Deck 1: The Role and Method of Economics

Question 1

As resources are abundant, we do not have to make choices about their use.

Answer 1

False

Question 2

Economists assume that most individuals act as if they are motivated by self-interest and respond in predictable ways to changing circumstances.

Answer 2

True

Question 3

A hypothesis is a normative statement​

Answer 3

False

Question 4

Most disagreements among economists stem from normative issues.

Question 5

Ceteris paribus is a Latin expression that means "holding everything else constant."​

Question 6

The fallacy of composition states that even if something is true for an individual, it is not necessarily true for many individuals as a group.

Question 7

To an economist, individuals act rationally if they strive to do their best to achieve their goals

Question 8

Self-interest can never include benevolence

Question 9

It is possible to completely eliminate scarcity.

Question 10

Economists presume that while making a decision, individuals consider both the current action and the expected future consequences of that action.

Question 11

Normative analysis focuses on statements that can be tested against data.

Question 12

Scarcity forces us to choose, and choices are costly because we must give up other opportunities that we value.

Question 13

Tractors, shovels, copy machines, and computer programming expertise are all examples of scarce resources.

Question 14

When two variables repeatedly change at the same time, there must be a causal relationship between them.

Question 15

. It is possible to predict with certainty how a given individual will respond to a price change.

Question 16

At the time of making their choices, people typically know with certainty which choice is best.

Question 17

Wealthy consumers do not have to make decisions on what to buy or how much to save.

Question 18

Economists believe that human behavior cannot be explained and predicted by assuming that most people act as if they are motivated by their own self-interest.

Question 19

To be a positive economic statement, an assertion must be true.

Question 20

Economic models are of very limited use since they cannot be tested empirically.

Question 21

If a university begins a policy of permanently expelling any student caught cheating in any way, you would expect that:

A)no students would cheat.
B)fewer students would cheat.
C)there would be no difference in the amount of cheating.
D)the enrollment of students would triple
E)the enrollment of students would double

Question 22

Economics is the study of:​

A)Economics is the study of:
B)limited desires pursuing unlimited resources.
C)the production and the distribution of goods in a world with limited resources.
D)the evolution of society and human behavior over the ages.
E)the psychological aspect of economic decision making.

Question 23

Scarcity is:

A)a problem only in modern industrialized economies.
B)a problem only in underdeveloped economies
C)a problem only in centrally planned economies.
D)a problem that necessitates tradeoffs
E)a problem that can only be eliminated by the government

Question 24

When making decisions, economists believe that individuals act rationally if they:

A)seek to improve their own situations and do not try to anticipate the future consequences of their actions.
B)only pursue the goals of the community.
C)seek to improve their own situations.
D)always choose alternatives that offer the greatest financial reward.
E)always choose alternatives that offer the greatest financial reward

Question 25

From an economist's perspective, which of the following observations is not true?

A)Self-interest is purely monetary in nature​
B)Self-interest can include benevolence
C)Self-interest is a good predictor of human behavior in most situations
D)Self-interest is not the same as selfishness
E)Self-interest makes people respond in predictable ways.

Question 26

Which of the following forces us to choose among alternatives?

A)Marginal utility
B)Scarcity
C)Deflation
D)Rational ignorance
E)The fallacy of composition

Question 27

The problem of scarcity:

A)exists because resources are limited relative to wants.
B)exists because wants are limited relative to resources.
C)can be eliminated through appropriate government intervention in markets.
D)does not exist in communist societies.
E)does not exist in a barter economy.

Question 28

Individuals:​

A)respond to incentives in predictable ways.
B)increase the level of an activity in response to negative incentives.
C)decrease the level of an activity in response to positive incentives
D)respond to incentives in unpredictable ways.
E)offer more help when the cost of helping others is high.

Question 29

Suppose the government decides to impose a tax on each child born. Then, it is likely that:

A)families would have the same number of children, but parents would wait longer to start a family.
B)more children would be born, with substantial age gaps between them.
C)more children would be adopted
D)fewer children would be born.
E)families would have the same number of children, but parents would not wait long to start a family.

Question 30

Scarcity:

A)occurs only in command economies​
B)can be eliminated by technological progress.
C)exists only in capitalist economies
D)occurs if there are insufficient resources to provide for all human wants
E)can be eliminated by investment in human capital.

Question 31

A tax cut will lead to higher inflation. This is an example of a positive economic statement.

Question 32

A person behaving rationally will:

A)always avoid illegal actions.
B)explain or rationalize his or her decision
C)refrain from normative analysis and base his or her decisions on facts.
D)consider the future consequences of his or her behavior.
E)never face scarcity

Question 33

Economists believe that individuals:

A)aim to maximize social welfare.
B)aim to maximize their material consumption.
C)are motivated by self-interest and rational behavior
D)are motivated by altruism and selflessness.
E)always ensure an efficient allocation of resources in the market economy.

Question 34

Economists believe that individuals:

A)are motivated primarily by the opinions of their peers.
B)can eradicate scarcity by acting rationally
C)respond in predictable ways to changing circumstances.
D)are concerned only about the welfare of the community and ignore their self-interest.
E)can eradicate scarcity by limiting their demands. ​

Question 35

When economists speak of markets, they primarily refer to:

A)the places where the exchange of services takes place
B)those locations where the stocks and bonds of corporations are bought.
C)the mechanisms that coordinate the actions of buyers and sellers.
D)the foreign exchange markets where trillions of dollars change hands.
E)the goods market where tangible products are bought and sold.

Question 36

Which of the following is an example of a positive incentive?

A)Jim expects to be grounded if his grades slip below a B average
B)Sam expects to receive a scholarship if his grades remain high.
C)Desserts will be unavailable at the cafeteria if you arrive after 7:00 p.m​
D)The college campus police institutes a policy of impounding cars parked in delivery zone spaces.
E)Sam chooses piano lessons over martial arts classes.

Question 37

Economists assume that when people act rationally they:

A)make decisions based on complete and accurate information
B)make decisions that they will not regret later on.
C)make decisions based on what they believe is best for themselves, using available information.
D)make decisions based on what they believe is best for themselves, using available information..
E)make decisions that cannot be altered in the future.

Question 38

Incorrect. Economics is the study of the choices we make among our many wants and desires given our limited resources.

A)typically uses controlled experiments to learn about consumer and firm behavior.
B)uses models that cannot be tested empirically because of the complex nature of the economy.
C)explores how choices are made between conflicting wants and desires in a world of scarcity.
D)relies entirely on normative analysis to validate all hypotheses.
E)relies entirely on empirical analysis to validate all hypotheses.

Question 39

The central question in economics is how to:

A)regulate the supply of money in an economy.
B)make the best use of scarce resources to satisfy our unlimited wants.
C)reduce the demands of individuals, businesses, and governments.
D)find more resources to satisfy everyone's wants.
E)restrict the role of the government in economic activities.

Question 40

Several political leaders have proposed that parents be granted a substantially large reduction in their annual personal income taxes for each child that they parent. The economic logic behind this type of legislation is that:

A)it will make it more expensive for parents to provide for their children
B)it will increase the cost of education and, therefore, lead to a reduction in the birth rate
C)it will reduce the after-tax cost of raising children and, therefore, increase the birth rate.
D)it will have no impact on either the cost of raising children or the birth rate because parenting children is a non-economic activity.
E)it will increase the after-tax cost of raising children and, therefore, decrease the birth rate.

Question 41

The simple circular flow model shows that workers and the owners of land and capital offer their resources through:

A)product markets
B)factor markets.
C)money markets.
D)the government.
E)foreign exchange markets.

Question 42

The circular flow of economic activity is a model that shows:​

A)the exchange of goods, services, and income between households and firms
B)the influence of government on the level of economic activity in a country.
C)the role of labor unions and government in the economy
D)the interaction among taxes, prices, and profits in an economy.
E)the taxes levied by the government and the revenue earned by the government.

Question 43

Refer to the figure given below. Payments for goods and services:Figure 1-1

A)flow in a clockwise direction.
B)flow in a counterclockwise direction
C)are received by firms in the factor market
D)are received by households in the factor market
E)are received by households in the product market.

Question 44

Market failure occurs when

A)stock markets crash because of the heavy selling of equities.
B)an economy fails to allocate resources efficiently on its own
C)consumer demand shows signs of slowing down​
D)an economy cannot produce a good or service at a lower opportunity cost than others.
E)there is a scarcity or surplus of goods in a market.

Question 45

Government price controls:​

A)undermine the market's ability to communicate relative scarcities to buyers and sellers.
B)always impose a cost on the people they try to assist
C)always force prices above what they would be in a market economy.
D)always force prices below what they would be in a market economy
E)result in increased market efficiency.

Question 46

Economics is different from other disciplines like physics because:

A)economists do not use mathematical calculations to prove their theories.
B)economics is easier to study than physics.
C)economists must explain their theories to policy makers who lack formal mathematical training.
D)economists cannot easily control all the variables that might influence human behavior.
E)economists must prove their hypothesis based on normative analysis.

Question 47

A good economic theory:

A)must be based on assumptions
B)explains economic behavior and predicts well.
C)can always be proved by past economic events.
D)always provides a highly detailed analysis of an economic sector.
E)must be based on rigorous mathematical calculations.

Question 48

The simple circular flow model shows that:

A)firms are the suppliers of resources and the buyers of products.
B)households are the suppliers of products and the buyers of resources.
C)households are the buyers of products and the suppliers of resources.
D)firms are the suppliers of both resources and products.
E)firms demand both resources and products.

Question 49

In a market system, one symptom of market failure is:

A)competition
B)falling prices
C)scarcity of resources.
D)air pollution.
E)surplus.

Question 50

The circular flow model shows that

A)households receive income from businesses in exchange for providing inputs and use the income to buy goods and services from businesses.
B)businesses receive rent from households in exchange for providing goods and services and use the income to buy inputs from households
C)households receive revenue for selling goods and services to businesses and use the revenue to buy inputs from businesses.
D)businesses receive revenue for providing inputs to households and use the revenue to buy goods and services.
E)businesses receive wages and interest, which they use to invest for the growth of an economy as a whole.

Question 51

An economic theory

A)always includes every detail that affects the economic behavior of individuals
B)often relies on simplifying assumptions in order to explain economic behavior.
C)is rigid in its approach and does not change with changes in empirical evidence.
D)arrives at a conclusion only after conducting controlled experiments
E)always nullifies empirical evidence.

Question 52

In a market system, decisions about how to allocate resources are made:

A)by central planning boards in each industry.
B)by a lottery system
C)by individuals and firms interacting in markets coordinated by market prices.
D)by large conglomerates working cooperatively with the government.
E)by cartels of the largest firms in an economy.

Question 53

A decrease in the price of corn signals to consumers and producers that:

A)consumers are buying more corn than before.
B)corn is relatively more abundant than before.
C)corn is relatively less abundant than before.
D)producers are stocking up on corn.
E)producers are more willing to supply corn in the current period.

Question 54

An economic theory is tested by:

A)assessing the realism of its assumptions.
B)polling economists to see if there is consensus on the validity of the hypothesis.
C)comparing and contrasting its simplicity with other related theories.
D)comparing its predictions with real-world data
E)polling the general public to see if people agree with the theory. ​

Question 55

An economic theory:

A)should be as detailed as possible in order to model the complexity of an economy.
B)is an abstraction from reality.
C)is only useful if it is based on assumptions and mathematical calculations.
D)should be based on observable facts and events
E)is based on controlled experimentation

Question 56

An economic hypothesis:

A)can be tested using empirical analysis.
B)can be tested using normative analysis.
C)cannot be tested since it is normative in nature.
D)cannot be tested since it is a positive economic statement.
E)cannot be tested using empirical analysis.

Question 57

A hypothesis is a:

A)normative economic statement
B)testable proposition.
C)statement that cannot be evaluated using real-world data.
D)model with no connection to the real world.
E)positive economic statement.

Question 58

Refer to the figure given below. Goods and services:​Figure 1-1

A)flow in a clockwise direction.
B)flow in a counterclockwise direction.
C)are sold by businesses in the factor market.
D)are sold by households in the factor market
E)are sold by households in the product market.

Question 59

The circular flow model indicates that:​

A)households demand resources
B)firms demand final products
C)firms demand resources.
D)households supply goods and services.
E)firms supply resources.

Question 60

Which of the following serves as the language of the market system?

A)Fiscal policies​
B)Monetary policies
C)Market prices​
D)Governments
E)Exchange rates

Question 61

Which of the following statements best illustrates the fallacy of composition?

A)If I stand up at a baseball game, I will be able to see the game better; if everybody stands up, everyone will be able to see the game better
B)If I stand up at a baseball game, I will be able to see the game better; if everybody stands up, everyone will be able to see the game better.
C)If I purchase fewer tickets at a baseball game, I will save money; if everybody purchases fewer tickets, they can all save money.
D)If I yell more during a baseball game, it will be loud; if everybody yells more during the game, it will be much louder
E)If I support the Red Sox, the team will win; if everybody in Boston supports the Red Sox, the team will win all the matches

Question 62

Which of the following is a statement of positive economics?

A)New tax laws are needed to help the poor.
B)Teenage unemployment should be reduced.
C)We should increase Social Security payments to the elderly
D)An increase in tax rates will reduce unemployment.
E)The poorest quintile of the population should receive 10 percent of total income.

Question 63

Economic theory asserts that manufacturers are willing to sell fewer units of output as the price of a good decreases, ceteris paribus. However, as the price of computers decreased throughout the 1990s, more computers were sold. Which of the following best explains the apparentconflict between theory and data

A)The theory must be invalid.
B)The theory was based on assumptions that were too simplistic.
C)It is likely that variables other than the price and the quantity of computers sold had changed
D)All variables other than the price and the quantity of computers sold were unchanged.
E)The empirical evidence gathered to support the theory was manipulated.

Question 64

When one basketball team spends a large sum of money acquiring better players, it is better off. If all teams do the same thing, all of them will be better off." These statements demonstrate:

A)the fallacy of composition
B)the fallacy that association is causation.
C)a misunderstanding of the direction of causality.
D)the ceteris paribus condition
E)the rational expectations theory.

Question 65

The term ceteris paribus means that:

A)the causal relationship between two economic variables cannot be determined.
B)an analysis is true for the individual but not for the economy as a whole.
C)all other variables except the ones specified are assumed to be constant
D)conclusions are based on normative rather than on positive economic analysis.
E)one variable causes another to occur if certain conditions are satisfied.

Question 66

Which of the following statements best illustrates the fallacy of composition?

A)If the price of a product increases, the quantity of the product supplied will decline, ceteris paribus.
B)The average wage rate tends to increase at approximately the same rate as inflation; hence, wage increases must cause inflation.
C)Resources are scarce; therefore, there is no such thing as a free lunch.
D)If I talk loudly at a party, I have a better chance of being heard by my listeners; if everyone at the party talks loudly, everyone can be heard more clearly.
E)If the price of a product increases, the quantity of the product supplied will increase, ceteris paribus.

Question 67

The importance of the ceteris paribus assumption is that it:

A)allows one to separate normative economic issues from positive economic ones.
B)allows one to generalize from the whole to the individual.
C)allows one to analyze the relationship between two variables apart from the influence of other variables
D)allows one to hold all variables constant so that an economy can be carefully observed in a suspended state.
E)allows one to generalize from the individual to the whole.

Question 68

Which of the following is true of hypothesis and theory?

A)They are interchangeable terms meaning the same thing
B)A hypothesis may result from a tested and confirmed theory.
C)A theory may result from a tested and confirmed hypothesis.
D)A hypothesis is a theory whose formulation relies on mathematics.
E)They are economic terms with opposite meanings.

Question 69

A leading game console manufacturer reduces the price of its flagship product by 10 percent. Holding other things such as income and preferences constant, which of the following is the most likely group behavior prediction?

A)The price reduction will have no impact on purchase patterns.
B)The price reduction will be associated with a reduction in quality.
C)The price reduction will increase the quantity of game consoles demanded.
D)Group behavior cannot be predicted for consumer goods
E)Group behavior can be predicted for consumer goods only if the ceteris paribus assumption does not hold.

Question 70

Which of the following statements best illustrates the fallacy of composition?​

A)If I have more money, I will be better off; if we all had more money, we l would all be better off.
B)If the sale of women's clothing is higher this year, the Dow Jones Industrial Average will fall.
C)If I spend more time studying, I will get good grades; if all students spend more time studying, they will all get good grades.
D)If the sale of women's clothing is higher this year, the Dow Jones Industrial Average will fall
E)If the sale of men's clothing is lower this year, the Dow Jones Industrial Average will rise.

Question 71

Which of the following is a difference between positive economics and normative economics?

A)Positive economics helps us understand an economy's response to a particular policy, while normative economics reflects value judgments.
B)Positive economics helps us understand the positive effects of a policy change, while normative economics helps us understand the negative results of a policy change.
C)Positive economics is a branch of microeconomics, while normative economics is a branch of macroeconomics
D)Positive economics is a branch of macroeconomics, while normative economics is a branch of microeconomics.
E)Positive economics is used by economists to evaluate the performance of an economy, while normative economics is used by governments to formulate economic policies.

Question 72

Which of the following is a statement of positive economics?

A)Income tax reduces the after-tax income of the rich.
B)A reduction in tax rates makes the after-tax distribution of income fair.
C)A reduction in tax rates makes people work more.
D)People should involve themselves in charitable works.
E)People above the age of 60 should stop working more and take more vacations.

Question 73

Suppose it is observed in a school that students who sit at the back of a classroom, on average, receive lower grades in economics than the rest of the class. This leads to the teachers at the school assuming that sitting at the back rows leads to lower grades. This is an example of:

A)the fallacy of composition.
B)the ceteris paribus assumption.
C)mistaking correlation for causation
D)normative analysis.
E)marginal analysis.

Question 74

Economists prefer:

A)measuring declared preferences for forecasting because participants in a survey always declare the truth.
B)measuring revealed preferences because it gives more accurate results.
C)predicting individual behavior as it is easy to collect data from individuals.
D)predicting individual behavior as it is easy to draw inferences from such data.
E)measuring revealed preferences because cost-benefit analysis can be conducted with such data

Question 75

The fallacy of composition is essentially the error of:

A)confusing association with causation
B)confusing normative economics with positive economics.
C)generalizing from the individual to the whole.
D)omitting relevant variables from an economic model
E)ignoring the effects of secondary variables on a primary variable

Question 76

In the context of correlation and causation, correlation means that:

A)two sets of phenomena occur together
B)two sets of phenomena are positively related
C)one phenomenon must cause the other when two sets of phenomena are repeatedly observed together.
D)one phenomenon must cause the other when two sets of phenomena are repeatedly observed together
E)two sets of phenomena are negatively related.

Question 77

Ten-year-old Josh observes that people who play football are taller than other people and tells his mom that he is going to play football because it will make him big and strong. Josh is:

A)committing the fallacy of composition.
B)violating the ceteris paribus assumption
C)mistaking correlation for causation.
D)performing hypothesis testing.
E)comparing the marginal benefits and the marginal costs of playing football.

Question 78

Which of the following is a statement of positive economics?

A)Unemployment is a more severe problem than inflation.
B)Our current unemployment rate is a serious problem.
C)The current rate of unemployment in an economy is 4 percent.
D)An unemployment rate of 4 percent would be too low
E)Unemployment is a more severe problem than illiteracy

Question 79

The relationship between the price of a good and its quantity supplied can be determined through:

A)normative analysis
B)positive analysis.
C)the collective behavior of a group of producers
D)the individual reactions of producers.
E)hypothesis testing.

Question 80

The fallacy of composition is:

A)the erroneous view that an economic activity can sometimes exceed the sum of its components.
B)the erroneous view that what is true for an individual must also be true for the group
C)the view that the aggregation of economic activity will necessarily lead to an outcome that is different from the outcome generated by each individual in a group
D)the idea that association need not imply causation.
E)the idea that association always implies causation.