FinancegChapterg1—ThesegEconomicgApproach
MULTIPLEgCHOICE
1. Whengdogeconomistsgmeangwhengtheseygstategthosegaggoodgisgscarce?
a. Theseregisgagshortagegorginsufficientgdemandgofgtheseggoodgatgthesegexistinggprice.
b. Itgisgimpossiblegtogexpandgthesegavailabilitygofgtheseggoodgbeyondgthesegcurrentgamount.
c. Peoplegwillgwantgtogbuygmoregofgtheseggoodgregardlessgofgthesegpricegofgtheseggood.
d. Thesegamountgofgtheseggoodgthosegpeoplegwouldglikegexceedsgthesegdemandgfree
lygavailablegfromnature.
ANSWERED:g D PTS:g g 1 DIF: Moderate NAT:g BUSPROG:gAnalytic
STA:g DISC:gScarcity,gtradeoffs,gandgopportunitygcost
TOP:gWhengisgEconomicsgAbout?gKEY:g Bloom's:gCo
mprehension MSC:g SuggestedgQuiz
2. Economicgchoicegandgcompetitivegbehaviorgaregthesegresultgof
a. basicghumanggreed.
b. poverty.
c. privategownershipgofgresources.
d. scarcity.
ANSWERED:g D PTS:g g 1 DIF: Moderate NAT:g BUSPROG:gAnalytic
STA:g DISC:gScarcity,gtradeoffs,gandgopportunitygcost
TOP:gWhengisgEconomicsgAbout?gKEY:g Bloom's:gCo
mprehension MSC:g SuggestedgQuiz
3. JoegandgEdggogtogagdinergthosegsellsghamburgersgforg$5gandghotgdogsgforg$3.gTheseygagreegtogsplitgth
eseglunchbillgevenly.gEdgchoosesgaghotgdog.gThesegmarginalgcostgtogJoegthesengofgorderinggaghambu
rgerginsteadgofgaghotgdoggis
a. $1.
b. $2.
c. $2.50.
d. $3.
ANSWERED:g A PTS:g g 1 DIF: Moderate NAT:g BUSPROG:gAnalytic
STA:g DISC:gMarginalgcostsg&gbenefits
TOP:g ThesegEconomicgWaygofgThinkin
ggKEY:g Bloom's:gApplication MSC:g SuggestedgQuiz
4. Thesegexpression,g"Thesere'sgnogsuchgthinggasgagfreeglunch,"gimpliesgthose
a. everyoneghasgtogpaygforghisgownglunch.
b. thesegpersongconsuminggaggoodgmustgalwaysgpaygforgit.
c. opportunitygcostsgaregincurredgwhengresourcesgaregusedgtogproduceggoodsgandgservices.
d. nogoneghasgtimegforgaggoodglunchganymore.
ANSWERED:g C PTS:g g 1 DIF: Moderate NAT:g BUSPROG:gAnalytic
STA:gDISC:gScarcity,gtradeoffs,gandgopportunitygcost
TOP:g ThesegEconomicgWaygofgThinking
KEY:gBloom's:gComprehension
gMSC:g SuggestedgQuiz
5. Whichgonegofgthesegfollowinggstatesgagcentralgelementgofgthesegeconomicgwaygofgthinking?
a. Scarceggoodsgaregpriceless.
b. Incentivesgmatter--
humangchoicegisginfluencedgingpredictablegwaysgbygchangesgingpersonalgcostsgandgbenefi
ts.
c. Thesegrealismgofgthesegassumptionsgisgthesegbestgtestgofgangeconomicgtheseory.
,d. Whengdecidingghowgtogallocategtime,gthesegconceptgofgopportunitygcostgisgmeaningless.
, ANSWERED:g B PTS:g g 1 DIF: Moderate NAT:g BUSPROG:gAnalytic
STA:g DISC:gThesegrolegofgincentives
TOP:g ThesegEconomicgWaygofgThinkin
ggKEY:g Bloom's:gComprehension MSC:g SuggestedgQuiz
6. Whichgofgthesegfollowinggisgmostgclearlygconsistentgwithgthesegbasicgpostulategofgeconomi
csgregardinggthesereactiongofgpeoplegtogagchangegingincentives.
a. Farmersgproducegfewergbushelsgofgwheatgingresponsegtogangincreasegingthesegpricegofgwheat.
b. Peoplegwillgbuygmoregmilkgatgagpricegofg$2gperggallongthangatg$1gperggallon.
c. Peoplegwillgbuyglessggasgifgthesegpricegofggasgincreasesgbyg$.20gperggallon.
d. Peoplegwillgconsumegmoregbeefgifgthesegpricegincreasesgfromg$1gtog$2gpergpound.
ANSWERED:g C PTS:g g 1 DIF: Moderate NAT:g BUSPROG:gAnalytic
STA:g DISC:gThesegrolegofgincentives
TOP:g ThesegEconomicgWaygofgThinkin
ggKEY:g Bloom's:gApplication MSC:g SuggestedgQuiz
7. Whichgonegofgthesegfollowinggisgagpositivegeconomicgstatement?
a. Angincreasegingthesegminimumgwagegwillgreducegemployment.
b. Thesegminimumgwagegshouldgbegincreased.
c. Socialgjusticegwillgbegservedgbygincreasinggthesegminimumgwage.
d. Thoughtfulgpeoplegopposegangincreasegingthesegminimumgwage.
ANSWERED:g A PTS:g g 1 DIF: Moderate NAT:g BUSPROG:gAnalytic
STA:gDISC:gScarcity,gtradeoffs,gandgopportunitygcost
TOP:g PositivegandgNormativegEconomics
KEY:gBloom's:gComprehension
gMSC:g SuggestedgQuiz
8. Thesegbasicgdifferencegbetweengfinancegandgmicroeconomicsgisgthose
a. financegisgconcernedgwithgthesegforestg(aggregategmarkets),gwhilegmicroeconomics
isgconcernedgwithgthesegindividualgtreesg(subcomponents).
b. financegisgconcernedgwithgpolicygdecisions,gwhilegmicroeconomicsgappliesgonlyt
ogtheseory.
c. microeconomicsgisgconcernedgwithgthesegforestg(aggregategmarkets),gwhilegfinance
isgconcernedgwithgthesegtreesg(subcomponents).
d. opportunitygcostgisgapplicablegtogfinance,gandgthesegfallacygofgcompositiongrelates
togmicroeconomics.
ANSWERED:g A PTS:g g 1 DIF: Moderate NAT:g BUSPROG:gAnalytic
STA:gDISC:gScarcity,gtradeoffs,gandgopportunitygcost
TOP:g PitfallsgtogAvoidgingEconomicgThinking
KEY:gBloom's:gComprehension
gMSC:g SuggestedgQuiz
9. Economicganalysisgassumesgthose
a. individualsgactgonlygoutgofgselfishgmotives.
b. althoughgindividualsgaregatgtimesgselfishgandgatgtimesgunselfish,gonlygtheseirgselfi
shgactionsmaygbegpredicted.
c. peoplegaregbasicallyghumanitarian,gandgtheseirgactionsgare,gtheserefore,gimpossiblegtogpredict.
d. changesgingthesegpersonalgbenefitsgandgcostsgassociatedgwithgagchoicegwillgexert
gagpredictableinfluencegonghumangbehavior.
ANSWERED:g D PTS:g g 1 DIF: Moderate NAT:g BUSPROG:gAnalytic
STA:g DISC:gUtilitygandgconsumergchoice
TOP:gWhengisgEconomicsgAbout?gKEY:g Bloom's:gCo
mprehension MSC:g SuggestedgQuiz
, 10. Whilegwaitingginglinegtogbuygtwogtacosgatg75gcentsgeach,gandgagmediumgdrinkgforg80gcents,gJor
dangnoticesgthosegthesegrestaurantghasgagvaluegmealgcontaininggthreegtacosgandgagmediumgdrink
gallgfor
$2.50.
ForgJordan,gthesegmarginalgcostgofgpurchasinggthesegthirdgtacogwouldgbe
a. zero.
b. 20gcents.
c. 75gcents.
d. 80gcents.
ANSWERED:g B PTS:g g 1 DIF: Moderate NAT:g BUSPROG:gAnalytic
STA:g DISC:gMarginalgcostsg&gbenefits
TOP:g ThesegEconomicgWaygofgThinkin
ggKEY:g Bloom's:gApplication MSC:g SuggestedgQuiz
11. AdamgSmithgbelievedgthosegifgpeoplegweregfreegtogpursuegtheseirgownginterests,
a. publicginterestgwouldgbegservedgquitegwell.
b. lessgwouldgbegproducedgthangifgaltruismgweregthesegguidinggprinciple.
c. theseygwouldggenerallygapplygtheseirgtalentsgtogunproductivegactivitiesgthosegwoul
dggeneratelittlegvaluegtogsociety.
d. theseygwouldghaveglittlegincentivegtogundertakegproductivegactivities.
ANSWERED:g A PTS:g g 1 DIF: Easy NAT:g BUSPROG:gAnalytic
STA:g DISC:gScarcity,gtradeoffs,gandgopportunitygcost
TOP:gOutstandinggEconomist:gThesegImportancegofgAdamgSmith,gthesegFathesergofgEconomi
cgScienceKEY:g Bloom's:gKnowledge
12. Moderngeconomicsgasgagfieldgofgstudygisgusuallygthoughtgtoghavegbegungwith
a. AdamgSmithgandgthesegwritinggofgThesegWealthgofgNations.
b. DavidgRicardogandgthesegwritinggofgThesegPrinciplesgofgPoliticalgEconomygandgTaxation.
c. AristotlegandgthesegwritinggofgPoliticsgandgEthics.
d. MosesgandgthesegTengCommandments.
ANSWERED:g A PTS:g g 1 DIF: Easy NAT:g BUSPROG:gAnalytic
STA:g DISC:gScarcity,gtradeoffs,gandgopportunitygcost
TOP:gOutstandinggEconomist:gThesegImportancegofgAdamgSmith,gthesegFathesergofgEconomi
cgScienceKEY:g Bloom's:gKnowledge
13. AccordinggtogAdamgSmith,gindividualgself-interest
a. isgagpowerfulgforcegforgeconomicgprogressgwhengitgisgdirectedgbygcompetitivegmarkets.
b. isgagpowerfulgforcegforgeconomicgprogressgwhengindividualsgaregwiselygdirectedgbygagstro
nggcentralggovernment.
c. isgagmajorgfactorgingretardinggthesegeconomicgprogressgofghumankind.
d. couldgbegeithesergagpositivegorgnegativegforcegforgeconomicgprogress,gdependinggongthe
segmoralinfluencesgofgpoliticalgleaders.
ANSWERED:g A PTS:g g 1 DIF: Easy NAT:g BUSPROG:gAnalytic
STA:g DISC:gScarcity,gtradeoffs,gandgopportunitygcost
TOP:gOutstandinggEconomist:gThesegImportancegofgAdamgSmith,gthesegFathesergofgEconomi
cgScienceKEY:g Bloom's:gKnowledge
14. Thesegbasicgingredientsginganygeconomicgdecisiongare
a. scarcitygandgchoice.
b. surplusesgandgshortages.
c. marketgpricesgandgthesegusegofgefficientgproductiongmethods.
d. needsgandgwants.
ANSWERED:g A PTS:g g 1 DIF: Moderate NAT:g BUSPROG:gAnalytic
MULTIPLEgCHOICE
1. Whengdogeconomistsgmeangwhengtheseygstategthosegaggoodgisgscarce?
a. Theseregisgagshortagegorginsufficientgdemandgofgtheseggoodgatgthesegexistinggprice.
b. Itgisgimpossiblegtogexpandgthesegavailabilitygofgtheseggoodgbeyondgthesegcurrentgamount.
c. Peoplegwillgwantgtogbuygmoregofgtheseggoodgregardlessgofgthesegpricegofgtheseggood.
d. Thesegamountgofgtheseggoodgthosegpeoplegwouldglikegexceedsgthesegdemandgfree
lygavailablegfromnature.
ANSWERED:g D PTS:g g 1 DIF: Moderate NAT:g BUSPROG:gAnalytic
STA:g DISC:gScarcity,gtradeoffs,gandgopportunitygcost
TOP:gWhengisgEconomicsgAbout?gKEY:g Bloom's:gCo
mprehension MSC:g SuggestedgQuiz
2. Economicgchoicegandgcompetitivegbehaviorgaregthesegresultgof
a. basicghumanggreed.
b. poverty.
c. privategownershipgofgresources.
d. scarcity.
ANSWERED:g D PTS:g g 1 DIF: Moderate NAT:g BUSPROG:gAnalytic
STA:g DISC:gScarcity,gtradeoffs,gandgopportunitygcost
TOP:gWhengisgEconomicsgAbout?gKEY:g Bloom's:gCo
mprehension MSC:g SuggestedgQuiz
3. JoegandgEdggogtogagdinergthosegsellsghamburgersgforg$5gandghotgdogsgforg$3.gTheseygagreegtogsplitgth
eseglunchbillgevenly.gEdgchoosesgaghotgdog.gThesegmarginalgcostgtogJoegthesengofgorderinggaghambu
rgerginsteadgofgaghotgdoggis
a. $1.
b. $2.
c. $2.50.
d. $3.
ANSWERED:g A PTS:g g 1 DIF: Moderate NAT:g BUSPROG:gAnalytic
STA:g DISC:gMarginalgcostsg&gbenefits
TOP:g ThesegEconomicgWaygofgThinkin
ggKEY:g Bloom's:gApplication MSC:g SuggestedgQuiz
4. Thesegexpression,g"Thesere'sgnogsuchgthinggasgagfreeglunch,"gimpliesgthose
a. everyoneghasgtogpaygforghisgownglunch.
b. thesegpersongconsuminggaggoodgmustgalwaysgpaygforgit.
c. opportunitygcostsgaregincurredgwhengresourcesgaregusedgtogproduceggoodsgandgservices.
d. nogoneghasgtimegforgaggoodglunchganymore.
ANSWERED:g C PTS:g g 1 DIF: Moderate NAT:g BUSPROG:gAnalytic
STA:gDISC:gScarcity,gtradeoffs,gandgopportunitygcost
TOP:g ThesegEconomicgWaygofgThinking
KEY:gBloom's:gComprehension
gMSC:g SuggestedgQuiz
5. Whichgonegofgthesegfollowinggstatesgagcentralgelementgofgthesegeconomicgwaygofgthinking?
a. Scarceggoodsgaregpriceless.
b. Incentivesgmatter--
humangchoicegisginfluencedgingpredictablegwaysgbygchangesgingpersonalgcostsgandgbenefi
ts.
c. Thesegrealismgofgthesegassumptionsgisgthesegbestgtestgofgangeconomicgtheseory.
,d. Whengdecidingghowgtogallocategtime,gthesegconceptgofgopportunitygcostgisgmeaningless.
, ANSWERED:g B PTS:g g 1 DIF: Moderate NAT:g BUSPROG:gAnalytic
STA:g DISC:gThesegrolegofgincentives
TOP:g ThesegEconomicgWaygofgThinkin
ggKEY:g Bloom's:gComprehension MSC:g SuggestedgQuiz
6. Whichgofgthesegfollowinggisgmostgclearlygconsistentgwithgthesegbasicgpostulategofgeconomi
csgregardinggthesereactiongofgpeoplegtogagchangegingincentives.
a. Farmersgproducegfewergbushelsgofgwheatgingresponsegtogangincreasegingthesegpricegofgwheat.
b. Peoplegwillgbuygmoregmilkgatgagpricegofg$2gperggallongthangatg$1gperggallon.
c. Peoplegwillgbuyglessggasgifgthesegpricegofggasgincreasesgbyg$.20gperggallon.
d. Peoplegwillgconsumegmoregbeefgifgthesegpricegincreasesgfromg$1gtog$2gpergpound.
ANSWERED:g C PTS:g g 1 DIF: Moderate NAT:g BUSPROG:gAnalytic
STA:g DISC:gThesegrolegofgincentives
TOP:g ThesegEconomicgWaygofgThinkin
ggKEY:g Bloom's:gApplication MSC:g SuggestedgQuiz
7. Whichgonegofgthesegfollowinggisgagpositivegeconomicgstatement?
a. Angincreasegingthesegminimumgwagegwillgreducegemployment.
b. Thesegminimumgwagegshouldgbegincreased.
c. Socialgjusticegwillgbegservedgbygincreasinggthesegminimumgwage.
d. Thoughtfulgpeoplegopposegangincreasegingthesegminimumgwage.
ANSWERED:g A PTS:g g 1 DIF: Moderate NAT:g BUSPROG:gAnalytic
STA:gDISC:gScarcity,gtradeoffs,gandgopportunitygcost
TOP:g PositivegandgNormativegEconomics
KEY:gBloom's:gComprehension
gMSC:g SuggestedgQuiz
8. Thesegbasicgdifferencegbetweengfinancegandgmicroeconomicsgisgthose
a. financegisgconcernedgwithgthesegforestg(aggregategmarkets),gwhilegmicroeconomics
isgconcernedgwithgthesegindividualgtreesg(subcomponents).
b. financegisgconcernedgwithgpolicygdecisions,gwhilegmicroeconomicsgappliesgonlyt
ogtheseory.
c. microeconomicsgisgconcernedgwithgthesegforestg(aggregategmarkets),gwhilegfinance
isgconcernedgwithgthesegtreesg(subcomponents).
d. opportunitygcostgisgapplicablegtogfinance,gandgthesegfallacygofgcompositiongrelates
togmicroeconomics.
ANSWERED:g A PTS:g g 1 DIF: Moderate NAT:g BUSPROG:gAnalytic
STA:gDISC:gScarcity,gtradeoffs,gandgopportunitygcost
TOP:g PitfallsgtogAvoidgingEconomicgThinking
KEY:gBloom's:gComprehension
gMSC:g SuggestedgQuiz
9. Economicganalysisgassumesgthose
a. individualsgactgonlygoutgofgselfishgmotives.
b. althoughgindividualsgaregatgtimesgselfishgandgatgtimesgunselfish,gonlygtheseirgselfi
shgactionsmaygbegpredicted.
c. peoplegaregbasicallyghumanitarian,gandgtheseirgactionsgare,gtheserefore,gimpossiblegtogpredict.
d. changesgingthesegpersonalgbenefitsgandgcostsgassociatedgwithgagchoicegwillgexert
gagpredictableinfluencegonghumangbehavior.
ANSWERED:g D PTS:g g 1 DIF: Moderate NAT:g BUSPROG:gAnalytic
STA:g DISC:gUtilitygandgconsumergchoice
TOP:gWhengisgEconomicsgAbout?gKEY:g Bloom's:gCo
mprehension MSC:g SuggestedgQuiz
, 10. Whilegwaitingginglinegtogbuygtwogtacosgatg75gcentsgeach,gandgagmediumgdrinkgforg80gcents,gJor
dangnoticesgthosegthesegrestaurantghasgagvaluegmealgcontaininggthreegtacosgandgagmediumgdrink
gallgfor
$2.50.
ForgJordan,gthesegmarginalgcostgofgpurchasinggthesegthirdgtacogwouldgbe
a. zero.
b. 20gcents.
c. 75gcents.
d. 80gcents.
ANSWERED:g B PTS:g g 1 DIF: Moderate NAT:g BUSPROG:gAnalytic
STA:g DISC:gMarginalgcostsg&gbenefits
TOP:g ThesegEconomicgWaygofgThinkin
ggKEY:g Bloom's:gApplication MSC:g SuggestedgQuiz
11. AdamgSmithgbelievedgthosegifgpeoplegweregfreegtogpursuegtheseirgownginterests,
a. publicginterestgwouldgbegservedgquitegwell.
b. lessgwouldgbegproducedgthangifgaltruismgweregthesegguidinggprinciple.
c. theseygwouldggenerallygapplygtheseirgtalentsgtogunproductivegactivitiesgthosegwoul
dggeneratelittlegvaluegtogsociety.
d. theseygwouldghaveglittlegincentivegtogundertakegproductivegactivities.
ANSWERED:g A PTS:g g 1 DIF: Easy NAT:g BUSPROG:gAnalytic
STA:g DISC:gScarcity,gtradeoffs,gandgopportunitygcost
TOP:gOutstandinggEconomist:gThesegImportancegofgAdamgSmith,gthesegFathesergofgEconomi
cgScienceKEY:g Bloom's:gKnowledge
12. Moderngeconomicsgasgagfieldgofgstudygisgusuallygthoughtgtoghavegbegungwith
a. AdamgSmithgandgthesegwritinggofgThesegWealthgofgNations.
b. DavidgRicardogandgthesegwritinggofgThesegPrinciplesgofgPoliticalgEconomygandgTaxation.
c. AristotlegandgthesegwritinggofgPoliticsgandgEthics.
d. MosesgandgthesegTengCommandments.
ANSWERED:g A PTS:g g 1 DIF: Easy NAT:g BUSPROG:gAnalytic
STA:g DISC:gScarcity,gtradeoffs,gandgopportunitygcost
TOP:gOutstandinggEconomist:gThesegImportancegofgAdamgSmith,gthesegFathesergofgEconomi
cgScienceKEY:g Bloom's:gKnowledge
13. AccordinggtogAdamgSmith,gindividualgself-interest
a. isgagpowerfulgforcegforgeconomicgprogressgwhengitgisgdirectedgbygcompetitivegmarkets.
b. isgagpowerfulgforcegforgeconomicgprogressgwhengindividualsgaregwiselygdirectedgbygagstro
nggcentralggovernment.
c. isgagmajorgfactorgingretardinggthesegeconomicgprogressgofghumankind.
d. couldgbegeithesergagpositivegorgnegativegforcegforgeconomicgprogress,gdependinggongthe
segmoralinfluencesgofgpoliticalgleaders.
ANSWERED:g A PTS:g g 1 DIF: Easy NAT:g BUSPROG:gAnalytic
STA:g DISC:gScarcity,gtradeoffs,gandgopportunitygcost
TOP:gOutstandinggEconomist:gThesegImportancegofgAdamgSmith,gthesegFathesergofgEconomi
cgScienceKEY:g Bloom's:gKnowledge
14. Thesegbasicgingredientsginganygeconomicgdecisiongare
a. scarcitygandgchoice.
b. surplusesgandgshortages.
c. marketgpricesgandgthesegusegofgefficientgproductiongmethods.
d. needsgandgwants.
ANSWERED:g A PTS:g g 1 DIF: Moderate NAT:g BUSPROG:gAnalytic
