Question 1

Which of the following represents a positive statement?

Accepted Answer

A)  A higher income tax rate will reduce the amount of time that people spend working. 
B)  Teenage unemployment should be reduced. 
C)  We should raise the standard of living for the elderly. 
D)  A decrease in tax rates is needed to help the poor. 
A)  A higher income tax rate will reduce the amount of time that people spend working. 
B)  Teenage unemployment should be reduced. 
C)  We should raise the standard of living for the elderly. 
D)  A decrease in tax rates is needed to help the poor.

Question 2

In economics, the statement, "There is no such thing as a free lunch," refers to which of the following?

Accepted Answer

A)  Individuals must always pay personally for the lunch they consume. 
B)  Production of a good requires the use of scarce resources regardless of whether it is supplied free to the consumers. 
C)  Restaurant owners would never give away free lunches. 
D)  All good theories are testable. 
A)  Individuals must always pay personally for the lunch they consume. 
B)  Production of a good requires the use of scarce resources regardless of whether it is supplied free to the consumers. 
C)  Restaurant owners would never give away free lunches. 
D)  All good theories are testable.

Question 3

Senator DuMonde favors a government program that he believes will help save endangered species. Economic analysis indicates that

Accepted Answer

A)  because Senator DuMonde has good intentions, his new program will have the desired results. 
B)  Senator DuMonde's new program could have unintended consequences that might result in an outcome different from what was intended. 
C)  regardless of any secondary effects, costs should not be considered when designing environmental legislation. 
D)  because Senator DuMonde's proposal is a government program, it will not have an opportunity cost. 
A)  because Senator DuMonde has good intentions, his new program will have the desired results. 
B)  Senator DuMonde's new program could have unintended consequences that might result in an outcome different from what was intended. 
C)  regardless of any secondary effects, costs should not be considered when designing environmental legislation. 
D)  because Senator DuMonde's proposal is a government program, it will not have an opportunity cost.

Question 4

The economic way of thinking stresses that

Accepted Answer

A)  greed is the primary motivation for human action. 
B)  as the benefits of an option increase, people will be more likely to choose that option. 
C)  an objective value can be attached to physical goods. 
D)  as the cost of an option decreases, people will be less likely to choose that option. 
A)  greed is the primary motivation for human action. 
B)  as the benefits of an option increase, people will be more likely to choose that option. 
C)  an objective value can be attached to physical goods. 
D)  as the cost of an option decreases, people will be less likely to choose that option.

Question 5

The highest valued alternative that must be given up in order to choose an option is called

Accepted Answer

A)  opportunity cost. 
B)  utility. 
C)  scarcity. 
D)  disutility. 
A)  opportunity cost. 
B)  utility. 
C)  scarcity. 
D)  disutility.

Question 6

In economics, the benefit (or satisfaction) that an individual gets from an activity is called

Accepted Answer

A)  scarcity. 
B)  utility. 
C)  opportunity cost. 
D)  ceteris paribus. 
A)  scarcity. 
B)  utility. 
C)  opportunity cost. 
D)  ceteris paribus.

Question 7

To say that people make marginal decisions means that

Accepted Answer

A)  they usually wait until the last minute before making a decision to buy 
B)  they weigh the additional costs and additional benefits of various activities before they make a decision 
C)  most people just barely get by on the incomes they earn and live from day to day on the very edge of subsistence 
D)  they consider the total cost and benefit of various activities before they make a purchase 
A)  they usually wait until the last minute before making a decision to buy 
B)  they weigh the additional costs and additional benefits of various activities before they make a decision 
C)  most people just barely get by on the incomes they earn and live from day to day on the very edge of subsistence 
D)  they consider the total cost and benefit of various activities before they make a purchase

Question 8

Your professor loves her work, teaching economics. She has been offered other positions in the corporate world that would increase her income by 25 percent, but she has decided to continue working as a professor. Her decision would not change unless

Accepted Answer

A)  the marginal cost of teaching increased. 
B)  the marginal benefit of teaching increased. 
C)  the marginal cost of teaching decreased. 
D)  the marginal benefit of a corporate job decreased. 
A)  the marginal cost of teaching increased. 
B)  the marginal benefit of teaching increased. 
C)  the marginal cost of teaching decreased. 
D)  the marginal benefit of a corporate job decreased.

Question 9

People are willing to pay more for a diamond than for a bottle of water because

Accepted Answer

A)  the marginal cost of producing an extra diamond far exceeds the marginal cost of producing an extra bottle of water. 
B)  the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water. 
C)  producers of diamonds have a much greater ability to manipulate diamond prices than producers of water have to manipulate water prices. 
D)  water prices are held artificially low by governments, since water is necessary for life. 
A)  the marginal cost of producing an extra diamond far exceeds the marginal cost of producing an extra bottle of water. 
B)  the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water. 
C)  producers of diamonds have a much greater ability to manipulate diamond prices than producers of water have to manipulate water prices. 
D)  water prices are held artificially low by governments, since water is necessary for life.

Question 10

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 11

If a good is scarce,

Accepted Answer

A)  there will be shortages of it if the good is rationed by markets. 
B)  the good will have a price in a market setting. 
C)  there will be enough of the good freely available from nature to satisfy the human desire for it. 
D)  all of the above are true. 
A)  there will be shortages of it if the good is rationed by markets. 
B)  the good will have a price in a market setting. 
C)  there will be enough of the good freely available from nature to satisfy the human desire for it. 
D)  all of the above are true.

Question 12

Which of the following is a positive economic statement?

Accepted Answer

A)  reducing unemployment should be the highest priority of the federal government. 
B)  a reduction in the payroll tax will reduce the unemployment rate. 
C)  corporations should be prohibited from laying off workers during a recession. 
D)  the current unemployment rate is too high. 
A)  reducing unemployment should be the highest priority of the federal government. 
B)  a reduction in the payroll tax will reduce the unemployment rate. 
C)  corporations should be prohibited from laying off workers during a recession. 
D)  the current unemployment rate is too high.

Question 13

"Mediocre economists often consider only the immediate apparent effects of a change, whereas a good economist will also consider effects that may only become observable over time." This statement most clearly emphasizes

Accepted Answer

A)  the fallacy of composition. 
B)  economizing behavior. 
C)  the importance of secondary effects. 
D)  the fact that association is not causation. 
A)  the fallacy of composition. 
B)  economizing behavior. 
C)  the importance of secondary effects. 
D)  the fact that association is not causation.

Question 14

When price is the rationing criterion, individuals have a strong incentive to

Accepted Answer

A)  ignore the wishes of others when making decisions about how to use their resources. 
B)  provide services to others in exchange for income. 
C)  avoid exchanges because in every exchange there will be one person who gains and another who loses. 
D)  substitute promises for the consistent delivery of a quality product. 
A)  ignore the wishes of others when making decisions about how to use their resources. 
B)  provide services to others in exchange for income. 
C)  avoid exchanges because in every exchange there will be one person who gains and another who loses. 
D)  substitute promises for the consistent delivery of a quality product.

Question 15

People make decisions at the margin. Thus, when deciding whether to purchase a second car, they would compare

Accepted Answer

A)  the total benefits expected from two cars with the costs of the two cars. 
B)  the additional benefits expected from a second car with the total cost of the two cars. 
C)  the dollar cost of the two cars with the potential income that the two cars will generate. 
D)  the additional benefits of the second car with the additional costs of the second car. 
A)  the total benefits expected from two cars with the costs of the two cars. 
B)  the additional benefits expected from a second car with the total cost of the two cars. 
C)  the dollar cost of the two cars with the potential income that the two cars will generate. 
D)  the additional benefits of the second car with the additional costs of the second car.

Question 16

Which of the following best illustrates the fallacy of composition?

Accepted Answer

A)  If the price of a product rises, the quantity produced will decline. 
B)  The average wage rate tends to increase at approximately the same rate as inflation; hence, wage increases must cause inflation. 
C)  Resources are scarce; therefore, there is no such thing as a free lunch. 
D)  If Susan had more money she could buy more. If everyone had more money they could buy more. 
A)  If the price of a product rises, the quantity produced will decline. 
B)  The average wage rate tends to increase at approximately the same rate as inflation; hence, wage increases must cause inflation. 
C)  Resources are scarce; therefore, there is no such thing as a free lunch. 
D)  If Susan had more money she could buy more. If everyone had more money they could buy more.

Question 17

Scarcity implies that

Accepted Answer

A)  consumers are too poor to afford the goods and services available. 
B)  consumers are willing to purchase more of a good at the current price than suppliers are willing to produce. 
C)  it is impossible to completely fulfill the desire for goods and services with the limited resources available. 
D)  consumers would be willing to buy the same quantity of a good at a higher price. 
A)  consumers are too poor to afford the goods and services available. 
B)  consumers are willing to purchase more of a good at the current price than suppliers are willing to produce. 
C)  it is impossible to completely fulfill the desire for goods and services with the limited resources available. 
D)  consumers would be willing to buy the same quantity of a good at a higher price.

Question 18

Harry, a wheat farmer, is deciding whether or not to add fertilizer to his crops. If he adds 1 pound of fertilizer per acre, the value of the resulting crops rises from $80 to $100 per acre. According to marginal analysis, Harry should add fertilizer if it costs less than

Accepted Answer

A)  $12.50 per pound. 
B)  $20 per pound. 
C)  $80 per pound. 
D)  $100 per pound. 
A)  $12.50 per pound. 
B)  $20 per pound. 
C)  $80 per pound. 
D)  $100 per pound.

Question 19

Doris, a burglar who breaks into houses, decides to break into the house at 265 Elm Street, rather than the house next door because the house next door has a sign in the yard that says "home protected by a security system." To an economist, Doris is

Accepted Answer

A)  making an irrational choice. 
B)  making a rational choice. 
C)  not fully considering the personal costs and benefits of her decision. 
D)  not responding to the incentives she faces. 
A)  making an irrational choice. 
B)  making a rational choice. 
C)  not fully considering the personal costs and benefits of her decision. 
D)  not responding to the incentives she faces.

Question 20

Which of the following is most consistent with economizing behavior?

Accepted Answer

A)  If you get the same satisfaction from a hamburger and a fish sandwich, you should purchase the one that costs the most. 
B)  Even if you know how to paint, hiring someone to do the job is consistent with economizing behavior, if your opportunity cost is high enough. 
C)  If the government provides a good free to citizens, the opportunity cost of the good is zero. 
D)  If you get the same satisfaction from going to the opera and going to an art museum, it makes no difference which you choose. 
A)  If you get the same satisfaction from a hamburger and a fish sandwich, you should purchase the one that costs the most. 
B)  Even if you know how to paint, hiring someone to do the job is consistent with economizing behavior, if your opportunity cost is high enough. 
C)  If the government provides a good free to citizens, the opportunity cost of the good is zero. 
D)  If you get the same satisfaction from going to the opera and going to an art museum, it makes no difference which you choose.

Which of the following represents a positive statement?

In economics, the statement, "There is no such thing as a free lunch," refers to which of the following?

Senator DuMonde favors a government program that he believes will help save endangered species. Economic analysis indicates that

The economic way of thinking stresses that

The highest valued alternative that must be given up in order to choose an option is called

In economics, the benefit (or satisfaction) that an individual gets from an activity is called

To say that people make marginal decisions means that

Your professor loves her work, teaching economics. She has been offered other positions in the corporate world that would increase her income by 25 percent, but she has decided to continue working as a professor. Her decision would not change unless

People are willing to pay more for a diamond than for a bottle of water because

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

If a good is scarce,

Which of the following is a positive economic statement?

"Mediocre economists often consider only the immediate apparent effects of a change, whereas a good economist will also consider effects that may only become observable over time." This statement most clearly emphasizes

When price is the rationing criterion, individuals have a strong incentive to

People make decisions at the margin. Thus, when deciding whether to purchase a second car, they would compare

Which of the following best illustrates the fallacy of composition?

Scarcity implies that

Harry, a wheat farmer, is deciding whether or not to add fertilizer to his crops. If he adds 1 pound of fertilizer per acre, the value of the resulting crops rises from $80 to $100 per acre. According to marginal analysis, Harry should add fertilizer if it costs less than

Doris, a burglar who breaks into houses, decides to break into the house at 265 Elm Street, rather than the house next door because the house next door has a sign in the yard that says "home protected by a security system." To an economist, Doris is

Which of the following is most consistent with economizing behavior?

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Consumer Choice and Elasticity

Costs and the Supply of Goods

Price Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

Price-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, Productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Applying the Basics: Special Topics in Economics

Filters

Exam 1: The Economic Approach

Which of the following represents a positive statement?

In economics, the statement, "There is no such thing as a free lunch," refers to which of the following?

Senator DuMonde favors a government program that he believes will help save endangered species. Economic analysis indicates that

The economic way of thinking stresses that

The highest valued alternative that must be given up in order to choose an option is called

In economics, the benefit (or satisfaction) that an individual gets from an activity is called

To say that people make marginal decisions means that

Your professor loves her work, teaching economics. She has been offered other positions in the corporate world that would increase her income by 25 percent, but she has decided to continue working as a professor. Her decision would not change unless

People are willing to pay more for a diamond than for a bottle of water because

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

If a good is scarce,

Which of the following is a positive economic statement?

"Mediocre economists often consider only the immediate apparent effects of a change, whereas a good economist will also consider effects that may only become observable over time." This statement most clearly emphasizes

When price is the rationing criterion, individuals have a strong incentive to

People make decisions at the margin. Thus, when deciding whether to purchase a second car, they would compare

Which of the following best illustrates the fallacy of composition?

Scarcity implies that

Harry, a wheat farmer, is deciding whether or not to add fertilizer to his crops. If he adds 1 pound of fertilizer per acre, the value of the resulting crops rises from $80 to $100 per acre. According to marginal analysis, Harry should add fertilizer if it costs less than

Doris, a burglar who breaks into houses, decides to break into the house at 265 Elm Street, rather than the house next door because the house next door has a sign in the yard that says "home protected by a security system." To an economist, Doris is

Which of the following is most consistent with economizing behavior?

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Consumer Choice and Elasticity

Costs and the Supply of Goods

Price Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

Price-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, Productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Applying the Basics: Special Topics in Economics

Filters