Multiple Choice Tutorial Chapter 1 The Art and Science of

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Transcript Multiple Choice Tutorial Chapter 1 The Art and Science of

Multiple Choice Tutorial
Chapter 1
The Art and Science of
Economic Analysis
1. When is a good or service scarce?
a. it is rare and hard to come by.
b. there is not enough of it available for
everybody who wants it for free.
c. there is plenty available for everyone who
wants it.
d. there is a shortage.
B. Scarcity means that there is not enough of
something so that everyone who wants it
cannot have it for free. In this case, how do
we decide who gets? Everything that is scarce
will have a price, the price determines who
gets and who does not get.
2. Human wants and desires are
a. eventually satisfied in any society
b. constant from one time period to the next
c. virtually unlimited
d. limited and scarce
C. In our analysis of economics we assume
that when given a choice, people would
want more rather than less. Each time
people make a choice between alternatives,
the choice made is the one that they believe
will increase their total welfare.
3. Scarcity is an economic problem
a. only in capitalist economies.
b. only in command economies.
c. only in poor countries.
d. in every country and in every household.
D. The only way not to have scarcity is for
everyone to have everything they want for
free, an impossible situation.
4. Economic analysis would be unnecessary if
there were no
a. taxes
b. government
c. scarcity
d. money
C. All of economic analysis revolves around
the fact that we live in a world of scarce
resources. Therefore, the problem becomes,
how do we meet people’s wants and needs
in this world of scarcity?
5. Because resources are scarce,
a. opportunity costs are zero
b. people must make choices among
c. all human wants and desires can be
d. resource prices are flexible
B. No matter what economic system people
live in, all people’s in every society are faced
with the problem of scarcity.
6. Economics deals with the problems caused by
a. scarce resources and unlimited wants.
b. scarce resources and limited wants.
c. abundant resources and unlimited wants.
d. abundant resources and limited wants.
A. No matter what political system people
live under there will always be people
who want more than the economy can
provide them for free.
7. Resources are divided into the following
broad categories:
a. men, money, and machines.
b. saving, spending, investment, and capital.
c. human, technological, and government.
d. land, labor, capital, and entrepreneurial
D. The four resources to grow an
economy are land, labor, capital, and in
a free market, entrepreneurship. In a
command system, the fourth resource
would be the government.
8. In economics, “land” refers
a. only to plots of ground on the surface of the
b. to the specific area of the earth in a
country or region.
c. to rural regions as distinguished from
urban areas.
d. to any and all natural resources.
D. A land resource is anything from the earth.
Some examples of a land resource are:
timber, fresh water, fertile land, copper, iron
ore, gold, silver, and anything else that can be
used from the earth that can be used to
produce goods and services.
9. Physical and mental human effort is
defined in economics as
a. labor
b. manpower
c. productivity
d. performance
A. The labor that we are talking about here is
directed and productive labor. Labor that is
directed to the production of goods and
services helps build a productive economy.
10. Labor is ultimately derived from
a. capital
b. technology
c. natural resources
d. time
D. This is particularly true when it comes to
skilled labor. It takes time to acquire the
knowledge and skills to be productive in this
high tech economy we live in.
11. In economics, “capital” refers to
a. money.
b. stocks, bonds, and other financial assets.
c. the seat of government.
d. machines, buildings, and tools.
D. Capital are those resources which can be
used to produce goods and services.
12. Which of the following is not an example
of “capital”?
a.the copy machine which duplicated this
b. an economics professor’s knowledge of
c. the building in which this class is located
d. the amount of tuition which you paid for
this class
D. The copy machine and the school building
are tangible things used in the productive
process. The economic professor’s knowledge
is what we call human capital, the knowledge
necessary to work with capital. But the tuition
you pay is neither capital or human capital.13
13. An entrepreneur is
a. an intermediary between buyers and sellers
in the marketplace.
b. the organizer who seeks profitable
opportunities and is willing to accept risks.
c. a business organization involved in using
inputs to produce output.
d. the administrator who runs an enterprise
without accepting any risk of financial loss.
B. Someone has to decide what and how to
produce goods, in a command economy it is
the government, in a free market, it is the
14. Managerial and organizational skills are
categorized as
a. physical capital
b. technological ability
c. entrepreneurial ability
d. human labor
C. Anyone can be an entrepreneur, it does not
necessarily take a lot of money.
Entrepreneurship is an attitude more than
anything else. If you have dreams of owning
your own business and have a plan to start
and and develop that business into a
profitable venture, and take action on your
dreams, you are an entrepreneur.
15. Payment for the use of natural resources
in a production process is called
a. rent.
b. wages.
c. interest.
d. profit.
A. When a person lets someone use their land,
the payment they receive is called rent.
16. Payment for the use of financial capital in
a production process is called
a. rent.
b. wages.
c. interest.
d. profit.
C. Financial capital is money used to purchase
capital. The return a persons can make when
they lend someone this money to purchase
capital is called interest. The same is true if
the capital itself was lent out.
17. In a production process, profit is the
payment received by the
a. capital.
b. labor
c. technology.
d. entrepreneur.
D. The reward to someone to take risks in a
business venture is called profit.
18. Profit is also known as
a. rent
b. mark-up
c. the monetary aggregate
d. the residual claimed by the entrepreneur
D. Residual is that which is left over. When
one tallies up the total revenue and the
total costs as a result of a business venture,
if there is something left over, that
something is called profit. If there is a
deficit, a loss is incurred.
19. Unlike a service, a good
a. is desirable
b. uses resources to satisfy wants
c. is physical and tangible
d. is abundant and free
C. The word ‘good’ is a term economists use
to signify something physical and tangible
that is useful.
20. Goods and services which are considered free
a. are the most important topics for economic
b. are produced at no cost to society or the the
c. usually involve some real opportunity cost
d. are undesirable
C. Each time a choice is made an opportunity
costs is incurred. To do one thing, even if it
involves a free good, something else has to
be given up. Even if you drink water from a
drinking fountain, you cannot drink a soda
pop at the same time. So the soda pop that
you did not drink is an opportunity cost. 21
21. Households
a. own and sell resources
b. play a very minor role in the economy
c. produce goods and services
d. none of the above
A. A home is an example of this. People can
own everything that can go into a house.
Households can sell the house and
everything in the house.
22. Goods and services are exchanged in
a. product markets.
b. resource markets.
c. inventory markets.
d. classified markets.
A. Consumers buy products in retail
stores. Therefore this market is called the
product market. Business buy goods and
services in the resource market. The
resource market is where land, labor,
and capital are exchanged.
23.The labor market is an example of a
a. government market.
b. classified market.
c. communication market.
d. resource market.
D. Labor is one of the four resources. The
market that labor is bought and sold is
therefore called the resource market.
24. The economic behavior of individual
decision makers and the determination of
price and output in specific markets are both
studies in
a. microeconomics.
b. macroeconomics.
c. positive economics.
d. normative economics.
A. Microeconomics is the study of the decision
making process of economics.
25. In macroeconomics, we analyze the
a. all of the following.
b. overall performance of the economy as a
c. arrangements through which specific
products are exchanged.
d. influences on the decision making of
particular households.
B. Macroeconomics is the study the economy in
the large, it’s like if you were flying over the
economy and able to see how all the different
parts fit together.
26. The assumption of rational self-interest
means that economic decision makers
a. have no concern for the welfare of others.
b. consider the welfare of others to be more
important than their own happiness.
c. know with certainty which choice will have
the best result.
d. make reasonable decisions based on their
expectations of results.
D. In order to make predictions as what people
will do when faced with choices, we have to
assume that they will act rationally.
27. In economics, the term “marginal” refers to
a. a change in an economic variable.
b. a low quality product or resource.
c. an unimportant and irrelevant economic
d. all-or-nothing economic decisions.
A. Marginal is the last increment or the
last unit of something. Marginal product,
for example, is the amount of money
brought into a business by selling the last
unit of output.
28.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. expected marginal benefit exceeds
expected marginal cost
D. Marginal benefit is measured by how much
benefit one receives from the last act;
marginal cost is a measure of the cost of that
last act. One will chose to do something if the
marginal benefit of the last act is greater than
the marginal cost of that last act.
29.When economic choice involves adjustment
to the existing situation, marginal analysis
a. has no practical applications or real-world
b. eliminates incorrect decisions and bad
c. means comparing the additional costs and
additional benefits of an activity before
C. People make decisions based on the margin.
For example, a person will buy a soda pop
only if the expected pleasure received is
greater than the value placed on the money
that has to be given up to purchase the drink.
30. Economic information
a. is scarce and costly to acquire
b. is available for free to any decision maker
c. is not required for rational decision making
d. must be complete before any decision is
A. The government and businesses spend an
enormous amount of resources on acquiring
31. An economic model is useful only if it
a. includes every detail of reality
b. makes no unproven assumptions
c. is mathematical, and is expressed in
d. makes accurate predictions
D. An economic model is a picture of a series of
events. It portrays a simplification of reality
and is used to make predictions about the
real world. The purpose of the model is to
help us understand what is and what the
results will be as certain variables change.
32. The scientific method is useful
a. only in fields of science such as chemistry
and physics
b. for testing the validity of theoretical
c. for testing the validity of a model’s
d. when no economic variables can be
assumed to be constant
B. The four steps to the scientific method are:
identify and define the key variables, specify
the assumptions, formulate an hypothesis,
test the hypothesis.
33. The “ceteris paribus” assumption means
a. “after all other changes have been taken
into consideration”.
b. “all economic decision makers behave
according to rational self-interest”.
c. “marginal benefit equals marginal cost”
d. “holding all other variables constant”.
D. Economists can make predictions only if one
variable changes and everything else stays
the same. For example, people will buy more
Cadillac cars when the price goes down,
assuming that their incomes or the price of
other luxury cars do not change.
34.A hypothesis is
a. an assumption about behavior
b. useful only if the assumptions are realistic
c. useful in microeconomics, but not in
d. a prediction of what will occur, given
certain assumptions
D. In any theory, the accuracy of the theory is
predicated upon the assumptions made. If the
assumptions are not truthful, one’s
conclusions will be incorrect.
35. A model which sometimes makes incorrect
predictions will be used by economic
decision makers
a. under no circumstances
b. only if its assumptions are detailed and
c. if it is mathematical and computerized
d. until a better model is developed
D. As events and conditions change in the real
world, so it is necessary to refine economic
models. Otherwise the models will not
portray the real world.
36. Economic theory is designed to
a. express normative values
b. invent an imaginative and interesting story
c. predict the behavior of a specific economic
decision maker after an economic change
d. predict the average behavior of a group of
similar economic decision makers after an
economic change
D. There are always exemptions to the rule. In
economics we are interested in what is true
most of the time for the majority of people.
37.The difference between positive economic
statements and normative economic
statements is that
a. positive statements are based on opinion
and normative statements are based on fact.
b. positive statements are true and normative
statements are often false.
c. positive statements are based on fact and
normative statements are based on opinion.
C. Positive economics is the study of what
actually happens. For example, to predict that
people will buy more Cadillac cars when the
price goes down is an example of positive
economics. To say that people should not waste
money on luxury is normative economics. 38
38. If one were to commit the association-iscausation fallacy, one would conclude that
a. an event which follows another event was
caused by the first event.
b. an event which follows another event was
not necessarily caused by the first event.
c. the simplest model is the best predictor.
d. what is true for the individual is also true
for the group.
A. If you were raised on a farm and as a youth
you believed the rooster growing caused the
sun to come up everyday, you would be guilty
of the association-is-causation fallacy.
39. If one commits the fallacy of composition, it
is likely that the individual is assuming
a. the simplest model is the best predictor.
b. an event which follows another event was
caused by the first event.
c. an event which follows another event was
not necessarily caused by the first event.
d. what is true for the individual is also true
for the group.
D. If you were at a football game, it is true that
you will get a better view if you stand up only
if everyone else does not stand up at the same
40.The secondary effects of a policy are
a. unintended consequences, which may be
b. intentional and desirable, but require more
time to take effect than the primary effect of
the policy
c. unimportant and should be ignored by
policy makers
d. immediately obvious to decision makers
A. When building an economic model and
making the assumptions, it is always possible
that not everything germane to the situation is
considered. Or, if considered, it is not
considered in the correct way.