Ch 2

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Any point outside a country's production possibilities frontier represents a combination of two goods that an economy

cannot currently produce.

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

Gasoline prices ought to be lower than they are now.

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

Inflation occurs when the government prints too much money.

Which of the following statements about the circular-flow diagram is NOT correct?

It incorporates all aspects of the real economy.

_____ is the study of economy-wide phenomena, including inflation, unemployment and economic growth.

Macroeconomics

_____ is the study of how households and firms make decisions and how they interact in markets.

Microeconomics

Which of the following statements about economic models is correct?

Models assume away irrelevant details, allowing us to see what is truly important.

Sometimes economists disagree because their values differ. Which of the following instances best reflects this source of disagreement?

One economist advises against a consumption tax because she thinks it's unfair for low-income people; another economist argues that what's fair isn't relevant.

In the markets for factors of production in the circular-flow diagram, households are _________ and firms are __________.

sellers, buyers

Which of the following would likely be studied by a microeconomist rather than a macroeconomist?

the effect of gas prices on the profitability of snowplow companies in New England

Which of the following would likely be studied by a macroeconomist rather than a microeconomist?

the effects of borrowing by the federal government

In the circular-flow diagram, which of the following is NOT a factor of production?

Revenue.

The table above shows one set of production possibilities. What is the opportunity cost of increasing the production of corn from 800 bushels to 1200 bushels?

500 bushels of wheat

_____ help to simplify the complex world and make it easier to understand.

Assumptions

Suppose an economist develops a theory that higher gas prices lead people to take more local vacations. According to the scientific method, which of the following is the economist's next step?

Collect and analyze data.

In order to understand how the real world works, economists try to capture every aspect of the real world in their models that they construct

False.

The scientific method is only applicable to studying the natural sciences.

False.

There is only one explanation for why economists give conflicting advice on policy issues, and it is that they have different scientific judgments about the validity of alternative theories.

False.

Some economists disagree because their scientific judgment differs. Which of the following instances best reflects this source of disagreement?

One economist believes that the level of household saving would not be affected by a change in the tax laws; another economist believes that taxing a household's consumption would change a household's saving behavior.

In the circular-flow diagram, which of the following do firms NOT do?

Produce factors of production

In the circular-flow diagram, which of the following do households NOT do?

Produce goods and services.

A survey of professional economists revealed that more than three-fourths of them agreed with a number of statements. Which of the following statement is NOT one of those propositions?

The United States should restrict employers from outsourcing work to foreign countries.

Normative statements are prescriptive, whereas positive statements are descriptive.

True.

Refer to the Figure. Consider the production possibilities frontier for an economy that produces only sofas and cars. The opportunity cost of each car is the slope of the production possibilities frontier.

True.

Which of the following events would cause a production possibilities frontier to shift outward?

a technological improvement

Refer to the Figure. The economy cannot currently produce at point C because

it does not have the resources and technology to produce that level of output.

Economists make assumptions to

focus their thinking.

Almost all economists agree that a large federal budget deficit

has an adverse effect on the economy.

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

households and firms

When a production possibilities frontier is bowed outward, the opportunity cost of producing an additional unit of a good _________ as more of the good is produced.

increases

Almost all economists agree that a minimum wage

increases unemployment among young and unskilled workers.

When an economy is operating _______ its production possibilities frontier, we know that there are unused resources of inefficiencies in the economy.

inside

Refer to the Figure. If this society moves from point R to point U,

it gives up 80 sweaters to get 60 bushels of apples.

When a government program is justified based only on the number of jobs it will create,

it is known as the "broken window fallacy."

In the circular-flow diagram, which of the following items does NOT flow from firms to households?

labor

Studying the effects of rent control on housing in New York City is an example of the study of ______.

macroeconomics

"The government should raise the minimum wage," is an example of a _____ statement.

normative

"Total revenue rises when the quantity sold increases and prices remain constant" is an example of a

positive economic statement.

Positive statements are NOT

prescriptive.

Differences in scientific judgment between economists are similar to all of the following except

two biologists arguing about the fairness of health insurance premiums


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