1. 􀂄 True/False Questions • 1. Scarcity is a problem only for the poor. Answer-1. F Scarcity exists because people’s wants exceed their ability to meet those wants, and this fact of life is true for any person, rich or poor. • 2. Macroeconomics studies the factors that change national employment and income. Answer-2. T Macroeconomics studies the entire economy; microeconomics studies separate parts of the economy. • 3. Answering “What goods and services are produced?” automatically answers “How are goods and services produced?” A3. F Goods and services can be produced many different ways, so the “how” question must be answered separately from the “what” question. • 4. An example of the “how” one of the big economic question is: “How does the nation decide who gets the goods and services that are produced?” A4. F The “how” one of the big question asks, “How are goods and services produced?”

2. 􀂄 Multiple Choice Definition of Economics-1 • 1. The fact that wants cannot be fully satisfied with available resources reflects the definition of a. incentives. b. scarcity. c. the output-inflation tradeoff. d. for whom to produce. Answer-1. b Scarcity refers to the observation that wants are unlimited but that the resources available to satisfy these wants are limited. • 2. Studying the effects choices have on the national economy is part of a. scarcity. b. microeconomics. c. macroeconomics. d. global science. Answer-2. c Macroeconomics studies the national economy as well as the global economy.

3. 􀂄 Multiple Choice Definition of Economics-2 • 3. Which of the following is NOT one of the big economic questions? a. What goods and services are produced? b. How are goods and services produced? c. For whom are goods and services produced? d. Why are goods and services produced? A3. d “Why” is not one of the big economic questions. • 4. The question, “Should desktop computers or laptop computers be produced?” is an example of which big economic question? a. The “what”. b. The “how”. c. The “where”. d. The “for whom”. A4. a The “what” asks “What goods and services are produced?”

4. 􀂄 Multiple Choice Definition of Economics-3 • 5. Which of the following is NOT one of the main factors of production ? a. Natural Resources b. Labour c. Money d. Capital e. Entrepreneurial ability A5. c Factors of Production are divided four main categories: 1-Natural Resources, 2-Labor, 3-Capital, 4-Entrepreneurial ability. Money is a kind of financial capital. • 6. Which factors of production is the “gifts of God” that we use to produce g&s ? a. Natural Resources b. Labour c. Capital d. Entrepreneurial ability A6. aNatural Resources are the “gifts of God” that we use to produce g&s.

5. 􀂄 Multiple Choice Definition of Economics-4 • 7. Which of the following is not an examplefornaturalresoruces? a. Land b. Labour c. Oil d. Gas e. Coal A7. bLabour is anothermainfactors of production. • 8. Which of thefollowing is NOT a kinf of financialcapital? a. Money b. Machinery c. Stocks d. Bonds A8. b Machinery is an exampleforphsycalcapital.

6. 􀂄 True/False Questions 1. Capital earns profit. Answer-1. (F)Capital earns interest; entrepreneurship earns profit. 2. Land earns wages. Answer-2. (F)Land earns rent; Labor earns wages. 3. An example of the “for whom” one of the big economic question is: “Should the people who work hard get more g&s?” A3. (T)The “for whom” one of the big question asks, “Who should get the g&s produced? evendistribution?more g&s for the rich? more g&s for those who work hard?” 4.Economic activity would not exist if scarcitydid not force people to make choices. A4. (T)Economics is sometimes called the study of scarcity, because economic activity would not exist if scarcitydid not force people to make choices.

7. 􀂄 True/False Questions 5. When making choices, most people consider the social interest of their decisions. A5. (F)People consider the self interest of their choices, that is, they make the choices they are best for them. 6. Choices made in self interest might also advance the social interest. A6. (T)A role of economics is to discover when choices made in the self interest advance the social interest and when they conflict with the social interest. 7. A person earning 10 “Lira” per hour in today’s “Lira” is said to be earning a real wage of 10Lira. Answer-7. (F)Real values are always values in comparison, or relative, to other related economic variables. 8. If a person earns 10 “Lira” in 2010, the real wage of the person is 5 “Lira” relative to today’s doubled prices since 1995. Answer-8. (T)A person earning a nominal wage of 10 “Lira” in 2010 may only be earning a real wage of 5 “Lira” relative to today’s doubled prices since 1995.

8. 􀂄 Multiple Choice Definition of Economics-1 1. People have different amounts of income. This observation is most directly related to which part of the first big economic question? a. The “what” part. b. The “how” part. c. The “why” part. d. The “for whom” part. A1. (d)People with high incomes will get more goods and services than those with low incomes. 2. The factor of production that earns the most income is ____. a. land b. labor c. capital d. entrepreneurship A2. (b)Labor earns wages. Wages benefits are about 70 percent of total income.

9. 􀂄 Multiple Choice Definition of Economics-2 3. If a drug executive sets the price of a new drug at $1,000 a dose because that is the price that is best for the executive, the executive is definitely making a a. self-interested choice. b. choice in the social interest. c. globalization choice. d. factors of production choice. A3. (a)Because the choice is best for the executive, it is a self-interested choice. 4. Choices made in the pursuit of self interest ____ the social interest. a. always further b. sometimes further c. never further d. are no comparable to choices made in the A4. (b)Part of the job of economists is to determine when choices made in self interest further social interest and when they come into conflict. 5. Which of the following is an assumption considers the effects of a change in one factor assuming that all other relevant factors remain the same? a. Economic Efficiency b. Productive Efficiency c. Ceteris Paribus d. Social Interest e. Self Interest A5. (c) Ceteris Paribus is an assumption considers the effects of a change in one factor assuming that all other relevant factors remain the same

10. 􀂄 True/False Questions 1. Tradeoffs mean that you give up one thing to get something else. Answer-1. (T) The question gives the definition of a tradeoff. 2. There is no such thing as a “how” tradeoff because a business uses only one way to produce its goods and services. Answer-1. (F)Businesses almost always can produce their products many different ways, so they face a “how” tradeoff when they choose which method they will use. 3. The big tradeoff refers to the tradeoff between what goods are produced and how they are produced. Answer-1. (F)The big tradeoff refers to the tradeoff between equality and efficiency. 4. If Ahmet buys a slice of pizza for 3 TL rather than a “lahmacun” for 3 TL, the “lahmacun” is the opportunity cost of buying the slice of pizza. Answer-1. 11. (T)The opportunity cost is the “lahmacun” that was foregone in order to buy the pizza. 5. By comparing the cost and benefit of a small change you are making your choice at the margin. Answer-5. (T)The definition of making a choice at the margin means that choice revolves around a small change.

11. 􀂄 Multiple Choice Definition of Economics-1 1. The fact that Intel decides to produce CPU (Central Processing Unit)chips rather than memory chips best reflects a ____ tradeoff. a. what b. how c. for whom d. standard of living A1. (a)The “what” tradeoff reflects Intel’s decisions about “what” to produce. 2 The choice about how much to save a. has no opportunity cost because saving means more future consumption. b. has the opportunity cost of higher future consumption. c. trades off current consumption for future consumption. d. None of the above answers is correct. A2. (c)Because saving decreases current consumption, the opportunity cost of saving is the forgone current consumption. 3. From 10 to 11 A.M., can sleep in, go to his economics lecture, or play tennis. Suppose that Mustafa decides to go to the lecture but thinks that, if he hadn’t, he would otherwise have slept in. The opportunity cost of attending the lecture is a. sleeping in and playing tennis. b. playing tennis. c. sleeping in. d. one hour of time. • A3. (c)The opportunity cost of an action is the (single) highest-valued alternative foregone by taking the action.

12. 􀂄 Multiple Choice Definition of Economics-2 4. When the government chooses to use resources to build a dam, these resources are no longer available to build a highway. This fact best illustrates the concept of a. a market. b. macroeconomics. c. opportunity cost. d. marginal benefit. A4. (c)Because the resources are used to build a dam, the opportunity of using them to build a highway is given up. 5. To make a choice on the margin, an individual a. ignores any opportunity cost if the marginal benefit from the action is high enough. b. will choose to use his or her scarce resources only if there is a very large total benefit from so doing. c. compares the marginal cost of the choice to the marginal benefit. d. makes the choice with the smallest opportunity cost. A5. (c)Comparing marginal cost and marginal benefit is an important technique, especially in microeconomics.

13. Multiple Choice Questions Which of the following is NOT an example of individual resources? a. Incomeb. Skill c. Timed.Capital Which of the following is NOT an example of a country resources? a. Natural Resources b.Capital c. Labor Forced. Skill Which of the following is NOT an example of individual resources? a. Time b. Incomec. Skill d. Knowledge Which of the following is NOT an example of a country resources? a. Knowledge b.Technology c. Labor Forced. Skill

14. Fill in the BlanksQuestions 1. “The government should raise taxes to reduce the budget deficit.”is an example for a ………………… statement. 2. “The minimum wage should not be increased.” is an example for a ………………… statement. 3. “The minimum wage should be increased.” is an example for a ………………… statement. 4. “The budget deficit this past year exceeded $300 million.” is an example for a ………………… statement. 5. “A rise in the minimum wage will bring more teenage unemployment.” is an example for a ………………… statement. 6. “The government should not raise taxes to reduce the budget deficit.”is an example for a ………………… statement.

15. Fill in the BlanksQuestions Economicefficiencyrequires ……………………………………..and fullproduction . Economicefficiencyrequires fullemployment and …………………………………………….. Full Productionrequires …………………………………………..andallocativeefficiency Full Productionrequiresproductiveefficiencyand ………………………………………………… Choices that are best for society as a whole are said to be in the ………………. interest. ………………….. means that people want more than is available.

16. Fill in the BlanksQuestions Individual resourcesareincome (money),timeand …………... Individual resourcesareincome (money), ……………..andskill. Individual resourcesare …………………………,timeandskill. Resources of a countryarenatural resources,capital, labor force,technologyand ………………………... Resources of a countryarenatural resources,capital, labor force, ………………………….. andknowledge. Resources of a countryarenatural resources,capital, ……………………., technologyandknowledge. Resources of a countryarenatural resources, ………………, labor force, technologyandknowledge. Resources of a countryare ……………………………….,capital, labor force, technologyandknowledge.

17. Fill in the BlanksQuestions …………….. and services are the objects that people value and produce to satisfy human wants (needs). ……………………….is the study of choices that individuals and businesses make, the way those choices interact in markets, and the influence of governments. …………………………….. is thestudy of economicbehaviour in theaggregate. Goods and ……………………are the objects that people value and produce to satisfy human wants (needs). …………………………………. is the study of decisions of individuals, households, and businesses in specific markets. …………………..is the study of the performance of the national and global economies Mineral depositsareexamples of ………………………………. Land is an example of ………………………………………. Energysourcesareexamples of ………………………………. Forestsareexamples of ………………………………. Machineryandequipmentareexamples of ………………………………. Factoriesareexamples of ………………………………. One of themainmode of production is capitalintensive, anothermode of production is ………………………..

18. Fill in the BlanksQuestions Goods and services are produced by using productive resources that economists call …………………………………… Productive resources are used as ………………………………to produce goods and services. The work time and work effort that people devote to producing goods and services is ……………….. The tools, instruments, machines, buildings, and other constructions that businesses use to produce goods andservicesare ……………….. The human resource that organizes naturalresources, labor, and capital is……………………….. ……………………………..is personal abilitytocombine other factors of production and bear the risk of business venture. Choices that are best for society as a whole are said to be in the …………………interest. A choice is in your …………..interest if you think that choice is the best one available for you.

19. Fill in the BlanksQuestions Full production requires allocativeefficiencyand……………………………….. Economic efficiency requires full production and ………………………...... Full production requires poductiveefficiencyand ………………………….. Economic efficiency requires full employment and ………………………… ……………….. economic statements are facts or relationships which can be proven or disproven. A …………………statement can be tested by checking it against facts. A …………….. economic statement is someone’s opinion or value judgment about an economic issue. A ……………….. economic statement cannot be tested by checking it against facts.

20. Fill in the BlanksQuestions “The government should raise taxes to reduce the budget deficit.” is an example of a ……………….. economic statement. “The minimum wage should not be increased” is an example of a ……………….. economic statement. “The budget deficit this past year exceeded $200 million.” is an example of a ……………….. economic statement. “A rise in the minimum wage will bring more teenage unemployment.” is an example of a ……………….. economic statement. A …..………………isan exchange - giving up one thing to get something else. ………………………..is a situation in which you balance two opposing situations. …………Tradeoffs arise when people choose how to spend their incomes, ….………Tradeoffs arise when governments choose how to spend their tax revenues, and ….………Tradeoffs arise when businesses choose what to produce. …………Tradeoffs come out when businesses choose among alternative production technologies. ………….Tradeoffs appear when choices change the distribution of buying power across individuals.

21. Fill in the BlanksQuestions The difference between the number of people in the labor force and those working for pay is called …………………... The ……………………….rate is the percentage of the labor force without a job. ……………………………….is a measure of the average level of prices of goods and services in the economy. …………………………………..tells us what is happening to prices on average. …………………….is a increase in the aggregateprice level over some defined time period. …………………….is a decrease in the aggregateprice level over some defined time period.

22. Fill in the BlanksQuestions ………………………………..is the next best alternative sacrificed. ………………………………..is whatever must be given up to obtain something. ………………………………..is the highest-valued alternative that we give up to get something. Markets in which governments do not intervene are called…………………. system. Factors of productionareownedbyindividuals in a …………….………..…system. Markets in which governments intervene are called…………………………. system. Factors of productionareownedbygovernment in a ……………………..…system. Most countries experience economic growth because of advances in technology and…………………………………. Most countries experience economic growth because of increases in capital stock and…………………………………. ……………………………………….. is the value of all goods and services produced in the economy.

23. 􀂄 True/False Questions 1. In Figure 2.4 point a is NOT attainable. A1. F Any point on the production possibilities frontier is attainable, even points where the PPF intersects the axes. 2. In Figure 2.4 the opportunity cost of moving frompoint b to point c is 1/2 computer per television. A2. T The opportunity cost equals the number of computers foregone, 10, divided by the number of televisions gained, 20. 3. From a point on the PPF, rearranging productionand producing more of all goods is possible. A3. F Points on the frontier are production efficient, so increasing the production of one good necessarily requires producing fewer of some other good.

24. 􀂄 True/False Questions 4. From a point within the PPF, rearranging productionand producing more of all goods is possible. A4. T Points within the frontier are inefficient, whichmeans its possible to rearrange production andboost the production of all goods and services.This condition is illustrated in Figure 2.8, wherefrom (the inefficient) point a, it is possible tomove to points such as b or c where more ofboth books and magazines are produced. 5. Production efficiency requires producing at a pointon the PPF. A5. T Production efficiency implies that the productionof one good can be increased only if thereduction of another good is decreased, whichis true only on the PPF itself.

25. 􀂄 True/False Questions • 1. The law of demand states that, if nothing elsechanges, as the price of a good rises, the quantitydemanded decreases. A1. (T)The law of demand points out the negative relationshipbetween a good or service’s price andthe quantity demanded. • 2. A decrease in income decreases the demand for allproducts. A2. (F)Demand decreases for normal goods but increasesfor inferior goods. • 3. “An increase in demand” means a movement downand rightward along a demand curve. A3. (F)The term “increase in demand” refers to a rightwardshift in the demand curve. • 4. New technology for manufacturing computer chipsshifts the demand curve for computer chips. A4. (F)Changes in technology are not a factor thatshifts the demand curve. (Changes in technologyshift the supply curve.)

26. 􀂄 Multiple Choice Definition of Economics-1 • 5. The law of demand concludes that a rise in the priceof a golf ball ____ the quantity demanded and____. a. increases; shifts the demand curve for golf ballsrightward. b. decreases; shifts the demand curve for golf ballsleftward. c. decreases; creates a movement up along the demandcurve for golf balls. d. increases; creates a movement down along thedemand curve for golf balls. • A5. (c)The law of demand points out that a higherprice decreases the quantity demanded and createsa movement up along the demand curve forgolf balls. • 6. If a rise in the price of gasoline decreases the demandfor large cars, a. gasoline and large cars are substitutes in consumption. b. gasoline and large cars are complements in consumption. c. gasoline is an inferior good. d. large cars are an inferior good. • A6. (b)For complementary goods, a rise in the price ofone decreases the demand for the other.

27. 􀂄 Multiple Choice Definition of Economics-2 • 7. A normal good is one a. with a downward sloping demand curve. b. for which demand increases when the price of asubstitute rises. c. for which demand increases when income increases. d. None of the above. • A7. (c)This answer is the definition of a “normalgood.” • 8. Some sales managers are talking shop. Which of thefollowing quotations refers to a movement along thedemand curve? a. “Since our competitors raised their prices oursales have doubled.” b. “It has been an unusually mild winter; our salesof wool scarves are down from last year.” c. “We decided to cut our prices, and the increasein our sales has been remarkable.” d. None of the above. • A8. (c)A reduction in the price of the good leads to amovement along its demand curve.

28. 􀂄 Multiple Choice Definition of Economics-3 • 9. Which of the following could lead to the shift in thedemand curve illustrated in Figure 3.5? a. An increase in the quantity demanded b. A rise in the price of a substitute good c. A rise in the price of a complement d. A fall in the price of the product • A9. (b)A rise in the price of a substitute shifts the demandcurve rightward.

29. 􀂄 True/False Questions • 17. A supply curve shows the maximum price requiredin order to have the last unit of output produced. • A17. (F)The supply curve shows the minimum price thatsuppliers must receive in order to produce thelast unit supplied. • 18. A rise in the price of chicken feed decreases thesupply of chickens. • A18. (T)Chicken feed is a factor used to produce chickens,so a rise in its price shifts the supply curveof chickens leftward. • 19. A rise in the price of orange juice shifts the supplycurve of orange juice rightward. • A19. (F)The rise in the price of orange juice creates amovement along the supply curve to a largerquantity supplied (that is, upward and rightward),but it does not shift the supply curve.

30. 􀂄 Multiple Choice Definition of Economics-1 • 18. A fall in the price of a good leads to producers decreasingthe quantity of the good supplied. Thisstatement reflects a. the law of supply. b. the law of demand. c. a change in supply. d. the nature of an inferior good. • A18. (a)The law of supply points out the positive relationshipbetween the price of a good or serviceand the quantity supplied. • 19. Which of the following influences does NOT shiftthe supply curve? a. A rise in the wages paid workers b. Development of new technology c. People deciding that they want to buy more ofthe product d. A decrease in the number of suppliers • A19. (c)A change in preferences shifts the demand curve,not the supply curve. • 10. The price of jet fuel rises, so the a. demand for airplane trips increases. b. demand for airplane trips decreases. c. supply of airplane trips increases. d. supply of airplane trips decreases. • A10. (d)Jet fuel is a factor used to produce airplane trips,so a rise in the price of this resourcedecreasesthe supply of airplane trips.

31. 􀂄 Multiple Choice Definition of Economics-2 • 11. In addition to showing the quantity that will besupplied at different prices, a supply curve is also a a. willingness-and-ability-to-pay curve. b. marginal benefit curve. c. minimum-supply price curve. d. maximum-supply price curve. • A11. (c)For any unit of output, the supply curve shows the minimum price for which a producer is willing to produce and sell that unit of output. • 12. An increase in the number of producers of gruel____ the supply of gruel and shifts the supply curveof gruel ____. a. increases; rightward b. increases; leftward c. decreases; rightward d. decreases; leftward • A12. (a)An increase in supply is reflected by a rightwardshift of the supply curve.

32. 􀂄 Multiple Choice Definition of Economics-3 • 13. An increase in the price of the cheese used to producepizza shifts the supply curve of pizza ____ andshifts the demand curve for pizza ____. a. rightward; leftward b. leftward; leftward c. leftward; not at all d. not at all; leftward • 13. c A change in the price of a factor used to producea good shifts the supply curve but does not shiftthe demand curve. • 14. To say that “supply increases” for any reason, meansthere is a a. rightward movement along a supply curve. b. leftward movement along a supply curve. c. rightward shift in the supply curve. d. leftward shift in the supply curve. • A14. (c)An “increase in supply” means that the supplycurve shifts rightward; a “decrease in supply”means the supply curve shifts leftward.

33. Multiple Choice Questions • 1. This figure shows: a. an increase in demand b. a decrease in demand c. an increase in quantity demanded d. a decrease in quantity demanded • A1. (c) • 2. This figure shows: a. an increase in demand b. a decrease in demand c. an increase in quantity demanded d. a decrease in quantity demanded • A2. (a)

34. Multiple Choice Questions • 3. This figure shows: a. an increase in demand b. a decrease in demand c. an increase in quantity demanded d. a decrease in quantity demanded • A3. (b) • 4. This figure shows: a. an increase in demand b. a decrease in demand c. an increase in quantity demanded d. a decrease in quantity demanded • A4. (d)

35. 􀂄 True/False Questions-1 • 10. Once a market is at its equilibrium price, unless something changes, the price will not change. • A10. (T)Once at the equilibrium price, because the opposingforces of demand and supply are in balance,the situation can persist indefinitely untilsomething changes. • 11. If there is a surplus of a good, its price falls. • A11. (T)A surplus of a product results in its price fallinguntil it reaches the equilibrium price.-

36. 􀂄 True/False Questions-2 • 12. If the expected future price of a good rises, its currentprice rises. • A12. (T)The rise in the future price shifts the demandcurve rightward and the supply curve leftward,unambiguously raising the current price. • 13. A rise in the price of a product decreases thequantitydemanded, so there can never be a situationwith both the product’s equilibrium price risingand equilibrium quantity increasing. • A13. (F)The inverse relationship between the price andquantity demanded holds along a fixed demandcurve. But if the demand curve shifts rightward,the equilibrium price rises and the equilibriumquantity increases. • 14. If both the demand and supply curves shift rightward,the equilibrium quantity definitely increases. • 14. (T)The equilibrium quantity definitely increaseswhen both the demand and supply increase. • 15. If both the demand and supply curves shift rightward,the equilibrium price definitely rises. • 15. (F)The price rises if the shift in the demand curve islarger than that in the supply curve; but if theshifts are the same size, the price does notchange and if the supply shift is larger, the pricefalls.

37. 􀂄 Multiple Choice Definition of Economics-3 • 15. If the market for Twinkies is in equilibrium, then a. Twinkies must be a normal good. b. producers would like to sell more at the currentprice. c. consumers would like to buy more at the currentprice. d. the quantity supplied equals the quantity demanded. • A15. (d)At equilibrium, consumers and suppliers aresimultaneously satisfied insofar as the quantityconsumers are willing to buy matches the quantityproducers are willing to sell. • 16. If there is a shortage of a good, the quantity demandedis ____ than the quantity supplied and theprice will ____. a. less; rise b. less; fall c. greater; rise d. greater; fall • A16. (c)A shortage occurs when the price is below theequilibrium price. The quantity demanded exceedsthe quantity supplied and the resultingshortage means the price rises until it reaches itsequilibrium.-

38. 􀂄 Multiple Choice Definition of Economics-4 • 17. In Figure 3.6 at the price of $80 there is a a. shortage and the price will rise. b. shortage and the price will fall. c. surplus and the price will rise. d. surplus and the price will fall. • A17. (d)There is surplus because, as illustrated in Figure3.8, the quantity supplied at the price of $80 is 4.This quantity exceeds 2, the quantity demanded. • 18. In a market, at the equilibrium price, a. neither buyers nor sellers can do business at abetter price. b. buyers are willing to pay a higher price, but sellersdo not ask for a higher price. c. buyers are paying the minimum price they arewilling to pay for any amount of output and sellersare charging the maximum price they are willingto charge for any amount of production. d. None of the above is true. • A18. (a)Buyers cannot find anyone willing to sell to at alower price and sellers cannot find anyone willingo buy at a higher price.-

39. 􀂄 Multiple Choice Definition of Economics-5 • 19. Pizza and hamburgers are substitutes for consumers.A rise in the price of pizza ____ the price of a hamburgerand ____ in the quantity of hamburgers. a. raises; increases b. raises; decreases c. lowers; increases d. lowers; decreases • 19. (a)The rise in the price of a pizza increases the demandfor hamburgers, which results in a rise inthe price of a hamburger and an increase in thequantity of hamburgers. • 20. How does an unusually cold winter affect the equilibriumprice and quantity of anti-freeze? a. It raises the price and increases the quantity. b. It raises the price and decreases the quantity. c. It lowers the price and increases the quantity. d. It lowers the price and decreases the quantity. • 20. (a)The cold winter shifts the demand curve rightward,as consumers increase their demand forantifreeze; the supply curve does not shift. As aresult, the equilibrium price rises and the quantityincreases. • 21. You notice that the price of wheat rises and thequantity of wheat increases. This set of observationscan be the result of the a. demand for wheat curve shifting rightward. b. demand for wheat curve shifting leftward. c. supply of wheat curve shifting rightward. d. supply of wheat curve shifting leftward. • 21. (a)Figure 3.9 shows that an increase in the demandfor wheat, so that the demand curve shifts fromD0 to D1, raises the price of wheat from $6 a bushelto $8 and increases its quantity from 30 billionbushels of wheat a year to 40 billion.

40. 􀂄 Multiple Choice Definition of Economics-6 • 22. A technological improvement lowers the cost ofproducing coffee. As a result, the price of a pound ofcoffee ____ and the quantity of coffee ____. a. rises; increases b. rises; decreases c. falls; increases d. falls; decreases • 22. (c)The technological improvement increases thesupply, that is, the supply curve shifts rightward.As a result, the quantity increases and the pricefalls. • 23. The number of firms producing computer memorychips decreases. As a result, the price of a memorychip ____ and the quantity of memory chips ____. a. rises; increases b. rises; decreases c. falls; increases d. falls; decreases • 23. (b)The decrease in the number of firms producingmemory chips decreases the supply of memorychips, which raises the price and decreases thequantity of chips.

41. 􀂄 Multiple Choice Definition of Economics-7 For the next five questions, suppose that the price ofpaper used in books rises and simultaneously (andindependently) more people decide they want to readbooks. • 24. The rise in the price of paper shifts the a. demand curve rightward. b. demand curve leftward. c. supply curve rightward. d. supply curve leftward. • 24. (d)Paper is a resource used in the manufacture ofbooks, so a rise in the price of paper shifts thesupply curve of books leftward. • 25. The fact that more people want to read books shiftsthe a. demand curve rightward. b. demand curve leftward. c. supply curve rightward. d. supply curve leftward. • 25. (a)When people’s preferences change so that theywant to read more books, the demand curve forbooks shifts rightward.

42. 􀂄 Multiple Choice Definition of Economics-8 • 26. The equilibrium quantity of books a. definitely increases. b. definitely does not change. c. definitely decreases. d. might increase, not change, or decrease. • 26. (d)The equilibrium quantity increases if the increasein demand is larger than the decrease insupply, decreases if the change in supply is larger,and does not change if the changes are thesame size. • 27. The equilibrium price of a book a. definitely rises. b. definitely does not change. c. definitely falls. d. might rise, not change, or fall. • 27. (a)Both the increase in demand and decrease insupply lead to a rise in the price, so the equilibriumprice unambiguously rises.

43. 􀂄 Multiple Choice Definition of Economics-8 • 28. Suppose that the effect from people deciding theywant to read more books is larger than the effectfrom the increase in the price of paper. In this case,the equilibrium quantity of books a. definitely increases. b. definitely does not change. c. definitely decreases. d. might increase, not change, or decrease. • 28. (a)If the shift in the demand curve exceeds the shiftin the supply curve, the equilibrium quantity increases.This result is illustrated in Figure 3.10,where the quantity increases from 4 to 5 million. • 29. Which of the following definitely raises the equilibriumprice? a. An increase in both demand and supply. b. A decrease in both demand and supply. c. An increase in demand combined with a decreasein supply. d. A decrease in demand combined with an increasein supply. • 29. (c)Separately, the increase in demand and decreasein supply both raise the price, so the two ofthem occurring together definitely raise theprice. • 30. Is it possible for the price of a good to stay the samewhile the quantity increases? a. Yes, if both the demand and supply of the goodincrease by the same amount. b. Yes, if the demand increases by the same amountthe supply decreases. c. Yes, if the supply increases and the demand doesnot change. d. No, it is not possible. • 30. (a)If both the demand and supply increase by thesame amount, the price will not change and thequantity will increase.

44. 􀂄 True/False Questions-1 Consumption Possibilities • 11. The budget line has a negative slope and indifference curves are convex. 11. (T) The budget line is straight; indifference curvesare curved outward, as the exterior of a sphere. • 12. The magnitude of the slope of the budget line is arelative price. 12. (T) The magnitude of the slope of the budget line isthe relative price of the good on the horizontalaxis in terms of the good on the vertical axis. • 13. An increase in income shifts the budget line outwardand makes it steeper. 13. (F) An increase in income shifts the budget lineoutward, but does not change its slope.

45. 􀂄 True/False Questions-2 Preferences and Indifference Curves • 14. A person is indifferent between any combination ofgoods on a particular indifference curve. 14.(T) This definition is why a consumer is indifferentbetween points on a particular indifferencecurve. • 15. Indifference curves farther from the origin are preferredto those closer to the origin. 15. (T) Indifference curves farther from the origin havemore potential consumption of all goods andservices and so are preferred. • 16. The magnitude of the slope of a person’s indifferencecurve is the marginal rate of substitution. 16. (T) The statement tells how to measure the marginalrate of substitution. • 17. The marginal rate of substitution falls when movingupward along an indifference curve. 17. (F) The principle of diminishing marginal rate ofsubstitution means that the marginal rate of substitutionfalls while moving downward along anindifference curve.

46. 􀂄 True/False Questions-3 Predicting Consumer Choices • 9. The best affordable point of consumption is on thebudget line and on the highest attainable indifferencecurve. 9. (T)The best affordable point is best because it is onthe highest indifference curve and is affordablebecause it is on the budget line. • 10. The law of demand can be derived from an indifferencecurve diagram by using the diagram to determinethe impact changes in price have on theperson’s consumption bundle. 10. (T)The question tells how a demand curve can bederived.

47. 􀂄 Multiple Choice-1 Consumption Possibilities • 11. Which of the following statements best describes aconsumer’s budget line? a. It shows all combinations of goods among whichthe consumer is indifferent. b. It shows the limits to a consumer’s set of affordableconsumption choices. c. It shows the desired level of consumption for theconsumer. d. It shows the consumption choices made by aconsumer. 11. (b)The budget line illustrates the different combinationsof goods an individual can afford. In thissense it is like a menu, showing what can be purchased.But in order to determine what will bepurchased, information is needed on the consumer’spreferences about the different combinationsof goods. • 12. The magnitude of the slope of the budget line a. is defined as marginal rate of substitution. b. equals the relative price of the good measuredalong the horizontal axis. c. increases when income increases. d. decreases when income increases. 12. (b)The slope indicates how many units of the goodmeasured on the vertical axis must be given upin order to gain another unit of the good measuredon the horizontal axis.

48. 􀂄 Multiple Choice-2 • 13. The budget line can shift or rotate a. only when income changes. b. only when prices change. c. when either income or prices change. d. None of the above because changes in incomeand prices do not shift or rotate the budget line. 13. c Income and price changes shift or rotate thebudget line, not indifference curves.

49. 􀂄 Multiple Choice-2 Use Figure 9.5 for the next two questions. 14. Suppose that this consumer’s income increases andnothing else changes. As a result, the consumer’sbudget line a. rotates around the vertical intercept and becomessteeper. b. rotates around the vertical axis and becomes shallower. c. shifts rightward and becomes steeper. d. shifts rightward and its slope does not change. 14. (d)Changes in the relative price rotate the budgetline; changes in income shift it in a parallel fashion. • 15. Suppose that the price of a movie rises and nothingelse changes. This change means the budget line a. rotates around the vertical intercept and becomessteeper. b. rotates around the vertical axis and becomes flatter. c. shifts rightward and becomes steeper. d. shifts rightward and does not change its slope. • 15. (a)A rise in the price of a movie does not changethe vertical intercept, but the magnitudeof the slope (P movies /P soda) increases.

50. 􀂄 Multiple Choice -3 • 16. Merit consumes apples and bananas. Suppose that Merit’s income doubles and that the prices of applesand bananas also double. Merit’s budget line will a. shift leftward but not change slope. b. remain unchanged. c. shift rightward but not change slope. d. shift rightward and become steeper. • 16. (b)The relative price of bananas and apples doesnot change because both prices doubled, so theslope of the budget line is unchanged. In addition,the intercepts do not change because thehigher income matches the higher prices. So, thebudget line does not change.