Question 1

A radio station gives "free money" to those listeners whose names are drawn and announced over the airwaves from postcards the listeners sent into the radio station. Is the money really free for the listener?

Accepted Answer

The answer of A radio station gives "free money" to...

Question 2

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.

Question 3

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.

Question 4

Economic analysis is based on the premise that

Accepted Answer

A) people act only out of selfish motives. 
B) people are always fully informed when making choices. 
C) changes in the personal benefits or costs of an action influence behavior in a predictable way. 
D) most human behavior is unpredictable.

Question 5

Isabella wishes to buy gasoline and have her car washed. She finds that if she buys 9 gallons of gasoline at $1.50 per gallon, the car wash costs $1, but if she buys 10 gallons of gasoline, the car wash is free. For Isabella, the marginal cost of the tenth gallon of gasoline is

Accepted Answer

A) zero. 
B) 50 cents. 
C) $1. 
D) $1.50.

Question 6

When economists use the term ceteris paribus, they are indicating that

Accepted Answer

A) the relationship between two economic variables cannot be determined. 
B) the analysis is true for the individual but not for the economy as a whole. 
C) all other variables except the ones specified are assumed to be constant. 
D) their conclusions are based on normative economics rather than positive economic analysis.

Question 7

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.

Question 8

If the government provides free schooling for all students, an economist would say education is

Accepted Answer

A) a free good, having no cost. 
B) scarce even though its cost is paid by taxpayers rather than by students. 
C) an example of a good that is no longer scarce. 
D) all of the above.

Question 9

A firm producing cans buys three tons of aluminum per day at $200 per ton. If it buys four tons per day, it receives a quantity discount on all units and pays only $175 per ton. The marginal cost of the fourth ton per day is

Accepted Answer

A) $100. 
B) $175. 
C) $700. 
D) $225.

Question 10

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.

Question 11

A student noted that the football team won by a larger margin when the third-string played more minutes. Therefore, he recommended that the third-stringers become the first team. His conclusion was probably erroneous because he

Accepted Answer

A) confused positive and normative analysis. 
B) committed the fallacy of composition. 
C) failed to recognize that association is not causation. 
D) confused macroeconomics with microeconomics.

Question 12

The Latin phrase "ceteris paribus" means

Accepted Answer

A) that one event causes another. 
B) that one event is associated with, but not caused by, another. 
C) that other potential causes are assumed to remain constant. 
D) the way things should be.

Question 13

If a good is scarce,

Accepted Answer

A) there will be shortages of it if the good is rationed by markets. 
B) the good will have a price in a market setting. 
C) there will be enough of the good freely available from nature to satisfy the human desire for it. 
D) all of the above are true.

Question 14

Which of the following is a positive economic statement?

Accepted Answer

A) Raising the federal minimum wage to $6.50 per hour will cause the rate of unemployment to increase. 
B) The United States spends too much on welfare. 
C) Philosophy is not as interesting as economics. 
D) Cold weather is much more enjoyable than warm weather.

Question 15

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.

Question 16

The fallacy of composition is the incorrect view that

Accepted Answer

A) decisions are always made at the margin. 
B) incentives matter only to those who behave selfishly. 
C) if something is true for an individual, then it must also be true for the group. 
D) the value of a good can be objectively measured by its cost of production.

Question 17

The expression, "There's no such thing as a free lunch," implies that

Accepted Answer

A) everyone has to pay for his own lunch. 
B) the person consuming a good must always pay for it. 
C) opportunity costs are incurred when resources are used to produce goods and services. 
D) no one has time for a good lunch anymore.

Question 18

When price is the rationing criterion, individuals have a strong incentive to

Accepted Answer

A) ignore the wishes of others when making decisions about how to use their resources. 
B) provide services to others in exchange for income. 
C) avoid exchanges because in every exchange there will be one person who gains and another who loses. 
D) substitute promises for the consistent delivery of a quality product.

Question 19

If an airline company has several empty seats on a flight and the full price of an air ticket is $500 and the marginal cost per passenger is $100, then it will be profitable for the airline to

Accepted Answer

A) charge a stand-by passenger no less than the full fare of $500. 
B) charge a stand-by passenger less than $100. 
C) charge a stand-by passenger more than $500. 
D) charge a stand-by passenger more than $100. 
E) fill the seats at the last minute for any price.

Question 20

In economics, the term "scarcity" refers to the fact that

Accepted Answer

A) everything really worthwhile costs money. 
B) even in wealthy countries like the United States, some people are poor. 
C) no society can produce enough to satisfy fully the desires of people for goods and services. 
D) sometimes shortages of a good arise when its price is set below the market equilibrium.

Exam 1: The Economic Approach