Question 1

An economic ________ is a simplified version of some aspect of economic life used to analyze an economic issue.

Accepted Answer

A)  market 
B)  trade-off 
C)  variable 
D)  model 
A)  market 
B)  trade-off 
C)  variable 
D)  model D

Question 2

What is the difference between an invention and an innovation?

Accepted Answer

An invention is the development of a new good or a new process for making a good.An innovation is the practical application of an invention.Innovation could also refer to any significant improvement in a good or in the means of producing a good.

Question 3

An economic model is a simplified version of reality used to analyze real-world economic situations.

Accepted Answer

A) True 
 B)False  True

Question 4

Technology is defined as

Accepted Answer

A)  the process of developing and revising models. 
B)  new innovations and creations. 
C)  the processes used to produce goods and services. 
D)  the process of recycling products. 
A)  the process of developing and revising models. 
B)  new innovations and creations. 
C)  the processes used to produce goods and services. 
D)  the process of recycling products.

Question 5

The three fundamental questions that any economy must address are:

Accepted Answer

A)  What will be the prices of goods and services; how will these goods and services be produced; and who will receive them? 
B)  What goods and services to produce; how will these goods and services be produced; and who receives them? 
C)  Who gets jobs; what wages do workers earn; and who owns what property? 
D)  How much will be saved; what will be produced; and how can these goods and services be fairly distributed? 
A)  What will be the prices of goods and services; how will these goods and services be produced; and who will receive them? 
B)  What goods and services to produce; how will these goods and services be produced; and who receives them? 
C)  Who gets jobs; what wages do workers earn; and who owns what property? 
D)  How much will be saved; what will be produced; and how can these goods and services be fairly distributed?

Question 6

One desirable outcome of a market economy is that it leads to a more equitable distribution of income.

Accepted Answer

A) True 
 B)False

Question 7

The sales revenue a seller receives from the sale of an additional unit of goods is called the marginal benefit.

Accepted Answer

A) True 
 B)False

Question 8

One example of human capital is the amount of skills that you have.

Accepted Answer

A) True 
 B)False

Question 9

What is equity,and how does it differ from efficiency?

Accepted Answer

Equity refers to the fair distribution o

Question 10

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 11

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 12

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 13

Which of the following statements is true?

Accepted Answer

A)  Anytime 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 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 resources are unlimited. 
A)  Anytime 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 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 resources are unlimited.

Question 14

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 15

Which of the following is a problem inherent in centrally planned economies?

Accepted Answer

A)  Households and firms make poor decisions in choosing how resources are allocated. 
B)  There is too little production of low-cost, high-quality goods and services. 
C)  Production managers are more concerned with satisfying consumer wants than with satisfying government's orders. 
D)  Exports tend to exceed imports. 
A)  Households and firms make poor decisions in choosing how resources are allocated. 
B)  There is too little production of low-cost, high-quality goods and services. 
C)  Production managers are more concerned with satisfying consumer wants than with satisfying government's orders. 
D)  Exports tend to exceed imports.

Question 16

The government makes all economic decisions in a mixed economy.

Accepted Answer

A) True 
 B)False

Question 17

At a recent faculty meeting,Lorraine Waverly,president of Skywalker College,announced that enrollment is up by 12 percent over the previous semester.If enrollment the previous semester was 3,250 students,what is the student enrollment this semester?

Accepted Answer

A)  390 
B)  2,860 
C)  3,640 
D)  4,030 
A)  390 
B)  2,860 
C)  3,640 
D)  4,030

Question 18

How are the fundamental economic questions answered in a market economy?

Accepted Answer

A)  The government alone decides the answers. 
B)  Individuals, firms, and the government interact in markets to decide the answers to these questions. 
C)  Households and firms interact in markets to decide the answers to these questions. 
D)  Large corporations alone decide the answers. 
A)  The government alone decides the answers. 
B)  Individuals, firms, and the government interact in markets to decide the answers to these questions. 
C)  Households and firms interact in markets to decide the answers to these questions. 
D)  Large corporations alone decide the answers.

Question 19

Since 1994,obesity rates in the United States

Accepted Answer

A)  have been on a slow and steady decline. 
B)  have increased in all 50 states. 
C)  have primarily increased in the Southeast and remained constant or slightly decreased in the remainder of the country. 
D)  have remained fairly constant throughout the country. 
A)  have been on a slow and steady decline. 
B)  have increased in all 50 states. 
C)  have primarily increased in the Southeast and remained constant or slightly decreased in the remainder of the country. 
D)  have remained fairly constant throughout the country.

Question 20

Explain the difference between a firm's revenue and its profit.

Accepted Answer

A firm's revenue is the total amount rec

Exam 1: Economics: Foundations and Models

An economic ________ is a simplified version of some aspect of economic life used to analyze an economic issue.

What is the difference between an invention and an innovation?

An economic model is a simplified version of reality used to analyze real-world economic situations.

Technology is defined as

The three fundamental questions that any economy must address are:

One desirable outcome of a market economy is that it leads to a more equitable distribution of income.

The sales revenue a seller receives from the sale of an additional unit of goods is called the marginal benefit.

One example of human capital is the amount of skills that you have.

What is equity,and how does it differ from efficiency?

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?

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

Which of the following statements is true?

Allocative efficiency is achieved when firms produce goods and services

Which of the following is a problem inherent in centrally planned economies?

The government makes all economic decisions in a mixed economy.

At a recent faculty meeting,Lorraine Waverly,president of Skywalker College,announced that enrollment is up by 12 percent over the previous semester.If enrollment the previous semester was 3,250 students,what is the student enrollment this semester?

How are the fundamental economic questions answered in a market economy?

Since 1994,obesity rates in the United States

Explain the difference between a firm's revenue and its profit.

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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