Question 1

The fallacy of composition is the fallacious view that

Accepted Answer

A) economic activity will benefit everyone. 
B) what is true for the individual will also be true for the group. 
C) it is possible for the whole to be greater than the sum of the individual parts. 
D) association does not necessarily indicate causation. 
A) economic activity will benefit everyone. 
B) what is true for the individual will also be true for the group. 
C) it is possible for the whole to be greater than the sum of the individual parts. 
D) association does not necessarily indicate causation.

Question 2

A popular video program,used to teach primary school children about economics,defines scarcity as "when you don't have enough of something." Evaluate this definition based on your understanding of the scarcity concept.

Accepted Answer

This definition is a bit simplistic for

Question 3

Jim enjoys the feeling of wind in his hair enough to ride his motorcycle without a helmet,even though he fully realizes the potential for injury it creates by not wearing one in the unlikely event he is in an accident.To an economist,Jim is

Accepted Answer

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

Question 4

Which one of the following states a central element of the economic way of thinking?

Accepted Answer

A) Scarce goods are priceless. 
B) Incentives matter--human choice is influenced in predictable ways by changes in personal costs and benefits. 
C) The realism of the assumptions is the best test of an economic theory. 
D) When deciding how to allocate time,the concept of opportunity cost is meaningless. 
A) Scarce goods are priceless. 
B) Incentives matter--human choice is influenced in predictable ways by changes in personal costs and benefits. 
C) The realism of the assumptions is the best test of an economic theory. 
D) When deciding how to allocate time,the concept of opportunity cost is meaningless.

Question 5

In economics,secondary effects refer to the

Accepted Answer

A) best alternative that must be forgone as the result of a choice. 
B) unintended consequences of a change that are not immediately identifiable but are felt only with time. 
C) immediate and visible intended consequences of a change. 
D) impact of the scarcity of resources on the scarcity of the goods that are produced with those resources. 
A) best alternative that must be forgone as the result of a choice. 
B) unintended consequences of a change that are not immediately identifiable but are felt only with time. 
C) immediate and visible intended consequences of a change. 
D) impact of the scarcity of resources on the scarcity of the goods that are produced with those resources.

Question 6

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

Accepted Answer

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

Question 7

When economists say an individual displays economizing behavior,they simply mean that she is

Accepted Answer

A) making a lot of money. 
B) buying only those products that are cheap and of low quality. 
C) learning how to run a business more effectively. 
D) seeking the lowest cost method to accomplish her objectives. 
A) making a lot of money. 
B) buying only those products that are cheap and of low quality. 
C) learning how to run a business more effectively. 
D) seeking the lowest cost method to accomplish her objectives.

Question 8

People are more likely to purchase a consumer ratings magazine that reviews new automobiles before buying a new car than they are to purchase a consumer ratings magazine that reviews pens and pencils before buying a new pen or pencil.Which of the following best explains this behavior?

Accepted Answer

A) Because the consumer ratings magazine must have a higher price for the issue reviewing pens and pencils. 
B) Because the value of the information,in terms of avoiding a mistake on the purchase,is much higher for an automobile than for a pen or pencil,it is more worthwhile to gather this information. 
C) Because people generally do not know which products are reviewed by these consumer magazines. 
D) None of the above explain this behavior. 
A) Because the consumer ratings magazine must have a higher price for the issue reviewing pens and pencils. 
B) Because the value of the information,in terms of avoiding a mistake on the purchase,is much higher for an automobile than for a pen or pencil,it is more worthwhile to gather this information. 
C) Because people generally do not know which products are reviewed by these consumer magazines. 
D) None of the above explain this behavior.

Question 9

The fallacy of composition is the incorrect view that

Accepted Answer

A) decisions are always made at the margin. 
B) incentives matter only to those who behave selfishly. 
C) if something is true for an individual,then it must also be true for the group. 
D) the value of a good can be objectively measured by its cost of production. 
A) decisions are always made at the margin. 
B) incentives matter only to those who behave selfishly. 
C) if something is true for an individual,then it must also be true for the group. 
D) the value of a good can be objectively measured by its cost of production.

Question 10

When the Hometown football team is winning by a lot of points after halftime,they often play their second and third team players.One of the coaches notices that when the third team plays that Oklahoma wins by a bigger margin than when just the first team plays.He recommends that the third team see more playing time as a result.What is wrong with his way of thinking?

Accepted Answer

A) association is not causation 
B) it is a violation of ceteris paribus 
C) the fallacy of composition 
D) good intentions do not guarantee desirable outcomes 
A) association is not causation 
B) it is a violation of ceteris paribus 
C) the fallacy of composition 
D) good intentions do not guarantee desirable outcomes

Question 11

Which one of the following statements is most clearly inconsistent with the economic way of thinking?

Accepted Answer

A) "If you give a person a fish,you feed him for a day;if you teach him to fish,you feed him for life." 
B) "If the government provides a good free to citizens,then the opportunity cost of the good is zero." 
C) "If you derive the same satisfaction from a hamburger as a chicken sandwich,it makes sense to have the cheaper alternative for lunch." 
D) "When it is cheaper to have someone else mow your lawn than to mow it yourself,hiring someone to do the job is consistent with economizing behavior." 
A) "If you give a person a fish,you feed him for a day;if you teach him to fish,you feed him for life." 
B) "If the government provides a good free to citizens,then the opportunity cost of the good is zero." 
C) "If you derive the same satisfaction from a hamburger as a chicken sandwich,it makes sense to have the cheaper alternative for lunch." 
D) "When it is cheaper to have someone else mow your lawn than to mow it yourself,hiring someone to do the job is consistent with economizing behavior."

Question 12

Economic analysis assumes that

Accepted Answer

A) individuals act only out of selfish motives. 
B) although individuals are at times selfish and at times unselfish,only their selfish actions may be predicted. 
C) people are basically humanitarian,and their actions are,therefore,impossible to predict. 
D) changes in the personal benefits and costs associated with a choice will exert a predictable influence on human behavior. 
A) individuals act only out of selfish motives. 
B) although individuals are at times selfish and at times unselfish,only their selfish actions may be predicted. 
C) people are basically humanitarian,and their actions are,therefore,impossible to predict. 
D) changes in the personal benefits and costs associated with a choice will exert a predictable influence on human behavior.

Question 13

All but one of the following are elements of the economic way of thinking.Which one is not part of the economic way of thinking?

Accepted Answer

A) Incentives matter. 
B) The value of goods can be determined objectively. 
C) Economic thinking is marginal thinking. 
D) Information is scarce. 
A) Incentives matter. 
B) The value of goods can be determined objectively. 
C) Economic thinking is marginal thinking. 
D) Information is scarce.

Question 14

When economists say goods are scarce,they mean

Accepted Answer

A) consumers are too poor to afford the goods and services available. 
B) consumers are unwilling to buy goods unless they have very low prices. 
C) goods are generally freely available from nature in most countries. 
D) the desire for goods and services exceeds our ability to produce them with the limited resources available. 
A) consumers are too poor to afford the goods and services available. 
B) consumers are unwilling to buy goods unless they have very low prices. 
C) goods are generally freely available from nature in most countries. 
D) the desire for goods and services exceeds our ability to produce them with the limited resources available.

Question 15

Deciding how to make the best use of limited resources to satisfy virtually unlimited wants is known in economics as

Accepted Answer

A) economizing behavior. 
B) the fallacy of composition. 
C) ceteris paribus. 
D) the fallacy that good intentions do not guarantee the desired outcome. 
A) economizing behavior. 
B) the fallacy of composition. 
C) ceteris paribus. 
D) the fallacy that good intentions do not guarantee the desired outcome.

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

Which of the following could be considered to be a secondary effect caused by making drugs such as cocaine illegal?

Accepted Answer

A) The higher prices that result from making them illegal results in more property theft by users to afford the drugs. 
B) The usage of police and law enforcement resources to enforce drug laws leads to lower enforcement (and thus a higher amount)of other crimes. 
C) Without the ability to use the legal system to enforce contracts,violence often results when one party to a drug deal does not live up to their end of the bargain,thus the amount of violence increases by making drugs illegal. 
D) All of the above would be considered secondary effects of making drugs illegal. 
A) The higher prices that result from making them illegal results in more property theft by users to afford the drugs. 
B) The usage of police and law enforcement resources to enforce drug laws leads to lower enforcement (and thus a higher amount)of other crimes. 
C) Without the ability to use the legal system to enforce contracts,violence often results when one party to a drug deal does not live up to their end of the bargain,thus the amount of violence increases by making drugs illegal. 
D) All of the above would be considered secondary effects of making drugs illegal.

Question 18

Ex-London School of Economics student Mick Jagger sang,"You can't always get what you want,but if you try sometime,you just might find you can get what you need." Another statement of the basic economic principle expressed in this lyric is that

Accepted Answer

A) rational decisions are not always possible. 
B) you can allocate your resources to what gives you the highest value. 
C) you can create the supply to meet your own demand. 
D) you can maximize social welfare by making optimal decisions. 
A) rational decisions are not always possible. 
B) you can allocate your resources to what gives you the highest value. 
C) you can create the supply to meet your own demand. 
D) you can maximize social welfare by making optimal decisions.

Question 19

When an individual weighs her options and makes a choice that maximizes her benefit at the minimum cost,economists refer to this as a process of

Accepted Answer

A) rational decision making. 
B) objective decision making because the value of goods is determined objectively. 
C) marginal management analysis. 
D) random decision making. 
A) rational decision making. 
B) objective decision making because the value of goods is determined objectively. 
C) marginal management analysis. 
D) random decision making.

Question 20

Economists make assumptions in order to

Accepted Answer

A) mimic the methodologies employed by other scientists. 
B) minimize the number of experiments that yield no useful data. 
C) minimize the likelihood that some aspect of the problem at hand is being overlooked. 
D) focus their thinking on the essence of the problem at hand. 
A) mimic the methodologies employed by other scientists. 
B) minimize the number of experiments that yield no useful data. 
C) minimize the likelihood that some aspect of the problem at hand is being overlooked. 
D) focus their thinking on the essence of the problem at hand.

Exam 1: The Economic Approach

The fallacy of composition is the fallacious view that

A popular video program,used to teach primary school children about economics,defines scarcity as "when you don't have enough of something." Evaluate this definition based on your understanding of the scarcity concept.

Jim enjoys the feeling of wind in his hair enough to ride his motorcycle without a helmet,even though he fully realizes the potential for injury it creates by not wearing one in the unlikely event he is in an accident.To an economist,Jim is

Which one of the following states a central element of the economic way of thinking?

In economics,secondary effects refer to the

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

When economists say an individual displays economizing behavior,they simply mean that she is

People are more likely to purchase a consumer ratings magazine that reviews new automobiles before buying a new car than they are to purchase a consumer ratings magazine that reviews pens and pencils before buying a new pen or pencil.Which of the following best explains this behavior?

The fallacy of composition is the incorrect view that

Which one of the following statements is most clearly inconsistent with the economic way of thinking?

Economic analysis assumes that

All but one of the following are elements of the economic way of thinking.Which one is not part of the economic way of thinking?

When economists say goods are scarce,they mean

Deciding how to make the best use of limited resources to satisfy virtually unlimited wants is known in economics as

Which of the following best illustrates the fallacy of composition?

Which of the following could be considered to be a secondary effect caused by making drugs such as cocaine illegal?

Ex-London School of Economics student Mick Jagger sang,"You can't always get what you want,but if you try sometime,you just might find you can get what you need." Another statement of the basic economic principle expressed in this lyric is that

When an individual weighs her options and makes a choice that maximizes her benefit at the minimum cost,economists refer to this as a process of

Economists make assumptions in order to

Asome Tools of the Economist

Asupply,demand,and the Market Process

Asupply and Demand: Applications and Extensions

Difficult Cases for the Market and the Role of Government

The Economics of Collective Decision-Making

Ataking the Nations Economic Pulse

Economic Fluctuations, unemployment, and Inflation

Aan Introduction to Basic Macroeconomic Markets

Dynamic Change, economic Fluctuations, and the Ad-As Model

Fiscal Policy: the Keynesian View and Historical Perspective

Fiscal Policy, incentives, and Secondary Effects

Amoney and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, output, and Employment

Creating an Environment for Growth and Prosperity

Institutions,policies,and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Consumer Choice and Elasticity

Acosts and the Supply of Goods

Aprice Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

Aprice-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

Government Spending and Taxation

The Economics of Social Security

The Stock Market: Its Function, Performance, and Potential As an Investment Opportunity

Great Debates in Economics: Keynes Versus Hayek

The Crisis of 2008: Causes and Lessons for the Future

Lessons From the Great Depression

Lessons From Japan and Canada

The Federal Budget and the National Debt

The Economics of Healthcare

Education: Problems and Performance

Earnings Differences Between Men and Women

Do Labor Unions Increase the Wages of Workers

The Question of Resource Exhaustion

Difficult Environmental Cases and the Role of Government

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