Test Bank for Essentials of Economics, 7th Edition

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1Essentials of Economics, 7e(Hubbard)Chapter 1Economics: Foundations and Models1.1Three Key Economic Ideas1) Apple assembles most iPhones in China because the lower wages earned by Chinese workersand their experience in electronics manufacturing reduce the costs of assembling iPhones. This isan example of Apple reacting to which of the three key economic ideas?A) People are rational.B) People respond to economic incentives.C) Optimal decisions are made at the margin.D) Firms attempt to maximize revenues.Answer:BDiff: 2Page Ref: 2Topic:ScarcityLearning Outcome:Micro-1: Identify the basic principles of economics and explain how tothink like an economistAACSB:Analytical thinkingSpecial Feature:Chapter Opener: Does Apple Manufacture the iPhone in the United States?2) In economics, choices must be made because we live in a world ofA) unemployment.B) scarcity.C) greed.D) unlimited resources.Answer:BDiff: 1Page Ref: 4Topic:Scarcity*:RecurringLearning Outcome:Micro-1: Identify the basic principles of economics and explain how tothink like an economistAACSB:Analytical thinking3) Which of the following statements about scarcity istrue?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 only arises when there is a wide disparity in income distribution.Answer:ADiff: 1Page Ref: 4Topic:Scarcity*:RecurringLearning Outcome:Micro-1: Identify the basic principles of economics and explain how tothink like an economistAACSB:Analytical thinking

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24) The basic economic problem of ________ has always existed and will continue to exist.A) scarcityB) efficiencyC) inflationD) recessionAnswer:ADiff: 1Page Ref: 4Topic:Scarcity*:RecurringLearning Outcome:Micro-1: Identify the basic principles of economics and explain how tothink like an economistAACSB:Analytical thinking5) By definition, economics is the study ofA) 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:CDiff: 1Page Ref: 4Topic:Scarcity*:RecurringLearning Outcome:Micro-1: Identify the basic principles of economics and explain how tothink like an economistAACSB:Analytical thinking6) An economic ________ is a simplified version of some aspect of economic life used toanalyze an economic issue.A) marketB) trade-offC) variableD) modelAnswer:DDiff: 1Page Ref: 4Topic:Economic Models*:RecurringLearning Outcome:Micro-1: Identify the basic principles of economics and explain how tothink like an economistAACSB:Analytical thinking

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37) Where do economic agents such as individuals, firms, and nations interact with each other?A) in public locations monitored by the governmentB) in any arena that brings together buyers and sellersC) in any physical location where people can physically get together for selling goods, such asshopping mallsD) in any location where transactions can be monitored by consumer groups and taxed by thegovernmentAnswer:BDiff: 1Page Ref: 4Topic:Markets*:RecurringLearning Outcome:Micro-1: Identify the basic principles of economics and explain how tothink like an economistAACSB:Analytical thinking8) In economics, the term ________ refers to a group of buyers and sellers of a product and thearrangement by which they come together to trade.A) collectiveB) cooperativeC) marketD) trade-offAnswer:CDiff: 1Page Ref: 4Topic:Markets*:RecurringLearning Outcome:Micro-1: Identify the basic principles of economics and explain how tothink like an economistAACSB:Analytical thinking9) Economists assume that individualsA) 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:DDiff: 1Page Ref: 5Topic:People Are Rational*:RecurringLearning Outcome:Micro-1: Identify the basic principles of economics and explain how tothink like an economistAACSB:Analytical thinking

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410) Economists assume that rational behavior is useful in explaining choices people makeA) 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:BDiff: 2Page Ref: 5Topic:People Are Rational*:RecurringLearning Outcome:Micro-1: Identify the basic principles of economics and explain how tothink like an economistAACSB:Analytical thinking11) Economists assume that rational people do all of the followingexceptA) 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:BDiff: 2Page Ref: 5Topic:People Are Rational*:RecurringLearning Outcome:Micro-1: Identify the basic principles of economics and explain how tothink like an economistAACSB:Analytical thinking12) Economics does not study correct or incorrect behaviors but rather it assumes that economicagents behave ________, meaning they make the best decisions given their knowledge of thecosts and benefits.A) equitablyB) rationallyC) emotionallyD) selfishlyAnswer:BDiff: 2Page Ref: 5Topic:People Are Rational*:RecurringLearning Outcome:Micro-1: Identify the basic principles of economics and explain how tothink like an economistAACSB:Analytical thinking

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513) Consider the following statements:a.Car owners purchase more gasoline from a gas station that sells gasoline at a lower price thanother rival gas stations in the area.b.Banks do not take steps to increase security since they believe it is less costly to allow somebank 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 onlyB) b onlyC) c onlyD) a, b, and cAnswer:DDiff: 3Page Ref: 5Topic:People Respond to Economic Incentives*:RecurringLearning Outcome:Micro-1: Identify the basic principles of economics and explain how tothink like an economistAACSB:Analytical thinking14) Suppose that some teachers have decided that economic and financial uncertainty have madethe prospect of retiring more risky, and therefore carry a higher cost than not retiring. By usingall available information as they act to achieve their goals, these teachers are exemplifying theeconomic idea thatA) 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:ADiff: 2Page Ref: 5Topic:People Are Rational*:RecurringLearning Outcome:Micro-1: Identify the basic principles of economics and explain how tothink like an economistAACSB:Analytical thinking

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615) Suppose that some investors have decided that economic and financial uncertainty havemade the prospect of investing in domestic stock markets more risky than investing in foreignstock markets, and therefore choose to invest in foreign markets. By using all availableinformation as they act to achieve their goals, these investors are exemplifying the economic ideathatA) 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:ADiff: 2Page Ref: 5Topic:People Are Rational*:RecurringLearning Outcome:Micro-1: Identify the basic principles of economics and explain how tothink like an economistAACSB:Analytical thinking16) Suppose the U.S. government encouraged new medical school graduates to take overexisting practices from doctors wishing to retire by paying both the new and retiring doctors$100,000. These doctors would be exemplifying the economic idea thatA) 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:BDiff: 2Page Ref: 5Topic:People Respond to Economic Incentives*:RecurringLearning Outcome:Micro-1: Identify the basic principles of economics and explain how tothink like an economistAACSB:Analytical thinking17) Suppose the U.S. government encouraged consumers to trade in their old automobiles formore efficient, new models by paying up to $5,000 for the old automobiles. These consumerswho did trade in their old automobiles to take advantage of the government offer would beexemplifying the economic idea thatA) 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:BDiff: 2Page Ref: 5Topic:People Respond to Economic Incentives*:RecurringLearning Outcome:Micro-1: Identify the basic principles of economics and explain how tothink like an economistAACSB:Analytical thinking

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718) One reason some manufacturing companies have moved production from China to otheroverseas locations is because of the tariffs implemented by the Trump administration on Chineseimports. Company managers using all available information, including the tariffs on Chineseimports, when making the decision to move production out of China and into other foreignnations exemplifies which key economic idea?A) People are rational.B) People respond to economic incentives.C) Optimal decisions are made at the margin.D) The market system relies on the principle of voluntary exchange.Answer:ADiff: 1Page Ref: 5Topic:People Are RationalLearning Outcome:Micro-1: Identify the basic principles of economics and explain how tothink like an economistAACSB:Analytical thinkingSpecial Feature:An Inside Look: Are Tariffs Bringing Manufacturing Jobs Back Home or JustRaising Prices?19) The Trump administration promoted the tariffs on Chinese imports as a reason for firms toreturn manufacturing jobs to the United States from China. The administration's desire to getfirms to return manufacturing to the United States through the implementation of tariffs was anattempt to get firms to follow which key economic idea?A) People are rational.B) People respond to economic incentives.C) Optimal decisions are made at the margin.D) The market system relies on the principle of voluntary exchange.Answer:BDiff: 1Page Ref: 5Topic:People Respond to Economic IncentivesLearning Outcome:Micro-1: Identify the basic principles of economics and explain how tothink like an economistAACSB:Analytical thinkingSpecial Feature:An Inside Look: Are Tariffs Bringing Manufacturing Jobs Back Home or JustRaising Prices?

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820) In 2018, two members of Congress introduced the Stop Bad Employers by Zeroing OutSubsidies Act, which would tax firms whose employees receive government assistance. Thesemembers of Congress thought this legislation would give firms a reason to raise employee wagesso fewer employees would receive the government assistance. These members of Congress werecounting on firms reacting to which key economic idea?A) People are allocatively efficient.B) People respond to economic incentives.C) Optimal decisions are made at the margin.D) The market system relies on the principle of voluntary exchange.Answer:BDiff: 2Page Ref: 5-6Topic:People Respond to Economic IncentivesLearning Outcome:Micro-1: Identify the basic principles of economics and explain how tothink like an economistAACSB:Analytical thinkingSpecial Feature:Apply the Concept: Would a Congressional Bill Aimed at Increasing the Payof Low-Wage Workers Backfire?21) In 2018, two members of Congress introduced the Stop Bad Employers by Zeroing OutSubsidies Act, which would tax firms whose employees receive government assistance. Thesemembers of Congress thought this legislation would give firms a reason to raise employee wagesso fewer employees would receive the government assistance. Economists at the Center onBudget and Policy Studies believed that the implementation of this legislation wouldA) result in most employers raising employee wages substantially.B) result in many employers likely seeking to reduce the number of low-wage workers theyemploy.C) actually reduce the wages of all workers.D) have little to no impact on the number of low-wage workers being employed.Answer:BDiff: 1Page Ref: 5-6Topic:People Respond to Economic IncentivesLearning Outcome:Micro-1: Identify the basic principles of economics and explain how tothink like an economistAACSB:Analytical thinkingSpecial Feature:Apply the Concept: Would a Congressional Bill Aimed at Increasing the Payof Low-Wage Workers Backfire?

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922) In economics, the term ________ means "additional" or "extra."A) allocativeB) marginalC) equityD) optimalAnswer:BDiff: 1Page Ref: 6Topic:Optimal Decisions Are Made at the Margin*:RecurringLearning Outcome:Micro-1: Identify the basic principles of economics and explain how tothink like an economistAACSB:Analytical thinking23) A grocery store sells a bag of potatoes at a fixed price of $2.30. Which of the following is aterm used by economists to describe the money received from the sale of an additional bag ofpotatoes?A) marginal revenueB) gross earningsC) pure profitD) marginal costsAnswer:ADiff: 1Page Ref: 6Topic:Optimal Decisions Are Made at the Margin*:RecurringLearning Outcome:Micro-1: Identify the basic principles of economics and explain how tothink like an economistAACSB:Analytical thinking24) Economists reason that the optimal decision is to continue any activity up to the point wheretheA) 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:DDiff: 2Page Ref: 6Topic:Optimal Decisions Are Made at the Margin*:RecurringLearning Outcome:Micro-1: Identify the basic principles of economics and explain how tothink like an economistAACSB:Analytical thinking

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1025) Marginal analysis involves undertaking an activityA) 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:CDiff: 1Page Ref: 6Topic:Optimal Decisions Are Made at the Margin*:RecurringLearning Outcome:Micro-1: Identify the basic principles of economics and explain how tothink like an economistAACSB:Analytical thinking26) The revenue received from the sale of ________ of a product is a marginal benefit to thefirm.A) an additional unitB) the total number of unitsC) no unitsD) only profitable unitsAnswer:ADiff: 2Page Ref: 6Topic:Optimal Decisions Are Made at the Margin*:RecurringLearning Outcome:Micro-1: Identify the basic principles of economics and explain how tothink like an economistAACSB:Analytical thinking27) Making optimal decisions "at the margin" requiresA) 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:CDiff: 1Page Ref: 6Topic:Optimal Decisions Are Made at the Margin*:RecurringLearning Outcome:Micro-1: Identify the basic principles of economics and explain how tothink like an economistAACSB:Analytical thinking

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1128) Making "how much" decisions involvesA) calculating the total benefits of the activity and determining if you are satisfied with thatamount.B) calculating the total costs of the activity and determining if you can afford to incur thatexpenditure.C) calculating the average benefit and the average cost of an activity to determine if it isworthwhile undertaking that activity.D) determining the additional benefits and the additional costs of that activity.Answer:DDiff: 2Page Ref: 6Topic:Optimal Decisions Are Made at the Margin*:RecurringLearning Outcome:Micro-1: Identify the basic principles of economics and explain how tothink like an economistAACSB:Analytical thinking29) The extra cost associated with undertaking an activity is calledA) net loss.B) marginal cost.C) opportunity cost.D) foregone cost.Answer:BDiff: 1Page Ref: 6Topic:Optimal Decisions Are Made at the Margin*:RecurringLearning Outcome:Micro-1: Identify the basic principles of economics and explain how tothink like an economistAACSB:Analytical 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 atotal price of $90, DeShawn will also detail the car's engine, a service that adds an additional $20to the total cost of the package. What is DeShawn's marginal benefit if he sells a basic detailingpackage?A) $35B) $75C) He makes a marginal loss of $15, not a marginal benefit.D) The marginal benefit cannot be determined.Answer:BDiff: 2Page Ref: 6Topic:Optimal Decisions Are Made at the Margin*:RecurringLearning Outcome:Micro-1: Identify the basic principles of economics and explain how tothink like an economistAACSB:Analytical thinking

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1231) 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 atotal price of $90, DeShawn will also detail the car's engine, a service that adds an additional $20to the total cost of the package. What is the marginal cost of adding the engine detailing to thebasic detailing package?A) $20B) $30C) $60D) $60 plus the value of his timeAnswer:ADiff: 2Page Ref: 6Topic:Optimal Decisions Are Made at the Margin*:RecurringLearning Outcome:Micro-1: Identify the basic principles of economics and explain how tothink like an economistAACSB:Analytical thinking32) 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 atotal price of $90, DeShawn will also detail the car's engine, a service that adds an additional $20to 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 detailingpackage.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:CDiff: 3Page Ref: 6Topic:Optimal Decisions Are Made at the Margin*:RecurringLearning Outcome:Micro-1: Identify the basic principles of economics and explain how tothink like an economistAACSB:Analytical thinking

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1333) Allison's Auto Art is a company that applies pinstripes to vehicles. Allison's cost for a basic1-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 anadditional $40 to the total cost of the package. What is Allison's marginal benefit if she sells abasic 1-color job?A) $35B) $60C) $95D) The marginal benefit cannot be determined.Answer:CDiff: 2Page Ref: 6Topic:Optimal Decisions Are Made at the Margin*:RecurringLearning Outcome:Micro-1: Identify the basic principles of economics and explain how tothink like an economistAACSB:Analytical thinking34) Allison's Auto Art is a company that applies pinstripes to vehicles. Allison's cost for a basic1-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 anadditional $40 to the total cost of the package. What is the marginal cost of moving up from the1-color application to the 3-color application?A) $35B) $40C) $80D) $175Answer:BDiff: 2Page Ref: 6Topic:Optimal Decisions Are Made at the Margin*:RecurringLearning Outcome:Micro-1: Identify the basic principles of economics and explain how tothink like an economistAACSB:Analytical thinking

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1435) Allison's Auto Art is a company that applies pinstripes to vehicles. Allison's cost for a basic1-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 anadditional $40 to the total cost of the package. Should Allison continue to offer the 3-colorpinstripe 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:ADiff: 3Page Ref: 6Topic:Optimal Decisions Are Made at the Margin*:RecurringLearning Outcome:Micro-1: Identify the basic principles of economics and explain how tothink like an economistAACSB:Analytical thinkingScenario 1-1Suppose a cell phone manufacturer currently sells 20,000 cell phones per week and makes aprofit of $5,000 per week. A manager at the plant observes, "Although the last 3,000 cell phoneswe produced and sold increased our revenue by $6,000 and our costs by $6,700, we are stillmaking an overall profit of $5,000 per week so I think we're on the right track. We are producingthe optimal number of cell phones."36)Refer to Scenario 1-1.Using marginal analysis terminology, what is another economic termfor the incremental revenue received from the sale of the last 3,000 cell phones?A) gross earningsB) marginal revenueC) sales revenueD) gross profitAnswer:BDiff: 1Page Ref: 6Topic:Optimal Decisions Are Made at the Margin*:RecurringLearning Outcome:Micro-1: Identify the basic principles of economics and explain how tothink like an economistAACSB:Analytical thinking

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1537)Refer to Scenario 1-1. Using marginal analysis terminology, what is another economic termfor the incremental cost of producing the last 3,000 cell phones?A) marginal costB) operating costC) explicit costD) Any of the above terms are correct.Answer:ADiff: 1Page Ref: 6Topic:Optimal Decisions Are Made at the Margin*:RecurringLearning Outcome:Micro-1: Identify the basic principles of economics and explain how tothink like an economistAACSB:Analytical thinking38)Refer to Scenario 1-1.Had the firm not produced and sold the last 3,000 cell phones, wouldits profit be higher or lower, and 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:BDiff: 2Page Ref: 6Topic:Optimal Decisions Are Made at the Margin*:RecurringLearning Outcome:Micro-1: Identify the basic principles of economics and explain how tothink like an economistAACSB:Analytical thinking

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