Economics Test Chapter 1

Fill in the blank: ____________ is the study of how households and businesses make choices, how they interact in markets, and how the government influences their choices. a. Microeconomics b. Macroeconomics c. A market mechanism d. Marginal analysis

A

The statement "A minimum wage actually reduces employment" would be considered what type of statement? a. a positive statement b. a marginal statement c. a normative statement d. an irrational conclusion

A

The stock of computers, factory buildings, and machine tools used to produce goods better are known as a. physical capital. b. technology. c. innovation. d. goods and services.

A

What does an economy achieve by producing a good or service at the least possible cost? a. productive efficiency b. allocative efficiency c. voluntary exchange d. equity

A

What is the name given to the development of a new good or a new process for making a good? a. an invention b. an innovation c. entrepreneurship d. capital

A

Which of the following involves an estimation of the benefits and costs of a particular action? a. positive analysis b. normative analysis c. the market mechanism d. an irrational conclusion

A

A firm's processes to produce goods and services are called a. entrepreneurship. b. technology. c. innovation. d. capital.

B

In economics, how do rational people behave? a. They always make the "best" decision. b. They decide on an action only if its benefits outweigh its costs. c. They know everything and never make mistakes. d. They use only the information they believe to be helpful in making a decision.

B

What is the purpose of an economic hypothesis? a. to establish a behavioral assumption b. to establish a causal relationship c. to make a statement based on fact d. to determine the validity of statistical analyses used in testing a model

B

What type of assessment is one in which a person's values and political views form part of that assessment? a. a positive assessment b. a normative assessment c. a microeconomic assessment d. a macroeconomic assessment

B

When you think of an arrangement or institution that brings buyers and sellers of a good or service together, what are you thinking of? a. marginal analysis b. a market c. scarcity d. rational behavior

B

Which of the following covers the study of topics such as inflation and unemployment? a. microeconomics b. macroeconomics c. Both microeconomics and macroeconomics give equal emphasis to these problems. d. none of the above

B

Which of the following is achieved when a good or service is produced up to the point where the marginal benefit to consumers is equal to the marginal cost of producing it? a. productive efficiency b. allocative efficiency c. equality d. equity

B

Which of the following is the best classification for the economies of the United States, Canada, Japan, and Western Europe? a. market economies b. mixed economies c. centrally planned economies d. none of the above

B

Economics is the study of all of the following except a. how the prices of goods and services are determined. b. how people make decisions, given scarce resources. c. how to eliminate scarcity with new ideas and inventions. d. how buyers and sellers interact in a market.

C

Human capital is a. physical capital produced by human resources. b. stocks and bonds that are owned by humans rather than corporations. c. the accumulated training and skills that workers possess. d. physical capital owned by humans rather than corporations.

C

In what type of economy does the government decide how economic resources will be allocated? a. a market economy b. a mixed economy c. a centrally planned economy d. none of the above

C

What type of economic analysis is concerned with the way things ought to be? a. positive analysis b. marginal analysis c. normative analysis d. rational behavior

C

Which of the following is an example of a positive question? a. Should the university offer free parking to students? b. Should the university provide more financial aid assistance to students? c. If the college increased tuition, would class sizes decline? d. Should the college cut tuition to increase enrollments?

C

Which of the following terms summarizes the situation in which a buyer and a seller exchange a product in a market and, as a result, both are made better off by the transaction? a. productive efficiency b. allocative efficiency c. voluntary exchange d. equity

C

Fill in the blank. In economics, optimal decisions are made _____________. a. once all costs have been considered b. only when all benefits have been considered c. in their totality d. at the margin

D

Fill in the blanks. The slope of a straight line equals the change in value on the ____________ axis ____________ by the change in the value on the other axis between any two points on the line. a. horizontal; multiplied b. horizontal; divided c. vertical; multiplied d. vertical; divided

D

What types of economies require that answers be given to the following questions: what goods and services will be produced, how will the goods and services be produced, and who will receive the goods and services produced? a. market economies b. centrally planned economies c. mixed economies d. all of the above

D

Which of the following best describes the characteristics of models used in economics? a. Models are approximations to reality that capture as many details as possible. b. Models are usually complex abstractions of reality that simulate practical problems. c. Models are concerned with what economic policies ought to be. d. Models are simplifications of reality that include only essential elements and exclude less relevant details.

D

Which of the following terms best refers to a fair distribution of economic benefits? a. productive efficiency b. allocative efficiency c. voluntary exchange d. equity

D

Economists rely on economic models and tests of hypotheses to analyze real-world issues. The use of models and hypothesis testing is common in the natural sciences such as physics and chemistry. Yet, economics is considered a social science, not a natural science. Why?

Economics, unlike physics and chemistry, is a social science because it applies the use of models and hypothesis testing to the study of the interactions of people.

Why do economists distinguish between financial capital and physical capital?

Economists distinguish financial capital and physical capital because only physical capital (for example, machinery, tools, and buildings) is a productive resource. Financial capital includes stocks, bonds, and holdings of money. Financial capital is not part of a country's capital stock, because financial capital does not produce output.

Economic models can help analyze simple real-world economic situations but are of little value in analyzing complicated economic situations.

False Economic models provide a foundation to analyze both simplistic and complicated economic situations.

Economists assume that human beings respond only to monetary incentives.

False Economists believe people respond to incentives, but incentives may be monetary or nonmonetary.

Economists use normative analysis to show that the minimum-wage law leads to higher unemployment.

False Economists would use positive economic analysis to address this issue.

People are rational when they only take actions that benefit society as a whole.

False People are rational when they use all available information to achieve their goals and compare benefits and costs of each action. They do not necessarily consider the benefits to society as a whole.

Equity is achieved when economic benefits are equally distributed.

False People differ on what they believe is equitable or fair.

In a centrally planned economy, the goods and services produced are always distributed equally to all citizens.

False The distribution of goods and services is determined by the government, so goods and services may or may not be distributed equally.

Write an example of a positive statement and an example of a normative statement.

Positive statements are statements of facts, or statements that can be proven to be correct or incorrect. For example: "Abraham Lincoln was the fifteenth president of the United States." (This is a false statement—Lincoln was the sixteenth president—but it is still a positive statement.) A normative statement is an opinion or a statement of what should or ought to be. For example: "The United States should elect a female as president of the United States."

Explain the difference between productive efficiency and allocative efficiency

Productive efficiency is the situation in which a good or service is produced at the lowest possible cost. Allocative efficiency is a state of the economy in which production reflects consumer preferences: every good or service is produced to the point at which the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it.

Which of the following is not among the fundamental economic questions that every society must solve? a. What goods and services will be produced? b. How will the goods and services be produced? c. What goods and services will be exchanged? d. Who will receive the goods and services produced?

C

Which of the following is not an essential component of an economic model? a. assumptions b. hypotheses c. variables d. normative statements

D

Which of the following questions can be answered using normative economic reasoning? a. If a college offers free parking, will more students drive to campus? b. If a college provided more financial aid, would more students go to college? c. If a college hires better qualified instructors, will more students attend? d. Should a college cut tuition to stimulate enrollments?

D

Which of the following statements best defines scarcity? a. Scarcity occurs whenever we cannot afford something because it is too expensive. b. Scarcity is an imbalance between buyers and sellers in a specific market. c. Scarcity refers to a lack of trade-offs. d. Scarcity is a situation in which unlimited wants exceed the limited resources available to fulfill those wants.

D

Stating a hypothesis in an economic model is an example of normative analysis.

False A hypothesis is a testable statement about how the world is.

A mixed economy is an economy in which the three fundamental questions (What? How? Who?) are answered by a mixture of consumers and producers.

False A mixed economy is one in which the government's influence on the choices of buyers and sellers is greater than in a market economy.

Only centrally planned economies face trade-offs when producing goods and services.

False All economies, including market economies and centrally planned economies, face trade-offs due to scarce resources.

To measure the slope of a nonlinear curve at a particular point, one must draw a straight line from the origin to the point. The slope of this line is equal to the slope of the curve at that point.

False The slope of a point on a nonlinear curve is measured by the slope of a tangent to the curve at that point

Mia has a full-time job, but also she spends several hours a week working as a volunteer in an organization that serves free meals to the homeless and low-income people. She also often donates money to charities. Is Mia rational according to economics?

In economics, people are rational when they weigh the benefits and costs of each action, and they choose an action only if its benefits outweigh its costs. The benefits do not necessarily have monetary values. Even though Mia could earn more income by working instead of serving as a volunteer, she probably enjoys volunteering more. Also, the enjoyment that Mia probably receives from donating money and helping others probably exceeds the monetary values of her donations.

Microeconomics is the study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.

True

The slope of a straight line is the same at any point.

True A straight line has a constant slope.

All societies face the economic problem of having a limited amount of economic resources.

True That all societies must make choices about how to use their scarce resources is a fundamental assumption of economics.

Government intervention in the U.S. economy increased dramatically as a result of the Great Depression.

True The high number of business bankruptcies and high level of unemployment during the Great Depression resulted in greater government intervention. See the section titled "The Modern 'Mixed' Economy" on page 10 in the textbook.

Only poor people face problems related to scarcity

True. In economics, scarcity is a basic fact of life for all people