1 Problem Set Chps.1 and 2 Getting Started The U.S. & Global Economies MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Scarcity A) is not something that affects very rich people. B) applies only to people living in poverty. C) is the inability to satisfy all our wants. D) used to exist everywhere but has been eliminated in advanced economies. 2) Economics is the social science that studies A) how people make choices to cope with scarcity. B) how a person can get everything he or she wants. C) the real reasons people buy goods and services. D) whether a nation has enough natural resources. 3) Of the three major economic questions, which of the following is the best example of a "What should be produced?" question? A) Should automobiles be produced using workers or robots? B) Should migrant workers or domestic workers be used to pick grapes? C) Should we make faster microprocessors or pest-resistant corn? D) What should doctors be paid? E) Should higher-income or lower-income people buy SUVs? 4) Which of the following is a consumption good or service? A) a personal computer purchased in order to play games at home B) a United Airline ticket counter C) the Endeavor space shuttle D) a United Parcel Service truck delivering Christmas gifts E) a satellite dish installed by Cox Cable to download programs that are then distributed through its cable system 5) Items bought by businesses to help produce other goods and services are called A) consumption goods and services. B) capital goods. C) government goods and services. D) export goods and services. 6) Which of the following items is a capital good? A) A tennis ball purchased by two friends to play tennis. B) A jet airplane purchased by Delta Airlines. C) A coffee maker given to your roommate as a Christmas gift. D) A paper back book purchased by a business traveler for his own leisure to read on the airplane. 2 7) The Colorado Ski Shop sold 60 ski jackets to a Belgium company's headquarters located in Paris, France. The ski jackets are a A) U.S. export. B) capital good. C) government good. D) U.S. consumption service. E) U.S. import. 8) The question of "How are goods and services produced?" most closely addresses which of the following issues? A) Should contractors build residential housing or shopping malls? B) Is income distributed fairly in the United States? C) Should Ford use expensive industrial robots or inexpensive Mexican autoworkers to produce SUV's? D) Should Ford build SUV's or luxury cars? E) Why are Christmas trees popular only in December? 9) When unskilled teens earn less than college graduates, society answers the ________ question. A) how B) what C) for whom. 10) Which factor of production does human capital enhance? i. land ii. labor iii. capital A) i only. B) ii only. C) iii only. D) i and ii. E) i, ii, and iii. 11) Jan is attending college and studying to be an investment broker. To improve her chances of employment following college, she has interned at a top brokerage firm during the last two summers. Jan's internship has increased her A) natural labor. B) human capital. C) consumption services. D) natural resources. 12) Capital is a factor of production. An example of capital as a factor of production is A) money. B) stocks. C) bonds. D) machines. E) education. 13) Which of the following qualifies both as a good and as a factor of production? A) land B) labor C) capital D) entrepreneurship 14) The owners of the resource ________ are paid ________. A) land; wages B) labor; profit C) capital; rent D) capital; interest E) entrepreneurship; wages 3 15) Within the circular flow, A) households own the factors of production and firms choose the quantities of the factors to hire. B) firms own the factors of production and households choose the quantities of the factors to hire. C) households and firms both own factors of production, though firms make the decisions about the quantities to hire. D) neither households nor firms own anything because both must rent the factors of production. E) households and firms both own factors of production, though households make the decisions about the quantities to hire. 16) The circular flow model with households, firms and governments shows the A) distribution of income and consumption goods across income levels. B) combinations of the factors of production needed to produce goods and services. C) flow of expenditure and incomes that arise from the households', firms', and governments' decisions. D) only distribution of income to the different factors of production. 17) In the circular flow model, consumption goods are bought and sold in the A) goods market. B) financial market. C) factor markets. D) government market. 18) In the circular flow model, which of the following is the seller in the factor markets? A) federal, state, and local governments B) only households C) only financial institutions such as banks D) only firms E) firms and households 19) Firms are on the ________ side of factor markets and on the ________ side of goods markets. A) supply; demand B) supply; supply C) demand; supply D) demand; demand 20) A rational choice is one that A) creates no costs for the decision maker. B) is made in the social interest rather than the self- interest. C) must be made with perfect information. D) uses the available resources to most effectively satisfy the wants of the person making the choice. 21) An opportunity cost is A) the dollar amount that is paid. B) anything the decision maker believes costs to be. C) the benefits of the highest-valued alternative foregone or sacrificed. D) whatever is paid out and cannot be reduced or reversed. E) another term for all the sunk costs. 4 22) You have chosen to take a trip during Spring Break. If you had not gone, you would either have worked at a temporary job or studied for exams. The opportunity cost of your trip is A) the lower grade earned by not studying. B) the wages you would have earned from working and the lower grade earned by not studying. C) the value of the trip. D) the wages you would have earned from working. E) We cannot determine what the opportunity cost is without knowing which alternative, working or studying, is your next best alternative. 23) Ali decides to attend the one-hour review session for microeconomics instead of working at his job. His job pays him $10 per hour. Ali's opportunity cost of attending the review session is A) the $10 he could have earned at his job. B) equal to the benefit he gets from the review session. C) nothing, because the review session does not cost anything. D) the value of the session minus the $10 he could have earned at his job. E) the one-hour review session. 24) Suppose you paid $400 tuition for a three-credit course. After the official withdrawal date has elapsed, you decide to drop the course but you cannot get back your $400. At this time, the $400 is A) an expenditure made on the margin. B) the marginal cost of the course. C) the opportunity cost of the course. D) a sunk cost. E) the benefit of earning three credits. 25) Decision making on the margin involves A) comparing the marginal cost and marginal benefits when making a decision. B) eliminating the additional cost when making a decision. C) determining the total benefits of a decision. 26) Huey has eaten two hamburgers and is considering a third. The marginal benefit in his decision is the pleasure from consuming A) the two previous hamburgers. B) all three hamburgers. C) just the third hamburger. D) just the second hamburger. 5 Scenario1: Suppose you are planning to go to Chicago for a concert this weekend. You have purchased the concert ticket for $50. The ticket is non refundable. You have also booked the hotel for $50 and the reservation is non-cancelable. Other expenses include $10 for gas and $50 for food. If you don?t go to Chicago this weekend you will work overtime in your job and make some extra money. Refer to Scenario 1. Which of the following is(are) sunk cost(s) in making the choice whether to go to Chicago? 27) A) $10 for gas, $50 for hotel, $50 for food and $50 for concert ticket and opportunity cost of time. B) $10 for gas, $50 for hotel, $50 for food and $50 for concert ticket. C) $10 for gas, $50 for hotel, $50 for food. D) $10 for gas, $50 for food and opportunity cost of time. E) $50 for hotel and $50 for concert ticket. 28) Refer to Scenario 1. Which of the following is(are) marginal cost(s) in making the choice whether to go to Chicago? A) $10 for gas, $50 for hotel, $50 for food and $50 for concert ticket and opportunity cost of time. B) $10 for gas, $50 for hotel, $50 for food and $50 for concert ticket. C) $10 for gas, $50 for hotel, $50 for food. D) $10 for gas, $50 for food and opportunity cost of time. E) $50 for hotel and $50 for concert ticket. 29) Refer to Scenario 1. Based on your answers to questions 27 and 28, which of the costs will you consider in making your decision about going to Chicago? A) sunk cost B) marginal cost C) both sunk cost and marginal cost 30) In making rational choices, which of the following is true? A) We have to account for both marginal costs and sunk costs. B) We do not have to account for marginal cost. C) Incentives do not matter. D) We only account for marginal benefits. E) We respond to marginal benefits and marginal costs. 31) Instead of studying for an additional two hours for the economics final, Leann decides to watch a movie. Leann is making a(n) A) irrational decision because studying is more important than watching a movie. B) decision that is not on the margin because she will see the entire movie. C) rational decision if her marginal cost from the movie is greater than her marginal benefit. D) decision that does not involve an opportunity cost. E) rational decision if her marginal benefit from the movie is greater than her marginal cost. 6 32) Which of the following is a microeconomic issue? A) The price of gasoline increased in the U.S. this year. B) The U.S. government cuts taxes to combat a recession. C) Inflation skyrockets in Russia. D) The Brazilian economy experiences rapid economic growth. E) The unemployment rate soars in Spain. 33) Which of the following is a microeconomic topic? A) Unemployment soars as taxes increase. B) Chinese economic growth slows. C) Germany's government increases taxes to avoid a budget deficit. D) The government leaves interest rates unchanged as the economy improves. E) Northwest Airlines analyzes the benefits of adding one more flight to Salt Lake City. 34) Which of the following is a topic studied in macroeconomics? A) The impact of labor unions on wages in the automobile industry B) The pricing decisions in the computer hardware industry C) The impact of higher prices for gasoline on the number of SUVs people buy D) The effect on economic growth if the government raises taxes E) How the wheat industry determines how much wheat to grow 35) Which of the following is a macroeconomic issue? A) The National Football League signs a new television contract. B) The Iowa corn harvest is smaller than normal. C) The price of a ticket to Walt Disney World in Orlando is increased. D) Utilities are required to install more anti-pollution devices. E) The number of jobs and production in Zimbabwe increase. 36) "Lower ticket prices would lead to more people attending ballgames." This statement is a A) statement that confuses marginal cost and sunk cost. B) positive statement. C) macroeconomic statement. D) normative statement. 37) Which of the following is a positive statement? A) Everyone should have some knowledge of economics. B) Taxes on gasoline should be lower so that gasoline is more affordable to the poor. C) Prices rise when the government increases sales taxes on products. D) The rich should pay more in taxes. E) Social Security must be reformed. 7 38) Normative statements i. describe how the world is. ii. describe how the world ought to be. iii. depend on people's value judgement. A) i and iii. B) iii only. C) ii only. D) ii and iii. E) i only. 39) Which of the following is a normative statement? A) When the price of kiwi fruit increases, fewer people eat kiwi fruit. B) Flood victims should pay for their own rebuilding. C) An increase in the supply of computers has caused computer prices to fall. D) Hurricanes strike mainly Florida. E) Recessions lead to increases in the unemployment rate. 40) Which of the following statements is a normative statement? A) Welfare reform has decreased the amount the government spends on welfare. B) Fewer people are unemployed this year than last year. C) Military spending as a percent of government spending decreased by 5 percent in the 1990s. D) Every American household should have full health care insurance coverage. E) The price of computers fell last year. 8 Answer Key 1) C 2) A 3) C 4) A 5) B 6) B 7) A 8) C 9) C 10) B 11) B 12) D 13) C 14) D 15) A 16) C 17) A 18) B 19) C 20) D 21) C 22) E 23) A 24) D 25) A 26) C 27) E 28) D 29) B 30) E 31) E 32) A 33) E 34) D 35) E 36) B 37) C 38) D 39) B 40) D Problem Set Chp
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