chapter 1 What is Economics? (Ch1, in 14th eds) (經濟學是什麼?)

Microeconomics, 14e (Parkin)
Chapter 1 What Is Economics?
1 Definition of Economics
1) All economic questions are about
A) how to make money.
B) what to produce.
C) how to cope with scarcity.
D) how to satisfy all our wants.
Answer: C
Topic: Scarcity
Skill: Recognition
Status: Old
AACSB: Reflective thinking
2) All economic questions arise because we

A) want more than we can get.
B) want more than we need.
C) have an abundance of resources.
D) have limited wants that need to be satisfied.
Answer: A
Topic: Scarcity
Skill: Recognition
Status: Old
3) Economics is best defined as the study of how people, businesses, governments, and
societies
A) choose abundance over scarcity.
B) make choices to cope with scarcity.
C) use their infinite resources.
D) attain wealth.
Answer: B
Topic: Scarcity
Skill: Conceptual
Status: Old
4) Scarcity is a situation in which

A) people cannot satisfy all their wants.
B) most people can get only bare necessities.
C) people can satisfy all their wants.
D) some people can get all they want and some cannot.
Answer: A
Topic: Scarcity
Skill: Recognition
Status: Old
5) Economists point out that scarcity confronts

A) neither the poor nor the rich.
B) the poor but not the rich.
C) the rich but not the poor.
D) both the poor and the rich.
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Answer: D
Topic: Scarcity
Skill: Conceptual
Status: Old
AACSB: Ethical understanding and reasoning
6) Scarcity is
A) our inability to satisfy all our wants.
B) a situation that exists during economic recessions but not during economic booms.
C) eliminated by choices.
D) an economic problem only for poor people.
Answer: A
Topic: Scarcity
Skill: Recognition
Status: Old
7) When an economist talks of scarcity, the economist is referring to the

A) ability of society to employ all of its resources.
B) ability of society to consume all that it produces.
C) inability of society to satisfy all human wants because of limited resources.
D) ability of society to continually make technological breakthroughs and increase
production.
Answer: C
Topic: Scarcity
Skill: Recognition
Status: Old
8) Fundamental economic problems basically arise from

A) the fact that society has more than it needs.
B) turmoil in the stock market.
C) the unequal distribution of income.
D) our wants exceeding our scarce resources.
Answer: D
Topic: Scarcity
Skill: Recognition
Status: Old
2
9) Scarcity exists because
A) society and people are greedy and wasteful.
B) our wants exceed the resources available to satisfy them.
C) of the inefficient choices we make.
D) poor people need more food and other goods.
Answer: B
Topic: Scarcity
Skill: Recognition
Status: Old
10) Scarcity can be eliminated through

A) the use of market mechanisms.
B) exploration that helps us find new resources.
C) wise use of our resources.
D) None of the above because scarcity cannot be eliminated.
Answer: D
Topic: Scarcity
Skill: Recognition
Status: Old
11) As an economic concept, scarcity applies to

A) both money and time.
B) money but not time.
C) time but not money.
D) neither time nor money.
Answer: A
Topic: Scarcity
Skill: Conceptual
Status: Old
12) In every economic system, choices must be made because resources are ________ and
our wants are ________.
A) unlimited; limited
B) limited; unlimited
C) unlimited; unlimited
D) limited; limited
Answer: B
Topic: Scarcity
Skill: Conceptual
Status: Old
3
13) The problem of "scarcity" applies
A) only in industrially developed countries because resources are scarce in these countries.
B) only in underdeveloped countries because there are few productive resources in these
countries.
C) only in economic systems that are just beginning to develop because specialized
resources are scarce.
D) to all economic systems, regardless of their level of development.
Answer: D
Topic: Scarcity
Skill: Conceptual
Status: Old
14) Scarcity requires that people must

A) cooperate.
B) compete.
C) trade.
D) make choices.
Answer: D
Topic: Scarcity
Skill: Conceptual
Status: Old
15) People must make choices because

A) most people enjoy shopping.
B) of scarcity.
C) there are many goods available.
D) None of the above answers is correct.
Answer: B
Topic: Scarcity
Skill: Conceptual
Status: Old
16) An incentive
A) could be a reward but could not be a penalty.
B) could be a penalty but could not be a reward.
C) could be either a reward or a penalty.
D) is the opposite of a tradeoff.
Answer: C
Topic: Incentive
Skill: Recognition
Status: Old
4
17) An inducement to take a particular action is called
A) the marginal benefit.
B) the marginal cost.
C) opportunity cost.
D) an incentive.
Answer: D
Topic: Incentive
Skill: Recognition
Status: Old
18) Economics is best defined as

A) how people make money and profits in the stock market.
B) making choices from an unlimited supply of goods and services.
C) making choices with unlimited wants but facing a scarcity of resources.
D) controlling a budget for a household.
Answer: C
Topic: Definition of Economics
Skill: Recognition
Status: Old
19) The study of economics

A) focuses mainly on individual consumers.
B) arises from the fact that our wants exceed available resources.
C) recognizes that scarcity does not affect rich nations.
D) deals mainly with microeconomics.
Answer: B
Skill: Recognition
Status: Old
20) Economics is best defined as the science of choice and how people cope with
A) differences in wants.
B) differences in needs.
C) scarcity.
D) different economic systems.
Answer: C
Skill: Recognition
Status: Old
5
21) Economics is the study of
A) the distribution of surplus goods to those in need.
B) affluence in a morally bankrupt world.
C) the choices we make because of scarcity.
D) ways to reduce wants to eliminate the problem of scarcity.
Answer: C
Skill: Conceptual
Status: Old
22) The study of the choices made by individuals is part of the definition of
A) microeconomics.
B) positive economics.
C) macroeconomics.
D) normative economics.
Answer: A
Topic: Microeconomics and Macroeconomics
Skill: Recognition
Status: Old
23) In part, microeconomics is concerned with

A) how a business firm decides upon the amount it produces and the price it sets.
B) changes in the economy's total output of goods and services over long periods of time.
C) factors that explain changes in the unemployment rate over time.
D) the Federal Reserve's policy decisions.
Answer: A
Skill: Recognition
Status: Old
24) The study of the decisions of individual units in the economy is known as
A) macroeconomics.
B) microeconomics.
C) the study of incentives.
D) ceteris paribus study.
Answer: B
Skill: Recognition
Status: Old
6
25) Studying the determination of prices in individual markets is primarily a concern of
A) positive economics.
B) negative economics.
C) macroeconomics.
D) microeconomics.
Answer: D
Skill: Recognition
Status: Old
26) The analysis of the behavior of individual decision-making units is the definition of
A) microeconomics.
B) positive economics.
C) macroeconomics.
D) normative economics.
Answer: A
Skill: Recognition
Status: Old
27) Which of the following is a microeconomic topic?

A) how a trade agreement between the United States and Mexico affects both nations'
unemployment rates
B) comparing inflation rates across countries
C) how rent ceilings impact the supply of apartments
D) how a tax rate increase will impact total production
Answer: C
Skill: Conceptual
Status: Old
28) Which of the following questions is NOT a microeconomic question?

A) Can the Federal Reserve keep income growing by cutting interest rates?
B) How would a tax on e-commerce affect eBay?
C) What is Britney's opportunity cost of having another baby?
D) Does the United States have a comparative advantage in information technology
services?
Answer: A
Skill: Conceptual
Status: Old
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29) Which of the following is an example of a microeconomic decision?
A) an individual deciding how to allocate the time he or she has for work and leisure
B) a small shoe factory deciding how much leather to purchase for the next quarter's
production need
C) a multinational company deciding where to relocate its world headquarter
D) All of the above answers are correct.
Answer: D
Skill: Recognition
Status: Old
30) Which of the following is a microeconomic topic?

A) the reasons why Kathy buys less orange juice
B) the reasons for a decline in average prices
C) the reasons why total employment decreases
D) the effect of the government budget deficit on inflation
Answer: A
Skill: Recognition
Status: Old
31) Which of the following questions is a topic that would be studied by microeconomics?
A) Why did production and the number of jobs rise in 2021?
B) Will the current budget deficit affect the well-being of the next generation?
C) How will a lower price of digital cameras affect the quantity of cameras sold?
D) What is the current unemployment rate in the United States?
Answer: C
Skill: Conceptual
Status: Old
32) An example of a question that might be explored in microeconomics is to determine

A) the number of workers employed by Intel.
B) savings by the household sector.
C) why the U.S. economy has grown more rapidly than the Japanese economy.
D) the total employment within the U.S. economy.
Answer: A
Skill: Conceptual
Status: Old
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33) In part, microeconomics is concerned with the study of
A) unemployment and economic growth.
B) the Federal Reserve's policies.
C) the effect government regulation has on the price of a product.
D) national output of goods and services.
Answer: C
Skill: Conceptual
Status: Old
34) The branch of economics that deals with the analysis of the whole economy is called
A) macroeconomics.
B) marginal analysis.
C) microeconomics.
D) metroanalysis.
Answer: A
Skill: Recognition
Status: Old
35) Macroeconomics is concerned with

A) individual consumers.
B) government decision making concerning farm price supports.
C) economy-wide variables.
D) the effects on Ford Motor of a strike by the United Auto Workers.
Answer: C
Skill: Recognition
Status: Old
36) Macroeconomics differs from microeconomics in that

A) macroeconomics studies the decisions of individuals.
B) microeconomics looks at the economy as a whole.
C) macroeconomics studies the behavior of government while microeconomics looks at
private corporations.
D) macroeconomics focuses on the national economy and the global economy.
Answer: D
Skill: Recognition
Status: Old
9
37) Which of the following is a macroeconomic decision or concept?
A) the price of oil
B) how many television sets to produce
C) the unemployment rate for the entire economy
D) the unemployment rate for each firm
Answer: C
Skill: Conceptual
Status: Old
38) Which of the following questions is a macroeconomic issue?

A) How many more pounds of cookies will a consumer purchase if the price of cookies
decreases?
B) What effect would a cure for Mad Cow Disease have on the market for beef?
C) What is the future growth prospect for an economy?
D) How many workers should the owner of a business hire?
Answer: C
Skill: Conceptual
Status: Old
39) In broad terms the difference between microeconomics and macroeconomics is that
A) they use different sets of tools and ideas.
B) microeconomics studies decisions of individual people and firms and macroeconomics
studies the entire national economy.
C) macroeconomics studies the effects of government regulation and taxes on the price of
individual goods and services whereas microeconomics does not.
D) microeconomics studies the effects of government taxes on the national unemployment
rate.
Answer: B
Skill: Recognition
Status: Old
40) Which of the following is a macroeconomic issue?

A) how a rise in the price of sugar affects the market for sodas
B) how federal government budget deficits affect interest rates
C) what determines the amount a firm will produce
D) the cause of a decline in the price of peanut butter
Answer: B
Skill: Conceptual
Status: Old
10
41) Which of the following is a macroeconomic issue?
A) the purchasing decisions that an individual consumer makes
B) the effect of increasing the money supply on inflation
C) the hiring decisions that a business makes
D) the effect of an increase in the tax on cigarettes on cigarette sales
Answer: B
Skill: Conceptual
Status: Old
42) Macroeconomic topics include

A) total, nationwide employment.
B) studying what factors influence the price and quantity of automobiles.
C) studying the determination of wages and production costs in the software industry.
D) the impact of government regulation of markets.
Answer: A
Skill: Conceptual
Status: Old
43) The fact that wants cannot be fully satisfied with available resources reflects the
definition of
A) the what tradeoff.
B) scarcity.
C) the big tradeoff.
D) for whom to produce.
Answer: B
Skill: Recognition
Status: Old
44) Studying the effects choices have on the individual markets within the economy is part
of
A) scarcity.
B) microeconomics.
C) macroeconomics.
D) incentives.
Answer: B
Topic: Macroeconomics
Skill: Recognition
Status: Old
11
45) Economics can be defined as the social science that explains the
A) choices made by politicians.
B) choices we make when we trade in markets.
C) choices that we make as we cope with scarcity.
D) choices made by households.
Answer: C
Skill: Conceptual
Status: Old
46) Scarcity is a situation in which

A) some people are poor and others are rich.
B) something is being wasted.
C) we are unable to satisfy all our wants.
D) long lines form at gas stations.
Answer: C
Topic: Scarcity
Skill: Conceptual
Status: Old
47) Microeconomics is the study of

A) the choices that individuals and businesses make.
B) all aspects of scarcity.
C) the global economy.
D) the national economy.
Answer: A
Topic: Microeconomics
Skill: Conceptual
Status: Old
2 Two Big Economic Questions

1) When an economy produces more houses and fewer typewriters, it is answering the
________ part of one of the two big economic questions.
A) "what"
B) "how"
C) "where"
D) "for whom"
Answer: A
Topic: What Goods and Services Are Produced?
Skill: Conceptual
Status: Old
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2) When firms in an economy start producing more computers and fewer televisions, they
are answering the ________ part of one of the two big economic questions.
A) "when"
B) "for whom"
C) "what"
D) "where"
Answer: C
Skill: Conceptual
Status: Old
3) If Taco Bell decides to produce more tacos and fewer burritos, Taco Bell is answering
the ________ part of one of the two big economic questions.
A) "what"
B) "why"
C) "when"
D) "scarcity"
Answer: A
Skill: Conceptual
Status: Old
4) When a farmer decides to raise hogs instead of cattle, the farmer is answering the
________ part of one of the two big economic questions.
A) "what"
B) "for whom"
C) "how"
D) "why"
Answer: A
Skill: Conceptual
Status: Old
5) When a country decides to produce fewer bombers and more public housing projects, it
is answering the ________ part of one of the two big economic questions.
A) "how"
B) "what"
C) "defense"
D) "for whom"
Answer: B
Skill: Conceptual
Status: Old
6) When a firm decides to produce more electric cars and fewer gas powered cars, it is
most directly answering the ________ part of one of the two big economic questions.
A) "how"
B) "scarcity"
C) "what"
D) "for whom"
Answer: C
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Skill: Conceptual
Status: Old
7) U.S. producers decide to produce more compact cars and fewer SUVs as the price of
gasoline rises. Producers are answering the ________ part of one of the two big economic
questions.
A) "what"
B) "how"
C) "when"
D) "how many"
Answer: A
Skill: Conceptual
Status: Old
8) Which of the following statements is CORRECT?

A) The United States produces more goods than services.
B) The United States produces more services than goods.
C) The United States produces more agricultural goods than manufactured goods.
D) The United States produces an equal amount of goods and services.
Answer: B
Topic: Trends in Production
Skill: Recognition
Status: Old
9) In the U.S. economy, which of the following statements is TRUE?

A) More goods are produced than services.
B) More services are produced than goods.
C) Production is divided evenly between goods and services.
D) The economy is too complex to determine the proportion of production that is devoted to
producing services.
Answer: B
Skill: Recognition
Status: Old
14
10) The largest part of what the United States produces today is ________ such as ________.
A) goods; food and electronic equipment
B) goods; education and entertainment
C) services; resale and wholesale trade and health care
D) services; textbooks and computers
Answer: C
Skill: Recognition
Status: Old
11) When China builds a dam using few machines and a great deal of labor, it is answering
the ________ part of one of the two big economic questions.
A) "what"
B) "how"
C) "where"
D) "for whom"
Answer: B
Topic: How Are Goods and Services Produced?
Skill: Conceptual
Status: Old
12) When a textile company keeps track of its inventory using a computer and its
competitor uses a pad of paper and a pencil, they are both answering the ________ part of
one of the two big economic questions.
A) "what"
B) "how"
C) "for whom"
D) "where"
Answer: B
Skill: Conceptual
Status: Old
13) When a California farmer decides to harvest lettuce using machines instead of by
migrant workers, the farmer is answering the ________ part of one of the two big economic
questions.
A) "how"
B) "for whom"
C) "scarcity"
D) "what"
Answer: A
Topic: How Are Goods Produced?
Skill: Conceptual
Status: Old
14) An art museum decides to offer tours by having visitors listen to cassette tapes rather
than have tour guides. The museum is answering the ________ part of one of the two big
economic questions.
A) "scarcity"
B) "what"
C) "why"
D) "how"
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Answer: D
Skill: Conceptual
Status: Old
15) The fact that people with higher incomes get to consume more goods and services
addresses the ________ part of one of the two big economic questions.
A) "for whom"
B) "when"
C) "where"
D) "how"
Answer: A
Topic: For Whom Are Goods and Services Produced?
Skill: Conceptual
Status: Old
16) Which of the following is NOT a factor of production?

A) the water used to cool a nuclear power plant
B) the effort of farmers raising cattle
C) the wages paid to workers
D) the management skill of a small business owner
Answer: C
Topic: Factors of Production
Skill: Conceptual
Status: Old
16
17) Which of the following are considered factors of production used to produce goods and
services?
I. Land
II. Labor
III. Capital
IV. Entrepreneurship
A) I and II only
B) I and III only
C) I, II and III only
D) I, II, III and IV
Answer: D
Skill: Recognition
Status: Old
18) Which of the following is CORRECT? Factors of production are

A) land, labor, the price system, and capital.
B) the inputs used to produce goods and services.
C) the fundamental source of abundance.
D) only land and labor.
Answer: B
Skill: Recognition
Status: Old
19) Factors of production include

A) the economic system.
B) land, labor, capital and entrepreneurship.
C) labor and capital (not land, which is fixed).
D) only capital, land, and labor.
Answer: B
Skill: Recognition
Status: Old
20) Factors of production include all of the following EXCEPT

A) machines made in past years.
B) money.
C) entrepreneurship.
D) a wheat field that is not irrigated.
Answer: B
Skill: Recognition
Status: Old
21) Factors of production are grouped into four categories

A) land, labor, capital, entrepreneurship.
B) land, labor, capital, money.
C) land, capital, money, entrepreneurship.
D) labor, capital, money, entrepreneurship.
Answer: A
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Skill: Recognition
Status: Old

A) vans used by a bakery company for deliveries
B) a person developing a production schedule for a new product
C) 175 shares of Microsoft stock
D) wilderness areas that have yet to be developed
Answer: C
Skill: Conceptual
Status: Old
23) Keeping in mind economists' definition of factors of production, which of the following
is NOT a factor of production?
A) money
B) low-skilled labor
C) coal
D) an engineer
Answer: A
Skill: Recognition
Status: Old

A) mineral resources
B) a university professor
C) an apartment building
D) 100 shares of Microsoft stock
Answer: D
Skill: Recognition
Status: Old
18
25) The income earned by the people who sell the services of the factor of production
________ is called ________.
A) capital; rent
B) entrepreneurship; wages
C) land; profit
D) entrepreneurship; profit
Answer: D
Skill: Recognition
Status: Old
26) Which factor of production earns profit?

A) land
B) human capital
C) money
D) entrepreneurship
Answer: D
Skill: Recognition
Status: Old
27) Which factor of production earns most income in the United States?
A) capital
B) labor
C) money
D) entrepreneurship
Answer: B
Skill: Recognition
Status: Old
28) Which of the following best defines capital as a factor of production?

A) the gifts of nature that businesses use to produce goods and services
B) the knowledge and skills that people obtain from education and use in production of
goods and services
C) financial assets used by businesses
D) instruments, machines, and buildings used in production
Answer: D
Topic: Capital Stock
Skill: Conceptual
Status: Old
19
29) In economics, the term "land" means
A) only land that is used in agricultural production.
B) land, mineral resources, and nature's other bounties.
C) land that is devoted to economic pursuits.
D) land used for agricultural and urban purposes.
Answer: B
Topic: Land
Skill: Recognition
Status: Old
30) A natural resource, such as fishing territories, is considered an example of

A) both land and labor.
B) land, labor, capital and entrepreneurship.
C) land only.
D) only capital.
Answer: C
Topic: Land
Skill: Recognition
Status: Old
31) The "gifts of nature" are included as part of which factor of production?
A) labor
B) land
C) capital
D) entrepreneurship
Answer: B
Topic: Land
Skill: Conceptual
Status: Old
32) Copper falls into which factor of production category?

A) land
B) labor
C) capital
D) entrepreneurship
Answer: A
Topic: Land
Skill: Conceptual
Status: Old
20
33) Overtime worked by a JCPenney associate is considered ________ and earns ________.
A) labor; wages
B) entrepreneurship; profit
C) human capital; interest
D) labor; profit
Answer: A
Topic: Labor
Skill: Conceptual
Status: Old
34) The term human capital refers to

A) labor resources used to make capital equipment.
B) buildings and machinery.
C) people's knowledge and skill.
D) entrepreneurship and risk-taking.
Answer: C
Topic: Human Capital
Skill: Recognition
Status: Old
35) Human capital is

A) all capital owned by individuals, but not by corporations or governments.
B) all capital owned by individuals or corporations, but not by governments.
C) machinery that meets or exceeds federal safety standards for use by humans.
D) the skill and knowledge of workers.
Answer: D
Skill: Recognition
Status: Old
36) Joy is training to become a chef. The skills she is obtaining from her training and
education will increase Joy's
A) human capital.
B) physical capital.
D) None of the above answers are correct.
Answer: A
Skill: Conceptual
Status: Old
21
37) Which of the following is NOT an investment in human capital?
A) A business student takes a seminar in using a laptop computer.
B) A student purchases a laptop computer.
C) A computer science student learns how to repair a laptop computer.
D) A computer science student takes a course on programming a laptop computer.
Answer: B
Skill: Conceptual
Status: Old
38) Samantha goes to college to become an engineer. This is an example of an

A) investment in physical capital.
B) investment in human capital.
C) increase in entrepreneurship.
D) increase in labor.
Answer: B
Skill: Conceptual
Status: Old
39) In economics, the term "capital" refers to

A) the money in one's pocket.
B) buildings and equipment.
C) mineral resources.
D) consumer goods.
Answer: B
Topic: Capital
Skill: Recognition
Status: Old
40) Human resources that perform the functions of organizing, managing, and assembling
the other resources are called
A) physical capital.
B) venture capital.
D) productive capital.
Answer: C
Topic: Entrepreneurship
Skill: Recognition
Status: Old
22
41) The economic resource that organizes the use of other economic resources is called
A) labor.
B) capital.
D) land.
Answer: C
Skill: Recognition
Status: Old
42) Entrepreneurs do all of the following EXCEPT

A) organize labor, land, and capital.
B) come up with new ideas about what and how to produce.
C) bear risk from business decisions.
D) own all the other resources used in the production process.
Answer: D
Skill: Recognition
Status: Old
43) Entrepreneurs directly do all of the following EXCEPT

A) create new ideas about what and how to produce.
B) make business decisions.
C) face risks that arise from making business decisions.
D) decide for whom goods and services are produced.
Answer: D
Skill: Recognition
Status: Old
44) Differences in income are most directly related to which of the following economic
question?
A) What goods and services are produced?
B) In what quantities are various goods and services produced?
C) How are goods and services produced?
D) Who consumes the goods and services that are produced?
Answer: D
Skill: Conceptual
Status: Old
23
45) The fact that some people can afford to live in beautiful homes while others are
homeless, is most directly an example of an economy facing the ________ part of one of the
two big economic questions.
A) "for whom"
B) "when"
C) "how"
D) "why"
Answer: A
Skill: Conceptual
Status: Old
46) The fact that a rock star earns $5 million a year while a teacher earns $45,000 annually
is most directly an example of an economy answering the ________ part of one of the two big
economic questions.
A) "when"
B) "for whom"
C) "how"
D) "why"
Answer: B
Skill: Conceptual
Status: Revised
47) One economist says that raising taxes on gas would be in the social interest. What does
this economist mean?
A) Higher taxes on gas would benefit society as a whole.
B) Raising taxes on gas would benefit most of the people.
C) Higher taxes on gas would benefit everyone.
D) Both answers A and C are correct.
Answer: A
Topic: Social Interest
Skill: Conceptual
Status: Old
48) An outcome is considered efficient if

A) it is not possible to make someone better off without making anyone else worse off.
B) it is the best available choice for an individual.
C) it results in fair shares for everyone involved.
D) it is possible to make someone better off without making anyone else worse off.
Answer: A
Topic: Self-Interest and Social Interest
Skill: Definition
Status: Old
24
49) Suppose Company A's profits increase by $10 million and nobody is made worse off.
The CEO of Company A keeps all $10 million for herself. This situation
A) is definitely efficient.
B) is definitely not in the self-interest of Company A.
C) is definitely not in the social interest.
D) is definitely fair.
Answer: A
Skill: Conceptual
Status: Old
AACSB: Analytical thinking
50) The Occupy Wall Street movement advocates

A) a shift away from market capitalism.
B) a shift towards more market capitalism.
C) centrally planned socialism.
D) following the teachings of Adam Smith.
Answer: A
Topic: At Issue: The Protest Against Market Capitalism
Skill: Conceptual
Status: Old
51) An economic system in which the government decides what, how, and for whom to
produce, directs workers to jobs, and owns all the land and capital is
A) centrally planned socialism.
B) market capitalism.
C) mixed economy.
D) supported by economists as the best system available.
Answer: A
Skill: Definition
Status: Old
25
52) According to Adam Smith
A) government intervention in markets is not desirable because an invisible hand leads
decisions made in pursuit of self-interest to unintentionally promote the social interest.
B) politicians are well-equipped to regulate corporations and intervene in markets to
improve market outcomes.
C) when big corporations pursue their self-interest of maximum profit, they will inevitably
conflict with social interest.
D) in a market transaction buyers can either get what they want for less than they would be
willing to pay or sellers can earn a profit, but both buyers and sellers can't gain
simultaneously.
Answer: A
Skill: Conceptual
Status: Old
53) The 2010 Patient Protection and Affordable Care Act (Obamacare) contains a provision
that may require individuals to either purchase private health insurance or pay a tax. This
is an example of
A) a mixed economy.
B) market capitalism.
C) centrally planned socialism.
D) the invisible hand.
Answer: A
Skill: Conceptual
Status: Old
54) According to economists

A) market capitalism is the best system available and some government intervention and
regulation can either help or harm the social interest.
B) market capitalism is the best system available and any government intervention and
regulation will inevitably harm the social interest.
C) centrally planned socialism is the best system available since governments generally
make decisions that are in social interest.
D) centrally planned socialism and pure market capitalism are equally capable of
promoting social interest, but a mixed economy is an undesirable compromise between the
two that will harm social interest.
Answer: A
Skill: Conceptual
Status: Old
26
55) Which of the following is NOT part of the first big economic question?
A) What goods and services are produced?
B) How are goods and services produced?
C) For whom are goods and services produced?
D) Why do incentives affect only marginal costs?
Answer: D
Topic: Two Big Economic Questions
Skill: Analytical
Status: Old
3 The Economic Way of Thinking

1) In economics we learn that
A) tradeoffs allow us to have more of everything we value.
B) tradeoffs allow us to avoid the problem of opportunity cost.
C) opportunity costs are all of the possible alternatives given up when we make a choice.
Answer: D
Topic: Tradeoff
Skill: Conceptual
Status: Old
2) Because we face scarcity, every choice involves

A) money.
B) the question "what."
C) giving up something for nothing.
D) an opportunity cost.
Answer: D
Topic: Tradeoff and Opportunity Cost
Skill: Conceptual
Status: Old
3) The term used to emphasize that making choices in the face of scarcity involves a cost is
A) substitution cost.
B) opportunity cost.
C) utility cost.
D) accounting cost.
Answer: B
Topic: Opportunity Cost
Skill: Recognition
Status: Old
27
4) The loss of the highest-valued alternative defines the concept of
A) marginal benefit.
B) scarcity.
D) opportunity cost.
Answer: D
Skill: Recognition
Status: Old
5) Opportunity cost means the

A) accounting cost minus the marginal cost.
B) highest-valued alternative forgone.
C) accounting cost minus the marginal benefit.
D) monetary costs of an activity.
Answer: B
Skill: Recognition
Status: Old
6) The opportunity cost of any action is

A) all the possible alternatives given up.
B) the highest-valued alternative given up.
C) the benefit from the action minus the cost of the action.
D) the dollars the action cost.
Answer: B
Skill: Recognition
Status: Old
7) The opportunity cost of something you decide to get is

A) all the possible alternatives that you give up to get it.
B) the highest valued alternative you give up to get it.
C) the value of the item minus the cost you paid for it.
D) the amount of money you pay to get it.
Answer: B
Skill: Recognition
Status: Old
28
8) Opportunity cost is best defined as
A) how much money is paid for something.
B) how much money is paid for something, taking inflation into account.
C) the highest-valued alternative that is given up to get something.
D) all the alternatives that are given up to get something.
Answer: C
Skill: Recognition
Status: Old
9) Which of the following statements are CORRECT?

I. The "highest-valued alternative given up to get something" is the opportunity cost.
II. Wealthy economies don't experience opportunity costs.
III. Scarcity creates opportunity costs.
A) I only
B) I and II
C) I and III
D) I, II, and III
Answer: C
Skill: Recognition
Status: Old
10) Opportunity cost is defined as the

A) total value of all the alternatives given up.
B) highest-valued alternative given up.
C) cost of not doing all of the things you would like to do.
D) lowest-valued alternative given up.
Answer: B
Skill: Recognition
Status: Old
11) You have the choice of going on vacation to Florida for one week, staying at work for
the week, or spending the week doing fix-up projects around your house. If you decide to
go to Florida, the opportunity cost of the trip is
A) working AND doing fix-up projects.
B) working OR doing fix-up projects, depending on which you would have done otherwise.
C) working, because you would be giving up income.
D) nothing because you will enjoy the trip to Florida.
Answer: B
Skill: Conceptual
Status: Old
12) The night before a midterm exam, you decide to go to the movies instead of studying
for the exam. You score 60 percent on your exam. If you had studied the night before, you'd
have scored 70 percent. What was the opportunity cost of your evening at the movies?
A) 10 percent off your grade
B) 60 percent
C) 70 percent
D) zero
29
Answer: A
Skill: Conceptual
Status: Old
13) On Saturday morning, you rank your choices for activities in the following order: go to
the library, work out at the gym, have breakfast with friends, and sleep late. Suppose you
decide to go to the library. Your opportunity cost is
A) working out at the gym, having breakfast with friends, and sleeping late.
B) working out at the gym.
C) zero because you do not have to pay money to use the library.
D) not clear because not enough information is given.
Answer: B
Skill: Conceptual
Status: Old
14) Fred and Ann are both given free tickets to see a movie. Both decide to see the same
movie. We know that
A) both bear an opportunity cost of seeing the movie because they could have done other
things instead of seeing the movie.
B) both bear the same opportunity cost of seeing the movie because they are doing the
same thing.
C) it is not possible to calculate the opportunity cost of seeing the movie because the
tickets were free.
D) the opportunity cost of seeing the movie is zero because the tickets were free.
Answer: A
Skill: Conceptual
Status: Old
30
15) You have the choice of going to Hawaii for a week, staying at work for the week, or
spending the week skiing. If you decide to go to Hawaii, the opportunity cost is
A) the value of working and skiing.
B) the value of working or skiing, depending on which you would have done rather than go
to Hawaii.
C) working, because you would be giving up a week's pay.
D) none of the above if you enjoy the time spent in Hawaii.
Answer: B
Skill: Conceptual
Status: Old
16) Today, Julie attended her 12:30 Economics class. If she hadn't gone to class, Julie
would have gone out to lunch with friends. She had other options; she could have worked
or slept in. Julie's opportunity cost of going to class is the
A) income from working she gave up.
B) lunch she gave up.
C) sleep she gave up.
D) income from working, lunch, and sleep she gave up.
Answer: B
Skill: Conceptual
Status: Old
17) Joe likes to sleep late in the mornings and play tennis in the afternoons. The
opportunity cost of Joe attending his morning class for one hour is
A) an hour of tennis given up.
B) an hour of sleep given up.
C) both the tennis given up and the sleep given up.
D) nothing because he is paying for his class.
Answer: B
Skill: Conceptual
Status: Old
31
18) John has two hours of free time this evening. He ranked his alternatives, first go to a
concert, second go to a movie, third study for an economics exam, and fourth answer his e-
mail. What is the opportunity cost of attending the concert for John?
A) attending a movie
B) studying for an economics exam
C) answering his e-mail
D) attending a movie, studying for an economics exam, and answering his e-mail
Answer: A
Skill: Conceptual
Status: Old
19) You decide to take a vacation and the trip costs you $2,000. While you are on vacation,
you do not go to work where you could have earned $750. In terms of dollars, the
opportunity cost of the vacation is
A) $2,000.
B) $750.
C) $2,750.
D) $1,250.
Answer: C
Skill: Conceptual
Status: Old
20) The opportunity cost of attending college includes the cost of

A) the tuition but not the job at which you would otherwise have worked.
B) the highest valued alternative to attending college.
C) the highest valued alternative to attending college plus the cost of tuition.
D) tuition, books, and the lost wages for the hours spent studying.
Answer: C
Skill: Conceptual
Status: Old
21) Misty has the option of purchasing one of three products: Brand A, Brand B, or Brand
C. Each costs ten dollars. If she decides that Brand A meets her needs best, then the
opportunity cost of this decision is
A) Brand B plus Brand C.
B) twenty dollars.
C) Brand A.
D) Brand B or Brand C, depending on which is considered the highest-value alternative
forgone.
Answer: D
Skill: Conceptual
Status: Old
22) Which of the following is NOT an example of an opportunity cost?

A) By spending Thursday night studying for an economics exam, a student was unable to
complete a homework assignment for calculus class.
B) Because David used all of his vacation time to paint his house, he was unable to visit the
Caribbean last year.
32
C) Because Mary is now being paid a higher wage, she can afford to buy a new car even
though she is moving into a bigger apartment.
D) By choosing to attend college, Jean was not able to continue working as an electrician;
as a result, she gave up more than $85,000 in earnings while she was in college.
Answer: C
Skill: Conceptual
Status: Old
23) From 8 to 11 p.m., Sam can either attend a basketball game, a hockey match or the
symphony. Suppose that Sam decides to attend the hockey match and thinks to herself that
if she did not go to the match she would go to the symphony. Then the opportunity cost of
attending the hockey match is
A) going to the symphony and the basketball game.
B) going to the symphony.
C) going to the basketball game.
D) three hours of time.
Answer: B
Skill: Conceptual
Status: Old
24) After you graduate, you have decided to accept a position working at the Bureau of
Labor Statistics for $45,000.00 a year. The two other offers you received were working for
Wal-Mart for $38,000 and working for Ernst and Young consulting for $42,000. Of these
two offers, you would have preferred the job at Ernst and Young. What is the opportunity
cost of accepting the position at the Bureau of Labor Statistics?
A) the $45,000 you are paid for working at the Bureau of Labor Statistics
B) the $42,000 you would have been paid working for Ernst and Young
C) the $38,000 you would have been paid working for Wal-Mart
D) the $42,000 you would have been paid working for Ernst and Young and the $38,000
you would have been paid working for Wal-Mart
Answer: B
Skill: Analytical
Status: Old
33
25) Bill Bonecrusher graduates from college with a choice of playing professional football
at $2 million a year or coaching for $50,000 a year. He decides to play football, but eight
years later, though he could continue to play football at $2 million a year, he quits football
to make movies for $3 million a year. His opportunity cost of playing football at graduation
was ________ and eight years later the opportunity cost of making movies was ________.
A) $50,000; $2 million
B) $2 million; $2 million
C) $2 million; $3 million
D) $50,000; $50,000
Answer: A
Skill: Analytical
Status: Old
26) During the summer you have made the decision to attend summer school, which
prevents you from working at your usual summer job in which you normally earn $6,000 for
the summer. Your tuition cost is $3,000 and books and supplies cost $1,300. In terms of
dollars, the opportunity cost of attending summer school is
A) $10,300.
B) $6,000.
C) $4,300.
D) $3,300.
Answer: A
Skill: Analytical
Status: Old
27) The term "opportunity cost" points out that

A) there may be such a thing as a free lunch.
B) not all individuals will make the most of life's opportunities because some will fail to
achieve their goals.
C) executives do not always recognize opportunities for profit as quickly as they should.
D) any decision regarding the use of a resource involves a costly choice.
Answer: D
Skill: Conceptual
Status: Old
34
28) When the government chooses to use resources to build a dam, these sources are no
longer available to build a highway. This choice illustrates the concept of
A) a market mechanism.
B) macroeconomics.
D) a fallacy of composition.
Answer: C
Skill: Analytical
Status: Old
29) Jill, an economics student, has already spent 5 hours cleaning her room. In deciding
whether or not to continue cleaning for another hour, she applies the economic principle of
A) scarcity.
B) ceteris paribus.
C) choosing at the margin.
D) productivity.
Answer: C
Topic: Choices at the Margin
Skill: Conceptual
Status: Old
30) Marginal benefit is the benefit

A) that your activity provides to someone else.
B) of an activity that exceeds its cost.
C) that arises from the secondary effects of an activity.
D) that arises from an increase in an activity.
Answer: D
Topic: Marginal Benefit and Marginal Cost
Skill: Recognition
Status: Old
31) A benefit from an increase in activity is called the

A) marginal benefit.
B) economic benefit.
C) total benefit.
D) opportunity benefit.
Answer: A
Topic: Marginal Benefit
Skill: Recognition
Status: Old
35
32) The marginal benefit is the
A) additional gain from one more unit of an activity.
B) additional cost from one more unit of an activity.
C) loss of the highest-valued alternative.
D) additional gain from one more unit of an activity minus the additional cost from one
more unit of the activity.
Answer: A
Skill: Recognition
Status: Old
33) In terms of dollars, the marginal benefit of working five days a week instead of four
days a week is
A) the wages received for the fifth day of work.
B) the wages received for 5 days of work.
C) the wages received for 4 days of work.
Answer: A
Skill: Recognition
Status: Old
34) Your employer has asked you to start working overtime and has offered to pay $18 per
hour for every hour you work beyond forty hours a week. The wage rate for each of the first
forty hours will continue to be the usual $15 per hour. In terms of dollars, what is the
marginal benefit of working each hour of overtime?
A) zero
B) $3.00
C) $15.00
D) $18.00
Answer: D
Skill: Analytical
Status: Old
35) A student is studying for an exam 2 hours a day and is debating whether to study an
extra hour. The student's marginal benefit
A) depends on the grade the student earns on the exam.
B) is the benefit the student receives from studying all 3 hours.
C) is the benefit the student receives from studying the extra hour.
D) is greater than the student's marginal cost.
Answer: C
Skill: Analytical
Status: Old
36) A student athlete is deciding whether to work out for an extra hour. Her marginal
benefit from another hour of exercise
A) is the benefit she gets from all the hours she's worked out all week.
B) is the benefit she receives from exercising the additional hour.
C) is less than the marginal cost of the additional hour.
D) depends on the cost of the workout.
36
Answer: B
Skill: Analytical
Status: Old
37) Suppose that you are spending two hours a day studying economics, and your grade is
85 percent. You want a higher grade and decide to study for an extra hour a day. As a
result, your grade rises to 90 percent. Your marginal benefit is the
A) 5 point increase in your grade minus the opportunity cost to you of spending the hour
studying.
B) extra hour per day you spend on studying.
C) 5 point increase in your grade.
D) three hours per day you spend on studying.
Answer: C
Skill: Conceptual
Status: Old
38) Marginal cost is the cost

A) that your activity imposes on someone else.
B) that arises from an increase in an activity.
C) of an activity that exceeds its benefit.
D) that arises from the secondary effects of an activity.
Answer: B
Topic: Marginal Cost
Skill: Recognition
Status: Old
39) A cost due to an increase in activity is called

A) an incentive loss.
B) a marginal cost.
C) a negative marginal benefit.
D) the total cost.
Answer: B
Skill: Recognition
Status: Old
40) Marginal cost is the

A) cost of an increase in an activity.
B) total cost of an activity.
C) cost of an activity minus the benefits of the activity.
D) cost of all forgone alternatives.
Answer: A
Skill: Recognition
Status: Old
41) Laura is a manager for HP. When Laura must decide whether to produce a few
additional printers, she is choosing at the margin when she compares
A) the total revenue from sales of printers to the total cost of producing all the printers.
37
B) the extra revenue from selling a few additional printers to the extra costs of producing
the printers.
C) the extra revenue from selling a few additional printers to the average cost of producing
the additional printers.
D) HP's printers to printers from competing companies, such as Lexmark.
Answer: B
Topic: Marginal Analysis
Skill: Conceptual
Status: Old
42) A lawn service is deciding whether to add an additional employee to its summer crew.
The marginal cost of hiring this worker depends on the
A) total amount paid to ONLY the new worker.
B) total amount paid to all PREVIOUSLY hired workers.
C) the total amount paid to ALL the workers, both the new one and the previously hired
workers.
D) the additional revenue created by having an additional worker minus the cost of hiring
the worker.
Answer: A
Skill: Analytical
Status: Old
43) If the marginal cost of an activity exceeds the marginal benefit, then
A) the activity will occur BECAUSE the high marginal cost means it must be highly valued.
B) the forgone alternatives' costs must be increased.
C) an alternative action will be selected.
D) the person must concentrate on the activity's total benefits.
Answer: C
Skill: Conceptual
Status: Old
38
44) A store remains open from 8 a.m. to 4 p.m. each weekday. The store owner is deciding
whether to stay open an extra hour each evening. The owner's marginal benefit
A) is the benefit the owner receives from staying open from 8 a.m. to 5 p.m.
B) depends on the revenues the owner makes during the day.
C) must be greater than or equal to the owner's marginal cost if the owner decides to stay
open.
D) is the benefit the owner receives from staying open from 8 a.m. to 6 p.m.
Answer: C
Skill: Analytical
Status: Old
45) Which of the following creates an incentive to increase the amount of an activity?
A) an increase in the marginal cost of the activity and a decrease in the marginal benefit of
the activity
B) a decrease in the marginal cost of the activity and an increase in the marginal benefit of
the activity
C) constant marginal cost and constant marginal benefit of the activity
D) None of the above create an incentive to increase the amount of an activity.
Answer: B
Topic: Incentives, Marginal Cost and Marginal Benefit
Skill: Conceptual
Status: Old
46) Suppose that the government of New York state promises to decrease taxes to a firm if
it decides to stay in New York instead of moving to another state. This policy on the part of
the state constitutes ________, to make the ________ of the firm remaining in New York.
A) an incentive; marginal benefit exceed the marginal cost
B) an incentive; marginal cost exceed the marginal benefit
C) a command; marginal benefit exceed the marginal cost
D) a command; marginal cost exceed the marginal benefit
Answer: A
Skill: Conceptual
Status: Old
47) Jed had an exam score of 50 percentage points. There is an extra credit assignment
that Jed can complete that will raise his exam score by 20 percentage points. Jed has
determined that the extra credit assignment will take 10 hours of his time. Jed will
complete the assignment because he values the
A) 20 percentage points more than the 10 hours of his time.
B) 10 hours of his time more than the 20 percentage points.
C) 70 percentage points more than the 10 hours of his time.
D) higher score.
Answer: A
Skill: Analytical
Status: Old
48) From 8 P.M. to 10 P.M., Susan can attend a movie, study, or talk with friends. Suppose
that Susan decides to go to the movie but thinks that, if she hadn't, she would otherwise
have talked with friends. The opportunity cost of attending the movie is
39
A) talking with friends AND studying.
B) studying.
C) talking with friends.
D) two hours of time.
Answer: C
Skill: Conceptual
Status: Old
49) When the government hires people to serve in the army, these people are no longer
available to do other work. This choice illustrates the concept of
A) an incentive.
B) a social interest/private interest conflict.
D) marginal benefit.
Answer: C
Skill: Conceptual
Status: Old
50) When the government chooses to spend the tax dollars that it collects on homeland
security, its choice
A) involves a tradeoff of other goods and services such as education for more homeland
security.
B) illustrates that scarcity does not always exist.
C) involves no tradeoff because the defense is necessary.
D) primarily affects who gets the goods and services produced.
Answer: A
Topic: Tradeoff
Skill: Conceptual
Status: Old
51) Making a choice at the margin means

A) letting someone else choose for you.
B) waiting until the last minute to make a choice.
C) deciding to do a little bit more or a little bit less of an activity.
D) making a choice by comparing the total benefit and the total cost.
Answer: C
Skill: Recognition
Status: Old
52) Suppose that for the past two months, you have studied economics one hour a day. You
now decide to study economics two hours a day. For the past two months
A) your marginal cost of studying economics for an hour must have exceeded its marginal
benefit.
B) the marginal cost of studying economics must have fallen.
C) your marginal benefit from studying economics an hour must have been greater than its
marginal cost.
D) the opportunity cost of studying economics must have risen.
Answer: C
40
Skill: Recognition
Status: Old
4 Economics as Social Science and Policy Tool

1) In economics, positive statements are about
A) the way things ought to be.
B) the way things are.
C) macroeconomics, not microeconomics.
D) microeconomics, not macroeconomics.
Answer: B
Topic: Positive and Normative
Skill: Recognition
Status: Old
2) A positive statement is
A) about what ought to be.
B) about what is.
C) the result of a model's normative assumptions.
D) valid only in the context of a model with simple assumptions.
Answer: B
Skill: Recognition
Status: Old
3) A positive statement is
B) about what is.
C) always true.
D) one that does not use marginal concepts.
Answer: B
Skill: Recognition
Status: Old
41
4) Which of the following are TRUE regarding "positive" statements?
I. They describe what "ought to be."
II. They describe what is believed about how the world appears.
III. They can be tested as to their accuracy.
A) I and II
B) II and III
C) I and III
D) I, II and III
Answer: B
Skill: Recognition
Status: Old
5) Positive and normative statements differ in that

A) positive statements can be tested, whereas normative statements cannot.
B) normative statements can be tested, whereas positive statements cannot.
C) normative statements depict "what is" and positive statements depict "what ought to
be."
D) normative statements never use the word "should."
Answer: A
Skill: Recognition
Status: Old
6) Positive economic statements

A) prescribe what should be.
B) are related only to microeconomics.
C) can be tested against the facts.
D) cannot be tested against the facts.
Answer: C
Skill: Recognition
Status: Old
7) Which of the following is a positive statement?

A) An unemployment rate of 9 percent is a national disgrace.
B) Unemployment is a more important problem than inflation.
C) When the national unemployment rate is 9 percent, the unemployment rate for inner-
city youth is often close to 40 percent.
D) Unemployment and inflation are equally important problems.
Answer: C
Skill: Conceptual
Status: Old

A) The United States should fight inflation even if it raises unemployment.
B) What to do with Social Security is the most important economic issue today.
C) A 5 percent increase in income leads to a 3 percent increase in the consumption of
orange juice.
D) Because they decrease productivity, labor unions should be eliminated.
Answer: C
42
Skill: Conceptual
Status: Old

A) People buy more of a good or service when its price falls.
B) The distribution of income is fair.
C) The government ought to provide health care to everyone.
D) Corporations should be more socially responsible.
Answer: A
Skill: Conceptual
Status: Old
10) Which of the following is an example of a positive statement?

A) Government should not redistribute income.
B) Business firms ought to contribute more to charities.
C) Households are the primary source of saving.
D) The foreign sector should be more tightly controlled.
Answer: C
Skill: Conceptual
Status: Old
11) Which of the following is an example of a positive statement?

A) We should cut back on our use of carbon-based fuels such as coal and oil.
B) Increasing the minimum wage results in more unemployment.
C) Every American should have equal access to health care.
D) The Federal Reserve ought to cut the interest rate.
Answer: B
Skill: Conceptual
Status: Old
43
A) Taxes should be lower because then people get to keep more of what they earn.
B) My economics class should last for two terms because it is my favorite class.
C) A 10 percent increase in income leads to a 4 percent increase in the consumption of
beef.
D) Given their negative impact on productivity, the government should eliminate labor
unions.
Answer: C
Skill: Conceptual
Status: Old

A) Our planet is warming because of an increased carbon dioxide buildup in the
atmosphere.
B) A minimum wage of $7.50 per hour is a shame for a rich country like the United States.
C) Both these statements are positive.
D) Neither of these statements is positive.
Answer: A
Skill: Conceptual
Status: Old

A) The government must lower the price of a pizza so that more students can afford to buy
it.
B) The best level of taxation is zero percent because then people get to keep everything
they earn.
C) My economics class should last for two terms because it is my favorite class.
D) An increase in tuition means fewer students will apply to college.
Answer: D
Skill: Conceptual
Status: Old

A) Low rents decrease the amount of housing landlords make available for rent.
B) Low rents are good because they make apartments more affordable.
C) Housing costs too much.
D) Owners of apartment buildings ought to be free to charge whatever rent they want.
Answer: A
Skill: Conceptual
Status: Old
44
16) When Al makes the statement, "The cost of living has increased 10 percent over the
past 10 years," he is
A) making a normative statement.
B) making a positive statement.
C) testing an economic model.
D) facing the standard of living tradeoff.
Answer: B
Skill: Conceptual
Status: Old

A) State lotteries are good methods to use for raising revenues.
B) Increased prison sentences are the best way to reduce the crime rate.
C) An increase in gas prices leads people to car pool more.
D) Inflation is a more serious problem than is deflation.
Answer: C
Skill: Conceptual
Status: Old
18) The statement "Managers with a college education earn $18 an hour while ski
instructors who did not complete college earn $10" is
A) a political statement.
B) a positive statement.
C) a normative statement.
D) an ethical statement.
Answer: B
Skill: Conceptual
Status: Old
19) The statement "An increase in the price of gasoline will lead to a decrease in the
amount purchased" is
D) a scientific statement.
Answer: B
Skill: Conceptual
Status: Old
45
20) The statement "The unemployment rate for teens is higher than that for adults" is
D) an ethical statement.
Answer: B
Skill: Conceptual
Status: Old
21) Which of the following is NOT a normative statement?

A) People buy more of a good or service when its price falls.
B) The distribution of income is fair.
C) The government ought to provide health care to everyone.
D) Corporations should be more socially responsible.
Answer: A
Skill: Conceptual
Status: Old
22) A normative statement concerns

A) what is provable.
B) what is correct.
C) what is incorrect.
D) a value judgment.
Answer: D
Skill: Recognition
Status: Old
23) Normative economic statements

A) describe what ought to be.
B) describe what is rather than what ought to be.
C) describe the process of economic policy-making.
D) deal with economic hypotheses that are not well-established laws.
Answer: A
Skill: Recognition
Status: Old
46
24) The statement that "peach ice cream is better than chocolate ice cream"
A) can be tested using the scientific approach.
B) is a normative statement.
C) is a positive statement.
D) provides a basis for predicting which type of ice cream will exhibit the most sales.
Answer: B
Skill: Conceptual
Status: Old
25) The statement "Unemployment should be below 6 percent" is

A) a positive statement.
B) a normative statement.
C) a prediction.
D) an assumption.
Answer: B
Skill: Conceptual
Status: Old
26) Statements about what ought to be are called

A) positive statements.
B) normative statements.
C) assumptions.
D) implications.
Answer: B
Skill: Recognition
Status: Old
27) Normative statements are statements about

A) prices.
B) quantities.
C) what is.
D) what ought to be.
Answer: D
Skill: Recognition
Status: Old
47
28) A normative statement is
B) about what is.
C) always true.
D) one that does not use marginal concepts.
Answer: A
Skill: Recognition
Status: Old
29) In economics, normative statements are about

A) the way things ought to be.
B) the way things are.
C) marginal benefits, not marginal costs.
D) marginal costs, not marginal benefits.
Answer: A
Skill: Recognition
Status: Old
30) Which of the following is a normative statement?

A) The price of candy bars is $1.25 each.
B) Candy bars are more expensive than newspapers.
C) You should eat less candy.
D) Popcorn and candy are sold in movie theaters.
Answer: C
Skill: Conceptual
Status: Old

A) The unemployment rate is too high.
B) Forty percent of the public believes that the unemployment rate is too high.
C) The unemployment rate rose last month.
D) None of the above are normative statements.
Answer: A
Skill: Conceptual
Status: Old
48
A) The United States has a comparative advantage compared to the European Union in the
production of wheat.
B) The main reason why the United States has a trade deficit with China is because China's
trade practices are unfair.
C) Both these statements are normative.
D) Neither of these statements is normative.
Answer: B
Skill: Conceptual
Status: Old
33) "Government should act to reduce poverty levels."

A) This statement is a normative statement.
B) This statement is a positive statement.
C) This statement is an example of the fallacy of composition.
D) This statement is an example of the post hoc fallacy.
Answer: A
Skill: Conceptual
Status: Old
34) When Susan makes the statement, "The government should spend less money to take
care of national parks," she is
A) making a normative statement.
B) making a positive statement.
C) testing an economic model.
D) not dealing with scarcity.
Answer: A
Skill: Conceptual
Status: Old
35) "The rich should pay higher income tax rates than the poor" is an example of a
A) normative statement.
B) positive statement.
C) descriptive statement.
D) theoretical statement.
Answer: A
Skill: Conceptual
Status: Old
49
A) Studying more hours leads to an increase in your GPA.
B) An increase in tax rates means people work fewer hours.
C) Taking extra vitamin C prevents catching a cold.
D) States should require all motorcycle riders to wear helmets to reduce the number of
riders killed.
Answer: D
Skill: Conceptual
Status: Old

A) Low rents will restrict the supply of housing.
B) Low rents are good because they make apartments more affordable.
C) Housing costs are rising.
D) Owners of apartment buildings are free to charge whatever rent they want.
Answer: B
Skill: Conceptual
Status: Old

A) Next year's inflation rate will be under 4 percent.
B) Consumers will buy more gasoline over the Christmas holiday even if the price of gas is
10 cents higher than it was during the Thanksgiving holiday.
C) The government's cuts in welfare spending impose an unfair hardship on the poor.
D) The current butter surplus is the result of federal policies.
Answer: C
Skill: Conceptual
Status: Old
39) Economic models

A) are essentially different from those used in other sciences.
B) always use graphs.
C) simplify reality.
D) include all relevant facts.
Answer: C
Topic: Model Building
Skill: Recognition
Status: Old
50
40) A good economic model
A) describes every aspect of the economic world, with no exception.
B) includes all those features of the world that can be described numerically.
C) includes only those features of the world that are needed for the purpose at hand.
D) should not include more than two variables.
Answer: C
Topic: Model Building
Skill: Recognition
Status: Old
41) An economic model is

A) a generalization that summarizes all the normative assumptions we make about a
particular issue.
B) a description of some aspect of the economic world that includes only those features of
the world that are needed for the purpose at hand.
C) a statement that describes how the world should be.
D) a collection of facts that describe the real world.
Answer: B
Topic: Models
Skill: Recognition
Status: Old
42) A normative statement is

B) about what is.
C) always true.
D) one that is based on an economic experiment.
Answer: A
Skill: Recognition
Status: Old

A) The government must provide health insurance so that the poor can obtain decent
medical treatment.
B) The government should spend more on education.
C) My favorite dinner is pizza and soda.
D) An increase in the price of pizza will lead fewer students to buy pizza.
Answer: D
Skill: Recognition
Status: Old
51
44) An economic model includes
A) only normative statements.
B) no use of marginal concepts.
C) all known details in order to increase its accuracy.
D) only details considered essential.
Answer: D
Topic: Economic Model
Skill: Recognition
Status: Old
45) The statement that ________ is a positive statement.

A) more students should study economics
B) the price of gasoline is too high
C) too many people in the United States have no health care insurance
D) the price of sugar in the United States is higher than the price in Australia
Answer: D
Skill: Recognition
Status: Old
46) Mark Zuckerberg believes everyone in the world should have Internet access.
A) This is a positive statement and is not in the social interest if the marginal benefit of
Internet access exceeds the marginal cost.
B) This is a positive statement and is not in the social interest if the marginal cost of
Internet access exceeds the marginal benefit.
C) This is a normative statement and is not in the social interest if the marginal benefit of
Internet access exceeds the marginal cost.
D) This is a normative statement and is not in the social interest if the marginal cost of
Internet access exceeds the marginal benefit.
Answer: D
Skill: Recognition
Status: Old
52
5 Economists in the Economy
1) Most people with jobs in economics are
A) market research analysts.
B) financial analysts.
C) budget analysts.
D) economists.
Answer: A
Topic: Jobs in Economics
Skill: Recognition
Status: New
2) The job that involves studying trends and fluctuations in interest rates and stock and
bond prices and trying to predict the cost of borrowing and the returns on investments is a
A) market research analyst.
B) financial analyst.
C) budget analyst.
D) government analyst.
Answer: B
Skill: Recognition
Status: New
3) Market research analysts

A) study trends and fluctuations in interest rates and stock and bond prices and try to
predict the cost of borrowing and the returns on investments.
B) work with data on buying patterns and try to forecast the likely success of a product and
the price that buyers are willing to pay for it.
C) keep track of an organization's cash flow and prepare budget plans that incorporate
predictions of future
cash flows.
D) are anticipated to experience the slowest job growth for economics jobs over the next
decade.
Answer: B
Skill: Recognition
Status: New
53
4) Which of the following college majors experience a higher mid-career salary than
economics?
A) Finance
B) Business
C) Statistics
D) Petroleum Engineering
Answer: D
Skill: Recognition
Status: New
6 News Based Questions

1) Janet Yellen, Chair of the Federal Reserve, must choose whether tomorrow she meets
with the Secretary of the Treasury or with the Congress regarding the financial crisis. This
choice reflects the
A) fact that Ms. Yellen faces scarcity.
B) concept of entrepreneurship.
C) fact that Ms. Yellen responds to incentives.
D) use of capital.
Answer: A
Topic: Scarcity
Skill: Conceptual
Status: Old
2) When the president of the Bank of America addresses Congress regarding lending
standards in that industry, he is discussing
A) a macroeconomic topic.
B) a microeconomic topic.
C) incentives.
D) the big tradeoff.
Answer: B
Skill: Conceptual
Status: Old
3) When Janet Yellen, Chair of the Federal Reserve, addresses Congress regarding the
United States role in the world economy, she is discussing
A) a macroeconomic topic.
B) a microeconomic topic.
C) scarcity.
D) incentives.
Answer: A
Skill: Conceptual
Status: Old
4) Dell Computers decides to produce PCs and sell them directly over the Internet and via
Best Buy. This is an example of
A) incentives.
B) a microeconomic decision.
C) a macroeconomic decision.
54
D) scarcity.
Answer: B
Skill: Conceptual
Status: Old
5) Consider the following events:

I. Samsung hires associates to market their HDTV sets to Best Buy.
II. The Dallas Cowboys build a new football stadium.
III. eBay fires 10 percent of its workforce.
IV. Ten million stocks were traded on the New York Stock Exchange in one day.
V. Pennsylvania builds a new state park.
Which of the events describe use of factors of production?

A) I, II, III, and V
B) II, IV, and V
C) I and III only
D) IV only
Answer: A
Skill: Conceptual
Status: Old
6) Panasonic sends its HDTV salespeople to training sessions. This is an example of

A) a macroeconomic decision.
B) scarcity.
C) a firm investing in workers' human capital.
D) entrepreneurship.
Answer: C
Skill: Conceptual
Status: Old
55
7) "When OPEC increases the supply of oil to the market, the price of gasoline falls." This is
an example of
A) a normative statement.
B) the failure of opportunity cost to determine prices.
C) a positive statement.
D) a macroeconomic statement.
Answer: C
Skill: Conceptual
Status: Old
8) "As part of the financial crisis bailout plan in 2009, the Federal Reserve bought stakes in
banks. This policy will result in an increase in the inflation rate." This is an example of
B) a normative statement.
C) a microeconomic statement.
D) an economic model.
Answer: A
Skill: Conceptual
Status: Old
9) "As part of the financial crisis bailout plan in 2008, the Federal Reserve should not bail
out banks that made risky loans." This is an example of
B) the Federal Reserve taking actions that are not at the margin.
C) opportunity costs.
D) a normative statement.
Answer: D
Skill: Conceptual
Status: Old
10) "OPEC should supply more oil so that the world's economies can grow more rapidly."
This is an example of
A) a normative statement.
C) a decision at the margin.
D) OPEC overcoming scarcity.
Answer: A
Skill: Conceptual
Status: Old
56
7 Essay Questions
1) What do economists mean when they discuss "scarcity"?
Answer: Scarcity occurs whenever people's wants exceed the ability of the available
resources to meet these wants. Because people's wants are effectively infinite—it is always
possible to imagine more good things to want to have—wants will always exceed what can
be produced with the available resources, and so scarcity will always be present.
Topic: Scarcity
Skill: Recognition
Status: Old
AACSB: Written and oral communication
2) What is the relationship between wants, factors of production, scarcity, and choices?
Discuss the relationship for an individual and for a society.
Answer: A person faces scarcity whenever his or her wants exceed what he or she can
obtain using his or her resources. Because the person cannot fulfill all of his or her wants,
the person is forced to choose which wants will be satisfied and which wants will remain
unsatisfied. The same results hold true for a society. All societies face scarcity because
people's wants are essentially infinite, so that the factors of production available are not
sufficient to fulfill everyone's wants. Because of this fact, societies must make choices
about which (and whose) wants will be satisfied and which (and whose) wants will remain
unsatisfied.
Topic: Scarcity
Skill: Conceptual
Status: Old
3) Why do economists say that even very rich people face scarcity?
Answer: A person faces scarcity whenever his or her wants exceed what he or she can
obtain using his or her resources. Even very rich people want things that they cannot have.
An older rich person, for instance, might want to have all of his or her youthful energy, but
medical science cannot (yet) provide this service. Alternatively, another rich person might
enjoy life so much that he or she wants 25 hours in a day in order to have more time for
more enjoyment. But, such a want is impossible. By way of another, perhaps more realistic
example, Malcolm Forbes was the founder of Forbes magazine and was very rich. However,
he did not win every piece of art that he bid upon at auctions. Even though Mr. Forbes was
very rich, he still passed on some art when the price got so high that he thought given his
resources, the price exceeded what he was willing to pay. Mr. Forbes wanted the art, but
he was not willing to bid higher in order to win it. Mr. Forbes faced scarcity.
Topic: Scarcity
Skill: Conceptual
Status: Old
57
4) Explain why both rich and poor people experience scarcity.
Answer: Scarcity exists when people's wants exceed their ability to satisfy the wants.
People's wants are literally infinite, so just as a poor person can want more, so too can a
richer person. Therefore both rich and poor experience scarcity.
Topic: Scarcity
Skill: Conceptual
Status: Old
5) What is the difference between scarcity and poverty?

Answer: Scarcity exists when availability is less than people want. Poverty exists when
availability is less than people need. Everyone suffers scarcity; only an unfortunate
minority suffers poverty.
Topic: Scarcity
Skill: Conceptual
Status: Old
6) Define economics and describe its branches of study.

Answer: Economics is the social science that studies the choices made by individuals,
businesses, government, and entire societies as they cope with scarcity. It has two
branches, microeconomics and macroeconomics. Microeconomics is the study of the
choices made by individuals and businesses, the way they interact, and the influence that
governments exert on these choices. Macroeconomics is the study of the aggregate (total)
effects on the national economy and the global economy of the choices that individuals,
businesses, and governments make.
Skill: Recognition
Status: Old
7) What is the difference between microeconomics and macroeconomics?

Answer: Microeconomics studies the decisions of smaller economic actors, such as
individual consumers or individual firms, and how the government can affect these
decisions, say through how it regulates an industry. Macroeconomics studies the
aggregate, or economy-wide, consequences of the decisions made by individuals and firms.
Macroeconomics also studies the aggregate effects of government policies, such as the
Federal Reserve's decisions to raise or lower interest rates.
Skill: Recognition
Status: Old
58
8) What is the difference between microeconomics and macroeconomics? Give an example
of an issue each studies.
Answer: Essentially microeconomics studies individual units within the economy, such as
the choices made by individual consumers or individual firms. Macroeconomics studies the
overall or aggregate economy. Microeconomics examines the factors that affect
employment at an individual firm. Macroeconomics examines the factors that affect
economy-wide unemployment.
Skill: Conceptual
Status: Old
9) Below is a student's answer to the question "What is microeconomics?" If you were the
instructor, how would you correct the student's answer?
"Microeconomics is the study of how government influences the choices made by
individuals and businesses and of the performance of the whole national economy."
Answer: The answer is partially correct. Microeconomics is the study of the choices that
individuals and businesses make, the way these choices interact in markets, and the
influence of the government. But the performance of the national economy is the subject of
macroeconomics, not microeconomics.
Skill: Conceptual
Status: Old
10) China's population is over 1.5 billion, while the population of the United States is about
300 million. This fact means that China has much more human capital than the U.S. does.
True or false? Explain your answer.
Answer: False. Population can measure the quantity of a nation's labor resource, but the
population numbers don't tell us anything about skills that this labor force obtained from
education, on-the-job training, and work experience, which are called human capital. Thus,
the population numbers in the statement only tell us that China is likely to have more labor
than the United States, but it does not necessarily mean that it also has more human
capital.
Skill: Conceptual
Status: Old
11) Explain what entrepreneurship is and why it is considered a factor of production.

Answer: Entrepreneurship is the resource (the people) that runs businesses.
Entrepreneurs organize the other resources, land, labor, and capital. It is a factor of
production because people with the desire and talent to successfully organize a business
are needed to run businesses.
Skill: Recognition
Status: Old
59
12) An analyst on a local news channel argues that the recent corporate scandals
"demonstrated very clearly that self-interest always contradicts social interest." Do you
agree or disagree? Substantiate your answer.
Answer: You should disagree. The recent corporate scandals only show that self-interest
might contradict social interest. But they don't prove that this is NECESSARILY the case as
we can find many real-world examples of how people guided by self-interest promote
society's well-being. In fact, under the market system the whole economy operates through
the decisions made by self-interested individuals. And countries such as the United States
have proven to be more successful in promoting social interest than were centrally
planned, or communist, economies where people's self-interest was suppressed and all
important economic decisions were made by government.
Skill: Conceptual
Status: Old
13) What is a tradeoff? Give an example.

Answer: A tradeoff occurs when one thing must be given up to get another. Tradeoffs are
pervasive; at the personal level, students tradeoff time spent studying for time they
otherwise could have spent socializing.
Topic: Tradeoff
Skill: Conceptual
Status: Old
14) What is opportunity cost?

Answer: Opportunity cost is the highest-valued alternative given up when selecting an
action. For instance, the opportunity cost of studying an hour is whatever the highest-
valued alternative would have been for the hour spent studying.
Skill: Recognition
Status: Old
15) Your friend is preparing for this exam and in your practice session makes the following
statement: "Instead of attending microeconomics class for two hours, Kiki could have
played tennis or watched a movie. Therefore, the opportunity cost of attending class is the
tennis and the movie she had to give up." Is your friend's analysis correct or not? Explain
your answer.
Answer: Your friend's analysis is incorrect. The opportunity cost of an action is the highest-
valued alternative forgone, not ALL alternatives forgone. Kiki's opportunity cost of studying
for her exam is either the tennis or the movie, whichever she would have done had she not
studied.
Skill: Conceptual
Status: Old
60
16) Rather than go out to eat by yourself, you decide to stay at home and fix dinner for
yourself and your two roommates. Your roommates applaud your decision. Your first
roommate tells you that your decision to eat at home has no opportunity cost because you
already have all the dinner ingredients in your pantry. Is this roommate's comment
correct?
Answer: Your first roommate's comment is incorrect. The opportunity cost of preparing
dinner at home is whatever is the highest-valued alternative forgone, which, given your
choice boiled down to staying home or going out, is going out to eat. Hence the opportunity
cost of fixing dinner at home is going out to eat.
Skill: Conceptual
Status: Old
17) Define marginal cost and marginal benefit.

Answer: Marginal cost is the opportunity cost of an increase in an activity. Marginal
benefit is the benefit of an increase in an activity.
Skill: Recognition
Status: Old
18) In New State, the bottling law requires that people get a refund of five cents when they
return an empty bottle or can. Why does the state pay people to return bottles? In your
answer, be sure to mention the role played by incentives.
Answer: Policy makers know that people making choices respond to incentives. Instead of
throwing away bottles and cans, people will now bring the used bottles and cans to the
designated areas for recycling in order to receive their payment. Thus policy makers have
taken advantage of people's decision making by increasing the marginal benefit of
returning bottles in order to reduce litter and clean the environment.
Skill: Conceptual
Status: Old
19) If the government raises the tax on cigarettes, what is the effect on people's incentives
and choices?
Answer: The government raises the tax on cigarettes to discourage smoking. With a higher
tax the price of cigarettes rises. The opportunity cost of smoking increases, which gives
people incentive to cut their consumption of cigarettes.
Skill: Conceptual
Status: Old
61
20) What is the difference between positive and normative statements?
Answer: Positive statements tell what is and normative statements tell what ought to be.
Positive statements can be tested to determine if they are correct or not, while normative
statements use value judgments and so cannot be tested. For example, two economists
might agree on the positive assertion that if the government spent its funds purchasing
pharmaceutical drugs for poor older Americans rather than poor children, then poor older
Americans would use more drugs and poor children would use fewer. But they might
disagree on the normative conclusion of whether the government should pursue this policy.
One economist might argue "It is not fair to have senior citizens suffer because they cannot
afford medicine" and the other economist might argue "It is not fair to have children suffer
because their parents cannot afford medicine."
Skill: Recognition
Status: Old
21) "The difference between positive and normative statements is that a positive statement
is always true while a normative statement might or might not be true." True or false?
Explain.
Answer: False. The difference between positive and normative statements is that a positive
statement is about what IS, while a normative statement is about what OUGHT TO BE. A
positive statement can be tested against the facts and may be proved to be right or wrong,
whereas a normative statement depends on values and cannot be tested.
Skill: Recognition
Status: Old
22) Two economists can agree that raising the minimum wage creates unemployment yet
one might argue that raising the minimum wage is a good policy and the other that it is a
bad policy. Why can this difference exist? Be sure to use the terms positive and normative
in your answer.
Answer: Positive statements are statements that describe how the world is. Positive
statements can be tested and so, ultimately, any disagreements about positive statements
should be resolved. The statement that "Raising the minimum wage creates
unemployment" is a positive statement and, on the basis of repeated testing, most
economists agree that it is a correct positive statement. Normative statements, however,
are statements that describe how the world ought to be. Normative statements depend on
people's values and cannot be tested. So one economist might argue that raising the
minimum wage is a good policy because this economist thinks that, although it is
unfortunate that some people lose their jobs, the fact that others retain their jobs and their
wages rise more than outweighs the harm created by the unemployment. Another
economist might strongly differ because the second economist thinks that the harm
inflicted on people who lose their jobs more than outweighs any good from some workers
being paid more. This difference of opinion can last indefinitely because there is no way to
test the two economists' beliefs to determine which is correct.
Skill: Conceptual
Status: Old
62
23) Explain whether the statement, "There is life on Mars," is a normative or positive
statement.
Answer: The statement is a positive statement because it does not depend on a value
judgment. Instead, it is a statement that tries to describe "what is" and hence is testable.
Of course, in order to test the assertion, it would be necessary to go to Mars to ascertain if
there is life present. While it is difficult (!) at present to actually carry out the test,
nonetheless the statement is testable and hence is a positive statement.
Skill: Conceptual
Status: Old
24) Explain whether the statement, "Hillary Clinton was elected President of the United
States in 2012," is a normative or positive statement.
Answer: The statement is a positive statement because it does not depend on a value
judgment. Instead, it is a statement that tries to describe "what is" and hence is testable.
Now, it is indeed the case that Ms. Clinton was not elected president in 2012, so when we
test the statement we discover that it is incorrect. But, whether the statement is correct or
not has NO bearing on whether the statement is positive or normative. Thus, the statement
"Hillary Clinton was elected President in 2012" is a positive, albeit incorrect, statement.
Skill: Conceptual
Status: Old
25) What is a normative statement? Give an example.

Answer: A normative statement is a statement about what ought to be. It is a value
judgment or opinion and so cannot be proven true or false. An example of a normative
statement is "Students should attend school year round to receive a better education."
Skill: Conceptual
Status: Old
26) Explain whether the statement "The government should increase tariffs on Japanese
cars to protect the American car industry from competition," is a normative or positive
statement.
Answer: The statement is normative. The statement is a normative statement because it
depends on a value judgment, namely that the government should protect the American car
industry from competition.
Skill: Conceptual
Status: Old
63
8 Numeric and Graphing Questions
1) Suppose you are working four nights per week at your courses and your grade point
average is 3.5. You want a higher grade and decide to study an extra night each week. Your
GPA now rises to 3.8. What is your marginal benefit from studying for one additional night
a week?
Answer: Marginal benefit is the benefit that arises from an increase in an activity. Your
marginal benefit is the 0.3 increase in your grade. It's not the 3.8 grade because you
already have the benefit from studying for four nights a week and should not count this
benefit as resulting from the decision you are now making.
Skill: Analytical
Status: Old
2) Jerry is studying three nights per week and his grade point average is 3.1. He wants a
higher GPA and decides to study an extra night each week. His GPA now rises to 3.5. Had
Jerry not decided to study an extra night, he would have spent this night with his friends.
What is Jerry's marginal benefit from studying for one additional night a week? What is his
marginal cost of increasing the study time by one night per week? Why does Jerry decide to
study an extra night?
Answer: Marginal benefit is the benefit that arises from an increase in an activity. Jerry's
marginal benefit is the 0.4 increase in his grade. Marginal cost is the opportunity cost of an
increase in an activity. Jerry's marginal cost is a night spent with his friends that he gives
up. Jerry decides to stud an extra night because he values the marginal benefit from it (the
0.4 increase in his grade) more highly than its marginal cost (a night spent with his
friends).
Skill: Analytical
Status: Old
9 True or False
1) Scarcity applies to both the rich and the poor.
Answer: TRUE
Topic: Scarcity
Skill: Conceptual
Status: Old
2) Scarcity affects only those who are in need.

Answer: FALSE
Topic: Scarcity
Skill: Conceptual
Status: Old
64
3) Microeconomics is the study of topics such as national production and unemployment.
Answer: FALSE
Skill: Conceptual
Status: Old
4) Macroeconomics is the study of aggregate variables such as national production and

unemployment.
Answer: TRUE
Topic: Macroeconomics
Skill: Conceptual
Status: Old
5) The tools, instruments, machines, and buildings that people use to produce goods and
services are called human capital.
Answer: FALSE
Skill: Recognition
Status: Old
6) Most income in the United States is earned by business owners as profit.

Answer: FALSE
Topic: Labor
Skill: Conceptual
Status: Old
7) The United States produces more services than goods.

Answer: TRUE
Topic: Production Trends
Skill: Conceptual
Status: Old
8) When I buy an $12.00 movie ticket rather than two paperback books, the opportunity
cost of going to the movie is the two paperback books I did not buy.
Answer: TRUE
Skill: Conceptual
Status: Old
65
10 Extended Problems
1) Suppose you plan to go to school this summer. The cost of tuition and textbooks is
$1,400 and housing, board, and entertainment will cost you $500. If you didn't go to school,
you'd live in your parents' house for free, but your other living expenses would be about the
same. Also, if you didn't go to school you'd work full time and could earn $8,000. You can
still work part time while attending the summer school, but you will earn only $3,000.
a) What will the summer school cost you in terms of money explicitly paid?
b) What are the opportunity costs of going to summer school that you don't pay explicitly?
Explain.
c) What is your total opportunity costs of going to school this summer? Explain your
answer.
Answer:
a) You explicitly pay the cost of tuition and textbooks ($1,400) and the cost of housing
($500), so your total explicit costs are $1,900.
b) Your opportunity cost is what your give up to go to summer school. You forego a
fulltime job, at which you would earn $8,000, in exchange for a part-time job, where you
earn $3,000, which means you give up $5,000. Although you don't pay this money
explicitly, you lose the opportunity to earn it and so it's an opportunity cost of attending
summer school.
c) First, your opportunity cost includes the cost that you pay explicitly ($1,900), which you
have to pay only if you go to school. If you decide not to go to school, you can use this
money to buy something else—an opportunity you are giving up. Second, as explained in
the previous part, you are also giving up $5,000, although not paying this money explicitly.
So your full opportunity cost of going to school is $1,900 + $5,000 = $6,900.
Skill: Analytical
Status: Old
66
2) Jane is deciding whether to go to school for 8 weeks this summer. The cost of tuition and
textbooks is $1,700 and housing and other expenses will cost her $600. If she does not go
to school, she will live in her parents' house for free and they will cover her food and other
expenses for her. Also, if Jane does not go to summer school she could work fulltime. But
the best job she can get pays only $600 per week, and Jane would only agree to give up her
free time for no less than $750 per week. However, if she goes to summer school, she'll
have to spend 40 hours a week attending classes and studying.
a) What will the summer school cost Jane in terms of money spent?
b) What are the opportunity costs of going to summer school that Jane does not pay
explicitly? Explain.
c) What is Jane's total opportunity cost of going to school this summer? Explain your
answer.
d) Suppose that if Jane does not go to summer school, she will eventually take the classes
anyway. What is Jane's marginal benefit of going to summer school?
e) Suppose Jane decides to go to school in the summer. Explain her decision using the
concepts of marginal cost and marginal benefit.
Answer:
a) Jane explicitly pays the cost of tuition and textbooks ($1,700) and the cost of housing
($600), so her total explicit costs are $2,300.
b) Jane's opportunity cost is what she gives up (her best alternative forgone) to go to
summer school. In this case she forgoes 40 hours per week of her free time, which she
values more highly then the income from the best job she could find. To place a dollar value
on this time, notice that the value that she places on this time is the amount of money she
is willing to accept to give it up: $750 per week. So for the eight weeks, her free time has a
value of $750 × 8 = $6,000. Although she does not pay $6,000 explicitly, she gives up this
value of her free time and hence it's an opportunity cost to her.
c) Jane's total opportunity cost includes the cost that she pays explicitly, $2,300, which she
has to pay only if she goes to school. Also, as explained in the previous part, Jane is giving
up the value of her free time, $6,000. Thus, her full opportunity cost of going to school is
$2,300 + $6,000 = $8,300.
d) Jane's marginal benefit of going to summer school is the possibility of getting her
degree faster. For instance, if the summer school allows her to graduate one semester
earlier, she can start to work and earn income earlier. The additional income and work
experience that she gets because of her earlier graduation is what she gains if she decides
to go to school in the summer.
e) Jane decides to go to school in the summer if her marginal benefit from this decision,
the value of extra income and work experience that she gets if she graduates earlier, is
greater than the marginal cost of her summer school, $8,300.
Skill: Analytical
Status: Old
67
3) Suppose Canon Inc. decided to invest 45 billion yen in developing and launching a new
model of its digital camera, expecting that it will bring additional sales of 60 billion yen.
The company has already invested 38 billion yen when the marketing department suddenly
finds out that the introduction of a similar camera by Sony will reduce Canon's expected
additional sales to 30 billion yen. The company's management is trying to decide whether
to continue investing in the new product or close the project. Canon hires you as an
economic consultant. So, think like an economist to help the company's management make
their decision:
a) At this point in time, what is Canon's marginal cost of introducing the new product?
b) What is Canon's marginal benefit from introducing the new product?
c) Will you advise Canon to finish the project and introduce the new product? Why or why
not? What principles of economic thinking will help you analyze the situation and make the
right choice?
Answer:
a) Canon's marginal cost is the additional investment needed to finish the project, which is
7 billion yen.
b) Canon's marginal benefit is the benefit that arises from the new product, the additional
revenue from sales, which in the changed situation is expected to be 30 billion yen.
c) The principle of choosing at the margin will help. According to this principle, the
amount of money already spent is irrelevant to the decision you are making now. That is,
you should only consider the marginal costs and marginal benefits that will result from the
decision in question. Now, if Canon goes ahead, finishes the project and introduces the new
camera, it will cost them additional 7 billion yen, but they will gain additional sales of 30
billion yen. The marginal benefit of introducing the new product exceeds the marginal cost,
which means the company should invest 7 billion yen to finish development and introduce
the new product. Notice also that if Canon abandons the project, there will be no additional
money costs, but the opportunity cost will be the additional sales (30 million yen) that the
company is potentially losing. Thus, the concept of opportunity cost also helps to clarify the
situation.
Skill: Analytical
Status: Old
68
4) Your student association is looking for an auditorium to rent for an all-day conference.
The university's Performing Arts Center is vacant on that day, so the association wants to
rent it. The physical plant manager tells you that the daily rent is $660, which includes
$400 to cover part of the cost paid to build the Center, $40 to cover part of its regular
maintenance cost, $50 to help pay for the building's insurance, $100 to cover the extra cost
of electricity that the university would incur because of the conference, and $70 to pay for
additional janitorial services for the conference. You know that no one else wants to rent
the Center on that day and you think that the price that the manager charges is too high.
But how much should you pay? Use the economic way of thinking to answer this question
and to convince the manager to accept your offer:
a) If you rent the Center, what will be the university's marginal cost of renting the center
to you?
b) If you rent the Center, what will be the university's marginal benefit of renting the
center to you?
c) What amount of rent should you offer? Convince the manager to accept your offer.
Answer:
a) The university's marginal cost is $170. These are the extra cost of electricity ($100) and
janitorial services ($70) that the university will only pay if you rent the Center. The costs of
building the Center, insurance, and regular maintenance costs are not extra costs incurred
because you rent the Center. The university has already paid for building it and pays the
cost of insurance and regular maintenance no matter whether you rent the Center or not.
Therefore these costs are not marginal costs of renting the center to you.
b) The university's marginal benefit is the amount of rent that you pay.
c) You should start negotiating from $171. Because the university's marginal cost is $170
and the amount you pay is its marginal benefit, the university will be better off if it accepts
any amount greater than $170. If the manager is still not convinced, tell the manager that,
since no one else wants to rent the Center on that day, declining your offer is not cost free.
The opportunity cost of not accepting it will be the difference between the offered rent and
$170. In practice, of course, there are transaction costs, such as the time spent by both
parties to negotiate and sign the agreement, and accepting your offer will cost the manager
some extra time and organizational effort. Also, as you learnt in this chapter, people are
guided by self-interest when they make their decisions and the manager's self-interest is
not necessarily the same as the university's interest. On the other hand, you might want to
support your university. Therefore the amount of rent you will agree upon is likely to be
higher than $171.
Skill: Analytical
Status: Old
11 Appendix: Graphing Data

1) The horizontal axis in a graph
A) measures time in a scatter diagram.
B) measures the quality of a variable.
C) is named the y-axis.
D) is named the x-axis.
Answer: D
Topic: Graphing Data
Skill: Recognition
Status: Old
2) The vertical axis in a graph

A) is named the y-axis.
B) is named the x-axis.
69
C) is not used in a scatter diagram.
D) has no origin.
Answer: A
Skill: Recognition
Status: Old
3) The value of the y-coordinate of a point in a graph is the length of a line from the point to
the
A) origin.
B) scalar.
C) x-axis.
D) y-axis.
Answer: C
Skill: Recognition
Status: Old
4) The value of the x-coordinate of a point in a graph is the length of a line from the point to
the
A) origin.
B) scalar.
C) x-axis.
D) y-axis.
Answer: D
Skill: Conceptual
Status: Old
5) On the horizontal axis of a graph, generally

A) values increase from left to right.
B) values increase from right to left.
C) values can be positive and/or negative.
Answer: D
Skill: Recognition
Status: Old
70
6) In the above figure, the x-coordinate of point b is
A) 1.
B) 2.
C) 3.
D) 14.
Answer: C
Skill: Analytical
Status: Old
7) In the above figure, the y-coordinate of point b is

A) 1.
B) 2.
C) 3.
D) 14.
Answer: D
Skill: Analytical
Status: Old
71
8) In the above figure, when income is zero, household expenditures equal
A) 0.
B) $1,000.
C) $4,000.
D) $8,000.
Answer: D
Skill: Analytical
Status: Old
72
9) In the figure above, the value on the x-axis increases as we move from
A) point G to point A.
B) point C to point A.
C) point F to point A.
D) point E to point A.
Answer: A
Skill: Analytical
Status: Old
10) In the figure above, the value on the y-axis decreases as we move from
A) point G to point A.
B) point C to point A.
C) point F to point A.
D) point E to point A.
Answer: D
Skill: Analytical
Status: Old
73
11) In the figure above, point B is
A) on the x-axis.
B) on the y-axis.
C) at the origin.
D) a coordinate.
Answer: A
Skill: Analytical
Status: Old
12) Using the above figure, the origin is at which point?

A) point a
B) point b
C) point c
D) None of the points in the figure is the origin.
Answer: B
Skill: Analytical
Status: Old
74
13) Using the above figure, which of the following is TRUE?
A) Axis 1 is typically called the y-axis.
B) Axis 1 is also known as the origin.
C) Axis 2 is typically called the x-axis.
D) Point b is known as the origin.
Answer: D
Skill: Analytical
Status: Old
14) A scatter diagram shows the

A) level of one variable over time.
B) change in one variable over time.
C) relationship between two variables.
D) evolution of a variable.
Answer: C
Topic: Scatter Diagrams
Skill: Recognition
Status: Old
15) A scatter diagram will be most useful

A) in discerning a possible relationship between height and weight for individuals.
B) in resolving a dispute over two normative assertions.
C) in predicting next year's rate of unemployment.
D) All of the above are correct.
Answer: A
Skill: Conceptual
Status: Old
16) You notice that when interest rates increases, new residential housing prices tend to
decrease. This observation indicates that
A) there must be false causality between interest rates and housing prices.
B) higher interest rates must cause low housing prices.
C) a scatter diagram between interest rates and housing prices will show a negative
relationship.
D) a scatter diagram between interest rates and housing prices will show a direct
relationship.
Answer: C
Skill: Conceptual
Status: Old
75
17) The above figure plots income and consumption in a nation. In 2017
A) consumption was equal to $25,000 and income was equal to $28,000.
B) consumption was equal to $28,000 and income was equal to $25,000.
C) consumption was equal to $25,000 and income was equal to $25,000.
D) consumption was equal to $27,000 and income was equal to $31,000.
Answer: A
Skill: Conceptual
Status: Old
76
18) The above figure graphs the price of a bushel of wheat and housing starts. The graph
shows the variables are
A) strongly positively related.
B) strongly negatively related.
C) not related.
D) related via an indirect relationship.
Answer: C
Skill: Analytical
Status: Old
77
19) The figure above shows that in 1996, unemployment was equal to about ________ and
the inflation rate was equal to about ________.
A) 7.0 percent; 3.0 percent
B) 3.0 percent; 5.5 percent
C) 5.5 percent; 3.0 percent
D) 6.0 percent; 4.0 percent
Answer: C
Skill: Analytical
Status: Old
78
20) The above figure reveals
A) no relationship between household income and average household expenditure on
automobiles.
B) that as household income increases the average household expenditure on automobiles
decreases.
C) that as household income increases the average household expenditure on automobiles
increases.
D) all of the above are possible.
Answer: C
Skill: Analytical
Status: Old
79
21) In the above figure, the axis breaks are used
A) to create a misleading graph.
B) to indicate that there are jumps from the origin, 0, to the first values recorded along the
axes.
C) to indicate that there are not enough data to be included in the graph.
D) to show that there are no data available for the omitted ranges.
Answer: B
Topic: Breaks in the Axes
Skill: Recognition
Status: Old
80
22) In the above figure, the axis break in the x-axis
A) reflects the fact that for the years covered in the figure, the unemployment rate was
never less than 3 percent.
B) shows that there is no relationship between inflation and unemployment.
C) misleadingly shows that inflation has changed very little even though the unemployment
rate has increased a great deal.
D) implies that for the years covered in the figure, the inflation rate was always greater
than 1 percent.
Answer: A
Topic: Breaks in the Axes
Skill: Analytical
Status: Old
23) On a graph, high correlation between the variable measured along the x-axis and the
variable measured along the y-axis
A) means that changes in the variable measured along the x-axis must cause changes in the
variable measured along the y-axis.
B) means that changes in the variable measured along the y-axis must cause changes in the
variable measured along the x-axis.
C) means that changes in either variable must cause changes in the other variable.
D) does NOT mean that a change in the variable measured along the x-axis must cause a
change in the variable measured along the y-axis.
Answer: D
Topic: Correlation and Causation
Skill: Conceptual
Status: Old
81
24) You notice that when the inflation rate increases, the interest rate tends to increase.
This observation indicates that
A) there might be false causality between inflation and the interest rate.
B) higher inflation rates must cause a higher interest rate.
C) a scatter diagram of the inflation rate and the interest rate will show a positive
relationship.
D) the variables have an inverse relationship.
Answer: C
Skill: Conceptual
Status: Old
25) In the figure above, when income equals $20,000, what does consumption equal?
A) $0
B) $10,000
C) $20,000
D) impossible to tell
Answer: C
Skill: Conceptual
Status: Old
82
12 Appendix: Graphs Used in Economic Models
1) If two variables are positively related, then
A) they move in opposite directions.
B) they are independent of each other.
C) they move in the same direction.
D) their graph will have a negative slope.
Answer: C
Topic: Variables That Move in the Same Direction
Skill: Recognition
Status: Old
2) If two variables both increase at the same time or decrease at the same time, they are
A) unrelated to each other.
B) positively related.
C) negatively related.
D) conversely related.
Answer: B
Skill: Recognition
Status: Old
3) If there is a direct relationship between two variables

A) the graph of the relationship will be upward-sloping.
B) the graph of the relationship will be downward-sloping.
C) the slope of the line (or the slope of a tangent line to the curve) will be negative.
Answer: A
Skill: Recognition
Status: Old
4) The variable measured on the y-axis increases whenever the variable measured on the x-
axis increases. As a result, the relationship between the variables will
A) be negatively sloped.
B) have a slope of zero.
C) be a vertical line.
D) be none of the above.
Answer: D
Skill: Recognition
Status: Old
83
5) A positive relationship exists between two variables if
A) one variable has "positively" no effect on the other variable.
B) a reduction in one variable is associated with an increase in the other variable.
C) a reduction in one variable is associated with a decrease in the other variable.
D) both variables are inflation-distorted.
Answer: C
Skill: Recognition
Status: Old
6) If the slope of a line that graphs the relationship between variable x and variable y is
positive, then we know that
A) when the value of variable x increases, then the value of variable y decreases.
B) when the value of variable x decreases, then the value of variable y decreases.
C) the two variables are unrelated.
D) the two variables have an inverse relationship.
Answer: B
Skill: Conceptual
Status: Old
7) For the Jones household it has been estimated that for every ten degrees increase in the
outdoor temperature the consumption of ice tea increases by 5 glasses. What type of
relationship exists between temperature change and the consumption of ice tea?
A) negative relationship
B) positive relationship
C) no relationship
D) maximum relationship
Answer: B
Skill: Recognition
Status: Old
84
8) In the above figure, which curve shows a positive relationship between x and y?
A) only curve A
B) only curve B
C) only curve C
D) All the curves show a positive relationship.
Answer: D
Skill: Conceptual
Status: Old
9) In the above figure, which curve shows a negative relationship between x and y?
A) only curve A
B) only curve B
C) only curve C
D) None of the curves show a negative relationship.
Answer: D
Skill: Conceptual
Status: Old
85
10) A scatter diagram with the price of vacations to Mexico on the vertical axis and the
price of vacations to California on the horizontal axis shows a positive relationship. If the
price of vacations to Mexico were placed on the horizontal axis, and the price of vacations
to California on the vertical axis, the relationship would be
A) negative relationship, also called a direct relationship.
B) negative relationship, also called an inverse relationship.
C) positive relationship, also called a direct relationship.
D) positive relationship, also called an inverse relationship.
Answer: C
Skill: Conceptual
Status: Old
11) The figure above shows ________ relationship between the two variables.
A) a positive
B) a negative
C) no
D) an inverse
Answer: A
Skill: Recognition
Status: Old
86
12) "As you devote more hours to studying, your GPA increases." A graph of this
relationship would show
A) a positive relationship.
B) a direct relationship.
C) an inverse relationship.
D) Both answers A and B are correct.
Answer: D
Skill: Conceptual
Status: Old
13) "As interest rates rise, people save more money." A graph displaying this relationship
would show
A) an inverse relationship.
B) a positive relationship.
C) a cross-section graph.
D) a positive then a negative relationship.
Answer: B
Skill: Conceptual
Status: Old
14) "If you hire 1 worker, the worker can produce 20 pizzas a day. If you hire a 2nd worker,
that worker can produce 10 more pizzas. If you hire a 3rd worker, that worker can produce
2 more pizzas a day." A graph displaying this relationship between the number of
employees and TOTAL pizza output per day would show
A) a positive linear relationship.
B) an upward-sloping curve that becomes less steep.
C) a negative linear relationship.
D) a negatively-sloped curve that becomes less steep.
Answer: B
Skill: Conceptual
Status: Old
87
15) If you study 3 hours for an exam, you can raise your score by 30 points. If you study for
another 3 hours your score increases by 10 points. And if you study for another 3 hours,
your score will increase by 5 more points. A graph displaying this relationship between the
number of hours studied and your TOTAL exam score would show
A) a positive linear relationship.
B) an upward-sloping curve that becomes less steep.
C) a negative linear relationship.
D) an upward-sloping curve that becomes more steep.
Answer: B
Skill: Conceptual
Status: Old
16) Suppose you produce 10 bikes a day for a total cost of $1,000. Total costs increase to
$1,100 when you produce 15 bikes. Finally, total costs increase to $1,300 if you make 20
bikes. A graph showing the relationship between total costs and the number of bikes
produced would be
A) a negatively-sloped line that becomes steeper.
B) a positively-sloped line that becomes steeper.
C) a negatively-sloped line that becomes flatter.
D) a positively-sloped line that becomes flatter.
Answer: B
Skill: Conceptual
Status: Old
88
Total household Total consumption
income (dollars) (dollars)
30,000 27,000
40,000 35,000
50,000 38,000
17) The data in the table above shows the relationship between the Joneses' total
consumption and total household income. Based on these data, total consumption varies
A) directly with their total household income.
B) independently of their total household income.
C) inversely with their total household income.
D) negatively with their income.
Answer: A
Skill: Recognition
Status: Old
x y
0 0
2 6
4 12
6 18
8 24
10 30
18) In the above table, when x increases from 4 units to 6 units, y changes by ________
units.
A) 2
B) -2
C) 6
D) -6
Answer: C
Skill: Analytical
Status: Old
19) The above table indicates that variables x and y are

A) positively related.
B) inversely related.
C) negatively related.
D) not related.
Answer: A
Skill: Analytical
Status: Old
x y
0 2
1 5
2 8
89
3 11
4 14
5 17
20) Given the information in the above table, the relationship between x and y is
A) positive, and the curve becomes flatter as x increases.
B) positive, and the curve becomes steeper as x increases.
C) positive and linear.
D) negative and linear.
Answer: C
Skill: Analytical
Status: Old
90
21) In the above figure, the relationship between x and y is
A) positive, and the curve becomes flatter as x increases.
B) positive, and the curve becomes steeper as x increases.
C) positive and linear.
D) negative and linear.
Answer: C
Skill: Analytical
Status: Old
91
22) The above figure shows the relationship between the Joneses' total consumption and
total household income. The figure illustrates that the Joneses' total consumption varies
A) directly with their total household income.
B) independently of their total household income.
C) inversely with their total household income.
D) negatively with their income.
Answer: A
Skill: Analytical
Status: Old
92
23) The relationship depicted in the above figure is
A) a negative linear relationship.
B) a positive linear relationship.
C) a positive becoming less steep relationship.
D) a positive becoming steeper relationship.
Answer: C
Skill: Recognition
Status: Old
24) Whenever one variable increases, another variable decreases. The two variables are
A) definitely related through a third variable.
B) negatively related.
C) positively related.
D) unrelated to each other.
Answer: B
Topic: Variables That Move in Opposite Directions
Skill: Recognition
Status: Old
93
25) If variable x always increases when variable y decreases, x and y are said to be
C) unrelated.
D) trend related.
Answer: B
Skill: Recognition
Status: Old
26) If there is an inverse relationship between variable x and variable y, then an increase in
the value of variable x will be accompanied by
A) an increase in the value of variable y.
B) a decrease in the value of variable y.
C) no change in the value of variable y.
D) variable y reaching its maximum value.
Answer: B
Skill: Recognition
Status: Old
27) If there is an inverse relationship between two variables, the graph of this relationship
A) will be a horizontal line.
B) will be downward-sloping.
C) might be horizontal.
D) will be upward-sloping.
Answer: B
Skill: Recognition
Status: Old
94
28) A negative relationship exists between the variable measured along the y-axis and the
variable measured along the x-axis if
A) a reduction in the variable measured along the x-axis is associated with a reduction in
the variable measured along the y-axis.
B) an increase in the variable measured along the x-axis is associated with an increase in
the variable measured along the y-axis.
C) the variable measured along the x-axis and the variable measured along the y-axis move
in the opposite direction.
D) the variable measured along the x-axis and the variable measured along the y-axis move
in the same direction.
Answer: C
Skill: Recognition
Status: Old
29) Along a curve, when one variable increases, the other variable decreases. The curve
showing this relationship
A) might be horizontal.
B) has a positive slope.
C) has a negative slope.
D) has an increasing then a decreasing slope.
Answer: C
Skill: Recognition
Status: Old
30) "As the price of gasoline increases, fewer people buy cars that are gas guzzlers." A
graph showing this relationship would have
A) a negative slope.
B) a positive relationship.
C) a direct relationship.
D) a horizontal line.
Answer: A
Skill: Conceptual
Status: Old
95
31) A graph shows that as fees to use ATM machines increase, people use them less
frequently. The graph of this relationship would show
A) an inverse relationship.
B) a negative relationship.
C) a direct relationship.
D) Both answers A and B are correct.
Answer: D
Skill: Conceptual
Status: Old
32) As the number of days without rain increases, the amount of wheat per acre grown
declines. A graph showing this relationship would have a curve
A) that is a horizontal line.
B) that is a vertical line.
C) showing a positive relationship.
Answer: D
Skill: Conceptual
Status: Old
33) As a firm produces more and more DVDs, the average cost of producing each DVD falls.
A curve showing the behavior of the average cost of a DVD as more DVDs are produced
A) would be positively and then negatively sloped.
B) would be positively sloped.
C) would be horizontal.
D) would be negatively sloped.
Answer: D
Skill: Conceptual
Status: Old
34) Suppose that we find that student grades and time spent at parties move in opposite
directions. A graph of the relationship between these two variables would curve
A) upward and be linear.
B) upward and may be linear or nonlinear.
C) downward and be linear.
D) downward and may be linear or nonlinear.
Answer: D
Skill: Conceptual
Status: Old
35) The faster an automobile is driven (speed), the lower the miles per gallon (mpg) for that
automobile. Given this information, we say that an automobile's speed and mpg have
A) a direct relationship.
B) an inverse relationship.
C) a linear relationship.
D) a maximum relationship.
Answer: B
96
Skill: Recognition
Status: Old
36) If the quantity of wood purchased decreases when the price of wood rises, a graph
representing these variables would have
A) time on the vertical axis.
B) the slope on the vertical axis.
C) a negative slope.
D) a positive slope.
Answer: C
Skill: Conceptual
Status: Old
37) A scatter diagram with the price of peanut butter on the vertical axis and the price of
jelly on the horizontal axis shows a negative relationship. If the price of jelly was placed on
the vertical axis and the price of peanut butter was placed on the horizontal axis, the
relationship would be a
A) negative relationship, also called a direct relationship.
B) negative relationship, also called an inverse relationship.
C) positive relationship, also called a direct relationship.
D) positive relationship, also called an inverse relationship.
Answer: B
Skill: Conceptual
Status: Old
97
38) In the above figure, if there is a negative relationship between the variables x and y,
which of the graphs above can be used to indicate this?
A) Figure A
B) Figure B
C) Figure C
D) both Figure A and Figure C
Answer: D
Skill: Recognition
Status: Old
39) In the above figure, which of the graphs demonstrates a curve with a decreasing slope,
that is, a slope getting smaller in magnitude as x increases?
A) Figure A
B) Figure B
C) Figure C
D) Figure D
Answer: C
Topic: The Slope of a Relationship
Skill: Analytical
Status: Old
40) In the above figure, a negative relationship is demonstrated in which of the graphs?
A) Figure A
B) Figure B
C) Figure C
D) Figure D
Answer: B
98
Skill: Recognition
Status: Old
41) The above figure depicts a

A) positive non-linear relationship between age and the number of hamburgers purchased
per year.
B) negative non-linear relationship between age and the number of hamburgers purchased
per year.
C) positive linear relationship between age and the number of hamburgers purchased per
year.
D) negative linear relationship between age and the number of hamburgers purchased per
year.
Answer: D
Skill: Analytical
Status: Old
99
42) In the above figure, the relationship between costs and quantity is negative
A) between point A and point B.
B) between point B and point C.
C) along the entire curve.
D) nowhere along the curve.
Answer: A
Skill: Analytical
Status: Old
100
43) In the above, a positive relationship between price and quantity is shown in
A) Figure A.
B) Figure B.
C) both Figure A and Figure B.
D) neither Figure A nor Figure B.
Answer: B
Skill: Analytical
Status: Old
44) In the above figure, a negative relationship between price and quantity is shown in
A) Figure A.
B) Figure B.
C) both Figure A and Figure B.
D) neither Figure A nor Figure B.
Answer: A
Skill: Analytical
Status: Old
45) If a graph shows a negative relationship between two variables which then becomes a
positive relationship, this curve would
A) always be an upward-sloping line.
B) have a minimum point.
C) have a maximum point.
D) always be a downward-sloping line.
Answer: B
Topic: Maximum and Minimum Points
Skill: Recognition
Status: Old
101
46) As a firm expands its output, cost per unit of output (average cost) decreases and then
increases. Average cost and output have
A) a relationship with a minimum.
B) a relationship with a maximum.
C) no relationship.
D) a linear positive relationship.
Answer: A
Topic: Variables That Have a Maximum or Minimum
Skill: Conceptual
Status: Old
47) In the above figure, the relationship between the tax rate and tax revenue is positive
and becoming less steep between tax rates of
A) 0 percent and 30 percent.
B) 30 percent and 100 percent.
C) 0 percent and 100 percent.
Answer: A
Skill: Analytical
Status: Old
102
48) In the above figure, if the tax rate is increased from 20 percent to 30 percent, tax
revenue
A) decreases.
B) is constant.
C) increases.
D) may increase or decrease.
Answer: C
Skill: Analytical
Status: Old
49) In the above figure, tax revenue is at a maximum when the tax rate is
A) 0 percent.
B) 30 percent.
C) 50 percent.
D) 100 percent.
Answer: B
Skill: Analytical
Status: Old
50) As a curve approaches a maximum point, the slope will

A) be positive, then negative after the maximum point.
B) be negative, then positive after the maximum point.
C) remain constant on either side of the maximum point.
D) increase before and after the maximum point.
Answer: A
Skill: Conceptual
Status: Old
51) In the figure above, the relationship between the x variable and the y variable
A) is positive.
103
B) is negative.
C) starts by being positive and then becomes negative.
D) starts by being negative and then becomes positive.
Answer: C
Skill: Analytical
Status: Old
104
Average cost
Total number of producing
of workers a television
set (dollars)
4 1,250
10 750
13 770
15 850
52) Graphing the data in the above table with the number of workers on the horizontal axis
and the average cost on the vertical axis, the graph would show
A) first a negative and then a positive relationship.
B) a horizontal line.
C) no relationship.
D) a linear relationship.
Answer: A
Skill: Analytical
Status: Old
53) If a curve rises and then falls, it shows a

A) maximum.
B) minimum.
C) linear relationship.
D) constant slope relationship.
Answer: A
Skill: Analytical
Status: Old
54) If a curve falls and then rises, it shows

A) a maximum.
B) a minimum.
C) a linear relationship.
D) a constant slope relationship.
Answer: B
Skill: Analytical
Status: Old
105
55) When y changes, x stays the same. The line depicting this relationship would be
A) vertical.
B) horizontal.
C) linear with a negative slope.
D) linear with a positive slope.
Answer: A
Topic: Variables That Are Unrelated
Skill: Recognition
Status: Old
56) A graph measures y on the vertical axis and x on the horizontal. The curve on the graph
is a horizontal line. From this fact we know that
A) the value of x never changes.
B) the value of y does not depend on the value of x.
C) the ratio of x to y is constant.
D) the slope of the line is not defined because y never changes.
Answer: B
Skill: Analytical
Status: Old
57) A graph measures y on the vertical axis and x on the horizontal. The curve on the graph
is a vertical line. From this fact we know that
A) the value of x does not change when the value of y changes.
B) the value of y is constant.
C) the ratio of x to y is constant.
D) the ratio of y to x is constant.
Answer: A
Skill: Analytical
Status: Old
58) The graph of two variables, x and y, is a horizontal line. This result indicates that x and
y are
C) not related.
D) falsely related.
Answer: C
Skill: Conceptual
Status: Old
106
59) A diagram shows the quantity of tomatoes on the horizontal axis and the quantity of
coffee on the vertical axis. The quantity of tomatoes remains constant as the quantity of
coffee increases. The graph of these data is
A) a horizontal line.
B) a vertical line.
C) a positively sloped line.
D) a negatively sloped line
Answer: B
Skill: Analytical
Status: Old
60) A graph shows the price of a pound of cucumbers on the vertical axis and the quantity
of new cars sold by GM on the horizontal axis. The price of a pound of cucumbers remains
constant as the quantity of new cars sold increases. The graph of these data is
A) a horizontal line.
B) a vertical line.
C) a curve with a maximum.
D) a positively-sloped line.
Answer: A
Skill: Analytical
Status: Old
61) If two variables are unrelated, a scatter diagram of those variables will
A) be a vertical line.
B) be a horizontal line.
C) be either a vertical or horizontal line.
D) have a constant positive slope.
Answer: C
Skill: Analytical
Status: Old
107
62) Which of the following CORRECTLY describes the above figure?
I) There is no relationship between the price of an avocado and a student's grade in
economics.
II) The value of variable measured on the y-axis is constant as the variable measured on
the x-axis increases.
III) As a student's grade in economics increases, the price of an avocado increases.
A) I
B) I and II
C) II and III
D) I, II, and III
Answer: B
Skill: Analytical
Status: Old
63) In the above, as the y variable increases

A) the x variable is constant.
B) the x variable increases.
C) the x variable decreases.
D) the x variable at first increases but then decreases.
Answer: A
Skill: Analytical
Status: Old
108
64) Which of the following CORRECTLY describes the above figure?
A) There is no relationship between x and y.
B) There is a positive relationship between x and y.
C) There is a negative relationship between x and y.
Answer: A
Skill: Analytical
Status: Old
109
65) In the above figure, which curve indicates that the level of food production does not
affect the population growth rate?
A) F
B) G
C) H
D) I
Answer: C
Skill: Analytical
Status: Old
110
66) In the above figure, the relationship between income and expenditures is
A) positive.
B) negative.
C) independent.
D) random.
Answer: A
Skill: Analytical
Status: Old
67) The relationship in the above figure suggests that when the interest rate is 5 percent
A) a decrease in income will be associated with a decrease in expenditures.
B) a decrease in income will be associated with an increase in expenditures.
C) an increase in income will be associated with a decrease in expenditures.
D) there is no relationship between expenditures and income.
Answer: A
Skill: Analytical
Status: Old
111
68) If variables x and y move up and down together, they are
B) negative related.
C) unrelated.
D) trend related.
Answer: A
Skill: Recognition
Status: Old
69) The term "direct relationship" means the same as

A) correlation.
B) trend.
C) positive relationship.
D) negative relationship.
Answer: C
Skill: Recognition
Status: Old
112
70) The relationship between income and consumption illustrated in the figure above is
A) positive and linear.
B) positive and nonlinear.
C) negative and linear.
D) negative and nonlinear.
Answer: A
Skill: Analytical
Status: Old
113
71) The figure above shows
A) a positive relationship.
B) a direct relationship.
C) a negative relationship.
D) no relationship between the variables.
Answer: C
Skill: Analytical
Status: Old
72) The relationship between two variables, x and y, is a vertical line. Thus x and y are
A) positively correlated.
B) negatively correlated.
C) not related.
D) falsely related.
Answer: C
Skill: Analytical
Status: Old
114
13 Appendix: The Slope of a Relationship
1) The slope of a line equals the
A) change in the variable measured along the x-axis divided by the change in the variable
measured along the y-axis.
B) change in the variable measured along the y-axis divided by the change in the variable
measured along the x-axis.
C) change in the variable measured along the x-axis minus the change in the variable
measured along the y-axis.
D) change in the variable measured along the x-axis multiplied by the change in the
Answer: B
Skill: Recognition
Status: Old
2) A curve is plotted with y measured on the vertical axis and x measured on the horizontal
axis. The slope of the curve equals
A) y divided by x.
B) the change in y divided by x.
C) the change in y divided by the change in x.
D) y divided by the change in x.
Answer: C
Skill: Recognition
Status: Old
3) The slope of a line

A) can never equal zero.
B) is always a constant.
C) measures the ratio of the change in the value of the y-axis variable relative to the
change in the value of the x-axis variable.
D) measures the value of the y-axis variable relative to the value of the x-axis variable.
Answer: C
Skill: Recognition
Status: Old
115
4) The slope of a positive relationship is
A) positive.
B) undefined.
C) positive to the right of the maximum point and negative to the left.
D) constant as long as the relationship is nonlinear.
Answer: A
Skill: Analytical
Status: Old
5) In which of the following cases is the slope of a line positive?

A) As x increases, y increases.
B) As x increases, y decreases.
C) As x increases, y remains the same.
D) As x increases, y equals a positive number.
Answer: A
Skill: Conceptual
Status: Old
6) If a large change in the variable measured on the x-axis is associated with a small
change of the variable measured on the y-axis, the line is ________ and the slope is ________.
A) downward-sloping; large
B) downward-sloping; small
C) upward-sloping; small
D) either downward or upward-sloping; small
Answer: D
Skill: Conceptual
Status: Old
7) Suppose we are considering the relationship between two variables y and x. y is

measured on the y-axis and x is measured on the x-axis, and the relationship between then
is a straight line. Suppose that the slope of the line is positive and is less than 1. This slope
means that a change in x is associated with
A) a bigger change in y.
B) a smaller change in y.
C) no change in y.
D) an equal change in y.
Answer: B
Skill: Analytical
Status: Old
116
is a straight line. Suppose that the slope of the line is equal to 1. This slope means that
A) a change in x is associated with a bigger change in y.
B) a change in x is associated with a smaller change in y.
C) a change in x is associated with no change in y.
D) a change in x is associated with an equal change in y.
Answer: D
Skill: Analytical
Status: Old

is a straight line. Suppose that the slope of the line is greater than 1. This slope means that
A) a change in x is associated with a bigger change in y.
B) a change in x is associated with a smaller change in y.
C) a change in x is associated with no change in y.
D) a change in x is associated with an equal change in y.
Answer: A
Skill: Analytical
Status: Old
10) In which of the following cases is the slope of a line positive and less than infinity?
A) As the variable measured on the x-axis decreases, the variable measured on the y-axis
decreases.
B) As the variable measured on the x-axis increases, the variable measured on the y-axis
decreases.
C) As the variable measured on the y-axis increases, the variable measured on the x-axis
does not change.
D) As the variable measured on the y-axis increases, the variable measured on the x-axis
decreases.
Answer: A
Skill: Conceptual
Status: Old
11) In a graph, a line has a negative slope if

A) the line is vertical.
B) the line is horizontal.
C) the line rises from right to left.
D) the line rises from left to right.
Answer: C
Skill: Conceptual
Status: Old
12) Suppose that for a curve, as the variable measured on the x-axis increases, the variable
measured on the y-axis decreases. The curve has a ________ slope.
A) tangent
B) positive
117
C) negative
D) hypothetical
Answer: C
Skill: Conceptual
Status: Old
13) If the slope of the relationship between savings and interest rates is 0.5, then
A) savings and interest rates have a positive relationship.
B) savings and interest rates have a negative relationship.
C) savings and interest rates have no relationship.
D) savings and interest rates have an inverse relationship.
Answer: A
Skill: Conceptual
Status: Old
14) If an increase in x (the variable on the horizontal axis) from 6 to 8 units causes a
decrease in y (the variable on the vertical axis) from 4 to 3 units, the slope equals
A) 2.
B) -2.
C) 1/2.
D) -1/2.
Answer: D
Skill: Analytical
Status: Old
118
x y
0 0
2 6
4 12
6 18
8 24
10 30
15) In the table above, y is measured along the y-axis and x along the x-axis. The slope of
the relationship between x = 0 and x = 2 is
A) -6.
B) 2.
C) 3.
D) 6.
Answer: C
Skill: Analytical
Status: Old
x y
10 50
9 70
8 100
7 130
6 170
5 220
16) In the table above, y is measured along the y-axis and x along the x-axis. What is the
value of the slope between the x = 8 and x = 6?
A) -0.057
B) -19.28
C) -35
D) 70
Answer: C
Skill: Analytical
Status: Old
119
Point X Y
a 100 50
b 200 75
c 300 100
d 400 100
e 500 75
f 600 50
17) In the table above, Y is measured along the y-axis and X along the x-axis. The slope
between points a and b is
A) 25.
B) 4.
C) 0.25.
D) -0.25.
Answer: C
Skill: Analytical
Status: Old
between points c and d is
A) 100.
B) 0.
C) 0.25.
D) -4.
Answer: B
Skill: Analytical
Status: Old
between points e and f is
A) -25.
B) 4.
C) 0.25.
D) -0.25.
Answer: D
Skill: Analytical
Status: Old
120
20) In the above figure, the curve has a slope that is
A) positive and becoming larger in magnitude.
B) positive and becoming smaller in magnitude.
C) negative and becoming larger in magnitude.
D) negative and becoming smaller in magnitude.
Answer: A
Skill: Analytical
Status: Old
121
21) In the above figure, the curve has a slope that is
A) positive and becoming larger in magnitude.
B) positive and becoming smaller in magnitude.
C) negative and becoming larger in magnitude.
D) negative and becoming smaller in magnitude.
Answer: C
Skill: Analytical
Status: Old
x y
0 4
1 5
2 8
3 13
4 20
22) In the above table, the relationship between x and y is ________ and, with y measured on
the vertical axis, the slope between y = 5 and y = 8 is equal to ________.
A) negative; 8
B) negative; 6
C) positive; 5
D) positive; 3
Answer: D
Skill: Analytical
Status: Old
23) The slope of a straight line is

A) variable.
B) increasing.
C) decreasing.
122
D) constant.
Answer: D
Topic: The Slope of a Straight Line
Skill: Recognition
Status: Old
24) The slope of a straight line is

A) always equal to zero.
B) calculated as y/x at any point.
C) constant.
D) always greater than zero.
Answer: C
Skill: Recognition
Status: Old
25) With y measured on the vertical axis and x measured on the horizontal axis, the slope of
a straight line is defined as
A) y/x.
B) x/y.
C) (change in y)/ (change in x).
D) (change in x)/ (change in y).
Answer: C
Skill: Analytical
Status: Old
26) Along a straight line, when x equals 90, then y equals 30. When x equals 120, then y
equals 40. The slope of the straight line is
A) 1/3.
B) -1/3.
C) 3.
D) -3.
Answer: A
Skill: Analytical
Status: Old
123
27) Along a straight line, the value of y is always equal to the value of x. The slope of the
line is
A) -1.
B) 0.
C) 1.
D) infinite.
Answer: C
Skill: Analytical
Status: Old
x y
0 0
1 3
2 6
3 9
4 12
5 15
28) Using the data in the table above, with y measured on the vertical axis, the slope of the
line relating y to x is
A) 1/3.
B) 1.
C) 3.
D) 6.
Answer: C
Skill: Analytical
Status: Old
124
x-variable
(on the horizontal y-variable
axis) (on the vertical axis)
10 28
15 31
20 34
29) The above table shows data on two variables. If these data were graphed, the slope of
the line would be
A) 3/5.
B) 3.
C) 5/3.
D) impossible to determine from the information given.
Answer: A
Skill: Analytical
Status: Old
x-variable
8 14
10 18
12 22
30) The above table gives data on two variables. If these data were graphed, the slope of
the line would be
A) 1.
B) -2.
C) 2.
D) -4.
Answer: C
Skill: Analytical
Status: Old
31) The above table gives data on two variables. If these data were graphed, their
relationship would
A) be a straight line.
B) be a curved line.
C) show a negative relationship.
D) nonexistent.
Answer: A
Skill: Analytical
Status: Old
x-variable
125
100 50
200 125
300 200
32) The above table shows data on two variables. If these data were graphed, the slope of
the line would be
A) 1/2.
B) 4/3.
C) 2/3.
D) 3/4.
Answer: D
Skill: Analytical
Status: Old
Quantity Price
0 50
8 40
16 30
24 20
32 10
36 5
33) Using the data in the above table

A) the variables quantity and price are positively related.
B) the variables quantity and price are negatively related.
C) the variables quantity and price are neither positively nor negatively related.
D) an increase in price is likely to cause an increase in quantity.
Answer: B
Skill: Conceptual
Status: Old
126
34) If we use the numbers in the above table to draw a graph, with the price on the vertical
axis and the quantity on the horizontal axis, the line relating price and quantity has a slope
of
A) 0.8.
B) -8.0.
C) -1.25.
D) 8.0.
Answer: C
Skill: Analytical
Status: Old
Income Amount spent on

(dollars per restaurant meals
month) (dollars per month)
50 20
100 40
150 60
200 80
35) Using the data in the above table, if income is on the x-axis and the amount spent on
restaurant meals is on the y-axis, the graph of the two variables would be
A) upward sloping.
B) downward sloping.
C) vertical.
D) horizontal.
Answer: A
Skill: Recognition
Status: Old
36) Using the data in the above table, if income is on the x-axis and the amount spent on
restaurant meals is on the y-axis, the slope of the straight line graph equals
A) 0.2.
B) 0.4.
C) 0.5.
D) 2.5.
Answer: B
Skill: Analytical
Status: Old
127
x y
100 500
200 300
300 100
400 -100
37) Based on the information in the table above, what is the relationship between x and y?
A) direct
B) inverse
C) positive
D) No relationship exists between x and y.
Answer: B
Skill: Analytical
Status: Old
38) Using the information in the table above, what does the slope of the line between x and
y equal?
A) 5
B) -0.5
C) 2
D) -2
Answer: D
Skill: Analytical
Status: Old
128
39) In the above, which figure shows a linear relationship?
A) Figure A
B) Figure B
C) both Figure A and Figure B
D) neither Figure A nor Figure B
Answer: C
Topic: Linear Relationship
Skill: Analytical
Status: Old
40) In the above, which figure shows a line with a slope of 1.0?
A) Figure A
B) Figure B
C) both Figure A and Figure B
D) neither Figure A nor Figure B
Answer: A
Skill: Analytical
Status: Old
129
41) The slope of the line shown in the above figure is
A) -1/3.
B) -5.
C) -1.
D) -3.
Answer: D
Skill: Analytical
Status: Old
130
A) 5.
B) 2/5.
C) 2/3.
D) 5/2.
Answer: B
Skill: Analytical
Status: Old
131
A) -1 1/3.
B) -1 2/3.
C) -1.25.
D) -0.80.
Answer: C
Skill: Analytical
Status: Old
132
A) 2.
B) 0.75.
C) 0.25.
D) 1 1/3.
Answer: B
Skill: Analytical
Status: Old
133
A) 0.90.
B) 1.5.
C) 1.11.
D) 2.
Answer: A
Skill: Analytical
Status: Old
134
46) The slope of the line in the above figure is
A) -1/2.
B) -3.
C) -4.
D) -1/3.
Answer: B
Skill: Analytical
Status: Old
135
A) 8.
B) 0.05.
C) 0.125.
D) 0.10.
Answer: C
Skill: Analytical
Status: Old
136
A) 2/5 = 0.4.
B) 5/2 = 2.5.
C) -2/5 = -0.4.
D) -5/2 = -2.5.
Answer: A
Skill: Analytical
Status: Old
137
A) 1/2 = 0.5.
B) 2.
C) -1/2 = -0.5.
D) -2.
Answer: C
Skill: Analytical
Status: Old
138
A) -10.
B) 10.
C) 5.
D) -5.
Answer: D
Skill: Analytical
Status: Old
139
A) -1 3/8.
B) -1 2/3.
C) 5/8.
D) -0.625.
Answer: D
Skill: Analytical
Status: Old
140
A) 3/4.
B) 2/3.
C) 1 1/3.
D) 1 3/4.
Answer: C
Skill: Analytical
Status: Old
141
A) -4.
B) -2.5.
C) -1.0.
D) 1.0.
Answer: D
Skill: Analytical
Status: Old
54) On a graph, an upward-sloping curve that is flatter as you move away from the origin
indicates a
A) positive relationship with an increasing slope.
B) positive relationship with a decreasing slope.
C) negative relationship with an increasing slope.
D) negative relationship with a decreasing slope.
Answer: B
Topic: The Slope of a Curved Line
Skill: Conceptual
Status: Old
142
55) In the above figure, the curve's slope is
A) positive and is becoming steeper.
B) positive and is becoming less steep.
C) negative and is becoming steeper.
D) negative and is becoming less steep.
Answer: B
Topic: Slope of a Curved Line
Skill: Analytical
Status: Old
56) If the price of apples is on the vertical axis and the quantity of apples demanded is on
the horizontal axis, the slope between two points on the line describing the relationship
between price and quantity is
A) the change in price multiplied by the change in quantity.
B) the change in price divided by the change in quantity.
C) the change in quantity divided by the change in price.
D) price divided by quantity.
Answer: B
Topic: The Slope of a Curved Line
Skill: Analytical
Status: Old
143
57) The formula for the slope across an arc is used to approximate the slope for
A) linear relationships only.
B) a curved line.
C) a positive relationship only.
D) a negative relationship only.
Answer: B
Topic: The Slope Across an Arc
Skill: Conceptual
Status: Old
58) The slope of a curved line can be approximated by

A) the average of the variable measured along the y-axis divided by the average of the
variable measured along the x-axis.
B) the inverse of the straight-line method.
C) the average of the variable measured along the x-axis divided by the average of the
D) the slope across an arc from one point on the curve to another point on the curve.
Answer: D
Skill: Conceptual
Status: Old
144
59) In the above figure, the slope across the arc between c and d is
A) 1/2.
B) 1.
C) 4/3.
D) 2.
Answer: A
Skill: Analytical
Status: Old
60) In the above figure, the slope across the arc between b and c is
A) 1/2.
B) 2/3.
C) 1.
D) 2.
Answer: C
Skill: Analytical
Status: Old
145
61) In the above figure, the slope across the arc between a and b is
A) 2/5.
B) 1.
C) 3/2.
D) 5/2.
Answer: D
Skill: Analytical
Status: Old
62) In the above figure, the slope at point b is

A) 1.
B) 5/2.
C) between 1 and 5/2.
D) greater than 5/2.
Answer: C
Topic: The Slope at a Point
Skill: Analytical
Status: Old
63) In the above figure, the relationship between x and y is

A) positive, with slope decreasing as x increases.
B) negative, with slope decreasing as x increases.
C) negative, with slope increasing as x increases.
D) positive, with slope increasing as x increases.
Answer: A
Skill: Analytical
Status: Old
64) The slope in the above figure is

A) negative and increasing.
B) negative and decreasing.
C) positive and increasing.
D) positive and decreasing.
Answer: D
Skill: Analytical
Status: Old
146
65) In the above figure, using the slope across an arc, the slope of the curve between points
b and c is
A) 1/3.
B) -1/3.
C) 3.
D) -3.
Answer: A
Topic: Slope Across an Arc
Skill: Analytical
Status: Old
a and c is
A) -3/5.
B) 3/5.
C) 5/3.
D) -5/3.
Answer: B
Skill: Analytical
Status: Old
147
a and b is
A) 1/2.
B) -1/2.
C) 2.
D) -2.
Answer: B
Skill: Analytical
Status: Old
a and c is
A) 3/5.
B) 5/3.
C) -3/5.
D) -5/3.
Answer: D
Skill: Analytical
Status: Old
148
A) 1.
B) -4.
C) 1/4.
D) -1/4.
Answer: B
Skill: Analytical
Status: Old
149
70) In the above figure, the slope across the arc between b and d is
A) 1/2.
B) 1/3.
C) 5/3.
D) 6/5.
Answer: C
Skill: Analytical
Status: Old
71) In the above figure, the slope at point b

A) lies between 1/3 and 1.
B) equals 1.
C) lies between 1 and 2.
D) exceeds 2.
Answer: A
Skill: Analytical
Status: Old
150
72) In the above figure, the slope across the arc between c and d is
A) 1/6.
B) 12/11.
C) 3.
D) 4.
Answer: C
Skill: Analytical
Status: Old
A) 3.
B) 1.
C) 3/5.
D) 1/3.
Answer: D
Skill: Analytical
Status: Old
74) Along a curved line, the slope at the maximum

A) is greater than zero.
B) is zero.
C) is less than zero.
D) may be greater than, less than, or equal to zero.
Answer: B
Skill: Conceptual
Status: Old
75) Consider a diagram in which the variable measured on the y-axis remains constant
while the variable measured on the x-axis increases. The graph is of this relationship is a
A) perpendicular line.
B) line with slope equal to zero.
C) line that has positive slope.
D) line that has a negative slope.
Answer: B
Skill: Analytical
Status: Old
151
76) The slope of a negative relationship is
A) negative.
B) undefined.
C) positive to the right of the maximum point and negative to the left.
D) constant as long as the relationship is nonlinear.
Answer: A
Skill: Analytical
Status: Old
77) A linear relationship

A) always has a maximum.
B) always has a constant slope.
C) always slopes up to the right.
D) never has a constant slope.
Answer: B
Skill: Recognition
Status: Old
152
78) In the above figure, between x = 2 and x = 3, what is the slope of the line?
A) 1
B) -1
C) 2
D) 3
Answer: A
Skill: Analytical
Status: Old
79) In the above figure, how does the slope of the line between x = 4 and x = 5 compare
with the slope between x = 2 and x = 3?
A) The slope is greater between x = 4 and x = 5.
B) The slope is greater between x = 2 and x = 3.
C) The slope is the same.
D) The slope is not comparable.
Answer: C
Skill: Analytical
Status: Old
153
80) The relationship between x and y in the above figure is
A) positive with an increasing slope.
B) positive with a decreasing slope.
C) negative with an increasing slope.
D) negative with a decreasing slope.
Answer: A
Skill: Analytical
Status: Old
81) In the above figure, the slope across the arc between points a and b equals
A) 5.
B) 4.
C) 2.
D) 1.
Answer: C
Skill: Analytical
Status: Old
154
14 Appendix: Graphing Relationships Among More Than Two Variables
1) Ceteris paribus when graphing a relationship refers to
A) letting all the variables change at once.
B) changing the origin of the graph.
C) holding constant all but two variables.
D) rescaling the coordinates.
Answer: C
Topic: Graphing Relationships, Two+ Variables, Ceteris Paribus
Skill: Recognition
Status: Old
2) In evaluating a relationship between x and y, ceteris paribus means other variables

A) are not relevant to x and y.
B) move in opposite directions to x and y.
C) are not changing while x and y change.
D) move in the same direction as x and y.
Answer: C
Skill: Conceptual
Status: Old
3) On a graph showing the relationship between x and y, the ceteris paribus condition
implies that
A) no other variables are related to x and y.
B) the value of x is held constant.
C) the value of y is held constant.
D) other variables not shown are held constant.
Answer: D
Skill: Conceptual
Status: Old
155
4) Assume that the quantity consumed of pizza is dependent on three factors: the price of a
pizza, the income of pizza purchasers, and consumers' taste for pizza. When graphing the
relationship between the price of a pizza and the quantity of pizza consumed
A) the price of a pizza and the income of pizza consumers are the only variables that are
allowed to change.
B) the price of pizza and quantity consumed of pizza are the only variables that are allowed
to change.
C) consumers' taste for pizza and the income of pizza purchasers are the only variables that
are allowed to change.
Answer: B
Skill: Conceptual
Status: Old
5) To graph a relationship among several variables, we hold all but ________ variable(s)
constant and use the ________ assumption.
A) one; scarcity
B) two; ceteris paribus
C) three; marginal benefit
D) one; ceteris paribus
Answer: B
Topic: Graph Relationships-More than Two Variables, Ceteris Paribus
Skill: Recognition
Status: Old
156
6) In the above figure, while moving along the line showing the relationship between
household income and expenditure
A) household expenditures are held constant.
B) household income is held constant.
C) the interest rate is held constant.
D) no variable is held constant.
Answer: C
Topic: Graphing Relationships Among More Than Two Variables
Skill: Analytical
Status: Old
7) In the above figure, if the interest rate is negatively related to household expenditures
for any given level of household income, an increase in the interest rate will
A) shift the line vertically upward.
B) shift the line vertically downward.
C) make the line negatively sloped.
D) cause no change in the line's position.
Answer: B
Skill: Analytical
Status: Old
157
A) positive.
B) negative.
C) direct.
D) independent.
Answer: B
Skill: Analytical
Status: Old
9) In the above figure, when the interest rate is 8 percent and household income is
$40,000, household consumption is
A) $0.
B) $20,000.
C) $35.000.
D) $60,000.
Answer: B
Skill: Analytical
Status: Old
158
10) The relationship in the above figure indicates that
A) a decrease in the interest rate leads to a decrease in household income.
B) a decrease in household consumption leads to a decrease in interest rates.
C) a decrease in household income will lead household consumption to increase.
D) none of the above.
Answer: D
Skill: Analytical
Status: Old
11) Household consumption depends on both income and interest rates. In the above figure
A) household consumption is held constant.
B) interest rates are held constant.
C) household income is held constant.
D) no variable is held constant.
Answer: C
Skill: Analytical
Status: Old
12) In the above figure, if household consumption is positively related to household income,
then an increase in household income will
A) shift the line rightward.
B) shift the line leftward.
C) make the line positively sloped.
D) cause a movement along the line.
Answer: A
Skill: Analytical
Status: Old
13) The above figure shows how many pounds of peanuts farmers are willing to sell at
different prices per pound of peanuts. If the price of a pound of peanuts is $1 and the price
159
of a pound of pecans is $2, peanut farmers are willing to sell
A) no peanuts.
B) 1000 pounds of peanuts.
C) 2000 pounds of peanuts.
D) 4000 pounds of peanuts.
Answer: A
Skill: Analytical
Status: Old
14) In the above figure, while drawing the line showing the relationship between the price
of a pound of peanuts and the quantity sold, the
A) price of a pound of pecans is held constant.
B) price of a pound of peanuts is held constant.
C) quantity of peanuts that farmers supply is constant.
D) Both answers A and B are true.
Answer: A
Skill: Analytical
Status: Old
160
15) In the figure above, suppose the price of a pound of pecans is negatively related to the
quantity of peanuts that farmers are willing to supply. If the price of pecans increases
A) the curve will shift rightward.
B) the curve will shift leftward.
C) there is a movement along the curve.
D) the curve will be unaffected.
Answer: B
Skill: Analytical
Status: Old
16) In the above figure, x is

A) positively related to y and negatively related to z.
B) positively related to both y and z.
C) negatively related to y and positively related to z.
D) negatively related to both y and z.
Answer: C
Topic: Graphing Relationships Among 2+ Var.
Skill: Analytical
Status: Old
161
17) In the figure above, ceteris paribus, an increase in x is associated with
A) an increase in y.
B) a decrease in y.
C) a decrease in z.
Answer: A
Skill: Analytical
Status: Old
18) In the figure above, an increase in z leads to a

A) movement up along one of the lines showing the relationship between x and y.
B) movement down along one of the lines showing the relationship between x and y.
C) rightward shift of the line showing the relationship between x and y.
D) leftward shift of the line showing the relationship between x and y.
Answer: C
Skill: Analytical
Status: Old
15 Appendix: Essay Questions

1) Why do economists use graphs?
Answer: Graphs help economists, and others, to visualize the relationships between
economic variables. Graphs that plot variables together help economists understand if the
variables are related and how they are related. Graphs also help provide a visual picture of
economic models that link different variables. Indeed, many other disciplines use such
visual models. For example, architects work with blueprints (their model) and the
blueprints represent every detail of a building. Economists' models do not reflect of every
detail of the real world, but the graphs that they use nonetheless are valuable because they
help clarify the linkages between the variables.
Skill: Recognition
Status: Old
2) What are the two different types of relationships that variables can have? Explain each.
What do these relationships look like when they are graphed?
Answer: Variables can have two relationships: positive (or direct) and negative (or
inverse). A positive relationship occurs when the variables move in the same direction, so
that when one increases, the other also increases. A negative relationship occurs when the
variables move in the opposite direction, so that when one increases, the other decreases.
When a positive relationship is graphed, the line slopes upward to the right. When a
negative relationship is graphed, the line slopes downward to the right.
Topic: Relationships
Skill: Recognition
Status: Old
3) What is the difference between a positive and a negative relationship?

Answer: Two variables are positively related when an increase (decrease) in one is
associated with an increase (decrease) in the other. In this case, the variables move
together, in the same direction. Two variables are negatively related when an increase
(decrease) in one is associated with a decrease (increase) in the other. In this case, the
162
variables move in the opposite direction.
Topic: Relationships
Skill: Recognition
Status: Old
4) A graph of two variables is a vertical line. What is the interpretation of this result?
Answer: When the graph of two variables is a vertical line, the variables are not related
because, with this graph, whenever the variable measured along the vertical axis changes,
the variable measured along the horizontal axis does not change.
Topic: Unrelated Variables
Skill: Recognition
Status: Old
5) What does the slope of a straight line equal? How is the slope of a curved line calculated
at a point on the curve?
Answer: The slope of a straight line is calculated between two points on the line. Between
the two points on the line, the slope equals the change in the value of the variable
measured on the vertical axis (the y-axis) divided by the change in the value of the variable
measured on the horizontal axis (the x-axis). The slope of a curved line calculated at a point
on the curve is equal to the slope of a tangent straight line. At that point on the curved line,
draw a straight line that touches the curved line at only that point. Then, calculate the
slope of the straight line. The slope of the curved line at that point equals the slope of the
straight line.
Topic: Slope
Skill: Recognition
Status: Old
6) "It is impossible to represent a three variable relationship in a two-dimensional graph."

Is this statement true or false? Explain your answer.
Answer: The statement is false because it is possible to represent a three variable
relationship in a two dimensional graph. To do so, start by focusing on two of the variables.
Assume that the third variable does not change (the ceteris paribus assumption) and then
graph the relationship between the two variables. The graph shows how these two
variables are related when the third variable does not change. When the third variable does
change, then the entire relationship between the two graphed variables changes. In other
words, the line showing the relationship between the two graphed variables shifts so that it
becomes an entirely new line. The shift in the line shows how the third variable influences
the other two.
Skill: Recognition
Status: Old
16 Appendix: Numeric and Graphing Questions
163
1) The figure above shows how the sales of the video game "Tomb Raider—Lara Retires"
change when the advertising spent on the game changes. Is the relationship between
advertising and the number of games sold positive, negative, or neither? Explain your
answer.
Answer: The figure shows that there is a positive relationship between advertising and the
number of video games sold. The relationship is positive because the two variables move
together: If advertising increases, so, too, does the number of games sold.
Topic: Positive Relationship
Skill: Recognition
Status: Old
164
2) The figure above shows how the relationship between the number of hours per week a
high school student spends on the web and the student's SAT score. Is the relationship
between hours on the web and the SAT score positive, negative, neither? Explain your
answer.
Answer: The figure shows that there is a negative relationship between hours on the web
and the student's SAT score. The relationship is negative because the two variables move
in opposite directions: If hours on the web increase, the SAT score decreases.
Topic: Negative Relationship
Skill: Recognition
Status: Old
165
3) A graph has a point that is either a maximum or a minimum. To the left of the point, the
slope of relationship is positive. To the right of the point, the slope is negative. Is the point
a maximum point or a minimum point? Be sure to draw a figure that supports your answer.
Answer:
The point is a maximum point. Examine the figure above. The slope of a curved line at any
point equals the slope of a straight line that touches the curved line at only that one point.
Thus to the left of the maximum point, take point A. The slope of the straight line that
touches the curved line at only point A is positive, so the slope of the relationship is
positive. Similarly, take point B to the right of the maximum point. As the straight line
shows, the slope of the relationship at point B is negative. Indeed, whenever there is a
maximum point, the slope of the relationship to the left of the maximum is positive and the
slope to the right is negative.
Topic: Maximum
Skill: Recognition
Status: Old
166
4) In the figure above, what can you deduce about the slope of the curve?
Answer: The slope is positive and increasing in size as we move rightward along the curve.
Topic: Slope
Skill: Conceptual
Status: Old
5) If two points on a line are x = 2, y = 5 and x = 7, y = 10, what is the slope of this line?
Answer: The slope equals the change in the y-variable divided by the change in the x-
variable. So, the slope equals (10 - 5)/(7 - 2) = (5)/(5) = 1.00.
Topic: Slope
Skill: Analytical
Status: Old
167
Katie's income Katie's purchases
(dollars per year) (books per year)
50,000 14
70,000 16
90,000 18
110,000 20
168
6) The table above shows how the number of books Katie buys each year depends on her
income.
a) What kind of relationship exists between Katie's income and the number of books she
purchases?
b) Plot the relationship between Katie's income and the number of books she purchases in
the above figure. Measure income along the vertical axis and the number of books along
the horizontal axis. Be sure to label the axes.
c) What is the slope of the relationship between $50,000 and $70,000 of income?
d) What is the slope of the relationship between $90,000 and $110,000 of income?
e) Comment on the similarity or dissimilarity of your answers to parts (c) and (d).
Answer:
a) There is a positive relationship. When Katie's income increases, so too does her
purchase of books.
b) The relationship is plotted in the figure above.

c) The slope equals the change in the value of the variable measured on the vertical axis,
income, divided by the change in the value of the variable measured along the horizontal
axis, the number of books. Between $50,000 and $70,000 of income, the number of books
purchased increases from 14 to 16. Hence income increases by $20,000 and the number of
books increases by 2, so the slope equals $20,000/2 = 10,000.
d) As with the previous answer, the slope equals the change in income divided by the
change in books. Between $90,000 and $110,000 of income, the number of books
purchased increases from 18 to 20. Hence income increases by $20,000 and the number of
books increases by 2, so the slope equals $20,000/2 = 10,000.
e) The slopes in parts (c) and (d) are equal. But, they MUST be equal because the
relationship between Katie's income and the number of books she purchases is linear. For a
linear relationship, the slope is the same regardless of where it is measured.
Topic: Slope of a Straight Line
Skill: Analytical
Status: Old
169
X Y
2 20
4 16
6 12
8 8
170
7) Graph the data in the table above in the figure. Label the axes.
a) Is the relationship between X and Y positive or negative?
b) What is the slope when X = 4?
c) What is the slope when X = 8?
Answer:
The figure labels the axes and graphs the relationship.

a) The relationship between X and Y is negative.
b) The slope equals -2.
c) The slope equals -2.
Skill: Analytical
Status: Old
171
8) In the above diagram, draw a straight line with a slope of zero.
Answer:
A horizontal line has a slope of zero. The figure above shows a horizontal line with a slope
of zero.
Skill: Analytical
Status: Old
172
9) What does the slope of the line shown in the above figure equal?
Answer: The slope equals the change in variable on the y-axis divided by the change in the
variable on the x-axis, or (150 - 300)/(600 - 800) = 0.75.
Skill: Analytical
Status: Old
173
Skill: Analytical
Status: Old
174
variable on the x-axis, or (30 - 60)/(25 - 15) = -3.0.
Skill: Analytical
Status: Old
175
Skill: Analytical
Status: Old
176
13) What does the slope of the curved line at point A shown in the above figure equal?
Answer: The slope of a curved line equals the slope of a straight line that touches the
curved line at only that point. And, the slope of a straight line equals the change in variable
on the y-axis divided by the change in the variable on the x-axis. Measure the slope of the
straight line from point A to where the line crosses the x-axis, at 15. Thus the straight line
has a slope of (30 - 0)/(10 - 15) = -6. Therefore the curve line at point A also has a slope
equal to -6.
Topic: Slope of a Curved Line
Skill: Analytical
Status: Old
177
Hours studies
SAT scores
(per week)
2 900
4 1000
6 1050
8 1075
10 1090
178
14) Jamie is preparing to take his SAT tests. The table above shows how Jamie's score
depends on the number of hours a week Jamie studies.
a) Plot the relationship in the figure, putting the hours studied on the horizontal axis.
b) Is the relationship you plotted positive or negative?
c) What happens to the slope of the relationship as hours studied increase?
d) Suppose Jamie can enroll in an SAT prep course and, by so doing, for every possible
number of hours he studies, his score will be 100 points higher. Plot the new relationship
between the number of hours studied and Jamie's SAT score in the figure.
e) How many variables are involved in the figure you just completed?
Answer:
a) The figure above plots the relationship between the number of hours Jamie studies and
his SAT score.
b) The relationship is positive: As Jamie increases the hours he studies, his SAT score
increases.
c) The relationship is nonlinear, so the slope of the relationship changes as the number of
hours studied changes. In the figure, the slope of the relationship decreases in size as the
number of hours studied increases.
d) The figure above also plots the relationship between the hours Jamie studies and his
SAT score if Jamie takes an SAT preparation course.
e) There are three variables: The number of hours Jamie studies, whether or not he takes
an SAT preparation course, and his SAT score.
Skill: Analytical
Status: Old
179
17 Appendix: True or False
1) The vertical axis of a graph shows only positive values.
Answer: FALSE
Skill: Recognition
Status: Old
2) A scatter diagram plots the value of one economic variable against time.
Answer: FALSE
Skill: Recognition
Status: Old
3) A cross-section graph can show how economic variables for different groups of people
vary over time.
Answer: FALSE
Skill: Recognition
Status: Old
4) If the x-axis variable increases while the y-axis variable decreases, the variables x and y
are negatively related.
Answer: TRUE
Topic: Graphs Used in Economic Models
Skill: Conceptual
Status: Old
5) A graph cannot be used to show that two variables are unrelated.

Answer: FALSE
Skill: Conceptual
Status: Old
6) When graphed, variables that are unrelated are shown by either a horizontal or a
vertical line.
Answer: TRUE
Skill: Recognition
Status: Old
180
7) The slope of a line is the change in the y-axis variable divided by the change in the x-axis
variable.
Answer: TRUE
Skill: Recognition
Status: Old
8) The slope of a straight line increases as the numbers on the x-axis become larger.
Answer: FALSE
Skill: Conceptual
Status: Old
9) To calculate the slope of a curved line, you can calculate the slope at a point on the
curve or across an arc of the curve.
Answer: TRUE
Skill: Conceptual
Status: Old
10) If the change in the y-axis variable is 4 and the change in the x-axis variable is 2, the
slope of this line is 1/2.
Answer: FALSE
Skill: Analytical
Status: Old
11) If the change in the y-axis variable is 6 and the change in the x-axis variable is 5, the
slope of this line is 6/5.
Answer: TRUE
Skill: Analytical
Status: Old
12) To graph a relationship that involves more than two variables, we use the "ceteris
paribus" assumption.
Answer: TRUE
Skill: Conceptual
Status: Old
181
13) "Ceteris paribus" refers to the idea that if more than two variables are graphed, only
one variable must be held constant.
Answer: FALSE
Skill: Conceptual
Status: Old
182

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Microeconomics, 14e (Parkin)

Chapter 1 What Is Economics?

2) All economic questions arise because we

4) Scarcity is a situation in which

5) Economists point out that scarcity confronts

7) When an economist talks of scarcity, the economist is referring to the

8) Fundamental economic problems basically arise from

10) Scarcity can be eliminated through

11) As an economic concept, scarcity applies to

14) Scarcity requires that people must

15) People must make choices because

18) Economics is best defined as

19) The study of economics

23) In part, microeconomics is concerned with

27) Which of the following is a microeconomic topic?

28) Which of the following questions is NOT a microeconomic question?

30) Which of the following is a microeconomic topic?

32) An example of a question that might be explored in microeconomics is to determine

35) Macroeconomics is concerned with

36) Macroeconomics differs from microeconomics in that

38) Which of the following questions is a macroeconomic issue?

40) Which of the following is a macroeconomic issue?

42) Macroeconomic topics include

46) Scarcity is a situation in which

47) Microeconomics is the study of

2 Two Big Economic Questions

8) Which of the following statements is CORRECT?

9) In the U.S. economy, which of the following statements is TRUE?

16) Which of the following is NOT a factor of production?

18) Which of the following is CORRECT? Factors of production are

19) Factors of production include

20) Factors of production include all of the following EXCEPT

21) Factors of production are grouped into four categories

22) Which of the following is NOT a factor of production?

24) Which of the following is NOT a factor of production?

26) Which factor of production earns profit?

28) Which of the following best defines capital as a factor of production?

30) A natural resource, such as fishing territories, is considered an example of

32) Copper falls into which factor of production category?

34) The term human capital refers to

35) Human capital is

38) Samantha goes to college to become an engineer. This is an example of an

39) In economics, the term "capital" refers to

42) Entrepreneurs do all of the following EXCEPT

43) Entrepreneurs directly do all of the following EXCEPT

48) An outcome is considered efficient if

50) The Occupy Wall Street movement advocates

54) According to economists

3 The Economic Way of Thinking

2) Because we face scarcity, every choice involves

5) Opportunity cost means the

6) The opportunity cost of any action is

7) The opportunity cost of something you decide to get is

9) Which of the following statements are CORRECT?

10) Opportunity cost is defined as the

20) The opportunity cost of attending college includes the cost of

22) Which of the following is NOT an example of an opportunity cost?

27) The term "opportunity cost" points out that

30) Marginal benefit is the benefit