Question 1

The Latin expression Ceteris paribus means:

Accepted Answer

A)  everything else being equal. 
B)  economic model. 
C)  economists are partly right. 
D)  partial scarcity is certain. 
A)  everything else being equal. 
B)  economic model. 
C)  economists are partly right. 
D)  partial scarcity is certain.

Question 2

Which one of the following is the most accurate definition of economics?

Accepted Answer

A)  Economics is the study of stocks and bonds. 
B)  Economics is the study of how people allocate unlimited resources. 
C)  Economics is the study of how consumers choose to spend their income. 
D)  Economics is the study of how society chooses to allocate scarce resources. 
A)  Economics is the study of stocks and bonds. 
B)  Economics is the study of how people allocate unlimited resources. 
C)  Economics is the study of how consumers choose to spend their income. 
D)  Economics is the study of how society chooses to allocate scarce resources.

Question 3

Positive economics:

Accepted Answer

A)  will usually tell us which policy is best. 
B)  reveals "what ought to be" in economic matters. 
C)  is of little use to policy makers. 
D)  is the scientific study of "what is" among economic relationships. 
A)  will usually tell us which policy is best. 
B)  reveals "what ought to be" in economic matters. 
C)  is of little use to policy makers. 
D)  is the scientific study of "what is" among economic relationships.

Question 4

"As soon as a mayor announced his/her 'get tough on crime' policy on New Year's day, criminals got scared and the crime rate went down." Suppose that the lower crime rate was actually caused by freezing cold temperatures in January ⎯ it was just too cold for anybody to be out robbing other people. Which fundamental hazard of the economic way of thinking did the mayor make?

Accepted Answer

A)  believing that what's good for one person is good for the whole group (the fallacy of composition) 
B)  failing to take into account the benefits of crime (the payoff fallacy) 
C)  believing that association is the same as causation 
D)  failing to understand the difference between positive and normative economics. 
A)  believing that what's good for one person is good for the whole group (the fallacy of composition) 
B)  failing to take into account the benefits of crime (the payoff fallacy) 
C)  believing that association is the same as causation 
D)  failing to understand the difference between positive and normative economics.

Question 5

Exhibit 1A-2  Straight line   Straight line CD in Exhibit 1A-2 shows that:

Accepted Answer

A)  increasing values for X will increase the value of Y. 
B)  decreasing values for X will decrease the value of Y. 
C)  there is a direct relationship between X and Y. 
D)  all of the above. 
A)  increasing values for X will increase the value of Y. 
B)  decreasing values for X will decrease the value of Y. 
C)  there is a direct relationship between X and Y. 
D)  all of the above.

Question 6

When building a model, an economist must:

Accepted Answer

A)  adjust for exceptional situations. 
B)  provide a complete description of reality. 
C)  make simplifying assumptions. 
D)  develop a set of behavioral equations. 
A)  adjust for exceptional situations. 
B)  provide a complete description of reality. 
C)  make simplifying assumptions. 
D)  develop a set of behavioral equations.

Question 7

Which of the following is not an example of a capital input?

Accepted Answer

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. 
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.

Question 8

Which of the following represents positive economics?

Accepted Answer

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 the above. 
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 the above.

Question 9

Exhibit 1A-9  Multi-curve graph   Exhibit 1A-9 represents a three-variable relationship. As the annual income of consumers falls from $50,000 (line A) to $30,000 (line B), the result is a(n):

Accepted Answer

A)  rightward movement along each curve. 
B)  leftward movement along each curve. 
C)  leftward shift in curve A to curve B. 
D)  rightward shift in curve A to curve B. 
A)  rightward movement along each curve. 
B)  leftward movement along each curve. 
C)  leftward shift in curve A to curve B. 
D)  rightward shift in curve A to curve B.

Question 10

Someone notices that sunspot activity is high just prior to recessions and concludes that sunspots cause recessions. This person has:

Accepted Answer

A)  confused association and causation. 
B)  misunderstood the Ceteris paribus assumption. 
C)  used normative economics to answer a positive question. 
D)  built an untestable model. 
A)  confused association and causation. 
B)  misunderstood the Ceteris paribus assumption. 
C)  used normative economics to answer a positive question. 
D)  built an untestable model.

Question 11

"An increase in the federal minimum wage will provide a living wage for the working poor" is:

Accepted Answer

A)  a statement of positive economics. 
B)  a fallacy of composition. 
C)  a tautology. 
D)  a statement of normative economics. 
A)  a statement of positive economics. 
B)  a fallacy of composition. 
C)  a tautology. 
D)  a statement of normative economics.

Question 12

An economic forecast:

Accepted Answer

A)  will always be true. 
B)  is more reliable than a weather forecast. 
C)  will never provide valuable information. 
D)  should not be relied upon to predict economic events. 
E)  is always based upon a Ceteris paribus condition. 
A)  will always be true. 
B)  is more reliable than a weather forecast. 
C)  will never provide valuable information. 
D)  should not be relied upon to predict economic events. 
E)  is always based upon a Ceteris paribus condition.

Question 13

Normative economics is:

Accepted Answer

A)  usually incorrect. 
B)  a statement of fact. 
C)  the analysis of what is. 
D)  the study of what ought to be. 
E)  free of value judgments. 
A)  usually incorrect. 
B)  a statement of fact. 
C)  the analysis of what is. 
D)  the study of what ought to be. 
E)  free of value judgments.

Question 14

Two variables that are inversely related tend to move in opposite directions.

Accepted Answer

A) True 
 B)False

Question 15

"The government should provide health care for all citizens." This statement is an illustration of:

Accepted Answer

A)  positive economic analysis. 
B)  correlation analysis. 
C)  fallacy of association analysis. 
D)  normative economic analysis. 
A)  positive economic analysis. 
B)  correlation analysis. 
C)  fallacy of association analysis. 
D)  normative economic analysis.

Question 16

Natural resources are:

Accepted Answer

A)  not considered scarce because no one pays for them. 
B)  only desired for use in producing other goods. 
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)  only desired for use in producing other goods. 
C)  included in the category of resources called land. 
D)  available in unlimited quantities.

Question 17

Exhibit 1A-5  Straight line   As shown in Exhibit 1A-5, the slope of straight line CD:

Accepted Answer

A)  decreases with increases in X. 
B)  increases with increases in X. 
C)  increases with decreases in X. 
D)  remains constant with changes in X. 
A)  decreases with increases in X. 
B)  increases with increases in X. 
C)  increases with decreases in X. 
D)  remains constant with changes in X.

Question 18

​ Macroeconomics is the branch of economics that studies economic aggregates for the economy as a whole.

Accepted Answer

A) True 
 B)False

Question 19

The sub-discipline of economics that focuses especially on individual markets is:

Accepted Answer

A)  normative economics. 
B)  positive economics. 
C)  microeconomics. 
D)  macroeconomics. 
E)  econometrics. 
A)  normative economics. 
B)  positive economics. 
C)  microeconomics. 
D)  macroeconomics. 
E)  econometrics.

Question 20

Which of the following represents a positive statement?

Accepted Answer

A)  A higher income tax rate will reduce the amount of time that people spend working. 
B)  Teenage unemployment should be reduced. 
C)  We should raise the standard of living for the elderly. 
D)  A decrease in tax rates is needed to help the poor. 
A)  A higher income tax rate will reduce the amount of time that people spend working. 
B)  Teenage unemployment should be reduced. 
C)  We should raise the standard of living for the elderly. 
D)  A decrease in tax rates is needed to help the poor.

Exam 1: Introducing the Economic Way of Thinking

The Latin expression Ceteris paribus means:

Which one of the following is the most accurate definition of economics?

Positive economics:

Exhibit 1A-2 Straight line Straight line CD in Exhibit 1A-2 shows that:

When building a model, an economist must:

Which of the following is not an example of a capital input?

Which of the following represents positive economics?

Exhibit 1A-9 Multi-curve graph Exhibit 1A-9 represents a three-variable relationship. As the annual income of consumers falls from $50,000 (line A) to $30,000 (line B), the result is a(n):

Someone notices that sunspot activity is high just prior to recessions and concludes that sunspots cause recessions. This person has:

"An increase in the federal minimum wage will provide a living wage for the working poor" is:

An economic forecast:

Normative economics is:

Two variables that are inversely related tend to move in opposite directions.

"The government should provide health care for all citizens." This statement is an illustration of:

Natural resources are:

Exhibit 1A-5 Straight line As shown in Exhibit 1A-5, the slope of straight line CD:

​ Macroeconomics is the branch of economics that studies economic aggregates for the economy as a whole.

The sub-discipline of economics that focuses especially on individual markets is:

Which of the following represents a positive statement?

Production Possibilities, Opportunity Cost, and Economic Growth

Market Demand and Supply

Markets in Action

Price Elasticity of Demand

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets and Income Distribution

Gross Domestic Product

Business Cycles and Unemployment

Inflation

Aggregate Demand and Supply

Fiscal Policy

The Public Sector

Federal Deficits, Surpluses, and the National Debt

Money and the Federal Reserve System

Money Creation

Policy Disputes Using the Self-Correcting Aggregate Demand and Supply Model

International Trade and Finance

Economies in Transition

Growth and the Less-Developed Countries

Filters

Macroeconomics is the branch of economics that studies economic aggregates for the economy as a whole.