ECO211 Ch 1 Quiz

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.

Macroeconomics is concerned with studying the...

Behavior of the economy as a whole.

A relationship between two variables in which one variable increases at the same time that the other increases is called

direct

Which of the expressions below best describes the aim of economic theory?

to predict the choices people make.

The primary objective of economics is

to study how people make choices with limited resources

Which of the following statements concerning economic models is FALSE?

Economic models are based on pure fact and no assumptions

Economic models are used to...

Simplify reality to predict outcome.

An economic theory is also known as an economic...

model

The rationality assumption states that

people do not intentionally make decisions that would leave them worse off.

The macroeconomists would most likely study

the effects of a lower income tax on the nation's total production of goods and services.

Which of the following would NOT provide an incentive to reduce the amount of beef consumed?

An increase in the price of beef

The issues that an economic system attempts to solve include:

How to produce items, what to produce, for whom items are produced.

Which of the following is a statement with positive economic analysis?

Lower wages increase employment and reduce the unemployment rate, a reduction in the size of the budget deficit will reduce interest rates, and slower money growth reduces inflation.

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 a positive economic statement?

One in every five children in the United States is living in poverty

In a market system, the what, how and for whom questions in economics are determined by

buyers and sellers together

All of the following are examples of macroeconomic problems EXCEPT...

consumers deciding to buy more fish and less beef because of concerns about a healthier diet.

A relationship between two variables in which one variable increases at the same time as the other decreases is called

inverse

Normative economics

involves value judgments

Microeconomics focuses on...

Individual decision makers within the economy.

Which of the following is a microeconomic topic?

The advertising strategy of a particular company

Economics is the study of

The allocation of scarce resources to satisfy unlimited wants.

Which of the following is a normative economic statement?

The government should increase spending during times of economic recession.

Which of the following is a positive economic statement?

The rate of unemployment of young African-Americans exceeds that of white Americans

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.

Normative economic statements

contain value judgments

Self interest

is consistent with many goals that people pursue, including betterment of others

It is assumed in economics that people make decisions based on

rational self interest

A macroeconomist would study

the economy's unemployment level

Which of the following would likely be studied in a macroeconomics course

the inflation rate, total output for an economy, and the unemployment rate.

The assumption that people do not intentionally make decisions that would leave them worse off is known as

the rationality assumption

According to the bounded rationality hypothesis, an individual confronting a large number of complicated choices is most likely to respond by

using a simple rule of thumb to choose among a subset of easiest-to-evaluate options

Sara looks into her closet and discovers a pair of like-new shoes she no longer wears because they give her blisters. From the economist's perspective, was Sara behaving rationally when she bought those shoes?

Yes, as long as Sara didn't intentionally purchase blister-causing shoes.

Based on your understanding of your roommate's preferences, you predict that he will select 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.

"All Americans should have access to health care" is an example of

a normative statement

"No individual should have less than $20,000 income in the United States in2010" is an example of

a normative statement

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.

Economic models are

a simplified representation of the real world

Underlying economic theory is the idea that

choices are affected by both positive and negative incentives.

A common approach that economists use to understand, explain and predict economic phenomena is to

form a theory or model

The slope of a straight line

is the same at all points along that line

Economic resources are

items of value that are used to make other things that satisfy people's wants

The study of an individuals choice about what type of computer to buy is a subject of

microeconomists

Economists assume people behave

rationally

Economists assume people are motivated by

self interest

Which of the following is a normative economic statement

teenage unemployment is too high

Macroeconomics might study which of the following

the causes of domestic unemployment

The usefulness of a model is determined by

whether it helps to explain or predict real world phenomena