HW 1 - Micro MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) When Fresh Express Salads decides to mechanically pick all of its lettuce, it directly answers the question. A) how B) for whom C) what D) when E) where 1) 2) A choice made by comparing all relevant alternatives systematically and incrementally is 2) A) a sunk cost. B) an opportunity cost. C) a benefit. D) a choice on the margin. E) a choice made in the social interest. 3) Which of the following statements best describes the study of economics? Economics studies how 3) A) businesses reach decisions. B) to organize production so that scarcity does not occur. C) we make choices in the face of scarcity. D) firms make profits. E) to create incentives so that scarcity does not exist. 4) When the federal government decides to pay senators more than it pays soldiers, it answers the question. A) why B) where C) how D) what E) for whom 4) 5) Ceteris paribus when graphing a relationship refers to 5) A) holding constant all but two variables. B) rescaling the coordinates. C) swapping the axises so that the x-axis is the vertical axis and the y-axis is the horizontal axis. D) changing the origin of the graph. E) letting all the variables change at once. 6) Which of the following is a microeconomic topic? i. K-Mart's decision to close stores that are not making a profit ii. Home Depot's choice to hire more full-time employees because its sales increased iii. Delta Airlines changes its fares A) ii only. B) i, ii, and iii. C) ii and iii. D) i only. E) i and iii. 6) 7) Decision making on the margin involves 7) A) determining the total benefits of a decision. B) eliminating the additional cost when making a decision. C) comparing the total cost and the total benefit when making a decision. D) comparing the marginal cost and marginal benefits when making a decision. E) comparing the benefits from the social interest to the benefits from the person's self-interest. 1
8) An example of a public good or service provided by the federal government is 8) A) space exploration. B) garbage collection. C) regulating gasoline prices. D) setting each state government's budget. E) determining the number of doctors admitted to medical school. 9) Within the circular flow, 9) A) firms own the factors of production and households choose the quantities of the factors to hire. B) households own the factors of production and firms choose the quantities of the factors to hire. C) neither households nor firms own anything because both must rent the factors of production. D) households and firms both own factors of production, though firms make the decisions about the quantities to hire. E) households and firms both own factors of production, though households make the decisions about the quantities to hire. 10) The productive resource that includes work time and work effort is called 10) A) labor. B) entrepreneurship. C) land. D) human capital. E) capital. 11) A bowed out production possibilities frontier shows 11) A) that resources are equally productive in all uses. B) increasing opportunity cost. C) that resources are not equally productive in all uses. D) Both answers B and C are correct. E) Both answers A and B are correct. 2
12) The figure above shows the production possibilities frontier for a country. In order for it to move from producing at point A to producing at point B, the country would need to incur an opportunity cost of A) 3 million SUVs. B) 4 million SUVs. C) 1 million SUVs. D) 3 million compact cars. E) 0 because the gain in compact cars exceeds the loss in SUVs. 12) 13) Which of the following statements is correct? 13) A) Any point on or within the PPF is production efficient. B) If capital is idle, the economy is producing at its full potential. C) The production possibilities frontier shows that there are no limits to production. D) A tradeoff is a limit that forces an exchange or a substitution of one thing for something else. E) None of the above answers are correct. 14) In a production possibilities frontier diagram, the attainable production points are shown as 14) A) any of the production points. B) only the points inside the production possibilities frontier. C) the points inside and the points on the production possibilities frontier. D) only the points beyond the production possibilities frontier. E) only the points on the production possibilities frontier. 3
15) In an effort to protect endangered species from the effects of logging in America's national forests, the federal government passes a law prohibiting logging in most of the state of Washington. Which of the figures above best illustrates the effect of this new law? A) Figure A B) Figure B C) Figure C D) Figure D E) None of the above because a prohibition cannot be illustrated using demand and supply figures. 15) 4
16) Pizza is a normal good. In the above figure, the shift in the demand curve from D to D2 can be the result of A) a decrease in income. B) an increase in the cost of producing pizza. C) an increase in the price of hamburgers, a substitute for pizza. D) a decrease in the price of soda, a complement to pizza. E) a study that shows that pizza is a very healthy food. 16) 17) Suppose that people decide riding scooters is no longer fun. The equilibrium price of a scooter and the equilibrium quantity of scooters. A) falls; decreases B) does not change; decreases C) rises; increases D) rises; decreases E) falls; increases 17) 18) Which of the following increases the demand for a good or service? 18) A) a fall in the price of the good or service B) a rise in the price of a substitute good or service C) a rise in the price of the good or service D) a rise in the price of a complement E) a smaller number of consumers wanting to buy the good or service 19) Suppose you take a trip during Spring Break. To determine the benefit of taking the trip, you 19) A) determine the sunk cost of taking the trip. B) calculate the value of the next best alternative foregone. C) measure what you are willing to give up to take the trip. D) calculate the opportunity cost of the trip. E) must measure what the trip is worth to you and then subtract the cost of the trip. 5
20) Computers and insurance coverage that are sold to people in other nations are categorized as 20) A) capital goods. B) government goods and services. C) imports of goods and services. D) exports of goods and services. E) consumption goods and services. 21) Which of the following levels of government are part of the circular flow diagram? i) federal ii) state iii) local A) i only. B) i, ii and iii. C) i and iii. D) i and ii. E) ii and iii. 21) Possibility Robots A 0 B 1 C 2 D 3 E 4 F 5 G 6 Pizza 40 39 37 34 30 20 0 22) The table above shows a nation's production possibilities frontier. The opportunity cost of a robot between combination D and E is A) 34 pizzas. B) 1/4 of a pizza. C) 30 pizzas. D) 4 pizzas. E) undefined because neither point is production efficient. 22) 6
23) In the above figure, Jack's opportunity cost of producing 1 gallon of bottled water is of soda. A) 2 gallons B) 6 gallons C) 1 gallon D) 1/2 of a gallon E) 1/4 of a gallon 23) 24) Car insurance and cars are complements. If the price of car insurance increases, the 24) A) quantity of cars demanded increases. B) demand for cars decreases. C) demand for cars increases. D) quantity of cars demanded decreases. E) More information is needed to determine if the demand increases or decreases. 25) Suppose you paid $400 tuition for a three-credit course. After the official withdrawal date has elapsed, you decide to drop the course but you cannot get back your $400. At this time, the $400 is A) the opportunity cost of the course. B) the marginal cost of the course. C) an expenditure made on the margin. D) the benefit of earning three credits. E) a sunk cost. 25) 7
26) Gabriel operates a ranch in Idaho where he raises cattle and grows potatoes. The figure above illustrates his production possibilities frontier. What is Gabriel's opportunity cost of raising another 100 cows? A) 5.0 tons of potatoes B) 100 cows C) 1.0 ton of potatoes D) 3.0 tons of potatoes E) 1.25 tons of potatoes 26) 27) Which of the following describes the law of demand? When other things remain the same, as 27) A) your income increases, you'll buy more hamburgers. B) the price of gas falls, the quantity demanded of gas increases. C) more people decide to eat pizza, the demand for pizza increases. D) the quantity demanded of bread increases, the price of bread falls. E) the price of peanut butter increases, the quantity demanded of jelly decreases. 28) Which of the following is a macroeconomic issue? 28) A) The National Football League signs a new television contract. B) The Iowa corn harvest is smaller than normal. C) The price of a ticket to Walt Disney World in Orlando is increased. D) Utilities are required to install more anti-pollution devices. E) The number of jobs and production in Zimbabwe increase. 29) Which of the following is NOT shown explicitly in the circular flow model? 29) A) the governments' purchases in the goods market B) the transfers the governments make to households C) the governments' interaction with firms D) the legal system E) the taxes the governments collect from households 8