Economics, 8e (Hubbard/O'Brien)
Chapter 1 Economics: Foundations and Models
1.1 Three Key Economic Ideas
1) Apple assembles most iPhones in China because the lower wages earned by Chinese workers and their
experience in electronics manufacturing reduce the costs of assembling iPhones. This is an example of
Apple reacting to which of the three key economic ideas?
A) People are rational.
B) People respond to economic incentives.
C) Optimal decisions are made at the margin.
D) Firms attempt to maximize revenues.
Answer: B
Diff: 2 Page Ref: 2
Topic: Scarcity
Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
AACSB: Analytical thinking
Special Feature: Chapter Opener: Does Apple Manufacture the iPhone in the United States?
2) In economics, choices must be made because we live in a world of
A) unemployment.
B) scarcity.
C) greed.
D) unlimited resources.
Answer: B
Diff: 1 Page Ref: 4
Topic: Scarcity
*: Recurring
Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
AACSB: Analytical thinking
3) Which of the following statements about scarcity is true?
A) Scarcity refers to the situation in which unlimited wants exceed limited resources.
B) Scarcity is not a problem for the wealthy.
C) Scarcity is only a problem when a country has too large a population.
D) Scarcity only arises when there is a wide disparity in income distribution.
Answer: A
Diff: 1 Page Ref: 4
Topic: Scarcity
*: Recurring
Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
AACSB: Analytical thinking
1
Copyright © 2021 Pearson Education, Inc.
VERIFIEDBRAINBOOSTER
,4) The basic economic problem of ________ has always existed and will continue to exist.
A) scarcity
B) efficiency
C) inflation
D) recession
Answer: A
Diff: 1 Page Ref: 4
Topic: Scarcity
*: Recurring
Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
AACSB: Analytical thinking
5) By definition, economics is the study of
A) how to make money in the stock market.
B) how to make money in a market economy.
C) the choices people make to attain their goals, given their scarce resources.
D) supply and demand.
Answer: C
Diff: 1 Page Ref: 4
Topic: Scarcity
*: Recurring
Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
AACSB: Analytical thinking
6) An economic ________ is a simplified version of some aspect of economic life used to analyze an
economic issue.
A) market
B) trade-off
C) variable
D) model
Answer: D
Diff: 1 Page Ref: 4
Topic: Economic Models
*: Recurring
Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
AACSB: Analytical thinking
7) Where do economic agents such as individuals, firms, and nations interact with each other?
A) in public locations monitored by the government
B) in any arena that brings together buyers and sellers
C) in any physical location where people can physically get together for selling goods, such as shopping
malls
D) in any location where transactions can be monitored by consumer groups and taxed by the
government
Answer: B
Diff: 1 Page Ref: 4
Topic: Markets
*: Recurring
Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
AACSB: Analytical thinking
2
Copyright © 2021 Pearson Education, Inc.
VERIFIEDBRAINBOOSTER
,8) In economics, the term ________ refers to a group of buyers and sellers of a product and the
arrangement by which they come together to trade.
A) collective
B) cooperative
C) market
D) trade-off
Answer: C
Diff: 1 Page Ref: 4
Topic: Markets
*: Recurring
Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
AACSB: Analytical thinking
9) Economists assume that individuals
A) behave in unpredictable ways.
B) will never take actions to help others.
C) prefer to live in a society that values fairness above all else.
D) are rational and respond to incentives.
Answer: D
Diff: 1 Page Ref: 5
Topic: People Are Rational
*: Recurring
Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
AACSB: Analytical thinking
10) Economists assume that rational behavior is useful in explaining choices people make
A) because irrational people do not make economic choices.
B) even though people may not behave rationally all the time.
C) because individuals act rationally all the time in all circumstances.
D) even though people rarely, if ever, behave in a rational manner.
Answer: B
Diff: 2 Page Ref: 5
Topic: People Are Rational
*: Recurring
Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
AACSB: Analytical thinking
11) Economists assume that rational people do all of the following except
A) use all available information as they act to achieve their goals.
B) undertake activities that benefit others and hurt themselves.
C) weigh the benefits and costs of all possible alternative actions.
D) respond to economic incentives.
Answer: B
Diff: 2 Page Ref: 5
Topic: People Are Rational
*: Recurring
Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
AACSB: Analytical thinking
3
Copyright © 2021 Pearson Education, Inc.
VERIFIEDBRAINBOOSTER
, 12) Economics does not study correct or incorrect behaviors but rather it assumes that economic agents
behave ________, meaning they make the best decisions given their knowledge of the costs and benefits.
A) equitably
B) rationally
C) emotionally
D) selfishly
Answer: B
Diff: 2 Page Ref: 5
Topic: People Are Rational
*: Recurring
Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
AACSB: Analytical thinking
13) Consider the following statements:
a. Car owners purchase more gasoline from a gas station that sells gasoline at a lower price than other
rival gas stations in the area.
b. Banks do not take steps to increase security since they believe it is less costly to allow some bank
robberies than to install expensive security monitoring equipment.
c. Firms produce more of a particular DVD when its selling price rises.
Which of the above statements demonstrates that economic agents respond to incentives?
A) a only
B) b only
C) c only
D) a, b, and c
Answer: D
Diff: 3 Page Ref: 5
Topic: People Respond to Economic Incentives
*: Recurring
Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
AACSB: Analytical thinking
14) Suppose that some teachers have decided that economic and financial uncertainty have made the
prospect of retiring more risky, and therefore carry a higher cost than not retiring. By using all available
information as they act to achieve their goals, these teachers are exemplifying the economic idea that
A) people are rational.
B) people respond to economic incentives.
C) optimal decisions are made at the margin.
D) equity is more important than efficiency.
Answer: A
Diff: 2 Page Ref: 5
Topic: People Are Rational
*: Recurring
Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
AACSB: Analytical thinking
4
Copyright © 2021 Pearson Education, Inc.
VERIFIEDBRAINBOOSTER
Chapter 1 Economics: Foundations and Models
1.1 Three Key Economic Ideas
1) Apple assembles most iPhones in China because the lower wages earned by Chinese workers and their
experience in electronics manufacturing reduce the costs of assembling iPhones. This is an example of
Apple reacting to which of the three key economic ideas?
A) People are rational.
B) People respond to economic incentives.
C) Optimal decisions are made at the margin.
D) Firms attempt to maximize revenues.
Answer: B
Diff: 2 Page Ref: 2
Topic: Scarcity
Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
AACSB: Analytical thinking
Special Feature: Chapter Opener: Does Apple Manufacture the iPhone in the United States?
2) In economics, choices must be made because we live in a world of
A) unemployment.
B) scarcity.
C) greed.
D) unlimited resources.
Answer: B
Diff: 1 Page Ref: 4
Topic: Scarcity
*: Recurring
Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
AACSB: Analytical thinking
3) Which of the following statements about scarcity is true?
A) Scarcity refers to the situation in which unlimited wants exceed limited resources.
B) Scarcity is not a problem for the wealthy.
C) Scarcity is only a problem when a country has too large a population.
D) Scarcity only arises when there is a wide disparity in income distribution.
Answer: A
Diff: 1 Page Ref: 4
Topic: Scarcity
*: Recurring
Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
AACSB: Analytical thinking
1
Copyright © 2021 Pearson Education, Inc.
VERIFIEDBRAINBOOSTER
,4) The basic economic problem of ________ has always existed and will continue to exist.
A) scarcity
B) efficiency
C) inflation
D) recession
Answer: A
Diff: 1 Page Ref: 4
Topic: Scarcity
*: Recurring
Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
AACSB: Analytical thinking
5) By definition, economics is the study of
A) how to make money in the stock market.
B) how to make money in a market economy.
C) the choices people make to attain their goals, given their scarce resources.
D) supply and demand.
Answer: C
Diff: 1 Page Ref: 4
Topic: Scarcity
*: Recurring
Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
AACSB: Analytical thinking
6) An economic ________ is a simplified version of some aspect of economic life used to analyze an
economic issue.
A) market
B) trade-off
C) variable
D) model
Answer: D
Diff: 1 Page Ref: 4
Topic: Economic Models
*: Recurring
Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
AACSB: Analytical thinking
7) Where do economic agents such as individuals, firms, and nations interact with each other?
A) in public locations monitored by the government
B) in any arena that brings together buyers and sellers
C) in any physical location where people can physically get together for selling goods, such as shopping
malls
D) in any location where transactions can be monitored by consumer groups and taxed by the
government
Answer: B
Diff: 1 Page Ref: 4
Topic: Markets
*: Recurring
Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
AACSB: Analytical thinking
2
Copyright © 2021 Pearson Education, Inc.
VERIFIEDBRAINBOOSTER
,8) In economics, the term ________ refers to a group of buyers and sellers of a product and the
arrangement by which they come together to trade.
A) collective
B) cooperative
C) market
D) trade-off
Answer: C
Diff: 1 Page Ref: 4
Topic: Markets
*: Recurring
Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
AACSB: Analytical thinking
9) Economists assume that individuals
A) behave in unpredictable ways.
B) will never take actions to help others.
C) prefer to live in a society that values fairness above all else.
D) are rational and respond to incentives.
Answer: D
Diff: 1 Page Ref: 5
Topic: People Are Rational
*: Recurring
Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
AACSB: Analytical thinking
10) Economists assume that rational behavior is useful in explaining choices people make
A) because irrational people do not make economic choices.
B) even though people may not behave rationally all the time.
C) because individuals act rationally all the time in all circumstances.
D) even though people rarely, if ever, behave in a rational manner.
Answer: B
Diff: 2 Page Ref: 5
Topic: People Are Rational
*: Recurring
Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
AACSB: Analytical thinking
11) Economists assume that rational people do all of the following except
A) use all available information as they act to achieve their goals.
B) undertake activities that benefit others and hurt themselves.
C) weigh the benefits and costs of all possible alternative actions.
D) respond to economic incentives.
Answer: B
Diff: 2 Page Ref: 5
Topic: People Are Rational
*: Recurring
Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
AACSB: Analytical thinking
3
Copyright © 2021 Pearson Education, Inc.
VERIFIEDBRAINBOOSTER
, 12) Economics does not study correct or incorrect behaviors but rather it assumes that economic agents
behave ________, meaning they make the best decisions given their knowledge of the costs and benefits.
A) equitably
B) rationally
C) emotionally
D) selfishly
Answer: B
Diff: 2 Page Ref: 5
Topic: People Are Rational
*: Recurring
Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
AACSB: Analytical thinking
13) Consider the following statements:
a. Car owners purchase more gasoline from a gas station that sells gasoline at a lower price than other
rival gas stations in the area.
b. Banks do not take steps to increase security since they believe it is less costly to allow some bank
robberies than to install expensive security monitoring equipment.
c. Firms produce more of a particular DVD when its selling price rises.
Which of the above statements demonstrates that economic agents respond to incentives?
A) a only
B) b only
C) c only
D) a, b, and c
Answer: D
Diff: 3 Page Ref: 5
Topic: People Respond to Economic Incentives
*: Recurring
Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
AACSB: Analytical thinking
14) Suppose that some teachers have decided that economic and financial uncertainty have made the
prospect of retiring more risky, and therefore carry a higher cost than not retiring. By using all available
information as they act to achieve their goals, these teachers are exemplifying the economic idea that
A) people are rational.
B) people respond to economic incentives.
C) optimal decisions are made at the margin.
D) equity is more important than efficiency.
Answer: A
Diff: 2 Page Ref: 5
Topic: People Are Rational
*: Recurring
Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist
AACSB: Analytical thinking
4
Copyright © 2021 Pearson Education, Inc.
VERIFIEDBRAINBOOSTER
