Question 1

Which of the following is an example of a normative economic statement?

Accepted Answer

A) The inflation rate in the United States decreased from 4 percent last year to 3 percent this year as a result of lower energy prices. 
B) The economy grew at an annual rate of 5 percent during the first quarter of this year. 
C) If two automobile companies merge, it is likely that the price of automobiles will rise. 
D) An increase in international trade benefits some workers but hurts others. 
E) The minimum wage should be increased so that low income workers can afford to keep up with the cost of living. 
A) The inflation rate in the United States decreased from 4 percent last year to 3 percent this year as a result of lower energy prices. 
B) The economy grew at an annual rate of 5 percent during the first quarter of this year. 
C) If two automobile companies merge, it is likely that the price of automobiles will rise. 
D) An increase in international trade benefits some workers but hurts others. 
E) The minimum wage should be increased so that low income workers can afford to keep up with the cost of living.

Question 2

Ralph wants to buy some milk and a box of cereal. If Ralph buys 4 gallons of milk at $3.00 per gallon, the box of cereal costs $2.00. If he buys 5 gallons of milk, the box of cereal is free. For Ralph, the marginal cost of buying a fifth gallon of milk is:

Accepted Answer

A) zero. 
B) $1.00. 
C) $2.00. 
D) $3.00. 
A) zero. 
B) $1.00. 
C) $2.00. 
D) $3.00.

Question 3

The three major categories of resources are

Accepted Answer

A) human resources, physical resources, and natural resources. 
B) scarce resources, capital resources, and abundant resources. 
C) financial resources, global resources, and local resources. 
D) common resources, private resources, and capital resources. 
A) human resources, physical resources, and natural resources. 
B) scarce resources, capital resources, and abundant resources. 
C) financial resources, global resources, and local resources. 
D) common resources, private resources, and capital resources.

Question 4

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

Accepted Answer

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

Question 5

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 6

According to marginal analysis, you should spend more time studying economics if the extra benefit from an additional hour of study

Accepted Answer

A) is positive. 
B) outweighs the extra cost. 
C) exceeds the benefits of the previous hour of study. 
D) will raise your exam score. 
A) is positive. 
B) outweighs the extra cost. 
C) exceeds the benefits of the previous hour of study. 
D) will raise your exam score.

Question 7

If people are self-interested, why does anyone give money to public radio?

Accepted Answer

Since people can listen to public radio

Question 8

The difference between positive economic statements and normative economic statements is that

Accepted Answer

A) positive statements are based on opinion while normative statements are based on fact 
B) positive statements are true and normative statements are often false 
C) positive statements are often false and normative statements are true 
D) positive statements are based on fact while normative statements are based on opinion 
E)  both b and d. 
A) positive statements are based on opinion while normative statements are based on fact 
B) positive statements are true and normative statements are often false 
C) positive statements are often false and normative statements are true 
D) positive statements are based on fact while normative statements are based on opinion 
E)  both b and d.

Question 9

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 10

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 11

Someone notices that sunspot activity is high just prior to recessions and concludes that sunspots cause recessions. This person has

Accepted Answer

A) confused association and causation. 
B) misunderstood the ceteris paribus assumption. 
C) used normative economics to answer a positive question. 
D) built an untestable model. 
A) confused association and causation. 
B) misunderstood the ceteris paribus assumption. 
C) used normative economics to answer a positive question. 
D) built an untestable model.

Question 12

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 13

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 14

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 15

If you win the lottery this would be great for you, but if everyone simultaneously won the lottery this wouldn't be nearly as good, why?

Accepted Answer

A) association is not causation 
B) it is a violation of ceteris paribus 
C) the fallacy of composition 
D) what appear to be positive outcomes in society are actually normative. 
A) association is not causation 
B) it is a violation of ceteris paribus 
C) the fallacy of composition 
D) what appear to be positive outcomes in society are actually normative.

Question 16

Economics is primarily the study of

Accepted Answer

A) how to make money in the stock market. 
B) how to find lower cost methods of production. 
C) the choices we must make among alternatives because of scarcity. 
D) the proper form of industrial structure for the United States. 
A) how to make money in the stock market. 
B) how to find lower cost methods of production. 
C) the choices we must make among alternatives because of scarcity. 
D) the proper form of industrial structure for the United States.

Question 17

According to Adam Smith, individual self-interest

Accepted Answer

A) is a powerful force for economic progress when it is directed by competitive markets. 
B) is a powerful force for economic progress when individuals are wisely directed by a strong central government. 
C) is a major factor in retarding the economic progress of humankind. 
D) could be either a positive or negative force for economic progress, depending on the moral influences of political leaders. 
A) is a powerful force for economic progress when it is directed by competitive markets. 
B) is a powerful force for economic progress when individuals are wisely directed by a strong central government. 
C) is a major factor in retarding the economic progress of humankind. 
D) could be either a positive or negative force for economic progress, depending on the moral influences of political leaders.

Question 18

Economic choice and competitive behavior are the result of

Accepted Answer

A) scarcity. 
B) poverty. 
C) public ownership of resources. 
D) private ownership of resources. 
A) scarcity. 
B) poverty. 
C) public ownership of resources. 
D) private ownership of resources.

Question 19

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 20

The most fundamental concept in economics is that

Accepted Answer

A) changes in incentives influence behavior in a predictable way--people will be less likely to choose an option as it becomes more expensive. 
B) changes in incentives generally do not influence human behavior. 
C) goods that are provided by government are free for society. 
D) individuals generally do not consider other alternatives when making a choice. 
A) changes in incentives influence behavior in a predictable way--people will be less likely to choose an option as it becomes more expensive. 
B) changes in incentives generally do not influence human behavior. 
C) goods that are provided by government are free for society. 
D) individuals generally do not consider other alternatives when making a choice.

Exam 1: The Economic Approach

Which of the following is an example of a normative economic statement?

Ralph wants to buy some milk and a box of cereal. If Ralph buys 4 gallons of milk at $3.00 per gallon, the box of cereal costs $2.00. If he buys 5 gallons of milk, the box of cereal is free. For Ralph, the marginal cost of buying a fifth gallon of milk is:

The three major categories of resources are

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

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

According to marginal analysis, you should spend more time studying economics if the extra benefit from an additional hour of study

If people are self-interested, why does anyone give money to public radio?

The difference between positive economic statements and normative economic statements is that

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

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

Someone notices that sunspot activity is high just prior to recessions and concludes that sunspots cause recessions. This person has

The fallacy of composition is the fallacious view that

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

If you win the lottery this would be great for you, but if everyone simultaneously won the lottery this wouldn't be nearly as good, why?

Economics is primarily the study of

According to Adam Smith, individual self-interest

Economic choice and competitive behavior are the result of

The economic way of thinking stresses that

The most fundamental concept in economics is that

A: Some Tools of the Economist

B: Some Tools of the Economist

A: Supply, Demand, and the Market Process

B: Supply, Demand, and the Market Process

A: Supply and Demand: Applications and Extensions

B: Supply and Demand: Applications and Extensions

Difficult Cases for the Market and the Role of Government

The Economics of Collective Decision-Making

Consumer Choice and Elasticity

A: Costs and the Supply of Goods

B: Costs and the Supply of Goods

A: Price Takers and the Competitive Process

B: Price Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

A: Price-Searcher Markets With High Entry Barriers

B: 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

Appendix: Government Spending and Taxation

Appendix: the Economics of Social Security

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

Appendix: Great Debates in Economics: Keynes Versus Hayek

Appendix: the Crisis of 2008: Causes and Lessons for the Future

Appendix: Lessons From the Great Depression

Appendix: the Economics of Healthcare

Appendix:education: Problems and Performance

Appendix: Earnings Differences Between Men and Women

Appendix: the Question of Resource Exhaustion

Appendix: Do Labor Unions Increase the Wages of Workers

Appendix: Difficult Environmental Cases and the Role of Government

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