ECON 2010: CHAPTER 1QUESTIONS
AND CORRECT ANSWERS
Economists assume that ✅✅CORRECT ANSW-optimal decisions are made at the margin
Economists assume that rational people ✅✅CORRECT ANSW-respond to economic incentives
Your roommate, Serafina, a psychology major, said, "The problem with economics is that it assume
that consumers and firms always make the correct decision. But we know that everyone's human,
and we all make mistakes." Do you agree with her comment? ✅✅CORRECT ANSW-I disagree with
her. Economics does not study correct or incorrect behaviors but rather it assumes that economic
agents behave rationally, meaning they make the best decisions given their knowledge of the costs
and benefits
Scarcity refers to the situation in which ✅✅CORRECT ANSW-unlimited wants exceed limited
resources
Economics is the study of the _________ people make to attain their goals, given their
_____________ resources ✅✅CORRECT ANSW-choices; scarce
What is an economic model? ✅✅CORRECT ANSW-It is a simplified version of some aspect of
economic life used to analyze an economic issue
The term "market" in economics refers to ✅✅CORRECT ANSW-a group of buyers and sellers of a
product and the arrangement by which they come together to trade
What does the term "marginal" mean in economics? ✅✅CORRECT ANSW-an additional or extra
Economics promotes which of the following as the way to make the best decision?
A) Continue an enjoyable activity until it is no longer enjoyable
B) Continue an enjoyable activity up to the point where its marginal benefit equals its marginal cost
C) Continue an enjoyable activity until you cannot afford to pursue it
D) Continue an enjoyable activity as long as you do not have to pay for it ✅✅CORRECT ANSW-
Continue an enjoyable activity up to the point where its marginal benefit equals its marginal cost
, Cassie's Quilts, alters, reconstructs and restores heirloom quilts. Cassie has just spent $800
purchasing, cleaning and reconstructing an antique quilt which she expects to sell for $1,500 once
she is finished. After having spent $800, Cassie discovers that she would need some special period
fabric that would cost her $200 in material and time in order to complete the task. Alternatively, she
can sell the quilt "as is" now for $900. What is the marginal cost of completing the task?
✅✅CORRECT ANSW-$200
Cassie's Quilts, alters, reconstructs and restores heirloom quilts. Cassie has just spent $800
purchasing, cleaning and reconstructing an antique quilt which she expects to sell for $1,500 once
she is finished. After having spent $800, Cassie discovers that she would need some special period
fabric that would cost her $200 in material and time in order to complete the task. Alternatively, she
can sell the quilt "as is" now for $900. What should she do? ✅✅CORRECT ANSW-She should
purchase the periodic fabric, complete the task and then sell the quilt.
Suppose a t-shirt manufacturer currently sells 5,000 shirts per week and makes a profit of $10,000
per week. A manager at the plant observes, "Although the last 400 shirts we produced and sold
increased our revenue by $4000 and our costs by $4800, we are still making an overall profit of
$10,000 per week so I think we're on the right track. We are producing the optimal number of
shirts." Using marginal analysis terminology, what is another economic term for the incremental
revenue received from the sale of the last 400 shirts? ✅✅CORRECT ANSW-marginal revenue
Suppose a t-shirt manufacturer currently sells 5,000 shirts per week and makes a profit of $10,000
per week. A manager at the plant observes, "Although the last 400 shirts we produced and sold
increased our revenue by $4000 and our costs by $4800, we are still making an overall profit of
$10,000 per week so I think we're on the right track. We are producing the optimal number of
shirts." Using marginal analysis terminology, what is another economic term for the incremental cost
of producing the last 400 shirts? ✅✅CORRECT ANSW-Marginal cost
Suppose a t-shirt manufacturer currently sells 5,000 shirts per week and makes a profit of $10,000
per week. A manager at the plant observes, "Although the last 400 shirts we produced and sold
increased our revenue by $4000 and our costs by $4800, we are still making an overall profit of
$10,000 per week so I think we're on the right track. We are producing the optimal number of
shirts." Had the firm not produced and sold the last 400 shirts, would its profit be higher or lower,
and if so by how much? ✅✅CORRECT ANSW-Its profit will be $800 higher
Who, in a modern mixed economy, decides what goods and services will be produced with the
scarce resources available in that economy? ✅✅CORRECT ANSW-The government, consumers
and producers
AND CORRECT ANSWERS
Economists assume that ✅✅CORRECT ANSW-optimal decisions are made at the margin
Economists assume that rational people ✅✅CORRECT ANSW-respond to economic incentives
Your roommate, Serafina, a psychology major, said, "The problem with economics is that it assume
that consumers and firms always make the correct decision. But we know that everyone's human,
and we all make mistakes." Do you agree with her comment? ✅✅CORRECT ANSW-I disagree with
her. Economics does not study correct or incorrect behaviors but rather it assumes that economic
agents behave rationally, meaning they make the best decisions given their knowledge of the costs
and benefits
Scarcity refers to the situation in which ✅✅CORRECT ANSW-unlimited wants exceed limited
resources
Economics is the study of the _________ people make to attain their goals, given their
_____________ resources ✅✅CORRECT ANSW-choices; scarce
What is an economic model? ✅✅CORRECT ANSW-It is a simplified version of some aspect of
economic life used to analyze an economic issue
The term "market" in economics refers to ✅✅CORRECT ANSW-a group of buyers and sellers of a
product and the arrangement by which they come together to trade
What does the term "marginal" mean in economics? ✅✅CORRECT ANSW-an additional or extra
Economics promotes which of the following as the way to make the best decision?
A) Continue an enjoyable activity until it is no longer enjoyable
B) Continue an enjoyable activity up to the point where its marginal benefit equals its marginal cost
C) Continue an enjoyable activity until you cannot afford to pursue it
D) Continue an enjoyable activity as long as you do not have to pay for it ✅✅CORRECT ANSW-
Continue an enjoyable activity up to the point where its marginal benefit equals its marginal cost
, Cassie's Quilts, alters, reconstructs and restores heirloom quilts. Cassie has just spent $800
purchasing, cleaning and reconstructing an antique quilt which she expects to sell for $1,500 once
she is finished. After having spent $800, Cassie discovers that she would need some special period
fabric that would cost her $200 in material and time in order to complete the task. Alternatively, she
can sell the quilt "as is" now for $900. What is the marginal cost of completing the task?
✅✅CORRECT ANSW-$200
Cassie's Quilts, alters, reconstructs and restores heirloom quilts. Cassie has just spent $800
purchasing, cleaning and reconstructing an antique quilt which she expects to sell for $1,500 once
she is finished. After having spent $800, Cassie discovers that she would need some special period
fabric that would cost her $200 in material and time in order to complete the task. Alternatively, she
can sell the quilt "as is" now for $900. What should she do? ✅✅CORRECT ANSW-She should
purchase the periodic fabric, complete the task and then sell the quilt.
Suppose a t-shirt manufacturer currently sells 5,000 shirts per week and makes a profit of $10,000
per week. A manager at the plant observes, "Although the last 400 shirts we produced and sold
increased our revenue by $4000 and our costs by $4800, we are still making an overall profit of
$10,000 per week so I think we're on the right track. We are producing the optimal number of
shirts." Using marginal analysis terminology, what is another economic term for the incremental
revenue received from the sale of the last 400 shirts? ✅✅CORRECT ANSW-marginal revenue
Suppose a t-shirt manufacturer currently sells 5,000 shirts per week and makes a profit of $10,000
per week. A manager at the plant observes, "Although the last 400 shirts we produced and sold
increased our revenue by $4000 and our costs by $4800, we are still making an overall profit of
$10,000 per week so I think we're on the right track. We are producing the optimal number of
shirts." Using marginal analysis terminology, what is another economic term for the incremental cost
of producing the last 400 shirts? ✅✅CORRECT ANSW-Marginal cost
Suppose a t-shirt manufacturer currently sells 5,000 shirts per week and makes a profit of $10,000
per week. A manager at the plant observes, "Although the last 400 shirts we produced and sold
increased our revenue by $4000 and our costs by $4800, we are still making an overall profit of
$10,000 per week so I think we're on the right track. We are producing the optimal number of
shirts." Had the firm not produced and sold the last 400 shirts, would its profit be higher or lower,
and if so by how much? ✅✅CORRECT ANSW-Its profit will be $800 higher
Who, in a modern mixed economy, decides what goods and services will be produced with the
scarce resources available in that economy? ✅✅CORRECT ANSW-The government, consumers
and producers
