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1
WHAT IS
ECONOMICS?
Definition of Economics
Topic: Incentives Skill: Recognition
- An incentive A) could be a reward but could not be a penalty. B) could be a penalty but could not be a reward. C) could be either a reward or a penalty. D) is the opposite of a tradeoff. Answer: C
Topic: Definition of Economics Skill: Recognition
- The most fundamental economic problem is A) security. B) scarcity. C) health. D) the fact the United States buys more goods from foreigners than we sell to foreigners. Answer: B
Topic: Definition of Economics Skill: Conceptual
- Economics is best defined as the study of how people, businesses, governments, and societies A) choose abundance over scarcity. B) make choices to cope with scarcity. C) use their infinite resources. D) attain wealth. Answer: B
Topic: Definition of Economics Skill: Conceptual
- Economists point out that scarcity confronts A) neither the poor nor the rich. B) the poor but not the rich. C) the rich but not the poor. D) both the poor and the rich. Answer: D
Topic: Definition of Economics Skill: Conceptual
- Scarcity requires that people must A) cooperate. B) compete. C) trade. D) make choices. Answer: D
Topic: Definition of Economics Skill: Conceptual
- As an economic concept, scarcity applies to A) both money and time. B) money but not time. C) time but not money. D) neither time nor money. Answer: A
Topic: Definition of Economics Skill: Conceptual
- Which is the most accurate definition of the study of economics? Economics is the study of A) the distribution of surplus goods to those in need. B) affluence in a morally bankrupt world. C) the choices we make because of scarcity. D) ways to reduce wants to eliminate the problem of scarcity. Answer: C
Topic: Microeconomics and Macroeconomics Skill: Recognition
- Which of the following is a macroeconomic topic? A) The reasons for a rise in the price of orange juice. B) The reasons for the rise in average prices. C) Why plumbers earn more than janitors. D) Whether the army should buy more tanks or more rockets. Answer: B
C h a p t e r
2 C H A P T E R 1
Topic: Microeconomics and Macroeconomics Skill: Recognition
- Which of the following is a microeconomic topic? A) The reasons why Kathy buys less orange juice. B) The reasons for a decline in average prices. C) The cause of why total employment may de- crease. D) The effect of the government budget deficit on inflation. Answer: A
Topic: Microeconomics and Macroeconomics Skill: Recognition
- Microeconomics focuses on all of the following EXCEPT A) the purchasing decisions that an individual con- sumer makes. B) the effect of increasing the money supply on in- flation. C) the hiring decisions that a business makes. D) the effect of an increase in the tax on cigarettes on cigarette sales. Answer: B
Topic: Microeconomics and Macroeconomics Skill: Recognition
- In broad terms the difference between microeco- nomics and macroeconomics is that A) they use different sets of tools and ideas. B) microeconomics studies decisions of individual people and firms and macroeconomics studies the entire national economy. C) macroeconomics studies the effects of govern- ment regulation and taxes on the price of indi- vidual goods and services whereas microeconom- ics does not. D) microeconomics studies the effects of govern- ment taxes on the national unemployment rate. Answer: B
Topic: Microeconomics and Macroeconomics Skill: Recognition
- Studying the determination of prices in individual markets is primarily a concern of A) positive economics. B) negative economics. C) macroeconomics. D) microeconomics. Answer: D
Topic: Microeconomics and Macroeconomics Skill: Recognition
- The analysis of the behavior of individual deci- sion-making units is the definition of A) microeconomics. B) positive economics. C) macroeconomics. D) normative economics. Answer: A
Topic: Microeconomics and Macroeconomics Skill: Conceptual
- Which of the following topics would be studied in a microeconomics course? A) How a trade agreement between the United States and Mexico affects both nations’ unem- ployment rates. B) Comparing inflation rates across countries. C) How rent ceilings impact the supply of apart- ments. D) How a tax rate increase will impact total pro- duction. Answer: C
Topic: Microeconomics and Macroeconomics Skill: Conceptual
- Which of the following is a macroeconomic issue? A) How a rise in the price of sugar affects the mar- ket for sodas. B) How federal government budget deficits affect interest rates. C) What determines the amount a firm will pro- duce. D) The cause of a decline in the price of peanut butter. Answer: B
Topic: Microeconomics and Macroeconomics Skill: Conceptual
- Which of the following is an issue in macroeco- nomics? A) the purchasing decisions that an individual con- sumer makes B) the effect of increasing the money supply on in- flation C) the hiring decisions that a business makes D) the effect of an increase in the tax on cigarettes on cigarette sales Answer: B
4 C H A P T E R 1
Topic: How Are Goods and Services Produced? Skill: Conceptual
- When China builds a dam using few machines and a great deal of labor, it is answering the ____ question. A) “what” B) “how” C) “where” D) “for whom” Answer: B
Topic: How Are Goods and Services Produced? Skill: Conceptual
- When a textile company keeps track of its inven- tory using a computer and its competitor uses a spreadsheet and pencil, they are both answering the ____ question. A) “what” B) “how” C) “for whom” D) “where” Answer: B
Topic: Human Capital Skill: Recognition
- Human capital is A) all capital owned by individuals, but not by cor- porations or governments. B) all capital owned by individuals or corporations, but not by governments. C) machinery that meets or exceeds federal safety standards for use by humans. D) the skill and knowledge of workers. Answer: D
Topic: Entrepreneurship Skill: Recognition
- Entrepreneurs do all of the following EXCEPT A) organize labor, land, and capital. B) come up with new ideas about what, how, when and where to produce. C) bear risk from business decisions. D) own all the other resources. Answer: D
Topic: For Whom are the Goods and Services Produced? Skill: Conceptual
- To answer the “for whom” question, we study A) the global economy. B) income differences. C) business cycles. D) technological change. Answer: B
Topic: For Whom are the Goods and Services Produced? Skill: Conceptual
- The fact that people with higher incomes get to consume more goods and services addresses the ____ question. A) “for whom” B) “when” C) “where” D) “how” Answer: A
Topic: Factors of Production Skill: Conceptual
- Which of the following is NOT a factor of pro- duction? A) the water used to cool a nuclear power plant. B) the effort of farmers raising cattle. C) the wages paid to workers. D) the management skill of a small business owner. Answer: C
Topic: Factors of Production Skill: Conceptual
- Which of the following is NOT a factor of pro- duction? A) a new computer used by a small business owner. B) the time worked by elementary school teachers. C) a tractor used by a wheat farmer. D) a share of stock issued by a firm. Answer: D
Topic: Labor Skill: Conceptual
- An autoworker is considered ____ and earns ____. A) labor; rent. B) entrepreneurship; wages. C) labor; wages. D) capital; rent. Answer: C
W H A T I S E C O N O M I C S? 5
Topic: Labor Skill: Conceptual
- Overtime worked by a JCPenney associate is con- sidered ____ and earns ____. A) labor; wages. B) entrepreneurship; profit. C) human capital; interest. D) labor; profit. Answer: A
The Economic Way of Thinking
Topic: What Tradeoff Skill: Conceptual
- When a university decides to add to the football stadium instead of adding to the baseball stadium, it faces the A) “what” tradeoff. B) “how” tradeoff. C) “for whom” tradeoff. D) macroeconomic question. Answer: A
Topic: What Tradeoff Skill: Conceptual
- When a farmer decides to increase the amount of acreage devoted to wheat and grow fewer acres of soybeans, the farmer is facing the A) “what” tradeoff. B) “how” tradeoff. C) “for whom” tradeoff. D) microeconomic question. Answer: A
Topic: How Tradeoff Skill: Conceptual
- When a photographer decides to use a digital camera to take shots versus using film, the pho- tographer is facing the A) “what” tradeoff. B) “how” tradeoff. C) “for whom” tradeoff. D) microeconomic question. Answer: B
Topic: How Tradeoff Skill: Conceptual
- The “how” tradeoff occurs when A) a firm decides to produce refrigerators instead of dishwashers. B) a farm uses machinery to pick oranges instead of employing migrant workers. C) the government increases income taxes paid by the rich. D) we answer the macroeconomic question. Answer: B
Topic: For Whom Tradeoff Skill: Conceptual
- When the government decides to provide tax re- lief for small businesses while placing higher taxes on large corporations, it is facing the A) “what” tradeoff. B) “how” tradeoff. C) “for whom” tradeoff. D) macroeconomic question. Answer: C
Topic: Tradeoff and Opportunity Cost Skill: Conceptual*
- Because we face scarcity, every choice involves A) money B) the question “what.” C) giving up something for nothing. D) an opportunity cost Answer: D
Topic: Opportunity Cost Skill: Recognition
- The term used to emphasize that making choices in the face of scarcity involves a cost is A) substitution cost. B) opportunity cost. C) utility cost. D) accounting cost. Answer: B
Topic: Opportunity Cost Skill: Recognition
- The loss of the highest-valued alternative defines the concept of A) marginal benefit. B) scarcity. C) entrepreneurship. D) opportunity cost. Answer: D
W H A T I S E C O N O M I C S? 7
Topic: Opportunity Cost Skill: Conceptual
- When an action is chosen, the highest-valued alternative NOT chosen is called the A) implicit cost. B) explicit cost. C) accounting cost. D) opportunity cost. Answer: D
Topic: Opportunity Cost Skill: Conceptual
- The term “opportunity cost” points out that A) there may be such a thing as a free lunch. B) not all individuals will make the most of life’s opportunities because some will fail to achieve their goals. C) executives do not always recognize opportunities for profit as quickly as they should. D) any decision regarding the use of a resource in- volves a costly choice. Answer: D
Topic: Opportunity Cost Skill: Conceptual
- During the next hour John can play basketball, watch television, or read a book. The opportunity cost of reading a book A) is how much the book cost when it was pur- chased. B) is the value of playing basketball if John prefers that to watching television. C) is the value of playing basketball and the value of watching television. D) equals how much John enjoys the book. Answer: B
Topic: Opportunity Cost Skill: Conceptual
- Misty has the option of purchasing one of three products: Brand A, Brand B, or Brand C. Each costs ten dollars. If she decides that Brand A meets her needs best, then the opportunity cost of this decision is A) Brand B plus Brand C. B) twenty dollars. C) Brand A. D) Brand B or Brand C, depending on which is considered the highest-value alternative forgone. Answer: D
Topic: Opportunity Cost Skill: Conceptual
- Which of the following is NOT an example of an opportunity cost? A) By spending Thursday night studying for an economics exam, a student was unable to com- plete a homework assignment for calculus class. B) Because David used all of his vacation time to paint his house, he was unable to visit the Car- ibbean last year. C) Because Mary is now being paid a higher wage, she can afford to buy a new car even though she is moving into a bigger apartment. D) By choosing to attend college, Jean was not able to continue working as an electrician; as a result, she gave up more than $85,000 in earnings while she was in college. Answer: C
Topic: Opportunity Cost Skill: Conceptual
- From 8 to 11 p.m., Sam can either attend a bas- ketball game, a hockey match or the symphony. Suppose that Sam decides to attend the hockey match and thinks to herself that if she did not go to the match she would go to the symphony. Then the opportunity cost of attending the hockey match is A) going to the symphony and the basketball game. B) going to the symphony. C) going to the basketball game. D) three hours of time. Answer: B
Topic: Opportunity Cost Skill: Analytical
- When the government chooses to use resources to build a dam, these sources are no longer available to build a highway. This choice illustrates the concept of A) a market mechanism. B) macroeconomics. C) opportunity cost. D) a fallacy of composition. Answer: C
8 C H A P T E R 1
Topic: Marginal Benefit/Marginal Cost Skill: Recognition
- Marginal benefit is the benefit A) that your activity provides to someone else. B) of an activity that exceeds its cost. C) that arises from the secondary effects of an activ- ity. D) that arises from an increase in an activity. Answer: D
Topic: Marginal Benefit Skill: Recognition
- The benefit that arises from an increase in an ac- tivity is called A) the marginal benefit. B) the marginal cost. C) opportunity cost. D) an incentive. Answer: A
Topic: Marginal Cost Skill: Recognition
- Marginal cost is the cost A) that your activity imposes on someone else. B) that arises from an increase in an activity. C) of an activity that exceeds its benefit. D) that arises from the secondary effects of an activ- ity. Answer: B
Topic: Marginal Benefit/Marginal Cost Skill: Conceptual*
- Laura is a manager for HP. When Laura must decide whether to produce a few additional print- ers, she is choosing at the margin when she com- pares A) the total revenue from sales of printers to the to- tal cost of producing all the printers. B) the extra revenue from selling a few additional printers to the extra costs of producing the printers. C) the extra revenue from selling a few additional printers to the average cost of producing the ad- ditional printers. D) HP’s printers to printers from competing com- panies, such as Lexmark. Answer: B
Economics: A Social Science
Topic: Positive and Normative Skill: Recognition
- In economics, positive statements are about A) the way things ought to be. B) the way things are. C) macroeconomics, not microeconomics. D) microeconomics, not macroeconomics. Answer: B
Topic: Positive and Normative Skill: Recognition
- A positive statement is A) about what ought to be. B) about what is. C) the result of a model’s normative assumptions. D) valid only in the context of a model with simple assumptions. Answer: B
Topic: Positive and Normative Skill: Recognition
- A positive statement is A) about what ought to be. B) about what is. C) always true. D) one that does not use the ceteris paribus clause. Answer: B
Topic: Positive and Normative Skill: Recognition
- A positive statement A) is an affirming statement that is strongly worded. B) is a statement of what ought to be. C) is a statement of what is. D) cannot be tested by checking it against the facts. Answer: C
1 0 C H A P T E R 1
Topic: Positive and Normative Skill: Conceptual
- The statement “Managers with a college educa- tion earn $18 an hour while ski instructors who did not complete college earn $10” is A) a political statement. B) a positive statement. C) a normative statement. D) an ethical statement. Answer: B
Topic: Positive and Normative Skill: Conceptual
- The statement “An increase in the price of gaso- line will lead to a decrease in the amount pur- chased” is A) a political statement. B) a positive statement. C) a normative statement. D) a scientific statement. Answer: B
Topic: Positive and Normative Skill: Conceptual
- Which of the following is a positive statement? A) The government must lower the price of a pizza so that more students can afford to buy it. B) The best level of taxation is zero percent because then people get to keep everything they earn. C) My economics class should last for two terms because it is my favorite class. D) An increase in tuition will cause fewer students to apply to college. Answer: D
Topic: Positive and Normative Skill: Conceptual
- Which of the following is a positive statement? A) Low rents will restrict the supply of housing. B) Low rents are good because they make apart- ments more affordable. C) Housing costs too much. D) Owners of apartment buildings ought to be free to charge whatever rent they want. Answer: A
Topic: Positive and Normative Skill: Conceptual
- The statement “The unemployment rate for teens is higher than that for adults” is A) a political statement. B) a positive statement. C) a normative statement. D) an ethical statement. Answer: B
Topic: Positive and Normative Skill: Conceptual
- The statement “Prices rise more in countries with rapid growth in the money supply” is A) a political statement. B) a positive statement. C) a normative statement. D) an ethical statement. Answer: B
Topic: Positive and Normative Skill: Recognition
- Statements about what ought to be are called A) positive statements. B) normative statements. C) assumptions. D) implications. Answer: B
Topic: Positive and Normative Skill: Recognition
- Normative statements are statements about A) prices. B) quantities. C) what is. D) what ought to be. Answer: D
Topic: Positive and Normative Skill: Recognition
- A normative statement is A) about what ought to be. B) about what is. C) always true. D) one that does not use the ceteris paribus clause. Answer: A
W H A T I S E C O N O M I C S? 1 1
Topic: Positive and Normative Skill: Recognition
- In economics, normative statements are about A) the way things ought to be. B) the way things are. C) marginal benefits, not marginal costs. D) marginal costs, not marginal benefits. Answer: A
Topic: Positive and Normative Skill: Conceptual
- Which of the following is a normative statement? A) The price of candy bars is $1.25 each. B) Candy bars are more expensive than newspapers. C) You should eat less candy. D) Popcorn and candy are sold in movie theaters. Answer: C
Topic: Positive and Normative Skill: Conceptual
- Which of the following is a normative statement? A) The unemployment rate is too high. B) Forty percent of the public believes that the un- employment rate is too high. C) The unemployment rate rose last month. D) All of the above. Answer: A
Topic: Positive and Normative Skill: Conceptual
- “Government should act to reduce poverty lev- els.” A) This statement is a normative statement. B) This statement is a positive statement. C) This statement is an example of the fallacy of composition. D) This statement is an example of the post hoc fal- lacy. Answer: A
Topic: Positive and Normative Skill: Conceptual
- When Susan makes the statement, “The govern- ment should spend less money to take care of na- tional parks,” she is A) making a normative statement. B) making a positive statement. C) testing an economic model. D) facing the standard of living tradeoff. Answer: A
Topic: Positive and Normative Skill: Conceptual
- “All children should have health insurance” is a A) positive statement B) normative statement C) fallacy of composition D) post hoc fallacy Answer: B
Topic: Positive and Normative Skill: Conceptual
- “The rich should pay higher income tax rates than the poor” is an example of a A) normative statement. B) positive statement. C) descriptive statement. D) theoretical statement. Answer: A
Topic: Positive and Normative Skill: Conceptual
- Which of the following is a normative statement? A) Studying more hours leads to an increase in your GPA. B) An increase in tax rates means people work fewer hours. C) Taking extra vitamin C prevents catching a cold. D) States should require all motorcycle riders to wear helmets to reduce the number of riders killed. Answer: D
Topic: Positive and Normative Skill: Conceptual
- Which of the following is a normative statement? A) Low rents will restrict the supply of housing. B) Low rents are good because they make apart- ments more affordable. C) Housing costs are rising. D) Owners of apartment buildings are free to charge whatever rent they want. Answer: B
W H A T I S E C O N O M I C S? 1 3
Topic: Adam Smith Skill: Recognition
- The birth of economics as an intellectual disci- pline can be dated fairly precisely in the eight- eenth century with A) the opening of the London stock exchange. B) the publication of the book, The Wealth of Na- tions. C) the introduction of paper currency. D) the development of the factory system. Answer: B
Topic: Adam Smith Skill: Recognition
- Who wrote The Wealth of Nations? A) Thomas Jefferson. B) Karl Marx. C) Adam Smith. D) Michael Parkin. Answer: C
Topic: Adam Smith Skill: Recognition
- Adam Smith wrote the book A) First Principles of Economics. B) The Wealth of Nations. C) Poverty and Progress. D) The Dismal Science. Answer: B
Topic: Adam Smith Skill: Recognition
- The author of the book The Wealth of Nations is
A) James Madison. B) Adam Smith. C) Thomas Carlyle. D) John Pierpont Morgan. Answer: B
Topic: Ceteris Paribus Skill: Recognition
- Allowing only one factor to vary at any given time, keeping all other factors constant, is using the technique of A) post hoc. B) ceteris paribus. C) composition. D) compensation. Answer: B
Topic: Ceteris Paribus Skill: Recognition
- Holding all variables except one constant and assessing the impact of the one variable which has changed is an example of using A) the ceteris paribus assumption. B) normative economic analysis. C) a flawed economic model. D) an untestable proposition. Answer: A
Topic: Ceteris Paribus Skill: Recognition
- Ceteris paribus is the Latin expression for A) the (false) statement that what is true of the parts is true of the whole or what is true of the whole is true of the parts. B) the error of reasoning that a first event causes a second event because the first event occurred be- fore the second event. C) an expression that means “other things being equal.” D) a statement about the way the economic world ought to be. Answer: C
Topic: Ceteris Paribus Skill: Recognition
- The expression that means “other things being equal” is A) The fallacy of composition. B) the post hoc fallacy. C) ceteris paribus. D) normative economics. Answer: C
Topic: Ceteris Paribus Skill: Recognition
- The Latin term “ ceteris paribus ” means A) “false unless proven true” B) “other things being equal” C) “after this, therefore because of this” D) “what is true of the whole is not necessarily true of the parts” Answer: B
1 4 C H A P T E R 1
Topic: Ceteris Paribus Skill: Recognition
- “ Ceteris paribus ” means A) what is B) what ought to be C) that which will be D) other things being equal Answer: D
Topic: Ceteris Paribus Skill: Recognition
- The term “ ceteris paribus ” means
A) using market mechanisms. B) the study of scarcity and choice. C) value free and testable. D) all other things remaining constant or equal. Answer: D
Topic: Ceteris Paribus Skill: Recognition
- “ Ceteris paribus ” means A) making all the necessary changes. B) other things being equal. C) for certain parameters. D) let the buyer beware. Answer: B
Topic: Ceteris Paribus Skill: Conceptual*
- When economists study the effects of unemploy- ment insurance on the unemployment rate by comparing the United States with Canada, they assume that other conditions in the two econo- mies do not differ significantly. This procedure is an example of A) the fallacy of composition. B) the post hoc fallacy. C) applying the ceteris paribus principle. D) falling prey to the post composition fallacy. Answer: C
Topic: Fallacy of Composition Skill: Conceptual
- The fallacy of composition is evident in which of the following statements? A) “X and Y go together, therefore X has caused Y.” B) “What is bad for the Joneses is bad for the Smiths.” C) “Technological progress helps everybody.” D) “If each farmer works harder, all farmers will be richer.” Answer: D
Topic: Fallacy of Composition Skill: Conceptual
- The fallacy of composition is the false belief that A) what is true for the parts is also true for the whole. B) because event A occurred before event B, event A caused event B. C) because event A occurred after event B, event A caused event B. D) the ceteris paribus condition does not apply. Answer: A
Topic: Fallacy of Composition Skill: Recognition
- The fallacy of composition is the (false) statement that A) theories bridge models and the real world. B) models can be positive without being normative. C) what is true of the parts is true of the whole. D) experiments can be designed to analyze human behavior. Answer: C
Topic: Fallacy of Composition Skill: Recognition
- The fallacy of composition is the A) assertion that what is true for the parts of the whole must be true for the whole. B) claim that one event caused another because the first event came first. C) use of ceteris paribus in order to study the impact of one factor. D) claim that the timing of two events has nothing to do with which event caused the other. Answer: A
1 6 C H A P T E R 1
Topic: Post Hoc Fallacy Skill: Recognition
- The post hoc, ergo propter hoc fallacy is A) the (false) statement that what is true of the parts is true of the whole or what is true of the whole is true of the parts. B) the error of reasoning that a first event causes a second event because the first event occurred be- fore the second event. C) an expression that means “other things being equal.” D) a statement about the way the economic world ought to be. Answer: B
Topic: Post Hoc Fallacy Skill: Conceptual*
- A rooster crows and then the sun rises. The rooster thinks that the sun rises because he crows. And he is very proud of it. The rooster falls prey to A) his self interest B) the post hoc fallacy C) marginal thinking D) the fallacy of composition Answer: B
Topic: Post Hoc Fallacy Skill: Conceptual
- “Every time I go to a basketball game, our team wins.” This statement is an example of A) ceteris paribus fallacy. B) fallacy of composition. C) post hoc fallacy. D) a normative economic statement. Answer: C
Topic: Post Hoc Fallacy Skill: Conceptual
- An economic expansion follows a stock market boom. A cautious economist would not claim that the stock market caused the expansion because the economist wants to avoid A) the fallacy of composition, which is an error in reasoning from timing to cause and effect. B) the post hoc fallacy, which is an error in reason- ing from timing to cause and effect. C) the fallacy of composition, which states that what is true of the parts is true of the whole. D) the post hoc fallacy, which states that what is true of the parts is true of the whole. Answer: B
Topic: Agreement and Disagreement Skill: Recognition
- Most economists agree that A) Tariffs and import restrictions make most peo- ple worse off. B) A minimum wage increases unemployment among young workers and low-skilled workers. C) Rent ceilings cut the availability of housing. D) All of the above. Answer: D
Study Guide Questions
Topic: Study Guide Question, Definition of Economics Skill: Recognition
- The fact that wants cannot be fully satisfied with available resources reflects the definition of A) the what tradeoff. B) scarcity. C) the big tradeoff. D) for whom to produce. Answer: B
Topic: Study Guide Question, Macroeconomics Skill: Recognition
- Studying the effects choices have on the individ- ual markets within the economy is part of A) scarcity. B) microeconomics. C) macroeconomics. D) incentives. Answer: C
W H A T I S E C O N O M I C S? 1 7
Topic: Study Guide Question, Two Big Economic Questions Skill: Analytical
- Which of the following is NOT part of the first big economic question? A) What goods and services are produced? B) How are goods and services produced? C) For whom are goods and services produced? D) Why do incentives affect only marginal costs? Answer: D
Topic: Study Guide Question, What Goods and Services Are Produced? Skill: Analytical
- The question, “Should Taco Bell produce more tacos or more burritos?” is an example of the A) “what” question. B) “how” question. C) “where” question. D) “for whom” question. Answer: A
Topic: Study Guide Question, “What” Tradeoff Skill: Conceptual
- The fact that KFC decides to produce chicken rather than meatloaf best reflects ____ tradeoff. A) a what B) a how C) a for whom D) an incentive Answer: A
Topic: Study Guide Question, Opportunity Cost Skill: Conceptual
- From 8 P. M to 10 P.M., Susan can attend a movie, study, or talk with friends. Suppose that Susan decides to go to the movie but thinks that, if she hadn’t, she would otherwise have talked with friends. The opportunity cost of attending the movie is A) talking with friends and studying. B) studying. C) talking with friends. D) two hours of time. Answer: C
Topic: Study Guide Question, Opportunity Cost Skill: Conceptual
- When the government hires people to serve in the army, these people are no longer available to do other work. This choice illustrates the concept of A) an incentive. B) a social interest/private interest conflict. C) opportunity cost. D) marginal benefit. Answer: C
Topic: Study Guide Question, Positive and Normative Skill: Recognition
- A normative statement is A) about what ought to be. B) about what is. C) always true. D) one that does not use the ceteris paribus clause. Answer: A
Topic: Study Guide Question, Positive and Normative Skill: Recognition
- Which of the following is a positive statement? A) The government must provide health insurance so that the poor can obtain decent medical treatment. B) The government should spend more on educa- tion. C) My favorite dinner is pizza and soda. D) An increase in the price of pizza will lead fewer students to buy pizza. Answer: D
Topic: Study Guide Question, Economic Model Skill: Recognition
- An economic model includes A) post hoc statements. B) no use of ceteris paribus. C) all known details in order to increase its accu- racy. D) only details considered essential. Answer: D
W H A T I S E C O N O M I C S? 1 9
Topic: Choices at the Margin Level 1: Definitions and Concepts
- Making a choice at the margin means ____. A) letting someone else choose for you B) waiting until the last minute to make a choice C) deciding to do a little bit more or a little bit less of an activity D) making a choice by comparing the total benefit and the total cost Answer: C
Topic: Choices at the Margin Level 1: Definitions and Concepts
- Suppose that for the past two months, you have studied economics one hour a day. You now de- cide to study economics two hours a day. For the past two months, ____. A) your marginal cost of studying economics for an hour must have exceeded its marginal benefit B) the marginal cost of studying economics must have fallen C) your marginal benefit from studying economics an hour must have been greater than its mar- ginal cost D) the opportunity cost of studying economics must have risen. Answer: C
Topic: Incentives, Marginal Cost and Marginal Benefit Level 1: Definitions and Concepts
- If the cost of a computer falls by a large amount, you have an incentive to ____. A) buy a new computer B) take a shorter vacation C) use your friend’s computer rather than buy one yourself D) avoid buying anew computer because it is now less valuable Answer: A
Topic: Positive and Normative Level 1: Definitions and Concepts
- The statement that ____ is a positive statement. A) more students should study economics B) the price of gasoline is too high C) too many people in the United States have no health care insurance D) the price of sugar in the United States is higher than the price in Australia Answer: D
Topic: Economic Science Level 1: Definitions and Concepts
- The task of economic science is to ____. A) help us understand how the economic world works B) tell us what is good for us C) make moral choices about things like drugs D) save the earth from the overuse of natural re- sources Answer: A
Topic: Economic Science Level 1: Definitions and Concepts
- Economists make progress by ____. A) concentrating on clarifying all normative state- ments while disregarding positive statements B) discarding normative statements that do not pass extensive testing C) building and testing economic models D) asking people whether they are better off or worse off Answer: C
Topic: Ceteris Paribus Level 1: Definitions and Concepts
- The term ceteris paribus means ____. A) other things being equal B) equal access to public transportation C) when other things all change D) for better or worse Answer: A
Topic: Post Hoc Fallacy Level 1: Definitions and Concepts
- Which statement is an example of the post hoc fallacy? A) Fans crowding into a college football stadium cause the football game to be played. B) There should be equal access to public transpor- tation. C) The reason cows are not an endangered species is because many people eat beef. D) Hold everything constant except the price of juice. Answer: A
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Topic: Fallacy of Composition Level 1: Definitions and Concepts
- The statement that ____ is an example of the fallacy of composition. A) the ceteris paribus fallacy cannot lead to the post hoc fallacy B) all children should have equal access to good public transportation C) end-of the-year holiday season shopping causes the holiday season D) if one fan at a football can see better by stand- ing, then all fans can see better if they all stand Answer: D
Topic: Agreement and Disagreement Level 1: Definitions and Concepts
- Economists generally agree that ____. A) minimum wages increase the employment of low-skilled workers B) rent ceilings cut the availability of housing C) a large budget deficit makes no significant dif- ference D) tariffs make people better off Answer: B
