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Principles of Economics, 7e (Frank) Chapter 1 Thinking

Like an Economist

1) Economics is best defined as the study of: A) inflation, interest rates and the stock market. B) supply
and demand. C) how people make choices in the face of scarcity and the implications of those choices
for society as a whole. D) the financial concerns of businesses and individuals.

A) the financial concerns of businesses and individuals. B) the role of government in limiting the
choices people make. C) choice in the face of limited resources. D) whether we will have enough
resources in the future.

A) government intervention is necessary. B) they have to make trade -offs. C) they will never be happy.
D) our future is bleak.

A) people don't have enough money to buy what they want. B) society will eventually run out of
resources. C) with limited resources, having more of one thing me ans having less of another. D) some
countries have fewer resources than others.

A) people will never be happy. B) making trade -offs becomes unnecessary as wealth increases. C)
some people will always be poor. D) people must make trade -offs.

A) people would still have to make trade -offs. B) economics would no longer be relevant. C) scarcity
would disappear. D) trade -offs would become unnecessary.

A) poor people primarily. B) consumers primarily. C) firms primarily. D) everyone.

A) Forest has unlimited resources. B) Forest is not required to make trade -offs because he is self
-sufficient. C) Forest has to make trade -offs. D) Forest doesn't have to consider costs and benefits.

A) all decisions. B) only market decisions, e.g., buying a car. C) only non -market decisions, e.g.,
watching a sunset. D) only the poor.

A) not an economic problem because neither activity costs money. B) not an economic problem
because it's an hour that Chris has no matter what he does. C) an economic problem because the
tuition Chris pays covers the cost of both the gym and the library. D) an econ omic problem because
Chris has only one hour, and engaging in one activity means giving up the other.

A) Josh prefers schoolwork to football games. B) writing the paper is easier than going to the game. C)
Josh can't go the game and finish the paper. D) going to the game won't be fun.

A) wants are limited and resources are unlimited, so trade -offs are unnecessary. B) wants are
unlimited and resources are scarce, so trade -offs have to be made. C) wants are limited and resources
are unlimited, so trade -offs have to be made. D) both wants and resources are unlimited, so trade -offs
are unnecessary.

A) its total benefits exceed its total costs. B) its average benefits exceed its average costs. C) its net
benefit (benefit minus cost) is zero. D) its extra benefit is greater than or equal to its extra cost.

A) not following the Cost -Benefit Principle. B) following the Scarcity Principle. C) following the Cost
-Benefit Principle. D) not rational.

A) not an economic choice. B) an application of the Cost -Benefit Principle. C) an application of the
Scarcity Principle. D) not rational because it ignores the importance of total benefits and total costs.

A) that choices must be made; how to make good choices B) that good choices eliminate scarcity; how
to make go od choices C) how to make choices; that choices must be made D) how to make good
choices; that choices involve costs and benefits
A) the extra benefits of seeing the movie are greater than the extra costs of seeing the movie. B) you
really like Star Wars. C) you can afford to go to the movies. D) the average benefit you get from going
to the movies is greater than the average cost of a ticket.

A) makes choices based on total benefits and total costs. B) makes choices based on added benefits
and added costs. C) undertakes activities until the net benefits become less than zero. D) considers the
financial benefits and financial costs of making a choice.

A) drink a third gl ass of soda. B) drink a third glass of soda if the extra benefit of doing so is positive. C)
drink a third glass of soda if his total benefit from drinking soda is positive. D) not drink a third glass of
soda.

A) mow the lawn; bigger B) wash clothes; bigger C) mow the law; smalle r D) wash clothes; smaller

A) he is irrational. B) the benefit of golfing is greater than the benefit of studying. C) the economic
surplus from playing golf is greater than the economic surplus from studying. D) Dean can play golf for
free.

A) $70,000 B) $50,000 C) $20,000 D) $15,000

A) $35,000 B) $30,000 C) $20,000 D) $15,000

A) $60,000 B) $30,000 C) $20,000 D) $15,000

A) E lite U. B) State College. C) NoName U because he has a full scholarship there. D) NoName U
because the annual cost is only $20,000.

A) $40,000 B) $20,000 C) $10,000 D) $5,000

A) the $12 she spent on the umbrella, food and drinks. B) only $0 because she would have spent $12
to go to the movie. C) the value she places on seeing the movie. D) the value she places on seeing the
movie plus the $12 she spent on the umbrella, food and drinks.

A) a higher opportunity cost of working an additional hour. B) a higher opportunity cost of taking the day
off work. C) a lower opportunity cost of driving farther to work. D) the same opportunity cost of spending
time on leisure activities.

A) all of the alternatives that must be forgone. B) the next-best alternative that must be foregone. C) the
least -best alternative that must be foregone. D) the chosen activity minus the value of the next -best
alternative.

A) $5. B) $15. C) $20. D) $35.

A) the benefit gained by taking an action. B) the difference between the explicit and implicit costs of
taking an action. C) the difference between the benefit and the cost of taking an action. D) the money a
person has left over after taking an action.

A) borrow the book from the library because you can get it from the library for free. B) borrow the book
from the library if the cost of doing so (in terms of the extra time it tak es) is less than $13. C) borrow the
book from the library if the cost of doing so (in terms of the extra time it takes) is greater than $13. D)
buy the book online because it takes less time.

A) attending State U. for four years is costless for Alex. B) Alex has no incentive to study hard while at
State U. C) the opportunity cost of attending State U. includes the money Alex could have earned
working for four years. D) the opportunity cost of attending State U. includes the sum of the benefits
Alex would had from attending each of the other schools to which he was admitted.

A) benefit; $12,000 B) cost; $15,000 C) economic surplus; $3,000 D) economic surplus; $12,000
A) largest total benefits. B) smallest total costs. C) smallest economic surplus. D) largest economic
surplus.

A) $250. B) $1 75. C) $75. D) $0.

A) fully captures how people cho ose between alternatives. B) provides an abstract model of how
people should choose between alternatives. C) describes how people behave once they have enough
education. D) provides little insight into how people actually chose between alternatives.

A) a simple but useful model of how people should make choices. B) a comprehensive description of all
the factors that influence people's choices. C) an interesting intellectual exercise with little applicability
to the real world. D) of little use to those who wish to learn how to make better decisions.

A) unrealistic because it is too detailed and specific to apply to most situations. B) unrealistic because
everyone can think of times when he or she violated the principle. C) useful because everyone follows it
all of the time. D) useful because most people follow it most of the time.

A) every economic situation is unique, so it is impossible to make generalizations. B) every economic

situation is essentially the same, so specific det ails are unnecessary. C) they are useful for describing
general patterns of behavior. D) computers have allowed economists to develop abstract models.

A) irrational, because intuition is usually wrong. B) consistent with the cost -benefit model because
calculating costs and benefits is irrational. C) consistent with the cost -benefit model because most
people intuitively weigh costs and benefits. D) inconsistent with the cost -benefit model, but still rational.

A) the opportunity cost of studying is greater than the value Moe gets from spending time with Curly. B)
the opportunity cost of study ing is less than the value Moe gets from spending time with Curly. C) Moe
gets more benefit from spending time with Curly than from studying. D) Moe gets less benefit from
spending time with Curly than from studying.

A) the benefits will be overstated. B) the costs will be understated. C) the benefits will be understated.
D) the costs will be overstated.

A) Yes, your benefit is more than your cost. B) No, your benefit is less than your cost. C) Yes, your
benefit is equal to your cost. D) No, because there are no benefits in the trip.

A) $100 B) $450 C) $500 D) $550

A) Yes, your benefit is more than your cost. B) No, your benefit is less than your cost. C) Yes, your
benefit is equal to your cost. D) No, because there are no benefits in the trip.

A) No, your economic surplus would be -$50. B) No, your economi c surplus would be -$100. C) Yes,
your economic surplus would be $50. D) Yes, your economic surplus would be $400.

A) $37,000 per year. B) $25,000 per year. C) $13,000 per year. D) $12,000 per year.

A) Yes, the benefit of going to the concert is more than the cost. B) No, the benefit of going to the
concert is less than the cost. C) Yes, the benef it of going to the concert is equal to the cost. D) No,
because there are no benefits of going to the concert.

A) $1 B) $9 C) $35 D) $36

A) $0 B) $9 C) $35 D) $36

A) $0 B) $1 C) $35 D) $36

A) $5 B) $9 C) $170 D) $175

A) $2 B) $4 C) $9 D) $16
A) not drive to campus to buy the books because the $5 he would save is only two percent of the cost
of the books, and that is much less than the 25 percent he saved on the concert ticket. B) drive to
campus to buy the books because the books are cheaper at the bookstore than online. C) drive to
campus to buy the books because the $5 he would save is more than he saved by driving to campus to
buy the concert ticket. D) not drive to campus to buy the books because the cost of gas and his time m
ust certainly be more than the $5 he would save.

A) $5 B) $1 C) $50 D) $20

A) same as the total benefit of an activity. B) total benefit of an activity divided by the l evel of the
activity. C) extra benefit associated with an extra unit of the activity. D) total benefit associated with an
extra unit of the activity.

A) 125 B) 5 C) 41.67 D) 375

A) marginal benefit B) total benefit C) average benefit D) economic benefit

A) change in the total c ost of the activity that results from carrying out an additional unit of the activity.
B) the total cost of the activity divided by the change in the level of the activity. C) the total cost of the
activity divided by the level of the activity. D) change i n the level of the activity divided by the change in
the cost of the activity.

A) marginal benefit B) marginal cost C) reservation cost D) opportunity cost

A) average benefit. B) marginal cost. C) units per cost. D) average cost.

A) $6. B) $5. C) $4. D) $0.25.

A) $6. B) $5. C) $4. D) $0.25.

A) $6. B) $4. C) $0.25. D) $0.

A) total benefit of n units divided by n. B) n divided by the total benefit of n units. C) n times the total
benefit of n units. D) extra benefit from carrying out one additional unit of the activity.

A) $10 B) $5 C) $2 D) $0

A) Last semester's grades were higher than your overall GPA. B) Last semester's grades were lower
than your overall GPA. C) If this semester's grades are the same as last semester's , your overall GPA
will stay the same. D) If this semester's grades are the same as last semester's, you might lose your
scholarship.

A) $20 B) $25 C) $30 D) $40

A) $30 B) $25 C) $20 D) $10

A) $80 B) $60 C) $40 D) $20

A) $50 B) $44 C) $10 D) $5

A) 1 B) 3 C) 4 D) 6

A) $4 B) $6 C) $8 D) $10

A) $5 B) $6 C) $8 D) $10

A) $4 B) $5 C) $9 D) $10

A) $1 B) $2 C) $4 D) $7
A) 2 B) 3 C) 4 D) 5

A) $43,899. B) $45,000. C) $48,911. D) $51,963.

A) $21,500. B) $22,000. C) $38,000. D) $43,121.

A) 5; $17,080 B) 5; $67,080 C) 4; $60,000 D) 4; $22,000

A) $42,426. B) $21,213. C) $12,426. D) $11,337.

A) $9,500. B) $10,750. C) $11,000. D) $13,000.

A) 1; $22,000 B) 2; $25,426 C) 3; $25,426 D) 2; $3,476

A) 4 B) 3 C) 2 D) 1

A) the opportunity cost of the time and trouble of sending in the rebate form is less than $10. B) the
opportunity cost of the time and trouble of sending in the rebate fo rm is more than $10. C) she would
have bought the phone without the rebate, and so sending in the rebate form involves no opportunity
cost. D) Ginger's surplus from purchasing the phone was less than $10.

A) inconsistent reasoning; saving $20 is saving $20. B) the proper application of the Cost -Benefit
Principle. C) rational choice because saving 40 percent is better than saving 4 percent. D) inconsistent
reasoning because prices are sunk costs.

A) unrelated to the list price of the good. B) negatively related to the list price of the good. C) positively
related to the list price of the good. D) zero since costs and benefits shouldn't be measured
proportionally.

A) $5,400 B) $5,520 C) $1,200 D) $1,240

A) $1,800 B) $1,840 C) $4,200 D) $4,280

A) 1 hour B) 2 hours C) 3 hours D) 4 hours

A) 1 hour B) 2 hours C) 3 hours D) 4 hours

A) 12 apartments B) 9 apartments C) 3 apartments D) 1 apartment

A) $1,400. B) $1,000. C) $400. D) $100.

A) $300. B) $900. C) $1,700. D) $1,650.

A) $1,000. B) $900. C) $200. D) $100.

A) $400. B) $300. C) $200. D) $100.

A) 2.0GHz B) 2.5GHz C) 3.0GHz D) 4.0GHz

A) its marginal benefit is less than its marginal cost. B) its marginal benefit is equal to its marginal cost.
C) it is impossible to tell the difference compared to a 3.0GHz computer. D) its marginal benefit is
greater than its marginal cost.

A) $30 plus his foregone earnings. B) $40. C) $70. D) $70 plus his foregone earnings.

A) only the entertainment value of the concert. B) the cost of the ticket plus the entertainment value of
the concert. C) only the cost of concert ticket. D) neither the cost of the ticket nor the entertainment
value of the concert.

A) $0 B) $30 C) $35 D) $50

A) Yes, because you will save 10 percent, which is better than nothing. B) No, beca use you will save
more than $20. C) Yes, because you will save more than $20. D) No, because you will only save 10
percent, which is less than 15 percent.

A) $14 B) $12 C) $8 D) $4

A) $15 B) $14 C) $12 D) $4

A) $4 B) $12 C) $16 D) $48

A) 1 B) 2 C) 3 D) 4

A) 21 B) 42 C) 84 D) 92

A) 10 apples B) 20 apples C) 30 apples D) 40 apples

A) 8 apples B) 24 apples C) 32 apples D) 64 apples

A) He should spend all 4 hours in the east orchard. B) He should spend 3 hours in the east orchard and
1 hour in the west orchard. C) He should spend 2 hours in east orchard and 2 hours in the west
orchard. D) He should spend 1 hour in the east orchard and 3 hours in the west orchard.

A) are always correct. B) are influenced by political ideology. C) indicate how people should behave. D)
predict how people will behave.

A) normative principles are pessimistic and positive principles are optimistic. B) normative principles
reflect social norms, and positive principles refl ect universal truths. C) normative principles tell us how
people should behave, and positive principles tell us how people will behave. D) normative principles
tell us how people will behave, and positive principles tell us how people should behave.

Answe r: C