Question 1

The Latin phrase "ceteris paribus" means

Accepted Answer

A) that one event causes another. 
B) that one event is associated with, but not caused by, another. 
C) that other potential causes are assumed to remain constant. 
D) the way things should be. 
A) that one event causes another. 
B) that one event is associated with, but not caused by, another. 
C) that other potential causes are assumed to remain constant. 
D) the way things should be. C

Question 2

In Latavia, cultural pressures cause voluntary donations to orphanages to be very large; in Slobovia, people make smaller donations. If the governments of both countries suddenly grant a tax break to those donating money to orphanages, the basic postulate of economics predicts that donations

Accepted Answer

A) in both nations will increase. 
B) will increase in Latavia but not in Slobovia. 
C) will increase only in Slobovia, where people care about taxes, but not in Latavia, where compassion is more important. 
D) are unlikely to change in either nation, since voluntary donations are not an economic decision. 
A) in both nations will increase. 
B) will increase in Latavia but not in Slobovia. 
C) will increase only in Slobovia, where people care about taxes, but not in Latavia, where compassion is more important. 
D) are unlikely to change in either nation, since voluntary donations are not an economic decision. A

Question 3

People make decisions at the margin. Thus, when deciding whether to purchase a second car, they would compare

Accepted Answer

A) the total benefits expected from two cars with the costs of the two cars. 
B) the additional benefits expected from a second car with the total cost of the two cars. 
C) the dollar cost of the two cars with the potential income that the two cars will generate. 
D) the additional benefits of the second car with the additional costs of the second car. 
A) the total benefits expected from two cars with the costs of the two cars. 
B) the additional benefits expected from a second car with the total cost of the two cars. 
C) the dollar cost of the two cars with the potential income that the two cars will generate. 
D) the additional benefits of the second car with the additional costs of the second car. D

Question 4

"After every fall election, the weather starts to turn cold, therefore elections cause cold weather." This statement

Accepted Answer

A) confuses positive and normative analysis. 
B) commits the fallacy of composition. 
C) fails to recognize that association is not causation. 
D) confuses macroeconomics with microeconomics. 
A) confuses positive and normative analysis. 
B) commits the fallacy of composition. 
C) fails to recognize that association is not causation. 
D) confuses macroeconomics with microeconomics.

Question 5

People are more likely to purchase a consumer ratings magazine that reviews new automobiles before buying a new car than they are to purchase a consumer ratings magazine that reviews pens and pencils before buying a new pen or pencil. Which of the following best explains this behavior?

Accepted Answer

A) Because the consumer ratings magazine must have a higher price for the issue reviewing pens and pencils. 
B) Because the value of the information, in terms of avoiding a mistake on the purchase, is much higher for an automobile than for a pen or pencil, it is more worthwhile to gather this information. 
C) Because people generally do not know which products are reviewed by these consumer magazines. 
D) None of the above explain this behavior. 
A) Because the consumer ratings magazine must have a higher price for the issue reviewing pens and pencils. 
B) Because the value of the information, in terms of avoiding a mistake on the purchase, is much higher for an automobile than for a pen or pencil, it is more worthwhile to gather this information. 
C) Because people generally do not know which products are reviewed by these consumer magazines. 
D) None of the above explain this behavior.

Question 6

While waiting in line to buy one cheeseburger for $1.50 and a medium drink for $1.00, Sally notices that she could get a value meal that contains both the cheeseburger and medium drink and also a medium order of fries for $2.75. She thinks to herself, "Is it worth the extra 25 cents to get the medium fries?" To an economist, Sally's decision is an example of

Accepted Answer

A) marginal decision making. 
B) basing decisions on total, rather than marginal, value. 
C) an unintended consequence. 
D) the fallacy of composition. 
A) marginal decision making. 
B) basing decisions on total, rather than marginal, value. 
C) an unintended consequence. 
D) the fallacy of composition.

Question 7

Which of the following best illustrates the fallacy of composition?

Accepted Answer

A) If the price of a product rises, the quantity produced will decline. 
B) The average wage rate tends to increase at approximately the same rate as inflation; hence, wage increases must cause inflation. 
C) Resources are scarce; therefore, there is no such thing as a free lunch. 
D) If Susan had more money she could buy more. If everyone had more money they could buy more. 
A) If the price of a product rises, the quantity produced will decline. 
B) The average wage rate tends to increase at approximately the same rate as inflation; hence, wage increases must cause inflation. 
C) Resources are scarce; therefore, there is no such thing as a free lunch. 
D) If Susan had more money she could buy more. If everyone had more money they could buy more.

Question 8

The economic way of thinking stresses that

Accepted Answer

A) changes in personal costs and benefits generally do not influence human behavior. 
B) incentives matter--when an option becomes less costly, people will be more likely to choose it. 
C) if one individual gains from an economic activity, then someone else must lose. 
D) goods provided by government do not consume valuable scarce resources since government activity is not part of the market economy. 
A) changes in personal costs and benefits generally do not influence human behavior. 
B) incentives matter--when an option becomes less costly, people will be more likely to choose it. 
C) if one individual gains from an economic activity, then someone else must lose. 
D) goods provided by government do not consume valuable scarce resources since government activity is not part of the market economy.

Question 9

Which of the following is true?

Accepted Answer

A) Changes in personal costs and benefits will exert a predictable impact on the choices of human decision makers. 
B) Only direct monetary costs matter in making decisions. 
C) If a good is provided free to an individual, its production will not consume valuable scarce resources. 
D) Secondary effects are seldom of importance in economics. 
A) Changes in personal costs and benefits will exert a predictable impact on the choices of human decision makers. 
B) Only direct monetary costs matter in making decisions. 
C) If a good is provided free to an individual, its production will not consume valuable scarce resources. 
D) Secondary effects are seldom of importance in economics.

Question 10

In economics, the term marginal refers to

Accepted Answer

A) the change or difference between two alternatives. 
B) man-made resources as opposed to natural resources. 
C) the satisfaction a consumer receives from a good. 
D) holding everything else constant in the analysis. 
A) the change or difference between two alternatives. 
B) man-made resources as opposed to natural resources. 
C) the satisfaction a consumer receives from a good. 
D) holding everything else constant in the analysis.

Question 11

The decision makers described by economic analysis

Accepted Answer

A) economize when seeking information. 
B) must have essentially perfect knowledge to make choices. 
C) will seek as much information as they can get. 
D) generally ignore the cost of seeking information. 
A) economize when seeking information. 
B) must have essentially perfect knowledge to make choices. 
C) will seek as much information as they can get. 
D) generally ignore the cost of seeking information.

Question 12

What is the best test of an economic theory?

Accepted Answer

A) the accuracy of the assumptions behind the theory 
B) the ability of the theory to predict real-world events 
C) the implications of the theory for current public policy 
D) how much mathematical detail is behind the theory 
A) the accuracy of the assumptions behind the theory 
B) the ability of the theory to predict real-world events 
C) the implications of the theory for current public policy 
D) how much mathematical detail is behind the theory

Question 13

Which of the following groups would most likely benefit from a law that is extremely tough on those who drink and drive?

Accepted Answer

A) truck drivers 
B) taxi drivers 
C) bartenders 
D) doctors and nurses 
A) truck drivers 
B) taxi drivers 
C) bartenders 
D) doctors and nurses

Question 14

The highest valued alternative that must be given up in order to choose an option is called

Accepted Answer

A) opportunity cost. 
B) utility. 
C) scarcity. 
D) disutility. 
A) opportunity cost. 
B) utility. 
C) scarcity. 
D) disutility.

Question 15

Which of the following is not scarce?

Accepted Answer

A) an individual's time 
B) air 
C) pencils 
D) automobiles 
A) an individual's time 
B) air 
C) pencils 
D) automobiles

Question 16

When price is the rationing criterion, individuals have a strong incentive to

Accepted Answer

A) ignore the wishes of others when making decisions about how to use their resources. 
B) provide services to others in exchange for income. 
C) avoid exchanges because in every exchange there will be one person who gains and another who loses. 
D) substitute promises for the consistent delivery of a quality product. 
A) ignore the wishes of others when making decisions about how to use their resources. 
B) provide services to others in exchange for income. 
C) avoid exchanges because in every exchange there will be one person who gains and another who loses. 
D) substitute promises for the consistent delivery of a quality product.

Question 17

A local restaurant offers an "all you can eat" Sunday brunch for $12. Susan eats four servings but leaves half of a fifth helping uneaten. Why?

Accepted Answer

A) Her marginal value of a serving of brunch has fallen below $12. 
B) Her marginal value of a serving has fallen below $2.40 ($12 divided by 5 servings). 
C) Her marginal value of food has fallen to zero. 
D) The total value she places on brunch today exactly equals $12. 
A) Her marginal value of a serving of brunch has fallen below $12. 
B) Her marginal value of a serving has fallen below $2.40 ($12 divided by 5 servings). 
C) Her marginal value of food has fallen to zero. 
D) The total value she places on brunch today exactly equals $12.

Question 18

A firm producing cans buys three tons of aluminum per day at $200 per ton. If it buys four tons per day, it receives a quantity discount on all units and pays only $175 per ton. The marginal cost of the fourth ton per day is

Accepted Answer

A) $100. 
B) $175. 
C) $700. 
D) $225. 
A) $100. 
B) $175. 
C) $700. 
D) $225.

Question 19

By scientific method we mean

Accepted Answer

A) the use of modern electronic testing equipment to understand the world. 
B) the dispassionate development and testing of theories about how the world works. 
C) the use of controlled laboratory experiments to understand the way the world works. 
D) finding evidence to support preconceived theories about how the world works. 
A) the use of modern electronic testing equipment to understand the world. 
B) the dispassionate development and testing of theories about how the world works. 
C) the use of controlled laboratory experiments to understand the way the world works. 
D) finding evidence to support preconceived theories about how the world works.

Question 20

During a war, governments will sometimes draft people, most of whom are presently employed, into the army. An economist, computing the real cost of the war, would be sure to include which of the following items?

Accepted Answer

A) the value of the civilian goods no longer produced by the new soldiers 
B) the cost of feeding and clothing the new soldiers 
C) the dollar cost of the payroll 
D) the higher prices of civilian goods due to wartime shortages 
E) the cost of transporting the soldiers to combat 
A) the value of the civilian goods no longer produced by the new soldiers 
B) the cost of feeding and clothing the new soldiers 
C) the dollar cost of the payroll 
D) the higher prices of civilian goods due to wartime shortages 
E) the cost of transporting the soldiers to combat

Exam 1: The Economic Approach

The Latin phrase "ceteris paribus" means

In Latavia, cultural pressures cause voluntary donations to orphanages to be very large; in Slobovia, people make smaller donations. If the governments of both countries suddenly grant a tax break to those donating money to orphanages, the basic postulate of economics predicts that donations

People make decisions at the margin. Thus, when deciding whether to purchase a second car, they would compare

"After every fall election, the weather starts to turn cold, therefore elections cause cold weather." This statement

People are more likely to purchase a consumer ratings magazine that reviews new automobiles before buying a new car than they are to purchase a consumer ratings magazine that reviews pens and pencils before buying a new pen or pencil. Which of the following best explains this behavior?

Which of the following best illustrates the fallacy of composition?

The economic way of thinking stresses that

Which of the following is true?

In economics, the term marginal refers to

The decision makers described by economic analysis

What is the best test of an economic theory?

Which of the following groups would most likely benefit from a law that is extremely tough on those who drink and drive?

The highest valued alternative that must be given up in order to choose an option is called

Which of the following is not scarce?

When price is the rationing criterion, individuals have a strong incentive to

A local restaurant offers an "all you can eat" Sunday brunch for $12. Susan eats four servings but leaves half of a fifth helping uneaten. Why?

A firm producing cans buys three tons of aluminum per day at $200 per ton. If it buys four tons per day, it receives a quantity discount on all units and pays only $175 per ton. The marginal cost of the fourth ton per day is

By scientific method we mean

During a war, governments will sometimes draft people, most of whom are presently employed, into the army. An economist, computing the real cost of the war, would be sure to include which of the following items?

A: Some Tools of the Economist

B: Some Tools of the Economist

A: Supply, Demand, and the Market Process

B: Supply, Demand, and the Market Process

A: Supply and Demand: Applications and Extensions

B: Supply and Demand: Applications and Extensions

Difficult Cases for the Market and the Role of Government

The Economics of Collective Decision-Making

Consumer Choice and Elasticity

A: Costs and the Supply of Goods

B: Costs and the Supply of Goods

A: Price Takers and the Competitive Process

B: Price Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

A: Price-Searcher Markets With High Entry Barriers

B: Price-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, Productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Appendix: Government Spending and Taxation

Appendix: the Economics of Social Security

Appendix: the Stock Market: Its Function, Performance, and Potential As an Investment Opportunity

Appendix: Great Debates in Economics: Keynes Versus Hayek

Appendix: the Crisis of 2008: Causes and Lessons for the Future

Appendix: Lessons From the Great Depression

Appendix: the Economics of Healthcare

Appendix:education: Problems and Performance

Appendix: Earnings Differences Between Men and Women

Appendix: the Question of Resource Exhaustion

Appendix: Do Labor Unions Increase the Wages of Workers

Appendix: Difficult Environmental Cases and the Role of Government

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