Quiz 1: Economic Analysis
"There should be less discrimination against women" is an example of a positive economic statement.
false
A rational individual would make charitable contributions only if such contributions receive favorable tax treatment.
false
An economic model will produce poor predictions if it includes assumptions.
false
As a scientist, an economist's main professional objective is to become wealthy.
false
Economic theory allows economists to predict the behavior of a specific person or firm.
false
It is always rational to acquire more information before making a decision.
false
Profit is the payment received by resource owners for the use of their capital.
false
Resources are used only in the production of goods, not services.
false
Sara is considering the purchase of a new car. Rational self-interest demands that she do an exhaustive research study to acquire every bit of information possible about her potential options.
false
The ceteris paribus assumption is a behavioral assumption.
false
The fallacy of composition is the error of believing that a cause and effect relationship exists between two events that are associated in time.
false
"An increase in the price of a product causes consumers to purchase more of that product" is an example of a positive economic statement.
true
A good economic theory brings clarity to chaos.
true
A rational decision maker compares the expected marginal cost to the expected marginal benefit of any activity.
true
Considering both product markets and resource markets, most economic decision makers participate in the economy as both buyers and sellers.
true
Economics is as much an art as it is a science.
true
Economics is best defined as the study of how individuals decide to use limited resources in an attempt to satisfy unlimited wants.
true
Economics is the only social science and the only business discipline for which the Nobel Prize is awarded.
true
Economists often focus on average behavior because it is easier to predict.
true
Labor and capital are exchanged in the resource market.
true
Most economists consider a theory a good one if it predicts well.
true
Normative economic statements refer to what should be.
true
One problem with rent controls is that policy makers often ignore its secondary effects.
true
Rent is the payment received by resource owners for the use of their natural resources.
true
Secondary effects are consequences of economic actions that develop slowly over time as people react to events.
true
The assumption of rational self-interest does not rule out the possibility of concern for other individuals.
true
The behavior of the entertainment industry in a city is a microeconomics topic.
true
The ceteris paribus assumption is the other-things-constant assumption.
true
Economic theories are:
useful because they allow us to make predictions.
Economists classify all of the following as physical capital, except one. Which one is not capital?
A $20 bill in a firm's petty cash drawer
Benjamin works as an economist for the federal government. Which of the following questions is he trying to answer as part of his job?
How do people use limited resources to try to satisfy unlimited wants?
Patrick decided to go to class today instead of going to the movies. He made this decision because:
Patrick's additional benefit of going to class exceeds the additional cost of going to class.
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:
has committed the fallacy that association is causation.
In economics, capital is defined as:
human creations used in the production process.
Step one in the scientific method is to:
identify the question and define relevant variables.
Economists tell stories:
in order to breathe life into economic theory and personalize abstract ideas.
Natural resources are:
included in the category of resources called gifts of nature.
Economics is best defined as the study of how:
individuals decide to use scarce resources in an attempt to satisfy their unlimited wants.
When economic choice involves an adjustment to an existing situation, marginal analysis:
involves comparing the additional costs and additional benefits of an activity before deciding.
A normative economic statement:
is a statement of what ought to be, not what is.
The problem of scarce resources:
is that there are not enough resources to satisfy people's unlimited wants.
When economists say that people act as rational decision makers, they mean that:
people respond in predictable ways to changes in costs and benefits.
All economic models must involve simplifications because:
reality is too complex to understand in its entirety, so we must reduce the complexity to a level that we can understand.
Which of the following sentences is the best example of scarcity of time?
Alexander is doing homework instead of going to the movies with his friends.
You want to sell your old iPad because you no longer use it, and your cousin wants to give you $200 for it. If you decide to sell your iPad to her, you'll have to pay the shipping fee to get the iPad to her. As a rational decision maker, you will sell your old iPad to your cousin when the shipping fee is:
$199
Because people's wants are unlimited but resources are scarce, _____:
choices must be made.
A marginal adjustment only refers to a minor change.
false
The association is causation fallacy is the error of assuming that what is true for one member of a group must be true for the group.
false
When economists refer to capital, they might mean:
human skills used in production.
In economics, marginal means:
incremental
A resource is something that:
is used to produce goods and services.
In economics, capital refers to:
machines, buildings, tools, and knowledge.
The assumption of rational self-interest means that economic decision makers:
make reasonable decisions based on their expectations of results.
Economists believe that people respond in a predictable way to changes in costs and benefits. The term that best describes this phenomenon is:
marginal analysis.
The difference between positive economic statements and normative economic statements is that:
positive statements are often false and normative statements are true.
Goods and services are exchanged in:
product markets.
Economists believe that individuals respond in a predictable way to changes in costs and benefits. The term that best describes this belief is:
rational behavior.
Economics is best described as the:
study of choice when scarcity exists.
Macroeconomists analyze:
the impact of unemployment on the economy.
Which of the following is a service?
An intangible activity that satisfies human wants
Which of the following is a normative economic statement?
Congress must recognize that the growing national debt is the most serious problem that the country faces.
Which of the following is an accurate list, in order, of the steps of the scientific method?
Define variables; state assumptions; form a hypothesis; test
Which of the following is an example of a normative economic statement?
The federal government's total spending should be reduced.
Which of the following would be a topic considered in the field of macroeconomics?
The study of the amazing recent growth of the Chinese economy
In an economic model of consumer behavior, rational self-interest would likely be:
a behavioral assumption.
The difference between a positive economic statement and a normative economic statement is that:
a positive statement can be verified, while a normative statement cannot.
An entrepreneur:
claims the profit after other resource suppliers are compensated.
The basic purpose of economic models is to:
explain and predict economic events.
Economic information:
is usually scarce and costly to acquire.
An economic model is useful if it:
makes accurate predictions.
Scarcity:
occurs when a resource is not freely available.
The assumption that individuals act rationally implies that:
people implicitly calculate the costs and benefits of an activity to decide if it is worthwhile.
You currently subscribe to two magazines and are trying to decide whether you should subscribe to a third. What should determine your decision if you are economically rational?
The cost of the third magazine compared to the additional enjoyment you would get from it
A hypothesis is:
a prediction of what will occur given certain assumptions.
Which of the following is an example of a positive economic statement?
An increase in the price of gasoline will cause a reduction in the amount of gasoline purchased.
Which of the following broad categories are resources divided into?
Natural resources, labor, capital, and entrepreneurial ability
Which of the following is not a part of the scientific method in economics?
Normative statements
The simple circular-flow model for households and firms is an economic model that focuses on the interaction between households and firms. Which of the following statements regarding the model is correct?
The model is a simplification of the real world, and it can be used to make predictions about the real world.
Which of the following statements regarding the basic economic problem of scarcity is correct?
The problem will exist as long as resources are available in limited amounts.
Which of the following is a positive statement?
When the national unemployment rate is 7 percent, the unemployment rate among inner-city youth is often close to 40 percent.
The difference between a good and a service is that:
a good is tangible, but a service is not.
The other-things-constant assumption:
allows the economist to make useful predictions.
An entrepreneur is:
an organizer who seeks profitable opportunities and is willing to accept risks.
Elijah, a basketball fan, reasons that because his favorite team has three superstars on it, the team must be a great team and will win the championship. Elijah is committing the:
fallacy of composition
Alicia makes the statement that every time she eats chocolate, she gets acne. By ignoring the possibility that there may be another factor that causes Alicia to eat chocolate and which also causes her acne, Alicia is committing the:
fallacy that association is causation.
The economic behavior of individual decision makers and the determination of price and output in specific markets are both studied in:
microeconomics.
When constructing an economic model, economists:
must rely on assumptions for the sake of simplification.
Households:
own and sell resources.
If a business produces and sells only one unit of a good, its profit would be the:
price of the product minus the cost of the resources used to produce the product.
The fact that people have unlimited wants means that:
they always want more of at least one good.
Which of the following is the fundamental resource that is the basis of labor?
time
You want to sell your old iPad that you no longer use, and your cousin wants to give you $300 for it. If you decide to sell your iPad to your cousin, you'll have to pay $40 for shipping the iPad to your cousin. As a rational decision maker, you should:
sell it because the marginal benefit is greater than the marginal cost.
A good or service is considered scarce if:
the amount people desire exceeds the amount available at a zero price.
Microeconomics is the study of:
the economic behavior of individual decision makers.
Rational economic decision makers will make a change only if:
the expected marginal benefit exceeds expected marginal cost.
Goods and services are scarce because:
they are produced using scarce resources.
To say that people make decisions at the margin means that:
they weigh the additional costs and the additional benefits of various activities before they make a decision.
As a scientist, an economist's main professional objective is to:
understand how the economy works.
One might commit the fallacy of composition by concluding that:
what is good for the individual is necessarily good for the group.
A fallacy of composition involves assuming that:
what is true for any individual component in a group is true for the group as a whole.