Macro Chapter 1

Positive economic statements can be proved or disproved by reference to the facts, while normative economic statements represent opinions that cannot be proved or disproved. True False

True

Rational self-interest means that individuals try to maximize the expected benefit achieved with a given cost or to minimize the expected cost of achieving a given benefit. True False

True

The need for economic choice arises from scarcity. True False

True

Microeconomics is the study of the economic behavior of entire economies. True False - Macroeconomics is the study of the economic behavior of entire economies.

False - Macroeconomics is the study of the economic behavior of entire economies.

Rational decision makers will continue to acquire information as long as additional benefit is positive. True False - Rational decision makers will continue to acquire additional information as long as the additional benefits exceed the additional costs.

False - Rational decision makers will continue to acquire additional information as long as the additional benefits exceed the additional costs.

The fallacy ________ is the incorrect idea that if two variables are associated in time, one must necessarily cause the other. a. that association is causation b. of composition c. of invariable variables d. that time is cause

a. that association is causation

Of the choices provided below, which offers the best definition of scarcity? a. More of something is available than people want at a zero price. b. Less of something is available than people want at a zero price. c. The creation of preferences and a sense of need through advertising. d. The rarity of certain skills such as horseshoeing and horse-and-buggy manufacturing.

b. Less of something is available than people want at a zero price.

A theory about how key variables relate to one another is called: a. an economic question. b. a hypothesis. c. an assumption. d. a prediction.

b. a hypothesis.

Which of the following offers the best definition of economics? a. Economics is the study of how to eliminate scarcity associated with the goods and services we produce. b. Economics is the study of how to manage city and county government to generate the greatest good to its citizens. c. Economics is the study of how people choose to allocate their scarce resources to satisfy their unlimited wants. d. Economics is the study of how to track revenues and costs within a business.

c. Economics is the study of how people choose to allocate their scarce resources to satisfy their unlimited wants.

Which of the following best describes the economic concept of rational self-interest? a. Blind materialism, which may be promoted by relentless TV and other media advertising. b. Pure selfishness, as indicated for example by the behavior of adults who consistently put their own interests above those of their children or friends or community. c. The attempt by people to get a given benefit at least cost, or to get the maximum benefit at a given cost. d. None of these are correct.

c. The attempt by people to get a given benefit at least cost, or to get the maximum benefit at a given cost.

The primary interaction in a market economy is between: a. households and government. b. firms and government. c. households and firms. d. government and the rest of the world.

c. households and firms.

The belief that what is true for the individual is also true for the group is known as: a. the law of small numbers. b. the fallacy that association is causation. c. the fallacy of composition. d. the mistake of ignoring secondary effects.

c. the fallacy of composition.

Which of the following is an example of physical capital? a. A person's physical and mental effort employed to produce goods and services. b. A person's ability to organize the productive resources and manage a business enterprise. c. Seams of coal, geologic strata containing oil, groundwater basins, and marine fisheries. d. Computers used by a company to record inventory, sales, and payroll.

d. Computers used by a company to record inventory, sales, and payroll.

________ refers to comparisons of incremental, additional, or small changes in economic conditions relative to the status quo. a. A normative economic statement b. A positive economic statement c. The ceteris paribus assumption d. Marginal analysis

d. Marginal analysis

Which of the following best illustrates the "other things equal" assumption? a. If we increase the price of a good, reduce consumer incomes, and lower the price of substitutes, and if quantity demanded is observed to fall, we know that the price increase caused that decline in quantity demanded. b. If the federal government increases government spending, and the Federal Reserve Bank lowers interest rates, we know that the increase in government spending caused unemployment to fall. c. If a company reduces its labor costs, negotiated lower materials costs from its vendors, and advertised, we know that the reduced labor costs are why profits are higher. d. That we hold other factors constant so that we can isolate the effects of a change in a single factor and be confident that it caused the observable effect

d. That we hold other factors constant so that we can isolate the effects of a change in a single factor and be confident that it caused the observable effect

Economics is the study: a. of prices and markets. b. of unemployment and inflation. c. of government spending and taxation. d. of how people use their limited resources to satisfy their unlimited wants.

d. of how people use their limited resources to satisfy their unlimited wants.