ECON TEST REVIEW #1

An economy's resources

(land, labor, capital and entrepreneurship) are called factors of production since those are the resources used to produce goods and services. The factors of production are also simply known as 'inputs' of production.

Which of the following is correct?

A theory may result from a tested and confirmed hypothesis.

Which of the following is an example of a capital resource?

An oil rig

Economics is concerned with

Economics is most importantly concerned with how individuals, firms and institutions, or society in general, make their economic decisions under conditions of scarcity that arises because human wants and needs far exceed existing limited resources.

Which of the following best illustrates the fallacy of composition?

If Ms. Spann had more money, she could buy more scarce goods; if the nation had more money, everyone could buy more scarce goods. The fallacy of composition is the mistaken belief that what is true for an individual is also necessarily true for the individuals in a group. The statement above illustrates the fallacy of composition, since it extends the right conclusion applicable to Ms. Spann, an individual, to all of the individuals that make up nation. The nation as a whole may have more revenue, but that does not imply that everyone would be able to increase his or her expending.

Which of the following is a resource exchanged in the factor markets?

Land, labor, capital and entrepreneurship are resources exchanged in the factor markets. The factor markets refer to the markets where the use of the factors of production (land, labor, capital and entrepreneurship) are bought by firms and sold by households.

What is a market failure?

Market failure occurs when the economy fails to allocate resources efficiently, produces the erroneous amounts of certain goods and services, or does not assign sufficient resources to the production of a good whose output is economically justified.

Which of the following lies primarily within the realm of microeconomics?

Microeconomics is the study of household and firm behavior and examines the functioning of individual actors. Thus, a study of supply and demand conditions in the market for orange juice does in fact pertain to the realm of microeconomics.

Economic choices or tradeoffs are the result of

Scarcity, Scarcity implies limited goods and services, and restricts the options available to society. It is because of those limitations and restrictions that society has to make choices and decide on tradeoffs.

From an economists' perspective, which of the following observations is not true?

Self-interest is purely monetary in nature.

Which of the following is not an example of the use of the problem solving perspective provided by economics?

The Fogelberg family takes its vacation at Lake Arrowhead this year simply because they have done so for as long as anyone can remember.

The fallacy of composition is:

The fallacy of composition is the mistaken belief that what is true for an individual is also necessarily true for the individuals in a group.

Suppose there are two members of the U.S. Congress who were once economics professors. Why is it important to be able to distinguish their positive from their normative statements about economic policy?

Their positive statements help us understand the economy's response to a particular policy, while their normative statements reflect their value judgments.

Which of the following is true of resources?

They are the inputs used to produce goods and services.

"As a rational person, you would expect individuals to always avoid actions that are illegal."

This is a false statement because it is expected that individuals will consider the consequences of their actions and that some will choose to commit illegal acts anyway.

Which of the following is most likely an example of correlation but not an example of causation?

Usually, if I eat a chili dog and drink a beer before a game, my teams wins.

What according to an economist, forms the basis of rational human behavior under current and anticipated future circumstances?

Values and information

A theory can best be defined as

a normative statement that can be tested empirically through analysis of real-world data.

A hypothesis is

a testable proposition.

The term "ceteris paribus" means that:

all variables except those specified are constant.

The real core of most economic problem is to

allocate limited resources among competing uses.

The importance of the ceteris paribus assumption is that it

allows one to analyze the relationship between two variables apart from the influence of other variables.

Which of the following is most likely a topic of discussion in a microeconomics course?

an increase in the price of lumber used to construct houses

In a market economy, the amount of a good that is produced is primarily decided by the interaction of:

buyers and sellers

An economic hypothesis is tested

by comparing the hypothesis's predictions to real-world data.

Bill says: "The imposition of a tax on tequila will increase its price." Bob says: "Taxes should be imposed on tequila because college students drink too much."

Bill's statement is positive, and Bob's statement is normative

Economics is different from a "hard" science like physics because

economists cannot easily control all the variables that might influence human behavior.

Every time an individual decides to try out new equipment, or finds better ways to manage money, he or she is exhibiting traits of

entrepreneurship.

The problem of scarcity

exists because resources are limited relative to wants.

Economic resources are also known as

factors of production; In Economics, economic resources (land, labor, capital and entrepreneurship) are called factors of production since those are the resources used to produce goods and services. The factors of production are also simply known as 'inputs'.

Your mother tells you, "Watching ten hours of TV per day will make you stupid." This is a positive statement because:

it is a proposition that can be tested.

The branch of economics that focuses on outcomes in highly aggregated markets, such as the markets for labor or consumer products, is called:

macroeconomics

When economists speak of markets, they primarily mean:

mechanisms that coordinate actions of buyers and sellers

When economists refer to economic behavior, they mean that

rational people try to anticipate the likely consequences of their actions.

A good economic theory

relies on simplifying assumptions in order to explain economic behavior

Economists believe that individuals act as if they are motivated by self-interest and

respond in predictable ways to changing circumstances. In general, they assume that self-interest is a good predictor of human behavior in most situations.

Economic goods are

scarce products that are created from scarce resources.

Economics is most importantly concerned with

studying how we allocate scarce resources to satisfy unlimited wants.

Market failure occurs when

the economy fails to allocate resources efficiently on its own.

Human capital is

the expertise or knowledge possessed by workers

Macroeconomic topics do not usually include

the profit maximizing decisions of an individual manufacturer.

Entrepreneurship is

the resource that organizes the other factors of production in order to produce goods and/or services

Human capital is

the skill or knowledge of individuals.

A market economy depends on market mechanisms to:

determine the most efficient way of using resources.

Which of the following represents a normative statement?

The study of economics is more important than the study of history.

Which of the following is an example of an individual motivated by self-interest?

Economists believe that individuals behave as if they are motivated by self-interest. For example, to a consumer, it means to gain a higher level of satisfaction or utility given his or her budget constraints. To a person that performs charitable work, it means to experience a 'good feeling' of doing something to help others.

Which of the following would reflect self-interested behavior?

Economists believe that individuals behave as if they are motivated by self-interest. For example, to a consumer, it means to gain a higher level of satisfaction or utility given his or her budget constraints. To a person that performs charitable work, it means to experience a 'good feeling' of doing something to help others.

The function of an entrepreneur is to:

Entrepreneurship is the process of combining labor, land and capital to produce goods and services. That process entails several functions, among them, to bear the business risks, to organize the other factors of production, and to innovate.

Which of the following serve as the language of the market system?

In a market system, the prices provide the means of communication for sellers and buyers about the relative value of resources. Prices provide information to buyers about the relative availability of goods and services, and information to sellers about the relative value assigned to those goods and services.

Which of the following is true?

Poverty could be eliminated, scarcity could not.

Which of the following is not an example of a resource

The forest, the river, the tractor, and the chef are examples of resources. Economic resources (land, labor, capital and entrepreneurship) are called factors of production since those are the resources used to produce goods and services. A forest generates wood that could be used to build a house or to craft a chair. In a hydroelectric plant, a river provides the power to generate electricity. In a farm, a tractor provides the means to plow the land to cultivate corn or wheat. In a café, a chef is the one in charge of preparing a gourmet sandwich.

Which of the following is a statement of positive economics?

The income tax reduces after-tax incomes of the rich.

An example of a capital resource is

a dump truck

"Mandating longer sentences for any criminal's third arrest will lead to a reduction in crime. Less crime will reduce the number of police officers cities will hire." This quotation:1

contains positive statements only.

Negative incentives

decrease benefits or increase costs.