Foundations of Microeconomics, 5e (Bade/Parkin)
Chapter 1 Getting Started
1.1 Definition and Questions
1) Scarcity exists because
A) human wants exceed the resources available to satisfy them.
B) some individuals have low income.
C) the costs of production are high.
D) some people make bad economic decisions.
E) people take too much leisure time.
2) Scarcity
A) is the inability to satisfy all our wants.
B) leads to higher prices.
C) applies only to people living in poverty.
D) is not something that affects very rich people.
E) used to exist everywhere but has been eliminated in advanced economies.
3) Scarcity requires that we
A) produce efficiently.
B) learn to limit our wants.
C) have the most rapid economic growth possible.
D) have unlimited resources.
E) make choices about what goods and services to produce.
4) Scarcity means that
A) what we can produce with our resources is greater than our material wants.
B) resources are unlimited.
C) wants are greater than what we can produce with out resources.
D) governments must make up for shortages in resources.
E) choices made in self-interest cannot be the same as those made in the social interest.
5) Because human wants are insatiable and unlimited while available resources are limited,
people are said to face the problem of
A) scarcity.
B) why to produce.
C) macroeconomics.
D) microeconomics.
E) social interest versus self-interest.
6) Which of the following statements best describes the study of economics? Economics studies
how
A) to organize production so that scarcity does not occur.
B) firms make profits.
C) we make choices in the face of scarcity.
D) to create incentives so that scarcity does not exist.
E) businesses reach decisions.
7) Scarcity forces people to
A) choose among available alternatives.
B) cheat and steal.
C) be unwilling to help others.
D) live at a low standard of living.
E) consume as much as they can as quickly as they can.
8) Scarcity means we must
A) consume less.
B) produce less.
C) make choices.
D) earn more.
E) work more.
9) What is the reason that all economic issues and problems occur?
A) All nations use some form of money to buy and sell goods and services.
B) Humans are always wasteful and inefficient in production and consumption.
C) Powerful governments are able to control production and consumption.
D) Human wants exceed the resources available to satisfy them.
E) People seek only their own self-interest.
10) The study of economics is best described as a study of
A) the factors that influence the stock and bond markets.
B) capitalism.
C) the choices made in producing goods and services.
D) coping with scarcity, and choices made as a result of scarcity in a society.
E) how people earn a living.
11) Which of the following statements best describes the study of economics? Economics studies
how
A) to organize production so that scarcity does not occur.
B) firms make profits.
C) we make choices in the face of scarcity.
D) to create incentives so that scarcity does not exist.
E) businesses reach decisions.
12) Which of the following best defines economics?
A) Economics teaches how to limit our wants.
B) Economics studies how to choose the best alternative when coping with scarcity.
C) Economics helps you earn as much money as possible.
D) Economics analyzes all aspects of human behavior in general.
E) Economics is concerned with prices and quantities of goods and services, both at the
individual level and at the industry level.
13) Economics is the social science that studies
A) the real reasons people buy goods and services.
B) the psychology of individuals and businesses.
C) whether a nation has enough natural resources.
D) how people make choices to cope with scarcity.
E) how choices made in the social interest could eliminate scarcity.
14) Economics is defined as the social science that studies
A) how a person can get everything he or she wants.
B) the reason money exists.
C) the way to eliminate choices in our decisions.
D) the choices that societies, and the people and institutions that make up societies, make in
dealing with the issue of scarcity.
E) how choices made in the social interest must conflict with choices made in the self-interest.
15) When you make the decision to spend your time attending class, which economic question
are you answering?
A) What?
B) How?
C) For whom?
D) Why?
E) Social interest
16) Of the three major economic questions, which of the following is the best example of a
“What?” question?
A) Should automobiles be produced using workers or robots?
B) Should higher-income or lower-income people buy SUVs?
C) Should we make faster microprocessors or pest-resistant corn?
D) Should migrant workers or domestic workers be used to pick grapes?
E) What should doctors be paid?
17) When Ford decides to increase production of hybrid cars, it directly answers the ________
question.
A) what
B) how
C) for whom
D) where
E) why
18) When Delta decides to quit flying to Lithuania, it directly answers the ________ question.
A) what
B) why
C) for whom
D) how
E) when
19) The question of “What goods and services get produced?” most closely relates to which of
the following issues?
A) the distribution of goods and services in the economy
B) producing goods and services in the least costly manner
C) building a missile defense system, or putting a computer in every elementary school
classroom
D) obtaining specialized training to increase one’s income
E) taxing high income workers to give payments to poor households
20) When a home builder decides to computerize all of its production schedule, it directly
answers the ________ question.
A) for whom
B) what
C) where
D) how
E) why
21) When Fresh Express Salads decides to mechanically pick all of its lettuce, it directly answers
the ________ question.
A) what
B) how
C) for whom
D) where
E) when
22) When the power company decides to use manpower to bury its lines, it directly answers the
________ question.
A) what
B) for whom
C) how
D) why
E) when
23) The question of “How are goods and services produced?” most closely addresses which of
the following issues?
A) Should Ford build SUV’s or luxury cars?
B) Should Ford use expensive industrial robots or inexpensive Mexican autoworkers to produce
SUV’s?
C) Should contractors building residential housing or shopping malls?
D) Is income distributed fairly in the United States?
E) Why are Christmas trees popular only in December?
24) Of the three major economic questions, which of the following is the best example of a
“How?” question?
A) Should we produce more heavy fleece coats?
B) Should we collect tolls on turnpikes using human toll collectors or mechanized toll machines?
C) Should we build log homes or build factories from bricks?
D) Should we spend more on health care?
E) Should we eat more oatmeal?
25) Which economic question depends on the incomes that people earn and the prices they pay
for goods and services?
A) What?
B) How?
C) For whom?
D) Why?
E) Where?
26) When the federal government decides to pay senators more than it pays soldiers, it answers
the ________ question.
A) why
B) how
C) for whom
D) what
E) where
27) When a third string professional quarterback earns more than a police officer, society
answers the ________ question.
A) for whom
B) what
C) how
D) why
E) social interest vs. self-interest
28) When unskilled teens earn less than college graduates, society answers the ________
question.
A) how
B) what
C) for whom
D) why
E) social interest versus self-interest
29) Canada has nationalized health care, so that everyone, regardless of their ability to pay, has
some access to health care. Based on this observation, Canada has decided that “everyone,
regardless of their ability to pay” is the answer to what microeconomic question?
A) What type of health care will be produced and in what quantity?
B) How will health care be produced?
C) For whom will health care be produced?
D) Why will we offer health care?
E) Must we offer health care?
30) Choices that are best for the individuals that make them are choices in pursuit of
A) the social interest.
B) efficiency.
C) incentives.
D) self interest.
E) equity.
31) Self interest
A) reflects choices that are best for society as a whole.
B) reflects choices that are best for the individual who makes them.
C) has nothing to do with determining what goods are produced.
D) occurs only when wants exceed available resources.
E) cannot be used to determine how goods are produced.
32) Choices that are best for the society as a whole are choices in pursuit of
A) answering the “how” question.
B) the social interest.
C) self interest.
D) incentives.
E) answering the “for whom” question.
33) The characteristic from which all economic problems arise is
A) political decisions.
B) providing a minimal standard of living for every person.
C) how to make a profit.
D) hunger.
E) scarcity.
34) All economic questions and problems arise from
A) the fact that society has more than it needs.
B) turmoil in the stock market.
C) the unequal distribution of income.
D) a society’s wants exceeding what its scarce resources can produce.
E) the difference between self-interest and social interest.
35) Scarcity results from the fact that
A) people’s wants exceed the resources available to satisfy them.
B) not all goals are desirable.
C) we cannot answer the major economic questions.
D) choices made in self-interest rare not always in the social interest.
E) the population keeps growing.
36) To economists, scarcity means that
A) limited wants cannot be satisfied by the unlimited resources.
B) a person looking for work is not able to find work.
C) the number of people without jobs rises when economic times are bad.
D) there can never be answers to the what, how or for whom questions.
E) unlimited wants cannot be satisfied by the limited resources.
37) Which of the following statements is true regarding scarcity?
A) Scarcity affects poorer countries only.
B) An economy experiences scarcity only when the incomes of its citizens decline.
C) Poor people experience scarcity more often than do rich people.
D) All citizens in a wealthy economy experience scarcity.
E) Scarcity could be overcome if people would make all choices in the social interest.
38) People must make choices because
A) most people enjoy shopping.
B) of scarcity.
C) there are many goods available.
D) the question “What goods and services are produced?” is not adequately answered.
E) making choices is in the social interest.
39) The question “Should we produce LCD televisions or computer monitors?” is an example of
a ________ question.
A) what
B) how
C) for whom
D) where
E) why
40) When Ferrari decides to produce 1,200 360 Modenas each year, Ferrari is answering the
________ question.
A) for whom
B) how
C) what
D) why
E) scarcity
41) Whether a company produces fishing rods mostly by hand or using high-tech machinery is a
question of
A) for whom will goods be produced.
B) when will the goods be produced.
C) where will the goods be produced.
D) how will the goods be produced.
E) why will the goods be produced.
42) When a landscaping company decides to use drafting software and computers instead of
hiring designers to draw design plans by hand, it is answering the ________ question.
A) how
B) what
C) for whom
D) opportunity cost
E) why
43) The question “Should we produce houses using bricks or wood?” is an example of a
________ question.
A) what
B) how
C) for whom
D) where
E) why
44) The question “Should economics majors or sociology majors earn more after they graduate?”
is an example of a ________ question.
A) what
B) how
C) for whom
D) where
E) why
45) If a decision is made and it is the best choice for society, the decision is said to be
A) a valid economic choice.
B) made in self-interest.
C) made in social interest.
D) consist with scarcity.
E) a want-maximizing choice.
1.2 The Economic Way of Thinking
1) Which is not a core economic idea?
A) People make rational choices by comparing costs and benefits.
B) Efficiency and equity are important goals for an economy.
C) Cost is what you must give up to get something.
D) A rational choice is made on the margin.
E) Choices respond to incentives.
2) Rational choice
A) is a choice that uses the available resources to best achieve the objective of the person making
the choice.
B) is always efficient.
C) is what you must give up get what you want.
D) is made by comparing different incentives.
E) provides the answer to only the “how” question.
3) A rational choice is one that
A) always turns out for the best for the decision maker.
B) creates no costs for the decision maker.
C) must be made with perfect information.
D) uses the available resources to most effectively satisfy the wants of the person making the
choice.
E) is made in the social interest rather than the self-interest.
4) What is NOT true about rational choice?
A) It can result in different decisions for different individuals.
B) It involves comparing costs and benefits.
C) It might turn out not to have been the best choice after the event.
D) It is a choice that uses the available resources to best achieve the objective of the person
making the choice.
E) It is the same for all individuals.
5) In economics, cost is ________, and benefit is ________.
A) what you must give up to get something; what you are willing to give up to get it
B) what you are willing to give up to get it; what you must give up to get something
C) the amount of money that you pay for something; the amount of money that someone else is
willing to pay you
D) what you are willing to pay on the margin; what the government pays you when you are
unemployed or retired
E) the amount of money that you pay on the margin; the amount of money that you receive on
the margin
6) An opportunity cost is
A) the dollar amount that is paid.
B) anything the decision maker believes costs to be.
C) the benefits of the highest-valued alternative forgone.
D) whatever is paid out and cannot be reduced or reversed.
E) another term for all the sunk costs.
7) Economists measure opportunity cost
A) only when it is on the margin.
B) as the highest-valued alternative forgone.
C) as the sum of all forgone opportunities.
D) in time.
E) as equal to the sum of all the sunk costs.
8) The opportunity cost of a decision is measured in terms of
A) time.
B) the price of the alternative we choose.
C) the next best thing given up.
D) the price of a new opportunity that arises.
E) sunk cost.
9) You have chosen to take a trip during spring break. If you had not gone, you would either
have worked at a temporary job or studied for exams. The opportunity cost of your trip is
A) the wages you would have earned from working.
B) the lower grade earned by not studying.
C) the wages you would have earned from working and the lower grade earned by not studying.
D) the value of the trip.
E) We cannot determine what the opportunity cost is without knowing which alternative,
working or studying, you would have preferred.
10) If Jessie studies economics for two hours instead of going to the movies with her friends,
then
A) the benefit of studying is the missed movie.
B) the opportunity cost of studying is the missed movie.
C) Jesse definitely is making a rational choice.
D) Jessie is ignoring a sunk cost.
E) Jessie is not responding to any incentives.
11) The value of the highest-valued alternative that a person must give up when making a
decision is known as the ________ cost.
A) direct
B) benefit’s
C) opportunity
D) explicit
E) sunk
12) Ali decides to attend the one-hour review session for microeconomics instead of working at
his job. His job pays him $10 per hour. Ali’s opportunity cost of attending the review session is
A) the $10 he could have earned at his job.
B) the value of the session minus the $10 he could have earned at his job.
C) nothing, because the review session does not cost anything.
D) equal to the benefit he gets from the review session.
E) the one-hour review session.
13) In 2003, Michael Jordan decided to retire from professional basketball. Which of the
following was an opportunity cost of his decision?
A) the lost salary from playing one more year
B) the time he could spend with his family while retired
C) the avoidance of pain and injury from playing one more year
D) the value of new employment opportunities that would await him
E) Both answers A and B are correct.
14) In order to study one more hour of economics, you must give up one hour of tennis. The hour
of tennis is
A) the benefit of spending the hour studying.
B) the cost of spending the hour studying.
C) a sunk cost.
D) a sunk benefit.
E) the incentive to study.
15) Suppose that, instead of taking this test, you could either have worked and earned income or
partied and had a pleasurable time. Your opportunity cost of taking the test is the
A) forgone work.
B) forgone party.
C) forgone working and partying.
D) forgone working or partying, depending on which was your next best choice.
E) test because you are taking it.