Question 1

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 2

Evaluate this statement: "People engaged in economizing behavior will always buy the lowest priced item they can find."

Accepted Answer

As long as price is the only factor, we

Question 3

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 4

Positive economics

Accepted Answer

A) postulates a relationship that is potentially refutable and then seeks to determine whether the stated relationship is correct. 
B) uses value judgments to determine which policy alternatives should be chosen. 
C) is of no use to policy makers because it reflects the value judgments of the researcher. 
D) is the scientific study of "what ought to be" among economic relationships. 
A) postulates a relationship that is potentially refutable and then seeks to determine whether the stated relationship is correct. 
B) uses value judgments to determine which policy alternatives should be chosen. 
C) is of no use to policy makers because it reflects the value judgments of the researcher. 
D) is the scientific study of "what ought to be" among economic relationships.

Question 5

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 6

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.

Question 7

Which of the following is a positive economic statement?

Accepted Answer

A) Too much government spending is the biggest problem facing the U.S. economy. 
B) Creating jobs is the most serious problem facing the U.S. economy. 
C) Raising taxes provides additional revenue that should be used to finance health care. 
D) If taxes are over 50 percent of national income, job creation falls. 
A) Too much government spending is the biggest problem facing the U.S. economy. 
B) Creating jobs is the most serious problem facing the U.S. economy. 
C) Raising taxes provides additional revenue that should be used to finance health care. 
D) If taxes are over 50 percent of national income, job creation falls.

Question 8

The basic ingredients in any economic decision are

Accepted Answer

A) scarcity and choice. 
B) surpluses and shortages. 
C) market prices and the use of efficient production methods. 
D) needs and wants. 
A) scarcity and choice. 
B) surpluses and shortages. 
C) market prices and the use of efficient production methods. 
D) needs and wants.

Question 9

The fallacy of composition is the incorrect view that

Accepted Answer

A) everything else is always held constant when a change occurs. 
B) a small change in an economic variable will have unrecognizable but significant consequences on the economy. 
C) when two events are associated, the one observed first must have caused the second. 
D) if something is true for an individual, then it must also be true for the group. 
A) everything else is always held constant when a change occurs. 
B) a small change in an economic variable will have unrecognizable but significant consequences on the economy. 
C) when two events are associated, the one observed first must have caused the second. 
D) if something is true for an individual, then it must also be true for the group.

Question 10

Economic theory

Accepted Answer

A) is a set of definitions, postulates, and principles assembled in a manner that helps make cause-and-effect relationships clear in economics. 
B) is like a guidebook in that it points out what to look for. 
C) provides economists with a common language and way of thinking about how the world works. 
D) is all of the above. 
A) is a set of definitions, postulates, and principles assembled in a manner that helps make cause-and-effect relationships clear in economics. 
B) is like a guidebook in that it points out what to look for. 
C) provides economists with a common language and way of thinking about how the world works. 
D) is all of the above.

Question 11

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 12

Legislation to protect red-cockaded woodpeckers created incentives that resulted in premature harvesting of trees the woodpeckers like to nest in. This is an example of which of the following?

Accepted Answer

A) Association is not causation. 
B) the fallacy of composition 
C) the use of ceteris paribus conditions in economic analysis 
D) Good intentions do not always lead to desirable outcomes. 
A) Association is not causation. 
B) the fallacy of composition 
C) the use of ceteris paribus conditions in economic analysis 
D) Good intentions do not always lead to desirable outcomes.

Question 13

The economic way of thinking suggests that if the government imposed a $500 tax on owners of red automobiles,

Accepted Answer

A) fewer red automobiles would be produced and sold. 
B) more red automobiles would be produced and sold. 
C) there would be no change in the number of red automobiles produced and sold. 
D) red automobiles would cease to exist. 
A) fewer red automobiles would be produced and sold. 
B) more red automobiles would be produced and sold. 
C) there would be no change in the number of red automobiles produced and sold. 
D) red automobiles would cease to exist.

Question 14

Which of the following was a key belief of Adam Smith?

Accepted Answer

A) he felt that human goodness would provide adequate goods and services to everyone. 
B) he stressed that limited exchange and command economies would prevent the exploitation of the poor. 
C) he believed that individuals pursuing their own interests would direct economic activity in the most advantageous way. 
D) he lectured about the importance of gold and silver in providing a stable monetary system. 
A) he felt that human goodness would provide adequate goods and services to everyone. 
B) he stressed that limited exchange and command economies would prevent the exploitation of the poor. 
C) he believed that individuals pursuing their own interests would direct economic activity in the most advantageous way. 
D) he lectured about the importance of gold and silver in providing a stable monetary system.

Question 15

Which of the following actions is consistent with the basic economic postulate (the guidepost) that incentives matter?

Accepted Answer

A) Consumers buy fewer potatoes when the price of potatoes increases. 
B) A politician votes against a pay raise for himself because most of his constituents are strongly opposed to it and would vote against him in the next election. 
C) Farmers produce less corn because corn prices have declined. 
D) All of the above. 
A) Consumers buy fewer potatoes when the price of potatoes increases. 
B) A politician votes against a pay raise for himself because most of his constituents are strongly opposed to it and would vote against him in the next election. 
C) Farmers produce less corn because corn prices have declined. 
D) All of the above.

Question 16

Which of the following is a positive economic statement?

Accepted Answer

A) The federal minimum wage should be raised to $6.50 per hour. 
B) The United States spends too much on national defense. 
C) Higher rates of investment lead to higher rates of economic growth. 
D) Economics is more interesting to study than history. 
A) The federal minimum wage should be raised to $6.50 per hour. 
B) The United States spends too much on national defense. 
C) Higher rates of investment lead to higher rates of economic growth. 
D) Economics is more interesting to study than history.

Question 17

Every economy must ration goods in some way because of

Accepted Answer

A) overpopulation. 
B) poorly-performing markets. 
C) the income gap between rich and poor. 
D) scarcity. 
A) overpopulation. 
B) poorly-performing markets. 
C) the income gap between rich and poor. 
D) scarcity.

Question 18

The basic difference between macroeconomics and microeconomics is that

Accepted Answer

A) macroeconomics is concerned with the forest (aggregate markets), while microeconomics is concerned with the individual trees (subcomponents). 
B) macroeconomics is concerned with policy decisions, while microeconomics applies only to theory. 
C) microeconomics is concerned with the forest (aggregate markets), while macroeconomics is concerned with the trees (subcomponents). 
D) opportunity cost is applicable to macroeconomics, and the fallacy of composition relates to microeconomics. 
A) macroeconomics is concerned with the forest (aggregate markets), while microeconomics is concerned with the individual trees (subcomponents). 
B) macroeconomics is concerned with policy decisions, while microeconomics applies only to theory. 
C) microeconomics is concerned with the forest (aggregate markets), while macroeconomics is concerned with the trees (subcomponents). 
D) opportunity cost is applicable to macroeconomics, and the fallacy of composition relates to microeconomics.

Question 19

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 20

Economics is the study of how

Accepted Answer

A) individuals make choices because of scarcity. 
B) to succeed in business. 
C) to make money in the stock market. 
D) the morals and values of people are formed. 
A) individuals make choices because of scarcity. 
B) to succeed in business. 
C) to make money in the stock market. 
D) the morals and values of people are formed.

Exam 1: The Economic Approach

Which of the following is a normative economic statement?

Evaluate this statement: "People engaged in economizing behavior will always buy the lowest priced item they can find."

Economic analysis assumes that

Positive economics

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

Economists make assumptions in order to

Which of the following is a positive economic statement?

The basic ingredients in any economic decision are

The fallacy of composition is the incorrect view that

Economic theory

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

Legislation to protect red-cockaded woodpeckers created incentives that resulted in premature harvesting of trees the woodpeckers like to nest in. This is an example of which of the following?

The economic way of thinking suggests that if the government imposed a $500 tax on owners of red automobiles,

Which of the following was a key belief of Adam Smith?

Which of the following actions is consistent with the basic economic postulate (the guidepost) that incentives matter?

Which of the following is a positive economic statement?

Every economy must ration goods in some way because of

The basic difference between macroeconomics and microeconomics is 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.

Economics is the study of how

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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