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Chapter 01 Limits, Alternatives, and Choices Answer Key
Multiple Choice Questions
1.
For economists, the word "utility" means
A.
versatility and flexibility.
2.
In economics, the pleasure, happiness, or satisfaction received from a product is called
A.
marginal cost.
3.
When economists say that people act rationally in their self-interest, they mean that
individuals
D.
are usually impulsive and unpredictable.
4.
According to Emerson: "Want is a growing giant whom the coat of Have was never large
enough to cover." According to economists, "Want" exceeds "Have" because
D.
people are irrational.
5.
According to economists, economic self-interest
D.
is usually self-defeating.
6.
Joe sold gold coins for $1,000 that he bought a year ago for $1,000. He says, "At least
I didn't lose any money on my financial investment." His economist friend points
out that
in effect he did lose money because he could have received a 3 percent return on the
$1,000 if he had bought a bank certificate of deposit instead of the coins.
The economist's analysis in this case incorporates the idea of
D.
normative economics.
7.
A person should consume more of something when its marginal
D.
benefit is still better.
8.
Economics may best be defined as the
A. interaction between macro and micro considerations.
9.
The study of economics is primarily concerned with
A.
keeping private businesses from losing money.
10.
The economic perspective entails
A. irrational behavior by individuals and institutions.
11.
Purposeful behavior suggests that
A.
everyone will make identical choices.
1-5
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-
Hill Education.
A c c e s s i b i l i t y :
Keyboard Navigation
Blooms: Remember
Di f f i c u lt y:
01 Easy
Learning Objective: 01-01 Define economics and the features of the economic perspective.
Test Bank: I
Top i c:
The Economic Perspective
12.
Purposeful behavior means that
A. people are selfish in their decision making.
D.
decision makers do not make mistakes when weighing costs and benefits.
13.
Economics involves marginal analysis because
C.
marginal costs always exceed marginal benefits.
D.
much economic behavior is irrational.
14.
You should decide to go to a movie
C.
if your income will allow you to buy a ticket.
D.
because movies are enjoyable.
15.
Opportunity costs exist because
C.
households and businesses make rational decisions.
D.
most decisions do not involve sacrifices or trade-offs.
16.
The assertion that "there is no free lunch" means that
A. there are always trade-offs between economic goals.
17.
Consumers spend their incomes to get the maximum benefit or satisfaction from the
goods and services they purchase. This is a reflection of
A. resource scarcity and the necessity of choice.
18.
If someone produced too little of a good, this would suggest that
A.
rational choice cannot be applied to many economic decisions.
B.
the good was produced past the point where its marginal cost exceeded its marginal
benefit.
19.
Even though local newspapers are very inexpensive, people rarely buy more than one of
them each day. This fact
A.
is an example of irrational behavior.
B.
implies that electronic media sources are displacing print sources for many consumers.
20.
In deciding whether to study for an economics quiz or go to a concert, one is confronted
by the idea(s) of
D.
full production.
21.
Which one of the following expressions best states the idea of opportunity cost?
A.
"A penny saved is a penny earned."
22.
Suppose that a university decides to spend $1 million to upgrade personal computers
and scientific equipment for faculty rather than spend $1 million to expand parking
for
students. This example illustrates
A. distorted priorities.
23.
Which of the following most closely relates to the idea of opportunity costs?
D.
capitalism
24.
Economists contend that most economic decisions are
A.
random.
B.
chaotic.
25.
Alex sees that his neighbors' lawns all need mowing. He offers to provide the service
in exchange for a wage of $20 per hour. Some neighbors accept Alex's offer and
others
refuse. Economists would describe Alex's behavior as
C.
selfish because he is asking for a wage that is higher than others might charge.
D.
irrational because some neighbors refused his offer.
26.
Kara was out jogging and, despite being tired, decided to run one more mile. Based on
her actions, economists would conclude that Kara
C.
decided that the marginal cost of running one more mile would outweigh the benefit of the
additional mile.
D.
was not very tired, so the marginal cost of the extra mile was very low.
27.
An economic hypothesis
A.
has the same meaning as an economic principle or economic law.
D. is a stronger generalization than an economic law.
28.
Which of the following terms implies the least degree of confidence in an economic
generalization?
C.
principle
D.
law
29.
Which of the following terms implies the greatest degree of confidence in an economic
generalization?
A.
hypothesis
B.
comparison
30.
A well-tested economic theory is often called
A.
a hypothesis.
B.
a prototype.
31.
The scientific method is
A.
not applicable to economics because economics deals with human beings.
B.
also known as the economic perspective.
32.
The process by which economists test hypotheses against facts to develop theories,
principles, and models is called
D.
microeconomics.
1-13
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-
Hill Education.
Difficulty :
02 Medium
Learning Objective: 01-02 Describe the role of economic theory in economics.
Test Bank: I
Top i c:
Theories, Principles, and Models
33.
Economic theories
A.
are useless because they are not based on laboratory experimentation.
34.
Which of the following is a correct statement?
A. Economic concepts or laws that are valid during recessions are necessarily valid during
prosperity.
35.
In constructing models, economists
C.
must use mathematical equations.
D.
attempt to duplicate the real world.
36.
The Latin term "ceteris paribus" means
A.
that if event A precedes event B, A has caused B.
B.
that economics deals with facts, not values.
37.
The basic purpose of the other-things-equal assumption is to
C.
allow one to focus upon macro variables by ignoring micro variables.
D.
determine whether X causes Y or vice versa.
38.
Suppose an economist says that "other things equal, the lower the price of bananas, the
greater the amount of bananas purchased." This statement indicates that
A. the quantity of bananas purchased determines the price of bananas.
39.
The term "other things equal" means that
A.
the associated statement is normative.
B.
many variables affect the variable under consideration.
40.
Kelly works at an ice cream shop and observes that the number of people buying ice
cream varies greatly from day to day. For a couple of weeks, she has recorded the
number
of people at the shop each day, as well as the daily temperature. If Kelly is using the
scientific method to better understand ice cream buying habits, her next step
is to
A.
conclude definitively that people buy more ice cream when the temperature rises.
B.
state her findings as a well-tested economic principle.
41.
Rosa works at a gelato shop and observes that the number of people buying gelato
varies greatly from day to day. For a couple of weeks, she has recorded the number
of
people at the shop each day, as well as the daily temperature, and has observed a positive
relationship between temperature and the number of customers. Based on
her observations, Rosa should
D.
throw out the data if it does not show a perfect relationship between buying habits and
temperature.
42.
Macroeconomics approaches the study of economics from the viewpoint of
D.
individual firms.
43.
Which of the following is associated with macroeconomics?
A. an examination of the incomes of professional athletes
44.
The issues of inflation, unemployment, and business cycles are
D.
positive economic issues, but not normative issues.
45.
Which of the following statements pertains to macroeconomics?
A.
Because the minimum wage was raised, Mrs. Olsen decided to enter the labor force.
B.
A decline in the price of soybeans caused farmer Wanek to plant more wheat.
1-18
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-
Hill Education.
D. The Pumpkin Center State Bank increased its interest rate on consumer loans by 1
percentage point.
AACSB: Analytical Thinking
Ac ce s si bi l i t y:
Keyboard Navigation
Blooms: Analyze
D i f f i c u l t y :
03 Hard
Learning Objective: 01-03 Distinguish microeconomics from macroeconomics and positive
economics from normative economics.
Test Bank: I
Top i c:
Microeconomics and Macroeconomics
46.
Macroeconomics can best be described as the
A. analysis of how a consumer tries to spend income.
47.
Microeconomics is concerned with
A. the aggregate or total levels of income, employment, and output.
48.
Which of the following is a microeconomic statement?
A.
The real domestic output increased by 1.6 percent last year.
B.
Unemployment was 5.2 percent of the labor force last year.
49.
Which of the following statements is true?
C.
Every topic in economics is either a microeconomic or a macroeconomic issue; a topic
cannot be both.
D.
Topics in microeconomics have public policy implications; topics in macroeconomics do
not.
50.
A normative statement is one that
A.
is based on the law of averages.
B.
applies only to microeconomics.
1-20
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-
Hill Education.
AACSB: Analytical Thinking
Ac c e s s i b i l i t y :
Keyboard Navigation
Blooms: Analyze
Di f f i c u l t y :
03 Hard
Learning Objective: 01-03 Distinguish microeconomics from macroeconomics and positive
economics from normative economics.
Test Bank: I
To p i c :
Microeconomics and Macroeconomics
51.
A positive statement is one that
A.
is derived by induction.
B.
is derived by deduction.
52.
Which of the following is a positive statement?
A.
A humidity level of 90 percent is too high.
B.
It is too hot to run outside when the temperature exceeds 80 degrees.
53.
Normative statements are concerned primarily with
A. facts and theories.
