Question 1

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.

Question 2

The basic postulate of economics indicates that changes in incentives influence

Accepted Answer

A)  the actions of producers but not consumers. 
B)  the actions of consumers but not producers. 
C)  the choices of individuals only when they buy and sell goods in the marketplace. 
D)  the choices of individuals with regard to a wide range of activities, including those generally perceived as social or political.

Question 3

When economists say a good is scarce, they mean

Accepted Answer

A)  there are only a limited number of consumers who would be interested in purchasing the good. 
B)  the human desire for the good exceeds the amount freely available from nature. 
C)  most people in poorer countries do not have enough of the good. 
D)  the production of the good has no opportunity cost for society.

Question 4

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.

Question 5

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.

Question 6

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.

Question 7

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.

Question 8

A local restaurant offers an "all you can eat" Sunday brunch for $12. Susan eats four servings but leaves half of a fifth helping uneaten. Why?

Accepted Answer

A)  Her marginal value of a serving of brunch has fallen below $12. 
B)  Her marginal value of a serving has fallen below $2.40 ($12 divided by 5 servings). 
C)  Her marginal value of food has fallen to zero. 
D)  The total value she places on brunch today exactly equals $12.

Question 9

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 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.

Exam 1: The Economic Approach