Econ chapters 1-3

Economics is the study of how people make ______________________________ to satisfy their __________________.

. choices; wants

Microeconomics deals with (individual units, the whole economy

. individual units

Economic models are (simplified, realistic) representations of the real world.

. simplified

T F 1. Most individuals' needs exceed their wants.

False

T F 3. For most activities no opportunity cost exists.

False

T F 4. If a production possibilities curve is linear, the opportunity cost of producing additional units of a good rises.

False

(Macroeconomics, Microeconomics) studies the causes and effects of inflation.

Macroeconomics

From 2:00 to 4:00 on a Thursday afternoon, Mr. Stapleton, a fast-food worker who earns the minimum wage, waits while his daughter is examined at a pediatrician's office. Ms. Rodriguez, a successful marketing consultant who normally charges a fee of $100 per hour and who recently has turned down several potential clients, spends exactly the same amount of time waiting for her own daughter to be examined. The pediatrician charges Mr. Stapleton $100 for the office visit. Ms. Rodriguez also pays the pediatrician $100. We may conclude that during this two-hour period, a. both parents incurred identical child-raising costs. b. from an economic standpoint, it was irrational for Ms. Rodriguez to wait while the pediatrician examined her child. c. Ms. Rodriguez incurred a higher child-raising cost, because she otherwise could have been earning consulting fees during this time. d. Mr. Stapleton incurred a higher child-raising cost, because he otherwise could have been looking for a higher-paying job during this time.

Ms. Rodriguez incurred a higher child-raising cost, because she otherwise could have been earning consulting fees during this time.

T F 2. Because resources are scarce, the goods that they produce are also scarce.

True

If the price of milk rises, other things being constant, a. buyers will drink less milk. b. buyers will substitute milk for other beverages. c. the demand for milk will fall. d. the demand for cola drinks will fall.

a. buyers will drink less milk.

According to the rationality assumption, people a. do not intentionally make decisions that would leave them worse off. b. do not ever take into account the interests or well-being of others. c. can never consider each of the most relevant alternatives. d. use rules of thumb to make choices.

a. do not intentionally make decisions that would leave them worse off

When a nation expands its capital stock, it is usually true that a. it must forego output of some consumer goods in the present. b. the human capital stock must decline. c. fewer consumer goods will be available in the future. d. no opportunity cost exists for doing so.

a. it must forego output of some consumer goods in the present.

As is true of a road map showing how a traveler can move about a geographic region, a model of economic behavior typically: a. omits trivial details and emphasizes factors most relevant to the problem under consideration. b. makes no simplifying assumptions, so that every feature of a problem is taken into account. c. must be rejected if it leaves out some information, even if it makes correct predictions. d. includes each and every element of a problem confronting an individual or group.

a. omits trivial details and emphasizes factors most relevant to the problem under consideration.

When a demand curve is derived, a. quantity is in constant-quality units. b. the price of the good is held constant. c. money income changes. d. consumer tastes change.

a. quantity is in constant-quality units.

If the price of good A rises and the demand for good B rises, then A and B are a. substitutes. b. complements. c. not related goods. d. not scarce goods.

a. substitutes.

Which one of the following areas of study is concerned, primarily, with microeconomics? a. the personal computer industry b. inflation c. the national unemployment rate d. national income determination

a. the personal computer industry

When the production possibilities curve is bowed outward, it is because a. the relative cost of producing a good rises. b. of the law of decreasing relative cost. c. all resources are equally suited to the production of any good. d. All of the above.

a. the relative cost of producing a good rises.

The rationality assumption is that individuals (believe, act as if ) they are rational

act as if

. Economists maintain that incentives (are, are not) important to decision making

are

Which one of the following is a positive economic statement? a. Full employment policies should be pursued. b. If minimum wage rates rise, then unemployment will rise. c. We should take from the rich and give to the poor. d. The government should help the homeless.

b. If minimum wage rates rise, then unemployment will rise

Which statement concerning a production possibilities curve is not true? a. A trade-off exists along such a curve. b. It is usually linear. c. Points inside it indicate inefficiency. d. A point outside it is currently impossible to attain.

b. It is usually linear.

Ms. Boulware is the best lawyer and the best secretary in town. a. She has a comparative advantage in both jobs. b. She has an absolute advantage in both jobs. c. She has a comparative advantage in being a secretary. d. All of the above.

b. She has an absolute advantage in both jobs

Which one of the following will lead to a rise in supply? a. an increase in the price of the good in question. b. a technological improvement in the production of the good in question. c. an increase in the price of labor used to produce the good in question. d. All of the above.

b. a technological improvement in the production of the good in question.

Which one of the following probably will not lead to a fall in the demand for hamburgers? a. a decrease in income, if hamburgers are a normal good. b. an expectation that the price of hamburgers will rise in the future. c. a decrease in the price of hot dogs. d. a change in tastes away from hamburgers.

b. an expectation that the price of hamburgers will rise in the future.

5. Economists maintain that Ms. Chung will usually make decisions that promote the interests of a. her colleagues at work. b. herself. c. her class. d. her race.

b. herself.

Economics a. is a natural science. b. is concerned with how people respond to incentives. c. is unconcerned with value judgments. d. deals with assumptions and therefore is unrealistic.

b. is concerned with how people respond to incentives

A demand schedule a. relates price to quantity supplied. b. when graphed, is a demand curve. c. cannot change. d. shows a direct relationship between price and quantity demanded.

b. when graphed, is a demand curve.

Economists define self-interest (narrowly, broadly).

broadly

Which one of the following is a normative economic statement? a. If price rises, people will buy less. b. If price rises, people will buy more. c. If price rises, the poor will be injured; therefore, price should not be permitted to rise. d. If price rises, people will buy less; therefore, we ought to observe that quantity demanded falls.

c. If price rises, the poor will be injured; therefore, price should not be permitted to rise.

Which one of the following will not occur if the price of widescreen digital televisions falls, other things being constant? a. The demand for digital cable services will increase. b. People will substitute widescreen digital televisions for standard televisions. c. The demand for standard televisions will rise. d. The quantity of widescreen digital televisions demanded will increase.

c. The demand for standard televisions will rise.

Economics is a. a natural science. b. nonscientific. c. a social science. d. usually studied through lab experiments.

c. a social science.

Normative economic statements a. are testable hypotheses. b. are value-free. c. are subjective, value judgments. d. can be scientifically established.

c. are subjective, value judgments

Which one of the following is not considered to be "land?" a. bodies of water b. fertility of soil c. capital d. climate

c. capital

Macroeconomic analysis deals with a. the personal computer industry. b. how individuals respond to an increase in the price of gasoline. c. inflation. d. how a change in the price of energy affects a family.

c. inflation.

An economic model is justifiably criticized if a. its assumptions are not realistic. b. it cannot be tested in a controlled, laboratory experiment. c. it fails to predict. d. All of the above.

c. it fails to predict.

If a surplus exists at some price, then a. sellers have an incentive to raise the price. b. buyers have an incentive to offer a higher price. c. sellers cannot sell all they wish to at that price. d. seller inventories are falling.

c. sellers cannot sell all they wish to at that price.

If the demand for satellite Internet access services increases, with a given supply, then a. the supply of satellite Internet access services will rise because price rises. b. the equilibrium price of satellite Internet access services will fall, and the equilibrium quantity will rise. c. the equilibrium quantity and the equilibrium price of satellite Internet access services will rise. d. the quantity supplied of satellite Internet access services will decrease.

c. the equilibrium quantity and the equilibrium price of satellite Internet access services will rise.

If the supply of gasoline rises, with a given demand, then a. the relative price of gasoline will rise. b. the equilibrium price of gasoline will rise. c. the equilibrium quantity of gasoline will increase. d. the equilibrium price and equilibrium quantity of gasoline will increase.

c. the equilibrium quantity of gasoline will increase.

. Because it is impossible to have all that we want, people are forced to make __________________.

choices

Because of scarcity a. people are forced to make choices. b. opportunity costs exist. c. people face trade-offs. d. All of the above.

d. All of the above.

Economic models a. use unrealistic assumptions. b. are seldom tested in laboratories. c. are concerned with how people behave, not with how they think. d. All of the above.

d. All of the above.

If a shortage exists at some price, then a. sellers can sell all they desire to sell at that price. b. sellers have an incentive to raise the price. c. buyers cannot get all they want at that price. d. All of the above.

d. All of the above.

Wants include desires for a. material possessions. b. love. c. power. d. All of the above.

d. All of the above.

When nations and individuals specialize, a. overall living standards rise. b. trade and exchange increase. c. people become more vulnerable to changes in tastes and technology. d. All of the above.

d. All of the above.

Which one of the following is a normative economic statement? a. When more death-penalty sentences are reduced to life imprisonment, the homicide rate increases. b. An increase in the rate of executions is associated with a fall in homicides. c. Improved prison conditions increase the disincentive effects of capital punishment. d. Capital punishment is a morally wrong way to try to deter homicides.

d. Capital punishment is a morally wrong way to try to deter homicides.

Consider a city that establishes a law prohibiting the use of lawn sprinklers and limiting showers to 4 minutes. Which one of the following statements is probably true in this city? a. A surplus of water exists. b. The price of water is too high. c. A shortage of water exists regardless of how high its price got. d. The price of water is below the equilibrium price.

d. The price of water is below the equilibrium price.

T F 1. A demand schedule relates quantity demanded to quantity supplied, other things being constant.

false

T F 3. A graphical representation of a demand curve is called a demand schedule.

false

T F 4. An increase in price leads to a leftward shift in demand and a rightward shift in supply.

false

T F 5. An increase in the price of MP3 players causes a rise in the supply of MP3 players.

false

T F 5. At any given moment in time, it is impossible for an economy to be inside its production possibilities curve.

false

T F 7. People have little incentive to specialize in jobs for which they have a comparative advantage.

false

T F 8. If the price of tennis racquets rises, the demand for tennis balls will tend to rise also

false

Economists maintain that a member of a group usually attempts to make decisions that are in (her own, the group's) interest.

her own

. Economists take the (individual, group) as the unit of analysis.

individual

A nation's unemployment level is analyzed in (microeconomics, macroeconomics).

macroeconomics

Behavioral economics is an approach that assumes that individuals are (fully, nearly) rational.

nearly

The ceteris paribus assumption permits us to consider (one thing at a time, everything at once).

one thing at a time

. Economics is a (natural, social) science.

social

Ceteris paribus, payment of bonuses to physicians for pushing preventive health care gives physicians an incentive to (treat only actual illnesses, suggest treatments to deter illnesses).

suggest treatments to deter illnesses

T F 10. Evidence indicates that developing new technologies, specializing, and engaging in trade helped Homo sapiens win out over Neanderthals

true

T F 10. If price is below the equilibrium price, a shortage exists.

true

T F 2. A change in the quantity of cigarettes demanded results from a change in the price of cigarettes.

true

T F 6. The opportunity cost to a motorist of the time that she is stuck in traffic is the next-highest value of the equivalent amount of time.

true

T F 7. As producers increase output in the short run, the cost of additional units of output tends to rise.

true

T F 8. Economic growth shifts the production possibilities curve outward.

true

T F 9. If the price of butter rises, the demand for margarine will rise.

true