Principles of Microeconomics, 8e (Case/Fair)

Chapter 1: The Scope and Method of Economics

Why Study Economics?
Multiple Choice
1)
According to the text, the reason to study economics is
A)
to learn a way of thinking.
B)
to understand society and global affairs.
C)
to be an informed voter.
D)
All of the above
Answer:

Diff: 1
Type: F

2)
Fundamental concepts in economics is(are)
A)
opportunity cost.
B)
marginalism.
C)
efficient markets.
D)
All of the above
Answer:

D
1

Diff: 1
Type: F

3)
One of its most basic economic problems is that society
A)
must decide how to lower a product price.
B)
has more products available than it needs.
C)
has more resources available than it needs.
D)
must decide how to allocate available resources.
Answer:

Diff: 2
Type: C

4)
Which of the following statements is FALSE?
A)
Economics is a behavioral science.
B)
In large measure, economics is the study of how people make choices.
C)
If poverty were eliminated there would be no reason to study economics.
D)
Economic analysis can be used to explain how both individuals and societies make decisions.
Answer:

Diff: 1
Type: F
2

5)
The process of analyzing the additional or incremental costs or benefits arising from a choice or decision
is called ______.
A)
marginalism
B)
efficiency

equity

C)

D)

growth

Answer:

Diff: 1
Type: D

6)
In calculating marginal costs, we ___________ costs.
A)
include sunk and average
B)
include only sunk
C)
exclude sunk
D)
exclude all
Answer:

Diff: 3
Type: D

7)
4

You purchased a ticket to a concert for $30 a month ago. Last week someone invited you to a party on the
same night as the concert. You would much rather go to the party than the concert. You have tried
unsuccessfully to sell the concert ticket. Which of the following statements regarding this situation is
correct?
A)
The $30 you paid for the concert ticket is relevant to the decision, as this represents the opportunity cost
of attending the party.
B)
You should base your decision on whether or not the party will provide you with more than $30 in
satisfaction.
C)
The $30 you paid for the concert ticket should be irrelevant in your decision making, because it is a sunk
cost.
D)
The $30 concert ticket should be irrelevant in your decision making, because it represents the marginal
cost of attending the party.
Answer:

Diff: 2
Type: C

8)
You spent a total of $5 buying songs for your MP3 player. After you buy one more song, your total cost
rises to $6. The marginal cost of the last song that you bought is _____.
A)
$0.50

$1.00

$5.00

$6.00

B)

C)

D)

Answer:

B
5

Diff: 2
Type: A

9)
The concept of opportunity cost
A)
is relevant only to economics.
B)
can be applied to the analysis of any decision-making process.
C)
applies to consumers but not to firms.
D)
refers only to actual payments and incomes.
Answer:

Diff: 3
Type: C

10)
Opportunity cost is
A)
that which we forgo, or give up, when we make a choice or a decision.
B)
a cost that cannot be avoided, regardless of what is done in the future.
C)
the additional cost of producing an additional unit of output.
D)
the additional cost of buying an additional unit of a product.
Answer:

Diff: 2
Type: D

11)
7

You have $100 in savings. You could earn four percent interest if you put the $100 in a bank savings
account for a year. What is your opportunity cost if you put the $100 under the pillow of your bed
instead?
A)
$0.00.

B)

$4.00.

C)

$100.00.

$104.00.

D)

Answer:

Diff: 2
Type: A

12)
The ______________ is NOT an opportunity cost of attending college.
A)
tuition you pay
B)
income you could have earned if you didn't attend college
C)
alternative uses of the time you spend studying
D)
cost of the food that you consume while you are attending college
Answer:

Diff: 3
Type: D

13)
8

If you own a building and you decide to use that building to open a restaurant,
A)
there is no opportunity cost of using this building for a restaurant because you own it.
B)
there is an opportunity cost of using this building for a restaurant because it could have been used in
other ways.
C)
there are no sunk costs involved in this decision.
D)
the only cost relevant to this decision is the price you paid for the building.
Answer:

Diff: 3
Type: C

14)
You own The Wizard of Oz on DVD. The opportunity cost of watching this DVD for the second time
A)
is zero.

B)

is one-half the cost of the DVD, as this is the second time you have watched it.
C)
is the value of the alternative use of the time you spend watching the DVD.
D)
cannot be calculated.
Answer:

Diff: 3
Type: C

15)
That which we forgo, or give up, when we make a choice or decision is called the __________ cost of that
decision.
A)
sunk

B)

marginal

fixed

C)

D)

opportunity
Answer:

Diff: 2
Type: D

16)
10

Regardless of what I do in the future, I cannot avoid ______ costs because I have already incurred them.
A)
total

B)

sunk

C)

marginal

allocative

D)

Answer:

Diff: 2
Type: D

17)
A market in which profit opportunities are eliminated almost instantaneously is a(n) _______ market.
A)
laissez-faire

capitalist

socialist

efficient

B)

C)

D)

Answer:

Diff: 2
Type: D

18)
When information is less costly and more easily available to all participants of a market, this should
A)
11

make markets more efficient.

B)
make markets less efficient.
C)
increase profit opportunities.
D)
increase the opportunity cost of acquiring more information.
Answer:

Diff: 3
Type: C

12

19)
In an efficient market
A)
equilibrium happens more frequently than disequilibrium.
B)
profit opportunities are eliminated almost instantaneously.
C)
profits are always very high and persistent.
D)
opportunity costs are zero.
Answer:

Diff: 2
Type: D

20)
The economics discipline began to take shape during
A)
biblical times.
B)
ancient Roman times.
C)
the late eighteenth and early nineteenth centuries.
D)
the latter half of the twentieth century.
Answer:

Diff: 2
Type: F

21)
13

The rise of the modern factory system in England during the late eighteenth and early nineteenth
centuries is known as the
A)
Great Migration.
B)
Industrial Revolution.
C)
Wealth of Nations.
D)
First Economic Revolution.
Answer:

Diff: 1
Type: F

True/False
1)
Economics and physics are physical sciences.
Answer:

FALSE

Diff: 1
Type: F

2)
The value of the best alternative foregone is the opportunity cost of making a decision.
Answer:

TRUE

Diff: 1
Type: F

3)
Scarcity is the reason that opportunity costs arise.
14

Answer:

TRUE

Diff: 1
Type: F

15

The Scope of Economics

Multiple Choice
1)
The branch of economics that examines the functioning of individual industries and the behavior of
individual decision-making units is
A)
positive economics.
B)
normative economics.
C)
macroeconomics.
D)
microeconomics.
Answer:

Diff: 2
Type: D

2)
Studying how the management of US Steel, a large steel-producing company, decides how many tons of
steel to produce and the price to charge for its steel would be considered
A)
descriptive economics.
B)
empirical economics.
C)
microeconomics.
D)
macroeconomics.
Answer:

Diff: 2
16

Type: D

3)
Studying how Bobs firm decides to produce one more unit of output is an example of
A)
macroeconomics.
B)
microeconomics.
C)
industrial organization.
D)
descriptive economics.
Answer:

Diff: 1
Type: D

4)
________ focuses on the prices of individual goods and services and _______ focuses on the rate of
inflation.
A)
Microeconomics; macroeconomics
B)
Macroeconomics; microeconomics
C)
Microeconomics; microeconomics
D)
Macroeconomics; macroeconomics
Answer:

Diff: 1
Type: D
17

18

5)
One topic that microeconomics focuses on is
A)
national income.
B)
total wages and salaries.
C)
total corporate profits.
D)
the minimum wage.
Answer:

Diff: 2
Type: F

The Method of Economics

Multiple Choice
1)
Positive economics is an approach to economics that
A)
seeks to understand behavior and the operation of systems while making judgments about their
usefulness to society.
B)
analyzes outcomes of economic behavior, evaluates them as good or bad, and may prescribe preferred
courses of action.
C)
describes the economy and how it works.
D)
prescribes roles for government in an economy.
Answer:

Diff: 1
19

Type: F

2)
Normative economics is an approach to economics that
A)
seeks to understand behavior and the operation of systems without making judgments.
B)
analyzes outcomes of economic behavior, evaluates them as good or bad, and may prescribe preferred
courses of action.
C)
describes the economy and how it works.
D)
would never prescribe a role for government in the economy.
Answer:

Diff: 1
Type: F

3)
High taxes reduce the incentive of workers to work is best described as a _________ statement.
A)
positive

B)

Marxist ideology
C)
normative

D)

descriptive economics
Answer:

Diff: 2
Type: D
20

21

4)
If the price of a product falls, then the quantity demanded of that product will rise. This is best described
as a ________ statement.
A)
positive

B)

Marxist ideology
C)
normative

D)

descriptive economics
Answer:

Diff: 2
Type: D

5)
Scientists should not create life in a laboratory is an example of a _________ statement.
A)
positive.

B)

Marxist ideology
C)
normative

D)

descriptive
Answer:

Diff: 2
Type: D

6)
22

Which of the following is a normative question?

A)
Why do gasoline prices increase before holiday weekends?
B)
What will happen to gasoline consumption if excise taxes on gasoline are increased?
C)
To reduce the regressive nature of the gasoline excise tax, should a portion of the gasoline excise tax paid
by low-income individuals be refunded to them?
D)
How will oil exploration be affected if the government imposes price controls on gasoline?
Answer:

Diff: 2
Type: D

7)
Which of the following is a positive question?
A)
Will the level of teenage unemployment increase if the minimum wage is increased?
B)
Should the minimum wage be set at one-half the average manufacturing wage to guarantee individuals a
decent standard of living?
C)
Wouldn't it be more equitable if the minimum wage increased automatically with the cost of living?
D)
Wouldn't it be better to try to increase people's wages through job-training programs than by requiring
employers to pay minimum wages?
Answer:

Diff: 2
Type: D

8)
23

A poor nation like Haiti should tolerate its wealthy citizens is best described as a _________ statement.
A)
positive

B)

normative

C)

descriptive economics
D)
nonjudgmental
Answer:

Diff: 2
Type: D

9)
_______ economics describes what exists and _________ economics prescribes courses of action.
A)
Descriptive; positive
B)
Positive; normative
C)
Normative; positive
D)
Normative; descriptive.
Answer:

Diff: 2
Type: D

10)
Descriptive economics
24

A)
involves mathematical statements of presumed relationships among variables.
B)
requires model building.
C)
looks at the outcomes of economic behavior and asks if they are good or bad.
D)
mainly involves the compilation of data that describe phenomena and facts.
Answer:

Diff: 2
Type: D

11)
The Commerce Department announced that economic growth rose by one-half of a percentage point. This
is best described as
A)
an economic model.
B)
a microeconomic statement.
C)
a normative statement.
D)
descriptive economics.
Answer:

Diff: 2
Type: D

25

12)
An example of descriptive economics is when an economist
A)
collects data on the wage rates and employment levels in the steel industry.
B)
tries to develop a model to explain the changes in employment and wages in the steel industry.
C)
tries to understand the relationship between the price of imported steel and the level of employment in
the U.S. steel industry.
D)
tries to determine if there are any regular patterns in the employment levels in the steel industry and then
makes generalizations from these patterns.
Answer:

Diff: 2
Type: D

Refer to Scenario 1 below to answer the questions that follow.

SCENARIO 1: An economist wants to understand the relationship between minimum wages and the level
of teenage unemployment. The economist collects data on the values of the minimum wage and the levels
of teenage unemployment over time. The economist concludes that a 1% increase in the minimum wage
causes a 0.2% increase in teenage unemployment. From this information he concludes that the minimum
wage is harmful to teenagers and should be reduced or eliminated to increase employment among
teenagers.
13)
Refer to Scenario 1. The statement that a 1% increase in the minimum wage causes a 0.2% increase in
teenage unemployment is an example of ___________ economics.
A)
policy

normative

positive

B)

C)

D)
26

non-empirical
Answer:

Diff: 2
Type: D

14)
Refer to Scenario 1. The statement, "the minimum wage is harmful to teenagers and should be reduced or
eliminated to increase employment among teenagers," is most likely an example of _________ economics.
A)
descriptive

normative

positive

B)

C)

D)

microeconomic
Answer:

Diff: 2
Type: D

27

15)
Refer to Scenario 1. The process of collecting data on minimum wage and teenage unemployment levels is
an example of
A)
law and economics.
B)
economic history.
C)
econometrics.
D)
descriptive economics.
Answer:

Diff: 2
Type: D

16)
Refer to Scenario 1. The statement that an increase in the minimum wage causes an increase in teenage
unemployment is an example of
A)
descriptive reasoning.
B)
economic theory.
C)
normative economics.
D)
deductive reasoning.
Answer:

Diff: 3
Type: D

28

17)
Refer to Scenario 1. A graph of the value of the minimum wage on one axis and the level of teenage
unemployment on the other axis is an example of
A)
an economic theory.
B)
an economic model.
C)
inductive reasoning.
D)
a variable theory.
Answer:

Diff: 2
Type: D

18)
A measure that can change from time to time or from observation to observation is a
A)
theory.

model.

variable.

B)

C)

D)

parameter.
Answer:

Diff: 2
Type: D

19)
29

To isolate the impact of one single factor, economists invoke the assumption of
A)
inductive reasoning.
B)
Ockham's razor.
C)
ceteris paribus.
D)
post hoc, ergo propter hoc.
Answer:

Diff: 2
Type: D

30

20)
The principle that irrelevant detail should not be included in a model is known as
A)
Say's Identity.
B)
ceteris paribus.
C)
Ockham's razor.
D)
Hobson's choice.
Answer:

Diff: 2
Type: D

21)
Economists use the phrase "ceteris paribus" to express the assumption,
A)
"all else equal."
B)
"everything affects everything else."
C)
"scarcity is a fact of life."
D)
"there is no such thing as a free lunch."
Answer:

Diff: 2
Type: D

22)
31

Labor economics deals with the.

A)
way alternative economic systems function.
B)
economic function of legal rules and institutions.
C)
factors that determine wage rates, employment, and unemployment.
D)
structure and performance of industries and firms within an economy.
Answer:

Diff: 2
Type: F

23)
Jim states that the melting of the polar icecap will cause prices in the stock market to increase. He is
committing the
A)
fallacy of inductive reasoning.
B)
post hoc, ergo propter hoc fallacy.
C)
fallacy of composition.
D)
ceteris paribus fallacy.
Answer:

Diff: 2
Type: D

24)
Since Becky plays basketball well, therefore the other members of her team must also play basketball well.
32

This statement is an example of the fallacy of

A)
composition.
B)
post hoc, ergo propter hoc.
C)
inductive reasoning.
D)
ceteris paribus.
Answer:

Diff: 2
Type: D

33

25)
The economy expanded during all of the years that James was a student, but as soon as he graduated, the
economy contracted. Therefore, the labor market waited until James started looking for a job to contract.
This statement is an example of the fallacy of
A)
ceteris paribus.
B)
post hoc, ergo propter hoc.
C)
composition.
D)
inductive reasoning.
Answer:

Diff: 2
Type: D

26)
You know that traffic gets very congested about 7:45 a.m. To avoid this congestion, you start leaving for
school 15 minutes earlier every day. But many students make the same decision, and now traffic becomes
very congested at 7:30 a.m. This is an example of the fallacy of
A)
post hoc, ergo propter hoc.
B)
ceteris paribus.
C)
division.

D)

composition.
Answer:

Diff: 3
Type: C
34

27)
It always rains about an hour after you finish washing your car. Concluding that washing your car caused
rain to fall is an example of the fallacy of
A)
composition.
B)
post hoc, ergo propter hoc.
C)
inductive reasoning.
D)
ceteris paribus.
Answer:

Diff: 2
Type: D

28)
At a very exciting ballgame, you stand up to see better. Everyone else stands up, as well. This is an
example of the fallacy of
A)
ceteris paribus.
B)
post hoc, ergo propter hoc.
C)
composition.
D)
Ockham's razor.
Answer:

Diff: 2
35

Type: D

36

29)
A student observes that every time he eats an apple before taking an exam he gets an F. He, therefore,
concludes that to pass an exam, he only needs to avoid eating an apple before he takes the exam. He has
committed the fallacy of
A)
composition.
B)
inductive reasoning.
C)
post hoc, ergo propter hoc.
D)
division.

Answer:

Diff: 2
Type: D

30)
If you observe that Event A happens before Event B, and you conclude that Event A caused Event B, you
may be guilty of an error called the fallacy of
A)
composition.
B)
inductive reasoning.
C)
ceteris paribus.
D)
post hoc, ergo propter hoc.
Answer:

Diff: 2
Type: D
37

31)
The fallacy of composition is the belief that
A)
if Event A happens before Event B, then Event A causes Event B to occur.
B)
what is true for the whole is necessarily true of the parts.
C)
what is true for a part is necessarily true for the whole.
D)
it is impossible to draw generalizations about cause and effect.
Answer:

Diff: 2
Type: D

32)
Two variables are __________ if one variable changes when the other variable changes.
A)
causally related
B)
correlated

unrelated

C)

D)

independent of each other

Answer:

Diff: 2
Type: D

33)
38

Empirical economists
A)
reason inductively to develop economic models.
B)
impose ceteris paribus conditions to conduct controlled experiments.
C)
collect and use data to test economic theories.
D)
reason deductively to develop economic theories.
Answer:

Diff: 3
Type: D

39

34)
The collection and use of data to test economic theories is _______ economics.
A)
empirical

B)

descriptive

normative

policy

C)

D)

Answer:

Diff: 2
Type: D

35)
City officials may impose rent controls when they believe landlords are exploiting tenants. The officials
use the ________ criteria to justify their actions.
A)
efficiency

equity

growth

stability

B)

C)

D)

Answer:

Diff: 3
Type: C

36)
40

A government policy that tries to minimize variations in aggregate output can best be described as trying
to achieve economic
A)
efficiency.

equity.

growth.

stability.

B)

C)

D)

Answer:

Diff: 3
Type: C

37)
Governments redistribute income from the rich to the poor with a tax system that requires taxes to rise
with income. Which of the following criteria best explains the reason for this tax system?
A)
Efficiency

Equity

Growth

Stability

B)

C)

D)

Answer:

Diff: 3
Type: C

38)
41

Voluntary exchange is efficient when the two trading parties are ______ the exchange than they were
_______ the exchange.
A)
better off after; before
B)
no better off after; before
C)
worse off after; before
D)
better off before; after
Answer:

Diff: 3
Type: C

39)
In an efficient economy
A)
output is steady or growing and there is low inflation.
B)
what consumers want is produced at the least possible cost.
C)
output is distributed equally among all consumers.
D)
the distribution of wealth is fair.
Answer:

Diff: 2
Type: D

40)
Allocative efficiency means
42

A)
the ratio of economic output to inputs is as low as possible.
B)
an economy produces what people want at the least possible cost.
C)
opportunity costs are high.
D)
an economy distributes income and wealth fairly.
Answer:

Diff: 2
Type: D

41)
The four criteria that are frequently used in judging the outcome of economic policy are
A)
efficiency, equity, stability, and economic growth.
B)
efficiency, equality, stability, and economic growth.
C)
efficiency, equality, profitability, and stability.
D)
efficiency, equity, profitability, and stability.
Answer:

Diff: 1
Type: F

42)
You have noticed that there is an increase in the number of homeless people in your city. At the same time
you observe that there are also a number of vacant apartments. You believe that the government could
reduce the number of homeless people if landlords were required to rent their apartments for less than
43

they are currently charging. This policy recommendation would be motivated by concerns over
A)
increased production.
B)
equity.

C)

economic growth.
D)
stability.

Answer:

Diff: 3
Type: C

44

43)
There is a possibility that a national sales tax will be implemented. Many economists argue that items
such as food and clothing should be exempt from such a tax because low-income people spend a greater
percentage of their income on these goods than high-income individuals. This argument is motivated by
concerns over
A)
economic growth.
B)
economic stability.
C)
efficiency.

equity.

D)

Answer:

Diff: 3
Type: C

44)
A(n) __________ economy produces increasing total output.
A)
efficient

equitable

stable

growing

B)

C)

D)

Answer:

Diff: 1
Type: D
45

True/False
1)
Normative economics looks at outcomes of economic behavior and evaluates them as good or bad.
Answer:

TRUE

Diff: 2
Type: D

2)
Positive economics looks at outcomes of economic behavior and evaluates them as good or bad.
Answer:

FALSE

Diff: 2
Type: D

3)
Standards of living increase if output grows faster than population.
Answer:

TRUE

Diff: 2
Type: D

4)
"Ceteris Paribus" literally translated means, "buyer beware."
Answer:

FALSE

Diff: 2
Type: D

5)
46

Positive economics seeks to understand behavior, but not make judgments.

Answer:

TRUE

Diff: 2
Type: D

6)
Descriptive economics involves a mathematical statement of a presumed relationship between two or
more variables.
Answer:

FALSE

Diff: 2
Type: D

Appendix
Multiple Choice
Refer to the information provided in Figure 1.1 below to answer the questions that follow.

Figure 1.1
1)
Refer to Figure 1.1. There is __________ relationship between the daily temperature and the number of
gallons of ice cream purchased.
A)
a negative

B)

a positive
47

C)
either a negative or a positive
D)
an inverse

Answer:

Diff: 2
Type: A

48

Refer to the information provided in Figure 1.2 below to answer the questions that follow.

Figure 1.2
2)
Refer to Figure 1.2. The slope of the line between Points A and B is
A)
.3.

B)

2.3.

C)

3.3.

D)

indeterminate from this information.

Answer:

Diff: 2
Type: A

3)
If a straight line has negative slope, a(n) ________ in X _______ Y.
A)
increase; increases
B)
decrease; lowers
C)
49

increase; lowers
D)
decrease; doesnt change
Answer:

Diff: 2
Type: A

50

Refer to the information provided in Figure 1.3 below to answer the questions that follow.

Figure 1.3
4)
Refer to Figure 1.3. The slope of the line is
A)
positive.

negative.

B)

C)

increasing at an increasing rate.

D)
decreasing at an increasing rate.
Answer:

Diff: 2
Type: A

5)
Refer to Figure 1.3. The slope of the line between the origin and Point B is
A)
5.

B)

-2.
C)
51

0.5.

D)

2.

Answer:

Diff: 2
Type: A

6)
Refer to Figure 1.3. If a 45 degree line were also graphed, the line shown would __________ it.
A)
lie above

lie below

cross

B)

C)

D)

indeterminant from this information

Answer:

Diff: 3
Type: C

52

7)
Refer to Figure 1.3. At Point A, what is the value of Y?
A)
7.

B)

8.

C)

12.

D)

Indeterminate from this information

Answer:

Diff: 2
Type: A

8)
Refer to Figure 1.3. At Point A the slope of the line is 2, so at Point D the slope would be
A)
greater than 2.
B)
less than 2.

equal to 2.

C)

D)

indeterminate from this information.

Answer:

Diff: 2
Type: A

53

Refer to the information provided in Figure 1.4 below to answer the questions that follow.

Figure 1.4
9)
Refer to Figure 1.4. Which of the curves or lines has a slope that is first positive and then negative?
A)
A
B)
B
C)
C
D)
D
Answer:

Diff: 2
Type: A

10)
54

Refer to Figure 1.4. Which of the curves or lines has a slope that is negative and then positive?
A)
A

B)

C)

D)

Answer:

Diff: 2
Type: A

55

11)
Refer to Figure 1.4. Which of the following curves or lines has a zero slope throughout?
A)
A

B)

C)

D)

Answer:

Diff: 2
Type: A

12)
Refer to Figure 1.4. Which of the curves or lines has an infinite slope throughout?
A)
A

B)

C)

D)

Answer:

Diff: 2
Type: A

13)
56

Refer to Figure 1.4. At Point E in panel A, the slope is

A)
zero.

B)

infinite.

negative.

C)

D)

indeterminate from this information.

Answer:

Diff: 2
Type: A

14)
The slope of a curve
A)
is always positive.
B)
must first increase then decrease.
C)
is not constant.
D)
is constant.
Answer:

Diff: 1
Type: F

15)
The slope of a horizontal line is
A)
57

negative.

zero.

B)

C)

continually changing.
D)
infinite.

Answer:

Diff: 1
Type: F

58

16)
If the slope of a straight line is 5 and if X (the variable on the horizontal axis) increases by 10, then Y (the
variable on the vertical axis) will
A)
decrease by .5.
B)
decrease by 50.
C)
increase by 0.5.
D)
increase by 50.
Answer:

Diff: 2
Type: A

17)
If the slope of a straight line is 10 and if Y (the variable on the vertical axis) decreases by 20, then X (the
variable on the horizontal axis)
A)
increases by 2.
B)
decreases by 2.
C)
increases by 200.
D)
decreases by 200.
Answer:

Diff: 2
Type: A

59

18)
The slope of a vertical line is
A)
zero.

infinite.

B)

C)

continually changing.
D)
negative.

Answer:

Diff: 1
Type: F

60

Refer to the information provided in Figure 1.5 below to answer the questions that follow.

Figure 1.5
19)
Refer to Figure 1.5. Which of the curves has a slope that is positive and decreasing?
A)
A

B)

C)

D)

Answer:

Diff: 2
Type: A

20)
61

Refer to Figure 1.5. Which of the curves has a slope that is positive and increasing?
A)
A

B)

C)

D)

Answer:

Diff: 2
Type: A

21)
Refer to Figure 1.5. Which of the curves has a slope that is negative and decreasing?
A)
A

B)

C)

D)

Answer:

Diff: 2
Type: A

62

22)
Refer to Figure 1.5. Which of the curves has a slope that is negative and increasing?
A)
A

B)

C)

D)

Answer:

Diff: 2
Type: A

23)
Refer to Figure 1.5. As income increases, consumption increases, but for each additional increase in
income, consumption increases by a smaller and smaller amount. If consumption is graphed on the
vertical axis and income is graphed on the horizontal axis, the relationship between consumption and
income would look like which of the following panels?
A)
A

B)

C)

D)

Answer:

Diff: 2
Type: A
63

24)
Refer to Figure 1.5. In many industries, as firms produce additional units, average costs of production
decline but continue to fall by a smaller and smaller amount. If output is graphed on the horizontal axis
and average costs are graphed on the vertical axis, the relationship between average costs and output
would be like which of the following panels?
A)
A

B)

C)

D)

Answer:

Diff: 2
Type: A

True/False
1)
Each Y value equals the corresponding X value on a 450 line.
Answer:

TRUE

Diff: 1
Type: D

2)
A graph illustrating how one variable changes over time is a Cartesian coordinate system.
Answer:

FALSE

Diff: 2
Type: D
64

65

66