Test Bank For Economics A Global Introduction 1E By Ananish Chaudhuri Chapter 1-15 Chapter 1
Questions and Answers
Multiple Choice Questions Economics is the study of: (A) (B) (C) (D)
How to fully satisfy our unlimited wants. How individuals and society manage their scarce resources. How individuals and society avoid having to make trade-offs. How individuals and society manage their unlimited resources.
Economics is best defined as the study of: (A) (B) (C) (D)
various market structures and the dynamics of prices and quantities in those markets. the impact and implications of inflation and interest rates. how people make choices under the conditions of scarcity and the results of those choices. the distribution and fluctuation of wages and incomes in different sectors.
The opportunity cost of any activity is defined as: (A) (B) (C) (D)
the time one spends involved in the activity. the income one spends on the activity. the value of the next best alternative activity forgone. the value of some unspecified alternative activity forgone.
What is the most satisfactory definition of opportunity cost? (A) (B) (C) (D)
The price of a commodity. The sacrifice of any alternative choice. The loss suffered by missing some bargain. The sacrifice of the next most desired alternative.
A likely reason behind the finding that citizens of richer countries tend to have fewer children is: (A) (B) (C) (D)
the diminishing marginal utility of children. the higher opportunity cost of having children. the increasing marginal utility of children. that children are considered normal goods.
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What do economists mean by the concept of “imputed value”? (A) (B) (C) (D)
The value of the next best alternative forgone. The marginal happiness/utility gained from consuming another unit of the same good. The marginal cost of buying another unit of the same good. That, in deciding whether to buy something or not, human beings should be able to assign an implicit dollar value to goods and then compare that value to the price of the good.
Tingmeng gave up a tutoring job paying $60 to go to movie with a friend. The movie ticket costs $20. Walking out of the movie, Tingmeng told her friend that the movie was “absolutely worth the money”. Which of the following sentences is CORRECT? (A) (B) (C) (D)
The opportunity cost of going to the movie for Tingmeng is $20. As far as Tingmeng is concerned, the imputed value of the utility derived from watching the movie is less than $80. As far as Tingmeng is concerned, the imputed value of the utility derived from watching the movie is more than $80. To calculate whether the movie is worth it or not we need to compare the imputed value of the utility derived from watching the movie and to the $20 cost of the movie ticket.
Yaxiong gave up a babysitting job paying $50 to go to bar with a friend to watch a local band. The bar charges an entry fee of $10. Walking out of the bar, Yaxiong told her friend that the band was “absolutely not worth the money”. Which of the following sentences is CORRECT? (A) (B) (C) (D)
The opportunity cost of going to the bar for Yaxiong is $10. As far as Yaxiong is concerned, the imputed value of the utility derived from going to the bar was less than $60. As far as Yaxiong is concerned, the imputed value of the utility derived from going to the bear is more than $60. To calculate whether the movie is worth it or not we need to compare the imputed value of the utility derived from watching the band to the $10 cost of entry.
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Suppose Georgie has $1000 and is considering three options. (i) Buy a new iPhone for $1000; (ii) put the money into an interest-bearing bank account earning 5%; (iii) lend the money to Ayra who promises to pay Georgie $1100 ($1000 plus $100 in interest) after one year. Suppose Georgie decides to buy the iPhone. What is her opportunity cost? (A) (B) (C) (D)
The opportunity cost is $100 of interest that Arya would have paid in interest. The opportunity cost is $50; the money Georgie would have earned by putting the money in a bank account. We cannot calculate an opportunity cost since it can be done only when there are two alternatives, not more than two. The opportunity cost is $150; the interest Arya would have paid plus the interest earned by putting the money into a bank account.
Recently, Linaya was out shopping when she felt a little hungry. She walked into a café and looked at a raspberry muffin that costs $7.50 but, in the end, decided not to buy it. The most likely explanation for this is that: (A) (B) (C) (D)
The imputed value of utility that Linaya placed on the muffin is less than $7.50. The imputed value of utility that Linaya placed on the muffin is more than $7.50. Linaya does not like muffins, particularly raspberry ones. Linaya felt that she should finish her shopping before she took a break to eat.
Identified lives refer to _____ while statistical lives refer to _____. (A) (B) (C) (D)
Lives lost of those who we know personally; lives lost of those that we do not know personally. Lives that are lost in the background in a diffuse manner; lives that are lost right in front of our eyes. Lives that are lost right in front of our eyes; lives that are lost in the background in a diffuse manner. Lives lost that are recorded in public documents; lives lost that are not recorded in public documents.
Which of the following statements is INCORRECT? (A) (B) (C) (D)
As a country‟s per capita GDP increases, birth rates fall. As a country’s per capita GDP increases, birth rates increase. The poor tend to have more babies because the opportunity cost of having more babies is lower. We would expect a fall in birth rates in those countries whose per capita GDP is increasing, while in others where per capita GDP is falling or stagnant, we would not expect to see a fall in birth rates.
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A headline in a newspaper says: Happy children do household chores. From this statement you can most likely conclude that: (A) Doing chores around the house make children happy. (B) Children who are happy love doing chores around the house. (C) To make children happier, parents should force them to do more chores around the house. (D) It is likely that in some households, possibly due to parenting style, children tend to have a happy disposition and take part in household chores. Spurious correlation between two variables X and Y implies: (A) (A) (C) (D)
X and Y are positively correlated; when X goes up, so does Y. X and Y are negatively correlated; when X goes up, Y goes down. There is no correlation between X and Y. They may tend to be move together positively or negatively but any such correlation is purely coincidental. Changes in the values of the independent variable X causes changes in the values of the dependent variable Y.
“Most accidents occur within close proximity of one‟s home.” Which one of the following options is CORRECT? (A) (B) (C) (D)
This is an example of spurious correlation. There is no correlation between driving close to one‟s home and the probability of having an accident. This is an example of the concept of base rates. The statement is true. We tend to do most of our driving to and from home. Therefore, the probably is higher that this is where we will tend to have accidents. This is an example of an omitted variable problem. There is a third omitted variable that causes accidents closer to home. This is because we tend to pay less attention to our driving when we get closer to home.
Suppose at the University of Auckland, 40% of students study Arts, 15% study Medicine, 15% study Business and Economics, 15% study Engineering, and 2% study Computer Science. The remaining study other disciplines. Consider Catherine, a student at the University of Auckland. If you know nothing more about Catherine, then you would guess that Catherine studies ______. This is an application of ______ since a plurality of students are studying _____. (A) (B) (C) (D)
Arts; base rates; Arts Arts; imputed value; Arts. Something other than Arts; base rates; something other than Arts. Something other than Arts; spurious correlation; something other than Arts.
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Suppose at the University of Auckland, 40% of students study Arts, 15% study Medicine, 15% study Business and Economics, 15% study Engineering, and 2% study Computer Science. The remaining study other disciplines. Consider Catherine, a student at the University of Auckland. If you know nothing more about Catherine, then the chances that Cathrine studies Engineering is ___________. This is an application of the idea of __________. (A) (B) (C) (D)
40%; imputed value. 15%; base rate. 15%; imputed value. 15%; reverse causality.
Discussion questions Tingmeng gave up a tutoring job paying $60 to go to movie with a friend. The movie ticket costs $20. Suppose, walking out of the movie, Tingmeng told her friend that the movie was “absolutely worth the money”. What can you conclude about Tingmen‟s imputed value for the movies. On the other hand, suppose Tingmeng said that the movie “was not worth the money? What would you conclude in that case? To calculate whether the movie is worth it or not we need to compare the imputed value of the utility derived from watching the movie to opportunity cost of watching the movie. The total cost to Tingmeng is $80 which includes the $20 ticket and the opportunity cost of $60 that Tingmeng gives up by turning down the tutorial job. This means in order for the movie to be worth that amount of money, it must yield an imputed value of utility that is higher than $80. So for the movie to be worth it, Tingmeng must attribute an imputed value of greater than $80 to the movie. On the other hand, if her imputed value is less than $80 then the movie is not worth it. Suppose Tingmeng gets $60 worth of happiness from the movie. Subtracting the ticket price of $20, the net happiness is $40. This is less than the $60 she could have made in the tutoring job. In this case (and for any imputed happiness value of less than $80), the statement "not worth the money" would be correct. On the other hand, the movie would be “worth the money”, if the imputed happiness value is more than $80. Suppose the imputed value is $90. Then after subtracting the $20 ticket price, Tingmeng gets $70. This is more than the $60 she gave up for tutoring. This would make the movie worth it.
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