Deck 1: The Art and Science of Economic Analysis

Question 1

Which of the following statements regarding the basic economic problem of scarcity is correct?

A) The problem only exists in countries that are not highly industrialized.
B) The problem is likely to disappear as production increases.
C) The problem is sure to disappear as technology improves.
D) The problem will exist as long as resources are available in limited amounts.
E) The problem will disappear as a person's income falls.

Answer 1

D

Question 2

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

Answer 2

E

Question 3

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

Answer 3

A

Question 4

'Which of the following is the best definition of economics?

A) An investigation of the quantities and prices of the various goods produced by the nations of the world.
B) A study of why inflation and unemployment periodically plague the U.S. economy.
C) An analysis of how individuals and societies deal with the problem of scarcity.
D) An examination of the role that money plays in the economy.
E) A study of how goods and services are distributed throughout the world.

Question 5

The existence of scarcity as defined by economists means that

A) societies are inefficiently organized
B) people are irrational
C) societies must make choices of how to use their resources
D) resources are non-renewable
E) people are greedy

Question 6

In economics, money is an example of capital.

Question 7

Michigan has an abundant supply of fresh water. However, an economist would 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 8

The study of how nations deal with the problem of scarcity is the domain of

A) economics
B) political science
C) sociology
D) political economy
E) anthropology

Question 9

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

Question 10

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 11

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 12

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

Question 13

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

Question 14

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

Question 15

Economics studies how decision makers use scarce resources to satisfy unlimited wants.

Question 16

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 17

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 18

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 19

Some individuals or families can become completely saturated with a service 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

Question 20

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 21

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 22

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 23

Economists classify all of the following as capital, except one. Which one is 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 24

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 25

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 26

An entrepreneur

A) always makes a profit
B) starts with an idea, organizes the resources to bring the idea to life and assumes the risk of profit or loss
C) always avoids risk
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 27

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 28

Profit is the payment made for land resources.

Question 29

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 30

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

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

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 32

"Natural resources" refers

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

Question 33

An economist would classify 100 shares of Apple Computer stock as capital.

Question 34

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 35

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 36

When economists refer to capital, they might mean

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

Question 37

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 38

The resource identified as land would include

A) the effort of farmers
B) the mules that Amish farmers use to work the fields
C) the barn that a farmer houses her dairy cattle in
D) the worlds forests
E) the cattle that a dairy farmer owns

Question 39

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

Question 40

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 41

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 service-sector industry, such as fast food
E) something less desirable than a good

Question 42

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

Question 43

Even if something has a price of zero, every good or service has a cost. Which of the following statements best describes this idea?

A) Que Sera, Sera.
B) He who laughs last laughs best.
C) The early bird catches the worm.
D) A penny saved is a penny earned.
E) There is no such thing as a free lunch.

Question 44

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 45

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 46

A product that is physical and tangible is refered to as a(n)

A) service
B) good
C) resource
D) commodity
E) asset

Question 47

A market

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

Question 48

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

Question 49

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 50

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 51

The labor market is an example of a

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

Question 52

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 53

Goods and services are exchanged in

A) product markets
B) resource markets
C) inventory markets
D) classified markets
E) government markets

Question 54

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 55

The assumption of rational self-interest does not rule out the possibility of concern for other individuals.

Question 56

Households

A) own and sell resources
B) play a very minor role in the economy
C) supply goods and services
D) are the largest purchasers of resources
E) none of the above

Question 57

Which of the four types of decision makers in the U.S. economy plays the largest 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 58

Which of the following would be an example of a resource market?

A) the market for tires
B) the market for baseball games
C) the market for compact discs
D) the market for economists
E) the market for downloadable music

Question 59

Which of the following is a service?

A) a college education
B) an automobile
C) computer software
D) a compact disc
E) a textbook

Question 60

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 61

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) there is no uncertainty about the results of the change
E) the expected marginal benefit exceeds expected marginal cost

Question 62

To say that people make marginal decisions means that

A) they usually wait until the last minute before making a decision to buy
B) they weigh the additional costs and additional benefits of various activities before they make a decision
C) most people just barely get by on the incomes they earn and live from day to day on the very edge of subsistence
D) given a choice, most people would prefer to make their own decisions concerning the things that affect their lives
E) they consider the total cost and benefit of various activities before they make a purchase

Question 63

Economists believe that people respond in a predictable way to changes in costs and benefits. The term that best describes this phenomenon is

A) opportunity cost
B) scarcity
C) innovation
D) marginal analysis
E) other things equal (or ceteris paribus)

Question 64

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

A) has no practical applications or real-world 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 65

In economics, marginal means

A) incremental or decremental
B) unimportant
C) level or size
D) a border-line situation
E) a bad alternative

Question 66

Consumers need information to make good choices. Which of the following is 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 67

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 68

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

Question 69

When people are assumed to implicitly calculate the costs and benefits of an activity to decide if it is worthwhile, they are behaving

A) rationally
B) self-interestedly
C) greedily
D) marginally
E) expectantly

Question 70

A marginal adjustment only refers to a minor change.

Question 71

In economics, the term "marginal" usually refers to

A) a small change in an economic variable
B) a low-quality product or resource
C) an unimportant and irrelevant economic variable
D) an all-or-nothing economic decision
E) a footnote or minor point

Question 72

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

Question 73

A rational decision maker will take only those actions for which the expected 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

Question 74

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 self-interest rules out concern for others
E) concern for the welfare of others is consistent with the concept of self-interest

Question 75

Most real economic choices involve small (or marginal) changes, rather than all-or-nothing decisions.

Question 76

The assumption that individuals act rationally implies that

A) people think only of themselves and disregard the well-being 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 77

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 78

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 79

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

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 80

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