(Test Bank) Economics: Foundations and Models

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Chapter 1 Economics: Foundations and Models 1.1 Three Key Economic Ideas 1) Recent changes occurring within the U.S. health care system, including lower insurance reimbursement rates, have resulted in A) a growing number of doctor's choosing to open private practices. B) more medical practices being owned by hospitals than by individual doctors. C) a majority of hospitals closing routine medical practices in order to focus only on emergency care facilities. D) a majority of doctors working directly for insurance companies. Answer: B Diff: 2 Page Ref: 3 Topic: Scarcity Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking Special Feature: Chapter Opener: Is the Private Doctor's Office Going to Disappear? 2) In economics, choices must be made because we live in a world of A) unemployment. B) scarcity. C) greed. D) unlimited resources. Answer: B Diff: 1 Page Ref: 4 Topic: Scarcity *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking 3) Which of the following statements is true about scarcity? A) Scarcity refers to the situation in which unlimited wants exceed limited resources. B) Scarcity is not a problem for the wealthy. C) Scarcity is only a problem when a country has too large a population. D) Scarcity arises when there is a wide disparity in income distribution. Answer: A Diff: 1 Page Ref: 4 Topic: Scarcity *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking4) The basic economic problem of ________ has always existed and will continue to exist. A) scarcity B) efficiency C) inflation D) recession Answer: A Diff: 1 Page Ref: 4 Topic: Scarcity *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking 5) By definition, economics is the study of A) how to make money in the stock market. B) how to make money in a market economy. C) the choices people make to attain their goals, given their scarce resources. D) supply and demand. Answer: C Diff: 1 Page Ref: 4 Topic: Scarcity *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking 6) An economic ________ is a simplified version of some aspect of economic life used to analyze an economic issue. A) market B) trade-off C) variable D) model Answer: D Diff: 1 Page Ref: 4 Topic: Economic Models *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking7) Where do economic agents such as individuals, firms and nations, interact with each other? A) in public locations monitored by the government B) in any arena that brings together buyers and sellers C) in any physical location people where people can physically get together for selling goods, such as shopping malls D) in any location where transactions can be monitored by consumer groups and taxed by the government Answer: B Diff: 1 Page Ref: 4 Topic: Markets *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking 8) The term ________ in economics refers to a group of buyers and sellers of a product and the arrangement by which they come together to trade. A) collective B) cooperative C) market D) trade-off Answer: C Diff: 1 Page Ref: 4 Topic: Markets *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking 9) Economists assume that individuals A) behave in unpredictable ways. B) will never take actions to help others. C) prefer to live in a society that values fairness above all else. D) are rational and respond to incentives. Answer: D Diff: 1 Page Ref: 5 Topic: People Are Rational *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking10) Economists assume that rational behavior is useful in explaining choices people make A) because irrational people do not make economic choices. B) even though people may not behave rationally all the time. C) because individuals act rationally all the time in all circumstances. D) even though people rarely, if ever, behave in a rational manner. Answer: B Diff: 2 Page Ref: 5 Topic: People Are Rational *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking 11) Economists assume that rational people do all of the following except A) use all available information as they act to achieve their goals. B) undertake activities that benefit others and hurt themselves. C) weigh the benefits and costs of all possible alternative actions. D) respond to economic incentives. Answer: B Diff: 2 Page Ref: 5 Topic: People Are Rational *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking 12) Economics does not study correct or incorrect behaviors but rather it assumes that economic agents behave ________, meaning they make the best decisions given their knowledge of the costs and benefits. A) equitably B) rationally C) emotionally D) selfishly Answer: B Diff: 2 Page Ref: 5 Topic: People Are Rational *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking13) Consider the following statements: a. Car owners purchase more gasoline from a gas station that sells gasoline at a lower price than other rival gas stations in the area. b. Banks do not take steps to increase security since they believe it is less costly to allow some bank robberies than to install expensive security monitoring equipment. c. Firms produce more of a particular DVD when its selling price rises. Which of the above statements demonstrates that economic agents respond to incentives? A) a only. B) b only. C) c only. D) a and b. E) a, b, and c. Answer: E Diff: 3 Page Ref: 5 Topic: People Respond to Economic Incentives *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking 14) Suppose that some teachers have decided that economic and financial uncertainty have made the prospect of retiring more risky, and therefore carry a higher cost than not retiring. By using all available information as they act to achieve their goals, these teachers are exemplifying the economic idea that A) people are rational. B) people respond to economic incentives. C) optimal decisions are made at the margin. D) equity is more important than efficiency. Answer: A Diff: 2 Page Ref: 5 Topic: People Are Rational *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking15) Suppose that some investors have decided that economic and financial uncertainty have made the prospect of investing in domestic stock markets more risky than investing in foreign stock markets, and therefore choose to invest in foreign markets. By using all available information as they act to achieve their goals, these investors are exemplifying the economic idea that A) people are rational. B) people respond to economic incentives. C) optimal decisions are made at the margin. D) equity is more important than efficiency. Answer: A Diff: 2 Page Ref: 5 Topic: People Are Rational *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking 16) Suppose the U.S. government encouraged new medical school graduates to take over existing practices from doctors wishing to retire by paying both the new and retiring doctors $100,000. These doctors would be exemplifying the economic idea that A) people are rational. B) people respond to economic incentives. C) optimal decisions are made at the margin. D) equity is more important than efficiency. Answer: B Diff: 2 Page Ref: 5 Topic: People Respond to Economic Incentives *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking 17) Suppose the U.S. government encouraged consumers to trade in their old automobiles for more efficient, new models by paying up to $5,000 for the old automobiles. These consumers would be exemplifying the economic idea that A) people are rational. B) people respond to economic incentives. C) optimal decisions are made at the margin. D) equity is more important than efficiency. Answer: B Diff: 2 Page Ref: 5 Topic: People Respond to Economic Incentives *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking18) Holding all other personal characteristics-such as age, gender, and income-constant, economists would expect that A) people with health insurance will be less likely to be overweight than people without health insurance. B) people with health insurance will be more likely to be overweight than people without health insurance. C) people with health insurance will be equally likely to be overweight as people without health insurance. D) there is no correlation between having health insurance and being overweight. Answer: B Diff: 2 Page Ref: 5-7 Topic: People Respond to Economic Incentives Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking Special Feature: Making the Connection: Does Health Insurance Give People an Incentive to Become Obese? 19) Since 1994, obesity rates in the United States A) have been on a slow and steady decline. B) have increased in all 50 states. C) have primarily increased in the Southeast and remained constant or slightly decreased in the remainder of the country. D) have remained fairly constant throughout the country. Answer: B Diff: 1 Page Ref: 5-7 Topic: People Respond to Economic Incentives Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist Special Feature: Making the Connection: Does Health Insurance Give People an Incentive to Become Obese? 20) In economics, the term ________ means "additional" or "extra." A) allocative B) marginal C) equity D) optimal Answer: B Diff: 1 Page Ref: 7 Topic: Optimal Decisions Are Made at the Margin *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking21) A grocery store sells a bag of potatoes at a fixed price of $2.30. Which of the following is a term used by economists to describe the money received from the sale of an additional bag of potatoes? A) marginal revenue B) gross earnings C) pure profit D) marginal costs E) net benefit Answer: A Diff: 1 Page Ref: 7 Topic: Optimal Decisions Are Made at the Margin *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking 22) Economists reason that the optimal decision is to continue any activity up to the point where the A) marginal benefit is zero. B) marginal benefit is greater than the marginal cost. C) marginal cost is zero. D) marginal benefit equals the marginal cost. Answer: D Diff: 2 Page Ref: 7 Topic: Optimal Decisions Are Made at the Margin *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking 23) Marginal analysis involves undertaking an activity A) until its marginal costs start declining. B) only when its marginal benefits are positive. C) until its marginal benefits equal marginal costs. D) only if its marginal costs are greater than its marginal benefits. Answer: C Diff: 1 Page Ref: 7 Topic: Optimal Decisions Are Made at the Margin *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking24) The revenue received from the sale of ________ of a product is a marginal benefit to the firm. A) an additional unit B) the total number of units C) no units D) only profitable units Answer: A Diff: 2 Page Ref: 7 Topic: Optimal Decisions Are Made at the Margin *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking 25) Making optimal decisions "at the margin" requires A) making decisions according to one's whims and fancies. B) making consistently irrational decisions. C) weighing the costs and benefits of a decision before deciding if it should be pursued. D) making borderline decisions. Answer: C Diff: 1 Page Ref: 7 Topic: Optimal Decisions Are Made at the Margin *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking 26) Making "how much" decisions involve A) calculating the total benefits of the activity and determining if you are satisfied with that amount. B) calculating the total costs of the activity and determining if you can afford to incur that expenditure. C) calculating the average benefit and the average cost of an activity to determine if it is worthwhile undertaking that activity. D) determining the additional benefits and the additional costs of that activity. Answer: D Diff: 2 Page Ref: 7 Topic: Optimal Decisions Are Made at the Margin *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking27) The extra cost associated with undertaking an activity is called A) net loss. B) marginal cost. C) opportunity cost. D) foregone cost. Answer: B Diff: 1 Page Ref: 7 Topic: Optimal Decisions Are Made at the Margin *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking 28) DeShawn's Detailing is a service that details cars at the customers' homes or places of work. DeShawn's cost for a basic detailing package is $40, and he charges $75 for this service. For a total price of $90, DeShawn will also detail the car's engine, a service that adds an additional $20 to the total cost of the package. What is DeShawn's marginal benefit if he sells a basic detailing package? A) $35 B) $75 C) He makes a marginal loss of $15, not a marginal benefit. D) The marginal benefit cannot be determined. Answer: B Diff: 2 Page Ref: 7 Topic: Optimal Decisions Are Made at the Margin *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking 29) DeShawn's Detailing is a service that details cars at the customers' homes or places of work. DeShawn's cost for a basic detailing package is $40, and he charges $75 for this service. For a total price of $90, DeShawn will also detail the car's engine, a service that adds an additional $20 to the total cost of the package. What is the marginal cost of adding the engine detailing to the basic detailing package? A) $20 B) $30 C) $60 D) $60 plus the value of his time Answer: A Diff: 2 Page Ref: 7 Topic: Optimal Decisions Are Made at the Margin *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking30) DeShawn's Detailing is a service that details cars at the customers' homes or places of work. DeShawn's cost for a basic detailing package is $40, and he charges $75 for this service. For a total price of $90, DeShawn will also detail the car's engine, a service that adds an additional $20 to the total cost of the package. Should DeShawn continue to offer the engine detailing service? A) Yes, he still makes a profit by selling the engine detailing service with the basic detailing package. B) Yes, but only if he raises the price of the basic detailing package. C) No, his marginal benefit is less than his marginal cost. D) More information is needed for DeShawn to make this decision. Answer: C Diff: 3 Page Ref: 7 Topic: Optimal Decisions Are Made at the Margin *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking 31) Allison's Auto Art is a company that applies pinstripes to vehicles. Allison's cost for a basic 1-color pinstriping job is $35, and she charges $95 for this service. For a total price of $175, Allison will apply a fancier 3-color pinstripe application to an automobile, a service that adds an additional $40 to the total cost of the package. What is Allison's marginal benefit if she sells a basic 1-color job? A) $35 B) $60 C) $95 D) The marginal benefit cannot be determined. Answer: C Diff: 2 Page Ref: 7 Topic: Optimal Decisions Are Made at the Margin *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking32) Allison's Auto Art is a company that applies pinstripes to vehicles. Allison's cost for a basic 1-color pinstriping job is $35, and she charges $95 for this service. For a total price of $175, Allison will apply a fancier 3-color pinstripe application to an automobile, a service that adds an additional $40 to the total cost of the package. What is the marginal cost of moving up from the 1-color application to the 3-color application? A) $35 B) $40 C) $80 D) $175 Answer: B Diff: 2 Page Ref: 7 Topic: Optimal Decisions Are Made at the Margin *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking 33) Allison's Auto Art is a company that applies pinstripes to vehicles. Allison's cost for a basic 1-color pinstriping job is $35, and she charges $95 for this service. For a total price of $175, Allison will apply a fancier 3-color pinstripe application to an automobile, a service that adds an additional $40 to the total cost of the package. Should Allison continue to offer the 3-color pinstripe application? A) Yes, she still makes a profit by selling the 3-color application. B) Yes, but only if she lowers the price of the 1-color application. C) No, her marginal benefit is less than her marginal cost. D) More information is needed for Allison to make this decision. Answer: A Diff: 3 Page Ref: 7 Topic: Optimal Decisions Are Made at the Margin *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinkingScenario 1-1 Suppose a cell phone manufacturer currently sells 20,000 cell phones per week and makes a profit of $5,000 per week. A manager at the plant observes, "Although the last 3,000 cell phones we produced and sold increased our revenue by $6,000 and our costs by $6,700, we are still making an overall profit of $5,000 per week so I think we're on the right track. We are producing the optimal number of cell phones." 34) Refer to Scenario 1-1. Using marginal analysis terminology, what is another economic term for the incremental revenue received from the sale of the last 3,000 cell phones? A) gross earnings B) marginal revenue C) sales revenue D) gross profit Answer: B Diff: 1 Page Ref: 7 Topic: Optimal Decisions Are Made at the Margin *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking 35) Refer to Scenario 1-1 . Using marginal analysis terminology, what is another economic term for the incremental cost of producing the last 3,000 cell phones? A) marginal cost B) operating cost C) explicit cost D) Any of the above terms are correct. Answer: A Diff: 1 Page Ref: 7 Topic: Optimal Decisions Are Made at the Margin *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking36) Refer to Scenario 1-1. Had the firm not produced and sold the last 3,000 cell phones, would its profit be higher or lower, and if so by how much? A) Its profit will be $6,700 higher. B) Its profit will be $700 higher. C) Its profit will be $700 lower. D) Its profit will be $6,000 lower. Answer: B Diff: 2 Page Ref: 7 Topic: Optimal Decisions Are Made at the Margin *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking T able 1-1 Hours Open Total Revenue (dollars) 1 $50 2 75 3 95 4 110 5 120 6 125 Lydia runs a small nail salon in the town of New Hope. She is debating whether she should extend her hours of operation. Lydia figures that her sales revenue will depend on the number of hours the nail salon is open as shown in the table above. She would have to hire a worker for those hours at a wage rate of $10 per hour. 37) Refer to Table 1-1. Using marginal analysis, how many hours should Lydia extend her nail salon's hours of operations? A) 2 hours B) 3 hours C) 4 hours D) 5 hours E) 6 hours Answer: D Diff: 3 Page Ref: 7 Topic: Optimal Decisions Are Made at the Margin *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking38) Refer to Table 1-1. What is Lydia's marginal benefit if she decides to stay open for two hours instead of one hour? A) $25 B) $50 C) $75 D) $125 Answer: A Diff: 2 Page Ref: 7 Topic: Optimal Decisions Are Made at the Margin *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking 39) Refer to Table 1-1. What is Lydia's marginal cost if she decides to stay open for two hours instead of one hour? A) $10 B) $20 C) $25 D) $40 Answer: A Diff: 2 Page Ref: 7 Topic: Optimal Decisions Are Made at the Margin *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinkingT able 1-2 Hours OpenTotal Revenue (dollars) 1 $25 2 45 3 70 4 90 5 105 6 110 Thuy Anh runs a small flower shop in the town of Florabunda. She is debating whether she should extend her hours of operation. Thuy Anh figures that her sales revenue will depend on the number of hours the flower shop is open as shown in the table above. She would have to hire a worker for those hours at a wage rate of $16 per hour. 40) Refer to Table 1-2. Using marginal analysis, how many hours should Thuy Anh extend her flower shop's hours of operations? A) 2 hours B) 3 hours C) 4 hours D) 5 hours E) 6 hours Answer: C Diff: 3 Page Ref: 7 Topic: Optimal Decisions Are Made at the Margin *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking 41) Refer to Table 1-2. What is Thuy Anh's marginal benefit if she decides to stay open for three hours instead of two hours? A) $0 B) $20 C) $25 D) $45 E) $70 Answer: C Diff: 2 Page Ref: 7 Topic: Optimal Decisions Are Made at the Margin *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking42) Refer to Table 1-2. What is Thuy Anh's marginal cost if she decides to stay open for three hours instead of two hours? A) $0 B) $16 C) $25 D) $32 E) $45 Answer: B Diff: 2 Page Ref: 7 Topic: Optimal Decisions Are Made at the Margin *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking 43) Soo Jin shares a one-bedroom apartment with her classmate. Her share of the rent is $700 per month. She is considering moving to a studio apartment which she will not have to share with anyone. The studio apartment rents for $950 per month. Recently, you ran into Soo Jin on campus and she tells you that she has moved into the studio apartment. Soo Jin is as rational as any other person. As an economics major, you rightly conclude that A) Soo Jin did not have a choice; her roommate was a slob. B) Soo Jin figures that the additional benefit of having her own place (as opposed to sharing) is at least $250. C) Soo Jin figures that the benefit of having her own place (as opposed to sharing) is at least $950. D) the cost of having one's own space outweighs the benefits. Answer: B Diff: 2 Page Ref: 7 Topic: Optimal Decisions Are Made at the Margin *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking 44) If the marginal cost of keeping a doctor's office open one additional hour per day is $200, then the doctor should keep the office open for one extra hour A) only if the marginal benefit she receives is greater than $200 plus an acceptable profit margin. B) as long as the marginal benefit she receives is just equal to or greater than $200. C) as long as the marginal cost does not rise. D) until the marginal benefit she receives reaches zero. Answer: B Diff: 2 Page Ref: 7-8 Topic: Optimal Decisions Are Made at the Margin Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking Special Feature: Solved Problem: A Doctor Makes a Decision at the Margin45) Consider the following statements: a. Consumers buy more MP3 players from an electronics store that sells MP3 players at a lower price than other rival electronics stores in the area. b. Schools take steps to increase security since they believe it is more costly to allow vandalism than to hire additional security guards. c. Citrus growers produce more oranges when the selling price of oranges falls. Which of the above statements demonstrates that economic agents respond to incentives? A) a only. B) b only. C) c only. D) a and b. E) a, b, and c. Answer: D Diff: 2 Page Ref: 5 Topic: People Respond to Economic Incentives *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking 46) A restaurant sells a large soft drink at a fixed price of $1.79. A term used by economists to describe the money received from the sale of an additional large soft drink is A) marginal revenue. B) gross earnings. C) pure profit. D) net benefit. Answer: A Diff: 1 Page Ref: 7 Topic: Optimal Decisions Are Made at the Margin *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking47) The ________ the sale of an additional unit of a product is a marginal benefit to the firm. A) revenue received from B) extra cost of C) total value of D) sales tax on Answer: A Diff: 2 Page Ref: 7 Topic: Optimal Decisions Are Made at the Margin *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking 48) Which of the following is an example of a "how much" decision? A) Dinah's Diner is only open for breakfast and lunch. Dinah is trying to decide whether to open for dinner as well.. B) Zander has torn up his front yard and is debating whether to plant grass or install a rock garden.. C) You received a nice birthday check from your grandmother and are deciding on whether to spend it on a trip to New York or a trip to San Francisco. D) Sergio quit his job to go back to school full time. Answer: A Diff: 2 Page Ref: 7 Topic: Optimal Decisions Are Made at the Margin *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking 49) Pookie's Pinball Palace restores old Pinball machines. Pookie has just spent $300 purchasing and cleaning a 1960s-era machine which he expects to sell for $2,000 once he is finished with the restoration. After having spent $300, Pookie discovers that he will need to rewire the entire machine at a cost of $1,100 in order to finish the restoration. Alternatively, he can sell the machine "as is" now for $1,000. What is his marginal benefit if he sells the machine "as is" now? A) $300 B) $900 C) $1,000 D) The marginal benefit cannot be determined. Answer: C Diff: 2 Page Ref: 7 Topic: Optimal Decisions Are Made at the Margin *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking50) Pookie's Pinball Palace restores old Pinball machines. Pookie has just spent $300 purchasing and cleaning a 1960s-era machine which he expects to sell for $2,000 once he is finished with the restoration. After having spent $300, Pookie discovers that he will need to rewire the entire machine at a cost of $1,100 in order to finish the restoration. Alternatively, he can sell the machine "as is" now for $1,000. What is the marginal cost of completing the task? A) $300 B) $800 C) $1,100 D) $1,400 Answer: C Diff: 2 Page Ref: 7 Topic: Optimal Decisions Are Made at the Margin *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking 51) Pookie's Pinball Palace restores old Pinball machines. Pookie has just spent $300 purchasing and cleaning a 1960s-era machine which he expects to sell for $2,000 once he is finished with the restoration. After having spent $300, Pookie discovers that he will need to rewire the entire machine at a cost of $1,100 in order to finish the restoration. Alternatively, he can sell the machine "as is" now for $1,000. What should he do? A) He should sell the machine now to make the most profit. B) It does not matter what he does; he is going to take a loss on his project. C) He should rewire the machine, complete the task and then sell the machine. D) He should have never purchased the machine because he has already spent too much time on it and has not been paid for that time. Answer: A Diff: 3 Page Ref: 7 Topic: Optimal Decisions Are Made at the Margin *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinkingScenario 1-2 Suppose a hat manufacturer currently sells 2,000 hats per week and makes a profit of $5,000 per week. The plant owner observes, "Although the last 300 hats we produced and sold increased our revenue by $1,000 and our costs by $1,100, we are still making an overall profit of $5,000 per week so I think we're on the right track. We are producing the optimal number of hats." 52) Refer to Scenario 1-2. Using marginal analysis terminology, another economic term for the incremental revenue received from the sale of the last 300 hats is A) gross earnings. B) marginal revenue. C) sales revenue. D) gross profit. Answer: B Diff: 1 Page Ref: 7 Topic: Optimal Decisions Are Made at the Margin *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking 53) Refer to Scenario 1-2 . Using marginal analysis terminology, another economic term for the incremental cost of producing the last 300 hats is A) marginal cost. B) operating cost. C) explicit cost. D) Any of the above terms are correct. Answer: A Diff: 1 Page Ref: 7 Topic: Optimal Decisions Are Made at the Margin *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking 54) Refer to Scenario 1-2. Had the firm not produced and sold the last 300 hats, would its profit be higher or lower, and if so by how much? A) Its profit will be $1,100 higher. B) Its profit will be $100 higher. C) Its profit will be $100 lower. D) Its profit will be $1,000 lower. Answer: B Diff: 2 Page Ref: 7 Topic: Optimal Decisions Are Made at the Margin *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economistAACSB: Analytic thinking T able 1-3 Hours Open Total Revenue (dollars) 1 $70 2 120 3 160 4 184 5 200 6 210 Santiago runs a comic book store in the town of East Arbor. He is debating whether he should extend his hours of operation. Santiago figures that his sales revenue will depend on the number of hours the store is open as shown in the table above. He would have to hire a worker for those hours at a wage rate of $18 per hour. 55) Refer to Table 1-3. Using marginal analysis, determine how many hours should Santiago extend his store's hours of operations? A) 2 hours B) 3 hours C) 4 hours D) 5 hours E) 6 hours Answer: C Diff: 3 Page Ref: 7 Topic: Optimal Decisions Are Made at the Margin *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking 56) Refer to Table 1-3. What is Santiago's marginal benefit if he decides to stay open for two hours instead of one hour? A) $40 B) $50 C) $120 D) $190 Answer: B Diff: 2 Page Ref: 7 Topic: Optimal Decisions Are Made at the Margin *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking57) Refer to Table 1-3. What is Santiago's marginal cost if he decides to stay open for two hours instead of one hour? A) $18 B) $36 C) $38 D) $102 Answer: A Diff: 2 Page Ref: 7 Topic: Optimal Decisions Are Made at the Margin *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking 58) Damian shares a small food truck with his sister. His share of the expenses is $500 per month. He has decided to get his own, newer food truck which he will not have to share with anyone. His expenses for the newer truck are $1,400 per month. Damian is as rational as any other person. As an economics major, you rightly conclude that A) Damian cannot afford the newer truck and will have to go back to sharing a truck with his sister. B) Damian figures that the additional benefit of having his own truck (as opposed to sharing) is at least $900. C) Damian figures that the benefit of having his own truck (as opposed to sharing) is at least $1,400. D) the cost of having one's own truck outweighs the benefits. Answer: B Diff: 2 Page Ref: 7 Topic: Optimal Decisions Are Made at the Margin *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking 59) As recently as 2000, ________ percent of doctors were in private practice and by 2013, ________ percent of doctors were in private practice. A) only 20; more than 70 B) nearly 60; less than 40 C) about 50; about 50 D) over 80; less than 15 Answer: B Diff: 1 Page Ref: 3 Topic: Scarcity Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking Special Feature: Chapter Opener: Is the Private Doctor's Office Going to Disappear?60) The study of economics arises due to A) money. B) scarcity. C) greed. D) resources. Answer: B Diff: 1 Page Ref: 4 Topic: Scarcity *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking 61) Scarcity refers to the situation in which A) unlimited wants exceed limited resources. B) unlimited resources exceed limited wants. C) a country's population is larger than its resource base. D) a nation's poverty level increases faster than its population. Answer: A Diff: 1 Page Ref: 4 Topic: Scarcity *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking 62) The basic economic problem of scarcity A) has always existed and will continue to exist. B) will eventually disappear as technology continues to advance. C) is a problem only in developing economies. D) does not apply to the wealthy in society. Answer: A Diff: 1 Page Ref: 4 Topic: Scarcity *: Recurring Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to think like an economist AACSB: Analytic thinking