Survey of Economics, 6e (O’Sullivan/Sheffrin/Perez)
Chapter 1 Introduction: What Is Economics?
1.1 What Is Economics?
1) Economics is best defined as the study of
A) financial decision-making.
B) how consumers make purchasing decisions.
C) the choices made by people faced with scarcity.
D) inflation, unemployment, and economic growth.
2) Economics is the study of
A) how to invest in the stock market.
B) how society uses limited resources.
C) the role of money in markets.
D) how government officials decide which goods and services are produced.
3) Scarcity can best be defined as a situation in which
A) there are no buyers willing to purchase what sellers have produced.
B) there are not enough goods to satisfy all of the buyers’ demand.
C) the resources we use to produce goods and services are limited.
D) there is more than enough money to satisfy consumers’ wants.
4) An arrangement that allows buyers and sellers to exchange things is called
A) a contract.
B) a market.
C) money.
D) efficient.
5) Because resources are limited
A) only the very wealthy can get everything they want.
B) firms will be forced out of business.
C) the availability of goods will be limited but the availability of services will not.
D) people must make choices.
6) Tradeoff is
A) allowing the government and other organizations to choose for us.
B) sacrificing one thing for another.
C) deciding who consumes the products produced in an economy.
D) holding other variables fixed.
7) Resources are all of the following EXCEPT
A) unlimited and in abundance.
B) the things we use to produce goods and services.
C) limited in quantity and can be used in different ways.
D) scarce and therefore require choices to be made.
8) The knowledge and skills acquired by a worker through education and experience is a
description of which factor of production?
A) physical capital
B) human capital
C) labor
D) entrepreneurship
9) The physical and mental effort people use to produce goods and services is a description of
which factor of production?
A) physical capital
B) human capital
C) labor
D) entrepreneurship
10) The effort used to coordinate the factors of production is a description of
A) physical capital.
B) human capital.
C) labor.
D) entrepreneurship.
11) All of the following are considered natural resources EXCEPT
A) a coral reef.
B) gold.
C) labor.
D) a redwood forest.
12) 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?”
13) Which of the following is an example of a normative question?
A) How will an increase in the inheritance tax affect tax revenues?
B) What fraction of an income tax cut will be spent on imported goods?
C) Should Florida implement a state income tax to reduce its deficit?
D) How will an increase in unemployment benefits affect the unemployment rate?
14) Which of the following is a question answered with positive economic analysis?
A) Should the college reduce tuition for out-of-state residents?
B) Should the college charge higher tuition for part-time students?
C) If the college increased its eligibility requirements for enrollment, will class sizes decline?
D) Should the college eliminate its athletic program to cut its costs?
15) Which of the following is a question answered with normative economic reasoning?
A) If the college offers free textbooks for students, will more students read their textbooks?
B) If the college provided less financial aid for out-of-state students, would more in-state
students benefit?
C) If the college increased its enrollment requirements, would class size decline?
D) Should the college increase tuition to fund its athletic programs?
16) The 3 key economic questions include all of the following EXCEPT
A) “what products do we produce?”
B) “how do we produce these products?”
C) “where should these products be produced?”
D) “who consumes the products?”
17) Deciding how a society’s products are distributed among its citizens answers the economic
question of
A) who consumes the products produced.
B) what products will be produced.
C) where will the products be consumed.
D) how will the products be produced.
18) Deciding if a company will produce automobiles by robotics or manual labor answers the
economic question of
A) who consumes the products produced.
B) what products will be produced.
C) where will the products be consumed.
D) how will the products be produced.
19) Deciding if a power company will generate electricity from wind power or coal answers the
economic question of
A) who consumes the products produced.
B) what products will be produced.
C) where will the products be consumed.
D) how will the products be produced.
20) An economic model is a
A) realistic version of an economic environment.
B) detailed version of an economic issue.
C) fictional representation of an entire economy.
D) simplified representation of an economic environment.
21) Economic models are used to
A) explain every detail of an economic theory.
B) explore decision making by individuals, firms and other organizations.
C) build physical renditions of government construction projects.
D) represent the complexities of economic environments.
22) Talking about alternatives is the first step in a process that helps us make better choices
about how we use our resources.
23) In the past few centuries, choices have led to a substantial decline in the standards of living
around the globe.
24) Scarcity is a situation in which resources are unlimited in quantity and can be used in
different ways.
25) Positive economics answers the question, “What ought to be?” Normative economics
predicts the consequences of alternative actions, answering the questions, “What is?” or “What
will be?”
26) Normative economics answers the question, “What ought to be?” Positive economics
predicts the consequences of alternative actions, answering the questions, “What is?” or “What
will be?”
27) Most modern economic analysis is normative in nature, but involves questions with positive
aspects.
28) Economists will always reach the same conclusion in their positive analyses.
29) One of the key economic questions is “where should products be produced?”
30) One of the key economic questions is “who consumes the products?”
31) An economic model is a detailed version of an economic environment.
32) Economic models explore decision making by individuals, firms and other organizations.
33) Would an economist consider clean air a scarce resource? Explain.
34) List and briefly describe the five factors of production.
35) Give an example of something that is scarce in your life and explain the choices you’ve made
because of scarcity.
36) Positive economic analysis answers what question?
37) Normative economic analysis answers what question?
38) Richard runs a pizza delivery restaurant. List the three basic types of decisions studied in
economics and give an example from Richard’s restaurant.
1.2 Economic Analysis and Modern Problems
1) According to the Texas Transportation Institute, the typical U.S. commuter wastes
approximately how much time per year due to traffic congestion?
A) 14 hours
B) 22 hours
C) 47 hours
D) 96 hours
2) In the final two decades of the twentieth century, average per capita global income
A) increased by approximately 35%.
B) remained relatively unchanged.
C) decreased by approximately 6%.
D) increased by more than 75%.
3) In the final two decades of the twentieth century, per capita income in sub-Saharan Africa
A) increased by approximately 35%.
B) remained relatively unchanged.
C) decreased by approximately 6%.
D) increased by more than 75%.
4) Prior to the financial crisis and recession which began in 2007, credit for mortgages was
________, creating a ________.
A) virtually unavailable; housing bubble
B) only available to borrowers with high credit scores; shortage of affordable housing
C) easily obtained; housing boom
D) unavailable to low-income borrowers; large demand for rental properties
5) The financial crisis and recession which began in 2007
A) impacted only high-income countries.
B) was only severe in the United States.
C) had a global impact.
D) impacted only low-income countries.
6) Congestion taxes tend to cause an increase in traffic volume during rush hours.
7) In the 1980s and 1990s, average per capita income increased by a greater percentage in sub-
Saharan Africa than it did in the rest of the world.
1.3 The Economic Way of Thinking
1) Who is associated with the following summary of the economic way of thinking: “The theory
of economics does not furnish a body of settled conclusions immediately acceptable to policy. It
is a method rather than a doctrine, an apparatus of the mind, a technique of thinking which helps
its processer draw correct conclusions.”
A) John Maynard Keynes
B) Alfred Marshall
C) Adam Smith
D) President Harry Truman
2) To make things simpler and focus attention on what really matters, economists would
A) use assumptions.
B) ignore all variables.
C) think at the margin.
D) respond to incentives.
3) A variable measures
A) something that always has the same value.
B) something that can take on different values.
C) factors that occur with high degrees of uncertainty.
D) the degree to which something varies over time.
4) 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.
5) To think at the margin means to consider
A) how nothing remains constant over time.
B) how a small change in one variable affects another variable.
C) how people behave in their own self-interest.
D) how people will decide what to purchase.
6) Jerome has a “C” average in his philosophy course and a “B” average in his economics course.
He decides to study an extra hour for his philosophy exam. This is an example of
A) thinking at the margin.
B) using assumptions to simplify.
C) ceteris paribus.
D) caveat emptor.
7) A small change in a variable is
A) an average change.
B) a ceteris paribus change.
C) an efficient change.
D) a marginal change.
8) Adam Smith
A) is considered the founder of economics.
B) introduced the concept of ceteris paribus to the discussion of supply and demand.
C) is responsible for refining the model of supply and demand.
D) is the author of this text.
9) When economists assume that people are rational and respond to incentives, they mean
A) people act with kindness.
B) people are altruistic.
C) people act in their own self-interest.
D) people are selfish.
10) When deciding to implement a congestion tax, economists and the government would use the
elements of the economic way of thinking to primarily determine
A) if the tax would be allocated equitably.
B) what tax amount should be charged.
C) who should be exempt from the tax.
D) how much revenue will the tax generate.
11) After the implementation of the congestion tax in London, traffic volume was reduced and
travel time for cars and buses was cut in half. This is an example of
A) responding to incentives.
B) the role of pricing in allocating resources.
C) caveat emptor.
D) comparative advantage.
12) When determining an appropriate congestion tax, economists would use which of the
following elements of the economic way of thinking?
A) thinking at the margin
B) isolating variables
C) making assumptions
D) all of the above
Recall the Application about the increase in purchases of hybrid vehicles to answer the
following question(s).
13) Recall the application. One factor which was responsible for roughly one-fifth of hybrid
vehicles purchased in 2007 was a federal subsidy of up to $3,400 per hybrid vehicle. The
increase in sales due to this subsidy is an example of which element of the economic way of
thinking?
A) responding to incentives
B) thinking at the margin
C) isolating variables
D) using assumptions to simplify
14) Recall the application. One factor which was responsible for roughly one-third of hybrid
vehicles purchased in 2007 was an increase in the price of gasoline. The increase in sales due to
higher gasoline prices describe the economic concept of
A) using assumptions to simplify.
B) ceteris paribus.
C) marginal thinking.
D) rational self interest.
15) Recall the application. The average cost of abating one ton of CO2 emissions through the
hybrid subsidy is $177, but a switch from coal to natural gas in power plants would reduce CO2
emissions at less than one-third the cost of the hybrid subsidy. The increase in cost associated
with the reduction of one ton of CO2 emissions (assuming that each unit of CO2 emissions is
measured in tons) describes the economic concept of
A) using assumptions to simplify.
B) ceteris paribus.
C) marginal thinking.
D) rational self interest.
Recall the Application about unwanted commercial e-mail, or spam, to answer the
following question(s).
16) Recall the application. The economic approach to spam is to
A) establish a price for commercial e-mail.
B) ignore the spam issue because it has no economic implications.
C) have it legislated on the local level since it is a microeconomic issue.
D) ban all e-mail from international servers.
17) Recall the application. The amount of e-mail spam would significantly decrease if
A) the cost of sending spam exceeded its profitability.
B) states passed laws making spam illegal.
C) e-mail filters were developed to separate spam from legitimate e-mail.
D) more people responded to spam e-mails.
18) Using assumptions to make things simpler and focus attention on what really matters is like
using a road map to plan a trip.
19) Ceteris paribus means “Let the buyer beware.”