Question 1

In recent years the economy of Japan has grown, despite the fact that the population of Japan has declined. Which of the following would best explain Japan's economic growth despite having a smaller population?
A) immigration of new workers into Japan
B) advancements in technology that make labor more productive
C) reduced employment of capital because fewer workers are available to use it
D) greater consumption of goods imported from other countries

Accepted Answer

Advancements in technology that make labor more productive would increase the efficiency and output per worker, compensating for the decline in population.

Question 2

(Last Word) The post hoc fallacy and the correlation problem both relate to
A) the calculation of marginal costs and marginal benefits of any economic activity.
B) the issue of determining causation.
C) the frequent inability of households and businesses to behave rationally.
D) the trade-off problem associated with competing goals.

Accepted Answer

The post hoc fallacy refers to the error of assuming that because one event happened before another event, it caused the second event. This relates to the issue of determining causation. Similarly, the correlation problem arises when two variables are correlated, but it is unclear whether one causes the other, or they are both caused by some third factor. Therefore, both fallacies relate to the challenge of establishing causation.

Question 3

(Consider This) In response to the terrorist attacks of September 11, 2001, the government decided to allocate more resources toward defense goods. The government's decision reflects their assessment that
A) the marginal benefits of additional defense goods outweighed the marginal cost.
B) the marginal cost of additional defense goods outweighed the marginal benefit.
C) there cannot be too many defense goods.
D) civilian goods are not worth producing.

Accepted Answer

The government's decision suggests that they believe the marginal benefits of additional defense goods outweigh the marginal costs, as they are allocating more resources toward producing them. This implies that the benefits of additional defense goods, such as increased national security, are more valuable to society than the costs incurred from producing them.

Question 4

(Last Word) The fallacy of composition states that
A) because economic systems are composed of so many diverse economic units, economic laws are necessarily inexact.
B) the anticipation of a particular event can affect the composition of that event when it occurs.
C) what is true for the individual must necessarily be true for the group.
D) because event A precedes event B, A is necessarily the cause of B.

Accepted Answer

The fallacy of composition is the erroneous assumption that what is true for the individual must necessarily be true for the group. This is not always the case, as there are many situations in which an individual's actions can have unintended and unpredictable consequences for the group as a whole. Therefore, we must be careful when making generalizations based on individual behavior.

Question 5

(Last Word) The safest way for an individual to leave a burning theater is to run for the nearest exit; it is therefore also the best means of escape for a large audience. This assertion illustrates the
A) "after this, therefore because of this" fallacy.
B) correlation fallacy.
C) fallacy of composition.
D) fallacy of limited decisions.

Accepted Answer

The fallacy of composition occurs when one assumes that what is true for an individual is also true for a group, which is the case in this assertion.

Question 6

(Consider This) The economic perspective used in customer decision making at fast-food restaurants is reflected in
A) customers selecting the shortest line.
B) decisions for which marginal costs exceed marginal benefits.
C) all customer lines tending to be of different lengths.
D) irrational purchasing of high-fat-content food.

Accepted Answer

Customers selecting the shortest line reflects the economic perspective of making decisions that maximize utility and minimize costs, such as time spent waiting.

Question 7

(Last Word) The post hoc, ergo propter hoc fallacy suggests that
A) positive statements are always followed by normative judgments.
B) positive statements can never be proven true or false.
C) if one acts on one's expectations, those expectations will always be fulfilled.
D) cause and effect can be determined merely by observing the sequence of events.

Accepted Answer

The post hoc, ergo propter hoc fallacy suggests that cause and effect can be determined merely by observing the sequence of events. This is a fallacy because the correlation between two events does not necessarily imply causation.

Question 8

(Consider This) At fast-food restaurants
A) consumers enjoy complete and accurate information.
B) decisions are usually made by trial and error.
C) decisions entail comparisons of marginal costs and marginal benefits.
D) benefits always exceed costs.

Accepted Answer

Decisions at fast-food restaurants entail comparisons of marginal costs and marginal benefits. Consumers have to weigh the benefits of the food they want to order against the cost of that particular item. For example, they may consider the marginal utility of an additional burger versus the marginal cost of the extra money they will spend to buy it. This process is an example of rational decision-making, and it involves comparing the marginal benefits and costs associated with different choices.

Question 9

(Consider This) A direct cost of going to college is
A) tuition, while an indirect cost (opportunity cost) is books and other supplies.
B) forgone income while in college, while an indirect cost (opportunity cost) is tuition.
C) tuition, while an indirect cost (opportunity cost) is forgone income while in college.
D) books and supplies, while an indirect cost (opportunity cost) is food and housing.

Accepted Answer

Direct costs are expenses that are directly related to attending college, while indirect costs (also called opportunity costs) are expenses that result from attending college but are not directly related. Tuition is a direct cost of going to college, while forgone income while in college is an indirect cost, as it represents income that is not earned because the student is enrolled in school. Therefore, choice C is the correct answer.

Question 10

(Last Word) "The government deregulated the electricity industry in California, and a shortage of electricity soon occurred. It is clear that the deregulation caused the shortage." This statement needs careful analysis because it may reflect the
A) fallacy of composition.
B) post hoc, ergo propter hoc fallacy.
C) use of loaded terminology.
D) law of averages.

Accepted Answer

This statement reflects the post hoc, ergo propter hoc fallacy, which assumes that event A caused event B solely because A occurred before B. In reality, there may be other factors involved that caused the shortage of electricity.

Question 11

(Last Word) If variables X and Y are positively correlated, this means that
A) X is the cause of Y.
B) Y is the cause of X.
C) causation necessarily exists, but we don't know whether X or Y is the cause.
D) causation may or may not exist between X and Y.

Accepted Answer

Just because two variables are positively correlated does not necessarily mean there is a causal relationship between them. It is possible that there is another variable or set of variables that are causing both X and Y to increase or decrease together. Therefore, causation may or may not exist between X and Y.

Question 12

A country can achieve some combination of goods outside its production possibilities curve by
A) idling some of its resources.
B) specializing and engaging in international trade.
C) buying the debt (bonds and stocks) of foreign nations.
D) producing more capital goods and fewer consumer goods.

Accepted Answer

Specializing and engaging in international trade allows a country to exchange some of its produced goods for goods that are not produced domestically, thus achieving a combination of goods outside its production possibilities curve. This is known as the theory of comparative advantage. The other options either do not result in achieving a combination of goods outside the production possibilities curve or are not feasible ways to do so.

Question 13

(Consider This) The assertion by economists that "there is no free lunch"
A) is contradicted by the presence of free goods offered by firms.
B) applies to goods that have prices, not to goods given away free by firms.
C) remains true even for goods given away free by firms.
D) applies to agricultural goods but not to manufactured goods.

Accepted Answer

The assertion by economists that "there is no free lunch" is a well-known saying that means that everything comes with a cost, either explicit or implicit. While firms may offer free goods to attract customers or promote their brand, the production and distribution of those goods still incur costs, which are ultimately paid for by the firm or society in general. Therefore, even if there is no direct monetary price for the goods, there are still costs involved, and the assertion remains true.

Question 14

(Last Word) The "after this, therefore because of this" fallacy states that
A) because event A precedes event B, A is necessarily the cause of B.
B) the very attempt to accomplish a certain objective may create conditions that prohibit the achievement of that objective.
C) events may drastically alter plans; one's intentions and actual accomplishments may differ considerably.
D) generalizations that are accurate at the level of microeconomics may be inaccurate at the level of macroeconomics.

Accepted Answer

The "after this, therefore because of this" fallacy assumes that just because one event precedes another, it must be the cause of it. However, correlation does not necessarily equal causation. There could be other factors or events that are influencing the outcome.

Question 15

(Last Word) The fallacy of composition is essentially the error of
A) omitting relevant variables in constructing a model.
B) reasoning from the general to the particular.
C) confusing cause and effect in economic relationships.
D) generalizing from the particular to the general.

Accepted Answer

The fallacy of composition occurs when one assumes that what is true for an individual or part is also true for the whole or group.

Question 16

(Consider This) An exception to the advice "go to college, stay in college, and earn a degree" occurs when
A) tuition expenses are high and rising.
B) the opportunity cost of attending college is extraordinarily high.
C) the price of textbooks is high and rising.
D) the economy is growing rapidly and jobs are plentiful.

Accepted Answer

The advice to go to college and earn a degree assumes that the benefits of having a degree outweigh the costs, including tuition expenses and the opportunity cost of not working full-time while attending school. However, if the opportunity cost of attending college (i.e. the potential earnings foregone by not working) is extraordinarily high, it may not make financial sense to pursue a degree. In this case, it may be more financially prudent to pursue other paths, such as vocational training or entrepreneurship.

Question 17

(Last Word) Which of the following best illustrates the post hoc, ergo propter hoc fallacy?
A) Because it was 90 degrees today, I worked up a sweat playing tennis.
B) I took the day off work to go to the beach, and that's why it rained.
C) Because it rained at the football game, my new sweater got wet.
D) Because I have studied diligently this semester, my grade average has improved.

Accepted Answer

The post hoc, ergo propter hoc fallacy is when one assumes that because two events occurred in close temporal proximity, the first event must have caused the second event. In this case, the person assumes that their day off work caused the rain. It is a fallacious assumption because there is no causal relationship between the two events.

Question 18

(Consider This) Free products offered by firms
A) may or may not be free to society but are never free to individuals.
B) may or may not be free to individuals but are never free to society.
C) are produced and distributed at no cost to society.
D) are usually items nobody wants.

Accepted Answer

Free products may not have a direct cost to individuals, but they often have costs associated with production, distribution, or opportunity costs, meaning they are not free to society.

Question 19

(Last Word) Which of the following has to do with the problem of distinguishing cause and effect in economic reasoning?
A) the law of large numbers
B) the law of averages
C) the post hoc, ergo propter hoc fallacy
D) the fallacy of composition

Accepted Answer

The post hoc, ergo propter hoc fallacy refers to the faulty reasoning that concludes that because one event follows another, the first event must be the cause of the second event. This fallacy can be a problem in economic reasoning because economists must be careful to distinguish between correlation and causation when analyzing economic phenomena.

Question 20

(Consider This) Consumers might leave a fast-food restaurant without being served because
A) they are misinformed about the marginal cost and marginal benefits of the food being served.
B) they conclude that the marginal cost (monetary plus time costs) exceeds the marginal benefit.
C) the environment is not conducive to a rational choice.
D) the lines waiting for service are not of equal length.

Accepted Answer

Consumers may leave a fast-food restaurant without being served when they conclude that the marginal cost (monetary plus time costs) exceeds the marginal benefit of the food being served. This could happen, for instance, when the menu prices are too high, the wait time is too long, or the food quality is unsatisfactory. Consumers are rational decision-makers who weigh the costs and benefits of every choice they make, so they are likely to avoid a transaction that does not meet their preferences or expectations. Therefore, the most plausible reason for consumers to leave a fast-food restaurant without being served is that they have assessed the trade-off between the cost and benefit of buying food and concluded that it is not worthwhile.

Quiz 1: Limits, Alternatives, and Choices

In recent years the economy of Japan has grown, despite the fact that the population of Japan has declined. Which of the following would best explain Japan's economic growth despite having a smaller population?

(Last Word) The post hoc fallacy and the correlation problem both relate to

(Consider This) In response to the terrorist attacks of September 11, 2001, the government decided to allocate more resources toward defense goods. The government's decision reflects their assessment that

(Last Word) The fallacy of composition states that

(Last Word) The safest way for an individual to leave a burning theater is to run for the nearest exit; it is therefore also the best means of escape for a large audience. This assertion illustrates the

(Consider This) The economic perspective used in customer decision making at fast-food restaurants is reflected in

(Last Word) The post hoc, ergo propter hoc fallacy suggests that

(Consider This) At fast-food restaurants

(Consider This) A direct cost of going to college is

(Last Word) "The government deregulated the electricity industry in California, and a shortage of electricity soon occurred. It is clear that the deregulation caused the shortage." This statement needs careful analysis because it may reflect the

(Last Word) If variables X and Y are positively correlated, this means that

A country can achieve some combination of goods outside its production possibilities curve by

(Consider This) The assertion by economists that "there is no free lunch"

(Last Word) The "after this, therefore because of this" fallacy states that

(Last Word) The fallacy of composition is essentially the error of

(Consider This) An exception to the advice "go to college, stay in college, and earn a degree" occurs when

(Last Word) Which of the following best illustrates the post hoc, ergo propter hoc fallacy?

(Consider This) Free products offered by firms

(Last Word) Which of the following has to do with the problem of distinguishing cause and effect in economic reasoning?

(Consider This) Consumers might leave a fast-food restaurant without being served because