1. Chapter 1: What Is Economics?
Parkin © 2010 Pearson Addison-Wesley. All rights reserved.
Microeconomics, Ninth Edition

2. Economics is best defined as
how people make money and profits in the stock market.
making choices from an unlimited supply of goods and services.
making choices with unlimited wants but facing a scarcity of resources.
controlling a budget for a household.
C. making choices with unlimited wants but facing a scarcity of resources.
Parkin © 2010 Pearson Addison-Wesley. All rights reserved.
Microeconomics, Ninth Edition

3. An inducement to take a particular action is called
the marginal benefit.
the marginal cost.
opportunity cost.
an incentive.
Answer: D
Parkin © 2010 Pearson Addison-Wesley. All rights reserved.
Microeconomics, Ninth Edition

4. Which of the following is an example of a microeconomic decision?
How a trade agreement between the United States and Mexico affects both nations' unemployment rates.
Comparing inflation rates across countries.
How rent ceilings impact the supply of apartments.
How a tax rate increase will impact total production.
Answer: C
Parkin © 2010 Pearson Addison-Wesley. All rights reserved.
Microeconomics, Ninth Edition

5. profit, wages, rent, and interest
What are the four categories into which factors of production are grouped?
profit, wages, rent, and interest
land, labor, capital, and entrepreneurship
capital, human capital, land, and labor
entrepreneurship, profit, labor, and wages
B. land, labor, capital, and entrepreneurship
Parkin © 2010 Pearson Addison-Wesley. All rights reserved.
Microeconomics, Ninth Edition

6. is usually in conflict with the social interest.
In a market economy, what people do in the pursuit of their self-interest
is usually in conflict with the social interest.
usually forwards the social interest.
always forwards the social interest.
is always in conflict with the social interest.
B. usually forwards the social interest.
Parkin © 2010 Pearson Addison-Wesley. All rights reserved.
Microeconomics, Ninth Edition

7. What goods and services should be produced?
The concept of tradeoffs concerns all of the following questions except:
What goods and services should be produced?
How should goods and services be produced?
For whom should goods and services be produced?
Why should goods and services be produced?
D. Why should goods and services be produced?
Parkin © 2010 Pearson Addison-Wesley. All rights reserved.
Microeconomics, Ninth Edition

8. The loss of the highest-valued alternative defines the concept of
marginal benefit.
scarcity.
entrepreneurship.
opportunity cost.
D. opportunity cost.
Parkin © 2010 Pearson Addison-Wesley. All rights reserved.
Microeconomics, Ninth Edition

9. zero because you do not have to pay money to use the library.
On Saturday morning, you rank your choices for activities in the following order: go to the library, work out at the gym, have breakfast with friends, and sleep late. Suppose you decide to go to the library. Your opportunity cost is
working out at the gym, having breakfast with friends, and sleeping late.
working out at the gym.
zero because you do not have to pay money to use the library.
not clear because not enough information is given. B.
Some students will see the tradeoff immediately as a cost (giving up something), but they will incorrectly interpret that cost as only that valued in money units. To eliminate this ambiguity (better now than later), ask them to think about a meal they purchased recently. Now ask them what the money cost was as well as what else they might have picked for a meal? Most students pick up on this concept quickly with one or two more examples. And since this is a consumption example, tell them to put themselves in the place of an office manager, who must produce a service but can do so only given tradeoffs. While money costs are measurable and useful, propose to the students that opportunity costs are indeed even more useful in identifying the tradeoffs made in production.
Parkin © 2010 Pearson Addison-Wesley. All rights reserved.
Microeconomics, Ninth Edition

10. depends on the grade the student earns on the exam.
A student is studying for an exam 2 hours a day and is debating whether to study an extra hour. The student’s marginal benefit
depends on the grade the student earns on the exam.
is the benefit the student receives from studying all 3 hours.
is the benefit the student receives from studying the extra hour.
is greater than the student’s marginal cost.
C. is the benefit the student receives from studying the extra hour.
Parkin © 2010 Pearson Addison-Wesley. All rights reserved.
Microeconomics, Ninth Edition

11. Fred and Ann are both given free tickets to see a movie
Fred and Ann are both given free tickets to see a movie. Both decide to see the same movie. We know that
both bear an opportunity cost of seeing the movie because they could have done other things instead of seeing the movie.
both bear the same opportunity cost of seeing the movie because they are doing the same thing.
it is not possible to calculate the opportunity cost of seeing the movie because the tickets were free.
it is possible to calculate the opportunity cost of seeing the movie and it is zero because the tickets were free. A
Parkin© 2010 Pearson Addison-Wesley. All rights reserved.
Microeconomics, Ninth Edition

12. The statement “Unemployment should be kept at or below a level of 6 percent” is
a positive statement.
a normative statement.
a prediction.
an assumption.
B. a normative statement.
Parkin © 2010 Pearson Addison-Wesley. All rights reserved.
Microeconomics, Ninth Edition