Question 1

Lower inflation rates are usually correlated with lower unemployment rates.

Accepted Answer

A) True 
 B)False

Question 2

Models are simplifications that are used to observe the workings of a system.

Accepted Answer

A) True 
 B)False

Question 3

In the twentieth century, Russian peasants noticed that during cholera epidemics there were lots of doctors around; in an attempt to eliminate cholera, they killed all the doctors. This is an example of

Accepted Answer

A) mistaking correlation with causation. 
B) the fallacy of opportunism. 
C) excessive abstraction. 
D) rationality. 
E) marginal analysis. 
A) mistaking correlation with causation. 
B) the fallacy of opportunism. 
C) excessive abstraction. 
D) rationality. 
E) marginal analysis.

Question 4

Standby passengers on airlines who pay low rates for seats benefit from the low price. How are the airlines affected?

Accepted Answer

A) They lose, because the standby passengers do not cover the full cost of the seats. 
B) They gain, because the additional revenue covers the "fixed costs" of the flight. 
C) They lose, because the gain of the passengers must necessarily come at the expense of the airline. 
D) They benefit as long as the additional revenue from the passengers exceeds the marginal cost. 
E) Uncertain, because economic theory says nothing about this sort of situation. 
A) They lose, because the standby passengers do not cover the full cost of the seats. 
B) They gain, because the additional revenue covers the "fixed costs" of the flight. 
C) They lose, because the gain of the passengers must necessarily come at the expense of the airline. 
D) They benefit as long as the additional revenue from the passengers exceeds the marginal cost. 
E) Uncertain, because economic theory says nothing about this sort of situation.

Question 5

Why do economists tend to create models in diagrammatic form?

Accepted Answer

A) Diagrams distort reality, and theory is an attempt to avoid reality. 
B) Because they are unable to construct physical models of their theories. 
C) Economic reality can only be represented in diagrams. 
D) Most economists like to draw as much as possible. 
E) All of these responses are correct. 
A) Diagrams distort reality, and theory is an attempt to avoid reality. 
B) Because they are unable to construct physical models of their theories. 
C) Economic reality can only be represented in diagrams. 
D) Most economists like to draw as much as possible. 
E) All of these responses are correct.

Question 6

In the United States the distribution of income is relatively unequal, and output is relatively high, while in the former Soviet Union the distribution of income was more equal and output per worker was much lower. Give one possible explanation for this phenomenon.

Accepted Answer

This problem illustrates the trade-off b

Question 7

In the winter quarter at Frozen U. one year, snow falls every Friday night. Students conclude that, on their campus, Fridays cause snow. This hypothesis

Accepted Answer

A) should more properly be considered a theory. 
B) assumes that correlation implies causation. 
C) assumes that causation implies correlation. 
D) reflects the fallacy of composition. 
A) should more properly be considered a theory. 
B) assumes that correlation implies causation. 
C) assumes that causation implies correlation. 
D) reflects the fallacy of composition.

Question 8

A horizontal line always has a slope of one.

Accepted Answer

A) True 
 B)False

Question 9

An economic model is a realistic depiction of the operation of the economy.

Accepted Answer

A) True 
 B)False

Question 10

A student eats a candy bar just prior to taking a test and receives a high grade. He does not buy one for the next test and receives a low score. On his third test, he again eats a candy bar and gets a high score. This student concludes that eating candy bars leads to higher test scores. His hypothesis

Accepted Answer

A) should be termed a "theory." 
B) assumes that correlation implies causation. 
C) assumes that causation implies correlation. 
D) reflects the amount of studying he had done for the exams. 
A) should be termed a "theory." 
B) assumes that correlation implies causation. 
C) assumes that causation implies correlation. 
D) reflects the amount of studying he had done for the exams.

Question 11

It is not possible for both parties to gain in a voluntary trade.

Accepted Answer

A) True 
 B)False

Question 12

Carefully define the following terms and explain their importance. 
a. Variable 
b. Ray 
c. Slope 
d. Contour map

Accepted Answer

a. A variable is an object, such as pric

Question 13

The Phillips curve illustrates the trade-off between inflation and economic growth.

Accepted Answer

A) True 
 B)False

Question 14

In 1981, the US government passed a law that significantly lowered tax rates on high-income individuals. The premise was that high tax rates deter high-income individuals from working and investing, reducing the growth of the economy. This is an example of

Accepted Answer

A) the equality-efficiency trade-off. 
B) usury. 
C) the effects of budget deficits on future generations. 
D) the cost disease of the public sector. 
E) the importance of externalities. 
A) the equality-efficiency trade-off. 
B) usury. 
C) the effects of budget deficits on future generations. 
D) the cost disease of the public sector. 
E) the importance of externalities.

Question 15

An externality is defined as

Accepted Answer

A) an opportunity cost that is not considered, which causes inefficiency. 
B) a social cost that affects parties external to a transaction. 
C) a transaction that imposes a loss on one of the parties involved. 
D) a "cost of doing business" that cannot be allocated to any particular good. 
E) the increase in cost associated with increased production. 
A) an opportunity cost that is not considered, which causes inefficiency. 
B) a social cost that affects parties external to a transaction. 
C) a transaction that imposes a loss on one of the parties involved. 
D) a "cost of doing business" that cannot be allocated to any particular good. 
E) the increase in cost associated with increased production.

Question 16

It has been said that "economics is the science of common sense." Is economics synonymous with common sense?

Accepted Answer

A large portion of economics will agree

Question 17

How does the United States differ from the European Union in how it balances the competing claims of equality and efficiency?

Accepted Answer

The United States has chosen greater eff

Question 18

Regarding economic models, which of the following statements is NOT true?

Accepted Answer

A) An economic model is a simplified representation of a theory or part of a theory. 
B) An economic model can provide clear answers for policy makers. 
C) An economic model can clarify an important economic problem. 
D) An economic model can show three-variable diagrams. 
A) An economic model is a simplified representation of a theory or part of a theory. 
B) An economic model can provide clear answers for policy makers. 
C) An economic model can clarify an important economic problem. 
D) An economic model can show three-variable diagrams.

Question 19

If an economic curve has a negative slope, then one variable

Accepted Answer

A) falls as the other rises. 
B) changes at a slower rate than another. 
C) has a smaller value than another variable. 
D) changes after another variable. 
A) falls as the other rises. 
B) changes at a slower rate than another. 
C) has a smaller value than another variable. 
D) changes after another variable.

Question 20

A vertical line has a slope of

Accepted Answer

A) infinity. 
B) zero. 
C) undefined. 
D) 1,000 
A) infinity. 
B) zero. 
C) undefined. 
D) 1,000

Exam 1: What Is Economics

Lower inflation rates are usually correlated with lower unemployment rates.

Models are simplifications that are used to observe the workings of a system.

In the twentieth century, Russian peasants noticed that during cholera epidemics there were lots of doctors around; in an attempt to eliminate cholera, they killed all the doctors. This is an example of

Standby passengers on airlines who pay low rates for seats benefit from the low price. How are the airlines affected?

Why do economists tend to create models in diagrammatic form?

In the United States the distribution of income is relatively unequal, and output is relatively high, while in the former Soviet Union the distribution of income was more equal and output per worker was much lower. Give one possible explanation for this phenomenon.

In the winter quarter at Frozen U. one year, snow falls every Friday night. Students conclude that, on their campus, Fridays cause snow. This hypothesis

A horizontal line always has a slope of one.

An economic model is a realistic depiction of the operation of the economy.

It is not possible for both parties to gain in a voluntary trade.

Carefully define the following terms and explain their importance. a. Variable b. Ray c. Slope d. Contour map

The Phillips curve illustrates the trade-off between inflation and economic growth.

In 1981, the US government passed a law that significantly lowered tax rates on high-income individuals. The premise was that high tax rates deter high-income individuals from working and investing, reducing the growth of the economy. This is an example of

An externality is defined as

It has been said that "economics is the science of common sense." Is economics synonymous with common sense?

How does the United States differ from the European Union in how it balances the competing claims of equality and efficiency?

Regarding economic models, which of the following statements is NOT true?

If an economic curve has a negative slope, then one variable

A vertical line has a slope of

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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