Chapter 3 MCQ

Question 1

When higher-paying jobs are harder to find for workers, a business will pay more to hire labour. T  F

Answer 1

False. Workers with fewer alternatives may accept lower wages.

Question 2

Any smart business supply decision involves a choice between a business’s marginal benefit (or reward) from supplying (or selling) its product and the business’s marginal opportunity cost of producing the product. T  F

Answer 2

True. Choose to produce when additional benefits are greater than additional opportunity costs.

Question 3

Any smart worker supply decision involves a choice between a worker’s marginal benefit (or reward) from supplying (or selling) her work and the worker’s marginal opportunity cost of working. T  F

Answer 3

True.

Question 4

Gordie’s marginal opportunity cost of spending an extra hour on Facebook increases if he suddenly has the opportunity to go on a date with his high school crush. T  F

Answer 4

True. Forgone opportunity is now more valuable.

Question 5

Businesses should consider the monthly rent when deciding whether to produce more of a product or service. T  F

Answer 5

False. Rent payments are sunk costs not relevant to the decision of how much to produce.

Question 6

Sunk costs are part of opportunity costs. T  F

Answer 6

False. Sunk costs are the same no matter what choice you make.

Question 7

Businesses must receive higher prices as output increases to compensate for increasing marginal opportunity costs. T  F

Answer 7

True. Not willing to supply if prices

Question 8

Opportunity cost equals what you get divided by what you give up. T  F

Answer 8

False. Opportunity cost equals what you give up divided by what you get.

Question 9

As you shift time away from watching TV to working more hours, the marginal opportunity cost of working decreases. T  F

Answer 9

False. As you spend more time in any activity (working instead of relaxing), the marginal opportunity cost of that activity increases.

Question 10

All opportunity costs are marginal costs, and all marginal costs are opportunity costs. T  F

Answer 10

True. Opportunity cost is a short form of marginal opportunity cost.

Question 11

To read a supply curve as a marginal cost curve, you start with price and go over and down to quantity supplied. T  F

Answer 11

False. Start with quantity and go up and over to price (marginal cost).

Question 12

A rise in the price of inputs used by businesses decreases market supply. T  F

Answer 12

True. Shifts supply curve leftward.

Question 13

A rise in the price of a related product a business produces increases market supply of the other product. T  F

Answer 13

False. Rise in price decreases market supply of the other product.

Question 14

A rise in expected future prices shifts today’s supply curve leftward. T  F

Answer 14

True. Higher expected future prices decreases supply today.

Question 15

Moving up along a supply curve is an increase in supply. T  F

Answer 15

False. Increase in quantity supplied.

Question 16

Your opportunity cost of watching The Big Bang Theory increases if

it is your favourite TV show.

you have an expensive television.

you have an exam the next day.

all of the above.

Answer 16

c) The 30 minutes of studying you must give up become more valuable with an exam tomorrow.

Question 17

The opportunity cost of going to school is highest for someone who

has to give up a job paying $10 an hour.

has to give up a job paying $15 an hour.

loves school.

has to give up a volunteer opportunity.

Answer 17

b) $15 is the best forgone opportunity to make money.

Question 18

Which statement is false?

Marginal costs are opportunity costs.

Opportunity costs are marginal costs.

Sunk costs are marginal costs.

Marginal opportunity costs increase as quantity supplied increases.

Answer 18

c) Sunk costs are in the past, cannot be changed, and are not additional costs.

Question 19

Gamblers on slot machines often believe that the more they lose, the greater are their chances of winning on the next turn. However, the chances of winning on any turn are actually random — they do not depend on past turns. Therefore, the money lost on the previous turn is a(n)

total cost.
sunk cost.
smart cost.
opportunity cost.

Answer 19

b) Previous money lost makes no difference to smart choice on next turn.

Question 20

Your friend Larry is deciding whether to break up with his current girlfriend, Lucy. He tells you that his number-one reason for staying with her is his tattoo, which says “I love Lucy.” Based on economic thinking, you advise him to ignore his tattoo because it is a(n)

opportunity cost.
marginal cost.
sunk cost.
total cost.

Answer 20

c) Tattoo remains whether he breaks up or not. (Are tattoos a sunk cost if they can be removed?)

Question 21

If all workers and equipment are equally productive in all activities, the opportunity cost of increasing output is always

increasing.
decreasing.
the same.
low.

Answer 21

c) Marginal cost is constant.

Question 22

The law of supply applies to an individual’s decision to work because

as the wage rises, the quantity of hours a worker is willing to supply increases.

as the price workers receive rises, the quantity of hours a worker is willing to supply increases.

workers need to be compensated with higher wages to work more hours to cover increasing marginal opportunity costs.

all of the above.

Answer 22

d) All describe a relationship between rising price and increasing quantity of hours supplied.

Question 23

When a fall in price causes businesses to decrease the quantity supplied of a product, this illustrates

the law of supply.
the law of demand.
a decrease in supply.
an increase in supply.

Answer 23

a) Law of supply.

Question 24

Suppose that all inputs in a business are equally productive at all activities. As the business increases its output, marginal opportunity cost

increases.
decreases.
is constant.
is zero.

Answer 24

c) If inputs not equally productive, opportunity cost increases.

Question 25

Which factor below does not change supply?

prices of inputs

expected future prices

price of the supplied product or service

number of businesses

Answer 25

c) Price changes quantity supplied.

Question 26

The supply of a product or service increases with a(n)

improvement in technology producing it.

rise in the price of a related product or service produced.

rise in the price of an input.

rise in the future price of the product or service.

Answer 26

a) Only (a) shifts supply curve rightward. (b), (c), (d) shift supply leftward.

Question 27

The market supply of tires decreases if

the price of oil — a major input used to produce tires — rises.

tire-making technology improves.

the expected future price of tires falls.

new tire businesses enter the market.

Answer 27

a) Rightward shift in supply for (b), (c), (d).

Question 28

The furniture industry shifts to using particleboard (glued wood chips), rather than real wood, which reduces costs. This

increases supply.

decreases supply.

leaves furniture supply unchanged.

effect on supply depends on demand.

Answer 28

a) Rightward shift of supply curve.

Question 29

Which factor below can change supply?

income

environmental change

number of consumers

price of a complement

Answer 29

b) Other answers change demand.

Question 30

Popeye’s Parlour supplies both piercing and tattoo services. Higher prices for piercings will cause Popeye’s

quantity supplied of tattoos to increase.

quantity supplied of tattoos to decrease.

supply of tattoos to increase.

supply of tattoos to decrease.

Answer 30

d) Piercing and tattoos are related products produced.