Deck 1: The Art and Science of Economic Analysis

Question 1

Some individuals or families can become completely saturated with aservice 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 1

B

Question 2

Rent is the payment received by resource owners for the use of their naturalresources.

Answer 2

True

Question 3

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

A)only the rich get everything they want
B)choices must be made
C)there will be more services produced than goods
D)people search for spiritual fulfillment rather than material fulfillment
E)poor people never get anything they want

Answer 3

B

Question 4

Michigan has an abundant supply of fresh water.However, an economistwould consider it a scarce resource because

A)water is necessary for humans' physical survival
B)pollution will eventually destroy all life in the Great Lakes
C)water is limited relative to people's unlimited wants
D)water commands a very high price
E)nature can destroy water as well as create it

Question 5

)The problem of scarce resources

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

Question 6

The fact that people have unlimited wants means that

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

Question 7

Scarcity is best defined as

A)unlimited resources
B)a shortage ­­ when buyers cannot obtain the goods they want
C)a surplus ­­ when sellers cannot sell the goods they produce
D)insufficient resources to satisfy unlimited wants
E)the private ownership of society's resources

Question 8

Economics is the study of

A)how the human race differs from other species
B)how individuals amass personal fortunes in the stock market
C)how individuals and nations deal with the problem of scarcity
D)role that money plays in the economy
E)how goods and services are distributed throughout the world

Question 9

Profit is the payment made for land resources.

Question 10

A resource is something that

A)is used to produce goods and services
B)is provided by nature, not made by society
C)exists in unlimited quantities
D)must be produced by a firm
E)consumes goods and services

Question 11

Profit is the payment received by resource owners for the use of theircapital.

Question 12

Economics is best defined as the study of how

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

Question 13

An economist would classify 100 shares of Apple Computer stock ascapital.

Question 14

In economics, money is an example of capital.

Question 15

Economics

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

Question 16

Economics studies how decision makers use scarce resources to satisfyunlimited wants.

Question 17

Scarcity

A)exists because people have wants that are unlimited relative to the availability of resources to satisfy those
Wants
B)applies when a resource is not freely available
C)means that each society and each individual must make choices
D)exists in all societies
E)all of the above are true

Question 18

Economics is the study of

A)how to get rich by playing the stock market
B)the best ways to reduce people's wants, given the scarcity of resources
C)how rational government officials determine what goods should be produced
D)money and why it is good
E)how people use limited resources to try to satisfy unlimited wants

Question 19

Economics is best described as the

A)study of choice when scarcity exists
B)study of the production of goods and services
C)theory of consumer behavior
D)science of money
E)art of spending money wisely

Question 20

Economics is best defined as the study of how individuals decide to uselimited resources in an attempt to satisfy unlimited wants.

Question 21

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

A)that even if the lunch is free, we pay for it in extra calories
B)that resources used up in producing the lunch are not available to satisfy other wants
C)the same thing as "The best things in life are free"
D)you can eat only if you work first
E)neither sea water nor air is free

Question 22

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

A)services may be free, but goods are never free
B)even if it has a price of zero, a good or service has a cost
C)charitable organizations should not serve free lunches to the poor
D)poor people are really the ones who pay for their allegedly free lunches
E)someone has to pay the market price for a good or service

Question 23

In economics, "capital" refers to

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

Question 24

An entrepreneur

A)always makes a profit
B)generally avoids risky situations
C)claims the residual (i.e., whatever is left over) after other resource suppliers are compensated
D)is a parasite that benefits by not paying other resources for their services
E)is the manager who runs an enterprise and keeps the customers happy

Question 25

Which of the following is an example of capital?

A)pizza ovens
B)bulldozers
C)a college education
D)carpentry skills
E)all of the above

Question 26

Which of the following would an economist classify as capital?

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

Question 27

When economists refer to capital, they might mean

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

Question 28

An entrepreneur is a(n)

A)individual who has much education
B)organizer who seeks profitable opportunities and is willing to accept risks
C)business organization that uses inputs to produce output
D)administrator who runs an enterprise without accepting any risk of financial loss
E)depot or storehouse for commercial products

Question 29

Resources are used only in the production of goods, not services.

Question 30

If a business produces and sells only one unit of a good, its profit would bethe

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

Question 31

Natural resources are

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

Question 32

Because resources are scarce,

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

Question 33

Resources are divided into the following broad categories:

A)people, money, and machines
B)saving, spending, investment, and capital
C)human, technological, and government
D)natural resources, labor, capital, and entrepreneurial ability
E)free, scarce, abundant, and unlimited

Question 34

The respective payments for the resources of natural resources, labor,capital, and entrepreneurial ability are

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

Question 35

"Natural resources" refers to

A)bodies of water
B)trees
C)oil reserves
D)minerals
E)All of the answers are correct.

Question 36

Which of the following is a service?

A)anything that is scarce and that satisfies unlimited human wants
B)a thing for which people pay money
C)an intangible activity that satisfies human wants
D)any output produced by a service­sector industry, such as fast food
E)something less desirable than a good

Question 37

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

A)a $20 bill in a firm's petty cash drawer
B)the building where our economics class meets
C)a plumber's wrench
D)a railroad car
E)a factory

Question 38

The difference between a good and a service is that

A)a good helps satisfy unlimited wants; a service does not
B)a service helps satisfy unlimited wants; a good does not
C)a services is available in unlimited quantities; a good is not
D)a good is available in unlimited quantities; a service is not
E)a good is tangible; a service is not

Question 39

Goods and services are scarce because

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

Question 40

In economics, capital is defined as

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

Question 41

Economic information

A)is usually scarce and costly to acquire
B)is usually available free to any decision maker
C)is usually not required for rational decision making
D)must be complete before any decision is made
E)is usually useful only to governments

Question 42

A rational decision maker compares the expected marginal cost to theexpected marginal benefit of any activity.

Question 43

Which of the four types of decision makers in the U.S.economy plays thelargest role?

A)U.S.firms and government because they produce the products that households consume
B)U.S.households because they supply goods to the product markets and are demanders in resource
Markets
C)foreign households, firms, and governments because they greatly outnumber those of the United
States
D)U.S.firms and government because they create employment for domestic households and produce
Goods and services
E)U.S.households, as buyers in product markets and sellers in resource markets

Question 44

A rational individual would make charitable contributions only if suchcontributions receive favorable tax treatment.

Question 45

Considering both product markets and resource markets, most economicdecision makers participate in the economy as both buyers and sellers.

Question 46

The assumption of rational self­interest does not rule out the possibility ofconcern for other individuals.

Question 47

A marginal adjustment only refers to a minor change.

Question 48

The labor market is an example of a

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

Question 49

Economists believe that

A)people who choose to promote the interests of others cannot be acting rationally in their own self­
Interest
B)people show concern only for those whom they know personally
C)charitable donations would disappear if tax deductions for charitable giving were eliminated
D)the notion of self­interest rules out concern for others
E)concern for the welfare of others is consistent with the concept of self­interest

Question 50

Most real economic choices involve small (or marginal) changes, ratherthan all­or­nothing decisions.

Question 51

The assumption that individuals act rationally implies that

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

Question 52

Unlike a "service," a "good"

A)is desirable
B)uses resources to satisfy wants
C)is physical and tangible
D)is abundant and free
E)is a resource

Question 53

Consumers need information to make good choices.Which of the followingis correct regarding this information?

A)Advertising is always harmful to consumers.
B)Information is scarce and therefore valuable.
C)Brand names offer no informational content.
D)Acquiring more information is always rational.
E)Marginal analysis does not apply to the acquisition of information.

Question 54

It is always rational to acquire more information before making a decision.

Question 55

In economics, the term "marginal" usually refers to

A)a small change in an economic variable
B)a low­quality product or resource
C)an unimportant and irrelevant economic variable
D)an all­or­nothing economic decision
E)a footnote or minor point

Question 56

Rational choice by an individual implies

A)the use of some mathematical model when solving a problem
B)making decisions aimed at achieving some predetermined goal
C)that only monetary costs and benefits are weighed
D)that an individual will never regret any action taken
E)that scarcity can be eliminated for that individual

Question 57

Economists generally believe that

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

Question 58

Choices made by economic decision makers

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

Question 59

A market

A)is often a physical place
B)facilitates exchanges between buyers and sellers
C)typically involves monetary transactions
D)might not have well­defined geographical limits
E)all of the above

Question 60

A good or service is considered scarce if

A)any quantity of it can be consumed at a zero price
B)the amount people desire exceeds the amount available at a zero price
C)the amount people desire exceeds the amount available at any price
D)the amount people desire is less than the amount available at any price
E)the amount people desire is less than the amount available at a zero price

Question 61

Economics employs a scientific methodology.In part, this means that

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

Question 62

The behavior of the entertainment industry in Detroit is a microeconomictopic.

Question 63

Economic decision makers will continue to acquire information only as longas the expected additional benefit exceeds the expected additional cost ofthe information.

Question 64

Macroeconomics is the study of

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

Question 65

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

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

Question 66

In macroeconomics, we analyze

A)all of the following
B)the overall performance of the economy as a whole
C)arrangements through which specific products are exchanged
D)influences on the decision making of particular households
E)the factors that affect the decisions of individual firms

Question 67

When economic choice involves an adjustment to an existing situation,marginal analysis

A)has no practical applications or real­world uses
B)eliminates incorrect decisions and bad choices
C)involves comparing the additional costs and additional benefits of an activity before deciding
D)involves examining only the total costs and total benefits of an activity before deciding
E)none of the above

Question 68

An economic model

A)always has a mathematical foundation
B)can never be proven wrong
C)can be constructed for an individual economic unit but not for the economy as a whole
D)is a simplification of the real world
E)can be constructed for the economy as a whole but not for an individual economic unit

Question 69

An economic model

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

Question 70

When economists say that people act as rational decision makers, thatmeans

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 71

Theory seeks to

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

Question 72

A good economic theory

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

Question 73

An economic model is useful if it

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

Question 74

You currently subscribe to two magazines and are trying to decide whetheryou should subscribe to a third.What should determine your decision, if youare rational?

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

Question 75

The basic purpose of economic models is to

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

Question 76

Most economists consider a theory a good one if it predicts well.

Question 77

When constructing an economic model, economists

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

Question 78

An economic model will produce poor predictions if it includes unrealisticassumptions.

Question 79

Theory in economics

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

Question 80

A rational decision maker will take only those actions for which theexpected marginal benefit

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