ECO 211 Practice Test 1

Suppose an economist develops a theory that higher food prices arise from higher gas prices. According to the scientific method, which is his next step?

Collect and analyze data

"Minimum wage laws result in unemployment" is a normative statement, while "the minimum wage should be higher" is a positive statement

False

An economic model can accurately explain how the economy is organized because it is designed to include, to the extent possible, all features of the real world

False

Economists use one standard set of assumptions to answer all economic questions

False

In the circular-flow diagram, firms own the factors of production and use them to produce good and services

False

In the simple circular-flow diagram, the participants in the economy are

Households and firms

According to the circular-flow diagram, if Jalyssa is a worker who delivers flowers for Happy Day Flower Company, she participates

In the markets for factors of production exchanging labor for income

In the circular-flow diagram,

Labor flows from households to firms

A circular-flow diagram is a visual model of the economy

True

An outcome is said to be efficient is an economy is getting all it can from the scarce resources it has available

True

Changes in one variable on a graph might be caused by the other variable in the graph or by a third omitted variable

True

Economic models are most often composed of diagrams and equations

True

Economic models omit may details to allow us to see what is truly important

True

Economists devise theories, collect data, and then analyze these data in an attempt to verify or refute their theories.

True

Economists often find it worthwhile to make assumptions that do not necessarily describe the real world

True

Historical episodes allow economists to illustrate and evaluate current economic theories

True

The scientific method can be applied to the study of economics

True

When a production possibilities frontier is bowed outward, the opportunity cost of the second good in terms of the first good increases as more of the second good is produced

True

Which of the following is an example of a normative, as opposed to a positive, statement?

Universal healthcare would be good for US citizens