Question 1

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 2

Adam Smith believed that if people were free to pursue their own interests,

Accepted Answer

A)  public interest would be served quite well. 
B)  less would be produced than if altruism were the guiding principle. 
C)  they would generally apply their talents to unproductive activities that would generate little value to society. 
D)  they would have little incentive to undertake productive activities.

Question 3

Which of the following is a positive economic statement?

Accepted Answer

A)  reducing unemployment should be the highest priority of the federal government. 
B)  a reduction in the payroll tax will reduce the unemployment rate. 
C)  corporations should be prohibited from laying off workers during a recession. 
D)  the current unemployment rate is too high.

Question 4

Which of the following is a normative economic statement?

Accepted Answer

A)  If we doubled the size of welfare payments, we would reduce the number of homeless persons. 
B)  Companies should be concerned with more than just their profits. 
C)  An increase in spending on airport security will reduce the number of hijackings. 
D)  If social security were to be privatized, workers would earn a higher rate of return on their retirement contributions.

Question 5

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.

Question 6

Ethan washes and irons his own shirts. Sophia, his boss, sends her clothes to a laundry. Which is the most plausible economic explanation for this difference?

Accepted Answer

A)  Ethan must enjoy ironing more than Sophia does. 
B)  Ethan must be better at ironing than Sophia is. 
C)  The opportunity cost of ironing is greater for Ethan. 
D)  Sophia has a higher opportunity cost of laundering her clothes than Ethan does.

Question 7

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 8

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 9

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.

Question 10

According to Adam Smith, individual self-interest

Accepted Answer

A)  is a powerful force for economic progress when it is directed by competitive markets. 
B)  is a powerful force for economic progress when individuals are wisely directed by a strong central government. 
C)  is a major factor in retarding the economic progress of humankind. 
D)  could be either a positive or negative force for economic progress, depending on the moral influences of political leaders.

Question 11

Which of the following statements is correct about the economic way of thinking?

Accepted Answer

A)  If the buyer of a good gains, the seller must lose an equal amount. 
B)  The value of goods is objective; it is equal to the cost of supplying the good. 
C)  Opportunity costs will always be incurred when scarce resources are used to produce a good. 
D)  Changes in incentives generally have no effect on human behavior.

Question 12

The economic way of thinking stresses that

Accepted Answer

A)  changes in personal costs and benefits generally do not influence human behavior. 
B)  incentives matter--when an option becomes less costly, people will be more likely to choose it. 
C)  if one individual gains from an economic activity, then someone else must lose. 
D)  goods provided by government do not consume valuable scarce resources since government activity is not part of the market economy.

Question 13

The economic way of thinking is

Accepted Answer

A)  a set of historical generalizations that indicates what goods should be produced. 
B)  a body of statistical data that indicates how an economy should be organized. 
C)  a set of basic concepts that helps one understand human choices. 
D)  a set of complex, highly abstract theories that provides persons skilled in statistics with the information necessary to tell others what choices they should make.

Question 14

Which of the following is often referred to as the basic postulate of economics?

Accepted Answer

A)  Individuals act only out of selfish motives. 
B)  Incentives matter--individuals respond in predictable ways to changes in personal costs and benefits. 
C)  The accuracy of the assumptions is the best test of an economic theory. 
D)  The value of a good is objective; it is equal to the cost of producing the good.

Question 15

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 16

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.

Question 17

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.

Question 18

The three major categories of resources are

Accepted Answer

A)  human resources, physical resources, and natural resources. 
B)  scarce resources, capital resources, and abundant resources. 
C)  financial resources, global resources, and local resources. 
D)  common resources, private resources, and capital resources.

Question 19

In economics, secondary effects refer to the

Accepted Answer

A)  best alternative that must be forgone as the result of a choice. 
B)  unintended consequences of a change that are not immediately identifiable but are felt only with time. 
C)  immediate and visible intended consequences of a change. 
D)  impact of the scarcity of resources on the scarcity of the goods that are produced with those resources.

Question 20

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.

Exam 1: The Economic Approach

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

Adam Smith believed that if people were free to pursue their own interests,

Which of the following is a positive economic statement?

Which of the following is a normative economic statement?

Economists use the term ceteris paribus to indicate that

Ethan washes and irons his own shirts. Sophia, his boss, sends her clothes to a laundry. Which is the most plausible economic explanation for this difference?

An opinion based on personal preferences and value judgments is called

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

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

According to Adam Smith, individual self-interest

Which of the following statements is correct about the economic way of thinking?

The economic way of thinking stresses that

The economic way of thinking is

Which of the following is often referred to as the basic postulate of economics?

The Latin phrase "ceteris paribus" means

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?

Economists use the term ceteris paribus to indicate that

The three major categories of resources are

In economics, secondary effects refer to the

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?