116) Which of the following statements is the best example of the term ceteris paribus?
A) An economist holds other factors constant when he examines the relationship between
tax rates and tax revenues.
B) More money should be spent on cleaning up the environment.
C) The government budget surplus was $200 billion in 2000 because the economy was
growing.
D) An increase in the budget surplus after an increase in tax rates implies that tax rate
increases cause budget surpluses.
E) When studying the efects of a budget deicit, an economist must take account of all the
factors involved.
Skill: Level 3: Using models
Section: Chapter 1 Appendix – Checkpoint 4
Status: Old
AACSB: Relective thinking
117) To graph a relationship involving more than two variables, we use which assumption?
A) linear assumption
B) positive relationship assumption
C) marginal analysis
D) ceteris paribus
E) trend assumption
Skill: Level 1: Deinition
Section: Chapter 1 Appendix – Checkpoint 4
Status: Old
AACSB: Analytical thinking
118) To graph a relationship among several variables, we hold all but ________ variable(s)
constant and use the ________ assumption.
A) one; scarcity
B) two; ceteris paribus
C) three; scarcity
D) one; ceteris paribus
E) one; absence of trend
Skill: Level 1: Deinition
Section: Chapter 1 Appendix – Checkpoint 4
Status: Old
AACSB: Analytical thinking
101
119) We are investigating the relationship among three variables. We have graphed two of
them. Suppose that the variable that is not measured on the x-axis or the y-axis changes.
Then, there is
A) a movement along the plotted curve.
B) a shift in the plotted curve.
C) no impact on the plotted curve because the variable is not measured on either of the
axes.
D) an omitted variable.
E) a violation of the absence of trend assumption.
Skill: Level 1: Deinition
Section: Chapter 1 Appendix – Checkpoint 4
Status: Old
AACSB: Analytical thinking
120) When analyzing graphically the relationship between more than two variables, which
of the following must be used?
A) positive slope assumption
B) assumption of little change
C) ceteris paribus
D) negative slope assumption
E) the assumption that only relevant factors change
Skill: Level 2: Using deinitions
Section: Chapter 1 Appendix – Checkpoint 4
Status: Old
AACSB: Analytical thinking
121) Ceteris paribus when graphing a relationship refers to
A) letting all the variables change at once.
B) changing the origin of the graph.
C) holding constant all but two variables.
D) rescaling the coordinates.
E) swapping the axes so that the x-axis is the vertical axis and the y-axis is the horizontal
axis.
Skill: Level 2: Using deinitions
Section: Chapter 1 Appendix – Checkpoint 4
Status: Old
AACSB: Analytical thinking
102
122) When two variables in a graph are related to a third, changing the third causes
A) a movement along the curve.
B) a shift of the curve.
C) no change in the curve because the third variable isn’t on the axes.
D) either a shift or a movement in the curve but more information is needed to determine
which occurs.
E) None of the above answers is correct.
Skill: Level 2: Using deinitions
Section: Chapter 1 Appendix – Checkpoint 4
Status: Old
AACSB: Analytical thinking
123) On a graph showing the relationship between x and y, the ceteris paribus condition
implies that
A) no other variables are related to x and y.
B) the value of x is held constant.
C) the value of y is held constant.
D) other variables not shown are held constant.
E) the value of x and the value of y are held constant.
Skill: Level 2: Using deinitions
Section: Chapter 1 Appendix – Checkpoint 4
Status: Old
AACSB: Analytical thinking
124) Three variables are related and two of them are plotted in a igure. If the variable that
is not measured on either the x-axis or the y-axis changes, then there is
A) a movement along the drawn curve.
B) a shift in the curve.
C) no impact on the curve because the variable is not measured on either of the axes.
D) either a shift in the curve or a movement along the curve, but more information is
needed to determine which.
E) None of the above answers is correct.
Skill: Level 1: Deinition
Section: Chapter 1 Appendix – Checkpoint 4
Status: Old
AACSB: Analytical thinking
103
125) The above igure shows how many pounds of peanuts farmers are willing to sell at
diferent prices per pound of peanuts. If the price of a pound of peanuts is $1 and the price
of a pound of pecans is $2, peanut farmers are willing to sell
A) no peanuts.
B) 1000 pounds of peanuts.
C) 2000 pounds of peanuts.
D) 4000 pounds of peanuts.
E) more than 4000 pounds of peanuts.
Skill: Level 3: Using models
Section: Chapter 1 Appendix – Checkpoint 4
Status: Old
AACSB: Analytical thinking
126) In the above igure, while drawing the line showing the relationship between the price
of a pound of peanuts and the quantity sold, the
A) price of a pound of pecans does not change.
B) price of a pound of peanuts does not change.
C) the quantity of peanuts that farmers supply does not change.
D) Both answers A and B are correct.
E) Both answers B and C are correct.
Skill: Level 3: Using models
Section: Chapter 1 Appendix – Checkpoint 4
Status: Old
AACSB: Analytical thinking
104
127) In the igure above, suppose the price of a pound of pecans is negatively related to the
quantity of peanuts that farmers are willing to supply. If the price of pecans increases,
A) the curve will shift rightward.
B) the curve will shift leftward.
C) there is a movement along the curve.
D) the curve will be unafected.
E) None of the above answers is correct because the graph assumes that the price of
pecans does not change.
Skill: Level 3: Using models
Section: Chapter 1 Appendix – Checkpoint 4
Status: Old
AACSB: Analytical thinking
128) To graph a relationship that involves more than two variables, we use
A) a positive relationship.
B) a direct relationship.
C) a negative relationship.
D) ceteris paribus.
E) movement up along one of the lines showing the relationship between x and y.
Skill: Level 1: Deinition
Section: Chapter 1 Appendix – Checkpoint 4
Status: Old
AACSB: Analytical thinking
105
129) In the igure above, an increase in z leads to a
A) movement up along one of the lines showing the relationship between x and y.
B) movement down along one of the lines showing the relationship between x and y.
C) rightward shift of the line showing the relationship between x and y.
D) leftward shift of the line showing the relationship between x and y.
E) trend change in both x and y.
Skill: Level 3: Using models
Section: Chapter 1 Appendix – Checkpoint 4
Status: Old
AACSB: Analytical thinking
130) In the igure above, ceteris paribus, an increase in x is associated with
A) an increase in y.
B) a decrease in y.
C) an increase in z.
D) a random change in z.
E) no change in either y or z.
Skill: Level 2: Using deinitions
Section: Chapter 1 Appendix – Checkpoint 4
Status: Old
AACSB: Analytical thinking
106
1.4 Integrative Questions
1) Suppose you decide to attend summer school and that this is considered a rational
choice. When making this choice,
A) you must ignore the problem of scarcity.
B) you considered the marginal cost and marginal beneit of your choice.
C) you have used the ceteris paribus assumption.
D) you have made a positive statement.
E) you must have considered the social interest.
Skill: Level 2: Using deinitions
Section: Integrative
Status: Old
AACSB: Relective thinking
2) John decides to leave college early and play professional sports. Which of the following
economic principles does John use?
i. personal economic policies
ii. marginal cost versus marginal beneit analysis
iii. normative versus positive economics
A) i and ii
B) i, ii and iii
C) ii only
D) i and iii
E) ii and iii
Skill: Level 2: Using deinitions
Section: Integrative
Status: Old
AACSB: Relective thinking
3) Which of the following is true?
i. A rational choice is always made in the pursuit of social interest.
ii. Economics is a social science.
iii. Economists try to understand how the economic world works by testing positive
statements.
A) ii and iii
B) only i
C) only ii
D) only iii
E) i and ii
Skill: Level 2: Using deinitions
Section: Integrative
Status: Old
AACSB: Relective thinking
4) Which of the following is true?
i. A rational choice is made on the margin.
ii. Microeconomics is the study of the national economy while macroeconomics is the
study of the global economy.
iii. Economists try to understand how the economic world works by testing normative
statements.
107
A) only i
B) i and iii
C) only ii
D) only iii
E) i and ii
Skill: Level 2: Using deinitions
Section: Integrative
Status: Old
AACSB: Relective thinking
5) Will, Bill, and Phil decide to study an extra hour for an exam. Instead of studying, they
could have gone out to eat, played football, or watched TV. Which of the following
statements is correct?
A) The beneit the three students receive must be the same because they all make the same
choice.
B) The students made a rational choice as long as they face no scarcity.
C) The students could each have diferent opportunity costs.
D) The marginal cost of the decision is the same if they make the same score on the exam.
E) Going out to eat, playing football, and watching TV are all called sunk costs.
Skill: Level 2: Using deinitions
Section: Integrative
Status: Old
AACSB: Relective thinking
6) Which of the following is true regarding a normative statement?
i. It uses the ceteris paribus assumption.
ii. It is a value judgment.
iii. It accounts for opportunity costs.
A) i and iii
B) ii and iii
C) i only
D) ii only
E) i, ii, and iii
Skill: Level 2: Using deinitions
Section: Integrative
Status: Old
AACSB: Relective thinking
108
7) To help unscramble cause and efect, economists
A) use the concept of opportunity costs.
B) must use the ceteris paribus assumption.
C) answer the “what” question.
D) answer the “how” question.
E) must use normative statements.
Skill: Level 2: Using deinitions
Section: Integrative
Status: Old
AACSB: Relective thinking
8) Which of the following is true regarding this statement? “The president’s decision to
spend more money on national defense is smart.”
A) This is a normative statement.
B) The federal government does not face scarcity.
C) This topic would be studied in microeconomics.
D) Social interest must always be more important than self-interest.
E) Ceteris paribus does not apply to the government.
Skill: Level 2: Using deinitions
Section: Integrative
Status: Old
AACSB: Relective thinking
9) Gregory is considering attending a concert with a ticket price of $40. He estimates that
the cost of driving to the concert and parking there will add an additional $20. In order to
attend the concert, Gregory will have to take time of from his part-time job. He estimates
that he will lose 5 hours at work, at a wage of $8 per hour. In terms of dollars, Gregory’s
opportunity cost of attending the concert equals
A) $80.
B) $100.
C) $40.
D) $60.
E) $20.
Skill: Level 5: Critical thinking
Section: Integrative
Status: New
AACSB: Application of knowledge
109
10) Kevin is re-inishing an antique grandfather clock that he purchased at a lea market
for $300. He expects to be able to sell the clock for $450. At the last minute, Kevin
discovers that he needs to repair the gears at a cost of $175 to make the clock worth $450
to potential buyers. It turns out that he could also sell the clock now, without completing
the additional repairs, for $250. What should Kevin do?
A) He should sell the clock now for $250.
B) He should keep the clock but not make the repairs since the original $300 is a sunk cost.
C) He should complete the additional repairs and sell the clock for $450.
D) He should keep the clock after making the repairs since it is not rational to spend a total
of $475 on an item that can only be sold for $450.
E) Kevin is indiferent between selling the clock as is or selling it after completing the
repairs.
Skill: Level 5: Critical thinking
Section: Integrative
Status: New
AACSB: Application of knowledge
11) Which of the following scenarios describes an action that is NOT rational from an
economic point of view?
A) After drinking one martini (shaken, not stirred), James buys and drinks a second martini
even though the marginal beneit of the second martini is lower than the marginal beneit
of the irst.
B) Eric buys a replacement ticket to the basketball game after he realizes that he
accidentally left his original ticket at home.
C) Emily chooses to attend a social event on Tuesday night instead of studying even though
she has an important exam on Wednesday morning.
D) US Airways sells a last minute ticket to Don for $50 even though its average cost per
passenger is $250.
E) None of the above
Skill: Level 5: Critical thinking
Section: Integrative
Status: New
AACSB: Application of knowledge
12) Because resources are scarce, economists would say that
A) the best things in life are always free.
B) people’s wants are unlimited.
C) every choice has an opportunity cost.
D) anything worth doing is worth doing well.
E) there are no beneits from cooperation.
Skill: Level 5: Critical thinking
Section: Integrative
Status: New
AACSB: Relective thinking
110