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 production of goods and services.
C)theory of consumer behavior.
D)science of money.
E)art of spending money wisely.

Answer 1

study of choice when scarcity exists.

Question 2

Economists classify all of the following as physical capital,except one.Which one is not capital?

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

Answer 2

A $20 bill in a firm's petty cash drawer

Question 3

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 does he 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.

Answer 3

I'm using scarce resources to build the toy trains.

Question 4

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.
E)Bill is unemployed.

Question 5

Because people's wants are unlimited but resources are scarce,_____:

A)only the rich get everything they want.
B)choices must be made.
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 6

Benjamin works as an economist for the federal government.Which of the following questions is he trying to answer as part of his job?

A)How can I get rich by playing the stock market?
B)What are the best ways to reduce people's wants,given the scarcity of resources?
C)How can rational government officials determine what goods should be produced?
D)What is money?
E)How do people use limited resources to try to satisfy unlimited wants?

Question 7

When economists refer to capital,they might mean:

A)money.
B)human skills used in production.
C)stocks.
D)bonds.
E)bank loans.

Question 8

Economics:

A)studies human behavior when scarcity exists and choices must be made.
B)provides the only reasonable explanation of how people make decisions.
C)can accurately explain all human behavior since it is based on the assumption of rationality.
D)is better at showing the way things ought to be than the other social sciences.
E)is the only social science that can explain the existence and behavior of public institutions.

Question 9

Economics is best defined as the study of how:

A)individuals decide to use scarce resources in an attempt to satisfy their unlimited wants.
B)individuals can make money.
C)the government should deal with unemployment and inflation.
D)to eliminate the problem of scarce resources.
E)to run a business.

Question 10

The problem of scarce resources:

A)means that there are not enough jobs in some cities.
B)could be solved if the unemployment rate fell.
C)is that there are not enough resources to satisfy people's unlimited wants.
D)is that resources are used inefficiently.
E)can be solved by lowering taxes.

Question 11

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 relative to people's unlimited wants.
D)water commands a very high price.
E)nature can destroy water as well as create it.

Question 12

The fact that people have unlimited wants means that:

A)they always want more of at least one good.
B)each person has an unlimited desire for every good.
C)labor unions demand wage increases.
D)selfish people are not concerned about others.
E)people buy goods without regard to what they can afford.

Question 13

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

A)The problem only exists in countries that are not highly industrialized.
B)The problem is likely to disappear as production increases.
C)The problem is sure to 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

Which of the following is the best definition of economics?

A)An investigation of the quantities and prices of the various goods produced by the nations of the world
B)A study of why inflation and unemployment periodically plague the U.S.economy
C)An analysis of how individuals and societies deal with the problem of scarcity
D)An examination of the role that money plays in the economy
E)A study of how goods and services are distributed throughout the world

Question 15

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

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

Question 16

Natural resources are:

A)not considered scarce because no one pays for them.
B)only desired for use in producing other goods.
C)included in the category of resources called gifts of nature.
D)available in unlimited quantities.
E)not considered scarce because they are not produced by society.

Question 17

Scarcity:

A)applies to a brain surgeon but not to a cab driver.
B)is not a problem for a politician.
C)exists only in rich countries.
D)exists only in poor countries.
E)occurs when a resource is not freely available.

Question 18

A resource is something that:

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

Question 19

Which of the following is the fundamental resource that is the basis of labor?

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

Question 20

In economics,capital is defined as:

A)natural resources,such as water,oil,and iron ore.
B)the natural,unskilled abilities of people.
C)human creations used in the production process.
D)money and other financial assets.
E)the willingness of business owners to take risks.

Question 21

Which of the following broad categories are resources divided into?

A)People,money,and machines
B)Savings,spending,investment,and capital
C)Human,technological,and government
D)Natural resources,labor,capital,and entrepreneurial ability
E)Free,scarce,abundant,and unlimited

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 exceeds 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

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 it has a price of zero,a good or service 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 24

Goods and services are exchanged in:

A)product markets.
B)resource markets.
C)inventory markets.
D)classified markets.
E)government markets.

Question 25

Goods and services are scarce because:

A)people are greedy.
B)they are produced using scarce resources.
C)firms keep production low in order to earn higher profits.
D)they are produced by firms that seek profits.
E)the government wants to maintain its power over the economy.

Question 26

In economics,capital refers to:

A)money.
B)stocks,bonds,and other financial assets.
C)the seat of the government.
D)machines,buildings,tools,and knowledge.
E)net worth (assets minus liabilities).

Question 27

An entrepreneur:

A)always makes a profit.
B)generally avoids risky situations.
C)claims the profit after other resource suppliers are compensated.
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 28

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 29

Which of the following is true about the resource market?

A)It facilitates the exchange of goods and services between buyers and sellers.
B)It facilitates the exchange of resources between buyers and sellers.
C)Firms are sellers in the resource market.
D)Households are buyers in the resource markets.
E)There is no flow of money in the resource market.

Question 30

As resources are scarce,_____.

A)opportunity costs are zero.
B)people must make choices among alternatives.
C)all human wants and desires can be satisfied.
D)resource prices are fixed.
E)commodities are free.

Question 31

The choices made by economic decision makers:

A)are government decisions only.
B)are the primary focus of economics.
C)are not important in economic analysis.
D)occur infrequently.
E)do not involve ordinary citizens.

Question 32

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

A)price received for the good.
B)price of the product minus the cost of the resources used to produce the product.
C)return paid to the firm's bank on its outstanding loans.
D)price of the product minus the wages paid for the labor used to produce it.
E)wages paid for the labor used to produce the product minus the price.

Question 33

The payments in return for labor and capital are _____,respectively.

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

Question 34

Natural resources:

A)include bodies of water,trees,oil reserves,and minerals.
B)are not scarce.
C)are exhaustible as long as they are managed properly.
D)are the result of human effort.
E)are machines used in the production process.

Question 35

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 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 36

Which of the following is a service?

A)Anything that is scarce and that satisfies unlimited human wants
B)A thing for which people pay money
C)An intangible activity that satisfies human wants
D)Any output produced by a service sector industry,such as fast food
E)Something less desirable than a good

Question 37

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 38

In a 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 39

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 40

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 41

The assumption that individuals act rationally implies that:

A)people think only of themselves and disregard the well-being of others.
B)people undertake all those activities that yield benefits to themselves.
C)people only consider the costs of an activity to decide whether it is worthwhile.
D)the greater the cost of a charitable deed to a benefactor,the more likely he or she is to perform that deed.
E)people implicitly calculate the costs and benefits of an activity to decide if it is worthwhile.

Question 42

Households:

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

Question 43

Consumers need information to make good choices.In the context of this information,which of the following is correct?

A)Advertising is always harmful to consumers.
B)Information is 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 44

Patrick decided to go to class today instead of going to the movies.He made this decision because:

A)Patrick's additional benefit of going to class exceeds the additional cost of going to class.
B)Patrick's additional benefit of going to the movies exceeds the additional cost of going to class.
C)Patrick's additional benefit of going to class exceeds the additional cost of going to the movies.
D)Patrick's additional benefit of going to the movies exceeds the additional cost of going to the movies.
E)Patrick's additional benefit of going to class equals the additional cost of going to the movies.

Question 45

The labor market is an example of a:

A)government market.
B)classified market.
C)communication market.
D)resource market.
E)product market.

Question 46

You want to sell your old iPad because you no longer use it,and your cousin wants to give you $200 for it.If you decide to sell your iPad to her,you'll have to pay the shipping fee to get the iPad to her.As a rational decision maker,you will sell your old iPad to your cousin when the shipping fee is:

A)$350.
B)$250.
C)$301.
D)$299.
E)$199.

Question 47

Rational economic decision makers will make a change only if:

A)the change is free of risk.
B)there are no costs involved.
C)their expectations are correct.
D)there is no uncertainty about the results of the change.
E)the expected marginal benefit exceeds expected marginal cost.

Question 48

In economics,marginal means:

A)incremental.
B)unimportant.
C)level or size.
D)a borderline situation.
E)a bad alternative.

Question 49

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.

Question 50

Economists believe that:

A)people who choose to promote the interests of others cannot be acting rationally in their own self-interest.
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 51

Economists generally believe that:

A)buyers and sellers have all the information they can use.
B)additional information is costly to acquire.
C)decision makers have complete knowledge of all the alternatives available.
D)economic decisions result from random behavior.
E)decision makers never make mistakes.

Question 52

In economics,the term 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 53

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

A)people gather all relevant information before making their purchases.
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 54

A rational decision maker will take only those actions for which the expected marginal benefit:

A)is positive.
B)is at its maximum level.
C)is greater than or equal to the expected marginal cost.
D)is less than the expected marginal cost.
E)exactly equals the expected marginal cost.

Question 55

Which of the following would be a topic considered in the field of macroeconomics?

A)The study of the amazing recent growth of the Chinese economy
B)The study of the relocation of U.S.manufacturing firms to China
C)The study of the differences in wages between men and women in the United States
D)The study of the effect of rent control on the housing market in New York City
E)The study of the impact of environmental regulations on the well-being of human populations

Question 56

Rational choice by an individual implies:

A)the use of a mathematical model when solving a problem.
B)making decisions aimed at achieving some predetermined goal.
C)that only monetary costs and benefits are weighed.
D)that scarcity can be eliminated for that individual.

Question 57

To say that people make decisions at the margin means that:

A)they usually wait until the last minute before making a decision to buy.
B)they weigh the additional costs and the additional benefits of various activities before they make a decision.
C)most people just barely get by on the incomes they earn and live from day-to-day on the very edge of subsistence.
D)if given a choice,most people would prefer to make their own decisions concerning the things that affect their lives.
E)they consider the total cost and the total benefit of various activities before they make a purchase.

Question 58

Economists believe that people respond in a predictable way to changes in costs and benefits.The term that best describes this phenomenon is:

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

Question 59

You want to sell your old iPad that you no longer use,and your cousin wants to give you $300 for it.If you decide to sell your iPad to your cousin,you'll have to pay $40 for shipping 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 60

When economic choice involves an adjustment to an existing situation,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 before deciding.
D)involves examining only the total costs and total benefits of an activity before deciding.
E)guarantees an incorrect decision.

Question 61

The basic purpose of economic models is to:

A)construct simplifying assumptions about the real world.
B)explain reality in all its complexity.
C)collect empirical data to support the facts.
D)construct situations where controlled experiments can be carried out.
E)explain and predict economic events.

Question 62

Economic theories are:

A)useful because they are as exact as theories in the physical sciences.
B)useless because they are based on abstractions.
C)useful because they allow us to make predictions.
D)too complex to understand because they include all of reality.
E)useful in predicting events only if their assumptions are realistic.

Question 63

The other-things-constant assumption:

A)allows the economist to make useful predictions.
B)is a prediction.
C)applies only to consumers' decisions and not to those of firms.
D)forces the economist to ignore reality,where things are constantly changing.
E)implies rational self-interest on the part of all economic actors.

Question 64

An economic model:

A)omits critical elements.
B)must be presented in mathematical terms.
C)simplifies reality in order to focus on its essential elements.
D)can never be proven wrong if its assumptions are realistic.
E)produces poor predictions if it includes an unrealistic assumption.

Question 65

The economic behavior of individual decision makers and the determination of price and output in specific markets are both studied in:

A)disequilibrium economics.
B)normative economics.
C)positive economics.
D)microeconomics.
E)macroeconomics.

Question 66

Microeconomics is the study of:

A)marginal or inferior products.
B)how to use the fewest natural resources to produce goods and services.
C)the behavior of the economy as a whole.
D)the economic behavior of individual decision makers.
E)the government's role as a producer in the economy.

Question 67

An economic model that sometimes makes incorrect predictions may be used by economic decision makers:

A)under no circumstances.
B)only if its assumptions are detailed and realistic.
C)if it is mathematical and computerized.
D)if it is simple enough for a child to understand.
E)until a better model is developed.

Question 68

A good economic theory:

A)approaches reality in all its complexity.
B)involves so much distortion of reality that it is worthless.
C)focuses on the unique aspects of each situation.
D)involves some simplification of reality.
E)bears no relation to reality.

Question 69

You currently subscribe to two magazines and are trying to decide whether you should subscribe to a third.What should determine your decision if you are economically rational?

A)The total cost of the magazines compared to the total satisfaction you would receive
B)The total amount of satisfaction you would get from the magazines
C)The enjoyment you would get from the third magazine
D)The cost of the third magazine including the time it takes to read it
E)The cost of the third magazine compared to the additional enjoyment you would get from it

Question 70

An economic model is useful if it:

A)includes every detail of reality.
B)involves no unproven assumptions.
C)is expressed in equations.
D)makes accurate predictions.
E)is simple enough to be understood by a child.

Question 71

When constructing an economic model,economists:

A)rely mostly on their own value judgments and ignore the far more complex world of facts.
B)always try to duplicate reality by including all available information.
C)use assumptions that are true for the individual but never true for the whole economy.
D)must rely on assumptions for the sake of simplification.
E)are primarily concerned with making realistic assumptions.

Question 72

Economic theory:

A)expresses normative values.
B)invents imaginative and interesting stories.
C)predicts the behavior of a specific economic decision maker after an economic change.
D)predicts the average behavior of a group of similar economic decision makers after an economic change.
E)uses only perfect and complete information.

Question 73

All economic models must involve simplifications because:

A)economists would be unable to command high salaries if their models were so simple that anyone could understand them.
B)human behavior is very erratic and unpredictable.
C)reality is too complex to understand in its entirety,so we must reduce the complexity to a level that we can understand.
D)they always try to duplicate all possible information and cover all possible variables that might influence decision making.
E)we must rely on value judgments and ignore reality.

Question 74

A good theory seeks to:

A)distort reality in order to improve forecasting ability.
B)predict phenomena without explaining them.
C)explain phenomena without predicting them.
D)confront reality in all its complexity by focusing on the unique aspects of each phenomenon.
E)simplify a complex reality.

Question 75

A good economic theory:

A)has realistic assumptions.
B)contains as much detail as possible.
C)cannot be proven false.
D)predicts well.
E)can only be presented in mathematical terms.

Question 76

Economists employ the scientific method.In part,this means that:

A)there is a single economic theory accepted by all economists.
B)economic hypotheses are tested to determine their validity.
C)all economic laws have been proven true by laboratory tests.
D)personal values never enter into economic policy recommendations.
E)assumptions are not necessary in economic science.

Question 77

Which of the following is an accurate list,in order,of the steps of the scientific method?

A)Define variables;state assumptions;form a hypothesis;test
B)State assumptions;define variables;form a hypothesis;test
C)Identify variables;state assumptions;test;form a hypothesis
D)Identify variables;form a hypothesis;form behavioral assumptions;test
E)Define assumptions;form behavioral assumptions;form hypothesis;test

Question 78

The simple circular-flow model for households and firms is an economic model that focuses on the interaction between households and firms.Which of the following statements regarding the model is correct?

A)The model is missing the interaction between firms and the resource market.Therefore,it cannot predict well.
B)The model is missing the interaction between households and the product market.Therefore,it cannot predict well.
C)The model has too many simplifying assumptions,and it cannot be used to make predictions about the real world.
D)The model is a simplification of the real world,and it can be used to make predictions about the real world.
E)The model is missing the interaction between firms and the product market.Therefore,it cannot predict well.

Question 79

Macroeconomists analyze:

A)the labor market.
B)the arrangements through which specific products are exchanged.
C)influences on the decision making of particular households.
D)the impact of unemployment on the economy.
E)the factors that affect the decisions of individual firms.

Question 80

Macroeconomics is the study of:

A)the behavior of large firms in the marketplace.
B)the economic behavior of individual decision makers.
C)the behavior of the economy as a whole.
D)how to use the fewest natural resources to produce goods and services.
E)the government's role as a stabilizing influence on the economy.