Question 1

Which of the following is an example of an externality?

Accepted Answer

A) Drug abuse affecting David's health 
B) Sara taking a break from work 
C) A transaction between two parties, affecting them alone 
D) Tom's smoking affecting his roommate's health 
A) Drug abuse affecting David's health 
B) Sara taking a break from work 
C) A transaction between two parties, affecting them alone 
D) Tom's smoking affecting his roommate's health

Question 2

When controls over market prices are enacted, the consequences are always clear.

Accepted Answer

A) True 
 B)False

Question 3

Economists often say that trade is a win-win situation. How do you justify this?

Accepted Answer

One of the fundamental ideas of economic

Question 4

A graph conveys information about a cause-and-effect relationship.

Accepted Answer

A) True 
 B)False

Question 5

Abstraction can lead to gross distortions of pertinent facts.

Accepted Answer

A) True 
 B)False

Question 6

Opportunity cost can best be defined as the

Accepted Answer

A) value of what must be given up in order to acquire an item. 
B) money cost to the buyer to acquire a good or service. 
C) total value of all the other items that otherwise could be acquired. 
D) cost to the seller to produce an item. 
E) time cost to obtain the money to buy an item. 
A) value of what must be given up in order to acquire an item. 
B) money cost to the buyer to acquire a good or service. 
C) total value of all the other items that otherwise could be acquired. 
D) cost to the seller to produce an item. 
E) time cost to obtain the money to buy an item.

Question 7

Marginal analysis involves looking at the extra costs involved in a decision.

Accepted Answer

A) True 
 B)False

Question 8

Abstraction can be thought of as

Accepted Answer

A) avoiding reality in order to build theory. 
B) omitting unimportant details in order to understand complex phenomena. 
C) relying on absurdity to explain simplicity. 
D) making complex assumptions when simple facts are sufficient. 
E) stylizing reality rather than analyzing cause and effect. 
A) avoiding reality in order to build theory. 
B) omitting unimportant details in order to understand complex phenomena. 
C) relying on absurdity to explain simplicity. 
D) making complex assumptions when simple facts are sufficient. 
E) stylizing reality rather than analyzing cause and effect.

Question 9

Externalities are created when parties not involved in an economic transaction are affected by it.

Accepted Answer

A) True 
 B)False

Question 10

Airlines can use marginal analysis to set ticket prices, which can increase profits for the company.

Accepted Answer

A) True 
 B)False

Question 11

Government controls over market prices are often enacted to benefit a specific group.

Accepted Answer

A) True 
 B)False

Question 12

Throughout the 1980s, accounting departments in U.S. universities were unable to fill many available faculty positions. This fact suggests that the salaries offered by these departments

Accepted Answer

A) suffered from the cost disease of the service sector. 
B) were below the market price for qualified accountants. 
C) created externalities. 
D) failed to reflect productivity growth in teaching. 
A) suffered from the cost disease of the service sector. 
B) were below the market price for qualified accountants. 
C) created externalities. 
D) failed to reflect productivity growth in teaching.

Question 13

When voluntary trade takes place,

Accepted Answer

A) both parties can benefit from the transaction. 
B) one party can benefit at the expense of the other. 
C) neither party can benefit from trade. 
D) both parties can benefit but only if the government regulates the transaction. 
A) both parties can benefit from the transaction. 
B) one party can benefit at the expense of the other. 
C) neither party can benefit from trade. 
D) both parties can benefit but only if the government regulates the transaction.

Question 14

Which of the following statements is true?

Accepted Answer

A) Economic theory does not make unrealistic assumptions. 
B) Economists should not ignore details while focusing on complex problems. 
C) Abstraction forms an important part of economic analysis. 
D) The word theory means same for both economists and laymen. 
A) Economic theory does not make unrealistic assumptions. 
B) Economists should not ignore details while focusing on complex problems. 
C) Abstraction forms an important part of economic analysis. 
D) The word theory means same for both economists and laymen.

Question 15

Because there is a trade-off between inflation and unemployment in the short run,

Accepted Answer

A) lower unemployment will typically cause inflation to fall. 
B) policies designed to reduce unemployment will typically set off a recession. 
C) policies designed to reduce inflation will cause unemployment to fall as well. 
D) higher inflation will generally be associated with higher unemployment. 
E) lower inflation will generally be associated with higher unemployment. 
A) lower unemployment will typically cause inflation to fall. 
B) policies designed to reduce unemployment will typically set off a recession. 
C) policies designed to reduce inflation will cause unemployment to fall as well. 
D) higher inflation will generally be associated with higher unemployment. 
E) lower inflation will generally be associated with higher unemployment.

Question 16

The relatively low rate of inflation coupled with a low unemployment rate that occurred in the 1990s represented a "normal" economic situation.

Accepted Answer

A) True 
 B)False

Question 17

The use of chlorofluorocarbons in refrigerators and air conditioners is alleged to cause the destruction of the ozone layer that surrounds the earth. This layer protects humans from ultraviolet radiation, which causes skin cancer. Industry has been prohibited from using these substances in aerosol cans, but the government has been reluctant to ban their use altogether because of the serious economic consequences. Economists analyze such problems and refer to them as

Accepted Answer

A) issues of unfairness. 
B) examples of excess abstraction. 
C) externalities. 
D) comparative advantage issues. 
E) examples of trade-offs between output and equality. 
A) issues of unfairness. 
B) examples of excess abstraction. 
C) externalities. 
D) comparative advantage issues. 
E) examples of trade-offs between output and equality.

Question 18

The beginning point of a graph (the 0,0 point)is known as

Accepted Answer

A) ground zero. 
B) mother lode. 
C) the origin. 
D) square one. 
E) the beginning. 
A) ground zero. 
B) mother lode. 
C) the origin. 
D) square one. 
E) the beginning.

Question 19

A useful economic model

Accepted Answer

A) deals only with possibilities that actually occurred. 
B) makes only realistic assumptions. 
C) may make some unrealistic assumptions in order to simplify a complex reality. 
D) will avoid conclusions that have public policy implications, because economists do not make value judgments. 
A) deals only with possibilities that actually occurred. 
B) makes only realistic assumptions. 
C) may make some unrealistic assumptions in order to simplify a complex reality. 
D) will avoid conclusions that have public policy implications, because economists do not make value judgments.

Question 20

Suppose that a curve has a slope equal to zero at some point A. To the right of A, the curve may

Accepted Answer

A) have a positive slope. 
B) have a negative slope. 
C) be a straight line. 
D) All of these responses are correct. 
A) have a positive slope. 
B) have a negative slope. 
C) be a straight line. 
D) All of these responses are correct.

Exam 1: What Is Economics

Which of the following is an example of an externality?

When controls over market prices are enacted, the consequences are always clear.

Economists often say that trade is a win-win situation. How do you justify this?

A graph conveys information about a cause-and-effect relationship.

Abstraction can lead to gross distortions of pertinent facts.

Opportunity cost can best be defined as the

Marginal analysis involves looking at the extra costs involved in a decision.

Abstraction can be thought of as

Externalities are created when parties not involved in an economic transaction are affected by it.

Airlines can use marginal analysis to set ticket prices, which can increase profits for the company.

Government controls over market prices are often enacted to benefit a specific group.

Throughout the 1980s, accounting departments in U.S. universities were unable to fill many available faculty positions. This fact suggests that the salaries offered by these departments

When voluntary trade takes place,

Which of the following statements is true?

Because there is a trade-off between inflation and unemployment in the short run,

The relatively low rate of inflation coupled with a low unemployment rate that occurred in the 1990s represented a "normal" economic situation.

The beginning point of a graph (the 0,0 point)is known as

A useful economic model

Suppose that a curve has a slope equal to zero at some point A. To the right of A, the curve may

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: an Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: the Importance of Marginal Analysis

The Financial Markets and the Economy: the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

The Case for Free Markets: the Price System

Monopoly

Between Competition and Monopoly

Limiting Market Power: Antitrust and Regulation

The Shortcomings of Free Markets

Externalities, Externaliteis, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: the Human Inputs

Poverty, Inequality, and Discrimination

International Trade and Comparative Advantage

Contemporary Issues in the Us Economy

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