Deck 1: The Economic Approach

Question 1

For the typical student, taking an introductory course in economics should

A) turn the student into an economist.
B) teach the student solutions to most social problems.
C) teach the student how to answer complex social questions.
D) help the student learn to rationally analyze social problems.
E) All of the above are correct.

Answer 1

help the student learn to rationally analyze social problems.

Question 2

Some individuals or families can become completely saturated with a service such as television. This suggests that

A) wants are limited
B) desires for a single commodity can be satisfied but then the focus will switch to other goods and services
C) a highly productive economy may someday be able to satisfy all human desires
D) resources are not truly fixed in supply as we generally assume
E) scarcity does not exist

Answer 2

desires for a single commodity can be satisfied but then the focus will switch to other goods and services

Question 3

Adam Smith believed that if people were free to pursue their own interests,

A) public interest would be served quite well.
B) less would be produced than if altruism were the guiding principle.
C) they would generally apply their talents to unproductive activities that would generate little value to society.
D) they would have little incentive to undertake productive activities.

Answer 3

public interest would be served quite well.

Question 4

Which of the following was a key belief of Adam Smith?

A) he felt that human goodness would provide adequate goods and services to everyone.
B) he stressed that limited exchange and command economies would prevent the exploitation of the poor.
C) he believed that individuals pursuing their own interests would direct economic activity in the most advantageous way.
D) he lectured about the importance of gold and silver in providing a stable monetary system.

Question 5

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 6

Every economy must ration goods in some way because of

A) overpopulation.
B) poorly-performing markets.
C) the income gap between rich and poor.
D) scarcity.

Question 7

The basic ingredients in any economic decision are

A) scarcity and choice.
B) surpluses and shortages.
C) market prices and the use of efficient production methods.
D) needs and wants.

Question 8

Which of the following is true of resources?

A) Resources are inputs used to produce goods and services.
B) Human resources reflect the skills and productive knowledge of human beings.
C) With the passage of time, investment activities can increase the availability of resources.
D) All of the above are true.

Question 9

Economics is primarily the study of

A) how to make money in the stock market.
B) how to operate a business successfully.
C) the allocation of scarce resources in an effort to satisfy wants that are virtually unlimited.
D) the methods business firms use to reduce their costs of production.

Question 10

If scarcity were eliminated,

A) all goods would be free.
B) no one would have to make any choices.
C) everyone could have all they want at no cost.
D) all of the above are true.

Question 11

If a good is scarce,

A) there will be shortages of it if the good is rationed by markets.
B) the good will have a price in a market setting.
C) there will be enough of the good freely available from nature to satisfy the human desire for it.
D) all of the above are true.

Question 12

When economists say a good is scarce, they mean

A) there are only a limited number of consumers who would be interested in purchasing the good.
B) the human desire for the good exceeds the amount freely available from nature.
C) most people in poorer countries do not have enough of the good.
D) the production of the good has no opportunity cost for society.

Question 13

Economic choice and competitive behavior are the result of

A) scarcity.
B) poverty.
C) public ownership of resources.
D) private ownership of resources.

Question 14

When economists say goods are scarce, they mean

A) consumers are too poor to afford the goods and services available.
B) consumers are unwilling to buy goods unless they have very low prices.
C) goods are generally freely available from nature in most countries.
D) the desire for goods and services exceeds our ability to produce them with the limited resources available.

Question 15

Criteria for rationing goods and resources must be established because of

A) the law of comparative advantage.
B) the use of capitalism as a form of economic organization.
C) the inability of politicians to develop efficient forms of economic organization.
D) scarcity imposed by nature.

Question 16

Ex-London School of Economics student Mick Jagger sang, "You can't always get what you want, but if you try sometime, you just might find you can get what you need." Another statement of the basic economic principle expressed in this lyric is that

A) rational decisions are not always possible.
B) you can allocate your resources to what gives you the highest value.
C) you can create the supply to meet your own demand.
D) you can maximize social welfare by making optimal decisions.

Question 17

Modern economics as a field of study is usually thought to have begun with

A) Adam Smith and the writing of The Wealth of Nations.
B) David Ricardo and the writing of The Principles of Political Economy and Taxation.
C) Aristotle and the writing of Politics and Ethics.
D) Moses and the Ten Commandments.

Question 18

In economics, the term "scarcity" refers to the fact that

A) everything really worthwhile costs money.
B) even in wealthy countries like the United States, some people are poor.
C) no society can produce enough to satisfy fully the desires of people for goods and services.
D) sometimes shortages of a good arise when its price is set below the market equilibrium.

Question 19

When a society cannot produce all the goods and services people wish to have, it is said that the economy is experiencing

A) scarcity.
B) shortages.
C) inefficiencies.
D) inequities.

Question 20

According to Adam Smith, individual self-interest

A) is a powerful force for economic progress when it is directed by competitive markets.
B) is a powerful force for economic progress when individuals are wisely directed by a strong central government.
C) is a major factor in retarding the economic progress of humankind.
D) could be either a positive or negative force for economic progress, depending on the moral influences of political leaders.

Question 21

Capital is a term economists use to refer to

A) man-made resources used to produce other goods and services.
B) resources that are available in nature such as mineral deposits.
C) money that is used to consume goods and services, to distinguish it from money that is saved.
D) the value of the best alternative to an action.

Question 22

In economics, man-made resources such as tools, equipment, and structures that are used to produce other goods and services are referred to as

A) consumer goods.
B) capital.
C) marginal goods.
D) infrastructures.

Question 23

The difference between a positive economic statement and a normative statement is that

A) a positive statement must be true; a normative statement is often not true
B) a normative statement must be true; a positive statement is often not true
C) a positive statement can be proved; a normative statement cannot
D) a normative statement can be proved; a positive statement cannot
E) a positive economic statement is a moral judgment; a normative economic statement is not a moral judgment

Question 24

An opinion based on personal preferences and value judgments is called

A) an objective concept.
B) a subjective concept.
C) an unintended consequence.
D) ceteris paribus.

Question 25

When price is the rationing criterion, individuals have a strong incentive to

A) ignore the wishes of others when making decisions about how to use their resources.
B) provide services to others in exchange for income.
C) avoid exchanges because in every exchange there will be one person who gains and another who loses.
D) substitute promises for the consistent delivery of a quality product.

Question 26

The difference between positive economic statements and normative economic statements is that

A) positive statements are based on opinion while normative statements are based on fact
B) positive statements are true and normative statements are often false
C) positive statements are often false and normative statements are true
D) positive statements are based on fact while normative statements are based on opinion
E) both b and d.

Question 27

Which of the following is a positive economic statement?

A) Raising the federal minimum wage to $6.50 per hour will cause the rate of unemployment to increase.
B) The United States spends too much on welfare.
C) Philosophy is not as interesting as economics.
D) Cold weather is much more enjoyable than warm weather.

Question 28

Which of the following most clearly distinguishes between positive and normative economics?

A) Positive economics is the study of what ought to be; normative economics is concerned with the facts.
B) Positive economics is the study of the facts; normative economics is concerned with what ought to be.
C) Positive economics is the study of supply and demand in narrowly defined markets such as the market for shoes; normative economics focuses on highly aggregated markets such as the market for all consumer products.
D) Positive economics is the study of goods that are scarce; normative economics is concerned with goods that are not scarce.

Question 29

Which of the following is a positive economic statement?

A) Too much government spending is the biggest problem facing the U.S. economy.
B) Creating jobs is the most serious problem facing the U.S. economy.
C) Raising taxes provides additional revenue that should be used to finance health care.
D) If taxes are over 50 percent of national income, job creation falls.

Question 30

The Secretary of Labor states that wage rates in the country have risen by 2 percent this past year. The head of a local labor union states that wage gains should have been higher. The Secretary's statement is a(n) ____ economic statement, and the labor head's statement is a(n) ____ economic statement.

A) normative; normative
B) normative; positive
C) positive; normative
D) positive; positive
E) proper; improper

Question 31

Which of the following is a positive economic statement?

A) Government control of rent is a fair way to help poor people afford housing.
B) Government control of rent keeps landlords from charging too much rent.
C) Government control of rent decreases the number of new apartments constructed.
D) Government control of rent is an injustice.

Question 32

Economics is primarily the study of

A) how to make money in the stock market.
B) how to find lower cost methods of production.
C) the choices we must make among alternatives because of scarcity.
D) the proper form of industrial structure for the United States.

Question 33

Which of the following are NOT scarce?

A) time for leisure activities
B) computers
C) compact discs
D) the air we breathe

Question 34

The three major categories of resources are

A) human resources, physical resources, and natural resources.
B) scarce resources, capital resources, and abundant resources.
C) financial resources, global resources, and local resources.
D) common resources, private resources, and capital resources.

Question 35

Positive economics

A) postulates relationships among economic variables that are potentially refutable by real-world events.
B) is strictly quantitative and is, therefore, of little value to policy makers.
C) will usually indicate which economic policy is best.
D) is the same as normative economics.

Question 36

Which of the following best describes the difference between an objective concept and a subjective concept?

A) A subjective concept is a fact based on observation that is not subject to personal opinion, while an objective concept is based on personal preferences and value judgments.
B) An objective concept is a fact based on observation that is not subject to personal opinion, while a subjective concept is based on personal preferences and value judgments.
C) A subjective concept relates to issues in microeconomics, while an objective concept relates to issues in macroeconomics.
D) An objective concept can only be illustrated in words, while a subjective concept can usually be illustrated with a graph.

Question 37

A fact based on observable phenomenon that is not influenced by differences in personal opinion is called

A) an objective concept.
B) a subjective concept.
C) an unintended consequence.
D) ceteris paribus.

Question 38

Which of the following is true?

A) Positive economics deals with how people react to changes in benefits, and normative economics deals with how people react to changes in costs.
B) Positive economic statements are testable, but normative statements are not.
C) Positive economic statements involve value judgments while normative economics focuses on whether a policy will achieve its intended objectives.
D) Positive economic statements focus on policy issues while normative economics focuses on economic theory.

Question 39

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

A) The inflation rate in the United States decreased from 4 percent last year to 3 percent this year as a result of lower energy prices.
B) The economy grew at an annual rate of 5 percent during the first quarter of this year.
C) If two automobile companies merge, it is likely that the price of automobiles will rise.
D) An increase in international trade benefits some workers but hurts others.
E) The minimum wage should be increased so that low income workers can afford to keep up with the cost of living.

Question 40

Which of the following is a normative economic statement?

A) Congress should increase the legal minimum wage.
B) An increase in the legal minimum wage would cause unemployment to increase.
C) An increase in the legal minimum wage would cause unemployment to decrease.
D) An increase in the legal minimum wage would lead to more equality in the distribution of income.

Question 41

Which of the following is part of the economic way of thinking?

A) The accuracy of the assumptions is the best test of an economic theory.
B) When an option becomes more expensive, people will be less likely to choose it.
C) The value of a good can be determined objectively by measuring the amount of labor required for its production.
D) All of the above.

Question 42

The opportunity cost of an action is

A) the monetary payment the action required.
B) the total time spent by all parties in carrying out the action.
C) the value of the best opportunity that must be sacrificed in order to take the action.
D) the cost of all alternative actions that could have been taken, added together.

Question 43

The economic way of thinking is

A) a set of historical generalizations that indicates what goods should be produced.
B) a body of statistical data that indicates how an economy should be organized.
C) a set of basic concepts that helps one understand human choices.
D) a set of complex, highly abstract theories that provides persons skilled in statistics with the information necessary to tell others what choices they should make.

Question 44

Which of the following is part of the economic way of thinking?

A) Opportunity costs will always be incurred when scarce resources are used to produce a good.
B) When the cost of an option increases, individuals will be less likely to choose it.
C) In addition to their immediate direct effects, economic actions often generate secondary effects that are observable only after the passage of time.
D) All of the above are part of the economic way of thinking.

Question 45

A tradeoff exists between a clean environment and a higher level of income in that

A) studies show that individuals with higher levels of income actually pollute less than low-income individuals.
B) efforts to reduce pollution typically are not completely successful.
C) laws that reduce pollution raise costs of production and reduce incomes.
D) by employing individuals to clean up pollution, employment and income both rise.

Question 46

Which of the following is a normative economic statement?

A) If we doubled the size of welfare payments, we would reduce the number of homeless persons.
B) Companies should be concerned with more than just their profits.
C) An increase in spending on airport security will reduce the number of hijackings.
D) If social security were to be privatized, workers would earn a higher rate of return on their retirement contributions.

Question 47

During a war, governments will sometimes draft people, most of whom are presently employed, into the army. An economist, computing the real cost of the war, would be sure to include which of the following items?

A) The value of the civilian goods no longer produced by the new soldiers.
B) The cost of feeding and clothing the new soldiers.
C) The dollar cost of the payroll.
D) The higher prices of civilian goods due to wartime shortages.
E) The cost of transporting the soldiers to combat.

Question 48

Which of the following statements best describes the scientific method?

A) The use of modern electronic testing equipment to understand the world.
B) The unbiased development and testing of theories about how the world works.
C) The use of controlled laboratory experiments to understand the way the world works.
D) Finding evidence to support preconceived theories about how the world works.

Question 49

"The standard of living is too low for many individuals in the United States. The government should implement policies designed to achieve a more equal distribution of income." The preceding statements are

A) positive economic statements based on cause and effect.
B) normative economic statements based on value judgments.
C) based on the fallacy of composition argument.
D) an empirically validated economic principle.

Question 50

Positive economics

A) postulates a relationship that is potentially refutable and then seeks to determine whether the stated relationship is correct.
B) uses value judgments to determine which policy alternatives should be chosen.
C) is of no use to policy makers because it reflects the value judgments of the researcher.
D) is the scientific study of "what ought to be" among economic relationships.

Question 51

Which of the following is a positive economic statement?

A) reducing unemployment should be the highest priority of the federal government.
B) a reduction in the payroll tax will reduce the unemployment rate.
C) corporations should be prohibited from laying off workers during a recession.
D) the current unemployment rate is too high.

Question 52

Which of the following statements is correct about the economic way of thinking?

A) If the buyer of a good gains, the seller must lose an equal amount.
B) The value of goods is objective; it is equal to the cost of supplying the good.
C) Opportunity costs will always be incurred when scarce resources are used to produce a good.
D) Changes in incentives generally have no effect on human behavior.

Question 53

Ethan washes and irons his own shirts. Sophia, his boss, sends her clothes to a laundry. Which is the most plausible economic explanation for this difference?

A) Ethan must enjoy ironing more than Sophia does.
B) Ethan must be better at ironing than Sophia is.
C) The opportunity cost of ironing is greater for Ethan.
D) Sophia has a higher opportunity cost of laundering her clothes than Ethan does.

Question 54

The expression "There's no such thing as a free lunch" means

A) if one person gains, someone else must lose.
B) each person must pay for exactly what he or she receives.
C) the use of resources to produce a good has an opportunity cost because of scarcity.
D) you cannot have a free lunch at the expense of someone else.

Question 55

Economists make assumptions in order to

A) mimic the methodologies employed by other scientists.
B) minimize the number of experiments that yield no useful data.
C) minimize the likelihood that some aspect of the problem at hand is being overlooked.
D) focus their thinking on the essence of the problem at hand.

Question 56

"There is no such thing as a free lunch." This statement best reflects the fact that

A) consumers are unwilling to pay for a good unless it provides them with value.
B) an opportunity cost is always present when scarce resources are used to produce a good.
C) it generally requires enormous effort to search out the best place to eat lunch.
D) the value of a good to consumers will decrease as they have more of it.

Question 57

Economic theory

A) is a set of definitions, postulates, and principles assembled in a manner that helps make cause-and-effect relationships clear in economics.
B) is like a guidebook in that it points out what to look for.
C) provides economists with a common language and way of thinking about how the world works.
D) is all of the above.

Question 58

The highest valued alternative that must be given up in order to choose an option is called

A) opportunity cost.
B) utility.
C) scarcity.
D) disutility.

Question 59

The opportunity cost of going to college is

A) the total spent on food, clothing, books, transportation, tuition, lodging, and other expenses.
B) the value of the best opportunity a student gives up to attend college.
C) zero for students who are fortunate enough to have all of their college expenses paid by someone else.
D) zero, since a college education will allow a student to earn a larger income after graduation.

Question 60

Rational choice requires that opportunity cost be

A) ignored in making a decision.
B) considered for individual choices, but not for societal choices.
C) computed, but not actually used in making a decision.
D) considered as part of making a decision.
E) used as the sole decision criterion.

Question 61

Which of the following is often referred to as the basic postulate of economics?

A) Individuals act only out of selfish motives.
B) Incentives matter--individuals respond in predictable ways to changes in personal costs and benefits.
C) The accuracy of the assumptions is the best test of an economic theory.
D) The value of a good is objective; it is equal to the cost of producing the good.

Question 62

"The resources now going into the War on Terrorism and into improved airport security would save more lives if they were invested in medical research." This statement most clearly reflects which of the following?

A) The best test of an economic theory is its ability to predict.
B) There is no such thing as a free lunch--the use of scarce resources always has an opportunity cost.
C) selfishness; if people were not selfish, we could have more of everything.
D) The value of goods can be determined objectively.

Question 63

Deciding how to make the best use of limited resources to satisfy virtually unlimited wants is known in economics as

A) economizing behavior.
B) the fallacy of composition.
C) ceteris paribus.
D) the fallacy that good intentions do not guarantee the desired outcome.

Question 64

For a college student who wishes to calculate the true costs of going to college, the costs of room and board

A) should be counted in full, regardless of the costs of eating and sleeping elsewhere.
B) should be counted only to the extent that they are more expensive at college than elsewhere.
C) usually exceed the opportunity cost of going to college.
D) plus the cost of tuition, equals the opportunity cost of going to college.

Question 65

Which of the following is most consistent with economizing behavior?

A) If you derive the same satisfaction from eating pizza and eating ice cream, it makes no difference which one of the two you choose.
B) Before voting, you should invest the time and energy to become fully informed on all of the issues and candidates.
C) It never makes sense to hire someone to do something for you that you could do yourself.
D) If you get the same satisfaction from a chicken sandwich and a salad, you should purchase the one that costs the least.

Question 66

A rational decision maker takes an action if and only if

A) the marginal benefit of the action exceeds the marginal cost of the action.
B) the marginal cost of the action exceeds the marginal benefit of the action.
C) the marginal cost of the action is zero.
D) the opportunity cost of the action is zero.

Question 67

When an individual weighs her options and makes a choice that maximizes her benefit at the minimum cost, economists refer to this as a process of

A) rational decision making.
B) objective decision making because the value of goods is determined objectively.
C) marginal management analysis.
D) random decision making.

Question 68

Which of the following is an example of a rational decision?

A) DeShawn enjoys the feeling of wind in his hair enough to ride his motorcycle without a helmet, even though he fully realizes the potential for injury it creates by not wearing one in the unlikely event he is in an accident.
B) Jayla, a burglar who breaks into houses, decides to break into the house at 265 Elm Street, rather than the house next door because the house next door has a sign in the yard that says "home protected by a security system."
C) Nicolas, a drug user, chooses to buy his cocaine from Samuel, because Samuel's cocaine is as good as the cocaine from other dealers, but Samuel has lower prices.
D) All of the above are examples of rational choices.

Question 69

Which of the following is true?

A) Human choice is generally not influenced by changes in incentives.
B) What is true for the individual must be true for the group as a whole.
C) Using scarce resources to meet one need reduces our ability to meet needs in other areas.
D) The economic way of thinking stresses that good intentions usually lead to sound economic policy.

Question 70

When economists say an individual has made a rational choice, they mean the individual has

A) made the choice by weighing their own subjective costs and benefits.
B) made a "good" decision, one that reasonable outside observers would have also made.
C) neglected to consider the unintended consequences arising from their decision.
D) ignored their own personal interests and made the choice that is best for society.

Question 71

If the government provides free schooling for all students, an economist would say education is

A) a free good, having no cost.
B) scarce even though its cost is paid by taxpayers rather than by students.
C) an example of a good that is no longer scarce.
D) all of the above.

Question 72

When economists say an individual displays economizing behavior, they simply mean that she is

A) making a lot of money.
B) buying only those products that are cheap and of low quality.
C) learning how to run a business more effectively.
D) seeking the lowest cost method to accomplish her objectives.

Question 73

Jim enjoys the feeling of wind in his hair enough to ride his motorcycle without a helmet, even though he fully realizes the potential for injury it creates by not wearing one in the unlikely event he is in an accident. To an economist, Jim is

A) making an irrational choice.
B) making a rational choice.
C) not fully considering the personal costs and benefits of his decision.
D) not responding to the incentives he faces.

Question 74

The benefit (or satisfaction) that an individual expects to derive from an activity is called

A) opportunity cost.
B) utility.
C) marginal cost.
D) scarcity.

Question 75

In economics the term utility refers to

A) the subjective benefit or satisfaction a person expects to receive from a choice or course of action.
B) the number of possible uses for a resource.
C) the fact that human desire for goods is unlimited while the resources available to meet those desires is limited.
D) the highest valued alternative that must be sacrificed when a choice is made.

Question 76

The economic way of thinking stresses that

A) greed is the primary motivation for human action.
B) as the benefits of an option increase, people will be more likely to choose that option.
C) an objective value can be attached to physical goods.
D) as the cost of an option decreases, people will be less likely to choose that option.

Question 77

The economizing problem is essentially one of deciding how to make the best use of

A) limited resources to satisfy limited wants.
B) unlimited resources to satisfy limited wants.
C) limited resources to satisfy virtually unlimited wants.
D) unlimited resources to satisfy unlimited wants.

Question 78

The most fundamental concept in economics is that

A) changes in incentives influence behavior in a predictable way--people will be less likely to choose an option as it becomes more expensive.
B) changes in incentives generally do not influence human behavior.
C) goods that are provided by government are free for society.
D) individuals generally do not consider other alternatives when making a choice.

Question 79

When economists say that people choose rationally, this means

A) they 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 they are permitted to make transactions
E) once made, decisions are never reversed

Question 80

Which of the following is most consistent with economizing behavior?

A) If you get the same satisfaction from a hamburger and a fish sandwich, you should purchase the one that costs the most.
B) Even if you know how to paint, hiring someone to do the job is consistent with economizing behavior, if your opportunity cost is high enough.
C) If the government provides a good free to citizens, the opportunity cost of the good is zero.
D) If you get the same satisfaction from going to the opera and going to an art museum, it makes no difference which you choose.