1. Every society faces trade-offs because we live in a world of scarcity. Suppose a student-athlete
has the opportunity to earn $200,000 next year playing for a minor league baseball team,
$900,000 next year playing for a European professional football team, or $0 returning to college
for another year.
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The opportunity cost of the student-athlete returning to college next year is
$ 900 ,000. (Enter your response as an integer.)
2. Indicate whether each of the following is primarily a Microeconomic issue or a macroeconomic issue.
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a. The effect of higher cigarette taxes on the quantity of cigarettes sold. This is a microeconomic
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b. The effect of higher income taxes on the total amount of consumer spending. This is a macroeconomic
issue.
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c. The reasons for the economies of East Asian countries growing faster than the economies of subSaharan African countries. This is a macroeconomic issue.
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d. The reasons for low rates of profit in the airline industry. This is a microeconomic issue.
3. The three economic questions that every society must answer are
A.
What kind of government will the society have, how will it be run, and who will run it?
B.
What economic system will be used, how will it be implemented, and who will make market decisions?
C.
What are the prices of goods, how are they determined, and who will pay for them?
d.
What goods will be produced, how will they be produced, and who will receive the goods?
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Centrally planned economies allocate resources based on decisions by government while market
economies answer these questions through decisions made by households and firms
4. According to the FBI Bank Crime Statistics, there were more than 4,000 bank robberies in the United
States in 2015, an increase of 3.9 percent over 2014. The FBI claims that banks have made themselves
easy targets by refusing to install clear acrylic partitions, called bandit
barriers,
that separate bank tellers from the public. According to a special agent with the FBI,
"Bandit barriers are a great deterrent. We've talked to guys who rob banks, and as soon as they see a
bandit barrier, they go find another bank."
Sources: U.S. Department of Justice, Federal Bureau of Investigation, "Bank Crime Statistics 2015," and
"Bank Crime Statistics
2014";
and Richard Cowen, "FBI: Banks Are to Blame for Rise in Robberies,"
NorthJersey.com,
March 10, 2009.
Despite this finding, many banks have been reluctant to install these barriers. Wouldn't banks have a
strong incentive to install bandit barriers to deter robberies? Why, then, do so many banks not do so?
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A.
Banks are not rational.
B.
Banks have no economic incentive to install the barriers.
C.
Banks are not interested in the safety of their customers and employees.
D.
Banks would not receive any benefits from installing the barriers.
5. Part 1
Microeconomics is the study of
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A."small" (less than $100,000) economic transactions in the economy.
B.firms as individual units excluding how these
firms interact with one another.
C.the economy as a whole, including topics such as inflation, unemployment, and economic growth.
D.how households and firms make choices, how they interact in markets, and how the government
attempts to influence their choices.
6. Which of the following best describes scarcity?
A.
Prices of goods are very high.
B.
Unlimited wants exceed the limited resources available.
C.
Markets cannot properly allocate resources.
D.
Wants cannot be fulfilled and thus all goods must be rationed.
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Scarcity is central to the study of economics because it implies that
A.
wants are unlimited.
B.
every choice involves an opportunity cost.
C.
economic agents are rational.
D.
society must make decisions at the margin.
7. Macroeconomics is the study of
A.
why the U.S. has spent so much money on wars and government surveillance of its own citizens.
B.
how households and firms make choices, how they interact in markets, and how the government attempts
to influence their choices.
C.
the economy on a state-by-state basis, covering areas affected by the Commerce Clause.
D.
the economy as a whole, including topics such as inflation, unemployment, and economic growth.
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Microeconomics is the study of
A.
how individuals and firms act altruistically to better society.
B.
how individuals make good decisions for themselves but hurt society.
C.
how households and firms make choices, how they interact in markets, and how the government attempts
to influence their choices.
D.
the economy as a whole, including topics such as inflation, unemployment, and economic growth.
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The level of total investment by firms in new machinery and equipment helps to determine how rapidly the
economy grows. This is a macroeconomic issue. However, to understand how much new machinery and
equipment firms decide to purchase, one must analyze the incentives individual firms face, which is a
microeconomic issue.
8. Societies organize their economies in two main ways to answer the three questions of what, how, and
who. A society can have a centrally planned economy in which the government decides how economic
resources will be allocated. Or a society can have a market economy in which the decisions of
households and firms interacting in markets allocate economic resources.
9.Economists assume that people are rational in the sense that
A.they use all available information as they take actions intended to achieve their goals.
B.they generally make the correct choices.
C.they do not respond to economic incentives.
D.they make decisions based on total, rather than marginal, variables.
10. Suppose, in an effort to prevent the population from declining, Italy begins offering new mothers
extended periods of paid family leave from work and, consequently, the birthrate per woman increases.
If so, then this could best be characterized as an example of people responding to
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A. compassion.
B. envy.
C. economic incentives.
D. accounting principles.
E. religious beliefs.
11. In a paper written by Bentley College economists Patricia M. Flynn and Michael A. Quinn, the authors
state:
"We find evidence that is a good choice of major for those aspiring to become a CEO [chief executive
officer]. When adjusting for size of the pool of graduates, those with undergraduate degrees in
Economics are shown to have had a greater likelihood of becoming an S&P 500 CEO than any other
major."
A list of famous economics majors published by Marietta College includes business leaders Warren
Buffet, Donald Trump, Ted Turner, and Sam Walton, as well as former presidents George H.W. Bush,
Gerald Ford, and Ronald Reagan.
Sources: Patricia M. Flynn and Michael A. Quinn, "Economics: A Good Choice of Major for Future CEOs,"
Social Science Research
Network,
November 28, 2006; and Famous Economics
Majors,
Marietta College, Marietta Ohio, May 15,
2012.
Why might studying economics be particularly good preparation for being the top manager of a
corporation or a leader in government?
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A. Economics is just as valuable to a cashier as it is for a CEO.
B. Economics is less of an issue as you climb the corporate ladder because you usually hire
accountants to handle your money.
C. Economics teaches us how to look at the tradeoffs involved in every decision.
D. Management and politics have more to do with public relations than economics
12. According to Forbes magazine, in 2017 Bill Gates was the world's richest person with wealth of $86
billion.
Source: "The World's Billionaires,"
forbes.com,
March 20, 2017.
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Does Bill Gates face scarcity?
A. Yes, because there is a limit to the income even billionaires can earn.
B. No, because if a billionaire cannot get the goods and services they want, someone else can get it
for them.
C.Yes, because even though billionaires' financial resources enable them to afford a much greater
array of goods and services than those less wealthy, their financial resources are not infinite.
D. No, because billionaires can have anything that money can buy.
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Which of the following statements is true?
A. Some individuals experience scarcity because they have not learned to live within their means.
B. All individuals face a scarcity of time and need to make choices how to allocate it.
C. Most individuals face a scarcity of time, but few experience a scarcity of other resources.
D. While resources are scarce, most people don't own resources and therefore do not face a scarcity
of them.
13. Late in the semester, a friend tells you,
"I was going to drop my psychology course so I could concentrate on my other courses, but I had already
put so much time into the course I decided not to drop it."
Is your friend's reasoning correct or incorrect?
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Your friend's reasoning is incorrect.
14. Consumers, firms, and government decide(s) what goods and services will be produced.
15. Which of the following statements is correct?
A.A company is owned by one person, while a firm is owned by more than one person.
B.Economists use the terms firm, company, and business interchangeably.
C.A business is always larger than a firm.
D. A business has multiple locations, while a company has only a single location.
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Which of the following statements is correct?
A. An invention is the practical application of an innovation.
B. The word "technology" and the word "invention" have the same meaning.
C. An innovation is the practical application of an invention.
D. The word "technology" and the word "innovation" have the same meaning.
16. What do economists mean by the word "marginal"?
A. first
B. unimportant
C. extra or additional
D. small
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Economists believe that an activity should be continued up to the point where
A.the marginal benefit from the activity plus the marginal cost equals zero.
B. the marginal benefit from the activity is equal to the marginal cost.
C. the marginal benefit from the activity is greater than the marginal cost.
D. the marginal benefit from the activity is less than the marginal cost.
17. Economists use the word marginal to mean an extra or additional benefit or cost of a decision. An
optimal decision occurs when
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A. marginal benefit equals marginal cost.
B. marginal cost is zero.
C.marginal benefit is maximized.
D. marginal benefit is greater than marginal cost.
18. A portion of microeconomics examines:
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A.the economy as a whole, such as what causes unemployment.
B.the economy as a whole, such as why some economies have grown faster than others.
C.how individual firms make choices, such as how they decide what prices to charge.
D. policy issues, such as whether government intervention can reduce the severity of recessions.
E.all of the above.
19. For many years, McDonald's used frozen beef in its hamburgers. It recently began market testing how
consumers in the United States would respond to hamburgers made of fresh beef that had never been
frozen. In early 2017, McDonald's expanded the market test from only 55 restaurants to over 300. The
switch to fresh, never-frozen beef patties would be a huge undertaking involving "how [the beef] is
transported to the restaurants, how it is stored when it arrives and how much it affects employees'
process of making burgers."
Source: Samantha Bomkamp, "McDonald's Expands Fresh Beef Test Again," chicago.tribune.com, March 17,
2017.
If you were a manager at McDonald's, how would you go about analyzing whether to switch to fresh,
never-frozen beef patties? In your answer, consider whether your decision would have to be all or
nothing—all
fresh, never-frozen beef patties in all McDonald's hamburgers, and whether you would have to switch in
all McDonald's locations around the world (they are in 119 countries), or just in certain countries.
A.You should use the results of the consumer market testing to determine whether to serve fresh
beef patties.
B.You would want to compare the total benefits and total costs of serving hamburgers made with
fresh beef.
C.This is an all or nothing decision: You would base your decision on consumer tastes at each
McDonald's location.
D.You would want to compare the marginal benefits and marginal costs of serving hamburgers made
with fresh beef.
20. Which of the following areas of economics studies issues such as ways to reduce teenage smoking?
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A.Microeconomics
B. Macroeconomics
C. Both microeconomics and macroeconomics give equal emphasis to these problems.
D. This cannot be determined by the information given.
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Which of the following areas of economics studies issues such as whether government intervention is
capable of reducing the severity of recessions?
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A.Microeconomics
B. Macroeconomics
C.Both microeconomics and macroeconomics give equal emphasis to these problems.
D.This cannot be determined by the information given.