Economics Test 1 Answers – Flashcards
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Economics deals primarily with the concept of a. scarcity b. poverty c. change d. power
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scarcity
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Both households and societies face many decisions because a. resources are scarce b. populations may increase or decrease over time c. wages for households and therefore society fluctuate with business cycles d. people, by nature, tend to diagree
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resources are scarce
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Approximately what percentage of the world's economies experience scarcity? a. 25% b. 50% c. 75% d. 100%
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100%
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Which product would be considered scarce? a. Nike shoes b. Monet paintings c. 1-carat diamonds d. All of the above
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All of the above are correct
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Daniel decides to spend the last two hours of the night before his economics exam studying instead of sleeping. For Daniel, his tradeoff would be a. nothing, since no dollar value can be put on sleep. b. nothing, since studying would be more beneficial than sleep. c. the six hours of sleep he could have had if he had gone to bed before midnight. d. the two hours of rest he would have gotten.
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the two hours of rest he would have gotten.
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Efficiency means that a. society is conserving resources in order to save them for the future. b. society's goods and services are distributed fairly among society's members. c. society has lessened its dependence on foreign energy sources. d. society is getting the most it can from its scarce resources.
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society is getting the most it can from its scarce resources.
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What you give up to obtain an item is called you a. opportunity cost b. explicit cost c. true cost d. direct cost
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opportunity cost
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In the United States, incomes have historically grown about 2% per year. At this rate incomes will double every a. 10 years b. 25 years c. 35 years d. 50 years
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10 years
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Over the past century, the average income in the United States has risen a. twofold b. fivefold c. eightfold d. tenfold
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eightfold
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An increase in the overall level of prices in an economy is referred to as a. economic growth b. inflation c. monetary policy d. supply shocks
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inflation
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Inflation causes a. incomes to fall b. productivity to increase c. the government to lower taxes d. the value of money to fall
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the value of money to fall
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By scientific method we mean a. the use of modern electronic testing equipment to understand the world works b. the dispassionate development and testing of theories about how the world works c. the use of controlled experiments in understanding the way the world works d. finding evidence to support preconceived theories about how the world works
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the dispassionate development and testing of theories about how the world works
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When testing theories, economists a. must make do with whatever data the world gives them b. can manipulate economic conditions easier than other scientific fields c. can enlist the government's help to manipulate economic conditions d. can achieve statistically valid results with much smaller sample sizes.
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must make do with whatever data the world gives them.
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One difficulty economist face that some other scientists do not is that a. unlike other sciences, economic studies must include the largest economic player, the government. b. economists unfortunately receive less government funding than other scientists. c. corporations are reluctant to disclose necessary information for economic research. d. experiments are often difficult in economics.
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experiments are often difficult in economics.
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The most common data for testing economic theories come from a. carefully controlled and conducted laboratory experiments. b. traditional economies. c. historical episodes of economic change. d. centrally planned economies.
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historical episodes of economic change.
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For economists, substitutes for laboratory experiments are often a. natural experiments offered by history. b. computer-generated experiments. c. studies conducted by other disciplines such as sociologists. d. well-constructed simulations.
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natural experiments offered by history.
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What is the goal of theories? a. to provide an interesting, but not useful, framework of analysis. b. to provoke stimulating debate in scientific journals. c. to demonstrate the developer of the theory is capable of logical thinking. d. to help scientists understand how the world works.
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to help scientists understand how the world works.
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Models used by economists a. cannot be useful to economists if they are based on false assumptions. b. make the economics profession more difficult than necessary. c. allow economists to learn how the economy works. d. must include every possible variable in the economy to be useful to economists.
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allow economists to learn how the economy works.
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The circular-flow diagram is a a. visual model of how the economy is organized. b. mathematical model of how the economy works. c. model that shows the effects of government of the economy. d. visual model of the relationship among money, prices, and businesses.
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visual model of how the economy is organized.
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The production possibilities frontier is a a. map which shows the frontier beyond which agriculture is unprofitable. b. map which shows areas of the world in which capitalist production is now possible. c. graph which shows the various combinations of resources that can be used to produce a given level of output. d. graph that shows the various combinations of output the economy can possibly produce given the available resources and technology.
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graph that shows the various combinations of output the economy can possibly produce given the available resources and technology.
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The production possibilities frontier is bowed outward if a. resources are not perfectly substitutes in alternate uses. b. the amount of resources increases. c. the level of technology. d. both b and c are correct
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resources are not perfectly substitutes in alternate uses.
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When a production possibilities frontier shifts outward, it is demonstrating the concept of a. tradeoffs b. efficiency c. economic growth d. opportunity cost
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economic growth.
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When an economy is operating inside its production possibilities frontier we know that a. there are unused resources or inefficiencies in the economy. b. the economy is operating with efficiency. c. moving to a point on its production possibilities frontier would be economic growth. d. to produced more of one good, the economy would have to give up some of the other good.
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there are unused resources of inefficiencies in the economy.
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Macroeconomics is the study of a. individual decision-makers. b. economic history. c. economy-wide phenomena. d. how firms maximize profit.
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economy-wide phenomena
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Economists view positive statements as a. affirmative, justifying existing economic policy. b. optimistic, putting the best possible interpretation on things. c. descriptive, making a claim about how the world is. d. prescriptive, making a claim about how the world out to be.
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descriptive, making a claim about how the world is.
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A normative statement describes how the world a. was in the past. b. is. c. will be in the future. d. ought to be.
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ought to be.
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"Prices rise when the government prints to much money" is an example of a a. positive economic statement. b. statement made by the Carter administration. c. normative economic statement. d. welfare statement.
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positive economic statement
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One way to determine the direction of causality is to a. assume the 2 variables move in the same direction. b. assume the 2 variables move in opposite directions. c. determine which variable moves first. d. determine which variable is the dependent variable and which variable could be the independent variable.
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determine which variable moves first.
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People who provide you with goods and services a. are acting out of generosity. b. are acting because they like you. c. do so because they get something in return d. are required to do so by government.
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do so because they get something in return.
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A production possibilities frontier (PPF) will be linear and not bowed out if a. no tradeoffs exists. b. the tradeoff between the two goods is always at a constant rate. c. unemployment is zero. d. resources are allocated efficiently.
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the tradeoff between the two goods is always at a constant rate.
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A market is a a. group of demanders and suppliers of a particular good or service. b. group of people with common desires. c. Place where only sellers meet. d. Place where only buyers come together.
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group of demanders and suppliers of a particular good or service.
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The behavior of people as they interact with one another in markets is referred to as a. economics. b. interaction. c. demand and supply. d. social psychology.
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demand and supply.
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If the price of a substitute to good X increases, then the a. demand for good X will decrease. b. market price of good X will decrease. c. demand for good X will increase. d. quantity demanded for good X will increase.
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demand for good X will increase.
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According to the law of demand price of quantity a. supplied are inversely related. b. demanded are inversely related. c. demanded are positively related. d. supplied are positively related.
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demanded are inversely related.
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If a decrease in income increases the demand for a good, then the good is a. a substitute good. b. a complement good. c. a normal good. d. an inferior good.
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an inferior good.
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The positive relationship between price and quantity supplied is called a. a market. b. a change in supply. c. the demand curve. d. the law of supply.
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the law of supply.
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An advance in production technology will a. increase a form's costs. b. allow firms to raise the price of their product. c. shift the supply curve to the right. d. Both a and b are correct.
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shift the supply curve to the right
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Refer to Figure 4-7. At a price of $35 a. there would be a shortage of 400 units. b. there would be a surplus of 200 units. c. there would be a surplus of 400 units. d. the market would be in equilibrium.
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there would be a surplus of 400 units.
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Refer to Figure 4-7. At a price of $15 a. there would be a shortage of 400 units. b. there would be a surplus of 400 units. c. there would be a shortage of 200 units. d. the market would be in equilibrium.
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there would be a shortage of 400 units.
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Refer to Figure 4-7. At the equilibrium price, a. 200 units would be supplied and demanded. b. 400 units would be supplied and demanded. c. 600 units would be supplied and demanded. d. 600 units would be supplied, but only 200 would be demanded.
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400 units would be supplied and demanded.
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Which of the following would definitely result in a higher price in the market for Snickers? a. demand increases and supply decreases b. demand and supply both decrease c. demand decreases and supply increases d. demand and supply both increase
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demand increases and supply decreases
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Which of the following will definitely cause equilibrium quantity to fall? a. demand increases and supply decreases b. demand and supply both decrease c. demand decreases and supply increases d. demand and supply both increase
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demand and supply both decrease
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If the supply of a product increases, we would expect equilibrium price a. to increase and equilibrium quantity to decrease. b. to decrease and equilibrium quantity to increase. c. and equilibrium quantity to both increase. d. and equilibrium quantity to both decrease.
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to decrease and equilibrium quantity to increase.
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If the supply of a product decreases, we would expect equilibrium price a. to increase and equilibrium quantity to decrease. b. to decrease and equilibrium quantity to increase. c. and equilibrium quantity to both increase. d. and equilibrium quantity to both decrease.
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to increase and equilibrium quantity to decrease.
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Suppose the demand decreases AND supply decreases. What would you expect to occur in the market for the good? a. Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous. b. Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous. c. Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous. d. Both equilibrium price and equilibrium quantity would increase.
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Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous.
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Demand is said to elastic if a. the price of the good responds substantially to changes in demand. b. demand shifts substantially when the price of the good changes. c. buyers do not respond much to changes in the price of the goods. d. the quantity demanded responds substantially to changes in the price of the good.
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the quantity demanded responds substantially to changes in the price of the good
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Demand is said to inelastic if a. the quantity demanded changes only slightly when the price of the good changes. b. demand shifts only slightly when the price of the good changes. c. buyers respond substantially to changes in the price of the good. d. the price of the good responds only slightly to changes in demand.
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the quantity demanded changes only slightly when the price of the good changes.
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Suppose the price of Twinkies is reduced from $1.45 to $1.25 and, as a result, the quantity of Twinkies demanded increases from 2,000 to 2,200. Using the midpoint method, the price elasticity of demand for Twinkies in the given price in range a. 2.00. b. 1.55. c. 1.00. d. .64.
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.64.
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Refer to Figure 5-1. The section of the demand curve labeled C represents the a. elastic section of the demand curve. b. perfectly elastic section of the demand curve. c. unit elastic section of the demand curve. d. inelastic section of the demand curve.
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inelastic section of the demand curve.
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If two goods are substitutes, their cross-price elasticity will be a. positive. b. negative. c. zero. d. 1.
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positive.
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Knowing that the demand for wheat is inelastic, if all farmers voluntarily plowed under 10 percent of their wheat crop, then a. consumers of wheat would buy more wheat. b. wheat farmers would suffer a reduction in their revenue. c. wheat farmers would increase their revenue. d. the demand for wheat would decrease.
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wheat farmers would increase their revenue.
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When OPEC raid the price of crude oil in the 1970s, it caused the a. demand for gasoline to increase. b. demand for gasoline to decrease. c. supply of gasoline to increase. d. supply of gasoline to decrease.
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supply of gasoline to decrease.
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Rent control is a. a common example of a social problem solved by government regulation. b. a common example of a price ceiling. c. the most effective way to provide affordable housing. d. the most efficient way to allocate housing,
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a common example of a price ceiling.
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The minimum wage is an example of a. a price ceiling. b. a price floor. c. a free-market process. d. an efficient labor allocation mechanism.
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a price floor.
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The equilibrium wages of teenagers tend to be a. low because teenagers are among the least skilled and least experienced workers. b. high because teenagers are among the strongest and most energetic workers. c. low because most teenagers live at home and do not require high wages. d. high because teenagers tend to join unions.
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low because teenagers are among the least skilled and least experienced workers.
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When a tax is place on the buyer of a product the result is that buyers pay a. more and sellers receive less. b. less and sellers receive less. c. more and sellers receive more. d. less and sellers receive more.
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more and sellers receive less.
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In a simple circular flow diagram, total income and total expenditures in an economy are a. equal because firms are ultimately owned by households. b. equal only if there is no saving. c. equal because every transaction has a buyer and a seller. d. never equal because some people's income is not for production.
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equal because every transaction has a buyer and a seller.
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Which of the following is the correct definition of GDP? a. the market value of all goods produced within a country. b. the market value of all final goods and services produced by the citizens of a country. c. the market value of all final goods and services produced by the citizens of a country. d. None of the above are correct.
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the market value of all final goods and services produced within a country.
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When the local bookstore prices economics textbooks at $110, they generally sell 1000 books per month. If they lower the price to $100 each, they sell 1010 textbooks, The price elasticity of demand is ________ a. 9.6 b. 3.9 c. 2.1 d. 1.0 e. 0.1
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0.1
