6) Which of the following is true regarding a normative statement?
i. It uses the ceteris paribus assumption.
ii. It is a value judgment.
iii. It accounts for opportunity costs.
A) i and iii
B) ii and iii
C) i only
D) ii only
E) i, ii, and iii
Answer: D
Topic: Integrative
Skill: Level 2: Using definitions
Section: Integrative
Status: Old
AACSB: Reflective thinking
7) To help unscramble cause and effect, economists
A) use the concept of opportunity costs.
B) must use the ceteris paribus assumption.
C) answer the "what" question.
D) answer the "how" question.
E) must use normative statements.
Answer: B
Topic: Integrative
Skill: Level 2: Using definitions
Section: Integrative
Status: Old
AACSB: Reflective thinking
8) Which of the following is true regarding this statement? "The president's decision to spend more money on national defense is smart."
A) This is a normative statement.
B) The federal government does not face scarcity.
C) This topic would be studied in microeconomics.
D) Social interest must always be more important than self-interest.
E) Ceteris paribus does not apply to the government.
Answer: A
Topic: Integrative
Skill: Level 2: Using definitions
Section: Integrative
Status: Old
AACSB: Reflective thinking
9) Gregory is considering attending a concert with a ticket price of $40. He estimates that the cost of driving to the concert and parking there will add an additional $20. In order to attend the concert, Gregory will have to take time off from his part-time job. He estimates that he will lose 5 hours at work, at a wage of $8 per hour. In terms of dollars, Gregory's opportunity cost of attending the concert equals
A) $80.
B) $100.
C) $40.
D) $60.
E) $20.
Answer: B
Topic: Integrative
Skill: Level 5: Critical thinking
Section: Integrative
Status: Old
AACSB: Application of knowledge
10) Kevin is re-finishing an antique grandfather clock that he purchased at a flea market for $300. He expects to be able to sell the clock for $450. At the last minute, Kevin discovers that he needs to repair the gears at a cost of $175 to make the clock worth $450 to potential buyers. It turns out that he could also sell the clock now, without completing the additional repairs, for $250. What should Kevin do?
A) He should sell the clock now for $250.
B) He should keep the clock but not make the repairs since the original $300 is a sunk cost.
C) He should complete the additional repairs and sell the clock for $450.
D) He should keep the clock after making the repairs since it is not rational to spend a total of $475 on an item that can only be sold for $450.
E) Kevin is indifferent between selling the clock as is or selling it after completing the repairs.
Answer: C
Topic: Integrative
Skill: Level 5: Critical thinking
Section: Integrative
Status: Old
AACSB: Application of knowledge
11) Which of the following scenarios describes an action that is NOT rational from an economic point of view?
A) After drinking one martini (shaken, not stirred), James buys and drinks a second martini even though the marginal benefit of the second martini is lower than the marginal benefit of the first.
B) Eric buys a replacement ticket to the basketball game after he realizes that he accidentally left his original ticket at home.
C) Emily chooses to attend a social event on Tuesday night instead of studying even though she has an important exam on Wednesday morning.
D) US Airways sells a last minute ticket to Don for $50 even though its average cost per passenger is $250.
E) None of the above
Answer: E
Topic: Integrative
Skill: Level 5: Critical thinking
Section: Integrative
Status: Old
AACSB: Application of knowledge
12) Because resources are scarce, economists would say that
A) the best things in life are always free.
B) people's wants are unlimited.
C) every choice has an opportunity cost.
D) anything worth doing is worth doing well.
E) there are no benefits from cooperation.
Answer: C
Topic: Integrative
Skill: Level 5: Critical thinking
Section: Integrative
Status: Old
AACSB: Reflective thinking
13) Wichita is building a convention center and financing it with revenues raised from a city hotel tax. Local politicians assert that the convention center is essentially free for Wichita residents because out-of-town visitors are paying for it. Someone who is practicing the economic way of thinking would disagree because