Microeconomic Chapter 1 Practice Problems

Chapter 1 Practice Problems 1. Economics is the study of a. how to make money. b. how to allocate resources to satisfy wants and needs. c. capitalism. d. how to make workers more productive and firms more profitable. e. markets. 2. The need to study economics would cease to exist if a. the government stopped controlling people’s actions. b. people were free to make decisions on their own. c. people put forth the effort required to attain the goods and services they wanted. d. people earned more than they spent. e. there were enough resources to produce all the goods and services people would like to obtain. 3. As a new firm in the apple-picking business, Nicolette has considered adding an economist to her management team. This economist would be unable to help her managerial team determine a. the lowest cost way of picking apples. b. how many apples consumers will purchase at different prices. c. why people eat apples. d. the effect government regulations would have on the price of apples. e. the lowest cost way of distributing apples. 4. Which of the following statements best represents the fact that Logan cannot put in extra hours of work because of scarcity? a. He doesn’t have enough time for additional work because he needs to spend time with his family and there are only so many hours in the day. b. He doesn’t like going to work, so why would he work more than he has to? c. He doesn’t think that overtime pay is high enough. d. He is worried that if he works extra hours, he will get bored with his job. e. He doesn’t want his coworkers to feel pressure to work more because he is working additional hours. 5. Macroeconomics is the study of a. the economic motives of voters and elected officials. b. individual decision-making units such as households and businesses. c. how government purchases affect specific markets. d. the operation of the economy as a whole. e. the interaction between the government and businesses. 6. Which of the following is a macroeconomic question? a. How many textbooks should be published by a publisher? b. How much should English majors earn after college? c. How do members of a household decide whether to clean their own houses or hire someone else to do it? d. What is the rate of unemployment? e. What is the price of a new 40-inch television? 7. Microeconomics is the study of a. how government activities affect the economy. b. individual decision-making units. c. collective decision making. d. the operation of the economy as a whole. e. the interaction between the government and businesses. 8. Which of the following is a microeconomic question? a. What are the total production levels in the economy? b. How can we best encourage economic growth? c. What is the overall price level in the economy? d. What are the variables that determine the price of a specific good? e. How can we reduce the unemployment rate among Hispanic men? 9. Which of the following is NOT a type of incentive? a. positive d. indirect b. negative e. direct c. complementary 10. Entrepreneurs are willing to take risks because a. technology provides a way to sidestep the patent and copyright system. b. the patent and copyright system provides an exclusive right to sell the product for a period of time. c. the patent and copyright system guarantees a certain level of profit. d. technology always increases costs and prevents competitors from entering the market. e. the patent and copyright system guarantees that the risks taken will be rewarded. 11. If the government wanted to give people a negative direct incentive not to save money, what would be the appropriate policy? a. providing individuals a subsidy to save their money b. providing funding for an advertising campaign encouraging people to spend more money c. informing individuals that saving money causes people not to spend money, which will cause them to lose their jobs d. imposing a tax on individuals for saving their money e. informing consumers about all that they could buy with their money with the hope that they spend more 12. An example of a direct negative incentive is a. providing a commission for sales. b. awarding a promotion for hard work. c. threatening to fire those who do not perform well. d. providing an orientation for new employees. e. providing generous benefits and pay for employees. 13. Actions and activities are encouraged with which type of incentive? a. positive d. complementary b. negative e. unintended c. neutral 14. Many professors have a policy that punishes individuals if they don’t come to class. Instead of punishing students who don’t attend class, what could the professor do to provide a positive incentive to come to class? a. Those who come to class are given extra points. b. Those who do not come to class have their grades reduced. c. Those who come to class will be asked questions, and if they answer them incorrectly, their grades will be lowered. d. Those who come to class will be ridiculed. e. Those who do not come to class might be dropped from the course. 15. A camera takes pictures of drivers who do not stop at a red light, and this practice is used to issue traffic tickets. These red light cameras can be understood as serving a(n) a. positive incentive to encourage individuals to stop at a red light. b. negative incentive to discourage individuals from driving through a red light. c. indirect incentive to encourage individuals to stop at a red light. d. direct incentive to encourage individuals to stop at a red light. e. negative incentive to encourage individuals to drive through a red light. 16. Google has started a project to scan all books and make those that are not copyrighted available to people free of charge. Why is it important that only books without a copyright are available? a. If all books were scanned and available free of charge, copyright holders would face a positive incentive to continue writing and publishing books. b. If all books were scanned and available free of charge, copyright holders would face a negative incentive to continue writing and publishing books. c. If only copyrighted texts were scanned and available free of charge, copyright holders would face an indirect incentive to continue writing and publishing books. d. If only non-copyrighted books were scanned and available free of charge, copyright holders would face a negative incentive to continue writing and publishing books. e. If only non-copyrighted books were scanned and available free of charge, copyright holders would face an indirect incentive to continue writing and publishing books. 17. What is the indirect incentive in the unemployment insurance program? a. Workers get paid when they are laid off. b. Workers face an incentive to find a new job as quickly as possible. c. Workers have a reduced incentive to find a new job until the insurance runs out. d. Workers are paid all of their wages by the unemployment insurance program. e. Workers on unemployment insurance are given training opportunities. 18. Economics is concerned with the trade-offs that emerge because of scarcity. The term “trade-offs” refers to a. the decision about whether households or businesses should bear the entire burden of the scarcity problem. b. the buying and selling that occur as unwanted goods are exchanged for goods that are desired. c. the alternatives given up when making choices. d. recycling and transforming old goods into new goods to reduce scarcity problems. e. forcing businesses to produce some goods and services and not others. 19. An opportunity cost a. can be measured only when the decision involves expenditures of money. b. can be measured only when the decision involves spending time on one thing and not on another. c. is impossible to measure. d. is equal to the value of what is given up to make a purchase or take an action. e. exists for every decision made by individuals and businesses, but not by the government. 20. How are changes in opportunity cost related to decision-making behavior? a. The lower the opportunity cost of doing activity X, the more likely activity X will be done. b. The higher the opportunity cost of doing activity X, the more likely activity X will be done. c. Changes in the opportunity cost play no role in decision making. d. The lower the opportunity cost of doing activity Y, the more likely activity X will be done. e. The higher the opportunity cost of doing activity Y, the less likely activity X will be done. 21. Why do incentives matter to economists? a. People make poor decisions when they’re given money they didn’t earn. b. Governments are the source of all incentives and there is value in studying the actions of government. c. Incentives are often the guiding principle behind greed and exploitation. d. Incentives explain how people make decisions, and are the key to understanding economics. e. Without incentives, the distinction between microeconomics and macroeconomics would be unclear. 22. Economists believe that optimal decisions are made up to the point where a. marginal benefit is zero. b. marginal cost is zero. c. marginal benefits are greater than marginal costs. d. marginal costs are greater than marginal benefits. e. marginal benefits are equal to marginal costs. 23. Who benefits from voluntary trade? a. buyers d. buyers and sellers b. sellers e. buyers and the government c. the government 24. Which is NOT one of the five foundations of economics? a. innovation d. opportunity cost b. incentives e. marginal thinking c. trade-offs 25. Which of the following is an example of an unintended consequence? a. Competition between two businesses causes each to lower prices. b. A tax rebate on electric cars results in increased household electricity consumption. c. A tax cut leads to a spike in consumer spending. d. Low interest rates encourage businesses to borrow money from banks. e. A welfare program causes individuals to purchase necessities and seek employment.