Question 1

What does the term "ceteris paribus" mean when used by an economist?

Accepted Answer

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

Question 2

A theory asserts that consumers will purchase less of a good at higher prices than they will at lower prices.However,when the average price of cars increased throughout the 1990s,more cars were purchased.Which of the following explanations of the apparent conflict between theory and data is most accurate?

Accepted Answer

A) The price and quantity data gathered by researchers was clearly measured incorrectly. 
B) It is likely that variables other than the price and quantity of cars demanded were changing. 
C) The ceteris paribus assumption is valid. 
D) The theory must be invalid.

Question 3

"The president of the world's biggest polluter (the United States)needs to do more than propose well-intentioned but insufficient measures that amount to using a squirt gun to quell a raging fire." Is this a positive or a normative economic statement? Explain your answer.

Accepted Answer

The answer of "The president of the world's biggest polluter...

Question 4

Pollution damages the environment we live in.When would an economist advise that we reduce air pollution?

Accepted Answer

A) when air pollution is in excess of the levels experienced in the 1950s, when air was much cleaner near big cities 
B) when the total benefit from air pollution reduction just equals the total cost of pollution reduction 
C) when air pollution levels are above near-zero levels 
D) when the marginal benefit from air pollution reduction outweighs the marginal cost of achieving the reduction

Question 5

Normative analysis focuses on statements that can be tested against real-world data.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following best illustrates the fallacy of composition?

Accepted Answer

A) A great many people have been immunized against polio because it can be such a devastating disease. As a result, I probably do not personally need to be immunized against polio. 
B) I hate driving to work when the traffic is so heavy, so I decide to leave 30 minutes earlier than in the past. If everyone were to leave 30 minutes earlier for work, we'd all get to work faster. 
C) Whenever I attend a hockey game at the local arena, the home team wins. Therefore, if I attend all of the team's local games, they will achieve a perfect winning record at home. 
D) The parking at York University is in short supply on the main campus. It would be better for more people to ride the bus to school.

Question 7

Which of the following is a statement of positive economics?

Accepted Answer

A) An increase in tax rates will reduce unemployment. 
B) We should increase pension payments to the elderly. 
C) Teenage unemployment should be reduced. 
D) New tax laws are needed to help the poor.

Question 8

What is the basic difference between macroeconomics and microeconomics?

Accepted Answer

A) Microeconomics is concerned with the trees (individual markets), while macroeconomics is concerned with the forest (aggregate markets). 
B) Macroeconomics is concerned with positive economics, while microeconomics is concerned with normative economics. 
C) Macroeconomics is concerned with policy decisions, while microeconomics applies only to theory. 
D) Microeconomics looks at the forest (aggregate markets), while macroeconomics is concerned with the trees (individual markets).

Question 9

If rain dancing is correlated with rain,does that necessarily mean rain dancing causes rain?

Accepted Answer

A) No. This is an example of the fallacy of composition. 
B) No. Two variables may be correlated without one necessarily causing the other. 
C) Yes. This is an example of a failure to properly employ the ceteris paribus assumption. 
D) Yes. If it rains after individuals have engaged in rain dancing, then there is certainly causation at work.

Question 10

Thelma,with no money in her bank account,estimates that there is a 25 percent chance that she will get caught stealing a Porsche.According to an economist,under what circumstances might it be rational for Thelma to steal the Porsche?

Accepted Answer

A) if the expected marginal cost exceeds the retail value of the Porsche 
B) if her expected marginal benefit exceeds the amount of money in her bank account 
C) if the expected marginal costs outweigh the expected marginal benefits from doing so 
D) if the expected marginal benefits outweigh the expected marginal costs from doing so

Question 11

How would an economist respond to the following statement: "Wanting more goods makes us greedy"?

Accepted Answer

The answer of How would an economist respond to the...

Question 12

Many people have heard that the US stock market rises when a team from the National Football Conference (NFC)wins the Super Bowl,and falls when a team from the American Football Conference (AFC)is victorious.If you conclude that there is a causal relationship between the outcome of the Super Bowl and stock prices,you probably are making what mistake?

Accepted Answer

A) You are committing the fallacy of composition. 
B) You are violating the ceteris paribus assumption. 
C) You are confusing correlation with causation. 
D) You are confusing the direction of causality; stock prices determine which team wins the Super Bowl.

Question 13

Why do people specialize?

Accepted Answer

A) so that society becomes wealthier while not using their resources 
B) so that people avoid having to trade 
C) so that individuals can increase their opportunity cost for an activity 
D) so that individuals make the best use of resources by devoting themselves to one primary productive activity

Question 14

One topic that microeconomics explores is how prices are determined in individual markets,while macroeconomics is concerned with issues such as the economy's overall rate of inflation,economic growth and unemployment.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following is the opportunity cost of attending university NOT likely to include?

Accepted Answer

A) the cost of required textbooks 
B) tuition fees 
C) the income you forgo in order to attend classes 
D) the cost of groceries during the school term

Question 16

What is the fallacy of composition?

Accepted Answer

A) the idea that correlation need not imply causation 
B) the erroneous view that an economic activity can sometimes exceed the sum of its components 
C) the view that the aggregation of economic activity will necessarily lead to an outcome that is different from the outcome generated by each individual in the group 
D) the erroneous view that what is true for the individual will also be true for the group

Question 17

The opportunity cost of attending college is likely higher for a high school graduate who leaves a job grilling hamburgers than it is for a high school dropout who leaves a job working as a computer network administrator.

Accepted Answer

A) True 
 B)False

Question 18

"The government should levy higher taxes on the rich and use the additional revenues to provide better housing for the poor." What is this statement an illustration of?

Accepted Answer

A) the fallacy of composition 
B) a normative economic statement 
C) the basic principle of economics 
D) a positive economic statement

Question 19

Which of the following statements best describes the study of scarcity?

Accepted Answer

A) using limited resources in order to best satisfy our unlimited desires 
B) using limited resources in order to promote full employment and price stability 
C) using unlimited resources in order to promote full employment and price stability 
D) using unlimited resources in order to best satisfy our unlimited desires

Question 20

Which of the following statements best describes scarcity?

Accepted Answer

A) There will always be families living below the poverty line. 
B) Human wants are limited. 
C) Limited resources cannot satisfy all of our unlimited human wants. 
D) Resources are unlimited.

Exam 1: The Role and Method of Economics

What does the term "ceteris paribus" mean when used by an economist?

"The president of the world's biggest polluter (the United States)needs to do more than propose well-intentioned but insufficient measures that amount to using a squirt gun to quell a raging fire." Is this a positive or a normative economic statement? Explain your answer.

Pollution damages the environment we live in.When would an economist advise that we reduce air pollution?

Normative analysis focuses on statements that can be tested against real-world data.

Which of the following best illustrates the fallacy of composition?

Which of the following is a statement of positive economics?

What is the basic difference between macroeconomics and microeconomics?

If rain dancing is correlated with rain,does that necessarily mean rain dancing causes rain?

Thelma,with no money in her bank account,estimates that there is a 25 percent chance that she will get caught stealing a Porsche.According to an economist,under what circumstances might it be rational for Thelma to steal the Porsche?

How would an economist respond to the following statement: "Wanting more goods makes us greedy"?

Why do people specialize?

One topic that microeconomics explores is how prices are determined in individual markets,while macroeconomics is concerned with issues such as the economy's overall rate of inflation,economic growth and unemployment.

Which of the following is the opportunity cost of attending university NOT likely to include?

What is the fallacy of composition?

The opportunity cost of attending college is likely higher for a high school graduate who leaves a job grilling hamburgers than it is for a high school dropout who leaves a job working as a computer network administrator.

"The government should levy higher taxes on the rich and use the additional revenues to provide better housing for the poor." What is this statement an illustration of?

Which of the following statements best describes the study of scarcity?

Which of the following statements best describes scarcity?