Question 1

Which of the following is part of an economic model?

Accepted Answer

A)  assumptions 
B)  norms 
C)  opinions 
D)  preferences of economic agents 
A)  assumptions 
B)  norms 
C)  opinions 
D)  preferences of economic agents

Question 2

By definition, economics is the study of

Accepted Answer

A)  how to make money in the stock market. 
B)  how to make money in a market economy. 
C)  the choices people make to attain their goals, given their scarce resources. 
D)  supply and demand. 
A)  how to make money in the stock market. 
B)  how to make money in a market economy. 
C)  the choices people make to attain their goals, given their scarce resources. 
D)  supply and demand.

Question 3

Which of the following statements is correct?

Accepted Answer

A)  Mrs. Lovejoy decides to invest in companies which she believes are producing their goods based on the preferences of consumers. Mrs. Lovejoy is therefore investing in companies that are productively efficient. 
B)  Mrs. Lovejoy decides to invest in companies which she believes are producing their goods based on the preferences of consumers. Mrs. Lovejoy is therefore investing in companies that are both allocatively and productively efficient. 
C)  Mrs. Lovejoy decides to invest in companies which she believes can produce their goods at the lowest possible cost. Mrs. Lovejoy is therefore investing in companies that are productively efficient. 
D)  Mrs. Lovejoy decides to invest in companies which she believes can produce their goods at the lowest possible cost. Mrs. Lovejoy is therefore investing in companies that are allocatively efficient. 
A)  Mrs. Lovejoy decides to invest in companies which she believes are producing their goods based on the preferences of consumers. Mrs. Lovejoy is therefore investing in companies that are productively efficient. 
B)  Mrs. Lovejoy decides to invest in companies which she believes are producing their goods based on the preferences of consumers. Mrs. Lovejoy is therefore investing in companies that are both allocatively and productively efficient. 
C)  Mrs. Lovejoy decides to invest in companies which she believes can produce their goods at the lowest possible cost. Mrs. Lovejoy is therefore investing in companies that are productively efficient. 
D)  Mrs. Lovejoy decides to invest in companies which she believes can produce their goods at the lowest possible cost. Mrs. Lovejoy is therefore investing in companies that are allocatively efficient.

Question 4

Which of the following is a positive economic statement?

Accepted Answer

A)  Everyone should live at the same standard of living. 
B)  If the price of gasoline rises, a smaller quantity of it will be bought. 
C)  The government should close income tax loopholes. 
D)  U.S. firms should not be allowed to outsource production of goods and services. 
A)  Everyone should live at the same standard of living. 
B)  If the price of gasoline rises, a smaller quantity of it will be bought. 
C)  The government should close income tax loopholes. 
D)  U.S. firms should not be allowed to outsource production of goods and services.

Question 5

Optimal decisions are made at the point where marginal benefit is maximized.

Accepted Answer

A) True 
 B)False

Question 6

Figure 1-4  
-Refer to Figure 1-4. Which of the following statements is false?

Accepted Answer

A)  The slope of the tangent at E is positive. 
B)  The slope of the tangent at F is negative. 
C)  The slope of the tangent at E and the slope of the tangent at F are equal. 
D)  Neither the slope of the tangent at E nor the slope of the tangent at F are equal to zero. 
A)  The slope of the tangent at E is positive. 
B)  The slope of the tangent at F is negative. 
C)  The slope of the tangent at E and the slope of the tangent at F are equal. 
D)  Neither the slope of the tangent at E nor the slope of the tangent at F are equal to zero.

Question 7

Markets promote

Accepted Answer

A)  equity and competition. 
B)  voluntary exchange and equality. 
C)  equity and equality. 
D)  competition and voluntary exchange. 
A)  equity and competition. 
B)  voluntary exchange and equality. 
C)  equity and equality. 
D)  competition and voluntary exchange.

Question 8

DeShawn's Detailing is a service that details cars at the customers' homes or places of work. DeShawn's cost for a basic detailing package is $40, and he charges $75 for this service. For a total price of $90, DeShawn will also detail the car's engine, a service that adds an additional $20 to the total cost of the package. Should DeShawn continue to offer the engine detailing service?

Accepted Answer

A)  Yes, he still makes a profit by selling the engine detailing service with the basic detailing package. 
B)  yes, but only if he raises the price of the basic detailing package 
C)  No, his marginal benefit is less than his marginal cost. 
D)  More information is needed for DeShawn to make this decision. 
A)  Yes, he still makes a profit by selling the engine detailing service with the basic detailing package. 
B)  yes, but only if he raises the price of the basic detailing package 
C)  No, his marginal benefit is less than his marginal cost. 
D)  More information is needed for DeShawn to make this decision.

Question 9

What are the five steps by which economists arrive at a useful economic model?

Accepted Answer

1. Decide on the assumptions to use in d

Question 10

Which of the following statements is false?

Accepted Answer

A)  Anytime you have to decide which action to take you are facing an economic trade-off. 
B)  Trade-offs do not apply when the consumers purchase a product for which there is excess supply, such as a stock clearance sale. 
C)  Every individual, no matter how rich or poor, is faced with making trade-offs. 
D)  Economics is a social science that studies the trade-offs we are forced to make because of scarcity. 
A)  Anytime you have to decide which action to take you are facing an economic trade-off. 
B)  Trade-offs do not apply when the consumers purchase a product for which there is excess supply, such as a stock clearance sale. 
C)  Every individual, no matter how rich or poor, is faced with making trade-offs. 
D)  Economics is a social science that studies the trade-offs we are forced to make because of scarcity.

Question 11

Scenario 1-3
Suppose a t-shirt manufacturer currently sells 5,000 t-shirts per week and makes a profit of $10,000 per week. A manager at the plant observes, "Although the last 400 t-shirts we produced and sold increased our revenue by $4,000 and our costs by $4,800, we are still making an overall profit of $10,000 per week so I think we're on the right track. We are producing the optimal number of t-shirts."

-Refer to Scenario 1-3. Using marginal analysis terminology, what is another economic term for the incremental cost of producing the last 400 t-shirts?

Accepted Answer

A)  marginal cost 
B)  operating cost 
C)  explicit cost 
D)  Any of the above terms are correct. 
A)  marginal cost 
B)  operating cost 
C)  explicit cost 
D)  Any of the above terms are correct.

Question 12

Table 1-5
   Julius runs a small tailor shop in the city of Bloomfield. He is debating whether he should extend his hours of operation. Julius figures that his sales revenue will depend on the number of additional hours the tailor shop is open as shown in the table above. He would have to hire a worker for those hours at a wage rate of $18 per hour.
-Refer to Table 1-5. Using marginal analysis, how many hours should Julius extend his shop's hours of operations?

Accepted Answer

A)  2 hours 
B)  3 hours 
C)  4 hours 
D)  5 hours 
E)  6 hours 
A)  2 hours 
B)  3 hours 
C)  4 hours 
D)  5 hours 
E)  6 hours

Question 13

If the price of milk was $2.50 a gallon and it is now $3.25 a gallon, what is the percentage change in price?

Accepted Answer

A)  13 percent 
B)  30 percent 
C)  75 percent 
D)  77 percent 
A)  13 percent 
B)  30 percent 
C)  75 percent 
D)  77 percent

Question 14

Which of the following statements is true?

Accepted Answer

A)  Any time you have to decide which action to take you are experiencing economic equity. 
B)  Trade-offs do not apply when the consumers purchase a product for which there is excess supply, such as with a stock clearance sale. 
C)  Every individual, no matter how rich or poor, is faced with situations that require trade-offs. 
D)  Economics is a social science that studies the trade-offs we are forced to make because resources are unlimited. 
A)  Any time you have to decide which action to take you are experiencing economic equity. 
B)  Trade-offs do not apply when the consumers purchase a product for which there is excess supply, such as with a stock clearance sale. 
C)  Every individual, no matter how rich or poor, is faced with situations that require trade-offs. 
D)  Economics is a social science that studies the trade-offs we are forced to make because resources are unlimited.

Question 15

Which of the following statements is correct?

Accepted Answer

A)  Mrs. Lovejoy decides to invest in companies which she believes are producing their goods based on the preferences of consumers. Mrs. Lovejoy is therefore investing in companies that are allocatively efficient. 
B)  Mrs. Lovejoy decides to invest in companies which she believes are producing their goods based on the preferences of consumers. Mrs. Lovejoy is therefore investing in companies that are productively efficient. 
C)  Mrs. Lovejoy decides to invest in companies which she believes can produce their goods at the lowest possible cost. Mrs. Lovejoy is therefore investing in companies that are allocatively efficient. 
D)  Mrs. Lovejoy decides to invest in companies which she believes can produce their goods at the lowest possible cost. Mrs. Lovejoy is therefore investing in companies that are both allocatively and productively efficient. 
A)  Mrs. Lovejoy decides to invest in companies which she believes are producing their goods based on the preferences of consumers. Mrs. Lovejoy is therefore investing in companies that are allocatively efficient. 
B)  Mrs. Lovejoy decides to invest in companies which she believes are producing their goods based on the preferences of consumers. Mrs. Lovejoy is therefore investing in companies that are productively efficient. 
C)  Mrs. Lovejoy decides to invest in companies which she believes can produce their goods at the lowest possible cost. Mrs. Lovejoy is therefore investing in companies that are allocatively efficient. 
D)  Mrs. Lovejoy decides to invest in companies which she believes can produce their goods at the lowest possible cost. Mrs. Lovejoy is therefore investing in companies that are both allocatively and productively efficient.

Question 16

Mr. Peabody chooses to invest in companies that produce goods and services based on consumer preferences. Mr. Peabody is investing in companies that are attempting to be

Accepted Answer

A)  allocatively efficient. 
B)  productively efficient. 
C)  guaranteed to make a profit. 
D)  all of the above 
A)  allocatively efficient. 
B)  productively efficient. 
C)  guaranteed to make a profit. 
D)  all of the above

Question 17

Economists assume that rational people do all of the following except

Accepted Answer

A)  use all available information as they act to achieve their goals. 
B)  undertake activities that benefit others and hurt themselves. 
C)  weigh the benefits and costs of all possible alternative actions. 
D)  respond to economic incentives. 
A)  use all available information as they act to achieve their goals. 
B)  undertake activities that benefit others and hurt themselves. 
C)  weigh the benefits and costs of all possible alternative actions. 
D)  respond to economic incentives.

Question 18

Allocative efficiency is achieved when firms produce goods and services

Accepted Answer

A)  at the lowest possible cost. 
B)  that consumers value most. 
C)  at the lowest opportunity cost. 
D)  at a marginal cost of zero. 
A)  at the lowest possible cost. 
B)  that consumers value most. 
C)  at the lowest opportunity cost. 
D)  at a marginal cost of zero.

Question 19

There is often a trade-off between

Accepted Answer

A)  productive efficiency and allocative efficiency. 
B)  limited and unlimited resources. 
C)  voluntary and involuntary exchanges. 
D)  economic efficiency and economic equity. 
A)  productive efficiency and allocative efficiency. 
B)  limited and unlimited resources. 
C)  voluntary and involuntary exchanges. 
D)  economic efficiency and economic equity.

Question 20

What is the "reverse causality" problem in determining cause and effect?

Accepted Answer

A)  It is a problem that occurs when one concludes that a change in variable X caused a change in variable Y when in actual fact, it is a change in variable Z that caused a change in variable Y. 
B)  It is a problem that occurs when one observes that a change in variable X caused a change in variable Y which caused a change in variable Z and concludes that a change in variable X caused a change in variable Z. 
C)  It is a problem that occurs when one concludes that a change in variable X caused a change in variable Y when in actual fact, it is a change in variable Y that caused a change in variable X. 
D)  It is a problem that arises when two variables are inter-connected so that a change in variable X causes a change in variable Y, and a change in variable Y causes a change in variable X. 
A)  It is a problem that occurs when one concludes that a change in variable X caused a change in variable Y when in actual fact, it is a change in variable Z that caused a change in variable Y. 
B)  It is a problem that occurs when one observes that a change in variable X caused a change in variable Y which caused a change in variable Z and concludes that a change in variable X caused a change in variable Z. 
C)  It is a problem that occurs when one concludes that a change in variable X caused a change in variable Y when in actual fact, it is a change in variable Y that caused a change in variable X. 
D)  It is a problem that arises when two variables are inter-connected so that a change in variable X causes a change in variable Y, and a change in variable Y causes a change in variable X.

Exam 1: Economics: Foundations and Models

Which of the following is part of an economic model?

By definition, economics is the study of

Which of the following statements is correct?

Which of the following is a positive economic statement?

Optimal decisions are made at the point where marginal benefit is maximized.

Figure 1-4 -Refer to Figure 1-4. Which of the following statements is false?

Markets promote

What are the five steps by which economists arrive at a useful economic model?

Which of the following statements is false?

If the price of milk was $2.50 a gallon and it is now $3.25 a gallon, what is the percentage change in price?

Which of the following statements is true?

Which of the following statements is correct?

Mr. Peabody chooses to invest in companies that produce goods and services based on consumer preferences. Mr. Peabody is investing in companies that are attempting to be

Economists assume that rational people do all of the following except

Allocative efficiency is achieved when firms produce goods and services

There is often a trade-off between

What is the "reverse causality" problem in determining cause and effect?

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

Filters