Deck 2: Thinking Like an Economist

Question 1

What is a characteristic of a good theory?

A) It is a widely accepted theory.
B) It is a theory that starts from realistic assumptions.
C) It is a theory that helps us understand how the world works.
D) It is a theory based on original predictions.

Answer 1

It is a theory that helps us understand how the world works.

Question 2

For economists, what are often used as substitutes for laboratory experiments?

A) natural experiments offered by history
B) computer-generated experiments
C) studies conducted by other disciplines, such as sociologists
D) well-constructed simulations

Answer 2

natural experiments offered by history

Question 3

Because it is difficult for economists to use experiments to generate data, what must they generally do?

A) do without data
B) use whatever data the world gives them
C) select a committee of economists to make up data for all economists to use
D) use hypothetical, computer-generated data

Answer 3

use whatever data the world gives them

Question 4

Why do economists make assumptions?

A) to diminish the chance of wrong answers
B) to make the world easier to understand
C) because all scientists make assumptions
D) to make certain that all necessary variables are included

Question 5

What is the goal of theories?

A) to provide an interesting, but not useful, framework of analysis
B) to provoke stimulating debates in scientific journals
C) to demonstrate that the developer of the theory is capable of logical thinking
D) to help scientists understand how the world works

Question 6

What is meant by scientific method?

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 experiments in understanding the way the world works
D) finding evidence to support preconceived theories about how the world works

Question 7

Where do the most common data for testing economic theories come from?

A) carefully controlled and conducted laboratory experiments
B) governments and large corporations
C) historical episodes of economic change
D) centrally planned economies

Question 8

What happens when economists test theories?

A) They must make do with whatever data the world gives them.
B) They can manipulate conditions easier than other scientific fields.
C) They can enlist the government's help to manipulate economic conditions.
D) They can achieve statistically valid results with much smaller sample sizes.

Question 9

What do economists do when they attempt to simplify the real world and make it easier to understand?

A) They make assumptions.
B) They make uninformed judgments.
C) They make predictions.
D) They make evaluations.

Question 10

Why are historical episodes valuable to economists?

A) They allow economists to see how far the discipline has evolved.
B) It is easier to obtain historical data than observe current trends.
C) It is easier to evaluate a past situation than to predict a future situation.
D) They allow economists to evaluate economic theories of the present.

Question 11

Which statement best describes the way economists study the economy?

A) Economists study the past, but do not try to predict the future.
B) Economists use a probabilistic approach based on correlations between economic events.
C) Economists devise theories, collect data, and then analyze the data to test the theories.
D) Economists use controlled experiments much the same way a biologist or physicist does.

Question 12

Who said, "The whole of science is nothing more than a refinement of everyday thinking"?

A) Adam Smith
B) Albert Einstein
C) John Nash
D) Stephen King

Question 13

Which terms are used by an economist?

A) ollie and slide
B) torts and contracts
C) absorption and oxidizing reactions
D) deadweight loss and efficiency

Question 14

What observation did Albert Einstein once make about science?

A) "The whole of science is nothing more than a refinement of everyday thinking."
B) "The whole of science is nothing more than an interesting intellectual exercise."
C) "In order to understand what science is, one must simply look around themselves."
D) "In order to understand what science is, one must transcend everyday thinking."

Question 15

Why is the use of theory and observation more difficult in economics than in sciences, such as physics?

A) It is difficult to evaluate an economic experiment.
B) It is difficult to devise an economic experiment.
C) It is difficult to actually perform an experiment in an economic system.
D) It is difficult to find participants for an economics experiment.

Question 16

Which of the following is a difficulty that economists face that some other scientists do not?

A) Unlike other sciences, economic studies must include the largest economic player, the government.
B) Economists, unfortunately, receive less government funding than other scientists.
C) Corporations are reluctant to disclose necessary information for economic research.
D) Experiments are often difficult to conduct in economics.

Question 17

What does the art of scientific thinking include?

A) capability of eliminating invalid theories
B) understanding every scientific field, including physics, biology, and economics
C) deciding which assumptions to make
D) being able to mathematically express natural forces

Question 18

Sir Isaac Newton developed the theory of gravity after observing an apple fall from a tree. What is this an example of?

A) a controlled experiment used to develop scientific theory
B) being in the right place at the right time
C) a natural consequence
D) the interplay between observation and theory in science

Question 19

If an economist develops a theory about international trade based on the assumption that there are only two countries and two goods, what is most likely?

A) The theory can be useful only in situations involving two countries and two goods.
B) It is a total waste of time, since the actual world has many countries trading many goods.
C) The theory can be useful in helping economists understand the complex world of international trade involving many countries and many goods.
D) The theory can be useful in the classroom but has no use in the real world.

Question 20

What is a common thread between economics and other sciences, such as physics?

A) Experiments are most often conducted in a lab.
B) Real-world observations often lead to theories.
C) They deal with similar phenomena.
D) They deal primarily with abstract concepts.

Question 21

Which of the following is an example of a product that experiences infrequent price changes?

A) stocks on the Toronto Stock Exchange
B) gasoline
C) monthly cell-phone plan
D) seasonal produce at the grocery store

Question 22

How do economists begin building an economic model?

A) by writing grants for government funding
B) by conducting controlled experiments in a lab
C) by making assumptions
D) by reviewing statistical forecasts

Question 23

What can good assumptions do?

A) cause economists to leave out important variables that make their theories worthless
B) simplify the complex world and make it easier to understand
C) eliminate invalid causations
D) allow economists to see the "big picture" instead of only small segments

Question 24

What is NOT a common characteristic of economic models?

A) They are often built using the tools of mathematics.
B) They are useful to economists, but not to policymakers.
C) They include only the important features of an economy.
D) They are built using assumptions.

Question 25

Which statement does NOT illustrate a characteristic of an economic model?

A) A model simplifies reality.
B) A model can explain how the economy is organized.
C) A model can assume away irrelevant details.
D) A model's conclusions are unrelated to assumptions

Question 26

How does a scientist make assumptions?

A) A scientist chooses the assumptions that best prove a desired result.
B) A scientist chooses the assumptions randomly so as not to appear biased.
C) A scientist chooses the assumptions that would be most widely accepted.
D) A scientist chooses the assumptions that best capture the essential features of the problem.

Question 27

What happens when scientists make good assumptions?

A) They greatly simplify the problem without substantially affecting the answer.
B) They further complicate an already complicated subject.
C) They can leave out necessary variables that may result in incorrect answers.
D) They are capable of eliminating invalid causations.

Question 28

What is a circular-flow diagram?

A) a visual model of how the economy is organized
B) a mathematical model of how the economy works
C) a model that shows the effects of government and the central bank on the economy
D) a visual model of the relationship between money, prices, and businesses

Question 29

Which statement best describes economic models?

A) They are based on unrealistic assumptions.
B) They accurately describe the reality.
C) They allow economists to learn how the economy works.
D) They include as many variables as possible.

Question 30

What does a circular-flow diagram do?

A) It illustrates cost-benefit analysis.
B) It explains how the economy is organized.
C) It shows the flow of trade in the world.
D) It explains how banks circulate money in the economy.

Question 31

What makes a model compelling?

A) its application
B) its simplicity
C) its predictions
D) its assumptions

Question 32

In the simple circular-flow diagram, who are the decision makers?

A) individuals and government
B) households and firms
C) households and government
D) households, individuals, and foreign nations

Question 33

What are the foundation stones from which economic models are built?

A) economic policies
B) legal systems
C) assumptions
D) statistical forecasts

Question 34

What are factors of production?

A) positive or negative changes in inventory
B) weather and social and political conditions that affect production
C) the physical relationships between economic inputs and outputs
D) inputs into the production process

Question 35

Which statement best describes economic models?

A) Economic models attempt to mirror reality exactly.
B) Economic models are useful but should not be used for policymaking.
C) Economic models omit many details to allow us to see what is truly important.
D) Economic models cannot be used in the real world because they omit details.

Question 36

What do good economic models do?

A) They often leave out important variables, causing serious errors.
B) They omit many details to allow us to see what is truly important.
C) They are designed to give a complete picture of a given relationship.
D) They leave economics to be interpreted in many ways by governments.

Question 37

What have economists often observed while studying the effects of public policy changes?

A) There is a difference between the long run and the short run.
B) Unemployment and inflation are directly related in the short run.
C) Stock prices are indirectly related to capital investment.
D) If the policy is well designed, it will always be effective.

Question 38

What is a model?

A) a theoretical abstraction with very little value
B) a useful tool to only the ones who constructed it
C) a realistic and carefully constructed theory
D) a simplification of real life

Question 39

Why do economists use models?

A) to learn how the economy works
B) to attract the attention of government officials
C) to make economics accessible to the public
D) to make sure that all of the details of the economy are included in their analysis

Question 40

When studying the effects of public policy changes, what do economists do?

A) They often falsify results if the desired effect is not reached.
B) They may make different assumptions for the long run and the short run.
C) They attempt to consider only the direct effects and not the indirect effects.
D) They can immediately change policies if they are ineffective.

Question 41

What is a characteristic of factors of production?

A) They are used to produce goods and services.
B) They are owned by firms.
C) They are abundant in most economies.
D) They are provided by both firms and households.

Question 42

Figure 2-2
Refer to Figure 2-2. What do boxes A and B represent?

A) firms and households
B) government and the foreign sector
C) the goods and services market and the factors of production market
D) households and government

Question 43

In the factors of production market, how do households and firms interact?

A) Households are sellers and firms are buyers.
B) Households are buyers and firms are sellers.
C) Households and firms are both buyers.
D) Households and firms are both sellers.

Question 44

In the circular-flow diagram, which flows are involved?

A) Income from factors of production flows from firms to households.
B) Goods and services flow from households to firms.
C) Factors of production flow from firms to households.
D) Spending on goods and services flow from firms to households.

Question 45

Figure 2-2
Refer to Figure 2-2. What does the outer loop represent?

A) the flow of goods
B) the flow of spending
C) the flow of factors of production
D) the flow of exports

Question 46

Figure 2-1
Refer to Figure 2-1. Which arrow shows the flow of spending by households?

A) arrow A
B) arrow B
C) arrow C
D) arrow D

Question 47

Figure 2-1
Refer to Figure 2-1. Which arrow shows the flow of goods and services?

A) arrow A
B) arrow B
C) arrow C
D) arrow D

Question 48

What is a characteristic of the circular-flow model?

A) Firms are sellers in the resource market and the product market.
B) Firms are buyers in the product market.
C) Households are sellers in the resource market.
D) Households are buyers in the resource market.

Question 49

Figure 2-1
Refer to Figure 2-1. Which arrow shows the flow of income payments?

A) arrow A
B) arrow B
C) arrow C
D) arrow D

Question 50

What do the two loops in the circular-flow diagram represent?

A) the flow of goods and the flow of services
B) the flow of money and the flow of bonds
C) the flow of inputs and outputs and the flow of dollars
D) the flow of capital goods and the flow of consumer goods

Question 51

Figure 2-1
Refer to Figure 2-1. Which arrow shows the flow of the factors of production?

A) arrow A
B) arrow B
C) arrow C
D) arrow D

Question 52

What is another name for goods and services produced by firms?

A) factors of production
B) outputs
C) inputs
D) resources

Question 53

In the goods and services market, how do households and firms interact?

A) They are both buyers.
B) Households are sellers and firms are buyers.
C) Households are buyers and firms are sellers.
D) They are both sellers.

Question 54

What markets are depicted in the simple circular-flow diagram?

A) the market for goods and services, the financial market, and the market for the factors of production
B) the market for the factors of production and the financial market
C) the market for goods and services and the financial market
D) the market for goods and services and the market for factors of production

Question 55

What is another term for factors of production?

A) inputs
B) outputs
C) goods
D) services

Question 56

What would NOT be considered a factor of production?

A) labour
B) land
C) capital
D) stocks

Question 57

In a circular-flow diagram, which flows are involved?

A) Taxes flow from households to firms, and transfer payments flow from firms to households.
B) Income payments flow from firms to households, and sales revenue flows from households to firms.
C) Resources flow from firms to households, and goods and services flow from households to firms.
D) Inputs and outputs flow in the same direction as the flow of dollars, from firms to households.

Question 58

Figure 2-2
Refer to Figure 2-2. What do boxes C and D represent?

A) households and firms
B) the goods and services market and the factors of production market
C) the goods and services market and the financial market
D) government and foreign trade

Question 59

Figure 2-2
Refer to Figure 2-2. What does the inner loop represent?

A) the flow of inputs to firms and output to households
B) the flow of output to firms and inputs to households
C) the flow of spending to firms and factor payments to households
D) the flow of spending to households and factor payments to firms

Question 60

According to a simple circular-flow diagram, how many markets do households and firms interact in?

A) one type of market
B) two types of markets
C) three types of markets
D) four types of markets

Question 61

Figure 2-2
Refer to Figure 2-2. In which market are firms sellers?

A) Box A
B) Box B
C) Box C
D) Box D

Question 62

Which statement best characterizes the money held by households in the circular-flow diagram?

A) It is earned from the sale of factors of production.
B) It becomes profit to firms.
C) It originates mainly from international trade.
D) It is used to purchase factors of production.

Question 63

What are the four sectors in a more complex circular-flow diagram?

A) households, government, financial markets, and international trade
B) households, firms, government, and financial markets
C) households, firms, financial markets, and international trade
D) households, firms, government, and international trade

Question 64

What does a point on a country's production possibilities frontier represent?

A) a combination of two goods that an economy will never be able to produce
B) a combination of two goods that an economy can produce using all available resources and technology
C) a combination of two goods that an economy can produce using some of its resources and technology
D) a combination of two goods that an economy may be able to produce sometime in the future with additional resources and technology

Question 65

Suppose an economy produces two goods: winter coats and skis. This economy always operates on its production possibilities frontier. Last year, it produced 750 units of coats and 250 pairs of skis. This year, it is producing 820 units of coats and 275 sets of skis. Which of the following would NOT explain the increase in output?

A) a reduction in unemployment
B) an increase in the labour force
C) an improvement in technology
D) an increase in worker productivity

Question 66

Why are production possibilities frontiers usually bowed outward?

A) The more resources a society uses to produce one good, the fewer resources it has available to produce another good.
B) It reflects the fact that the opportunity cost of producing a good falls as more of the good is produced.
C) It is because of the effects of technological change.
D) Resources are specialized; that is, some are better at producing particular goods rather than other goods.

Question 67

What happens in the markets for factors of production?

A) Households provide firms with labour, land, and capital.
B) Households provide firms with savings for investment.
C) Firms provide households with goods and services.
D) The government provides firms with inputs for the production process.

Question 68

Suppose an economy produces two goods: clothes and cars. This economy always operates on its production possibilities frontier. Last year, it produced 450 units of clothes and 25 cars. This year, it is producing 500 units of clothes and 30 cars. Which of the following would NOT explain the increase in output?

A) a reduction in unemployment
B) an increase in the labour force
C) an improvement in technology
D) an increase in worker productivity

Question 69

Why are production possibilities frontiers usually bowed outward?

A) constant opportunity cost
B) increasing opportunity cost
C) decreasing opportunity cost
D) increasing productivity

Question 70

What happens in the markets for goods and services?

A) Households provide firms with savings for investment.
B) Households provide firms with labour, land, and capital.
C) Firms provide households with the output they produced.
D) The government provides firms with inputs for the production process.

Question 71

In the simple circular-flow diagram, in which market are firms sellers?

A) the goods and services market
B) the factors of production market
C) both the factors of production market and the goods and services market
D) neither the factors of production market nor the goods and services market

Question 72

In the simple circular-flow diagram, in which market are households sellers?

A) the factors of production market
B) the goods and services market
C) both the factors of production market and the goods and services market
D) neither the factors of production market nor the goods and services market

Question 73

The country of San Pedro produces two goods: beach towels and soccer balls. Last year, it produced 100 beach towels and 250 soccer balls. This year, it produced 125 beach towels and 300 soccer balls. Given no other information, which of the following could NOT explain the change?

A) San Pedro experienced a reduction in unemployment.
B) San Pedro experienced an improvement in widget-making technology.
C) San Pedro acquired more resources.
D) San Pedro experienced a high level of emigration out of the country.

Question 74

Figure 2-2
Refer to Figure 2-2. Who owns the factors of production?

A) Box A
B) Box B
C) Box C
D) Box D

Question 75

Suppose an economy produces two goods: clothes and cars. This economy always operates on its production possibilities frontier. Last year, it produced 91 units of clothes and 48 cars. This year, it is producing 95 units of clothes and 51 cars. Which of the following would NOT explain the increase in output?

A) a reduction in unemployment
B) an increase in the labour force
C) an improvement in technology
D) an increase in worker productivity

Question 76

In economics, what does capital refer to?

A) the finances necessary for firms to produce their products
B) buildings and machines used in the production process
C) the money households use to purchase necessities
D) the value of stock market shares issued to investors

Question 77

Figure 2-2
Refer to Figure 2-2. In which market are households sellers?

A) Box A
B) Box B
C) Box C
D) Box D

Question 78

The country of San Pedro produces two goods: beach towels and soccer balls. Last year, it produced 150 beach towels and 300 soccer balls. This year, it produced 175 beach towels and 350 soccer balls. Given no other information, which of the following could NOT explain the change?

A) San Pedro experienced a reduction in unemployment.
B) San Pedro experienced an improvement in widget-making technology.
C) San Pedro acquired more resources.
D) San Pedro experienced a high level of emigration out of the country.

Question 79

In the simple circular-flow diagram, who owns the factors of production?

A) the government
B) firms
C) households
D) corporations

Question 80

What revenue is received by firms from sales that is NOT used to pay for factors of production?

A) rent
B) wages
C) profit
D) interest