ECON 201

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The idea that people will not consciously make decisions that make them worse off is known as A) rationality assumption. B) the decision duality. C) Adam Smithʹs doctrine. D) incentive assumption.

When two variables have an inverse relationship, the slope is A) negative. B) positive. C) infinity. D) zero.

Which one of the following is an example of a normative statement? A) Public school teachers are not paid enough. B) The average public school teacher earns less than the average truck driver. C) The average public school teacher earns more than the average truck driver. D) Students in smaller classes perform better on standardized tests.

ʺIf A occurs then B will followʺ is a A) positive statement. B) normative statement. C) non-testable statement. D) statement lacking in logic.

ʺIf the United States enters a war in the Middle East, the economy will go into a recessionʺ is an example of A) a positive statement. B) an easy to prove statement. C) a normative statement. D) a factual statement.

ʺNo individual should have less than $20,000 income in the United States in 2010ʺ is an example of A) a normative statement. B) a positive statement. C) an illogical and refutable statement. D) a truism.

Modern economists are increasingly using microeconomic analysis in macroeconomics because A) microeconomic theory is more scientific. B) aggregate outcomes stem from decisions made by individuals, business firms and government. C) macroeconomic subjects such as inflation affect all individuals. D) macroeconomics is older and more outdated.

Normative economic analysis involves A) positive analysis. B) value judgments. C) if-then statements. D) objective descriptions of the way things are.

Normative economic analysis tends to A) generate testable hypotheses. B) include the way someone thinks things should be or ought to be. C) involve descriptive statements. D) lead to empirical testing of data.

Normative economic statements A) violate the law of ceteris paribus. B) contain value judgments. C) are usually irrational. D) are easily testable.

Normative economics A) is never studied at the undergraduate level. B) involves value judgments. C) is always objective. D) cannot be applied to all economic problems.

Normative economics involves A) a statement of fact. B) a statement of ʺwhat should be.ʺ C) a statement of ʺwhat is.ʺ D) a statement that is purely descriptive.

The headline in the local paper today is ʺCollege tuition next fall will be raised by 3 percent.ʺ This statement is an example of A) a normative statement. B) a positive statement. C) a macroeconomic statement. D) ceteris paribus.

The impact of an increase in the gasoline tax on SUV sales is A) a macroeconomics topic because it deals with taxes. B) a microeconomics topic because it deals with one industry. C) not an economic issue, but rather a political issue. D) insignificant

The intersection of the x axis and the y axis is called the A) ʺmeeting point.ʺ B) origin. C) ʺzeroʺ point. D) corresponding point.

Economics is a part of the a) social sciences b) natural sciences c) biological sciences d) organizational sciences

High gasoline prices give people all of the following incentives EXCEPT A) to drive less. B) to car pool. C) to buy a hybrid car. D) to take vacations that require driving more miles.

The hypothesis that people are nearly, but not fully rational, cannot possibly fully examine every available choice, and utilize simple rules of thumb in making decisions is known as the A) irrationality hypothesis. B) ceteris paribus hypothesis. C) individual aggregation hypothesis. D) bounded rationality hypothesis.

The issues that an economic system attempts to solve include: A) what to produce. B) how to produce items. C) for whom items are produced. D) all of the above

Whenever statements embodying values are made, we enter the realm of A) positive economics. B) normative economics. C) microeconomics. D) macroeconomics.

The slope of a line is the A) change in the values along the x-axis divided by the change in the values along the y-axis. B) values on the x-axis divided by the values on the y-axis. C) change in the values along the y-axis divided by the change in the values along the x-axis. D) values on the y-axis divided by the values on the x-axis

Which of the following is an example of a positive economic statement? A) In order to reduce the budget deficit, tax rates should be increased. B) In order to increase employment, the minimum wage should be decreased. C) If payroll taxes are raised, then the Social Security crisis will be resolved. D) If gas prices fall, consumers should purchase more gas.

Which of the following is an example of an inverse relationship? A) hours of study and test grade B) calories eliminated from diet and weight loss C) beers consumed while studying and test grade D) amount of snowfall and profits of ski resorts

Which of the following ways to recruit soldiers utilizes incentives? A) a draft B) universal service C) higher salaries D) longer lengths of service

_____ are the things that are used to produce items that satisfy people's wants a) concepts b) production possibilities curves c) resources d) costs

factors of production are called A) physical capital. B) venture capital. C) entrepreneurs. D) productive capital.

What is meant by saying that economics is an empirical science? A) Economic theories will be tested by seeing how well they correspond to peopleʹs declared preferences. B) Economic theories cannot be tested because there is no means of measuring economic variables with adequate precision. C) Economic theories cannot be tested because economic variables change too quickly. D) Economic theories will be tested by seeing how well they correspond to real-world phenomena.

Economics is a social science that involves the study of how individuals a) develop their tastes and preferences b) maximize their wealth c) define happiness d) choose among alternatives to satisfy their unlimited wants

When we say that an individual behaves according to ʺrational self-interest,ʺ we mean that this individual A) is motivated by greed. B) will always buy the most fashionable items available. C) will always buy the cheapest products available on the market. D) is making choices that he or she believes will leave him or her better off

Which is NOT true about the use of economic models? A) Economic models are simplified representations of the real world. B) Economists sometimes use laboratory experiments to test their theories. C) Economists use what has already happened in the real world to test their theories. D) Economists are employed to explain economic phenomena but are never used to predict what might happen next.

Which of the following are considered factors of production? I. Land II. Labor III. Physical capital IV. Entrepreneurship A) I and II only B) I and III only C) I, II and III only D) I, II, III and IV

Which of the following is NOT an alleged ʺunrealisticʺ assumption that proponents of behavioral economics suggest are commonly utilized in traditional economic models based on the rationality assumption? A) unbounded selfishness B) unbounded rationality C) unbounded will power D) unbounded resource

Which of the following would most likely NOT be taught in a microeconomics course? A) changes in prices of automobiles B) the effects of a gas tax on gas purchases C) the effect of an increase in wheat prices on farmersʹ behavior D) the unemployment rate

Which of these social sciences deals most with models of behavior rather than with thought processes? A) Psychology B) Sociology C) Psychiatry D) Economics

Which one of the following is an example of a positive statement? A) Farmers need some type of government aid. B) State governments should provide economic assistance to farmers. C) The federal government should provide economic assistance to farmers. D) The amount of financial assistance given to farmers is higher this year than it was 10 years ago.

ʺAll Americans should have access to health careʺ is an example of A) a positive statement. B) a microeconomic argument. C) a factual statement. D) a normative statement.

Which of the following is NOT studied in microeconomics? A) the effect of an increase in gasoline taxes on the purchase of gasoline B) the impact of an increase in the unemployment rate on economic production C) the impact of firmsʹ collective hiring choices on the aggregate unemployment rate D) the impact of higher fuel prices on the cost of airline tickets

Which of the following is a behavioral implication of bounded rationality? A) unbounded selfishness B) a rule of thumb C) a rational mistake D) a nervous breakdown

Which of the following is a macroeconomic concern? A) the unemployment rate in a specific industry B) the national output of the United States C) wage levels in specific industries D) the operation of an individual firm

Which of the following is a normative economic statement? A) Few auto mechanics are women. B) Men and women should earn the same salary if they perform the same job. C) Auto mechanics typically earned more than waitresses in the United States in 2004. D) Most wait staff are women.

In order to study how changing price affects consumer decisions, we must assume all other factors, such as income and the prices of other goods are constant. This assumption is best know as A) rationality. B) ceteris paribus. C) normative economics. D) behavioral economics.

Which of the following is a normative economic statement? A) If the government increases spending, unemployment will fall. B) The government should increase spending during times of economic recession. C) If banks create more money, unemployment will decrease. D) If the price of gasoline rises, car pooling will increase.

Which of the following is a positive economic statement? A) No individual should live in poverty. B) The rate of unemployment of young African-Americans exceeds that of white Americans. C) Unemployment is a more serious problem than inflation. D) Economic considerations are less relevant than ethical issues in deciding national policy

Which of the following is a positive statement? A) An unemployment rate of 5.8 percent is too high. B) The unemployment rate is 5.8 percent. C) The unemployment rate should be below 5.8 percent. D) The unemployment rate should never be above 5.8 percent.

Which of the following is a true statement about the economic assumption of rationality? A) Individuals who are rational necessarily ignore the interests of others. B) Individuals generally act as though they are rational. C) Individual behavior may be irrational but group behavior is always rational. D) People make decisions as if they are omniscient.

Which of the following is an example of a normative economic statement? A) Lower income tax rates will generate greater income tax revenue to the government. B) Income tax rates should be lower because that will increase government revenue. C) Lower income tax rates yield a larger federal government deficit. D) The federal budget deficit has increased every year for the last twenty years.

Which of the following is an example of a positive statement? A) It is too hot to go jogging. B) Ceteris paribus, a teacher should award a higher grade if you study more hours for an economics test. C) When the price of an item increases, people respond by reducing their consumption of the item. D) The government should balance the budget.

Which of the following is a positive statement? A) We need to carefully protect our borders. B) Hyperinflation is the most damaging thing that can occur in an economy. C) When tax revenues are less than government spending there is a budget deficit. D) Foreign aid should be reduced to help our budget deficit.

Which of the following statements about economic models is true? A) A good economic model is complex. B) A good model does not rely on any assumptions. C) Every model is based on a set of assumptions. D) Economic models are designed to explain what people need.

Which of the following statements is NOT true? A) Economics is a social science. B) Economics is an empirical science. C) Economics does not use theories. D) Economics is the study of how people allocate their limited resources to satisfy their unlimited wants.

Which of the following statements is a normative as opposed to a positive economic statement? A) Consumer spending generates more jobs. B) If the price of gasoline goes up, people buy less. C) Labor unions should be allowed to organize in every industry. D) Government intervention in markets is common in many countries.

Which of the following statements is a positive economic statement? A) The Congress should pass the presidentʹs tax package. B) Tax rebates always give too much favor to rich people. C) The Presidentʹs budget included an increase in unemployment insurance payments. D) none of the above

A five-cent deposit on beer bottles A) provides a positive incentive because it rewards people for recycling. B) provides a negative incentive because it punishes people who do not recycle. C) is an irrational policy, because it fails to take into account incentives. D) is an irrational policy, because it fails to take into account self-interest

Physical capital is distinguished from human capital because A) physical capital refers to trained people. B) physical capital refers to equipment and machinery, whereas human capital refers to trained people. C) human capital refers only to day laborers. D) physical capital refers to trained people, whereas human capital refers to equipment and machinery

Positive statements can contain A) opinions and conditions. B) facts and predictions. C) a mixture of facts and opinions. D) logical arguments mixed with statements of opinion.

Rational self-interest means A) always increasing your wealth. B) pursuing what makes you better off. C) pursuing activities that maximize income. D) always pursuing activities that are consistent with your faith.

Sara looks into her closet and discovers a pair of like-new shoes she no longer wears because they give her blisters. From the economistʹs perspective, was Sara behaving rationally when she bought those shoes? A) No. If any of a personʹs decisions have poor results, that person is irrational. B) Yes, as long as Sara didnʹt intentionally purchase blister-causing shoes. C) No. The rationality assumption states that rational people never make mistakes. D) Itʹs not clear because psychology, not economics, deals with the rationality assumption

Self-interest relates to A) only monetary objectives. B) both monetary and nonmonetary objectives. C) the ceteris paribus assumption. D) normative economic analysis and not positive economic analysis.

Shelleyʹs grandmother gave her a sweater for her birthday, but Shelley wanted a DVD. This implies that A) Shelleyʹs grandmother is not acting out of self-interest because she knows that Shelley really wanted a DVD. B) Shelleyʹs grandmother is acting out of self-interest because she wanted to give Shelley something useful. C) it is in Shelleyʹs self-interest to refuse to wear the sweater. D) Shelley should exchange the sweater for a DVD.

The ceteris paribus assumption is important in economics because A) all empirical data are equal. B) it would be impossible to relate the effects of changes in one variable on another without holding some variables constant. C) economic data move very slowly over time and so they can always be considered constant. D) models are always complex and require as many variables as possible.

The difference between positive statements and normative statements is that A) a positive statement involves a value judgment and a normative statement is a statement of fact. B) a positive statement is a statement of fact and a normative statement involves value judgments. C) value judgments are made in normative statements but assumed in positive statements. D) normative statements are provable while positive statements are not.

The relationship between beers consumed the night before an exam and test grade will be graphed as A) a line sloping down from upper right to lower left. B) a line sloping down from upper left to lower right. C) a circle. D) a u-shaped curve.

The study of an individualʹs choice about what type of computer to buy is a subject of A) macroeconomics. B) microeconomics. C) an aggregate concept. D) not a concern for economic analysis.

The study of how a particular firm might choose to maximize its profits would fall into what type of analysis? A) macroeconomics B) microeconomics C) labor economics D) aggregate economics

To be useful, a model must A) predict accurately all of the time. B) predict more accurately than other models that have been developed. C) have assumptions that have been verified by empirical testing. D) explain and predict the behavior of every individual.

To test their theories, economists usually have to A) set up careful laboratory experiments with all variables controlled. B) first examine theory and what has happened in the past in the real world. C) use only models that have a proven record of success. D) anticipate every factor with 100 percent accuracy.

Underlying economic theory is the idea that A) people respond only to negative incentives, not to positive ones. B) choices are affected by both positive and negative incentives. C) value judgments do not play a role in the economic decisions people make. D) money is the only incentive that matters.

Wants are a) another term of needs b) the things people would consume if they had unlimited incomes c) the things people consume with their income d) all the things people really need in order to live comfortably

The assumption that nothing changes except the factor being studied is A) the ceteris paribus assumption. B) the rationality assumption. C) positive economic analysis. D) normative economic analysis.

The idea of bounded rationality is used to address all of the following characteristics EXCEPT A) unbounded selfishness. B) unbounded knowledge. C) unbounded willpower. D) unbounded rationality.

Another term for ʺeconomic modelsʺ is A) economic designs. B) economic theories. C) economic science. D) economic maps

Mary says she plans to return to college next semester assuming her car keeps running, tuition fees donʹt go up, and her daycare provider continues to be dependable. An economist would say that Mary plans to return to college next semester, ________. A) caveat emptor B) ceteris paribus C) laissez faire D) ipso facto

One problem with constructing a perfectly complete realistic economic model is that A) it would be too simplistic to have any value. B) it would be far too complicated to analyze. C) politicians see little value in such a model. D) None of the above is true.

Positive economic analysis is supposed to be A) true. B) free of value judgments. C) just and fair. D) moral and honest.

The conversion of resources into consumer goods or services is called A) human capital. B) production. C) opportunity cost. D) absolute advantage.

The primary objective of economics is a) to learn how to create more resources b) to study how people make choices with limited resources c) to learn how to make the most profits with a given amount of resources d) to study why some people are never happy with the resources they have

The threat of a large fine for failure to pay income taxes is an example of A) the excessive power of the Internal Revenue Service. B) the ineffectiveness of incentives to get people to pay their taxes. C) a negative incentive to get all people to pay taxes. D) people failing to consider all the benefits the government provides them.

Under a pure price system, the decision of resource allocation is made by A) the head of the government. B) a queen or king. C) individuals who own the resources. D) no one.

What is the type of economic system that relies on one central authority to make economic decisions? A) Free market B) Price system C) Command and control D) Mixed economic system

Which of the expressions below best describes the aim of economic theory? A) to predict how people think about money B) to understand why money motivates some people more than others C) to predict the choices people will make D) to learn what we can do to prevent people from having unrealistic wants

Which of the following is NOT a positive statement? A) The unemployment rate is 5.8 percent. B) The inflation rate for 2002 was 2.3 percent. C) The national debt is too high. D) The federal government budget for 2004 is $2.2 trillion.

Which of the following is a microeconomic concern? A) the rate of economic growth in the United States B) the current unemployment rate in the United States C) consumer behavior D) national output of the United States

Which of the following is a microeconomic topic? A) the unemployment rate of the United States economy as a whole B) the rate at which prices increase in Brazil C) the advertising strategy of a particular company D) the increase in the national income of the United States over the past three months

Which of the following is a normative statement? A) The Gross Domestic Product is the dollar value of all goods and services produced in a country in a year. B) Fiscal policy is determined by the Congress and the president. C) Tax cuts ought to be enacted for the good of the economy. D) Monetary policy is determined by the Federal Reserve System.

When studying individualsʹ economic behavior, economists assume that A) individuals understand the rationale for all their actions. B) individuals act as if they were rational. C) only educated people act as if they were rational. D) self-interest is of limited relevance in predicting an individualʹs actions.

When two variables have a direct relationship, the slope is A) negative. B) positive. C) zero. D) infinity.

Which expression below matches most closely the way economists go about testing their models? A) ʺConsistency is the hobgoblin of small minds.ʺ B) ʺSeeing the results is the only way to know if you are right.ʺ C) ʺA bird in the hand is worth two in the bush.ʺ D) ʺIn the long run we are all dead.ʺ

Which of the following best describes how economists test the empirical predictions of economic models? A) Economists survey individuals to learn about how people think through decisions about how much to purchase or to produce. B) Economists collect and analyze real-world observations of peopleʹs actions to discern if those actions accord with theoriesʹ predictions. C) Based on theories about thought processes, economists seek to determine which thought processes predominate in determining how a person decides what actions to take. D) Recognizing that people always do what they say they will do, economists rely exclusively on information gleaned from polls and surveys conducted by poll takers and market

Which of the following describes that people cannot examine every possible choice available to them but instead use simple rules of thumb to sort among the alternatives that happen to occur to them? A) self-interest B) bounded rationality C) ceteris paribus D) normative economics

Which of the following is NOT a characteristic or focus of microeconomics? A) normative analysis. B) analysis of aggregate economic variables. C) empirical analysis. D) empirical analysis

Which of the following is NOT normative economic statement? A) The minimum wage should be eliminated so unemployment can be reduced. B) Increases in the minimum wage cause increases in unemployment. C) The inflation rate should fall to increase individualsʹ well being. D) Taxes on cigarettes should be increased to reduce smoking.

Economics is an empirical science, which means that economists A) must use laboratory experiments to test their theories. B) evaluate a model or theory by whether its assumptions are consistent with the real world. C) try to prove their models are true by referring to logic. D) look for evidence to determine whether the model is useful or not

Economics is most precisely defined as a) a study of what people need to survive b) a study of how culture evolves in different geographic areas c) the same as the study of finance and management d) the study of how people make choices

Economics is the study of a) how to own as many resources as possible b) ceteris paribus c) the way people think rather than the way they act d) how people allocate their limited resources to satisfy their unlimited wants

Economics is the study of how a) people make money b) preferences are determined c) psychology influences preferences d) people make choices

Economics is the study of how people make a) judgement b) investment c) money d) choices

Economists assume that people are motivated by A) benevolence. B) altruism. C) greed. D) rational self-interest

Economists develop models to A) capture every detail of the real world. B) make their arguments more realistic. C) justify the assumptions they make about peopleʹs behavior. D) help us understand economic phenomena in the real world.

Father says, ʺEarn a B-average on your next report card and Iʹll help you buy a car.ʺ An economist would say that this parent is providing his child a(n) A) study disincentive. B) reason to slack off and not worry about her grades. C) bribe. D) incentive.

If an increase in one variable causes a decrease in another variable, this is A) a direct relationship. B) a dependent relationship. C) an independent relationship. D) an inverse relationship.

In an economic model, assumptions A) must be applicable to all real-world situations. B) must be eliminated before being used to make sure the model is realistic. C) are not important in determining the usefulness of the model. D) define the set of circumstances in which the model is most likely to be applicable in the real world.

In constructing models, economists A) include all independent variables. B) include all available information. C) attempt to duplicate the real world. D) make simplifying assumptions.

In economics, items that are used to produce goods and services are known as a) wants b) aggregates c) factors of need d) resources

It has been noted that when the price of a good increases, people purchase less of the good. This is an example of A) macroeconomic analysis. B) irrational behavior. C) normative economic analysis. D) positive economic analysis.

Macroeconomics is concerned with A) individual business firms. B) specific industries. C) individual consumers. D) a nationʹs entire economy

Microeconomics examines the A) total household expenditures. B) behavior of the economy as a whole. C) aggregate business spending. D) decision making undertaken by individual households.

Microeconomics is the study of A) aggregate measures of the economy. B) foreign policy economic issues. C) federal budget details. D) individual decision making.

Positive economic analysis is said to be A) true. B) right. C) value-laden. D) objective.

Which of the following would likely be studied in a macroeconomics course? A) the unemployment rate B) total output for an economy C) the inflation rate D) all of the above

An incentive is a A) need. B) want. C) reward for desired behavior. D) resource.

Macroeconomics would be concerned with A) implications of changes in unemployment and inflation. B) the effects on individual consumers of changes in the price of gasoline for a business. C) the effects of a tax on beer. D) the effects of wage increases on steel manufacturer

Microeconomics focuses on A) individual decision makers within the economy. B) the large parts of the economy. C) changes in national income. D) satisfying the needs of the economy.

Microeconomics studies A) decisions made by individual consumers and firms. B) the changes in economic theory brought about by real-world events. C) how small changes in the unemployment rate can have far-reaching effects. D) how small changes in the money supply can have far-reaching effects.

Models must A) be able to yield useable predictions. B) be totally realistic in every detail. C) be a complete reproduction of the real world. D) include every relationship that exists.

Normative economic statements A) are statements of ʺwhat ought to be.ʺ B) are statements of ʺwhat is.ʺ C) are statements that may be tested by referring to facts and data. D) do not involve value judgments.

Assumptions are necessary to A) make economics a social science. B) define a set of circumstances where a model is most likely to apply. C) define the relationship between wants and resources under all circumstances. D) define the specific cause and effect relationship that is being explained by social sciences

Because resources are scare relative to wants, the study of economics concerns a) how money is important to people b) how individuals, businesses, and government make choices c) how money is used to buy what people want d) none of the above

Behavorial economics deals with A) the assumption that people are always selfish. B) bounded rationality. C) unbounded willpower. D) only theories without justification from empirical evidence.

Ceteris paribus means A) ʺall variables are independent.ʺ B) ʺother things being equal.ʺ C) ʺsome assumptions must be accepted without proof.ʺ D) ʺsome theories are not rational.ʺ

A characteristic of a good model is that A) its predictions can be tested using real-world data. B) it is useful for making irrefutable predictions. C) it applies to all situations. D) it predicts perfectly

A common approach that economists use to understand, explain and predict economic phenomena is to A) form a theory or model. B) conduct experiments in a science lab. C) ask what people think. D) examine peopleʹs thought processes.

Charitable donations to the Red Cross A) can be explained by the rational ignorance theory. B) can be explained by the rational self-interest theory. C) cannot be explained by the rational self-interest theory. D) prove that there is no scarcity in the United States.

A friend wants to learn how the unemployment rate is calculated and how inflation is measured. He asks you which economics course to take and you advise him to enroll in A) macroeconomics. B) microeconomics. C) either micro- or macroeconomics. They both concentrate equally on those issues. D) financial accounting because economics doesnʹt address those topics in its courses.

A negative slope A) represents an inverse relationship, such as beers consumed and test score. B) represents a direct relationship, such as snow fall and car accidents. C) indicates that there is no relationship between two variables, such as womenʹs wages and likelihood of sunshine. D) means that the line crosses below the x-axis

Macroeconomics is concerned with studying the A) behavior of individual decision makers. B) behavior of the economy as a whole. C) prices of specific companiesʹ stocks. D) wants of individuals.

Macroeconomics is concerned primarily with A) positive economics. B) production and prices in particular markets. C) aggregate economic variables. D) normative issues.

A positive economic statement is one that A) can be refuted. B) is free of the ceteris paribus assumption. C) is based on a value judgment. D) asserts something about the role of moral behavior in building a strong economy.

A theory or a model A) is a simplified, abstract view of reality. B) is based on each economistʹs value judgments. C) is a detailed analysis of what ought to be. D) captures all aspects of the real world.

Macroeconomics is concerned with A) individual consumers. B) government decision making concerning farm price supports. C) aggregates. D) the effects on a corporation of a strike by the United Auto Workers.

The term ceteris paribus means A) the greatest good for all. B) the study of scarcity and choice. C) all other things remaining constant or equal. D) value-free and testable

When constructing economic models, economists are more concerned with A) what people say than what they do. B) what people think than what they say. C) what people do than what they say. D) what people say than what they do or think.

According to proponents of behavioral economics, because every possible choice cannot be considered, an individual will tend to fall back on methods of making decisions that are simpler than trying to sort through every single possibility, known as A) rules of thumb. B) rational options. C) irrational choices. D) normative decisions.

Normative economics is A) analysis involving value judgments about economic policies; or a statement of ʺwhat ought to be.ʺ B) analysis that is strictly limited to making either purely descriptive statements or scientific predictions. C) analysis of the behavior of the economy as a whole. D) decision making undertaken by households and business firms.

One major assumption of economics is that people A) act as if they systematically pursue self-interest. B) behave randomly without any predictable pattern. C) are sometimes rational and sometimes irrational. D) always pursue the interests of others.

One reason why economists often use models in their analysis is that A) a model helps us to understand, explain, and predict economic phenomena in the real world. B) a model accurately pictures every detail of the real world economy. C) a model relates to individual thought processes rather than behavior. D) it is relatively easy to perfectly specify a model.

Rational behavior for an economist means that individuals A) are motivated by self-interest. B) never change their minds. C) always make positive choices. D) are self-sacrificing.

Scarcity arises because A) resources are finite and are inadequate to meet all human wants and needs. B) import taxes depress the rate of growth of goods and services production. C) international companies are slow to explore for new resources. D) many countries waste goods because of inefficient political systems.

Scarcity is caused by A) unlimited wants running up against limited economic resources. B) lazy workers. C) mechanical breakdowns at factories. D) shortages.

The Presidentʹs statement that ʺto encourage economic growth, taxes should be cut,ʺ A) would be an example of a normative statement. B) would be an example of a positive statement. C) would be an example of a microeconomic statement. D) would be a statement of mercantilist economic philosophy.

The assumption that people do not intentionally make decisions that would leave them worse off is known as A) the rationality assumption. B) the microeconomic assumption. C) the ceteris paribus assumption. D) the normative assumption.

The assumption that ʺother things are constantʺ is also known as the A) ceteris paribus assumption. B) rational self-interest assumption. C) distinguishing characteristic of economics as a science. D) relationships assumption.

The basic economic problem is a situation of a) limited resources and unlimited wants b) both limited resources and limited wants c) limited incomes and unlimited choices d) unlimited incomes and limited choices

The combination of psychology and economics to determine individual decision making is known as A) behavioral economics. B) pyschomics. C) the rule of thumb. D) positive analysis.

The rationality assumption says that A) people do not intentionally make decisions that would leave them worse off. B) people never make decisions that would leave them worse off. C) people do not respond to incentives since incentives require scarce resources. D) all economic analysis must be normative.

The slope of a straight line A) is the same at all points along that line. B) cannot be defined. C) changes from one point to the next on that line. D) is always equal to zero.

The study of the aggregate economic variables is A) macroeconomics. B) microeconomics. C) positive economics. D) normative economics

The use of data in economic models is important because A) the modelʹs predictive value rests on supportive evidence from real-world data. B) the models are always complex in nature. C) models must analyze every possible angle of the problem. D) social problems analyzed by economists require long streams of data.

The usefulness of a model is determined by A) whether it helps to explain or predict real world phenomena. B) whether it possesses realistic assumptions. C) how well it uses the ceteris paribus assumption. D) how many of the possible relationships that exist are included in the model.

The value of a model is determined by A) the usefulness of its predictions in the real world. B) the extent of the profit earned by applying it. C) the realism of its assumptions. D) the modelʹs attention to real world details.

The way that a society uses to allocate resources to satisfy human wants is called A) an economic system. B) an assumption. C) realism. D) a physical science.

The ʺpaired observationʺ of (-14, -6) means A) x = -14, y = -6 B) x = -6, y = -14 C) that the distance between the two points will be 8. D) the origin is at -14 and -6

The ʺpaired observationʺ of (14, 6) means A) x = 14, y = 6. B) x = 6, y = 14. C) x = any multiple of 14, y = any multiple of 6. D) the origin is at 14 and 6.

What type of economics would most typically deal with aggregates? A) macroeconomics B) microeconomics C) labor economics D) environmental economics

According to economists, when two people make exactly the opposite decision, A) one of them is acting irrationally. B) each person evaluates the situation according to his/her individual self-interest. C) one of them is acting out of spite. D) one of them should compromise.

Aggregate measures are A) anything to do with economics. B) a total measure of a variable across the economy. C) used only in microeconomics. D) determined by the Bureau of Labor Statistics.

According to the bounded rationality hypothesis, an individual confronting a large number of complicated choices is most likely to respond by A) using a simple rule of thumb to choose among a subset of easiest-to-evaluate options. B) using the ceteris paribus assumption to assist in simplifying and examining each of the possible options. C) utilizing readily available empirical evidence to assist in evaluating every option. D) assessing every available choice by developing sophisticated theories regarding each option.

An economic model should capture A) the essential relationships that help to analyze the problem. B) all possible variables that apply to the problem. C) only social value related variables.

An economic theory is also known as an economic A) model. B) art. C) miracle. D) assumption.

Analysis that is limited to making either purely descriptive statements or scientific predictions is A) positive economics. B) normative economics. C) microeconomics. D) macroeconomics.

All of the following are aspects of macroeconomics EXCEPT A) the U.S. unemployment rate. B) the production decisions of a pharmaceutical firm. C) the budget deficit of the United States. D) foreign trade.

Incentives are A) potential rewards available if a particular activity is undertaken. B) ineffective as a device to get people to behave in a certain fashion. C) inappropriate ways to obtain a certain kind of behavior. D) useless when people behave rationally.

Jose is rational if he A) does not intentionally make decisions that would leave him worse off. B) never makes a mistake in his life. C) only responds to rewards that involve money. D) always uses a model or mathematical formula to help him make a decision.

Macroeconomics deals with A) aggregates within the economy. B) specific sectors within the economy. C) the retail industry only. D) decisions made by firms.

Macroeconomics is the study of A) aggregate economic variables. B) output in particular industries. C) prices in particular industries. D) all of the above.

Macroeconomics might study which of the following? A) the causes of domestic unemployment B) decision making undertaken by firms C) decision making undertaken by households D) determinants of the prices of rare goods (e.g., diamonds)

Behavioral economics is an approach to the study of consumer behavior A) that emphasizes psychological limitations and complications that potentially interfere with rational decision making. B) that emphasizes the capabilities of individuals to succeed in attaining all their unlimited wants utilizing limited resources. C) that, in contrast to standard approaches in economics, utilizes the ceteris paribus assumption. D) that, in contrast to standard approaches in economics, relies on real-world data to evaluate the usefulness of economic models.

Both the social sciences and the natural sciences employ ________ to help them understand the world around them. A) models B) designs C) traditional thinking D) implications

Ceteris paribus means A) other variables are held constant. B) almost certainly. C) only if everything works just right. D) perhap

Economic analysis is a tool that a) aids all decision making b) helps us understand why people make mistakes c) helps us forgive selfish people d) complicates decision making

Economic models are used to A) simplify reality to predict outcomes. B) exactly replicate reality. C) predict all possible outcomes of a study. D) determine the thoughts of individuals.

Economic models relate to A) peopleʹs choices. B) how people think about something. C) group opinions. D) the reasons people give for donating to charity

Economics is an empirical science, which means that economists A) look at evidence to see whether or not the model is applicable. B) test their models by utilizing unknown variables. C) do only laboratory experiments. D) refuse to test their models since the usefulness of a model is determined by whether it is logical or not.

Economics is best defined as the a) study of how people make choices to satisfy their wants b) study of individual self-interests c) study of how government can most efficiently raise funds by taxation d) process by which goods are sold in free markets

Economics is called an empirical science because A) economists study real-world evidence to test their models. B) economists use assumptions in their models. C) economic models have no predictive power. D) economic analysis is only useful in a capitalistic society

Economics is concerned with choices a) that involve wants of individuals b) that involve the political goals of professional associations c) made by individuals only when they are consuming goods or services d) that involve making money

Economics is the study of a) the allocation of scare resources to satisfy unlimited wants b) why some people want certain goods and services c) earning the most income d) ways to use fewer resources

Economics may be referred to as a(n) ________ science, meaning that data is looked at to see whether assertions are correct. A) empirical B) exact C) assumptive D) soft

Economics seeks to use only positive analysis to A) provide a value-free analysis. B) seek the best answer. C) predict how people should act. D) provide normative values.

Entrepreneurs are important to market economies because A) they engage in risk taking and innovation. B) they make up a large portion of low-skilled labor. C) they take few risks and thereby, suffer fewer bankruptcies. D) they represent the bulk of employment at large corporations.

Holding all variables constant but one and assessing the impact of the one variable that has changed is an example of using A) the ceteris paribus assumption. B) an economic model based on unrealistic assumptions. C) a flawed economic model. D) an untestable proposition.

If a teacher tells a student that those who attend the study session typically score higher on the final exam, A) the student has a positive incentive to attend the study session because she may get a higher grade. B) the student has a negative incentive to attend the study session because she will be punished if she does not go. C) the student has no greater incentive to attend because there is no guarantee she will get a higher grade on the exam. D) a ʺCʺ student will be making an irrational decision if she decides to skip the study session since she has plenty of time to go

If economists are making the assumption that business people try to maximize profits, the best way to determine whether this assumption is useful or not is to A) see whether it generates accurate predictions about the choices of business people. B) ask business people whether it is true or not. C) find out whether U.S. businesses are more profitable than European businesses. D) take a survey of people and see if they agree with this assumption.

If the slope of a curve is 1/5, we know that A) the relationship is linear, and the line moves from lower left to upper right. B) the relationship is non-linear, and the line moves from lower left to upper right. C) the relationship is linear, and the line moves from upper left to lower right. D) the relationship is non-linear, and the line moves from upper left to lower right.

In a market system, ________ provide signals about whether resources are relatively scarce or abundant. A) prices B) economists C) government officials D) scientists and engineers

In an inverse relationship, A) one variable rises while the other falls. B) both variables rise together. C) both variables fall together. D) the two variables have nothing to do with each other.

In building a model to analyze economic situations, one of the important assumptions is A) ceteris paribus. B) scarcity. C) conversion abstraction. D) cognitive dissonance.

In economic analysis, people's resources are a) limited and their wants are unlimited b) unlimited and their wants are also unlimited c) limited and their wants are also limited d) unlimited and their wants are limited

In economics, all the items that people would consume if they had unlimited income are known as a) wants b) aggregates c) outputs d) needs

In economics, the concept that individuals are motivated by self-interest and respond predictably to opportunities for gain is known as A) rational self-interest. B) altruism. C) sufficiency. D) empiricism.

What would lead an economist to conclude that Theory A is superior to Theory B? A) Theory A predicts real-world events better than does Theory B. B) The assumptions underlying Theory A are more realistic than are the assumptions underlying Theory B. C) Theory A explains how people think, whereas Theory B only explains what they do. D) Theory A is based on the assumption that an individual typically cannot determine what is in his or her own best interest, whereas Theory B assumes that each person knows what is in his or her own best interest and acts accordingly

When a U.S. Senator tells a campaign crowd that ʺHigh inflation rates are a much more serious economic problem than high unemployment rates,ʺ it is an example of A) a normative statement. B) an empirically proven fact. C) a positive statement. D) a microeconomic argument.

When people donate money to a charity, they behave A) rationally if the act gives them satisfaction. B) irrationally because the act does not benefit anyone. C) in an unpredictable manner because the act involves no incentive. D) in a way that only makes themselves worse off

When the text refers to rational self-interest, it means A) your looking out for what is best for you as an individual. B) your focus on your own contributions to society. C) behavior that makes society better off. D) behavior that helps your employer earn higher profits.

Which of the following is NOT a focus of the study of economics? a) how individual preferences are formed b) unemployment c) inflation d) prices in particular markets

Which of the following is NOT one of the basic questions that an economic system attempts to answer? A) How to eliminate choices? B) What to produce? C) How much will goods and services be produced? D) For whom will goods and services be produced?

Which of the following is always true of rational behavior? A) It always entails pursuing oneʹs own best interest. B) It always yields the best possible outcome for all individuals. C) It never involves the pursuit of greedy self-interest. D) It never involves taking into account the interests of others.

Which of the following is an example of a positive economic statement? A) The unemployment rate last month was 5.4 percent. B) The unemployment rate last month was too high. C) Because of the high unemployment rate last month the government should increase government spending. D) The unemployment rate should be measured differently because it doesnʹt include students who canʹt find jobs.

Which of the following is an example of an application of the ceteris paribus assumption? A) An analysis of how price changes affect how much of a good people will purchase when all other factors are held constant B) An analysis of how people purchase more goods when prices decline and income increases C) After reading an article on the dangers of high-fat diets, an individual buys less red meat when prices increase D) An analysis of how worker productivity increases when a firm invests in new machines and training programs

Which of the following is true of incentives? A) Different people are motivated by different incentives. B) Money is the only measure of incentives. C) All of the people in a particular nation are motivated by the same incentives. D) In economics, people are assumed to respond to disincentives instead of incentives.

Which of the following statements concerning the distinction between positive and normative economics is true? A) Positive statements are concerned with what is, while normative statements are concerned with what someone thinks should be. B) Positive statements are concerned with what people think, while normative statements are concerned with what people do. C) Positive statements are true while normative statements are false. D) Positive statements are concerned with what is while normative statements are concerned with what will be.

Which of the following statements is FALSE? A) Economic goods are available in desired quantities at a zero price. B) A good is anything that gives satisfaction or happiness to individuals. C) Services are intangible goods such as dry cleaning, hospital care, and restaurant meal preparation. D) Wants are unlimited and include all material and nonmaterial desires.

Which of the following statements is TRUE about scarcity? A) Both rich and poor people face the problem of scarcity. B) Scarcity exists only when supply is insufficient to meet demand. C) Scarcity exists only when a shortage exists. D) Scarcity can be eliminated when a country becomes richer.

Which of the following statements is true? A) No economic model captures every detail that affects a problem. B) Economic models always make accurate predictions about behaviors. C) Economic models must fully reflect reality. D) Economic models use economistsʹ opinions with no use of data.

Which of the following would NOT provide an incentive to reduce the amount of beef consumed? A) An increase in the price of beef B) A subsidy to buyers of beef C) A decrease in the price of chicken D) A ban on beef sales by the Food and Drug Administration

Which of the following would most likely NOT be taught in a macroeconomics course? A) changes in the health care industry B) factors leading to different economic growth rates among countries C) government actions in response to a slowdown in the economy D) the relationship between the inflation rate and the unemployment rate

Which of the following would most likely be part of the study of microeconomics? A) how General Motors makes decisions regarding its production goals B) national income C) the total economic output of our domestic economy D) overall price stability in the United States

Which one of the following is an example of a normative statement? A) A vacation in Colorado is better than a vacation in Hawaii. B) Hotels in Colorado are more expensive than are hotels in Hawaii. C) The hotel vacancy rate in Hawaii will increase as airfares to Hawaii increase. D) The busiest tourist month in Colorado is July.

An appropriate test of the effectiveness of an economic model is A) the number of variables contained within the model. B) the modelʹs ability to predict future economic activity. C) the number of economists who have worked on the model. D) the number of assumptions which the economist has made

An inverse relationship will be graphed as A) a line that is upward sloping. B) a line that is downward sloping. C) a loop. D) a U-shaped curve.

Analysis that involves value judgments about economic policies is A) positive economics. B) normative economics. C) microeconomics. D) macroeconomics.

) Ceteris paribus means A) making all the necessary changes. B) other things constant. C) for certain parameters. D) let the buyer beware.

) Which of the following statements concerning economic models is FALSE? A) Economic models must provide usable predictions. B) Economic models are based on pure fact and no assumptions. C) Economic models are tested empirically. D) Economic models relate to how people behave.

A difference between biology and economics is that A) economists use models and biologists use theories. B) biologists often use laboratory methods and economists do less often. C) economics explains events while biology predict events. D) biologists use the scientific method while economists do not

A fundamental aspect of economics is to a) ensure that every firm makes a profit b) analyze how choices are made c) satisfy all our wants d) make sure that our resources will always be unlimited

A simplified representation of the real world that is used to explain economic phenomena is a(n) A) map. B) model. C) assumption. D) implication.

Consider the case of a teacher who tells students that those who miss more than three classes for any reason will automatically receive a lower grade. A) This is an example of a positive incentive for students to attend class. B) This is an example of a negative incentive for students to attend class. C) The teacher is assuming that students are irrational, and she must force them to attend class. D) Students who miss more than three classes are irrational.

Consider the statement, ʺThe number of beers consumed the night before a test affects the grade.ʺ In this statement A) beer is the dependent variable and test grade is the independent variable. B) beer is the independent variable and test grade is the dependent variable. C) both beer and grade are dependent variables. D) both beer and grade are independent variables.

Do economists analyze peopleʹs thought processes or do they look at what people actually do? A) Economists focus only on peopleʹs thought processes. B) Economists focus on what people do, not their thought processes. C) An economistʹs focus is about half-and-half between actions and thought processes. D) Macroeconomists focus on thought processes while microeconomists focus on actions.

Economic models A) are used to explain how people think. B) are used to explain how people behave. C) are essential representations of the real world. D) are never used for making economic projections or predictions

Economic models A) should be designed so as to capture every detail or interrelationship that exists. B) are simplified representations of the real world. C) must employ the use of laboratory methods. D) All of the above are correct

Economic models are A) always based on laboratory methods similar to natural sciences. B) a simplified representations of the real world. C) used only in microeconomic analysis by households. D) used only in macroeconomic analysis by business firms.

Economic theory predicts that people make choices in a manner that A) makes them well liked by others. B) makes them better off. C) reflects the fact that resources are unlimited. D) shows that they do not respond to monetary incentives.

Economics is the study of a) how to get rich b) how people allocate their limited resources to satisfy their unlimited wants c) how people spend their income d) why people want certain goods and services rather than other goods and services

Economists assume people behave A) instinctively. B) rationally. C) irrationally. D) greedily.

Economists assume people behave rationally, which means that people A) never make a mistake. B) do not intentionally make decisions that make themselves worse off. C) have the necessary information to always make correct decisions. D) always understand the consequences of their decisions.

Human capital is A) what people get from physical capital. B) the accumulation of skills, training and education of workers. C) the value obtained from selling stocks and bonds. D) the human resources that perform the function of raising capital.

If a straight line crosses the Y-axis at 5 and crosses the X-axis at 10, we can conclude that the slope of the line is A) positive. B) negative. C) zero. D) infinity.

If the government offers to reduce your property taxes by 10 percent if you install solar heating for your home, this would be an example of A) police power. B) incentives. C) disincentives. D) ceteris paribus.

In a market system, the what, how and for whom questions in economics are determined by A) those who are not in the market. B) buyers and sellers together. C) the central authority. D) no one

In building a model the assumption that allows economists to study only the factors being analyzed is the A) rationality assumption. B) ceteris paribus assumption. C) the self-interest assumption. D) the scarcity assumption.

In economic terminology, the accumulated training and education that workers receive to increase their productivity is referred to as A) entrepreneurship. B) human capital. C) labor. D) physical capital.

In economic terminology, when a resource is used to produce output it is referred to as A) an intangible. B) a factor of production. C) a service. D) a fifth element.

In economics, the term physical capital A) refers to funds used by businesses to acquire goods and services. B) refers to all manufactured resources used for production. C) refers to the process of raising funds through the stock market. D) defines the stock of merchandise already produced.

In every economic system, choices must be made because resources A) are unlimited, but human desires and wants are limited. B) are limited, but human desires and wants are unlimited. C) are unlimited, and so are human desires and wants. D) are limited, and so are human desires and wants.

In the production of goods and services, trade-offs exist because A) not all production is efficient. B) society has only a limited amount of productive resources. C) buyers and sellers often must negotiate prices. D) human wants and needs are limited at a particular point in time.

Individual decision making by consumers and producers is the focus of A) macroeconomics. B) microeconomics. C) aggregate measures. D) any economic model.

It is assumed in economics that people make decisions based upon A) altruism. B) rational self-interest. C) tradition. D) governmental persuasion.

Macroeconomics deals with ________ while microeconomics deals with ________. A) choices important to people; choices not important to people B) economywide choices; choices of individuals C) choices that involve money; choices that does not involve money D) choices of rich people; choices of poor people

Macroeconomics is best defined by which of the following statements? A) Macroeconomics is the study of how firms strive to maximize their profits. B) Macroeconomics is the study of the behavior of the economy as a whole. C) Macroeconomics is the study of individual economic units. D) Macroeconomics is the study of how the prices of individual goods are determined.

Which of the following is the best example of scarcity? A) The Talking Teddy is a surprise holiday hit, resulting in long lines of consumers trying to purchase the limited number of available Teddies. B) Fred only gets a 10-hour lunch break and each day must decide between working out at the gym or socializing with his colleagues. C) The local marketʹs buy-one-get-one-free sale on strawberries results in more people wanting the berries than producers are able and willing to supply. D) There is a bumper crop of strawberries, and stores have more berries than they can sell.

Which of the following statements about economic scarcity is FALSE? A) Scarcity occurs among the poor and the rich. B) Scarcity only occurs if there are shortages and people wait in line to buy things. C) Scarcity results from not having enough resources to produce all the things we want. D) Scarcity results in the necessity to make choices.

Which of the following statements about scarcity is TRUE? A) Scarcity is no longer a problem for industrialized countries. B) Scarcity exists in all societies. C) Scarcity is a problem only for greedy people. D) Scarcity is a problem only in countries that do not use markets to organize economic activity.

Which of the following statements is FALSE? A) Economists empirically test their models. B) Economic models are not used to forecast. C) An economic model should capture only the essential relationships that are sufficient to analyze the particular problem being studied. D) Economic models relate to behavior rather than to individual thought processes

Which of the following statements is a positive economic statement? A) The number of families living in poverty in the United States is too high. B) One in every five children in the United States is living in poverty. C) Government programs to help the poor are just making problems worse. D) Increases in poverty rates signify a deterioration of the U.S. economy.

Which statement most accurately defines economics a) economics is the study of how people make money b) economics is the study of how people make choices to satisfy their wants c) economics is the study of values a society should choose d) economics is the study of how eliminate scarcity

Why do economists test their hypotheses? A) to see whether people are motivated by self-interest B) to see whether their models predict the choices people will make C) to determine whether government policies have effectively achieved their goals D) to learn what people are thinking when they make the choices they do

ʺCeteris paribusʺ assumption means A) the role of rational self-interest in the economy. B) that nothing else changes except the variables under consideration. C) relying on real-world data in evaluating the usefulness of a model. D) analysis that is strictly limited to making either purely descriptive statements or scientific predictions.

ʺCeteris paribusʺ means A) ʺinvisible hand.ʺ B) ʺother things constant.ʺ C) ʺmaking all the necessary changes.ʺ D) ʺindividual.ʺ

ʺThe U.S. government should not use my tax dollars to subsidize people on welfareʺ A) is a positive economic statement because it simply describes one personʹs opinion. B) is a normative economic statement because it involves a value judgment about an economic policy. C) is a positive economic statement because it predicts that my tax dollars will go to welfare. D) is a normative economic statement because it is a scientific fact.

Which of the following is a positive economic statement? A) We should strive to achieve full employment in the United States. B) The President of the United States should promote stable prices in the United States. C) If the price of eggs increases, the quantity demanded of bacon will fall. D) We should try to eliminate poverty in the United States.

In economics, ____ are limited but _____are unlimited a) wants; resources b) resources; wants c) money; ideas d) ideas; money

B) resources; wants

A direct relationship occurs when A) the two variables being compared change in opposite directions, or when one goes up the other goes down. B) a change in one of the variables causes a change in the other variable in any direction. C) the two variables being compared change in the same direction, or when one goes up the other also goes up. D) the two variables have no identifiable relationship with each other.

A good economic model A) cannot be refuted. B) describes the real world completely and in detail. C) captures the essential relationships of the problem under consideration. D) captures all relationships about the problem under consideration.

A macroeconomist would study A) the price changes at K-Mart. B) the cost problems at several airlines. C) the economyʹs unemployment level. D) none of the above.

A mixed economic system is best described an economy with a mix of A) state and federal governments. B) domestic and foreign buyers. C) free markets and government control. D) for-profit organizations and not-for-profit organizations.

A poll conducted by a national firm finds that most Americans say they care more about safety when buying a car than about fuel efficiency. As a result, a car maker produces a car with many safety features, but it doesnʹt sell well. This behavior A) contradicts economic theory because the people didnʹt do what they said they would do. B) contradicts economic theory because it is irrational not to purchase safer cars. C) does not contradict economic theory because economists focus on what people do rather than on what they say. D) does not contradict economic theory because economic theory only relates to prices and not to features such as safety.

A possible rational reason why older people, on average, show less interest in learning how to use new technologies is because A) older people are not as smart as (todayʹs) young people. B) they are acting irrationally. C) they have fewer years to gain a return from learning how to use new technologies. D) the financial cost for older people is greater than the cost to younger people.

A relationship between two variables in which one variable increases at the same time as the other decreases is called A) nonlinear. B) constant. C) inverse. D) direct.

All of the following are economic resources, or factors of production EXCEPT A) land. B) physical capital. C) money. D) entrepreneurship.

All of the following are examples of physical capital EXCEPT A) buildings. B) machinery. C) company stocks and bonds. D) a hydroelectric power plant.

An economic system is A) the universe of all resources. B) a way to create new resources. C) a mechanism to allocate scarce resources. D) an organization that generates profits.

Economics is a a) hard science b) physical science c) natural science d) social science

An example of a microeconomic decision is a situation in which A) the Federal Reserve considers how much to increase the money supply during the coming month in an effort to constrain the rate of inflation. B) Congress and the president seek to reach a compromise on how much to increase government spending in an effort to influence national expenditures. C) a firm evaluates how much to reduce the price of its product in an effort to influence sales and boost its profits. D) the U.S. Treasury contemplates buying foreign currencies in an effort to influence exchange rates with an aim to boosting demand for U.S. goods and services

Assumptions in models tend to make A) the model predict what the scientist wants the results to be. B) the model more realistic. C) the model more applicable to specific circumstances. D) the model always predict the future accurately.

By using the ceteris paribus assumption in conjunction with a model, economists can A) suspend the rationality assumption. B) avoid having their model depend on any additional assumptions. C) hold certain factors constant. D) be sure that the model will predict correctly.

Central planning is a key characteristic of which economic system? A) Free market B) Price system C) Command and control D) Mixed economic system

Economic resources are a) all the items that people would purchase if they had limited wants b) all the unlimited items that people would purchase with limited income c) items of value that are used to make other things that satisfy people's wants d) the total planned expenditures throughout the nation

Economics can be described as the study how people use ____ resources to satisfy ______ wants a) unlimited; unlimited b) unlimited; limited c) limited; unlimited d) limited; limited

Economics is a study of a) how to make money in the stock market b) how to run a business successfully c) the allocation of scare resources d) personal finance

Economics is the study of a) nonhuman phenomena b) the determinants of preferences c) scare resources and unlimited wants d) the physical sciences

Economists assume people are motivated by A) unlimited resources. B) pride. C) self-interest. D) social justice.

Economists assume that people are motivated by A) a desire to please others. B) the interests of the community at large. C) self-interest. D) morally correct behavior.

Given a linear curve, the value on the y-axis changes from 100 to 120 when the value on the x-axis changes from 20 to 10, then the slope of that curve is A) -20. B) +20. C) -2. D) +2.

How could Adam Smithʹs comment about the butcher, the brewer, and the baker be accurately rephrased in modern terms? A) The butcher, the brewer, and the baker give us our dinner because they want to be well liked in the community. B) The butcher, the brewer, and the baker give us our dinner because they will be sued if they donʹt do so. C) The butcher, the brewer, and the baker give us our dinner because they each earn a living by doing so. D) The butcher, the brewer, and the baker give us our dinner because they view doing so as a public service

How does the science of economics deal with the fact that we all have different values? A) by assuming that values donʹt play a role in economic behavior B) by seeking to discover the sources of different value systems C) by using positive analysis D) by surveying the public to see what the most common values are, and then incorporating those as assumptions into their models

If people act as if they systematically pursue their own self-interest, then they will most likely A) respond irrationally to any incentive. B) respond to a given incentive in a random manner. C) respond predictably to a given incentive. D) not respond to any incentive.

If psychological limitations and other complications cause people to be unable to examine and think through every possible choice available to them and rely instead on rules of thumb, then these individuals exhibit A) unbounded rationality. B) normative thinking. C) bounded rationality. D) positive thinking

If two competing models are offered to explain a certain economic phenomenon, the better model is the one A) that is the newest since newer models are better than old models. B) with the fewest unrealistic assumptions. C) that more often predicts with most accuracy. D) that is not subject to empirical verification.

In 2006, hurricanes damaged many parts of Texas, destroying homes, businesses, schools, and infrastructure. In strictly economic terminology, these hurricanes are said to have caused A) scarcity, because the damages made food and shelter scarce. B) scarcity, because some goods were difficult to get. C) shortages, because supplies were cut off and goods were destroyed. D) tradeoffs, because some areas of the country were damaged when others were not.

In his book, An Inquiry into the Nature and Causes of the Wealth of Nations, economist Adam Smith argued that individuals A) always tend to act in an altruistic manner. B) always consider the impact of their actions on the welfare of others. C) are motivated by self-interest. D) are generally not concerned with economic questions

In the definition of economics, a) both resources and wants are limited b) both resources and wants are unlimited c) resources are limited and wants are unlimited d) resources are unlimited and wants are limited

Jane is currently developing a model to explain the national unemployment rate. This is an example of A) a microeconomic topic. B) normative analysis. C) positive analysis. D) how people act in an irrational manner.

John has an economics test tomorrow. He must study and has planned the rest of his day so that he can fit some study time in. He has decided to go to the gym and then study for several hours. Which of the following statements is true? A) John did not use the economic way of thinking because his decision on how to allocate his time did not involve money. B) Johnʹs decision on how to allocate his time is inconsistent with the rationality assumption since he has decided to go to the gym. C) Johnʹs decision on how to allocate his time is consistent with the rationality assumption since the decision is intended to make him better off. D) Johnʹs decision does not involve his pursuit of self-interest.

Macroeconomics often relies on microeconomic analysis because A) microeconomics is older than macroeconomics. B) microeconomic theory can be tested and macroeconomic theory cannot be tested. C) all aggregates are made up of individuals and firms. D) the effects of macroeconomic subjects such as inflation and unemployment are independent of individual consumers and firms.

Microeconomics is concerned with studying which of the following? A) the determinants of national unemployment B) the effects of monetary policy C) the study of individual markets D) all of the above

Microeconomics is concerned with the study of A) the effects of inflation. B) the effects of government spending. C) the effects on individual producers of higher wages paid to workers. D) aggregates

Microeconomics is defined as that part of economic analysis that a) studies the behavior of the economy as a whole B) includes the problems of inflation and unemployment. C) studies individual decision making by households and firms. D) concerns aggregate production and consumption.

Microeconomics is the study of A) the behavior of the economy as a whole. B) how rising prices affect the level of employment in the economy. C) how individuals and firms make decisions. D) the effect that money has in the economic system.

Normative economic analysis involves A) true statements of facts only. B) testable hypotheses by scientists. C) value judgments and opinions. D) purely descriptive statements.

One topic of study for a microeconomist would be the A) causes of inflation. B) causes of aggregate unemployment. C) effects of a gasoline price increase on consumer behavior. D) effects of an increase in government spending on overall economic activity.

People behave rationally when they A) follow the advice of government leaders. B) never have regrets about their decisions. C) make decisions they think will make themselves better off. D) make decisions solely based on financial outcomes.

People respond to incentives A) by ignoring negative incentives and responding to positive incentives only. B) only when they are irrational. C) by calculating their individual costs and benefits and determining which is greater. D) when they have low incomes.

Positive analysis can be described as A) the study of whether people respond to positive incentives. B) the study of whether people respond to negative incentives. C) a value-free approach to inquiry. D) a study that is not tested empirically.

Positive economics A) always gives an optimistic spin to economic news. B) is concerned with the economic policies that should be implemented. C) is objective. D) was not used by nineteenth century economists.

Scarcity implies that people must A) be miserable. B) be selfish. C) make choices. D) not be selfish.

Scarcity refers to A) the ability of society to employ all of its resources. B) the ability of society to consume all that it produces. C) the inability of society to satisfy all human wants because of limited resources. D) the inability of society to eliminate poverty.

Self-interest A) implies that a person must try to increase wealth at all times. B) implies that people will not give away wealth. C) is consistent with many goals that people pursue, including betterment of others. D) applies only to people in market settings.

Some pet owners are using an ʺinvisible fenceʺ to keep their animals from straying. Every time the animal steps over the edge of the property, it gets a mild shock. A social scientist would call the shock A) a bribe. B) a reward. C) a disincentive. D) a normative incentive.

Suppose that on average there are five more car accidents for every extra inch of snowfall in a certain region. If snowfall is graphed on the y axis and car accidents on the x axis, then if we graph this relationship, the slope of the line will be A) 25. B) 5. C) 1/5. D) 1.

The assumption that individuals do NOT intentionally make decisions that would leave them worse off is referred to as A) the premium assumption. B) the law of comparative advantage. C) the rationality assumption. D) the law of demand.

The author of the book An Inquiry into the Nature and Causes of the Wealth of Nations is A) Thorstein Veblen. B) Adam Smith. C) Milton Friedman. D) Alan Greenspan.

The difference between scarcity and a shortage is that A) scarcity is caused by poverty and shortages are caused by natural disasters. B) shortages are a type of scarcity caused by natural disasters while scarcity is caused by human errors. C) scarcity always is a part of human life while shortages usually are temporary. D) shortages are always part of human life while scarcity is usually temporary.

The impact of higher taxes would be examined by A) a microeconomist. B) a macroeconomist. C) both a macroeconomist and a microeconomist. D) neither a macroeconomist nor a microeconomist.

The macroeconomist would most likely study A) the effects of changing apple prices on the market for oranges. B) the effects of an increase in wage rates on a womanʹs decision to enter the labor force. C) the effects of a lower income tax rates on the nationʹs total production of goods and services. D) the effect of increased union wages on the cost of producing automobiles.

The potential rewards that are available to an individual if a particular activity is undertaken are known as A) premiums. B) gifts. C) incentives. D) intrinsic values

The primary purpose of economics is to understand how people make a) money b) goods and services c) choices d) a comfortable living

The slope of a nonlinear curve A) is constant. B) is always negative. C) changes along the various points of the curve. D) is always equal to 1.

The slope of a nonlinear curve is ________ when the curve is rising, and ________ when the curve is falling. A) negative, positive B) negative, negative C) positive, negative D) positive, positive

Which of the following statements is an example of positive economic analysis? A) The inflation rate is too high. B) The government should worry less about inflation and more about unemployment. C) If the government increases the rate of growth of the money supply, the inflation rate will increase, ceteris paribus. D) The elderly live on a fixed income, so the government has an obligation to keep inflation rates low.

Which of the following topics is a macroeconomic subject? A) a proposed merger between two companies B) the level of Christmas sales at a particular department store C) the unemployment rate of the United States economy as a whole D) the advertising strategy of a particular automobile firm

Which of the following would likely be considered as falling into the domain of microeconomics? A) the U.S. unemployment rate B) the Gross Domestic Product C) the price of apples D) the effects of fiscal policy on the U.S. economy

Which one of the following is an example of a normative statement? A) A digital camera costs more than a disposable camera. B) Most digital cameras sold in the United States are imported from other countries. C) A camera makes a good wedding gift. D) More people will buy digital cameras as their prices decline.

Why is economics called an empirical science? A) because economics has been used to both create and destroy empires B) because economics uses impressions to evaluate the usefulness of its models C) because economics relies on real-world data to determine the usefulness of a model D) because economics utilizes intuition rather than data to evaluate a modelʹs worth

A decision made by a rational person A) is intended to make the person worse off. B) would always make the person wealthier. C) is identical to a decision that would be made by any other person facing the same choices. D) is intended to make the person better off.

A good economic model A) utilizes only the two most important factors to analyze the problem under consideration. B) generates statements that are incapable of refutation. C) represents every detail of the real world. D) yields usable predictions and implications for the real world.

A microeconomist would study all of the following issues EXCEPT A) the impact of a change in consumer income on the sales of corn. B) the impact of a snowstorm on the sales of snow shovels. C) the most efficient means for General Motors to produce an automobile. D) the effect of a change in income taxes on the nationʹs rate of unemployment

A model is used to explain economic behavior. Therefore, A) the assumptions must be complex while the model itself is simple. B) the model must be complex. C) the model must be simple. D) the model can be either simple or complex so long as it explains economic behavior

A politician says that the government should tax behavior they want less of and subsidize behavior they want more of. This is an example of A) cynical behavior in modern democracies. B) failing to consider the alternatives available to the government. C) a concern that people are not rational when they make decisions. D) using incentives to alter behavior.

A relationship between two variables in which one variable increases at the same time that the other increases is called A) nonlinear. B) constant. C) inverse. D) direct.

A scientist who is studying earthquakes includes the impact of wind when performing some tests of damages to structures. This is an example of A) failing to understand how to do scientific methodology. B) irrational behavior in noneconomic situations. C) accounting for every possible phenomena that may effect the problem under examination. D) failing to hold all other things constant.

According to economic theory, how do people make decisions? A) They make decisions in the same manner as their parents did. B) They make decisions by looking at what others have done in the same situation and then doing the opposite. C) They make decisions by looking at what others have done in the same situation and then doing the same. D) They make decisions based on their own self-interest.

All of the following are aspects of microeconomics EXCEPT A) monopolies. B) a firm maximizing profit. C) a worker choosing one job over another. D) the average level of prices of all goods and services produced in a country in a year

All of the following are examples of macroeconomic problems EXCEPT A) inflationary pressures caused by an increase in the cost of petroleum. B) unemployment caused by a fall off in the level of residential construction. C) a decline in the rate of overall economic growth. D) consumers deciding to buy more fish and less beef because of concerns about a healthier diet.

All of the following are positive statements EXCEPT A) the President of the United States in 2008 was George W. Bush. B) California is in the United States. C) migratory birds fly south for the winter. D) a dog is manʹs best friend.

Another word for ʺaggregateʺ is A) government. B) partial. C) public. D) total

Based on your understanding of your roommateʹs preferences, you predict that he will select the spaghetti for his lunch at the cafeteria, but instead he chooses the gyros. How do you describe this event in terms of economic theory? A) Your roommate is irrational. B) Your roommate does not know what is in his own best interests. C) You roommate does not know his own preferences as well as you do. D) You constructed a model that made a prediction, and the prediction was refuted.

Ceteris paribus means A) all men are created equal. B) wage parity between men and women is a worthy goal. C) there are an infinite number of factors affecting each human decision and they change all the time. D) economists isolate one or two factors that change when analyzing human decisions

Economic analysis is used a) only in economics classrooms b) only by business people c) only by policy makers d) in all decision making

Economic models are NOT used to A) explain economic phenomena. B) predict economic phenomena. C) understand economic phenomena. D) describe all economic phenomena in minute detail.

Economics a) is a social science b) is concerned with limited resources c) is concerned with unlimited wants d) all of the above

Economics deals with a) how to profit from the stock market b) how to satisfy limited human wants c) how society allocates unlimited resources d) how individuals allocate scare resources to satisfy unlimited human wants

Professorʹs economics students are constructing models for how gasoline prices change. Mariaʹs model has very realistic assumptions and is quite complex. Annaʹs model is less complicated and less realistic. Mariaʹs model correctly predicts gas price increases 5% of the time. Annaʹs model predicts correctly 15% of the time. On the basis of usefulness or ʺgoodness,ʺ Professor will give which studentʹs model the higher grade and why? A) Mariaʹs model gets the higher grade because it is more complex. B) Annaʹs model gets the higher grade because it is simpler. C) Mariaʹs model gets the higher grade because it is more realistic. D) Annaʹs model gets the higher grade because it predicts accurately more often.

Resources are a) unlimited b) able to be replicated in large quantities c) what people would buy if their income was unlimited d) used to produce goods and services to satisfy people's wants

Scarcity A) does not exist in the United States. B) applies only to developing countries. C) is caused by production problems. D) is not a shortage.

Self-interest A) relates strictly to material well-being, such as a personʹs stock of wealth at a point in time. B) is measured entirely based on an individualʹs income, whether earned from labor or inherited. C) is inconsistent with economic analysis, which suggests that self-interest is irrational. D) can involve any action that makes a person feel better off, such as charitable contributions.

Services can be thought of as A) unvalued goods. B) unwanted goods. C) free goods. D) intangible goods.

The United States is best known as a A) pure price system. B) dictatorship. C) command and control system. D) mixed economic system.

The assumption that individuals will not intentionally make decisions that will leave them worse off is known as A) microeconomic analysis. B) macroeconomic analysis. C) a model or theory. D) the rationality assumption.

The ceteris paribus assumption means A) favors are returned in kind. B) this is the proof of the matter. C) from many, one. D) other things are equal.

The distinction between microeconomics and macroeconomics is A) clearly drawn, and there is no overlap between them. B) determined by economists in a clear and concise manner. C) narrowly drawn, and microeconomic analysis often relies on macroeconomic tools. D) often blurred because aggregates are made up of individuals and firms.

The economic way of thinking will help you a) make decisions in financing your home b) decide whether the US government should encourage or discourage immigration c) make better decisions concerning your education d) all of the above

The problem of economic scarcity applies A) only in industrially developed countries, because resources are scarce in these nations. B) only in underdeveloped countries, because there are no productive resources in these nations. C) only in economic systems that are just beginning to develop, because specialized resources are scarce in developing nations. D) to economic systems in all nations, regardless of their level of development.

The rationality assumption states that A) all actions taken by consumers are based on what is good for society. B) people make decisions regardless of how the outcome will affect them. C) people make decisions to buy only those goods that they need rather than goods that they want. D) people do not intentionally make decisions that would leave them worse off

The term ceteris paribus is an economic assumption that means A) let the buyer beware. B) common sense is reality. C) the detail is in the interrelationship. D) other things being equal.

The term or phrase most likely to indicate a normative statement is A) ʺceteris paribus.ʺ B) ʺfactual.ʺ or ʺwhat isʺ statement. C) ʺholding other things constant.ʺ D) ʺshouldʺ or ʺought to.ʺ

Which of the following is a characteristic or focus of economics? A) allocation of limited resources in an effort to satisfy potentially unlimited wants B) positive economic analysis C) empirical analysis D) all of the above

Which of the following is a normative economic statement? A) An increase in corporate income taxes will cause the unemployment rate to increase. B) The costs of medical care are increasing faster than the incomes of U.S. citizens. C) Teenage unemployment is over ten percent. D) Teenage unemployment is too high.

Which of the following is a normative statement? A) An increase in consumer income will lead to increased sales of beef. B) A decrease in the rate of unemployment will lead to upward pressure on consumer prices. C) An increase in the income tax will cause a greater reduction in savings than an increase in the sales tax. D) An economy with high unemployment can be worse off than an economy with high inflation.

Which of the following is a statement with positive economic analysis? A) Lower wages increase employment and reduce the unemployment rate. B) Slower money growth reduces inflation. C) A reduction in the size of the budget deficit will reduce interest rates. D) all of the above

Which of the following is an aggregate? A) the number of shoes in one manʹs closet B) the bushels of apples one farmer sells C) the price of a particular textbook D) the total production of all goods and services

Which of the following statements about economic models is true? A) Economic models are not empirically testable. B) The predictive power of models is not important. C) Economic models are designed so that every detail of the real world can be analyzed. D) Every economic model is based on a set of assumptions.

Which of the following statements is true regarding the textbook used in this course? A) The textbook presents only economic theory, so no value judgments are involved in the text. B) The textbook does not include normative statements. C) The microeconomic section of the book includes only positive analysis while the macroeconomic section includes normative analysis. D) The selection of topics included in the book involves value judgments as well as economic theory.

Which of the following terms identifies something that macroeconomists would study but that microeconomists would NOT? A) incentives B) resources C) rationality D) aggregates

A map is an example of a model because a map A) realistically describes an area. B) is always as complex as space will permit. C) is two-dimensional. D) is a simplified representation of reality

ECON 201

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