1
In which of the following can economic analysis be applied?
 global environmental policies Incorrect
 choice of study time versus leisure activities Incorrect
 local government spending choices Incorrect
 Economic analysis can be applied to all these situations. (True
Answer )Correct
2
Macroeconomics deals with which of the following?
 inflation (True Answer )Correct
 prices Tropicana charges for its orange juice Incorrect
 regulation of specific markets such as the auto
industry Incorrect
 inflation and prices Tropicana charges for its orange
juice Incorrect
3
Which of the following is not true of economic model building?
 There may be exceptions to economic models. Incorrect
 Adding more complexity to models does not always provide
greater insights. Incorrect
 Economic models always reach verifiable results. (True
Answer )Correct
 Economic models provide generalizations about economic
behavior. Incorrect
4
The ______ assumption applies to model building in which some
important variables are held constant.




5
scarcity Incorrect
opportunity cost Incorrect
ceteris paribus (True Answer )Correct
simplicity Incorrect
The ceteris paribus assumption:
 provides little insight into economic behavior. Incorrect
 provides insight into economic behavior that leads to
economic theories. (True Answer )Correct
 measures the amount you give up when you make an alternate
choice. Incorrect
 is never used in building economic models. Incorrect
6
Tax policy and its impact on income distribution is an example
of a possible collision between efficiency and equity because:
 some people believe that taxation will not be fair to all income
groups. Incorrect
 tradeoffs cannot be made between efficient and equitable
policies. Incorrect
 taxation is always inequitable. (True Answer )Correct
 taxation is always inefficient. Incorrect
7
Rational behavior requires “thinking at the margin.” Which of
the following is an example of this type of thinking?
 deciding whether or not a second burger is worth the extra
$2 Incorrect
 deciding whether or not your overtime pay is worth working
on Saturday (your day off) Incorrect
 deciding whether to pay a fine for polluting the local harbor
or installing antipollution machinery Incorrect
 All of these are examples of “thinking at the margin.” (True
Answer )Correct
8
What drives and disciplines markets?




9
equity Incorrect
prices and profits (True Answer )Correct
ceteris paribus assumptions Incorrect
efficiency Incorrect
Which of the following leads to higher standards of living?
 lower per capita income Incorrect
 investments in research and education (True Answer
)Correct
 lack of skilled labor Incorrect
 lack of unskilled labor Incorrect
10
What indicator is not generally associated with highly
productive countries?




11
What indicator is not generally associated with highly
productive countries?




12
Income inequality is low. Incorrect
Inflation is low. Incorrect
Fewer restrictions on trade. Incorrect
Property rights are less secure. (True Answer )Correct
What indicator is generally associated with highly productive
countries?




14
Income inequality is high. (True Answer )Correct
Inflation is low. Incorrect
Fewer restrictions on trade. Incorrect
Property rights are more secure. Incorrect
What indicator is not generally associated with highly
productive countries?




13
Income inequality is low. Incorrect
Inflation is low. Incorrect
More restrictions on trade. (True Answer )Correct
Property rights are more secure. Incorrect
Income inequality is high. Incorrect
Inflation is high. Incorrect
Fewer restrictions on trade. (True Answer )Correct
Property rights are less secure. Incorrect
Current economic growth:
 affects future generations because higher growth rates today
translates to even higher standards of living for our
children. (True Answer )Correct
 affects future generations because higher growth rates today
lower the standard of living for our children. Incorrect
 does not affect future generations because our children must
produce what they consume. Incorrect
 does not affect future generations because what our
generation produces is all consumed today. Incorrect
15
If the U.S. economy grew at 1 percent less since the Great
Depression then:
 it would make little difference today because the Depression
was so long ago. Incorrect
 the economy would be double the size it actually is
today. Incorrect
 it cannot be accurately calculated what a one percent
difference growth would mean. Incorrect
 the economy would be half the size it actually is. (True
Answer )Correct
16
Which of the following is not a characteristic of countries with
high economic growth?




17
a literate population Incorrect
a strong legal system Incorrect
strong dictatorship (True Answer )Correct
open to outside trade Incorrect
Why is it important for students to study economics?
 Most students will work as professional economists. Incorrect
 It helps us reduce our personal income taxes. Incorrect
 We all live in the economic environment and make economic
decisions. (True Answer )Correct
 There is no long-term benefit to studying
economics. Incorrect
18
According to John Kay, which one of the following
characteristics do highly productive countries have?




19
high degree of income inequality Incorrect
high inflation rates Incorrect
more open trade policies (True Answer )Correct
high rates of population growth Incorrect
Economic analysis:
 can help you make decisions in a less rational
manner. Incorrect
 is a way of analyzing decisions that are only “economic” in
nature. Incorrect
 can only be applied by economic policymakers. Incorrect
 can be used in evaluating government deficits and the public
debt. (True Answer )Correct
20
If economics is a way of thinking about how people make
rational decisions, then:
 higher costs of a choice don't affect a person's
decision. Incorrect
 lower costs of a choice don't affect a person's
decision. Incorrect
 higher costs of a choice increase the probability of a person
selecting that choice. Incorrect
 lower costs of a choice increase the probability of a person
selecting that choice. (True Answer )Correct
21
Why is the rate of economic growth important?
 Lower rates of economic growth lead to lower standards of
living. (True Answer )Correct
 Rapid economic growth reduces inflation. Incorrect
 Low rates of economic growth create problems with
educational standards. Incorrect
 Low rates of economic growth reduce the unemployment
problem. Incorrect
22
Currently, output in the United States is approximately:




23
One of the best measures of a country's standard of living is:




24
$15 trillion. (True Answer )Correct
$15 billion. Incorrect
$150 million. Incorrect
$15 million. Incorrect
real GDP per capita. (True Answer )Correct
the level of government corruption. Incorrect
the unemployment rate among teenagers. Incorrect
the number of environmental organizations. Incorrect
According to John Kay, highly productive countries:
 have higher population growths. Incorrect
 have higher inflation. Incorrect
 are mostly democracies. (True Answer )Correct
 are English-speaking. Incorrect
25
Countries with high standards of living tend to:




26
be democracies. (True Answer )Correct
have low literacy rates. Incorrect
have high inflation rates. Incorrect
have widespread corruption. Incorrect
Important determinants of rapid economic growth and
improved living standards include all the following except:
 the enforcement of property rights. Incorrect
 the need to realize higher levels of educational
attainment. Incorrect
 the need to erect tariff barriers to protect firms from foreign
companies. (True Answer )Correct
 the freedom to express oneself. Incorrect
27
Scarcity exists because:
 technology has not advanced to the point where it can
eliminate scarcity. Incorrect
 the world is not large enough. Incorrect
 human desires are greater than what can be produced with
the limited resources available at zero cost. (True Answer
)Correct
 people are far too greedy and do not share their
wealth. Incorrect
28
In economics we use the term technology to mean:
 computers and jumbo jets. Incorrect
 resources like land, labor, or physical capital. Incorrect
 the pool of knowledge of how to produce goods and
services. (True Answer )Correct
 things that use electricity. Incorrect
29
The opportunity cost of more consumption of goods today is:
 less consumption of goods in the future. (True Answer
)Correct
 more capital goods today. Incorrect
 more unemployment both today and in the future. Incorrect
 less production of goods in the future. Incorrect
30
The opportunity cost of more consumption of goods today is:
 less consumption of goods in the future. (True Answer
)Correct
 more capital goods today. Incorrect
 more unemployment both today and in the future. Incorrect
 less production of goods in the future. Incorrect
31
Which of the following statements is not true?
 Economics is a social science. Incorrect
 Economics is an empirical science. Incorrect
 Opportunity cost only affects the wealthy. (True Answer
)Correct
 Economics is the study of how people use their limited
resources to satisfy their unlimited wants. Incorrect
32
Reasons to study economics include all of the following except:
 you will always live in a world of scarcity and
choices. Incorrect
 you will understand more about how governments and
businesses interact. (True Answer )Correct
 you may become a better prepared voter. Incorrect
 knowing exactly how to invest your cash short-term for the
highest return on investment. Incorrect
33
The _____ has the largest economy in the world, with _____ a
close second.
 European Union; the United States Incorrect
 United States; the European Union (True Answer )Correct
 European Union; China Incorrect
 United States; China Incorrect
34
Highly productive countries have the following characteristics
except:




most are democracies. Incorrect
most have high environmental standards. Incorrect
most have warm climates. (True Answer )Correct
most enjoy freedom of expression. Incorrect
35
Ice cream sales and violent crimes both increase during the
summer. Neither activity causes the other, so this is an example
of:
 correlation does not imply causation. (True Answer )Correct
 summertime economic slowdowns. Incorrect
 inner-city economic activity. Incorrect
 supply and demand. Incorrect
36
Highly productive countries have the following characteristics:




37
population is taller. (True Answer )Correct
income inequality is higher. Incorrect
most have more restrictions on trade. Incorrect
population growth is higher. Incorrect
Which of the following statements about economics is correct?
 Economists do not believe that criminals behave
rationally. Incorrect
 Economics has little to say about social issues. Incorrect
 Economists assume that people rationally compare costs and
benefits. (True Answer )Correct
 Economists assume that people don't respond to
incentives. Incorrect
38
The field of economics that focuses on decision-making by
individuals, businesses, industries, and government is called:




macroeconomics. Incorrect
decision science. Incorrect
mini-economics. Incorrect
microeconomics. (True Answer )Correct
39
The field of economics that is concerned about the broader
issues in the economy such as inflation, unemployment, and
national output of goods and services is called:
 macroeconomics. (True Answer )Correct
 microeconomics. Incorrect
 national economics. Incorrect
 labor force economics. Incorrect
40
Economic analysis is:
 widely understood by all in our society. Incorrect
 important for problem solving in developing and socialist
societies but of little use in Western capitalist
societies. Incorrect
 a set of mathematical rules to ensure a society's happiness and
prosperity. Incorrect
 a framework for making decisions in a rational
manner. (True Answer )Correct
41
Economics is best defined as the study of how:
 to classify resources used to produce final goods and
services. Incorrect
 resources are apportioned to satisfy human wants. Incorrect
 people make rational decisions. (True Answer )Correct
 technology can be used to change scarce resources into free
resources. Incorrect
42
Microeconomics is concerned with issues such as:




43
inflation. Incorrect
unemployment. Incorrect
which job to take. (True Answer )Correct
interest rates. Incorrect
According to the book, what is the present value, or the value on
the day you graduate, of a college degree?
 $2,500 Incorrect
 $25,000 Incorrect
 $250,000 (True Answer )Correct
 $2,500,000 Incorrect
44
Macroeconomics is concerned with issues such as:




45
which orange juice to buy. Incorrect
unemployment. (True Answer )Correct
which job to take. Incorrect
what price to charge for goods. Incorrect
Rationality means:
 paying attention to both incentives and costs. (True Answer
)Correct
 paying attention only to costs. Incorrect
 paying attention only to incentives. Incorrect
 paying attention to neither costs nor incentives. Incorrect
46
The main difference between macroeconomics and
microeconomics is that:
 microeconomics largely deals with the fallacy of composition,
and macroeconomics does not deal with the fallacy of
composition. Incorrect
 macroeconomics focuses on the aggregate economy, and
microeconomics focuses on small components of that
economy. (True Answer )Correct
 macroeconomics looks at how individuals make choices, and
microeconomics looks at the aggregate of those
choices. Incorrect
 macroeconomics is concerned with economic policy, and
microeconomics is concerned with international
policies. Incorrect
47
_____ is an assumption used in economics in which other
relevant factors or variables are held constant.




48
Caveat emptor Incorrect
Habeas corpus Incorrect
Montani semper liberi Incorrect
Ceteris paribus (True Answer )Correct
_____ occur(s) when goods are produced at the lowest possible
cost and _____ occur(s) when individuals who desire a product
the most receive those goods and services.
 Production efficiency; allocative efficiency (True Answer
)Correct
 Production possibilities; allocative possibilities Incorrect
 Allocative possibilities; production possibilities Incorrect
 Allocative efficiency; production efficiency Incorrect
49
_____ is how well resources are used and allocated.




50
_____ is the fairness of various issues and policies.




51
inflation. Incorrect
unemployment. Incorrect
which job to take. (True Answer )Correct
interest rates. Incorrect
Macroeconomics is concerned with issues such as:




53
Equity (True Answer )Correct
Efficiency Incorrect
Choice Incorrect
Scarcity Incorrect
Microeconomics is concerned with issues such as:




52
Equity Incorrect
Efficiency (True Answer )Correct
Choice Incorrect
Scarcity Incorrect
which orange juice to buy. Incorrect
unemployment. (True Answer )Correct
which job to take. Incorrect
what price to charge for goods. Incorrect
The main difference between macroeconomics and
microeconomics is that:
 microeconomics largely deals with the fallacy of composition,
and macroeconomics does not deal with the fallacy of
composition. Incorrect
 macroeconomics focuses on the aggregate economy, and
microeconomics focuses on small components of that
economy. (True Answer )Correct
 macroeconomics looks at how individuals make choices, and
microeconomics looks at the aggregate of those
choices. Incorrect
 macroeconomics is concerned with economic policy, and
microeconomics is concerned with international
policies. Incorrect
54
_____ is an assumption used in economics in which other
relevant factors or variables are held constant.




Caveat emptor Incorrect
Habeas corpus Incorrect
Montani semper liberi Incorrect
Ceteris paribus (True Answer )Correct
55
_____ occur(s) when goods are produced at the lowest possible
cost and _____ occur(s) when individuals who desire a product
the most receive those goods and services.
 Production efficiency; allocative efficiency (True Answer
)Correct
 Production possibilities; allocative possibilities Incorrect
 Allocative possibilities; production possibilities Incorrect
 Allocative efficiency; production efficiency Incorrect
56
_____ is how well resources are used and allocated.




57
Equity Incorrect
Efficiency (True Answer )Correct
Choice Incorrect
Scarcity Incorrect
_____ is the fairness of various issues and policies.




Equity (True Answer )Correct
Efficiency Incorrect
Choice Incorrect
Scarcity Incorrect
58
_____ is the fairness of various issues and policies.




59
Equity (True Answer )Correct
Efficiency Incorrect
Choice Incorrect
Scarcity Incorrect
The study of economics:
 primarily considers the stock market. Incorrect
 is about people's decisions regarding their use of scarce
resources. (True Answer )Correct
 doesn't apply to decisions made by businesses. Incorrect
 states efficiency and equity don't conflict. Incorrect
60
To say that economics is a way of thinking about how people
make rational decisions means that people:




61
don't consider the cost of their decisions. Incorrect
consider only monetary terms in their decisions. Incorrect
respond to incentives. (True Answer )Correct
are irrational. Incorrect
Which is a characteristic of economic models?
 They try to boil down an economic situation to its most basic
elements. (True Answer )Correct
 They are always complex because the economy is
complex. Incorrect
 They attempt to reproduce reality exactly. Incorrect
 They try to avoid invoking the ceteris paribus
assumption. Incorrect
62
Which of the following is not correct?
 The experience of the Great Depression is an example of
events shaping economic theory. Incorrect
 Building economic models is a process. Incorrect
 Because they are theoretical, economic theories cannot be
tested. (True Answer )Correct
 The economic models used by policymakers change over
time. Incorrect
63
The economic study of how well resources are used and
allocated is known as the study of:




64
When goods are produced at the lowest possible cost an
economy is said to have:




65
equity. Incorrect
allocative resourcing. Incorrect
production and distribution. Incorrect
efficiency. (True Answer )Correct
productive efficiency. (True Answer )Correct
allocative efficiency. Incorrect
cheap production. Incorrect
inferior quality goods. Incorrect
Allocative efficiency occurs when:
 production is allocated equally among all citizens. Incorrect
 people in an economy get what they want and are willing to
pay for. (True Answer )Correct
 goods are produced at the lowest possible cost. Incorrect
 resources are equally allocated between the private and public
sectors of the economy. Incorrect
66
Which of the following is not true?
 There are often tradeoffs between efficiency and
equity. Incorrect
 Both equity and efficiency are subjective concepts. (True
Answer )Correct
 There are often disagreements over what is an equitable
distribution of income. Incorrect
 Another term for equity is fairness. Incorrect
67
Which of the following would be the best measure of a nation's
standard of living?
 GDP Incorrect
 real per capita GDP (True Answer )Correct
 retail sales Incorrect
 cost of living Incorrect
68
Which topic is most likely to be studied in a microeconomics
course?




69
Which topic is most likely to be studied in a macroeconomics
course?




70
taxation methods Incorrect
recession (True Answer )Correct
public utility regulation Incorrect
game theory Incorrect
Economics is a:




71
environmental policy (True Answer )Correct
unemployment Incorrect
inflation Incorrect
recession Incorrect
natural science. Incorrect
physical science. Incorrect
life science. Incorrect
social science. (True Answer )Correct
Economics is a social science that involves the study of how
individuals, firms and societies:
 maximum happiness. Incorrect
 maximize incomes. Incorrect
 choose among alternatives to satisfy their unlimited
wants. (True Answer )Correct
 develop their tastes and preferences. Incorrect
72
An organization that is able to produce goods and services at the
lowest cost possible is experiencing:




allocative efficiency. Incorrect
productive efficiency. (True Answer )Correct
opportunity costs. Incorrect
scarcity. Incorrect
73
The ceteris paribus assumption is important in the construction
of stylized approaches to economic issues because:
 all real world data are equal. Incorrect
 data are not always used to make forecasts. Incorrect
 economic models are complex and therefore require as many
variables as possible. Incorrect
 it would be impossible to relate the effects of changes in one
variable to another without holding some variables
constant. (True Answer )Correct
74
In the study of economics, the goals of efficiency and equity are
often:




75
compatible. Incorrect
mutually exclusive. (True Answer )Correct
objectively definable. Incorrect
given equal emphasis. Incorrect
Allocative efficiency occurs when:
 goods are produced with the lowest possible resource
cost. Incorrect
 goods are allocated equally. Incorrect
 goods are delivered to those who have the greatest willingness
and ability to acquire them. (True Answer )Correct
 goods are allocated to those with the greatest need. Incorrect
76
Production efficiency occurs when:
 goods are produced with the lowest possible resource
cost. (True Answer )Correct
 goods are allocated equally. Incorrect
 goods are delivered to those who have the greatest willingness
and ability to acquire them. Incorrect
 goods are allocated to those with the greatest need. Incorrect
77
Economists develop stylized approaches to economic issues by:
 building models that give a detailed description of the
macroeconomy. Incorrect
 conducting laboratory experiments in carefully controlled
environments. Incorrect
 performing public opinion surveys. Incorrect
 building models that test their predictions with observable
data. (True Answer )Correct
78
When constructing economic models, economists are more
concerned with




79
With the study of economic principles, the primary method to
model an economic concept is to:




80
explain it with words. Incorrect
explain it with a mathematical formula. Incorrect
produce a graph or a chart. (True Answer )Correct
rely on a physical representation of a larger reality. Incorrect
Macroeconomics focuses on:




81
what people say than what they do. Incorrect
what people think than what they say. Incorrect
what people do than what they say. (True Answer )Correct
what people say than what they think. Incorrect
decisions made by individuals. Incorrect
decisions made by firms. Incorrect
the decision to purchase a new home for a family. Incorrect
decisions for the entire economy. (True Answer )Correct
All of the following fall under the category of microeconomics
except:
 cooks at McDonalds supply labor in return for
wages. Incorrect
 gas prices are high due to the United States dependence on oil
from OPEC. (True Answer )Correct
 Jonathan decided to go to the movies instead of go to
work. Incorrect
 Pepsi experienced an increase in revenue last
quarter. Incorrect
82
Which of the following would be the best measure of a nation's
standard of living?
 GDP Incorrect
 real per capita GDP (True Answer )Correct
 retail sales Incorrect
 cost of living Incorrect
83
Which topic is most likely to be studied in a microeconomics
course?




84
Which topic is most likely to be studied in a macroeconomics
course?




85
taxation methods Incorrect
recession (True Answer )Correct
public utility regulation Incorrect
game theory Incorrect
Economics is a:




86
environmental policy (True Answer )Correct
unemployment Incorrect
inflation Incorrect
recession Incorrect
natural science. Incorrect
physical science. Incorrect
life science. Incorrect
social science. (True Answer )Correct
Economics is a social science that involves the study of how
individuals, firms, and societies:
 maximum happiness. Incorrect
 maximize incomes. Incorrect
 choose among alternatives to satisfy their unlimited
wants. (True Answer )Correct
 develop their tastes and preferences. Incorrect
87
The ceteris paribus assumption is important in the construction
of stylized approaches to economic issues because:
 all real world data are equal. Incorrect
 data are not always used to make forecasts. Incorrect
 economic models are complex and therefore require as many
variables as possible. Incorrect
 it would be impossible to relate the effects of changes in one
variable to another without holding some variables
constant. (True Answer )Correct
88
In the study of economics, the goals of efficiency and equity are
often:




89
compatible. Incorrect
mutually exclusive. (True Answer )Correct
objectively definable. Incorrect
given equal emphasis. Incorrect
Allocative efficiency occurs when:
 goods are produced with the lowest possible resource
cost. Incorrect
 goods are allocated equally. Incorrect
 goods are delivered to those who have the greatest willingness
and ability to acquire them. (True Answer )Correct
 goods are allocated to those with the greatest need. Incorrect
90
Production efficiency occurs when:
 goods are produced with the lowest possible resource
cost. (True Answer )Correct
 goods are allocated equally. Incorrect
 goods are delivered to those who have the greatest willingness
and ability to acquire them. Incorrect
 goods are allocated to those with the greatest need. Incorrect
91
Economists develop stylized approaches to economic issues by:
 building models that give an exact description of the
macroeconomy. Incorrect
 conducting laboratory experiments in carefully controlled
environments. Incorrect
 performing public opinion surveys. Incorrect
 building models that test their predictions with observable
data. (True Answer )Correct
92
When constructing economic models, economists are more
concerned with:




93
With the study of economic principles, the primary method to
model an economic concept is to:




94
what people say than what they do. Incorrect
what people think than what they say. Incorrect
what people do than what they say. (True Answer )Correct
what people say than what they think. Incorrect
explain it with words. Incorrect
explain it with a mathematical formula. Incorrect
produce a graph or a chart. (True Answer )Correct
rely on a physical representation of a larger reality. Incorrect
Which of the following is a microeconomic statement?
 The unemployment rate fell by 2 percent. Incorrect
 All businesses in the United States experienced a decrease in
revenues of 5 percent due to the recession. Incorrect
 About 15 percent of the teachers were laid off last
week. (True Answer )Correct
 GDP increased by 6 percent last quarter. Incorrect
95
An organization that is able to produce goods and services at the
lowest cost possible is experiencing:




96
Macroeconomics deals with all of the following except:




97
allocative efficiency Incorrect
productive efficiency (True Answer )Correct
opportunity costs Incorrect
scarcity Incorrect
recession. Incorrect
depression. Incorrect
job creation rates. Incorrect
markets for semiconductor chips. (True Answer )Correct
Which of the following is a microeconomic statement?
 The unemployment rate fell by 2 percent. Incorrect
 All businesses in the United States experienced a decrease in
revenues of 5 percent due to the recession. Incorrect
 About 15 percent of the teachers were laid off last
week. (True Answer )Correct
 GDP increased by 6 percent last quarter. Incorrect
98
The most important concept in economics is:




99
rationality. (True Answer )Correct
profit maximization. Incorrect
efficiency. Incorrect
opportunity cost. Incorrect
Which of the following is a microeconomic topic?
 the inflation rate in 2009 for the United States Incorrect
 the price of an iPad sold by Apple Computer (True Answer
)Correct
 the unemployment rate in March 2010 for the United
States Incorrect
 the rate of growth in GDP for the first quarter in 2010 for the
United States Incorrect
100
Which of the following is a macroeconomic topic?




101
If you spent a dollar a second, approximately how long would it
take you to spend 10 trillion dollars?




102
a study of the business cycle (True Answer )Correct
the price of a pair of Nike shoes Incorrect
the total sales for GE in 2009 Incorrect
the labor market for computer analysts Incorrect
300 years Incorrect
3,000 years Incorrect
30,000 years Incorrect
300,000 years (True Answer )Correct
Supply and demand analysis is used:
 only in microeconomics. Incorrect
 only in macroeconomics. Incorrect
 in both microeconomics and macroeconomics. (True Answer
)Correct
 in neither microeconomics nor macroeconomics. Incorrect
103
Which of the following concepts would be addressed by
microeconomics?
 national unemployment rate Incorrect
 reasons for a decline in a country's total output Incorrect
 price of college tuition that an individual student pays (True
Answer )Correct
 inflation rate in Brazil Incorrect
104
International trade and finance is generally studied in:




105
The economics of uranium mining would be studied in:




106
microeconomics. Incorrect
macroeconomics. (True Answer )Correct
deductive logic. Incorrect
inductive logic. Incorrect
microeconomics. Incorrect
macroeconomics. (True Answer )Correct
deductive logic. Incorrect
inductive logic. Incorrect
Which of the following does not deal with microeconomics?
 Profits for some manufacturing firms fell in 2009. Incorrect
 In 2009, the unemployment rate in the United States rose to
nearly 10%. (True Answer )Correct
 Salaries of some top executives fell in 2009. Incorrect
 Competitive markets promote efficiency. Incorrect
107
Microeconomics studies decision making by:
 individuals. Incorrect
 business firms. Incorrect
 governments. Incorrect
 individuals, business firms, and governments. (True Answer
)Correct
108
Which of the following statements regarding macroeconomics
and microeconomics is false?
 Microeconomics examines consumer behavior, whereas
macroeconomics studies business behavior. Incorrect
 Macroeconomics does not employ any of the analytical tools
of microeconomics. (True Answer )Correct
 Because it focuses on national economies, macroeconomics
does not study international trade and finance. Incorrect
 Neither macroeconomics nor microeconomics is concerned
with prices. Incorrect
109
Which of the following does not deal with macroeconomics?
 the effect of the budget deficit on the economy Incorrect
 the effect of monetary policy on inflation Incorrect
 the effect of Wal-Mart's pricing policies on consumers (True
Answer )Correct
 the effect of the government policies on the country's
unemployment rate Incorrect
110
The two main branches of economics are:
 consumer and industrial economics. Incorrect
 microeconomics and macroeconomics. (True Answer
)Correct
 commodity and specialized economics. Incorrect
 private and global economics. Incorrect
111
Which of the following statements relates to microeconomics?
 The unemployment rate last month was 4.5
percent. Incorrect
 The inflation rate at the end of the year was 2.7
percent. Incorrect
 General Electric reduced its labor force by 3,000 workers last
year. (True Answer )Correct
 Total output rose 3.5 percent last year. Incorrect
112
Economics is separated into the two broad categories of:
 public sector and private sector. Incorrect
 microeconomics and macroeconomics. (True Answer
)Correct
 efficiency and equity. Incorrect
 choice and scarcity. Incorrect
113
Microeconomics deals with:
 what is. Incorrect
 what should be. Incorrect
 decision making by individuals, firms, and
governments. (True Answer )Correct
 aggregates or the entire economy. Incorrect
114
Which of the following would not be considered a
macroeconomic topic?
 reasons for a decline in the price of crude oil (True Answer
)Correct
 causes of recessions Incorrect
 effect of government budget deficit on inflation Incorrect
 causes of inflation and unemployment Incorrect
115
Which of the following is not a major macroeconomic goal?




116
stable prices Incorrect
relatively low interest rates (True Answer )Correct
full employment Incorrect
high economic growth Incorrect
Which of the following is a microeconomic issue?
 The New York Yankees announce higher ticket prices. (True
Answer )Correct
 Congress passes a new jobs bill. Incorrect
 The economy grew by 2 percent last year. Incorrect
 The Federal Reserve announces it will raise interest
rates. Incorrect
117
The branch of economics that studies the “big picture” is:




118
large-scale economic analysis. Incorrect
microeconomics. Incorrect
universal economics. Incorrect
macroeconomics. (True Answer )Correct
Which of the following statements relates to macroeconomics?
 The price of shoes rose 5 percent last year. Incorrect
 Oil production increased 10 percent last quarter. Incorrect
 Wages of auto workers fell 3 percent last year. Incorrect
 The U.S. standard of living rose 1.5 percent last year. (True
Answer )Correct
119
Macroeconomics deals with:
 what is. Incorrect
 what should be. Incorrect
 decision making by individuals, firms, and
governments. Incorrect
 aggregates or the entire economy. (True Answer )Correct
120
Which of the following terms are most closely associated with
macroeconomics?
 environmental issues, wage rates, prices Incorrect
 economic growth, international trade, agriculture Incorrect
 commodity prices, labor force, exports Incorrect
 business cycles, recessions, unemployment (True Answer
)Correct
121
Microeconomics deals with all of the following except:




labor markets. Incorrect
environmental policy. Incorrect
markets for oranges. Incorrect
the federal deficit. (True Answer )Correct
122
Which of the following is a macroeconomic issue?
 The New York Yankees announce higher ticket
prices. Incorrect
 Your uncle from New York just got laid off from his job as a
taxi driver. Incorrect
 You receive an end-of-year bonus check from your
boss. Incorrect
 Congress passes a new jobs bill. (True Answer )Correct
123
Economists like to use graphs and equations primarily because:
 these tools efficiently express economic concepts. (True
Answer )Correct
 economics should be difficult. Incorrect
 a mathematical aptitude is necessary to understand
economics. Incorrect
 the use of mathematics reduces rigor. Incorrect
124
The term ceteris paribus is an assumption used in economics
where:
 some relevant factors or variables are held
constant. Incorrect
 all other relevant factors or variables are held
constant. (True Answer )Correct
 some relevant factors or variables are allowed to
change. Incorrect
 all other relevant factors or variables are allowed to
change. Incorrect
125
An economic model:




126
generalizes about economic behavior. (True Answer )Correct
is directed at specific situations. Incorrect
makes use of advanced physics. Incorrect
is never used in general situations. Incorrect
A theory composed of a number of assumptions and facts
boiled down to their basic relevant elements is called a:
 metaphor. Incorrect
 model. (True Answer )Correct
 conclusion. Incorrect
 practice. Incorrect
127
An architectural drawing is an example of a model because an
architectural drawing:
 realistically describes a building. Incorrect
 is accurate. Incorrect
 is a stylized (simple) representation of reality. (True Answer
)Correct
 is three-dimensional. Incorrect
128
The purpose of an economic model is to:
 be a complex, exact replica of reality. Incorrect
 demonstrate which values and beliefs are best for the
economy. Incorrect
 explain the behavior of the economy. (True Answer )Correct
 manage the economy like an automatic pilot. Incorrect
129
Which of the following statements does not describe model
building in economics?
 Models are developed to cover specific behaviors only. (True
Answer )Correct
 Models are created and then tested. Incorrect
 Models are used to help understand the general
economy. Incorrect
 Assumptions are used to analyze an economic
issue. Incorrect
130
Production efficiency:
 involves mainly handmade goods. Incorrect
 is the opposite of equity or fairness. Incorrect
 occurs when goods are produced at the lowest possible
cost. (True Answer )Correct
 occurs only when advanced technology is applied to a
process. Incorrect
131
A useful economic model:
 includes the essential relationships of the topic under
consideration. (True Answer )Correct
 includes all relationships about the topic under
consideration. Incorrect
 cannot be refuted. Incorrect
 describes the real world completely and in detail. Incorrect
132
Economic models must:
 be completely realistic to be useful. Incorrect
 include all relationships that exist in the relevant thing to be
modeled. Incorrect
 completely represent the real world. Incorrect
 rely on the ceteris paribus assumption. (True Answer
)Correct
133
An economic theory is tested by:
 only Nobel Prize winners. Incorrect
 examining the realism of its assumptions. Incorrect
 deriving statistical equations. Incorrect
 comparing its predictions to the facts. (True Answer
)Correct
134
Stylized economic models must include:




135
assumptions. (True Answer )Correct
inflation. Incorrect
money. Incorrect
complexity. Incorrect
In economics, ceteris paribus means:




allowing other things to change. Incorrect
holding unknown values equal. Incorrect
holding prices the same. Incorrect
holding all other things equal. (True Answer )Correct
136
The Latin phrase ceteris paribus means




137
Assumptions that we use to simplify analysis are:




138
correlation doesn't imply causation. Incorrect
all variables are free to fluctuate. Incorrect
a mistake in economic analysis has been made. Incorrect
all else held constant. (True Answer )Correct
a mistake in economic analysis. Incorrect
assumptions that make economic models useless. Incorrect
ceteris paribus assumptions. (True Answer )Correct
opportunity cost assumptions. Incorrect
Productive inefficiency implies that:
 goods are produced at too high a cost. (True Answer
)Correct
 people who want the specific goods cannot get them at any
price. Incorrect
 too many Twinkies and too few Ding Dongs were
produced. Incorrect
 workers are lazy. Incorrect
139
The main focus of efficiency is:
 firms charging high prices for their goods. Incorrect
 firms earning the largest profits. Incorrect
 consumers getting the goods and services they want at the
lowest possible resource cost. (True Answer )Correct
 consumers paying high prices. Incorrect
140
Because of scarcity:
 resources are limitless. Incorrect
 wants are limited. Incorrect
 choices are unlimited. Incorrect
 we face tradeoffs in nearly every choice we make. (True
Answer )Correct
141
Efficiency:
 reflects how often economists make assumptions about
important variables. Incorrect
 reflects how well resources are allocated. (True Answer
)Correct
 reflects the fact that all labor is equally productive. Incorrect
 is an assumption used by economists that holds important
variables constant. Incorrect
142
If society is produces a pie at the lowest possible cost and then
distributes the pie evenly among its population, then:
 production and allocative efficiency are achieved. Incorrect
 only production efficiency is achieved. (True Answer
)Correct
 neither production efficiency nor allocative efficiency is
achieved. Incorrect
 only allocative efficiency is achieved. Incorrect
143
Allocative inefficiency implies that:
 goods are produced at too high at cost. Incorrect
 people who want specific goods cannot get them at any
price. (True Answer )Correct
 too many Twinkies and too few Ding Dongs were
produced. Incorrect
 workers are lazy. Incorrect
144
Economists generally have _________ to say about equity than
efficiency.




145
less (True Answer )Correct
a little bit more Incorrect
about the same Incorrect
much more Incorrect
An economy exhibits productive efficiency if:
 it produces more than enough clothes to clothe
everyone. Incorrect
 economic growth increases every year. Incorrect
 it produces maximum output at minimum cost. (True
Answer )Correct
 it eliminates poverty. Incorrect
146
Efficiency within economics focuses on:
 how well resources are used and allocated. (True Answer
)Correct
 the fairness of various policies. Incorrect
 how quickly a task can be completed. Incorrect
 calculations of opportunity cost. Incorrect
147
When goods are produced at the lowest possible cost, the
economy is experiencing:




148
When the individuals who get a good or service are the ones
who desire that product the most, the economy is experiencing:




149
allocative efficiency. (True Answer )Correct
production efficiency. Incorrect
equity. Incorrect
deflation. Incorrect
Economists understand that people respond to:




150
allocative efficiency. Incorrect
production efficiency. (True Answer )Correct
equity. Incorrect
deflation. Incorrect
laws. Incorrect
incentives. (True Answer )Correct
threats more than rewards. Incorrect
positives, but not negatives. Incorrect
When government policies are being designed:
 there is usually a tradeoff between equity and
efficiency. (True Answer )Correct
 equity and efficiency goals are usually independent of each
other. Incorrect
 equity can usually be achieved without an efficiency
loss. Incorrect
 increasing efficiency usually results in more
equity. Incorrect
151
The problem of the medically uninsured involves:




152
opportunity cost. Incorrect
equity. (True Answer )Correct
productive efficiency. Incorrect
allocative efficiency. Incorrect
Which of the following statements is true?
 Economic theory has little to add to debates over
equity. Incorrect
 Generally speaking, economists try to leave questions of
equity to social philosophers or the political process. (True
Answer )Correct
 Economists believe that an equitable distribution is an equal
distribution. Incorrect
 Equity is composed of two concepts: productive and
allocative. Incorrect
153
When an economist says a good is scarce, he/she means that:
 people want to purchase more of the good at any
price. Incorrect
 desire for the good is greater than the supply that is freely
available from nature. (True Answer )Correct
 there is not a way to increase the availability of the
good. Incorrect
 it is rare. Incorrect
154
The highest valued alternative that is foregone when you choose
an action is called its:




opportunity cost. (True Answer )Correct
utility. Incorrect
scarcity. Incorrect
benefit. Incorrect
155
The opportunity cost of undertaking an activity is defined as:
 the cost foregone by not undertaking another
activity. Incorrect
 the monetary cost of undertaking that activity. Incorrect
 the benefit foregone by not undertaking the next-best
activity. (True Answer )Correct
 the monetary benefit of undertaking that activity. Incorrect
156
People use _____ to determine how many hours to work and
businesses use _____ to determine how much of their products
they are willing to supply to the market.
 marginal analysis; marginal analysis (True Answer )Correct
 allocative efficiency; production efficiency Incorrect
 production efficiency; marginal analysis Incorrect
 marginal analysis; allocative efficiency Incorrect
157
If Patti buys 9 gallons of gasoline at $2.50 per gallon, the car
wash will cost $2.00, but if she buys 10 gallons of gasoline, the
car wash will be free. Given that she will get the car washed
anyway, the marginal cost of the 10th gallon of gasoline is:
 zero. Incorrect
 $0.50. (True Answer )Correct
 $1.50. Incorrect
 $2.00. Incorrect
158
The extra cost associated with undertaking some action is its:




159
marginal benefit. Incorrect
marginal cost. (True Answer )Correct
net cost. Incorrect
total cost. Incorrect
People make decisions at the margin. Therefore, when deciding
whether to purchase a second car, they would compare:
 the dollar cost of having two cars and the potential income
the two cars may generate. Incorrect
 the additional benefits expected from a second car with the
total cost of the two cars. Incorrect
 the additional benefits expected from a second car with the
additional costs of the second car. (True Answer )Correct
 None of the answers is correct. Incorrect
160
Which of the following is a key idea in economic thinking?
 Goods are scarce for the poor but not for the rich. Incorrect
 Incentives matter. (True Answer )Correct
 The value of a good can be objectively measured, and is the
same for everyone. Incorrect
 All of the answers are correct. Incorrect
161
When consumers have no choice but to buy from one firm
(local utility, etc.):
 they usually end up paying way too much for the good or
service. Incorrect
 government regulation is usually used to protect
consumers. (True Answer )Correct
 they will always get the good or service at the lowest price
available. Incorrect
 None of the answers is true. Incorrect
162
People tend to make rational choices, to help make these, they
rely on:




163
scarcity. Incorrect
utility. Incorrect
information. (True Answer )Correct
ceteris paribus. Incorrect
When two countries trade, it leads to:
 better products for one country, but worse for the other
country. Incorrect
 an increased number of products for consumers. (True
Answer )Correct
 better products for consumers at higher prices. Incorrect
 worse products for consumers, but at lower prices. Incorrect
164
Among countries with higher standards of living, you will
usually notice they also have:
 a high average per capita income. Incorrect
 highly skilled labor forces. Incorrect
 high productivity growth. Incorrect
 All of the answers are true. (True Answer )Correct
165
In looking at government intervention, we note that the
government:
 can intervene successfully in individual markets when
market failure occurs. (True Answer )Correct
 can only intervene successfully when the overall economy
gets stuck in a downturn. Incorrect
 always intervenes successfully, when it intervenes. Incorrect
 None of the answers is true. Incorrect
166
Employers give full-time employees that have been on the job
more than three years employee stock options. This is an
example of:
 people follow incentives. (True Answer )Correct
 thinking on the margin. Incorrect
 irrational behavior. Incorrect
 opportunity costs. Incorrect
167
You will take the day off work if:
 marginal costs exceed marginal benefits. Incorrect
 marginal costs are less than marginal benefits. (True Answer
)Correct
 you can make up the missed work tomorrow. Incorrect
 you have additional sick days to spare. Incorrect
168
All of the following are considered key ideas of economics
except:
 scarcity exists for everyone. Incorrect
 people face economic incentives on a regular basis. Incorrect
 irrational behavior requires thinking on the margin. (True
Answer )Correct
 information is important to producers and
consumers. Incorrect
169
Scarcity:
 is synonymous with poverty. Incorrect
 is eliminated with greater technology. Incorrect
 is faced by all individuals and societies. (True Answer
)Correct
 can be eliminated with adequate resources. Incorrect
170
Marginal analysis would put an emphasis on:




171
total monetary costs and benefits. Incorrect
total opportunity costs and benefits. Incorrect
additional costs and benefits. (True Answer )Correct
total tangible costs and benefits. Incorrect
It must be recognized that private markets:
 will always produce the most rational level of
production. Incorrect
 can fail. (True Answer )Correct
 satisfy the largest number of people. Incorrect
 will never produce the most rational outcome. Incorrect
172
Trade with other countries:




173
A nation's standard of living is primarily a function of:




174
reduces consumer prices. (True Answer )Correct
increases consumer prices. Incorrect
reduces product choice. Incorrect
reduces economic growth. Incorrect
natural resource availability. Incorrect
government benefits. Incorrect
national defense. Incorrect
productivity. (True Answer )Correct
A goal of government economic policy is to:




maximize business failures. Incorrect
minimize scarcity. Incorrect
smooth macroeconomic fluctuations. (True Answer )Correct
smooth allocative inefficiency. Incorrect
175
With the study of economic principles, the primary method to
construct an economic model is to:
 explain it with words. Incorrect
 explain it with a mathematical formula. Incorrect
 illustrate relationships with graphs and charts. (True
Answer )Correct
 use physical replicas that represent real world
objects. Incorrect
176
The observation that highly productive countries have taller
populations is an example of:




177
Markets provide an incentive structure to:




178
maximize equity. Incorrect
eliminate scarcity. Incorrect
maximize market information. Incorrect
maximize efficiency. (True Answer )Correct
The decision to take one additional class is an example of:




179
cause and effect. Incorrect
correlation. (True Answer )Correct
causation. Incorrect
allocative efficiency. Incorrect
marginal analysis. (True Answer )Correct
ceteris paribus. Incorrect
economic modeling. Incorrect
information efficiency. Incorrect
The opportunity cost of attending a concert on Tuesday night
is:
 the value of a single admission price. Incorrect
 the added cost of parking and beverages. Incorrect
 the value of the next best alternative activity. (True Answer
)Correct
 the entertainment value of the concert experience. Incorrect
180
Private markets will typically maximize production efficiency
because they:




181
International trade facilitates economic growth because it:




182
provide incentives for profit. (True Answer )Correct
provide equity. Incorrect
provide market information. Incorrect
provide tax revenue for the government sector. Incorrect
creates incentives to specialize. (True Answer )Correct
provides tariff income to the government. Incorrect
encourages outsourcing. Incorrect
supports the growth of multinational corporations. Incorrect
Business cycles:
 can be eliminated. Incorrect
 are more frequent in developed countries. Incorrect
 are inevitable. (True Answer )Correct
 could be reduced if the size of government is
reduced. Incorrect
183
Resources:




184
are unlimited but wants are limited. Incorrect
are limited but efficiency is unlimited. Incorrect
are limited but wants are unlimited. (True Answer )Correct
are unlimited but efficiency is limited. Incorrect
Jessica is in the business of making sweaters. In reviewing her
books, she noticed that she has $2,000 extra for the month of
October. In examining her options, she decides to purchase a
new sewing machine over hiring a new temporary employee.
Her decision is an example of:
 thinking on the margin. Incorrect
 rational behavior. Incorrect
 people following incentives. Incorrect
 opportunity costs. (True Answer )Correct
185
All of the following involve thinking on the margin except:
 If I work another hour, I will beat traffic Incorrect
 I worked eight hours today (True Answer )Correct
 My supervisor asked me to work an extra four hours this
week Incorrect
 If I work on my day off, I will make an additional
$300. Incorrect
186
Heather has one employee in her sweater shop that can sew six
sweaters a day. When she hires a second person, the two
employees can make 10 sweaters together. As it relates to
thinking on the margin, the extra benefit received from hiring a
second worker is:
 16 sweaters. Incorrect
 10 sweaters. Incorrect
 four sweaters. (True Answer )Correct
 six sweaters. Incorrect
187
The idea that wants are virtually unlimited but the resources to
meet those wants are limited is called:




188
the want-resource paradox. Incorrect
the economic gap. Incorrect
the dismal conclusion. Incorrect
scarcity. (True Answer )Correct
A common definition of economics is that it is the study of:
 the allocation of scarce resources to competing wants. (True
Answer )Correct
 maximizing net personal disposable income. Incorrect
 the factors underlying financial markets. Incorrect
 maximizing personal financial wealth. Incorrect
189
What would be a possible opportunity cost of you going to a
doctor for a check-up?
 the cost of getting nontraditional care Incorrect
 the opportunity to make an acquaintance in the waiting
room Incorrect
 lost income due to not being at work for those hours (True
Answer )Correct
 the cost of the insurance reimbursing the doctor Incorrect
190
An airline finds that its 6 a.m. flights are half-empty but its
mid-afternoon flights are full. Which would be the most
plausible thing for an economist to say?
 Cut the price of the early morning flight and raise the price
of the afternoon flight. (True Answer )Correct
 Nothing can be done to rectify the situation because of
consumer sovereignty. Incorrect
 Fewer flights should be scheduled in the afternoon to force
travelers to take the morning flight. Incorrect
 Nothing can be done because travelers are inflexible with
their schedules. Incorrect
191
Which of the following is not a “Key Ideas of Economics”?
 People follow incentives. Incorrect
 Productivity determines our standard of living. Incorrect
 Rational thinking requires perfect information. (True
Answer )Correct
 Government must deal with market failure. Incorrect
192
________ costs are the costs of not taking the next best
alternative.




193
Alternative choice Incorrect
Regret Incorrect
Hypothetical Incorrect
Opportunity (True Answer )Correct
Which of the following is a case when the government should
intervene in the economy?
 when consumers cannot make up their minds what they want
to purchase Incorrect
 when sellers make poor business decisions Incorrect
 when producers use the least-cost methods of
production Incorrect
 when the market fails to provide goods efficiently (True
Answer )Correct
194
A basic supposition of economics is that:
 people always, and in every case, respond to economic
incentives. Incorrect
 in general, people respond to economic incentives. (True
Answer )Correct
 history shows that tax incentives rarely work. Incorrect
 people do not respond to changes in costs and
prices. Incorrect
195
You will take the day off work if:
 marginal costs exceed marginal benefits. Incorrect
 marginal costs are less than marginal benefits. (True Answer
)Correct
 you can make up the missed work tomorrow. Incorrect
 you have additional sick days to spare. Incorrect
196
All of the following are considered key ideas of economics
except:
 scarcity exists for everyone. Incorrect
 people face economic incentives on a regular basis. Incorrect
 irrational behavior requires thinking on the margin. (True
Answer )Correct
 information is important to producers and
consumers. Incorrect
197
Jonathan decides to join the army instead of go to college. This
is an example of:




198
thinking on the margin. Incorrect
irrational behavior. Incorrect
opportunity costs. (True Answer )Correct
people follow incentives. Incorrect
Economists believe that:
 making information available to market participants
improves the functioning of the market. (True Answer
)Correct
 information should be sold to the highest bidder. Incorrect
 the flow of information has minimal impact on market
efficiency. Incorrect
 data is more important to traders than
information. Incorrect
199
The country of Economia has higher productivity rate than
Productstan. Which statement is correct?
 Economia has a lower standard of living for its citizens than
Productstan. Incorrect
 It cannot be determined from the information given which
country has the higher standard of living. Incorrect
 Economia has a higher standard of living for its citizens than
Productstan. (True Answer )Correct
 It can be assumed that both have the same high standard of
living because productivity and living standards are
unrelated. Incorrect
200
Which is not a reason economists say that trade is beneficial?
 The availability of goods is increased. Incorrect
 Prices of goods and services tend to decrease. Incorrect
 It leads to too much focus on internal politics. (True Answer
)Correct
 Producers specialize in producing what they make
best. Incorrect
201
There would be no economic problem in a world where all
resources are:




202
free. (True Answer )Correct
privately owned. Incorrect
owned by the government. Incorrect
scarce. Incorrect
_________ people are forced to make tradeoffs.




Only wealthy Incorrect
Only middle-class Incorrect
Only poor Incorrect
All (True Answer )Correct
203
The concept of scarcity:
 exists in all societies. (True Answer )Correct
 affects only greedy people. Incorrect
 is the cause of poverty. Incorrect
 used to be a problem, but is not an issue for modern
industrial nations. Incorrect
204
Deciding which car to buy or which school to attend involves:




205
When economists say that all societies face scarcity, they are
describing:




206
free lunches. Incorrect
unlimited resources. Incorrect
unlimited wants. Incorrect
tradeoffs societies must make. (True Answer )Correct
The core problem in economics is:




207
tradeoffs. (True Answer )Correct
inflation. Incorrect
government policy. Incorrect
market failure. Incorrect
unemployment. Incorrect
economic growth. Incorrect
inflation. Incorrect
scarcity. (True Answer )Correct
The opportunity costs of attending college do not include:
 the expenditures for food. (True Answer )Correct
 the costs of textbooks or e-books. Incorrect
 the foregone wages that could have been earned
working. Incorrect
 student activity fees. Incorrect
208
Cutting an economics class in order to prepare for a chemistry
class is an example of:




209
normative economics. Incorrect
positive economics. Incorrect
opportunity cost. (True Answer )Correct
a responsible decision. Incorrect
The opportunity cost of buying a ticket to a major league
baseball game and then going to the game is:
 the price of the ticket. Incorrect
 the next best alternative activity that could have been
undertaken. (True Answer )Correct
 the time spent at the game. Incorrect
 all other alternative activities that could have been
undertaken. Incorrect
210
___________________ costs are the time and money that could
have been spent on another highly-valued activity




211
Opportunity (True Answer )Correct
Marginal Incorrect
Social Incorrect
Total Incorrect
The basic idea of opportunity cost is that:
 buyers miss opportunities to find better bargains. Incorrect
 using resources in an activity imposes costs on other
people. Incorrect
 the decision to use resources in one activity means that they
cannot be used elsewhere. (True Answer )Correct
 economic agents are always looking for better
opportunities. Incorrect
212
The ____________ of parking at school includes the amount of
time I have to search for a parking space.




213
opportunity cost (True Answer )Correct
equity concerns Incorrect
efficiency Incorrect
productivity Incorrect
If you were not studying economics, you could be doing one of
the following: sleeping in (which you value at $5.00), playing
cards with your friends (which you value at $10.00), or working
(you would have earned an extra $8.00). The opportunity cost
of studying economics is therefore




214
Which of the following concepts does not depend on the scarcity
of resources?




215
$23.00 Incorrect
$10.00 (True Answer )Correct
$8.00 Incorrect
$5.00 Incorrect
tradeoffs Incorrect
opportunity costs Incorrect
deciding between alternatives Incorrect
satiation of all wants (True Answer )Correct
Economic analysis provides:
 a way to predict stock prices. Incorrect
 a structure to help you make decisions in a rational
manner. (True Answer )Correct
 a method to solve poverty. Incorrect
 the way a government can fix all prices. Incorrect
216
Another term for opportunity cost is:




irrelevant cost. Incorrect
full cost. (True Answer )Correct
unnecessary cost. Incorrect
flat cost. Incorrect
217
When the government chooses to use resources to build tourist
centers, the chosen resources are no longer available to build
highways. This best illustrates the concept of:
 macroeconomics. Incorrect
 scarcity. Incorrect
 opportunity cost. (True Answer )Correct
 efficiency. Incorrect
218
Suppose Mike has three hours of time to spend and he sets the
following activities in order of priority: (1) see a movie; (2)
attend a ball game; (3) study economics. Assume that each
activity takes three hours. What is Mike's opportunity cost of
seeing the movie?




219
attending a ball game and studying economics Incorrect
studying economics (True Answer )Correct
attending a ball game Incorrect
either attending a ball game or studying economics Incorrect
The _____the opportunity cost of an activity, the____ a person
will do that something.
 higher; more Incorrect
 higher; less Incorrect
 lower, less (True Answer )Correct
 It doesn't matter. Price alone will determine the
action. Incorrect
220
Opportunity costs exist because:
 using resources for one activity means that their use
elsewhere must be given up. (True Answer )Correct
 sellers are unwilling to give up their product without a
price. Incorrect
 there are opportunities to find ways to reduce
costs. Incorrect
 buyers always have an opportunity to go to another
seller. Incorrect
221
Which of the following questions is not an example involving
marginal analysis?
 Should a university offer another section of a
class? Incorrect
 Should a restaurant stay open another hour? Incorrect
 Should K-Mart convert all its stores to Sears stores? (True
Answer )Correct
 Should Boeing hire another assembly line worker? Incorrect
222
Decision making “at the margin“ means making economic
choices based on:
 the margin call of your stock options. Incorrect
 the value of the additional amount. Incorrect
 opportunity cost. (True Answer )Correct
 the ceteris paribus conditions of your statistical
test. Incorrect
223
When economists use the word “additional,” they generally
mean:




224
Hitting your snooze alarm before you get out of bed is an
example of:




225
rational. Incorrect
economics. Incorrect
marginal. (True Answer )Correct
opportunity cost. Incorrect
thinking at the margin. (True Answer )Correct
efficiency. Incorrect
equity. Incorrect
market equilibrium. Incorrect
According to Key Ideas of Economics, rational thinking:
 means incentives don't matter. Incorrect
 requires people to consider the total costs and total benefits
of their decisions. Incorrect
 requires thinking at the margin. (True Answer )Correct
 requires perfect information. Incorrect
226
Working an extra hour of overtime is an example of:




227
thinking at the margin. (True Answer )Correct
efficiency. Incorrect
equity. Incorrect
market equilibrium. Incorrect
If a restaurant that traditionally has served only lunch and
dinner wants to open for breakfast, which of the following
factors should be considered?
 rent Incorrect
 furniture Incorrect
 cost of the additional food (True Answer )Correct
 insurance costs Incorrect
228
Which of the following represents incentives for decisions?




229
tax deductions for individual retirement accounts Incorrect
investment tax credits for businesses Incorrect
tax deductions for education savings account. Incorrect
All answer choices are correct. (True Answer )Correct
Which statement about incentives is true?
 Each of us is motivated by the same incentive. Incorrect
 Each of us is motivated by different incentives. (True
Answer )Correct
 Incentives can be manipulated with precision. Incorrect
 Price is the only relevant economic incentive. Incorrect
230
Tax policy is partly based on the notion that:
 high taxes are preferable to low taxes. Incorrect
 government must always run a budget surplus. Incorrect
 markets never work efficiently. Incorrect
 people respond to financial incentives. (True Answer
)Correct
231
Employers give full-time employees that have been on the job
more than three years employee stock options. This is an
example of:
 people follow incentives. (True Answer )Correct
 thinking on the margin. Incorrect
 irrational behavior. Incorrect
 opportunity costs. Incorrect
232
Discounted matinee movie ticket prices demonstrate that:




233
people follow incentives. (True Answer )Correct
government intervention in the market is helpful. Incorrect
market outcomes are always equitable. Incorrect
the cost of living is decreasing. Incorrect
The efficiency of markets is shown when:
 new competitors enter a market when profits and prices get
too high. (True Answer )Correct
 firms leave a market with high profits. Incorrect
 a governmental body tells people what to produce. Incorrect
 competition leads to higher prices in a market. Incorrect
234
Which statement about markets is true?
 They always operate efficiently. Incorrect
 They bring buyers and sellers together. (True Answer
)Correct
 Profits are never an effective discipline on the
market. Incorrect
 Markets need to be always controlled by
government. Incorrect
235
An efficient market is one in which:
 sellers have an information advantage over buyers. Incorrect
 buyers have complete information. Incorrect
 both buyers and sellers can weigh carefully the costs and
benefits of their decisions. (True Answer )Correct
 buyers have an information advantage over sellers. Incorrect
236
Which of the following statements is true?
 Low productivity and low pay go together. (True Answer
)Correct
 High productivity and low pay go together. Incorrect
 Low productivity and high pay go together. Incorrect
 The most productive countries are those with the lowest
average per capita incomes. Incorrect
237
Which of the following is an example of market failure?
 lattes that cost $5 Incorrect
 grain prices that do not provide a profit for the
farmer Incorrect
 water that is undrinkable (True Answer )Correct
 the Enron bankruptcy Incorrect
238
The situation in which markets fail to provide efficiently is
called:




239
market failure. (True Answer )Correct
uneconomic efficiency. Incorrect
market collapse. Incorrect
government failure. Incorrect
Markets are efficient because:
 people tend to make rational decisions. (True Answer
)Correct
 Adam Smith created markets. Incorrect
 entrepreneurs always try to produce at the lowest possible
cost. Incorrect
 decisions are always made at the margin. Incorrect
240
In the case of market failure, the best policy is to:




241
reform the market. Incorrect
address the issue through the court system. Incorrect
have government intervene. (True Answer )Correct
do nothing. Incorrect
Which of the following is not an example of market failure?
 Water is polluted by a paper company located by a
river. Incorrect
 Air is polluted by a manufacturing firm. Incorrect
 Competition leads firms to provide products at the lowest
possible price. (True Answer )Correct
 Consumers must buy water from one local water
utility. Incorrect
242
Government intervention in the market is helpful when:
 consumers are free to buy from a number of different
firms. Incorrect
 consumers are forced to buy from just one firm. (True
Answer )Correct
 business firms face increasing competition from new entrants
into the market. Incorrect
 business firms always use the cleanest technologies available
to mitigate pollution. Incorrect
243
Government intervention in the market is helpful when:
 consumers are free to buy from a number of different
firms. Incorrect
 consumers enjoy low prices and product diversity. Incorrect
 business firms face increasing competition from new entrants
into the market. Incorrect
 business firms engage in production activities that pollute the
air and water. (True Answer )Correct
244
Information plays an important role in the market because it
allows:
 market participants to make good decisions based on costbenefit analysis. (True Answer )Correct
 sellers to “pad” their sales pitch. Incorrect
 the media to grow in importance. Incorrect
 managers to make more risky decisions. Incorrect
245
One of the key ingredients in making rational choices is access
to:




246
When the ______ outweigh(s) the ______ of the information,
people attempt to obtain the information.




247
sufficient funds. Incorrect
information. (True Answer )Correct
foreign markets. Incorrect
a university psychology department. Incorrect
costs; benefits Incorrect
benefits; costs (True Answer )Correct
equity; efficiency Incorrect
efficiency; equity Incorrect
Markets work best when:
 both sides weigh the costs and benefits of goods and
services. (True Answer )Correct
 both sides have access to inside information. Incorrect
 the ceteris paribus conditions of statistical tests are
met. Incorrect
 foreign trade is free. Incorrect
248
Which of the following is a result of increased trade?




249
The use of goods and services to satisfy personal desires is:




250
opportunity cost. Incorrect
efficient markets. Incorrect
productivity. (True Answer )Correct
decisions at the margin. Incorrect
For a nation, ______ productivity growth leads to ______
standards of living.




252
comparative advantage. Incorrect
the Law of increasing relative cost. Incorrect
specialization. Incorrect
consumption. (True Answer )Correct
One farmer in 1900 could feed 10 people. One farmer today can
feed 100 people. This is an example of:




251
decreased quantity available to buyers Incorrect
increased immigration Incorrect
recession Incorrect
lower prices (True Answer )Correct
high; low Incorrect
low; high Incorrect
high; unchanging Incorrect
low; low (True Answer )Correct
With the use of specialization:
 society is more productive while individuals are less
productive. Incorrect
 there are greater gains in material well being. (True Answer
)Correct
 there is more emphasis on self-reliance. Incorrect
 opportunity costs tend to be constant. Incorrect
253
Countries that have high per capita income also tend to have:




254
totalitarian governments. Incorrect
high worker productivity. (True Answer )Correct
poor educational institutions. Incorrect
high sales tax rates. Incorrect
Increased Government spending during a recession:
 is a simple solution to restart the economy. Incorrect
 is always a good idea. Incorrect
 is difficult to implement successfully. (True Answer )Correct
 is different from Government intervening to correct other
market failures. Incorrect
255
The experience of the Great Depression showed that:
 the best government is a small government. Incorrect
 markets always work well. Incorrect
 increased taxation helps an economy recover from a
slump. Incorrect
 the economy can get stuck in a severe recession for a long
period of time. (True Answer )Correct
256
The Great Depression of the 1930s showed that the:
 self-correcting mechanism quickly adjusts the overall
economy to downturns in the business cycle. Incorrect
 government can intervene successfully when the economy
gets stuck in a downturn. (True Answer )Correct
 government can always successfully intervene in the
economy. Incorrect
 government should stay out of the economy. Incorrect
257
The upturns and the downturns of the economy is called a(n):
 business cycle. (True Answer )Correct
 recession. Incorrect
 expansion. Incorrect
 depression. Incorrect
258
Classical economic theory holds that the economy:
 is a self-correcting mechanism. (True Answer )Correct
 requires government to intervene to solve
recessions. Incorrect
 involves no tradeoffs. Incorrect
 will always operate at less than full employment. Incorrect
259
According to classical economic theory, if the economy were in
a recession, then:
 government should intervene with a tax cut. Incorrect
 government should intervene with a tax increase. Incorrect
 the self-correcting mechanism should be allowed to
work. (True Answer )Correct
 government should increase its spending. Incorrect
260
Markets work best when both buyers and sellers:
 are free to pollute the air and water. Incorrect
 do not experience information problems. (True Answer
)Correct
 are burdened with government regulations. Incorrect
 make irrational choices. Incorrect
261
Scarcity occurs:




262
only in Africa. Incorrect
only in underdeveloped countries. Incorrect
only in transition economies. Incorrect
everywhere. (True Answer )Correct
(Figure 1.1)
The hypothetical graph shows the relationship between years of
education and salary. Which statement is not correct?
 A person with 13 years of education can expect to earn
$25,000. Incorrect
 The slope of the line is 5,000. Incorrect
 The line represents a simple model of the relationship between
education and earnings. Incorrect
 The relationship between the two variables is nonlinear. (True
Answer )Correct
263
(Figure 1.2)
The graph shows a hypothetical relationship between tons of
fertilizer used and crop yields. Which of the following is false?
 The slope of the curve between one and two tons of fertilizer
is approximately 2. Incorrect
 The relationship between fertilizer usage and yield is
nonlinear. Incorrect
 Because the relationship is nonlinear, it is difficult to create
an economic model describing the relationship between the two
variables. (True Answer )Correct
 Using more than three tons of fertilizer has minimal effect on
yield. Incorrect
264
Pie charts:
 depict two variables to see if any correlation exists. Incorrect
 show how data can be split into percentages by
category. (True Answer )Correct
 include a variable for time. Incorrect
 show trends of data over time. Incorrect
265
Economists use graphs:
 because they represent relationships between
variables. (True Answer )Correct
 because they are more efficient than models. Incorrect
 because they are less efficient than models. Incorrect
 it makes the analysis more complicated. Incorrect
266
The main forms of graphs include:




267
time series. Incorrect
scatter plots. Incorrect
pie charts. Incorrect
All of the answer choices are correct. (True Answer )Correct
Temperature
25
30
35
40
45
50
55
Hot chocolate sales
100
90
80
70
60
50
40
Reference: Ref 1-1
(Table) If the numbers in the table were placed on a graph,
with hot chocolate sales on the vertical axis and temperature on
the horizontal axis:
 a positive, nonlinear curve would result. Incorrect
 a negative, linear relationship between temperature and hot
chocolate sales would be shown. (True Answer )Correct
 a positive, linear relationship between temperature and hot
chocolate sales would be shown. Incorrect
 a negative, nonlinear curve would result. Incorrect
268
Temperature
25
30
35
40
45
50
55
Reference: Ref 1-1
Hot chocolate sales
100
90
80
70
60
50
40
(Table) If the numbers in the table were placed on a graph,
with hot chocolate sales on the vertical axis and temperature on
the horizontal axis, the slope would be:
 + 2 Incorrect
 – 1/2. Incorrect
 – 2. (True Answer )Correct
 – 10. Incorrect
269
Temperature
25
30
35
40
45
50
55
Hot chocolate sales
100
90
80
70
60
50
40
Reference: Ref 1-1
(Table) The numbers in the table indicate:
 a negative, nonlinear relationship between temperature and
sales of hot chocolate. Incorrect
 a positive relationship between temperature and sales of hot
chocolate. Incorrect
 a positive, nonlinear relationship between temperature and
sales of hot chocolate. Incorrect
 a negative relationship between temperature and sales of hot
chocolate. (True Answer )Correct
270
The use of stylized graphs:
 helps to simplify our analyses. Incorrect
 helps us to focus on key relationships. Incorrect
 may represent relationships between variables. Incorrect
 helps to simplify our analyses, helps us to focus on key
relationships, and may represent relationships between
variables. (True Answer )Correct
27
1
(Figure 1.3)
The slope at point a in Graph 2 in the figure is:
 0.21. Incorrect
 4.67. (True Answer )Correct
 – 0.21. Incorrect
 – 4.67. Incorrect
272
A graph of a business cycle that plots output on the vertical axis
and quarters of a year on the horizontal axis is an example of a:




bar chart. Incorrect
pie chart. Incorrect
scatter plot. Incorrect
time series. (True Answer )Correct
273
If you plot temperature on the y axis and time on the x axis,
then you have created a:




274
time series. (True Answer )Correct
scatter plot. Incorrect
pie chart. Incorrect
bar chart. Incorrect
(Figure 1.4)
Which graph in the figure is an example of a scatter plot?
 graph A Incorrect
 graph B (True Answer )Correct
 graph C Incorrect
 graph D Incorrect
275
If you plot temperature on the y axis and world carbon
emissions on the x axis, then you have created a:




276
time series. Incorrect
scatter plot. (True Answer )Correct
pie chart. Incorrect
bar chart. Incorrect
(Figure 1.5)
Which of the following statements about the graph in the figure
is correct?
 Mileage is related only to speed, not car weight. Incorrect
 Speed is related to mileage and car weight. (True Answer
)Correct
 Mileage is related to both speed and car weight. Incorrect
 Mileage is unrelated to speed and car weight. Incorrect
277
Figure 1.6
Reference: Ref 1-2
(Figure 1.6) The figure illustrates:
 a nonlinear equation. Incorrect
 a linear equation. (True Answer )Correct
 the concept of efficiency. Incorrect
 a rectangular hyperbola Incorrect
278
Figure 1.6
Reference: Ref 1-2
(Figure 1.6) In the figure, if x is 0, then the intercept with the y
axis is:
 0. Incorrect
 14.6. Incorrect
 14. (True Answer )Correct
 0.6. Incorrect
279
Figure 1.6
Reference: Ref 1-2
(Figure 1.6) In the figure, the slope of the line is:
 0. Incorrect
 14.6. Incorrect
 14. Incorrect
 0.6. (True Answer )Correct
280
Figure 1.6
Reference: Ref 1-2
(Figure 1.6) In the figure, if y stands for inflation, and x stands
for the money supply, then:
 for every 1% increase in the money supply, inflation
increases by 0.6 percent. (True Answer )Correct
 for every 1% increase in inflation, the money supply
increases by 0.6 percent. Incorrect
 if the money supply increases by 14, then inflation goes up 0.6
percent. Incorrect
 if inflation increases by 14, then inflation goes up 0.6
percent. Incorrect
281
Figure 1.6
Reference: Ref 1-2
(Figure 1.6) In the figure, assume that y represents inflation
and x represents money supply. If we assume from the figure
above that inflation results from a larger money supply, we:
 assume that causation implies correlation. Incorrect
 assume that correlation implies causation. (True Answer
)Correct
 violate the ceteris paribus assumption. Incorrect
 imply that a linear equation is really a nonlinear
equation. Incorrect
282
(Figure 1.7)
According to the data in the figure, every two extra hours of
exercise:
 increases weight by 1 pound. Incorrect
 decreases weight by 1/2 pound. Incorrect
 decreases weight by 1 pound. (True Answer )Correct
 increases weight by 1/2 pound. Incorrect
283
If two economic variables are positively related, then:
 the two variables move in opposite directions. Incorrect
 as the first variable increases, the other variable also
increases. (True Answer )Correct
 as the first variable increases, the other variable
decreases. Incorrect
 as the first variable decreases, the other variable
increases. Incorrect
284
If a graph showed that as the amount of partying increased,
your GPA decreased, then this relationship would be:




285
negative. (True Answer )Correct
positive. Incorrect
definitely linear. Incorrect
definitely nonlinear. Incorrect
If two variables are positively related, then
 as one variable increases, the other variable
decreases. Incorrect
 as one variable increases, the other variable
increases. Incorrect
 as one variable decreases, the other variable
decreases. Incorrect
 both (A) and (C) are correct. (True Answer )Correct
286
If temperature and ice cream sales are positively related:
 as the temperature rises, ice cream sales fall. Incorrect
 as the temperature rises, ice cream sales stay the
same. Incorrect
 as the temperature falls, ice cream sales decline. (True
Answer )Correct
 as the temperature falls, ice cream sales rise. Incorrect
287
If a graph drawn for the relationship between hot chocolate
sales and temperature is downward-sloping, then:
 sales of hot chocolate fall as temperature falls. Incorrect
 sales of hot chocolate rise as temperature falls. (True Answer
)Correct
 sales of hot chocolate rise over time. Incorrect
 sales of hot chocolate fall over time. Incorrect
288
Ceteris paribus means:




289
everything changes. Incorrect
everything is held constant. Incorrect
other things being equal. (True Answer )Correct
nothing changes. Incorrect
In the equation S = 130 – 2T, where S is hot chocolate sales and
T is temperature, the slope is:




+ 130. Incorrect
– 2. (True Answer )Correct
+ 2. Incorrect
– 65. Incorrect
290
In the equation S = 130 – 2T, where S is hot chocolate sales and
T is temperature:
 sales increase by 20 if temperature increases by 10
degrees. Incorrect
 sales increase by 2 if temperature increases by 10
degrees. Incorrect
 sales decrease by 20 if temperature increases by 10
degrees. (True Answer )Correct
 sales decrease by 2 if temperature increases by 10
degrees. Incorrect
291
In the equation S = 130 – 2T, where S is hot chocolate sales and
T is temperature:
 sales decrease by 10 if temperature falls by 5
degrees. Incorrect
 sales decrease by 2 if temperature falls by 5
degrees. Incorrect
 sales increase by 10 if temperature falls by 5 degrees. (True
Answer )Correct
 sales increase by 2 if temperature falls by 5
degrees. Incorrect
292
When other things are not constant:
 a movement up along the curve occurs. Incorrect
 a movement down along the curve occurs. Incorrect
 a positive relationship always occurs. Incorrect
 a shift of the curve usually takes place. (True Answer
)Correct
293
Figure 1.8
Reference: Ref 1-3
(Figure 1.8) The figure shows the advertising expenditures and
the resulting sales (in bottles) of a new caffeinated beverage
called Jump. If the company that manufactures Jump spends
$3,000 on advertising, how many bottles of Jump will it sell?
 13,500 Incorrect
 9,000 (True Answer )Correct
 10,000 Incorrect
 7,000 Incorrect
294
Figure 1.8
Reference: Ref 1-3
(Figure 1.8) The figure shows the advertising expenditures and
the resulting sales (in bottles) of a new caffeinated beverage
called Jump. If consumer tastes change in the region where
Jump is marketed and base sales increase by 1,500 bottles, what
is the equation of the “shifted” line?
 Sales 5 1,500 + 2 ? Advertising Incorrect
 Sales 5 4,500 + 2 ? Advertising (True Answer )Correct
 Sales 5 3,000 + 1,502 ? Advertising Incorrect
 Sales 5 3,000 + 2 ? Advertising Incorrect
295
Figure 1.8
Reference: Ref 1-3
(Figure 1.8) The figure shows the advertising expenditures and
the resulting sales (in bottles) of a new caffeinated beverage
called Jump. If a new health advisory is released warning
consumers about problems associated with too much caffeine
consumption and the level of base sales of Jump decreases by
2,000 bottles, what is the equation of this “shifted” line?
 Sales 5 1,000 + 2 ? Advertising (True Answer )Correct
 Sales 5 3,000 + 2,002 ? Advertising Incorrect
 Sales 5 3,000 + 2 ? Advertising Incorrect
 Sales 5 5,000 + 2 ? Advertising Incorrect
296
The assumption often used in economics to isolate the
relationship between two variables is called:
 an association. Incorrect
 an abstraction. Incorrect
 ceteris paribus. (True Answer )Correct
 efficiency. Incorrect
297
Another way of defining ceteris paribus would be the phrase:




“Nothing else changes.” (True Answer )Correct
“It is proven.” Incorrect
“Under this assumption.” Incorrect
“In my opinion.” Incorrect
298
“If the price of carrots drops, ceteris paribus, people will buy
more carrots.” What would be a way of explaining that
statement?
 The relationship between the price of carrots and the number
of carrots that people buy is independent of other
things. Incorrect
 If carrots are the only available goods, people will buy more
of them if the price decreases. Incorrect
 If the price of carrots drops and everything else remains the
same, the number of carrots people buy will increase. (True
Answer )Correct
 As the price of carrots decreases, and all other prices
decrease, then the quantity of carrots purchased will
increase. Incorrect
299
John is a farmer and thinks he will make a profit next year, if
the weather stays the same, if the price of his crop doesn't
change, and if the price of fertilizer and seed doesn't change.
An economist would say that the farmer thinking he will make
a profit, is an example of ______.
 laissez-faire Incorrect
 ceteris paribus (True Answer )Correct
 post hoc ergo propter hoc Incorrect
 e pluribus unum Incorrect
300
In the equation S = 130 – 2T, where S is hot chocolate sales and
T is temperature:
 hot chocolate sales are 130 when the temperature is
0. Incorrect
 hot chocolate sales are 65 when the temperature is
0. Incorrect
 hot chocolate sales are 132 when the temperature is 0. (True
Answer )Correct
 hot chocolate sales are 128 when the temperature is
0. Incorrect
301
When we analyze the relationship between inflation and the
money supply, we assume that:
 all other factors that affect the rate of inflation remain
constant. (True Answer )Correct
 this relationship holds only in a democratic
country. Incorrect
 this relationship reflects a nonlinear relationship. Incorrect
 the money supply is backed by gold alone. Incorrect
302
When the ceteris paribus assumption is violated in economics,
the effect is shown by:




303
a movement down along the curve. Incorrect
a movement up along the curve. Incorrect
a shift of the entire curve. (True Answer )Correct
correlation but not causation. Incorrect
The purpose of invoking ceteris paribus is to:
 simplify the analysis being done. (True Answer )Correct
 make the economic model more realistic. Incorrect
 allow the model to take more complexity into
account. Incorrect
 introduce risk into the model. Incorrect
304
Suppose an economist discovers that the relationship between
grades and hours of tutoring is Grade = 60 + 5(Hours). Based
on the equation, which statement is true?
 Tutoring is not worthwhile because each hour raises grade by
only 5 points. Incorrect
 If no tutoring is done then the grade will be zero. Incorrect
 The expected grade with 5 hours of tutoring is 85. (True
Answer )Correct
 The relationship between tutoring and grades is
weak. Incorrect
305
Which of the following paired variables might indicate a
correlation but not causation?
 advertising expenditures and sales Incorrect
 snowfall amounts and stock market performance (True
Answer )Correct
 age and health care expenditures Incorrect
 grade point average and future income Incorrect
306
Which of the following is correct?
 “Correlation” and “causation” are synonyms. Incorrect
 Shortly after a new president is elected into office, the
unemployment rate goes down. One must conclude that the new
president's economic policies are responsible for the economic
upturn. Incorrect
 The fact that two variables are correlated with each other
does not mean that one causes the other. (True Answer
)Correct
 If two variables move together, then they are causally
related. Incorrect
307
A vital principle in testing theories is simply put: “Association
is not:




causation.” (True Answer )Correct
reversible.” Incorrect
a straight line.” Incorrect
a scatter point curve.” Incorrect
308
An increase in the price of gold is always associated with the
outbreak of wars. Increasing gold prices cause wars. This
would be an example of what logical fallacy?
 ceteris paribus Incorrect
 correlation is not causation (True Answer )Correct
 laissez-faire Incorrect
 nonlinearity Incorrect
309
Time series graphs allow us to see trends in one variable over a
set time frame.
 True (True Answer )
 False
310
Scatter plots use one variable as time in addition to one other
variable to determine possible relationships.
 True
 False (True Answer )
311
The height of the bars in a bar chart may depict the number of
data points in each category/class.
 True (True Answer )
 False
312
Simple graphs never provide information about the
relationship between variables.
 True
 False (True Answer )
313
Titles, labels for axes, and a statement of how the data are
measured help with the interpretation of graphs.
 True (True Answer )
 False
314
Linear relationships show the same slope between any two
points on a line.
 True (True Answer )
 False
31
5
Figure 1.9
Reference: Ref 1-4
(Figure 1.9) In Graph 1, the slope between points a and b and the slope between
points c and d are different.
 True
 False (True Answer )
31
6
Figure 1.9
Reference: Ref 1-4
(Figure 1.9) The slope of the line in Graph 1 is 3.
 True (True Answer )
 False
31
7
Figure 1.9
Reference: Ref 1-4
(Figure 1.9) The slope of the curve depicted in Graph 2 is the same at any two
points on the curve.
 True
 False (True Answer )
31
8
Figure 1.9
Reference: Ref 1-4
(Figure 1.9) In Graph 2, the slope at point a is the slope of the line tangent to the
curve at point a.
 True (True Answer )
 False
319
Figure 1.10
Reference: Ref 1-5
(Figure 1.10) The figure shows the advertising expenditures and
the resulting sales (in bottles) of a new caffeinated beverage
called Jump. The vertical intercept for the equation graphed in
the figure is 3,000 bottles.
 True (True Answer )
 False
320
Figure 1.10
Reference: Ref 1-5
(Figure 1.10) The figure shows the advertising expenditures and
the resulting sales (in bottles) of a new caffeinated beverage
called Jump. The slope for the equation graphed in the figure is
3,000.
 True
 False (True Answer )
321
When two variables appear to be related according to a scatter
plot, one must be causing the other to occur.
 True
 False (True Answer )
322
Correlation and causation are terms that can be used
interchangeably in economics.
 True
 False (True Answer )
323
Correlation between two variables is not enough evidence to
suggest that a causal relationship exists between the two
variables.
 True (True Answer )
 False
324
Time series graphs allow us to see trends in one variable over a
set time frame.
 True (True Answer )
 False
325
Scatter plots use one variable as time in addition to one other
variable to determine possible relationships.
 True
 False (True Answer )
326
The height of the bars in a bar chart may depict the number of
data points in each category/class.
 True (True Answer )
 False
327
Simple graphs never provide information about the
relationship between variables.
 True
 False (True Answer )
328
Titles, labels for axes, and a statement of how the data are
measured help with the interpretation of graphs.
 True (True Answer )
 False
329
Linear relationships show the same slope between any two
points on a line.
 True (True Answer )
 False
33
0
Figure 1.11
Reference: Ref 1-6
(Figure 1.11) The slope of the line in Graph 1 is 3.
 True (True Answer )
 False
33
1
Figure 1.11
Reference: Ref 1-6
(Figure 1.11) The slope of the curve depicted in Graph 2 is the same at any two
points on the curve.
 True
 False (True Answer )
332
Figure 1.12
Reference: Ref 1-7
(Figure 1.12) The figure shows the advertising expenditures and
the resulting sales (in bottles) of a new caffeinated beverage
called Jump. The vertical intercept for the equation graphed in
the figure is 3,000 bottles.
 True (True Answer )
 False
333
Figure 1.12
Reference: Ref 1-7
(Figure 1.12) The figure shows the advertising expenditures and
the resulting sales (in bottles) of a new caffeinated beverage
called Jump. The slope for the equation graphed in the figure is
3,000.
 True
 False (True Answer )
334
When two variables appear to be related according to a scatter
plot, one must be causing the other to occur.
 True
 False (True Answer )
335
When two variables appear to be related according to a scatter
plot, one must be causing the other to occur.
 True
 False (True Answer )
336
Correlation between two variables is not enough evidence to
suggest that a causal relationship exists between the two
variables.
 True (True Answer )
 False
337
Correlation and causation are terms that can be used
interchangeably in economics.
 True
 False (True Answer )
338
Economic analysis cannot be applied to concepts outside
economics.
 True
 False (True Answer )
339
The broad scope of economics analysis allows us to reflect on
everyday choices in addition to more global issues.
 True (True Answer )
 False
340
Economic analysis gives us a structure for making decisions in
a rational manner.
 True (True Answer )
 False
341
According to John Kay, highly productive countries are
generally less corrupt.
 True (True Answer )
 False
342
According to John Kay, highly productive countries have
higher inflation.
 True
 False (True Answer )
343
Economics deals only with financial issues.
 True
 False (True Answer )
344
Macroeconomics deals with decisions made by individuals.
 True
 False (True Answer )
345
Microeconomics provides tools to help answer the questions of
individual firms as well as to address broader-range issues.
 True (True Answer )
 False
346
A rich person does not experience scarcity.
 True
 False (True Answer )
347
The decisions made by individuals and firms are covered in
microeconomics.
 True (True Answer )
 False
348
Consumers rely on information to make an informed decision.
 True (True Answer )
 False
349
Macroeconomics focuses on decisions made for the entire
economy.
 True (True Answer )
 False
350
Economists create simplistic models in order to explain
complex economic topics.
 True (True Answer )
 False
351
The price of milk is a microeconomic problem.
 True (True Answer )
 False
352
An example of a microeconomics question would be the reasons
for increases and decreases in the price of gasoline.
 True (True Answer )
 False
353
Microeconomics looks at particular markets within an
economy.
 True (True Answer )
 False
354
Microeconomics focuses on decision making by individuals,
businesses, industries, and government.
 True (True Answer )
 False
355
Macroeconomics is concerned about the broader issues in the
economy such as inflation, unemployment, and national output
of goods and services.
 True (True Answer )
 False
356
Macroeconomics studies the outcomes of individual markets in
the national economy.
 True
 False (True Answer )
357
Economists often break down an economic issue into simpler
components and then build more complex models.
 True (True Answer )
 False
358
Economic models must fully reflect reality.
 True
 False (True Answer )
359
The ceteris paribus assumption is rarely used in economics
because it is unrealistic.
 True
 False (True Answer )
360
There are no situations that lie outside economic models.
 True
 False (True Answer )
361
Complex models are always better than simple ones.
 True
 False (True Answer )
362
To be useful, an economic model must include every detail
possible and not be an abstraction.
 True
 False (True Answer )
363
Stylized models boil down issues and facts to their basic
relevant elements.
 True (True Answer )
 False
364
The ceteris paribus assumption holds some variables constant to
aid in model building.
 True (True Answer )
 False
365
Model building leads to theories that must then be tested.
 True (True Answer )
 False
366
A situation in which output is produced at the lowest possible
cost is called allocative efficiency.
 True
 False (True Answer )
367
There are no instances where efficient solutions to problems
conflict with equity issues.
 True
 False (True Answer )
368
Much of economic analysis is directed toward ensuring an
efficient allocation of resources.
 True (True Answer )
 False
369
It is possible to have a conflict between allocative efficiency and
productive efficiency.
 True (True Answer )
 False
370
The concept of equity relates to how quickly something can be
produced.
 True
 False (True Answer )
371
There is general agreement as to which economic policies are
fair, or equitable.
 True
 False (True Answer )
372
Each of us should obtain complete product information before
any purchase.
 True
 False (True Answer )
373
Scarcity occurs when an individual's resources exceed his
wants.
 True
 False (True Answer )
374
The government will not intervene if market failure exists.
 True
 False (True Answer )
375
Individuals do not experience opportunity costs unless external
costs occur.
 True
 False (True Answer )
376
Thinking on the margin means that the individual thinks about
the additional costs or benefits of doing something.
 True (True Answer )
 False
377
Government regulation occurs in an effort to protect the
producers against losing profits.
 True
 False (True Answer )
378
Our wants are always greater than our resources.
 True (True Answer )
 False
379
Scarcity is not a problem faced by Bill Gates.
 True
 False (True Answer )
380
Economic decisions involve tradeoffs because of the reality of
scarce resources.
 True (True Answer )
 False
381
Another definition of opportunity costs is the next best
alternative.
 True (True Answer )
 False
382
The concept of scarcity implies that people must make choices
among alternatives.
 True (True Answer )
 False
383
Economists never assume that people respond to economic
incentives.
 True
 False (True Answer )
384
The opportunity cost of one good is the quantity of resources
that could be used to purchase the next best choice.
 True
 False (True Answer )
385
Marginal analysis exists when a person continues to make a
decision until the value of the outcome is zero.
 True
 False (True Answer )
386
The assumption that people will act in a way to maximize their
self-interest is a reasonable one for most cases that economists
analyze.
 True (True Answer )
 False
387
Generally speaking, private markets are the most efficient
institutions for providing goods and services.
 True (True Answer )
 False
388
Governments do not intervene to correct market failures.
 True
 False (True Answer )
389
Excessive pollution is an example of market failure.
 True (True Answer )
 False
390
Most economists agree that there is no legitimate role for
government to play in the economy.
 True
 False (True Answer )
391
Increased international trade leads to better-quality products
and lower prices for consumers.
 True (True Answer )
 False
392
Economists point out that the quality of economic decisions
depends on the quality of the information underlying those
decisions.
 True (True Answer )
 False
393
Open access to information is necessary in order for a market
to work efficiently.
 True (True Answer )
 False
394
Most economists believe that specialization and trade are bad
for a country.
 True
 False (True Answer )
395
Countries where workers are highly productive also tend to be
countries with high wages.
 True (True Answer )
 False
396
Classical economic theory states that the economy will adjust to
fluctuations in the business cycle only after government
intervention.
 True
 False (True Answer )
397
A pie chart is useful for business presentations but not for
macroeconomic analysis.
 True
 False (True Answer )
398
If variable X rises as variable Q falls, then X and Q have a
positive relationship and the slope of the line is positive.
 True
 False (True Answer )
399
If variable S falls as variable X falls, then S and X have a
positive relationship and the slope of the line is positive.
 True (True Answer )
 False
400
Ceteris paribus is a Latin phrase meaning “in other words.”
 True
 False (True Answer )
401
Changes in the money supply are correlated with changes in
inflation. Therefore, changes in the money supply cause
changes in inflation.
 True
 False (True Answer )
402
What are the benefits of learning the techniques and tools
involved within economic analysis?

Economic analysis provides a structure for making decisions in a
rational manner. Economic analysis is a way of analyzing
decisions that are not “economic” in the general sense of the
term. That is the benefit of learning economic analysis. It can be
applied in many areas.
403
How are concepts of microeconomics used in macroeconomics?

Microeconomics deals with decision making by individuals,
business firms, industries, and governments. Macroeconomics, on
the other hand, focuses on the broader issues we face as a nation.
Macroeconomics uses microeconomic tools to answer some
questions, but its main focus is on the broad, aggregate variables
of the economy. While we break economics into microeconomics
and macroeconomics, there is considerable overlap in the
analysis. We use simple supply-and-demand analysis to
understand both individual markets and the general economy as a
whole. You will find yourself using concepts from
microeconomics to understand fluctuations in the macroeconomy.
404
Compare and contrast the focuses of microeconomics and
macroeconomics.

Microeconomics deals with decision making by individuals,
business firms, industries, and governments. Macroeconomics, on
the other hand, focuses on the broader issues we face as a nation.
405
Describe how economists use models and how the results of
stylized models may compare to those from more complex
models.

By stylized, we mean that economists boil down facts to their basic
relevant elements and use assumptions to develop a stylized
(simple) model to analyze the issue. Although there are always
situations that lie outside the models, they are the exception.
Economists generalize about economic behavior and reach
generally applicable results. We can add more dimensions and
make the model more complex, but often complexity does not
provide any greater insight than the simple model.
406
Why is model building considered a process of understanding
the economy?

Though model building can lead to surprising insights into how
economic actors and economies behave, it is not the end of the
story. Economic insights lead to economic theories, but the
theories must then be tested. So it may be best to think of model
building as a process of understanding economic actors and the
general economy: models are created and then tested; if they fail
to explain, new models are constructed. Some models have met
the test of time. Others have had to be corrected or discarded.
Progress, however, has been made.
407
Describe the ceteris paribus assumption and discuss how it
might affect your purchase of fast-food meals this week.

To aid in model building, economists use the ceteris paribus
assumption. “Holding all other things equal” means that we hold
some important variables constant. For example, to determine
how many fast-food meals you might be willing to purchase in
any given week, we would hold your weekly income constant. We
then would change the prices of fast-food meals to see the impact
on the number purchased. Fast-food businesses, such as
McDonald's, use this information to set what they hope is an
optimum price.
408
Why do economists focus on efficiency rather than equity?

Economists generally stay out of discussions about fairness,
leaving the issue to philosophers and politicians. When it comes
to public policy issues, economics will help you see the tradeoffs
between equity and efficiency, but you will ultimately have to
make up your own mind about the wisdom of the policy given
these tradeoffs. Economists tend to focus on matters of efficiency
and to avoid making sweeping judgments about equity, leaving
each one of us to decide what is fair.
409
Discuss the difference between efficiency and equity.

Efficiency deals with how well resources are utilized and
allocated. No one likes waste. Much of economic analysis is
directed toward ensuring that the most efficient outcomes result
from public policy. The other side of the coin is equity or fairness.
There are many divergent views about fairness until we get to
extreme cases. There are instances where efficiency and equity
collide. You may agree that a specific policy is efficient but think
it is unfair to some group of people.
410
How do the concepts of scarcity and opportunity cost relate to
each other?

We have limited resources (scarcity), so we must make tradeoffs
in nearly everything we do. In fact, economics is often defined as
the study of the allocation of scarce resources to competing wants.
We have to decide between alternatives. We have limited
resources. Every activity involves opportunity costs. Sleeping,
eating, studying, partying, running, hiking, and so on all require
spending resources that could be used in another activity. The
other activity represents the opportunity costs of the current
activity chosen.
411
Why are markets efficient?

Private markets and the incentives they provide are the best
mechanisms known today for providing products and services.
Markets bring buyers and sellers together. Competition for the
consumer dollar forces firms to provide products at the lowest
possible price; otherwise some other firm will undercut their high
price. New products enter the market and old products die out.
412
Explain why incentives are important, and give examples of
incentives that a business might provide to its customers to
increase product sales on weekdays.

Incentives cause people to change their behavior. By providing
the proper incentives, businesses can help increase their sales. A
40%-off sale, like that used by Macy's on Wednesdays only, can
bring more customers into the store and increase weekday sales.
Not everyone leaps to use the incentives all the time, but they are
helpful. Another possibility is early-bird previews of seasonal
merchandise on Mondays only.
413
Distinguish between macroeconomics and microeconomics.

Macroeconomics focuses on the behavior of the economy as a
whole while microeconomics is concerned with the decisions of
individuals, such as households and firms. Macroeconomics is
concerned with aggregates such as the total output of the
economy or unemployment while microeconomics deals with the
decisions of one firm or industry.
414
Evaluate the following statement: “To be useful, a model must
be completely realistic.”

This statement is not true. To be useful, a model must be fairly
realistic but it does not have to account for every detail of the real
world. The model needs to capture the essential relationships that
enable us to analyze the problem with which we are concerned. A
model is useful so long as it sheds light on the problem at hand.
415
What assumption about human motivation is made in
economics? Explain.

In economics, we assume that people act as if motivated by selfinterest and that people respond predictably to opportunities for
gain. That is, people look out for their own self-interest and do so
in a rational manner. A central assumption about human
motivation is that people respond to incentives.
416
What are some examples of the types of issues analyzed by
microeconomics? What are some topics examined by
macroeconomics?

There are many different examples of the types of situations a
microeconomist would analyze. The answer should center on a
particular market outcome or structure—pricing, employment in
a particular trade, monopolization, changing demands, and
resource usage are all typical microeconomic topics.
Macroeconomics looks at overall outcomes of an economy. Most
of the outcomes are captured in several categories of indicators:
employment, price stability, production, international trade.
Students can cite the business cycle, unemployment rate,
inflation, or the balance of trade.
417
Briefly describe how macroeconomics and microeconomics are
related. How do they differ?

Microeconomics looks at the individual components of the
economy—consumers, businesses, government, and
imports/exports. Macroeconomics looks at the economy as a
whole. For example, microeconomics would be concerned with
the demand for particular products, such as SUVs, while
macroeconomics examines the overall demand for goods and
services.
418
Explain: “Economic theories must be tested.”

Economists build models to explain economic relationships. To
be useful, the model must bring insight into an economic
situation. Therefore, as in any scientific endeavor, economists
test models against real-world data. If the model does a poor
job of explaining real-world observations, then new models
must be developed.
419
Why do economists develop models (“stylized facts”) to help
with analysis? Discuss the strength and weakness of such an
approach.

By using stylized facts, economists distill economic phenomena to
their most basic relationships. The main advantage of the process
is that it simplifies reality so that it is easier to grasp and analyze.
The disadvantage is that an economic model cannot account for
all details.
420
Evaluate: “There is more than one concept of economic
efficiency.”

Efficiency has to do with how things are allocated and utilized.
When a firm tries to produce a product efficiently, it uses the mix
of inputs (labor, raw materials, etc.) that has the lowest cost.
However, there is also allocative efficiency, which deals with what
is produced and who gets it. A society that produces large
quantities of vinyl records, even at minimal cost, is not
allocatively efficient because consumer demand favors other
technologies, such as CDs. A product of little social value is
produced and society would be better off if more CDs and fewer
vinyl records were made.
421
Explain what is meant by economic efficiency. Does efficiency
imply that the fastest production processes or the most
powerful equipment must always be used? Explain.

Output is greater when people produce goods for which the
opportunity cost of producing is lower than in other locations.
They trade for those goods for which they do not have a
comparative advantage. International trade based on production
taking place in areas of lowest opportunity cost increases total
output of the two countries and can result in higher standards of
living for citizens of both countries.
422
At the start of the war in Iraq, homeowners in the United States
found it difficult to find plywood. The U.S. military, at the same
time, was constructing buildings in Iraq. How do the two
situations reflect economic tradeoffs?

All economic resources, including plywood, are limited. The
decision to send and supply an army in the Middle East meant
that resources had to be diverted to military use. The tradeoffs
involved more than building material, as many workers were sent
to Iraq, whether as National Guard or as contractors.
423
What is the opportunity cost of you taking this economics class?

Each student will have a different response. The opportunity cost
is the value of what is given up in order to come to class and
study. Some students may be giving up sleeping late, the chance to
go on a trip because they use their money to pay tuition, or a job.
424
What is the difference between scarcity and a shortage?

Scarcity exists because the wants of humans are unlimited and
they are satisfied by the use of limited resources. A shortage exists
when people have to wait in lines (usually temporarily). Scarcity
affects poor and rich both; it affects everyone. A shortage occurs
when the quantity demanded is greater than the quantity supplied.
425
What are some ways you use marginal analysis in your life?

There are many examples of marginal analysis students can
provide. Should the student stay up an extra hour to study or go to
sleep? Should the student take on an extra course at registration?
Should the student work an extra hour at a part-time job?
426
Explain the meaning of the phrase “People respond to
incentives.”

People are rational, that is, they make decisions based on costbenefit analyses. If the price of something rises, people buy less of
them. For example, higher taxes on certain items discourage
buyers from purchasing them. Retailers discount items they wish
to sell more of. Rising gasoline prices discourage people from
buying cars that are not fuel efficient.
427
Briefly explain why private markets are generally efficient at
providing goods and services.

Free markets work on the basis of prices and incentives. If there
is competition among producers, then each will try to lower costs
and prices to attract buyers. The result is that consumers have a
better product at a lower cost. In short, firms that do not produce
efficiently will not be profitable and will leave the market. There
is no need for government to step in and tell buyers and sellers
what to do.