Question 1

Scarcity implies that

Accepted Answer

A) consumers are too poor to afford the goods and services available. 
B) consumers are willing to purchase more of a good at the current price than suppliers are willing to produce. 
C) it is impossible to completely fulfill the desire for goods and services with the limited resources available. 
D) consumers would be willing to buy the same quantity of a good at a higher price. 
A) consumers are too poor to afford the goods and services available. 
B) consumers are willing to purchase more of a good at the current price than suppliers are willing to produce. 
C) it is impossible to completely fulfill the desire for goods and services with the limited resources available. 
D) consumers would be willing to buy the same quantity of a good at a higher price.

Question 2

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 3

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 4

Economics is primarily the study of

Accepted Answer

A) why people like to make money. 
B) the management of a business. 
C) the choices people make as the result of scarcity. 
D) how to make money in the stock market. 
A) why people like to make money. 
B) the management of a business. 
C) the choices people make as the result of scarcity. 
D) how to make money in the stock market.

Question 5

Capital is a term economists use to refer to

Accepted Answer

A) man-made resources used to produce other goods and services. 
B) resources that are available in nature such as mineral deposits. 
C) money that is used to consume goods and services, to distinguish it from money that is saved. 
D) the value of the best alternative to an action. 
A) man-made resources used to produce other goods and services. 
B) resources that are available in nature such as mineral deposits. 
C) money that is used to consume goods and services, to distinguish it from money that is saved. 
D) the value of the best alternative to an action.

Question 6

Homeowners can deduct interest payments on their mortgages from their federal income tax. If this deduction were removed, how would the housing market be affected?

Accepted Answer

The deductibility of these interest paym

Question 7

In economics the term utility refers to

Accepted Answer

A) the subjective benefit or satisfaction a person expects to receive from a choice or course of action. 
B) the number of possible uses for a resource. 
C) the fact that human desire for goods is unlimited while the resources available to meet those desires is limited. 
D) the highest valued alternative that must be sacrificed when a choice is made. 
A) the subjective benefit or satisfaction a person expects to receive from a choice or course of action. 
B) the number of possible uses for a resource. 
C) the fact that human desire for goods is unlimited while the resources available to meet those desires is limited. 
D) the highest valued alternative that must be sacrificed when a choice is made.

Question 8

Which of the following is most clearly consistent with the basic postulate of economics regarding the reaction of people to a change in incentives.

Accepted Answer

A) Farmers produce fewer bushels of wheat in response to an increase in the price of wheat. 
B) People will buy more milk at a price of $2 per gallon than at $1 per gallon. 
C) People will buy less gas if the price of gas increases by $.20 per gallon. 
D) People will consume more beef if the price increases from $1 to $2 per pound. 
A) Farmers produce fewer bushels of wheat in response to an increase in the price of wheat. 
B) People will buy more milk at a price of $2 per gallon than at $1 per gallon. 
C) People will buy less gas if the price of gas increases by $.20 per gallon. 
D) People will consume more beef if the price increases from $1 to $2 per pound.

Question 9

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,

Question 10

An opinion based on personal preferences and value judgments is called

Accepted Answer

A) an objective concept. 
B) a subjective concept. 
C) an unintended consequence. 
D) ceteris paribus. 
A) an objective concept. 
B) a subjective concept. 
C) an unintended consequence. 
D) ceteris paribus.

Question 11

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 12

Economic analysis assumes that

Accepted Answer

A) people act only out of selfish motives. 
B) people are motivated by a variety of forces; however, changes in personal benefits and costs affect behavior only when individuals are motivated by selfishness. 
C) people are basically unselfish, and their actions are, therefore, difficult to predict. 
D) changes in the personal benefits and costs associated with an activity will exert a predictable influence on the behavior of both those who are selfish and those who are unselfish. 
A) people act only out of selfish motives. 
B) people are motivated by a variety of forces; however, changes in personal benefits and costs affect behavior only when individuals are motivated by selfishness. 
C) people are basically unselfish, and their actions are, therefore, difficult to predict. 
D) changes in the personal benefits and costs associated with an activity will exert a predictable influence on the behavior of both those who are selfish and those who are unselfish.

Question 13

Which of the following is the best definition of economics?

Accepted Answer

A) An investigation of the quantities and prices of the various goods produced by the nations of the world. 
B) A study of why inflation and unemployment periodically plague the U.S. economy. 
C) An analysis of how individuals and societies deal with the problem of scarcity. 
D) An examination of the role that money plays in the economy. 
E) A study of how goods and services are distributed throughout the world. 
A) An investigation of the quantities and prices of the various goods produced by the nations of the world. 
B) A study of why inflation and unemployment periodically plague the U.S. economy. 
C) An analysis of how individuals and societies deal with the problem of scarcity. 
D) An examination of the role that money plays in the economy. 
E) A study of how goods and services are distributed throughout the world.

Question 14

When economists say an individual has made a rational choice, they mean the individual has

Accepted Answer

A) made the choice by weighing their own subjective costs and benefits. 
B) made a "good" decision, one that reasonable outside observers would have also made. 
C) neglected to consider the unintended consequences arising from their decision. 
D) ignored their own personal interests and made the choice that is best for society. 
A) made the choice by weighing their own subjective costs and benefits. 
B) made a "good" decision, one that reasonable outside observers would have also made. 
C) neglected to consider the unintended consequences arising from their decision. 
D) ignored their own personal interests and made the choice that is best for society.

Question 15

Doris, a burglar who breaks into houses, decides to break into the house at 265 Elm Street, rather than the house next door because the house next door has a sign in the yard that says "home protected by a security system." To an economist, Doris is

Accepted Answer

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

Question 16

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 17

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 18

Which of the following is part of the economic way of thinking?

Accepted Answer

A) The accuracy of the assumptions is the best test of an economic theory. 
B) When an option becomes more expensive, people will be less likely to choose it. 
C) The value of a good can be determined objectively by measuring the amount of labor required for its production. 
D) All of the above. 
A) The accuracy of the assumptions is the best test of an economic theory. 
B) When an option becomes more expensive, people will be less likely to choose it. 
C) The value of a good can be determined objectively by measuring the amount of labor required for its production. 
D) All of the above.

Question 19

Economists use the term ceteris paribus to indicate that

Accepted Answer

A) supply and demand are in balance. 
B) other things are assumed to be constant. 
C) the analysis is true for the individual but not for the economy as a whole. 
D) their conclusions are based on normative economics rather than positive economic analysis. 
A) supply and demand are in balance. 
B) other things are assumed to be constant. 
C) the analysis is true for the individual but not for the economy as a whole. 
D) their conclusions are based on normative economics rather than positive economic analysis.

Question 20

Just before class, Jim tells Stuart, "Stuart, you shouldn't skip class today because you have paid tuition to enroll in the class." Stuart ignores Jim's advice, and instead makes the decision of whether to attend based on what he feels he'd be missing that day in class relative to his value of the extra time he could have to finish the video game he is playing. To an economist, Stuart is

Accepted Answer

A) using marginal decision making. 
B) ignoring the total value of attending class. 
C) ignoring the concept of opportunity cost. 
D) committing the fallacy of composition. 
A) using marginal decision making. 
B) ignoring the total value of attending class. 
C) ignoring the concept of opportunity cost. 
D) committing the fallacy of composition.

Exam 1: The Economic Approach

Scarcity implies that

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

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

Economics is primarily the study of

Capital is a term economists use to refer to

Homeowners can deduct interest payments on their mortgages from their federal income tax. If this deduction were removed, how would the housing market be affected?

In economics the term utility refers to

Which of the following is most clearly consistent with the basic postulate of economics regarding the reaction of people to a change in incentives.

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?

An opinion based on personal preferences and value judgments is called

The basic difference between macroeconomics and microeconomics is that

Economic analysis assumes that

Which of the following is the best definition of economics?

When economists say an individual has made a rational choice, they mean the individual has

Doris, a burglar who breaks into houses, decides to break into the house at 265 Elm Street, rather than the house next door because the house next door has a sign in the yard that says "home protected by a security system." To an economist, Doris is

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

Because information is costly to acquire,

Which of the following is part of the economic way of thinking?

Economists use the term ceteris paribus to indicate 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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