Deck 2: Thinking Like an Economist

Question 1

What is one difficulty 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 in economics.

Answer 1

D

Question 2

What does the art of scientific thinking include?

A)knowledge of human behaviour
B)understanding every scientific field-physics, biology, and economics
C)deciding which assumptions to make
D)being able to mathematically express natural forces

Answer 2

C

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

B

Question 4

Which are terms used by an economist?

A)vector spaces and axioms
B)torts and venues
C)ego and cognitive dissonance
D)comparative advantage and elasticity

Question 5

When economists attempt to simplify the real world and make it easier to understand, what do they do?

A)They make assumptions.
B)They make mistakes in judgment.
C)They make predictions.
D)They make evaluations.

Question 6

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

Question 7

Why are historical episodes valuable to economists?

A)They allow economists to see how far the discipline has evolved.
B)Hindsight is always 20/20.
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 8

What happens when economists test theories?

A)They must make do with whatever data the world gives them.
B)They can manipulate economic 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

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

A)Isaac Newton
B)Albert Einstein
C)Sigmund Freud
D)Stephen Hawking.

Question 10

Which is the best statement about the way economists study the economy?

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

Question 11

What observation did Albert Einstein once make about science?

A)"The whole of science is nothing more than the refinement of everyday thinking."
B)"The whole of science is nothing more than an interesting intellectual exercise."
C)"In order to understand science, one must rely solely on abstraction."
D)"In order to understand science, one must transcend everyday thinking."

Question 12

What is the goal of theories?

A)to provide an interesting, but not useful, framework of analysis
B)to provoke stimulating debate 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 13

If Sir Isaac Newton's development of the theory of gravity after observing an apple fall from a tree, what is this an example of?

A)controlled experiments used to develop scientific theories
B)being in the right place at the right time
C)an idea whose time had come
D)the interplay between observation and theory in science

Question 14

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

A)due to the difficulty in evaluating an economic experiment
B)due to the difficulty in devising an economic experiment
C)due to the difficulty in actually performing an experiment in an economic system
D)due to the difficulty in collecting sufficient data

Question 15

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 16

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)A Ph.D. is required to truly understand any science.
D)Both deal primarily with abstract concepts.

Question 17

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 18

What would be the best statement about a theory based on assumptions that are NOT true?

A)If the assumptions underlying the theory are not true, the theory must be false.
B)The ideas may be good in theory, but not in practice.
C)The theory is a good one if it helps us to understand how the world works.
D)The theory is a good one if no logical mistakes were made in developing it.

Question 19

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

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

Question 20

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 21

Which is true about models used by economists?

A)they cannot be useful to economists if they are based on false assumptions
B)they make the economics profession more difficult than necessary
C)they allow economists to learn how the economy works
D)they must include every possible variable in the economy to be useful to economists

Question 22

Why do economists use models?

A)to learn how the economy works
B)to make their profession appear more precise
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 23

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 traffic in an economic region.
D)It explains how banks circulate money in the economy.

Question 24

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 25

Which of the following is NOT true concerning models?

A)Models simplify reality.
B)Models can explain how the economy is organized.
C)Models assume away irrelevant details.
D)Models cannot be used to make predictions.

Question 26

Which of the following is the most accurate statement about 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 27

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

A)firms and government
B)households and firms
C)households and government
D)households, firms, and government

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 on the economy
D)a visual model of the relationship among money, prices, and businesses

Question 29

What is an example of a product that experiences infrequent price changes?

A)stocks on the Toronto Stock Exchange
B)gasoline prices
C)the newsstand price of magazines
D)electricity

Question 30

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 31

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

A)economic policies
B)the legal system
C)assumptions
D)statistical forecasts

Question 32

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 may not be able to reach an appropriate conclusion.

Question 33

When studying the effects of public policy changes, what have economists often observed?

A)There is a difference between the long run and short run.
B)Unemployment and inflation are directly related in the short run.
C)With stock prices, what goes up must come down.
D)If the policy is well-designed, it will always be effective.

Question 34

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)further complicate an already difficult topic
D)allow economists to see the 'big picture' instead of only small segments

Question 35

Which of the following best describes the decision by a scientist of which assumption to make?

A)the easiest part of the scientific method.
B)the flip of a coin.
C)almost impossible.
D)part art.

Question 36

Which of the following is NOT true about most economic models?

A)They are built using the tools of mathematics.
B)They are useful to economists, but not to policymakers.
C)They do not include every feature of the economy.
D)They are built using assumptions.

Question 37

Which is true about the art of scientific thinking?

A)it is easier with a solid mathematical background.
B)it is the ability to make an abstract subject easy to understand.
C)it involves deciding which assumptions to make.
D)it is not necessary to be an economist.

Question 38

What are factors of production?

A)the mathematical calculations firms make to determine production
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 39

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 indirect effects.
D)They can immediately change policies if they are ineffective.

Question 40

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 41

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 42

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 43

What is another term for factors of production?

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

Question 44

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 45

What are 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 used by both firms and households.

Question 46

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 47

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

A)the factors of production market
B)the goods and services market
C)both of the above markets
D)neither of the above markets

Question 48

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 49

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 50

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

A)one type of market
B)two types of markets
C)three types of markets
D)Households and firms do not interact

Question 51

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

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

Question 52

In the simple circular-flow diagram, what do markets consist of?

A)the market for goods and services, the financial market, and the market for the factors of production
B)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 53

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)households and government

Question 54

Which is true in the circular-flow diagram?

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)spending on goods and services flows from firms to households.

Question 55

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 56

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 dollars and the flow of financial assets
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 57

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

A)the goods and services market
B)the factors of production market
C)both of the above markets
D)neither of the above markets

Question 58

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

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

Question 59

Which of the following would NOT be considered a factor of production?

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

Question 60

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 61

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

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

Question 62

The country of Econoland produces two goods, textbooks and widgets. Last year it produced 200 textbooks and 500 widgets. This year it produced 250 textbooks and 600 widgets. Given no other information, which of the following could NOT explain the change?

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

Question 63

Suppose an economy produces two goods, food and machines. This economy always operates on its production possibilities frontier. Last year, it produced 91 units of food and 48 machines. This year, it is producing 92 units of food and 53 machines. 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 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 there are two countries, Freedonia and Sylvania, which have identical amounts of resources, identical technologies, and identical populations. Both produce two types of goods, consumer goods and capital goods, and they both always operate on their production possibilities frontiers. The only difference is that this year Freedonia chooses to produce relatively more consumer goods than Sylvania. What will happen as a result?

A)Freedonia will have a higher living standard this year but will grow slower than Sylvania.
B)Freedonia will have a higher living standard this year and will grow faster than Sylvania.
C)Sylvania will have a higher living standard this year but will grow slower than Freedonia.
D)Sylvania will have a higher living standard this year and will grow faster than Freedonia.

Question 66

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 67

The country of Econoland produces two goods, textbooks and widgets. Last year it produced 300 textbooks and 600 widgets. This year it produced 350 textbooks and 700 widgets. Given no other information, which of the following could NOT explain the change?

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

Question 68

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 69

For what reason 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 is the production possibilities frontier?

A)a map that shows the frontier beyond which agriculture is unprofitable
B)a map that shows areas of the world in which capitalist production is now possible
C)a graph that shows the various combinations of resources that can be used to produce a given level of output
D)a graph that shows the various combinations of output the economy can possibly produce given the available resources and technology

Question 71

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 services

Question 72

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 73

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 74

For what reason 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 one produces more and more of it.
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 75

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

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

Question 76

Suppose there are two countries, Freedonia and Sylvania, which have identical amounts of resources, identical technologies, and identical populations. Both produce two types of goods, consumer goods and capital goods, and they both always operate on their production possibilities frontiers. The only difference is that this year Sylvania chooses to produce relatively more consumer goods than Freedonia. What will happen as a result?

A)Freedonia will have a higher living standard this year but will grow slower than Sylvania.
B)Freedonia will have a higher living standard this year and will grow faster than Sylvania.
C)Sylvania will have a higher living standard this year but will grow slower than Freedonia.
D)Sylvania will have a higher living standard this year and will grow faster than Freedonia.

Question 77

Suppose an economy produces two goods, food and machines. This economy always operates on its production possibilities frontier. Last year, it produced 50 units of food and 30 machines. This year, it is producing 55 units of food and 33 machines. 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 78

Suppose an economy produces two goods, food and machines. This economy always operates on its production possibilities frontier. Last year, it produced 72 units of food and 28 machines. This year, it is producing 75 units of food and 30 machines. 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 79

Figure 2-2
Refer to Figure 2-2. Which is true about money spent by households?

A)it is earned from the sale of factors of production.
B)it becomes profit to firms.
C)it cannot be tracked in the diagram.
D)it is used to purchase factors of production.

Question 80

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 firms' output
D)the value of stock market shares to investors