Name:
Class:
Date:
Chapter 01: The Art and Science of Economic Analysis
True / False
1. Economics is best defined as the study of how individuals decide to use limited resources in an attempt to satisfy
unlimited wants.
a. True
b. False
2. Economics studies how decision makers use scarce resources to satisfy unlimited wants.
a. True
b. False
3. In economics, money is an example of capital.
a. True
b. False
4. Profit is the payment received by resource owners for the use of their capital.
a. True
b. False
5. Rent is the payment received by resource owners for the use of their natural resources.
a. True
b. False
6. An economist would classify 100 shares of the Apple Computers stock as capital.
a. True
b. False
7. Profit is the payment made for land resources.
a. True
b. False
8. Resources are used only in the production of goods, not services.
a. True
b. False
9. Considering both product markets and resource markets, most economic decision makers participate in the economy as
both buyers and sellers.
Name:
Class:
Date:
Chapter 01: The Art and Science of Economic Analysis
a. True
b. False
10. Labor and capital are exchanged in the resource market.
a. True
b. False
11. A rational individual gives more to charity when such contributions receive favorable tax treatment.
a. True
b. False
12. A rational individual would make charitable contributions only if such contributions receive favorable tax treatment.
a. True
b. False
13. The assumption of rational self-interest does not rule out the possibility of concern for other individuals.
a. True
b. False
14. It is always rational to acquire more information before making a decision.
a. True
b. False
15. Rational self-interest is equivalent to pure selfishness.
a. True
b. False
16. Sara is considering the purchase of a new car. Rational self-interest demands that she do an exhaustive research study
to acquire every bit of information possible about her potential options.
a. True
b. False
17. A marginal adjustment only refers to a minor change.
a. True
b. False
Name:
Class:
Date:
Chapter 01: The Art and Science of Economic Analysis
18. A rational decision maker compares the expected marginal cost to the expected marginal benefit of any activity.
a. True
b. False
19. Most real economic choices involve small (or marginal) changes rather than all-or-nothing decisions.
a. True
b. False
20. Economic decision makers will continue to acquire information only as long as the expected additional benefit
exceeds the expected additional cost of the information.
a. True
b. False
21. The behavior of the entertainment industry in a city is a microeconomics topic.
a. True
b. False
22. An economic model will produce poor predictions if it includes assumptions.
a. True
b. False
23. A good economic theory brings clarity to chaos.
a. True
b. False
24. Most economists consider a theory a good one if it predicts well.
a. True
b. False
25. The ceteris paribus assumption is the other-things-constant assumption.
a. True
b. False
26. The ceteris paribus assumption is a behavioral assumption.
a. True
b. False
Name:
Class:
Date:
Chapter 01: The Art and Science of Economic Analysis
27. Normative economic statements refer to what should be.
a. True
b. False
28. “There should be less discrimination against women” is an example of a positive economic statement.
a. True
b. False
29. Most of the disagreement among economists involves normative debates.
a. True
b. False
30. “An increase in the price of a product causes consumers to purchase more of that product” is an example of a positive
economic statement.
a. True
b. False
31. Economics is as much an art as it is a science.
a. True
b. False
32. Economists often focus on average behavior because it is easier to predict.
a. True
b. False
33. Economic theory allows economists to predict the behavior of a specific person or firm.
a. True
b. False
34. The association is causation fallacy is the error of assuming that what is true for one member of a group must be true
for the group.
a. True
b. False
35. The fallacy of composition is the error of believing that a cause and effect relationship exists between two events that
are associated in time.
a. True
Name:
Class:
Date:
Chapter 01: The Art and Science of Economic Analysis
b. False
36. One problem with rent controls is that policy makers often ignore its secondary effects.
a. True
b. False
37. Secondary effects are consequences of economic actions that develop slowly over time as people react to events.
a. True
b. False
38. As a scientist, an economist’s main professional objective is to become wealthy.
a. True
b. False
39. College graduates with history or literature as their major tend to earn more than those who choose more quantitative
disciplines like economics.
a. True
b. False
40. Economics is the only social science and the only business discipline for which the Nobel Prize is awarded.
a. True
b. False
Multiple Choice
41. The fact that people have unlimited wants means that:
a. they always want more of at least one good.
b. each person has an unlimited desire for every good.
c. labor unions demand wage increases.
d. selfish people are not concerned about others.
e. people buy goods without regard to what they can afford.
42. The problem of scarce resources:
a. means that there are not enough jobs in some cities.
b. could be solved if the unemployment rate fell.
c. is that there are not enough resources to satisfy people’s unlimited wants.
d. is that resources are used inefficiently.
e. can be solved by lowering taxes.
Name:
Class:
Date:
Chapter 01: The Art and Science of Economic Analysis
43. Which of the following sentences is the best example of scarcity of time?
a. Peter buys a hamburger.
b. John-Michael wants to spend his money on a new hover board.
c. Alexander is doing homework instead of going to the movies with his friends.
d. Amanda, a geography teacher, is retired.
e. Bill is unemployed.
44. Scarcity:
a. applies to a brain surgeon but not to a cab driver.
b. is not a problem for a politician.
c. exists only in rich countries.
d. exists only in poor countries.
e. occurs when a resource is not freely available.
45. Because people’s wants are unlimited but resources are scarce, _____:
a. only the rich get everything they want.
b. choices must be made.
c. there will be more services produced than goods.
d. people search for spiritual fulfillment rather than material fulfillment.
e. poor people never get anything they want.
46. Which of the following statements regarding the basic economic problem of scarcity is correct?
a. The problem only exists in countries that are not highly industrialized.
b. The problem is likely to disappear as production increases.
c. The problem is sure to disappear as technology improves.
d. The problem will exist as long as resources are available in limited amounts.
e. The problem will disappear as a person’s income falls.
47. Economics is best defined as the study of how:
a. individuals decide to use scarce resources in an attempt to satisfy their unlimited wants.
b. individuals can make money.
c. the government should deal with unemployment and inflation.
d. to eliminate the problem of scarce resources.
e. to run a business.
48. Benjamin works as an economist for the federal government. Which of the following questions is he trying to answer
as part of his job?
a. How can I get rich by playing the stock market?
b. What are the best ways to reduce people’s wants, given the scarcity of resources?
c. How can government officials use scarce resources to become richer?
d. What is money?
Name:
Class:
Date:
Chapter 01: The Art and Science of Economic Analysis
e. How do people use limited resources to try to satisfy unlimited wants?
49. Which of the following is the best definition of economics?
a. An investigation of the quantities and prices of the various goods produced by the nations of the world
b. A study of why inflation and unemployment periodically plague the U.S. economy
c. An analysis of how individuals and societies deal with the problem of scarcity
d. An examination of the role that money plays in the economy
e. A study of how goods and services are distributed throughout the world
50. Alan is a retired economist who enjoys building toy trains for his grandkids. He uses a workbench and tools from his
garage, lumber he bought from the lumber store for $10, and varnish and paint he had left over from another project last
year. Since a retired economist is always an economist, which of the following statements does he make about building
toy trains?
a. I’m not paying for any resources, so the toy trains I’m building are a good example of free goods.
b. I only paid $10 for the lumber, so the toy trains I’m building are a good example of free goods.
c. I’m using scarce resources to build the toy trains.
d. The resources I’m using to build the toy trains are not scarce.
e. If I had used lumber that I cut from the tree in my backyard instead of buying it from the store, then the toy trains
I’m building would be a good example of free goods.
51. Economics is best described as the:
a. study of choice when scarcity exists.
b. study of how businesses earn profit.
c. theory of consumer behavior.
d. science of money.
e. art of spending money wisely.
52. Michigan has an abundant supply of fresh water. However, an economist would consider it a scarce resource because:
a. water is necessary for human survival.
b. pollution will eventually destroy all life in the Great Lakes.
c. water is limited relative to people’s unlimited wants.
d. water commands a very high price.
e. nature can destroy water as well as create it.
53. Economics:
a. studies human behavior when scarcity exists and choices must be made.
b. provides the only reasonable explanation of how people make decisions.
c. can accurately explain all human behavior since it is based on the assumption of rationality.
d. is better at showing the way things ought to be than the other social sciences.
e. is the only social science that can explain the existence and behavior of public institutions.
Name:
Class:
Date:
Chapter 01: The Art and Science of Economic Analysis
54. A resource is something that:
a. is used to produce goods and services.
b. is provided by nature, not produced by society.
c. exists in unlimited quantities.
d. must be produced by a firm.
e. is always available free of cost.
55. Natural resources are:
a. not considered scarce because no one pays for them.
b. only desired for use in producing other goods.
c. included in the category of resources called gifts of nature.
d. available in unlimited quantities.
e. not considered scarce because they are not produced by society.
56. Which of the following is the fundamental resource that is the basis of labor?
a. Capital
b. Natural resources
c. Time
d. Money
e. Entrepreneurial ability
57. In economics, capital is defined as:
a. natural resources, such as water, oil, and iron ore.
b. the natural, unskilled abilities of people.
c. human creations used in the production process.
d. money and other financial assets.
e. the willingness of business owners to take risks.
58. Which of the following would an economist classify as physical capital?
a. 100 shares of Microsoft stock
b. A $50 bill
c. A credit card
d. A lawyer’s laptop
e. A bauxite mine in Jamaica
59. Economists classify all of the following as physical capital, except one. Which one is not capital?
a. A $20 bill in a firm’s petty cash drawer
b. The building where an economics class meets
c. A plumber’s wrench
d. A railroad car
e. A factory
Name:
Class:
Date:
Chapter 01: The Art and Science of Economic Analysis
60. When economists refer to capital, they might mean:
a. money.
b. human skills used in production.
c. stocks.
d. bonds.
e. bank loans.
61. Which of the following is an example of physical capital?
a. The owner of a pizza shop
b. Bulldozers
c. A college education
d. Carpentry skills
e. Money
62. The payments in return for labor and capital are _____, respectively.
a. profit and rent
b. interest and profit
c. rent and wages
d. profit and wages
e. wages and interest
63. An entrepreneur:
a. always makes a profit.
b. generally avoids risky situations.
c. claims the profit after other resource suppliers are compensated.
d. is a parasite that benefits by not paying other resources for their services.
e. is the manager who runs an enterprise and keeps the customers happy.
64. If a business produces and sells only one unit of a good, its profit would be the:
a. price received for the good.
b. price of the product minus the cost of the resources used to produce the product.
c. return paid to the firm’s bank on its outstanding loans.
d. price of the product minus the wages paid for the labor used to produce it.
e. wages paid for the labor used to produce the product minus the price.
65. As resources are scarce, _____.
a. opportunity costs are zero.
b. people must make choices among alternatives.
c. all human wants and desires can be satisfied.
d. resource prices are fixed.
e. commodities are free.
Name:
Class:
Date:
Chapter 01: The Art and Science of Economic Analysis
66. Which of the following broad categories are resources divided into?
a. People, money, and machines
b. Savings, spending, investment, and capital
c. Human, technological, and government
d. Natural resources, labor, capital, and entrepreneurial ability
e. Free, scarce, abundant, and unlimited
67. Natural resources:
a. include bodies of water, trees, oil reserves, and minerals.
b. are not scarce.
c. are exhaustible as long as they are managed properly.
d. are the result of human effort.
e. are machines used in the production process.
68. In economics, capital refers to:
a. money.
b. stocks, bonds, and other financial assets.
c. the seat of the government.
d. machines, buildings, tools, and knowledge.
e. net worth (assets minus liabilities).
69. An entrepreneur is:
a. an individual who has an education.
b. an organizer who seeks profitable opportunities and is willing to accept risks.
c. a person who is hired by a firm to manage its operations.
d. a person who earns profit without accepting any risks.
e. a person who is appointed by the board of directors of a firm for a term of five years.
70. The difference between a good and a service is that:
a. a good helps satisfy unlimited wants, but a service does not.
b. a service helps satisfy unlimited wants, but a good does not.
c. a service is available in unlimited quantities, but a good is not.
d. a good is available in unlimited quantities, but a service is not.
e. a good is tangible, but a service is not.
71. Which of the following is a service?
a. Anything that is scarce and that satisfies unlimited human wants
b. A thing for which people pay money
c. An intangible activity that satisfies human wants
d. Any output produced by a service sector industry, such as fast food
e. Something less desirable than a good
Name:
Class:
Date:
Chapter 01: The Art and Science of Economic Analysis
72. Goods and services are scarce because:
a. people are greedy.
b. they are produced using scarce resources.
c. firms keep production low in order to earn higher profits.
d. they are produced by firms that seek profits.
e. the government wants to maintain its power over the economy.
73. The expression “There’s no such thing as a free lunch” means that:
a. services may be free, but goods are never free.
b. even if it has a price of zero, a good or service has a cost.
c. charitable organizations should not serve free lunches to the poor.
d. poor people are really the ones who pay for their allegedly free lunches.
e. someone has to pay the market price for a good or service.
74. Your best friend buys you lunch on your birthday. You think this was not a free lunch because:
a. even if you didn’t pay dollars for it, you paid for it in extra calories.
b. the resources used to produce the lunch were not available to satisfy other wants.
c. you disagree with the expression “The best things in life are free.“
d. you can eat only if you work out first.
e. neither sea water nor air is free.
75. A good or service is considered scarce if:
a. any quantity of it can be consumed at a zero price.
b. the amount people desire exceeds the amount available at a zero price.
c. the amount people desire exceeds the amount available at any price.
d. the amount people desire is less than the amount available at any price.
e. the amount people desire is less than the amount available at a zero price.
76. Unlike a service, a good:
a. is desirable.
b. uses resources to satisfy wants.
c. is physical and tangible.
d. is abundant and free.
e. is a resource.
77. Goods and services are exchanged in:
a. product markets.
b. resource markets.
c. inventory markets.
d. classified markets.
Name:
Class:
Date:
Chapter 01: The Art and Science of Economic Analysis
e. government markets.
78. In a circular-flow model, households supply all of the following except:
a. labor.
b. goods and services.
c. capital.
d. entrepreneurial ability.
e. natural resources.
79. Which of the following is true about the resource market?
a. It facilitates the exchange of goods and services between buyers and sellers.
b. It facilitates the exchange of resources between buyers and sellers.
c. Firms are sellers in the resource market.
d. Households are buyers in the resource markets.
e. There is no flow of money in the resource market.
80. The choices made by economic decision makers:
a. are government decisions only.
b. are the primary focus of economics.
c. are not important in economic analysis.
d. occur infrequently.
e. do not involve ordinary citizens.
81. Households:
a. own and sell resources.
b. play a very minor role in the economy.
c. supply goods and services.
d. are the largest purchasers of resources.
e. set the price for goods.
82. The labor market is an example of a:
a. government market.
b. classified market.
c. communication market.
d. resource market.
e. product market.
83. The assumption that individuals act rationally implies that:
a. people think only of themselves and disregard the well-being of others.
b. people undertake all those activities that yield benefits to themselves.
c. people only consider the costs of an activity to decide whether it is worthwhile.