Economics Chapter 1—The Economic Approach
MULTIPLE CHOICE
1. What do economists mean when they state that a good is scarce?
a.
There is a shortage or insufficient supply of the good at the existing price.
b.
It is impossible to expand the availability of the good beyond the current amount.
c.
People will want to buy more of the good regardless of the price of the good.
d.
The amount of the good that people would like exceeds the supply freely available from
nature.
2. Economic choice and competitive behavior are the result of
a.
basic human greed.
b.
poverty.
c.
private ownership of resources.
d.
scarcity.
3. Jacob and Mason go to a diner that sells burritos for $5 and tacos for $3. They agree to split the lunch
bill evenly. Mason chooses a taco. The marginal cost to Jacob of ordering a burrito instead of a taco is
a.
$1.
b.
$2.
c.
$2.50.
d.
$3.
4. The expression, “There’s no such thing as a free lunch,” implies that
a.
everyone has to pay for his own lunch.
b.
the person consuming a good must always pay for it.
c.
opportunity costs are incurred when resources are used to produce goods and services.
d.
no one has time for a good lunch anymore.
5. Which one of the following states a central element of the economic way of thinking?
a.
Scarce goods are priceless.
b.
Incentives matter—human choice is influenced in predictable ways by changes in personal
costs and benefits.
c.
The realism of the assumptions is the best test of an economic theory.
d.
When deciding how to allocate time, the concept of opportunity cost is meaningless.
6. Which of the following is most clearly consistent with the basic postulate of economics regarding the
reaction of people to a change in incentives.
a.
Farmers produce fewer bushels of wheat in response to an increase in the price of wheat.
b.
People will buy more milk at a price of $2 per gallon than at $1 per gallon.
c.
People will buy less gas if the price of gas increases by $.20 per gallon.
d.
People will consume more beef if the price increases from $1 to $2 per pound.
7. Which one of the following is a positive economic statement?
a.
An increase in the minimum wage will reduce employment.
b.
The minimum wage should be increased.
c.
Social justice will be served by increasing the minimum wage.
d.
Thoughtful people oppose an increase in the minimum wage.
8. The basic difference between macroeconomics and microeconomics is that
a.
macroeconomics is concerned with the forest (aggregate markets), while microeconomics
is concerned with the individual trees (subcomponents).
b.
macroeconomics is concerned with policy decisions, while microeconomics applies only
to theory.
c.
microeconomics is concerned with the forest (aggregate markets), while macroeconomics
is concerned with the trees (subcomponents).
d.
opportunity cost is applicable to macroeconomics, and the fallacy of composition relates to
microeconomics.
9. Economic analysis assumes that
a.
individuals act only out of selfish motives.
b.
although individuals are at times selfish and at times unselfish, only their selfish actions
may be predicted.
c.
people are basically humanitarian, and their actions are, therefore, impossible to predict.
d.
changes in the personal benefits and costs associated with a choice will exert a predictable
influence on human behavior.
10. While waiting in line to buy two tacos at 75 cents each, and a medium drink for 80 cents, Emma
notices that the restaurant has a value meal containing three tacos and a medium drink all for $2.50.
For Emma, the marginal cost of purchasing the third taco would be
a.
zero.
b.
20 cents.
c.
75 cents.
d.
80 cents.
11. Adam Smith believed that if people were free to pursue their own interests,
a.
public interest would be served quite well.
b.
less would be produced than if altruism were the guiding principle.
c.
they would generally apply their talents to unproductive activities that would generate
little value to society.
d.
they would have little incentive to undertake productive activities.
12. Modern economics as a field of study is usually thought to have begun with
a.
Adam Smith and the writing of The Wealth of Nations.
b.
David Ricardo and the writing of The Principles of Political Economy and Taxation.
c.
Aristotle and the writing of Politics and Ethics.
d.
Moses and the Ten Commandments.
13. According to Adam Smith, individual self-interest
a.
is a powerful force for economic progress when it is directed by competitive markets.
b.
is a powerful force for economic progress when individuals are wisely directed by a strong
central government.
c.
is a major factor in retarding the economic progress of humankind.
d.
could be either a positive or negative force for economic progress, depending on the moral
influences of political leaders.
14. The basic ingredients in any economic decision are
a.
scarcity and choice.
b.
surpluses and shortages.
c.
market prices and the use of efficient production methods.
d.
needs and wants.
15. Economic choice and competitive behavior are the result of
a.
scarcity.
b.
poverty.
c.
public ownership of resources.
d.
private ownership of resources.
16. For the typical student, taking an introductory course in economics should
a.
turn the student into an economist.
b.
teach the student solutions to most social problems.
c.
teach the student how to answer complex social questions.
d.
help the student learn to rationally analyze social problems.
e.
All of the above are correct.
17. When a society cannot produce all the goods and services people wish to have, it is said that the
economy is experiencing
a.
scarcity.
b.
shortages.
c.
inefficiencies.
d.
inequities.
18. Which of the following is the best definition of economics?
a.
An investigation of the quantities and prices of the various goods produced by the nations
of the world.
b.
A study of why inflation and unemployment periodically plague the U.S. economy.
c.
An analysis of how individuals and societies deal with the problem of scarcity.
d.
An examination of the role that money plays in the economy.
e.
A study of how goods and services are distributed throughout the world.
19. Economics is primarily the study of
a.
how to make money in the stock market.
b.
how to operate a business successfully.
c.
the allocation of scarce resources in an effort to satisfy wants that are virtually unlimited.
d.
the methods business firms use to reduce their costs of production.
20. Some individuals or families can become completely saturated with a service such as television. This
suggests that
a.
wants are limited
b.
desires for a single commodity can be satisfied but then the focus will switch to other
goods and services
c.
a highly productive economy may someday be able to satisfy all human desires
d.
resources are not truly fixed in supply as we generally assume
e.
scarcity does not exist
21. In economics, the term “scarcity” refers to the fact that
a.
everything really worthwhile costs money.
b.
even in wealthy countries like the United States, some people are poor.
c.
no society can produce enough to satisfy fully the desires of people for goods and services.
d.
sometimes shortages of a good arise when its price is set below the market equilibrium.
22. When economists say a good is scarce, they mean
a.
there are only a limited number of consumers who would be interested in purchasing the
good.
b.
the human desire for the good exceeds the amount freely available from nature.
c.
most people in poorer countries do not have enough of the good.
d.
the production of the good has no opportunity cost for society.
23. When economists say goods are scarce, they mean
a.
consumers are too poor to afford the goods and services available.
b.
consumers are unwilling to buy goods unless they have very low prices.
c.
goods are generally freely available from nature in most countries.
d.
the desire for goods and services exceeds our ability to produce them with the limited
resources available.
24. If scarcity were eliminated,
a.
all goods would be free.
b.
no one would have to make any choices.
c.
everyone could have all they want at no cost.
d.
all of the above are true.
25. If a good is scarce,
a.
there will be shortages of it if the good is rationed by markets.
b.
the good will have a price in a market setting.
c.
there will be enough of the good freely available from nature to satisfy the human desire
for it.
d.
all of the above are true.
26. Criteria for rationing goods and resources must be established because of
a.
the law of comparative advantage.
b.
the use of capitalism as a form of economic organization.
c.
the inability of politicians to develop efficient forms of economic organization.
d.
scarcity imposed by nature.
27. Every economy must ration goods in some way because of
a.
overpopulation.
b.
poorly-performing markets.
c.
the income gap between rich and poor.
d.
scarcity.
28. Which of the following is true of resources?
a.
Resources are inputs used to produce goods and services.
b.
Human resources reflect the skills and productive knowledge of human beings.
c.
With the passage of time, investment activities can increase the availability of resources.
d.
All of the above are true.
29. Ex-London School of Economics student Mick Jagger sang, “You can’t always get what you want, but
if you try sometime, you just might find you can get what you need.” Another statement of the basic
economic principle expressed in this lyric is that
a.
rational decisions are not always possible.
b.
you can allocate your resources to what gives you the highest value.
c.
you can create the supply to meet your own demand.
d.
you can maximize social welfare by making optimal decisions.
30. Capital is a term economists use to refer to
a.
man-made resources used to produce other goods and services.
b.
resources that are available in nature such as mineral deposits.
c.
money that is used to consume goods and services, to distinguish it from money that is
saved.
d.
the value of the best alternative to an action.
31. The three major categories of resources are
a.
human resources, physical resources, and natural resources.
b.
scarce resources, capital resources, and abundant resources.
c.
financial resources, global resources, and local resources.
d.
common resources, private resources, and capital resources.
32. In economics, man-made resources such as tools, equipment, and structures that are used to produce
other goods and services are referred to as
a.
consumer goods.
b.
capital.
c.
marginal goods.
d.
infrastructures.
33. Which of the following best describes the difference between an objective concept and a subjective
concept?
a.
A subjective concept is a fact based on observation that is not subject to personal opinion,
while an objective concept is based on personal preferences and value judgments.
b.
An objective concept is a fact based on observation that is not subject to personal opinion,
while a subjective concept is based on personal preferences and value judgments.
c.
A subjective concept relates to issues in microeconomics, while an objective concept
relates to issues in macroeconomics.
d.
An objective concept can only be illustrated in words, while a subjective concept can
usually be illustrated with a graph.
34. A fact based on observable phenomenon that is not influenced by differences in personal opinion is
called
a.
an objective concept.
b.
a subjective concept.
c.
an unintended consequence.
d.
ceteris paribus.
35. An opinion based on personal preferences and value judgments is called
a.
an objective concept.
b.
a subjective concept.
c.
an unintended consequence.
d.
ceteris paribus.
36. When price is the rationing criterion, individuals have a strong incentive to
a.
ignore the wishes of others when making decisions about how to use their resources.
b.
provide services to others in exchange for income.
c.
avoid exchanges because in every exchange there will be one person who gains and
another who loses.
d.
substitute promises for the consistent delivery of a quality product.
37. The economic way of thinking is
a.
a set of historical generalizations that indicates what goods should be produced.
b.
a body of statistical data that indicates how an economy should be organized.
c.
a set of basic concepts that helps one understand human choices.
d.
a set of complex, highly abstract theories that provides persons skilled in statistics with the
information necessary to tell others what choices they should make.
38. Economic theory
a.
is a set of definitions, postulates, and principles assembled in a manner that helps make
cause-and-effect relationships clear in economics.
b.
is like a guidebook in that it points out what to look for.
c.
provides economists with a common language and way of thinking about how the world
works.
d.
is all of the above.
39. Which of the following is part of the economic way of thinking?
a.
Opportunity costs will always be incurred when scarce resources are used to produce a
good.
b.
When the cost of an option increases, individuals will be less likely to choose it.
c.
In addition to their immediate direct effects, economic actions often generate secondary
effects that are observable only after the passage of time.
d.
All of the above are part of the economic way of thinking.
40. Which of the following is part of the economic way of thinking?
a.
The accuracy of the assumptions is the best test of an economic theory.
b.
When an option becomes more expensive, people will be less likely to choose it.
c.
The value of a good can be determined objectively by measuring the amount of labor
required for its production.
d.
All of the above.
41. The expression “There’s no such thing as a free lunch” means
a.
if one person gains, someone else must lose.
b.
each person must pay for exactly what he or she receives.
c.
the use of resources to produce a good has an opportunity cost because of scarcity.
d.
you cannot have a free lunch at the expense of someone else.
42. “There is no such thing as a free lunch.” This statement best reflects the fact that
a.
consumers are unwilling to pay for a good unless it provides them with value.
b.
an opportunity cost is always present when scarce resources are used to produce a good.
c.
it generally requires enormous effort to search out the best place to eat lunch.
d.
the value of a good to consumers will decrease as they have more of it.
43. Which of the following statements is correct?
a.
If the buyer of a good gains, the seller must lose an equal amount.
b.
The value of goods is objective; it is equal to the cost of supplying the good.
c.
Opportunity costs will always be incurred when scarce resources are used to produce a
good.
d.
Changes in incentives generally have no effect on human behavior.
44. Which of the following statements best describes the scientific method?
a.
The use of modern electronic testing equipment to understand the world.
b.
The unbiased development and testing of theories about how the world works.
c.
The use of controlled laboratory experiments to understand the way the world works.
d.
Finding evidence to support preconceived theories about how the world works.
45. Economists make assumptions in order to
a.
mimic the methodologies employed by other scientists.
b.
minimize the number of experiments that yield no useful data.
c.
minimize the likelihood that some aspect of the problem at hand is being overlooked.
d.
focus their thinking on the essence of the problem at hand.
46. Rational choice requires that opportunity cost be
a.
ignored in making a decision.
b.
considered for individual choices, but not for societal choices.
c.
computed, but not actually used in making a decision.
d.
considered as part of making a decision.
e.
used as the sole decision criterion.
47. During a war, governments will sometimes draft people, most of whom are presently employed, into
the army. An economist, computing the real cost of the war, would be sure to include which of the
following items?
a.
the value of the civilian goods no longer produced by the new soldiers
b.
the cost of feeding and clothing the new soldiers
c.
the dollar cost of the payroll
d.
the higher prices of civilian goods due to wartime shortages
e.
the cost of transporting the soldiers to combat
48. Ethan washes and irons his own shirts. Sophia, his boss, sends her clothes to a laundry. Which is the
most plausible economic explanation for this difference?
a.
Ethan must enjoy ironing more than Sophia does.
b.
Ethan must be better at ironing than Sophia is.
c.
The opportunity cost of ironing is greater for Ethan.
d.
Sophia has a higher opportunity cost of laundering her clothes than Ethan does.
49. The opportunity cost of an action is
a.
the monetary payment the action required.
b.
the total time spent by all parties in carrying out the action.
c.
the value of the best opportunity that must be sacrificed in order to take the action.
d.
the cost of all alternative actions that could have been taken, added together.
50. The highest valued alternative that must be given up in order to choose an option is called
a.
opportunity cost.
b.
utility.
c.
scarcity.
d.
disutility.
51. A tradeoff exists between a clean environment and a higher level of income in that
a.
studies show that individuals with higher levels of income actually pollute less than
low-income individuals.
b.
efforts to reduce pollution typically are not completely successful.
c.
laws that reduce pollution raise costs of production and reduce incomes.
d.
by employing individuals to clean up pollution, employment and income both rise.
52. The opportunity cost of going to college is
a.
the total spent on food, clothing, books, transportation, tuition, lodging, and other
expenses.
b.
the value of the best opportunity a student gives up to attend college.
c.
zero for students who are fortunate enough to have all of their college expenses paid by
someone else.
d.
zero, since a college education will allow a student to earn a larger income after
graduation.
53. For a college student who wishes to calculate the true costs of going to college, the costs of room and
board
a.
should be counted in full, regardless of the costs of eating and sleeping elsewhere.
b.
should be counted only to the extent that they are more expensive at college than
elsewhere.
c.
usually exceed the opportunity cost of going to college.
d.
plus the cost of tuition, equals the opportunity cost of going to college.
54. Which of the following is true?
a.
Human choice is generally not influenced by changes in incentives.
b.
What is true for the individual must be true for the group as a whole.
c.
Using scarce resources to meet one need reduces our ability to meet needs in other areas.
d.
The economic way of thinking stresses that good intentions usually lead to sound
economic policy.
55. If the government provides free schooling for all students, an economist would say education is
a.
a free good, having no cost.
b.
scarce even though its cost is paid by taxpayers rather than by students.
c.
an example of a good that is no longer scarce.
d.
all of the above.
56. “The resources now going into the War on Terrorism and into improved airport security would save
more lives if they were invested in medical research.” This statement most clearly reflects which of the
following?
a.
The best test of an economic theory is its ability to predict.
b.
There is no such thing as a free lunch—the use of scarce resources always has an
opportunity cost.
c.
selfishness; if people were not selfish, we could have more of everything.
d.
The value of goods can be determined objectively.
57. The benefit (or satisfaction) that an individual expects to derive from an activity is called
a.
opportunity cost.
b.
utility.
c.
marginal cost.
d.
scarcity.
58. In economics the term utility refers to
a.
the subjective benefit or satisfaction a person expects to receive from a choice or course of
action.
b.
the number of possible uses for a resource.
c.
the fact that human desire for goods is unlimited while the resources available to meet
those desires is limited.
d.
the highest valued alternative that must be sacrificed when a choice is made.
59. The economizing problem is essentially one of deciding how to make the best use of
a.
limited resources to satisfy limited wants.
b.
unlimited resources to satisfy limited wants.
c.
limited resources to satisfy virtually unlimited wants.
d.
unlimited resources to satisfy unlimited wants.
60. Deciding how to make the best use of limited resources to satisfy virtually unlimited wants is known in
economics as
a.
economizing behavior.
b.
the fallacy of composition.
c.
ceteris paribus.
d.
the fallacy that good intentions do not guarantee the desired outcome.
61. When economists say an individual displays economizing behavior, they simply mean that she is
a.
making a lot of money.
b.
buying only those products that are cheap and of low quality.
c.
learning how to run a business more effectively.
d.
seeking the lowest cost method to accomplish her objectives.
62. Which of the following is most consistent with economizing behavior?
a.
If you derive the same satisfaction from eating pizza and eating ice cream, it makes no
difference which one of the two you choose.
b.
Before voting, you should invest the time and energy to become fully informed on all of
the issues and candidates.
c.
It never makes sense to hire someone to do something for you that you could do yourself.
d.
If you get the same satisfaction from a chicken sandwich and a salad, you should purchase
the one that costs the least.
63. Which of the following is most consistent with economizing behavior?
a.
If you get the same satisfaction from a hamburger and a fish sandwich, you should
purchase the one that costs the most.
b.
Even if you know how to paint, hiring someone to do the job is consistent with
economizing behavior, if your opportunity cost is high enough.
c.
If the government provides a good free to citizens, the opportunity cost of the good is zero.
d.
If you get the same satisfaction from going to the opera and going to an art museum, it
makes no difference which you choose.
64. When economists say an individual has made a rational choice, they mean the individual has
a.
made the choice by weighing their own subjective costs and benefits.
b.
made a “good” decision, one that reasonable outside observers would have also made.
c.
neglected to consider the unintended consequences arising from their decision.
d.
ignored their own personal interests and made the choice that is best for society.
65. Jim enjoys the feeling of wind in his hair enough to ride his motorcycle without a helmet, even though
he fully realizes the potential for injury it creates by not wearing one in the unlikely event he is in an
accident. To an economist, Jim is
a.
making an irrational choice.
b.
making a rational choice.
c.
not fully considering the personal costs and benefits of his decision.
d.
not responding to the incentives he faces.
66. A rational decision maker takes an action if and only if
a.
the marginal benefit of the action exceeds the marginal cost of the action.
b.
the marginal cost of the action exceeds the marginal benefit of the action.
c.
the marginal cost of the action is zero.
d.
the opportunity cost of the action is zero.
67. When economists say that people choose rationally, this means
a.
they gather all relevant information before making their purchases
b.
once a pattern of behavior has been established, people tend to become set in their ways
c.
people respond in predictable ways to changes in costs and benefits
d.
people rarely make errors when they are permitted to make transactions
e.
once made, decisions are never reversed
68. Which of the following is an example of a rational decision?
a.
DeShawn enjoys the feeling of wind in his hair enough to ride his motorcycle without a
helmet, even though he fully realizes the potential for injury it creates by not wearing one
in the unlikely event he is in an accident.
b.
Jayla, a burglar who breaks into houses, decides to break into the house at 265 Elm Street,
rather than the house next door because the house next door has a sign in the yard that says
“home protected by a security system.”
c.
Nicolas, a drug user, chooses to buy his cocaine from Samuel, because Samuel’s cocaine is
as good as the cocaine from other dealers, but Samuel has lower prices.
d.
All of the above are examples of rational choices.
69. When an individual weighs her options and makes a choice that maximizes her benefit at the minimum
cost, economists refer to this as a process of
a.
rational decision making.
b.
objective decision making because the value of goods is determined objectively.
c.
marginal management analysis.
d.
random decision making.
70. Which of the following is often referred to as the basic postulate of economics?
a.
Individuals act only out of selfish motives.
b.
Incentives matter–individuals respond in predictable ways to changes in personal costs
and benefits.
c.
The accuracy of the assumptions is the best test of an economic theory.
d.
The value of a good is objective; it is equal to the cost of producing the good.
71. The economic way of thinking stresses that
a.
greed is the primary motivation for human action.
b.
as the benefits of an option increase, people will be more likely to choose that option.
c.
an objective value can be attached to physical goods.
d.
as the cost of an option decreases, people will be less likely to choose that option.
72. The most fundamental concept in economics is that
a.
changes in incentives influence behavior in a predictable way—people will be less likely to
choose an option as it becomes more expensive.
b.
changes in incentives generally do not influence human behavior.
c.
goods that are provided by government are free for society.
d.
individuals generally do not consider other alternatives when making a choice.
73. Which of the following is true?
a.
Changes in personal costs and benefits will exert a predictable impact on the choices of
human decision makers.
b.
Only direct monetary costs matter in making decisions.
c.
If a good is provided free to an individual, its production will not consume valuable scarce
resources.
d.
Secondary effects are seldom of importance in economics.
74. The economic way of thinking stresses that
a.
changes in personal costs and benefits generally fail to exert much impact on behavior.
b.
incentives matter—individuals respond in predictable ways to changes in personal costs
and benefits.
c.
if one individual gains from an economic activity, then someone else must lose and in the
same proportion.
d.
if a good is provided by the government, its production will not consume valuable scarce
resources.
75. Which of the following is true?
a.
Changes in personal costs and benefits will exert a predictable influence on the choices of
people.
b.
If one individual gains from an economic activity, then someone else must lose.
c.
If a good is provided free to an individual by government, its production will not consume
valuable scarce resources.
d.
If the intentions behind a policy are good, you can be assured that the outcome will be
desirable.
76. Which of the following is not consistent with the basic postulate of economics that incentives matter?
a.
Farmers produce fewer bushels of wheat in response to an increase in the price of wheat.
b.
A politician votes against a proposal because most of his constituents oppose it.
c.
People drive less because of higher gas prices.
d.
People buy more milk in response to a reduction in the price of milk.
77. The economic way of thinking suggests that if the government imposed a $500 tax on owners of red
automobiles,
a.
fewer red automobiles would be produced and sold.
b.
more red automobiles would be produced and sold.
c.
there would be no change in the number of red automobiles produced and sold.
d.
red automobiles would cease to exist.
78. If a college enforces a new policy where anyone caught cheating is immediately expelled, the basic
postulate of economics suggests that
a.
cheating will be completely eliminated.
b.
fewer students will attempt to cheat.
c.
the amount of cheating will be unaffected.
d.
any of the above is possible because student behavior is unpredictable.
79. Which of the following groups would most likely benefit from a law that is extremely tough on those
who drink and drive?
a.
truck drivers
b.
taxi drivers
c.
bartenders
d.
doctors and nurses
80. Which one of the following statements most accurately indicates the basic motivation for behavior?
a.
Individuals are motivated primarily by selfish desires; thus, personal costs and benefits
influence their actions.
b.
Individuals are motivated primarily by humanitarian concerns; therefore, personal costs
and benefits exert little influence on most of their actions.
c.
Individuals are motivated by a variety of forces; however, changes in personal benefits
and costs influence the choices of both selfish and humanitarian individuals.
d.
Individuals are motivated by a variety of forces; however, changes in personal benefits
and costs affect behavior only when individuals are motivated by selfishness.
81. Economic analysis assumes that
a.
people act only out of selfish motives.
b.
people are motivated by a variety of forces; however, changes in personal benefits and
costs affect behavior only when individuals are motivated by selfishness.
c.
people are basically unselfish, and their actions are, therefore, difficult to predict.
d.
changes in the personal benefits and costs associated with an activity will exert a
predictable influence on the behavior of both those who are selfish and those who are
unselfish.
82. In economics, the term marginal refers to
a.
the change or difference between two alternatives.
b.
man-made resources as opposed to natural resources.
c.
the satisfaction a consumer receives from a good.
d.
holding everything else constant in the analysis.
83. When deciding whether to buy a second car, the economic way of thinking indicates that the purchaser
should compare
a.
the benefits expected from two cars with the cost of both.
b.
the additional benefits expected from a second car with the cost of the two cars.
c.
the dollar cost of the two cars with the potential income that the cars will generate.
d.
the additional benefits of the second car with the additional cost of the second car.
84. A marginal change usually is a
a.
change that involves little, if anything, that is important.
b.
large, significant adjustment.
c.
change for the worse, and so it is usually a short-term change.
d.
small, incremental adjustment.
85. People are willing to pay more for a diamond than for a bottle of water because
a.
the marginal cost of producing an extra diamond far exceeds the marginal cost of
producing an extra bottle of water.
b.
the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra
bottle of water.
c.
producers of diamonds have a much greater ability to manipulate diamond prices than
producers of water have to manipulate water prices.
d.
water prices are held artificially low by governments, since water is necessary for life.
86. 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
a.
the marginal cost of teaching increased.
b.
the marginal benefit of teaching increased.
c.
the marginal cost of teaching decreased.
d.
the marginal benefit of a corporate job decreased.
87. If a decision maker uses marginal analysis, then the relevant costs are the
a.
full costs of a particular activity or product.
b.
fixed costs which do not vary with the extra activity or output.
c.
profits obtained on the activity or product.
d.
average costs for a particular activity or product.
e.
additional costs of a particular activity or product.
88. Standby passengers on airlines who pay low rates for seats benefit from the low price. How are the
airlines affected?
a.
They lose, because the standby passengers do not cover the full cost of the seats.
b.
They gain, because the additional revenue covers the “fixed costs” of the flight.