econ910 chapter 1 Essay

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1. Economics may best be defined as: A. the interaction between macro and micro considerations. B. the study of the behaviour of people and institutions in the production, distribution and consumption of scarce goods. C. the empirical testing of value judgments through the use of induction and deduction. D. the use of policy to refute facts and hypotheses.
answer

B
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2. The study of economics is primarily concerned with: A. keeping private businesses from losing money. B. demonstrating that capitalistic economies are superior to socialistic economies. C. choices that are made in seeking to use scarce resources efficiently. D. determining the most equitable distribution of society’s output.
answer

C
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3. Economic theories: A. are useless because they are not based upon laboratory experimentation. B. that are true for individual economic units are never true for the economy as a whole. C. are generalisations based upon a careful observation of facts. D. are abstractions and therefore have no application to real situations.
answer

C
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4. Which of the following is a correct statement? A. Economic concepts or laws that are valid during depression are necessarily valid during prosperity. B.Though not quantitatively exact, economic laws are useful because they allow us to make predictions that are meaningful and useful. C.Economics is as scientific as physics and chemistry because economic laws are as quantitatively precise as the laws of physics or chemistry. D. Since economics is concerned with questions of ‘ought’, it is a branch of applied ethics and is not scientific.
answer

B
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5. Generally speaking, it may be said that the inductive method: A. begins with hypotheses that are tested against real-world facts. B. confuses correlation with cause and effect. C. moves from facts to generalisations or theory. D. cannot be applied to economic analysis.
answer

C
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6. The deductive method: A. begins with hypotheses that are tested against real-world facts. B. confuses correlation with cause and effect. C. begins with facts and moves to generalisations or theory. D. applies to the physical sciences but not to social sciences.
answer

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

A
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8. Economic models: A. are of limited use because they cannot be tested empirically. B. are limited to variables that are directly related to one another. C. emphasise basic economic relationships by abstracting from the complexities of the real world. D. are unrealistic and therefore are of no practical consequence.
answer

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

C
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10. The basic purpose of the ceteris paribus assumption is to: A. allow one to reason about the relationship between two variables, without the intrusion of other variables. B. allow one to focus upon micro variables by ignoring macro variables. C. allow one to focus upon macro variables by ignoring micro variables. D. determine whether X causes Y or vice versa.
answer

A
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11. A ‘hypothesis’ is: A. a fundamental truth which all economists accept. B. a tentative, untested principle. C. the same as a normative statement. D. always the result of induction.
answer

B
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12. The term ceteris paribus means that: A. the associated statement is normative. B. many variables affect the variable under consideration. C. a number of relevant variables are assumed to be constant. D. when variable X increases, so does the related variable.
answer

C
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13. Microeconomics is concerned with: A. the aggregate or total levels of income, employment and output. B. a detailed examination of specific economic units which comprise the economic system. C. the concealment of detailed information about specific segments of the economy. D. the establishment of an overall view of the operation of the economic system.
answer

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

A
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15. Which of the following is a microeconomic statement? A. The real domestic output increased by 2.5% last year. B. Unemployment was 6.8% of the labour force last year. C. The price of wheat declined last year. D. The general price level increased by 4% last year.
answer

C
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16. Which of the following is a macroeconomic statement? A. The gross profit of all Australian businesses was $182 billion last year. B. The price of beef declined by 3% last year. C. General Motors’ profit increased in 1988. D. The productivity of steelworkers increased by 1% in 1992.
answer

A
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17. A normative statement is one that: A. is based on the law of averages. B. pertains only to microeconomics. C. pertains only to macroeconomics. D. is based upon value judgments.
answer

D
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18. A positive statement is: A. derived by induction. B. derived by deduction. C. subjective and based upon a value judgment. D. objective and based upon facts.
answer

D
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19. ‘Economics is concerned with using scarce productive resources efficiently in attempting to satisfy society’s material wants.’ This statement is: A. positive, but incorrect. B. positive and correct. C. normative, but incorrect. D. normative and correct.
answer

B
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20. Dean says that, ‘The imposition of a tax on beer will raise its price’. Kylie argues that ‘Taxes should be imposed on beer because university students drink too much’. We can conclude that: A. Dean’s statement is normative, but Kylie’s is positive. B. Kylie’s statement is normative, but Dean’s is positive. C. both statements are normative. D. both statements are positive.
answer

B
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21. Achieving full employment is most likely to conflict with the goal of: A. price level stability. B. economic growth. C. an equitable distribution of income. D. economic security.
answer

A
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22. Assume the relationship between unemployment and inflation is such that a low rate of unemployment results in a high rate of inflation, and vice versa. On the basis of this relationship, we can say that: A. the goals of full employment and price level stability are compatible. B. the goals of full employment and price level stability are conflicting. C. society should seek to eliminate inflation, even if it means a high level D. of unemployment. E. society should seek to eliminate unemployment, even if it means a high rate F. of inflation.
answer

B
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23. The ‘fallacy of composition’ states that: A. because economic systems are comprised of so many diverse economic units, economic laws are necessarily inexact. B. the anticipation of a particular event can affect the nature or composition of the event, when it occurs. C. what is true for the individual must necessarily be true for the group. D. because event A precedes event B, A is necessarily the cause of B.
answer

C
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24. The ‘post-hoc’ fallacy states that: A. because event A precedes event B, A is necessarily the cause of B. B. the very attempt to accomplish a certain objective may create conditions that prohibit the achievement of that goal. C. events may drastically alter plans; therefore, intentions and actual accomplishments may differ considerably. D. generalisations that are accurate at the level of microeconomics may be inaccurate at the level of macroeconomics.
answer

A
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25. The safest way for an individual to leave a burning theatre is to run for the nearest exit. It is, therefore, also the best means of escape for a large audience. This illustrates: A. the ‘post-hoc’ fallacy. B. Wagner’s law. C. the fallacy of composition. D. the fallacy of limited decisions.
answer

C
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26. Which of the following pertains to the notion that generalisations which apply to individuals are not always valid for a group? A. The law of large numbers. B. The law of averages. C. The fallacy of composition. D. The post-hoc fallacy.
answer

C
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27. The ‘post-hoc’ fallacy states that: A. positive statements are always followed by normative judgments. B. normative statements can never be proven true or false. C. if one acts on one’s expectations, those expectations will always be fulfilled. D. cause and effect can be determined merely by observing the sequence of events.
answer

D
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28. Which of the following best illustrates the post-hoc fallacy? A. Because it was 30 degrees today, I worked up a sweat playing tennis. B. I took the day off work to go to the beach and that’s why it rained. C. Because it rained at the football game, my new sweater got wet. D. Because I have studied diligently this semester, my grade average has improved.
answer

B
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29. Economics deals primarily with the concept of: A. scarcity. B. poverty. C. change. D. power.
answer

A
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30. Scarcity exists when: A. there is less than an infinite amount of a resource or good. B. society can meet the wants of every individual. C. there is less of a good or resource available than people wish to have. D. the government fails to produce goods.
answer

C
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31. A rational decision maker takes an action only if: A. marginal benefit is less than the marginal cost. B. marginal benefit is greater than the marginal cost. C. average benefit is greater than the average cost. D. marginal benefit is greater than the average cost but less than the marginal cost.
answer

B
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32. Making decisions ‘at the margin’ means that people: A. make those decisions that do not impose a marginal cost. B. evaluate how easily a decision can be reversed if problems arise. C. compare the marginal costs and marginal benefits of each decision. D. can ignore the cost of forgoing an alternative.
answer

C
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33. One difficulty economists 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 receive less government funding than other scientists. C. corporations are reluctant to disclose information necessary for economic research. D. experiments are often difficult in economics.
answer

D
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34. A macroeconomist would study each of the following, except the: A. impact of minimum wage laws on employment in the fast food industry. B. effect of changes in savings rates on GDP. C. impact of monetary policy on the rate of inflation. D. effect of tax policy on the rate of economic growth.
answer

A
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35. The fact that economic generalisations are abstract renders them impractical and useless. A. True B. False
answer

B
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36. If economic theories are solidly based upon relevant facts, then there can be no question as to the character of appropriate economic policy. A. True B. False True False
answer

B
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37. Positive statements are expressions of value judgments. A. True B. False
answer

B
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38. The primary objective of economic science is to help businesspeople operate their firms profitably. A. True B. False
answer

B
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39. The basic goals of Australian capitalism are always complementary, in that the achievement of any one goal simultaneously furthers the attainment of other basic goals. A. True B. False
answer

B
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40. A rational decision maker takes an action if and only if the marginal cost exceeds the marginal benefit. A. True B. False
answer

B
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41. Economics is the study of how fairly goods and services are distributed within society. A. True B. False
answer

B
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42. Scarcity means that there is less of a good or resource available than people wish to have. A. True B. False
answer

B

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