Question 1

While waiting in line to buy two tacos at 75 cents each, and a medium drink for 80 cents, Jordan notices that the restaurant has a value meal containing three tacos and a medium drink all for $2.50. For Jordan, the marginal cost of purchasing the third taco would be

Accepted Answer

A) zero. 
B) 20 cents. 
C) 75 cents. 
D) 80 cents.

Question 2

Which of the following is true?

Accepted Answer

A) Positive economics deals with how people react to changes in benefits, and normative economics deals with how people react to changes in costs. 
B) Positive economic statements are testable, but normative statements are not. 
C) Positive economic statements involve value judgments while normative economics focuses on whether a policy will achieve its intended objectives. 
D) Positive economic statements focus on policy issues while normative economics focuses on economic theory.

Question 3

Some individuals or families can become completely saturated with a service such as television. This suggests that

Accepted Answer

A) wants are limited 
B) desires for a single commodity can be satisfied but then the focus will switch to other goods and services 
C) a highly productive economy may someday be able to satisfy all human desires 
D) resources are not truly fixed in supply as we generally assume 
E) scarcity does not exist

Question 4

"The money and resources currently being devoted to the War on Terrorism reduces the quantity of other goods that we are able to supply." This statement most clearly illustrates which of the following?

Accepted Answer

A) the fallacy of composition. 
B) the idea that association is not causation. 
C) the concept of opportunity cost. 
D) the difference between positive and normative economics.

Question 5

When a society cannot produce all the goods and services people wish to have, it is said that the economy is experiencing

Accepted Answer

A) scarcity. 
B) shortages. 
C) inefficiencies. 
D) inequities.

Question 6

Your friend notices that U.S. auto production and U.S. population growth have moved together over several decades. He reasons that one way to slow population growth is for the government to order the auto makers to cut back on production. You gently point out to him that he

Accepted Answer

A) is correct only when the economy is in a recession 
B) has mistakenly inferred causation from observed correlation 
C) has ignored secondary effects 
D) has committed the fallacy of composition 
E) is correct only when the United States enjoys economic growth

Question 7

When economists use the term ceteris paribus, they indicate

Accepted Answer

A) the causal 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 factors are assumed to be constant. 
D) their conclusions are based on normative economics rather than positive economic analysis.

Question 8

Your professor loves her work, teaching economics. She has been offered other positions in the corporate world that would increase her income by 25 percent, but she has decided to continue working as a professor. Her decision would not change unless

Accepted Answer

A) the marginal cost of teaching increased. 
B) the marginal benefit of teaching increased. 
C) the marginal cost of teaching decreased. 
D) the marginal benefit of a corporate job decreased.

Question 9

Household production is more likely to occur when

Accepted Answer

A) it requires many specialized resources 
B) technology makes it more costly than market production 
C) tax avoidance is undesirable 
D) less control over the final product is desirable 
E) the opportunity cost of household work is relatively small

Question 10

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 11

Which one of the following statements most accurately indicates the basic motivation for behavior?

Accepted Answer

A) Individuals are motivated primarily by selfish desires; thus, personal costs and benefits influence their actions. 
B) Individuals are motivated primarily by humanitarian concerns; therefore, personal costs and benefits exert little influence on most of their actions. 
C) Individuals are motivated by a variety of forces; however, changes in personal benefits and costs influence the choices of both selfish and humanitarian individuals. 
D) Individuals are motivated by a variety of forces; however, changes in personal benefits and costs affect behavior only when individuals are motivated by selfishness.

Question 12

The opportunity cost of going to college is

Accepted Answer

A) the total spent on food, clothing, books, transportation, tuition, lodging, and other expenses. 
B) the value of the best opportunity a student gives up to attend college. 
C) zero for students who are fortunate enough to have all of their college expenses paid by someone else. 
D) zero, since a college education will allow a student to earn a larger income after graduation.

Question 13

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 14

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 15

The statement, "John buys more of good X as his income increases, ceteris paribus," means

Accepted Answer

A) John's income is being held constant. 
B) John's purchases of good X are being held constant. 
C) John's income and purchases of this good are being held constant. 
D) John's income is the only influence that is being allowed to change. 
E) the price of this good is being allowed to change.

Question 16

A fact based on observable phenomenon that is not influenced by differences in personal opinion is called

Accepted Answer

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

Question 17

When an economist states a good is scarce, she means that

Accepted Answer

A) production cannot expand the availability of the good. 
B) it is rare. 
C) desire for the good exceeds the amount that is freely available from nature. 
D) people would want to purchase more of the good at any price.

Question 18

Which of the following is a positive economic statement?

Accepted Answer

A) Reducing unemployment should be the highest priority of the federal government. 
B) An increase in unemployment benefits will increase the unemployment rate. 
C) Corporations should be prohibited from laying off workers during a recession. 
D) Congress should increase unemployment benefits during a recession.

Question 19

When economists say that people choose rationally, this means

Accepted Answer

A) they gather all relevant information before making their purchases 
B) once a pattern of behavior has been established, people tend to become set in their ways 
C) people respond in predictable ways to changes in costs and benefits 
D) people rarely make errors when they are permitted to make transactions 
E) once made, decisions are never reversed

Question 20

If economics is correct in its assumption that people are rational, why then would anyone choose to smoke cigarettes?

Accepted Answer

The answer of If economics is correct in its assumption...

Exam 1: The Economic Approach