ECON101 chapter 1 TB.pdf

Survey of Economics, 5e (O'Sullivan et al.) Chapter 1 Introduction: What Is Economics? 1.1 What Is Economics? 1) Economics is best defined as the study of A) financial decision-making. B) how consumers make purchasing decisions. C) choices made by people faced with scarcity. D) inflation, unemployment, and economic growth. Answer: C Diff: 1 Topic: What Is Economics? Skill: Definition 2) Economics is the study of A) how to invest in the stock market. B) how society uses limited resources. C) the role of money in markets. D) how government officials decide which goods and services are produced. Answer: B Diff: 1 Topic: What Is Economics? Skill: Conceptual AACSB: Reflective Thinking 3) Scarcity can best be defined as a situation in which A) there are no buyers willing to purchase what sellers have produced. B) there are not enough goods to satisfy all of the buyers' demand. C) the resources we use to produce goods and services are limited. D) there is more than enough money to satisfy consumers' wants. Answer: C Diff: 1 Topic: What Is Economics? Skill: Definition 4) An arrangement that allows buyers and sellers to exchange things is called A) a contract. B) a market. C) money. D) efficient. Answer: B Diff: 1 Topic: What Is Economics? Skill: Definition 5) Because resources are limited A) only the very wealthy can get everything they want. B) firms will be forced out of business. C) the availability of goods will be limited but the availability of services will not. D) people must make choices. Answer: D Diff: 1 Topic: What Is Economics? Skill: Conceptual AACSB: Reflective Thinking 6) Tradeoff is A) allowing the government and other organizations to choose for us. B) sacrificing one thing for another. C) deciding who consumes the products produced in an economy. D) holding other variables fixed. Answer: B Diff: 1 Topic: What Is Economics? Skill: Conceptual AACSB: Reflective Thinking 7) Resources are all of the following EXCEPT A) unlimited and in abundance. B) the things we use to produce goods and services. C) limited in quantity and can be used in different ways. D) scarce and therefore require choices to be made. Answer: A Diff: 1 Topic: What Is Economics? Skill: Conceptual AACSB: Reflective Thinking Additional Application Summary of the article: Labor Shortage in China May Lead to Trade Shift By David Barbosa The New York Times April 3, 2006 A changing Chinese economy has resulted in significant labor shortages. Factories continue to expand as China’s economy grows, but the number of uneducated workers is declining and the population of young people is leveling off. Add to these an increased number of people remaining inland, and this leaves coastal regions which specialize in factory production and exports with a large number of job openings. The labor shortages are resulting in wage increases, pushing up costs on Chinese-made products. This could make China less competitive in global markets. Anticipating a continuation of rising costs for Chinese manufacturing, international manufacturers are already looking at moving factories to countries with lower costs. The increase in wages is also fueling a growing Chinese middle class. Minimum wages in big cities have grown roughly 25% over the past three years, and infrastructure, housing and retail projects have started to develop in more rural areas. The number of people going to college has also increased significantly. In 2005, over 14 million people enrolled in Chinese colleges and universities, an increase of more than 250% since 1999. Labor shortages and the resulting cost and wage increases may prompt even more changes in China. Labor conditions and worker benefits have already started to improve, and increased manufacturing costs could cause a shift away from the production of lower-end products. Rising wages could create an increased demand for imports, and factories have started moving inland, where labor is more readily available. 8) This Application reinforces the basic definition of economics, which is the A) possible or feasible combinations of an economy's production options. B) study of choices made by people when there is scarcity. C) arrangement that allows buyers and sellers to exchange things. D) forces that affect economic activity and predict the consequences of alternative actions. Answer: B Diff: 1 Topic: Additional Application, Labor Shortage in China May Lead to Trade Shift Skill: Definition 9) What factor of production is the primary focus of this Application? A) natural resources B) physical capital C) labor D) entrepreneurship Answer: C Diff: 1 Topic: Additional Application, Labor Shortage in China May Lead to Trade Shift Skill: Conceptual AACSB: Reflective Thinking 10) According to the Application, the number of people in China who are going to college has increased significantly. An increase in college enrollment leads to a more educated workforce and, in turn, higher wages. Obtaining an education in order to receive a higher wage is an example of which element of the economic way of thinking? A) thinking at the margin B) response to incentives C) isolation of variables D) using assumptions to simplify Answer: B Diff: 1 Topic: Additional Application, Labor Shortage in China May Lead to Trade Shift Skill: Conceptual AACSB: Reflective Thinking 11) One of the macroeconomic issues addressed in this Application is A) companies increasing worker benefits. B) the increase in college enrollment. C) the growth of the Chinese economy. D) the decisions by workers to remain inland. Answer: C Diff: 1 Topic: Additional Application, Labor Shortage in China May Lead to Trade Shift Skill: Conceptual AACSB: Reflective Thinking 12) Normative economics A) is the focus of most modern economic reasoning. B) answers the question "What ought to be?" C) predicts the consequences of alternative actions. D) answers the question "What is?" Answer: B Diff: 1 Topic: Positive versus Normative Analysis Skill: Definition 13) Which of the following is an example of a normative question? A) How will an increase in the inheritance tax affect tax revenues? B) What fraction of an income tax cut will be spent on imported goods? C) Should Florida implement a state income tax to reduce its deficit? D) How will an increase in unemployment benefits affect the unemployment rate? Answer: C Diff: 1 Topic: Positive versus Normative Analysis Skill: Conceptual AACSB: Reflective Thinking 14) Which of the following is a question answered with positive economic analysis? A) Should the college reduce tuition for out-of-state residents? B) Should the college charge higher tuition for part-time students? C) If the college increased its eligibility requirements for enrollment, will class sizes decline? D) Should the college eliminate its athletic program to cut its costs? Answer: C Diff: 2 Topic: Positive versus Normative Analysis Skill: Conceptual AACSB: Reflective Thinking 15) Which of the following is a question answered with normative economic reasoning? A) If the college offers free textbooks for students, will more students read their textbooks? B) If the college provided less financial aid for out-of-state students, would more in-state students benefit? C) If the college increased its enrollment requirements, would class size decline? D) Should the college increase tuition to fund its athletic programs? Answer: D Diff: 2 Topic: Positive versus Normative Analysis Skill: Conceptual AACSB: Reflective Thinking 16) The 3 key economic questions include all of the following EXCEPT A) "what products do we produce?" B) "how do we produce these products?" C) "where should these products be produced?" D) "who consumes the products?" Answer: C Diff: 1 Topic: The Three Key Economic Questions: What, How, and Who? Skill: Conceptual AACSB: Reflective Thinking 17) Deciding how a society's products are distributed among its citizens answers the economic question of A) who consumes the products produced. B) what products will be produced. C) where will the products be consumed. D) how will the products be produced. Answer: A Diff: 1 Topic: The Three Key Economic Questions: What, How, and Who? Skill: Conceptual AACSB: Reflective Thinking 18) Deciding if a company will produce automobiles by robotics or manual labor answers the economic question of A) who consumes the products produced. B) what products will be produced. C) where will the products be consumed. D) how will the products be produced. Answer: D Diff: 1 Topic: The Three Key Economic Questions: What, How, and Who? Skill: Conceptual AACSB: Reflective Thinking 19) Deciding if a power company will generate electricity from wind power or coal answers the economic question of A) who consumes the products produced. B) what products will be produced. C) where will the products be consumed. D) how will the products be produced. Answer: D Diff: 1 Topic: The Three Key Economic Questions: What, How, and Who? Skill: Conceptual AACSB: Reflective Thinking 20) An economic model is a A) realistic version of an economic environment. B) detailed version of an economic issue. C) fictional representation of an entire economy. D) simplified representation of an economic environment. Answer: D Diff: 1 Topic: Economic Models Skill: Definition 21) Economic models are used to A) explain every detail of an economic theory. B) explore decision making by individuals, firms and other organizations. C) build physical renditions of government construction projects. D) represent the complexities of economic environments. Answer: B Diff: 1 Topic: Economic Models Skill: Conceptual AACSB: Reflective Thinking 22) Talking about alternatives is the first step in a process that helps us make better choices about how we use our resources. Answer: TRUE Diff: 1 Topic: What Is Economics? Skill: Conceptual AACSB: Reflective Thinking 23) In the past few centuries, choices have led to a substantial decline in the standards of living around the globe. Answer: FALSE Diff: 1 Topic: What Is Economics? Skill: Fact 24) Scarcity is a situation in which resources are unlimited in quantity and can be used in different ways. Answer: FALSE Diff: 1 Topic: What Is Economics? Skill: Definition 25) Positive economics question, "What ought to be?" Normative economics predicts the consequences of alternative actions, answering the questions, "What is?" or "What will be?" Answer: FALSE Diff: 1 Topic: Positive versus Normative Analysis Skill: Definition 26) Normative economics question, "What ought to be?" Positive economics predicts the consequences of alternative actions, answering the questions, "What is?" or "What will be?" Answer: TRUE Diff: 1 Topic: Positive versus Normative Analysis Skill: Definition 27) Most modern economic analysis is normative in nature, but involves questions with positive aspects. Answer: FALSE Diff: 1 Topic: Positive versus Normative Analysis Skill: Fact 28) Economists will always reach the same conclusion in their positive analyses. Answer: FALSE Diff: 1 Topic: Positive versus Normative Analysis Skill: Conceptual AACSB: Reflective Thinking 29) One of the key economic questions is "where should products be produced?" Answer: FALSE Diff: 1 Topic: The Three Key Economic Questions: What, How, and Who? Skill: Conceptual AACSB: Reflective Thinking 30) One of the key economic questions is "who consumes the products?" Answer: TRUE Diff: 1 Topic: The Three Key Economic Questions: What, How, and Who? Skill: Conceptual AACSB: Reflective Thinking 31) An economic model is a detailed version of an economic environment. Answer: FALSE Diff: 1 Topic: The Three Key Economic Questions: What, How, and Who? Skill: Definition 32) Economic models explore decision making by individuals, firms and other organizations. Answer: TRUE Diff: 1 Topic: The Three Key Economic Questions: What, How, and Who? Skill: Conceptual AACSB: Reflective Thinking 33) Would an economist consider clean air a scarce resource? Explain. Answer: Yes, because the air had alternative uses. We can choose to use it to either breathe or to undertake activities that pollute it. The more we want to breathe clean air the more we must limit the production of pollutants. The more we pollute the air the less we can breathe clean air. Diff: 2 Topic: What Is Economics? Skill: Analytical AACSB: Analytic Skills 34) List and briefly describe the five factors of production. Answer: Natural resources – those resources provided by nature. Labor – the physical and mental effort used by people to produce goods and services. Physical capital – the infrastructure, equipment, machines and structures used to produce goods and services. Human capital – the knowledge and skills obtained by workers through education and experience. Entrepreneurship – the organizing and coordination of the other four factors of production needed to produce and sell products. Diff: 2 Topic: What Is Economics? Skill: Conceptual AACSB: Reflective Thinking 35) Give an example of something that is scarce in your life and explain the choices you've made because of scarcity. Answer: Responses are numerous and will vary by students. Diff: 1 Topic: What Is Economics? Skill: Analytical AACSB: Analytic Skills 36) Positive economic analysis answers what question? Answer: Positive economic analysis answers the question"what is" or "what will be." Diff: 1 Topic: Positive versus Normative Analysis Skill: Conceptual AACSB: Reflective Thinking 37) Normative economic analysis answers what question? Answer: Normative economic analysis answers the question"what ought to be." Diff: 1 Topic: Positive versus Normative Analysis Skill: Conceptual AACSB: Reflective Thinking 38) Richard runs a pizza delivery restaurant. List the three basic types of decisions studied in economics and give an example from Richard's restaurant. Answer: How to produce? With what resources will the pizzas be produced? What to produce? What sorts of pizza do people order? Who consumes the products? Which people decided to come to the restaurant on a given day? Diff: 2 Topic: The Three Key Economic Questions: What, How, and Who? Skill: Analytical AACSB: Analytic Skills 1.2 Economic Analysis and Modern Problems 1) According to the Texas Transportation Institute, the typical U.S. commuter wastes approximately how much time per year due to traffic congestion? A) 14 hours B) 22 hours C) 47 hours D) 96 hours Answer: C Diff: 1 Topic: Economic View of Traffic Congestion Skill: Fact 2) In the final two decades of the twentieth century, average per capita global income A) increased by approximately 35 percent. B) remained relatively unchanged. C) decreased by approximately 6 percent. D) increased by more than 75 percent. Answer: A Diff: 1 Topic: Economic View of Poverty in Africa Skill: Fact 3) In the final two decades of the twentieth century, per capita income in sub-Saharan Africa A) increased by approximately 35 percent. B) remained relatively unchanged. C) decreased by approximately 6 percent. D) increased by more than 75 percent. Answer: C Diff: 1 Topic: Economic View of Poverty in Africa Skill: Fact 4) Prior to the financial crisis and recession which began in 2007, credit for mortgages was ________, creating a ________. A) virtually unavailable; housing bubble B) only available to borrowers with high credit scores; shortage of affordable housing C) easily obtained; housing boom D) unavailable to low-income borrowers; large demand for rental properties Answer: C Diff: 1 Topic: Economic View of the Current World Recession Skill: Fact 5) The financial crisis and recession which began in 2007 A) impacted only high-income countries. B) was only severe in the United States. C) had a global impact. D) impacted only low-income countries. Answer: C Diff: 1 Topic: Economic View of the Current World Recession Skill: Fact 6) Congestion taxes tend to cause an increase in traffic volume during rush hours. Answer: FALSE Diff: 1 Topic: Economic View of Traffic Congestion Skill: Conceptual AACSB: Reflective Thinking 7) In the 1980s and 1990s, average per capita income increased by a greater percentage in subSaharan Africa than it did in the rest of the world. Answer: FALSE Diff: 1 Topic: Economic View of Poverty in Africa Skill: Fact 1.3 The Economic Way of Thinking 1) Who is associated with the following summary of the economic way of thinking: "The theory of economics does not furnish a body of settled conclusions immediately acceptable to policy. It is a method rather than a doctrine, an apparatus of the mind, a technique of thinking which helps its processer draw correct conclusions." A) John Maynard Keynes B) Alfred Marshall C) Adam Smith D) President Harry Truman Answer: A Diff: 1 Topic: The Economic Way of Thinking Skill: Fact 2) To make things simpler and focus attention on what really matters, economists would A) use assumptions. B) ignore all variables. C) think at the margin. D) respond to incentives. Answer: A Diff: 1 Topic: Use Assumptions to Simplify Skill: Conceptual AACSB: Reflective Thinking 3) A variable measures A) something that always has the same value. B) something that can take on different values. C) factors that occur with high degrees of uncertainty. D) the degree to which something varies over time. Answer: B Diff: 1 Topic: Isolate Variables - Ceteris Paribus Skill: Definition 4) The Latin phrase ceteris paribus means that when a relationship between two variables is being studied, A) both are treated as unpredictable. B) neither of those two variables is allowed to change. C) all other variables are held fixed. D) we recognize that some factors are unknown. Answer: C Diff: 1 Topic: Isolate Variables - Ceteris Paribus Skill: Definition 5) To think at the margin means to consider A) how nothing remains constant over time. B) how a small change in one variable affects another variable. C) how people behave in their own self-interest. D) how people will decide what to purchase. Answer: B Diff: 1 Topic: Think at the Margin Skill: Conceptual AACSB: Reflective Thinking 6) Jerome has a "C" average in his philosophy course and a "B" average in his economics course. He decides to study an extra hour for his philosophy exam. This is an example of A) thinking at the margin. B) using assumptions to simplify. C) ceteris paribus. D) caveat emptor. Answer: A Diff: 1 Topic: Think at the Margin Skill: Conceptual AACSB: Reflective Thinking 7) A small change in a variable is A) an average change. B) a ceteris paribus change. C) an efficient change. D) a marginal change. Answer: D Diff: 1 Topic: Think at the Margin Skill: Definition 8) Adam Smith A) is considered the founder of economics. B) introduced the concept of ceteris paribus to the discussion of supply and demand. C) is responsible for refining the model of supply and demand. D) is the author of this text. Answer: A Diff: 1 Topic: Rational People Respond to Incentives Skill: Conceptual AACSB: Reflective Thinking 9) When economists assume that people are rational and respond to incentives, they mean A) people act with kindness. B) people are altruistic. C) people act in their own self-interest. D) people are selfish. Answer: C Diff: 1 Topic: Rational People Respond to Incentives Skill: Conceptual AACSB: Reflective Thinking 10) When deciding to implement a congestion tax, economists and the government would use the elements of the economic way of thinking to determine A) if the tax would be allocated equitably. B) what tax amount should be charged. C) who should be exempt from the tax. D) how much revenue will the tax generate. Answer: B Diff: 1 Topic: Example: London Addresses its Congestion Problem Skill: Conceptual AACSB: Reflective Thinking 11) After the implementation of the congestion tax in London, traffic volume was reduced and travel time for cars and buses was cut in half. This is an example of A) responding to incentives. B) the role of pricing in allocating resources. C) caveat emptor. D) comparative advantage. Answer: A Diff: 1 Topic: Example: London Addresses its Congestion Problem Skill: Conceptual AACSB: Reflective Thinking 12) When determining an appropriate congestion tax economists would use which of the following elements of the economic way of thinking? A) thinking at the margin B) isolating variables C) making assumptions D) all of the above Answer: D Diff: 2 Topic: Example: London Addresses its Congestion Problem Skill: Conceptual AACSB: Reflective Thinking Recall the Application about the experiment in which Chinese factory workers were divided into groups and offered bonuses for their production output to answer the following question(s). 13) According to the Application, workers who were told they would lose their bonuses if their output fell short of the production target were more productive than those workers who were offered a bonus if they met the production target. This is an example of which element of the economic way of thinking? A) responding to incentives B) thinking at the margin C) isolating variables D) using assumptions to simplify Answer: A Diff: 1 Topic: Application 1, Responding to Production Rewards Skill: Conceptual AACSB: Reflective Thinking 14) The results of the experiment discussed in this Application show the differences in productivity from the threat of having a bonus taken away for not meeting a production target and the promise of receiving a bonus for meeting a production target. These results describe the economic concept of A) using assumptions to simplify. B) ceteris paribus. C) marginal thinking. D) rational self interest. Answer: D Diff: 1 Topic: Application 1, Responding to Production Rewards Skill: Conceptual AACSB: Reflective Thinking 15) According to the Application, the results of the experiment suggests that the fear of a loss provides ________ the prospect of a gain. A) a lesser incentive than B) an equal incentive to C) a greater incentive than D) a negative incentive compared to Answer: C Diff: 2 Topic: Application 1, Responding to Production Rewards Skill: Conceptual AACSB: Reflective Thinking Recall the Application about unwanted commercial e-mail, or spam, to answer the following question(s). 16) According to the Application, the economic approach to spam is to A) establish a price for commercial e-mail. B) ignore the spam issue because it has no economic implications. C) have it legislated on the local level since it is a microeconomic issue. D) ban all e-mail from international servers. Answer: A Diff: 2 Topic: Application 2, The Economic Solution To Spam Skill: Conceptual AACSB: Reflective Thinking 17) According to the Application, the amount of e-mail spam would significantly decrease if A) the cost of sending spam exceeded its profitability. B) states passed laws making spam illegal. C) e-mail filters were developed to separate spam from legitimate e-mail. D) more people responded to spam e-mails. Answer: A Diff: 2 Topic: Application 2, The Economic Solution To Spam Skill: Conceptual AACSB: Reflective Thinking 18) According to the Application, one idea to reduce the volume of e-mail spam is to charge the sender for each commercial e-mail sent. Answer: FALSE Diff: 1 Topic: Application 2, The Economic Solution To Spam Skill: Fact 19) Using assumptions to make things simpler and focus attention on what really matters is like using a road map to plan a trip. Answer: TRUE Diff: 1 Topic: Use Assumptions to Simplify Skill: Conceptual AACSB: Reflective Thinking 20) Ceteris paribus means "Let the buyer beware." Answer: FALSE Diff: 1 Topic: Isolate Variables - Ceteris Paribus Skill: Definition 21) Ceteris paribus is the same as rise / run. Answer: FALSE Diff: 1 Topic: Isolate Variables - Ceteris Paribus Skill: Definition 22) A small, one-unit change in value is called a marginal change. Answer: TRUE Diff: 1 Topic: Think at the Margin Skill: Definition 23) A key assumption of most economic analysis is that people act rationally, meaning they respond to incentives. Answer: TRUE Diff: 1 Topic: Rational People Respond to Incentives Skill: Conceptual AACSB: Reflective Thinking 24) A key assumption of most economic analysis is that people are altruistic, meaning that they act in their own self-interest. Answer: FALSE Diff: 1 Topic: Rational People Respond to Incentives Skill: Conceptual AACSB: Reflective Thinking 25) Economists assume that individuals make informed decisions and act in their own selfinterest. Answer: TRUE Diff: 1 Topic: Rational People Respond to Incentives Skill: Conceptual AACSB: Reflective Thinking 26) The congestion tax implemented in London reduced traffic volume and cut travel time for cars and buses in half. Answer: TRUE Diff: 1 Topic: Example: London Addresses its Congestion Problem Skill: Fact 27) To determine an appropriate congestion tax, an economist had to assume that people responded to incentives. Answer: TRUE Diff: 1 Topic: Example: London Addresses its Congestion Problem Skill: Conceptual AACSB: Reflective Thinking 28) What is meant by the term "marginal change"? Answer: A marginal change is a small, one unit change in value. Diff: 1 Topic: Think at the Margin Skill: Definition 1.4 Preview of Coming Attractions: Macroeconomics 1) Macroeconomics is best described as the study of A) very large issues. B) the choices made by individual households, firms, and governments. C) the nation's economy as a whole. D) the relationship between inflation and wage inequality. Answer: C Diff: 1 Topic: Preview of Coming Attractions: Macroeconomics Skill: Definition 2) Which of the following is a macroeconomic question? A) Should we have a constitutional amendment requiring the government to implement a national consumption tax to replace the current income tax? B) Why did a leading computer manufacturer establish call centers in India? C) Why does a pharmaceutical manufacturer try to lower its production costs? D) Should the government put a tax on alcohol in an attempt to assist in the funding of support groups like Alcoholics Anonymous? Answer: A Diff: 2 Topic: Preview of Coming Attractions: Macroeconomics Skill: Conceptual AACSB: Reflective Thinking 3) Which of the following is NOT a macroeconomic question? A) Should we have a constitutional amendment requiring the federal government to balance the budget each year? B) Should restaurants be required to list the number of calories for each product on their menus? C) How does a fiscal stimulus package affect gross domestic product? D) Should Congress enact tougher immigration laws to reduce unemployment? Answer: B Diff: 2 Topic: Preview of Coming Attractions: Macroeconomics Skill: Conceptual AACSB: Reflective Thinking 4) We can use macroeconomic analysis to A) learn how to balance a checkbook. B) study the choices made by households. C) understand marginal changes in the macroeconomy. D) understand why economies grow. Answer: D Diff: 2 Topic: Using Macroeconomics to Understand Why Economies Grow Skill: Conceptual AACSB: Reflective Thinking 5) Macroeconomics involves the study of the decision-making of individual firms or individuals. Answer: FALSE Diff: 1 Topic: Preview of Coming Attractions: Macroeconomics Skill: Conceptual AACSB: Reflective Thinking 6) Macroeconomics helps explain economic fluctuations, why the economy shrinks and expands and why some of the economy's resources are idle. Answer: TRUE Diff: 1 Topic: Using Macroeconomics to Understand Economic Fluctuations Skill: Conceptual AACSB: Reflective Thinking 7) Describe the field of economics known as macroeconomics. Answer: Macroeconomics is the study of the nation's economy as a whole. Macroeconomics focuses on the issues of inflation, unemployment and economic growth. Diff: 1 Topic: Preview of Coming Attractions: Macroeconomics Skill: Definition 8) Explain three ways we can use macroeconomic analysis. Answer: Macroeconomics explains why some resources increase over time and how an increase in these resources translates into a higher standard of living. In the fastest-growing countries, citizens save a large fraction of the money they earn. Firms can then borrow the funds saved to purchase machinery and equipment that make their workers more productive. The fastest growing countries also have well-educated workforces, allowing firms to quickly adopt new technologies that increase worker productivity. All economies, including ones that experience a general trend of growth, are subject to economic fluctuations including periods when the economy shrinks. During an economic downturn, some of the economy's resources are idle. Many workers are unemployed, and many factories and stores are closed. By contrast, sometimes the economy grows too rapidly, causing inflation. Macroeconomics helps us understand why these fluctuations occur–why the economy sometimes cools and sometimes overheats–and what we can do to moderate the fluctuations. A third reason for studying macroeconomics is to make informed business decisions. A manager who intends to borrow money for a new factory or store could use her knowledge of macroeconomics to predict the effects of current public policies on interest rates and then decide whether to borrow the money now or later. Diff: 2 Topic: Preview of Coming Attractions: Macroeconomics Skill: Conceptual AACSB: Reflective Thinking 1.5 Preview of Coming Attractions: Microeconomics 1) The study of the choices made by individual households, firms, and government is called A) macroeconomics. B) microeconomics. C) managerial economics. D) market economics. Answer: B Diff: 1 Topic: Preview of Coming Attractions: Microeconomics Skill: Definition 2) Microeconomics is best described as the study of A) the choices made by individual households, firms, and governments. B) inflation, unemployment, gross national product, and the nation's economy as a whole. C) how markets interact in the aggregate economy. D) marginal changes in the economy. Answer: A Diff: 1 Topic: Preview of Coming Attractions: Microeconomics Skill: Definition 3) Which of the following is a microeconomic question? A) Should companies pay for employees' health insurance? B) Why do some countries have higher economic growth rates than other countries? C) Should Congress and the president take action to reduce the unemployment rate? D) Should the Fed attempt to influence the interest rate to control potential inflation? Answer: A Diff: 1 Topic: Using Microeconomics to Evaluate Public Policies Skill: Conceptual AACSB: Reflective Thinking 4) Which of the following is a microeconomic question? A) Should the government decrease unemployment benefits to reduce the unemployment rate? B) Why do some countries have higher inflation rates than other countries? C) Should the government subsidize corn farmers to encourage the production of ethanol? D) Should congress decrease taxes to help stimulate the economy? Answer: C Diff: 2 Topic: Using Microeconomics to Evaluate Public Policies Skill: Conceptual AACSB: Reflective Thinking 5) Microeconomics helps explain economic fluctuations, why the economy shrinks and expands and why some of the economy's resources are idle. Answer: FALSE Diff: 1 Topic: Preview of Coming Attractions: Microeconomics Skill: Conceptual AACSB: Reflective Thinking 6) Microeconomics is the study of aggregate behavior in the economy. Answer: FALSE Diff: 1 Topic: Preview of Coming Attractions: Microeconomics Skill: Definition 7) One example of a microeconomic question is, "How will prices in the clothing industry change if the government bans imports from China?" Answer: TRUE Diff: 1 Topic: Preview of Coming Attractions: Microeconomics Skill: Conceptual AACSB: Reflective Thinking 8) One example of a microeconomic question is, "Should unemployment benefits be increased?" Answer: FALSE Diff: 1 Topic: Preview of Coming Attractions: Microeconomics Skill: Conceptual AACSB: Reflective Thinking 9) Describe the field of economics known as microeconomics. Answer: Microeconomics is the study of the choices made by households, firms and government and how these choices affect the markets for goods and services. Diff: 1 Topic: Preview of Coming Attractions: Microeconomics Skill: Definition 10) Explain three ways we can use microeconomic analysis. Answer: 1. To understand markets and predict changes: One reason for studying microeconomics is to better understand how markets work. Once you know how markets operate, you can use economic analysis to predict how various events affect product prices and quantities. 2. To make personal and managerial decisions: On the personal level, we use economic analysis to decide how to spend our time, what career to pursue, and how to spend and save the money we earn. As workers, we use economic analysis to decide how to produce goods and services, how much to produce, and how much to charge for them. 3. To evaluate public policies: While societies use markets to make the most of decisions concerning production and consumption, the government has several important roles in a marketbased society. We can use economic analysis to determine how well the government performs its roles in the market economy. We can also explore the trade-offs associated with various public policies. Diff: 2 Topic: Preview of Coming Attractions: Microeconomics Skill: Conceptual AACSB: Reflective Thinking 1.6 Appendix A: Using Graphs and Percentages 1) There is a positive relationship between two variables if A) they move in opposite directions. B) they move in the same direction. C) one variable changes and the other does not. D) neither variable moves. Answer: B Diff: 1 Topic: Graphing Two Variables Skill: Definition 2) There is a negative relationship between two variables if A) they move in opposite directions. B) they move in the same direction. C) one variable changes and the other does not. D) neither variable moves. Answer: A Diff: 1 Topic: Graphing Two Variables Skill: Definition 3) The slope of a curve measures A) the change in one variable in response to the change in the other variable. B) the length of the curve. C) only the change in the horizontal variable. D) only the change in the vertical variable. Answer: A Diff: 1 Topic: Computing the Slope Skill: Conceptual AACSB: Reflective Thinking 4) Slope is calculated as the A) change in the vertical variable divided by the change in the horizontal variable. B) change in the horizontal variable divided by the change in the vertical variable. C) the vertical axis divided by the horizontal axis. D) change in the vertical variable. Answer: A Diff: 1 Topic: Computing the Slope Skill: Conceptual AACSB: Reflective Thinking 5) The slope of a straight line A) is constant. B) is negative. C) is zero. D) changes along the curve. Answer: A Diff: 1 Topic: Computing the Slope Skill: Conceptual AACSB: Reflective Thinking 6) If the variable on the vertical axis increases by 20 and the variable on the horizontal axis increases by 5, the slope of the line is A) 0.25. B) 4. C) 15. D) 100. Answer: B Diff: 1 Topic: Computing the Slope Skill: Analytical AACSB: Analytic Skills 7) If the variable on the vertical axis increases by 24 and the variable on the horizontal axis decreases by 3, the slope of the line is A) -24. B) -8. C) 3. D) 72. Answer: B Diff: 1 Topic: Computing the Slope Skill: Analytical AACSB: Analytic Skills Figure 1A.1 8) Refer to Figure 1A.1. If the hours worked per week is 20, the income per week is A) 50. B) 100. C) 150. D) 200. Answer: C Diff: 1 Topic: Graphing Two Variables, graphing Skill: Analytical AACSB: Analytic Skills 9) Refer to Figure 1A.1. If the hours worked per week is 30, the income per week is A) 50. B) 100. C) 150. D) 200. Answer: D Diff: 1 Topic: Graphing Two Variables, graphing Skill: Analytical AACSB: Analytic Skills 10) Refer to Figure 1A.1. The slope of the line between the points where income equals 50 and income equals 200 is A) 0.2. B) 5. C) 10. D) 50. Answer: B Diff: 1 Topic: Computing the Slope, graphing Skill: Analytical AACSB: Analytic Skills 11) Refer to Figure 1A.1. The slope of the line between the points where hours worked per week are 20 and hours worked per week are 30 is A) 0.2. B) 5. C) 10. D) 50. Answer: B Diff: 1 Topic: Computing the Slope, graphing Skill: Analytical AACSB: Analytic Skills Figure 1A.2 12) Refer to Figure 1A.2. If this consumer rents zero DVDs, how many movie tickets will she purchase? A) 0 B) 5 C) 10 D) 15 Answer: D Diff: 1 Topic: Graphing Negative Relationships, graphing Skill: Analytical AACSB: Analytic Skills 13) Refer to Figure 1A.2. If this consumer rents 60 DVDs, how many movie tickets will she purchase? A) 0 B) 5 C) 10 D) 15 Answer: B Diff: 1 Topic: Graphing Negative Relationships, graphing Skill: Analytical AACSB: Analytic Skills 14) Refer to Figure 1A.2. The slope of the curve A) is negative. B) is positive. C) is zero. D) changes along the curve. Answer: A Diff: 1 Topic: Computing the Slope, graphing Skill: Analytical AACSB: Analytic Skills 15) Refer to Figure 1A.2. The slope between points a and c is A) -5. B) -6. C) 10. D) 30. Answer: B Diff: 1 Topic: Computing the Slope, graphing Skill: Analytical AACSB: Analytic Skills 16) The slope of a nonlinear curve A) is constant. B) is negative. C) is zero. D) changes along the curve. Answer: D Diff: 1 Topic: Graphing Nonlinear Relationships Skill: Conceptual AACSB: Reflective Thinking 17) If the price of monthly satellite TV service increases from $40 to $50, the percentage change is A) 5 percent. B) 20 percent. C) 25 percent. D) 45 percent. Answer: C Diff: 2 Topic: Computing Percentage Changes Skill: Analytical AACSB: Analytic Skills 18) If the price of a 8GB memory card decreases from $25 to $20, the percentage change is A) -20 percent. B) -33 percent. C) -50 percent. D) -60 percent. Answer: A Diff: 2 Topic: Computing Percentage Changes Skill: Analytical AACSB: Analytic Skills Recall the Application about the government of Mexico City repainting highway lane lines to transform a 4-lane highway into a 6-lane highway to answer the following question(s). 19) When the government converted the highway from 4 lanes into 6 lanes, they claimed the capacity had increased by 50 percent. When the government switched the highway back from 6 lanes to 4 lanes, they claimed the capacity had been decreased by 33 percent. had the government used the midpoint method, the percentage increase would have been ________ percent and the percentage decrease would have been ________ percent. A) 33; 50 B) 33; 33 C) 40; 40 D) 50; 50 Answer: C Diff: 2 Topic: Application 3, The Perils of Percentages Skill: Analytical AACSB: Analytic Skills 20) When computing percentage changes, using the simple approach results in increases and decreases which are A) identical. B) symmetric. C) not symmetric. D) more accurate than using the midpoint method. Answer: C Diff: 1 Topic: Application 3, The Perils of Percentages Skill: Conceptual AACSB: Reflective Thinking 21) If you work 4 extra hours, and the slope of the curve showing the relationship between your income and work hours is 8, your income will increase by A) $2. B) $4. C) $12. D) $32. Answer: D Diff: 2 Topic: Using Equations to Compute Missing Values Skill: Analytical AACSB: Analytic Skills 22) To increase income by $120 when the slope of the curve showing the relationship between your income and work hours is 8, how many extra hours will you need to work? A) 8 B) 15 C) 112 D) 960 Answer: B Diff: 2 Topic: Using Equations to Compute Missing Values Skill: Analytical AACSB: Analytic Skills 23) The origin of a graph is the intersection of the two axes, where the value of both variables is zero. Answer: TRUE Diff: 1 Topic: Graphing Two Variables Skill: Definition 24) Positive relationships are also referred to as inverse relationships. Answer: FALSE Diff: 1 Topic: Graphing Two Variables Skill: Definition 25) Negative relationships are also referred to as inverse relationships. Answer: TRUE Diff: 1 Topic: Graphing Two Variables Skill: Definition 26) Slope is calculated as rise / run. Answer: TRUE Diff: 1 Topic: Computing the Slope Skill: Analytical AACSB: Analytic Skills 27) Slope is calculated as a change in the variable on the horizontal axis divided by a change in the variable on the vertical axis. Answer: FALSE Diff: 1 Topic: Computing the Slope Skill: Analytical AACSB: Analytic Skills 1 Copyright © 2012 Pearson Education, Inc.

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