question
Define: Allocative efficiency
answer
A state of the economy in which production is in accordance with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it.
Marginal benefit = Marginal Cost
Marginal benefit = Marginal Cost
question
Define: Centrally planned economy
answer
An economy in which the government decides how economic resources will be allocated.
question
Define: Economic model
answer
A simplified version of reality used to analyze real-world economic situations
question
Define: Economic variable
answer
Something measurable that can have different values, such as the wages of software programmers.
question
Define: Economics
answer
The study of the choices people make to attain their goals, given their scarce resources.
question
Define: Equity
answer
The fair distribution of economic benefits.
question
Define: Macroeconomics
answer
The study of the economy as a whole, including topics such as inflation, unemployment, and economic growth.
question
Define: Marginal analysis
answer
Analysis that involves comparing marginal benefits and marginal costs
question
Define: Market
answer
A group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade.
question
Define: Market economy
answer
An economy in which the decisions of households and firms interacting in markets allocate economic resources.
question
Define: Microeconomics
answer
The study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.
question
Define: Mixed economy
answer
An economy in which most economic decisions result from the interaction of buyers and sellers in markets but in which the government plays a significant role in the allocation of resources.
question
Define: Normative analysis
answer
Analysis concerned with what ought to be.
question
Define: Opportunity cost
answer
The highest-valued alternative that must be given up to engage in an activity.
question
Define: Positive analysis
answer
Analysis concerned with what is.
question
Define: Productive efficiency
answer
A situation in which a good or service is produced at the lowest possible cost.
question
Define: Scarcity
answer
A situation in which unlimited wants exceed the limited resources available to fulfill those wants.
question
Define: Trade-off
answer
The idea that because of scarcity, producing more of one good or service means producing less of another good or service.
question
Define: Voluntary exchange
answer
A situation that occurs in
markets when both the buyer and seller of a
product are made better off by the transaction
markets when both the buyer and seller of a
product are made better off by the transaction
question
Which of the following questions could be answered using economics?
a. "How are the prices of goods and services determined?"
b. "How does pollution affect the economy, and how should government policy deal with these effects?"
c. "Why do firms engage in international trade, and how do government policies affect international trade?"
d. All of the above are economic questions.
a. "How are the prices of goods and services determined?"
b. "How does pollution affect the economy, and how should government policy deal with these effects?"
c. "Why do firms engage in international trade, and how do government policies affect international trade?"
d. All of the above are economic questions.
answer
D
question
Which of the following statements best defines scarcity?
a. Scarcity studies the choices people make to attain their goals.
b. Scarcity is a situation in which unlimited wants exceed the limited resources available to fulfill
those wants.
c. Scarcity is an imbalance between buyers and sellers in a specific market.
d. Scarcity refers to a lack of trade-offs.
a. Scarcity studies the choices people make to attain their goals.
b. Scarcity is a situation in which unlimited wants exceed the limited resources available to fulfill
those wants.
c. Scarcity is an imbalance between buyers and sellers in a specific market.
d. Scarcity refers to a lack of trade-offs.
answer
B
question
When you think of an arrangement or institution that brings buyers and sellers of a good or service
together, what are you thinking of?
a. marginal analysis
b. a market
c. scarcity
d. rational behavior
together, what are you thinking of?
a. marginal analysis
b. a market
c. scarcity
d. rational behavior
answer
B
question
Fill in the blanks. In economics, as well as in life, optimal decisions are made _____________.
a. once all costs have been considered
b. only when all benefits have been considered
c. in their totality
d. at the margin
a. once all costs have been considered
b. only when all benefits have been considered
c. in their totality
d. at the margin
answer
D
question
In Solved Problem 1-1: "Apple Computer Makes a Decision at the Margin" which of the concepts below is most applicable in solving the problem?
a. the concept of what a market is
b. rational behavior and how people respond to economic incentives c. marginal analysis
d. the concept of scarcity and trade-offs
a. the concept of what a market is
b. rational behavior and how people respond to economic incentives c. marginal analysis
d. the concept of scarcity and trade-offs
answer
C
question
Which of the following is not among the fundamental economic questions that every society must solve?
a. What goods and services will be produced?
b. How will the goods and services be produced?
c. What goods and services will be exchanged?
d. Who will receive the goods and services produced?
a. What goods and services will be produced?
b. How will the goods and services be produced?
c. What goods and services will be exchanged?
d. Who will receive the goods and services produced?
answer
C
question
What types of economies require that answers be given to the following questions: what goods and services will be produced, how will the goods and services be produced, and who will receive the goods and services produced?
a. market economies
b. centrally planned economies
c. mixed economies
d. all of the above
a. market economies
b. centrally planned economies
c. mixed economies
d. all of the above
answer
D
question
In what type of economy does the government decide how economic resources will be allocated?
a. a market economy
b. a mixed economy
c. a centrally planned economy
d. none of the above
a. a market economy
b. a mixed economy
c. a centrally planned economy
d. none of the above
answer
C
question
Which of the following is the best classification for the economies of the United States, Canada,
Japan, and Western Europe?
a. market economies
b. mixed economies
c. centrally planned economies
d. none of the above
Japan, and Western Europe?
a. market economies
b. mixed economies
c. centrally planned economies
d. none of the above
answer
B
question
Which of the following terms best refers to a fair distribution of economic benefits?
a. productive efficiency
b. allocative efficiency
c. voluntary exchange
d. equity
a. productive efficiency
b. allocative efficiency
c. voluntary exchange
d. equity
answer
D
question
Which of the following is achieved when a good or service is produced up to the point where the
marginal benefit to consumers is equal to the marginal cost of producing it?
a. productive efficiency
b. allocative efficiency
c. equality
d. equity
marginal benefit to consumers is equal to the marginal cost of producing it?
a. productive efficiency
b. allocative efficiency
c. equality
d. equity
answer
B
question
Which of the following terms summarizes the situation in which a buyer and a seller exchange a
product in a market and, as a result, both are made better off by the transaction?
a. productive efficiency
b. allocative efficiency
c. voluntary exchange
d. equity
product in a market and, as a result, both are made better off by the transaction?
a. productive efficiency
b. allocative efficiency
c. voluntary exchange
d. equity
answer
C
question
What does an economy achieve by producing a good or service at the least possible cost?
a. productive efficiency
b. allocative efficiency
c. voluntary exchange
d. equity
a. productive efficiency
b. allocative efficiency
c. voluntary exchange
d. equity
answer
A
question
Which of the following best describes the characteristics of models used in economics?
a. Models are approximations to reality that capture as many details as possible.
b. Models are usually complex abstractions of reality that simulate practical problems.
c. Models are concerned with what economic policies ought to be.
d. Models are simplifications of reality that include only essential elements and exclude less
relevant details.
a. Models are approximations to reality that capture as many details as possible.
b. Models are usually complex abstractions of reality that simulate practical problems.
c. Models are concerned with what economic policies ought to be.
d. Models are simplifications of reality that include only essential elements and exclude less
relevant details.
answer
D
question
Which of the following is not an essential component of an economic model?
a. assumptions
b. hypotheses
c. variables
d. normative statements
a. assumptions
b. hypotheses
c. variables
d. normative statements
answer
D
question
What is the purpose of an economic hypothesis?
a. to establish a behavioral assumption
b. to establish a causal relationship
c. to make a statement based on fact
d. to determine the validity of statistical analyses used in testing a model
a. to establish a behavioral assumption
b. to establish a causal relationship
c. to make a statement based on fact
d. to determine the validity of statistical analyses used in testing a model
answer
B
question
What type of economic analysis is concerned with the way things ought to be?
a. positive analysis
b. marginal analysis
c. normative analysis
d. rational behavior
a. positive analysis
b. marginal analysis
c. normative analysis
d. rational behavior
answer
C
question
What type of statement would "A minimum wage actually reduces employment" be considered?
a. a positive statement
b. a marginal statement
c. a normative statement
d. an irrational conclusion
a. a positive statement
b. a marginal statement
c. a normative statement
d. an irrational conclusion
answer
A
question
Which of the following is an example of a positive question?
a. Should the university offer free parking to students?
b. Should the university provide more financial aid assistance to students?
c. If the college increased tuition, would class sizes decline?
d. Should the college cut tuition to increase enrollments?
a. Should the university offer free parking to students?
b. Should the university provide more financial aid assistance to students?
c. If the college increased tuition, would class sizes decline?
d. Should the college cut tuition to increase enrollments?
answer
C
question
Which of the following questions can be answered using normative economic reasoning?
a. If a college offers free parking, will more students drive to campus?
b. If a college provided more financial aid, would more students go to college?
c. If a college hires better qualified instructors, will more students attend?
d. Should a college cut tuition to stimulate enrollments?
a. If a college offers free parking, will more students drive to campus?
b. If a college provided more financial aid, would more students go to college?
c. If a college hires better qualified instructors, will more students attend?
d. Should a college cut tuition to stimulate enrollments?
answer
D
question
Which of the following involves an estimation of the benefits and costs of a particular action?
a. positive analysis
b. normative analysis
c. the market mechanism
d. an irrational conclusion
a. positive analysis
b. normative analysis
c. the market mechanism
d. an irrational conclusion
answer
A
question
What type of assessment is one in which a person's values and political views form part of that
assessment?
a. a positive assessment
b. a normative assessment
c. a microeconomic assessment
d. a macroeconomic assessment
assessment?
a. a positive assessment
b. a normative assessment
c. a microeconomic assessment
d. a macroeconomic assessment
answer
B
question
Fill in the blank: ____________ is the study of how households and businesses make choices, how
they interact in markets, and how the government influences their choices.
a. Microeconomics
b. Macroeconomics
c. A market mechanism
d. Marginal analysis
they interact in markets, and how the government influences their choices.
a. Microeconomics
b. Macroeconomics
c. A market mechanism
d. Marginal analysis
answer
A
question
Which of the following covers the study of topics such as inflation and unemployment?
a. microeconomics
b. macroeconomics
c. Both microeconomics and macroeconomics give equal emphasis to these problems.
d. none of the above
a. microeconomics
b. macroeconomics
c. Both microeconomics and macroeconomics give equal emphasis to these problems.
d. none of the above
answer
B
question
What is the name given to the development of a new good or a new process for making a good?
a. an invention
b. an innovation
c. entrepreneurship
d. capital
a. an invention
b. an innovation
c. entrepreneurship
d. capital
answer
A
question
What is the name given to the practical application of an invention?
a. a model
b. an innovation
c. voluntary exchange
d. capital
a. a model
b. an innovation
c. voluntary exchange
d. capital
answer
B
question
What is the stock of computers, factory buildings, and machine tools used to produce goods better
known as?
a. physical capital
b. technology
c. innovation
d. goods and services
known as?
a. physical capital
b. technology
c. innovation
d. goods and services
answer
A
question
Human capital is
a. physical capital produced by human resources.
b. stocks and bonds that are owned by humans rather than corporations.
c. the accumulated training and skills that workers possess.
d. physical capital owned by humans rather than corporations.
a. physical capital produced by human resources.
b. stocks and bonds that are owned by humans rather than corporations.
c. the accumulated training and skills that workers possess.
d. physical capital owned by humans rather than corporations.
answer
C
question
Question 29 Graphs
Which of the following graphs shown below is the graph of a single variable?
a. A
b. B
c. C
d. all of the above
Which of the following graphs shown below is the graph of a single variable?
a. A
b. B
c. C
d. all of the above
answer
D
question
Question 30 Graphs
Which of the following is a graph of the relationship between two variables?
a. the graph on the left
b. the graph on the right
c. both graphs
d. neither graph
Which of the following is a graph of the relationship between two variables?
a. the graph on the left
b. the graph on the right
c. both graphs
d. neither graph
answer
A
question
Fill in the blanks. The slope of a straight line equals the change in value on the ____________ axis
____________ by the change in the value on the other axis between any two points on the line.
a. horizontal; multiplied
b. horizontal; divided
c. vertical; multiplied
d. vertical; divided
____________ by the change in the value on the other axis between any two points on the line.
a. horizontal; multiplied
b. horizontal; divided
c. vertical; multiplied
d. vertical; divided
answer
D
question
Question 32 Graph
Refer to the graph below. What is the value of the slope of this line?
a. −5
b. −1/5
c. −1
d. There is insufficient information to compute the slope of this line.
Refer to the graph below. What is the value of the slope of this line?
a. −5
b. −1/5
c. −1
d. There is insufficient information to compute the slope of this line.
answer
B
question
33. Refer to the graph below. Which of the following explains why the line shifts to the right?
a. There was a change in the price of pizza.
b. There was a change in the quantity of pizza demanded.
c. There was a change in a third variable other than the price or quantity of pizza demanded.
d. all of the above
a. There was a change in the price of pizza.
b. There was a change in the quantity of pizza demanded.
c. There was a change in a third variable other than the price or quantity of pizza demanded.
d. all of the above
answer
C
question
34. Refer to the graph below. How many variables are involved in explaining the move from point A to
point C on this graph?
a. one
b. two
c. three
d. more than three, at least four
point C on this graph?
a. one
b. two
c. three
d. more than three, at least four
answer
A
question
35. Suppose that there are three variables involved in the graph below: (1) quantity, (2) price, and (3) a
third variable. Which of those variables causes the move from point C to point D in the graph?
a. the first variable, quantity
b. the second variable, price
c. the third variable
d. either a. or b.
third variable. Which of those variables causes the move from point C to point D in the graph?
a. the first variable, quantity
b. the second variable, price
c. the third variable
d. either a. or b.
answer
C
question
36. Refer to the graph below. What is the best descriptor of the relationship between disposable personal
income and consumption spending?
a. a positive relationship
b. a negative relationship
c. a relationship that is sometimes positive and sometimes negative
d. a relationship that may be positive and negative, but sometimes neither positive nor negative
income and consumption spending?
a. a positive relationship
b. a negative relationship
c. a relationship that is sometimes positive and sometimes negative
d. a relationship that may be positive and negative, but sometimes neither positive nor negative
answer
A
question
37. Refer to the graph below. What can be said about the value of the slope of this curve?
a. The value of the slope is greater between points i and j than between points g and h.
b. The value of the slope is greater between points g and h than between points i and j.
c. The value of the slope is the same between any two points along the curve.
d. We cannot determine whether the slope is greater between g and h or i and j because the
relationship between "Points on exam' and "Study time" is not linear.
a. The value of the slope is greater between points i and j than between points g and h.
b. The value of the slope is greater between points g and h than between points i and j.
c. The value of the slope is the same between any two points along the curve.
d. We cannot determine whether the slope is greater between g and h or i and j because the
relationship between "Points on exam' and "Study time" is not linear.
answer
B
question
Let V1 equal the value of a variable in period 1, and V2 equal the value of the same variable in period
2. What is the rate of growth between periods 1 and 2?
a. [(V1 + V2)/2]×100
b. [(V2 - V1)/V1]×100
c. (V2 - V1)/(V1 + V2)
d. V2 - V1
2. What is the rate of growth between periods 1 and 2?
a. [(V1 + V2)/2]×100
b. [(V2 - V1)/V1]×100
c. (V2 - V1)/(V1 + V2)
d. V2 - V1
answer
B
question
39. Refer to the graph below. Which of the formulas below must you apply to compute the shaded area
shown on the graph?
a. Base × Height
b. ½ × Base × Height
c. 2 × Base × Height
d. none of the above
shown on the graph?
a. Base × Height
b. ½ × Base × Height
c. 2 × Base × Height
d. none of the above
answer
B
question
40. Refer to the graph below. What is the name of the area contained in rectangle A?
a. total cost
b. total revenue
c. price
d. average cost
a. total cost
b. total revenue
c. price
d. average cost
answer
B
question
41. Refer to the graph below. What is the value of the shaded area shown on the graph?
a. $300,000
b. $225,000
c. $62,500
d. $6,250
a. $300,000
b. $225,000
c. $62,500
d. $6,250
answer
D
question
42. Refer to the graph below. What is the value of the area contained in rectangle A? a. $2.00 b. $125,000 c. $250,000 d. There is not enough information to determine the area.
answer
C
question
Why do economists distinguish between financial capital and physical capital?
answer
Economists distinguish financial capital and physical capital because only physical capital (for example, machinery, tools, and buildings) is a productive resource. Financial capital includes stocks, bonds, and holdings of money. Financial capital is not part of a country's capital stock, because financial capital does not produce output.
question
Explain the difference between productive efficiency and allocative efficiency.
answer
Productive efficiency is the situation in which a good or service is produced at the lowest possible cost. Allocative efficiency is a state of the economy in which production reflects consumer preferences: every good or service is produced to the point at which the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it.
question
Economists rely on economic models and tests of hypotheses to analyze real-world issues. The
use of models and hypothesis testing is common in the natural sciences such as physics and
chemistry. Yet, economics is considered a social science, not a natural science. Why?
use of models and hypothesis testing is common in the natural sciences such as physics and
chemistry. Yet, economics is considered a social science, not a natural science. Why?
answer
Economics, unlike physics and chemistry, is a social science because it applies the use of models and hypothesis testing to the study of the interactions of people.
question
Write an example of a positive statement and an example of a normative statement
answer
Positive statements are statements of facts, or statements that can be proven to be correct or incorrect.
For example: "Abraham Lincoln was the 15th president of the United States." (This is a false
statement—Lincoln was the 16th president—but it is still a positive statement.) A normative
statement is an opinion or a statement of what should or ought to be. For example: "The United
States should elect a female as president of the United States."
For example: "Abraham Lincoln was the 15th president of the United States." (This is a false
statement—Lincoln was the 16th president—but it is still a positive statement.) A normative
statement is an opinion or a statement of what should or ought to be. For example: "The United
States should elect a female as president of the United States."
question
Duncan Grant, a freshman economics student at John Borts University, claimed that fresh water is
a necessity for all human beings. When asked by his economics instructor if he would be willing
to buy a 16 ounce bottle of water for $5.00, Duncan declined. What economic principle would
explain Duncan's refusal to buy something that he insists is a necessity?
a necessity for all human beings. When asked by his economics instructor if he would be willing
to buy a 16 ounce bottle of water for $5.00, Duncan declined. What economic principle would
explain Duncan's refusal to buy something that he insists is a necessity?
answer
The principle that best describes Duncan's refusal to pay for the bottle of water is marginal analysis. The total benefit to people from fresh water is very high but the marginal benefit of water—the benefit to Duncan from an additional 16 ounces of water—is very low. Duncan probably is not very thirsty. If Duncan had not had anything to drink for two days, the benefit to him of the next 16 ounces of water he drinks would be much higher, and he might have been willing to pay the $5, or more, for a bottle of water.
question
True or False:Stating a hypothesis in an economic model is an example of normative analysis.
answer
F
question
True or False: An entrepreneur is someone who works for a government agency
answer
F
question
True or False: Economists assume that human beings respond only to monetary incentives.
answer
F
question
True or False: In a centrally planned economy the goods and services produced are always distributed
equally to all citizens.
equally to all citizens.
answer
F
question
True or False: Equity is achieved when economic benefits are equally distributed.
answer
F
question
True or False: A mixed economy is an economy in which the three fundamental questions (What? How?
Who?) are answered by a mixture of consumers and producers.
Who?) are answered by a mixture of consumers and producers.
answer
F
question
True or False: Both market economies and centrally planned economies face trade-offs when producing
goods and services.
goods and services.
answer
T
question
True or False: When economists assume people are rational, this means that consumers and firms use
available information to achieve their goals.
available information to achieve their goals.
answer
T
question
True or False:Government intervention in the U.S. economy increased dramatically as a result of the Great
Depression.
Depression.
answer
T
question
True or False: Economists use normative analysis to show that the minimum wage law causes
unemployment.
unemployment.
answer
F
question
True or False: Microeconomics is the study of how households and firms make choices, how they interact
in markets, and how the government attempts to influence their choices.
in markets, and how the government attempts to influence their choices.
answer
T
question
True or False: The slope of a straight line is the same at any point.
answer
T
question
True or False: To measure the slope of a nonlinear curve at a particular point one must draw a straight line from
the origin to the point. The slope of this line is equal to the slope of the curve at that point.
the origin to the point. The slope of this line is equal to the slope of the curve at that point.
answer
F
question
True or False:All societies face the economic problem of having a limited amount of economic resources.
answer
T
question
True or False: Economic models can help analyze simple real-world economic situations but are of little
value in analyzing complicated economic situations.
value in analyzing complicated economic situations.
answer
F
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