Chapter 1/Ten Principles of Economics ? 9
56. Which of the following is the best example of a marginal change?
a. After graduating college, Audrey's income increases from $500 per month to $3,000 per month. b. Morgan gets a raise at her part-time job and is now paid $7.25 per hour instead of $7.00.
c. Housing prices in an area increase by 40 percent when a new interstate is built that passes nearby. d. A hard freeze wipes out half of the orange crop in Florida and the price of orange juice doubles. ANS: B DIF: 2 REF: 1-1 TOP: Marginal changes MSC: Applicative
57. Which of the following is the best example of a marginal change?
a. The price of housing in Denver increased by 6 percent last year.
b. Kim gets a big promotion at work. She also gets a raise from $35,000 per year to $55,000 per year.
c. Mark graduates from college and takes a job. His income increases from $10,000 per year to $35,000 per year. d. A drought hits the upper Midwest and the price of wheat increases from $4.00 per bushel to $6.50 per bushel. ANS: A DIF: 2 REF: 1-1 TOP: Marginal changes MSC: Applicative 58. A marginal change is best illustrated by which of the following?
a. Nancy retires and takes a part-time job. She was working 40 hours per week and now works 15 hours per week. b. A large, state-supported university has announced that due to state budget deficits, tuition must rise by 20 percent
next year.
c. Ryan moved to a new apartment and now pays 40 percent more rent than before.
d. Arizona, which usually receives 10 inches of rain per year, received 11 inches last year. ANS: D DIF: 2 REF: 1-1 TOP: Marginal changes MSC: Interpretive 59. Teresa eats three oranges during a particular day. The marginal benefit she enjoys from eating the third orange
a. can be thought of as the total benefit Teresa enjoys by eating three oranges minus the total benefit she would have
enjoyed by eating just the first two oranges.
b. determines Teresa’s willingness to pay for the first, second, and third oranges. c. does not depend on how many oranges Teresa has already eaten. d. All of the above are correct. ANS: A DIF: 3 REF: 1-1 TOP: Marginal changes MSC: Applicative 60. A rational decisionmaker takes an action if and only if
a. the marginal benefit of the action exceeds the marginal cost of the action. b. the marginal cost of the action exceeds the marginal benefit of the action. c. the marginal cost of the action is zero. d. the opportunity cost of the action is zero. ANS: A DIF: 1 REF: 1-1 TOP: Marginal changes MSC: Interpretive
61. After much consideration, you have chosen Cancun over Ft. Lauderdale as your Spring Break destination this year.
However, Spring Break is still months away, and you may reverse this decision. Which of the following events would prompt you to reverse this decision?
a. The marginal benefit of going to Cancun increases. b. The marginal cost of going to Cancun decreases.
c. The marginal benefit of going to Ft. Lauderdale decreases. d. The marginal cost of going to Ft. Lauderdale decreases. ANS: D DIF: 3 REF: 1-1 TOP: Marginal changes MSC: Applicative 62. The average cost per seat on the 50-passenger Floating-On-Air Bus company's trip from Kansas City to St. Louis, on
which no refreshments are served, is $45. In advance of a particular trip, three seats remain unsold. The bus company could increase its profit only if it
a. charged any ticket price above $0 for the three remaining seats. b. charged at least $15 for each of the three remaining seats. c. charged at least $45 for each of the three remaining seats. d. paid three people to occupy the three remaining seats. ANS: A DIF: 2 REF: 1-1 TOP: Marginal cost MSC: Applicative
10 ? Chapter 1/Ten Principles of Economics
63. Warren drinks four cups of coffee during a particular day. The marginal benefit he enjoys from drinking the fourth
cup
a. can be thought of as the total benefit Warren enjoys by drinking four cups minus the total benefit he would have
enjoyed by drinking just three cups.
b. determines Warren’s willingness to pay for the fourth cup.
c. is likely different from the marginal benefit provided to Warren by the third cup. d. All of the above are correct. ANS: D DIF: 3 REF: 1-1 TOP: Marginal changes MSC: Applicative 64. A rational decision maker takes an action only if the
a. marginal benefit is less than the marginal cost. b. marginal benefit is greater than the marginal cost. c. average benefit is greater than the average cost.
d. marginal benefit is greater than both the average cost and the marginal cost. ANS: B DIF: 2 REF: 1-1 TOP: Marginal changes MSC: Interpretive
65. A construction company has built 50 houses so far this year at a total cost to the company of $8 million. If the
company builds a 51st house, its total cost will increase to $8.18 million. Which of the following statements is correct?
a. For the first 50 houses, the average cost per house was $160,000. b. The marginal cost of the 51st house, if it is built, will be $180,000.
c. If the company can experience a marginal benefit of $190,000 by building the 51st house, then the company
should build it.
d. All of the above are correct. ANS: D DIF: 3 REF: 1-1 TOP: Marginal cost, Marginal benefit MSC: Applicative 66. Mike has spent $500 purchasing and repairing an old fishing boat, which he expects to sell for $800 once the repairs
are complete. Mike discovers that, in addition to the $500 he has already spent, he needs to make an additional repair, which will cost another $400, in order to make the boat worth $800 to potential buyers. He can sell the boat as it is now for $300. What should he do?
a. He should sell the boat as it is now for $300.
b. He should keep the boat since it would not be rational to spend $900 on repairs and then sell the boat for $800. c. He should complete the repairs and sell the boat for $800.
d. It does not matter which action he takes; the outcome is the same either way. ANS: C DIF: 3 REF: 1-1 TOP: Marginal cost MSC: Analytical 67. A donut shop sells fresh baked donuts from 5 a.m. until 3 p.m. every day. The shop does not sell day-old donuts, so
all unsold donuts are thrown away at 3 p.m. each day. The cost of making and selling a dozen donuts is $1.50; there are no costs associated with throwing donuts away. If the manager has 10 dozen donuts left at 2:30 p.m. on a particular day, which of the following alternatives is most attractive?
a. Lower the price of the remaining donuts, even if the price falls below $1.50 per dozen.
b. Lower the price of the remaining donuts, but under no circumstances should the price fall below $1.50 per dozen. c. Throw the donuts away and produce 10 fewer dozen donuts tomorrow.
d. Starting tomorrow, lower the price on all donuts so they will all be sold earlier in the day. ANS: A DIF: 3 REF: 1-1 TOP: Marginal changes MSC: Analytical 68. Stan buys a 1966 Mustang for $2,000, planning to restore and sell the car. He goes on to spend $8,000 restoring the
car. At this point he can sell the car for $9,000. As an alternative, he can spend an additional $3,000 replacing the engine. With a new engine the car would sell for $12,000. Stan should a. complete the repairs and sell the car for $12,000. b. sell the car now for $9, 000.
c. never try such an expensive project again.
d. be indifferent between (i) selling the car now and (ii) replacing the engine and then selling it. ANS: D DIF: 3 REF: 1-1 TOP: Marginal cost MSC: Analytical
Chapter 1/Ten Principles of Economics ? 11
69. Sarah buys and sells real estate. Two weeks ago, she paid $140,000 for a house on Oak Street, intending to spend
$20,000 on repairs sell the house for $175,000. Last week, the city government announced a plan to build a “halfway house” for convicted criminals on Oak Street. As a result of the city’s announced plan, Sarah is weighing two
alternatives: She can go ahead with the $20,000 in repairs and then sell the house for $135,000, or she can forgo the repairs and sell the house as it is for $120,000. Sarah should a. keep the house and live in it.
b. go ahead with the $20,000 in repairs and sell the house for $135,000. c. forgo the repairs and sell the house as it is for $120,000.
d. move the house from Oak Street to a more desirable location, irrespective of the cost of doing so. ANS: C DIF: 3 REF: 1-1 TOP: Marginal cost MSC: Analytical 70. 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. ANS: B DIF: 2 REF: 1-1 TOP: Marginal changes MSC: Interpretive 71. Economists are particularly adept at understanding that people respond to
a. laws.
b. incentives.
c. punishments more than rewards. d. rewards more than punishments. ANS: B DIF: 1 REF: 1-1 TOP: Incentives MSC: Interpretive
72. Government policies can change the costs and benefits that people face. Those policies have the potential to
a. alter people’s behavior.
b. alter people’s decisions at the margin.
c. produce results that policymakers did not intend. d. All of the above are correct. ANS: D DIF: 2 REF: 1-1 TOP: Incentives MSC: Interpretive
73. Ralph Nader's book Unsafe at Any Speed caused Congress to require
a. safety glass in all new cars. b. seat belts in all new cars. c. air bags in all new cars.
d. stricter drunk driving laws in all states. ANS: B DIF: 1 REF: 1-1 TOP: Incentives MSC: Interpretive
74. U.S. laws requiring that drivers wear seat belts have resulted in
a. a reduction in both driver deaths and pedestrian deaths. b. fewer accidents and fewer deaths per accident.
c. fewer driver deaths, fewer accidents and fewer pedestrian deaths.
d. little change in the number of driver deaths, but more accidents and more pedestrian deaths. ANS: D DIF: 2 REF: 1-1 TOP: Incentives MSC: Interpretive
75. Evidence indicates that seat belt laws have led to
a. fewer pedestrian deaths. b. fewer automobile accidents.
c. fewer deaths per automobile accident. d. All of the above are correct. ANS: C DIF: 1 REF: 1-1 TOP: Seat belt laws MSC: Definitional
12 ? Chapter 1/Ten Principles of Economics
76. One effect of the government-imposed seat belt law in the U.S. has been
a. a dramatic decrease in the number of pedestrian deaths. b. safer driving.
c. an increase in the number of accidents.
d. a dramatic decrease in the number of driver deaths. ANS: C DIF: 2 REF: 1-1 TOP: Incentives MSC: Interpretive
77. Based on what we know about the effects of mandatory seat belt laws, which of the following groups would be most
likely to mount a campaign to repeal those laws? a. Owners of collision-repair shops. b. People who walk rather than drive.
c. Policemen who have better things to do than investigate collisions. d. All of the above are correct. ANS: B DIF: 3 REF: 1-1 TOP: Incentives MSC: Analytical
78. Based on the available evidence, which of the following groups benefits most from mandatory seat belt laws?
a. automakers b. pedestrians c. drivers
d. owners of collision-repair shops ANS: D DIF: 3 REF: 1-1 TOP: Incentives MSC: Analytical
79. In the former Soviet Union, producers were paid for meeting output targets, not for selling products. Under those
circumstances, what were the economic incentives for producers?
a. to produce good quality products so that society would benefit from the resources used b. to conserve on costs, so as to maintain efficiency in the economy
c. to produce enough to meet the output target, without regard for quality or cost d. to produce those products that society desires most ANS: C DIF: 2 REF: 1-1 TOP: Incentives MSC: Interpretive
80. Your professor loves her work, teaching economics. She has been offered other positions in the corporate world that
would increase her income by 25 percent, but she has decided to continue working as a professor. Her decision would not change unless the marginal a. cost of teaching increased. b. benefit of teaching increased. c. cost of teaching decreased.
d. cost of a corporate job increased. ANS: A DIF: 2 REF: 1-1 TOP: Marginal changes MSC: Interpretive 81. Suppose your management professor has been offered a corporate job with a 30 percent pay increase. He has decided
to take the job. For him, the marginal
a. cost of leaving was greater than the marginal benefit. b. benefit of leaving was greater than the marginal cost. c. benefit of teaching was greater than the marginal cost. d. All of the above are correct. ANS: B DIF: 2 REF: 1-1 TOP: Marginal changes MSC: Interpretive 82. When policymakers implement policies that alter incentives, they usually
a. have carefully weighed the direct and indirect effects of the policy. b. do not observe the intended result of the policies.
c. have considered all possible effects of the incentive changes when they developed the policy, which will make
the policy effective.
d. correctly anticipate the indirect effects, but often miss the direct effects. ANS: B DIF: 2 REF: 1-1 TOP: Incentives MSC: Interpretive