSB: ReflectiveThinking
Copyright2013PearsonEducation,Inc.
Chapter1Economics:FoundationsandModels 33
7) Supposewhenthepriceoflaptopsfall,collegestudentsbuymorelaptops.Thisimpliesthat
A) thereisapositiverelationshipbetweenlaptoppricesandquantitiespurchasedbycollege
students.
B) thereisanegativerelationshipbetweenlaptoppricesandquantitiespurchasedbycollege
students.
C) thereisadirectrelationshipbetweenlaptoppricesandquantitiespurchasedbycollege
students.
D) thereisaone-to-onerelationshipbetweenlaptoppricesandquantitiespurchasedby
collegestudents.
Answer: B
Diff:1 PageRef:30/30
Topic: PositiveandNegativeRelationships
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
8) Ifthepriceofmilkwas$2.50agallonanditisnow$3.25agallon,whatisthepercentagechange
inprice?
A) 13percent B) 30percent C) 75percent D) 77percent
Answer: B
Diff:2 PageRef:32/32
Topic: Formulas
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: AnalyticSkills
9) In2010,Hoovervilleconsumed205,000tonsofsugar.In2011,sugarconsumptionroseto
245,000tons.Calculatethepercentagechangeinsugarconsumption.
A) 8.37% B) 11.95% C) 19.51% D) 26.33%
Answer: C
Diff:2 PageRef:34/34
Topic: Formulas
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: AnalyticSkills
10) Atarecentfacultymeeting,LorraineWaverly,presidentofSkywalkerCollege,announcedthat
enrollmentisupby12percentovertheprevioussemester.Ifenrollmenttheprevioussemester
was3,250students,whatisthestudentenrollmentthissemester?
A) 390 B) 2,860 C) 3,640 D) 4,030
Answer: C
Diff:2 PageRef:34/34
Topic: Formulas
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: AnalyticSkills
Copyright2013PearsonEducation,Inc.
34Hubbard/OBrienEconomics,FourthEdition
Figure1-1
11) RefertoFigure1-1.Usingtheinformationinthefigureabove,calculatethepercentagechange
insalesofalcoholicbeveragesbetween2008and2011.
A) 23.1% B) 23.8% C) 30% D) 42.9%
Answer: D
Diff:1 PageRef:34/34
Topic: Formulas
LearningOutcome: Micro2:Interpretandanalyzeinformationpresentedindifferenttypesofgraphs
AACSB: AnalyticSkills
Copyright2013PearsonEducation,Inc.
Chapter1Economics:FoundationsandModels 35
Figure1-2
12) RefertoFigure1-2.Calculatetheareaofthetriangle A.
A) $1.3million B) $2.6million C) $3.4million D) $5.2million
Answer: B
Diff:1 PageRef:35/35
Topic: Formulas
LearningOutcome: Micro2:Interpretandanalyzeinformationpresentedindifferenttypesofgraphs
AACSB: AnalyticSkills
Figure1-3
13) RefertoFigure1-3.CalculatetheareaofthetrapezoidX.
A) $270 B) $720 C) $810 D) $2,520
Answer: C
Diff:2 PageRef:35/35
Topic: Formulas
LearningOutcome: Micro2:Interpretandanalyzeinformationpresentedindifferenttypesofgraphs
AACSB: AnalyticSkills
Copyright2013PearsonEducation,Inc.
36Hubbard/OBrienEconomics,FourthEdition
Figure1-4
14) RefertoFigure1-4.Whichofthefollowingstatementsisfalse?
A) TheslopeofthetangentatEispositive.
B) TheslopeofthetangentatFisnegative.
C) TheslopeofthetangentatEandtheslopeofthetangentatF areequal.
D) Neithertheslopeofthetangentat E northeslopeofthetangentatF areequaltozero.
Answer: C
Diff:1 PageRef:34/34
Topic: Slope
LearningOutcome: Micro2:Interpretandanalyzeinformationpresentedindifferenttypesofgraphs
AACSB: AnalyticSkills
15) Whatistheomittedvariableproblemindeterminingcauseandeffect?
A) Itisaproblemthatariseswhenaninsignificantvariableisgiventoomuchweightinan
economicanalysisleadingtoskewedconclusionsaboutcauseandeffect.
B) Itisaproblemthatariseswhenasignificantvariableisnotgivenenoughweightinan
economicexperimentleadingtoskewedconclusionsaboutcauseandeffect.
C) Itisaproblemthatariseswhenaninsignificanteconomicvariablethatshouldhavebeen
omittedisincludedinaneconomicexperimentleadingtofalseconclusionsaboutcause
andeffect.
D) Itisaproblemthatariseswhenaneconomicvariablethataffectsothervariablesisomitted
fromananalysisanditsomissionleadstofalseconclusionsaboutcauseandeffect.
Answer: D
Diff:1 PageRef:31/31
Topic: CauseandEffect
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
Copyright2013PearsonEducation,Inc.
Chapter1Economics:FoundationsandModels 37
16) ________isaproblemthatoccurswhenoneconcludesthatachangeinvariable Xcauseda
changeinvariableYwheninactualfact,itisachangeinvariableYthatcausedachangein
variableX.
A) Theomittedvariable B) Thepositive-to-negativerelationship
C) Reversecausality D) Nonlinearslope
Answer: C
Diff:1 PageRef:31/31
Topic: CauseandEffect
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
17) TheprevalenceofAlzheimersdementiaisveryhighamongresidentslivinginnursinghomes.
AstudentconcludesthatitislikelythatlivinginnursinghomecausesAlzheimersdementia.
Whatistheflawinthestudentsreasoning?
A) ThestudenthasfailedtotakeintoaccountothercausesofAlzheimersdisease.
B) Thestudentisdrawingafalseconclusion;heisconfusingcauseandeffect.
C) Thestudentisusinganinadequatesamplesize.
D) Thestudentisdrawingafalseconclusionbymakingthemistakeofomittingcritical
variablessuchastheageandgenderoftheresidents.
Answer: B
Diff:2 PageRef:31/31
Topic: CauseandEffect
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: AnalyticSkills
18) YouexplaintoyourroommateSurya,whomakesbeadedheadbands,aboutaneconomictheory
whichassertsthatconsumerswillpurchasemoreofaproductatlowerpricesthantheywillat
higherprices.Shecontendsthatthetheoryisincorrectbecauseoverthepasttwoyearsshehas
loweredthepriceofherheadbandsandyethasseenadecreaseinsales.Howwouldyou
respondtoSurya?
A) Suryaisright;shehasevidencetobackherclaim.Thetheorymustbeerroneous.
B) Suryaismakingthemistakeofassumingthatcorrelationimpliescausation.
C) Iwillexplaintoherthatsheismakingtheerrorofreversecausality:itisthedecreasein
demandthathascausedhertolowerherprices.
D) Iwillexplaintoherthattherearesomeomittedvariablesthathavecontributedtoa
decreaseinhersalessuchaschangesinincome.
Answer: D
Diff:2 PageRef:31/31
Topic: CauseandEffect
LearningOutcome: Micro1:Identifythebasicprinciplesofeconomicsandexplainhowtothinklikeaneconomist
AACSB: ReflectiveThinking
Copyright2013PearsonEducation,Inc.
38Hubbard/OBrienEconomics,FourthEdition
Table1-2
Year
DVD
Recorders
(millions)
2007 12.5
2008 14.0
2009 17.2
2010 20.0
2011 21.7
19) RefertoTable1-2.ThetableaboveshowsthesalesofDVDrecordersinNorthAmerica.Present
theinformationusingabargraph.
Answer:

Diff:1 PageRef:27/27
Topic: Graphs
LearningOutcome: Micro2:Interpretandanalyzeinformationpresentedindifferenttypesofgraphs
AACSB: AnalyticSkills
Copyright2013PearsonEducation,Inc.