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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.

B. rationality.

C. pleasure or satisfaction.

D. purposefulness.

2. In economics, the pleasure, happiness, or satisfaction received from a productis called

A. marginal cost.

B. rational outcome.

C. status fulfillment.

D. utility.

3. When economists say that people act rationally in their self-interest, they mean that individuals

A. look for and pursue opportunities to increase their utility.

B. generally disregard the interests of others.

C. are mainly creatures of habit.

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

A. people are greedy.

B. productive resources are limited.

C. human beings are inherently insecure.

D. peopleare irrational.

5. According to economists, economic self-interest

A. is a realitythat underlies economic behavior.

B. has the same meaning as selfishness.

C. means that people never make wrong decisions.

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'tlose 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

A. opportunity costs.

B. marginal benefits that exceed marginal costs.

C. imperfect information.

D. normative economics.

7. A person should consume more of something when its marginal

A. benefit exceeds its marginal cost.

B. costexceeds its marginal benefit.

C. cost equals its marginalbenefit.

D. benefit is still better.

8. Economics may best be defined as the

A. interaction between macro and micro considerations.

B. social scienceconcerned with how individuals, institutions, and society make optimal choicesunder conditions of scarcity.

C. empirical testing of value judgments through the use of logic.

D. study of why peopleare rational.

9. The study of economics is primarilyconcerned with

A. keeping private businesses from losing money.

B. demonstrating that capitalistic economies are superiorto socialistic economies.

C. choices that are made in seeking the best use of resources.

D. determining the most equitable distribution of society'soutput.

10. The economic perspective entails

A. irrational behavior by individuals and institutions.

B. a comparison of marginalbenefits and marginal costs in decisionmaking.

C. short-term but not long-term thinking.

D. rejection of the scientific method.

11. Purposeful behavior suggests that

A. everyone will make identical choices.

B. resource availability exceeds economic wants.

C. individuals may make different choices because of different desired outcomes.

D. an individual's economic goals cannot involve trade-offs.

12. Purposeful behavior means that

A. peopleare selfish in their decision making.

B. people weigh costs and benefits to make decisions.

C. peopleare immune from emotions affecting their decisions.

D. decision makers do not make mistakes when weighing costs and benefits.

13. Economics involves marginal analysis because

A. most decisions involve changes from the present situation.

B. marginal benefits always exceed marginal costs.

C. marginal costs always exceed marginal benefits.

D. much economic behavior is irrational.

14. You should decideto go to a movie

A. if the marginal cost of the movie exceeds its marginalbenefit.

B. if the marginal benefit of the movie exceedsits marginal cost.

C. if your income will allow you to buy a ticket.

D. because movies are enjoyable.

15. Opportunity costs exist because

A. the decision to engage in one activitymeans forgoing some other activity.

B. wants are scarce relativeto resources.

C. households and businesses make rational decisions.

D. most decisions do not involvesacrifices or trade-offs.

16. The assertion that "there is no free lunch" means that

A. there are always trade-offs betweeneconomic goals.

B. all production involves the use of scarce resources and thus the sacrificeof alternative goods.

C. marginal analysis is used in economic reasoning.

D. choices need not be made if behavioris rational.

17. Consumers spend their incomes to get the maximum benefit or satisfaction from the goods and servicesthey purchase. This is a reflection of

A. resource scarcity and the necessityof choice.

B. purposeful behavior.

C. marginal costs that exceed marginal benefits.

D. the trade-off problemthat exists between competing goals.

18. If someone produced too little of a good, this would suggestthat

A. rational choice cannot be appliedto many economic decisions.

B. the good was produced past the point where its marginal cost exceededits marginal benefit.

C. government should intervene to produce more of the good.

D. the good was produced to the point where its marginal benefit exceeded its marginal cost.

19. Even though localnewspapers 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.

C. contradicts the economic perspective.

D. implies that, for most people, the marginalbenefit of reading a second newspaperis less than the marginal cost.

A. scarcity and opportunity costs.

B. money and realcapital.

C. complementary economic goals.

D. full production.

20. Which one of the followingexpressions best states the idea of opportunity cost?

A. "A penny saved is a penny earned."

B. "He who hesitates is lost."

C. "There is no such thing as a free lunch."

D. "All that glitters is not gold."

21. Suppose that a university decides to spend $1 million to upgrade personal computers and scientific equipment for faculty rather than spend $1 millionto expand parking for students. This example illustrates

A. distorted priorities.

B. opportunity costs.

C. increasing opportunity costs.

D. productive efficiency.

Which of the following most closely relatesto the idea of opportunity costs?

A. trade-offs

B. economic growth

C. technological change

D. capitalism

22. Economists contend that most economic decisions are

A. random.

B. chaotic.

C. spontaneous.

D. purposeful.


23. Alex sees that his neighbors' lawns allneed mowing.He offers to providethe 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

A. rational self-interest because he is attempting to increase his own income by identifying and satisfying someone else's wants.

B. greedy because he is asking for a high wage that some of his neighbors can't afford to pay.

C. selfishbecause he is asking for a wage that is higher than others might charge.

D. irrational because some neighbors refused his offer.

24. Kara was out jogging and, despite being tired, decided to run one more mile. Based on her actions, economists would conclude that Kara

A. must be an avid runner.

B. decided that the marginalbenefit of running one more mile would outweigh the cost of the additional mile.

C. decided that the marginal cost of running one more mile would outweigh the benefit of the additional mile.

D. was not verytired, so the marginal cost of the extra mile was very low.

25. An economic hypothesis

A. has the same meaning as an economic principle or economic law.

B. is usually a normative statement.

C. is a possible explanation of cause and effect.

D. is a stronger generalization than an economic law.


26. Which of the followingterms impliesthe least degree of confidence in an economic generalization?

A. hypothesis

B. theory

C. principle

D. law

27. Which of the followingterms impliesthe greatest degree of confidence in an economic generalization?

A. hypothesis

B. comparison

C. theory

D. anomaly

28. A well-tested economic theory is often called

A. a hypothesis.

B. a prototype.

C. a principle.

D. an anomaly.

29. The scientific method is

A. not applicable to economics because economics deals with human beings.

B. also known as the economic perspective.

C. employed to form hypotheses out of existing laws and theories.

D. used by economists and other social scientists, as well as by physical scientists and life scientists, to formulate andtest hypotheses.

30. The processby which economists test hypotheses against facts to developtheories, principles, and models is called

A. the economic perspective.

B. the scientific method.

C. policyeconomics.

D. microeconomics.

31. Economic theories

A. are useless because they are not based on laboratory experimentation.

B. that are true for individual economic units are nevertrue for the economyas a whole.

C. are generalizations based on hypotheses tested and supported with observedfacts.

D. are abstractions and therefore of no application to real situations.

32. Which of the followingis a correct statement?

A. Economic concepts or laws that are valid during recessions are necessarily valid during prosperity.

B. Although they are generalizations, economic laws are useful because they allow us to predictand therefore influence or adjust to events.

C. Economists use the scientific method. Therefore, economic laws are as quantitatively precise as the laws of physics or chemistry.

D. Because economics is primarily concerned with questions of "ought," it is a branch of appliedethics and not scientific.

33. In constructing models, economists

A. make simplifying assumptions.

B. include all available information.

C. must use mathematical equations.

D. attempt to duplicate the real world.

34. 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.

C. other things equal.

D. prosperity inevitably followsrecession.

35. The basic purpose of the other-things-equalassumption is to

A. allow one to reason about the relationship between variables X and Y without the intrusion of variableZ.

B. allow one to focus upon micro variables by ignoring macro variables.

C. allow one to focus upon macro variables by ignoring micro variables.

D. determine whether X causes Y or vice versa.

36. 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.

B. all factors other than the price of bananas (for example, consumertastes and incomes) are assumed to be constant.

C. everyone will buy more bananas when the price falls.

D. one cannot generalize about the relationship betweenthe price of bananas and the quantity purchased.

37. The term "other things equal" means that

A. the associated statementis normative.

B. many variables affect the variable under consideration.

C. a number of relevantvariables are assumed to be constant.

D. when variable X increases, so does related variableY.

38. Kellyworks at an ice creamshop and observes that the number of people buying ice cream varies greatly from day to day. For a couple of weeks,she has recordedthe 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 peoplebuy more ice creamwhen the temperature rises.

B. state her findings as a well-tested economic principle.

C. use the observed data to form a hypothesis aboutice cream buyingbehavior.

D. throw out the data if it does not show a perfectrelationship betweenbuying habits and the other information she has collected.

39. 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 recordedthe 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

A. conclude definitively that people buy more gelato when the temperature rises.

B. determine if there are other relevant factors and attempt to hold these constant before drawing conclusions.

C. continue to gather data on the number of visitors and daily temperatures, because eventually other relevantvariables will not matter.

D. throw out the data if it does not show a perfectrelationship betweenbuying habits and temperature.

40. Macroeconomics approaches the study of economics from the viewpointof

A. the entire economy.

B. governmental units.

C. the operation of specific product and resourcemarkets.

D. individual firms.

41. Which of the following is associated with macroeconomics?

A. an examination of the incomes of professional athletes

B. an empirical investigation of the general price level and unemployment rates since 1990

C. a study of the trend of pecan prices since the Second World War

D. a case study of pricing and production in the textbook industry

42. The issues of inflation,unemployment, and business cycles are

A. major topics of macroeconomics.

B. not relevant to the U.S. economy.

C. the primary focus of microeconomics.

D. positive economic issues, but not normative issues.

43. Which of the followingstatements pertainsto macroeconomics?

A. Because the minimum wage was raised, Mrs. Olsen decided to enter the labor force.

B. A declinein the price of soybeans caused farmer Wanek to plant more wheat.

C. National incomegrew by 2.7 percentlast year.

D. The Pumpkin Center State Bank increased its interest rate on consumer loans by 1 percentage point.

44. Macroeconomics can best be describedas the

A. analysis of how a consumer tries to spend income.

B. study of the large aggregates of the economy or the economy as a whole.

C. analysis of how firms attempt to maximize their profits.

D. study of how supply and demand determine prices in individual markets.

45. Microeconomics is concerned with

A. the aggregate or total levels of income,employment, and output.

B. a detailed examination of specific economic units that make up the economic system.

C. positive economics, but not normative economics.

D. establishing an overall view of the operation of the economic system.

46. Which of the followingis a microeconomic statement?

A. The real domestic output increasedby 1.6 percent last year.

B. Unemployment was 5.2 percentof the labor force last year.

C. The price of smartphones declined 2.8 percentlast year.

D. The general price level increasedby 1.1 percent last year.

47. Which of the followingstatements is true?

A. Microeconomics focuses on specific decision-making units of the economy;macroeconomics examines the economy as a whole.

B. Macroeconomics focuses on specificdecision-making units of the economy;microeconomics examinesthe economy as a whole.

C. Everytopic 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.

48. A normativestatement is one that

A. is based on the law of averages.

B. applies only to microeconomics.

C. appliesonly to macroeconomics.

D. is based on value judgments.

49. A positivestatement is one that

A. is derived by induction.

B. is derivedby deduction.

C. focuses on the best course of action and is basedon value judgments.

D. focuses on facts, descriptions, and theoretical relationships.

50. Which of the followingis 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.

C. The temperature is 92 degrees today.

D. Summer evenings are nice when it cools off to around 70 degrees.

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