ECON Exam 1 (Chapters 1-4)

1) Which of the following statements is true of optimization? A) Optimization analysis only relates to the financial budget of an economic agent. B) Individuals who optimize do not consider costs when choosing the most feasible alternative. C) Economic agents can optimize only when they are able to perfectly estimate all future costs and benefits. D) Economic agents who optimize attempt to choose the best feasible option, given the information that they have.

D) Economic agents who optimize attempt to choose the best feasible option, given the information that they have.

39) Which of the following statements is true of economic reasoning? A) Economic reasoning hampers optimal decision making. B) Economic reasoning can only be used with normative choices. C) Economic reasoning implies that leisure time is free and costless. D) Economic reasoning helps people make the best use of scarce resources.

D) Economic reasoning helps people make the best use of scarce resources.

1) Which of the following statements is true of equilibrium? A) Economic agents have an incentive to divert from equilibrium. B) Each economic agent can reach equilibrium irrespective of the actions of others. C) In equilibrium, the opportunity cost of the choices made by each economic agent is zero. D) In equilibrium, all economic agents are choosing the best feasible option simultaneously.

D) In equilibrium, all economic agents are choosing the best feasible option simultaneously.

8) Which of the following statements is true of models? A) The predictions of a model are referred to as data. B) A model is formulated after developing a hypothesis. C) Models are always based on assumptions that are known to be true. D) It is more important for a model to be simple and useful than to be precisely accurate.

D) It is more important for a model to be simple and useful than to be precisely accurate.

26) ________ is the study of an economy as a whole. A) Microeconomics B) Cost-benefit analysis C) Behavioral economics D) Macroeconomics

D) Macroenomics

13) ________ economics prescribes what an individual or society ought to do. A) Positive B) Negative C) Behavioral D) Normative

D) Normative

2) Which of the following best describes scarce resources? A) Resources that most people cannot afford to buy B) Resources that can only be distributed efficiently by the government C) Resources for which the quantity demanded is the same for all economic agents D) Resources for which the quantity that people want exceeds the quantity that is freely available

D) Resources for which the quantity that people want exceeds the quantity that is freely available

3) A variable is a factor that ________. A) cannot be measured B) is not affected by changes in other factors C) is independent and cannot be determined D) takes different values at different points of time

D) takes different values at different points of time

25) The net benefit of a particular alternative equals ________. A) the benefits received from the alternative plus the costs incurred when choosing the alternative B) the benefits received from the alternative divided by the costs incurred when choosing the alternative C) the costs incurred when choosing the alternative divided by the benefits received from the alternative D) the benefits received from the alternative minus the costs incurred when choosing the alternative

D) the benefits received from the alternative minus the costs incurred when choosing the alternative

Define economics. Who are economic agents?

Economics is the study of how agents choose to allocate scarce resources and how these choices affect society. An economic agent is an individual or a group that makes choices.

27) Which of the following is a topic studied by macroeconomists? A) Aggregate demand in an economy B) Price determination by a firm C) The consumption choice of a single household D) The production decision of a firm

A) Aggregate demand in an economy

31) In country X, the average yearly salary of 50-year-olds with 16 years of education is $50,275, while the average yearly salary of 50-year-olds with 12 years of education is $36,265. According to these data, 4 additional years of education are likely to be correlated with higher future wages of about ________. A) 24 percent B) 38 percent C) 50 percent D) 88 percent

B) 38 percent

4) In economics, scarcity refers to the situation of ________. A) making the best use of limited information B) having more wants than the amount of available resources C) the government rationing available goods and services D) sellers setting the prices of their products too high for people to be able to afford them

B) having more wants than the amount of available resources

19) Economic models are often based on assumptions because they ________. A) help explain the past B) help simplify complex real-world phenomena C) help predict the future with greater accuracy D) help test models even when relevant data are unavailable

B) help simplify complex real-world phenomena

4) A decision or choice that is made after optimization analysis ________. A) has zero opportunity cost B) is not necessarily risk free C) is the same for all individuals D) cannot be justified using normative analysis

B) is not necessarily risk free

33) The relationship between the unemployment rate and inflation is studied under ________.

B) macroeconomics

33) The mean of a data set is the ________. A) product of all values divided by the number of values B) sum of all different values divided by the number of values C) sum of all different values multiplied by the number of values D) difference between the highest value and the lowest value

B) sum of all different values divided by the number of values

1) Empiricism refers to the process of ________. A) measuring variables B) testing ideas using data C) collecting and organizing data D) making choices using values and beliefs

B) testing ideas using data

23) Cost-benefit analysis requires ________. A) choosing the alternative with the least net benefit B) that all costs and benefits be measured in the same unit C) evaluating the budget constraint before making a choice D) that the risks associated with different alternatives be ignored

B) that all costs and benefits be measured in the same unit

27) If a particular choice that an individual faces gives him a benefit of $20 but costs $30, the net benefit from making this choice equals ________. A) $20 B) $10 C) −$10 D) −$30

C) −$10

15) Which of the following is an example of a normative economic statement? A) An increase in government expenditure will lead to an increase in well-being. B) An increase in the money supply will lead to an increase in the inflation rate. C) An increase in income is accompanied by an increase in savings. D) An increase in income is accompanied by an increase in consumption.

A) An increase in government expenditure will lead to an increase in well-being.

22) ________ is a calculation that adds up the costs and benefits using a common unit of measurement, like dollar values. A) Cost-benefit analysis B) Revenue-income analysis C) Budget constraint analysis D) Expenditure-income analysis

A) Cost-benefit analysis

25) Which of the following is a topic studied by microeconomists? A) Energy consumption by a firm B) Nationwide inflation rate C) Economic growth as a means to alleviate poverty D) Aggregate demand and aggregate supply in an economy

A) Energy consumption by a firm

8) Which of the following pairs of variables is likely to be positively correlated? A) Income and consumption B) Price and consumption C) Education and unemployment D) Availability of health care and death rate

A) Income and consumption

10) ________ is analysis that generates objective descriptions or predictions about the world that can be verified with data A) Positive economics B) Negative economics C) Microeconomics D) Normative economics

A) Positive economics

17) Which of the following statements correctly differentiates between positive and normative economics? A) Positive economics is descriptive, whereas normative economics is advisory. B) Positive economics describes what people ought to do, whereas normative economics describes what people actually do. C) Positive economics is based on judgments, whereas normative economics is not. D) Positive economics can only be applied to microeconomics, whereas normative economics can be applied to both microeconomics and macroeconomics.

A) Positive economics is descriptive, whereas normative economics is advisory.

6) Which of the following statements is true? A) Rational economic agents maximize more than just monetary income. B) An individual does not require information to make optimal decisions. C) The principle of optimization is only accurate when it comes to making monetary decisions. D) It is not necessary to consider the risks of alternatives while making an optimal decision.

A) Rational economic agents maximize more than just monetary income.

A consumer has $40 that he wants to spend. He faces four choices: a camera that costs $60, a cell phone that costs $150, a book that costs $10, and a Bluetooth speaker that costs $45. Which of the following is a feasible option for the consumer?

A) The book

5) Which of the following statements is true of the scientific method? A) The scientific method may not reveal a "true" model of the world. B) The scientific method does not require the models to be tested with data. C) The scientific method used by economists and scientists is independent of empiricism. D) The scientific method can help develop accurate models even when data are unavailable.

A) The scientific method may not reveal a "true" model of the world.

24) Suppose that Jinelle, an engineer, has to choose between two jobs. Which of the following statements is true? A) When deciding between jobs, she should consider both the wage and the non-wage attributes of each job. B) When deciding between jobs, she should focus only on the costs of each job and ignore the benefits. C) When deciding between jobs, she should only focus on the benefits of each job and ignore the costs. D) When deciding between jobs, she should consider the wage attributes and ignore the non-wage attributes of each job.

A) When deciding between jobs, she should consider both the wage and the non-wage attributes of each job.

2) Feasible options are options that are ________. A) available and affordable B) available but not affordable C) affordable but not available D) optimal for an economic agent

A) available and affordable

10) Facts, measurements, or statistics that describe the world are referred to as ________. A) data B) models C) hypothesis D) empiricism

A) data

26) Out of a set of feasible alternatives, an optimizer should choose the alternative with the ________. A) highest net benefit B) highest opportunity cost C) lowest total cost, regardless of benefit D) highest total benefit, regardless of cost

A) highest net benefit

9) A model ________. A) is often based on simplifying assumptions that are not necessarily true B) can be tested without data or statistics C) is a more complex representation of reality than a theory D) can never be used to predict the future, but it helps explain the past

A) is often based on simplifying assumptions that are not necessarily true

31) Why an economy contracts during slowdowns and the analysis of appropriate policies is studied under ________. A) macroeconomics B) microeconomics C) agricultural economics D) international economics

A) macroeconomics

32) The impact of carbon taxes on the energy usage of individual households and firms is studied under ________.

A) microeconomics

34) The relationship between a firm's advertising expenditure and its profit is studied under ________.

A) microeconomics

3) When the market for a commodity is in equilibrium, ________. A) no economic agent will want to change his or her behavior B) there will still be some unsold stock of the commodity C) all buyers of the commodity will want to change their behavior D) all sellers of the commodity will want to change their behavior

A) no economic agent will want to change his or her behavior

10) A consumer has $20 that he wants to spend on two goods: pens priced at $2 each and pencils priced at $1 each. Which of the following correctly represents his budget constraint? A) $20 = ($2/Quantity of pens) + ($1/Quantity of pencils) B) $20 = ($2 × Quantity of pens) + ($1 × Quantity of pencils) C) $20 = ($3/Quantity of pens + Quantity of pencils) D) $20 = $3 × (Quantity of pens - Quantity of pencils)

B) $20 = ($2 × Quantity of pens) + ($1 × Quantity of pencils)

2) A consumer has $50 to spend. He has to decide between buying two goods: magazines priced at $5 each and DVDs priced at $10 each. Which of the following combinations of the two goods will entirely exhaust his budget constraint?A) 3 magazines and 4 DVDs B) 2 magazines and 4 DVDs C) 6 magazines and 1 DVD D) 2 magazines and 2 DVDs

B) 2 magazines and 4 DVDs

9) Which of the following statements is true? A) A budget constraint remains the same for a consumer at all levels of income. B) A budget constraint quantifies the trade-offs that economic agents face while making decisions. C) A budget constraint is a function of the income of the consumer and not of the prices of the goods and services available for consumption. D) A budget constraint is based on the minimum amount of money that an economic agent can spend on goods and services.

B) A budget constraint quantifies the trade-offs that economic agents face while making decisions.

2) Which of the following is most likely to be an example of causation? A) The crime rate is high in a country. The literacy rate is high as well. B) A firm producing compact fluorescent light bulbs installs new machinery. Their per-day production of light bulbs increases. C) A soccer player scores four goals when he wears red socks. He concludes that the red socks helped him score the goals. D) A student wins money by scratching a ticket with a particular coin. He decides to scratch all tickets with the same coin in the future.

B) A firm producing compact fluorescent light bulbs installs new machinery. Their per-day production of light bulbs increases.

12) Which of the following is an example of a positive economic statement? A) The government should ideally work as a welfare state. B) An increase in income causes an increase in savings. C) Economics is the most useful social science. D) Eliminating poverty is more important than reducing inflation.

B) An increase in income causes an increase in savings.

44) Which of the following arguments based on anecdotes is most likely to be incorrect? A) Increased government spending lowers the unemployment rate in an economy but can lead to inflation. B) Based on a local survey of a small town, it was argued that greater opportunities to work from home are the prime cause of obesity among the elderly workforce in the country. C) The average annual earnings of high school dropouts in the United States was much less than that of graduates in 2015. D) A health survey of preschoolers in Mexico showed that the average height of preschoolers is between 3.5 feet and 4 feet.

B) Based on a local survey of a small town, it was argued that greater opportunities to work from home are the prime cause of obesity among the elderly workforce in the country.

5) Which of the following statements is true? A) Gold is not a scarce resource. B) Both life-saving drugs and ice cream are examples of scarce goods. C) If a scarce resource is given away for free, everyone will be able to consume it. D) Scarcity means that there is an imbalance between unlimited resources and limited wants.

B) Both life-saving drugs and ice cream are examples of scarce goods.

11) Which of the following statements is true about data? A) Empiricism does not necessarily involve data. B) Consistency of models can be checked using data. C) Facts that describe the world are not considered data. D) Convincing data analysis in economics relies on using a small sample.

B) Consistency of models can be checked using data.

5) Which of the following statements identifies a difference between correlation and causation? A) Correlation occurs when one thing directly affects another, whereas causation implies a mutual relationship between two things. B) Correlation implies a mutual relationship between two things, whereas causation occurs when one thing directly affects another. C) A causal relationship exists between two variables when they are correlated, but correlation does not necessarily exist if there's a causal relationship between two variables. D) Causation cannot arise when correlation is present, and correlation cannot arise when causation is present.

B) Correlation implies a mutual relationship between two things, whereas causation occurs when one

35) Which of the following statements is true? A) A rational economic agent is not likely to optimize. B) Cost-benefit analysis can also be used for normative economic analysis. C) Cost-benefit analysis does not yield the same result as optimization analysis. D) The net benefit of an option that costs $50 and provides a benefit of $100 is equal to $150

B) Cost-benefit analysis can also be used for normative economic analysis.

4) Which of the following is true of equilibrium? A) Equilibrium refers to a situation where the government allocates resources among economic agents. B) Equilibrium refers to a situation where all economic agents simultaneously optimize after considering one another's actions. C) Equilibrium refers to a situation where all economic agents are making suboptimal choices and have an incentive to change their behavior. D) Equilibrium refers to a situation where an economic agent can be made better off without making anyone else worse off.

B) Equilibrium refers to a situation where all economic agents simultaneously optimize after considering one another's actions.

11) Which of the following statements is true of free riding? A) Free riding is easy to detect and punish. B) Free riding is reduced with social pressure. C) Free riding is not affected by incentives. D) Free riding does not impose a cost on society.

B) Free riding is reduced with social pressure.

13) Which of the following statements is true? A) Theories are statistics that describe the real world. B) Hypotheses are predictions that can be tested with data. C) Data are facts established by observation and measurement. D) Empirical evidence consists of facts, measurements, or statistics that describe the world.

B) Hypotheses are predictions that can be tested with data.

1) Which of the following correctly defines the term "equilibrium"? A) It refers to a situation in which data are used to arrive at conclusions. B) It refers to a situation in which all economic agents are simultaneously optimizing. C) It refers to a situation in which an optimizing decision is made by an individual economic agent. D) It refers to a situation in which government intervention efficiently allocates scarce resources

B) It refers to a situation in which all economic agents are simultaneously optimizing.

23) ________ is the study of how individuals, households, governments, and firms make choices and how those choices affect prices, the allocation of resources, and the well-being of other agents. A) Cost-benefit analysis B) Microeconomics C) Macroeconomics D) Empiricism

B) Microeconomics

16) Which of the following statements is true? A) Positive economics deals with issues that are subjective. B) Normative statements depend on personal preferences. C) Positive economics recommends what people ought to do. D) Normative economic statements can be confirmed or disproven.

B) Normative statements depend on personal preferences.

24) Which of the following is a topic studied by microeconomists? A) National income calculations B) Price determination by a firm C) Measures to combat inflation D) Interest rate determination

B) Price determination by a firm

16) Which of the following claims is most likely to suffer from reverse causality? A) Higher income increases consumption. B) Relatively wealthy people tend to be relatively healthy. C) More hours of study are likely to lead to better results. D) Crime rate is seen to be lower in countries having a higher level of poverty.

B) Relatively wealthy people tend to be relatively healthy.

12) Assume that a house is rented by four students. When it comes to keeping the house clean, each of the four roommates has an incentive to leave the cleaning to the others. As a result, the house is never clean. Which of the following is the best solution to this problem of free riding? A) Asking every roommate to clean the house if they dirty it B) Requiring every roommate to contribute to a cleaning service C) Requiring each roommate to pay more toward the house rent and groceries D) Assigning one roommate the responsibility of watching over the other students

B) Requiring every roommate to contribute to a cleaning service

15) ________ occurs when the direction of cause and effect is mixed up in a study. A) Adverse causality B) Reverse causality C) Omitted variable bias D) Limited information bias

B) Reverse causality

34) Which of the following statements is true about the mean of a series? A) The mean is equal to zero when all the values are identical. B) The mean is a commonly used technique for summarizing data. C) The mean is less than all the individual observations in the data set. D) The mean is calculated as the sum of all values multiplied by the number of values

B) The mean is a commonly used technique for summarizing data.

2) Which of the following will hold true if the market for cameras is in equilibrium at a price of $40? A) Sellers of cameras will have an incentive to charge a price higher than $40. B) The quantity of cameras produced will equal the quantity of cameras bought in the market. C) Buyers of cameras will want to buy fewer cameras than they are purchasing at equilibrium. D) If the cost of producing cameras falls below $40 per camera, all sellers will stop supplying cameras.

B) The quantity of cameras produced will equal the quantity of cameras bought in the market.

10) Which of the following relationships is likely to exhibit a negative correlation? A) The relationship between the amount saved with a bank and the interest earned B) The relationship between the level of professional training and unemployment C) The relationship between inflation in the United States and traffic congestion in China D) The relationship between the amount of precipitation in a year and the number of umbrellas sold

B) The relationship between the level of professional training and unemployment

41) Which of the following statements is true? A) Empirical arguments can be supported without the use of data. B) Using a large data set will strengthen the force of an empirical argument. C) Using fewer observations will strengthen the force of an empirical argument. D) The number of observations used does not affect the strength of an empirical argument.

B) Using a large data set will strengthen the force of an empirical argument.

2) Economic reasoning allows economic agents to make decisions ________. A) by random selection B) by comparing the costs and benefits of various options C) by replicating the choices made by other economic agents D) solely on the basis of tastes and preferences for various options

B) by comparing the costs and benefits of various options

A model is based on an assumption that an additional year of education increases a student's future wage by 20 percent. 20) Refer to the scenario above. The hypothesis of the model is that ________. A) college graduates will earn about 80 percent more than high school graduates B) college graduates will earn about 107 percent more than high school graduates C) college graduates will earn about 200 percent more than high school graduates D) college graduates will earn about 275 percent more than high school graduates

B) college graduates will earn about 107 percent more than high school graduates

30) Public-use data refer to ________. A) data that have to be purchased from an external agent B) data that are available to anyone who wants to use it C) data published by the government only during political campaigns D) data collected by a researcher only through field investigation

B) data that are available to anyone who wants to use it

8) A budget constraint represents the ________. A) total money income that an agent earns in different time periods B) goods and services an economic agent can choose given her limited income C) inequality in the incomes earned by various economic agents D) aggregate income earned by all firms in an economy

B) goods and services an economic agent can choose given her limited income

28) If a job pays a wage of $50 per hour, but has a non-wage cost valued at $20 per hour, the net benefit of taking the job equals ________. A) $2.5 per hour B) $20 per hour C) $30 per hour D) $70 per hour

C) $30 per hour

17) John has to choose between two jobs: one that offers him $50 per hour and one that offers him $35 per hour. The opportunity cost of choosing the job that offers him $50 per hour is ________. A) $1.5 per hour B) $15 per hour C) $35 per hour D) $85 per hour

C) $35 per hour

13) Which of the following statements is true? A) All rational economic agents attempt to maximize their income. B) A rational consumer makes his decisions depending on what the majority chooses. C) A budget constraint is an economic tool that quantifies the trade-off between the consumption of two goods. D) A trade-off refers to the exchange of goods between economic agents through the barter system or mutual exchange.

C) A budget constraint is an economic tool that quantifies the trade-off between the consumption of two goods.

2) Which of the following best describes equilibrium? A) A situation where the government intervenes to allocate resources B) A situation where only one individual or firm makes an optimal decision C) A situation where no economic agent would benefit by changing his or her behavior D) A situation where economic agents do not optimize as they do not have perfect information

C) A situation where no economic agent would benefit by changing his or her behavior

5) Which of the following statements is true? A) Optimization requires individuals to foresee the future perfectly. B) An optimizing individual need not consider the risks involved in various choices. C) An optimizing individual is also likely to exhibit rationality. D) The less information that is available, the easier it is to make optimal decisions

C) An optimizing individual is also likely to exhibit rationality.

45) Which of the following statements is true? A) Arguments based on anecdotes are always true. B) In the scientific method, anecdotes are more important than data. C) Arguments by example are appropriate when contradicting a blanket statement. D) It is easier for a researcher to jump to a wrong conclusion when she uses a large data set

C) Arguments by example are appropriate when contradicting a blanket statement.

6) Which of the following statements is true? A) Correlation can only arise when causation is not present. B) Causation can only arise when correlation is not present. C) Correlation arises when there is causation and can also arise when there is no causation. D) Causation arises when there is correlation between two variables and can also arise when there is no correlation.

C) Correlation arises when there is causation and can also arise when there is no causation.

11) Which of the following is an example of a positive economic statement? A) The pricing policies followed in single-producer markets should be strictly supervised. B) Unemployment is more harmful than inflation. C) Higher interest rates will encourage more savings. D) Pollution is one of the most serious economic problems

C) Higher interest rates will encourage more savings.

30) Which of the following statements correctly highlights the difference between microeconomics and macroeconomics? A) Microeconomics is descriptive, whereas macroeconomics is advisory. B) Microeconomics primarily deals with positive analysis, whereas macroeconomics primarily deals with normative analysis. C) Microeconomics deals with a small part of the economy, whereas macroeconomics deals with aggregate economic performance. D) Microeconomics describes what economic agents actually do, whereas macroeconomics describes what economic agents ought to do.

C) Microeconomics deals with a small part of the economy, whereas macroeconomics deals with aggregate economic performance.

19) Which of the following statements is true? A) Positive economics describes what people ought to do. B) Normative economics describes what people actually do. C) Positive economics generates objective descriptions that can be verified with data. D) Normative economics is free from the value judgments, tastes, and preferences of economic agents.

C) Positive economics generates objective descriptions that can be verified with data.

28) Which of the following is a topic studied by macroeconomists? A) The savings of a single household B) The productivity of an agricultural farm C) The total output of an economy D) Price determination in a market

C) The total output of an economy

1) Causation occurs when ________. A) two variables tend to move in the same direction B) two variables tend to move in opposite directions C) a change in one variable is the reason for a change in another variable D) a change in one variable does not cause any change in another variable

C) a change in one variable is the reason for a change in another variable

1) Which of the following statements is true? A) All economic agents are necessarily individuals. B) A worker who shirks work is not an economic agent. C) A government is an example of an economic agent. D) A street gang is not an economic agent.

C) a government is an example of a economic agent

13) Data show that in 2012, the college enrollment in Lithasia increased. In the same year, the sale of hot dogs in Lithasia also increased. The relationship between college enrollment and the sale of hot dogs exhibits ________.

C) a positive correlation

14) A model's predictions are referred to as ________. A) statistics B) theories C) hypotheses D) empirical evidence

C) hypotheses

9) When two variables move in opposite directions, they are said to be ________. A) uncorrelated B) positively correlated C) negatively correlated D) equivalent

C) negatively correlated

7) When two variables move in the same direction, they are said to be ________. A) uncorrelated B) equivalent C) positively correlated D) negatively correlated

C) positively correlated

4) A correlation between two variables implies that ________. A) there is a cause-effect relationship between the two variables B) it is impossible to measure one variable without measuring the other C) there is a mutual relationship between both the variables D) when one variable changes, the other variable always changes by exactly the same amount

C) there is a mutual relationship between both the variables

16) A student has two options: she can either surf the web or work part-time. Working part-time pays her $20 per hour. What is the student's opportunity cost of surfing the web for 5 hours? A) $4 B) $20 C) $50 D) $100

D) $100

Maria has to choose between driving and taking a train to destination A. Traveling by train will cost her $400 and will take 4 hours. Driving to destination A takes 6 hours, and the required amount of gasoline costs $250. Her opportunity cost of time is $15 per hour. If Maria borrows her parents' car and pays for only the gasoline, what is her total cost of driving to destination A? A) $90 B) $250 C) $300 D) $340

D) $340

Maria has to choose between driving and taking a train to destination A. Traveling by train will cost her $400 and will take 4 hours. Driving to destination A takes 6 hours, and the required amount of gasoline costs $250. Her opportunity cost of time is $15 per hour. 29) Refer to the scenario above. What is the total cost involved if Maria chooses to travel by train? A) $60 B) $400 C) $420 D) $460

D) $460

11) An individual has 8 hours to spare. She has to divide her time between two activities: reading and writing. Which of the following allocations will completely exhaust the individual's budget? A) 3 hours of reading and 4 hours of writing B) 4 hours of reading and 6 hours of writing C) 2 hours of reading and 2 hours of writing D) 5 hours of reading and 3 hours of writing

D) 5 hours of reading and 3 hours of writing

15) Which of the following statements correctly differentiates between a model and a hypothesis? A) Testing a hypothesis does not require data, whereas testing a model requires data. B) Testing a model requires data, whereas testing a hypothesis does not require data. C) A hypothesis can be used to make predictions for the future, whereas a model can only explain the past. D) A model is a simplified representation of reality, whereas hypotheses are a model's predictions

D) A model is a simplified representation of reality, whereas hypotheses are a model's predictions

14) Which of the following is an example of a normative economic statement? A) A cut in the tax rate will lead to an increase in consumption. B) Relaxation of import duties will encourage imports. C) An increase in subsidies to farmers will boost agricultural production. D) An increase in social security benefits will increase the welfare of all economic agents.

D) An increase in social security benefits will increase the welfare of all economic agents.

4) Which of the following is NOT a key principle of economics? A) Optimization B) Equilibrium C) Empiricism D) Substitution

D) Substitution

7) Which of the following correctly identifies the trade-off that a budget constraint represents? A) The amount of income that must be given up to obtain an additional unit of a good B) The maximum amount of two goods that a consumer can purchase given his income C) The optimum combination of goods that a consumer with a given income should purchase D) The amount of one good that has to be given up to purchase an additional unit of the other good

D) The amount of one good that has to be given up to purchase an additional unit of the other good

29) Which of the following statements is true? A) Microeconomics is the study of an economy as a whole. B) Macroeconomics studies how individuals make choices. C) The study of the inflation rate is covered under microeconomics. D) The study of the unemployment rate is covered under macroeconomics.

D) The study of the unemployment rate is covered under macroeconomics.

12) Empirical evidence refers to ________. A) a simplified representation of reality B) a proposed explanation for a phenomenon C) the process of developing and testing models D) a set of facts established by observation and measurement

D) a set of facts established by observation and measurement

14) An omitted variable is a variable that ________. A) is purposely left out as it does not aid an economic analysis B) does not cause other variables in a study to change when it changes C) is removed from a study as it can lead to the problem of reverse causality D) has been left out, and if included, would explain why the variables considered in a study are correlated

D) has been left out, and if included, would explain why the variables considered in a study are correlated

18) Positive economics is descriptive because ________. A) it is based on ethical judgments. B) its predictions cannot be verified with data. C) it prescribes what an individual or society ought to do. D) it explains what has happened or predicts what will happen.

D) it explains what has happened or predicts what will happen.

15) The best alternative use of a resource is referred to as its ________. A) optimization cost B) market price C) social cost D) opportunity cost

D) opportunity cost

20) Differentiate between positive and normative economics using examples

Positive economics is analysis that generates objective descriptions or predictions about the world that can be verified with data. It is analysis that describes what people actually do. "A 5 percent fall in the unemployment rate will lead to a 2 percent increase in the inflation rate" is an example of a positive economic statement. In contrast, normative economics is analysis that prescribes what an individual or society ought to do. It is subjective and depends on personal preferences, tastes, attitudes, feelings, or ethical judgments. "Pollution in developing countries is one of the biggest global environmental problems" is an example of a normative economic statement.

What are scarce resources? Why are economic agents concerned with the allocation of these resources?

Scarce resources are resources for which the quantity that agents want exceeds the quantity that is freely available. Economic agents need to satisfy their unlimited wants in a world of limited resources. This makes it important for them to understand how these scarce resources are to be used and distributed in order to optimize allocation.

22) Classify the following as positive economics statements or normative economics statements. a) An increase in an individual's income increases consumption, but by an amount less than the increase in income. b) The government should undertake the responsibility of providing healthcare to all its citizens. c) The government should fund infrastructure projects to foster economic development. d) An increase in net exports has a positive effect on a country's national income. e) The gross domestic product of India is increasing at 5 percent annually

a) Positive economic statement b) Normative economic statement c) Normative economic statement d) Positive economic statement e) Positive economic statement