Principles of Microeconomics

TEST BANK 2021 Principles of Microeconomics Test Item File 2 Ninth Edition by Case/Fair/Oster Test Item File to Accompany Principles of Microeconomics Test Item File 2 Ninth Edition by Case/Fair/Oster Prentice Hall c.2009 10/30/08 Contents Chapter 1 The Scope and Method of Economics 1 Chapter 2 The Economic Problem: Scarcity and Choice 29 Chapter 3 Demand, Supply, and Market Equilibrium 55 Chapter 4 Demand and Supply Applications 98 Chapter 5 Elasticity 117 Chapter 6 Household Behavior and Consumer Choice 135 Chapter 7 The Production Process: The Behavior of Profit-Maximizing Firms 171 Chapter 8 Short-Run Costs and Output Decisions 207 Chapter 9 Long-Run Costs and Output Decisions 252 Chapter 10 Input Demand: The Labor and Land Markets 292 Chapter 11 Input Demand: The Capital Markets and Investment Decision 323 Chapter 12 General Equilibrium and the Efficiency of Perfect Competition 348 Chapter 13 Monopoly and Antitrust Policy 377 Chapter 14 Oligopoly 425 Chapter 15 Monopolistic Competition 449 Chapter 16 Externalities, Public Goods, Imperfect Information, and Social Choice 476 Chapter 17 Uncertainty and Asymmetric Information 517 Chapter 18 Income Distribution and Poverty 535 Chapter 19 Public Finance: The Economics of Taxation 563 Chapter 20 International Trade, Comparative Advantage, and Protectionism 592 Chapter 21 Economic Growth in Developing and Transitional Economies 628 Chapter 1 The Scope and Method of Economics 1.1 Why Study Economics? 1 Multiple Choice 1) The reasons to study economics include which of the following? A) to be an informed voter B) to understand society and global affairs C) to learn a way of thinking D) all of the above Diff: 1 Topic: Why Study Economics? Skill: Fact 2) Marginalism is A) the best alternative that we forego when making a decision. B) the study of how societies choose to use scarce resources. C) a market situation in which profit opportunities are eliminated almost instantaneously. D) the process of analyzing the additional costs or benefits arising from a decision. Diff: 1 Topic: Why Study Economics? Skill: Definition 3) Economics is best defined as the study of A) financial decision-making. B) how consumers make purchasing decisions. C) choices made by people faced with scarcity. D) inflation, unemployment, and economic growth. Diff: 2 Topic: Why Study Economics? Skill: Definition 4) The Industrial Revolution refers to the rise of the modern factory system in during the late eighteenth and early nineteenth centuries. A) the United States B) England C) France D) Germany Diff: 1 Topic: Why Study Economics? Skill: Fact 1 5) Which of the following statements is correct? A) Economics is a natural science. B) In large measure, economics is the study of how people make choices. C) If poverty was eliminated there would be no reason to study economics. D) Economic analysis can be used to explain how societies, but not individuals, make decisions. Diff: 1 Topic: Why Study Economics? Skill: Fact 6) Economics is the study of A) how to invest in the stock market. B) how society uses limited resources. C) the role of money in markets. D) how government officials decide which goods and services are produced. Diff: 2 Topic: Why Study Economics? Skill: Definition 7) Costs that cannot be avoided, because they have already been incurred are known as A) differential costs. B) marginal costs. C) opportunity costs. D) sunk costs. Diff: 2 Topic: Why Study Economics? Skill: Definition 8) Suppose that two weeks ago you purchased a ticket to the symphony for $40. Last week someone invited you to go camping on the same night as the symphony concert. You would much rather go camping than go to the symphony. You have tried unsuccessfully to sell the symphony concert ticket. Which of the following statements regarding this situation is correct? A) The $40 symphony ticket should be irrelevant in your decision making, because it represents the marginal cost of going camping. B) The $40 you paid for the symphony ticket should be irrelevant in your decision making, because it is a sunk cost. C) The $40 you paid for the symphony ticket is relevant to the decision, as this represents the opportunity cost of going camping. D) You should base your decision on whether or not going camping will provide you with more than $40 in satisfaction. Diff: 2 Topic: Why Study Economics? Skill: Conceptual AACSB: Reflective Thinking 9) You have decided that you want to attend a renaissance fair as King Henry VIII. You estimate that it will cost $80 to assemble your costume. After spending $80 on the costume, you realize that the additional pieces you need will cost you $20 more. The marginal cost of completing the costume is A) $20. B) $60. C) $80. D) $100. Diff: 2 Topic: Why Study Economics? Skill: Analytic AACSB: Analytic Skills 10) The concept of opportunity cost can be applied to the analysis of decision-making processes. A) only economy-wide B) only global C) only-small-scale D) any Diff: 2 Topic: Why Study Economics? Skill: Conceptual AACSB: Reflective Thinking 11) That which we forgo, or give up, when we make a choice or a decision is known as A) equity. B) causation. C) correlation. D) opportunity cost. Diff: 2 Topic: Why Study Economics? Skill: Definition 12) Scarce resources give rise to the concept of A) efficient markets. B) opportunity costs. C) laissez-faire. D) positive economics. Diff: 1 Topic: Why Study Economics? Skill: Fact 13) Which of the following is an opportunity cost of attending college? A) the cost of your apartment or dorm B) the income you could have earned if you didnʹt attend college C) the cost of the food that you consume while you are attending college D) the education you gain from attending college. Diff: 2 Topic: Why Study Economics? Skill: Conceptual AACSB: Reflective Thinking 14) If your tuition is $2,000 this semester, your books cost $400, you can only work 10 rather than 40 hours per week during the 15 weeks you are taking classes and you make $12 per hour, and your room and board is $4,000 this semester, then your opportunity cost of attending college this semester is A) $2,400. B) $2,760. C) $7,800. D) $11,800. Diff: 3 Topic: Why Study Economics? Skill: Analytic AACSB: Analytic Skills 15) If your tuition is $20,000 this semester, your books cost $2,000, you can only work 10 rather than 40 hours per week during the 15 weeks you are taking classes and you make $15 per hour, and your room and board is $8,000 this semester, then your opportunity cost of attending college this semester is A) $22,000. B) $22,150. C) $28,750. D) $36,750. Diff: 3 Topic: Why Study Economics? Skill: Analytic AACSB: Analytic Skills 16) If you own a condo and you decide to lease it to your cousin A) there is no opportunity cost of leasing the condo because you own it. B) there is an opportunity cost of leasing the condo because you could have chosen to live in it. C) there is no opportunity cost of leasing the condo because you collect rent from your cousin. D) the only cost relevant to this decision is the price you paid for the condo. Diff: 2 Topic: Why Study Economics? Skill: Conceptual AACSB: Reflective Thinking 17) You own The Wedding Crasher on DVD. The opportunity cost of watching this DVD for the fourth time A) is zero, since you own it. B) is one-fourth the cost of the DVD, as this is the fourth time you have watched it. C) is the value of the alternative use of the time you spend watching the DVD. D) must be the same as the opportunity cost of watching it the first time. Diff: 2 Topic: Why Study Economics? Skill: Conceptual AACSB: Reflective Thinking 18) Opportunity cost is A) what we give up to get something else. B) marginal cost divided by sunk cost. C) the same as real cost. D) all of the above Diff: 1 Topic: Why Study Economics? Skill: Definition 19) Sunk costs A) are costs which have been incurred. B) are costs which cannot be avoided but have yet to be incurred. C) the sum of all marginal costs. D) the sum of all opportunity costs. Diff: 1 Topic: Why Study Economics? Skill: Definition 20) If you can download 10 ring tones for your cell phone for $10 or you could download 11 ring tones for your cell phone for $10.50, then the marginal cost of the eleventh ring tone is A) $0.50. B) $10.00. C) $10.50. D) $20.50. Diff: 2 Topic: Why Study Economics? Skill: Analytic AACSB: Analytic Skills 21) If you eat at a Las vegas casino that charges $12 for its all you can eat buffet, then the marginal cost of your third trip to the buffet is A) zero. B) $4. C) $12. D) $36. Diff: 2 Topic: Why Study Economics? Skill: Analytic AACSB: Analytic Skills 22) An efficient market is a market A) that deals in unlimited resources. B) in which long-term profits are guaranteed. C) in which profit opportunities are eliminated almost instantaneously. D) in which there are no opportunity costs. Diff: 2 Topic: Why Study Economics? Skill: Definition 23) If information is more costly and less easily available, then usually this A) makes markets more efficient. B) makes markets less efficient. C) decreases profit opportunities. D) decreases the opportunity cost of acquiring more information. Diff: 3 Topic: Why Study Economics? Skill: Conceptual AACSB: Reflective Thinking 24) The common way of expressing the efficient market concept is A) ʺthe only true market is a profitable market.ʺ B) ʺthereʹs no such thing as a free lunch.ʺ C) ʺonly without government interference can a market survive.ʺ D) ʺonce an efficient market, always an efficient market.ʺ Diff: 2 Topic: Why Study Economics? Skill: Conceptual AACSB: Reflective Thinking 25) Related to the Economics in Practice on p. 6: An example of a sunk cost to Apple in its production of the iPod is A) the $73 cost of the Toshiba hard drive. B) the cost of conception and design of the iPod. C) the $80 value-added received by Apple. D) the cost of all of the 451 components needed to produce the iPod. Diff: 2 Topic: Why Study Economics?: Economics in Practice Skill: Conceptual AACSB: Reflective Thinking 26) Related to the Economics in Practice on p. 6: The opportunity cost to Apple of having its 30-gigabyte video iPod assembled in China is A) the low wages paid to Chinese workers. B) the $4 per unit cost of assembly in China. C) having the iPod assembled in the next best available location. D) the value-added received by Apple. Diff: 2 Topic: Why Study Economics?: Economics in Practice Skill: Conceptual AACSB: Reflective Thinking 2 True/False 1) Resources are limited in both wealthy and poor societies. Answer: TRUE Diff: 1 Topic: Why Study Economics? Skill: Fact 2) The value of the best alternative foregone is the sunk cost of making a decision. Answer: FALSE Diff: 1 Topic: Why Study Economics? Skill: Fact 3) Opportunity costs arise because resources are limited. Answer: TRUE Diff: 1 Topic: Why Study Economics? Skill: Conceptual AACSB: Reflective Thinking 4) Sunk costs affect marginal decision making. Answer: FALSE Diff: 2 Topic: Why Study Economics? Skill: Conceptual AACSB: Reflective Thinking 5) Sunk costs are those that cannot be recaptured. Answer: TRUE Diff: 1 Topic: Why Study Economics? Skill: Fact 1.2 The Scope of Economics 1 Multiple Choice 1) Microeconomics is best described as the study of A) the choices made by individual households, firms, and governments. B) inflation, unemployment, gross national product, and the nationʹs economy as a whole. C) how markets interact in the aggregate economy. D) marginal changes in the economy. Diff: 2 Topic: The Scope of Economics Skill: Definition 2) Macroeconomics is best described as the study of A) very large issues. B) the choices made by individual households, firms, and governments. C) the nationʹs economy as a whole. D) the relationship between inflation and wage inequality. Diff: 2 Topic: The Scope of Economics Skill: Definition 3) Which of the following is a microeconomics question? A) Is it sensible for a government to subsidize tobacco production? B) Why do some countries grow faster than others? C) Should Congress and the president take action to reduce global warming? D) Should the government attempt to influence the interest rate to lower inflation? Diff: 2 Topic: The Scope of Economics Skill: Conceptual AACSB: Reflective Thinking 4) Which of the following is a macroeconomics question? A) Should we have a constitutional amendment to balance the federal budget? B) Why does a firm decide to enter a particular market? C) Should the government prevent the merger of two large firms? D) Should the government put a tax on alcohol in an attempt to reduce highway fatalities? Diff: 1 Topic: The Scope of Economics Skill: Conceptual AACSB: Reflective Thinking 5) We can use macroeconomic analysis to A) learn how to balance a checkbook. B) study the choices made by households. C) understand marginal changes in the macroeconomy. D) understand why economies grow. Diff: 1 Topic: The Scope of Economics Skill: Fact 2 True/False 1) The rate of unemployment is a topic of microeconomics. Answer: FALSE Diff: 1 Topic: The Scope of Economics Skill: Conceptual AACSB: Reflective Thinking 2) The rate of inflation is a topic of macroeconomics. Answer: TRUE Diff: 2 Topic: The Scope of Economics Skill: Conceptual AACSB: Reflective Thinking 1.3 The Method of Economics 1 Multiple Choice 1) Which of the following is an example of a normative question? A) How will an increase in the price of diesel fuel affect truck drivers? B) What fraction of an income-tax rebate check will be spent on consumer goods? C) Should the government provide free prescription drugs to lower-income citizens? D) How will an increase in the minimum wage affect migrant workers? Diff: 2 Topic: The Method of Economics Skill: Conceptual AACSB: Reflective Thinking 2) The compilation of data that describe phenomena and facts is referred to as A) an economic model. B) Marxist ideology. C) a normative statement. D) descriptive economics. Diff: 2 Topic: The Method of Economics Skill: Definition 3) The amount of exercise that one gets is an important factor in the determination of his general state of health. This is best described as A) a positive statement. B) Marxist ideology. C) a normative statement. D) descriptive economics. Diff: 2 Topic: The Method of Economics Skill: Conceptual AACSB: Reflective Thinking 4) Opportunity cost is A) the additional cost incurred from the consumption of one more unit of output. B) the cost involved when choosing between alternatives. C) the cost of production which cannot be recaptured. D) the total cost incurred from the consumption of additional output. Diff: 2 Topic: The Method of Economics Skill: Definition 5) An approach to economics that applies statistical techniques and data to economic problems is called A) Ockhamʹs razor. B) laissez-faire economics. C) positive economics. D) normative economics. Diff: 1 Topic: The Method of Economics Skill: Fact 6) Normative economics A) is the focus of most modern economic reasoning. B) answers the question ʺWhat ought to be?ʺ C) predicts the consequences of alternative actions. D) answers the question ʺWhat is?ʺ Diff: 1 Topic: The Method of Economics Skill: Fact 7) Which of the following is a question answered with normative economic reasoning? A) If the college offers free parking for students, will more students drive to campus? B) If the college provided more financial aid assistance, would more students benefit? C) If the college increased tuition, would class size decline? D) Should the college cut tuition to stimulate enrollment? Diff: 2 Topic: The Method of Economics Skill: Conceptual AACSB: Reflective Thinking 8) Which of the following is a question answered with positive economic analysis? A) Should the college offers free parking for students? B) Should the college provide more financial aid assistance? C) If the college increased tuition, will class size decline? D) Should the college cut tuition to stimulate enrollment? Diff: 2 Topic: The Method of Economics Skill: Conceptual AACSB: Reflective Thinking 9) The reoccurrence of contagious diseases should be significantly lower in a technically advanced nation such as the United States. This statement is best described as A) a normative statement. B) a positive statement. C) a descriptive economics statement. D) an implication of an efficient market. Diff: 2 Topic: The Method of Economics Skill: Conceptual AACSB: Reflective Thinking 10) There is great concern over the fact that global warming is causing permanent damage to the global environment. A study of the costs and benefits of purchasing carbon offsets to combat global warming is an example of A) labor economics. B) normative economics. C) positive economics. D) laissez-faire economics. Diff: 2 Topic: The Method of Economics Skill: Conceptual AACSB: Reflective Thinking 11) The compilation of data that describe phenomena and facts refers to A) descriptive economics. B) normative economics. C) laissez-faire economics. D) collective economics. Diff: 2 Topic: The Method of Economics Skill: Definition 12) An economist collecting data on the employment benefits and salaries in the chemical engineering industry is an example of A) descriptive economics. B) the fallacy of composition. C) the post hoc fallacy. D) ceteris paribus. Diff: 2 Topic: The Method of Economics Skill: Conceptual AACSB: Reflective Thinking Refer to Scenario 1.1 below to answer the questions that follow. SCENARIO 1.1: A scientist wants to understand the relationship between automobile emissions and the level of global warming. The scientist collects data on the volume of automobile emissions and the levels of global warming over time. The scientist concludes that a 1% increase in automobile emissions causes a 0.0003% increase in average global temperatures. From this information he concludes that the automobile emissions are harmful to the environment and should be reduced to stop the increase in global temperatures. 13) Refer to Scenario 1.1. The statement that a 1% increase in the automobile emissions causes a 0.0003% increase in average global temperatures is an example of A) positive economics. B) descriptive economics. C) normative economics. D) Marxist economics. Diff: 2 Topic: The Method of Economics Skill: Conceptual AACSB: Reflective Thinking 14) Refer to Scenario 1.1. The statement, ʺautomobile emissions are harmful to the environment and should be reduced to stop the increase in global temperatures,ʺ is an example of A) positive economics. B) descriptive economics. C) normative economics. D) Marxist economics. Diff: 2 Topic: The Method of Economics Skill: Conceptual AACSB: Reflective Thinking 15) Refer to Scenario 1.1. The process of collecting data on automobile emissions and global warming levels is an example of A) law and economics. B) economic history. C) econometrics. D) descriptive economics. Diff: 2 Topic: The Method of Economics Skill: Conceptual AACSB: Reflective Thinking 16) Refer to Scenario 1.1. The statement that an increase in automobile emissions causes an increase in global warming is an example of A) an economic theory. B) descriptive reasoning. C) deductive reasoning. D) normative economics. Diff: 2 Topic: The Method of Economics Skill: Conceptual AACSB: Reflective Thinking 17) Refer to Scenario 1.1. A graph of the volume of automobile emissions on one axis and the level of average global temperatures on the other axis is an example of A) an economic model. B) an economic theory. C) a variable theory. D) inductive reasoning. Diff: 2 Topic: The Method of Economics Skill: Conceptual AACSB: Reflective Thinking 18) By invoking the assumption of ceteris paribus, economists A) consider the impact of all relevant factors. B) hold all variables constant when analyzing a model. C) isolate the impact of one single variable while holding all other variables constant. D) exclude irrelevant detail when analyzing a model. Diff: 2 Topic: The Method of Economics Skill: Conceptual AACSB: Reflective Thinking 19) Ockhamʹs razor is the principle that states A) supply creates its own demand. B) we must forego something when making a decision. C) costs which have been incurred cannot be avoided. D) irrelevant detail should not be included in a model. Diff: 2 Topic: The Method of Economics Skill: Definition 20) The phrase ceteris paribus means A) ʺscarcity is a fact of life.ʺ B) ʺall else equal.ʺ C) ʺthere is no such thing as a free lunch.ʺ D) ʺeverything affects everything else.ʺ Diff: 2 Topic: The Method of Economics Skill: Definition 21) The Latin phrase ceteris paribus means that when a relationship between two variables is being studied A) both are treated as unpredictable. B) neither of those two variables is allowed to change. C) all other variables are held fixed. D) we recognize that some factors are unknown. Diff: 2 Topic: The Method of Economics Skill: Definition 22) Isabel noted that whenever she wore her green contact lenses, the Chicago White Sox would win that evening. Based on this observation, she developed the ʺgreen -eyes-for- White-Soxʺ theory of winning. It is most likely true that Isabel A) showed good reasoning for the reason the White Sox would win. B) committed the ceteris paribus error. C) committed the fallacy of composition. D) was too quick to conclude that correlation implies causation. Diff: 3 Topic: The Method of Economics Skill: Conceptual AACSB: Reflective Thinking 23) Whenever a former governor is elected president, the unemployment rate decreases; whenever a former congressman is elected president, the inflation rate increases. This statement is an example of A) fallacy of composition. B) post hoc, ergo prompter hoc fallacy. C) ceteris paribus fallacy. D) fallacy of inductive reasoning. Diff: 2 Topic: The Method of Economics Skill: Conceptual AACSB: Reflective Thinking 24) The erroneous belief that what is true for a part is necessarily true for the whole is referred to as the A) fallacy of composition. B) post hoc, ergo prompter hoc fallacy. C) ceteris paribus fallacy. D) fallacy of inductive reasoning. Diff: 2 Topic: The Method of Economics Skill: Definition 25) The unemployment rate was falling during all of the years that I was a student, but as soon as I graduated, the unemployment rate started to rise. Therefore, the job market was waiting until I started looking for employment to start to go bad. This statement is an example of A) fallacy of composition. B) post hoc, ergo prompter hoc fallacy. C) ceteris paribus fallacy. D) fallacy of inductive reasoning. Diff: 2 Topic: The Method of Economics Skill: Conceptual AACSB: Reflective Thinking 26) Research conducted in border states suggests that speaking a second language increases the prospects for employment. Therefore, we should require all citizens to speak a second language. This statement is an example of A) fallacy of composition. B) ceteris paribus fallacy. C) fallacy of inductive reasoning. D) post hoc, ergo prompter hoc fallacy. Diff: 2 Topic: The Method of Economics Skill: Conceptual AACSB: Reflective Thinking 27) Salary caps are imposed when league officials believe some football team owners are taking advantage of their deep pockets and buying more quality players than the other owners can afford to buy. Which of the following criteria are they using to guide their actions? A) growth B) stability C) efficiency D) equity Diff: 3 Topic: The Method of Economics Skill: Conceptual AACSB: Reflective Thinking 28) A government policy that tries to minimize inflation and unemployment can best be described as trying to achieve economic A) growth. B) stability. C) profitability. D) equity. Diff: 3 Topic: The Method of Economics Skill: Conceptual AACSB: Reflective Thinking 29) The concept of equity would explain the redistribution from the rich to the poor which is achieved from a tax system that requires taxes to A) fall when income rises. B) rise when income rises. C) remain stable when income rises. D) be unrelated to income. Diff: 3 Topic: The Method of Economics Skill: Conceptual AACSB: Reflective Thinking 30) You know that the school parking lot gets very congested about 8:30 a.m. To avoid this congestion, you start arriving at school at 8:00 a.m. However many other students make the same decision, and now the parking lot becomes very congested at 8:00 a.m. This is an example of the A) fallacy of composition. B) ceteris paribus fallacy. C) fallacy of division. D) post hoc, ergo prompter hoc fallacy. Diff: 3 Topic: The Method of Economics Skill: Conceptual AACSB: Reflective Thinking 31) You always have math problems to work in class whenever you forget to bring your calculator to school. Concluding that forgetting your calculator causes your professor to assign math problems is an example of the A) fallacy of composition. B) fallacy of inductive reasoning. C) ceteris paribus conditions. D) post hoc, ergo prompter hoc fallacy. Diff: 2 Topic: The Method of Economics Skill: Conceptual AACSB: Reflective Thinking 32) At a NASCAR race, you stand up to see better. Everyone else stands up, as well. This is an example of A) the fallacy of composition. B) the post hoc, ergo prompter hoc fallacy. C) ceteris paribus. D) Ockhamʹs razor. Diff: 2 Topic: The Method of Economics Skill: Conceptual AACSB: Reflective Thinking 33) You have observed that every time you get a new tattoo the day before you take an exam you get an A. You therefore conclude that to get an A on an exam, all you have to do is get a new tattoo the day before. You have committed the A) fallacy of division. B) fallacy of inductive reasoning. C) post hoc, ergo prompter hoc fallacy. D) fallacy of composition. Diff: 2 Topic: The Method of Economics Skill: Conceptual AACSB: Reflective Thinking 34) If you observe that Kelly Clarkson won American Idol 3 years before Carrie Underwood won, and you conclude that Kelly Clarkson winning caused Carrie Underwood to win 3 years later, you would be guilty of an error called the A) fallacy of inductive reasoning. B) fallacy of ceteris paribus. C) fallacy of composition. D) post hoc, ergo prompter hoc fallacy. Diff: 2 Topic: The Method of Economics Skill: Conceptual AACSB: Reflective Thinking 35) Two variables are said to be correlated if A) one variable changes when the other variable changes. B) the first variable changes when the second variable does not change. C) the first variable does not change when the second variable changes. D) the variables share no relation with each other. Diff: 2 Topic: The Method of Economics Skill: Definition 36) The belief that what is true for a part is necessarily true for the whole describes the A) fallacy of composition. B) post hoc, ergo prompter hoc fallacy. C) fallacy of division. D) fallacy of inductive reasoning. Diff: 2 Topic: The Method of Economics Skill: Definition 37) Empirical economics refers to the A) exclusion of irrelevant data when analyzing a model. B) collection and use of data to test economic theories. C) model of economics used prior to the Industrial Revolution. D) belief that what is true for a part is necessarily true for the whole. Diff: 2 Topic: The Method of Economics Skill: Definition 38) A change in economic output is potentially efficient if the value of the resulting gains the value of the resulting losses. A) exceeds B) is less than C) is equal to D) is unrelated to Diff: 3 Topic: The Method of Economics Skill: Conceptual AACSB: Reflective Thinking 39) An efficient economy is an economy that produces what demand and does so at the possible cost. A) consumers; highest B) consumers; least C) the government; highest D) the government; least Diff: 2 Topic: The Method of Economics Skill: Definition 40) An efficient market is characterized by the fact that profit opportunities are A) guaranteed to everyone. B) eliminated almost instantaneously. C) only provided to government-subsidized producers. D) available only to the most efficient producers. Diff: 1 Topic: The Method of Economics Skill: Fact 41) The four criteria that are frequently used in judging the outcome of economic policy are efficiency, stability, economic growth, and A) equity. B) equality. C) profitability. D) resolution. Diff: 1 Topic: The Method of Economics Skill: Fact 42) You have noticed that there is an increase in the number of homeless people in your city and at the same time you observe that there are a number of vacant apartments. You believe that if landlords were required to rent their apartments for less than they are currently charging, the government could reduce the number of homeless people . This policy recommendation would be motivated by concerns over A) economic growth. B) stability. C) profitability. D) equity. Diff: 3 Topic: The Method of Economics Skill: Conceptual AACSB: Reflective Thinking 43) Many economists argue that items such as food and clothing should be exempt from sales tax because low-income people spend a greater percentage of their income on these goods than do high-income individuals. This argument is motivated by concerns over A) economic stability. B) economic growth. C) equity. D) efficiency. Diff: 3 Topic: The Method of Economics Skill: Conceptual AACSB: Reflective Thinking 44) The statement ʺpeople should pollute as little as possibleʺ is an example of a A) positive statement. B) normative statement. C) factual statement. D) non-judgmental statement. Diff: 2 Topic: The Method of Economics Skill: Conceptual AACSB: Reflective Thinking 45) The statement ʺthe unemployment rate is 5.1%ʺ is an example of a A) positive statement. B) value judgement. C) normative statement. D) non-verifiable statement. Diff: 2 Topic: The Method of Economics Skill: Conceptual AACSB: Reflective Thinking 2 True/False 1) Positive economics questions ʺWhat ought to be?ʺ Normative economics predicts the consequences of alternative actions, answering the questions ʺWhat is?ʺ or ʺWhat will be?ʺ Answer: FALSE Diff: 2 Topic: The Method of Economics Skill: Definition 2) Normative economics questions ʺWhat ought to be?ʺ Positive economics predicts the consequences of alternative actions, answering the questions ʺWhat is?ʺ or ʺWhat will be?ʺ Answer: TRUE Diff: 2 Topic: The Method of Economics Skill: Definition 3) An efficient economy is one that produces what the government demands and does so at the least possible cost. Answer: FALSE Diff: 2 Topic: The Method of Economics Skill: Definition 4) ʺPost hoc, ergo prompter hocʺ literally translated means, ʺall else equal.ʺ Answer: FALSE Diff: 2 Topic: The Method of Economics Skill: Definition 5) Normative economics seeks to understand behavior, but not make judgments. Answer: FALSE Diff: 2 Topic: The Method of Economics Skill: Conceptual AACSB: Reflective Thinking 6) Stability implies a steady rate of economic growth regardless of the inflation rate. Answer: FALSE Diff: 2 Topic: The Method of Economics Skill: Conceptual AACSB: Reflective Thinking 7) The compilation of data to describe phenomena and facts is known as empirical economics. Answer: FALSE Diff: 2 Topic: The Method of Economics Skill: Definition 1.4 Appendix: How to Read and Understand Graphs 1 Multiple Choice Refer to the information provided in Figure 1.1 below to answer the questions that follow. Figure 1.1 1) Refer to Figure 1.1. The relationship between the daily temperature and the number of gallons of ice cream purchased demonstrates A) an infinite slope. B) a negative slope. C) a positive slope. D) a zero slope. Diff: 2 Topic: Appendix: How to Read and Understand Graphs Skill: Analytic AACSB: Analytic Skills Refer to the information provided in Figure 1.2 below to answer the questions that follow. Figure 1.2 2) Refer to Figure 1.2. The slope of the line between Points A and B is A) positive and increasing. B) positive and constant. C) negative and decreasing. D) negative and constant. Diff: 2 Topic: Appendix: How to Read and Understand Graphs Skill: Analytic AACSB: Analytic Skills 3) Refer to Figure 1.2. If the slope of a straight line is -2. and if X (the variable on the horizontal axis) decreases by 8, then Y (the variable on the vertical axis) will A) increase by 4. B) decrease by 4. C) increase by 16. D) decrease by 16. Diff: 2 Topic: Appendix: How to Read and Understand Graphs Skill: Analytic AACSB: Analytic Skills 4) Refer to Figure 1.2. The slope of the line between Points A and B is A) 0.25. B) 4. C) -0.25. D) -4. Diff: 2 Topic: Appendix: How to Read and Understand Graphs Skill: Analytic AACSB: Analytic Skills Refer to the information provided in Figure 1.3 below to answer the questions that follow. Figure 1.3 5) Refer to Figure 1.3. The slope of the line is A) negative. B) increasing at a decreasing rate. C) decreasing at an increasing rate. D) positive Diff: 2 Topic: Appendix: How to Read and Understand Graphs Skill: Analytic AACSB: Analytic Skills 6) Refer to Figure 1.3. The slope of the line between Points D and B is A) 1.5. B) -0.67. C) -1.5. D) 0.67. Diff: 2 Topic: Appendix: How to Read and Understand Graphs Skill: Analytic AACSB: Analytic Skills 7) Refer to Figure 1.3. The slope of the line between Points A and B is A) 1.5. B) -0.67. C) -1.5. D) 0.67. Diff: 2 Topic: Appendix: How to Read and Understand Graphs Skill: Analytic AACSB: Analytic Skills 8) Refer to Figure 1.3. If a 45 degree line were also graphed, it would the line shown on the graph. A) lie above B) lie below C) cross D) indeterminant from this information Diff: 3 Topic: Appendix: How to Read and Understand Graphs Skill: Analytic AACSB: Analytic Skills 9) Refer to Figure 1.3. At Point C, what is the value of Y? A) 2 B) 4 C) 6 D) indeterminate from this information Diff: 2 Topic: Appendix: How to Read and Understand Graphs Skill: Analytic AACSB: Analytic Skills 10) Refer to Figure 1.3. At Point A the slope of the line is 0.67, so at Point C the slope would be A) greater than 0.67. B) less than 0.67. C) equal to 0.67. D) indeterminate from this information. Diff: 2 Topic: Appendix: How to Read and Understand Graphs Skill: Analytic AACSB: Analytic Skills Refer to the information provided in Figure 1.4 below to answer the questions that follow. Figure 1.4 11) Refer to Figure 1.4. Panel A shows a curve which has a slope that is A) first positive, then zero, and then negative. B) first negative, then zero, and then positive. C) infinite throughout. D) zero throughout. Diff: 2 Topic: Appendix: How to Read and Understand Graphs Skill: Analytic AACSB: Analytic Skills 12) Refer to Figure 1.4. Panel B shows a curve which has a slope that is A) first positive and then negative. B) first negative and then positive. C) infinite throughout. D) zero throughout. Diff: 2 Topic: Appendix: How to Read and Understand Graphs Skill: Analytic AACSB: Analytic Skills 13) Refer to Figure 1.4. Panel C shows a curve which has a slope that is A) first positive and then negative. B) first negative and then positive. C) infinite throughout. D) zero throughout. Diff: 2 Topic: Appendix: How to Read and Understand Graphs Skill: Analytic AACSB: Analytic Skills 14) Refer to Figure 1.4. Panel D shows a curve which has a slope that is A) first positive and then negative. B) first negative and then positive. C) infinite throughout. D) zero throughout. Diff: 2 Topic: Appendix: How to Read and Understand Graphs Skill: Analytic AACSB: Analytic Skills 15) Refer to Figure 1.4. At Point E in panel A, the slope is A) infinite. B) zero. C) negative. D) indeterminate from this information. Diff: 2 Topic: Appendix: How to Read and Understand Graphs Skill: Analytic AACSB: Analytic Skills 16) The slope of a straight line A) is always positive. B) must first increase then decrease. C) is not constant. D) is constant. Diff: 1 Topic: Appendix: How to Read and Understand Graphs Skill: Fact 17) The slope of a vertical line is A) negative. B) zero. C) continually changing. D) infinite. Diff: 1 Topic: Appendix: How to Read and Understand Graphs Skill: Fact 18) If the slope of a straight line is 5 and if X (the variable on the horizontal axis) increases by 4, then Y (the variable on the vertical axis) will A) decrease by 0.8. B) decrease by 20. C) increase by 0.8. D) increase by 20. Diff: 2 Topic: Appendix: How to Read and Understand Graphs Skill: Analytic AACSB: Analytic Skills 19) If the slope of a straight line is 6 and if Y (the variable on the vertical axis) decreases by 60, then X (the variable on the horizontal axis) A) increases by 10. B) decreases by 10. C) increases by 600. D) decreases by 600. Diff: 2 Topic: Appendix: How to Read and Understand Graphs Skill: Analytic AACSB: Analytic Skills 20) The slope of a horizontal line is A) zero. B) infinite. C) continually changing. D) negative. Diff: 1 Topic: Appendix: How to Read and Understand Graphs Skill: Fact Refer to the information provided in Figure 1.5 below to answer the questions that follow. Figure 1.5 21) Refer to Figure 1.5. Panel A shows a curve with a slope that is A) positive and increasing. B) positive and decreasing. C) negative and increasing. D) negative and decreasing. Diff: 2 Topic: Appendix: How to Read and Understand Graphs Skill: Analytic AACSB: Analytic Skills 22) Refer to Figure 1.5. Panel B shows a curve with a slope that is A) positive and increasing. B) positive and decreasing. C) negative and increasing. D) negative and decreasing. Diff: 2 Topic: Appendix: How to Read and Understand Graphs Skill: Analytic AACSB: Analytic Skills 23) Refer to Figure 1.5. As income decreases, consumption decreases by a decreasing amount. If consumption is graphed on the vertical axis and income is graphed on the horizontal axis, the relationship between consumption and income would look like which of the following panels? A) A B) B C) C D) D Diff: 2 Topic: Appendix: How to Read and Understand Graphs Skill: Analytic AACSB: Analytic Skills 24) Refer to Figure 1.5. As firms produce additional units, average costs declines by a smaller and smaller amount. If output is graphed on the horizontal axis and average costs are graphed on the vertical axis, the relationship between average costs and output would be like which of the following panels? A) A B) B C) C D) D Diff: 2 Topic: Appendix: How to Read and Understand Graphs Skill: Analytic AACSB: Analytic Skills 2 True/False 1) Dividing the change in quantity on the X axis by the change in quantity on the Y axis calculates the slope of a line. Answer: FALSE Diff: 1 Topic: Appendix: How to Read and Understand Graphs Skill: Definition 2) A graph illustrating how two variables change over time is a Cartesian coordinate system. Answer: TRUE Diff: 2 Topic: Appendix: How to Read and Understand Graphs Skill: Definition 3) As the variable on the Y-axis rises the variable on the X-axis rises. The relationship between x and y is said to be direct. Answer: TRUE Diff: 2 Topic: Appendix: How to Read and Understand Graphs Skill: Definition 4) As the variable on the Y-axis rises the variable on the X-axis falls. The relationship between X and Y is said to be direct. Answer: FALSE Diff: 1 Topic: Appendix: How to Read and Understand Graphs Skill: Definition 5) The slope of a curve is constant. Answer: FALSE Diff: 1 Topic: Appendix: How to Read and Understand Graphs Skill: Fact Chapter 2 The Economic Problem: Scarcity and Choice 2.1 Scarcity, Choice, and Opportunity Cost 1 Multiple Choice 1) Production is the process by which A) products are used by consumers. B) resources are transformed into useful forms. C) products are converted into capital. D) resources are allocated and distributed. Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Definition 2) Goods and services of value to households are A) inputs in the production process. B) outputs in the production process. C) both inputs and outputs in the production process. D) unrelated to the production process. Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Definition 3) Which of the following is a resource as the term is used by economists? A) buildings B) labor C) land D) all of the above Diff: 1 Topic: Scarcity, Choice, and Opportunity Cost Skill: Fact 4) Which of the following would an economist classify as capital? A) a new deposit of natural gas B) a government savings bond C) a police car D) a $100 travellerʹs check Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking 5) Economists refer to things that have already been produced that are in turn used to produce other goods and services as A) land. B) labor. C) entrepreneurship. D) capital. Diff: 3 Topic: Scarcity, Choice, and Opportunity Cost Skill: Definition 6) The principle that the cost of something is equal to what is sacrificed to get it is known as the A) marginal principle. B) principle of opportunity cost. C) principle of diminishing returns. D) reality principle. Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Definition 7) If scarcity was eliminated A) trade would become unnecessary. B) opportunity costs would increase. C) all nations would have an absolute advantage in producing all products. D) the concept of trade-offs would become irrelevant. Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Conceptual 8) According to the theory of , specialization and free trade will benefit all trade partners, even when some are absolutely more efficient producers than others. A) comparative advantage B) absolute advantage C) social equity D) laissez-faire Diff: 3 Topic: Scarcity, Choice, and Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking Refer to the information provided in Table 2.1 below to answer the following questions. Table 2.1 Molly Pete Avatar Design 6 8 Tattoo Design 3 2 9) Refer to Table 2.1. For Molly, the opportunity cost of designing one tattoo is A) 1/2 of an avatar design. B) 1 avatar design. C) 2 avatar designs. D) 3 avatar designs. Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Analytic AACSB: Analytic Skills 10) Refer to Table 2.1. For Pete, the opportunity cost of designing one tattoo is A) 1/4 of an avatar design. B) 2 avatar designs. C) 4 avatar designs. D) 6 avatar designs. Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Analytic AACSB: Analytic Skills 11) Refer to Table 2.1. Which of the following statements is true? A) Molly has a comparative advantage in both avatar design and tattoo design. B) Pete has a comparative advantage in both avatar design and tattoo design. C) Molly has a comparative advantage in avatar design and Pete has a comparative advantage in tattoo design. D) Pete has a comparative advantage in avatar design and Molly has a comparative advantage in tattoo design. Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Analytic AACSB: Analytic Skills 12) Refer to Table 2.1. To maximize total production A) Molly should specialize in avatar design and Pete should specialize in tattoo design. B) Pete should specialize in avatar design and Molly should specialize in tattoo design. C) Molly and Pete should both split their time between designing avatars and tattoos. D) Molly should design avatars and tattoos, but Pete should only design avatars. Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Analytic AACSB: Analytic Skills 13) Refer to Table 2.1. For Pete, the opportunity cost of designing three tattoos is avatar designs. A) 6 B) 12 C) 24 D) an indeterminate number of Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Analytic AACSB: Analytic Skills 14) Refer to Table 2.1. For Molly, the opportunity cost of designing four tattoos is avatar designs. A) 6 B) 8 C) 12 D) 24 Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Analytic AACSB: Analytic Skills 15) According to the theory of comparative advantage, trade and specialization productivity by opportunity costs. A) raise; raising B) raise; lowering C) lower; raising D) lower; lowering Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking 16) Specialization and trade exploit differences in productivity across workers and A) only benefit the exporter. B) only benefit the importer. C) make everyone better off. D) make everyone worse off. Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking 17) If someone can produce a good at a lower opportunity cost, she in producing that good. A) has a comparative advantage B) has an absolute advantage C) experiences no diminishing returns D) experiences no sunk costs Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking 18) If a vintner has a comparative advantage in producing wine A) he can produce more wine using the same resources than other vintners. B) wine is the only product he can produce. C) he can produce wine at a lower opportunity cost than other vintners. D) he also has an absolute advantage in producing wine. Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking 19) Which of the following is an act of economic ʺinvestmentʺ? A) The state legislature authorizes the sale of a state park. B) An entrepreneur buys 5000 shares of stock at $5 a share and then sells the stock at a profit for $60 a share. C) A brewer purchases a new fermentation system for his beer. D) A teacher deposits $500 in a retirement account. Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking 20) In economics, the creation of capital is referred to as A) investment. B) comparative advantage. C) consumption. D) allocation. Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Definition 21) The process of using to produce new capital is known as . A) money; specialization B) resources; investment C) specialization; absolute advantage D) comparative advantage; inefficient production Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Definition 22) Saving is an example of A) exchanging capital for cash. B) exchanging scarce resources for unlimited resources. C) trading present benefits for future benefits. D) trading future benefits for present benefits. Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking 23) The opportunity cost of investment in capital is forgone present consumption when A) resources are scarce. B) resources are unlimited. C) capital is in greater supply than labor. D) the public chooses consumption over investment. Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking 24) An example of an investment is A) the purchase of an iPhone by a company for one of its salesmen. B) the purchase of a share of Berkshire Hathaway stock. C) the purchase of a government Treasury bill. D) all of the above Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking 25) Because resources are scarce, the opportunity cost of investment in capital is A) past investment. B) past consumption. C) foregone present consumption. D) future consumption. Diff: 3 Topic: Scarcity, Choice, and Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking 26) If the unemployment rate decreases from 9% to 6%, the economy will A) move closer to a point on the ppf. B) move away from the ppf toward the origin. C) remain on the ppf. D) remain on the origin. Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking 27) Periods of full employment correspond to A) points outside the ppf. B) points inside the ppf. C) points on the ppf. D) either points inside or outside the ppf. Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking Refer to the information provided in Figure 2.1 below to answer the questions that follow. Figure 2.1 28) Refer to Figure 2.1. The economy is currently operating at Point A. The best explanation for this is that A) the economy has experienced increasing technology. B) the economyʹs resources are being underemployed. C) the economy has too few resources to operate on the production curve. D) the economy is operating above full employment. Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking 29) Refer to Figure 2.1. The economyʹs production possibility frontier due to specialized resources. A) is convex to the origin B) displays constant opportunity costs C) demonstrates decreasing opportunity costs D) is bowed out from the origin Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking 30) Refer to Figure 2.1. The shape of the economyʹs production possibility frontier shows A) decreasing opportunity costs. B) constant opportunity costs. C) increasing opportunity costs. D) random opportunity costs. Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking 31) If an economy is fully utilizing its resources, it can produce more of one product only if it A) doubles manufacturing of the product. B) produces less of another product. C) adds more people to the labor force. D) reduces the price of the most expensive products. Diff: 1 Topic: Scarcity, Choice, and Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking Refer to the information provided in Figure 2.2 below to answer the questions that follow. Figure 2.2 32) Refer to Figure 2.2. Full resource employment and production efficiency is represented by a point A) inside the production curve. B) along the production curve. C) outside the production curve. D) either inside or along the production curve. Diff: 1 Topic: Scarcity, Choice, and Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking 33) Refer to Figure 2.2. You correctly deduce that all resources are fully employed and there are no production inefficiencies if this economy is currently operating at a point A) inside the production curve. B) along the production curve. C) outside the production curve. D) either inside or along the production curve. Diff: 1 Topic: Scarcity, Choice, and Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking 34) All the combinations of goods and services that can be produced if all of societyʹs resources are used efficiently are represented on an economyʹs A) production possibility frontier. B) resource availability diagram. C) factors of production statement. D) allocative allotment graph. Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Definition 35) When an economy is producing inside its production possibility frontier A) production inefficiency occurs. B) only technological advances will allow it to increase production. C) it is efficient so long as it is producing what people want. D) it must overcompensate by producing outside the curve to achieve efficiency. Diff: 3 Topic: Scarcity, Choice, and Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking 36) If an economy is producing on its production possibility frontier but is not producing what people want, the economy A) is experiencing technological advancement. B) is producing at more than one point on the production possibility frontier. C) is not being allocatively efficient. D) is not being productively efficient. Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking 37) If a society is producing at a point along its production possibility frontier, then the society A) is fully employing its resources so it must be allocatively efficient. B) is fully employing its resources, but not necessarily being allocatively efficient. C) is underallocating resources so it must be inefficient. D) is overallocating resources so efficiency is indeterminant. Diff: 1 Topic: Scarcity, Choice, and Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking 38) Suppose an economy produces cell phones and GPS devices in perfectly competitive industries. The economy is currently operating at a point on its production possibility frontier. The economy will most likely move to a less-desirable point on the production possibility frontier if A) more firms enter the GPS device industry. B) more firms enter the cell phone industry. C) more firms enter both the GPS device industry and the cell phone industry. D) a single firm gains control over the production of cell phones. Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking 39) The value of the slope of a societyʹs production possibility frontier is called its A) value of diminishing efficiency. B) marginal rate of substitution. C) marginal rate of transformation. D) diminishing opportunity cost of capitalization. Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Definition 40) Assume a society can produce either beer or wine. If the marginal rate of transformation of gallons of beer into gallons of wine is 0.5, then the opportunity cost of wine is A) the 2 gallons of beer that must be forgone. B) the 2 gallons of wine that must be forgone. C) the 0.5 gallons of beer that must be forgone. D) the additional 0.5 gallons of beer that can be produced. Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Analytic 41) The marginal rate of transformation is A) also called the marginal rate of substitution. B) growth associated with technological advances. C) the measure of diminishing marginal utility. D) the slope of the production possibility frontier. Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Definition Refer to the information provided in Figure 2.3 below to answer the questions that follow. Figure 2.3 42) Refer to Figure 2.3. Assume that this societyʹs production possibility frontier is represented by Panel C. The marginal rate of transformation of sailboats for surfboards is A) 1/10. B) -1/10. C) 10. D) -10. Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Analytic AACSB: Analytic Skills 43) Refer to Figure 2.3. Assume that this societyʹs production possibility frontier is represented by Panel C. The opportunity cost of sailboats in terms of surfboards is A) constant. B) increasing. C) decreasing. D) infinite. Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking 44) Refer to Figure 2.3. Increasing opportunity costs are best depicted by the production possibility frontier in panel A) A. B) B. C) C. D) D. Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking 45) A society can produce two goods: green tea and vitamin water. As this society moves down its production possibility frontier, producing more and more units of vitamin water, the opportunity cost of producing vitamin water increases. The societyʹs production possibilities frontier will be A) positively sloped and bowed outward. B) positively sloped and bowed inward. C) negatively sloped and bowed outward. D) negatively sloped and bowed inward. Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking Refer to the information provided in Figure 2.4 below to answer the questions that follow. Figure 2.4 46) According to Figure 2.4, Point A necessarily represents A) an unattainable production point. B) only hybrid cars being produced. C) the economyʹs optimal production point. D) what society wants. Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Analytic AACSB: Analytic Skills 47) According to Figure 2.4, the optimal point for the economy is A) B. B) D. C) F. D) indeterminate from the information given. Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Analytic AACSB: Analytic Skills 48) According to Figure 2.4, Point F A) is efficient and attainable. B) represents underallocation of resources. C) represents what the people want. D) cannot be produced with the current state of technology. Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Analytic AACSB: Analytic Skills 49) According to Figure 2.4, Point E necessarily represents A) an impossible production point. B) technological advancement. C) overallocation of resources. D) only motorcycles being produced. Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Analytic AACSB: Analytic Skills 50) According to Figure 2.4, an increase in unemployment may be represented by the movement from A) B to A. B) B to D. C) C to D. D) A to C. Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Analytic AACSB: Analytic Skills 51) According to Figure 2.4, as the economy moves from Point B to Point D, the opportunity cost of motorcycles, measured in terms of hybrid cars A) remains constant. B) decreases. C) increases D) initially increases, then decreases. Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Analytic AACSB: Analytic Skills 52) According to Figure 2.4, as the economy moves from Point D to Point B, the opportunity cost of hybrid cars, measured in terms of motorcycles A) remains constant. B) decreases. C) increases. D) initially increases, then decreases. Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Analytic AACSB: Analytic Skills 53) Refer to Figure 2.4. The economy moves from Point E to Point B. This could be explained by A) an increase in unemployment. B) a reduction in unemployment. C) a change in societyʹs preferences for hybrid cars versus motorcycles. D) an increase in economic growth. Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Analytic AACSB: Analytic Skills Refer to the information provided in Figure 2.5 below to answer the questions that follow. Figure 2.5 54) Refer to Figure 2.5. The economy is currently at Point B. The opportunity cost of moving from Point B to Point A is the A) 40 plasma TVs that must be forgone to produce 120 additional LCD TVs. B) 20 plasma TVs that must be forgone to produce 30 additional LCD TVs. C) 30 LCD TVs that must be forgone to produce 40 additional plasma TVs. D) 120 LCD TVs that must be forgone to produce 20 additional plasma TVs. Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Analytic AACSB: Analytic Skills 55) Refer to Figure 2.5. The marginal rate of transformation in moving from Point B to Point A is A) -2/3. B) -3/4. C) -1.5. D) -20. Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Analytic AACSB: Analytic Skills 56) Refer to Figure 2.5. For this economy to move from Point C to Point B, LCD TVs could be produced when the production of plasma TVs is reduced by 20. A) exactly 30 B) fewer than 30 C) more than 30 D) exactly 60 Diff: 3 Topic: Scarcity, Choice, and Opportunity Cost Skill: Analytic AACSB: Analytic Skills 57) Refer to Figure 2.5. The most desirable production alternative for society would be A) either Point B or Point C, as the total amount being produced at either of these points is approximately the same. B) indeterminate from this information, as we donʹt have any information about the societyʹs desires. C) Point C, as at this point there are approximately equal amounts of LCD and plasma TVs being produced. D) at any of the labeled points, as all of the points represent an efficient allocation of resources. Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Analytic AACSB: Analytic Skills 58) If an economyʹs production possibility frontier is negatively sloped and ʺbowed outwardʺ from the origin, then the opportunity cost of producing a good A) increases as more of that good is produced. B) decreases as more of that good is produced. C) remains constant as more of that good is produced. D) remains constant as less of that good is produced. Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking 59) As you move up the production possibility frontier, the absolute value of the marginal rate of transformation A) increases. B) decreases. C) initially increases, then decreases. D) initially decreases, then increases. Diff: 3 Topic: Scarcity, Choice, and Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking 60) Because resources are not equally well suited to producing all goods A) as more of a good is produced the inputs used to produce that good will increase in price. B) the opportunity costs of producing a good will increase as more of that good is produced. C) the opportunity costs of producing a good will decrease as more of that good is produced. D) as more of a good is produced the quality of that good declines and therefore the costs of production increase. Diff: 3 Topic: Scarcity, Choice, and Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking 61) Economic growth will most likely occur when A) a society acquires new resources. B) a society decides to produce less using existing resources. C) the society begins to produce the combination of goods society wants most. D) technology remains unchanged but unemployment increases. Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Conceptual AACSB: Reflective Thinking Refer to the information provided in Figure 2.6 below to answer the questions that follow. Figure 2.6 62) Refer to Figure 2.6. An increase in the economyʹs capital stock is represented by a A) shift from ppf2 to ppf1. B) shift from ppf1 to ppf2. C) movement along ppf1. D) movement along ppf2. Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Analytic AACSB: Analytic Skills 63) Refer to Figure 2.6. A shift from ppf1 to ppf2 may be caused by A) an increase in inflation. B) an increased desire for consumer goods. C) a change in consumer tastes. D) an improvement in technology. Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Analytic AACSB: Analytic Skills 64) Refer to Figure 2.6. Which of the following will shift an economyʹs production possibility frontier from ppf2 to ppf1? A) a decrease in the economyʹs capital stock B) an increase in production efficiency C) a change in consumerʹs tastes D) economic growth Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Analytic AACSB: Analytic Skills 65) Refer to Figure 2.6. Which of the following will NOT cause the production possibility frontier to shift from ppf1 to ppf2? A) a decrease in the unemployment rate assuming a constant labor force. B) an increase in the stock of capital C) the discovery of previously unknown natural gas sources D) an improvement in technology Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Analytic AACSB: Analytic Skills 66) Refer to Figure 2.6. Which of the following is most likely to shift the production possibility frontier from ppf2 to ppf1? A) a change in consumer tastes B) the purchase of government Treasury bills C) moving resources from consumer goods to capital goods D) a decrease in the general educational level of the population Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Analytic AACSB: Analytic Skills 67) Refer to Figure 2.6. If the economy is at ppf2, a change in consumer preferences would be shown by a A) shift from ppf2 to ppf1. B) movement along ppf1. C) movement along ppf2. D) shift from ppf1 to ppf2. Diff: 2 Topic: Scarcity, Choice, and Opportunity Cost Skill: Analytic AACSB: Analytic Skills 68) Due to a mild winter, Florida experienced a bumper crop of oranges. This would best be represented by a(n) A) movement down the U.S. production possibility frontier. B) movement off the U.S. production possibility frontier to some point inside the frontier. C) movement up the U.S. production possibility frontier. D) outward shift of the U.S. produc