macro chapter 1
economists study __________________ therefore, the unifying feature for economics is a focus on _____________.
all human behavior; choice
An economist makes an assumption that each additional year of education causes future wages to rise by 9 percent. In this model, if a person with 12 years of education makes $21,500 per year, then a person with 4-year college degree would earn $___________.
30, 349.00
Which of the following cases can create a free-rider problem? A. The street light on the road. B. Opening a savings account in a bank. C. Use of public parks by locals. D. Use of a personal television by the owner.
A and C
Which of the following statements explain positive economics? The predictions are testable. A. The predictions are testable. B. It is not factual. C. It can be rejected or amended depending on the evidence available. D. It depends upon value judgements.
A and C
Which of the following are benefits of taking the economics course? A. You can apply economic concepts, such as cost-benefit analysis, to help you make better decisions. B. You won't have to decide whether to take Japanese history or Russian poetry. C. You will learn how to avoid making trade-offs in your daily life. D. You can use economic analysis to help you better analyze other people's behavior. E. You will learn to make better choices in your daily life.
A, D, and E
Which of the following statements about the principles of economics is false? A. An investor selecting and investing in a stock or a combination of stocks that always earns him 15% returns on his investment is an example of optimization. B. A chess player selecting his best moves to win the chess tournament is an example of optimization. C. Five mobile operators selling mobile phones at the same price in a city is an example of equilibrium. D. Based on the sales of last three years, a shopkeeper infers that the higher the discount offered on goods the higher will be its demand. This is an example of empiricism.
A.
When a cost-benefit analysis is done:
All relevant options must be considered
Suppose that you allocate $20 each week for your entertainment budget. This money is spent on two items: either renting movies for $1 each at Redbox or downloading songs from iTunes at $1 each. Given this information, which of the following would represent your budget constraint for entertainment?
Amount spent on iTunes + Amount spent at Redbox = $20.
Which of the following statements does not explain the term equilibrium? A. Everyone is simultaneously optimizing. B. All economic agents are making the best feasible choices. C. It is a matter of belief. D. An economic agent has an incentive to change his behavior.
An economic agent has an incentive to change his behavior.
All of the following statements about means and medians are true, except A. a median uses a mean with even number observations. B. the median is more skewed by extreme values. C. the mean is another term for average. D. a mean sample would gain more accuracy with more observations.
B.
Which of the following does not support the concept of an economic agent? A. They make decisions by solving choice problems. B. All economic agents are individuals. C. Groups are considered as a single decision maker. D. Their decisions do not have an effect on the economy of a country.
B. and D.
What is the most appropriate reply to this criticism?
Economic models are meant to be approximations that predict what happens in most circumstances.
All of the following are properties of the most exciting economic questions, except good questions A. address topics that are important to society. B. address topics that are important to individual economic agents. C. cannot be answered. D. can be answered.
C.
Which of the following statements would imply positive correlation? A. Countries with lower tax rates have superior government services. B. Countries with higher tax rates have lower productivity. C. Countries with lower tax rates have higher productivity. D. Countries with higher tax rates have more government services.
D.
Which of the following statements, confirmed by empirical research, would you be most likely to trust? A. using orange and black during a campaign increases candy sales B. using pictures of Pilgrims sells more turkeys C. heart-themed advertising campaigns are among the most effective D. sales circulars with coupons generate increased sales
D.
Microeconomics is concerned with:
Externalities arising from production and consumption.
Which of the following is not a correct explanation of economics? A. It is concerned only with money and financial aspects of human behavior. B. It studies the effects of any individual agent's choices on society. C. It is concerned with every type of human behavior. D. It helps in evaluating the costs and benefits of alternative actions.
It is concerned only with money and financial aspects of human behavior.
In which of the following examples is prescriptive economic analysis necessary?
Jay chooses to go to Europe rather than China because of the discounts
Suppose you have just been hired as a management consultant by a major oil company to help it optimally price gasoline at its service stations. During a meeting with your client, the CEO asks if your economic models include all factors that impact gasoline prices. What is your response to his question?
No, the model is a simplified representation of reality
Economics, anthropology, psychology, sociology, and political science all study human behavior. Economics differs from these other social sciences because it also addresses these three key concepts: _________.
Optimization, equilibrium, and empiricism.
Which of the following statements does not satisfy the equilibrium condition? A. Ron will purchase chocolates only if its worth is less than its price. B. Ron will purchase chocolates only if its worth is at least as high as its price. C. Ashley will only produce chocolates at a cost less than the market price of her chocolates. D. The quantity of chocolates produced by Ashley is equal to the quantity of chocolates purchased by Ron.
Ron will purchase chocolates only if its worth is less than its price.
Which of the following supports the characteristics of optimization?
Selection of the option that fits the budget at the time of the decision.
Which of the following would be considered an opportunity cost of spending time to go to the movies with your friends?
The amount of money you would have made if you worked instead
Natalie is a skilled theater artist. She is offered a job as a manager in a bank with an annual salary of $30,000, and she has a fixed monthly expense of $2,000. However, getting theater projects is challenging due to competing with the other skilled and competitive artists causing her to, on average, solicit projects that result in an annual salary of $18,000 per year. Which of the following statements is not true?
The net benefit of working as a theater artist is negative $12,000.
One reason free-riders exist could be that:
The private benefit exceeds the private cost
In which of the following examples is the cause and the effect hard to untangle? A. The relation between smoking cigarettes and lung cancer. B. The relation between dense forests and heavy rains. C. The relation between smoke and fire. D. The relation between marine pollution and coral reef death.
The relation between dense forests and heavy rains.
You should collect __________ amount of data to create ____________ to test the _________ indicated by the economic model.
a large; empirical evidence; hypotheses
Economics is divided into two broad fields of study: microeconomics and macroeconomics. Microeconomics studies _________, while macroeconomics studies _________.
a small piece of the overall economy; the economy as a whole.
If the price of a good in an equilibrium market is $112, all of the following statements are true except: a. Producers know that if they colluded, they could increase the price. b. Production costs are less than $112. c. Retail outlets successfully sell what they stock at that price. d. Consumers feel that they are getting their money's worth at that price.
a. Producers know that if they colluded, they could increase the price.
The definition of economics states that it is the study of how _________.
agents choose to allocate scarce resources and the impact of those choices on society.
In which of the following areas will taking an economics course help benefit you throughout your life? A. It will give you the logic behind using cost-benefit analysis when evaluating decisions. B. It will help you analyze and predict human behavior in a variety of situations. C. It will instill the concept that what activity is given up by a decision plays an important role when making choices.
all of the above
Which of the following are considered scarce resources? diamonds pepperoni pizzas oil time
all of the above
When deciding whether to install visible countdown timers for pedestrians at crosswalks, which of the following would be considered in the cost-benefit analysis? A. The higher maintenance bill associated with fixing these more complex signals when they break down. B. The cost in terms of dollars of installing these new timers all over the city. C. The value of the lives lost by drivers who watch the countdown timers and try to make it through a light. D. The value of the pedestrians' lives saved by having the timers to assist in crossing the street.
all of these answers
Which of the following could be considered an economic agent? A. Parents B. Consumers. C. Senators. D. Criminals.
all of those choices
Policy decisions made by the government are analyzed by _________.
both microeconomics and macroeconomics.
An experiment would be conducted to determine _________ among the chosen variables. Subjects should be assigned _________ to either a test or control group in order to get the most unbiased comparison.
causation; randomly
Comparing a set of feasible alternatives and picking the best one is an optimization process called _________.
cost-benefit analysis
What tool would you employ to analyze the relationship between gasoline prices and consumer behavior?
economic models
empiricism describes a situation where
economists use data to analyze what is happening in the world
This third principle of economics, supported by the scientific method, is:
empiricism
When economists test their theories using evidence-based analysis, they are most likely using __________.
empiricism through the use of data.
For a market to be in equilibrium, three conditions must hold. Fill in the blanks below to complete these conditions. The amount produced by sellers must be ________ the amount purchased by buyers. The costs of making a product must be________ the final price at which the product sells. Buyers must place a value on the uses of the product that is ________ the cost of buying the product.
equal to; less than; greater than
The Bureau of Labor Statistics defines the labor-force participation rate as the number of people in the labor force (those that either have jobs or are actively looking for jobs) as a percentage of the working-age population. The Organization for Economic Cooperation and Development defines the total fertility rate in a specific year as the total number of children that would be born to each woman if she were to live to the end of her child-bearing years. Given the two definitions above, let's look at the relationship between the labor-force participation rate and the total fertility rate for highly educated women with high earning potential. You would expect that the labor-force participation rate among highly educated women would be ______________ since the opportunity cost of not working for highly educated women is ____________ that of all women.
higher than average; higher than
The scientific method uses ______________ for setting forth predictions and __________ to support or deny them. It is more important for a model to be ___________ than ____________.
hypothesis; data; usable; accurate
An argument against evidence-based economics would be:
it is only an approximation, often based on averages.
For most people, one of the biggest challenges involved in studying economics is:
it looks beyond simple cause and effect to the many possible long term effects of an action.
You would expect that the total fertility rate among highly educated women would be _____________ less educated women, since the opportunity cost of staying home to raise children is ___________ for highly educated women.
lower than; higher
Economists conduct research on the "effects of global warming on the economy". This means they study the effects of global warming on the national income, international trade etc. It is considered a ____________ study.
macroeconomic
A policy such as whether to increase the money supply would be studied under ___________ since _____________.
macroeconomics; it deals with the economy as a whole
Equilibrium describes a situation where
no one would benefit from changing his or her behavior
The statement that the United States is too aggressive in increasing the money supply is a ____________ statement since it describes what people _____________.
normative; ought to do
The ethical implications of a hotly debated government policy would best be considered a _________.
normative question, since it deals with a subjective issue based on personal preferences.
Suppose a total of 2,500 students are allowed in the engineering programs at all of the colleges in a particular city. From the previous three years' record, it shows that the number of students who enroll in the entrance exam for the engineering program increases if there is an increase in the number of IT recruiters the previous year. This year there is a total of 3,200 students who have enrolled to take the entrance exam of which only up to 2,500 of those who passed would get in. Based on either the students' perspective or the college perspective, what combination of economic key concepts does the situation follow?
optimization, equilibrium, and empiricism
The goal of optimization for an individual is to maximize _____________.
overall well-being
Free riding occurs because _________.
people sometimes pursue their own private interests and don't contribute voluntarily to the public interest.
optimization describes a situation where
people weigh costs and benefits when making a decision
The statement that the United States has a budget deficit that is in excess of $15 trillion is a ___________ statement since it describes what people ___________.
positive; actually do
A study was conducted examining diabetes rates by ethnicity. It was determined that Hispanics had the highest rate of diabetes. A conclusion might be made that people of Hispanic origin are the most inclined to be diabetic. However, that __________ correlation could be the result of _________ given that other factors, such as diet, that were not considered.
positive; omitted variables
All of the following are examples of empiricism except: a. analyzing theories about optimization. b. analyzing theories about equilibrium. c. determining causation. d. predicting human behavior.
predicting human behavior
Mason and Jack are neighbors. Mason wants to buy a new outdoor grill so he can barbecue. Mason has two options, a charcoal grill or a gas grill. By using __________he chooses to buy a gas grill. Mason knows that Jack would borrow his grill without asking; therefore, decides to use __________ in order to prevent his neighbor Jack from becoming a free-rider.
prescriptive economics; equilibrium analysis
Let's say that you are trying to decide what to do on Friday at 11 a.m. You rank your possible options from the one you value the most to the one that you value the least in the following order: going to class, sleeping in late, going to work early, getting lunch, going to the gym to exercise, and watching television. If you decide to go to class, then what do we know about the opportunity cost of your decision?
the opportunity cost would be sleeping in late, since it was your next-best option (aka look at her order of things) (opportunity cost is not in money terms)
Which of the following is not one of the three key principles of economics?
resource allocation
Suppose you have just been hired as a management consultant by a major oil company to help it optimally price gasoline at its service stations. In your first presentation to management, how would you describe your planned methodology to perform the analysis?
scientific method
Argument by anecdote _____________ be taken seriously. Anecdotes ________ appropriate when contradicting a blanket statement.
should not; are
In equilibrium, everyone ___________.
simultaneously optimizes, so that nobody benefits by changing his or her own behavior.
Which of the following would not be considered a cause for concern with economic experiments?
subjects are often randomized
He is still unconvinced about the reliability of using economic models to make business decisions. You can answer this concern by sharing that you will confirm the accuracy of the model by ____________ with ______________.
testing its predictions; empirical data
During the process of optimization economists believe that people are considering _________.
the feasibility of a choice, given the information available at the time.
Your budget constraint for entertainment illustrates the concept of _______________ since as you increase your purchases of one item, you ___________________.
tradeoffs; must decrease your purchases of the other item
Scarcity is the situation of having _______ wants in a world of __________resources.
unlimited; limited
Which of the following is an example of a rational action by an individual?
walking down a 5 story building stairs during an earthquake
The opportunity cost of an activity is a measure of ____________ when you do that activity.
what is given up