ECON 201- EXAM 1 WVU: Multiple Choice
Which of the following represents a positive statement? a A higher income tax rate will reduce the amount of time that people spend working. b Teenage unemployment should be reduced. c We should raise the standard of living for the elderly. d A decrease in tax rates is needed to help the poor.
a A higher income tax rate will reduce the amount of time that people spend working.
Which of the following is true? a Changes in personal costs and benefits will exert a predictable influence on the choices of people. b If one individual gains from an economic activity, then someone else must lose. c If a good is provided free to an individual by government, its production will not consume valuable scarce resources. d If the intentions behind a policy are good, you can be assured that the outcome will be desirable.
a Changes in personal costs and benefits will exert a predictable influence on the choices of people.
The image below showS the correlation between the number of people who drown falling into a pool annually plotted against the films Nicholas Cage appeared in. The correlation is 0.66. What is the best answer for this relationshIp? a Completely spurious relationships that often occur in nature. b There are more people alive every year (and thus more accidents in total even though per capita they are constant) and Nicholas Cage keeps making more movies. c Nicholas Cage is evil. d People are distracted by the phenomenon that is Nicholas Cage.
a Completely spurious relationships that often occur in nature.
John takes 10 minutes to iron a shirt and 20 minutes to type a paper. Harry takes 10 minutes to iron a shirt and 30 minutes to type a paper. Which of the following statements is correct? a Harry has a comparative advantage in ironing b Harry has a comparative advantage in typing c John has a comparative advantage in ironing d Neither can gain from a specialization and exchange
a Harry has a comparative advantage in ironing
Statistical data provided by the U.S. Department of Transportation shows that themedian income of individuals traveling on the nation's bus systems is $18,000 compared to$65,000 for those who normally travel by air. This finding is best explained by which of thefollowing statements? a Persons with high income are more likely to fly because the opportunity cost of their time is generally higher than those with lesser income. b Traditionally, lower income groups prefer slower methods of transportation. c Wealthy individuals own stock in the airlines and, therefore, receive preferential treatment. d Low-income groups are generally located near bus stations; wealthy groups congregate around airports.
a Persons with high income are more likely to fly because the opportunity cost of their time is generally higher than those with lesser income.
Which one of the following items best reflects the concept of opportunity cost?FAVORITE QUESTION a The fact that many of the best college basketball players drop out of college to pursue a professional career. b Star Trek replicators, a machine that can create items out of nothing. c The world's best ballerina mowing her lawn, even though she hates it. d Giving 110 percent.
a The fact that many of the best college basketball players drop out of college to pursue a professional career.
In his autobiography (pp. 151-152), Mark Twain says the following:Once in Hartford the flies were so numerous for a time, and so troublesome, that Mrs. Clemens conceived the idea of paying George a bounty on all the flies he might kill. The children saw an opportunity here for the acquisition of sudden wealth. ... Any Government could have told her that the best way to increase wolves in America, rabbits in Australia, and snakes in India, is to pay a bounty on their scalps. Then every patriot goes to raising them.The response of citizens is an example of what economic principle? a Unintended consequences. b Supply creates its own demand. c Opportunity cost. d Thinking on the margin.
a Unintended consequences.
In an informed and voluntary exchange, a both parties receive something they value more than what they gave up. b both parties place an equal value on what they received and what they gave up. c neither party can gain more than the other. d one trader can gain only at the expense of the other.
a both parties receive something they value more than what they gave up.
The most fundamental concept in economics is that Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a changes in incentives influence behavior in a predictable way—people will be less likely to choose an option as it becomes more expensive. b changes in incentives generally do not influence human behavior. c goods that are provided by government are free for society. d individuals generally do not consider other alternatives when making a choice.
a changes in incentives influence behavior in a predictable way—people will be less likely to choose an option as it becomes more expensive.
A private owner of a resource has a strong incentive to a conserve the resource for the future, particularly if it is expected to increase in value. b use the resource today even if its value is expected to increase substantially in the future. c employ the resource in ways that impose harm on others. d ignore the wishes of others when deciding how to employ the resource.
a conserve the resource for the future, particularly if it is expected to increase in value.
The economic way of thinking suggests that if the government imposed a $500 tax on owners of red automobiles, a fewer red automobiles would be produced and sold. b more red automobiles would be produced and sold. c there would be no change in the number of red automobiles produced and sold. d red automobiles would cease to exist.
a fewer red automobiles would be produced and sold.
A restaurant offers an "all you can eat" lunch buffet for $12. Jim has eaten three servings and is trying to decide whether or not to go back for a fourth. The economic way of thinking suggests that Jim should go back for the fourth serving if and only if a his marginal benefit of the additional serving is greater than zero. b his marginal benefit of the additional serving is at least $3. c his marginal benefit of the additional serving is $12 or more. d his total value from the meal exceeds $12.
a his marginal benefit of the additional serving is greater than zero.
Economics is the study of how a individuals make choices because of incentives and scarcity. b to succeed in business. c to make money in the stock market. d the morals and values of people are formed.
a individuals make choices because of incentives and scarcity.
According to Adam Smith, individual self-interest a is a powerful force for economic progress when it is directed by competitive markets. b is a powerful force for economic progress when individuals are wisely directed by a strong central government. c is a major factor in retarding the economic progress of humankind. d could be either a positive or negative force for economic progress, depending on the moral influences of political leaders.
a is a powerful force for economic progress when it is directed by competitive markets.
When economists say an individual has made a rational choice, they mean the individual has a made the choice by weighing their own subjective costs and benefits. b made a "good" decision, one that reasonable outside observers would have also made. c neglected to consider the unintended consequences arising from their decision. d ignored their own personal interests and made the choice that is best for society.
a made the choice by weighing their own subjective costs and benefits.
Because information is costly to acquire, a people will rationally choose not to become fully informed when making decisions. b people will generally choose to become as fully informed as possible when making decisions. c people will generally choose to acquire no information that would be relevant to their decisions. d none of the above are true.
a people will rationally choose not to become fully informed when making decisions.
Adam Smith believed that if people were free to pursue their own interests, a public interest would be served quite well b less would be produced than if altruism were the guiding principle. c they would generally apply their talents to unproductive activities that would generate little value to society. d they would have little incentive to undertake productive activities.
a public interest would be served quite well
The law of comparative advantage explains why a specialization and exchange will make it possible for trading partners to expand their joint output. b there will be an inverse relationship between the price of a product and the quantity of it that will be demanded. c larger firms will have lower per unit costs than smaller firms. d an increase in the price of a good will lead to an expansion in the quantity supplied by business firms.
a specialization and exchange will make it possible for trading partners to expand their joint output.
In economics, the term marginal refers to a the change or difference between two alternatives. b man-made resources as opposed to natural resources. c the satisfaction a consumer receives from a good. d holding everything else constant in the analysis.
a the change or difference between two alternatives.
Just before class, Jim tells Stuart, "Stuart, you shouldn't skip class today because you have paid tuition to enroll in the class." Stuart ignores Jim's advice, and instead makes the decision of whether to attend based on what he feels he'd be missing that day in class relative to his value of the extra time he could have to finish the video game he is playing. To an economist, Stuart is a using marginal decision making. b ignoring the total value of attending class. c ignoring the concept of opportunity cost. d likely going to fail.
a using marginal decision making.
When the WVU Mountaineers football team is up big after halftime, they often play their second and third team players. One of your friends notices that when the third team plays that WVU wins by a bigger margin than when just the first team plays. He recommends that the third team see more playing time as a result. Having taken an economics class, what do you say to him? a "Statistically, more points are scored in the second half." b "Sit down and be quiet - the third string only plays when the other team is terrible. That is why they score a lot of points." c "They score a lot because they are young and have lots of energy." d "Who died and made you Neil Brown? Just eat your pepperoni roll and enjoy the fact that we will get to sing Country Roads."
b "Sit down and be quiet - the third string only plays when the other team is terrible. That is why they score a lot of points."
Which of the following sayings best reflects the concept of opportunity cost? a "You can't teach an old dog new tricks." b "Time is money." c "I have a baker's dozen." d "There's no business like show business."
b "Time is money."
Sarah, a wheat farmer, is deciding whether or not to add fertilizer to his crops. If he adds 1 pound of fertilizer per acre, the value of the resulting crops rises from $80 to $100 per acre. According to marginal analysis, Harry should add fertilizer if it costs less than: a $12.50 per pound. b $20 per pound. c $80 per pound. d $100 per pound.
b $20 per pound.
Kelly is an attorney and also an excellent typist. She can type 120 words per minute, but she is pressed for time because she has all the legal work she can handle at $100 per hour. Kelly's friend Todd drives a taxi and would like some typing work but can only type 60 words per minute. According to the law of comparative advantage, Kelly should hire Todd to do her typing if and only if his wage rate is less than a $10 per hour b $50 per hour c $60 per hour d $100 per hour
b $50 per hour
Susan wishes to buy gasoline and have her car washed. She finds that if she buys 9 gallons of gasoline at $1.50 per gallon, the car wash costs $1, but if she buys 10 gallons of gasoline, the car wash is free. For Susan, the marginal cost of the tenth gallon of gasoline is a zero. b 50 cents. c $1. d $1.50.
b 50 cents.
Which of the following is most clearly consistent with the basic postulate of economics -namely that incentives matter? a People buy more beef in response to a rise in the price of beef. b A politician votes in favor of a bill because most of her constituents are strongly in favor of it. c Farmers produce fewer bushels of wheat in response to an increase in the price of wheat. d People drive more because of higher gas prices.
b A politician votes in favor of a bill because most of her constituents are strongly in favor of it.
There are more guns in the United States than people. In an attempt to reduce the number of guns and therefore gun-related violence, many cities have gun buy-back programs, where they offer individuals gift cards or cash for their guns. Which of the following actions by citizens is most likely to undermine the purpose of the program, consistent with the idea of unintended consequences? a Criminals bringing more guns into the area to replace the guns removed from the street. b Citizens trading in old guns and using the gift cards or cash to buy a new gun. c People being angry at the thought of government removing guns from circulation. d The gift cards being for Wal-Mart.
b Citizens trading in old guns and using the gift cards or cash to buy a new gun.
Which of the following is most consistent with economizing behavior? a If you get the same satisfaction from a steak sandwich and a fish sandwich, you should purchase the one that costs the most. b Even if you know how to paint, hiring someone to do the job is consistent with economizing behavior, if your opportunity cost is high enough. c If the government provides a good free to citizens, the opportunity cost of the good is zero. d If you get the same satisfaction from going to the opera and walking in the woods, it makes no difference which you choose.
b Even if you know how to paint, hiring someone to do the job is consistent with economizing behavior, if your opportunity cost is high enough.
"If Tom had twice as much money, he could consume twice as much. If everyone had twice as much money, they could consume twice as much." This quote is an example of correlation not causation. a True b False
b False
There is a high degree of correlation in major cities between ice cream sales and homicides. Based on economic reasoning, what is most likely going on that explains this observed relationship? a Ice cream vendors are more likely to be serial killers. b Ice cream sales and murders both increase in the summer but they are not causally related. c People often have ice cream at funerals. The high murder rate increases ice cream sales. d Most major cities only let ice cream sales in dangerous neighborhoods.
b Ice cream sales and murders both increase in the summer but they are not causally related.
We see white t-shirts, identical except for the logo, selling for different prices. A white t-shirt with an small green duck on the pocket sells for twice the price of a t-shirt that has a small yellow bird. What are we to make of this as economists? a People are bizarre, on average. b People must really value small green ducks compared to little yellow birds. c Advertising needs to be banned. d Green duck logos are costly to produce
b People must really value small green ducks compared to little yellow birds.
Which of the following most clearly distinguishes between positive and normative economics? a Positive economics is the study of what ought to be; normative economics is concerned with the facts. b Positive economics is the study of the facts; normative economics is concerned with what ought to be. c Positive economics is the study of supply and demand in narrowly defined markets such as the market for shoes; normative economics focuses on highly aggregated markets such as the market for all consumer products. d Positive economics is the study of goods that are scarce; normative economics is concerned with goods that are not scarce.
b Positive economics is the study of the facts; normative economics is concerned with what ought to be.
The economic principle that states that individuals or nations can gain by specializing in the production of goods that they produce cheaply and exchanging for other desired goods that they could only produce at a higher cost is a The law of absolute advantage b The law of comparative advantage c The law of production possibilities d The exchange maximum principle
b The law of comparative advantage
Which of the following is true? a Trade does not produce anything new; therefore, it cannot create value. b The value of a good generally depends on who uses it and circumstances such as when and where it is used. c The value of a good is determined by the cost of the material resources required for its production. d None of the above are true.
b The value of a good generally depends on who uses it and circumstances such as when and where it is used.
Which of the following is true regarding private ownership? a Relative to common ownership, private ownership generally leads to less conservation of resources. b With private ownership, owners are generally held accountable for using their resources in a manner that harms the resources of others through liability laws. c Private ownership generally gives the owner little incentive to find ways to use the resource wisely. d With private ownership, resource owners have little incentive to consider the preferences of others when deciding how to employ a resource.
b With private ownership, owners are generally held accountable for using their resources in a manner that harms the resources of others through liability laws.
The primary benefit that results when a nation employs its resources in accordance with the principle of comparative advantage is a an expansion in investment resulting from a reallocation of resources away from consumption. b a larger output resulting from a more efficient use of resources c greater equality of income resulting from an increase in the number of workers. d an increase in the profitability of business enterprises resulting from an increase in investment.
b a larger output resulting from a more efficient use of resources
Capital assets are significant pieces of property such as homes, cars, investment properties, stocks, bonds, and even collectibles or art. For businesses, a capital asset is an asset with a useful life longer than a year that is not intended for sale in the regular course of the business's operation. When private ownership rights are well-defined and enforced, owners of capital assets a have no incentive to consider the desires of others. b bear the opportunity cost of ignoring the wishes of others. c are not responsible if the use of their assets imposes harm on others. d have little incentive to take care of their assets.
b bear the opportunity cost of ignoring the wishes of others.
When property rights are clearly defined and enforced, private owners will a use their property for selfish ends because they have little or no incentive to consider the desires of others. b develop and direct their property toward uses that others value highly because the market will generally reward them for doing so. c have little or no incentive to take care of their property or conserve it for the future. d be unable to derive personal gain if they are sensitive to the desires of others when deciding how to use their property.
b develop and direct their property toward uses that others value highly because the market will generally reward them for doing so.
If a college enforces a new policy where anyone caught cheating is immediately expelled,the basic postulate of economics suggests that a cheating will be completely eliminated. b fewer students will attempt to cheat. c the amount of cheating will be unaffected. d any of the above is possible because student behavior is unpredictable.
b fewer students will attempt to cheat.
Your friend notices that U.S. auto production and U.S. population growth have moved together over several decades. He reasons that one way to slow population growth is for the government to order the auto makers to cut back on production. You gently point out to him that he a is correct only when the economy is in a recession b has mistakenly inferred causation from observed correlation c has ignored secondary effects d is correct only when the United States enjoys economic growth
b has mistakenly inferred causation from observed correlation
The economic way of thinking stresses that a changes in personal costs and benefits generally fail to exert much impact on behavior. b incentives matter— individuals respond in predictable ways to changes in personal costs and benefits. c if one individual gains from an economic activity, then someone else must lose and in the same proportion. d if a good is provided by the government, its production will not consume valuable scarce resources.
b incentives matter— individuals respond in predictable ways to changes in personal costs and benefits.
The opportunity cost of an activity a includes only the direct monetary cost of whatever is chosen. b is subjective and can only be determined by the person who chooses the alternative. c is the value of all alternatives that must be forgone as the result of the choice. d is relevant only in cases where the choice involves alternatives that would be considered undesirable.
b is subjective and can only be determined by the person who chooses the alternative.
The opportunity cost of an alternative a includes only the direct monetary cost of whatever is chosen. b is subjective and can only be determined by the person who chooses the alternative. c is the value of all alternatives that must be forgone as the result of the choice. d is relevant only in cases where the choice involves alternatives that would be considered undesirable.
b is subjective and can only be determined by the person who chooses the alternative.
Doris, a burglar who breaks into houses, decides to break into the house at 265 Elm Street, rather than the house next door because the house next door has a sign in the yard that says "home protected by a security system." To an economist, Doris is a making an irrational choice. b making a rational choice. c not fully considering the personal costs and benefits of her decision. d not responding to the incentives she faces.
b making a rational choice.
According to marginal analysis, you should spend more time studying economics if the extra benefit from an additional hour of study a is positive. b outweighs the extra cost. c exceeds the benefits of the previous hour of study. d will raise your exam score.
b outweighs the extra cost.
"Here in East Abalone, we are proud of our ability to be self-sufficient. We do not trade with other nations." From an economic perspective, citizens of this (mythical) nation can be expected to a gain materially from this policy because they can consume more goods over time than if they engaged in trade with foreigners. b produce less total value than they could if they specialized and engaged in trade with other nations. c gain from more rapid growth since home markets are reserved for home producers d be just as well off without trade since the value of what is sent to other nations in trade just equals the value of what is received in trade.
b produce less total value than they could if they specialized and engaged in trade with other nations.
People are willing to pay more for a diamond than for a bottle of water because a the marginal cost of producing an extra diamond far exceeds the marginal cost of producing an extra bottle of water. b the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water. c producers of diamonds have a much greater ability to manipulate diamond prices than producers of water have to manipulate water prices. d water prices are held artificially low by governments, since water is necessary for life.
b the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water.
Hutch Technology makes computer monitors, which sell for $500 each. What is theopportunity cost of producing ten monitors? a $5,000 b the other goods that could be produced with the resources that produce the ten monitors c the profits that Hutch earns when it sells the ten monitors d the profits that Hutch loses if it does not produce the monitors
b the other goods that could be produced with the resources that produce the ten monitors
Beginning in the early 1990s, private landowners in Zimbabwe have started fencing in large areas of land that contain black rhinos, which were on the verge of extinction. These private owners charge fees for a stay at the lodges on the property (eco-tourism) and also sell hunting safaris and photo safaris. As a result, a the population of black rhinos has fallen substantially. b the population of black rhinos has increased. c many black rhinos are being poached. d the incomes of residents in Zimbabwe has fallen substantially.
b the population of black rhinos has increased.
The opportunity cost of going to college is a the total spent on food, clothing, books, transportation, tuition, lodging, and other expenses. b the value of the best opportunity a student gives up to attend college. c zero for students who are fortunate enough to have all of their college expenses paid by someone else. d zero, since a college education will allow a student to earn a larger income after graduation.
b the value of the best opportunity a student gives up to attend college.
The subjective benefit (or satisfaction) that an individual expects to derive from an activity is called a opportunity cost. b utility. c marginal cost. d scarcity.
b utility.
Which of the following most accurately states the economic significance of exchange? a Physical goods have value because they exist; exchange can neither increase nor decrease their value. b Production of physical goods creates value; exchange merely redistributes this value. c Exchange creates value by moving goods from parties who value them less to parties who value them more d Exchange reduces value since it consumes resources without adding to the physical supply of goods.
c Exchange creates value by moving goods from parties who value them less to parties who value them more
Given freedom of movement for both goods and resources, if Florida producers specialize in oranges and Georgia producers specialize in peaches, it would be reasonable to conclude that a the opportunity cost of growing oranges is higher in Florida than in Georgia. b Georgia has a comparative advantage in producing oranges. c Florida has a comparative advantage in producing oranges d total output will be expanded when Georgia allocates more resources to producing oranges and Florida allocates more resources to producing peaches.
c Florida has a comparative advantage in producing oranges
Which of the following is a statement of positive economics? a Government control of rent is a fair way to help poor people afford housing. b Government control of rent keeps landlords from charging too much rent. c Government control of rent decreases the number of new apartments constructed. d Government control of rent is an injustice.
c Government control of rent decreases the number of new apartments constructed.
Concern over the problem of released prisoners finding employment so they do not recidivate, especially among domestic minorities, has led policymakers to pass "ban the box" policies that prevent employers from asking about a candidate's criminal history until late in the hiring process. Economists Jennifer Doleac and Benjamin Hansen studied the effect of these policies and found that ban the box policies decreased the probability of being employed by 5.1 percent if you were a young African-American male. What is the best economic explanation for this finding? a The study is bad. b Employers are more racist in states that banned the box. c If employers can't treat applicants as individuals, they use group attributes, and our criminal justice system incarcerates a large number of African-American males. d Fallacy of composition.
c If employers can't treat applicants as individuals, they use group attributes, and our criminal justice system incarcerates a large number of African-American males.
Which one of the following statements most accurately indicates the basic motivation forbehavior? a Which one of the following statements most accurately indicates the basic motivation for behavior? b Individuals are motivated primarily by humanitarian concerns; therefore, personal costs and benefits exert little influence on most of their actions. c Individuals are motivated by a variety of forces; however, changes in personal benefits and costs influence the choices of both selfish and humanitarian individuals. d Individuals are motivated by a variety of forces; however, changes in personal benefits and costs affect behavior only when individuals are motivated by selfishness.
c Individuals are motivated by a variety of forces; however, changes in personal benefits and costs influence the choices of both selfish and humanitarian individuals.
Which of the following is most inconsistent with economizing behavior? a If you derive the same satisfaction from eating pizza and walking in the woods, you should eat pizza. b It can make sense to not invest the time and energy to become fully informed on all of the issues and candidates in a local election. c It never makes sense to hire someone to do something for you that you could do yourself. d As something becomes cheaper, people tend to consume more of it.
c It never makes sense to hire someone to do something for you that you could do yourself.
Which of the following is a normative statement? a A decrease in price leads to an increase in quantity consumed. b Incomes grow more rapidly in high-tax states than low-tax states. c People would be better off if government expenditures were higher. d People will buy less butter at $1.50 per pound than they will at $1 per pound.
c People would be better off if government expenditures were higher.
It always seems like the PRT always breaks down when you are on the way to an important test. What is the best explanation for this relationship? a The PRT is more likely to get overloaded because more people going to class on exam days. b PRT operators want people to do poorly on their finals. c The PRT breaks down occasionally. You are more likely to remember those breakdowns when they are associated with important and stressful things in your life, like exams. d Exams are more likely to occur in the morning and PRT breakdowns are more likely to occur in the morning before everything has warmed up.
c The PRT breaks down occasionally. You are more likely to remember those breakdowns when they are associated with important and stressful things in your life, like exams.
Assembly Bil 5 in California goes into effect on January 1st. This bill forbids businesses from using independent contractors unless they can meet three stringent requirements. Targeted at Uber and Lyft, the legislation. In response, a number of online media companies, such as Vox, have announced that it will be laying off hundreds of freelancers in California. This is an example of what economic principle at work. a Association is not causation. b The fallacy of composition. c Unintended consequences. d Businesses are evil.
c Unintended consequences.
Which of the following is true? a Human choice is generally not influenced by changes in incentives. b What is true for the individual must be true for the group as a whole. c Using scarce resources to meet one need reduces our ability to meet needs in other areas. d The economic way of thinking stresses that good intentions usually lead to sound economic policy.
c Using scarce resources to meet one need reduces our ability to meet needs in other areas.
Does voluntary exchange create wealth (value)? a No, exchange cannot increase wealth since it simply moves goods around rather than expanding the number of goods in existence. b No, if one person gains, the other party must lose an equal amount. c Yes, because both parties gain more of what they value. d only if the trade results in the creation of additional goods and services.
c Yes, because both parties gain more of what they value.
Under a system of private property, could a 60-year-old owner of a tree farm benefit by planting and caring for a crop of Douglas firs, most of which will not be ready to cut for 50 years? a No, the farmer will be dead before the crop will be ready for harvest. b No, the value of the farmer's land will decline since he is taking it out of production for the next 50 years. c Yes, the farmer will benefit because this action will increase the value of the land if and when the farmer decides to sell. d Yes, but only if the project is subsidized by the government or private conservation groups.
c Yes, the farmer will benefit because this action will increase the value of the land if and when the farmer decides to sell.
The difference between a positive economic statement and a normative statement is that a a positive statement must be true; a normative statement is often not true b a normative statement must be true; a positive statement is often not true c a positive statement can be verified; a normative statement cannot d a normative statements can be verified; a positive statement cannot
c a positive statement can be verified; a normative statement cannot
"As soon as I announced my 'get tough on crime' policy, criminals got scared and the crime rate went down." Suppose that the lower crime rate was actually caused by freezing cold temperatures in January—it was just too cold for anybody to be out robbing other people. Which fundamental economic mistake did the politician make?FAVORITE QUESTION a believing that what's good for one person is good for the whole group (the fallacy of composition) b failing to take into account the benefits of crime (the payoff fallacy) c believing that association is the same as causation d failing to understand the theory of comparative advantage
c believing that association is the same as causation
If an airline company has several empty seats on a flight and the full price of an air ticket is $500 and the marginal cost per passenger is $100, then it will be profitable for the airline to a charge a stand-by (last second) passenger no less than the full fare of $500. b charge a stand-by (last second) passenger less than $100. c charge a stand-by (last second) passenger more than $100. d fill the seats at the last minute for any price.
c charge a stand-by (last second) passenger more than $100.
A student noted that the football team won by a larger margin when the third-string played more minutes. Therefore, he recommended that the third-stringers become the first team. His conclusion was probably erroneous because he a confused positive and normative analysis. b committed the fallacy of composition. c failed to recognize that association is not causation. d confused economics with sociology.
c failed to recognize that association is not causation.
"Bill Gates has made billions of dollars producing and marketing computer software. Many workers and consumers must have suffered in order for Gates to amass such enormous wealth." The person who made this observation a has failed to understand the principle of opportunity cost. b has failed to comprehend the fallacy of composition. c has failed to understand that voluntary exchange generally results in mutual economic gain. d has utilized the economic way of thinking by thinking the gains of producers are made primarily at the expense of consumers and workers.
c has failed to understand that voluntary exchange generally results in mutual economic gain.
Which of the following was a key belief of Adam Smith? a he felt that human goodness would provide adequate goods and services to everyone. b he stressed that limited exchange and command economies would prevent the exploitation of the poor. c he believed that individuals pursuing their own interests would direct economic activity in the most advantageous way. d he lectured about the importance of gold and silver in providing a stable monetary system.
c he believed that individuals pursuing their own interests would direct economic activity in the most advantageous way.
"After every fall election, the weather starts to turn cold, therefore elections cause cold weather." This statement a is correct as a causal statement. b gets the causation backwards c is a function of US elections being held primarily in November. d is wrong as a factual matter.
c is a function of US elections being held primarily in November.
The statement, "Violent crime has decreased in the last five years," a is obviously wrong and, therefore, cannot be a positive statement. b is normative since it can be answered by simply looking at the facts. c is positive because it is testable. d is not very interesting because all normative issues are of little importance.
c is positive because it is testable.
When economists say that people choose rationally, this means a they gather all relevant information before making their purchases b once a pattern of behavior has been established, people tend to become set in their ways c people respond in predictable ways to changes in costs and benefits d people rarely make errors when they are permitted to make transactions
c people respond in predictable ways to changes in costs and benefits
The difference between positive economic statements and normative economic statements is that a positive statements are based on opinion while normative statements are based on fact b positive statements are true and normative statements are often false c positive statements are based on fact while normative statements are based on opinion d positive statements are often false and normative statements are true
c positive statements are based on fact while normative statements are based on opinion
The Secretary of Labor states that wage rates in the country have risen by 2 percent this past year. The head of a local labor union states that wage gains should have been higher. The Secretary's statement is a (n) ______ economic statement, and the labor head's statement is a (n)______ economic statement. a normative; normative b normative; positive c positive; normative d positive; positive
c positive; normative
The unintended consequences of an economic change that are not immediately identifiable but are felt only with time are known in economics as a opportunity costs. b marginal effects. c secondary effects. d scarcity constraints.
c secondary effects.
The student government associations at several universities have experimented with purchasing bicycles to leave around campus for everyone's use. Anyone who needs the bike can use it, and they are not allowed to lock the bike up or take it home, but rather must leave it on campus for someone else to use. Economic theory would predict that a students will take better care of these commonly owned bicycles than they do their own bicycles. b students will take equally as good care of these commonly owned bicycles as they do their own bicycles. c students will not take as good of care of these commonly owned bicycles as they do their own bicycles. d because universities have a lot of money, these bikes will be better maintained than the ones owned privately by college students who tend to have little money.
c students will not take as good of care of these commonly owned bicycles as they do their own bicycles.
The opportunity cost of an action is a the monetary payment the action required. b the total time spent by all parties in carrying out the action. c the value of the best opportunity that must be sacrificed in order to take the action. d the cost of all alternative actions that could have been taken, added together.
c the value of the best opportunity that must be sacrificed in order to take the action.
Which of the following observations is consistent with the law of comparative advantage? a Gwen is a highly paid lawyer. She can type 80 words per minute, yet still hires a secretary who can only type 50 words per minute. b College-educated mothers are less likely to stay home with their children than are less educated women. c Sean earns a high salary as a computer software consultant. Even though Sean is a gourmet cook, he often eats out and rarely cooks. d All of the above are consistent with the law of comparative advantage e A and C
d All of the above are consistent with the law of comparative advantage
Which of the following is an example of a rational decision? a Jim enjoys the feeling of wind in his hair enough to ride his motorcycle without a helmet, even though he fully realizes the potential for injury it creates by not wearing one in the unlikely event he is in an accident. b Frank decides to not pay attention to his health and well-being because every male in his family has died before the age of forty. c Brandon, a drug user, chooses to buy his cocaine from Pablo, because Pablo's cocaine is as good as the cocaine from other dealers, but Pablo has lower prices. d All of the above are examples of rational choices.
d All of the above are examples of rational choices.
If Matt trades two candy bars to Andy in exchange for one baseball card, a Matt must have valued the baseball card more than the two candy bars. b Andy must have valued the two candy bars more than the baseball card. c Matt must lose an equal amount if Andy gains. d Both a and b are correct, c is incorrect.
d Both a and b are correct, c is incorrect.
The following image shows the correlation between the number of people who drowned after falling out of a fishing boat and the marriage rate in Kentucky. They track each other closely over time from 1999 to 2010. What is this an example of? a Trade-offs b Equilibrium c Karma d Correlation not causation
d Correlation not causation
Legislation to protect red-cockaded woodpeckers created incentives that resulted in premature harvesting of trees the woodpeckers like to nest in. This is an example of which of the following? a Association is not causation. b the fallacy of composition (what is true for the individual might not be true for everyone). c the use of ceteris paribus (other things being equal)Êconditions in economic analysis. d Good intentions do not always lead to desirable outcomes.
d Good intentions do not always lead to desirable outcomes.
Which one of the following statements is correct? a Policymakers have good intentions and therefore their proposals will create good outcomes. b Potential secondary effects do not need to be considered when deciding whether to implement a new government program. c A good outcome is guaranteed from a government program if it is created with good intentions. d Government programs can be implemented with good intentions but can lead to undesirable outcomes because of unintended consequences.
d Government programs can be implemented with good intentions but can lead to undesirable outcomes because of unintended consequences.
Which of the following statements about exchange is false? a The expectation of gain motivates people to engage in trade. b If a party to a potential exchange does not believe that it will lead to personal gain, he or she can chose not to engage in the trade. c Voluntary exchange is generally mutually advantageous to the trading partners. d If one trading partner gains, the other must lose.
d If one trading partner gains, the other must lose.
Which of the following is a statement of positive economics? a Too much government spending is the biggest problem facing the U.S. economy. b Creating jobs is the most serious problem facing the U.S. economy. c Raising taxes provides additional revenue that should be used to finance health care. d If taxes are over 50 percent of national income, job creation falls.
d If taxes are over 50 percent of national income, job creation falls.
Which of the following will most likely occur under a system of clearly defined and enforced private property rights? a Resource owners will fail to conserve vital resources, even if they expect their supply to be highly limited in the future. b Resource owners will ignore the wishes of others, including others who would like to use the resource that is privately owned. c Resource owners will fail to consider the wishes of potential future buyers when they decide how to employ privately owned resources. d Resource owners will gain by discovering and employing their resources in ways that are highly valued by others.
d Resource owners will gain by discovering and employing their resources in ways that are highly valued by others.
Harold, a delivery man, washes and irons his own shirts. Sarah, his boss, sends herclothes to a laundry. Which is the most plausible economic explanation for this difference? a Harold must enjoy ironing more than Sarah does. b Harold must be better at ironing than Sarah is. c The opportunity cost of ironing is greater for Harold. d Sarah has a higher opportunity cost of laundering her clothes than Harold does.
d Sarah has a higher opportunity cost of laundering her clothes than Harold does.
Which of the following is false? a Human choice is influenced by changes in incentives. b What is true for the individual is never true for the group as a whole. c Using scarce resources to meet one need reduces our ability to meet needs in other areas. d The economic way of thinking stresses that good intentions lead to sound economic policy.
d The economic way of thinking stresses that good intentions lead to sound economic policy.
Which of the following is an example of a normative economic statement? a The inflation rate in the United States decreased from 4 percent last year to 3 percent this year as a result of lower energy prices. b The economy grew at an annual rate of 5 percent during the first quarter of this year. c If two automobile companies merge, it is likely that the price of automobiles will rise. d The minimum wage should be increased so that low income workers can afford to keep up with the cost of living.
d The minimum wage should be increased so that low income workers can afford to keep up with the cost of living.
When individuals reap the benefits of choices that increase the value of their resources and bear the costs of choices that reduce the value of their resources, decision makers have a little incentive to acquire information about potential uses of the resources. b little incentive to use the resources wisely. c a strong incentive to use the resources now rather than conserve them for the future. d a strong incentive to search for more efficient ways of using the resources.
d a strong incentive to search for more efficient ways of using the resources.
It has been said that all economists share a common ground. What is this commonground? a the fallacy of composition - the idea that what is true for one individual will also be true for the group. b economic theory based on the postulate that the effects of a policy will be good if the intentions of the policy makers are good c the use of mathematics to explain highly aggregated markets d a theoretical framework based on the premise that incentives influence behavior in a predictable manner
d a theoretical framework based on the premise that incentives influence behavior in a predictable manner
Private property rights involve a the right to exclusive use of the property. b legal protection against those who would seek to use or abuse the property without the owner's permission. c the right to transfer, sell, exchange, or mortgage the property. d all of the above.
d all of the above.
The law of "comparative advantage" suggests that a curtailing U.S. trade with other countries would make U.S. consumers worse off. b everyone would be better off if they were self-sufficient. c countries will tend to export commodities that they can produce at a relatively low opportunity cost. d both answers a and c are correct.
d both answers a and c are correct.
The law of comparative advantage implies that a nation, individual, or region should trade for those economic goods for which it a has an absolute advantage b has a comparative advantage c is a low opportunity cost producer d is a high opportunity cost producer
d is a high opportunity cost producer
When economists say an individual displays economizing behavior, they simply mean that she is a making a lot of money. b buying only those products that are cheap and of low quality. c learning how to run a business more effectively. d seeking the lowest cost method to accomplish her objectives.
d seeking the lowest cost method to accomplish her objectives.
A marginal change usually is a a change that involves little, if anything, that is important. b large, significant adjustment. c change for the worse, and so it is usually a short-term change. d small, incremental adjustment.
d small, incremental adjustment.
A rational decision maker takes an action if and only if a the opportunity cost of the action is zero. b the marginal cost of the action is zero. c the marginal cost of the action exceeds the marginal benefit of the action. d the marginal benefit of the action exceeds the marginal cost of the action.
d the marginal benefit of the action exceeds the marginal cost of the action.
In economics the term utility refers to a the highest valued alternative that must be sacrificed when a choice is made. b the fact that human desire for goods is unlimited while the resources available to meet those desires is limited. c the number of possible uses for a resource. d the subjective benefit or satisfaction a person expects to receive from a choice or course of action.
d the subjective benefit or satisfaction a person expects to receive from a choice or course of action.
The fact that some people love tomatoes while others dislike them illustrates that a tomatoes have a value that is determined by their cost of production rather than by the value to the consumer of the tomatoes. b the value of a tomato cannot be determined by the person consuming it. c the value created by a good does not depend on who consumes it. d the value of a good is subjective.
d the value of a good is subjective.
One of the best known principles in economics is the idea of unintended consequences. It is very difficult to anticipate all the ways that citizens will respond to a policy. The task of the economist is to try to tease out before hand why a policy might not work in addition to explaining after the fact why it failed to achieve its goals.In 1989, Mexico City's government passed a law that banned drivers from driving one day a week, based on the last digit of the vehicle's license plate. For example, people whose license plates ended in 2 might not be able to drive that car on Tuesdays.After the policy was enacted, the evidence suggests that air quality did not improve. Economist Lucas Davis studied why air pollution didn't decline. Based on your knowledge of unintended consequences and human behavior and incentives, what do you think he found? a Cars don't pollute a lot so the policy had zero effect. b People still had to get to work, so they substituted away from their cars to buses and taxis, which tended to be worse polluters. c The police did not enforce the law. d People bought an older second car to drive on the days their other car was illegal to drive. e b and d.
e b and d.
