ch 1 – Flashcards with Answers
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The economic way of thinking will help you A) make decisions in financing your home. B) decide whether the U.S. government should encourage or discourage immigration. C) make better decisions concerning your education. D) all of the above
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D
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Economic analysis is used A) only in economics classrooms. C) only by policy makers. B) only by business people. D) in all decision making.
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D
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Economic analysis is A) a tool that can aid all decision making. B) a tool that can be used in only macroeconomics. C) a tool that can be used in only microeconomics. D) an unnecessary complication to decision making.
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A
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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.
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A
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Economics can be described as the study of how people use ________ resources to satisfy ________ wants. A) unlimited; unlimited C) limited; unlimited B) unlimited; limited D) limited; limited
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C
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In economics, items that are used to produce goods and services are known as A) wants. B) aggregates. C) factors of need. D) resources.
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D
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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.
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A
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In economics, ________ are limited but ________ are unlimited. A) wants; resources C) money; ideas B) resources; wants D) ideas; money
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B
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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.
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B
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Economics is a part of the A) social sciences. B) natural sciences C) biological sciences. D) organizational sciences
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A
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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 peopleʹs wants.
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D
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Which of the following is NOT a focus of the study of economics? A) how individual preferences are formed C) inflation B) unemployment D) prices in particular markets
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A
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Macroeconomics is the study of A) aggregate economic variables. B) output in particular industries C) prices in particular industries. D) all of the above
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A
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Microeconomics is the study of A) the behavior of the economy as a whole. B) output in particular industries. D) all of the above. 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.
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C
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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
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B
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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 effects of an increase in wheat prices on farmersʹ behavior D) the unemployment rate
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D
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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.
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C
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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.
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C
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Another word for ʺaggregateʺ is A) government. B) partial. C) public. D) total
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D
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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.
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D
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Which of the following terms identifies something that macroeconomists would study but that microeconomists would NOT? A) incentives B) resources C) rationality D) aggregates
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D
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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.
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C
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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.
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C
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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.
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A
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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.
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D
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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?
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A
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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
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C
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What is the type of mechanism that answers the basic economic questions through a decentralized decision making process? A) Market system B) Dictatorship C) Command and control D) Mixed economic system
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A
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Central planning is a key characteristic of which economic system? A) Free market B) Price system C) Command and control D) Mixed economic system
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C
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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.
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C
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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.
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B
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The United States is best known as a A) pure price system. C) command and control system. B) dictatorship. D) mixed economic system.
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D
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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.
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C
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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.
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C
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Economists assume that people are motivated by A) benevolence. C) greed. B) altruism. D) rational self-interest.
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D
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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.
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A
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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.
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A
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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.
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A
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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.
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B
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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.
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B
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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.
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B
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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.
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C
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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.
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D
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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.
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A
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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.
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B
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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.
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C
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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.
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D
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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.
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D
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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.
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B
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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.
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C
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Another term for ʺeconomic modelsʺ is A) economic designs. B) economic theories. C) economic science. D) economic maps.
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B
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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.
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D
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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
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A
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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.
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D
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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.
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B
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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.
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B
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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.
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D
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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.
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B
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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.
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A
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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. D) all of the above.
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A
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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.
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B
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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.
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A
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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. Answer: D Diff: 2
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D
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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
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A
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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.
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D
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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.
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A
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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.
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C
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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.
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A
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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. C) individual aggregation hypothesis. B) ceteris paribus hypothesis. D) bounded rationality hypothesis.
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D
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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.
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A
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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.
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C
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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. C) irrational choices. B) rational options. D) normative decisions.
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A
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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 C) unbounded will power B) unbounded rationality D) unbounded resources
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D
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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.
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D
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Normative economic statements A) violate the law of ceteris paribus. B) contain value judgments. C) are usually irrational. D) are easily testable.
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B
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Normative economics involves A) a statement of fact. B) a statement of "what should be." C) a statement of ʺwhat is.ʺ D) a statement that is purely descriptive.
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B
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ʺIf A occurs then B will followʺ is a A) positive statement. B) normative statement. C) non-testable statement. D) statement lacking in logic.
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A
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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. C) a normative statement. B) an easy to prove statement. D) a factual statement.
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A
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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.
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C
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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.
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D
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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.
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B
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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.
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C
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Whenever statements embodying values are made, we enter the realm of A) positive economics. C) microeconomics. B) normative economics. D) macroeconomics.
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B
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Normative economic analysis involves A) positive analysis. B) value judgments. C) if-then statements. D) objective descriptions of the way things are.
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B
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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.
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B
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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.
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C
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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.
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C
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If an increase in one variable causes a decrease in another variable, this is 1.7 A) a direct relationship. C) an independent relationship. B) a dependent relationship. D) an inverse relationship.
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D
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When two variables have a direct relationship, the slope is A) negative. B) positive. C) zero. D) infinity.
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B
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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.
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B
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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.
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B
