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31
39) An efficient market is characterized by the fact that
A) output is steady or growing and there is low inflation.
B) profit opportunities are eliminated almost instantaneously.
C) there are no opportunity costs.
D) wealth is distributed fairly.
Topic: The Method of Economics
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-1
40) The four criteria that are frequently used in judging the outcome of economic policy are
A) efficiency, equity, stability, and economic growth.
B) efficiency, equality, stability, and economic growth.
C) efficiency, equality, profitability, and stability.
D) efficiency, equity, profitability, and stability.
Topic: The Method of Economics
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-1
41) You have noticed that there is an increase in the number of homeless people in your city. At the same
time you observe that there are also a number of vacant apartments. You believe that the government
could reduce the number of homeless people if landlords were required to rent their apartments for less
than they are currently charging. This policy recommendation would be motivated by concerns over
A) efficiency.
B) equity.
C) economic growth.
D) stability.
Topic: The Method of Economics
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-1
32
42) There is a possibility that a national sales tax will be implemented. Many economists argue that items
such as food and clothing should be exempt from such a tax because low-income people spend a greater
percentage of their income on these goods than do high-income individuals. This argument is motivated
by concerns over
A) economic growth.
B) economic stability.
C) efficiency.
D) equity.
Topic: The Method of Economics
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-1
43) Which of the following is an example of a normative statement?
A) The unemployment rate is six percent.
B) There should be no unemployment in an advanced industrial society.
C) Higher prices cause consumers to buy less.
D) Equilibrium price implies that quantity demanded equals quantity supplied.
Topic: The Method of Economics
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-1
44) Which of the following is an example of a positive statement?
A) There should be no unemployment in an advanced industrial society.
B) Higher prices cause consumers to purchase less.
C) Consumption should be distributed fairly in society.
D) People should pollute as little as possible.
Topic: The Method of Economics
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-1
33
45) Related to the Economics in Practice on page 9: Prior to joining a fraternity, James spent most of his
evenings and weekends studying for his classes. Once he joined the fraternity, James spent a majority of
his evenings and weekends going to parties. This change in behavior is best described by
A) the fallacy of logic.
B) the post hoc ergo propter hoc fallacy.
C) the problem of causality.
D) the ceteris paribus error.
Topic: The Method of Economics: Economics in Practice
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-1
46) Related to the Economics in Practice on page 9: A study on the effect of roommates on college grades
found that there were strong roommate effects on grade point average, effort in school, and fraternity
membership. Which of the following is an example of a normative statement concerning this study?
A) The effects of roommates on grade point average are strong.
B) The effects of roommates on effort in school are strong.
C) The effects of roommates on fraternity membership are strong.
D) In order to maintain a high grade point average, students should only choose roommates who have a
high grade point average.
Topic: The Method of Economics: Economics in Practice
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-1
47) Which of the following is an example of a normative question?
A) How will an increase in the price of diesel fuel affect truck drivers?
B) What fraction of an income-tax rebate check will be spent on consumer goods?
C) Should the government provide free prescription drugs to lower-income citizens?
D) How will an increase in the minimum wage affect migrant workers?
Topic: The Method of Economics
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-1
34
48) The government should increase the minimum age for collecting Social Security benefits. This
statement is best described as
A) an example of marginalism.
B) an example of the fallacy of logic.
C) a normative statement.
D) a positive statement.
Topic: The Method of Economics
Skill: Definition
Learning Outcome: Micro-1
49) The amount of exercise that one gets is an important factor in the determination of his general state of
health. This is best described as
A) a positive statement.
B) an example of the fallacy of logic.
C) a normative statement.
D) an example of marginalism.
Topic: The Method of Economics
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-1
50) An approach to economics that applies statistical techniques and data to economic problems is called
A) Ockham's razor.
B) laissez-faire economics.
C) empirical economics.
D) normative economics.
Topic: The Method of Economics
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-1
51) Normative economics
A) is the focus of most modern economic reasoning.
B) answers the question "What ought to be?"
C) predicts the consequences of alternative actions.
D) answers the question "What is?"
Topic: The Method of Economics
Skill: Definition
Learning Outcome: Micro-1
35
52) Which of the following is a question answered with normative economic reasoning?
A) If the college offers free parking for students, will more students drive to campus?
B) If the college provided more financial aid assistance, would more students benefit?
C) If the college increased tuition, would class size decline?
D) Should the college cut tuition to stimulate enrollment?
Topic: The Method of Economics
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-1
53) Which of the following is a question answered with positive economic analysis?
A) Should the college offer free parking for students?
B) Should the college provide more financial aid assistance?
C) If the college increased tuition, will class size decline?
D) Should the college cut tuition to stimulate enrollment?
Topic: The Method of Economics
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-1
54) The reoccurrence of contagious diseases should be significantly lower in a technically advanced
nation such as the United States. This statement is best described as
A) a normative statement.
B) a positive statement.
C) a marginal statement.
D) an implication of an efficient market.
Topic: The Method of Economics
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-1
55) There is great concern over the fact that global warming is causing permanent damage to the global
environment. A study of the costs and benefits of purchasing carbon offsets to combat global warming is
an example of
A) labor economics.
B) normative economics.
C) positive economics.
D) laissez-faire economics.
Topic: The Method of Economics
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-1
36
56) Temperature is a measure that changes from time to time and is therefore an example of a(n)
A) empirical measure.
B) causality.
C) variable.
D) model.
Topic: The Method of Economics
Skill: Definition
Learning Outcome: Micro-1
57) A(n) ________ is a formal statement of a theory.
A) model
B) empirical measure
C) positive statement
D) causal statement
Topic: The Method of Economics
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-1
Refer to Scenario 1.2 below to answer the question(s) that follow.
SCENARIO 1.2: A scientist wants to understand the relationship between automobile emissions and the
level of global warming. The scientist collects data on the volume of automobile emissions and the levels
of global warming over time. The scientist concludes that a 1% increase in automobile emissions causes a
0.0003% increase in average global temperatures. From this information he concludes that the automobile
emissions are harmful to the environment and should be reduced to stop the increase in global
temperatures.
58) Refer to Scenario 1.2. The statement that a 1% increase in the automobile emissions causes a 0.0003%
increase in average global temperatures is an example of
A) positive economics.
B) marginal economics.
C) normative economics.
D) the fallacy of logic.
Topic: The Method of Economics
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-1
37
59) Refer to Scenario 1.2. The statement, "automobile emissions are harmful to the environment and
should be reduced to stop the increase in global temperatures," is an example of
A) positive economics.
B) marginal economics.
C) normative economics.
D) the fallacy of logic.
Topic: The Method of Economics
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-1
60) Refer to Scenario 1.2. The collection and use of the data on automobile emissions and global warming
levels is an example of
A) law and economics.
B) economic history.
C) econometrics.
D) empirical economics.
Topic: The Method of Economics
Skill: Definition
Learning Outcome: Micro-1
61) Refer to Scenario 1.2. The statement that an increase in automobile emissions causes an increase in
global warming is an example of
A) an economic theory.
B) a fallacy.
C) deductive reasoning.
D) normative economics.
Topic: The Method of Economics
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-1
62) Refer to Scenario 1.2. A graph of the volume of automobile emissions on one axis and the level of
average global temperatures on the other axis is an example of
A) an economic model.
B) an economic theory.
C) a variable theory.
D) inductive reasoning.
Topic: The Method of Economics
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-1
38
63) By invoking the assumption of ceteris paribus, economists
A) consider the impact of all relevant factors.
B) hold all variables constant when analyzing a model.
C) isolate the impact of one single variable while holding all other variables constant.
D) exclude irrelevant detail when analyzing a model.
Topic: The Method of Economics
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-1
64) Ockham's razor is the principle that states
A) supply creates its own demand.
B) we must forgo something when making a decision.
C) costs which have been incurred cannot be avoided.
D) irrelevant detail should not be included in a model.
Topic: The Method of Economics
Skill: Definition
Learning Outcome: Micro-1
65) When an economist states that "price changes cause quantity changes ceteris paribus," she is stating
that price changes cause quantity changes
A) always.
B) all else equal.
C) only in theory.
D) only in efficient markets.
Topic: The Method of Economics
Skill: Definition
Learning Outcome: Micro-1
66) The Latin phrase ceteris paribus means that when a relationship between two variables is being studied
A) both are treated as unpredictable.
B) neither of those two variables is allowed to change.
C) all other variables are held fixed.
D) we recognize that some factors are unknown.
Topic: The Method of Economics
Skill: Definition
Learning Outcome: Micro-1
39
67) Isabel noted that whenever she wore her green contact lenses, the Chicago White Sox would win that
evening. Based on this observation, she developed the "green-eyes-for-White-Sox" theory of winning. It is
most likely true that Isabel
A) showed good reasoning for the reason the White Sox would win.
B) committed the ceteris paribus error.
C) committed the fallacy of logic.
D) was confusing causality.
Topic: The Method of Economics
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-1
68) Whenever a former governor is elected president, the unemployment rate decreases; whenever a
former congressman is elected president, the inflation rate increases. This statement is an example of
A) fallacy of logic.
B) post hoc, ergo propter hoc fallacy.
C) ceteris paribus fallacy.
D) fallacy of inductive reasoning.
Topic: The Method of Economics
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-1
69) The unemployment rate was falling during all of the years that I was a student, but as soon as I
graduated, the unemployment rate started to rise. Therefore, the job market was waiting until I started
looking for employment to start to go bad. This statement is an example of
A) fallacy of logic.
B) post hoc, ergo propter hoc fallacy.
C) ceteris paribus fallacy.
D) fallacy of inductive reasoning.
Topic: The Method of Economics
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-1
40
70) Since the legal age to vote in the United States is 18, the legal drinking age in the United States should
be lowered to 18. This statement is best described as
A) a normative statement.
B) a positive statement.
C) a marginal statement.
D) an implication of an efficient market.
Topic: The Method of Economics
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-1
71) The decrease in exports from the United States is in part due to the strength of the U.S. dollar relative
to foreign currencies. This statement is best described as
A) a marginal statement.
B) a normative statement.
C) a positive statement.
D) an unsubstantiated statement.
Topic: The Method of Economics
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-1
72) Salary caps are imposed when league officials believe some football team owners are taking
advantage of their deep pockets and buying more quality players than the other owners can afford to
buy. Which of the following criteria are they using to guide their actions?
A) growth
B) stability
C) efficiency
D) equity
Topic: The Method of Economics
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-1
