Question 1

The consequences of an economic change that are not immediately identifiable but are felt only with the passage of time are known in economics as

Accepted Answer

A) opportunity costs. 
B) utility curves. 
C) secondary effects. 
D) comparative advantages. 
A) opportunity costs. 
B) utility curves. 
C) secondary effects. 
D) comparative advantages.

Question 2

Which of the following is a normative economic statement?

Accepted Answer

A) Congress should increase the legal minimum wage. 
B) An increase in the legal minimum wage would cause unemployment to increase. 
C) An increase in the legal minimum wage would cause unemployment to decrease. 
D) An increase in the legal minimum wage would lead to more equality in the distribution of income. 
A) Congress should increase the legal minimum wage. 
B) An increase in the legal minimum wage would cause unemployment to increase. 
C) An increase in the legal minimum wage would cause unemployment to decrease. 
D) An increase in the legal minimum wage would lead to more equality in the distribution of income.

Question 3

If the government provides free schooling for all students,an economist would say education is

Accepted Answer

A) a free good,having no cost. 
B) scarce even though its cost is paid by taxpayers rather than by students. 
C) an example of a good that is no longer scarce. 
D) all of the above. 
A) a free good,having no cost. 
B) scarce even though its cost is paid by taxpayers rather than by students. 
C) an example of a good that is no longer scarce. 
D) all of the above.

Question 4

"The national debt is too large.The government must stop spending so much money." This statement is

Accepted Answer

A) a normative statement. 
B) a positive statement. 
C) a testable hypothesis. 
D) both b and c. 
A) a normative statement. 
B) a positive statement. 
C) a testable hypothesis. 
D) both b and c.

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

Joe observes that a car in 1925 sold for an average of $500 versus $20,000 for a 2005 model.He concludes that 2005 cars must be 40 times better than 1925 cars.What's wrong with this way of thinking?

Accepted Answer

Poor Joe has made several errors.First,a

Question 7

If an airline company has several empty seats on a flight and the full price of an air ticket is $500 and the marginal cost per passenger is $100,then it will be profitable for the airline to

Accepted Answer

A) charge a stand-by passenger no less than the full fare of $500. 
B) charge a stand-by passenger less than $100. 
C) charge a stand-by passenger more than $500. 
D) charge a stand-by passenger more than $100. 
E) fill the seats at the last minute for any price. 
A) charge a stand-by passenger no less than the full fare of $500. 
B) charge a stand-by passenger less than $100. 
C) charge a stand-by passenger more than $500. 
D) charge a stand-by passenger more than $100. 
E) fill the seats at the last minute for any price.

Question 8

Which of the following best describes the difference between an objective concept and a subjective concept?

Accepted Answer

A) A subjective concept is a fact based on observation that is not subject to personal opinion,while an objective concept is based on personal preferences and value judgments. 
B) An objective concept is a fact based on observation that is not subject to personal opinion,while a subjective concept is based on personal preferences and value judgments. 
C) A subjective concept relates to issues in microeconomics,while an objective concept relates to issues in macroeconomics. 
D) An objective concept can only be illustrated in words,while a subjective concept can usually be illustrated with a graph. 
A) A subjective concept is a fact based on observation that is not subject to personal opinion,while an objective concept is based on personal preferences and value judgments. 
B) An objective concept is a fact based on observation that is not subject to personal opinion,while a subjective concept is based on personal preferences and value judgments. 
C) A subjective concept relates to issues in microeconomics,while an objective concept relates to issues in macroeconomics. 
D) An objective concept can only be illustrated in words,while a subjective concept can usually be illustrated with a graph.

Question 9

To abstract from reality in an economic model means that

Accepted Answer

A) we include only a few of the essential aspects of reality. 
B) the economic study surveys only a very limited period of time. 
C) we include only those elements which support our hypothesis. 
D) the model includes every aspect of the real world. 
E) the model examines the actions of the consumers in the absence of producers and the government. 
A) we include only a few of the essential aspects of reality. 
B) the economic study surveys only a very limited period of time. 
C) we include only those elements which support our hypothesis. 
D) the model includes every aspect of the real world. 
E) the model examines the actions of the consumers in the absence of producers and the government.

Question 10

Why would a radio station give money to listeners? Does this violate the economic way of thinking?

Accepted Answer

Radio stations do surveys to see what ty

Question 11

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

Accepted Answer

A) everyone has to pay for his own lunch. 
B) the person consuming a good must always pay for it. 
C) opportunity costs are incurred when resources are used to produce goods and services. 
D) no one has time for a good lunch anymore. 
A) everyone has to pay for his own lunch. 
B) the person consuming a good must always pay for it. 
C) opportunity costs are incurred when resources are used to produce goods and services. 
D) no one has time for a good lunch anymore.

Question 12

Because information is costly to acquire,

Accepted Answer

A) people will rationally choose not to become fully informed when making decisions. 
B) people will generally choose to become as fully informed as possible when making decisions. 
C) people will generally choose to acquire no information that would be relevant to their decisions. 
D) none of the above are true. 
A) people will rationally choose not to become fully informed when making decisions. 
B) people will generally choose to become as fully informed as possible when making decisions. 
C) people will generally choose to acquire no information that would be relevant to their decisions. 
D) none of the above are true.

Question 13

Positive economics

Accepted Answer

A) postulates relationships among economic variables that are potentially refutable by real-world events. 
B) is strictly quantitative and is,therefore,of little value to policy makers. 
C) will usually indicate which economic policy is best. 
D) is the same as normative economics. 
A) postulates relationships among economic variables that are potentially refutable by real-world events. 
B) is strictly quantitative and is,therefore,of little value to policy makers. 
C) will usually indicate which economic policy is best. 
D) is the same as normative economics.

Question 14

The opportunity cost of going to college is

Accepted Answer

A) the total spent on food,clothing,books,transportation,tuition,lodging,and other expenses. 
B) the value of the best opportunity a student gives up to attend college. 
C) zero for students who are fortunate enough to have all of their college expenses paid by someone else. 
D) zero,since a college education will allow a student to earn a larger income after graduation. 
A) the total spent on food,clothing,books,transportation,tuition,lodging,and other expenses. 
B) the value of the best opportunity a student gives up to attend college. 
C) zero for students who are fortunate enough to have all of their college expenses paid by someone else. 
D) zero,since a college education will allow a student to earn a larger income after graduation.

Question 15

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 16

Which one of the following statements is correct?

Accepted Answer

A) Policymakers have good intentions and therefore their proposals will create good outcomes. 
B) Potential secondary effects do not need to be considered when deciding whether to implement a new government program. 
C) A good outcome is guaranteed from a government program if it is created with good intentions. 
D) Government programs can be implemented with good intentions but can lead to undesirable outcomes because of unintended consequences. 
A) Policymakers have good intentions and therefore their proposals will create good outcomes. 
B) Potential secondary effects do not need to be considered when deciding whether to implement a new government program. 
C) A good outcome is guaranteed from a government program if it is created with good intentions. 
D) Government programs can be implemented with good intentions but can lead to undesirable outcomes because of unintended consequences.

Question 17

"If Tom had twice as much money,he could consume twice as much.If everyone had twice as much money,they could consume twice as much." This quote illustrates

Accepted Answer

A) the difference between positive and normative economics. 
B) the fallacy of composition. 
C) that association is not causation. 
D) the law of unintended consequences. 
A) the difference between positive and normative economics. 
B) the fallacy of composition. 
C) that association is not causation. 
D) the law of unintended consequences.

Question 18

The basic difference between macroeconomics and microeconomics is that

Accepted Answer

A) microeconomics is concerned with aggregate markets and the entire economy,while macroeconomics is concerned with specific individual markets. 
B) macroeconomics is concerned with policy decisions,while microeconomics applies only to theory. 
C) microeconomics is concerned with individual markets and the behavior of people and firms,while macroeconomics is concerned with aggregate markets and the entire economy. 
D) macroeconomics is concerned with positive economics,while microeconomics is concerned with normative economics. 
A) microeconomics is concerned with aggregate markets and the entire economy,while macroeconomics is concerned with specific individual markets. 
B) macroeconomics is concerned with policy decisions,while microeconomics applies only to theory. 
C) microeconomics is concerned with individual markets and the behavior of people and firms,while macroeconomics is concerned with aggregate markets and the entire economy. 
D) macroeconomics is concerned with positive economics,while microeconomics is concerned with normative economics.

Question 19

If Susan bought nine gallons of gasoline at $1.50 per gallon,the car wash cost $1,but if she bought 10 gallons of gasoline,the car wash was free.Given that Susan is going to get the car wash,the marginal cost of the tenth gallon of gasoline is

Accepted Answer

A) zero. 
B) $.50. 
C) $1.00. 
D) $1.50. 
A) zero. 
B) $.50. 
C) $1.00. 
D) $1.50.

Question 20

Household production is more likely to occur when

Accepted Answer

A) it requires many specialized resources 
B) technology makes it more costly than market production 
C) tax avoidance is undesirable 
D) less control over the final product is desirable 
E) the opportunity cost of household work is relatively small 
A) it requires many specialized resources 
B) technology makes it more costly than market production 
C) tax avoidance is undesirable 
D) less control over the final product is desirable 
E) the opportunity cost of household work is relatively small

Exam 1: The Economic Approach

The consequences of an economic change that are not immediately identifiable but are felt only with the passage of time are known in economics as

Which of the following is a normative economic statement?

If the government provides free schooling for all students,an economist would say education is

"The national debt is too large.The government must stop spending so much money." This statement is

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

Joe observes that a car in 1925 sold for an average of $500 versus $20,000 for a 2005 model.He concludes that 2005 cars must be 40 times better than 1925 cars.What's wrong with this way of thinking?

If an airline company has several empty seats on a flight and the full price of an air ticket is $500 and the marginal cost per passenger is $100,then it will be profitable for the airline to

Which of the following best describes the difference between an objective concept and a subjective concept?

To abstract from reality in an economic model means that

Why would a radio station give money to listeners? Does this violate the economic way of thinking?

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

Because information is costly to acquire,

Positive economics

The opportunity cost of going to college is

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

Which one of the following statements is correct?

"If Tom had twice as much money,he could consume twice as much.If everyone had twice as much money,they could consume twice as much." This quote illustrates

The basic difference between macroeconomics and microeconomics is that

If Susan bought nine gallons of gasoline at $1.50 per gallon,the car wash cost $1,but if she bought 10 gallons of gasoline,the car wash was free.Given that Susan is going to get the car wash,the marginal cost of the tenth gallon of gasoline is

Household production is more likely to occur when

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