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1) The difference between a good and a service is that a
1) The difference between a good and a service is that
a. a good helps satisfy unlimited wants: a service does not
b. a service helps satisfy unlimited wants: a good does not
c. a services is available in unlimited quantities: a good is not
d. a good is available in unlimited quantities: a service is not
e. a good is tangible: a service is not
2. The expression "There's no such thing as a free lunch" means
a. that even if the lunch is free, we pay for it in extra calories
b. that resources used up in producing the lunch are not available to satisfy other wants
c. the same thing as "The best things in life are free"
d. you can eat only if you work first
e. neither sea water nor air is free
3. The labor market is an example of a
a. government market
b. classified market
c. communication market
d. resource market
e. product market
4. The assumption that individuals act rationally implies that
a. people think only of themselves and disregard the well-being of others
b. people undertake all those activities that yield benefits to themselves
c. people only consider the costs of an activity to decide whether it is worthwhile
d. the greater the cost of a charitable deed to a benefactor, the more likely he or she is to perform that deed
e. people implicitly calculate the costs and benefits of an activity to decide if it is worthwhile
5. To say that people make marginal decisions means that
a. they usually wait until the last minute before making a decision to buy
b. they weigh the additional costs and additional benefits of various activities before they make a decision
c. most people just barely get by on the incomes they earn and live from day to day on the very edge of subsistence
d. given a choice, most people would prefer to make their own decisions concerning the things that affect their lives
e. they consider the total cost and benefit of various activities before they make a purchase
6. Which of the following is a microeconomic topic?
a. the job search behavior of a college graduate
b. the impact of policy on the unemployment rate
c. the impact of policy on the inflation rate
d. the national debt
e. the balance of payments
Expert Solution
1. The answer is e. Goods are products that can be physically possessed by households or firms. Examples of goods are: food products, cars and tables. Services are performed in exchange for money, however they can't be physically possessed. Examples of services include: haircuts, massages, and education. Answers a, b, c, and d are all using terminology that comes from the economic idea of scarcity. Humans have unlimited wants, but only limited resources to get those wants; we recognize this as the problem of scarcity. None of those answers are correctly addressing the problem of scarcity.
2. The answer is b. Opportunity cost is an important idea in microeconomics. This means that every time a resource is used, it could've been used for something else. For example, when a person stands in line for a 'free' meal, they could have used that time to do something else. Economists often use this phrase to illustrate the idea of opportunity costs, it doesn't specifically have much to do with eating. Answers a and d are literal answers having to do with food and therefore incorrect. Answer c is debated in the world of economics since goods and services that aren't paid for often aren't the best goods and services. Answer e is an incorrect answer because on Earth, sea water and air aren't purchasable goods.
3. The answer is d. In a market-based economy, there are markets (with buyers and sellers) for goods and services. There are also markets for the resources used to make goods and services. The resources used to produce goods are services are land (natural resources), labor (human resources) and capital (equipment resources). In a resource market, firms demand the resource and households supply it. Answers a, b, c aren't correct because they aren't major terms used by economists. Answer e is incorrect because the product market is the market for goods and services that are produced by firms.
4. The answer is e. When economists assume people are rational, they mean they consider the costs and benefits of their actions. This type of cost benefit analysis is done at the margin, where individuals consider the additional costs and additional benefits before taking an action. Costs and benefits often vary by individual and thus different people and firms might make different decisions when posed with similar situations. Answers a and b are incorrect because they refer to selfishness, which isn't how economists think about rational behavior. Answers c and d are close to correct, but don't account for the benefits of an action.
5. The answer is b. This is the definition of marginal analysis. Marginal means additional and if the marginal benefits exceed the marginal costs, people will make that decision. However, if the marginal cost exceeds the marginal benefit, they won't make the decision. Answers a, c, d, and e are all incorrect because they don't use the economics definition of 'marginal'.
6. The answer is a. How people use their time is a topic of great interest to economists concerned with microeconomics. Answers b, c, and d are all macroeconomic topics. Answer e refers to a country's trade relationship with the rest of the world and is generally of interest to a trade or development economist.
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