economics
Positive economic analysis is said to be
objective.
The concept of opportunity cost exists because
of scarcity.
The distinction between microeconomics and macroeconomics is
often blurred because aggregates are made up of individuals and firms.
A negative slope
represents an inverse relationship, such as beers consumed and test score.
The discovery of new natural resources will cause
the production possibilities curve to shift up and to the right.
Which of the following would likely be studied in a macroeconomics course?
All of these
The opportunity cost of going to college full time away from home includes
All of these are correct.
The questions that an economic system attempts to solve include
All of these.
A good economic model
captures the essential relationships of the problem under consideration.
Economics is the study of
how people allocate their limited resources to satisfy their unlimited wants.
Economic models relate to
how people think about something.
Refer to the above figure. Given our current level of technology and resources, the unobtainable point(s) of production would be
point a
The slope of a nonlinear curve is ________ when the curve is rising, and ________ when the curve is falling.
positive, negativ
To be useful, a model must
predict more accurately than other models that have been developed.
The conversion of resources into consumer goods or services is called
production
For every choice a person makes it can be assumed that
some opportunity cost was involved
For every choice a person makes it can be assumed that
some opportunity cost was involved.
The "paired observation" of (-14, -6) means
x = -14, y = -6
Given a linear curve, the value on the y-axis changes from 100 to 120 when the value on the x-axis changes from 20 to 10, then the slope of that curve is
-2
Suppose that on average there are five more car accidents for every extra inch of snowfall in a certain region. If snowfall is graphed on the y axis and car accidents on the x axis, then if we graph this relationship, the slope of the line will be
1/5
Refer to the above figure. Between points f and g, the opportunity cost of producing 75 more bushels of wheat is
100 bushels of beans.
The above table shows the daily production possibilities for a nation. When the economy moves from point A to B in the above table, the opportunity cost of a computer in terms of televisions is
2.5.
In the above figure, the opportunity cost of moving from producing 50 guitars and 50 ukuleles to producing 25 guitars and 75 ukuleles is You Answered
25 guitars
In the above figure, the opportunity cost of moving from producing 75 guitars and 25 ukuleles to producing 25 guitars and 75 ukuleles is
50 guitars
Which one of the following is an example of a normative statement?
A camera makes a good wedding gift.
Why is a point below the production possibilities curve less efficient than a point on that curve?
A point on the production possibilities curve is efficient because it means the economy is producing the maximum outputs of goods and services with given resources and technology. By contrast, a point below the production possibility curve means that the use of the given resources is not generating the maximum possible outputs of goods and services. Thus, this point represents an inefficient combination of outputs produced with available resources and technology.
What is the difference between comparative advantage and absolute advantage?
Absolute advantage refers to the ability to produce a good with fewer total resources. Comparative advantage is the ability to produce at the lower opportunity cost. A comparative advantage exists when one has to give up fewer units of the other good than another person or country.
The author of the book An Inquiry into the Nature and Causes of the Wealth of Nations is
Adam Smith
Which of the following is a characteristic or focus of economics?
All of these
Which of the following is an example of an application of the ceteris paribus assumption?
An analysis of how price changes affect how much of a good people will purchase when all other factors are held constant
"A positive economic statement is always true and a normative economic statement is always false." Do you agree or disagree with this statement? Explain.
Disagree. A positive statement is one that is either descriptive or makes a prediction of the type "if A, then B." A descriptive statement can be false. For example, the statement, "It is raining today," may be either true or false. A prediction can also be false. A normative statement cannot appeal to evidence. The statement, "It shouldn't rain today," cannot be evaluated as either true or false by looking to see if is raining or not.
Which of the following statements concerning economic models is FALSE?
Economic models are based on pure fact and no assumptions.
Which of the following statements is NOT true?
Economics does not use theories.
What assumption about human motivation is made in economics? Explain.
Economists assume that people act as if motivated by self-interest. People respond predictably to opportunities for gain. That is, people look out for their own self-interest and do so in a rational manner.
What does it mean to say economics is an empirical science, and how is this related to the question of deciding on the usefulness of a model?
Economists examine evidence to test whether a model is useful or not. That is, real-world data are studied to see if they conform to the predictions of the model. A model is useful if it generates testable predictions and implications for the real world. A model that predicts better is generally considered a better model.
Do economists analyze people's thought processes or do they look at what people actually do?
Economists focus on what people do, not their thought processes.
Which of the following statements about economic models is TRUE?
Every model is based on a set of assumptions.
During the Middle Ages, heretics were often burned at the stake. Were the heretics violating the assumption of rational self-interest? Explain.
For someone today, or even many people living at that time, it would seem the heretics' behavior was irrational and not in their own self interest. But, in their own eyes, they may have been acting rationally and with self-interest. Given their goals, dying rather than recanting their views was in their self-interest, especially if they believed such a death guaranteed them eternal life. They believed they would have been worse off had they recanted their views. The benefit of dying for their cause was greater to them than the cost of dying.
In the above graphs, an inverse relationship is shown by
Graph A
In the above graphs a direct relationship is shown by
Graph B.
Which of the following is NOT one of the basic questions that an economic system attempts to answer?
How to eliminate choices?
Which of the following is an example of a positive economic statement? You Answered
If payroll taxes are raised, then the Social Security crisis will be resolved.
Which of the following statements is an example of positive economic analysis?
If the government increases the rate of growth of the money supply, the inflation rate will increase, ceteris paribus.
How does an economy represented by a straight-line production possibilities curve differ from one represented by a traditional production possibilities curve with a bowed shape?
In the economy represented by a straight-line production possibilities curve, the law of increasing relative cost does not apply.
Which of the following is NOT normative economic statement?
Increases in the minimum wage cause increases in unemployment.
Is inflation a macroeconomic or a microeconomic question? Why?
Inflation is a macroeconomic question because it deals with an economy-wide phenomenon. The price increase of a specific product, such as gasoline, would be a microeconomic matter. Since inflation deals with prices in the economy as a whole, it is a macroeconomic concern.
What does the slope of the production possibilities curve represent? Explain.
It represents the trade-off between two goods from two points on the PPC. Specifically, as we move from one point to another, in order to produce more of one good, we must trade-off or give up the other good. If the trade-off is constant, then the slope is constant along the PPC and the PPC is a straight line. If the trade-off increases, then the slope is increasing along the PPC and the PPC is bowed outward.
John has an economics test tomorrow. He must study and has planned the rest of his day so that he can fit some study time in. He has decided to go to the gym and then study for several hours. Which of the following statements is TRUE? Correct!
John's decision on how to allocate his time is consistent with the rationality assumption since the decision is intended to make him better off.
Which of the following statements is a normative as opposed to a positive economic statement?
Labor unions should be allowed to organize in every industry.
Distinguish between macroeconomics and microeconomics.
Macroeconomics is concerned with the behavior of the economy as a whole, while microeconomics is concerned with the choices of individual decision-makers, such as households and firms. Macroeconomics deals with aggregates, such as the total output of the economy or unemployment, while microeconomics deals with how many hours a person chooses to work or how many people a firm decides to hire.
Which of the following is a normative economic statement?
Men and women should earn the same salary if they perform the same job.
Which of the following statements is TRUE?
No economic model captures every detail that affects a problem.
"Rational, self-interested people would never end up worse off by any decision they make. Obviously, people often make mistakes or have regrets. Therefore, people do not act rationally or out of self-interest." Do you agree with these statements? Why or why not?
No. People may make mistakes because they often do not have enough information to make the best decision or because they are wrong about the effect of their actions. When they make a decision, given their circumstances and the information they have, they make the best choice for themselves.
Which one of the following is an example of a normative statement?
Public school teachers are not paid enough.
________ are the things that are used to produce items that satisfy people's wants.
Resources
Explain why even the most affluent people, businesses and counties never solve the problem of scarcity.
Scarcity is a problem that is never completely solved. Scarcity means that we do not ever have enough of everything, including time, to satisfy our every desire. Thus even the most affluent have limited resources and unlimited wants even though they may have solved more of their wants with their larger amount of resources.
Which of the following statements about economic scarcity is FALSE?
Scarcity only occurs if there are shortages and people wait in line to buy things.
Which of the following is a normative statement?
Tax cuts ought to be enacted for the good of the economy.
Which of the following is a normative economic statement?
Teenage unemployment is too high.
What is the "division of labor"? How is the division of labor related to production?
The division of labor refers to the segregation of a resource into different specific tasks. The division of labor occurs when resources specialize into specific tasks. Total output is greater when resources are specialized.
What is the economic way of thinking, and why is it important?
The economic way of thinking provides a framework for analyzing solutions to economic problems. Since economic problems confront all of us much of the time, knowledge of economics will enable one to arrive at better decisions, and enable one to evaluate many public policy questions in a systematic manner.
Which of the following is a normative economic statement?
The government should increase spending during times of economic recession.
Which of the following statements is TRUE regarding the textbook used in this course?
The selection of topics included in the book involves value judgments as well as economic theory.
Which of the following is an example of a positive economic statement?
The unemployment rate last month was 5.4 percent.
According to economic theory, how do people make decisions?
They make decisions based on their own self-interest.
Consider the case of a teacher who tells students that those who miss more than three classes for any reason will automatically receive a lower grade.
This is an example of a negative incentive for students to attend class
Which of the following is an example of a positive statement?
When the price of an item increases, people respond by reducing their consumption of the item.
Based on your understanding of your roommate's preferences, you predict that he will select the spaghetti for his lunch at the cafeteria, but instead he chooses the gyros. How do you describe this event in terms of economic theory?
You constructed a model that made a prediction, and the prediction was refuted.
In the above figure, which of the following points indicates the efficient use of resources?
a
An example of a microeconomic decision is a situation in which
a firm evaluates how much to reduce the price of its product in an effort to influence sales and boost its profits.
An inverse relationship will be graphed as
a line that is downward sloping.
"No individual should have less than $20,000 income in the United States in 2010" is an example of
a normative statement.
When the president says that "High inflation rates are a much more serious economic problem than high unemployment rates," it is an example of
a normative statement.
An efficient point of production is
a point on the production possibilities curve.
The difference between positive statements and normative statements is that
a positive statement is a statement of fact and a normative statement involves value judgments.
"If the United States enters a war in the Middle East, gasoline prices will go up." This statement is an example of
a positive statement.
A graphical representation which shows the trade-off that occurs when more of one output is obtained at the sacrifice of another is called
a production possibilities curve.
Which of the following is a behavioral implication of bounded rationality?
a rule of thumb
When an employee at a grocery store scans the price of your items, bags the groceries, and collects your paper, the individual has provided
a service.
Economic models are
a simplified representations of the real world.
Aggregate measures are
a total measure of a variable across the economy.
Positive analysis can be described as
a value-free approach to inquiry.
If a person can make $70,000 as an accountant, $60,000 as a chef, $20,000 as a mechanic, and nothing as an opera singer, he or she has a comparative advantage in
accounting
If a person can make $70,000 as an accountant, $60,000 as a chef, $20,000 as a mechanic, and nothing as an opera singer, he or she has a comparative advantage in
accounting.
One major assumption of economics is that people
act as if they systematically pursue self-interest.
Macroeconomics is concerned primarily with
aggregate economic variables.
Macroeconomics is the study of
aggregate economic variables.
"My brother is better at cooking, better at cleaning, and better at fixing the car than I am." Relative to me, my brother has
an absolute advantage in cooking, cleaning, and car repair.
A waitress brings a free glass of wine when you sit down in a restaurant. This glass of wine is
an economic good because wine is produced with scarce resources, even if it is free to you.
In economics, the word "aggregate" refers to
an economy as a whole.
Which of the following would NOT provide an incentive to reduce the amount of beef consumed?
an increase in the price of beef
If an increase in one variable causes a decrease in another variable, this is
an inverse relationship.
A point inside a society's production possibilities curve represents
an underutilization of productive resources
Production refers to
any activity that results in the conversion of resources into goods and services that can be consumed.
Rational behavior for an economist means that individuals
are self-sacrificing.
Normative economic statements
are statements of "what ought to be."
Economic models
are used to explain how people behave.
The production possibilities curve for two products is bowed out because
as the production of a good increases, opportunity cost increases.
People respond to incentives
as they never intentionally make decisions that would leave them worse off.
If all resources were perfectly adaptable for alternative uses, the production possibilities curve would
be a straight line.
Which of the following is an example of an inverse relationship?
beers consumed while studying and test grade
Other things being equal, you can make $20,000 a year teaching, $25,000 a year typing, $30,000 a year driving a cab, and $40,000 a year as a chef. You have a comparative advantage in
being a chef.
A difference between biology and economics is that
biologists often use laboratory methods and economists do less often.
The impact of higher taxes would be examined by
both a macroeconomist and a microeconomist.
Steve and Karen decide to attend the same concert when they are each given free tickets to it. We know that
both bear an opportunity cost that depends on what each person is giving up to attend the concert.
Which of the following describes that people cannot examine every possible choice available to them but instead use simple rules of thumb to sort among the alternatives that happen to occur to them?
bounded rationality
The hypothesis that people are nearly, but not fully rational, cannot possibly fully examine every available choice, and utilize simple rules of thumb in making decisions is known as the
bounded rationality hypothesis.
In a market system, the what, how and for whom questions in economics are determined by
buyers and sellers together.
Charitable donations to the Red Cross
can be explained by the rational ignorance theory.
In building a model the assumption that allows economists to study only the factors being analyzed is the
ceteris paribus assumption.
Mary says she plans to return to college next semester assuming her car keeps running, tuition fees don't go up, and her daycare provider continues to be dependable. An economist would say that Mary plans to return to college next semester
ceteris paribus.
Central planning is a key characteristic of which economic system? price system
command and control
What is the type of economic system that relies on one central authority to make economic decisions?
command and control
The ability to produce a good at a lower opportunity cost than others is known as
comparative advantage. You Answered
Refer to the above figure. Which of the following points indicates an inefficient use of resources?
d
Microeconomics examines the
decision making undertaken by individual households.
Microeconomics studies
decisions made by individual consumers and firms.
Assumptions are necessary to
define a set of circumstances where a model is most likely to apply.
A relationship between two variables in which one variable increases at the same time that the other increases is called
direct.
Suppose that at a bicycle shop, instead of having each worker assemble an entire bicycle themselves, one person welds the frames, another person works on the braking system, another person works on the tires, and another person works on the gears. This best demonstrates the concept of
division of labor.
Economists assume people behave rationally, which means that people
do not intentionally make decisions that make themselves worse off.
A poll conducted by a national firm finds that most Americans say they care more about safety when buying a car than about fuel efficiency. As a result, a car maker produces a car with many safety features, but it doesn't sell well. This behavior
does not contradict economic theory because economists focus on what people do rather than on what they say.
According to economists, when two people make exactly the opposite decision
each person evaluates the situation according to his/her individual self-interest.
Ceteris paribus means
economists isolate one or two factors that change when analyzing human decisions.
One topic of study for a microeconomist would be the
effects of a gasoline price increase on consumer behavior.
Scarcity
exists in all human societies.
When two countries specialize in the production of different goods and trade with each other, it is most likely each country will
export the goods in which it has a comparative advantage.
The bowed shape of the traditional production possibilities curve reflects the
fact that not all resources are equally well-suited to producing all goods.
In economics, resources are also known as
factors of production
Positive statements can contain
facts and predictions.
A scientist who is studying earthquakes includes the impact of wind when performing some tests of damages to structures. This is an example of
failing to hold all other things constant.
A common approach that economists use to understand, explain and predict economic phenomena is to
form a theory or model.
A mixed economic system is best described as an economy with a mix of
free markets and government control.
Positive economic analysis is supposed to be
free of value judgments.
One opportunity cost associated with going to college is
giving up employment possibilities while in college. You Answered
Economists develop models to
help us understand economic phenomena in the real world.
Economics deals with
how individuals allocate scarce resources to satisfy unlimited human wants.
Education increases the stock of which factor of production?
human capital
Scarcity exists because
human wants exceed what can be produced with the limited resources available.
Macroeconomics would be concerned with
implications of changes in unemployment and inflation.
Economic analysis is used
in all decision making.
If the government offers to reduce your property taxes by 10 percent if you install solar heating for your home, this would be an example of
incentives
Microeconomics is the study of
individual decision making.
Under a pure price system, the decision of resource allocation is made by
individuals who own the resources.
A theory or a model
is a simplified, abstract view of reality.
The above table shows the daily production possibilities for a nation. Given the production possibilities schedule in the above table, a combination of 60 televisions and 40 personal computers
is attainable but involves an inefficient use of society's resources.
Self-interest
is consistent with many goals that people pursue, including betterment of others.
A production point that lies outside the Production Possibilities Curve (PPC)
is currently not attainable.
Positive economics
is objective.
The slope of a straight line
is the same at all points along that line.
One problem with constructing a perfectly complete realistic economic model is that
it would be far too complicated to analyze.
The ceteris paribus assumption is important in economics because
it would be impossible to relate the effects of changes in one variable on another without holding some variables constant.
Naturally occurring diamonds are an example of
land.
In economic analysis, people's resources are
limited and their wants are unlimited.
Economics is an empirical science, which means that economists
look at evidence to see whether or not the model is applicable.
People behave rationally when they
make decisions they think will make themselves better off.
In constructing models, economists
make simplifying assumptions
Economic theory predicts that people make choices in a manner that
makes them better off.
The study of an individual's choice about what type of computer to buy is a subject of
microeconomics
The study of how a particular firm might choose to maximize its profits would fall into what type of analysis?
microeconomics
The United States is best known as a
mixed economic system.
A simplified representation of the real world that is used to explain economic phenomena is a(n)
model.
Both the social sciences and the natural sciences employ ________ to help them understand the world around them.
models
All of the following are economic resources, or factors of production EXCEPT
money.
Refer to the above figure. If the farmer is producing 4,000 bushels of beans and 38,000 bushels of wheat, then we know the farmer
must be using more resources than were assumed available in constructing the graph
Analysis that involves value judgments about economic policies is
normative economics.
The ceteris paribus assumption means
other things are equal.
The term ceteris paribus is an economic assumption that means
other things being equal
Ceteris paribus means
other variables are held constant.
The rationality assumption states that
people do not intentionally make decisions that would leave them worse off.
Specialization occurs because
people have different skills.
Economics is the study of how
people make choices.
Macroeconomics is concerned with studying the
performance of the economy as a whole.
A man-made resource such as a building or a machine is an example of which resource?
physical capital
A factory can be thought of as
physical capital.
The shape of the production possibilities curve in the above figure indicates that
production of both corn and cloth is characterized by increasing costs.
The above figure is referred to as a(n)
production possibilities curve.
Activities designed to convert resources into goods and services is known as
production.
Economics seeks to use only positive analysis to
provide a value-free analysis
Rational self-interest means
pursuing activities that maximize income.
In economics, the concept that individuals are motivated by self-interest and respond predictably to opportunities for gain is known as
rational self-interest.
In economics, the term physical capital
refers to all manufactured resources used for production.
A point inside a production possibilities curve indicates
resources are not being used efficiently.
In economics, items that are used to produce goods and services are known as
resources.
If people act as if they systematically pursue their own self-interest, then they will most likely
respond predictably to a given incentive.
According to proponents of behavioral economics, because every possible choice cannot be considered, an individual will tend to fall back on methods of making decisions that are simpler than trying to sort through every single possibility, known as
rules of thumb
The most basic concept in economics is
scarcity
Opportunity cost exists because of
scarcity.
Economists assume people are motivated by
self-interest.
The term or phrase most likely to indicate a normative statement is
should" or "ought to."
Economics is best defined as the
study of how people make choices to satisfy their wants.
Economics deals with choices
that involve the wants of individuals.
Whenever a society forgoes current consumption to invest in capital goods,
that society can consume more in the future.
If a CEO can type faster than her secretary, then
the CEO should still continue performing CEO duties since the CEO has a comparative advantage in management, and the secretary should continue typing.
Which is the best example of an intangible good?
the advice and expertise provided by the music store clerk who sold you that CD
Economics is a study of
the allocation of scarce resources.
Macroeconomics might study which of the following?
the causes of domestic unemployment
The assumption that nothing changes except the variables being studied is
the ceteris paribus assumption.
A macroeconomist would study
the economy's unemployment level.
A macroeconomist would study the cost problems at several airlines.
the economy's unemployment level.
The macroeconomist would most likely study
the effects of a lower income tax rates on the nation's total production of goods and services.
Which of the following is NOT studied in microeconomics?
the impact of an increase in the unemployment rate on economic production
The more society consumes today
the less society can consume in the future.
Which of the following is a microeconomic topic?
the marketing strategy of the Apple Computer company
Assumptions in models tend to make
the model more applicable to specific circumstances.
An appropriate test of the effectiveness of an economic model is
the model's ability to predict future economic activity.
The use of data in economic models is important because
the model's predictive value rests on supportive evidence from real-world data.
Which of the following would likely be considered as a topic of microeconomics?
the price of apples
Which of the following is NOT an example of investment in human capital?
the purchase of a personal computer for playing games
If the slope of a curve is 1/5, we know that
the relationship is linear, and the line moves from lower left to upper right.
Economics is most precisely defined as
the study of how people make choices.
Wants are
the things people would consume if they had unlimited incomes.
When Adam Smith's ten pin workers specialized, they were able to increase output of pins in a day from 200 to 48,000. One reason for the increase in pin output was due to
the time saved when workers do not need to shift from one task to another.
A direct relationship occurs when
the two variables being compared change in the same direction, or when one goes up the other also goes up.
The value of a model is determined by
the usefulness of its predictions in the real world.
Samia has decided that with the two hours in between classes she can do one of 3 things. She has ranked her choices, from highest to lowest as, (1) chat with her friends, (2) study economics or (3) take a nap. The opportunity cost of chatting with her friends is
the value of studying economics, the next best use of time.
Opportunity cost is defined as
the value of the next-best alternative that must be sacrificed to attain a want.
Opportunity cost is
the value of the next-best alternative that must be sacrificed to satisfy a want.
Stephanie has decided to eat lunch between classes. She has ranked her choices, from highest to lowest as, (1) turkey sandwich, (2) tuna sandwich, (3) slice of cheese pizza, (4) cheeseburger. The opportunity cost of the eating turkey sandwich is
the value of tuna sandwich, the next best choice.
Scarcity exists because
there are not enough resources available to produce all the goods that people want.
If individual X has comparative advantage in painting and individual Y has comparative advantage in carpentry, then
there is a lower opportunity cost (expressed in units of carpentry) for individual X to paint than for individual Y to paint.
Which of the expressions below best describes the aim of economic theory?
to predict the choices people will make
The primary objective of economics is
to study how people make choices with limited resources.
The problem of economic scarcity applies Correct!
to the economies of all nations, regardless of their level of development.
The idea of bounded rationality is used to address all of the following characteristics EXCEPT
unbounded selfishness.
Normative economic analysis involves
value judgments.
In economics, all the items that people would consume if they had unlimited income are known as
wants.
When constructing economic models, economists are more concerned with
what people do than what they say.
The usefulness of a model is determined by
whether it helps to explain or predict real world phenomena.
The President's statement that "to encourage economic growth, taxes should be cut"
would be an example of a normative statement
