Deck 1: The Art and Science of Economic Analysis.

Question 1

Economics is best described as the:

A) study of choice when scarcity exists.
B) study of the development of human society.
C) study of the composition and structure of matter.
D) branch of science that uses the principles of sociology.
E) branch of science that is based on value judgments.

Answer 1

study of choice when scarcity exists.

Question 2

Which of the following sentences is the best example of scarcity of time?

A) Peter buys a hamburger.
B) John-Michael wants to spend his money on a new hoverboard.
C) Alexander is doing homework instead of going to the movies with his friends.
D) Amanda, a geography teacher, is retired and spends her time gardening.
E) Bill is unemployed.

Answer 2

Alexander is doing homework instead of going to the movies with his friends.

Question 3

Economics is best defined as the study of how:

A) people make decisions in a world of scarcity.
B) governments can influence the social structure.
C) to separate the executive from the legislature and the judiciary.
D) individuals can participate in electing their representatives to the government.
E) to change the class structure of an economy.

Answer 3

people make decisions in a world of scarcity.

Question 4

The fact that people have unlimited wants means that:

A) they always want more of at least one good.
B) people always purchase the goods that cost the least.
C) there is always an excess supply of necessary goods in the market.
D) selfish people are not concerned about others.
E) people do not behave rationally while making a choice.

Question 5

Michigan has an abundant supply of fresh water. However, an economist would consider it a scarce resource because:

A) water is necessary for human survival.
B) pollution will eventually destroy all life in the Great Lakes.
C) water is limited in supply relative to people's unlimited wants.
D) water commands a very high price.
E) the cost of supplying water is prohibitively high.

Question 6

Which of the following is an example of physical capital?

A) the owner of a pizza shop
B) bulldozers
C) a college education
D) carpentry skills
E) money

Question 7

Which of the following would an economist classify as physical capital?

A) 100 shares of Microsoft
B) A $50 bill
C) A credit card
D) A lawyer's laptop
E) A bauxite mine in Jamaica

Question 8

When economists refer to human capital, they refer to:

A) income earned by capitalists.
B) skills used in production.
C) dividends earned by investors.
D) bonds held by the public.
E) bank loans given to the public.

Question 9

Which of the following fundamental resources is the basis of labor?

A) Capital
B) Natural resources
C) Time
D) Profit
E) Entrepreneurial ability

Question 10

A resource is something that:

A) is used to produce goods and services.
B) is provided by nature, and not produced by society.
C) exists in unlimited quantities in developed countries.
D) must be produced by a firm.
E) is always available free of cost.

Question 11

Natural resources are:

A) not considered scarce because no one pays for them.
B) not used in producing luxury goods.
C) renewable and exhaustible.
D) available in unlimited quantities.
E) not considered scarce because they are not produced by society.

Question 12

Because resources are scarce and wants are unlimited, _____.

A) only the rich get everything they want
B) we must choose from among our many wants
C) there will be more services produced than goods
D) people search for spiritual fulfillment rather than material fulfillment
E) poor people never get anything they want

Question 13

Which of the following statements regarding the basic economic problem of scarcity is correct?

A) The problem will exist only in countries that are not highly industrialized.
B) The problem will disappear as production increases.
C) The problem will disappear as technology improves.
D) The problem will exist as long as resources are available in limited amounts.
E) The problem will disappear as a person's income falls.

Question 14

The problem of scarce resources:

A) can be solved in a market economy, but not in a command economy.
B) can be solved if all resources are jointly owned by the public and private sectors.
C) implies that the resources are not freely available.
D) arises because all natural resources are owned by the government in every country.
E) can be solved by lowering taxes in an economy.

Question 15

Alan is a retired economist who enjoys building toy trains for his grandkids. He uses a workbench and tools from his garage, lumber he bought from the lumber store for $10, and varnish and paint he had left over from another project last year. Since a retired economist is always an economist, which of the following statements is he likely to make about building toy trains?

A) I'm not paying for any resources, so the toy trains I'm building are a good example of free goods.
B) I only paid $10 for the lumber, so the toy trains I'm building are a good example of free goods.
C) I'm using scarce resources to build the toy trains.
D) The resources I'm using to build the toy trains are not scarce.
E) If I had used lumber that I cut from the tree in my backyard instead of buying it from the store, then the toy trains I'm building would be a good example of free goods.

Question 16

Economics:

A) studies human behavior when scarcity exists and choices must be made.
B) does not provide a reasonable explanation of how people make decisions.
C) does not accurately explain any human behavior since it is based on the assumption of rationality.
D) is better at showing the way things ought to be than other social sciences.
E) is the only social science that can explain the existence and behavior of public institutions.

Question 17

Which of the following is not classified as physical capital by economists?

A) A $20 bill in a firm's petty cash drawer
B) The building where an economics class meets
C) A plumber's wrench
D) A railroad car
E) A factory

Question 18

In economics, capital is defined as:

A) natural resources, such as water, oil, and iron ore.
B) the number of people in the labor force.
C) all human creations used to produce goods and services.
D) the money exchanged in the underground economy.
E) the willingness of business owners to take risks.

Question 19

Which of the following is the best definition of economics?

A) An investigation of the evolutionary process of mankind
B) A study of society as a system of interconnected parts
C) A study of how people deal with the problem of scarcity
D) An examination of the structure and the role of the government in an economy
E) A study of how to conduct free and fair elections in a country

Question 20

Scarcity:

A) applies to a brain surgeon but not to a cab driver.
B) is not a problem for politicians.
C) exists only in rich countries.
D) exists only in poor countries.
E) exists to a greater or lesser extent for everybody.

Question 21

The interaction of economic decision makers:

A) is not based on marginal analysis.
B) determines how an economy's resources are allocated.
C) is not important in economic analysis.
D) occurs infrequently.
E) does not involve ordinary citizens.

Question 22

A good or service is considered scarce if:

A) any quantity of it can be consumed at a zero price.
B) the amount people desire exceeds the amount available at a zero price.
C) the amount people desire equals the amount available at any price.
D) the amount people desire is less than the amount available at any price.
E) the amount people desire is less than the amount available at a zero price.

Question 23

Natural resources:

A) include bodies of water, trees, oil reserves, and minerals.
B) are not scarce.
C) are inexhaustible as long as they are managed properly.
D) are the result of human effort.
E) do not follow the law of demand and supply.

Question 24

The difference between a good and a service is that:

A) a good helps satisfy unlimited wants, but a service does not.
B) a service helps satisfy unlimited wants, but a good does not.
C) a service is available in unlimited quantities, but a good is not.
D) a good is available in unlimited quantities, but a service is not.
E) a good is tangible, but a service is not.

Question 25

The expression "there's no such thing as a free lunch" means that:

A) services may be free, but goods are never free.
B) even if a good or service has a price of zero, it has a cost.
C) charitable organizations should not serve free lunches to the poor.
D) poor people are really the ones who pay for their allegedly free lunches.
E) someone has to pay the market price for a good or service.

Question 26

An entrepreneur:

A) always makes a profit.
B) is appointed by the board of directors to manage the operations of a firm.
C) is a profit-seeking decision maker.
D) is a parasite that benefits by not paying other resources for their services.
E) is the manager who runs an enterprise and keeps the customers happy.

Question 27

Your best friend buys you lunch on your birthday. You think this was not a free lunch because:

A) even if you didn't pay in dollars for it, you paid for it in extra calories.
B) the resources used to produce the lunch were not available to satisfy other wants.
C) you disagree with the expression "the best things in life are free."
D) you can eat only if you work out first.
E) neither sea water nor air is free.

Question 28

An entrepreneur is:

A) an individual who has an education.
B) an organizer who seeks profitable opportunities and is willing to accept risks.
C) a person who is hired by a firm to manage its operations.
D) a person who earns profit without accepting any risks.
E) a person who is appointed by the board of directors of a firm for a term of five years.

Question 29

Goods and services are bought and sold in:

A) product markets.
B) resource markets.
C) foreign exchange markets.
D) the stock market.
E) the spot market.

Question 30

In economics, capital refers to:

A) wages earned by workers.
B) dividends and interest earned by investors.
C) the foreign reserves held by governments.
D) machines, buildings, tools, and knowledge.
E) the net worth of firms.

Question 31

Which of the following is a service?

A) anything that can be used indefinitely
B) anything for which people pay less money than they pay for a good
C) an intangible activity that satisfies human wants
D) any output produced by the service sector industry, such as fast food
E) something that is more desirable than a good

Question 32

Resources can be divided into _____.

A) people, money, and machines
B) savings, spending, investment, and capital
C) human resources, technology, and government
D) natural resources, labor, capital, and entrepreneurial ability
E) income, interest, and expenditure

Question 33

The payment in return for the use of capital is _____.

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

Question 34

Goods and services are limited in supply because:

A) people are greedy.
B) they are produced using scarce resources.
C) people have limited wants.
D) they are produced by firms that seek profits.
E) the government wants to maintain its power over the economy.

Question 35

As goods and services are scarce, _____.

A) the opportunity cost is zero
B) people must choose among alternatives
C) all human wants can be satisfied
D) resource prices are fixed
E) commodities are free

Question 36

Resources are bought and sold in:

A) product markets.
B) resource markets.
C) foreign exchange markets.
D) the stock market.
E) the spot market.

Question 37

Entrepreneurial ability is rewarded by _____.

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

Question 38

The payment in return for the use of natural resources is _____.

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

Question 39

Unlike a service, a good:

A) is desirable.
B) uses resources to satisfy wants.
C) is physical and tangible.
D) is abundant and free.
E) is a resource.

Question 40

If a firm produces and sells only one unit of a good, its profit would be equal to the:

A) market price of the good.
B) revenue from the item sold minus the cost of the resources used to produce the good.
C) difference between the interest paid by the firm on its outstanding loans and the rate of depreciation.
D) sum of the price of the good and the wages paid to labor.
E) product of the wages paid to labor and the market price of the good.

Question 41

In the simple circular flow model, the two markets are:

A) capital goods and consumer goods markets.
B) goods and services markets.
C) product and resource markets.
D) households and firms markets.
E) domestic and foreign markets.

Question 42

Exhibit 1.1

Refer to the circular-flow model in Exhibit 1.1. If D represents firms and B represents resource markets, then the flow from D to B is:

A) revenue.
B) expenditures.
C) labor, capital, and natural resources.
D) income and expenditures.
E) wages, interest, rent, and profit.

Question 43

Exhibit 1.2

Refer to the circular-flow model in Exhibit 1.2. The flow from firms to product markets is:

A) goods and services.
B) products.
C) labor, capital, natural resources, and entrepreneurial ability.
D) resources.
E) wages, interest, rent, and profit.

Question 44

Exhibit 1.1

Refer to the circular-flow model in Exhibit 1.1. If box D represents firms, then box C represents:

A) firms.
B) resource markets.
C) households.
D) product markets.
E) expenditures.

Question 45

Exhibit 1.2

Refer to the circular-flow model in Exhibit 1.2. Firms supply ________ to households through product markets.

A) goods and services
B) products
C) labor, capital, natural resources, and entrepreneurial ability
D) resources
E) wages, interest, rent, and profit

Question 46

By rational, economists mean that people:

A) think only of themselves.
B) know with certainty which alternative will turn out to be the best.
C) try to make the best choices they can.
D) try to maximize the cost of achieving a benefit.
E) try to minimize the expected benefit achieved.

Question 47

In the circular-flow model, firms supply:

A) labor.
B) goods and services.
C) capital.
D) entrepreneurial ability.
E) natural resources.

Question 48

Exhibit 1.1

Refer to the circular-flow model in Exhibit 1.1. If B represents resource markets and C represents households, then the flow from B to C is:

A) revenue.
B) expenditures.
C) labor, capital, and natural resources.
D) income.
E) wages, interest, rent, and profit.

Question 49

Exhibit 1.2

Refer to the circular-flow model in Exhibit 1.2. The flow from firms to product markets is:

A) goods and services.
B) products.
C) labor, capital, natural resources, and entrepreneurial ability.
D) resources.
E) wages, interest, rent, and profit.

Question 50

Exhibit 1.2

Refer to the circular-flow model in Exhibit 1.2. Households supply ________ to firms through resource markets.

A) goods and services
B) products
C) labor, capital, natural resources, and entrepreneurial ability
D) guidance
E) wages, interest, rent, and profit

Question 51

Exhibit 1.1

Refer to the circular-flow model in Exhibit 1.1. If C represents households and A represents product markets, then the flow from C to A is:

A) revenue.
B) expenditures.
C) products.
D) income.
E) resources.

Question 52

You observe that grocery shoppers choose the shortest line at the checkout. This is an example of:

A) rational self-interest
B) selfishness
C) greed
D) blind materialism
E) altruism

Question 53

Exhibit 1.1

Refer to the circular-flow model in Exhibit 1.1. If A represents product markets, and D represents firms, then the flow from A to D is:

A) revenue.
B) expenditures.
C) labor, capital, and natural resources.
D) goods and services.
E) wages, interest, rent, and profit.

Question 54

The labor market is an example of:

A) the derivatives market.
B) a market in which the natural forces of demand and supply do not operate.
C) a market in which there is no scarcity.
D) a resource market.
E) a product market.

Question 55

In the circular-flow model, households supply all of the following except:

A) labor.
B) goods and services.
C) capital.
D) entrepreneurial ability.
E) natural resources.

Question 56

Exhibit 1.1

Refer to the circular-flow model in Exhibit 1.1. If box C represents households, then box D represents:

A) firms.
B) resource markets.
C) households.
D) product markets.
E) expenditures.

Question 57

The assumption that individuals act rationally implies that people:

A) think only of themselves and disregard the well-being of others.
B) undertake all those activities that do not have any marginal benefit.
C) only consider the costs of an activity to decide whether it is worthwhile.
D) perform charitable deeds only if the cost is high for the benefactor.
E) people implicitly calculate the costs of and the benefits from an activity to decide if it is worthwhile.

Question 58

Households:

A) own and sell resources.
B) play a very minor role in an economy.
C) supply goods and services.
D) are the largest purchasers of resources.
E) set the price for goods.

Question 59

In the circular-flow model, firms demand all of the following except:

A) labor.
B) goods and services.
C) capital.
D) entrepreneurial ability.
E) natural resources.

Question 60

Exhibit 1.1

Refer to the circular-flow model in Exhibit 1.1. Box B represents:

A) firms.
B) resource markets.
C) households.
D) product markets.
E) expenditures.

Question 61

Economists believe that:

A) people who choose to promote the interests of others cannot be acting rationally.
B) people show concern only for those whom they know personally.
C) charitable donations would disappear if tax deductions for charitable giving were eliminated.
D) the notion of self-interest rules out concern for others.
E) concern for the welfare of others is consistent with the concept of self-interest.

Question 62

In economics, marginal analysis:

A) has no practical applications or real-world uses.
B) eliminates incorrect decisions and bad choices.
C) involves comparing the additional costs and additional benefits of an activity.
D) involves examining only the total costs and total benefits of an activity.
E) guarantees an incorrect decision.

Question 63

When economists say that people act as rational decision makers, they mean that:

A) people act on the basis of their instincts.
B) once a pattern of behavior has been established, people tend to become set in their ways.
C) people respond in predictable ways to changes in costs and benefits.
D) people rarely make errors when permitted to make transactions.
E) once made, decisions are never reversed.

Question 64

If the marginal cost of adding a new line of products is $10 million, then Amazon should add the product

A) if marginal costs fall.
B) if marginal benefits fall.
C) if marginal benefits are less than $10 million.
D) if marginal benefits are more than $10 million.
E) if Amazon does not operate at a loss.

Question 65

Economists generally believe that:

A) a rational individual will pursue an activity if the average cost of the activity is equal to the total benefit from it.
B) a rational individual will pursue an activity if the total benefit of the activity is more than the total cost of the activity.
C) a rational individual will pursue an activity if the total cost of the activity is more than the total benefit from it.
D) economic decisions result from random behavior.
E) decision makers never make mistakes.

Question 66

A rational decision maker will make a change only if:

A) the marginal benefit from the change exceeds the average benefit from the change.
B) there are no costs involved.
C) the change increases social welfare.
D) there is no uncertainty about the results of the change.
E) the expected marginal benefit exceeds the expected marginal cost.

Question 67

Rational choice implies:

A) the use of an economic model.
B) making decisions aimed at achieving some predetermined goal.
C) that only monetary costs and benefits are weighed.
D) that the individual will never regret any action taken.
E) that scarcity can be eliminated for that individual.

Question 68

In economics, marginal usually refers to:

A) a small change in an economic variable.
B) a low-quality product or resource.
C) an unimportant and irrelevant economic variable.
D) an all-or-nothing economic decision.
E) a footnote or minor point.

Question 69

Given that consumers need time and information to make good choices, which of the following is correct?

A) Advertising is always harmful to consumers.
B) Time and information are scarce and therefore valuable.
C) Brand names offer no informational content.
D) Acquiring more information is always rational.
E) Marginal analysis does not apply to the acquisition of information.

Question 70

Given that consumers need time and information to make good choices, which of the following is correct?

A) Paying for information is a waste of money.
B) Acquiring more information is always rational.
C) Brand names offer no informational content.
D) Consumers are willing to pay for information that improves choices.
E) Marginal analysis does not apply to the acquisition of information.

Question 71

For an economist, marginal means:

A) incremental.
B) unimportant.
C) level or size.
D) scarcity.
E) inferior.

Question 72

Rational choice takes time and requires information, but time and information are themselves ____.

A) rational choice
B) selfish
C) freely available
D) scarce
E) abundant

Question 73

For a non-economist, marginal means:

A) incremental.
B) unimportant.
C) level or size.
D) scarcity.
E) inferior.

Question 74

Rational decision makers continue to acquire information as long as the additional benefit expected from that information _____ the additional cost of gathering it.

A) is less than
B) exceeds
C) is equal to
D) is the same as
E) is different from

Question 75

You will buy another pair of jeans only if:

A) the marginal benefit from the change exceeds the average benefit from the change.
B) there are no costs involved.
C) the change increases social welfare.
D) there is no uncertainty about the results of the change.
E) the expected marginal benefit exceeds the expected marginal cost.

Question 76

Economists believe that people respond in a predictable way to changes in costs and benefits. This is known as:

A) opportunity cost.
B) scarcity.
C) innovation.
D) marginal analysis.
E) other things equal.

Question 77

You want to sell your old iPad to your cousin, who wants to give you $300 for it. You will have to pay $40 to ship the iPad to your cousin. As a rational decision maker, you should:

A) sell it because the marginal benefit is smaller than the marginal cost.
B) not sell it because the marginal benefit is smaller than the marginal cost.
C) sell it because the marginal benefit is greater than the marginal cost.
D) not sell it because the marginal benefit is greater than the marginal cost.
E) sell it because the marginal benefit is equal to the marginal cost.

Question 78

In economics, _____ means incremental, additional, or extra.

A) benefit
B) marginal
C) causation
D) association
E) optimal

Question 79

Economic ____ usually involves some adjustment to the existing situation.

A) analysis
B) choice
C) information
D) hypothesis
E) self-interest

Question 80

Economic information:

A) is usually scarce and costly to acquire.
B) is usually available free to any decision maker.
C) is usually not required for rational decision making.
D) must be complete before any decision is made.
E) is usually useful only to governments.