Question 1

A rational individual would make charitable contributions only if such contributions receive favorable tax treatment.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following statements regarding the basic economic problem of scarcity is correct?

Accepted Answer

A) The problem only exists in countries that are not highly industrialized. 
B) The problem is likely to disappear as production increases. 
C) The problem is sure to disappear as technology improves. 
D) The problem will exist as long as resources are available in limited amounts. 
E) The problem will disappear as a person's income falls. 
A) The problem only exists in countries that are not highly industrialized. 
B) The problem is likely to disappear as production increases. 
C) The problem is sure to disappear as technology improves. 
D) The problem will exist as long as resources are available in limited amounts. 
E) The problem will disappear as a person's income falls.

Question 3

An increase in the price of gasoline will cause a reduction in the amount purchased is an example of

Accepted Answer

A) a normative statement 
B) an unprovable statement 
C) a theorectical statement 
D) a positive statement 
E) an assumption 
A) a normative statement 
B) an unprovable statement 
C) a theorectical statement 
D) a positive statement 
E) an assumption

Question 4

"Natural resources" refers

Accepted Answer

A) bodies of water 
B) trees 
C) oil reserves 
D) minerals 
E) All of the answers are correct. 
A) bodies of water 
B) trees 
C) oil reserves 
D) minerals 
E) All of the answers are correct.

Question 5

The respective payments for the resources of natural resources, labor, capital, and entrepreneurial ability are

Accepted Answer

A) interest, wages, profit, and rent 
B) profit, rent, interest, and wages 
C) rent, wages, profit, and interest 
D) interest, profit, wages, and rent 
E) rent, wages, interest, and profit 
A) interest, wages, profit, and rent 
B) profit, rent, interest, and wages 
C) rent, wages, profit, and interest 
D) interest, profit, wages, and rent 
E) rent, wages, interest, and profit

Question 6

Which of the following is true about entrepreneurs?

Accepted Answer

A) They have the talent required to dream up a new product or find a better way to produce an existing one. 
B) They are rewarded by profits. 
C) They sometimes suffer losses. 
D) They benefit from what's left over after paying other resource suppliers. 
E) All of the answers are correct. 
A) They have the talent required to dream up a new product or find a better way to produce an existing one. 
B) They are rewarded by profits. 
C) They sometimes suffer losses. 
D) They benefit from what's left over after paying other resource suppliers. 
E) All of the answers are correct.

Question 7

Your friend notices that U.S.auto production and U.S.population growth have moved together over several decades.He reasons that one way to slow population growth is for the government to order the auto makers to cut back on production.You gently point out to him that he

Accepted Answer

A) is correct only when the economy is in a recession 
B) has mistakenly inferred causation from observed correlation 
C) has ignored secondary effects 
D) has committed the fallacy of composition 
E) is correct only when the United States enjoys economic growth 
A) is correct only when the economy is in a recession 
B) has mistakenly inferred causation from observed correlation 
C) has ignored secondary effects 
D) has committed the fallacy of composition 
E) is correct only when the United States enjoys economic growth

Question 8

The expression "There's no such thing as a free lunch" means that

Accepted Answer

A) services may be free, but goods are never free 
B) even if it has a price of zero, a good or service has a cost 
C) charitable organizations should not serve free lunches to the poor 
D) poor people are really the ones who pay for their allegedly free lunches 
E) someone has to pay the market price for a good or service 
A) services may be free, but goods are never free 
B) even if it has a price of zero, a good or service has a cost 
C) charitable organizations should not serve free lunches to the poor 
D) poor people are really the ones who pay for their allegedly free lunches 
E) someone has to pay the market price for a good or service

Question 9

When constructing an economic model, economists

Accepted Answer

A) rely mostly on their own value judgments and ignore the far more complex world of facts 
B) always try to duplicate reality by including all available information 
C) use assumptions that are true for the individual but never true for the whole economy 
D) must rely on simplifying assumptions that abstract from the complexity of the real world 
E) are primarily concerned with making realistic assumptions 
A) rely mostly on their own value judgments and ignore the far more complex world of facts 
B) always try to duplicate reality by including all available information 
C) use assumptions that are true for the individual but never true for the whole economy 
D) must rely on simplifying assumptions that abstract from the complexity of the real world 
E) are primarily concerned with making realistic assumptions

Question 10

Rational choice by an individual implies

Accepted Answer

A) the use of some mathematical model when solving a problem 
B) making decisions aimed at achieving some predetermined goal 
C) that only monetary costs and benefits are weighed 
D) that an individual will never regret any action taken 
E) that scarcity can be eliminated for that individual 
A) the use of some mathematical model when solving a problem 
B) making decisions aimed at achieving some predetermined goal 
C) that only monetary costs and benefits are weighed 
D) that an individual will never regret any action taken 
E) that scarcity can be eliminated for that individual

Question 11

One problem with rent controls is that policy makers often ignore its secondary effects.

Accepted Answer

A) True 
 B)False

Question 12

Scarcity is best defined as

Accepted Answer

A) unlimited resources 
B) a shortage -- when buyers cannot obtain the goods they want 
C) a surplus -- when sellers cannot sell the goods they produce 
D) insufficient resources to satisfy unlimited wants 
E) the private ownership of society's resources 
A) unlimited resources 
B) a shortage -- when buyers cannot obtain the goods they want 
C) a surplus -- when sellers cannot sell the goods they produce 
D) insufficient resources to satisfy unlimited wants 
E) the private ownership of society's resources

Question 13

The difference between a positive economic statement and a normative statement is that

Accepted Answer

A) a positive statement must be true; a normative statement is often not true 
B) a normative statement must be true; a positive statement is often not true 
C) a positive statement can be verified; a normative statement cannot 
D) a normative statements can be verified; a positive statement cannot 
E) a positive economic statement is a moral judgment; a normative economic statement is not a moral judgment 
A) a positive statement must be true; a normative statement is often not true 
B) a normative statement must be true; a positive statement is often not true 
C) a positive statement can be verified; a normative statement cannot 
D) a normative statements can be verified; a positive statement cannot 
E) a positive economic statement is a moral judgment; a normative economic statement is not a moral judgment

Question 14

As a scientist, an economist's main professional objective is to become wealthy.

Accepted Answer

A) True 
 B)False

Question 15

A rational decision maker compares the expected marginal cost to the expected marginal benefit of any activity.

Accepted Answer

A) True 
 B)False

Question 16

Economic decision makers will continue to acquire information only as long as the expected additional benefit exceeds the expected additional cost of the information.

Accepted Answer

A) True 
 B)False

Question 17

Step one in the scientific method is

Accepted Answer

A) formulate a hypothesis 
B) reflect an opinion 
C) specify assumptions 
D) identify the question and define relevant variables 
E) test the hypothesis 
A) formulate a hypothesis 
B) reflect an opinion 
C) specify assumptions 
D) identify the question and define relevant variables 
E) test the hypothesis

Question 18

When economic choice involves an adjustment to an existing situation, marginal analysis

Accepted Answer

A) has no practical applications or real-world uses 
B) eliminates incorrect decisions and bad choices 
C) involves comparing the additional costs and additional benefits of an activity before deciding 
D) involves examining only the total costs and total benefits of an activity before deciding 
E) none of the above 
A) has no practical applications or real-world uses 
B) eliminates incorrect decisions and bad choices 
C) involves comparing the additional costs and additional benefits of an activity before deciding 
D) involves examining only the total costs and total benefits of an activity before deciding 
E) none of the above

Question 19

In a circular-flow model, firms demand all of the following except

Accepted Answer

A) labor 
B) goods and services 
C) capital 
D) entrepreneurial ability 
E) natural resources 
A) labor 
B) goods and services 
C) capital 
D) entrepreneurial ability 
E) natural resources

Question 20

Normative economic statements refer to what should be.

Accepted Answer

A) True 
 B)False

Exam 1: The Art and Science of Economic Analysis

A rational individual would make charitable contributions only if such contributions receive favorable tax treatment.

Which of the following statements regarding the basic economic problem of scarcity is correct?

An increase in the price of gasoline will cause a reduction in the amount purchased is an example of

"Natural resources" refers

The respective payments for the resources of natural resources, labor, capital, and entrepreneurial ability are

Which of the following is true about entrepreneurs?

Your friend notices that U.S.auto production and U.S.population growth have moved together over several decades.He reasons that one way to slow population growth is for the government to order the auto makers to cut back on production.You gently point out to him that he

The expression "There's no such thing as a free lunch" means that

When constructing an economic model, economists

Rational choice by an individual implies

One problem with rent controls is that policy makers often ignore its secondary effects.

Scarcity is best defined as

The difference between a positive economic statement and a normative statement is that

As a scientist, an economist's main professional objective is to become wealthy.

A rational decision maker compares the expected marginal cost to the expected marginal benefit of any activity.

Economic decision makers will continue to acquire information only as long as the expected additional benefit exceeds the expected additional cost of the information.

Step one in the scientific method is

When economic choice involves an adjustment to an existing situation, marginal analysis

In a circular-flow model, firms demand all of the following except

Normative economic statements refer to what should be.

Appendix--Understanding Graphs

Economic Tools and Economics Systems

Economic Decision Makers

Demand, Supply, and Markets

Elasticity of Demand and Supply

Appendix--Price Elasticity and Tax Incidence

Consumer Choice and Demand

Appendix--Indifference Curves and Utility Maximization

Production and Cost in the Firm

A--Perfect Competition

B--Perfect Competition

A--Monopoly

B--Monopoly

Monopolistic Competition and Oligopoly

Resource Markets

Labor Markets and Labor Unions

Capital, Interest, and Corporate Finance

Transaction Costs, Imperfect Information, and Behavioral Economics

Economic Regulation and Antitrust Policy

Public Goods and Public Choice

Externalities and the Environment

Income Distribution and Poverty

International Trade

International Finance

Economic Development

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