Deck 1: The Principles and Practice of Economics

Question 1

Which of the following statements is true?

A) Positive economics deals with issues that are subjective.
B) Normative statements depend on personal preferences.
C) Positive economics recommends what people ought to do.
D) Normative economic statements can be confirmed or disproven.

Answer 1

Normative statements depend on personal preferences.

Question 2

Which of the following is an example of a normative economic statement?

A) A cut in the tax rate will lead to an increase in consumption.
B) Relaxation of import duties will encourage imports.
C) An increase in subsidies to farmers will boost agricultural production.
D) An increase in social security benefits will increase the welfare of all economic agents.

Answer 2

An increase in social security benefits will increase the welfare of all economic agents.

Question 3

________ is analysis that generates objective descriptions or predictions about the world that can be verified with data.

A) Positive economics
B) Negative economics
C) Microeconomics
D) Normative economics

Answer 3

Positive economics

Question 4

Which of the following is NOT a scarce resource?

A) Gold
B) Pollution
C) Petroleum
D) iPhones

Question 5

Which of the following statements is true?

A) All economic agents are necessarily individuals.
B) A worker who shirks work is not an economic agent.
C) A government is an example of an economic agent.
D) A street gang is not an economic agent.

Question 6

Which of the following statements is true?

A) Gold is not a scarce resource.
B) Both life-saving drugs and ice cream are examples of scarce goods.
C) If a scarce resource is given away for free, everyone will be able to consume it.
D) Scarcity means that there is an imbalance between unlimited resources and limited wants.

Question 7

Differentiate between positive and normative economics using examples.

Question 8

In economics,scarcity refers to the situation of ________.

A) making the best use of limited information
B) having more wants than the amount of available resources
C) the government rationing available goods and services
D) sellers setting the prices of their products too high for people to be able to afford them

Question 9

Which of the following is an example of a normative economic statement?

A) An increase in government expenditure will lead to an increase in well-being.
B) An increase in the money supply will lead to an increase in the inflation rate.
C) An increase in income is accompanied by an increase in savings.
D) An increase in income is accompanied by an increase in consumption.

Question 10

Economics is primarily the study of ________.

A) the mental functions and behavior of individuals and groups
B) the state, nation, government, and politics and policies of governments
C) the problems related to the existence and evolution of society
D) how agents choose to allocate scarce resources and how these choices affect society

Question 11

Which of the following statements correctly differentiates between positive and normative economics?

A) Positive economics is descriptive, whereas normative economics is advisory.
B) Positive economics describes what people ought to do, whereas normative economics describes what people actually do.
C) Positive economics is based on judgments, whereas normative economics is not.
D) Positive economics can only be applied to microeconomics, whereas normative economics can be applied to both microeconomics and macroeconomics.

Question 12

Define economics.Who are economic agents?

Question 13

Which of the following best describes scarce resources?

A) Resources that most people cannot afford to buy
B) Resources that can only be distributed efficiently by the government
C) Resources for which the quantity demanded is the same for all economic agents
D) Resources for which the quantity that people want exceeds the quantity that is freely available

Question 14

Positive economics is descriptive because ________.

A) it is based on ethical judgments.
B) its predictions cannot be verified with data.
C) it prescribes what an individual or society ought to do.
D) it explains what has happened or predicts what will happen.

Question 15

Which of the following statements is true?

A) Positive economics describes what people ought to do.
B) Normative economics describes what people actually do.
C) Positive economics generates objective descriptions that can be verified with data.
D) Normative economics is free from the value judgments, tastes, and preferences of economic agents.

Question 16

Which of the following is an example of a positive economic statement?

A) The pricing policies followed in single-producer markets should be strictly supervised.
B) Unemployment is more harmful than inflation.
C) Higher interest rates will encourage more savings.
D) Pollution is one of the most serious economic problems.

Question 17

Which of the following is an example of a positive economic statement?

A) The government should ideally work as a welfare state.
B) An increase in income causes an increase in savings.
C) Economics is the most useful social science.
D) Eliminating poverty is more important than reducing inflation.

Question 18

________ economics prescribes what an individual or society ought to do.

A) Positive
B) Negative
C) Behavioral
D) Normative

Question 19

What are scarce resources? Why are economic agents concerned with the allocation of these resources?

Question 20

Economics is primarily the study of ________.

A) the relationship between matter and its motion
B) agents' choices and their impact on society
C) events of the past and how these events affect present human behavior
D) the different types of governments and the impact of their policies on a nation

Question 21

Empiricism is analysis that uses ________ to test theories.

A) data
B) illustrations
C) philosophy
D) value judgments

Question 22

The relationship between a firm's advertising expenditure and its profit is studied under ________.

A) microeconomics
B) macroeconomics
C) behavioral economics
D) international economics

Question 23

Which of the following is a topic studied by macroeconomists?

A) Aggregate demand in an economy
B) Price determination by a firm
C) The consumption choice of a single household
D) The production decision of a firm

Question 24

________ is the study of how individuals,households,governments,and firms make choices and how those choices affect prices,the allocation of resources,and the well-being of other agents.

A) Cost-benefit analysis
B) Microeconomics
C) Macroeconomics
D) Empiricism

Question 25

Why an economy contracts during slowdowns and the analysis of appropriate policies is studied under ________.

A) macroeconomics
B) microeconomics
C) agricultural economics
D) international economics

Question 26

________ is the study of an economy as a whole.

A) Microeconomics
B) Cost-benefit analysis
C) Behavioral economics
D) Macroeconomics

Question 27

Which of the following is a topic studied by microeconomists?

A) National income calculations
B) Price determination by a firm
C) Measures to combat inflation
D) Interest rate determination

Question 28

Which of the following is a topic studied by microeconomists?

A) Energy consumption by a firm
B) Nationwide inflation rate
C) Economic growth as a means to alleviate poverty
D) Aggregate demand and aggregate supply in an economy

Question 29

Classify the following as positive economics statements or normative economics statements.
a)An increase in an individual's income increases consumption,but by an amount less than the increase in income.
b)The government should undertake the responsibility of providing healthcare to all its citizens.
c)The government should fund infrastructure projects to foster economic development.
d)An increase in net exports has a positive effect on a country's national income.
e)The gross domestic product of India is increasing at 5 percent annually.

Question 30

Robert and Janet are discussing the unemployment and inflation in their country.Robert,on the basis of a recent newspaper report,claims that a 5 percent reduction in unemployment will lead to a 2 percent rise in inflation.In contrast,Janet insists that inflation is a far bigger problem than unemployment and should be considered as of prime importance.Classify Robert's and Janet's statements as descriptive or advisory.Explain your answer.

Question 31

Which of the following statements correctly highlights the difference between microeconomics and macroeconomics?

A) Microeconomics is descriptive, whereas macroeconomics is advisory.
B) Microeconomics primarily deals with positive analysis, whereas macroeconomics primarily deals with normative analysis.
C) Microeconomics deals with a small part of the economy, whereas macroeconomics deals with aggregate economic performance.
D) Microeconomics describes what economic agents actually do, whereas macroeconomics describes what economic agents ought to do.

Question 32

Which of the following statements is true?

A) Microeconomics is the study of an economy as a whole.
B) Macroeconomics studies how individuals make choices.
C) The study of the inflation rate is covered under microeconomics.
D) The study of the unemployment rate is covered under macroeconomics.

Question 33

A recent news report stated that the unemployment rate in the country of Lithasia had increased from 10.2 percent to 18.2 percent between 2003 and 2013 and that the government has adopted strict fiscal measures to expand employment.Would this report be considered microeconomic or macroeconomic analysis?

Question 34

Which of the following is a topic studied by macroeconomists?

A) The savings of a single household
B) The productivity of an agricultural farm
C) The total output of an economy
D) Price determination in a market

Question 35

Which of the following best describes equilibrium?

A) A situation where the government intervenes to allocate resources
B) A situation where only one individual or firm makes an optimal decision
C) A situation where no economic agent would benefit by changing his or her behavior
D) A situation where economic agents do not optimize as they do not have perfect information

Question 36

The relationship between the unemployment rate and inflation is studied under ________.

A) microeconomics
B) macroeconomics
C) behavioral economics
D) international economics

Question 37

Which of the following correctly defines the term "equilibrium"?

A) It refers to a situation in which data are used to arrive at conclusions.
B) It refers to a situation in which all economic agents are simultaneously optimizing.
C) It refers to a situation in which an optimizing decision is made by an individual economic agent.
D) It refers to a situation in which government intervention efficiently allocates scarce resources.

Question 38

How does microeconomics differ from macroeconomics?

Question 39

The impact of carbon taxes on the energy usage of individual households and firms is studied under ________.

A) microeconomics
B) macroeconomics
C) normative economics
D) positive economics

Question 40

Students in a class are discussing how a firm that does not face any competition in a market should decide how many units of output to supply in the market.Would this discussion be considered microeconomic or macroeconomic analysis?

Question 41

Which of the following statements is true?

A) Rational economic agents maximize more than just monetary income.
B) An individual does not require information to make optimal decisions.
C) The principle of optimization is only accurate when it comes to making monetary decisions.
D) It is not necessary to consider the risks of alternatives while making an optimal decision.

Question 42

A decision or choice that is made after optimization analysis ________.

A) has zero opportunity cost
B) is not necessarily risk free
C) is the same for all individuals
D) cannot be justified using normative analysis

Question 43

The best alternative use of a resource is referred to as its ________.

A) optimization cost
B) market price
C) social cost
D) opportunity cost

Question 44

A consumer has $20 that he wants to spend on two goods: pens priced at $2 each and pencils priced at $1 each.Which of the following correctly represents his budget constraint?

A) $20 = ($2/Quantity of pens) + ($1/Quantity of pencils)
B) $20 = ($2 × Quantity of pens) + ($1 × Quantity of pencils)
C) $20 = ($3/Quantity of pens + Quantity of pencils)
D) $20 = $3 × (Quantity of pens - Quantity of pencils)

Question 45

Define opportunity cost.A student who has just graduated from college has three job offers: the first job pays $35,000 a year,the second job pays $23,000 a year,and the third one pays $15,000 a year.What is the student's opportunity cost of taking the first job?

Question 46

Which of the following statements is true?

A) Optimization requires individuals to foresee the future perfectly.
B) An optimizing individual need not consider the risks involved in various choices.
C) An optimizing individual is also likely to exhibit rationality.
D) The less information that is available, the easier it is to make optimal decisions.

Question 47

A budget constraint represents the ________.

A) total money income that an agent earns in different time periods
B) goods and services an economic agent can choose given her limited income
C) inequality in the incomes earned by various economic agents
D) aggregate income earned by all firms in an economy

Question 48

Which of the following statements is true?

A) All rational economic agents attempt to maximize their income.
B) A rational consumer makes his decisions depending on what the majority chooses.
C) A budget constraint is an economic tool that quantifies the trade-off between the consumption of two goods.
D) A trade-off refers to the exchange of goods between economic agents through the barter system or mutual exchange.

Question 49

Why do trade-offs occur? How are budget constraints related to trade-offs?

Question 50

Which of the following is NOT a key principle of economics?

A) Optimization
B) Equilibrium
C) Empiricism
D) Substitution

Question 51

A student has two options: she can either surf the web or work part-time.Working part-time pays her $20 per hour.What is the student's opportunity cost of surfing the web for 5 hours?

A) $4
B) $20
C) $50
D) $100

Question 52

Define the three key principles of economics.

Question 53

A consumer has $50 to spend.He has to decide between buying two goods: magazines priced at $5 each and DVDs priced at $10 each.Which of the following combinations of the two goods will entirely exhaust his budget constraint?

A) 3 magazines and 4 DVDs
B) 2 magazines and 4 DVDs
C) 6 magazines and 1 DVD
D) 2 magazines and 2 DVDs

Question 54

Feasible options are options that are ________.

A) available and affordable
B) available but not affordable
C) affordable but not available
D) optimal for an economic agent

Question 55

Which of the following correctly identifies the trade-off that a budget constraint represents?

A) The amount of income that must be given up to obtain an additional unit of a good
B) The maximum amount of two goods that a consumer can purchase given his income
C) The optimum combination of goods that a consumer with a given income should purchase
D) The amount of one good that has to be given up to purchase an additional unit of the other good

Question 56

John has to choose between two jobs: one that offers him $50 per hour and one that offers him $35 per hour.The opportunity cost of choosing the job that offers him $50 per hour is ________.

A) $1.5 per hour
B) $15 per hour
C) $35 per hour
D) $85 per hour

Question 57

Which of the following statements is true?

A) A budget constraint remains the same for a consumer at all levels of income.
B) A budget constraint quantifies the trade-offs that economic agents face while making decisions.
C) A budget constraint is a function of the income of the consumer and not of the prices of the goods and services available for consumption.
D) A budget constraint is based on the minimum amount of money that an economic agent can spend on goods and services.

Question 58

Which of the following statements is true of optimization?

A) Optimization analysis only relates to the financial budget of an economic agent.
B) Individuals who optimize do not consider costs when choosing the most feasible alternative.
C) Economic agents can optimize only when they are able to perfectly estimate all future costs and benefits.
D) Economic agents who optimize attempt to choose the best feasible option, given the information that they have.

Question 59

An individual has 8 hours to spare.She has to divide her time between two activities: reading and writing.Which of the following allocations will completely exhaust the individual's budget?

A) 3 hours of reading and 4 hours of writing
B) 4 hours of reading and 6 hours of writing
C) 2 hours of reading and 2 hours of writing
D) 5 hours of reading and 3 hours of writing

Question 60

A consumer has $40 that he wants to spend.He faces four choices: a camera that costs $60,a cell phone that costs $150,a book that costs $10,and a Bluetooth speaker that costs $45.Which of the following is a feasible option for the consumer?

A) The book
B) The camera
C) The cell phone
D) The Bluetooth speaker

Question 61

The following table shows the various combinations of rugs and chairs that the consumer can buy with $100:

Suppose workers decide to work more and consume less leisure when their hourly wage rate increases.What could explain this behavior?

Question 62

If a particular choice that an individual faces gives him a benefit of $20 but costs $30,the net benefit from making this choice equals ________.

A) $20
B) $10
C) −$10
D) −$30

Question 63

Maria has to choose between driving and taking a train to destination A. Traveling by train will cost her $400 and will take 4 hours. Driving to destination A takes 6 hours, and the required amount of gasoline costs $250. Her opportunity cost of time is $15 per hour.
Refer to the scenario above.Maria should choose to ________.

A) drive, as it will save her $120
B) travel by train, because it is quicker
C) drive, as it will give her a real saving of $150
D) travel by train, as it will save her $30 in travel time

Question 64

Maria has to choose between driving and taking a train to destination A. Traveling by train will cost her $400 and will take 4 hours. Driving to destination A takes 6 hours, and the required amount of gasoline costs $250. Her opportunity cost of time is $15 per hour.
Refer to the scenario above.If the opportunity cost of time increases to $80 per hour,which of the following statements is true?

A) Maria should choose to drive, as it saves her $10.
B) Maria should choose to drive, as it saves her $150.
C) Maria should choose to travel by train, as it saves her $10.
D) Maria should choose to travel by train, as it saves her $150.

Question 65

Kevin has a lot of free time,and he decides to pick up a new hobby.He has two options-he can take art classes or sign up for cooking classes.He estimates that the art classes would cost him $70 and would provide him with a benefit of $100.In contrast,the cooking classes would cost him $120 but provide him benefits worth $160.Use cost-benefit analysis to arrive at the optimum choice for Kevin.

Question 66

What is cost-benefit analysis? What are the steps involved in using cost-benefit analysis to make the optimal choice?

Question 67

Cost-benefit analysis requires ________.

A) choosing the alternative with the least net benefit
B) that all costs and benefits be measured in the same unit
C) evaluating the budget constraint before making a choice
D) that the risks associated with different alternatives be ignored

Question 68

If a job pays a wage of $50 per hour,but has a non-wage cost valued at $20 per hour,the net benefit of taking the job equals ________.

A) $2.5 per hour
B) $20 per hour
C) $30 per hour
D) $70 per hour

Question 69

Out of a set of feasible alternatives,an optimizer should choose the alternative with the ________.

A) highest net benefit
B) highest opportunity cost
C) lowest total cost, regardless of benefit
D) highest total benefit, regardless of cost

Question 70

The following table shows the various combinations of rugs and chairs that the consumer can buy with $100:

Sam pays $600 for 30 days of guitar classes.He attends an hour-long class every day.If,instead of attending class,he works at a part-time job,he would be paid $5 an hour.Alternatively,he could work at a fast-food outlet and earn $9 per hour.Once he has already paid a nonrefundable fee of $600 to enroll in the class,what is his opportunity cost of attending each hour of class?

Question 71

Maria has to choose between driving and taking a train to destination A. Traveling by train will cost her $400 and will take 4 hours. Driving to destination A takes 6 hours, and the required amount of gasoline costs $250. Her opportunity cost of time is $15 per hour.
Refer to the scenario above.If Maria's opportunity cost of time increases to $80 per hour,the cost of taking the train is ________.

A) $320
B) $720
C) $800
D) $970

Question 72

Maria has to choose between driving and taking a train to destination A. Traveling by train will cost her $400 and will take 4 hours. Driving to destination A takes 6 hours, and the required amount of gasoline costs $250. Her opportunity cost of time is $15 per hour.
Refer to the scenario above.If Maria borrows her parents' car and pays for only the gasoline,what is her total cost of driving to destination A?

A) $90
B) $250
C) $300
D) $340

Question 73

Suppose that Jinelle,an engineer,has to choose between two jobs.Which of the following statements is true?

A) When deciding between jobs, she should consider both the wage and the non-wage attributes of each job.
B) When deciding between jobs, she should focus only on the costs of each job and ignore the benefits.
C) When deciding between jobs, she should only focus on the benefits of each job and ignore the costs.
D) When deciding between jobs, she should consider the wage attributes and ignore the non-wage attributes of each job.

Question 74

Which of the following statements is true?

A) A rational economic agent is not likely to optimize.
B) Cost-benefit analysis can also be used for normative economic analysis.
C) Cost-benefit analysis does not yield the same result as optimization analysis.
D) The net benefit of an option that costs $50 and provides a benefit of $100 is equal to $150.

Question 75

Maria has to choose between driving and taking a train to destination A. Traveling by train will cost her $400 and will take 4 hours. Driving to destination A takes 6 hours, and the required amount of gasoline costs $250. Her opportunity cost of time is $15 per hour.
Refer to the scenario above.If Maria's opportunity cost of time increases to $80 per hour,the cost of driving to destination A is ________.

A) $480
B) $730
C) $800
D) $970

Question 76

A consumer has a monthly income of $100 that he wants to spend on two goods: rugs priced at $10 and chairs priced at $5.What is the consumer's opportunity cost of buying a rug? What is his opportunity cost of buying a chair? Use a table to represent the consumer's budget constraint.

Question 77

________ is a calculation that adds up the costs and benefits using a common unit of measurement,like dollar values.

A) Cost-benefit analysis
B) Revenue-income analysis
C) Budget constraint analysis
D) Expenditure-income analysis

Question 78

The net benefit of a particular alternative equals ________.

A) the benefits received from the alternative plus the costs incurred when choosing the alternative
B) the benefits received from the alternative divided by the costs incurred when choosing the alternative
C) the costs incurred when choosing the alternative divided by the benefits received from the alternative
D) the benefits received from the alternative minus the costs incurred when choosing the alternative

Question 79

Maria has to choose between driving and taking a train to destination A. Traveling by train will cost her $400 and will take 4 hours. Driving to destination A takes 6 hours, and the required amount of gasoline costs $250. Her opportunity cost of time is $15 per hour.
Refer to the scenario above.What is the total cost involved if Maria chooses to travel by train?

A) $60
B) $400
C) $420
D) $460

Question 80

Wendy has to decide between taking a flight and driving to California.Air tickets cost $800 and will get her to California in 2 hours.If she decides to drive,she would need $300 worth of gasoline and 10 hours to reach her destination.Suppose Wendy's opportunity cost of time is $20 per hour.
a)Assuming that there are no other costs involved,use cost-benefit analysis to decide whether she should fly or drive to California.
b)If Wendy has an important business meeting to attend and this increases her opportunity cost of time to $200 per hour,will her optimum decision change? Explain.