Test Bank For Principles of Economics International Edition 8th Edition By Michael Melvin

Chapter 2—Choice, Opportunity Costs, and Specialization MULTIPLE CHOICE

1. What do economists mean when they refer to the forgone opportunities or forgone benefits of the next-best alternative?

1. The idea that you can watch TV while studying for your economics exam at the same time
2. Quantifiable accounting costs
3. Forgone costs
4. The highest-valued alternative that must be forgone when a choice is made
5. All of these choices

ANS: D PTS: 1 DIF: Easy REF: Ch 2, 1.a

OBJ: Ch 2, 1 TOP: Opportunity cost

TYP: Factual

2. In economics, the cost of any item or activity always includes

1. only the actual amount of money expended.
2. the opportunity cost incurred in purchasing the item or activity.
3. the amount of money expended plus the rate of inflation.
4. the sum total of the actual costs involved in the production of the item or activity.
5. the accounting costs plus the rate of inflation.

ANS: B PTS: 1 DIF: Easy REF: Ch 2, 1.a OBJ: Ch 2, 1 TOP: Opportunity cost TYP: Factual

3. Which of the following is the best definition of the concept of a tradeoff, as discussed in the text?

1. The tuition you pay to attend college
2. The price of a movie ticket at prime time
3. Not having enough information available to make a rational decision
4. Giving up one good or activity in order to obtain some other good or activity
5. Having your cake and eating it too

ANS: D PTS: 1 DIF: Easy OBJ: Ch 2, 1 TOP: Tradeoffs TYP: Factual

REF: Ch 2, 1.a

4. Which statement concerning opportunity costs is not true?

1. Opportunity costs can always be expressed in money terms.
2. Every choice involves opportunity costs.
3. Opportunity costs are the highest-valued alternatives that must be forgone when a choice

   is made.

4. The full cost of an activity includes the opportunity costs.
5. Economists refer to the forgone benefits of the next-best alternative as opportunity costs.

ANS: A PTS: 1 DIF: Medium REF: Ch 2, 1.a OBJ: Ch 2, 1 TOP: Opportunity cost TYP: Factual

© 2011 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

Chapter 2 2

5. A

1. increasing the quantity of other types of goods that are produced.
2. increasing the quantity of both types of goods that are produced.
3. decreasing employment.
4. government intervention.
5. decreasing the quantity of other types of goods that are produced.

ANS: E PTS: 1 DIF: Easy REF: Ch 2, 1.b OBJ: Ch 2, 2 TOP: PPC TYP: Factual

6. According to the textbook’s discussion of the production possibilities curve, a nation cannot produce as much of both defense goods and nondefense goods as it wants. Thus, when a nation produces more defense goods, by definition that nation

1. must forgo the production of nondefense goods, ceteris paribus.
2. does not have to forgo the production of nondefense goods since resources are unlimited.
3. has to tolerate higher unemployment rates.
4. can produce more of both defense and nondefense goods only if it can acquire more

   money.

5. must produce less of both defense and nondefense goods since any nation’s production

   possibilities curve represents only a Utopian state.

ANS: A PTS: 1 DIF: Easy REF: Ch 2, 1.b OBJ: Ch 2, 2 TOP: PPC TYP: Factual

7. Which economic concept is the closest parallel to the saying “There’s no free lunch”?

1. Specialization
2. Unlimited wants
3. Underutilization of resources

production possibilities curve shows that more of one type of good can be produced only by

4. Opportunity costs
5. Overutilization of resources

ANS: D PTS: 1
OBJ: Ch 2, 1 TOP: Opportunity cost

DIF: Easy

REF: Ch 2, 1.a TYP: Interpretive

8. The city of Austin can buy roads or light rail. If 10 miles of roads cost $1 million and 2 miles of light rail cost $10 million, what is the city’s opportunity cost of 1000 miles of roads?

1. $100 million
2. 2 miles of light rail

c. 200 miles of light rail

4. $50 million
5. $1,000 million.

ANS: A PTS: 1 DIF: OBJ: Ch 2, 1 TOP: Opportunity cost

Difficult

REF: Ch 2, 1.a TYP: Applied

© 2011 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

Chapter 2 3

9. Ronnie waits one hour in line to buy a ticket to a rock concert. The opportunity cost of buying the $28 ticket

1. is Ronnie’s best alternative use of the $28.
2. is Ronnie’s best alternative use of the one hour it took to wait in line.
3. is the value of the $28 to the ticket agent.
4. is Ronnie’s best alternative use of both the $28 and the one hour spent in line.
5. cannot be measured because there is no opportunity cost associated with consumption.

ANS: D PTS: 1 DIF: Medium REF: Ch 2, 1.a OBJ: Ch 2, 1 TOP: Opportunity cost TYP: Applied

10. Which of the following examples best captures the definition of opportunity cost?

1. Accepting payment for services rendered
2. Going to the movies instead of studying for your economics exam
3. Answering a question correctly on your economics exam
4. Scoring an eagle on the fifth hole during a golf tournament and winning by one stroke
5. Leaving a 20 percent tip for great service at a fine restaurant

ANS: B PTS: 1 DIF: Easy REF: Ch 2, 1.a OBJ: Ch 2, 1 TOP: Opportunity cost TYP: Factual