Question 1

Which of the following would be studied by a macroeconomist rather than a microeconomist?

Accepted Answer

A)  shipping rates 
B)  price of corporate stock 
C)  market price of Japanese cars 
D)  unemployment rate in the nation

Question 2

Human wants:

Accepted Answer

A)  are unfilled only in the poorer countries of the world. 
B)  can be completely satisfied by advancing technology. 
C)  can never be fully satisfied. 
D)  only apply to necessities.

Question 3

Labor resources:

Accepted Answer

A)  include only physical activities. 
B)  include human effort involved in the production of goods, but not services. 
C)  include only skilled labor. 
D)  include both physical and mental activities.

Question 4

Exhibit 1A-3 Straight line 
Straight line AB in Exhibit 1A-3 is a downward sloping line illustrating:

Accepted Answer

A)  a direct relationship between X and Y. 
B)  an inverse relationship between X and Y. 
C)  X and Y are unrelated variables. 
D)  the ceteris paribus assumption.

Question 5

Which of the following is not an example of a model?

Accepted Answer

A)  a small plastic airplane tested in a wind tunnel 
B)  a highway map 
C)  a photograph of the inside of a computer 
D)  a poster of the human digestive system

Question 6

Which of the following is most likely to represent causality rather than  association?

Accepted Answer

A)  In years that fashion dictates wider lapels on men's jackets, the stock market grows by at least 5 percent. 
B)  Interest rates are higher in years ending with a 1 or a 6. 
C)  Unemployment falls when the AFC champion wins the Super Bowl. 
D)  Quantity demanded goes up when price falls because lower prices increase consumer purchasing power, ceteris paribus.

Question 7

The basic difference between macroeconomics and microeconomics is:

Accepted Answer

A)  microeconomics concentrates on individual markets while macroeconomics focuses primarily on international trade. 
B)  microeconomics concentrates on the behavior of individual consumers while macroeconomics focuses on the behavior of firms. 
C)  microeconomics concentrates on the behavior of individual consumers, firms, and industries while macroeconomics focuses on the performance of the entire economy. 
D)  microeconomics explores the causes of inflation while macroeconomics focuses on the causes of unemployment.

Question 8

Suppose two variables are directly related. If one variable rises, then the other variable:

Accepted Answer

A)  also rises. 
B)  falls. 
C)  remains unchanged. 
D)  reacts unpredictably.

Question 9

Exhibit 1A-7 Straight line relationship 
Which of the following would cause a shift in the relationship shown in Exhibit 1A-7?

Accepted Answer

A)  A rise in people's annual income. 
B)  A rise in people's expenditure on air travel. 
C)  A rise in the price of air travel. 
D)  Nothing will shift the line in the graph.

Question 10

Suppose an economist collects the following data between May and December of a given year: gasoline prices rose sharply, consumer incomes remained constant, consumers purchases of fuel efficient vehicles remained constant from the previous year, the size of the population did not change, sales of gasoline decreased by 15 percent. Which of the following theories could be tested with this information?

Accepted Answer

A)  When the price of gasoline rises, gasoline purchases fall. 
B)  When consumer incomes rise, gasoline purchases rise. 
C)  When the population increases, purchases of fuel efficient vehicles increase. 
D)  No economic theory could be tested with this information.

Question 11

When economists use the term Ceteris paribus , they are indicating that:

Accepted Answer

A)  the relationship between two economic variables cannot be determined. 
B)  the 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)  their conclusions are based on normative economics rather than positive economic analysis.

Question 12

The statement, "John buys more of good X as his income increases, Ceteris paribus ," means:

Accepted Answer

A)  John's income is being held constant. 
B)  John's purchases of good X are being held constant. 
C)  John's income and purchases of this good are being held constant. 
D)  the price of  good X is being held constant .

Question 13

The silly clothes worn by a circus clown are an example of:

Accepted Answer

A)  a natural resource. 
B)  capital goods. 
C)  labor. 
D)  entrepreneurship.

Question 14

Exhibit 1A-1 Straight line 
As shown in Exhibit 1A-1, the slope of straight line AB:

Accepted Answer

A)  decreases with increases in X. 
B)  increases with increases in X. 
C)  increases with decreases in X. 
D)  remains constant with changes in X.

Question 15

Exhibit 1A-10 Multi-curve graph 
Exhibit 1A-10 represents a three-variable relationship. As the annual income of consumers rises from $20,000 (line A) to $40,000 (line B), the result is a:

Accepted Answer

A)  rightward movement along each curve. 
B)  leftward movement along each curve. 
C)  leftward shift from curve B to curve A. 
D)  rightward shift from curve A to curve B.

Question 16

Entrepreneurs can delegate every one of the following tasks to labor except:

Accepted Answer

A)  hiring and training new employees. 
B)  assuming business risk and uncertainty. 
C)  supervision of the production process. 
D)  marketing the goods and services produced.

Question 17

The subject of economics is primarily the study of:

Accepted Answer

A)  the government decision-making process. 
B)  how to operate a business successfully. 
C)  decision-making because of the problem of scarcity. 
D)  how to make money in the stock market.

Question 18

"As soon as a mayor announced his/her 'get tough on crime' policy on New Year's day, criminals got scared and the crime rate went down." Suppose that the lower crime rate was actually caused by freezing cold temperatures in January ⎯ it was just too cold for anybody to be out robbing other people. Which fundamental hazard of the economic way of thinking did the mayor make?

Accepted Answer

A)  believing that what's good for one person is good for the whole group (the fallacy of composition) 
B)  failing to take into account the benefits of crime (the payoff fallacy) 
C)  believing that association is the same as causation 
D)  failing to understand the difference between positive and normative economics.

Question 19

When building a model, an economist must:

Accepted Answer

A)  adjust for exceptional situations. 
B)  provide a complete description of reality. 
C)  make simplifying assumptions. 
D)  develop a set of behavioral equations.

Question 20

The mental and physical capacity of workers to produce goods and services is known as:

Accepted Answer

A)  labor. 
B)  entrepreneurship. 
C)  value judgment. 
D)  product sensitivity.

Exam 1: Introducing the Economic Way of Thinking