ECON 2306 chapter 1

Which of the following is NOT one of the basic questions that an economic system attempts to answer? How to eliminate choices? What to produce? How will goods and services be produced? For whom will goods and services be produced?

How to eliminate choices?

Which of the following is a normative statement? The Gross Domestic Product is the dollar value of all goods and services produced in a country in a year. Fiscal policy is determined by the Congress and the president. Tax cuts ought to be enacted for the good of the economy. Monetary policy is determined by the Federal Reserve System.

Tax cuts ought to be enacted for the good of the economy.

What is the type of economic system that relies on one central authority to make economic decisions? free market price system command and control mixed economic system

command and control

In an economic model, assumptions must be applicable to all real-world situations. must be eliminated before being used to make sure the model is realistic. are not important in determining the usefulness of the model. define the set of circumstances in which the model is most likely to be applicable in the real world.

define the set of circumstances in which the model is most likely to be applicable in the real world.

Economists assume people behave rationally, which means that people: never make a mistake. do not intentionally make decisions that make themselves worse off. have the necessary information to always make correct decisions. always understand the consequences of their decisions.

do not intentionally make decisions that make themselves worse off.

Economics is an empirical science, which means that economists look at evidence to see whether or not the model is applicable. test their models by utilizing unknown variables. do only laboratory experiments. refuse to test their models since the usefulness of a model is determined by whether it is logical or not.

look at evidence to see whether or not the model is applicable.

What is the type of mechanism that answers the basic economic questions through a decentralized decision making process? market system dictatorship command and control mixed economic system

market system

The United States is best known as a: pure price system. dictatorship. command and control system. mixed economic system.

mixed economic system.

Ceteris paribus means making all the necessary changes. other things constant. for certain parameters. let the buyer beware.

other things constant.

Economics is the study of how people make money. preferences are determined. psychology influences preferences. people make choices.

people make choices.

Jane is currently developing a model to explain the national unemployment rate. This is an example of a microeconomic topic. normative analysis. positive analysis. how people act in an irrational manner.

positive analysis.

Analysis that is limited to making either purely descriptive statements or scientific predictions is positive economics. normative economics. microeconomics. macroeconomics.

positive economics.

A five-cent deposit on beer bottles provides a positive incentive because it rewards people for recycling. provides a negative incentive because it punishes people who do not recycle. is an irrational policy, because it fails to take into account incentives. is an irrational policy, because it fails to take into account self-interest.

provides a positive incentive because it rewards people for recycling.

In economics, items that are used to produce goods and services are known as wants. aggregates. factors of need. resources.

resources.

Economic models are used to simplify reality to predict outcomes. exactly replicate reality. predict all possible outcomes of a study. determine the thoughts of individuals.

simplify reality to predict outcomes.

Microeconomics is defined as that part of economic analysis that: studies the behavior of the economy as a whole. includes the problems of inflation and unemployment. studies individual decision making by households and firms. concerns aggregate production and consumption.

studies individual decision making by households and firms.

Economics deals with choices that involve the wants of individuals. that involve what people only need to survive. that people make without self-motivated interest. that people normally do not make.

that involve the wants of individuals.

"Ceteris paribus" assumption means: the role of rational self-interest in the economy. that nothing else changes except the variables under consideration. relying on real-world data in evaluating the usefulness of a model. analysis that is strictly limited to making either purely descriptive statements or scientific predictions.

that nothing else changes except the variables under consideration.

Macroeconomics might study which of the following? the causes of domestic unemployment decision making undertaken by firms decision making undertaken by households determinants of the prices of rare goods (e.g., diamonds)

the causes of domestic unemployment

The macroeconomist would most likely study the effects of changing apple prices on the market for oranges. the effects of an increase in wage rates on a woman's decision to enter the labor force. the effects of a lower income tax rates on the nation's total production of goods and services. the effect of increased union wages on the cost of producing automobiles.

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

The assumption that individuals will not intentionally make decisions that will leave them worse off is known as microeconomic analysis. macroeconomic analysis. a model or theory. the rationality assumption.

the rationality assumption.

The economic way of thinking will help you make decisions in financing your home. decide whether the U.S. government should encourage or discourage immigration. make better decisions concerning your education. All of these

All of these

Which of the following would likely be studied in a macroeconomics course? the unemployment rate total output for an economy the inflation rate All of these

All of these

The questions that an economic system attempts to solve include what to produce. how to produce items. for whom items are produced. All of these.

All of these.

Which of the following is a TRUE statement about the economic assumption of rationality? Individuals who are rational necessarily ignore the interests of others. Individuals generally act as though they are rational. Individual behavior may be irrational but group behavior is always rational. People make decisions as if they are omniscient.

Individuals generally act as though they are rational.

Jaime's father gives her a pen for her graduation from college, but Jaime wants a smartphone. This implies that Jaime's father is not acting out of self-interest because he knows that she really wants a smartphone. Jaime's father is acting out of self-interest because he wants to give her something useful. Jaime is not acting out of her self-interest by wanting something different from what her father gives her. Jaime is not rational by asking for a smartphone instead of a pen.

Jaime's father is acting out of self-interest because he wants to give her something useful.

Which of the following statements is a normative as opposed to a positive economic statement? Consumer spending generates more jobs. If the price of gasoline goes up, people buy less. Labor unions should be allowed to organize in every industry. Government intervention in markets is common in many countries.

Labor unions should be allowed to organize in every industry.

Which of the following statements concerning the distinction between positive and normative economics is TRUE? Positive statements are concerned with what is, while normative statements are concerned with what someone thinks should be. Positive statements are concerned with what people think, while normative statements are concerned with what people do. Positive statements are true while normative statements are false. Positive statements are concerned with what is while normative statements are concerned with what will be.

Positive statements are concerned with what is, while normative statements are concerned with what someone thinks should be.

Which one of the following is an example of a positive statement? Farmers need some type of government aid. State governments should provide economic assistance to farmers. The federal government should provide economic assistance to farmers. The amount of financial assistance given to farmers is higher this year than it was 10 years ago.

The amount of financial assistance given to farmers is higher this year than it was 10 years ago.

How could Adam Smith's comment about the butcher, the brewer, and the baker be accurately rephrased in modern terms? The butcher, the brewer, and the baker give us our dinner because they want to be well liked in the community. The butcher, the brewer, and the baker give us our dinner because they will be sued if they don't do so. The butcher, the brewer, and the baker give us our dinner because they each earn a living by doing so. The butcher, the brewer, and the baker give us our dinner because they view doing so as a public service.

The butcher, the brewer, and the baker give us our dinner because they each earn a living by doing so.

Which of the following is a positive economic statement? No individual should live in poverty. The rate of unemployment of young African-Americans exceeds that of white Americans. Unemployment is a more serious problem than inflation. Economic considerations are less relevant than ethical issues in deciding national policy.

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

Which of the following statements is TRUE regarding the textbook used in this course? The textbook presents only economic theory, so no value judgments are involved in the text. The textbook does not include normative statements. The microeconomic section of the book includes only positive analysis while the macroeconomic section includes normative analysis. The selection of topics included in the book involves value judgments as well as economic theory.

The selection of topics included in the book involves value judgments as well as economic theory.

Which of the following is a positive statement? An unemployment rate of 5.8 percent is too high. The unemployment rate is 5.8 percent. The unemployment rate should be below 5.8 percent. The unemployment rate should never be above 5.8 percent.

The unemployment rate is 5.8 percent.

According to economic theory, how do people make decisions? They make decisions in the same manner as their parents did. They make decisions by looking at what others have done in the same situation and then doing the opposite. They make decisions by looking at what others have done in the same situation and then doing the same. They make decisions based on their own self-interest.

They make decisions based on their own self-interest.

Which of the following is a positive statement? We need to carefully protect our borders. Hyperinflation is the most damaging thing that can occur in an economy. When tax revenues are less than government spending there is a budget deficit. Foreign aid should be reduced to help our budget deficit.

When tax revenues are less than government spending there is a budget deficit.

An economic system is the universe of all resources. a way to create new resources. a mechanism to allocate scarce resources. an organization that generates profits.

a mechanism to allocate scarce resources.

Macroeconomics is concerned with individual business firms. specific industries. individual consumers. a nation's entire economy.

a nation's entire economy.

"All Americans should have access to health care" is an example of a positive statement. a microeconomic argument. a factual statement. a normative statement.

a normative statement.

Economic analysis is a tool that aids all decision making. helps us understand why people make mistakes. helps us forgive selfish people. makes everyone rich.

aids all decision making.

The term ceteris paribus means the greatest good for all. the study of scarcity and choice. all other things remaining constant or equal. value-free and testable.

all other things remaining constant or equal.

The way that a society uses to allocate resources to satisfy human wants is called an economic system. an assumption. realism. a physical science.

an economic system.

Which of the following is NOT a characteristic or focus of microeconomics? individual consumers. analysis of aggregate economic variables firm behavior individual markets

analysis of aggregate economic variables

A fundamental aspect of economics is to ensure that every firm makes a profit. analyze how choices are made. satisfy all our wants. make sure that our resources will always be unlimited.

analyze how choices are made.

Models must be able to yield useable predictions. be totally realistic in every detail. be a complete reproduction of the real world. include every relationship that exists.

be able to yield useable predictions.

Why is economics called an empirical science? because economics has been used to both create and destroy empires because economics uses impressions to evaluate the usefulness of its models because economics relies on real-world data to determine the usefulness of a model because economics utilizes intuition rather than data to evaluate a model's worth

because economics relies on real-world data to determine the usefulness of a model

The impact of higher taxes would be examined by a microeconomist. a macroeconomist. both a macroeconomist and a microeconomist. neither a macroeconomist nor a microeconomist.

both a macroeconomist and a microeconomist.

Behavioral economics deals with the assumption that people are always selfish. bounded rationality. unbounded willpower. only theories without justification from empirical evidence.

bounded rationality.

How does the science of economics deal with the fact that we all have different values? by assuming that values don't play a role in economic behavior by seeking to discover the sources of different value systems by using positive analysis by surveying the public to see what the most common values are, and then incorporating those as assumptions into their models

by using positive analysis

A positive economic statement is one that can be refuted. is free of the ceteris paribus assumption. is based on a value judgment. asserts something about the role of moral behavior in building a strong economy.

can be refuted.

Positive statements can contain opinions and conditions. facts and predictions. a mixture of facts and opinions. logical arguments mixed with statements of opinion.

facts and predictions.

To test their theories, economists usually have to set up careful laboratory experiments with all variables controlled. first examine theory and what has happened in the past in the real world. use only models that have a proven record of success. anticipate every factor with 100 percent accuracy.

first examine theory and what has happened in the past in the real world.

A mixed economic system is best described as an economy with a mix of state and federal governments. domestic and foreign buyers. free markets and government control. for-profit organizations and not-for-profit organizations.

free markets and government control.

Economists develop models to: capture every detail of the real world. make their arguments more realistic. justify the assumptions they make about people's behavior. help us understand economic phenomena in the real world.

help us understand economic phenomena in the real world.

Which of the following ways to recruit soldiers utilizes incentives? a draft universal service higher salaries longer lengths of service

higher salaries

Father says, "Earn a B-average on your next report card and I'll help you buy a car." An economist would say that this parent is providing his child a(n) study disincentive. reason to slack off and not worry about her grades. bribe. incentive.

incentive.

When studying individuals' economic behavior, economists assume that individuals understand the rationale for all their actions. individuals act as if they were rational. only educated people act as if they were rational. self-interest is of limited relevance in predicting an individual's actions.

individuals act as if they were rational.

Under a pure price system, the decision of resource allocation is made by the head of the government. a queen or king. individuals who own the resources. no one.

individuals who own the resources.

"The U.S. government should not use my tax dollars to subsidize people on welfare" is a positive economic statement because it simply describes one person's opinion. is a normative economic statement because it involves a value judgment about an economic policy. is a positive economic statement because it predicts that my tax dollars will go to welfare. is a normative economic statement because it is a scientific fact.

is a normative economic statement because it involves a value judgment about an economic policy.

A theory or a model is a simplified, abstract view of reality. is based on each economist's value judgments. is a detailed analysis of what ought to be. You Answered captures all aspects of the real world.

is a simplified, abstract view of reality.

Self-interest implies that a person must try to increase wealth at all times. implies that people will not give away wealth. is consistent with many goals that people pursue, including betterment of others. applies only to people in market settings.

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

When we say that an individual behaves according to "rational self-interest," we mean that this individual is motivated by greed. will always buy the most fashionable items available. will always buy the cheapest products available on the market. is making choices that he or she believes will leave him or her better off.

is making choices that he or she believes will leave him or her better off.

One problem with constructing a perfectly complete realistic economic model is that it would be too simplistic to have any value. it would be far too complicated to analyze. politicians see little value in such a model. None of these is true.

it would be far too complicated to analyze.

A model is used to explain economic behavior. Therefore the assumptions must be complex while the model itself is simple. the model must be complex. the model must be simple. the model can be either simple or complex so long as it explains economic behavior.

the model can be either simple or complex so long as it explains economic behavior.

An appropriate test of the effectiveness of an economic model is the number of variables contained within the model. the model's ability to predict future economic activity. the number of economists who have worked on the model. the number of assumptions which the economist has made.

the model's ability to predict future economic activity.

All of the following are aspects of macroeconomics EXCEPT the U.S. unemployment rate. the production decisions of a pharmaceutical firm. the budget deficit of the United States. foreign trade.

the production decisions of a pharmaceutical firm.

Wants are another term for needs. the things people would consume if they had unlimited incomes. the things people consume with their income. all the things people really need in order to live comfortably.

the things people would consume if they had unlimited incomes.

Normative economic analysis involves: true statements of facts only. testable hypotheses by scientists. value judgments and opinions. purely descriptive statements.

value judgments and opinions.

A useful economic model utilizes only the two most important factors to analyze the problem under consideration. generates statements that are incapable of refutation. represents every detail of the real world. yields usable predictions and implications for the real world.

yields usable predictions and implications for the real world.