Chapter 1 : Limits, alternatives, choices

Which of the following most closely relates to the idea of opportunity costs? A. trade-offs B. economic growth C. technological change D. capitalism

A. trade-offs

A normative statement is one that A. is based on the law of averages. B. applies only to microeconomics. C. applies only to macroeconomics. D. is based on value judgments.

D. is based on value judgments.

In economics, the pleasure, happiness, or satisfaction received from a product is called A. marginal cost. B. rational outcome. C. status fulfillment. D. utility.

D. utility.

The basic purpose of the other-things-equal assumption is to A. allow one to reason about the relationship between variables X and Y without the intrusion of variable Z. B. allow one to focus upon micro variables by ignoring macro variables. C. allow one to focus upon macro variables by ignoring micro variables. D. determine whether X causes Y or vice versa.

A. allow one to reason about the relationship between variables X and Y without the intrusion of variable Z.

According to economists, economic self-interest A. is a reality that underlies economic behavior. B. has the same meaning as selfishness. C. means that people never make wrong decisions. D. is usually self-defeating.

A. is a reality that underlies economic behavior.

The issues of inflation, unemployment, and business cycles are A. major topics of macroeconomics. B. not relevant to the U.S. economy. C. the primary focus of microeconomics. D. positive economic issues, but not normative issues.

A. major topics of macroeconomics.

In constructing models, economists A. make simplifying assumptions. B. include all available information. C. must use mathematical equations. D. attempt to duplicate the real world.

A. make simplifying assumptions.

Opportunity costs exist because A. the decision to engage in one activity means forgoing some other activity. B. wants are scarce relative to resources. C. households and businesses make rational decisions. D. most decisions do not involve sacrifices or trade-offs.

A. the decision to engage in one activity means forgoing some other activity.

According to Emerson: "Want is a growing giant whom the coat of Have was never large enough to cover." According to economists, "Want" exceeds "Have" because A. people are greedy. B. productive resources are limited. C. human beings are inherently insecure. D. people are irrational.

B. productive resources are limited.

Consumers spend their incomes to get the maximum benefit or satisfaction from the goods and services they purchase. This is a reflection of A. resource scarcity and the necessity of choice. B. purposeful behavior. C. marginal costs that exceed marginal benefits. D. the trade-off problem that exists between competing goals.

B. purposeful behavior.

Which one of the following expressions best states the idea of opportunity cost? A. "A penny saved is a penny earned." B. "He who hesitates is lost." C. "There is no such thing as a free lunch." D. "All that glitters is not gold."

C. "There is no such thing as a free lunch."

The term "other things equal" means that A. the associated statement is normative. B. many variables affect the variable under consideration. C. a number of relevant variables are assumed to be constant. D. when variable X increases, so does related variable Y.

C. a number of relevant variables are assumed to be constant.

A well-tested economic theory is often called A. a hypothesis. B. a prototype. C. a principle. D. an anomaly.

C. a principle.

Economic theories A. are useless because they are not based on laboratory experimentation. B. that are true for individual economic units are never true for the economy as a whole. C. are generalizations based on hypotheses tested and supported with observed facts. D. are abstractions and therefore of no application to real situations.

C. are generalizations based on hypotheses tested and supported with observed facts.

Purposeful behavior suggests that A. everyone will make identical choices. B. resource availability exceeds economic wants. C. individuals may make different choices because of different desired outcomes. D. an individual's economic goals cannot involve trade-offs

C. individuals may make different choices because of different desired outcomes.

The Latin term "ceteris paribus" means A. that if event A precedes event B, A has caused B. B. that economics deals with facts, not values. C. other things equal. D. prosperity inevitably follows recession.

C. other things equal.

Which of the following terms implies the greatest degree of confidence in an economic generalization? A. hypothesis B. comparison C. theory D. anomaly

C. theory

Which of the following terms implies the least degree of confidence in an economic generalization? A. hypothesis B. theory C. principle D. law

A. hypothesis

Economics involves marginal analysis because A. most decisions involve changes from the present situation. B. marginal benefits always exceed marginal costs. C. marginal costs always exceed marginal benefits. D. much economic behavior is irrational

A. most decisions involve changes from the present situation.

Alex sees that his neighbors' lawns all need mowing. He offers to provide the service in exchange for a wage of $20 per hour. Some neighbors accept Alex's offer and others refuse. Economists would describe Alex's behavior as A. rational self-interest because he is attempting to increase his own income by identifying and satisfying someone else's wants. B. greedy because he is asking for a high wage that some of his neighbors can't afford to pay. C. selfish because he is asking for a wage that is higher than others might charge. D. irrational because some neighbors refused his offer.

A. rational self-interest because he is attempting to increase his own income by identifying and satisfying someone else's wants.

Suppose an economist says that "other things equal, the lower the price of bananas, the greater the amount of bananas purchased." This statement indicates that A. the quantity of bananas purchased determines the price of bananas. B. all factors other than the price of bananas (for example, consumer tastes and incomes) are assumed to be constant. C. everyone will buy more bananas when the price falls. D. one cannot generalize about the relationship between the price of bananas and the quantity purchased

B. all factors other than the price of bananas (for example, consumer tastes and incomes) are assumed to be constant.

Economics may best be defined as the A. interaction between macro and micro considerations. B. social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity. C. empirical testing of value judgments through the use of logic. D. study of why people are rational.

B. social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity.

The process by which economists test hypotheses against facts to develop theories, principles, and models is called A. the economic perspective. B. the scientific method. C. policy economics. D. microeconomics.

B. the scientific method.

For economists, the word "utility" means A. versatility and flexibility. B. rationality. C. pleasure or satisfaction. D. purposefulness.

C. pleasure or satisfaction.

Economists contend that most economic decisions are A. random. B. chaotic. C. spontaneous. D. purposeful.

D. purposeful.

The scientific method is A. not applicable to economics because economics deals with human beings. B. also known as the economic perspective. C. employed to form hypotheses out of existing laws and theories. D. used by economists and other social scientists, as well as by physical scientists and life scientists, to formulate and test hypotheses.

D. used by economists and other social scientists, as well as by physical scientists and life scientists, to formulate and test hypotheses.

The economic perspective entails A. irrational behavior by individuals and institutions. B. a comparison of marginal benefits and marginal costs in decision making. C. short-term but not long-term thinking. D. rejection of the scientific method.

B. a comparison of marginal benefits and marginal costs in decision making.

Microeconomics is concerned with A. the aggregate or total levels of income, employment, and output. B. a detailed examination of specific economic units that make up the economic system. C. positive economics, but not normative economics. D. establishing an overall view of the operation of the economic system.

B. a detailed examination of specific economic units that make up the economic system.

The assertion that "there is no free lunch" means that A. there are always trade-offs between economic goals. B. all production involves the use of scarce resources and thus the sacrifice of alternative goods. C. marginal analysis is used in economic reasoning. D. choices need not be made if behavior is rational.

B. all production involves the use of scarce resources and thus the sacrifice of alternative goods.

Which of the following is associated with macroeconomics? A. an examination of the incomes of professional athletes B. an empirical investigation of the general price level and unemployment rates since 1990 C. a study of the trend of pecan prices since the Second World War D. a case study of pricing and production in the textbook industry

B. an empirical investigation of the general price level and unemployment rates since 1990

Kara was out jogging and, despite being tired, decided to run one more mile. Based on her actions, economists would conclude that Kara A. must be an avid runner. B. decided that the marginal benefit of running one more mile would outweigh the cost of the additional mile. C. decided that the marginal cost of running one more mile would outweigh the benefit of the additional mile. D. was not very tired, so the marginal cost of the extra mile was very low.

B. decided that the marginal benefit of running one more mile would outweigh the cost of the additional mile.

Suppose that a university decides to spend $1 million to upgrade personal computers and scientific equipment for faculty rather than spend $1 million to expand parking for students. This example illustrates A. distorted priorities. B. opportunity costs. C. increasing opportunity costs. D. productive efficiency.

B. opportunity costs.

Purposeful behavior means that A. people are selfish in their decision making. B. people weigh costs and benefits to make decisions. C. people are immune from emotions affecting their decisions. D. decision makers do not make mistakes when weighing costs and benefits.

B. people weigh costs and benefits to make decisions.

Macroeconomics can best be described as the A. analysis of how a consumer tries to spend income. B. study of the large aggregates of the economy or the economy as a whole. C. analysis of how firms attempt to maximize their profits. D. study of how supply and demand determine prices in individual markets.

B. study of the large aggregates of the economy or the economy as a whole.

Which of the following statements pertains to macroeconomics? A. Because the minimum wage was raised, Mrs. Olsen decided to enter the labor force. B. A decline in the price of soybeans caused farmer Wanek to plant more wheat. C. National income grew by 2.7 percent last year. D. The Pumpkin Center State Bank increased its interest rate on consumer loans by 1 percentage point

C. National income grew by 2.7 percent last year.

Which of the following is a microeconomic statement? A. The real domestic output increased by 1.6 percent last year. B. Unemployment was 5.2 percent of the labor force last year. C. The price of smartphones declined 2.8 percent last year. D. The general price level increased by 1.1 percent last year.

C. The price of smartphones declined 2.8 percent last year.

An economic hypothesis A. has the same meaning as an economic principle or economic law. B. is usually a normative statement. C. is a possible explanation of cause and effect. D. is a stronger generalization than an economic law.

C. is a possible explanation of cause and effect.

Even though local newspapers are very inexpensive, people rarely buy more than one of them each day. This fact A. is an example of irrational behavior. B. implies that electronic media sources are displacing print sources for many consumers. C. contradicts the economic perspective. D. implies that, for most people, the marginal benefit of reading a second newspaper is less than the marginal cost.

D. implies that, for most people, the marginal benefit of reading a second newspaper is less than the marginal cost.

If someone produced too little of a good, this would suggest that A. rational choice cannot be applied to many economic decisions. B. the good was produced past the point where its marginal cost exceeded its marginal benefit. C. government should intervene to produce more of the good. D. the good was produced to the point where its marginal benefit exceeded its marginal cost.

D. the good was produced to the point where its marginal benefit exceeded its marginal cost.

Which of the following statements is true? A. Microeconomics focuses on specific decision-making units of the economy; macroeconomics examines the economy as a whole. B. Macroeconomics focuses on specific decision-making units of the economy; microeconomics examines the economy as a whole. C. Every topic in economics is either a microeconomic or a macroeconomic issue; a topic cannot be both. D. Topics in microeconomics have public policy implications; topics in macroeconomics do not.

A. Microeconomics focuses on specific decision-making units of the economy; macroeconomics examines the economy as a whole.

A person should consume more of something when its marginal A. benefit exceeds its marginal cost. B. cost exceeds its marginal benefit. C. cost equals its marginal benefit. D. benefit is still better.

A. benefit exceeds its marginal cost.

When economists say that people act rationally in their self-interest, they mean that individuals A. look for and pursue opportunities to increase their utility. B. generally disregard the interests of others. C. are mainly creatures of habit. D. are usually impulsive and unpredictable.

A. look for and pursue opportunities to increase their utility.

Joe sold gold coins for $1,000 that he bought a year ago for $1,000. He says, "At least I didn't lose any money on my financial investment." His economist friend points out that in effect he did lose money because he could have received a 3 percent return on the $1,000 if he had bought a bank certificate of deposit instead of the coins. The economist's analysis in this case incorporates the idea of A. opportunity costs. B. marginal benefits that exceed marginal costs. C. imperfect information. D. normative economics.

A. opportunity costs.

Which of the following is a correct statement? A. Economic concepts or laws that are valid during recessions are necessarily valid during prosperity. B. Although they are generalizations, economic laws are useful because they allow us to predict and therefore influence or adjust to events. C. Economists use the scientific method. Therefore, economic laws are as quantitatively precise as the laws of physics or chemistry. D. Because economics is primarily concerned with questions of "ought," it is a branch of applied ethics and not scientific.

B. Although they are generalizations, economic laws are useful because they allow us to predict and therefore influence or adjust to events.

In deciding whether to study for an economics quiz or go to a concert, one is confronted by the idea(s) of A. scarcity and opportunity costs. B. money and real capital. C. complementary economic goals. D. full production.

A. scarcity and opportunity costs.

Macroeconomics approaches the study of economics from the viewpoint of A. the entire economy. B. governmental units. C. the operation of specific product and resource markets. D. individual firms.

A. the entire economy.

Rosa works at a gelato shop and observes that the number of people buying gelato varies greatly from day to day. For a couple of weeks, she has recorded the number of people at the shop each day, as well as the daily temperature, and has observed a positive relationship between temperature and the number of customers. Based on her observations, Rosa should A. conclude definitively that people buy more gelato when the temperature rises. B. determine if there are other relevant factors and attempt to hold these constant before drawing conclusions. C. continue to gather data on the number of visitors and daily temperatures, because eventually other relevant variables will not matter. D. throw out the data if it does not show a perfect relationship between buying habits and temperature

B. determine if there are other relevant factors and attempt to hold these constant before drawing conclusions.

You should decide to go to a movie A. if the marginal cost of the movie exceeds its marginal benefit. B. if the marginal benefit of the movie exceeds its marginal cost. C. if your income will allow you to buy a ticket. D. because movies are enjoyable.

B. if the marginal benefit of the movie exceeds its marginal cost.

Kelly works at an ice cream shop and observes that the number of people buying ice cream varies greatly from day to day. For a couple of weeks, she has recorded the number of people at the shop each day, as well as the daily temperature. If Kelly is using the scientific method to better understand ice cream buying habits, her next step is to A. conclude definitively that people buy more ice cream when the temperature rises. B. state her findings as a well-tested economic principle. C. use the observed data to form a hypothesis about ice cream buying behavior. D. throw out the data if it does not show a perfect relationship between buying habits and the other information she has collected.

C. use the observed data to form a hypothesis about ice cream buying behavior.