1-1 The epigram "time is money" expresses, in part, the concept of

 

 

 

 

 

 

 

A. Correct. The expenditure of time means that money might not be earned during that time.

 

 

 

 

 

 

 

B. Incorrect. The expenditure of time means that money might not be earned during that time.

 

 

 

 

 

 

 

C. Incorrect. The expenditure of time means that money might not be earned during that time.

 

 

 

 

 

 

 

D. Incorrect. Efficiency in production involves producing the most with given resources.

 

 

 

 

 

 

 

E. Incorrect. The margin refers specifically to the next little bit or addition.

 

 

 

 

 

 

 

1-2 Efficiency in production is said to exist only if

 

 

 

 

 

 

 

A. Correct. If it is possible to produce more of one good without having to give up producing some of another good, then production is not being done efficeintly.

 

 

 

 

 

 

 

B. Incorrect. If is not possible to make one person better off without making another worse off, this is a different kind of efficiency (distribution or allocation).

 

 

 

 

 

 

 

C. Incorrect. If it is possible to produce more of one good without having to give up producing some of another good, then production is not being done efficeintly.

 

 

 

 

 

 

 

D. Incorrect. This indicates inefficiency in distribution.

 

 

 

 

 

 

 

E. Incorrect. Scarcity always exists.

 

 

 

 

 

 

 

1-3 Efficiency in distribution (allocation) is said to exist only if

 

 

 

 

 

 

 

A. Incorrect. This indicates efficiency of production.

 

 

 

 

 

 

 

B. Correct. Distribution of goods is efficient if it is not possible to make one person better off without making another worse off.

 

 

 

 

 

 

 

C. Incorrect. If it is possible to produce more of one good without producing less of another, then production is not efficient.

 

 

 

 

 

 

 

D. Incorrect. If it is possible to make one person better off without making another worse off, distribution is not efficient.

 

 

 

 

 

 

 

E. Incorrect. Specialization facilitates efficiency (as will be shown in chapter 2).

 

 

 

 

 

 

 

1-4 When resources are being used inefficiently,

 

 

 

 

 

 

 

A. Correct. All of the combinations of output below the production possibilities curve indicate inefficiency.

 

 

 

 

 

 

 

B. Incorrect. If the economy cannot operate outside (above) the production possibilities curve.

 

 

 

 

 

 

 

C. Incorrect. The production possibilities curve shifts out (to the right) if MORE resources are used, not just if they are used efficiently.

 

 

 

 

 

 

 

D. Incorrect. The production possibilities curve shifts inward (to the left) if fewer resources are available, not if existing resources are used ineficiently.

 

 

 

 

 

 

 

E. Incorrect. If the economy is operating right on the production possibilities curve, resources are being used efficiently.

 

 

 

 

 

 

 

1-5 When economists speak of "marginal," they mean

 

 

 

 

 

 

 

A. Incorrect.

 

 

 

 

 

 

 

B. Incorrect.

 

 

 

 

 

 

 

C. Incorrect. Marginal is the next little bit or addition.

 

 

 

 

 

 

 

D. Incorrect.

 

 

 

 

 

 

 

E. Correct. Mariginal means a small increment or addition.

 

 

 

 

 

 

 

1-6 The opportunity cost of building a new sports arena in Phoenix would be

 

 

 

 

 

 

 

A. Incorrect. The opportunity cost is the highest-valued thing given up.

 

 

 

 

 

 

 

B. Incorrect. The opportunity cost is the highest-valued thing given up.

 

 

 

 

 

 

 

C. Correct. The opportunity cost is the highest-valued thing given up.

 

 

 

 

 

 

 

D. Incorrect. The opportunity cost is the highest-valued thing given up; part of this may be the loss of business revenues from traffic jams caused by people using the new arena.

 

 

 

 

 

 

 

E. Incorrect. The opportunity cost is the highest-valued thing given up; the loss of revenues which now go to current facilities may be part of this, but not the whole thing.

 

 

 

 

 

 

 

1-7 Suppose the government canceled a building project after spending $3 billion on it already. The $3 billion cannot be recovered. If the estimated value of the benefit of the completed project would have been $25 billion, then the cancellation makes economic sense...

 

 

 

 

 

 

 

A. Incorrect. The marginal (additional) cost must be weighed against the (marginal) benefits. The $3 billion had already spent is not marginal (additional).

 

 

 

 

 

 

 

B. Correct. The marginal (additional) cost must be weighed against the (marginal) benefits. The $3 billion had already spent is not marginal (additional).

 

 

 

 

 

 

 

C. Incorrect. The marginal (additional) cost must be weighed against the (marginal) benefits. The $3 billion had already spent is not marginal (additional).

 

 

 

 

 

 

 

D. Incorrect. The marginal (additional) cost must be weighed against the (marginal) benefits. The $3 billion had already spent is not marginal (additional).

 

 

 

 

 

 

 

E. Incorrect. The marginal (additional) cost must be weighed against the (marginal) benefits. The $3 billion had already spent is not marginal (additional).

 

 

 

 

 

 

 

1-8 Mortimer can go from Phoenix to Los Angeles in 7 hours by bus (bus fare is $20), or go from Phoenix to Los Angeles in 2 hours by airplane (air fare is $120). Assume that Mortimer does not get any particular enjoyment or discomfort from either form of transportation. Which statement is correct?

 

 

 

 

 

 

 

A. Incorrect. While taking the bus costs less money, it also costs more time. The value of what could be done with the time needs to be taken into account.

 

 

 

 

 

 

 

B. Incorrect. While taking the bus costs less money, it also costs more time. The value of what could be done with the time needs to be taken into account.

 

 

 

 

 

 

 

C. Correct. Since it costs five hours more time to take the bus, but saves $100, if the value of the five hours is more than $100 then saving the five hours is worth more than the $100 higher price of flying. This works out to an average value of $20 per hour saved.

 

 

 

 

 

 

 

D. Incorrect. Since it costs five hours more time to take the bus, but saves $100, if the value of the five hours is more than $100 then saving the five hours is worth more than the $100 higher price of flying. This works out to an average value of $20 per hour saved. If the value of the time is less than this, then it is not worth it to save the time.

 

 

 

 

 

 

 

E. Incorrect. While taking the bus costs less money, it also costs more time. The value of what could be done with the time needs to be taken into account.

 

 

 

 

 

 

 

1-9 The Arizona Cardinals give away complimentary tickets to several charity groups. Among those receiving the gift tickets are kids from a local orphanage, volunteer athletic coaches from the Boys Clubs of America, students from Phoenix College SAM Council, and doctors from the Arizona Heart Institute. What can you say about the cost of giving these tickets away?

 

 

 

 

 

 

 

A. Incorrect. The cost of giving up the tickets is the money that might have been earned if they had been sold instead of given away.

 

 

 

 

 

 

 

B. Correct. Giving tickets to people who would be likely to buy them anyway would mean giving up sales, while giving them to people who would not want to buy tickets would not involve giving up a sale.

 

 

 

 

 

 

 

C. Incorrect. The cost of giving up the tickets is the money that might have been earned if they had been sold instead of given away. If a particular game would not have been sold out, then the cost of giving away those tickets is lower than if the tickets could have all been sold.

 

 

 

 

 

 

 

D. Incorrect. Giving tickets to people who would be likely to buy them anyway would mean giving up sales, while giving them to people who would not want to buy tickets would not involve giving up a sale.

 

 

 

 

 

 

 

E. Incorrect. Giving tickets to people who would be likely to buy them anyway would mean giving up sales, while giving them to people who would not want to buy tickets would not involve giving up a sale.

 

 

 

 

 

 

 

1-10 Which of the following is true?

 

 

 

 

 

 

 

A. Incorrect. The cost of attending school is higher if the number of high-paying jobs for college-age workers increases (since students have to give up earnings they could make on the job in order to attend classes).

 

 

 

 

 

 

 

B. Incorrect. The (opportunity) cost of attending school involves giving up things you could do with your time, such as spend it with your family.

 

 

 

 

 

 

 

C. Correct. A high part of the (opportunity) cost of attending school is giving up time at work. If working is not possible, this cost goes down.

 

 

 

 

 

 

 

D. Incorrect. The (opportunity) cost of attending school involves giving up things you could do with your time, such as spend it with your family or working.

 

 

 

 

 

 

 

E. Incorrect. The (opportunity) cost of attending school involves giving up things you could do with your time, such as spend it with your family or working. It may also involve giving up things you could spend money on that go to tuition, the price of books, transportation expenses, and other fees, all added together.