Deck 2: Thinking Like an Economist

Question 1

The efficient production points for the production possibilities frontier, all lie on the actual frontier itself.

Answer 1

True

Question 2

An economy is being efficient if it is impossible to produce more of one good without producing less of another.

Answer 2

True

Question 3

In a circular-flow diagram, one loop shows the flow of real goods and services and the other loop shows the corresponding flow of dollars.

Answer 3

True

Question 4

Most economic theories have been developed and tested by using controlled experiments.

Question 5

Any point inside the production possibilities frontier is an efficient one.

Question 6

A circular-flow diagram is a simple, equation-based model of how an economy is organised.

Question 7

Both scientists and economists make assumptions to simplify their analysis.

Question 8

In the circular-flow diagram, the only return households get from supplying factors of production to firms are wages.

Question 9

In a circular-flow diagram, spending on goods and services flows from households to firms and income flows from firms to households.

Question 10

All scientific models, including economic models, simplify reality in order to improve our understanding of it.

Question 11

The difference between natural scientists and economists is that natural scientists do not use simplifying assumptions in their models.

Question 12

Understanding how an economic system works is aided by the use of many complex and rigorous, true assumptions.

Question 13

Scientific models are designed to simplify reality because they are built with simplifying assumptions.

Question 14

The art in scientific thinking is in deciding which assumptions to make.

Question 15

Graph 2-1

Refer to Graph 2-1. In the graph shown, points A, B and C represent feasible or attainable outcomes for society.

Question 16

Graph 2-1

Refer to Graph 2-1. In the graph shown, points A, B and D represent efficient outcomes for society.

Question 17

In a simple circular-flow diagram, the two types of markets in which households and firms interact are the markets for goods and services and the markets for factors of production.

Question 18

The production possibilities frontier illustrates that it is not possible for an economy to produce an output that is outside the frontier.

Question 19

A production possibilities frontier is a graph that shows the various combinations of outputs the economy can possibly produce, given its factors of production and technology.

Question 20

In the circular-flow model, the markets for goods and services, as in the markets for the factors of production, households are buyers and firms are sellers.

Question 21

Graph 2-1

Refer to Graph 2-1. In the graph shown, the opportunity cost to the economy of moving from point A to point B is 20 units of concrete.

Question 22

According to John Maynard Keynes, an economist should only give advice based on disinterested observations.

Question 23

The circular-flow diagram and the production possibilities frontier both illustrate opportunity cost, economic growth and efficiency.

Question 24

Inflation is a microeconomic issue because it affects what households decide to buy.

Question 25

Consider the statement 'banning the export of live parrots from Australia has resulted in the black market price for cockatoos rising and an increase in poaching'. This is an example of a normative statement.

Question 26

If computers become easier to produce because of technological improvements, then producing more computers will mean a larger trade-off in the production of other goods.

Question 27

Microeconomics is the study of decision making at the level of the individual household and firm, while macroeconomics is the study of the economy as a whole.

Question 28

Which of the following does economics NOT attempt to do?

A) study the past to learn lessons for the future
B) devise theories, collect data, then analyse the data to test the theories
C) use assumptions to make the world easier to understand
D) conduct laboratory experiments that exactly replicate the real world

Question 29

Normative statements are essentially value judgements about the issue being considered.

Question 30

Given a two-good production possibilities frontier, an increase in the economy's productivity will cause the frontier to shift outward.

Question 31

Assumptions are sometimes necessary because:

A) controlled experiments need to reflect the way things happen in real life
B) there are often many factors in an analysis and it helps to focus our thinking
C) every model is different and that must be explained clearly
D) short-term effects differ from long-term effects

Question 32

Australia harvests five to seven million kangaroos a year. Consider the statement 'Australia would be better off if the harvest of kangaroos was banned'. This is an example of a normative statement.

Question 33

Sometimes economists who have the same positive views about how the economy works give conflicting advice on policy because they have different values.

Question 34

Treating everyone equitably is a common value shared by all economists.

Question 35

The scientific method can best be defined as:

A) the use of modern laboratory equipment to discover scientific laws
B) the careful design of controlled experiments to test theories about how the world works
C) the unbiased development of and testing of theories about how the world works
D) the selective search for evidence that supports preconceived theories of how the world works

Question 36

Graph 2-1

Refer to Graph 2-1. In the graph shown, the opportunity cost of more art increases as more art is produced.

Question 37

Normative statements describe how the world is, while positive statements prescribe how the world should be.

Question 38

Graph 2-1

Refer to Graph 2-1. In the graph shown, the opportunity cost of moving from point D to point B is 20 pieces of art.

Question 39

Economists try to avoid looking at history in case it will unduly influence their judgment.

Question 40

The parameters chosen by economists may be a reason why differences of judgements result from the same issue.

Question 41

Graph 2-2

Refer to Graph 2-2. In the circular-flow diagram shown, which arrow shows the flow of income payments?

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

Question 42

The production possibilities frontier is a:

A) graph that shows the various combinations of output the economy can possibly produce, given the available resources and technology
B) graph that shows the various combinations of resources the economy can possibly produce, given the available output
C) graph that shows the various combinations of concrete the economy can possibly produce, given the available agricultural land
D) graph that shows the various combinations of wheat the economy can possibly produce, given the available cement

Question 43

In a circular-flow diagram:

A) households sell goods and services to the factors of production
B) firms incur wages, rent and profit from households
C) the factors of production are bought by the firms and sold by households
D) firms sell goods and services as well as factors of production

Question 44

Graph 2-2

Refer to Graph 2-2. In the circular-flow diagram shown, which arrow shows the flow of the inputs for production?

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

Question 45

The rationale for using assumptions in economics is:

A) it avoids having to collect any data
B) it is a useful way to ensure models are as realistic as possible
C) because economics is not a science
D) that it makes the world easier to understand

Question 46

Economists use models in order to:

A) develop insights into how the economy works
B) develop insights into mathematical theorems
C) make economics hard for students to understand
D) help businesses decide what investments will be profitable

Question 47

If an economist develops a theory about international trade based on the assumption that there are only two countries and two goods:

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 help explain 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 48

If Lauren builds a circular-flow diagram including markets for goods and services, markets for factors of production and firms, will the model be able to accurately represent a simple economy?

A) No, it is missing the government
B) No, it is missing international trade
C) No, it is missing households
D) Yes, it includes all the key actors

Question 49

Which of the following is the most accurate statement about economic models?

A) economic models attempt to mirror reality as closely as possible
B) economic models are useful, but should not be used for policymaking
C) economic models cannot be used in the real world because they omit details
D) economic models omit many details to allow us to see what is important

Question 50

An economic outcome is said to be efficient if the economy is:

A) using all of the resources it has available, which means producing on the production possibilities frontier
B) conserving resources and not using all it has, which means producing on the production possibilities frontier
C) using all of the resources it has available, which means producing inside the production possibilities frontier
D) conserving resources and not using all it has, which means producing inside the production possibilities frontier

Question 51

Graph 2-2

Refer to Graph 2-2. In the circular-flow diagram shown, which arrow shows the flow of spending by households?

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

Question 52

In constructing models, economists must:

A) employ simplifying assumptions
B) include as much detail as possible
C) exclude as much detail as possible
D) employ simplifying presumptions

Question 53

The art of scientific thinking involves:

A) deciding which assumptions to make
B) understanding every scientific discipline
C) knowing which presumptions to make
D) being able to mathematically express natural forces

Question 54

The circular-flow diagram is a type of simple model that:

A) illustrates the carbon-cycle in forestry economic models
B) illustrates how an economy is organised between key sectors
C) shows how fish stocks grow and replenish from harvest
D) shows the money flows that are managed by the banking system

Question 55

Data to test economic theories generally come from:

A) laboratory experiments undertaken in strict, controlled conditions
B) personal introspection
C) public opinion surveys
D) observations from previous episodes of economic change

Question 56

The circular flow diagram illustrates the:

A) flow of goods and services from households to firms
B) flow of spending on goods and services from households to firms
C) flow of factors of production from firms to households
D) flow of spending on goods and services flows from firms to households

Question 57

In the circular-flow diagram:

A) firms are sellers in the resource market and the product market
B) households are sellers in the resource market
C) firms are buyers in the product market
D) spending on goods and services flow from firms to households

Question 58

Factors of production are:

A) inputs into the production process
B) weather, social and political conditions that affect production
C) the physical relationships between economic inputs and outputs
D) the mathematical calculations firms make to determine production

Question 59

Graph 2-2

Refer to Graph 2-2. In the circular-flow diagram shown, which arrow shows the flow of goods and services?

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

Question 60

The foundation stones from which economic models are built are:

A) economic policies
B) presumptions
C) assumptions
D) statistical forecasts

Question 61

Graph 2-3

Refer to Graph 2-3. On the production possibilities frontier shown, at which point or points is the economy inefficient?

A) A, B, C
B) E, F
C) B
D) D

Question 62

Graph 2-3

Refer to Graph 2-3. On the production possibilities frontier shown, what does point F represent?

A) an infeasible production point
B) the amount of pizzas that would be produced if the economy only produced pizzas
C) an inefficient outcome
D) the outcome if nothing were to be produced

Question 63

Graph 2-4

Refer to Graph 2-4. On the production possibilities frontier shown, the opportunity cost to the economy of getting 10 additional roller blades by moving from point A to point B is:

A) 15 bikes
B) 10 bikes
C) five bikes
D) impossible to know without knowing the cost of the resources used to produce the additional roller blades

Question 64

Graph 2-4

Refer to Graph 2-4. On the production possibilities frontier shown, the opportunity cost of getting five additional bikes by moving from point A to point C is:

A) 15 roller blades
B) 10 roller blades
C) five roller blades
D) it is impossible for the economy to move from point A to point C

Question 65

Graph 2-6

Refer to Graph 2-6. In the graph shown, the movement from frontier A to B can best be described as:

A) economic growth
B) a disaster for society
C) an improvement in income distribution
D) an improvement in the allocation of resources

Question 66

Graph 2-4

Refer to Graph 2-4. On the production possibilities frontier shown, the opportunity cost of moving from point A to point D is:

A) five bikes and 40 roller blades
B) zero bikes and 20 roller blades
C) five bikes and 20 roller blades
D) zero bikes and 40 roller blades

Question 67

Table 2-1

Refer to Table 2-1. What is the opportunity cost to Poland of increasing the production of Vodka from 430 to 850?

A) 140 kg potatoes
B) 500 kg potatoes
C) 400 kg potatoes
D) 300 kg potatoes

Question 68

Table 2-1

Refer to Table 2-1. What is the opportunity cost of increasing the production of potatoes from 900 kg to 1200 kg?

A) 255l vodka
B) 200l vodka
C) 150l vodka
D) 175l vodka

Question 69

Table 2-1

Refer to Table 2-1. What is the most accurate statement about the opportunity cost of producing an additional 25 litres of vodka in Poland?

A) the opportunity cost of an additional 25 litres of vodka is 30kg of potatoes
B) the opportunity cost of an additional 25 litres of vodka changes depending on how many potatoes are produced
C) it is impossible to determine the opportunity cost of an additional 25 litres of vodka
D) the opportunity cost of an additional 25 litres of vodka increases as more potatoes are produced

Question 70

Graph 2-6

Refer to Graph 2-6. According to the graph, the shift of the production possibilities frontier from frontier A to frontier B was most likely caused by which of the following?

A) an improvement in the technology of producing capital goods
B) an improvement in the technology of producing consumer goods
C) a general improvement in technology
D) a reduction in the availability of resources

Question 71

In the production possibilities frontier model, production is inefficient if the production point is:

A) inside the frontier
B) outside the frontier
C) on or outside the frontier
D) on or inside the frontier

Question 72

Graph 2-3

Refer to Graph 2-3. On the production possibilities frontier shown, at which point or points is the economy efficient?

A) A, B, C
B) A, C, F
C) E
D) D

Question 73

Microeconomics approaches the study of economics from the viewpoint of:

A) consumer behaviour
B) the labour market
C) government taxation and spending policies
D) the entire economy

Question 74

Graph 2-7

Refer to Graph 2-7. What is the opportunity cost to society of the movement from point C to point B, given the production possibilities frontier shown?

A) 650 pretzels
B) 500 pretzels
C) 300 pretzels
D) 150 pretzels

Question 75

An economy is said to be efficient if it is:

A) possible to produce more of all goods
B) possible to produce more of one good without producing less of another
C) not possible to produce more of one good without producing less of another
D) not possible to produce more of one good at any cost

Question 76

Graph 2-3

Refer to Graph 2-3. On the production possibilities frontier shown, which point represents the maximum possible production of CDs?

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

Question 77

Graph 2-5

Refer to Graph 2-5. In the production possibilities frontier shown, the shift of the frontier from A to B was most likely caused by which of the following?

A) more capital available in the economy
B) more labour available in the economy
C) a general technological breakthrough
D) technological improvement in the production of clothing

Question 78

Graph 2-7

Refer to Graph 2-7. In the production possibilities frontier shown, what is the opportunity cost to society of moving from point C to point E?

A) 150 pretzels
B) 300 potato chips
C) both A and B
D) zero

Question 79

Graph 2-7

Refer to Graph 2-7. In the production possibilities frontier unemployment most likely caused a movement from:

A) A to B
B) B to D
C) C to D
D) C to E

Question 80

Graph 2-3

Refer to Graph 2-3. On the production possibilities frontier shown, at which point or points is it possible for this economy to produce?

A) A, B, C, D
B) A, B, C, F
C) A, B, C, D, E, F
D) D