Unit 1

Question 1

scarcity is a problem that will eventually disappear as technology advances

Answer 1

False

Question 2

if it costs sinclair $300 to produce 3 suede jackets and $420 to produce 4 suede jackets, then the difference of $120 is the marginal cost of producing the 4th suede jacket.

Answer 2

True

Question 3

Suppose the extra cost for a doctor to keep his office open for one extra hour is $200. Then, the doctor should stay open for the extra hour even if he can generate additional revenue of $200 for that hour.

Answer 3

True

Question 4

positive analysis is concerned with “what out to be”, while normative analysis is concerned with “what is”

Answer 4

False

Question 5

explain the economic assumption that “people are rational”

Answer 5

People are rational means that economists assume consumers and firms will use all available information as they act to achieve their goals. Rational individuals weigh the benefits and costs of each action and they choose an action only if the benefits exceed the costs.

Question 6

what is meant by the statement that “optimal decisions are made at the margin”?

Answer 6

in ecomics, the word marginal means extra or additional. Economists reason that the optimal decision is to continue any activity up to the point where the marginal benefits equals the marginal costs, so optimal decisions are made at the point where the extra benefit recieved form an activity is equal to the extra cost associated with that activity.

Question 7

what is equity and how does it differ from efficiency?

Answer 7

equity refers to the fair distribution of economic benefits. In eco, efficiency refers to least cost production (productive efficiency) and producing according to human preferences (allocative efficiency)..

Question 8

define productive efficiency. Does productive efficiency imply allocative efficiency? Explain.

Answer 8

productive effiency is an effiencicy criterion that described a situation in which goods and services are produced at the lowest possile cost. It does not imply allocative effiency which is a criterion associated with product goods and services that consumers value most. For example, a manufacturer may be able to product typewriters at the lowest possible cost of say, $200 but this does not necessarily mean that consumers are willing to pay $200 for a type writer.

Question 9

what is the difference between positive economic analysis and normative economic analysis? give one example each of positive and normative economic issue or question or statement.

Answer 9

positive economic analysis is concerned with what is. Normative economic analysis reaches conclusions on what ought to be.

ex. the company is in debt
the company should have a better financial team

Question 10

list the five main factors of production

Answer 10

labor
capital 
human capital 
natural resources
entrepreneurial ability

Question 11

explain the difference between a firms revenue and its profit

Answer 11

a firms revenue is the total amount received for selling a good or service. a firms profit is the difference between the revenue and its costs

Question 12

which of the following statements best describes scarcity

Answer 12

scarcity is a situation where unlimted wants exceed limited recources

Question 13

under which of the categories below is the idea that people use all available information as they achieve their goals?

Answer 13

people are rational

Question 14

which sort of thinking goes on in the mind of a hungry economist who has decided to satisfy his hunger by eating potato chips

Answer 14

the economist will stop after each additional chip is consumed and examine the benefit and cost of that potato chip before continuing on to the next one.

Question 15

which of the following is not among the fundamental econmic questions that every society must solve?

Answer 15

what goods and services will be exchanged?

Question 16

Throughout most of the 20th century, which of the following was the most important centrally planned economy in the world?

Answer 16

the soviet union

Question 17

find the best ending to the following sentence: a market economy is an economy in which decisions of households and firms interacting in the markets determine

Answer 17

the allocation of economic resources

Question 18

which of the following is acheived when a good or service is produced up to the point where the marginal benefit to consumers is equal to the marginal cost of producing it?

Answer 18

allocative effiency

Question 19

which of the following best decribes the characteristics of models used in econmics?

Answer 19

models are simplifications of reality that include only essential elements and exclude less relevant details

Question 20

which of the following questions can be answered using normative economic reasoning

Answer 20

should the college charge lower tuition to smart students?

Question 21

the difference between microeconomics and macro is mainly a difference between

Answer 21

the study of household and firm behavior versus the study of the economy as a whole

Question 22

which figure involves a single variable

Answer 22

all

Question 23

which of the following is a graph showing the relationship between two variables?

Answer 23

the graph on the left. Price and quanity

Question 24

refer to the graph below. what is the absolute value of the slope of this line.

Answer 24

one fifth

Question 25

refer to the graph below. the shift from demand curve 1 to demand curve 2 occurs because

Answer 25

the determinant of demand other than the price of the good has changed

Question 26

refer to the figure below. what can be said about the value of the slope of this curve?

Answer 26

the value of the slope is greater between points g and h than between ponits i and j

Question 27

let V1 equal a value in period one, and v2 equal a value in period 2. what is the rate of growth between period 1 and 2

Answer 27

v2-v1/v1 x 100