Question 1

A rational decision maker takes an action if and only if

Accepted Answer

A) the marginal benefit of the action exceeds the marginal cost of the action. 
B) the marginal cost of the action exceeds the marginal benefit of the action. 
C) the marginal cost of the action is zero. 
D) the opportunity cost of the action is zero. 
A) the marginal benefit of the action exceeds the marginal cost of the action. 
B) the marginal cost of the action exceeds the marginal benefit of the action. 
C) the marginal cost of the action is zero. 
D) the opportunity cost of the action is zero.

Question 2

"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 3

A marginal change usually is a

Accepted Answer

A) change that involves little, if anything, that is important. 
B) large, significant adjustment. 
C) change for the worse, and so it is usually a short-term change. 
D) small, incremental adjustment. 
A) change that involves little, if anything, that is important. 
B) large, significant adjustment. 
C) change for the worse, and so it is usually a short-term change. 
D) small, incremental adjustment.

Question 4

While waiting in line to buy two tacos at 80 cents each and a medium drink for 90 cents, Jordan notices that the restaurant has a value meal containing three tacos and a medium drink all for $3. For Jordan, the marginal cost of the third taco would be

Accepted Answer

A) zero. 
B) 50 cents. 
C) 80 cents. 
D) $1. 
A) zero. 
B) 50 cents. 
C) 80 cents. 
D) $1.

Question 5

Joe and Ed go to a diner that sells hamburgers for $5 and hot dogs for $3. They agree to split the lunch bill evenly. Ed chooses a hot dog. The marginal cost to Joe then of ordering a hamburger instead of a hot dog is

Accepted Answer

A) $1. 
B) $2. 
C) $2.50. 
D) $3. 
A) $1. 
B) $2. 
C) $2.50. 
D) $3.

Question 6

Which of the following is true?

Accepted Answer

A) Scarcity and poverty are basically the same thing. 
B) Poverty implies that some basic level of need has not been attained. 
C) Scarcity is the result of prices being set too high. 
D) All of the above are true. 
A) Scarcity and poverty are basically the same thing. 
B) Poverty implies that some basic level of need has not been attained. 
C) Scarcity is the result of prices being set too high. 
D) All of the above are true.

Question 7

Harold, a delivery man, washes and irons his own shirts. Sarah, his boss, sends her clothes to a laundry. Which is the most plausible economic explanation for this difference?

Accepted Answer

A) Harold must enjoy ironing more than Sarah does. 
B) Harold must be better at ironing than Sarah is. 
C) The opportunity cost of ironing is greater for Harold. 
D) Sarah has a higher opportunity cost of laundering her clothes than Harold does. 
A) Harold must enjoy ironing more than Sarah does. 
B) Harold must be better at ironing than Sarah is. 
C) The opportunity cost of ironing is greater for Harold. 
D) Sarah has a higher opportunity cost of laundering her clothes than Harold does.

Question 8

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 9

Which of the following is true of resources?

Accepted Answer

A) Resources are inputs used to produce goods and services. 
B) Human resources reflect the skills and productive knowledge of human beings. 
C) With the passage of time, investment activities can increase the availability of resources. 
D) All of the above are true. 
A) Resources are inputs used to produce goods and services. 
B) Human resources reflect the skills and productive knowledge of human beings. 
C) With the passage of time, investment activities can increase the availability of resources. 
D) All of the above are true.

Question 10

Which of the following statements is correct?

Accepted Answer

A) If the buyer of a good gains, the seller must lose an equal amount. 
B) The value of goods is objective; it is equal to the cost of supplying the good. 
C) Opportunity costs will always be incurred when scarce resources are used to produce a good. 
D) Changes in incentives generally have no effect on human behavior. 
A) If the buyer of a good gains, the seller must lose an equal amount. 
B) The value of goods is objective; it is equal to the cost of supplying the good. 
C) Opportunity costs will always be incurred when scarce resources are used to produce a good. 
D) Changes in incentives generally have no effect on human behavior.

Question 11

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 12

Which of the following most clearly distinguishes between positive and normative economics?

Accepted Answer

A) Positive economics is the study of what ought to be; normative economics is concerned with the facts. 
B) Positive economics is the study of the facts; normative economics is concerned with what ought to be. 
C) Positive economics is the study of supply and demand in narrowly defined markets such as the market for shoes; normative economics focuses on highly aggregated markets such as the market for all consumer products. 
D) Positive economics is the study of goods that are scarce; normative economics is concerned with goods that are not scarce. 
A) Positive economics is the study of what ought to be; normative economics is concerned with the facts. 
B) Positive economics is the study of the facts; normative economics is concerned with what ought to be. 
C) Positive economics is the study of supply and demand in narrowly defined markets such as the market for shoes; normative economics focuses on highly aggregated markets such as the market for all consumer products. 
D) Positive economics is the study of goods that are scarce; normative economics is concerned with goods that are not scarce.

Question 13

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

Accepted Answer

A) opportunity costs. 
B) marginal effects. 
C) secondary effects. 
D) scarcity constraints. 
A) opportunity costs. 
B) marginal effects. 
C) secondary effects. 
D) scarcity constraints.

Question 14

Ralph wants to buy some milk and a box of cereal. If Ralph buys 2 quarts of milk at $1 per quart, the box of cereal costs 75 cents. If he buys 3 quarts of milk at $1 per quart, the box of cereal is free. For Ralph, the marginal cost of the third quart of milk is

Accepted Answer

A) zero. 
B) 25 cents. 
C) 75 cents. 
D) $1. 
A) zero. 
B) 25 cents. 
C) 75 cents. 
D) $1.

Question 15

The value of a good is

Accepted Answer

A) subjective. 
B) objective. 
C) determined by a government statistical agency. 
D) based on the cost of production. 
A) subjective. 
B) objective. 
C) determined by a government statistical agency. 
D) based on the cost of production.

Question 16

"As soon as I announced my 'get tough on crime' policy, criminals got scared and the crime rate went down." Suppose that the lower crime rate was actually caused by freezing cold temperatures in January--it was just too cold for anybody to be out robbing other people. Which fundamental economic mistake did the politician make?

Accepted Answer

A) believing that what's good for one person is good for the whole group (the fallacy of composition) 
B) failing to take into account the benefits of crime (the payoff fallacy) 
C) believing that association is the same as causation 
D) failing to understand the theory of comparative advantage 
A) believing that what's good for one person is good for the whole group (the fallacy of composition) 
B) failing to take into account the benefits of crime (the payoff fallacy) 
C) believing that association is the same as causation 
D) failing to understand the theory of comparative advantage

Question 17

Which of the following represents a normative statement?

Accepted Answer

A) Incentives matter. 
B) The temperature in this room is 120 degrees. 
C) It is too hot in this room. 
D) People will buy less butter at $1.50 per pound than they will at $1.00 per pound. 
A) Incentives matter. 
B) The temperature in this room is 120 degrees. 
C) It is too hot in this room. 
D) People will buy less butter at $1.50 per pound than they will at $1.00 per pound.

Question 18

"The resources now going into the War on Terrorism and into improved airport security would save more lives if they were invested in medical research." This statement most clearly reflects which of the following?

Accepted Answer

A) The best test of an economic theory is its ability to predict. 
B) There is no such thing as a free lunch--the use of scarce resources always has an opportunity cost. 
C) selfishness; if people were not selfish, we could have more of everything. 
D) The value of goods can be determined objectively. 
A) The best test of an economic theory is its ability to predict. 
B) There is no such thing as a free lunch--the use of scarce resources always has an opportunity cost. 
C) selfishness; if people were not selfish, we could have more of everything. 
D) The value of goods can be determined objectively.

Question 19

The expression "There's no such thing as a free lunch" means

Accepted Answer

A) if one person gains, someone else must lose. 
B) each person must pay for exactly what he or she receives. 
C) the use of resources to produce a good has an opportunity cost because of scarcity. 
D) you cannot have a free lunch at the expense of someone else. 
A) if one person gains, someone else must lose. 
B) each person must pay for exactly what he or she receives. 
C) the use of resources to produce a good has an opportunity cost because of scarcity. 
D) you cannot have a free lunch at the expense of someone else.

Question 20

The Secretary of Labor states that wage rates in the country have risen by 2 percent this past year. The head of a local labor union states that wage gains should have been higher. The Secretary's statement is a(n) ____ economic statement, and the labor head's statement is a(n) ____ economic statement.

Accepted Answer

A) normative; normative 
B) normative; positive 
C) positive; normative 
D) positive; positive 
E) proper; improper 
A) normative; normative 
B) normative; positive 
C) positive; normative 
D) positive; positive 
E) proper; improper

Exam 1: The Economic Approach

A rational decision maker takes an action if and only if

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

A marginal change usually is a

While waiting in line to buy two tacos at 80 cents each and a medium drink for 90 cents, Jordan notices that the restaurant has a value meal containing three tacos and a medium drink all for $3. For Jordan, the marginal cost of the third taco would be

Joe and Ed go to a diner that sells hamburgers for $5 and hot dogs for $3. They agree to split the lunch bill evenly. Ed chooses a hot dog. The marginal cost to Joe then of ordering a hamburger instead of a hot dog is

Which of the following is true?

Harold, a delivery man, washes and irons his own shirts. Sarah, his boss, sends her clothes to a laundry. Which is the most plausible economic explanation for this difference?

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 of the following is true of resources?

Which of the following statements is correct?

Which of the following represents a positive statement?

Which of the following most clearly distinguishes between positive and normative economics?

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

Ralph wants to buy some milk and a box of cereal. If Ralph buys 2 quarts of milk at $1 per quart, the box of cereal costs 75 cents. If he buys 3 quarts of milk at $1 per quart, the box of cereal is free. For Ralph, the marginal cost of the third quart of milk is

The value of a good is

Which of the following represents a normative statement?

"The resources now going into the War on Terrorism and into improved airport security would save more lives if they were invested in medical research." This statement most clearly reflects which of the following?

The expression "There's no such thing as a free lunch" means

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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