Econ Test #1

Which of the following is a positive economic statement? A.) If the price of iPhones falls, a larger quantity of iPhones will be purchased. B.) The standard of living in the United States should be higher. C.) The U.S. government should not have bailed out U.S. auto manufacturers. D.) The government should revamp the health care system.

A.) If the price of iPhones falls, a larger quantity of iPhones will be purchased.

"An increase in the price of gasoline will increase the demand for hybrid vehicles." This statement is an example of a positive economic statement. A.) True B.) False

A.) True

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

A.) change in one variable is the reason for the change in another variable.

An item has utility for a consumer if it A.) generates enjoyment or satisfaction. B.) is scarce. C.) has a high price. D.) is something everyone else wants.

A.) generates enjoyment or satisfaction.

An omitted variable is a variable that: A.) has been left out, and if included, would explain why the variables considered in a study are correlated. 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.) is purposely left out as it does not aid an economic analysis.

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

Suppose that some investors have decided that economic and financial uncertainty have made the prospect of investing in domestic stock markets more risky than investing in foreign stock markets, and therefore choose to invest in foreign markets. By using all available information as they act to achieve their goals, these investors are exemplifying the economic idea that A.) people are rational. B.) people respond to economic incentives. C.) optimal decisions are made at the margin. D.) equity is more important than efficiency.

A.) people are rational

A decrease in the price of either one or the other good will cause a consumer's budget constraint to: A.) pivot rightward (pivot out). B.) shift leftward. C.) shift rightward. D.) pivot leftward (pivot in).

A.) pivot rightward (pivot out).

Economic models do all of the following except A.) portray reality in all its minute details. B.) simplify some aspect of economic life. C.) answer economic questions. D.) make economic ideas explicit and concrete for use by decision makers.

A.) portray reality in all its minute details.

A budget constraint A.) refers to the limited amount of income available to consumers to spend on goods and services. B.) shows the prices that a consumer chooses to pay for products he consumes. C.) represents the bundles of consumption that make a consumer equally happy. D.) reflects the desire by consumers to increase their income.

A.) refers to the limited amount of income available to consumers to spend on goods and services.

The restriction that a consumer's total expenditure on goods and services purchased cannot exceed the income available is referred to as A.) the budget constraint. B.) the price constraint. C.) maximizing behavior. D.) economizing behavior.

A.) the budget constraint.

Assume that an individual spends his income on sweaters and shirts. If the price of a sweater increases: A.) the opportunity cost of buying sweaters increases. B.) the opportunity cost of buying shirts increases. C.) the opportunity cost of buying sweaters decreases. D.) There is no change in the opportunity cost of consuming either good.

A.) the opportunity cost of buying sweaters increases.

Which of the following statements is true of the scientific method? A.) When a researcher looks at a large data set, she is more likely to jump to the wrong conclusions. B.) Empirical arguments are more credible when they are based on a large data set. C.) The larger the size of the data set, the greater the scope of inaccuracy in an analysis. D.) Arguments based on a few anecdotes are mostly true.

B.) Empirical arguments are more credible when they are based on a large data set.

Positive analysis is concerned with "what ought to be," while normative analysis is concerned with "what is." A.) True B.) False

B.) False

Which of the following is a positive economic statement? A.) The government should implement a national consumption tax. B.) If the price of beef falls, a larger quantity of it will be bought. C.) The U.S. government should increase regulations on the banking industry. D.) The standard of living in the United States is too low.

B.) If the price of beef falls, a larger quantity of it will be bought.

Which of the following is a normative economic statement? A.) When the price of wheat falls, the cost of wheat-based products falls. B.) The price of wheat is too low. C.) The current low price of wheat is the result of increased worldwide supply. D.) When the price of wheat falls, the quantity of wheat purchased rises.

B.) The price of wheat is too low.

Which of the following is a normative economic statement? A.) Rising global demand for coal has led to increases in the price of coal. B.) The state of Texas is considering increasing funds for light-rail development to promote the use of public transportation. C.) Pharmaceutical manufacturers should not be allowed to patent their products so prescription drugs would be more affordable. D.) With rising mortgage rates and rising unemployment rates, the number of unsold homes has increased.

C.) Pharmaceutical manufacturers should not be allowed to patent their products so prescription drugs would be more affordable.

Which of the following is a positive economic statement? A.) U.S. citizens should only buy products which are produced in the United States. B.) The government should ban the production and sale of incandescent light bulbs. C.) Raising the tax on gasoline raises the selling price of gasoline. D.) The government should revamp its immigration policies.

C.) Raising the tax on gasoline raises the selling price of gasoline.

Which of the following is a normative economic statement? A.) The current high price of gasoline is the result of strong worldwide demand. B.) When the price of gasoline rises, the quantity of gasoline purchased falls. C.) The price of gasoline is too high. D.) When the price of gasoline rises, transportation costs rise.

C.) The price of gasoline is too high.

A budget constraint is a straight line because: A.) the tastes and preferences of the consumer change along the constraint. B.) the opportunity cost of buying each of the goods changes along the constraint. C.) a consumer faces a fixed price of both goods that do not change with changes in consumption. D.) a consumer has a limited money income.

C.) a consumer faces a fixed price of both goods that do not change with changes in consumption.

Economists assume that individuals: A.) will never take actions to help others. B.) prefer to live in a society that values fairness above all else. C.) are rational and respond to incentives. D.) behave in unpredictable ways.

C.) are rational and respond to incentives.

Holding all other personal characteristics-such as age, gender, and income-constant, economists would expect that: A.) there is no correlation between having health insurance and being overweight. B.) people with health insurance are equally likely to be overweight as people without health insurance. C.) people with health insurance are more likely to be overweight than people without health insurance. D.) people with health insurance are less likely to be overweight than people without health insurance.

C.) people with health insurance are more likely to be overweight than people without health insurance.

If quantity of tea is measured on the horizontal axis and quantity of coffee is measured on the vertical axis, an increase in the price of coffee will cause the budget constraint to: A.) pivot leftward (pivot in) along the horizontal axis. B.) pivot rightward (pivot out) along the horizontal axis. C.) pivot leftward (pivot in) along the vertical axis. D.) pivot rightward (pivot out) along the vertical axis.

C.) pivot leftward (pivot in) along the vertical axis.

The slope of a budget constraint represents: A.) the price of the good measured along the vertical axis. B.) the price of the good measured along the horizontal axis. C.) the opportunity cost of one good in terms of another. D.) the money income of the consumer.

C.) the opportunity cost of one good in terms of another.

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

C.) there is a mutual relationship between both the variables.

Economists assume that rational people do all of the following except A.) respond to economic incentives. B.) weigh the benefits and costs of all possible alternative actions. C.) undertake activities that benefit others and hurt themselves. D.) use all available information as they act to achieve their goals.

C.) undertake activities that benefit others and hurt themselves.

Which of the following will lead to a change in the opportunity cost of buying a pen and a pencil? A.) A twofold increase in the prices of both pens and pencils B.) An increase in the consumer's income C.) A decrease in the consumer's income D.) A twofold increase in the price of pens and a threefold increase in the price of pencils

D.) A twofold increase in the price of pens and a threefold increase in the price of pencils

Which of the following is a normative economic statement? A.) With rising home prices and falling mortgage interest rates, the amount of home foreclosures has decreased. B.) The federal government is considering increasing regulations on the use of fossil fuels to promote the use of wind power. C.) Rising corn prices have increased the price of corn-based ethanol. D.) Farmers should not be allowed to grow and sell genetically-modified crops.

D.) Farmers should not be allowed to grow and sell genetically-modified crops.

Which of the following is a positive economic statement? A. )The government should mandate electric automobiles. B.) People should not buy SUVs. C.) Foreign workers should not be allowed to work for lower wages than the citizens of a country. D.) Scarcity necessitates that people make trade-offs.

D.) Scarcity necessitates that people make trade-offs.

Economists assume that rational behavior is useful in explaining choices people make A.) because irrational people do not make economic choices. B.) because individuals act rationally all the time in all circumstances. C.) even though people rarely, if ever, behave in a rational manner. D.) even though people may not behave rationally all the time.

D.) even though people may not behave rationally all the time.

Marginal utility is the: A.) total satisfaction received from consuming a given number of units of a product. B.) average satisfaction received from consuming a product. C.) satisfaction achieved when a consumer has had enough of a product. D.) extra satisfaction received from consuming one more unit of a product.

D.) extra satisfaction received from consuming one more unit of a product.

Economists assume that the goal of consumers is to A.) consume as much as possible. B.) spend all their income. C.) do as little work as possible to survive. D.) make themselves as well off as possible.

D.) make themselves as well off as possible.

If quantity of milk is measured on the horizontal axis and quantity of juice is measured on the vertical axis, a decrease in the price of milk will cause the budget constraint to: A.) pivot rightward (pivot out) along the vertical axis. B.) shift to the left. C.) shift to the right. D.) pivot rightward (pivot out) along the horizontal axis.

D.) pivot rightward (pivot out) along the horizontal axis.

If the price of the good measured along the vertical axis increases without a change in the price of the good measured along the horizontal axis, the consumer's budget constraint: A.) shifts to the left. B.) pivots rightward (pivot out) without a change in the intercept on the horizontal axis. C.) shifts to the right. D.) pivots leftward (pivot in) without a change in the intercept on the horizontal axis.

D.) pivots leftward (pivot in) without a change in the intercept on the horizontal axis.

Economics does not study correct or incorrect behaviors but rather it assumes that economic agents behave ________, meaning they make the best decisions given their knowledge of the costs and benefits. A.) emotionally B.) equitably C.) selfishly D.) rationally

D.) rationally

By definition, economics is the study of A.) supply and demand. B.) how to make money in the stock market. C.) how to make money in a market economy. D.) the choices people make to attain their goals, given their scarce resources.

D.) the choices people make to attain their goals, given their scarce resources.