99.
It costs a furniture company $8,750 to produce 25 tables. The company’s total cost will be
$9,125 if it produces a 26th table. If the company produces 26 tables, then
a.
its average cost is greater than its marginal cost.
b.
its average cost and its marginal cost are equal.
c.
its average cost is less than its marginal cost.
d.
This cannot be determined from the information given.
100.
Suppose the cost of operating a 100 room hotel for a night is $10,000 and there are 5 empty
rooms for tonight. If
the marginal cost of operating one room for one night is $30 and a customer
is willing to pay $60 for the night, the
hotel manager should
a.
rent the room because the marginal benefit exceeds the marginal cost.
b.
rent the room because the marginal benefit exceeds the average cost.
c.
not rent the room because the marginal benefit is less than the marginal cost.
d.
not rent the room because the marginal benefit is less than the average cost.
101.
Suppose the cost of operating a 75 room hotel for a night is $6,000 and there are 5 empty rooms
for tonight. The
marginal cost per room per night
a.
is $40.
b.
is $80.
c.
is $120.
d.
cannot be determined from the information given.
102.
Suppose the cost of operating a 75 room hotel for a night is $6,000 and there are 5 empty rooms
for tonight. If the
marginal cost of operating one room for one night is $40, the hotel manager
should rent one of the empty rooms
only if a customer is willing to pay
a.
more than $40, as the average benefit will exceed the marginal cost.
b.
more than $40, as the marginal benefit will exceed the marginal cost.
c.
more than $80, as the average benefit will exceed the marginal cost.
d.
more than $80, as the marginal benefit will exceed the marginal cost.
103.
It costs a company $35,000 to produce 500 graphing calculators. The company’s cost will be
$35,080 if it produces an additional graphing calculator. If the company produces 501 graphing
calculators then
a.
its average cost is greater than its marginal cost.
b.
its average cost and its marginal cost are equal.
c.
its average cost is less than its marginal cost.
d.
This cannot be determined from the information given.
104.
DeShawn has spent $600 purchasing and repairing an old fishing boat, which he expects to sell
for $900 once the
repairs are complete. DeShawn discovers that, in addition to the $600 he has
already spent, he needs to make an
additional repair, which will cost another $400, in order to
make the boat worth $900 to potential buyers. He can sell
the boat as it is now for $400. What
should he do?
a.
He should sell the boat as it is now for $400.
b.
He should keep the boat since it would not be rational to spend $1,000 on repairs and then sell
the boat for $900.
c.
He should complete the repairs and sell the boat for $900.
d.
It does not matter which action he takes; the outcome is the same either way.
105.
Betty’s Bakery bakes fresh bread every morning. Any bread not sold by the end of the day is
thrown away. A loaf
of bread costs Betty $2.00 to produce, and she prices loaves of bread at
$3.50 per loaf. Suppose near the end of
one day Betty still has 12 loaves of bread on hand.
Which of the following is correct?
a.
Betty should only sell the remaining bread for $3.50 per loaf since that is the regular price.
b.
Betty should only sell the remaining bread for $2.00 per loaf or more since that is what the
bread costs to
make.
c.
Betty should be willing to sell the remaining bread for any price above $0 per loaf since she
will have to
throw it away if she does not sell it for something.
d.
Betty should just throw the bread away and change the price of her bread starting tomorrow
to make sure
she sells all of her bread each day.
106.
A bagel shop sells fresh baked bagels from 5 a.m. until 7 p.m. every day. The shop does not sell
day-old bagels, so
all unsold bagels are thrown away at 7 p.m. each day. The cost of making and
selling a dozen bagels is $1.00; there
are no costs associated with throwing bagels away. If the
manager has 8 dozen bagels left at 6:30 p.m. on a
particular day, which of the following
alternatives is most attractive?
a.
Lower the price of the remaining bagels, even if the price falls below $1.00 per dozen.
b.
Lower the price of the remaining bagels, but under no circumstances should the price fall
below $1.00 per
dozen.
c.
Throw the bagels away and produce 8 fewer dozen bagels tomorrow.
d.
Starting tomorrow, lower the price on all bagels so they will all be sold earlier in the day.
107.
Rick buys a 1966 Mustang for $3,000, planning to restore and sell the car. He goes on to spend
$9,000 restoring the
car. At this point he can sell the car for $10,000. As an alternative, he can
spend an additional $3,000 replacing the
engine. With a new engine the car would sell for
$13,000. Rick should
a.
complete the repairs and sell the car for $13,000.
b.
sell the car now for $10,000.
c.
never try such an expensive project again.
d.
be indifferent between (i) selling the car now and (ii) replacing the engine and then selling it.
108.
Yvette buys and sells real estate. Two weeks ago, she paid $300,000 for a house on Pine Street,
intending to spend $50,000 on repairs and then sell the house for $400,000. Last week, the city
government announced a plan to build a new landfill on Pine Street just down the street from the
house Yvette purchased. As a result of the city’s announced plan, Yvette is weighing two
alternatives: She can go ahead with the $50,000 in repairs and then sell the house for $290,000, or
she can forgo the repairs and sell the house as it is for $250,000. She should
a.
keep the house and live in it.
b.
go ahead with the $50,000 in repairs and sell the house for $290,000.
c.
forgo the repairs and sell the house as it is for $250,000.
d.
move the house from Pine Street to a more desirable location, regardless of the cost of doing
so.
109.
You are considering staying in college another semester so that you can complete a major in
economics. In deciding
whether or not to stay you should
a.
compare the total cost of your education to the total benefits of your education.
b.
compare the total cost of your education to the benefits of staying one more semester.
c.
compare the cost of staying one more semester to the benefits of staying one more semester.
d.
compare the total benefits of your education to the cost of staying one more semester.
110.
Kyle is planning to take a roadtrip. After he makes his plans, he has to make some unexpected
auto repairs. Also,
he sees the price of gas has gone up. Which of these two events should Kyle
consider in deciding if it is still
worthwhile to go on the trip?
a.
the unexpected repairs and the increase in the price of gas
b.
the unexpected increase for repairs, but not the increase in the price of gas
c.
the increase in the price of gas, but not the unexpected repairs
d.
neither the unexpected increase in the price of gas nor the unexpected repairs
Ten Principles of Economics 67
111.
You have eaten two bowls of ice cream at Sundae School Ice Cream store. You consider eating
a third. As a
rational consumer you should make your choice by comparing
a.
the benefits from eating all three bowls of ice cream to how much three bowls of ice cream
costs.
b.
the benefits from eating all three bowls of ice cream to how much one more bowl of ice
cream costs.
c.
the benefits from eating one more bowl of ice cream to how much three bowls of ice cream
costs.
d.
the benefits from eating one more bowl of ice cream to how much one more bowl of ice
cream costs.
112.
Olivia was accepted by Northwestern and by another university. She is trying to decide where to
go. Which of the
following should influence her decision?
a.
how much she spent applying to Northwestern, and the difference between living expenses at
Northwestern
and the other university
b.
how much she spent applying to Northwestern, but not the difference between living expenses
at
Northwestern and the other university
c.
the difference between living expenses at Northwestern and her second choice, but not how
much she spent
applying to Northwestern
d.
neither how much she spent applying to Northwestern nor the difference between living
expenses at
Northwestern and her second choice
113.
You go to the movieplex where movies ordinarily cost $9. You are intending to see a movie for
which you have a $3 off coupon good for only that movie at that time. However, when you get
there you see a friend who asks if you would rather see a new release. Both movies start and
end at the same time. If you decide to see the new release with your friend, what is your
opportunity cost?
a.
the amount you value the first movie + $3
b.
the amount you value the first movie + $9
c.
$3
d.
$9
114.
Max and Maddy charge people to park on their lawn while attending a nearby craft fair. At the
current price of $10, seven people park on their lawn. If they raise the price to $15, they know
that only five people will want to park on their lawn. Whether they have seven or five cars
parked on their lawn does not affect their costs. From this information it follows that
a.
they should leave the price at $10.
b.
it does not matter if they charge $10 or $15.
c.
they would do better charging $15 than $10.
d.
they should raise the price even more.
115.
Your professor loves her work, teaching economics. She has been offered other positions in the
corporate world
that would increase her income by 25 percent, but she has decided to continue
working as a professor. Her decision
would not change unless the marginal
a.
cost of teaching increased.
b.
benefit of teaching increased.
c.
cost of a corporate job increased.
d.
benefit of a corporate job decreased.
116.
Suppose your management professor has been offered a corporate job with a 30 percent pay
increase. He has
decided to take the job. For him, the marginal
a.
cost of leaving was greater than the marginal benefit.
b.
benefit of leaving was greater than the marginal cost.
c.
benefit of teaching was greater than the marginal cost.
d.
All of the above are correct.
117.
Something that induces a person to act is called
a.
a trade-off.
b.
a policy.
c.
an incentive.
d.
an opportunity cost.
118.
Economists are particularly adept at understanding that people respond to
a.
laws.
b.
incentives.
c.
punishments more than rewards.
d.
rewards more than punishments.
119.
A tax on gasoline encourages people to drive smaller, more fuel-efficient cars. Which principle
of economics does
this illustrate?
a.
People face tradeoffs.
b.
The cost of something is what you give up to get it.
c.
Rational people think at the margin.
d.
People respond to incentives.
120.
People are likely to respond to a policy change
a.
only if they think the policy is a good one.
b.
only if the policy change changes the costs of their behavior.
c.
only if the policy change changes the benefits of their behavior.
d.
if the policy changes either the costs or benefits of their behavior.
121.
Suppose the state of Wyoming passes a law that increases the tax on cigarettes. As a result,
smokers who live in
Wyoming start purchasing their cigarettes in surrounding states. Which of
the following principles does this best
illustrate?
a.
People respond to incentives.
b.
Rational people think at the margin.
c.
Trade can make everyone better off.
d.
Markets are usually a good way to organize economic activity.
122.
Government policies can change the costs and benefits that people face. Those policies have the
potential to
a.
alter people’s behavior.
b.
alter people’s decisions at the margin.
c.
produce results that policymakers did not intend.
d.
All of the above are correct.
123.
Ralph Nader’s book Unsafe at Any Speed caused Congress to require
a.
safety glass in all new cars.
b.
seat belts in all new cars.
c.
air bags in all new cars.
d.
stricter drunk driving laws in all states.
124.
Following the implementation of laws requiring automobiles to have seat belts, which of the
following occurred?
a.
An individual’s probability of surviving an auto accident rose.
b.
There was an increase in pedestrian deaths.
c.
There was an increase in automobile accidents.
d.
All of the above are correct.
125.
U.S. laws requiring that drivers wear seat belts have resulted in
a.
a reduction in both driver deaths and pedestrian deaths.
b.
fewer accidents and fewer deaths per accident.
c.
fewer driver deaths, fewer accidents and fewer pedestrian deaths.
d.
little change in the number of driver deaths, but more accidents and more pedestrian deaths.
126.
Evidence indicates that seat belt laws have led to
a.
fewer pedestrian deaths.
b.
fewer automobile accidents.
c.
fewer deaths per automobile accident.
d.
All of the above are correct.
127.
One effect of the government-imposed seat belt law in the U.S. has been
a.
a dramatic decrease in the number of pedestrian deaths.
b.
safer driving.
c.
an increase in the number of accidents.
d.
a dramatic decrease in the number of driver deaths.
128.
Based on the available evidence, which of the following groups benefits most from mandatory
seat belt laws?
a.
automakers
b.
pedestrians
c.
drivers
d.
owners of collision-repair shops
129.
Which of the following can policy do?
a.
alter incentives
b.
alter trade-offs
c.
change opportunity costs
d.
All of the above are correct.
130.
Suppose the state of Illinois passes a law that bans smoking in restaurants. As a result, residents
of Wisconsin who
do not like breathing second-hand smoke begin driving across the border to
Illinois to eat at restaurants there.
Which of the following principles does this best illustrate?
a.
People respond to incentives
b.
Rational people think at the margin
c.
Trade can make everyone better off
d.
Markets are usually a good way to organize economic activity
131.
In the former Soviet Union, producers were paid for meeting output targets, not for selling
products. Under those
circumstances, what were the economic incentives for producers?
a.
to produce good quality products so that society would benefit from the resources used
b.
to conserve on costs, so as to maintain efficiency in the economy
c.
to produce enough to meet the output target, without regard for quality or cost
d.
to produce those products that society desires most
132.
Which of the following principles is not one of the four principles of individual decisionmaking?
a.
People face tradeoffs.
b.
Trade can make everyone better off.
c.
People respond to incentives.
d.
Rational people think at the margin.
133.
Which of the following statements exemplifies a principle of individual decisionmaking?
a.
Trade can make everyone better off.
b.
Governments can sometimes improve market outcomes.
c.
The cost of something is what you give up to get it.
d.
All of the above are correct.
134.
Which of the following is not an example of a group responding to an incentive?
a.
Students attend class because of an attendance policy that reduces their grade for absences.
b.
Consumers buy more of a product when it is on sale at a reduced price.
c.
Universities offer fewer online classes when they generate more revenue than traditional
classes.
d.
Employees work harder to earn higher commissions.
Ten Principles of Economics 79
Multiple Choice – Section 02: How People Interact
1.
Which of the following is a principle concerning how people interact?
a.
Markets are usually a good way to organize economic activity.
b.
Rational people think at the margin.
c.
People respond to incentives.
d.
All of the above are correct.
2.
Which is the most accurate statement about trade?
a.
Trade can make every nation better off.
b.
Trade makes some nations better off and others worse off.
c.
Trading for a good can make a nation better off only if the nation cannot produce that good
itself.
d.
Trade helps rich nations and hurts poor nations.
3.
The principle that “trade can make everyone better off” applies to interactions and trade between
a.
families.
b.
states within the United States.
c.
nations.
d.
All of the above are correct.
4.
The principle that trade can make everyone better off applies to
a.
individuals.
b.
families.
c.
countries.
d.
All of the above
5.
Which of the following statements about trade is false?
a.
Trade increases competition.
b.
With trade, one country wins and one country loses.
c.
Bulgaria can benefit, potentially, from trade with any other country.
d.
Trade allows people to buy a greater variety of goods and services at lower cost.