Question 1

The highest valued alternative that must be given up to engage in an activity is the definition of

Accepted Answer

A)  economic equity. 
B)  marginal benefit. 
C)  opportunity cost. 
D)  marginal cost. 
A)  economic equity. 
B)  marginal benefit. 
C)  opportunity cost. 
D)  marginal cost.

Question 2

Examining the conditions that could lead to economic growth is an example of macroeconomic topic.

Accepted Answer

A) True 
 B)False

Question 3

How does a market system prevent people from getting as many goods and services as they wish?

Accepted Answer

A)  Governments interfere with the market mechanism to influence the allocation of goods and services. 
B)  In a market system, firms can charge any price they want, thus preventing poor people from getting as many goods and services as they wish. 
C)  The market system allocates goods and services to those who are able to pay for those products and therefore income is a limiting factor. 
D)  The government imposes taxes on those who earn beyond a certain amount of income. 
A)  Governments interfere with the market mechanism to influence the allocation of goods and services. 
B)  In a market system, firms can charge any price they want, thus preventing poor people from getting as many goods and services as they wish. 
C)  The market system allocates goods and services to those who are able to pay for those products and therefore income is a limiting factor. 
D)  The government imposes taxes on those who earn beyond a certain amount of income.

Question 4

All economic questions arise from the fact that resources are unlimited.

Accepted Answer

A) True 
 B)False

Question 5

Assume that a doctor can earn an additional $20,000 of revenue each year from keeping his office open for one additional hour per week. What must the additional cost of keeping the office open this additional hour per week be to make staying open for the extra hour economically rational?

Accepted Answer

The additional cost of staying

Question 6

Which of the following is a normative economic statement?

Accepted Answer

A)  Rising global demand for coal has led to increases in the price of coal. 
B)  With rising mortgage rates and rising unemployment rates, the number of unsold homes has increased. 
C)  The state of Texas is considering increasing funds for light-rail development to promote the use of public transportation. 
D)  Pharmaceutical manufacturers should not be allowed to patent their products so prescription drugs would be more affordable. 
A)  Rising global demand for coal has led to increases in the price of coal. 
B)  With rising mortgage rates and rising unemployment rates, the number of unsold homes has increased. 
C)  The state of Texas is considering increasing funds for light-rail development to promote the use of public transportation. 
D)  Pharmaceutical manufacturers should not be allowed to patent their products so prescription drugs would be more affordable.

Question 7

Which of the following is a positive economic statement?

Accepted Answer

A)  The inflation rate in the United States is too high. 
B)  Unemployment insurance payments increase when the unemployment rate rises. 
C)  The government should defund Obamacare. 
D)  States should be able to enact their own marijuana legalization laws. 
A)  The inflation rate in the United States is too high. 
B)  Unemployment insurance payments increase when the unemployment rate rises. 
C)  The government should defund Obamacare. 
D)  States should be able to enact their own marijuana legalization laws.

Question 8

Before a doctor decides to keep her office open on Saturdays, she should

Accepted Answer

A)  make sure that the marginal cost of doing so will exceed the marginal benefit. 
B)  only consider the increase in total profit from doing so. 
C)  weigh the costs and benefits of staying open on Saturdays before deciding if she should go through with this idea. 
D)  only look at the marginal benefit of doing so, because marginal cost will not change. 
A)  make sure that the marginal cost of doing so will exceed the marginal benefit. 
B)  only consider the increase in total profit from doing so. 
C)  weigh the costs and benefits of staying open on Saturdays before deciding if she should go through with this idea. 
D)  only look at the marginal benefit of doing so, because marginal cost will not change.

Question 9

The Coffee Nook, a small cafe near campus, sells cappuccinos for $2.50 and Russian tea cakes for $1.00 each. What is the opportunity cost of buying a cappuccino?

Accepted Answer

A)  2 1/2 Russian tea cakes 
B)  2/5 of a Russian tea cake 
C)  $2.50 
D)  $1.00 
A)  2 1/2 Russian tea cakes 
B)  2/5 of a Russian tea cake 
C)  $2.50 
D)  $1.00

Question 10

What is the "omitted variable" problem in determining cause and effect?

Accepted Answer

A)  It is a problem that arises when an insignificant variable is given too much weight in an economic analysis leading to skewed conclusions about cause and effect. 
B)  It is a problem that arises when a significant variable is not given enough weight in an economic experiment leading to skewed conclusions about cause and effect. 
C)  It is a problem that arises when an insignificant economic variable that should have been omitted is included in an economic experiment leading to false conclusions about cause and effect. 
D)  It is a problem that arises when an economic variable that affects other variables is omitted from an analysis and its omission leads to false conclusions about cause and effect. 
A)  It is a problem that arises when an insignificant variable is given too much weight in an economic analysis leading to skewed conclusions about cause and effect. 
B)  It is a problem that arises when a significant variable is not given enough weight in an economic experiment leading to skewed conclusions about cause and effect. 
C)  It is a problem that arises when an insignificant economic variable that should have been omitted is included in an economic experiment leading to false conclusions about cause and effect. 
D)  It is a problem that arises when an economic variable that affects other variables is omitted from an analysis and its omission leads to false conclusions about cause and effect.

Question 11

What is an economic model?

Accepted Answer

A)  It is a description of an economic issue that includes all possible related information. 
B)  It is a description of an economic issue based on official government information. 
C)  It is a detailed version of some aspect of economic life used to analyze an economic issue. 
D)  It is a simplified version of some aspect of economic life used to analyze an economic issue. 
A)  It is a description of an economic issue that includes all possible related information. 
B)  It is a description of an economic issue based on official government information. 
C)  It is a detailed version of some aspect of economic life used to analyze an economic issue. 
D)  It is a simplified version of some aspect of economic life used to analyze an economic issue.

Question 12

When goods and services are produced at the lowest possible cost, ________ occurs.

Accepted Answer

A)  allocative efficiency 
B)  productive efficiency 
C)  equity 
D)  efficient central planning 
A)  allocative efficiency 
B)  productive efficiency 
C)  equity 
D)  efficient central planning

Question 13

In economics, the term "equity" means

Accepted Answer

A)  everyone has an equal standard of living. 
B)  the hardest working individuals consume all they want. 
C)  only elected officials have high standards of living. 
D)  economic benefits are distributed fairly. 
A)  everyone has an equal standard of living. 
B)  the hardest working individuals consume all they want. 
C)  only elected officials have high standards of living. 
D)  economic benefits are distributed fairly.

Question 14

Which of the following statements about positive economic analysis is false?

Accepted Answer

A)  Positive analysis uses an economic model to estimate the costs and benefits of different course of actions. 
B)  There is much more disagreement among economists over normative economic analysis than over positive economic analysis. 
C)  There is much more disagreement among economists over positive economic analysis than over normative economic analysis. 
D)  Unlike normative economic analysis, positive economic analysis can be tested. 
A)  Positive analysis uses an economic model to estimate the costs and benefits of different course of actions. 
B)  There is much more disagreement among economists over normative economic analysis than over positive economic analysis. 
C)  There is much more disagreement among economists over positive economic analysis than over normative economic analysis. 
D)  Unlike normative economic analysis, positive economic analysis can be tested.

Question 15

Suppose that some teachers have decided that economic and financial uncertainty have made the prospect of retiring more risky, and therefore carry a higher cost than not retiring. By using all available information as they act to achieve their goals, these teachers are exemplifying the economic idea that

Accepted Answer

A)  people are rational. 
B)  people respond to economic incentives. 
C)  optimal decisions are made at the margin. 
D)  equity is more important than efficiency. 
A)  people are rational. 
B)  people respond to economic incentives. 
C)  optimal decisions are made at the margin. 
D)  equity is more important than efficiency.

Question 16

Jewelry manufacturers produce a range of products such as rings, necklaces, bracelets, and brooches. What fundamental economic question are they addressing by offering this range of items?

Accepted Answer

A)  How to produce goods that consumers want? 
B)  Why produce a variety of items? 
C)  What to produce? 
D)  Who to produce the items for? 
A)  How to produce goods that consumers want? 
B)  Why produce a variety of items? 
C)  What to produce? 
D)  Who to produce the items for?

Question 17

You explain to your roommate Surya, who makes beaded headbands, about an economic theory which asserts that consumers will purchase more of a product at lower prices than they will at higher prices. She contends that the theory is incorrect because over the past two years she has lowered the price of her headbands and yet has seen a decrease in sales. How would you respond to Surya?

Accepted Answer

A)  Surya is right; she has evidence to back her claim. The theory must be erroneous. 
B)  Surya is making the mistake of assuming that correlation implies causation. 
C)  I will explain to her that she is making the error of reverse causality: it is the decrease in demand that has caused her to lower her prices. 
D)  I will explain to her that there are some omitted variables that have contributed to a decrease in her sales such as changes in income. 
A)  Surya is right; she has evidence to back her claim. The theory must be erroneous. 
B)  Surya is making the mistake of assuming that correlation implies causation. 
C)  I will explain to her that she is making the error of reverse causality: it is the decrease in demand that has caused her to lower her prices. 
D)  I will explain to her that there are some omitted variables that have contributed to a decrease in her sales such as changes in income.

Question 18

All centrally planned economies

Accepted Answer

A)  have been political dictatorships. 
B)  started out as market economies. 
C)  began as mixed economies. 
D)  have become mixed economies. 
A)  have been political dictatorships. 
B)  started out as market economies. 
C)  began as mixed economies. 
D)  have become mixed economies.

Question 19

Which of the following is a result of a market economy?

Accepted Answer

A)  environmental protection 
B)  an equal income distribution 
C)  agreement on equity 
D)  voluntary exchange 
A)  environmental protection 
B)  an equal income distribution 
C)  agreement on equity 
D)  voluntary exchange

Question 20

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

Exam 1: Economics: Foundations and Models

The highest valued alternative that must be given up to engage in an activity is the definition of

Examining the conditions that could lead to economic growth is an example of macroeconomic topic.

How does a market system prevent people from getting as many goods and services as they wish?

All economic questions arise from the fact that resources are unlimited.

Assume that a doctor can earn an additional $20,000 of revenue each year from keeping his office open for one additional hour per week. What must the additional cost of keeping the office open this additional hour per week be to make staying open for the extra hour economically rational?

Which of the following is a normative economic statement?

Which of the following is a positive economic statement?

Before a doctor decides to keep her office open on Saturdays, she should

The Coffee Nook, a small cafe near campus, sells cappuccinos for $2.50 and Russian tea cakes for $1.00 each. What is the opportunity cost of buying a cappuccino?

What is the "omitted variable" problem in determining cause and effect?

What is an economic model?

When goods and services are produced at the lowest possible cost, ________ occurs.

In economics, the term "equity" means

Which of the following statements about positive economic analysis is false?

Jewelry manufacturers produce a range of products such as rings, necklaces, bracelets, and brooches. What fundamental economic question are they addressing by offering this range of items?

All centrally planned economies

Which of the following is a result of a market economy?

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?

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

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