Question 1

Figure 1-6  
-Refer to Figure 1-6. Calculate the area of the trapezoid X.

Accepted Answer

A)  $361 
B)  $450 
C)  $1,020 
D)  $1,140 
A)  $361 
B)  $450 
C)  $1,020 
D)  $1,140

Question 2

What is equity, and how does it differ from efficiency?

Accepted Answer

Equity refers to the fair distribution o

Question 3

Automobile manufacturers produce a range of automobiles such as sports utility vehicles, luxury sedans, pickup trucks, and compact cars. What fundamental economic question are they addressing by making this range of products?

Accepted Answer

A)  How to produce goods that consumers want? 
B)  Why produce a variety of automobiles? 
C)  What to produce? 
D)  Who to produce automobiles for? 
A)  How to produce goods that consumers want? 
B)  Why produce a variety of automobiles? 
C)  What to produce? 
D)  Who to produce automobiles for?

Question 4

Of the following examples, which would most likely be performed by an economist working for the Federal Reserve Bank of San Francisco?

Accepted Answer

A)  using economic models to analyze crime rates in Central America 
B)  forecasting production trends in the Pacific Northwest 
C)  analyzing data related to European antitrust laws 
D)  assessing whether immigration policy has affected population numbers in Massachusetts 
A)  using economic models to analyze crime rates in Central America 
B)  forecasting production trends in the Pacific Northwest 
C)  analyzing data related to European antitrust laws 
D)  assessing whether immigration policy has affected population numbers in Massachusetts

Question 5

Assume that an additional $50,000 in benefits will be received each year if a town hires an additional police officer whose only job would be to catch drivers who drive over the speed limit on its only street. What must the additional cost of this additional police officer be to make this hiring economically rational?

Accepted Answer

The additional cost of the add

Question 6

Table 1-2
   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 extra hours the flower shop is open as shown in the table above. She would have to hire a worker for those extra hours at a wage rate of $16 per hour.
-Refer to Table 1-2. What is Thuy Anh's marginal cost if she decides to stay open for an extra three hours instead of two hours?

Accepted Answer

A)  $0 
B)  $16 
C)  $25 
D)  $32 
E)  $45 
A)  $0 
B)  $16 
C)  $25 
D)  $32 
E)  $45

Question 7

What is a mixed economy?

Accepted Answer

A mixed economy is an economy in which m

Question 8

Holding all other personal characteristics-such as age, gender, and income-constant, economists would expect that

Accepted Answer

A)  people with health insurance are less likely to be overweight than people without health insurance. 
B)  people with health insurance are more likely to be overweight than people without health insurance. 
C)  people with health insurance are equally likely to be overweight as people without health insurance. 
D)  there is no correlation between having health insurance and being overweight. 
A)  people with health insurance are less likely to be overweight than people without health insurance. 
B)  people with health insurance are more likely to be overweight than people without health insurance. 
C)  people with health insurance are equally likely to be overweight as people without health insurance. 
D)  there is no correlation between having health insurance and being overweight.

Question 9

Arlene quits her $125,000-a-year job to take care of her ailing parents. What is the opportunity cost of her decision?

Accepted Answer

A)  zero, since she will no longer be earning a salary 
B)  It depends on the "going rate" for home-care providers. 
C)  at least $125,000 
D)  the value she attributes to the satisfaction she receives from taking care of her parents 
A)  zero, since she will no longer be earning a salary 
B)  It depends on the "going rate" for home-care providers. 
C)  at least $125,000 
D)  the value she attributes to the satisfaction she receives from taking care of her parents

Question 10

List the four main factors of production.

Accepted Answer

The four main factors of produ

Question 11

Which of the following is a microeconomic question?

Accepted Answer

A)  Why do economies experience periods of high inflation? 
B)  Will Federal Reserve intervention lower the inflation rate? 
C)  Why has growth in the economy increased since the end of the recession? 
D)  Will the merger of American Airlines and US Airways increase or decrease airfares? 
A)  Why do economies experience periods of high inflation? 
B)  Will Federal Reserve intervention lower the inflation rate? 
C)  Why has growth in the economy increased since the end of the recession? 
D)  Will the merger of American Airlines and US Airways increase or decrease airfares?

Question 12

Ford assembles some cars in Mexico because the lower wages the company pays to Mexican workers and the lower prices it pays for auto parts in Mexico reduces Ford's costs. This is an example of Ford reacting to which of the three key economic ideas?

Accepted Answer

A)  People are rational. 
B)  People respond to economic incentives. 
C)  Optimal decisions are made at the margin. 
D)  Firms attempt to maximize revenues. 
A)  People are rational. 
B)  People respond to economic incentives. 
C)  Optimal decisions are made at the margin. 
D)  Firms attempt to maximize revenues.

Question 13

What is a household? How do households interact with firms in a market?

Accepted Answer

A household consists of all pe

Question 14

The prevalence of Alzheimer's dementia is very high among residents living in nursing homes. A student concludes that it is likely that living in a nursing home causes Alzheimer's dementia. What is the flaw in the student's reasoning?

Accepted Answer

A)  The student has failed to take into account other causes of Alzheimer's disease. 
B)  The student is drawing a false conclusion; he is confusing cause and effect. 
C)  The student is using an inadequate sample size. 
D)  The student is drawing a false conclusion by making the mistake of omitting critical variables such as the age and gender of the residents. 
A)  The student has failed to take into account other causes of Alzheimer's disease. 
B)  The student is drawing a false conclusion; he is confusing cause and effect. 
C)  The student is using an inadequate sample size. 
D)  The student is drawing a false conclusion by making the mistake of omitting critical variables such as the age and gender of the residents.

Question 15

The basic economic problem of ________ has always existed and will continue to exist.

Accepted Answer

A)  scarcity 
B)  efficiency 
C)  inflation 
D)  recession 
A)  scarcity 
B)  efficiency 
C)  inflation 
D)  recession

Question 16

Allocative efficiency is achieved when

Accepted Answer

A)  goods and services are fairly distributed among consumers in an economy. 
B)  firms produce the goods and services that consumers value most. 
C)  firms produce goods and services at the lowest cost. 
D)  there are no shortages or surpluses in the market. 
A)  goods and services are fairly distributed among consumers in an economy. 
B)  firms produce the goods and services that consumers value most. 
C)  firms produce goods and services at the lowest cost. 
D)  there are no shortages or surpluses in the market.

Question 17

Suppose that to move more people off the wait list for organ donations, surgeons and hospitals are developing a market for organ swapping. This is an example of a macroeconomic topic.

Accepted Answer

A) True 
 B)False

Question 18

________ involves undertaking an activity until its marginal benefits equal marginal costs.

Accepted Answer

A)  Scarcity reduction 
B)  Central planning 
C)  Marginal analysis 
D)  Market intervention 
A)  Scarcity reduction 
B)  Central planning 
C)  Marginal analysis 
D)  Market intervention

Question 19

Scenario 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."

-Refer to Scenario 1-2. Using marginal analysis terminology, another economic term for the incremental cost of producing the last 300 hats is

Accepted Answer

A)  marginal cost. 
B)  operating cost. 
C)  explicit cost. 
D)  Any of the above terms are correct. 
A)  marginal cost. 
B)  operating cost. 
C)  explicit cost. 
D)  Any of the above terms are correct.

Question 20

When voluntary exchange takes place, neither party gains from the exchange.

Accepted Answer

A) True 
 B)False

Exam 1: Economics: Foundations and Models

Figure 1-6 -Refer to Figure 1-6. Calculate the area of the trapezoid X.

What is equity, and how does it differ from efficiency?

Automobile manufacturers produce a range of automobiles such as sports utility vehicles, luxury sedans, pickup trucks, and compact cars. What fundamental economic question are they addressing by making this range of products?

Of the following examples, which would most likely be performed by an economist working for the Federal Reserve Bank of San Francisco?

What is a mixed economy?

Holding all other personal characteristics-such as age, gender, and income-constant, economists would expect that

Arlene quits her $125,000-a-year job to take care of her ailing parents. What is the opportunity cost of her decision?

List the four main factors of production.

Which of the following is a microeconomic question?

Ford assembles some cars in Mexico because the lower wages the company pays to Mexican workers and the lower prices it pays for auto parts in Mexico reduces Ford's costs. This is an example of Ford reacting to which of the three key economic ideas?

What is a household? How do households interact with firms in a market?

The prevalence of Alzheimer's dementia is very high among residents living in nursing homes. A student concludes that it is likely that living in a nursing home causes Alzheimer's dementia. What is the flaw in the student's reasoning?

The basic economic problem of ________ has always existed and will continue to exist.

Allocative efficiency is achieved when

Suppose that to move more people off the wait list for organ donations, surgeons and hospitals are developing a market for organ swapping. This is an example of a macroeconomic topic.

________ involves undertaking an activity until its marginal benefits equal marginal costs.

When voluntary exchange takes place, neither party gains from the exchange.

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

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