Test bank for principles of microeconomics 4th canadian edition by frank

0 questions at random and keep in order  Multiple Choice Questions - 203 economic theories - 9 Learning Objective: 01-06 Explain how data are used to evaluate Difficulty: Difficult -

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Multiple Choice Questions - (203) economic theories - (9) Learning Objective: 01-06 Explain how data are used to evaluate

Difficulty: Difficult - (54) Level of Learning: Analysis - (4)

Difficulty: Easy - (78) Level of Learning: Application - (114)

Difficulty: Medium - (71) Level of Learning: Comprehension - (46)

Gradable: automatic - (203) Level of Learning: Data Analysis - (1)

Learning Objective: 01-01 Define economics; microeconomics; and macroeconomics - (17) Level of Learning: Knowledge - (38)

Learning Objective: 01-02 Identify John Maynard Keynes; Alfred Marshall; and Adam Smith; and state briefly the

influence of each of them had on economics - (6) Type: Calculation - (56)

Learning Objective: 01-03 State and explain the problem of scarcity and its relation to opportunity cost - (56) Type: Data Analysis - (20)

Learning Objective: 01-04 Explain how a rational decision maker applies the cost-benefit principle - (22) Type: Graphical - (3)

Learning Objective: 01-05 State how three pitfalls can undermine rational economic decisions - (78) Type: Word Problem - (124)

1 Economics is best defined as the study of

prices and quantities

inflation and interest rates

→ how people make choices under the conditions of scarcity, and the results of the choices

how to make money

wages and incomes

Multiple Choice Question

Economics is best defined as the study

of

Difficulty: EasyGradable: automaticLearning Objective: 01-01 Define economics; microeconomics; and

macroeconomicsLevel of Learning: Knowledge

Type: Word Problem

2 Which of the following is a macroeconomic issue?

Planning a price increase for daily bus fare

→ Predicting inflation rates for next year

Determining how many permits should be issued for single homes in Montreal

Negotiation a wage increase for faculty at local university

Identifying the best location for future department stores in Ontario

Which of the following is a macroeconomic

issue?

macroeconomicsLevel of Learning: Application

Type: Word Problem

3 Which of the following is a macroeconomic statement?

Unionized workers for Ford went on strike for higher wages

The price of wheat doubled in the past month

Forest fires destroyed thousands of hectares in Western Canada

The demand for smart phones increased by 10% this year

→ National output fell by 1% last year

statemen

Type: Word Problem

4 Which of the following is a macroeconomic statement?

Severe drought in the prairies has increased the price of wheat

Technological improvements have lowered prices in the automobile industry

The provincial government of British Columbia has increased tuition fees

→ The unemployment rate in Canada is expected to decline over the next two years

Hurricanes in Florida lead to greater exports of soft wood lumber from Canada to the U.S

statemen

Difficulty: MediumGradable: automaticLearning Objective: 01-01 Define economics; microeconomics; and

Type: Word Problem

5 Which of the following is a microeconomic statement?

Interest rates in Canada are directly linked to interest rates in the United States

→ The Competition Bureau accuses oil companies of illegally fixing gas prices

Test Bank for Principles of Microeconomics 4th Canadian Edition by Frank

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The government negotiated a trade agreement with the European Union.

The unemployment rate increased by 1.5% this yearNational output fell by 1% last year

Which of the following is a microeconomic

statemen

Type: Word Problem

6 Which of the following is a microeconomic statement?

Tariff barriers hurt all Canadians

Inflation will remain low for the next two yearsInflation and unemployment will remain low for the next two years

→ Increased gasoline prices have raised taxi fares by 10%

National output remained constant last year

Which of the following is a microeconomic

statemen

Type: Word Problem

7 The distinguishing feature of microeconomics is studying

choices

the performance of national economics

the overall price level

→ choices made by individuals or groups in the context of individual markets

how to improve the performance of national economies

The distinguishing feature of microeconomics is

st

Type: Word Problem

8 Macroeconomics is distinguished by its concentration on

Macroeconomics is distinguished by its

concentrati

Type: Word Problem

9 The study of individual choices and group behaviour in individual markets defines

economics

the scarcity principle

macroeconomics

the cost-benefit principle

The study of individual choices and group

behaviou

Type: Word Problem

10 The study of national economies, and policies to improve their performance, is known as

The study of national economies, and policies to

i

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Type: Word Problem

11 Which of the following decisions would NOT be part of microeconomics?

What university major to select

How to make the largest profit

Whether to study or watch TV tonight

How will an early frost in Prince Edward Island affect the price of potatoes

→ Should the federal budget always be balanced

Which of the following decisions would NOT be

part

Type: Word Problem

12 Which of the following questions would NOT be part of macroeconomics?

What caused the Great Depression?

At what rate does the Canadian economy typically grow?

→ Did the sharp increase in gasoline prices alter SUV sales?

How does government spending affect the economy?

Do trends exist in the national rate of unemployment?

Which of the following questions would NOT be

part

Type: Word Problem

13 Macroeconomics differs from microeconomics in that

the concept of scarcity applies to the latter but does not apply to the former

→ the latter studies individual markets while the former studies groups of markets, including the whole economy.rational decisions are relevant to the former but not the latter

the former is the study of how people make choices under conditions of scarcity while the latter is concerned with the results of those choices for society

the former explains such concepts as how prices are determined in markets while the latter explains the overall price level

Macroeconomics differs from microeconomics in

that

Type: Word Problem

14 Microeconomics includes the study of

inflation

unemployment

economic growth

→ the distribution of income

the national aggregate output

Microeconomics includes the study of

Difficulty: EasyGradable: automaticLearning Objective: 01-01 Define economics; microeconomics; and macroeconomics

Level of Learning: Knowledge

Type: Word Problem

15 How the price mechanism allocates resources in particular markets is a topic in

How the price mechanism allocates resources in

par

macroeconomicsLevel of Learning: Comprehension

Type: Word Problem

16 The study of macroeconomics includes

the choices made by individual consumers

the production decisions of firms

Test Bank for Principles of Microeconomics 4th Canadian Edition by Frank

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the causes of poverty.

→ the determinants of the national unemployment rate

individual markets

The study of macroeconomics includes

Difficulty: EasyGradable: automaticLearning Objective: 01-01 Define economics; microeconomics; and macroeconomics

Type: Word Problem

17 The focus of microeconomics is the study of

national economies

trends in consumer purchases

the total value of national output

→ individuals and firms

the determinants of the unemployment rate

The focus of microeconomics is the study

of

Type: Word Problem

18 The Scottish economist who wrote "The Wealth of Nations" was

Alfred Marshall

David HumeJohn Maynard Keynes

John Stuart Mill

The Scottish economist who wrote The

Wealth of Na

Difficulty: EasyGradable: automaticLearning Objective: 01-02 Identify John Maynard Keynes; Alfred Marshall; and Adam Smith; and state briefly the influence of each of them had on economics

Type: Word Problem

19 The economist often considered the "father of macroeconomics" is _

Adam Smith

Alfred Marshall

David Hume

John Stuart Mill

The economist often considered the

father of macr

Difficulty: EasyGradable: automaticLearning Objective: 01-02 Identify John Maynard Keynes; Alfred Marshall; and Adam

Smith; and state briefly the influence of each of them had on economics

Type: Word Problem

20 Even today, microeconomic concepts developed by _ remain influential

Adam Smith

David HumeJohn Maynard Keynes

John Stuart Mill

Even today, microeconomic concepts

developed by

Type: Word Problem

21 A rational person is someone that

is reasonable

makes choices that are easily understood

→ possesses clear objectives and behaves logically to achieve them

does not believe what experts claim

is highly cynical

A rational person is someone

that

Difficulty: EasyGradable: automaticLearning Objective: 01-02 Identify John Maynard Keynes; Alfred Marshall; and Adam Smith;

and state briefly the influence of each of them had on economics

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Type: Word Problem

22 An economic model is a representation of economic reality that

highlights all possible variables and the relationships among them

→ highlights particular variables and the relationships among them

predicts how government actions influence the private sector

illustrates the difference between economic and non-economic theories

focuses strictly on welfare economics

An economic model is a representation

of economic

Type: Word Problem

23 When economists make predictions using the framework of a given economic model, it is usually based on

personal experiences

→ important relationships between particular variables

mathematical abstractions

political implications

the profit-maximizing objective

When economists make predictions

using the framewo

Level of Learning: Comprehension

Type: Word Problem

24 The scarcity problem indicates that

no matter how much one has, it is never enough

compared to 100 years ago, individuals have less time today

→ with limited resources, having more of "this" means having less of "that."

because trade-offs must be made, resources are therefore scarce

the wealthier a person is, the fewer trade-offs he must make

The scarcity problem indicates

that

Difficulty: EasyGradable: automaticLearning Objective: 01-03 State and explain the problem of scarcity and its relation to

opportunity cost.Level of Learning: Comprehension

Type: Word Problem

25 The logical implication of the scarcity problem is that

one will never be satisfied with what one has

as wealth increases, making trade-offs becomes less necessary

as wealth decreases, making trade-offs becomes less necessary

→ choices must be made

resources need to be made unlimited

The logical implication of the scarcity

problem is

Difficulty: MediumGradable: automaticLearning Objective: 01-03 State and explain the problem of scarcity and its

relation to opportunity cost.Level of Learning: Comprehension

Type: Word Problem

26 If all the world's resources were to magically increase 100-fold, then

→ the scarcity problem would still govern behaviour

economics would no longer be relevant

the scarcity problem would disappear

everyone would be satisfied

trade-offs would become unnecessary

If all the world's resources were to magically

inc

Difficulty: DifficultGradable: automaticLearning Objective: 01-03 State and explain the problem of scarcity and its

relation to opportunity cost.Level of Learning: Application

Type: Word Problem

27 The principle of scarcity applies to

the poor exclusively

nations exclusively

all consumers

all firms

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→ everyone; consumers, firms, governments, and nations.

The principle of scarcity applies

to

Difficulty: MediumGradable: automaticLearning Objective: 01-03 State and explain the problem of scarcity and its relation to

opportunity cost.Level of Learning: Application

Type: Word Problem

28 If a campus organization provides a free lunch to all students who show up, then

the scarcity problem has been violated

→ the scarcity problem still applies to the decision to allocate the time to go and eat

the lunch is completely without cost

no trade-offs are involved

it is a free lunch because no price was charged

If a campus organization provides a free

lunch to

Type: Word Problem

29 Forest is a mountain man living in complete isolation in northern British Columbia He is completely self-sufficient

through hunting, fishing, and farming He has not been in the city to buy anything in five years One can infer

the scarcity problem does not apply to Forest

Forest is not required to make choices

→ the scarcity problem still applies because more hunting means less fishing and so on

Forest is very satisfied

Forest knew the Prime Minister

Forest is a mountain man living in complete

isolat

Type: Word Problem

30 The scarcity problem applies to

→ all decisions

only market decisions, e.g., buying a car

only non-market decisions, e.g., watching a sunset

only the poor

only the wealthy

The scarcity problem applies

to

Type: Word Problem

31 Benny has one hour before bedtime and he can either watch TV or listen to a new CD He chooses to listen to the CD The scarcity problem's influence on Benny is seen in

the decision to listen to music

the decision not to watch TV

→ the fixed amount of time before bed

the decision to choose between TV and music

Benny's taste in music

Benny has one hour before bedtime and he can

eithe

Type: Word Problem

32 The cost-benefit principle indicates that an action should be taken

if the total benefits exceed the total costs

if the extra benefits are positive

if the average benefits exceed the average costs

if the resulting economic surplus is zero

→ if the extra benefits are greater than the extra costs

The cost-benefit principle indicates that an

actio

Difficulty: EasyGradable: automaticLearning Objective: 01-03 State and explain the problem of scarcity and its

relation to opportunity cost

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Type: Word Problem

33 Choosing to study for an exam until the extra benefit (improved score) equals the extra cost (mental fatigue) is

not rational

→ an application of the cost-benefit principle

an application of the scarcity principle

the relevant opportunity cost

less desirable than studying for the entire evening

Choosing to study for an exam until the extra

bene

Type: Word Problem

34 For a given question to be considered an economic question, it would need to involve

explicit prices

making a choice

money and income

limited resources

→ limited resources and making a choice

For a given question to be considered an

economic

Type: Word Problem

35 The range of topics, or issues, that fit within the definition of economics is

limited to market activities, e.g., buying soap

limited to individuals and firms

→ extremely wide, requiring only the ideas of choice and scarcity

limited to governments and nations

very limited

The range of topics, or issues, that fit

within th

Type: Word Problem

36 The scarcity problem indicates and the cost-benefit principle indicates

→ that choices must be made; how to make the choices

how to make the choices; that choices must be madethat choices must be made; just one of many possible ways to make the choicesthat choices must be made; that the choices will be poor

that choices must be made; that the costs can never outweigh the benefits of the choices

The scarcity problem indicates

and the

Type: Word Problem

37 If there were no scarcity, it implies that

benefits must be greater than costs

all human desires would be irrelevant

→ costs would be irrelevant

market prices must be low

everyone probably has lots of money

If there were no scarcity, it implies

that

Type: Word Problem

38 The fact that even a rich country like Canada faces the economic problem of scarcity implies that

scarcity must be a problem related to the use of land and labour in Canada

scarcity must be the result of mismanagement of natural resources by Canadian businesses

scarcity must be largely due to the inefficiency of the government in Canada

→ wants and human desires in Canada exceed available resources

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Canada is not a rich country after all.

The fact that even a rich country like Canada

face

Type: Word Problem

39 Scarcity exists in the world today because

→ human wants and desires are insatiable

average households are too poor

there is not enough money in the world

people always make the wrong choices

we are always producing the wrong things

Scarcity exists in the world today

because

Type: Word Problem

40 Whether studying the size of the Canadian economy or the number of children a couple will choose to have, the unifying concept is

wants are limited, resources are limited, and thus trade-offs must be made

→ wants are unlimited, resources are limited, and thus trade-offs must be made

wants are unlimited, resources are limited to some but not to others, and thus some people must make offs

trade-wants are unlimited, resources are unlimited, and thus no trade-offs need to be made

wants are unlimited, resources are limited, and thus government needs to do more

Whether studying the size of the Canadian

economy

Type: Word Problem

41 With banking machines, it is possible to retrieve cash from the bank at any time 100 years ago, one could only get cash from the bank during business hours, say, 9 am to 3 pm The difference is because

flexibility was not valued 100 years ago

it was impossible to provide 24 hour a day service 100 years ago

→ the cost of providing 24 hour a day service is much lower today

the government forced banks to become more convenient

cash is a more popular means of making payments today

With banking machines, it is possible to

retrieve

Type: Word Problem

42 Deciding to pursue an activity as long as the extra benefits are at least equal to the extra costs defines the

Deciding to pursue an activity as long as the

extr

relation to opportunity cost.Level of Learning: Knowledge

Type: Word Problem

43 The existence of the cost-benefit principle stems from

the limited nature of wants

→ the trade-offs the scarcity problem indicates must be made

the necessity of government intervention

opportunity costs

the unlimited nature of resources

The existence of the cost-benefit principle

stems

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Type: Word Problem

44 Imagine a world with unlimited resources, including time On that planet,

personal strife would not exist

the scarcity problem would not apply but the cost-benefit principle would

→ the cost-benefit principle would be irrelevant because trade-offs would be unnecessary

the scarcity problem would still apply

the discipline of economics would be more important

Imagine a world with unlimited resources,

includin

Type: Word Problem

45 When economists say there is no such thing as a free lunch, they mean that

we must pay money for everything we get

it is against the law to accept goods or services without paying for them

when we eat lunch, our time has no value

each day we decide to eat lunch is another day we must pay out money

→ every choice we make involves a trade-off

When economists say there is no such thing

as a fr

Type: Word Problem

46 The concept of scarcity applies both to Bill Gates and a homeless person because

both have the same legal rights

they have the same access to the markets for goods and services

→ there are only 24 hours in the day for both of them

they are both consumers

both must breathe air in order to live

The concept of scarcity applies both to Bill

Gates

Type: Word Problem

47 The cost-benefit principle

states that an action should be taken only if the total benefit is at least as great as the total cost

implies that the cost of all alternatives should be included when choosing among alternatives

→ states that an action should be taken only if the extra benefit is greater than the extra cost

states that an action should be taken only if the average benefit is greater than the average cost

states that an action should be taken only if the extra benefit is less than the extra cost

The cost-benefit

principle

Difficulty: EasyGradable: automaticLearning Objective: 01-03 State and explain the problem of scarcity and its relation to opportunity

cost.Level of Learning: Knowledge

Type: Word Problem

48 The Web site for this textbook can be viewed simultaneously by thousands of students around the world without paying money to view it Does this suggest that the concept of scarcity does not apply to Web sites?

→ No, because each of the students incurs an opportunity cost, measured by the next best alternative to viewing the Web site.Yes, because an additional student viewing the Web site does not prevent another student from viewing it.Yes, because the students do not have to pay money to view the Web site and thus they do not have to forgo something else to view it

No, because the more students who view it, the slower the transmission of the information to each of the students

Yes, because the technology of the internet has made the principles of economics outdated

The Web site for this textbook can be viewed

simul

Type: Word Problem

49 In applying the cost-benefit principle, one should calculate the

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total cost and total benefit, and choose that quantity of an activity where they are equal.

average cost and average benefit, and choose that quantity of an activity where the average benefit exceeds the average cost by the greatest amount

total cost and total benefit, and choose that quantity of an activity where the total cost exceeds the total benefit

by the greatest amount

→ marginal cost and marginal benefit, and choose that quantity of an activity where the marginal benefit at least equals the marginal cost.marginal cost, total cost, marginal benefit, and marginal cost, and choose that quantity of an activity where the marginal cost equals the total cost and the marginal benefit equals the total benefit

In applying the cost-benefit principle, one

should

Type: Word Problem

50 In an economic sense, scarcity means that there are

limited resources available, so consumers never have to make choices

unlimited resources available, so consumers never have to make choices

not many products available to consumers

→ limited resources available, so consumers have to make choices

unlimited resources available, so consumers have to make choices

In an economic sense, scarcity means that

there ar

Type: Word Problem

51 The fundamental problem that is studied in economics is that

consumers have limited wants in the face of unlimited resources

markets should function without government interference

Canada is too wealthy

→ consumers have unlimited wants in the face of limited resources

there are unlimited resources

The fundamental problem that is studied in

economi

Type: Word Problem

52 The core problem of economics is

that unemployment is too high

that governments do not spend enough money on education

understanding the Great Depression

→ the scarcity problem

determining the best price for oil

The core problem of economics

is

Type: Word Problem

53 The scarcity problem refers to the fact that

consumers do not have to make choices

consumers have limited wants in the face of unlimited resources

there are not many products available to consumers

→ consumers have unlimited needs and wants, but there are limited resources

there are unlimited resources available so consumers never have to make choices

The scarcity problem refers to the fact

that

Type: Word Problem

54 The cost-benefit principle states that a consumer will be better off to follow a particular course of action, only if the

total benefits increase

total costs decrease

total costs remain unchanged

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→ extra benefits from taking the action are greater than the extra costs.

total benefits do not decrease

The cost-benefit principle states that a

consumer

Type: Word Problem

55 To determine the best course of action, one needs to consider

the benefits

the costs

neither the benefits nor the costs

→ both the benefits and the costs

either the benefits or the costs, but not both

To determine the best course of action, one

needs

Type: Word Problem

56 The opportunity cost of an activity is the value of

an alternative forgone

→ the next-best alternative forgone

the least-best alternative forgone

the difference between the chosen activity and the next-best alternative forgone

the alternative one would have preferred to choose

The opportunity cost of an activity is the

value o

Type: Word Problem

57 Amy is thinking about going to the movies tonight A ticket costs $7 and she will have to cancel her dog-sitting job that pays $30 The total cost of seeing the movie is

Amy is thinking about going to the movies

tonight

Type: Calculation

58 Cost-benefit analysis can help to shed light in the decision-making process

→ even if we can at times describe costs and benefits in vague qualitative form only

even if we have absolutely no information at all

only if we know the precise dollar value of all costs and benefits

only if we know the maximum dollar value of all costs and benefits

only if we have information on all the relevant market data

Cost-benefit analysis can help to shed light

in th

Type: Word Problem

59 Applying the cost-benefit principle to the issues of large class sizes and recent tuition hikes in Canadian universities and colleges will help to find

a fair solution to the problems of such increases

the best solution to the problems of such increases

→ a plausible explanation of the problems of such increases

out who could best bear the full burden of such increases

out whether the government is doing their best to avert the problems of such increases

Difficulty: EasyGradable: automatic

Test Bank for Principles of Microeconomics 4th Canadian Edition by Frank Full file at https://TestbankDirect.eu/

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Applying the cost-benefit principle to the

issues

Learning Objective: 01-03 State and explain the problem of scarcity and its

Type: Word Problem

60 Jenna decides to see a movie that costs $7 for the ticket and has an opportunity cost of $20 After the movie, she says to one of her friends that the movie was not worth it Apparently,

Jenna failed to apply the cost-benefit model to her decision

Jenna was not rational

the economic model of cost-benefit analysis failed

→ Jenna overestimated the benefits of the movie

this proves the limitations of economic models, specifically the cost-benefit principle

Jenna decides to see a movie that costs $7

for the

Type: Word Problem

61 Suppose that a person makes a choice that seems inconsistent with the cost-benefit principle Which of the following

statements represents the most reasonable conclusion to draw?

→ The person (explicitly or implicitly) over-estimated the benefits or under-estimated the costs or both

The abstraction of the cost-benefit principle is so great as to be unable to explain behaviour

The person does not grasp how decisions should be made

The person is simply irrational

Because people do not explicitly calculate benefits and costs, it is not surprising that choices are made which violate the cost-benefit principle

Suppose that a person makes a choice that

seems in

Type: Word Problem

62 According to the cost-benefit principle, the incentive to save $10 on a product is

directly dependent on the price of the product

→ purely a question of whether it is worth it to do what is necessary to receive the $10 of savings

stronger if the $10 is a large percentage of the list price of the product

inversely related to the price of the product

weaker if the $10 is a small percentage of the list price of the product

According to the cost-benefit principle, the

incen

Type: Word Problem

63 Maria spends her afternoon at the beach, paying $2 to rent a beach umbrella and $10 for food and drinks, rather than going

to a movie The total cost of going to the beach is

zero, because the money she spent was for food, drinks and an umbrella rather than to enter the beach

the $12 she spent on the umbrella, food and drinks

only $2 because she would have spent the money on food and drinks whether or not she went to the beach.the movie she missed seeing

→ the movie she missed seeing plus the $12 she spent on the umbrella, food, and drinks

Maria spends her afternoon at the beach,

paying $2

Type: Calculation

64 Decisions that involve doing something or not (e.g., seeing a movie) and decisions that involve choosing a level (e.g., square footage of an apartment) are

dissimilar, requiring two different models on how to decide

dissimilar, with the cost-benefit principle useful only when deciding on the level

similar, requiring a comparison of total benefits and total costs

→ similar, requiring a comparison of marginal benefits and marginal costs

similar, requiring a comparison of average benefits and average costs

Decisions that involve doing something or not

(e.g

relation to opportunity cost

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Level of Learning: Application

Type: Word Problem

65 Tony notes that an electronics store is offering a flat $20 off all prices in the store Tony reasons that, if he wants to buy something with a price of $50, it is a good offer, but if he wants to buy something with a price of $500, it is not a good offer This is an example of

→ inconsistent reasoning; saving $20 is saving $20

the proper application of the cost-benefit principle

rational choice because, in the first case, he saves 40% and, in the second case, he saves 4%

"marginal cost equals marginal benefit" thinking

opportunity costs

Tony notes that an electronics store is

offering a

Type: Word ProblemJoe has decided to purchase his textbooks for the semester His options are to purchase the books via the Internet with next day delivery to his home at a cost of $250, or to drive to campus tomorrow to buy the books at the university bookstore at

a cost of $245 Last week he drove to campus to buy a concert ticket because they offered 20 percent off the regular price

of $20

Reference: 01-66

Joe has decided to purchase his textbooks for the

66 Which of the following statements is true?

It would not be rational for Joe to drive to campus to purchase the books because the $5 saving is only two percent of the cost of the books, and that is much less than the 20 percent he saved on the concert ticket

It would be rational for Joe to drive to campus because it costs less to buy the books there than via the Internet

→ It would be rational for Joe to drive to campus because the $5 saving is more than he saved by driving there to buy the concert ticket.

It would not be rational for Joe to drive to campus to purchase the books because the cost of gas and his time must certainly be more than the $5 he would save

There is insufficient information to determine whether or not it would be rational for Joe to purchase the books via the Internet or on campus

Reference: 01-66

Which of the following statements is

true?

Difficulty: DifficultGradable: automaticLearning Objective: 01-03 State and explain the problem of scarcity and its relation to

opportunity cost.Level of Learning: Application

Type: Calculation

67 Economists argue that

→ there is an opportunity cost associated with all decisions

there is an opportunity cost associated only with decisions involving money

economic decisions have opportunity costs but other decisions do not

decisions do not have opportunity costs

there is an opportunity cost for some economic decisions

Economists argue that

Difficulty: EasyGradable: automaticLearning Objective: 01-03 State and explain the problem of scarcity and its relation to opportunity

cost.Level of Learning: Comprehension

Type: Word Problem

68 The opportunity cost of attending college is likely to be highest for a high school graduate

who has access to student loans

whose family is extremely wealthy

who will attend a more expensive college

→ who started a successful business in high school

who will attend a less expensive college

The opportunity cost of attending college is

likel

Type: Word Problem

69 When wages fall, the

opportunity cost of an hour of work increases

opportunity cost of an hour of leisure (not working) stays the same

cost of working increases

→ opportunity cost of an hour of leisure (not working) decreases

opportunity cost of an hour of leisure (not working) increases

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When wages fall, the

Difficulty: MediumGradable: automaticLearning Objective: 01-03 State and explain the problem of scarcity and its relation to opportunity

cost.Level of Learning: Application

Type: Word Problem

70 The opportunity cost of any activity is defined as

the value of the least best alternative activity forgone

the time one spends involved in the activity

→ the value of the next best alternative activity forgone

the income one spends on the activity

the value of some unspecified alternative activity forgone

The opportunity cost of any activity is

defined as

Type: Word Problem

71 Class attendance today is nearly 100%, but on most other days it is less The likely explanation for this would be

→ the opportunity cost of not attending today is much higher than usual

random chance

everything on TV was a rerun

students thought today's class was a review

the opportunity cost of attending today is much higher than usual

Class attendance today is nearly 100%, but on

most

Type: Word Problem

72 To avoid the mistake of ignoring opportunity costs, questions can be framed in the form of

To avoid the mistake of ignoring opportunity

costs

Type: Word Problem

73 If one fails to account for opportunity costs in decision making, then applying the cost-benefit principle will be flawed because

the benefits will be overstated

→ the costs will be understated

the benefits will be understated

the costs will be overstated

both benefits and costs will be understated

If one fails to account for opportunity costs

in d

Type: Word Problem

74 Opportunity cost is best defined as

marginal cost minus marginal benefit

the time spent on an economic activity

→ the value of the best forgone alternative

the monetary cost of an economic decision

marginal cost plus marginal benefit

Opportunity cost is best defined

as

opportunity cost.Level of Learning: Knowledge

Type: Word Problem

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75 The value of the best alternative to any action you undertake is referred to as its

The value of the best alternative to any

action yo

Type: Word Problem

76 The opportunity cost of a new national park is the

cost of hiring staff and park rangers to provide services for visitors

cost of constructing park buildings

→ alternative uses for the land

increased pollution to the wildlife habitat at the park

cost of constructing highways to access the park

The opportunity cost of a new national park

is the

Type: Word Problem

77 The opportunity cost of a new public highway is the

money cost of hiring contractors and construction workers for the new highway

→ other goods and services that must be sacrificed to construct the new highway

cost of constructing the new highway in a future year

increased traffic from the use of the new highway

cost of constructing the new highway in a previous year

The opportunity cost of a new public highway

is th

Type: Word Problem

78 After graduating from high school, Ron Willis plans to go to college The college tuition is $15,000 a year But, instead of going to college, Ron could take a full-time job paying $20,000 If Ron decides to go to college, what is his total cost for attending for one year?

After graduating from high school, Ron Willis

plan

Type: CalculationDavid finds he has one hour of time in the evening to allocate on the first day of the new semester He can do one of two things He can watch TV for one hour or he can open his economics textbook and read for an hour The benefit of

watching TV is 30; the benefit of reading about economics is 20

Reference: 01-79

David finds he has one hour of time in the evening

79 The opportunity cost of watching TV is and the opportunity cost of reading about economics is

0; 030; 20-20; -30indeterminate; indeterminate

Reference: 01-79

The opportunity cost of watching TV is

Type: Calculation

80 If David applies the cost-benefit principle accurately, he will

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read about economics.

watch TV but fret that he should be reading economics

read about economics but resent missing TV

flip a coin, because the economic surplus is the same either way

Reference: 01-79

If David applies the cost-benefit principle

accura

Difficulty: DifficultGradable: automaticLearning Objective: 01-04 Explain how a rational decision maker applies the

cost-benefit principleLevel of Learning: Application

Type: Calculation

81 Suppose that, instead of the first day of the semester, it is the night before David's first exam in economics One could reasonably predict that the

benefit of watching TV will rise

benefit of reading about economics will fall

→ the opportunity cost of watching TV will rise

the opportunity cost of reading economics will rise

he will continue to make the same choice

Reference: 01-79

Suppose that, instead of the first day of the

seme

Type: Calculation

82 Jack has a ticket to see a concert, which he paid $30 for yesterday He takes an unpaid day off from work to get ready for the concert When he arrives at the concert, 5 different people offer him $70 for his ticket The cost to Jack of seeing the concert is now

$30

$40

$70 plus his forgone earnings

his forgone earnings

Jack has a ticket to see a concert, which he

paid

Type: Calculation

83 A campus organization is holding a lottery to raise money The cost of a ticket is $2 but the buyer can choose to either receive the prize money all at once or half at the time of the drawing and the remainder in 3 months To ensure that all buyers do not make the same choice, the structure of the prizes must be such that

→ the amount of the all-at-once prize is smaller

the two prizes should be the same amount

the total amount of the half and half prize is smaller

the amount of the all at once prize is larger

the amount of the all at once prize is equal to one half of the total amount of the half and half prize

A campus organization is holding a lottery to

rais

Difficulty: DifficultGradable: automaticLearning Objective: 01-05 State how three pitfalls can undermine rational

economic decisionsLevel of Learning: Application

Type: Word Problem

84 Sonja owns a business that pays her a salary of $50,000 plus the potential for future profits She is considering an offer for

a top management position with another firm at a salary of $75,000 per year

She should accept the management position because she would earn more income with the other firm

She should refuse the management position because, despite the higher salary, the future profits from her current business will be greater

→ A cost-benefit analysis of her decision should include an opportunity cost of $75,000

A cost-benefit analysis of her decision should not include an opportunity cost of $75,000 because her current salary plus future profits could be greater than the salary offered by the other firm

A cost-benefit analysis of her decision should include an average cost of $75,000

Sonja owns a business that pays her a salary

of $5

Difficulty: EasyGradable: automaticLearning Objective: 01-04 Explain how a rational decision maker applies the

Type: Data Analysis85

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Ian paid $475 for an airline ticket to fly to Acapulco, Mexico for a spring break vacation Unfortunately, he fell ill and could not go to Acapulco When he called the airline to cancel the ticket, he was reminded that the ticket was non-

refundable, but that he could exchange it for another ticket within one year if he pays a $75 fee at the time of the exchange Several months later he is deciding whether to exchange the ticket for a ticket of the same price to Acapulco The

opportunity cost of going to Acapulco would equal

the ticket price of $475 plus the $75 exchange fee, if he has no other trip that he will take within the year

the ticket price of $475 plus the $75 exchange fee, if he has another trip that he will take within the year

→ the $75 exchange fee, if he has no other trip that he will take within the year

the $75 exchange fee, if he has another trip that he will take within the year

$0, if he has no other trip that he will take within the year

Ian paid $475 for an airline ticket to fly to

Acap

Type: Calculation

86 While eating dinner one evening, you receive a phone call from a telemarketing firm The firm's representative informs you that your name is one of only five names drawn in a recent lottery Each of the five people will receive a prize In order to claim your prize, however, you must visit Summer Resorts, Inc the following Friday (with no commitment to purchase anything), take a 90 minute tour of their facilities, and, at that time, your prize will be awarded In order to visit Summer Resorts, Inc the next Friday, you would have to miss 8 hours of work ($15 per hour), pay for the gas to drive there and back home ($20), and buy lunch ($10) Because you won't go to work that day you won't have to pay the $3 for gas to drive to and from work, nor pay to park, for which you have a monthly pass that costs $50 Using cost-benefit

analysis, you determine that it is rational for you to visit Summer Resorts, Inc if the prize has a minimum value to you of

While eating dinner one evening, you receive a

pho

Type: Calculation

87 You started a new business and your twin sister helped you out for free while she turned down a project that would have paid her a total of $200 When calculating the costs involved in starting up the new business, you should

not include $200 since you did not have to pay your sister

include $200 as the sunk cost

include $200 as an average weekly cost since this is what your sister might have received

→ include $200 as the opportunity cost of your sister's labour

not include your sister's labour since she is family

You started a new business and your twin sister

he

Difficulty: MediumGradable: automaticLearning Objective: 01-05 State how three pitfalls can undermine rational

economic decisionsLevel of Learning: Analysis

Type: Data Analysis

88 The cost of spending an evening partying instead of studying economics is

→ the resulting decrease in the test score in Economics

the time spent at the party

the score of the test

the cost of the textbook

university tuition

The cost of spending an evening partying

instead o

Difficulty: EasyGradable: automaticLearning Objective: 01-05 State how three pitfalls can undermine rational

economic decisionsLevel of Learning: AnalysisType: Word Problem

89 If you make an interest-free loan of $10,000 to a friend to help her get started in her new business and the interest rate charged by banks on similarly-risky loans is 15%, then the opportunity cost of the loan is equal to

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If you make an interest-free loan of $10,000 to

a

economic decisionsLevel of Learning: Analysis

Type: Data Analysis

90 A cost that cannot be recovered at the time a decision is being made is termed a(n)

A cost that cannot be recovered at the time a

deci

economic decisionsLevel of Learning: Knowledge

Type: Word Problem

91 Sunk costs are different from other concepts of costs in that they

can be either variable or fixed

→ cannot be lessened by choosing any particular course of action

influence the decision of which activity to do or not do

rise as the level of the activity rises

must be included for an accurate cost-benefit analysis

Sunk costs are different from other concepts of

co

economic decisionsLevel of Learning: Comprehension

Type: Word Problem

92 Suppose Darlene purchased a computer 2 weeks ago for $2,000 Today she can purchase a new computer that is twice as fast for $1,400 She also discovers that her current computer sells used for $300 The sunk cost of her current computer is

Suppose Darlene purchased a computer 2 weeks

ago f

Type: Calculation

93 The reason sunk costs are irrelevant to decision making is that

they are fixed

they are non-monetary

→ they will be borne no matter which particular action is chosen

they tend to be forgotten

they result from poor decision making

The reason sunk costs are irrelevant to decision

m

Type: Word ProblemOntel engineers proposed developing a 10-Gigahertz microprocessor in early 2011 at a cost of $20 million for a working prototype By mid-2012, the $20 million had been spent with no prototype The engineers request an additional $10

million to finish the project For convenience, assume the marginal cost of producing the chip once it is developed is zero.Reference: 01-94

Ontel engineers proposed developing a 10-Gigahertz

94 A senior executive at Ontel argues that the engineers should only be granted the additional $10 million if Ontel can collect

$30 million in revenues after the chip is developed The executive's argument is

correct

incorrect; Ontel need only collect $20 million

incorrect; the $20 million already spent is a marginal cost and should be ignored

→ incorrect; the $20 million already spent is a sunk cost and should be ignored

possibly correct; insufficient information to say

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Reference: 01-94

A senior executive at Ontel argues that the

engine

$20 million spent minus the extra $10 million

$20 million spent plus the extra $10 million plus $5 million for cost overruns

Reference: 01-94

In deciding whether to continue the

10-Gigahertz c

Type: Calculation

97 If the expected revenues of a 10-Gigahertz chip are $15 million, Ontel should

stop development and take a $20 million loss

finish development and earn a $5 million profit

stop development to avoid a $10 million loss

finish development and earn a $5 million loss

→ finish development and take a $15 million loss

Reference: 01-94

If the expected revenues of a 10-Gigahertz chip

ar

Type: Calculation

98 Dillon purchased his nonrefundable, nontransferable ticket to see the M.C Hammer/Vanilla Ice Career Revival show for

$30 last week; Bob has yet to buy his ticket, but wants to go In deciding whether to go to the show, the price of the ticket

is a to Dillon and a to Bob

sunk cost; sunk costrelevant cost; irrelevant cost

→ sunk cost; relevant cost

marginal cost; opportunity costirrelevant cost; relevant cost

Dillon purchased his nonrefundable,

nontransferabl

Type: Calculation

Reference: 01-99

99 The least important cost(s) in deciding the fate of the project is the

→ research and development expenditures to date

interest payments

salaries for engineers

salaries for support staff

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Type: Data Analysis100.Which of the costs listed in the table are sunk costs?

→ Expenditures on research and development

Interest payments on plant and equipment

Salaries for engineers

Salaries for support staff

Type: Data Analysis101.The least important cost to consider when making a choice is the

The least important cost to consider when

making a

Type: Word Problem102.TechU College is an expensive private institution and the University of Nova Scotia (UNS) is a public institution Three semester hours cost $5,000 at TechU and $360 at UNS If both universities do not refund any tuition after the 3rd week of class, then the cost of dropping a class after the 3rd week is

$5,000 at TechU and $360 at UNS

More than $5,000 at TechU and more than $360 at UNS

→ not dependent on the price of tuition at either institution

higher at TechU

lower at UNS

TechU College is an expensive private

institution

Type: Word Problem103.Any time one purchases a ticket in advance of an event, if the ticket is non-refundable and non-transferable, then on the day of the event,

the ticket is part of the cost of going

the ticket is a marginal cost

the ticket is part of the cost of going if it was expensive

→ the ticket is a sunk cost and should pay no role in the decision to go or not

the ticket is an average cost but not a sunk cost

Any time one purchases a ticket in advance of

an e

Type: Word Problem104.Jim, a student at Southern Province University, is enrolled in 15 credit hours this semester He is passing Calculus, but just barely, so he is considering withdrawing from the course He tells a friend, "I would drop the course but I don't want

to waste the $500 I paid in tuition." His friend replies, "The $500 tuition you paid for the course is irrelevant to your

decision Your grade in the course is the only thing that is important now." The friend is

incorrect, because the tuition will have to be paid again when Jim retakes the course

correct, because the tuition is an average cost and average costs should never be considered when making decisions

incorrect, because the tuition is a marginal cost and marginal costs should always be considered when making decisions

→ correct, because the tuition is a sunk cost and sunk costs should not be considered when making decisions

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