Chapter 1 What Economics is About - Cengage

[Pages:4]Chapter 1 What Economics is About

1. The best example of decision-making at the margin would be a. dividing your total tax bill by your total income. b. observing what happens to a household's spending when their income doubles. c. observing the effect that a small change in income has on the amount of income tax owed and therefore upon after-tax income. d. observing the effect on crop yield that results from doubling the amount of fertilizer used.

ANS: a. Incorrect. This calculation shows the average tax rate. Marginal analysis deals with the effect of small changes, in this case the effect on tax liability of a small increase in income. b. Incorrect. Marginal analysis would deal with the effect on consumer spending of a relatively small change in income. c. Correct. d. Incorrect. Marginal analysis would deal with the effect that a small change in fertilizer has on crop yield.

2. ______________________ exists when marginal benefits equal marginal costs. a. Efficiency b. Unintended effects c. Utility d. Disutility

ANS: a. Correct. b. Incorrect. In economics, the right amount of anything is the efficient amount, and that happens when marginal benefits equal marginal costs. c. Incorrect. In economics, the right amount of anything is the efficient amount, and that happens when marginal benefits equal marginal costs. d. Incorrect. In economics, the right amount of anything is the efficient amount, and that happens when marginal benefits equal marginal costs.

3. In the presidential election campaign of 2008, candidate John McCain said that in order to keep our nation prosperous, strong and growing we should rethink, reform and reinvent: the way we educate our children and train our workers. This is an example of a a. positive microeconomic statement. b. normative microeconomic statement. c. normative macroeconomic statement. d. positive macroeconomic statement.

ANS: a. Incorrect. This is a normative macroeconomic statement because it reflects an opinion and it focuses on the economy as a whole.

? 2010 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

b. Incorrect. This is a normative macroeconomic statement because it expresses an opinion and it focuses on the economy as a whole. c. Correct. d. Incorrect. This is a normative statement because it expresses Senator McCain's opinion.

4. Deciding whether or not you should study economics for one more hour is an example of a. positive economics. b. macroeconomics. c. abstract theory. d. making a decision at the margin.

ANS: a. Incorrect. This is an example of making a decision at the margin. b. Incorrect. This is an example of making a decision at the margin c. Incorrect. This is an example of making a decision at the margin. d. Correct.

5. The ______ the opportunity cost of doing something, the _______ likely it will be done. a. lower; less. b. higher; more. c. higher; less. d. none of the above.

ANS: a. Incorrect. The lower the opportunity cost, the more likely the activity will be done b. Incorrect. The higher the opportunity cost, the less likely the activity will be done c. Correct. d. Incorrect. Answer C is correct

6. ___________ is the satisfaction that one receives from a good, while ___________ is the dissatisfaction that one receives from a bad. a. scarcity; economics. b. labor; capital. c. utility; disutility. c. a rationing device; entrepreneurship.

ANS: a. Incorrect. Utility is the satisfaction that one receives from a good, while disutility is the dissatisfaction that one receives from a bad b. Incorrect. Utility is the satisfaction that one receives from a good, while disutility is the dissatisfaction that one receives from a bad c. Correct.

? 2010 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

d. Incorrect. Utility is the satisfaction that one receives from a good, while disutility is the dissatisfaction that one receives from a bad

7. Which of the following is most closely associated with microeconomics as opposed to macroeconomics? a. An economy's overall output level. b. A country's unemployment rate. c. An economy's rate of growth. d. The U.S. wheat market.

ANS: a. Incorrect. An economy's overall output is associated with macroeconomics. b. Incorrect. A country's unemployment rate is associated with macroeconomics c. Incorrect. An economy's rate of growth is associated with macroeconomics. d. Correct.

8. A ____________ provides a means for deciding who gets what of available resources and goods in an economy. a. capital good b. disutility c. condition of scarcity d. rationing device

ANS: a. Incorrect. Rationing devices provide the means for deciding who gets what of available resources and goods in an economy b. Incorrect. Rationing devices provide the means for deciding who gets what of available resources and goods in an economy c. Incorrect. Rationing devices provide the means for deciding who gets what of available resources and goods in an economy d. Correct.

9. An example of the opportunity cost of producing an extra apple is a. the price charged for the apple. b. the number of oranges that must be given up in order to produce the extra apple. c. the difference in the price of the apple last year and the price of the apple this year. d. the amount of time and fertilizer that it takes you to produce the extra apple.

ANS: a. Incorrect. Opportunity cost and price are not the same thing b. Correct. c. Incorrect. Opportunity cost and price are not the same thing. d. Incorrect. Opportunity costs are measured by the next best foregone alternative

10. Entrepreneurship refers to a. persons who lend money.

? 2010 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

b. persons who manage a business for the owners. c. persons who seek new business opportunities and who develop news ways of doing things. d. persons who retire and receive lifetime annuities. ANS: a. Incorrect. Entrepreneurs are the creative, risk-taking persons who develop new ways of doing things. b. Incorrect. Entrepreneurs are the creative, risk-taking persons who develop new ways of doing things. c. Correct. d. Incorrect. Entrepreneurs are the creative, risk-taking persons who develop new ways of doing things.

? 2010 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

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