ECON 1301 EXAM 1

Which of the following statements about models is correct? a. economic models are built to mirror reality exactly b. a model can be accurately described as a simplification of reality c. models cannot be used to explain how the economy functions d. economic models are usually plastic representations of the economy

b. a model can be accurately described as a simplification of reality

Which if these activities will most likely result in an external benefit? a. a college student buys a deck of cards to play solitaire in her dorm room b. an elderly woman plants a flower garden on the vacant lot next to her house c. an executive purchases a book to read on a business trip d. a ten-year-old uses his allowance to buy new Nike shoes

b. an elderly woman plants a flower garden on the vacant lot next to her house

Large or persistent inflation is almost always caused by a. excessive government spending b. excessive growth in the quality of money c. foreign competition d. higher than normal levels of productivity

b. excessive growth in the quality of money

The invisible hand refers to a. how central planners made economic decisions b. how the decisions of households and firms lead to desirable market outcomes c. the control that large firms have over the economy d. government regulations without which the economy would be less efficient

b. how the decisions of households and firms lead to desirable market outcomes

Which of the following is an example of an externality? a. zima purchases a new pants suit b. malik's bird chirps loudly during the night waking his neighbors c. roberto sells a book to kevin who uses the book and then gives it to lee as a gift d. kalene watches a scary movie

b. malik's bird chirps loudly during the night waking his neighbors

Suppose the Federal Reserve announces that it will be making a change to a key interest rate to increase the money supply. This is likely because a. the Federal Reserve is worried about inflation b. the Federal Reserve is worried about unemployment c. the Federal Reserve is hoping to reduce the demand for goods and services d. the Federal Reserve is worried that the economy is growing too quickly

b. the Federal Reserve is worried about unemployment

In the circular flow diagram, in the markets for a. goods and services, households and firms are both sellers b. the factors of production, households are sellers and firms are buyers c. goods and services, households are sellers and firms are buyers d. the factors of production, households and firms are both sellers

b. the factors of production, households are sellers and firms are buyers

The art in scientific thinking-whether in physics, economics, or engineering is a. the design and implementation of laboratory experiments b. the ability to make an abstract subject easy to understand c. deciding which assumptions to make d. not something in which scientists have to be skilled

c. deciding which assumptions to make

In a market economy, who makes the decisions that guide most economic activity? a. firms only b. households only c. firms and households d. government

c. firms and households

A hair stylist currently cuts and colors hair for 50 clients per week and earns a profit. He is considering expanding his operation in order to serve more clients. Should he expand? a. Yes because cutting hair is profitable b. No because he may not be able to sell more services c. it depends on the marginal cost of serving more clients and the marginal revenue he will earn from serving more clients

c. it depends on the marginal cost of serving more clients and the marginal revenue he will earn from serving more clients

Candice is planning her activities for a hot summer day. She would like to go to the local swimming pool and see the latest blockbuster movie, but because she can only get tickets to the movie for the same time that the pool is open she can only choose one activity. This illustrates the basic principle that a. people respond to incentives b. rational people think at the margin c. people face tradeoffs d. improvements in efficiency sometimes come at the expense of equality

c. people face tradeoffs

When the government redistributes income from the wealthy to the poor a. efficiency is improved but equality is not b. both wealthy people and poor people benefit directly c. people work less and produce fewer goods and services d. the government collects more revenue in total

c. people work less and produce fewer goods and services

Normative statements are a. descriptive b. claims about how the world is c. prescriptive d. claims about how variables in the economy normally behave

c. prescriptive

Which of the following statements best represents the principle represented by the adage, "There ain't no such thing as a free lunch"? a. Bo can go swimming only if he takes his brother with him b. Jada is starving and homeless c. Alivia must put gas in her truck before she can drive it to school d. Benjamin must decide between going to Florida or Brazil for summer vacation

d. Benjamin must decide between going to Florida or Brazil for summer vacation

In the simple circular flow diagram, which of the following is not true a. households own the factors of production b. firms buy the factors of production c. goods and services flow from firms to households d. households are the only decisions makers

d. households are the only decisions makers