, TESTBANK for Principles of Economics , 10th
Edition N. Gregory Mankiw
Notes
1- The file is chapter after chapter.
2- We have shown you 10 or five pages.
3- The file contains all Appendix and Excel
sheet if it exists.
4- We have all what you need, we make
update at every time. There are many new
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5- If you think you purchased the wrong file
You can contact us at every time, we can
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1. Resources are
a. scarce for households but plentiful for economies.
b. plentiful for households but scarce for economies.
c. scarce for households and scarce for economies.
d. plentiful for households and plentiful for economies.
ANSWER: c
2. Fundamentally, economics deals with
a. scarcity.
b. money.
c. poverty.
d. banking.
ANSWER: a
3. The overriding reason why households and societies face many decisions is that
a. resources are scarce.
b. goods and services are not scarce.
c. incomes fluctuate with business cycles.
d. people, by nature, tend to disagree.
ANSWER: a
4. The phenomenon of scarcity stems from the fact that
a. most economies' production methods are not very good.
b. in most economies, wealthy people consume disproportionate quantities of goods and services.
c. governments restrict production of too many goods and services.
d. resources are limited.
ANSWER: d
5. In most societies, resources are allocated by
a. a single central planner.
b. a small number of central planners.
c. those firms that use resources to provide goods and services.
d. the combined actions of millions of households and firms.
ANSWER: d
6. Natural gas is considered to be a nonrenewable energy source. Which of the following statements is correct?
a. Natural gas is an unlimited resource.
b. Natural gas is a scarce resource.
c. Natural gas is a nonscarce resource.
d. Natural gas is not a resource.
ANSWER: b
7. Economics is the study of how society manages its
a. limited wants and unlimited resources.
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b. unlimited wants and unlimited resources.
c. limited wants and limited resources.
d. unlimited wants and limited resources.
ANSWER: d
8. What term refers to the idea that society has limited resources and therefore cannot produce all the goods and services
people wish to have?
a. inefficiency
b. inequality
c. scarcity
d. market failure
ANSWER: c
9. The adage, "There ain't no such thing as a free lunch," means
a. even people on welfare have to pay for food.
b. the cost of living is always increasing.
c. people face tradeoffs.
d. all costs are included in the price of a product.
ANSWER: c
10. Which of the following statements best represents the principle of the adage, "There ain't no such thing as a free
lunch"?
a. Isaiah can go bike riding only if he takes his sister with him.
b. Jada is starving and homeless.
c. Alivia must put gas in her truck before she can drive it to school.
d. Sachi must decide between going to New York or Montreal for fall break.
ANSWER: d
11. Candice is planning her activities for a hot summer day. She would like to go to the local swimming pool and see the
latest blockbuster movie, but because she can only get tickets to the movie for the same time that the pool is open she can
only choose one activity. This illustrates the basic principle that
a. people respond to incentives.
b. rational people think at the margin.
c. people face tradeoffs.
d. improvements in efficiency sometimes come at the expense of equality.
ANSWER: c
12. While pollution regulations yield the benefit of a cleaner environment and the improved health that comes with it, the
regulations come at the cost of reducing the incomes of the regulated firms' owners, workers, and customers. This
statement illustrates the principle that
a. trade can make everyone better off.
b. rational people think at the margin.
c. people face tradeoffs.
d. people respond to incentives.
ANSWER: c
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13. When society requires that firms reduce pollution, there is
a. a tradeoff because of reduced incomes to the firms' owners and workers.
b. a tradeoff only if some firms are forced to close.
c. no tradeoff, since the cost of reducing pollution falls only on the firms affected by the requirements.
d. no tradeoff, since everyone benefits from reduced pollution.
ANSWER: a
14. Efficiency means that
a. society is conserving resources in order to save them for the future.
b. society's goods and services are distributed equally among society's members.
c. society's goods and services are distributed fairly, though not necessarily equally, among society's members.
d. society is getting the most it can from its scarce resources.
ANSWER: d
15. The property of society getting the most it can from its scarce resources is called
a. efficiency.
b. equality.
c. externality.
d. productivity.
ANSWER: a
16. Efficiency
a. and equality both refer to how much a society can produce with its resources.
b. and equality both refer to how fairly the benefits from using resources are distributed between members of a
society.
c. refers to how much a society can produce with its resources. Equality refers to how evenly the benefits from
using resources are distributed among members of society.
d. refers to how evenly the benefits from using resources are distributed between members of society. Equality
refers to how much a society can produce with its resources.
ANSWER: c
17. The terms equality and efficiency are similar in that they both refer to benefits to society. However, they are different
in that
a. equality refers to uniform distribution of those benefits and efficiency refers to maximizing benefits from
scarce resources.
b. equality refers to maximizing benefits from scarce resources and efficiency refers to uniform distribution of
those benefits.
c. equality refers to everyone facing identical tradeoffs and efficiency refers to the opportunity cost of the
benefits.
d. equality refers to the opportunity cost of the benefits and efficiency refers to everyone facing identical
tradeoffs.
ANSWER: a
18. When society gets the most it can from its scarce resources, then the outcome is called
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a. equitable.
b. efficient.
c. normal.
d. marginal.
ANSWER: b
19. A typical society strives to get the most it can from its scarce resources. At the same time, the society attempts to
distribute the benefits of those resources to the members of the society in a fair manner. However, redistributing income
from rich to poor reduces the reward for working hard. Therefore, society faces a tradeoff between
a. guns and butter.
b. efficiency and equality.
c. inflation and unemployment.
d. work and leisure.
ANSWER: b
20. Which of the following is true?
a. Efficiency refers to the size of the economic pie; equality refers to how the pie is divided.
b. Government policies usually improve upon both equality and efficiency.
c. As long as the economic pie continually gets larger, no one will have to go hungry.
d. Efficiency and equality can both be achieved if the economic pie is cut into equal pieces.
ANSWER: a
21. When the government redistributes income from individuals in the top one percent of income to individuals in the
lowest income decile,
a. efficiency is improved, but equality is not.
b. individuals with both high levels of income and low levels of income benefit directly.
c. people work less and produce fewer goods and services.
d. the government collects more revenue in total.
ANSWER: c
22. When the government implements programs such as progressive income tax rates, which of the following is likely to
occur?
a. Equality is increased and efficiency is increased.
b. Equality is increased and efficiency is decreased.
c. Equality is decreased and efficiency is increased.
d. Equality is decreased and efficiency is decreased.
ANSWER: b
23. Senator Feldman argues that replacing the federal income tax with a national sales tax would increase the level of
output. Senator Ruiz objects that this policy would benefit individuals in the top one percent of income at the expense of
individuals in the lowest income category.
a. Both senators' arguments are primarily about equality.
b. Both senators' arguments are primarily about efficiency.
c. Senator Feldman's argument is primarily about equality, while Senator Ruiz's argument is primarily about
efficiency.
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d. Senator Feldman's argument is primarily about efficiency, while Senator Ruiz's argument is primarily about
equality.
ANSWER: d
24. Suppose the government taxes the wealthy at a higher rate than it taxes low-income individuals and then develops
programs to redistribute the tax revenue from the wealthy to low-income individuals. This redistribution of wealth
a. is more efficient and more equal for society.
b. is more efficient but less equal for society.
c. is more equal but less efficient for society.
d. is less equal and less efficient for society.
ANSWER: c
25. The opportunity cost of an item is
a. the number of hours needed to earn money to buy the item.
b. what you give up to get that item.
c. usually less than the dollar value of the item.
d. the dollar value of the item.
ANSWER: b
26. Suppose that you have received $450 as a birthday gift. You can spend it today or you can put the money in a bank
account for a year and earn 4 percent interest. The opportunity cost of spending the money today, in terms of what you
could have after one year, is
a. $0.
b. $18.00.
c. $454.00.
d. $468.00.
ANSWER: d
27. When computing the opportunity cost of attending a professional football game as a spectator, you should include
a. the price you pay for the ticket and the value of your time.
b. the price you pay for the ticket, but not the value of your time.
c. the value of your time, but not the price you pay for the ticket.
d. neither the price of the ticket nor the value of your time.
ANSWER: a
28. Sabrina decides to spend 2 hours working overtime rather than going to the movies with her friends. She earns $15 per
hour for overtime work. Her opportunity cost of working is
a. the $30 she earns working.
b. the $30 minus the enjoyment she would have received from going to the movies.
c. the enjoyment she would have received had she gone to the movies.
d. nothing, since she would have received less than $30 worth of enjoyment from going to the movies.
ANSWER: c
29. Consider Joseph's decision to go to college. If he goes to college, he will spend $24,000 on tuition, $12,000 on room
and board, and $1,200 on books. If he does not go to college, he will earn $14,000 working in a store and spend $7,000 on
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room and board. Joseph's cost of going to college is
a. $37,200.
b. $44,200.
c. $51,200.
d. $58,200.
ANSWER: b
30. For which of the following individuals would the opportunity cost of going to college be highest?
a. A promising young mathematician who will command a high salary once she earns her college degree
b. A student with average grades who has never held a job
c. A famous, highly paid actor who wants to take time away from show business to finish college and earn a
degree
d. A student who is the best player on his college basketball team, but who lacks the skills necessary to play
professional basketball
ANSWER: c
31. Chloe's college raises the cost of room and board per semester. This increase raises Chloe's opportunity cost of
attending college
a. even if the amount she would have to pay for room and board if she didn't attend college rose by the same
amount. An increase in opportunity cost reduces Chloe's incentive to attend college.
b. even if the amount she would have to pay for room and board if she didn't attend college rose by the same
amount. An increase in opportunity cost increases Chloe's incentive to attend college.
c. only if the amount she would have to pay for room and board if she didn't attend college rose by less than the
increase in the amount her college charges. An increase in opportunity cost reduces Chloe's incentive to attend
college.
d. only if the amount she would have to pay for room and board if she didn't attend college rose by less than the
increase in the amount her college charges. An increase in opportunity cost increases Chloe's incentive to
attend college.
ANSWER: c
32. Suppose your college institutes a new policy requiring you to pay for a permit to park your car in a campus parking
lot. How would this affect your opportunity cost of attending college?
a. The cost of the parking permit is not part of the opportunity cost of attending college if you would not have to
pay for parking otherwise.
b. The cost of the parking permit is part of the opportunity cost of attending college if you would not have to pay
for parking otherwise.
c. Only half of the cost of the parking permit is part of the opportunity cost of attending college.
d. The cost of the parking permit is not part of the opportunity cost of attending college under any circumstances.
ANSWER: b
33. You have driven 750 miles on a vacation and then you notice that you are only 90 miles from an attraction you hadn't
known about, but would really like to see. In computing the opportunity cost of visiting this attraction you had not
planned to visit, you should include
a. both the cost of driving the first 750 miles and the next 90 miles.
b. the cost of driving the first 750 miles, but not the cost of driving the next 90 miles.
c. the cost of driving the next 90 miles, but not the cost of driving the first 750 miles.
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d. neither the cost of driving the first 750 miles nor the cost of driving the next 90 miles.
ANSWER: c
34. Javaris's aunt gave him $125 for his birthday with the condition that Javaris buys himself something. In deciding how
to spend the money, Javaris narrows his options down to four choices: Choice 1, Choice 2, Choice 3, and Choice 4. Each
option costs $125. Finally, he decides on Choice 2. The opportunity cost of this decision is
a. the value to Javaris of the option he would have chosen had Choice 2 not been available.
b. the value to Javaris of Choices 1, 3, and 4 combined.
c. the average of the values to Javaris of Choices 1, 3, and 4.
d. $125.
ANSWER: a
35. A rational decision maker
a. ignores marginal changes and focuses instead on "the big picture."
b. ignores the likely effects of government policies when he or she makes choices.
c. takes an action only if the marginal benefit of that action exceeds the marginal cost of that action.
d. takes an action only if the combined benefits of that action and previous actions exceed the combined costs of
that action and previous actions.
ANSWER: c
36. Making rational decisions at the margin means that people
a. make those decisions that do not impose a marginal cost.
b. evaluate how easily a decision can be reversed if problems arise.
c. compare the marginal costs and marginal benefits of each decision.
d. always calculate the dollar costs for each decision.
ANSWER: c
37. People are willing to pay more for a diamond than for a bottle of water because
a. the marginal cost of producing an extra diamond far exceeds the marginal cost of producing an extra bottle of
water.
b. the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water.
c. producers of diamonds have a much greater ability to manipulate diamond prices than producers of water have
to manipulate water prices.
d. water prices are held artificially low by governments, since water is necessary for life.
ANSWER: b
38. The marginal benefit Danuta gets from purchasing a fourth pair of gloves is
a. the same as the total benefit she gets from purchasing four pairs of gloves.
b. more than the marginal cost of purchasing the fourth pair of gloves.
c. the total benefit she gets from purchasing four pairs of gloves minus the total benefit she gets from purchasing
three pairs of gloves.
d. the total benefit she gets from purchasing five pairs of gloves minus the total benefit she gets from purchasing
four pairs of gloves.
ANSWER: c
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39. After much consideration, you have chosen Ireland over Spain for your Study Abroad program next year. However,
the deadline for your final decision is still months away and you may reverse this decision. Which of the following events
could prompt you to reverse this decision?
a. The marginal benefit of going to Spain increases.
b. The marginal cost of going to Spain increases.
c. The marginal benefit of going to Ireland increases.
d. The marginal cost of going to Ireland decreases.
ANSWER: a
40. A hair stylist currently cuts and colors hair for 50 clients per week and earns a profit. He is considering expanding his
operation in order to serve more clients. Should he expand?
a. Yes, because cutting hair is profitable.
b. No, because he may not be able to sell more services.
c. It depends on the marginal cost of serving more clients and the marginal revenue he will earn from serving
more clients.
d. It depends on the average cost of serving more clients and the average revenue he will earn from serving more
clients.
ANSWER: c
41. Suppose the cost of flying a 200-seat plane for an airline is $100,000 and there are 10 empty seats on a flight. If the
marginal cost of flying a passenger is $200 and a standby passenger is willing to pay $300, the airline should
a. sell the ticket because the marginal benefit exceeds the marginal cost.
b. sell the ticket because the marginal benefit exceeds the average cost.
c. not sell the ticket because the marginal benefit is less than the marginal cost.
d. not sell the ticket because the marginal benefit is less than the average cost.
ANSWER: a
42. Suppose the cost of flying a 400-seat plane for an airline is $400,000 and there are 10 empty seats on a flight. The
marginal cost of flying a passenger is
a. $400.
b. $4,000.
c. $400,000.
d. This cannot be determined from the information given.
ANSWER: d
43. Savion is restoring a car and has already spent $4,000 on the restoration. He expects to be able to sell the car for
$5800. Savion discovers that he needs to do an additional $2,400 of work to make the car worth $5,800 to potential
buyers. He could also sell the car now, without completing the additional work, for $3,800. What should he do?
a. He should sell the car now for $3,800.
b. He should keep the car since it wouldn’t be rational to spend $6,400 restoring a car and then sell it for only
$5,800.
c. He should complete the additional work and sell the car for $5,800.
d. It does not matter which action he takes since the outcome will be the same either way.
ANSWER: a
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Edition N. Gregory Mankiw
Notes
1- The file is chapter after chapter.
2- We have shown you 10 or five pages.
3- The file contains all Appendix and Excel
sheet if it exists.
4- We have all what you need, we make
update at every time. There are many new
editions waiting you.
5- If you think you purchased the wrong file
You can contact us at every time, we can
replace it with true one.
Our email:
,Name: Class: Date:
Ch 01: MC Algo
1. Resources are
a. scarce for households but plentiful for economies.
b. plentiful for households but scarce for economies.
c. scarce for households and scarce for economies.
d. plentiful for households and plentiful for economies.
ANSWER: c
2. Fundamentally, economics deals with
a. scarcity.
b. money.
c. poverty.
d. banking.
ANSWER: a
3. The overriding reason why households and societies face many decisions is that
a. resources are scarce.
b. goods and services are not scarce.
c. incomes fluctuate with business cycles.
d. people, by nature, tend to disagree.
ANSWER: a
4. The phenomenon of scarcity stems from the fact that
a. most economies' production methods are not very good.
b. in most economies, wealthy people consume disproportionate quantities of goods and services.
c. governments restrict production of too many goods and services.
d. resources are limited.
ANSWER: d
5. In most societies, resources are allocated by
a. a single central planner.
b. a small number of central planners.
c. those firms that use resources to provide goods and services.
d. the combined actions of millions of households and firms.
ANSWER: d
6. Natural gas is considered to be a nonrenewable energy source. Which of the following statements is correct?
a. Natural gas is an unlimited resource.
b. Natural gas is a scarce resource.
c. Natural gas is a nonscarce resource.
d. Natural gas is not a resource.
ANSWER: b
7. Economics is the study of how society manages its
a. limited wants and unlimited resources.
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b. unlimited wants and unlimited resources.
c. limited wants and limited resources.
d. unlimited wants and limited resources.
ANSWER: d
8. What term refers to the idea that society has limited resources and therefore cannot produce all the goods and services
people wish to have?
a. inefficiency
b. inequality
c. scarcity
d. market failure
ANSWER: c
9. The adage, "There ain't no such thing as a free lunch," means
a. even people on welfare have to pay for food.
b. the cost of living is always increasing.
c. people face tradeoffs.
d. all costs are included in the price of a product.
ANSWER: c
10. Which of the following statements best represents the principle of the adage, "There ain't no such thing as a free
lunch"?
a. Isaiah can go bike riding only if he takes his sister with him.
b. Jada is starving and homeless.
c. Alivia must put gas in her truck before she can drive it to school.
d. Sachi must decide between going to New York or Montreal for fall break.
ANSWER: d
11. Candice is planning her activities for a hot summer day. She would like to go to the local swimming pool and see the
latest blockbuster movie, but because she can only get tickets to the movie for the same time that the pool is open she can
only choose one activity. This illustrates the basic principle that
a. people respond to incentives.
b. rational people think at the margin.
c. people face tradeoffs.
d. improvements in efficiency sometimes come at the expense of equality.
ANSWER: c
12. While pollution regulations yield the benefit of a cleaner environment and the improved health that comes with it, the
regulations come at the cost of reducing the incomes of the regulated firms' owners, workers, and customers. This
statement illustrates the principle that
a. trade can make everyone better off.
b. rational people think at the margin.
c. people face tradeoffs.
d. people respond to incentives.
ANSWER: c
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13. When society requires that firms reduce pollution, there is
a. a tradeoff because of reduced incomes to the firms' owners and workers.
b. a tradeoff only if some firms are forced to close.
c. no tradeoff, since the cost of reducing pollution falls only on the firms affected by the requirements.
d. no tradeoff, since everyone benefits from reduced pollution.
ANSWER: a
14. Efficiency means that
a. society is conserving resources in order to save them for the future.
b. society's goods and services are distributed equally among society's members.
c. society's goods and services are distributed fairly, though not necessarily equally, among society's members.
d. society is getting the most it can from its scarce resources.
ANSWER: d
15. The property of society getting the most it can from its scarce resources is called
a. efficiency.
b. equality.
c. externality.
d. productivity.
ANSWER: a
16. Efficiency
a. and equality both refer to how much a society can produce with its resources.
b. and equality both refer to how fairly the benefits from using resources are distributed between members of a
society.
c. refers to how much a society can produce with its resources. Equality refers to how evenly the benefits from
using resources are distributed among members of society.
d. refers to how evenly the benefits from using resources are distributed between members of society. Equality
refers to how much a society can produce with its resources.
ANSWER: c
17. The terms equality and efficiency are similar in that they both refer to benefits to society. However, they are different
in that
a. equality refers to uniform distribution of those benefits and efficiency refers to maximizing benefits from
scarce resources.
b. equality refers to maximizing benefits from scarce resources and efficiency refers to uniform distribution of
those benefits.
c. equality refers to everyone facing identical tradeoffs and efficiency refers to the opportunity cost of the
benefits.
d. equality refers to the opportunity cost of the benefits and efficiency refers to everyone facing identical
tradeoffs.
ANSWER: a
18. When society gets the most it can from its scarce resources, then the outcome is called
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a. equitable.
b. efficient.
c. normal.
d. marginal.
ANSWER: b
19. A typical society strives to get the most it can from its scarce resources. At the same time, the society attempts to
distribute the benefits of those resources to the members of the society in a fair manner. However, redistributing income
from rich to poor reduces the reward for working hard. Therefore, society faces a tradeoff between
a. guns and butter.
b. efficiency and equality.
c. inflation and unemployment.
d. work and leisure.
ANSWER: b
20. Which of the following is true?
a. Efficiency refers to the size of the economic pie; equality refers to how the pie is divided.
b. Government policies usually improve upon both equality and efficiency.
c. As long as the economic pie continually gets larger, no one will have to go hungry.
d. Efficiency and equality can both be achieved if the economic pie is cut into equal pieces.
ANSWER: a
21. When the government redistributes income from individuals in the top one percent of income to individuals in the
lowest income decile,
a. efficiency is improved, but equality is not.
b. individuals with both high levels of income and low levels of income benefit directly.
c. people work less and produce fewer goods and services.
d. the government collects more revenue in total.
ANSWER: c
22. When the government implements programs such as progressive income tax rates, which of the following is likely to
occur?
a. Equality is increased and efficiency is increased.
b. Equality is increased and efficiency is decreased.
c. Equality is decreased and efficiency is increased.
d. Equality is decreased and efficiency is decreased.
ANSWER: b
23. Senator Feldman argues that replacing the federal income tax with a national sales tax would increase the level of
output. Senator Ruiz objects that this policy would benefit individuals in the top one percent of income at the expense of
individuals in the lowest income category.
a. Both senators' arguments are primarily about equality.
b. Both senators' arguments are primarily about efficiency.
c. Senator Feldman's argument is primarily about equality, while Senator Ruiz's argument is primarily about
efficiency.
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d. Senator Feldman's argument is primarily about efficiency, while Senator Ruiz's argument is primarily about
equality.
ANSWER: d
24. Suppose the government taxes the wealthy at a higher rate than it taxes low-income individuals and then develops
programs to redistribute the tax revenue from the wealthy to low-income individuals. This redistribution of wealth
a. is more efficient and more equal for society.
b. is more efficient but less equal for society.
c. is more equal but less efficient for society.
d. is less equal and less efficient for society.
ANSWER: c
25. The opportunity cost of an item is
a. the number of hours needed to earn money to buy the item.
b. what you give up to get that item.
c. usually less than the dollar value of the item.
d. the dollar value of the item.
ANSWER: b
26. Suppose that you have received $450 as a birthday gift. You can spend it today or you can put the money in a bank
account for a year and earn 4 percent interest. The opportunity cost of spending the money today, in terms of what you
could have after one year, is
a. $0.
b. $18.00.
c. $454.00.
d. $468.00.
ANSWER: d
27. When computing the opportunity cost of attending a professional football game as a spectator, you should include
a. the price you pay for the ticket and the value of your time.
b. the price you pay for the ticket, but not the value of your time.
c. the value of your time, but not the price you pay for the ticket.
d. neither the price of the ticket nor the value of your time.
ANSWER: a
28. Sabrina decides to spend 2 hours working overtime rather than going to the movies with her friends. She earns $15 per
hour for overtime work. Her opportunity cost of working is
a. the $30 she earns working.
b. the $30 minus the enjoyment she would have received from going to the movies.
c. the enjoyment she would have received had she gone to the movies.
d. nothing, since she would have received less than $30 worth of enjoyment from going to the movies.
ANSWER: c
29. Consider Joseph's decision to go to college. If he goes to college, he will spend $24,000 on tuition, $12,000 on room
and board, and $1,200 on books. If he does not go to college, he will earn $14,000 working in a store and spend $7,000 on
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room and board. Joseph's cost of going to college is
a. $37,200.
b. $44,200.
c. $51,200.
d. $58,200.
ANSWER: b
30. For which of the following individuals would the opportunity cost of going to college be highest?
a. A promising young mathematician who will command a high salary once she earns her college degree
b. A student with average grades who has never held a job
c. A famous, highly paid actor who wants to take time away from show business to finish college and earn a
degree
d. A student who is the best player on his college basketball team, but who lacks the skills necessary to play
professional basketball
ANSWER: c
31. Chloe's college raises the cost of room and board per semester. This increase raises Chloe's opportunity cost of
attending college
a. even if the amount she would have to pay for room and board if she didn't attend college rose by the same
amount. An increase in opportunity cost reduces Chloe's incentive to attend college.
b. even if the amount she would have to pay for room and board if she didn't attend college rose by the same
amount. An increase in opportunity cost increases Chloe's incentive to attend college.
c. only if the amount she would have to pay for room and board if she didn't attend college rose by less than the
increase in the amount her college charges. An increase in opportunity cost reduces Chloe's incentive to attend
college.
d. only if the amount she would have to pay for room and board if she didn't attend college rose by less than the
increase in the amount her college charges. An increase in opportunity cost increases Chloe's incentive to
attend college.
ANSWER: c
32. Suppose your college institutes a new policy requiring you to pay for a permit to park your car in a campus parking
lot. How would this affect your opportunity cost of attending college?
a. The cost of the parking permit is not part of the opportunity cost of attending college if you would not have to
pay for parking otherwise.
b. The cost of the parking permit is part of the opportunity cost of attending college if you would not have to pay
for parking otherwise.
c. Only half of the cost of the parking permit is part of the opportunity cost of attending college.
d. The cost of the parking permit is not part of the opportunity cost of attending college under any circumstances.
ANSWER: b
33. You have driven 750 miles on a vacation and then you notice that you are only 90 miles from an attraction you hadn't
known about, but would really like to see. In computing the opportunity cost of visiting this attraction you had not
planned to visit, you should include
a. both the cost of driving the first 750 miles and the next 90 miles.
b. the cost of driving the first 750 miles, but not the cost of driving the next 90 miles.
c. the cost of driving the next 90 miles, but not the cost of driving the first 750 miles.
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d. neither the cost of driving the first 750 miles nor the cost of driving the next 90 miles.
ANSWER: c
34. Javaris's aunt gave him $125 for his birthday with the condition that Javaris buys himself something. In deciding how
to spend the money, Javaris narrows his options down to four choices: Choice 1, Choice 2, Choice 3, and Choice 4. Each
option costs $125. Finally, he decides on Choice 2. The opportunity cost of this decision is
a. the value to Javaris of the option he would have chosen had Choice 2 not been available.
b. the value to Javaris of Choices 1, 3, and 4 combined.
c. the average of the values to Javaris of Choices 1, 3, and 4.
d. $125.
ANSWER: a
35. A rational decision maker
a. ignores marginal changes and focuses instead on "the big picture."
b. ignores the likely effects of government policies when he or she makes choices.
c. takes an action only if the marginal benefit of that action exceeds the marginal cost of that action.
d. takes an action only if the combined benefits of that action and previous actions exceed the combined costs of
that action and previous actions.
ANSWER: c
36. Making rational decisions at the margin means that people
a. make those decisions that do not impose a marginal cost.
b. evaluate how easily a decision can be reversed if problems arise.
c. compare the marginal costs and marginal benefits of each decision.
d. always calculate the dollar costs for each decision.
ANSWER: c
37. People are willing to pay more for a diamond than for a bottle of water because
a. the marginal cost of producing an extra diamond far exceeds the marginal cost of producing an extra bottle of
water.
b. the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water.
c. producers of diamonds have a much greater ability to manipulate diamond prices than producers of water have
to manipulate water prices.
d. water prices are held artificially low by governments, since water is necessary for life.
ANSWER: b
38. The marginal benefit Danuta gets from purchasing a fourth pair of gloves is
a. the same as the total benefit she gets from purchasing four pairs of gloves.
b. more than the marginal cost of purchasing the fourth pair of gloves.
c. the total benefit she gets from purchasing four pairs of gloves minus the total benefit she gets from purchasing
three pairs of gloves.
d. the total benefit she gets from purchasing five pairs of gloves minus the total benefit she gets from purchasing
four pairs of gloves.
ANSWER: c
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39. After much consideration, you have chosen Ireland over Spain for your Study Abroad program next year. However,
the deadline for your final decision is still months away and you may reverse this decision. Which of the following events
could prompt you to reverse this decision?
a. The marginal benefit of going to Spain increases.
b. The marginal cost of going to Spain increases.
c. The marginal benefit of going to Ireland increases.
d. The marginal cost of going to Ireland decreases.
ANSWER: a
40. A hair stylist currently cuts and colors hair for 50 clients per week and earns a profit. He is considering expanding his
operation in order to serve more clients. Should he expand?
a. Yes, because cutting hair is profitable.
b. No, because he may not be able to sell more services.
c. It depends on the marginal cost of serving more clients and the marginal revenue he will earn from serving
more clients.
d. It depends on the average cost of serving more clients and the average revenue he will earn from serving more
clients.
ANSWER: c
41. Suppose the cost of flying a 200-seat plane for an airline is $100,000 and there are 10 empty seats on a flight. If the
marginal cost of flying a passenger is $200 and a standby passenger is willing to pay $300, the airline should
a. sell the ticket because the marginal benefit exceeds the marginal cost.
b. sell the ticket because the marginal benefit exceeds the average cost.
c. not sell the ticket because the marginal benefit is less than the marginal cost.
d. not sell the ticket because the marginal benefit is less than the average cost.
ANSWER: a
42. Suppose the cost of flying a 400-seat plane for an airline is $400,000 and there are 10 empty seats on a flight. The
marginal cost of flying a passenger is
a. $400.
b. $4,000.
c. $400,000.
d. This cannot be determined from the information given.
ANSWER: d
43. Savion is restoring a car and has already spent $4,000 on the restoration. He expects to be able to sell the car for
$5800. Savion discovers that he needs to do an additional $2,400 of work to make the car worth $5,800 to potential
buyers. He could also sell the car now, without completing the additional work, for $3,800. What should he do?
a. He should sell the car now for $3,800.
b. He should keep the car since it wouldn’t be rational to spend $6,400 restoring a car and then sell it for only
$5,800.
c. He should complete the additional work and sell the car for $5,800.
d. It does not matter which action he takes since the outcome will be the same either way.
ANSWER: a
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