ECON 2301 Exam 1

"Mandating longer sentences for any criminal's third arrest will lead to a reduction in crime. Less crime will reduce the number of police officers cities will hire." This quotation: Contains positive statements only.

...

A good economic theory: Relies on simplifying assumptions in order to explain economic behavior.

...

A market economy depends on market mechanisms to: Determine the most efficient way of using resources.

...

An economic hypothesis is tested: By comparing the hypothesis's predictions to real-world data.

...

An economy's resources: Consist of land, labor, capital, and entrepreneurial skills.

...

Bill says: "The imposition of a tax on tequila will increase its price." Bob says: "Taxes should be imposed on tequila because college students drink too much." Bill's statement is positive, and Bob's statement is normative.

...

In a market economy, the amount of a good that is produced is primarily decided by the interaction of: Buyers and sellers.

...

Negative incentives: Decrease benefits or increase costs.

...

The fallacy of composition is: The erroneous view that what is true for the individual will also be true for the group.

...

Your mother tells you, "Watching ten hours of TV per day will make you stupid." This is a positive statement because: It is a proposition that can be tested.

...

If we know someone pays all their taxes and gives money to charity, we know that

E.only that they pay their taxes and give money to charity

Every time an individual decides to try out new equipment, or finds better ways to manage money, he or she is exhibiting traits of:

Entrepreneurship

The problem of scarcity:

Exists because resources are limited relative to wants.

A theory can best be defined as:

a deliberate simplification of factual relationships that attempts to explain and predict how those relationships work.

An example of a capital resource is: stock in a computer software company. the funds in a CD account at a bank. a bond issued by a company selling electric generators. a dump truck. an employee of a moving company.

a dump truck.

Pollution damages the environment we live in. An economist would advise that we reduce air pollution:

as long as the marginal benefit from air pollution reduction outweighs the marginal cost of achieving the reduction.

If people are self-interested,

as their preferences for leisure time increase, they are likely to work less. D. as the wages they are offered increase, they are likely to work more. E. both c. and d. are true

Economics is different from a "hard" science like physics because:

economists cannot easily control all the variables that might influence human behavior.

Economic resources are also known as:

factors of production.

Despite the warning on a package of cigarettes about the potential health hazards of smoking, a man lights up a cigarette. An economist would conclude that:

in the man's judgment, the expected marginal benefit of smoking the cigarette outweighs the expected marginal cost.

Specialization is a way for:

individuals to make the best use of resources by devoting themselves to one primary productive activity.

Macroeconomic topics do not usually include:

the profit maximizing decisions of an individual manufacturer.

Entrepreneurship is:

the resource that organizes the other factors of production in order to produce goods and/or services.

Economists believe that in regards to criminal behavior:

those choosing to commit criminal acts weigh the expected marginal benefits versus the expected marginal costs.

A market economy without any ethics would have:

A.no value.

Which of the following statements is most consistent with the rule of rational choice? A."The Environmental Protection Agency should strive to eliminate virtually all air and water pollution." B."When evaluating new prescription drugs, the Food and Drug Administration should weigh each drug's potential health benefits against the potential health risks posed by known side effects." C."Police forces should be enlarged until virtually all crime is eliminated." D."Manufacturers of automobiles should seek to make cars safer, no matter the costs involved."

B."When evaluating new prescription drugs, the Food and Drug Administration should weigh each drug's potential health benefits against the potential health risks posed by known side effects."

Which of the following policies would be most effective in promoting monthly water conservation? A.A $100 flat fee for any household that uses over 1500 gallons B.A per gallon fee that escalates from $1.00 to $2.00 per 25 gallons once household consumption exceeds 1,000 gallons C.A $125 fee for all households in addition to a $0.50 per gallon fee for all consumption D.A $200 fee for all households with zero charge per gallon of consumption E.A $50 fee for all households with zero charge per gallon of consumption

B.A per gallon fee that escalates from $1.00 to $2.00 per 25 gallons once household consumption exceeds 1,000 gallons

Which of the following is true? A.An advanced market economy would tend to use both labor intensive and capital intensive production methods. B.An economy in which labor is relatively scarce would tend to use capital intensive production methods. C.An increase in the availability of labor relative to capital in an economy would tend to increase how labor intensive the production processes in that economy would be. D.All of the above are true. E.Both b. and c. are true.

B.An economy in which labor is relatively scarce would tend to use capital intensive production methods. C.An increase in the availability of labor relative to capital in an economy would tend to increase how labor intensive the production processes in that economy would be. (Both b. and c. are true)

Which of the following would break a positive ethic? A.Having lustful daydreams about your best friend's girlfriend (or boyfriend) B.Driving two miles per hour over the speed limit C.Cursing your instructor when you're alone at home at 3 AM answering these stupid questions D.Spending the day sleeping & watching TV instead of studying for your classes E.None of the above

B.Driving two miles per hour over the speed limit

The marginal benefit to you of drinking bottled iced tea is $1.50. The price of a bottle of iced tea is $1.25.

B.If you purchase a bottle of iced tea, the net gain to you from doing so is 25 cents.

The expected marginal benefit to you from purchasing a new sport utility vehicle is $20,000. The price of the new sport utility vehicle is $22,000.

B.You will not purchase the new sport utility vehicle at this time if you are acting rationally.

Which of the following is most likely a topic of discussion in a microeconomics course? A.a decrease in the share of national income paid to the government in taxes B.an increase in the price of lumber used to construct houses C.an increase in the rate of inflation D.an increase in the number of jobless individuals filing unemployment claims E.the size of the national debt

B.an increase in the price of lumber used to construct houses

In free market economies,

B.most market exchanges will result in all parties winning.

Which of the following is true with regard to production possibilities curves? A.Underutilized resources or those not being put to their best uses are illustrated by output combinations along the production possibilities curve. B.Economic growth means a movement along an economy's production possibilities curve in the direction of producing more consumer goods. C.Investing in capital goods will increase the future production capacity of an economy, so an economy that invests more now (consumes less now) will be able to produce, and therefore consume, more in the future. D.From a point inside the production possibilities curve, in order to get more of one thing, an economy must give up something else.

C.Investing in capital goods will increase the future production capacity of an economy, so an economy that invests more now (consumes less now) will be able to produce, and therefore consume, more in the future.

Which of the following people are more likely to break ethical rules A.Someone who is old B.Someone who is rich C.Someone who is ignorant D.Someone who is very well educated E.Someone who is poor

C.Someone who is ignorant

Which of the following is most likely an example of correlation but not an example of causation? A. In the U.S., more pizza is consumed on Super Bowl Sunday than any other day of the year. B.The cost of advertising during the first half of the Super Bowl is greater than the cost of advertising in the second half. C.Usually, if I eat a chili dog and drink a beer before a game, my teams wins. D.Generally speaking winning football teams tend to average more rushing yards than losing football teams.

C.Usually, if I eat a chili dog and drink a beer before a game, my teams wins.

In a market economy how do we determine who will get the goods and services that have been produced?

C.Whoever can afford them

Effective free market ethical systems must provide for all of the following EXCEPT: A.Clearly defined rules and regulations. B.meaningful punishments for rule breakers. C.a clearly defined moral foundation. adequate market oversight and policing. E.enough freedom for creativity and competition.

C.a clearly defined moral foundation.

The completely private ownership of property and the exclusive use of the market system to direct and coordinate economic activity are most characteristic of:

C.a market economy.

An individual has a comparative advantage in production if that individual: A.can produce at the highest opportunity cost. B.is more self-sufficient than others. C.can produce at the lowest opportunity cost. D.both a. and b. E.both b. and c.

C.can produce at the lowest opportunity cost.

In order for a market's ethics to be effective, all of the following must occur, EXCEPT A.the ethics must be clearly defined. B.there must be clear penalties for ethics violators. C.everyone must agree to take part in the market. D.there must be enough police or inspectors to find most violations. E.police or inspectors must be unbiased.

C.everyone must agree to take part in the market.

To obtain the greatest gains from trade, a country should specialize in and ____ those goods for which it has a comparative advantage and ____ those goods for which other countries have a comparative advantage.

C.export; import

You lose $20 from your wallet and decide to miss an hour from work in order to search for it. To an economist, this means that:

C.in your estimation the expected value of searching for the lost $20 for an hour exceeds your hourly wage.

Lance's boss offers him twice his usual wage rate to work tonight instead of taking his girlfriend on a date. This offer will likely:

C.increase the opportunity cost of going on the date.

Which of the following is correct? "Theory" and "hypothesis" are interchangeable terms meaning the same thing. A hypothesis may result from a tested and confirmed theory. A theory may result from a tested and confirmed hypothesis. A hypothesis is a theory whose formulation relies on mathematics.

A theory may result from a tested and confirmed hypothesis.

In free markets which allows a high level of unethical corruption:

A.Suppliers may be forced to be corrupt or to leave the market.

Which of the following does not specify positive ethical rules? A.Webster's Dictionary B.Robert's Rules of Order C.Hoyle's Rules of Games D.The San Marcos Land Development Code E.The Amy Vanderbilt Complete Book of Etiquette

A.Webster's Dictionary

Marginal thinking is best demonstrated by:

A.choosing to spend one more hour studying economics because you think the improvement in your score on the next quiz will be worth the sacrifice of time.

The fact that some resources and skills cannot be easily adapted from their current uses to alternative uses is the basic reason for the law of

A.increasing opportunity cost.

Which of the following is true? A. People specialize by concentrating their energies on the activity to which they are best suited, because they incur lower opportunity costs as a result. B. The primary reason people pursue their comparative advantage is their self-interest. C. One advantage of specialization is that workers acquire greater skill from repetition. D. If a person, a region, or a country can produce a good or service at a lower opportunity cost than others, we say that they have a comparative advantage in the production of that good or service. E. All of the above are true.

All of the above

Which of the following is true? A. Voluntary trades give both parties more in value than what they give up. B. Without the ability to trade, people would not tend to specialize in those areas where they had a comparative advantage. C. People can gain by specializing in the production of the good in which they have a comparative advantage. D. Voluntary trade directly increases wealth by making both parties better off, and it is the prospect of wealth-increasing exchange that leads to productive specialization. E. All of the above are true.

All of the above are true.

Economics is concerned with: the choices people must make because resources are scarce. human decision makers and the factors that influence their choices. the allocation of limited resources to satisfy virtually unlimited desires. all of the answers are correct

All of the answers are correct

Which of the following is an example of market failure? Overuse of highways that leads to traffic congestion Reduced levels of vaccinations which increase illness and disease Substantial foreclosures caused by sub-prime lending All of the answers are examples of market failure.

All of the answers are examples of market failure.

Which of the following is not an example of a resource? a forest a river a John Deere tractor the chef at the city's best café all of the answers are resources

All of the answers are resources

The term "ceteris paribus" means that:

All variables except those specified are constant.

More efficient positive market ethics will generally help improve all of the following challenges EXCEPT: A.positive externalities of a market B.negative externalities of a market C.moral externalities of a market D.consumer surplus of a market E.producer surplus of a market

C.moral externalities of a market

Ethical rules based on morals or concepts of fairness are called

C.normative ethics.

When a person possesses a comparative advantage in the production of one good or service, it: A.means that the person's opportunity cost is higher than for that of other goods. B.discourages specialization. C.promotes greater self-sufficiency. D.permits gains from trade to be realized due to a more efficient use of resources.

C.promotes greater self-sufficiency.

Some political leaders have proposed that parents be granted a substantially larger reduction in their annual personal income taxes for each child that they parent. The economic way of thinking indicates that legislation of this type would:

C.reduce the after-tax cost of raising children and therefore increase the birth rate.

Ethics A.is a branch of philosophy. B.are moral rules or standards governing human conduct. C.are rules or standards governing human conduct, but not necessarily moral rules. D.the moral principles of an individual person. E.can be defined in any of the ways above.

E.can be defined in any of the ways above.

Which of the following statements is TRUE? A.The U.S. government specifies all business ethics adopted by American corporations. B.Ethics decisions are for philosophers, churches and individuals, not government. C.The U.S. government insists that foreign trading partners adopt systems of business ethics identical to ours. D.The U.S. government defines and enforces business ethics in order to protect the economy. E.The U.S. government does not define or enforce any ethical rules.

D.The U.S. government defines and enforces business ethics in order to protect the economy.

Which of the following are NOT very important to maintaining effective market ethics? A.A willingness by the vast majority of market participants to obey the ethics and report violators B.The number of inspectors or police C.The severity of punishments for cheating D.Whether people understand the reasons for the rules or regulations E.Whether the likely penalties for cheating are greater than the rewards

D.Whether people understand the reasons for the rules or regulations

A downward sloping straight-line production possibilities curve implies:

D.a constant opportunity cost.

A student has a chance to see Green Day in concert. The student also has a major economics exam in the morning. If the student goes to the concert: A.she may receive a lower grade on the economics exam. B.the opportunity cost of the concert is the value of the time spent studying. C.the decision involves a trade-off. D.all of the above are correct.

D.all of the above are correct.

Which of the following is an example of a capital resource? A.redwood trees B.unskilled labor C.stocks and bonds D.an oil rig

D.an oil rig

Marginal analysis involves:

D.comparing the additional benefit from an action to the additional cost.

The function of an entrepreneur is to: bear the business risks. B.organize the other factors of production. C.innovate. D.do all of the tasks listed.

D.do all of the tasks listed.

Gallons of milk at a local grocery store are priced at one for $4.00, or two for $6.00. The marginal cost of buying a second gallon of milk:

D.equals $2.00.

Cost-benefit analysis can determine the optimal amount of all the following EXCEPT A.regulations B.market inspectors C.severity of punishments D.fairness of rules E.inspections

D.fairness of rules

If a student enrolls in an additional course at the university, an economist would conclude that:

D.the expected marginal benefit of an additional course must exceed the expected marginal cost of the course.

Which of the following is a resource exchanged in the factor markets? A.land B.capital C.labor D.entrepreneurship E.All of the above are traded in the factor markets.

E.All of the above are traded in the factor markets.

Which of the following is true? A.By putting unemployed resources to work or by putting already employed resources to better uses, we could expand output in an economy. B.To generate increased economic growth, a society would produce fewer consumer goods and more capital goods in the present. C.If the production possibility curve is concave from below (that is, bowed outward from the origin), it reflects increasing opportunity costs of producing additional amounts of a good. D.Increases in a society's output do not make scarcity disappear. E.All of the above are true.

E.All of the above are true.

Ethics violators like embezzlers, frauds, tax cheats and bank robbers A.usually follow most rules and other ethics most of the time. B.not only injure individuals and companies, but also often hurt entire markets. C.often use rational cost-benefit analysis when deciding whether to cheat. D.may feel so ashamed and guilty of their crimes that they are driven to suicide. E.All of the above may be true of ethics violators.

E.All of the above may be true of ethics violators.

Which of the following would reflect self-interested behavior? A.A worker pursuing a higher paying job and better working conditions. B.A consumer seeking a higher level of satisfaction with her current income. C.Donating a cell phone to a woman's shelter. D.Mother Theresa using her Nobel Prize money to care for the poor. E.All of the answers would reflect self-interested behavior.

E.All of the answers would reflect self-interested behavior.

Which of the following are reasons why most owners of companies want their employees to act ethically? A.Because they care about the well-being of their customers B.To enhance productivity C.To maximize public good will toward the company D.To avoid large fines and expensive lawsuits E.All the above are reasons why.

E.All the above are reasons why.

Which of the following is true? A.In the product markets, firms are buyers and households are sellers. B.In the factor markets, firms are sellers and households are buyers. C.Firms receive money payments from households for labor, land, capital, and entrepreneurship. D.All of the above are true. E.None of the above is true.

E.None of the above is true.

Plagiarism is unethical because A.plagiarism might result in stealing profits from the original writer B.plagiarism can decrease the value of honest students' diplomas C.plagiarism can make it more difficult for instructors to assess the quality of students? writings D.plagiarism is a type of fraud E.all of the above are reasons

E.all of the above are reasons

Resources and goods are free to move across state lines. If Oregon producers choose to specialize in producing honey and California producers choose to specialize in growing almonds, then we could reasonable conclude that: A.California has a comparative advantage in producing almonds. B.Oregon has a comparative advantage in producing honey. C.the opportunity cost of growing almonds is lower in California than in Oregon. D.the opportunity cost of producing honey is lower in Oregon than in California. E.all of the above are true.

E.all of the above are true.

A free market lacking clear ethical rules, adequate oversight and meaningful punishments for rule breakers might suffer: A.decrease in market demand. B.decrease in market supply. C.decrease in equilibrium price. D.total market collapse. E.all of the above.

E.all of the above.

Which of the following best illustrates the fallacy of composition? If Mr. Smith had more money, he could buy more scarce goods; if the Adams family had more money, it could buy additional goods. If Ms. Spann had more money, she could buy more scarce goods; if the nation had more money, everyone could buy more scarce goods. If other variables are not held constant, economists may not observe the relationship between price and quantity demanded that is expected. Aggregate consumption may not behave in the same manner as the consumption of a particular individual.

If Ms. Spann had more money, she could buy more scarce goods; if the nation had more money, everyone could buy more scarce goods.

The branch of economics that focuses on outcomes in highly aggregated markets, such as the markets for labor or consumer products, is called:

Macroeconomics

Which of the following serve as the language of the market system? Monetary and fiscal policies Morals Market prices Governments

Market prices

Mike can wash a car in 5 minutes and wax a car in 15 minutes. Tony can wash a car in 10 minutes and wax a car in 20 minutes. Which of the following is true?

Mike can wash a car faster and has comparative advantage in washing cars.

Which of the following is true? Poverty could be eliminated but scarcity could not. Scarcity could be eliminated but poverty could not. Both scarcity and poverty could be eliminated. Neither scarcity nor poverty could be eliminated.

Poverty could be eliminated but scarcity could not.

Economic goods are:

Scarce products that are created from scarce resources.

Which of these conditions are most likely to motivate honest people to become corrupt? A.Reading that Bernie Madoff was sentenced to life in prison after stealing billions of dollars B.Having your boyfriend (or girlfriend) elope with someone who is rich C.Seeing a film of Bonnie and Clyde being shot by machine guns D.Seeing your boss and fellow workers get rich by lying and cheating E.None of the above; if you're an honest person, you'll stay that way

Seeing your boss and fellow workers get rich by lying and cheating

From an economists' perspective, which of the following observations is not true?

Self-interest is purely monetary in nature.

Which of the following is not an example of the use of the problem solving perspective provided by economics? An investor considers the tax consequences of selling stocks in order to buy bonds (which she believes offer a better return). A rancher recognizes that raising more cattle this year will damage his pasture and limit next year's herd size. The Fogelberg family takes its vacation at Lake Arrowhead this year simply because they have done so for as long as anyone can remember. An economics student considers the scarcity of available study time for studying the other subjects that she should be studying before deciding to study economics this evening.

The Fogelberg family takes its vacation at Lake Arrowhead this year simply because they have done so for as long as anyone can remember.

Which of the following is a statement of positive economics? The income tax reduces after-tax incomes of the rich. A reduction in tax rates makes the after-tax distribution of income fairer. Tax rates ought to be reduced so that people will work more. All of the above are statements of positive economics. None of the above is statements of positive economics.

The income tax reduces after-tax incomes of the rich.

Sergei makes millions of dollars a year playing hockey. Sergei is also the best tailor in his hometown in Russia. Why doesn't Sergei make his own clothes?

The opportunity cost to him of making his own clothes is very high because it takes away from his lucrative hockey career.

Which of the following represents a normative statement? A.A decrease in price leads to an increase in quantity demanded. B.The temperature outside is 90 degrees. C.The study of economics is more important than the study of history. D.People will buy less butter at $1.50 per pound then they will at $1.00 per pound. E.Normally, as an economy develops, the nation's birth rate tends to fall.

The study of economics is more important than the study of history.

Suppose there are two members of the U.S. Congress who were once economics professors. Why is it important to be able to distinguish their positive from their normative statements about economic policy?

Their positive statements help us understand the economy's response to a particular policy, while their normative statements reflect their value judgments.

Which of the following is true of resources? Their availability is unlimited. They are the inputs used to produce goods and services. Increasing the amount of resources available could eliminate scarcity. They are inputs used to produce goods and services and increasing the amount of resources available could eliminate scarcity.

They are the inputs used to produce goods and services.

"As a rational person, you would expect individuals to always avoid actions that are illegal."

This is a false statement because it is expected that individuals will consider the consequences of their actions and that some will choose to commit illegal acts anyway.

Tom is a castaway who washes up on a remote island. He can catch eight birds per day or catch ten fish per day. The natives on the island can catch ten birds per day or catch twenty fish per day. According to comparative advantage,

Tom should catch more birds and fish less, then trade birds for fish.

What according to an economist, forms the basis of rational human behavior under current and anticipated future circumstances?

Values and information

Which of the following is not true? A. Voluntary exchange is expected to be advantageous to both parties to the exchange. B. What one trader gains from a trade, the other must lose. If one party to a potential voluntary trade decides it does not advance his interests, he can veto the potential trade. D. The expectation of gain motivates people to engage in trade.

What one trader gains from a trade, the other must lose.

Which of the following lies primarily within the realm of microeconomics? an empirical analysis of the relationship between the growth of the money supply and the rate of inflation an economic model forecasting the impact of a tax increase on consumer spending and national output a study of supply and demand conditions in the market for orange juice a model forecasting the impact of a change in interest rates on the level of investment in the economy

a study of supply and demand conditions in the market for orange juice

A hypothesis is:

a testable proposition.

Which of the following is an example of an individual motivated by self-interest? a student volunteering at a soup kitchen an attorney providing free legal service to low income families a young person volunteering for the Peace Corps a man buying a new Camaro all of the answers are correct

all of the answers are correct

The real core of most economic problem is to:

allocate limited resources among competing uses.

The importance of the ceteris paribus assumption is that it:

allows one to analyze the relationship between two variables apart from the influence of other variables.

Opportunity cost includes

both monetary and non-monetary costs.

The opportunity cost of going to college includes:

both tuition and the value of the student's time.

Resources are used more efficiently if people, regions, and countries specialize in goods for which they have a(n):

comparative advantage in production.

A nation has a comparative advantage in the production of cars over another nation if:

it can produce cars at a lower opportunity cost than the other country.

When economists speak of markets, they primarily mean:

mechanisms that coordinate actions of buyers and sellers.

When economists refer to economic behavior, they mean that:

rational people try to anticipate the likely consequences of their actions.

Advantages of specialization do not include:

reduced interdependence.

Economists believe that individuals act as if they are motivated by self-interest and:

respond in predictable ways to changing circumstances.

Economic choices or tradeoffs are the result of:

scarcity

Economics is most importantly concerned with:

studying how we allocate scarce resources to satisfy unlimited wants.

Trent decides to spend an hour playing basketball rather than studying. His opportunity cost is:

the benefit to his grades from studying for an hour.

Market failure occurs when:

the economy fails to allocate resources efficiently on its own.

Human capital is:

the expertise or knowledge possessed by workers.

The opportunity cost of an item is:

the highest valued alternative you give up to get that item.

The opportunity cost of an action is equal to:

the highest valued opportunity that must be sacrificed in order to take the action.

Which of the following best defines rational behavior?

undertaking activities whenever the marginal benefit exceeds the marginal cost

Because of scarcity:

we must sacrifice valuable alternatives to obtain more goods and services we desire.