Test Bank For Basic Economics 16th Edition by Mastrianna

Chapter 4—Price: The Role of Demand and Supply MULTIPLE CHOICE 1. 2. 3. 4. 5. 6. For demand to exist, there must be a. a desire and an ability to buy. b. a supply of the product in the market. c. a price that is low enough to permit all consumers to afford the product. d. All of these. ANS: A PTS: 1 DIF: Easy NAT: TOP: B-Head: Law of Demand KEY: Bloom's: Knowledge The demand for a product at a given time is defined as the a. desire for it. b. sum spent on it. c. measure of total utility for it. d. amount that would be bought at various prices. ANS: D PTS: 1 DIF: Easy NAT: BUSPROG: Analytic BUSPROG: Analytic TOP: B-Head: Law of Demand KEY: The law of demand illustrates that as a. price decreases, demand increases. b. price increases, quantity demanded increases. c. price decreases, quantity supplied increases. d. price decreases, quantity demanded increases. ANS: D PTS: 1 DIF: Moderate TOP: B-Head: Law of Demand KEY: Bloom's: Analysis The demand curve for a product slopes downward to the right because more of the product will be a. demanded as income rises. b. bought as the population grows. c. purchased as price falls. d. demanded as the price of substitutes falls. ANS: C PTS: 1 DIF: Easy TOP: B-Head: Quantity Demanded versus Demand A change in demand means that a. more will be bought at a lower price. b. a changed amount will be bought at the same given prices. c. less will be purchased at a higher price. d. the quantity demanded changes as the price changes. ANS: B PTS: 1 DIF: Moderate TOP: B-Head: Quantity Demanded versus Demand NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension NAT: BUSPROG: Analytic KEY: Bloom's: Analysis A change in demand would be illustrated by a. a drop in price, which causes people to buy more. b. an increase in price, which causes people to buy less. c. a change in people’s preferences that causes them to buy either more or less than before. d. All of these. Bloom's: Knowledge NAT: BUSPROG: Analytic 7. 8. 9. 10. 11. 12. ANS: C PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic TOP: B-Head: Quantity Demanded versus Demand KEY: Bloom's: Analysis The price elasticity of demand is defined as a. the b. the c. the d. the absolute change in price divided by the absolute change in quantity demanded. absolute change in quantity demanded divided by the absolute change in price. percentage change in quantity demanded divided by the percentage change in price. percentage change in price divided by the percentage change in quantity demanded. ANS: C PTS: 1 DIF: Easy TOP: B-Head: Measuring Price Elasticity of Demand When talking about demand, price elasticity refers to the a. price flexibility in response to demand changes. b. adaptability of suppliers to price changes. c. responsiveness of buyers to price changes. d. ability to stretch one’s budget by making wise choices. ANS: C PTS: 1 DIF: Easy TOP: B-Head: Measuring Price Elasticity of Demand NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension If 12 units of a good are sold when the price is $1 per unit, and 8 units are sold at a price of $1.50 per unit, then demand is a. elastic. b. inelastic. c. of indeterminate elasticity. d. unit elastic. ANS: D PTS: 1 TOP: B-Head: Measuring Price Elasticity of Demand NAT: BUSPROG: Analytic KEY: Bloom's: Synthesis DIF: Challenging Consider the market for bicycles. If a dealer cuts prices by 10 percent and sells 20 percent more bikes, then demand for bicycles is a. inelastic, and total revenue will increase. b. elastic, and total revenue will increase. c. inelastic, and total revenue will decrease. d. elastic, and total revenue will decrease. ANS: B PTS: 1 DIF: TOP: B-Head: Measuring Price Elasticity of Demand NAT: BUSPROG: Analytic KEY: Bloom's: Synthesis If a 2 percent change in price is followed by a 10 percent change in quantity sold, the coefficient of price elasticity is a. 0.2. b. 5.0. c. 8.0. d. 20.0. ANS: B TOP: B-Head: Measuring Price Elasticity of Demand NAT: BUSPROG: Analytic KEY: Bloom's: Analysis PTS: 1 DIF: Challenging According to the total revenue rule, if the coefficient of price elasticity of demand is less than 1 and if price goes a. up, total revenue stays the same. b. down, total revenue goes up. Challenging 13. 14. 15. 16. 17. 18. c. down, total revenue goes down. d. up, total revenue goes down. ANS: C PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic TOP: B-Head: Measuring Price Elasticity of Demand KEY: Bloom's: Analysis In accordance with the law of supply, if the price doubled, the quantity supplied would generally a. rise. b. fall. c. double. d. drop by half. ANS: A PTS: 1 TOP: B-Head: Supply Schedule Demand for luxuries tends to be a. elastic. b. inelastic. c. indeterminate. d. unit elastic. ANS: A PTS: 1 TOP: B-Head: Characteristics and Range of Price Elasticity KEY: Which of the following is not a determinant of demand? a. production costs b. consumer expectations c. prices of related goods d. tastes and preferences of consumers ANS: A PTS: 1 TOP: B-Head: Determinants of Demand A demand curve generally a. is a straight horizontal line. b. is a straight vertical line. c. slopes downward to the right. d. slopes downward to the left. ANS: C PTS: 1 TOP: B-Head: Demand Schedule and Demand Curve KEY: Which of the following is assumed to be constant along a demand curve a. the quantity of dogs demanded each time period b. the price of dogs c. the price of cats d. the number of dogs people want to buy ANS: C PTS: 1 DIF: Moderate TOP: B-Head: Demand Schedule and Demand Curve A supply curve generally a. is a straight horizontal line. b. is a straight vertical line. c. slopes downward to the right. d. slopes upward to the right. DIF: Moderate NAT: KEY: Bloom's: Knowledge DIF: Moderate NAT: BUSPROG: Analytic BUSPROG: Analytic Bloom's: Comprehension BUSPROG: Analytic BUSPROG: Analytic Bloom's: Knowledge for pet dogs? DIF: Easy NAT: KEY: Bloom's: Evaluation DIF: Easy NAT: NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge 19. 20. 21. 22. 23. 24. ANS: D PTS: 1 DIF: Easy NAT: TOP: B-Head: Supply Schedule KEY: Bloom's: Knowledge An increase in demand will cause the demand curve to a. move to the right. b. move to the left. c. become more vertical. BUSPROG: Analytic BUSPROG: Analytic BUSPROG: Analytic d. become more horizontal. ANS: A PTS: 1 TOP: B-Head: Changes in Demand DIF: Easy NAT: KEY: Bloom's: Application An increase in supply will cause the supply line to a. move to the left. b. move to the right. c. become more vertical. d. become more horizontal. ANS: B PTS: 1 TOP: B-Head: Changes in Supply DIF: Easy NAT: KEY: Bloom's: Application A shift in the supply curve for gasoline in the United States would result if a. people decided to travel more by automobile. b. the OPEC nations decided to stop sales of crude oil to the United States. c. the price of gasoline increased. d. the price of gasoline decreased. ANS: B PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic TOP: B-Head: Changes in Supply KEY: Bloom's: Application The point where quantity demanded and quantity supplied are equal is known as the a. ceiling price. b. minimum price. c. equilibrium price. d. administered price. ANS: C PTS: 1 DIF: Easy TOP: A-Head: How Demand and Supply Determine Price NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge An increase in the number of consumers, all else held constant, will shift the a. supply curve leftward. b. demand curve leftward. c. supply curve to the right. d. demand curve to the right. ANS: D PTS: 1 TOP: B-Head: Determinants of Demand DIF: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Synthesis If quantity demanded is greater than quantity supplied, the market price must be a. above equilibrium. b. at equilibrium. c. below equilibrium. d. above cost of production. ANS: C PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic 25. When demand for a product increases but the supply of the product remains unchanged, the 26. 27. 28. 29. 30. If the market price is below the equilibrium price, forces will come into play to a. move the price lower. b. move it to the equilibrium price. c. move it above the equilibrium price. TOP: A-Head: How Demand and Supply Determine Price KEY: Bloom's: Analysis equilibrium price of the product will a. rise and equilibrium quantity will decrease. b. fall. c. first fall and then return to the original level. d. rise, and equilibrium quantity will increase. ANS: D PTS: 1 DIF: Moderate TOP: A-Head: How Demand and Supply Determine Price NAT: BUSPROG: Analytic KEY: Bloom's: Evaluation d. increase the supply. ANS: B PTS: 1 DIF: Moderate TOP: A-Head: How Demand and Supply Determine Price NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension As price is lowered from a point higher than the equilibrium price, it will bring about a. an increase in demand. b. a decrease in supply. c. an increase in quantity demanded. d. an increase in supply. ANS: C PTS: 1 DIF: Moderate TOP: A-Head: How Demand and Supply Determine Price A surplus quantity will occur when a. quantity demanded is greater than quantity supplied. b. price is above equilibrium. c. demand is elastic. d. price is below equilibrium. ANS: B PTS: 1 DIF: Moderate TOP: A-Head: How Demand and Supply Determine Price NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension NAT: BUSPROG: Analytic KEY: Bloom's: Analysis When the supply of a product increases but the demand for the product remains unchanged, the equilibrium price of the product will a. fall, and equilibrium quantity will decrease. b. be unaffected. c. first rise and then return to the original price level. d. fall, and equilibrium quantity will increase. ANS: D PTS: 1 DIF: Moderate TOP: A-Head: How Demand and Supply Determine Price To maintain a price above the equilibrium price, a. demand must increase. b. supply must increase. c. price must be regulated. d. demand must decrease. ANS: C PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Synthesis NAT: BUSPROG: Analytic 31. 32. 33. 34. 35. 36. If demand increases and supply decreases, but supply decreases more than demand increases, a. equilibrium price will fall. b. equilibrium quantity will fall. c. quantity sold will increase. TOP: A-Head: Price Ceilings and Price Floors KEY: Bloom's: Analysis d. the quantities of both demand and supply will increase. ANS: B PTS: 1 DIF: Challenging TOP: A-Head: How Demand and Supply Determine Price NAT: BUSPROG: Analytic KEY: Bloom's: Synthesis If the market price of gasoline were $4 a gallon and a ceiling price of $1.50 is imposed, a. a surplus of gasoline occurs. b. a shortage of gasoline occurs. c. the price of gasoline would remain unchanged. d. the price of gasoline would increase. ANS: B PTS: 1 DIF: Moderate TOP: A-Head: Price Ceilings and Price Floors NAT: BUSPROG: Analytic KEY: Bloom's: Evaluation If a price ceiling of $3 is imposed on gasoline and the market price is $2, a. the b. the c. the d. the price of gasoline will rise. price of gasoline will fall. price of gasoline will remain unchanged. demand for gasoline will increase. ANS: C PTS: 1 DIF: Challenging NAT: TOP: A-Head: Price Ceilings and Price Floors KEY: If a price floor of $10 a bottle is imposed on wine from California, a. all wine from California becomes more expensive. b. all wine from California becomes cheaper. c. the price of some wines will increase. d. the price floor will have no effect. ANS: C PTS: 1 DIF: Challenging NAT: TOP: A-Head: Price Ceilings and Price Floors KEY: A price floor will result in a. a decrease in price if the price floor is below the market price. b. a decrease in price if the price floor is above the market price. c. an increase in price if the price floor is above the market price. d. the same price as the market price. ANS: C PTS: 1 DIF: Moderate NAT: TOP: A-Head: Price Ceilings and Price Floors KEY: To maintain a price below the equilibrium price, a. demand must increase. b. supply must increase. c. the government must set a ceiling price. d. supply must decrease. ANS: C PTS: 1 DIF: Easy NAT: TOP: A-Head: Price Ceilings and Price Floors KEY: BUSPROG: Analytic Bloom's: Synthesis BUSPROG: Analytic Bloom's: Synthesis BUSPROG: Analytic Bloom's: Comprehension BUSPROG: Analytic Bloom's: Knowledge 37. 38. 39. 40. 41. 42. 43. Whenever the supply of a product decreases and the demand for the product increases, a. the quantity exchanged in the market will increase. b. equilibrium price will rise. c. the quantity exchanged in the market will decrease. d. equilibrium price will fall. ANS: B PTS: 1 DIF: Challenging NAT: BUSPROG: Analytic TOP: DISC: Supply and demand KEY: Bloom's: Synthesis Whenever the supply of a product increases and the demand for a. the quantity exchanged in the market will increase. b. equilibrium price will rise. c. the quantity exchanged in the market will decrease. d. equilibrium price will fall. ANS: D PTS: 1 DIF: Challenging NAT: TOP: A-Head: How Demand and Supply Determine Price KEY: If both demand and supply increase, but demand increases more a. equilibrium price will fall. b. equilibrium price will rise. c. quantity sold will decrease. than supply, d. both the equilibrium price will fall and the quantity sold will decrease. ANS: B PTS: 1 DIF: Challenging NAT: TOP: A-Head: How Demand and Supply Determine Price KEY: On a price/quantity graph, a straight horizontal demand curve a. has zero price elasticity. b. is perfectly elastic. c. is perfectly inelastic. d. is perfectly unit elastic. ANS: B PTS: 1 DIF: Moderate NAT: TOP: B-Head: Characteristics and Range of Price Elasticity KEY: Along a straight-line, slanted demand curve, a. the price elasticity is constant. b. the price elasticity varies along the line. c. the price elasticity is the same as slope. d. the price elasticity cannot be measured. ANS: B PTS: 1 DIF: Moderate NAT: TOP: B-Head: Characteristics and Range of Price Elasticity KEY: BUSPROG: Analytic Bloom's: Evaluation BUSPROG: Analytic Bloom's: Knowledge BUSPROG: Analytic Bloom's: Comprehension The total quantity of a good that all buyers in the market would buy at various prices at a given time is known as a. individual demand. b. conglomerate demand. c. market demand. d. additive demand. ANS: C PTS: 1 TOP: B-Head: Demand Schedule and Demand Curve DIF: Easy Which of the following would not lead to a change in demand for coffee? the product decreases, BUSPROG: Analytic Bloom's: Synthesis NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge 44. 45. 46. 47. 48. 49. d. directly. ANS: D PTS: 1 DIF: Easy NAT: a. a change in the price of coffee b. a change in consumer preferences for coffee c. a change in the price of tea d. a change in consumers’ disposable incomes ANS: A PTS: 1 DIF: TOP: B-Head: Determinants of Demand KEY: The quantity supplied and price tend to vary a. inversely. b. independently. c. in an unrelated fashion. Moderate NAT: Bloom's: Application BUSPROG: Analytic BUSPROG: Analytic TOP: B-Head: Supply Schedule KEY: Bloom's: Knowledge In the long run, the supply of goods is based on a. the availability of the resources and the costs of production. b. the availability of the resources and the level of consumers’ incomes. c. the costs of production and consumer preferences. d. government regulations. ANS: A PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic TOP: B-Head: Determinants of Supply KEY: Bloom's: Comprehension The law of supply states that a. as prices increase, quantity supplied decreases. b. price changes are always in the same direction as supply changes. c. a change in price causes a change in supply. d. price and quantity supplied are positively or directly related. ANS: D PTS: 1 DIF: Easy NAT: TOP: B-Head: Supply Schedule KEY: Bloom's: Knowledge Which of the following is not a determinant of supply? a. improvements in technology b. an increase in the number of consumers c. changes in the profitability of producing other products d. a change in the cost of labor ANS: B PTS: 1 DIF: Moderate NAT: TOP: B-Head: Determinants of Supply KEY: Bloom's: Knowledge Which of the following types of goods tend toward elastic demand? a. luxuries b. durable goods c. goods with multiple uses d. All of these. ANS: D PTS: 1 DIF: Moderate TOP: B-Head: Characteristics and Range of Price Elasticity Over the long run, the supply curve becomes a. unit elastic. b. more elastic. BUSPROG: Analytic BUSPROG: Analytic NAT: BUSPROG: Analytic KEY: Bloom's: Application 50. 51. If a good has perfectly inelastic demand, a. an infinite amount could be sold without a change in price b. the same amount would be purchased regardless of price c. any price change is matched by an equal percentage change in quantity demanded d. total revenue remains unchanged if the price rises or falls c. inelastic. d. negative. ANS: B PTS: 1 DIF: Moderate TOP: B-Head: Time and Elasticity of Supply NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension ANS: B PTS: 1 DIF: Moderate NAT: TOP: B-Head: Characteristics and Range of Price Elasticity KEY: Refer to the following graph. An increase in demand is reflected as a. a shift of the demand curve from D to D1. b. a shift of the demand curve from D to D2. c. movement from point A to B along demand curve D. d. movement from point A to E when the price is $12.50. BUSPROG: Analytic Bloom's: Analysis 52. ANS: A PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic TOP: B-Head: Changes in Demand KEY: Bloom's: Synthesis Refer to the following graph. A decrease in demand is reflected as 53. a. a shift of the demand curve from D to D1. b. a shift of the demand curve from D to D2. c. movement from point B to A along demand curve D. d. movement from point A to C when the price is $12.50. ANS: B PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic TOP: B-Head: Changes in Demand KEY: Bloom's: Synthesis Refer to the following graph. An increase in supply is reflected as 54. a. a shift of the supply curve from S to S2. b. a shift of the supply curve from S to S1. c. a shift of the supply curve from S1 to S2. d. a change in the quantity supplied from 6.8 to 5.2 million minutes when price is $12.50. ANS: B PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic TOP: B-Head: Changes in Supply KEY: Bloom's: Synthesis Refer to the following graph. A decrease in supply is reflected as a. a shift of the supply curve from S to S2. b. a shift of the supply curve from S to S1. c. a shift of the supply curve from S2 to S1. d. a change in the quantity supplied from 5.2 to 8.2 million minutes when price is $12.50. 55. Refer to the following graph. Which of the following statements is true? a. Equilibrium is shown at point A. b. When the price is $13.50 a shortage exists. c. When the price is $11.50 a surplus exists. d. If the price is currently $11.00 then the price will fall over time. ANS: A PTS: 1 DIF: Moderate NAT: TOP: A-Head: How Demand and Supply Determine Price KEY: 56. Refer to the following graph. When the price falls from $10 to $8, demand ANS: A PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic TOP: B-Head: Changes in Supply KEY: Bloom's: Synthesis BUSPROG: Analytic Bloom's: Synthesis a. is most elastic if the demand curve is D2. b. is most elastic if the demand curve is D. c. is most elastic if the demand curve is D1. d. is most inelastic if the demand curve is D. ANS: C PTS: 1 DIF: Challenging TOP: B-Head: Measuring Price Elasticity of Demand NAT: BUSPROG: Analytic KEY: Bloom's: Evaluation TRUE/FALSE 1. Demand is a list of needs or wants, regardless of purchasing power. ANS: F PTS: 1 DIF: Easy NAT: BUSPROG: Analytic TOP: 2. There A-Head: Demand KEY: Bloom's: Knowledge is a difference between demand and quantity demanded. ANS: T PTS: 1 DIF: Easy NAT: TOP: B-Head: Quantity Demanded versus Demand B-Head: Quantity Demanded versus Demand KEY: Bloom's: Knowledge ANS: T PTS: 1 DIF: Easy TOP: B-Head: Law of Demand KEY: Bloom's: Knowledge 4. The quantity of goods demanded is a function of price alone. ANS: F PTS: 1 DIF: Easy NAT: TOP: A-Head: Demand KEY: Bloom's: Knowledge 5. An increase in demand causes price to rise and quantity sold to fall. 3. A typical demand schedule shows higher sales at lower prices. ANS: F PTS: 1 DIF: Moderate TOP: A-Head: How Demand and Supply Determine Price 6. The quantity supplied is inversely related to price. NAT: BUSPROG: Analytic KEY: Bloom's: Analysis ANS: F PTS: 1 DIF: Easy TOP: B-Head: Supply Schedule KEY: Bloom's: Knowledge NAT: BUSPROG: Analytic 7. If demand and supply increase by the same amount, equilibrium price will rise. ANS: F PTS: 1 DIF: Challenging NAT: TOP: A-Head: How Demand and Supply Determine Price KEY: 8. If supply increases more than demand, equilibrium price will fall. ANS: T PTS: 1 DIF: Challenging NAT: TOP: A-Head: How Demand and Supply Determine Price KEY: Bloom's: Synthesis 9. A change in demand occurs whenever consumers will purchase more because of a decrease in price. ANS: F PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic TOP: B-Head: Changes in Demand KEY: Bloom's: Comprehension 10. An increase in demand tends to increase both the equilibrium price and the amount of a commodity exchanged. ANS: T PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic NAT: BUSPROG: Analytic BUSPROG: Analytic BUSPROG: Analytic Bloom's: Synthesis BUSPROG: Analytic TOP: A-Head: How Demand and Supply Determine Price KEY: Bloom's: Analysis 11. Probably the main characteristic of a demand curve is that it slopes upward from left to right. ANS: F PTS: 1 DIF: Easy NAT: BUSPROG: Analytic TOP: B-Head: Law of Demand KEY: Bloom's: Knowledge 12. Typically, the higher the price of a commodity, the greater the quantity supplied. ANS: T PTS: 1 DIF: Easy NAT: TOP: B-Head: Supply Schedule KEY: Bloom's: Knowledge 13. Price ceilings usually create surpluses since supply is increased. ANS: F PTS: 1 DIF: Moderate NAT: TOP: A-Head: Price Ceilings and Price Floors KEY: 14. Price floors can create surpluses if price floors are above market prices. ANS: T PTS: 1 DIF: Moderate NAT: TOP: A-Head: Price Ceilings and Price Floors KEY: BUSPROG: Analytic BUSPROG: Analytic Bloom's: Comprehension BUSPROG: Analytic Bloom's: Comprehension 15. Price elasticity of demand is a measure of consumer responsiveness to a change in price. ANS: T PTS: 1 DIF: Easy NAT: BUSPROG: Analytic TOP: A-Head: Price Elasticity of Demand KEY: Bloom's: Knowledge 16. The measure of elasticity will be the same at any place along a given straight-line, slanted demand curve. ANS: F PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic TOP: B-Head: Characteristics and Range of Price Elasticity KEY: Bloom's: Comprehension 17. If 1,000 units of a particular good would be purchased at 40 cents per unit but only 750 units would be purchased at 50 cents per unit, the demand for the good is inelastic. ANS: F PTS: 1 DIF: Challenging NAT: BUSPROG: Analytic TOP: B-Head: Measuring Price Elasticity of Demand KEY: Bloom's: Evaluation 18. Graphically, perfectly elastic demand is represented by a straight horizontal line. ANS: T PTS: 1 DIF: Easy NAT: BUSPROG: Analytic TOP: B-Head: Characteristics and Range of Price Elasticity KEY: Bloom's: Knowledge 19. It is possible for a change in the price of one commodity to lead to a change in the demand for another commodity. ANS: T PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic TOP: B-Head: Changes in Demand KEY: Bloom's: Application 20. Any time the market price moves away from its equilibrium position to a lower price, market action will tend to force it further away from its original equilibrium position. ANS: F PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic TOP: A-Head: How Demand and Supply Determine Price KEY: Bloom's: Comprehension 21. The demand for necessities and goods that require a small expenditure tends to be price inelastic. ANS: T PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic TOP: B-Head: Characteristics and Range of Price Elasticity KEY: Bloom's: Analysis 22. If total revenue decreases when a price is decreased, the demand for the commodity is elastic. ANS: F PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic TOP: B-Head: Measuring Price Elasticity of Demand KEY: Bloom's: Synthesis 23. If the coefficient of elasticity for a commodity is 1.5 and the price of that commodity is raised, total revenue will decrease. ANS: T PTS: 1 DIF: Challenging TOP: B-Head: Measuring Price Elasticity of Demand 24. The slope of a demand curve is a measure of elasticity. ANS: F PTS: 1 DIF: Challenging TOP: B-Head: Measuring Price Elasticity of Demand NAT: BUSPROG: Analytic KEY: Bloom's: Synthesis NAT: BUSPROG: Analytic KEY: Bloom's: Synthesis 25. The demand for a fur coat tends to be more price elastic than the demand for automobile tires. ANS: T PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic TOP: B-Head: Characteristics and Range of Price Elasticity KEY: Bloom's: Application 26. Price elasticity of demand tends to be greater for substitute items than for complementary goods. ANS: T PTS: 1 DIF: Challenging NAT: BUSPROG: Analytic TOP: B-Head: Characteristics and Range of Price Elasticity KEY: Bloom's: Evaluation 27. If income increases and the demand for a product increases, the product is a normal good. ANS: T PTS: 1 DIF: Moderate NAT: TOP: B-Head: Changes in Demand KEY: Bloom's: Analysis 28. The more substitutes for a good, the more elastic its demand tends to be. BUSPROG: Analytic ANS: T PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic TOP: B-Head: Characteristics and Range of Price Elasticity KEY: Bloom's: Synthesis 29. The total quantity of a good offered for sale is unaffected by estimates by sellers of the probable costs of producing the good in the future. ANS: F PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic TOP: B-Head: Supply Schedule KEY: Bloom's: Knowledge 30. In a market with many buyers and sellers, no one individual can influence the market price. ANS: T PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic TOP: A-Head: How Demand and Supply Determine Price KEY: Bloom's: Knowledge ESSAY 1. Give three reasons why a demand curve slopes downward to the right. ANS: First, more of a good will be purchased at a lower price, since those who are willing to pay a high price may buy even more of the product at a lower price. Second, those who do not think the product is worth a high price may purchase it at a lower price. Third, those who cannot afford to buy it at a high price may be able to afford it at a lower price. PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic TOP: B-Head: Law of Demand KEY: Bloom's: Evaluation 2. Give two specific reasons why quantity supplied is greater at a higher price. ANS: First, if a firm can make a profit at a given price, it will be inclined to produce more at a higher price and enhance its profit. Second, firms that cannot make a profit at a low price may be able to do so at a higher price and therefore will undertake production. In either case, total quantity supplied will be greater at a higher price. PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic TOP: B-Head: Supply Schedule KEY: Bloom's: Evaluation 3. Why do necessities tend to have demand that is price inelastic, while luxuries tend to have demand that is price elastic? ANS: Necessities, such as milk for children and electricity for our homes, are hard to do without. Therefore, when their price increases, we do not tend to reduce our purchases of these commodities very much. On the other hand, a luxury, such as a fur coat or diamond necklace, is not essential and has available substitutes. Therefore, we find it much easier to reduce or eliminate our purchase of such items. PTS: 1 DIF: Challenging NAT: BUSPROG: Analytic TOP: B-Head: Characteristics and Range of Price Elasticity KEY: Bloom's: Evaluation 4. Under what circumstances might a government price ceiling lead to the development of a black market? ANS: A so-called black market is one in which goods are being bought in violation of a government law or regulation. If the government establishes a maximum price below the free market equilibrium price, a shortage may occur at the ceiling price. Moreover, some individuals will be willing to pay a price higher than the ceiling price, so certain suppliers will violate the ceiling price and sell their products at a higher price, risking criminal prosecution in order to make more profit. PTS: 1 DIF: Challenging NAT: BUSPROG: Analytic TOP: A-Head: Price Ceilings and Price Floors KEY: Bloom's: Evaluation Chapter 1—The Nature and Scope of Economics MULTIPLE CHOICE 1. 2. 3. 4. 5. 6. Generally, in economics we study how people a. react to changes in government policy. b. make choices when resources are scarce. c. react to rising prices. d. get increases in income. ANS: B PTS: 1 DIF: TOP: A-Head: Economics Defined KEY: Economics can be classified best as a(n) a. exact science. b. physical science. c. social science. TOP: A-Head: Economics Defined KEY: NAT: BUSPROG: Analytic d. natural science. ANS: C PTS: 1 DIF: Easy Which of the following areas of study is included in the field of macroeconomics? a. electricians’ wage rates b. monopolistic pricing c. price of automobiles d. general price level ANS: D PTS: 1 DIF: Easy TOP: A-Head: Microeconomics and Macroeconomics NAT: BUSPROG: Communication KEY: Bloom's: Comprehension An example of a macroeconomic model is one that considers a. how the price of chicken influences the quantity of chicken bought. b. why the size of the total national output depends on the size of total spending. c. how the output of a product is influenced by the cost of production for the product. d. All of these. ANS: B PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic TOP: A-Head: Microeconomics and Macroeconomics KEY: Bloom's: Application The interactions of producers and consumers in individual markets are part of the study of a. macroeconomics. b. monetary economics. c. normative economics. d. microeconomics. ANS: D PTS: 1 DIF: Easy TOP: A-Head: Microeconomics and Macroeconomics NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension The process of allocating the total product among the resources involved is referred to as a. geographic distribution. b. functional distribution. c. marketing distribution. d. frictional distribution. Moderate Bloom's: Comprehension NAT: BUSPROG: Communication Bloom's: Knowledge 7. 8. 9. 10. 11. 12. ANS: B PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic TOP: B-Head: Economics and Distribution KEY: Bloom's: Analysis A person who organizes and assumes the risks of a business venture is called a(n) a. capitalist. b. manager. c. labor leader. d. entrepreneur. ANS: D PTS: 1 DIF: Easy TOP: B-Head: Economics and Distribution NAT: BUSPROG: Communication KEY: Bloom's: Knowledge As economists use the term, capital means a. such things as machinery and equipment. b. such things as money and credit. c. the profits that come from hiring and using labor and natural resources. d. All of these. ANS: A PTS: 1 DIF: Easy TOP: B-Head: Economics and Distribution Payment to the owners of natural resources used in the production a. interest. b. rent. c. wages. d. profits. ANS: B PTS: 1 DIF: Easy NAT: TOP: B-Head: Economics and Distribution KEY: For the use of their capital in production, owners receive a. wages. b. rent. c. interest. d. profit. ANS: C PTS: 1 TOP: B-Head: Economics and Distribution For the use of the employee’s participation in production, an employee receives a. wages. b. rent. c. interest. d. profit. ANS: A PTS: 1 DIF: Easy TOP: B-Head: Economics and Distribution NAT: BUSPROG: Communication KEY: Bloom's: Knowledge NAT: BUSPROG: Communication KEY: Bloom's: Knowledge process is in the form of DIF: Easy NAT: KEY: Bloom's: Knowledge If an economist is trying to figure out, in a certain situation, “What would happen if?”, then that economist is working in the area of a. normative economics. b. positive economics. c. the theory of the firm. d. welfare economics. BUSPROG: Communication Bloom's: Knowledge BUSPROG: Communication 13. 14. 15. Which of the following is the study of “what is” rather than “what ought a. normative economics b. subjective economics c. positive economics d. the theory of the origin of humanity ANS: C PTS: 1 DIF: Moderate TOP: B-Head: Economic Theory and Policy Determining “what ought to be” in the economy is considered a. positive economics. b. normative economics. c. distributive economics. d. mesoeconomics. ANS: B PTS: 1 DIF: Easy TOP: B-Head: Economic Theory and Policy to be”? 16. If you heard someone say that coal miners should be paid more wages to enable them to adequately support their families, that would be a statement of a. positive economics. b. normative economics. c. radical economics. d. None of these. ANS: B PTS: 1 NAT: BUSPROG: Reflective Thinking TOP: B-Head: Economic Theory and Policy KEY: Bloom's: Analysis 17. 18. Utility as an economic term refers to a. the amount of electricity generated. b. the ability of a good to satisfy a want. c. tangible goods only. d. services only. ANS: B PTS: 1 DIF: Easy TOP: B-Head: Economics and Production An economic service need not be a. useful. b. scarce. NAT: BUSPROG: Communication KEY: Bloom's: Knowledge ANS: B PTS: 1 DIF: Moderate NAT: BUSPROG: Communication TOP: B-Head: Economic Theory and Policy KEY: Bloom's: Comprehension An editorial in a newspaper calling for the government to abolish the minimum wage because it takes advantage of consumers is an example of a(n) a. positive economic statement. b. pure economic statement. c. normative economic statement. d. abstract economic statement. ANS: C PTS: 1 NAT: BUSPROG: Reflective Thinking KEY: Bloom's: Analysis DIF: Moderate TOP: B-Head: Economic Theory and Policy DIF: Moderate NAT: BUSPROG: Communication KEY: Bloom's: Comprehension NAT: BUSPROG: Communication KEY: Bloom's: Knowledge 19. 20. 21. 22. 23. 24. ANS: C PTS: 1 TOP: B-Head: Goods and Services A free good lacks the element of a. usefulness. b. scarcity. c. transferability. d. tangibility. ANS: B PTS: 1 TOP: B--Head: Goods and Services DIF: Challenging NAT: KEY: Bloom's: Evaluation DIF: Challenging NAT: KEY: Bloom's: Knowledge BUSPROG: Analytic BUSPROG: Communication BUSPROG: Communication c. transferable. d. tangible. ANS: D PTS: 1 NAT: BUSPROG: Reflective Thinking KEY: Bloom's: Knowledge An example of a free good is a. public education. b. CARE packages provided free to poor people overseas. c. the water bubbling up from the natural spring in your backyard. d. the ride you give a hitchhiker. For a good to be scarce, it must be something that a. has economic value. b. people find useful. c. is available only in limited quantities. d. All of these. ANS: D PTS: 1 TOP: B--Head: Goods and Services DIF: Challenging TOP: B-Head: Goods and Services DIF: Easy KEY: Bloom's: Knowledge The total value of the goods and services produced over a period of time represents an economy’s a. planned savings. b. total income. c. total wealth. d. capital. ANS: B PTS: 1 DIF: TOP: B-Head: Wealth and Income KEY: Macroeconomic policymakers do not include a. the president of the United States. b. the U.S. Congress. c. the president of General Motors. d. the secretary of the U.S. Treasury. ANS: C PTS: 1 DIF: Moderate TOP: A-Head: Microeconomics and Macroeconomics Profits can be thought of as a. the return to enterprise. b. the reward for taking a risk and winning. c. what is left over after all wages, rent, and interest have been paid. Easy NAT: Bloom's: Knowledge BUSPROG: Communication NAT: NAT: BUSPROG: Analytic KEY: Bloom's: Synthesis 25. 26. 27. 28. 29. 30. d. enterprise. ANS: D PTS: 1 DIF: Easy NAT: d. All of these. ANS: D PTS: 1 DIF: Challenging NAT: TOP: B-Head: Economics and Distribution KEY: Bloom's: Application The resource most directly associated with profits is a. land. b. labor. c. capital. TOP: B-Head: Economics and Distribution In economics, the entrepreneur is the person who a. acts as the go-between among different manufacturers. b. puts together land, labor, and capital and tries to make a profit. c. is a shrewd business executive who works as a consultant to other businesses to show them more profitable methods of operation. d. is a visiting diplomat from France. ANS: B PTS: 1 DIF: Easy NAT: BUSPROG: Communication TOP: B-Head: Economics and Distribution KEY: Bloom's: Knowledge The difference between a capital good and a consumer good depends on a. the purpose for which it is used. b. how it was produced. c. when it was produced. d. how quickly it is used up. ANS: A PTS: 1 TOP: B-Head: Goods and Services DIF: Moderate NAT: BUSPROG: Communication KEY: Bloom's: Synthesis A bulldozer used by a construction firm is known as a a. capital good. b. consumer good. c. free good. d. public good. ANS: A PTS: 1 TOP: B-Head: Goods and Services The ability of a good or service to satisfy a want is known as a. tangibility. b. desirability. c. utility. NAT: BUSPROG: Communication d. satisfying. ANS: C PTS: 1 TOP: B-Head: Economics and Production DIF: Easy NAT: BUSPROG: Communication KEY: Bloom's: Knowledge DIF: Easy KEY: Bloom's: Application Economists divide productive resources into which of the following four broad categories? a. land, labor, money, enterprise. b. land, labor, capital, enterprise. c. minerals, unskilled labor, semi-skilled labor, skilled labor. d. land, buildings, machinery, money. BUSPROG: Analytic BUSPROG: Communication KEY: Bloom's: Knowledge 31. 32. 33. 34. 35. 36. ANS: B PTS: 1 TOP: B-Head: Economics and Production An economic good must be a. useful. b. scarce. c. transferable. d. All of these. ANS: D PTS: 1 TOP: B-Head: Goods and Services Public parks and libraries are examples of a. economic goods. b. free goods. c. intangible goods. d. public goods. DIF: DIF: KEY: Easy NAT: KEY: Moderate NAT: Bloom's: Knowledge Easy NAT: KEY: BUSPROG: Communication Bloom's: Knowledge BUSPROG: Communication BUSPROG: Communication Bloom's: Application ANS: D PTS: 1 TOP: B-Head: Economic Theory and Policy The rules and principles of economics that serve as a. economic policy. b. economic theory. c. macroeconomics. d. microeconomics. ANS: B PTS: 1 DIF: Easy TOP: B-Head: Economic Theory and Policy DIF: If a useful good or service exists in such abundance that anyone can readily obtain it without much effort, a. it is not scarce, but it is an economic good. b. it is scarce, but it is not an economic good. c. it is scarce, and it is an economic good. d. it is neither scarce nor is it an economic good. ANS: D PTS: 1 DIF: TOP: B-Head: Goods and Services KEY: The stock of labor talents and skills is known as a. a public good. b. the functional distribution. c. human capital. d. enterprise. ANS: C PTS: 1 TOP: B-Head: Wealth and Income Challenging NAT: Bloom's: Evaluation BUSPROG: Analytic BUSPROG: Communication Total wealth is a ____ concept; total income is a ____ concept. a. stock; flow. b. stock; stock. c. flow; stock. d. flow; flow. a guide for action are known as DIF: Easy NAT: KEY: Bloom's: Knowledge NAT: BUSPROG: Communication KEY: Bloom's: Knowledge 37. 38. 39. 40. ANS: A PTS: 1 DIF: Easy NAT: BUSPROG: Communication TOP: B-Head: Wealth and Income KEY: Bloom's: Synthesis A science that studies the behavior and interactions of human beings, individually and in groups, is known as a(n) a. social science. b. physical science. c. interactive science. d. dynamic science. ANS: A PTS: 1 DIF: Easy TOP: B-Head: Economics in Relation to Other Sciences NAT: BUSPROG: Communication KEY: Bloom's: Knowledge The sum of all the goods and services produced by an economy over a given time period is known as its a. total wealth. b. functional distribution. c. total capital. d. total product. ANS: D PTS: 1 DIF: Easy TOP: B-Head: Economics and Production NAT: BUSPROG: Communication KEY: Bloom's: Knowledge Economics can best be defined as the study of how a. society decides to use its scarce resources in an attempt to satisfy unlimited wants. b. the government should deal with the problems of unemployment and c. to make money in the stock market. d. the government should eliminate the problem of scarce resources. ANS: A PTS: 1 DIF: Moderate NAT: TOP: A-Head: Economics Defined KEY: Bloom's: Synthesis Normative economic statements a. can’t be verified. b. deal with “what is”. c. consider the effect one variable has on another variable . d. None of these. ANS: A PTS: 1 DIF: Challenging NAT: inflation. BUSPROG: Analytic BUSPROG: Communication Bloom's: Comprehension BUSPROG: Ethics Bloom's: Comprehension TOP: B-Head: Economic Theory and Policy KEY: NAT: KEY: 41. Economic policy 42. Which of the following is an example of marginal analysis? a. a fast food restaurant that only serves lunch and dinner trying to determine if it should open for breakfast. b. a company looking at its total costs of production. a. always follows economic theory. b. develops rules and principles of economics. c. is often modified by political and social considerations. d. All of these. ANS: C PTS: 1 DIF: Easy TOP: B-Head: Economic Theory and Policy 43. 44. 45. 46. 47. 48. c. a worker calculating his total income. d. an economist analyzing total output for the U.S. economy. ANS: A PTS: 1 DIF: Challenging NAT: TOP: B-Head: Economic Terms and Concepts KEY: An example of rational behavior in economics is a. a firm seeking to minimize its losses in an economic downturn. b. a consumer wanting to maximize satisfaction. c. a country looking to maximize its output. d. All of these. ANS: D PTS: 1 DIF: Easy NAT: TOP: B-Head: Economic Terms and Concepts KEY: The idea that what’s good for one person may not be good for all people a. cause-effect fallacy. b. fallacy of composition. c. moral hazard problem. d. disequilibrium position. ANS: B PTS: 1 DIF: Easy TOP: B-Head: Economic Terms and Concepts BUSPROG: Analytic Bloom's: Synthesis BUSPROG: Analytic Bloom's: Comprehension is known as the When the federal government insures large financial institutions against losses, the problem of _____ arises. a. paradox of thrift. b. fallacy of composition. c. moral hazard. d. distribution. ANS: C PTS: 1 DIF: Moderate TOP: B-Head: Economic Terms and Concepts Economics is the study of a. how to make money. b. choices in a world of scarcity. c. how to distribute unlimited production among limited wants. d. All of the above. ANS: B PTS: 1 DIF: Moderate TOP: A-Head: Economics Is a Science of Choices NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension NAT: BUSPROG: Communication KEY: Bloom's: Synthesis Economics teaches us that a. every choice has costs associated with it because resources are scarce. b. if all resources were abundant there would be no need to economize or to agonize over decisions. c. judgements have to be made as to the best means to obtain a desired objective. d. All of the above. ANS: D PTS: 1 DIF: Moderate NAT: BUSPROG: Communication TOP: A-Head: Economics Is a Science of Choices KEY: Bloom's: Synthesis When a large number of people in society save more and it results in a decline in national income and an increase in unemployment this is known as a. the fallacy of composition. NAT: BUSPROG: Communication KEY: Bloom's: Knowledge b. moral hazard. c. the paradox of thrift. d. marginal analysis. ANS: C PTS: 1 DIF: Easy TOP: B-Head: Economic Terms and Concepts TRUE/FALSE NAT: BUSPROG: Communication KEY: Bloom's: Knowledge 1. The study of economics is primarily theoretical and has very little practical application. ANS: F PTS: 1 DIF: Easy TOP: A-Head: Economics Is a Science of Choices 2. Economics is considered a physical science. ANS: F PTS: 1 DIF: Easy TOP: B-Head: Economics in Relation to Other Sciences NAT: KEY: NAT: KEY: BUSPROG: Communication Bloom's: Evaluation BUSPROG: Communication Bloom's: Comprehension are unlimited. 3. Economies must make choices because resources are limited while wants ANS: T PTS: 1 DIF: TOP: A-Head: Economics Defined KEY: 4. Production is the creation or addition of utility. ANS: T PTS: 1 DIF: Easy NAT: BUSPROG: Communication TOP: B-Head: Economics and Production KEY: Bloom's: Knowledge 5. Labor includes the physical efforts of individuals and groups, but not their mental efforts. ANS: F PTS: 1 DIF: Moderate NAT: BUSPROG: Communication TOP: B-Head: Economics and Distribution KEY: Bloom's: Comprehension 6. Functional distribution has to do with the allocation of total production among the resources. ANS: T PTS: 1 DIF: Moderate NAT: BUSPROG: Communication TOP: B-Head: Economics and Distribution KEY: Bloom's: Knowledge 7. Goods used to produce other goods and services are known as capital. ANS: T PTS: 1 DIF: Easy NAT: BUSPROG: Communication TOP: B-Head: Economics and Distribution KEY: Bloom's: Knowledge 8. All economies in the world have identical methods of functional distribution. ANS: F PTS: 1 DIF: Easy TOP: B-Head: Economics and Distribution 9. A positive economic statement is always true. ANS: F PTS: 1 DIF: Moderate NAT: BUSPROG: Communication KEY: Bloom's: Application NAT: BUSPROG: Analytic Easy NAT: Bloom's: Comprehension BUSPROG: Analytic TOP: B-Head: Economics and Distribution KEY: Bloom's: Comprehension 10. Positive economics deals with “what is” as opposed to “what ought to be.” ANS: T PTS: 1 DIF: Easy NAT: TOP: B-Head: Economic Theory and Policy KEY: 11. The largest part of U.S. national income takes the form of profits. ANS: F PTS: 1 DIF: Challenging NAT: TOP: B-Head: Economic Theory and Policy KEY: 12. Consumption is the ultimate end of economic activity. ANS: T PTS: 1 DIF: Easy NAT: TOP: B-Head: Economics and Consumption KEY: 13. A free good may eventually become an economic good. ANS: T PTS: 1 DIF: Challenging NAT: TOP: B-Head: Goods and Services KEY: Bloom's: Evaluation 14. Payment for the use of capital is made in the form of rent. BUSPROG: Communication Bloom's: Knowledge BUSPROG: Analytic Bloom's: Comprehension BUSPROG: Communication Bloom's: Knowledge BUSPROG: Analytic ANS: F PTS: 1 DIF: Easy NAT: BUSPROG: Analytic TOP: B-Head: Economics and Distribution KEY: Bloom's: Knowledge 15. The study of economics would be less complicated if differences in subjective judgments did not exist. ANS: T PTS: 1 DIF: Challenging NAT: TOP: B-Head: Economic Theory and Policy 16. Equilibrium is a position of stability or rest. ANS: T PTS: 1 DIF: Easy TOP: B-Head: Economic Terms and Concepts 17. All goods and services produced during the year are added to the total wealth of the nation. ANS: F PTS: 1 DIF: Moderate NAT: BUSPROG: Communication TOP: B-Head: Wealth and Income KEY: Bloom's: Comprehension 18. Stocks and bonds are counted as part of total wealth. ANS: F PTS: 1 DIF: Challenging NAT: BUSPROG: Analytic TOP: B-Head: Wealth and Income KEY: Bloom's: Synthesis 19. To understand the purpose of a given economic policy, it is necessary to understand the influence of political and social policies. ANS: T PTS: 1 DIF: Easy NAT: BUSPROG: Communication TOP: B-Head: Economic Theory and Policy KEY: Bloom's: Application BUSPROG: Ethics KEY: Bloom's: Synthesis NAT: BUSPROG: Communication KEY: Bloom's: Knowledge 20. Economics is an isolated science since it has no relation to other sciences. ANS: F PTS: 1 DIF: Easy NAT: BUSPROG: Communication TOP: B-Head: Economics in Relation to Other Sciences KEY: Bloom's: Evaluation 21. Concern with the level of employment in the economy is a macroeconomic issue. ANS: T PTS: 1 DIF: Easy TOP: A-Head: Microeconomics and Macroeconomics 22. Microeconomics is a study of aggregates in the economy. ANS: F PTS: 1 DIF: Easy TOP: A-Head: Microeconomics and Macroeconomics NAT: BUSPROG: Communication KEY: Bloom's: Knowledge NAT: BUSPROG: Communication KEY: Bloom's: Knowledge 23. An economy’s wealth consists of a multitude of consumer and capital goods. ANS: T PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic TOP: B-Head: Wealth and Income KEY: Bloom's: Synthesis 24. Economic services lack the characteristic of transferability found in economic goods. ANS: F PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic TOP: B-Head: Goods and Services KEY: Bloom's: Comprehension 25. Economic theory and economic policy are synonymous. ANS: F PTS: 1 DIF: Moderate NAT: BUSPROG: Communication TOP: B-Head: Economic Theory and Policy KEY: Bloom's: Evaluation 26. Your decision to attend college was a microeconomic choice. ANS: T PTS: 1 DIF: Easy NAT: BUSPROG: Reflective Thinking TOP: A-Head: Microeconomics and Macroeconomics KEY: Bloom's: Evaluation 27. Goods directly used by individuals and households are known as capital goods. ANS: F PTS: 1 DIF: Easy NAT: BUSPROG: Communication TOP: B-Head: Goods and Services KEY: Bloom's: Knowledge 28. The relationship between the price of a book and the number of volumes purchased would be an example of microeconomics. ANS: T PTS: 1 DIF: Easy TOP: A-Head: Microeconomics and Macroeconomics 29. Some economic principles are based on physical phenomena. ANS: T PTS: 1 DIF: Moderate TOP: B-Head: Economics in Relation to Other Sciences NAT: BUSPROG: Communication KEY: Bloom's: Knowledge NAT: BUSPROG: Communication KEY: Bloom's: Analysis 30. If I stand up at a football game, I can see better. But if we all stand up, we block each other’s view. This is an example of the fallacy of composition. ANS: T PTS: 1 DIF: Easy NAT: BUSPROG: Communication TOP: B-Head: Economic Terms and Concepts KEY: Bloom's: Application ESSAY 1. Producing goods can add to net wealth, but rendering services cannot. Explain. ANS: A good can be of greater value when produced than the resources used to produce it. Therefore it adds to our wealth. Since a service is consumed as it is produced, it does not add wealth. It is counted as income, however. PTS: 1 DIF: Challenging NAT: BUSPROG: Analytic TOP: B-Head: Wealth and Income KEY: Bloom's: Evaluation 2. Identify some problems or issues that are both economic and political. ANS: Here the student might point to such problems as poverty, unemployment, taxes, low-income housing, and air pollution. PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic TOP: B-Head: Economic Theory and Policy KEY: Bloom's: Application 3. Explain why economics is a science and how it differs from a physical science. ANS: Economics is a science because it is an organized body of knowledge with certain rules, laws, and principles. It differs from many of the physical sciences, such as chemistry, physics, and biology, in having fewer universal or ironclad laws. Moreover, it deals more with the actions of people rather than things. PTS: 1 DIF: Moderate NAT: BUSPROG: Reflective Thinking TOP: B-Head: Economics in Relation to Other Sciences KEY: Bloom's: Analysis 4. Draw a graph showing the concept of functional distribution. ANS: Here the student should draw a graph or figure similar to Figure 1-1 in the text. PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic TOP: B-Head: Economics and Distribution KEY: Bloom's: Comprehension