Chapter 1

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

A. Poverty could be eliminated but scarcity could not. Poverty is a condition that refers to the lack of sufficient income to cover the basic necessities of life, such as food, clothing, shelter, water and health care. The government defines the poverty line, a set of income thresholds that vary by family size. If a family's income is below the poverty line, that family is considered to be poor. Since poverty refers to a family's income condition, and income could increase above the poverty line, then poverty could be eliminated. Scarcity, on the other hand, refers to the fact that human needs and wants are unlimited, and that economic resources are limited, thus scarcity cannot be eliminated.

From an economists' perspective, which of the following observations is not true? A. Self-interest is purely monetary in nature. B. Self-interest can include benevolence. C. Self-interest is a good predictor of human behavior in most situations. D. Self-interest is not the same as selfishness.

A. Self-interest is purely monetary in nature. In an economist's perspective, self-interest is defined in a broad sense, which includes not only monetary or financial gains, but also the emotional and personal satisfaction derived from good deeds or actions that benefit society at large.

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

B. 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 fallacy of composition is the mistaken belief that what is true for an individual is also necessarily true for the individuals in a group. The statement above illustrates the fallacy of composition, since it extends the right conclusion applicable to Ms. Spann, an individual, to all of the individuals that make up nation. The nation as a whole may have more revenue, but that does not imply that everyone would be able to increase his or her expending.

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

B. They are the inputs used to produce goods and services. the economic definition of resources is that they are the inputs or factors of production used to produce goods and services. They are classified as land, or natural resources, labor, capital, which includes human capital, and entrepreneurship.

Which of the following serve as the language of the market system? A. Monetary and fiscal policies B. Morals C. Market prices D. Governments

C. Market prices In a market system, the prices provide the means of communication for sellers and buyers about the relative value of resources. Prices provide information to buyers about the relative availability of goods and services, and information to sellers about the relative value assigned to those goods and services.

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

C. The Fogelberg family takes its vacation at Lake Arrowhead this year simply because they have done so for as long as anyone can remember. this is not an example of using the economic problem-solving perspective.

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

D. All of the answers are examples of market failure. Market failure occurs when the economy fails to allocate resources efficiently, produces the erroneous amounts of certain goods and services, or does not assign sufficient resources to the production of a good whose output is economically justified.

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

D. all of the answers are correct. Economics is most importantly concerned with how individuals, firms and institutions, or society in general, make their economic decisions under conditions of scarcity that arises because human wants and needs far exceed existing limited resources.

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

E. all of the answers are correct Economists believe that individuals behave as if they are motivated by self-interest. For example, to a consumer, it means to gain a higher level of satisfaction or utility given his or her budget constraints. To a person that performs charitable work, it means to experience a 'good feeling' of doing something to help others.

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

E. all of the answers are resources The forest, the river, the tractor, and the chef are examples of resources. Economic resources (land, labor, capital and entrepreneurship) are called factors of production since those are the resources used to produce goods and services. A forest generates wood that could be used to build a house or to craft a chair. In a hydroelectric plant, a river provides the power to generate electricity. In a farm, a tractor provides the means to plow the land to cultivate corn or wheat. In a café, a chef is the one in charge of preparing a gourmet sandwich.

Economic resources are also known as:

Factors of production . In Economics, economic resources (land, labor, capital and entrepreneurship) are called factors of production since those are the resources used to produce goods and services. The factors of production are also simply known as 'inputs'

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

The income tax reduces after-tax incomes of the rich

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. Also because the accuracy of their value judgments cannot be objectively measured.

"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. Criminals may also behave rationally, if one goes by the economist's definition of rational behavior. Rational behavior means that people, including those involved in criminal activity, systematically do the best they can to achieve their goals and objectives, based on their values and information, weighing in current and future consequences. Criminals' values are such that lead some individuals to believe that committing crimes is an acceptable behavior.

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

Values and information Values and information are the basis of rational human behavior, which means that people systematically and purposefully do the best they can to achieve their goals and objectives, weighing in current and future consequences.

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: A. stock in a computer software company. B. the funds in a CD account at a bank. C. a bond issued by a company selling electric generators. D. a dump truck. E. an employee of a moving company.

a dump truck (it is a piece of equipment) Capital, as an economic resource, is the equipment, machinery, tools, and structures used to produce goods and services. A dump truck is a capital resource since it is a piece of equipment required to produce a good or a service, such as, waste disposal.

Which of the following lies primarily within the realm of microeconomics? A. an empirical analysis of the relationship between the growth of the money supply and the rate of inflation B. an economic model forecasting the impact of a tax increase on consumer spending and national output C. a study of supply and demand conditions in the market for orange juice D. 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 Microeconomics is the study of household and firm behavior and examines the functioning of individual actors. Thus, a study of supply and demand conditions in the market for orange juice does in fact pertain to the realm of microeconomics.

A hypothesis is:

a testable proposition. A hypothesis, in general, is a testable proposition (possible explanation) that predicts a specific behavior (effect) in response to changes in conditions (causes).

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.

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

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

When economists speak of markets, they primarily mean:

mechanisms that coordinate actions of buyers and sellers. In economics, a market is the mechanism or the process by which buyers and sellers exchange goods and services. Markets bring together buyers - the demand side -, and the sellers - the supply side -. Markets can take many forms.

When economists refer to economic behavior, they mean that:

rational people try to anticipate the likely consequences of their actions. When economists refer to economic behavior, they mean that rational behavior and self-interest determines economic behavior, and as consequence, people systematically do the best they can to achieve their goals and objectives, based on their values and information, weighing in current and future consequences, that is, anticipating the likely consequences of their actions.

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

respond in predictable ways to changing circumstances. Economists believe that individuals behave as if they are motivated by self-interest and respond in predictable ways to changing circumstances. In general, they assume that self-interest is a good predictor of human behavior in most situations.

Economic choices or tradeoffs are the result of:

scarcity Scarcity implies limited goods and services, and restricts the options available to society. It is because of those limitations and restrictions that society has to make choices and decide on tradeoffs.

Economics is most importantly concerned with:

studying how we allocate scarce resources to satisfy unlimited wants. Economics is most importantly concerned with how individuals, firms and institutions, or society in general, make their best choices under conditions of scarcity.

Market failure occurs when:

the economy fails to allocate resources efficiently on its own. Market failure occurs when the economy fails to allocate resources efficiently: produces the erroneous amounts of certain goods and services, or does not assign sufficient resources to the production of a good whose output is economically justified.

Human capital is:

the expertise or knowledge possessed by workers. Human capital is the productive knowledge and the technical skills that workers acquire from education, on-the-job training and experience. It is included in capital, one of the four general categories of the factors of production.

Macroeconomic topics do not usually include:

the profit maximizing decisions of an individual manufacturer. Macroeconomics is the study of the economy as a whole and examines the economic behavior of aggregates. Thus, the profit maximizing decision of an individual manufacturer does not pertain to the real of macroeconomics.

Entrepreneurship is:

the resource that organizes the other factors of production in order to produce goods and/or services. Entrepreneurship is the process of combining labor, land and capital to produce goods and services. In a broad sense, it also encompasses the risk taking, the innovative spirit, and the strategic decision-making that go into any business.