Question 1

Which of the following statements is an example of confusing association and causation?

Accepted Answer

A)  Senator Jones believes that more tax revenue should be distributed to the poor. 
B)  A map includes roads, but not every restaurant, telephone pole, and 
C)  Interest rates rise when it rains, all other factors constant. 
D)  When the price of Coca-Cola increases, consumers buy more Pepsi, all other factors constant. 
A)  Senator Jones believes that more tax revenue should be distributed to the poor. 
B)  A map includes roads, but not every restaurant, telephone pole, and 
C)  Interest rates rise when it rains, all other factors constant. 
D)  When the price of Coca-Cola increases, consumers buy more Pepsi, all other factors constant.

Question 2

When economists say goods are scarce, they mean:

Accepted Answer

A)  consumers are too poor to afford the goods and services available. 
B)  consumers are unwilling to buy goods unless they have very low prices. 
C)  goods are generally freely available from nature in most countries. 
D)  the desire for goods and services exceeds our ability to produce them with the limited resources available. 
A)  consumers are too poor to afford the goods and services available. 
B)  consumers are unwilling to buy goods unless they have very low prices. 
C)  goods are generally freely available from nature in most countries. 
D)  the desire for goods and services exceeds our ability to produce them with the limited resources available.

Question 3

Which of the following is the best example of a microeconomic topic?

Accepted Answer

A)  The impact that the money supply has on inflation. 
B)  The reasons for increases in the price of soft drinks. 
C)  The effect that federal budget deficits have on the interest rate. 
D)  The tradeoff between inflation and unemployment. 
A)  The impact that the money supply has on inflation. 
B)  The reasons for increases in the price of soft drinks. 
C)  The effect that federal budget deficits have on the interest rate. 
D)  The tradeoff between inflation and unemployment.

Question 4

When economists use the term Ceteris paribus , they are indicating that:

Accepted Answer

A)  the relationship between two economic variables cannot be determined. 
B)  the analysis is true for the individual but not for the economy as a whole. 
C)  all other variables except the ones specified are assumed to be constant. 
D)  their conclusions are based on normative economics rather than positive economic analysis. 
A)  the relationship between two economic variables cannot be determined. 
B)  the analysis is true for the individual but not for the economy as a whole. 
C)  all other variables except the ones specified are assumed to be constant. 
D)  their conclusions are based on normative economics rather than positive economic analysis.

Question 5

Which of the following is the best example of a nonrenewable resource?

Accepted Answer

A)  forests 
B)  oil 
C)  solar power 
D)  clean air 
A)  forests 
B)  oil 
C)  solar power 
D)  clean air

Question 6

The basic difference between macroeconomics and microeconomics is:

Accepted Answer

A)  microeconomics concentrates on individual markets while macroeconomics focuses primarily on international trade. 
B)  microeconomics concentrates on the behavior of individual consumers while macroeconomics focuses on the behavior of firms. 
C)  microeconomics concentrates on the behavior of individual consumers and firms while macroeconomics focuses on the performance of the entire economy. 
D)  microeconomics explores the causes of inflation while macroeconomics focuses on the causes of unemployment. 
A)  microeconomics concentrates on individual markets while macroeconomics focuses primarily on international trade. 
B)  microeconomics concentrates on the behavior of individual consumers while macroeconomics focuses on the behavior of firms. 
C)  microeconomics concentrates on the behavior of individual consumers and firms while macroeconomics focuses on the performance of the entire economy. 
D)  microeconomics explores the causes of inflation while macroeconomics focuses on the causes of unemployment.

Question 7

The perpetual problem in economics is:

Accepted Answer

A)  our inability to work together effectively. 
B)  our inability to satisfy everyone's wants with the available resources. 
C)  likely to be solved in resource-rich countries. 
D)  our inability to utilize resources efficiently. 
A)  our inability to work together effectively. 
B)  our inability to satisfy everyone's wants with the available resources. 
C)  likely to be solved in resource-rich countries. 
D)  our inability to utilize resources efficiently.

Question 8

If an economist finds that when consumer incomes increase, consumers buy more cars, Ceteris paribus , then

Accepted Answer

A)  the price of cars must be decreasing. 
B)  all other things remain constant. 
C)  the price of gas must be decreasing. 
D)  the interest rate on car loans must be decreasing. 
A)  the price of cars must be decreasing. 
B)  all other things remain constant. 
C)  the price of gas must be decreasing. 
D)  the interest rate on car loans must be decreasing.

Question 9

Select the normative statement that completes the following sentence: If the minimum wage is raised:

Accepted Answer

A)  cost per unit of output will rise. 
B)  workers will gain their rightful share of total income. 
C)  the rate of inflation will increase. 
D)  profits will fall. 
A)  cost per unit of output will rise. 
B)  workers will gain their rightful share of total income. 
C)  the rate of inflation will increase. 
D)  profits will fall.

Question 10

The Secretary of Labor states that wage rates in the country have risen by 2 percent this past year. The head of a local labor union states that wage gains have not kept pace with the 3 percent rate of inflation. The Secretary's statement is a (n) ____ economic statement, and the labor head's statement is a (n) ____ economic statement.

Accepted Answer

A)  normative; normative 
B)  normative; positive 
C)  positive; normative 
D)  positive; positive 
A)  normative; normative 
B)  normative; positive 
C)  positive; normative 
D)  positive; positive

Question 11

Which of the following is an example of a positive economic statement?

Accepted Answer

A)  The economy's real output increased at about 3 percent last year and the unemployment rate decreased. 
B)  A central bank should not print too much money because inflation could result. 
C)  Congress should stabilize the social security system by raising taxes now. 
D)  The government farm products surplus should be distributed to the needy. 
A)  The economy's real output increased at about 3 percent last year and the unemployment rate decreased. 
B)  A central bank should not print too much money because inflation could result. 
C)  Congress should stabilize the social security system by raising taxes now. 
D)  The government farm products surplus should be distributed to the needy.

Question 12

Natural resources are:

Accepted Answer

A)  not considered scarce because no one pays for them. 
B)  rarely used in production. 
C)  included in the category of resources called land. 
D)  available in unlimited quantities. 
A)  not considered scarce because no one pays for them. 
B)  rarely used in production. 
C)  included in the category of resources called land. 
D)  available in unlimited quantities.

Question 13

An economist at the University of Alaska at Anchorage has been asked to explain why the price of Alaskan crude oil has fallen recently. In order to develop a model, the professor should take which steps?

Accepted Answer

A)  Identify the problem, develop a model based on simplifying assumptions and test the model to formulate a conclusion. 
B)  Gather data on crude oil prices and seemingly unrelated variables to look for associations, then formulate a hypothesis based on those unexpected associations. 
C)  Ask people in Alaska why they are not purchasing oil. 
D)  None of these. The oil industry is controlled by a cartel; therefore price changes in the industry cannot be explained using economic theories. 
A)  Identify the problem, develop a model based on simplifying assumptions and test the model to formulate a conclusion. 
B)  Gather data on crude oil prices and seemingly unrelated variables to look for associations, then formulate a hypothesis based on those unexpected associations. 
C)  Ask people in Alaska why they are not purchasing oil. 
D)  None of these. The oil industry is controlled by a cartel; therefore price changes in the industry cannot be explained using economic theories.

Question 14

The statement, "Violent crime has decreased in the last five years," is:

Accepted Answer

A)  obviously wrong and, therefore, cannot be a positive statement. 
B)  normative since it can be answered by simply looking at the facts. 
C)  positive because it is testable. 
D)  not very interesting because all normative issues are of little importance. 
A)  obviously wrong and, therefore, cannot be a positive statement. 
B)  normative since it can be answered by simply looking at the facts. 
C)  positive because it is testable. 
D)  not very interesting because all normative issues are of little importance.

Question 15

Organize the steps an economist would follow in the model-building process into their proper order.
 - Use simplifying assumptions 
 - Develop a model
 - Collect data
 - Identify the problem
 - Formulate a conclusion

Accepted Answer

A)  1. Develop a model. 2. Collect data. 3. Use simplifying assumptions. 4. Identify the problem. 5. Formulate a conclusion. 
B)  1. Use simplifying assumptions. 2. Collect data. 3. Develop a model. 4. Identify the problem. 5. Formulate a conclusion. 
C)  1. Identify the problem. 2. Develop a model. 3. Use simplifying assumptions. 4. Collect data. 5. Formulate a conclusion. 
D)  1. Formulate a conclusion. 2. Collect data. 3. Identify the problem. 4. Develop a model. 5. Use simplifying assumptions. 
A)  1. Develop a model. 2. Collect data. 3. Use simplifying assumptions. 4. Identify the problem. 5. Formulate a conclusion. 
B)  1. Use simplifying assumptions. 2. Collect data. 3. Develop a model. 4. Identify the problem. 5. Formulate a conclusion. 
C)  1. Identify the problem. 2. Develop a model. 3. Use simplifying assumptions. 4. Collect data. 5. Formulate a conclusion. 
D)  1. Formulate a conclusion. 2. Collect data. 3. Identify the problem. 4. Develop a model. 5. Use simplifying assumptions.

Question 16

What is scarcity and why does it exist? How is scarcity related to the study of economics?

Accepted Answer

Scarcity exists because resources are li

Question 17

To test the theory that if the price of pens rises, then pen purchases fall, an economist would

Accepted Answer

A)  collect data on the price of pens and the price of pencils because the two goods are substitutes. 
B)  investigate whether people purchase more pens when their income rises. 
C)  analyze data on pen purchases linked to the price of pens, holding other factors constant. 
D)  ask his or her friends if they would buy fewer pens when the price rises. 
A)  collect data on the price of pens and the price of pencils because the two goods are substitutes. 
B)  investigate whether people purchase more pens when their income rises. 
C)  analyze data on pen purchases linked to the price of pens, holding other factors constant. 
D)  ask his or her friends if they would buy fewer pens when the price rises.

Question 18

An economic model is useful only if it:

Accepted Answer

A)  contains no positive statements. 
B)  captures all the complexities of reality. 
C)  yields accurate predictions. 
D)  has both macro- and microeconomic applications. 
A)  contains no positive statements. 
B)  captures all the complexities of reality. 
C)  yields accurate predictions. 
D)  has both macro- and microeconomic applications.

Question 19

Microeconomics deals with the analysis of all the following questions except how:

Accepted Answer

A)  the wages of carpenters are determined. 
B)  high did unemployment rise during the Great Depression. 
C)  does Ford decide how to price its cars. 
D)  does a college student decide how to spend her income. 
A)  the wages of carpenters are determined. 
B)  high did unemployment rise during the Great Depression. 
C)  does Ford decide how to price its cars. 
D)  does a college student decide how to spend her income.

Question 20

Arrange the following topics into lists of microeconomic and macroeconomic topics:
 - wages of textile workers
 - cost of producing 10,000 bookcases
 - the economy's annual growth rate
 - national demand for fish
 - the unemployment rate
 - the gold futures market
 - money supply
 - projected inflation rate next year

Accepted Answer

A)  Microeconomics: wages of textile workers, the unemployment rate, cost of producing 10,000 bookcases, the gold futures market Macroeconomics: the economy's annual growth rate, money supply, national demand for fish, projected inflation rate next year 
B)  Microeconomics: wages of textile workers, cost of producing 10,000 bookcases, the economy's annual growth rate, unemployment rate Macroeconomics: national demand for fish, the gold futures market, money supply, projected inflation rate next year 
C)  Microeconomics: wages of textile workers, cost of producing 10,000 bookcases, the gold futures market, national demand for fish Macroeconomics: the economy's annual growth rate, the unemployment rate, money supply, projected inflation rate next year 
D)  Microeconomics: the economy's annual growth rate, the unemployment rate, money supply, projected inflation rate next year Macroeconomics: wages of textile workers, cost of producing 10,000 bookcases, the gold futures market, national demand for fish 
A)  Microeconomics: wages of textile workers, the unemployment rate, cost of producing 10,000 bookcases, the gold futures market Macroeconomics: the economy's annual growth rate, money supply, national demand for fish, projected inflation rate next year 
B)  Microeconomics: wages of textile workers, cost of producing 10,000 bookcases, the economy's annual growth rate, unemployment rate Macroeconomics: national demand for fish, the gold futures market, money supply, projected inflation rate next year 
C)  Microeconomics: wages of textile workers, cost of producing 10,000 bookcases, the gold futures market, national demand for fish Macroeconomics: the economy's annual growth rate, the unemployment rate, money supply, projected inflation rate next year 
D)  Microeconomics: the economy's annual growth rate, the unemployment rate, money supply, projected inflation rate next year Macroeconomics: wages of textile workers, cost of producing 10,000 bookcases, the gold futures market, national demand for fish

Exam 1: Introducing the Economic Way of Thinking

Which of the following statements is an example of confusing association and causation?

When economists say goods are scarce, they mean:

Which of the following is the best example of a microeconomic topic?

When economists use the term Ceteris paribus , they are indicating that:

Which of the following is the best example of a nonrenewable resource?

The basic difference between macroeconomics and microeconomics is:

The perpetual problem in economics is:

If an economist finds that when consumer incomes increase, consumers buy more cars, Ceteris paribus , then

Select the normative statement that completes the following sentence: If the minimum wage is raised:

Which of the following is an example of a positive economic statement?

Natural resources are:

An economist at the University of Alaska at Anchorage has been asked to explain why the price of Alaskan crude oil has fallen recently. In order to develop a model, the professor should take which steps?

The statement, "Violent crime has decreased in the last five years," is:

Organize the steps an economist would follow in the model-building process into their proper order. - Use simplifying assumptions - Develop a model - Collect data - Identify the problem - Formulate a conclusion

What is scarcity and why does it exist? How is scarcity related to the study of economics?

To test the theory that if the price of pens rises, then pen purchases fall, an economist would

An economic model is useful only if it:

Microeconomics deals with the analysis of all the following questions except how:

Production Possibilities Opportunity Cost and Economic Growth

Market Demand and Supply

Markets in Action

Price Elasticity of Demand and Supply

Consumer Choice Theory

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets

Income Distribution Poverty and Discrimination

Antitrust and Regulation

Environmental Economics

Gross Domestic Product

Business Cycles and Unemployment

Inflation

The Keynesian Model

The Keynesian Model in Action

Aggregate Demand and Supply

Fiscal Policy

The Public Sector

Federal Deficits Surpluses and the National Debt

Money and the Federal Reserve System

Money Creation

Monetary Policy

The Phillips Curve and Expectations Theory

International Trade and Finance

Economies in Transition

Growth and the Less Developed Countries

Understanding Direct and Inverse Relationships between Variables

Filters