Economics for Today: Chapter 1 – 2 Test 1

question

Explain why both nations with high living standards and nations with low living standards face the problem of scarcity. If you won $1 million in a lottery, would you escape the scarcity problem?
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A poor nation with people who lack food, clothing, and shelter certainly experiences wants beyond the availability of goods and services to satisfy these unfulfilled wants. On the other hand, no wealthy nation has all the resources necessary to produce everything everyone in the nation wishes to have. Even if you had $1 million and were completely satisfied with your share of goods and services, other desires would be unfulfilled. There is never enough time to accomplish all the things that you can imagine would be worthwhile.
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Explain the difference btw macroeconomics and microeconomics. Give examples of the areas of concern to each branch of economics.
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Macroeconomics applies an overview perspective to an economy by examining economywide variables such as inflation, unemployment, and growth of the economy. Microeconomics examines individual economic units, such as the market for corn, gasoline, or ostrich eggs.
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A model is defined as…
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Simplified description of reality used to understand the way variables work
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Explain the importance of the ceteris paribus assumption for an economic model.
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People are complicated, and their economic choices are usually influenced by many variables. In order to focus only on the most important variables that influence choices, the ceteris paribus assumption rules out changes in certain variables that might affect the model.
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Which of the following is an example of a proposition from positive economics? a) If Candidate X has been elected president, taxpayers would have been treated more fairly than they were under President Y b) The average rate of inflation was higher during President X’s presidency than during President Y’s presidency c) In economic terms, President X is a better than President Y d) President X’s policies were more just toward poor people than President Y’s
answer

B
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Which of the following illustrates the concept of scarcity? a) More clean air is wanted than is available in large polluted metropolitan areas such as Mexico City b) There is usually more than one use of your “free” time in the evening c) There are many competing uses for the annual budget of your city, country, or state d) All of the answers are correct
answer

D
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Which of the following are factors of production? a) The outputs generated by the production process transforming land, labor, and capital into goods and services b) Restricted to the land resources such as natural resources that are unimproved by human economic activity c) Land (natural resources), labor (human capital, entrepreneurship), and capital (constructed inputs such as factories). d) Just labor and capital in industrialized countries, where natural resources are no longer used to produce goods and services
answer

C
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Which of the following is NOT an example of a capital input? a) A person’s skills and abilities, which can be employed to produce valuable goods and services b) Factories and offices where goods and services are produced c) Tools and equipment d) Computers used by a company to record inventory, sales, and payroll
answer

A
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Which of the following is the BEST definition of economics? *ON THE FINAL* a) Economics is the study of how to manage corporations to generate the greatest return on shareholder investment b) Economics is the study of how to manage city and county government to generate the greatest goods to its citizens c) Economics is the study of how society chooses to allocate its scarce resources d) Economics is the study of how to track revenues and costs within a business
answer

C
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Which of the following BEST illustrates the application of the model-building process to economics? a) Two economists with differing political agendas argue about the best way to solve the Social Security problem on a Sunday morning talk show b) A labor economist notices that unemployment tends be higher among teenagers than more experienced workers, develops a model, and gathers data to test the hypotheses in the model c) A Ph.D. student in economics develops a plausible mathematical model for his dissertation, but there is no data to test the model d) Economists come to believe that some economic models are true simply because prominent leading economists say they are true
answer

B
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Which of the following represents causality rather than association? a) In years that fashion dictates wider lapels on men’s jackets, the stock market grows by at least 5% b) Interest rates are higher in years ending with a 1 or a 6 c) Unemployment falls when the AFC champion wins the Super Bowl d) Quantity demanded goes up when price falls because lower prices increase consumer purchasing power, and because some consumers of substitute goods switch
answer

D
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Which of the following correctly describes the ceteris paribus assumption? a) If we increase the price of a good, reduce consumer incomes, and lower the price of substitutes, and if quantity demanded is observed to fall, we know that the price increase caused that decline in quantity demanded b) If the federal government increases government spending, and the Federal Reserve Bank lowers interest rates, we know that the increase in government spending caused unemployment to fall c) If a company reduces its labor costs, negotiates lower materials costs from its vendors, and advertises, we know that the reduced labor costs are why profits are higher d) If we decrease the price of a good and observe that there is an increase in the quantity demanded, holding all other factors that influence this relationship constant
answer

D
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The condition of scarcity a) Cannot be eliminated b) Prevails in poor economies c) Prevails in rich economies d) All of the above are correct
answer

D
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Which of the following best describes an entrepreneur? a) A person who works as an office clerk at a major corporation b) A person who combines the factors of production to produce innovative products c) A special type of capital d) Wealthy individuals who provide savings that stimulates the economy
answer

B
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Which of the following is true about renewable natural resources? a) They are a type of land resource such as oil, coal, and natural gas that has a fixed stock b) They are a type of capital resource such as irrigation networks and wastewater treatment plants that utilize water c) They are a type of capital resource such as air filtration systems in buildings that renew and refresh polluted air from the outside d) They are a type of land resource such as forests, rangelands, and marine fisheries that naturally regenerate and thus can tolerate a sustained harvest, but can be depleted from excessive harvest
answer

D
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Because of scarcity, a) It is impossible to satisfy every desirer and choices must be made b) The available supply of time, goods, and resources is greater than human wants c) Every desire is fulfilled d) There are no limits on the economy’s ability to satisfy unlimited wants
answer

A
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Which of the following represents positive economics? a) Policy A is fair b) Outcome B is the best objective to achieve c) If policy A is followed, then outcome B results d) All of these choices are positive economic analysis
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C
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Which of the following is the last step in the model-building process? a) Collect data and test the model b) Develop a model based on simplified assumptions c) Identify the problem d) Formulate an assumption
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A
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Which of the following is not a type of economic analysis? a) Positive b) Resources c) Normative d) None of the above is a type of economic analysis
answer

B
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Which word or phrase indicates that an economist is using positive economics? a) Good b) Bad c) If-then d) Should
answer

C
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Which of the following would eliminate scarcity as an economic problem? a) Moderation of people’s competitive instincts b) Discovery of sufficiently large new energy reserves c) Resumption of the steady productivity growth d) None of the above
answer

D
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Which resource is not an example of capital? a) Equipment b) Machinery c) Physical plants d) Stocks or bonds
answer

D
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Which of the following is the second step in the model-building process? a) Collect data and test the model b) Develop a model based on simplified assumptions c) Identify the problem d) Include all possible variables that affect the model
answer

B
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Which of the following is a type of economic analysis? a) Positive b) Resources c) Association d) None of the above is a type of economic analysis
answer

A
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Which of the following is a career that could result from majoring in economics? a) Management b) Banking c) Government d) All of the above
answer

D
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Can you prove there is no trillion-dollar person?: Suppose a theory says no U.S. citizen is worth $1 trillion. You decide to test this theory and send researchers to all corners of the nation to check financial records to see whether someone qualifies by owning assets valued at $1 trillion or more. After years of checking, the researchers return and report that not a single person is worth at least $1 trillion. Do you conclude that the evidence proves the theory?
answer

How can researchers ever be certain they have seen all the rich people in the United States? There is always the possibility that somewhere there is a person who qualifies. If the researchers had found one, you could have rejected the theory. Because they did not, you cannot reject the theory. If you said that the evidence can support, but never prove, the theory, YOU ARE CORRECT.
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Should Nebraska State join a Big-Time athletic conference?: Nebraska State (a mythical university) stood by while Penn State, Florida State, the University of Miami, and the University of South Carolina joined big-time athletic conferences. Now Nebraska State officials are pondering whether to remain independent or to pursue membership in a conference noted for high-quality football and basketball programs. An editorial in the newspaper advocates joining and cites a study showing that universities belonging to major athletic conferences have higher graduation rates than nonmembers. Because educating its students is the number one goal in Nebraska State, will this evidence persuade Nebraska State officials to join a big-time conference?
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Suppose universities that belong to big-time athletic conferences do indeed have higher graduation rates than nonmembers. This is not the only possible explanation for the statistical correlation (or association) between the graduation rate and membership in a big-time athletic conference. A more plausible explanation is that improving academic variables, such as tuition, quality of faculty, and student-faculty ratios, and not athletic conference membership, increase the graduation rate. If you said correlation does not mean causation, and therefore Nebraska State officials will not necessarily accept the graduation rate evidence, YOU ARE CORRECT!
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“The government should provide health care for all citizens” This statement is an illustration of: a. normative economic analysis b. fallacy of association analysis c. positive economic analysis d. correlation analysis
answer

A- Normative economic analysis
question

An entrepreneur is a: a. business organization that uses inputs to produce output. b. individual who has much education c. organizer who seeks profitable opportunities and is willing to accept risks. d.depot or warehouse for commercial products
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C. Organizer who seeks profitable opportunities and is willing to accept risks.
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Policies to create jobs in the nation are the concern of: a. macroeconomics b. neither microeconomics nor macroeconomics c. microeconomics d. both microeconomics and macroeconomics
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A. macroeconomics
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The condition of scarcity: a. prevails in rich economies b. prevails in poor economies c. cannot be eliminated d. all of these
answer

d. all of these
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When economists want to hold a number of factors constant, they are demonstrating which of the following expressions? a. consumer sovereignty b. positive economics model c. normative economics d. ceteris paribus
answer

d. ceteris paribus
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Which of the following is a microeconomics topic? a. the unemployment rate b. the inflation rate c. a price of a new home d. the economies growth rate forecasts of a recession next year.
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c. the price of a new home
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Which of the following is a normative economic statement? a. The inflation rate in the US is too high. b. Higher profits in an industry will attract more entrepreneurs into the industry. c. The unemployment rate for the US is currently 5.4 percent d. An increase in the price of a good will reduce the amount purchased.
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A. the inflation rate in the US is too high.
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Which of the following is the best example of a microeconomic topic? a. The effect that federal budget deficits have on the interest rate. b. The impact that the money supply has on inflation. c. The trade-off between inflation and unemployment d. the reasons for increases in the price of soft drinks.
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D the increase in the price of soft drinks
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Which of the following is the best example of a nonrenewable resource? a. oil b. fish in the ocean c. clean air d. forests
answer

A oil
question

Which of the following represents positive economics? a. Policy A is fair b. all of these c. If policy A is followed then outcome B results d. Outcome B is the best objective to achieve
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C if policy A is followed, outcome B results.
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Explain why scarcity forces individuals and society to incur opportunity costs.
answer

Because the wants of individuals and society exceed the goods and services available to satisfy these desires, choices must be made. The consumption possibilities of an individual with a fixed income are limited, and as a result, additional consumption of one item necessarily precludes an expenditure on another next-best choice. The forgone alternative is called the opportunity cost, and this concept also applies to societal decisions. If society allocates resources to the production of guns, then those same resources cannot be used at the same time to make better.
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Suppose a retailer promotes its store by advertising a drawing for a “free car” Is this car free because the winner pays zero for it?
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No, first the winner will have to pay the taxes, upkeep costs, insurance and gas for the car, second he retailer who is promoting the car had to purchase the car and third valuable limited resources went into the production of the car.
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Explain verbally the statement “There is no such thing as a free lunch” in relation to scarce resources.
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Resources are limited and in order to get something “free” you have to give up something else.
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Which of the following decisions had the greater opportunity cost? a. A decision to use an undeveloped lot in Tokyo’s financial district for an apartment building. b. A decision to use a square mile in the desert for a gas station.
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A. The lot in Tokyo’s financial district is very valuable real estate. The Opportunity cost is the value of the building that would house many financial companies and retailers.
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Attending college is so expensive, time consuming, and it requires effort. So why do people decide to attend college?
answer

Using marginal analysis, students weigh the benefits of attending college against costs. There is an incentive to attend college when the benefits (improved job opportunities, income, intellectual improvement, social life, and so on) outweigh the opportunity costs.

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