Question 1

Which of the following is a normative economic statement?

Accepted Answer

A)  Rising global demand for diesel and heating oil has led to increases in the price of crude oil. 
B)  With falling home prices and rising mortgage interest rates, the amount of foreclosures has increased. 
C)  The federal government is considering raising the gasoline tax to promote the use of public transportation. 
D)  Fashion designers should be allowed to copyright designs to promote innovation. 
A)  Rising global demand for diesel and heating oil has led to increases in the price of crude oil. 
B)  With falling home prices and rising mortgage interest rates, the amount of foreclosures has increased. 
C)  The federal government is considering raising the gasoline tax to promote the use of public transportation. 
D)  Fashion designers should be allowed to copyright designs to promote innovation.

Question 2

In economics,the term ________ means "additional" or "extra."

Accepted Answer

A)  allocative 
B)  marginal 
C)  equity 
D)  optimal 
A)  allocative 
B)  marginal 
C)  equity 
D)  optimal

Question 3

Consumers make all economic decisions in a mixed economy.

Accepted Answer

A) True 
 B)False

Question 4

Positive analysis is concerned with "what ought to be," while normative analysis is concerned with "what is."

Accepted Answer

A) True 
 B)False

Question 5

In the first six months of 2003,branches of Commerce Bank in New York City were robbed 14 times.The New York City Police recommended steps the bank could take to deter robberies,including the installation of plastic barriers called "bandit barriers." The police were surprised the bank did not take their advice.According to a deputy commissioner of police,"Commerce does very little of what we recommend.They've told our detectives they have no interest in ever putting in the barriers."
It would seem that Commerce Bank would have a strong incentive to install "bandit barriers" to deter robberies.Why wouldn't they do it?

Accepted Answer

A)  The banks would rather delay installation of any theft deterring equipment in anticipation of new, lower-cost innovations in the security devices market. 
B)  The banks must have weighed the cost of installing bandit barriers against the benefits and decided that they have "no interest in ever putting in the barriers." 
C)  The banks are concerned that "bandit barriers" would send the wrong message to customers-that the bank is unsafe. 
D)  The banks probably resent any interference from the police department. 
A)  The banks would rather delay installation of any theft deterring equipment in anticipation of new, lower-cost innovations in the security devices market. 
B)  The banks must have weighed the cost of installing bandit barriers against the benefits and decided that they have "no interest in ever putting in the barriers." 
C)  The banks are concerned that "bandit barriers" would send the wrong message to customers-that the bank is unsafe. 
D)  The banks probably resent any interference from the police department.

Question 6

Suppose the extra cost for a municipality to enact a "no texting while driving" law is $15,000 per year.Then,the municipality should enact the law if it receives a total benefit from all of its traffic laws of $15,000 per year.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is a positive economic statement?

Accepted Answer

A)  The standard of living in the United States is too low. 
B)  If the price of beef falls, a larger quantity of it will be bought. 
C)  The government should implement a national consumption tax. 
D)  The U.S. government should increase regulations on the banking industry. 
A)  The standard of living in the United States is too low. 
B)  If the price of beef falls, a larger quantity of it will be bought. 
C)  The government should implement a national consumption tax. 
D)  The U.S. government should increase regulations on the banking industry.

Question 8

Explain the economic idea that "people respond to incentives."

Accepted Answer

Human beings act from a variety of motiv

Question 9

Lionel's Lawn Care is a company that maintains residential yards.Lionel's cost for his standard package of mowing,edging,and trimming is $15,and he charges $25 for this service.For a total price of $40,Lionel will also trim shrubs,a service that adds an additional $10 to the total cost of the standard package.Should Lionel continue to offer the shrub-trimming service?

Accepted Answer

A)  yes, his marginal benefit is greater than his marginal cost 
B)  yes, but only if he raises the price of the standard package 
C)  no, his marginal benefit is less than his marginal cost 
D)  More information is needed for Lionel to make this decision. 
A)  yes, his marginal benefit is greater than his marginal cost 
B)  yes, but only if he raises the price of the standard package 
C)  no, his marginal benefit is less than his marginal cost 
D)  More information is needed for Lionel to make this decision.

Question 10

Which of the following is a problem inherent in centrally planned economies?

Accepted Answer

A)  Households and firms make poor decisions in choosing how resources are allocated. 
B)  There is too little production of low-cost, high-quality goods and services. 
C)  Production managers are more concerned with satisfying consumer wants than with satisfying government's orders. 
D)  Exports tend to exceed imports. 
A)  Households and firms make poor decisions in choosing how resources are allocated. 
B)  There is too little production of low-cost, high-quality goods and services. 
C)  Production managers are more concerned with satisfying consumer wants than with satisfying government's orders. 
D)  Exports tend to exceed imports.

Question 11

Ted quits his $60,000-a-year job to be a stay-at-home dad.What is the opportunity cost of his decision?

Accepted Answer

A)  zero, since he will no longer be earning a salary 
B)  depends on the "going rate" for stay-at-home dads 
C)  at least $60,000 
D)  the value he attributes to the joy of parenting 
A)  zero, since he will no longer be earning a salary 
B)  depends on the "going rate" for stay-at-home dads 
C)  at least $60,000 
D)  the value he attributes to the joy of parenting

Question 12

Economists spend much of their time

Accepted Answer

A)  describing how choices are made and analyzing the results of those choices. 
B)  arguing that optimal decisions are rarely made at the margin. 
C)  using normative analysis to develop economic models. 
D)  telling businesses what goods and services to produce and how to produce them. 
A)  describing how choices are made and analyzing the results of those choices. 
B)  arguing that optimal decisions are rarely made at the margin. 
C)  using normative analysis to develop economic models. 
D)  telling businesses what goods and services to produce and how to produce them.

Question 13

If it costs Sinclair $300 to produce 3 suede jackets and $420 to produce 4 suede jackets,then the difference of $120 is the marginal cost of producing the 4th suede jacket.

Accepted Answer

A) True 
 B)False

Question 14

You explain to your friend Haslina,who runs a catering service called "Meals in a Zip," about an economic theory which asserts that consumers will purchase less of a product at higher prices than they will at lower prices.She contends that the theory is incorrect because over the past two years she has raised the price of her catered meals and yet has seen a brisk increase in sales.How would you respond to Haslina?

Accepted Answer

A)  Haslina is right; she has evidence to back her claim. The theory must be erroneous. 
B)  I will explain to her that she is making the error of reverse causality: it is the increase in demand that has enabled her to raise her prices. 
C)  I will explain to her that there are some omitted variables that have contributed to an increase in her sales such as changes in income. 
D)  Haslina is making the mistake of assuming that correlation implies causation. 
A)  Haslina is right; she has evidence to back her claim. The theory must be erroneous. 
B)  I will explain to her that she is making the error of reverse causality: it is the increase in demand that has enabled her to raise her prices. 
C)  I will explain to her that there are some omitted variables that have contributed to an increase in her sales such as changes in income. 
D)  Haslina is making the mistake of assuming that correlation implies causation.

Question 15

The three fundamental questions that any economy must address are

Accepted Answer

A)  What will be the prices of goods and services; how will these goods and services be produced; and who will receive them? 
B)  What goods and services to produce; how will these goods and services be produced; and who receives them? 
C)  Who gets jobs; what wages do workers earn; and who owns what property? 
D)  How much will be saved; what will be produced; and how can these goods and services be fairly distributed? 
A)  What will be the prices of goods and services; how will these goods and services be produced; and who will receive them? 
B)  What goods and services to produce; how will these goods and services be produced; and who receives them? 
C)  Who gets jobs; what wages do workers earn; and who owns what property? 
D)  How much will be saved; what will be produced; and how can these goods and services be fairly distributed?

Question 16

The ________ the sale of an additional unit of a product is a marginal benefit to the firm.

Accepted Answer

A)  revenue received from 
B)  extra cost of 
C)  total value of 
D)  sales tax on 
A)  revenue received from 
B)  extra cost of 
C)  total value of 
D)  sales tax on

Question 17

In a market economy,who decides what goods and services will be produced?

Accepted Answer

A)  only the producers 
B)  only consumers 
C)  consumers and producers 
D)  the government 
A)  only the producers 
B)  only consumers 
C)  consumers and producers 
D)  the government

Question 18

A primary role of economists is to not only describe how choices are made and analyze the results of those choices,but also to advise on how better decisions can be made.

Accepted Answer

A) True 
 B)False

Question 19

What is the difference between economic efficiency and equity?

Accepted Answer

Economic efficiency is concerned with ma

Question 20

In market economies,income distribution is always going to be completely equitable.

Accepted Answer

A) True 
 B)False

Which of the following is a normative economic statement?

In economics,the term ________ means "additional" or "extra."

Consumers make all economic decisions in a mixed economy.

Positive analysis is concerned with "what ought to be," while normative analysis is concerned with "what is."

Suppose the extra cost for a municipality to enact a "no texting while driving" law is $15,000 per year.Then,the municipality should enact the law if it receives a total benefit from all of its traffic laws of $15,000 per year.

Which of the following is a positive economic statement?

Explain the economic idea that "people respond to incentives."

Which of the following is a problem inherent in centrally planned economies?

Ted quits his $60,000-a-year job to be a stay-at-home dad.What is the opportunity cost of his decision?

Economists spend much of their time

If it costs Sinclair $300 to produce 3 suede jackets and $420 to produce 4 suede jackets,then the difference of $120 is the marginal cost of producing the 4th suede jacket.

The three fundamental questions that any economy must address are

The ________ the sale of an additional unit of a product is a marginal benefit to the firm.

In a market economy,who decides what goods and services will be produced?

A primary role of economists is to not only describe how choices are made and analyze the results of those choices,but also to advise on how better decisions can be made.

What is the difference between economic efficiency and equity?

In market economies,income distribution is always going to be completely equitable.

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: The Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Health Care

Firms, The Stock Market, and Corporate Governance

Consumer Choice and Elasticity

Technology,Production,and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust Policy

Monopolistic Competition and Oligopoly

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, The Financial System, and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money,Banks,and the Federal Reserve System

Monetary Policy

Fiscal Policy

Comparative Advantage, International Trade, and Exchange Rates

Filters

Exam 1: Economics: Foundations and Models

Which of the following is a normative economic statement?

In economics,the term ________ means "additional" or "extra."

Consumers make all economic decisions in a mixed economy.

Positive analysis is concerned with "what ought to be," while normative analysis is concerned with "what is."

Suppose the extra cost for a municipality to enact a "no texting while driving" law is $15,000 per year.Then,the municipality should enact the law if it receives a total benefit from all of its traffic laws of $15,000 per year.

Which of the following is a positive economic statement?

Explain the economic idea that "people respond to incentives."

Which of the following is a problem inherent in centrally planned economies?

Ted quits his $60,000-a-year job to be a stay-at-home dad.What is the opportunity cost of his decision?

Economists spend much of their time

If it costs Sinclair $300 to produce 3 suede jackets and $420 to produce 4 suede jackets,then the difference of $120 is the marginal cost of producing the 4th suede jacket.

The three fundamental questions that any economy must address are

The ________ the sale of an additional unit of a product is a marginal benefit to the firm.

In a market economy,who decides what goods and services will be produced?

A primary role of economists is to not only describe how choices are made and analyze the results of those choices,but also to advise on how better decisions can be made.

What is the difference between economic efficiency and equity?

In market economies,income distribution is always going to be completely equitable.

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: The Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Health Care

Firms, The Stock Market, and Corporate Governance

Consumer Choice and Elasticity

Technology,Production,and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust Policy

Monopolistic Competition and Oligopoly

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, The Financial System, and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money,Banks,and the Federal Reserve System

Monetary Policy

Fiscal Policy

Comparative Advantage, International Trade, and Exchange Rates

Filters