Deck 1: Limits, Alternatives, and Choices

Question 1

According to Emerson: "Want is a growing giant whom the coat of Have was never large enough to cover." According to economists, "Want" exceeds "Have" because

A) people are greedy.
B) productive resources are limited.
C) human beings are inherently insecure.
D) people are irrational.

Answer 1

productive resources are limited.

Question 2

The economic perspective entails

A) irrational behavior by individuals and institutions.
B) a comparison of marginal benefits and marginal costs in decision making.
C) short-term but not long-term thinking.
D) rejection of the scientific method.

Answer 2

a comparison of marginal benefits and marginal costs in decision making.

Question 3

Purposeful behavior suggests that

A) everyone will make identical choices.
B) resource availability exceeds economic wants.
C) individuals may make different choices because of different desired outcomes.
D) an individual's economic goals cannot involve trade-offs.

Answer 3

individuals may make different choices because of different desired outcomes.

Question 4

Joe sold gold coins for $1,000 that he bought a year ago for $1,000. He says, "At least I didn't lose any money on my financial investment." His economist friend points out that in effect he did lose money because he could have received a 3 percent return on the $1,000 if he had bought a bank certificate of deposit instead of the coins. The economist's analysis in this case incorporates the idea of

A) opportunity costs.
B) marginal benefits that exceed marginal costs.
C) imperfect information.
D) normative economics.

Question 5

In deciding whether to study for an economics quiz or go to a concert, one is confronted by the idea(s) of

A) scarcity and opportunity costs.
B) money and real capital.
C) complementary economic goals.
D) full production.

Question 6

A person should consume more of something when its marginal

A) benefit exceeds its marginal cost.
B) cost exceeds its marginal benefit.
C) cost equals its marginal benefit.
D) benefit is still better.

Question 7

When economists say that people act rationally in their self-interest, they mean that individuals

A) look for and pursue opportunities to increase their utility.
B) generally disregard the interests of others.
C) are mainly creatures of habit.
D) are usually impulsive and unpredictable.

Question 8

You should decide to go to a movie

A) if the marginal cost of the movie exceeds its marginal benefit.
B) if the marginal benefit of the movie exceeds its marginal cost.
C) if your income will allow you to buy a ticket.
D) because movies are enjoyable.

Question 9

Economics involves marginal analysis because

A) most decisions involve changes from the present situation.
B) marginal benefits always exceed marginal costs.
C) marginal costs always exceed marginal benefits.
D) much economic behavior is irrational.

Question 10

Purposeful behavior means that

A) people are selfish in their decision making.
B) people weigh costs and benefits to make decisions.
C) people are immune from emotions affecting their decisions.
D) decision makers do not make mistakes when weighing costs and benefits.

Question 11

The study of economics is primarily concerned with

A) keeping private businesses from losing money.
B) demonstrating that capitalistic economies are superior to socialistic economies.
C) choices that are made in seeking the best use of resources.
D) determining the most equitable distribution of society's output.

Question 12

If someone produced too little of a good, this would suggest that

A) rational choice cannot be applied to many economic decisions.
B) the good was produced past the point where its marginal cost exceeded its marginal benefit.
C) government should intervene to produce more of the good.
D) the good was produced to the point where its marginal benefit exceeded its marginal cost.

Question 13

For economists, the word "utility" means

A) versatility and flexibility.
B) rationality.
C) pleasure or satisfaction.
D) purposefulness.

Question 14

According to economists, economic self-interest

A) is a reality that underlies economic behavior.
B) has the same meaning as selfishness.
C) means that people never make wrong decisions.
D) is usually self-defeating.

Question 15

Consumers spend their incomes to get the maximum benefit or satisfaction from the goods and services they purchase. This is a reflection of

A) resource scarcity and the necessity of choice.
B) purposeful behavior.
C) marginal costs that exceed marginal benefits.
D) the trade-off problem that exists between competing goals.

Question 16

Even though local newspapers are very inexpensive, people rarely buy more than one of them each day. This fact

A) is an example of irrational behavior.
B) implies that electronic media sources are displacing print sources for many consumers.
C) contradicts the economic perspective.
D) implies that, for most people, the marginal benefit of reading a second newspaper is less than the marginal cost.

Question 17

The assertion that "there is no free lunch" means that

A) there are always trade-offs between economic goals.
B) all production involves the use of scarce resources and thus the sacrifice of alternative goods.
C) marginal analysis is used in economic reasoning.
D) choices need not be made if behavior is rational.

Question 18

Economics may best be defined as the

A) interaction between macro and micro considerations.
B) social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity.
C) empirical testing of value judgments through the use of logic.
D) study of why people are rational.

Question 19

Opportunity costs exist because

A) the decision to engage in one activity means forgoing some other activity.
B) wants are scarce relative to resources.
C) households and businesses make rational decisions.
D) most decisions do not involve sacrifices or trade-offs.

Question 20

In economics, the pleasure, happiness, or satisfaction received from a product is called

A) marginal cost.
B) rational outcome.
C) status fulfillment.
D) utility.

Question 21

Suppose that a university decides to spend $1 million to upgrade personal computers and scientific equipment for faculty rather than spend $1 million to expand parking for students. This example illustrates

A) distorted priorities.
B) opportunity costs.
C) increasing opportunity costs.
D) productive efficiency.

Question 22

The term "other things equal" means that

A) the associated statement is normative.
B) many variables affect the variable under consideration.
C) a number of relevant variables are assumed to be constant.
D) when variable X increases, so does related variable Y.

Question 23

Which of the following terms implies the greatest degree of confidence in an economic generalization?

A) hypothesis
B) comparison
C) theory
D) anomaly

Question 24

Which of the following terms implies the least degree of confidence in an economic generalization?

A) hypothesis
B) theory
C) principle
D) law

Question 25

Kelly works at an ice cream shop and observes that the number of people buying ice cream varies greatly from day to day. For a couple of weeks, she has recorded the number of people at the shop each day, as well as the daily temperature. If Kelly is using the scientific method to better understand ice cream buying habits, her next step is to

A) conclude definitively that people buy more ice cream when the temperature rises.
B) state her findings as a well-tested economic principle.
C) use the observed data to form a hypothesis about ice cream buying behavior.
D) throw out the data if it does not show a perfect relationship between buying habits and the other information she has collected.

Question 26

An economic hypothesis

A) has the same meaning as an economic principle or economic law.
B) is usually a normative statement.
C) is a possible explanation of cause and effect.
D) is a stronger generalization than an economic law.

Question 27

In constructing models, economists

A) make simplifying assumptions.
B) include all available information.
C) must use mathematical equations.
D) attempt to duplicate the real world.

Question 28

Alex sees that his neighbors' lawns all need mowing. He offers to provide the service in exchange for a wage of $20 per hour. Some neighbors accept Alex's offer and others refuse. Economists would describe Alex's behavior as

A) rational self-interest because he is attempting to increase his own income by identifying and satisfying someone else's wants.
B) greedy because he is asking for a high wage that some of his neighbors can't afford to pay.
C) selfish because he is asking for a wage that is higher than others might charge.
D) irrational because some neighbors refused his offer.

Question 29

Suppose an economist says that "other things equal, the lower the price of bananas, the greater the amount of bananas purchased." This statement indicates that

A) the quantity of bananas purchased determines the price of bananas.
B) all factors other than the price of bananas (for example, consumer tastes and incomes) are assumed to be constant.
C) everyone will buy more bananas when the price falls.
D) one cannot generalize about the relationship between the price of bananas and the quantity purchased.

Question 30

The basic purpose of the other-things-equal assumption is to

A) allow one to reason about the relationship between variables X and Y without the intrusion of variable Z.
B) allow one to focus upon micro variables by ignoring macro variables.
C) allow one to focus upon macro variables by ignoring micro variables.
D) determine whether X causes Y or vice versa.

Question 31

Which of the following most closely relates to the idea of opportunity costs?

A) trade-offs
B) economic growth
C) technological change
D) capitalism

Question 32

Kara was out jogging and, despite being tired, decided to run one more mile. Based on her actions, economists would conclude that Kara

A) must be an avid runner.
B) decided that the marginal benefit of running one more mile would outweigh the cost of the additional mile.
C) decided that the marginal cost of running one more mile would outweigh the benefit of the additional mile.
D) was not very tired, so the marginal cost of the extra mile was very low.

Question 33

Which of the following is a correct statement?

A) Economic concepts or laws that are valid during recessions are necessarily valid during prosperity.
B) Although they are generalizations, economic laws are useful because they allow us to predict and therefore influence or adjust to events.
C) Economists use the scientific method. Therefore, economic laws are as quantitatively precise as the laws of physics or chemistry.
D) Because economics is primarily concerned with questions of "ought," it is a branch of applied ethics and not scientific.

Question 34

Economic theories

A) are useless because they are not based on laboratory experimentation.
B) that are true for individual economic units are never true for the economy as a whole.
C) are generalizations based on hypotheses tested and supported with observed facts.
D) are abstractions and therefore of no application to real situations.

Question 35

The scientific method is

A) not applicable to economics because economics deals with human beings.
B) also known as the economic perspective.
C) employed to form hypotheses out of existing laws and theories.
D) used by economists and other social scientists, as well as by physical scientists and life scientists, to formulate and test hypotheses.

Question 36

Economists contend that most economic decisions are

A) random.
B) chaotic.
C) spontaneous.
D) purposeful.

Question 37

The Latin term "ceteris paribus" means

A) that if event A precedes event B, A has caused
B)
B) that economics deals with facts, not values.
C) other things equal.
D) prosperity inevitably follows recession.

Question 38

Which one of the following expressions best states the idea of opportunity cost?

A) "A penny saved is a penny earned."
B) "He who hesitates is lost."
C) "There is no such thing as a free lunch."
D) "All that glitters is not gold."

Question 39

The process by which economists test hypotheses against facts to develop theories, principles, and models is called

A) the economic perspective.
B) the scientific method.
C) policy economics.
D) microeconomics.

Question 40

A well-tested economic theory is often called

A) a hypothesis.
B) a prototype.
C) a principle.
D) an anomaly.

Question 41

Macroeconomics can best be described as the

A) analysis of how a consumer tries to spend income.
B) study of the large aggregates of the economy or the economy as a whole.
C) analysis of how firms attempt to maximize their profits.
D) study of how supply and demand determine prices in individual markets.

Question 42

Which of the following is a positive statement?

A) A humidity level of 90 percent is too high.
B) It is too hot to run outside when the temperature exceeds 80 degrees.
C) The temperature is 92 degrees today.
D) Summer evenings are nice when it cools off to around 70 degrees.

Question 43

A positive statement is one that

A) is derived by induction.
B) is derived by deduction.
C) focuses on the best course of action and is based on value judgments.
D) focuses on facts, descriptions, and theoretical relationships.

Question 44

Rosa works at a gelato shop and observes that the number of people buying gelato varies greatly from day to day. For a couple of weeks, she has recorded the number of people at the shop each day, as well as the daily temperature, and has observed a positive relationship between temperature and the number of customers. Based on her observations, Rosa should

A) conclude definitively that people buy more gelato when the temperature rises.
B) determine if there are other relevant factors and attempt to hold these constant before drawing conclusions.
C) continue to gather data on the number of visitors and daily temperatures, because eventually other relevant variables will not matter.
D) throw out the data if it does not show a perfect relationship between buying habits and temperature.

Question 45

Which of the following statements pertains to macroeconomics?

A) Because the minimum wage was raised, Mrs. Olsen decided to enter the labor force.
B) A decline in the price of soybeans caused farmer Wanek to plant more wheat.
C) National income grew by 2.7 percent last year.
D) The Pumpkin Center State Bank increased its interest rate on consumer loans by 1 percentage point.

Question 46

Microeconomics is concerned with

A) the aggregate or total levels of income, employment, and output.
B) a detailed examination of specific economic units that make up the economic system.
C) positive economics, but not normative economics.
D) establishing an overall view of the operation of the economic system.

Question 47

Which of the following is a microeconomic statement?

A) The real domestic output increased by 1.6 percent last year.
B) Unemployment was 5.2 percent of the labor force last year.
C) The price of smartphones declined 2.8 percent last year.
D) The general price level increased by 1.1 percent last year.

Question 48

"Macroeconomics is the part of economics concerned with individual units, such as a person, a household, a firm, or an industry." This statement is

A) positive but incorrect.
B) positive and correct.
C) normative but incorrect.
D) normative and correct.

Question 49

"Economics is concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity." This statement is

A) positive but incorrect.
B) positive and correct.
C) normative but incorrect.
D) normative and correct.

Question 50

Which of the following is associated with macroeconomics?

A) an examination of the incomes of professional athletes
B) an empirical investigation of the general price level and unemployment rates since 1990
C) a study of the trend of pecan prices since the Second World War
D) a case study of pricing and production in the textbook industry

Question 51

Which of the following statements is true?

A) Microeconomics focuses on specific decision-making units of the economy; macroeconomics examines the economy as a whole.
B) Macroeconomics focuses on specific decision-making units of the economy; microeconomics examines the economy as a whole.
C) Every topic in economics is either a microeconomic or a macroeconomic issue; a topic cannot be both.
D) Topics in microeconomics have public policy implications; topics in macroeconomics do not.

Question 52

Ben says that "an increase in the tax on beer will raise its price." Holly argues that "taxes should be increased on beer because college students drink too much." We can conclude that

A) Ben's statement is normative, but Holly's is positive.
B) Holly's statement is normative, but Ben's is positive.
C) Both statements are normative.
D) Both statements are positive.

Question 53

Scarcity

A) persists only because countries have failed to achieve continuous full employment.
B) persists because economic wants exceed available resources.
C) has been solved in all industrialized nations.
D) has been eliminated in affluent societies such as the United States and Canada.

Question 54

The economizing problem is

A) the need to make choices because economic wants exceed economic means.
B) how to distribute resources equally among all members of society.
C) that people's means often exceed their wants.
D) that people do not know how to rationally allocate resources.

Question 55

The issues of inflation, unemployment, and business cycles are

A) major topics of macroeconomics.
B) not relevant to the U.S. economy.
C) the primary focus of microeconomics.
D) positive economic issues, but not normative issues.

Question 56

Normative statements are concerned primarily with

A) facts and theories.
B) what ought to be.
C) what is.
D) rational choice involving costs and benefits.

Question 57

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

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

Question 58

A positive statement is concerned primarily with

A) some goal that is desirable to society.
B) what should be.
C) what is.
D) the formulation of economic policy.

Question 59

A normative statement is one that

A) is based on the law of averages.
B) applies only to microeconomics.
C) applies only to macroeconomics.
D) is based on value judgments.

Question 60

Macroeconomics approaches the study of economics from the viewpoint of

A) the entire economy.
B) governmental units.
C) the operation of specific product and resource markets.
D) individual firms.

Question 61

Which of the following is a labor resource?

A) a computer programmer
B) a computer
C) silicon (sand) used to make computer chips
D) software used by a firm

Question 62

Which of the following is a capital resource?

A) a computer programmer
B) a corporate bond issued by a computer manufacturer
C) silicon (sand) used to make computer chips
D) software used by a firm

Question 63

Suppose that Julia receives a $20 gift card for the local coffee shop, where she only buys lattes and muffins. If the price of a latte is $4 and the price of a muffin is $2, then we can conclude that Julia

A) should only buy muffins.
B) should only buy lattes.
C) can buy 5 lattes or 10 muffins if she chooses to buy only one of the two goods.
D) can buy 5 lattes and 10 muffins with her $20 gift card.

Question 64

An increase in money income

A) shifts the consumer's budget line to the right.
B) shifts the consumer's budget line to the left.
C) increases the slope of the budget line.
D) has no effect on the budget line.

Question 65

Assume the price of product Y (the quantity of which is on the vertical axis) is $15 and the price of product X (the quantity of which is on the horizontal axis) is $3. Also assume that money income is $60. The absolute value of the slope of the resulting budget line is

A) 5.
B) 1/5.
C) 4.
D) 20.

Question 66

Which of the following lists includes only capital resources (and therefore no labor or land resources)?

A) an ice arena, a professional hockey player, hockey uniforms
B) the owner of a new start-up firm, a chemistry lab, a researcher
C) a hydroelectric dam, water behind the dam, power lines
D) autos owned by a car rental firm, computers at the car rental agency, vans used to shuttle rental customers to and from the airport

Question 67

Which of the following do economists consider to be capital?

A) a pair of stockings
B) a construction crane
C) a savings account
D) a share of IBM stock

Question 68

In moving along a given budget line,

A) the prices of both products and money income are assumed to be constant.
B) each point on the line will be equally satisfactory to consumers.
C) money income varies, but the prices of the two goods are constant.
D) the prices of both products are assumed to vary, but money income is constant.

Question 69

The four factors of production are

A) land, labor, capital, and money.
B) land, labor, capital, and entrepreneurial ability.
C) labor, capital, technology, and entrepreneurial ability.
D) labor, capital, entrepreneurial ability, and money.

Question 70

Other things equal, an increase in a consumer's money income

A) increases the amount of utility a consumer receives from a given quantity of a good.
B) shifts the individual's budget line rightward because she can now purchase more of both products.
C) eliminates the individual's economizing problem.
D) causes the consumer to choose a different combination of goods along a given budget line.

Question 71

The slope of a budget line reflects the

A) desirability of the two products.
B) price ratio of the two products.
C) amount of the consumer's income.
D) utility ratio of the two products.

Question 72

The alternative combinations of two goods that a consumer can purchase with a specific money income is shown by

A) a production possibilities curve.
B) a demand curve.
C) a consumer expenditure line.
D) a budget line.

Question 73

Money is not an economic resource because

A) money, as such, does not produce anything.
B) idle money balances do not earn interest income.
C) it is not scarce.
D) money is not a free gift of nature.

Question 74

Camille is at the candy store with Grandma Mary, who offers to buy her $6 worth of candy. If lollipops are $1 each and candy bars are $2 each, what combination of candy can Camille's Grandma Mary buy her?

A) six lollipops and three candy bars
B) two lollipops and two candy bars
C) three lollipops and two candy bars
D) one lollipop and three candy bars

Question 75

Which of the following is a land resource?

A) a farmer
B) an oil drilling rig
C) a machine for detecting earthquakes
D) natural gas

Question 76

The main function of the entrepreneur is to

A) make routine pricing decisions.
B) innovate.
C) purchase capital.
D) create market demand.

Question 77

Economic resources are also called

A) free gifts of nature.
B) consumption goods.
C) units of money capital.
D) factors of production.

Question 78

Which of the following is not a main function of the entrepreneur?

A) to make routine pricing decisions
B) to innovate
C) to assume the risk of economic losses
D) to make strategic business decisions

Question 79

Any combination of goods lying outside of the budget line

A) implies that the consumer is not spending all of the consumer's income.
B) yields less utility than any point on the budget line.
C) yields less utility than any point inside the budget line.
D) is unattainable, given the consumer's income.

Question 80

The budget line shows

A) the amount of product X that a consumer is willing to give up to obtain one more unit of product Y.
B) all possible combinations of two goods that can be purchased, given money income and the prices of the goods.
C) the minimum amount of two goods that a consumer can purchase with a specific money income.
D) all possible combinations of two goods that yield the same level of utility to the consumer.