Question 1

The key assumption underlying the theory of the firm is that:
A) firms are assumed to maximize sales revenue.
B) managers are assumed to maximize the number of employees in their department.
C) firms are assumed to maximize profits.
D) none of the above

Accepted Answer

The theory of the firm assumes that firms seek to maximize profits as their main goal. This is because profit maximization is seen as the most efficient way to allocate resources and generate economic growth. While firms may also have other goals, such as increasing market share or social responsibility, these are seen as secondary to maximizing profits. The other choices are not supported by the theory of the firm.

Question 2

Use the following statements to answer this question: I. The process of testing and revising theories is central to the development of economics as a science.
II) Theory is imperfect and may not adequately describe economic behavior in some cases.
A) I and II are true.
B) I is true and II is false.
C) I is false and II is true.
D) I and II are false.

Accepted Answer

Statement I is true as the scientific method involves testing and revising theories. Statement II is also true as theories cannot fully capture the complexity of economic behavior, and therefore, may not be accurate in all situations.

Question 3

Firms face trade-offs in production, including decisions related to:
A) which products to produce.
B) how much of a particular product to produce.
C) the best way to produce a given amount of output.
D) all of the above

Accepted Answer

Firms have to make decisions related to all three options mentioned in the question - which products to produce, how much of a particular product to produce, and the best way to produce a given amount of output. Choosing one option and neglecting the others can lead to an inefficient production process and result in decreased profitability. Therefore, firms need to balance these trade-offs to make efficient production decisions.

Question 4

Use the following two statements to answer this question: I. In order to answer normative questions, it is necessary to make value judgments.
II) In order to conduct positive economic analysis, it is always necessary to use empirical evidence in addition to economic theories.
A) I and II are incorrect.
B) I is correct, II is incorrect.
C) I is incorrect, II is correct.
D) Both I and II are correct.

Accepted Answer

I is correct because normative questions involve statements about what ought to be and thus depend on value judgments. II is incorrect because positive economic analysis can be conducted using theoretical models without necessarily incorporating empirical evidence, though empirical evidence can enhance the analysis.

Question 5

Use the following two statements to answer this question: I. Economic theories are developed to explain observed phenomena by deducing from a set of basic rules and assumptions.
II) Economic theories use value judgments to determine which people ought to pay more taxes.
A) Both I and II are true.
B) I is true, and II is false.
C) I is false, and II is true.
D) Both I and II are false.

Accepted Answer

Statement I is true as economic theories are developed based on a set of basic rules and assumptions to explain observed economic phenomena. However, statement II is false as economic theories do not use value judgments to determine tax policies, but rather provide a framework for analyzing the effects of different tax policies.

Question 6

The textbook argues that one of the trade-offs workers make is working for a small company or a large company. The small companies offer:
A) job security but limited potential for advancement.
B) more potential for advancement but limited job security.
C) both job security and ample potential for advancement.
D) benefits that appeal to the workers that do not include job security or career advancement.

Accepted Answer

Small companies often have less structure and hierarchy, allowing for more opportunities for advancement, but they may not have the financial stability to offer job security. Large companies, on the other hand, may provide more job security but have more layers of management, making it harder to climb the corporate ladder.

Question 7

Which of the following is a positive statement?
A) When the price of a good goes up, consumers buy less of it.
B) When the price of a good goes up, firms produce more of it.
C) When the Federal government sells bonds, interest rates rise and private business investment is reduced.
D) all of the above
E) none of the above

Accepted Answer

All the statements (A, B, C) are positive statements because they describe relationships between economic variables without making a judgment about whether those relationships are good or bad. They are based on observable phenomena and can be tested for accuracy.

Question 8

Microeconomics is the branch of economics that deals with which of the following topics?
A) The behavior of individual consumers
B) Unemployment and interest rates
C) The behavior of individual firms and investors
D) B and C
E) A and C

Accepted Answer

Microeconomics deals with the individual behavior of consumers and firms, as well as how they interact in markets. Unemployment and interest rates are topics that fall under macroeconomics, which deals with the overall performance of the economy.

Question 9

A valid and useful theory of gold prices:
A) helps to explain and predict the movements of gold prices over time.
B) very likely relies on complex assumptions.
C) very likely includes as many details as possible about gold prices.
D) all of the above

Accepted Answer

A valid and useful theory of gold prices should be able to explain and predict the movements of gold prices over time. While complex assumptions may be necessary in some cases, including as many details as possible about gold prices is not necessarily a requirement for a theory to be valid and useful.

Question 10

The basic premise behind worker trade-offs in a market economy is that:
A) firms decide how much workers must work and workers decide how much leisure to have.
B) workers don't decide how much leisure to have. The amount of leisure depends on the number of hours they must work, which is determined by the firm.
C) workers decide how to allocate their time between work and leisure.
D) the trade-off between work and leisure is determined by factors other than what workers or firms would determine to be optimal.

Accepted Answer

In a market economy, workers are free to choose how much of their time they want to allocate to work and how much to leisure. The workers' decision is based on their own preferences and trade-offs between income and leisure. However, firms may also offer incentives such as higher wages or better working conditions to encourage workers to work longer hours. Nonetheless, the final decision remains with the workers.

Question 11

The trade-offs facing consumers include:
A) how to allocate income across goods and serves.
B) how to allocate income between current consumption and future consumption.
C) both A and B
D) none of the above

Accepted Answer

Consumers have to make decisions on how to allocate their income across goods and services (choice A) and between current and future consumption (choice B). Both options are trade-offs that consumers face, as they have limited income and must make choices on what to spend that income on. Therefore, the correct answer is option C.

Question 12

A Rolling Stones song goes: "You can't always get what you want." This echoes an important theme from microeconomics. Which of the following statements is the best example of this theme?
A) Consumers must make the best purchasing decisions they can, given their limited incomes.
B) Workers do not have as much leisure as they would like, given their wages and working conditions.
C) Workers in planned economies, such as North Korea, do not have much choice over jobs.
D) Firms in market economies have limited financial resources.

Accepted Answer

The theme of limited resources is best exemplified by the idea that consumers must make the best purchasing decisions they can, given their limited incomes. This means that they cannot always get what they want and must prioritize their spending based on their budget constraints.

Question 13

The problem of scarcity means that people face trade-offs. Which of the following trade-offs are the concern of microeconomics?
A) Trade-offs faced by consumers in the purchase of goods
B) Trade-offs faced by workers between work and leisure
C) Trade-offs faced by firms in what goods to produce
D) all of the above

Accepted Answer

All of the above trade-offs are concerns of microeconomics. Microeconomics deals with the behavior of individual consumers, workers, and firms, and how they make choices that involve trade-offs due to scarcity.

Question 14

Which of the following is a positive statement?
A) Intermediate microeconomics should be required of all economics majors in order to build a solid foundation in economic theory.
B) The minimum wage should not be increased because this action would increase unemployment.
C) Smoking should be restricted on all airline flights.
D) All automobile passengers should be required to wear seatbelts in order to protect them against injury.
E) none of the above

Accepted Answer

Positive statements are objective statements that can be tested, amended, or rejected by referring to the available evidence. They are fact-based rather than opinion-based. Choices A, B, C, and D are normative statements because they express opinions about what ought to be rather than stating facts about what is. Therefore, none of the provided options are positive statements.

Question 15

This textbook is about microeconomics because it deals mainly with the behavior of variables such as:
A) national output, interest rates, unemployment and inflation.
B) individual economic units, such as consumers, firms, workers and investors.
C) national and international markets, exchange rates and economic treaties.
D) economic sectors, the business cycle and monetary and fiscal policies.

Accepted Answer

The textbook is about microeconomics because it deals with the behavior of individual economic units such as consumers, firms, workers and investors. Options A, C and D are more relevant to macroeconomics, which deals with national and international markets, policies and variables such as national output, interest rates, unemployment and inflation.

Question 16

Which of the following is a positive statement?
A) The President of the United States ought to be elected by a direct vote of the American people rather than the Electoral College.
B) When a country imports more than it exports, its balance of trade is negative.
C) Because many adults cannot afford to go to college, tax credits for tuition should be introduced.
D) The price of drugs in the United States is too high.
E) It only makes sense to offer financial aid for students who cannot pay some of their tuition.

Accepted Answer

A positive statement describes what is, rather than what ought to be. Option B describes a factual statement about the balance of trade. The other options express value judgments or opinions.

Question 17

During a presidential campaign, the candidates from each party typically describe their plans to maintain or change federal taxes on personal and business income. Are these policy statements generally positive or normative in nature?
A) Positive
B) Normative
C) Both positive and normative
D) Neither positive or normative

Accepted Answer

Policy statements about federal taxes on personal and business income involve value judgments and are therefore normative in nature.

Question 18

________ questions have to do with explanation and prediction; ________ questions have to do with what ought to be.
A) Positive; negative.
B) Negative; normative.
C) Affirmative; positive.
D) Positive; normative.
E) Econometric; theoretical.

Accepted Answer

Positive questions are concerned with explanation and prediction while normative questions are concerned with what ought to be.

Question 19

Which of the following is a normative statement?
A) The taxes paid by the poor should be reduced in order to improve the income distribution in the U.S.
B) State governments should not subsidize corporations by training welfare recipients.
C) Presidential candidates should not be given funds from the federal government to run campaigns.
D) The sea otter should not be allowed to spread into Southern California coastal waters, because it will reduce the value of fisheries.
E) all of the above

Accepted Answer

Normative statements are subjective statements that express opinions about what ought to be. They often include words such as "should," "ought," or "should not," which are present in all the options provided.

Question 20

Which of the following statements is false? An economic analysis of carbon taxes can:
A) calculate the increase in costs faced by coal-using industries.
B) predict the effect on unemployment in West Virginia coal mining communities.
C) compare the likely reductions in medical expenditures on diseases caused by smog.
D) present a trade-off of the costs and benefits of different levels of carbon taxes.
E) conclude that such taxes should be imposed to benefit future generations.

Accepted Answer

Economic analyses can calculate costs, predict effects, compare reductions, and present trade-offs, but they do not conclude policy actions such as imposing taxes; such decisions are made by policymakers considering the analysis.

Quiz 1: Preliminaries

The key assumption underlying the theory of the firm is that:

Use the following statements to answer this question: I. The process of testing and revising theories is central to the development of economics as a science. II) Theory is imperfect and may not adequately describe economic behavior in some cases.

Firms face trade-offs in production, including decisions related to:

Use the following two statements to answer this question: I. In order to answer normative questions, it is necessary to make value judgments. II) In order to conduct positive economic analysis, it is always necessary to use empirical evidence in addition to economic theories.

Use the following two statements to answer this question: I. Economic theories are developed to explain observed phenomena by deducing from a set of basic rules and assumptions. II) Economic theories use value judgments to determine which people ought to pay more taxes.

The textbook argues that one of the trade-offs workers make is working for a small company or a large company. The small companies offer:

Which of the following is a positive statement?

Microeconomics is the branch of economics that deals with which of the following topics?

A valid and useful theory of gold prices:

The basic premise behind worker trade-offs in a market economy is that:

The trade-offs facing consumers include:

A Rolling Stones song goes: "You can't always get what you want." This echoes an important theme from microeconomics. Which of the following statements is the best example of this theme?

The problem of scarcity means that people face trade-offs. Which of the following trade-offs are the concern of microeconomics?

Which of the following is a positive statement?

This textbook is about microeconomics because it deals mainly with the behavior of variables such as:

Which of the following is a positive statement?

During a presidential campaign, the candidates from each party typically describe their plans to maintain or change federal taxes on personal and business income. Are these policy statements generally positive or normative in nature?

questions have to do with explanation and prediction; questions have to do with what ought to be.

Which of the following is a normative statement?

Which of the following statements is false? An economic analysis of carbon taxes can: