83. An economic model is:
a.
a plastic scaled version of the economy.
b.
a complete depiction of reality.
c.
an abstraction from reality.
d.
applicable to consumer behavior but not to producer behavior.
e.
not an accepted tool of the economics profession.
84. Complete the following analogy: A criminal is to a police artist’s sketch as the economy is to:
a.
money.
b.
an economic model.
c.
a resource.
d.
Ceteris paribus.
e.
scarcity.
85. To abstract from reality in an economic model means that:
a.
we include only a few of the essential aspects of reality.
b.
the economic study surveys only a very limited period of time.
c.
we include only those elements which support our hypothesis.
d.
the model includes every aspect of the real world.
e.
the model examines the actions of the consumers in the absence of producers and the
government.
86. To be valid, an economic model must:
a.
include every activity which occurs in the real world.
b.
include at least 85 percent of the activity which occurs in the real world.
c.
be able to predict events occurring in the real world.
d.
exclude any link to the real world.
e.
not be based on an abstraction of the real world.
87. When economists use the term Ceteris paribus, they are indicating that:
a.
the relationship between two economic variables cannot be determined.
b.
the analysis is true for the individual but not for the economy as a whole.
c.
all other variables except the ones specified are assumed to be constant.
d.
their conclusions are based on normative economics rather than positive economic
analysis.
88. The term Ceteris paribus means that:
a.
everything is changing.
b.
all other things remain unchanged.
c.
no one knows which variables will change and which will remain constant.
d.
the basic principle of economics do not apply to the case being considered.
89. The statement, “John buys more of good X as his income increases, Ceteris paribus,” means:
a.
John’s income is being held constant.
b.
John’s purchases of good X are being held constant.
c.
John’s income and purchases of this good are being held constant.
d.
the price of this good is being allowed to change.
90. The term Ceteris paribus means that:
a.
the model includes all important variables occurring in the real world.
b.
all factors which influence the event are changing at the same time.
c.
one influence is changing and everything else is being held constant.
d.
the consumer is king.
91. An economic forecast:
a.
will always be true.
b.
is more reliable than a weather forecast.
c.
will never provide valuable information.
d.
should not be relied upon to predict economic events.
e.
is always based upon a Ceteris paribus condition.
92. The Latin expression Ceteris paribus means:
a.
everything else being equal.
c.
economists are partly right.
b.
economic model.
d.
partial scarcity is certain.
93. When economists want to hold a number of factors constant, they are demonstrating which of the
following expressions?
a.
Positive economics model.
c.
Ceteris paribus.
b.
Consumer sovereignty.
d.
Normative economics.
94. If the price of a textbook rises and then students purchase fewer textbooks, an economic model can
show a cause-and-effect relationship only if which of the following conditions holds:
a.
students’ incomes fall.
b.
tuition decreases.
c.
the number of students increases.
d.
everything else is constant.
e.
the bookstore no longer accepts used book trade-ins.
95. Ceteris paribus means:
a.
an association of variables.
b.
all other things remain constant.
c.
a cause and effect relationship.
d.
considering the influences of other variables.
96. Someone notices that sunspot activity is high just prior to recessions and concludes that sunspots cause
recessions. This person has:
a.
confused association and causation.
b.
misunderstood the Ceteris paribus assumption.
c.
used normative economics to answer a positive question.
d.
built an untestable model.
97. “As soon as a mayor announced his/her ‘get tough on crime’ policy on New Year’s day, criminals got
scared and the crime rate went down.” Suppose that the lower crime rate was actually caused by
freezing cold temperatures in January⎯it was just too cold for anybody to be out robbing other people.
Which fundamental hazard of the economic way of thinking did the mayor make?
a.
believing that what’s good for one person is good for the whole group (the fallacy of
composition)
b.
failing to take into account the benefits of crime (the payoff fallacy)
c.
believing that association is the same as causation
d.
failing to understand the difference between positive and normative economics.
98. If individuals who sit in the back of the classroom receive lower grades on average than the rest of the
class, does that mean that sitting in the back of a classroom causes one to perform poorly on exams?
a.
Not necessarily. The reoccurrence of a certain relationship between two variables does not
necessarily imply causation.
b.
It is not possible for an economist to determine causation between variables.
c.
The reoccurrence of such a relationship is sufficient evidence that sitting in the back of a
classroom will lead to lower grades.
d.
The reoccurrence of such a relationship is sufficient evidence that students who receive
low grades prefer to keep a low profile and always sit in the back of the classroom.
99. Which of the following is a statement of positive economics?
a.
I hope unemployment comes down soon.
b.
President X’s way of dealing with unemployment is better than President Y’s.
c.
I think everyone should sacrifice to reduce the deficit.
d.
If taxes are reduced, unemployment will drop.
100. Which of the following is a statement of positive economics?
a.
Too much government spending is the biggest problem facing the U.S. economy.
b.
Creating jobs is the most serious problem facing the U.S. economy.
c.
Raising taxes provides additional revenue that should be used to finance health care.
d.
If taxes are over 50 percent of national income, job creation falls.
101. Which of the following represents positive economics?
a.
Policy A is fair.
b.
Outcome B is the best objective to achieve.
c.
If policy A is followed, then outcome B results.
d.
All of these.
102. Positive economics:
a.
will usually tell us which policy is best.
b.
reveals “what ought to be” in economic matters.
c.
is of little use to policy makers.
d.
is the scientific study of “what is” among economic relationships.
103. Which of the following represents a positive statement?
a.
A higher income tax rate will reduce the amount of time that people spend working.
b.
Teenage unemployment should be reduced.
c.
We should raise the standard of living for the elderly.
d.
A decrease in tax rates is needed to help the poor.
104. The statement, “Violent crime has decreased in the last five years,” is:
a.
obviously wrong and, therefore, cannot be a positive statement.
b.
normative since it can be answered by simply looking at the facts.
c.
positive because it is testable.
d.
not very interesting because all normative issues are of little importance.
105. Which one of the following is a positive economic statement?
a.
An increase in the minimum wage will reduce employment for teenagers.
b.
The minimum wage should be increased.
c.
Social justice will be served by increasing the minimum wage.
d.
Thoughtful people oppose an increase in the minimum wage.
106. Which of the following is a statement of positive economics?
a.
Government control of rent is a fair way to help poor people afford housing.
b.
Government control of rent keeps landlords from charging too much rent.
c.
Government control of rent decreases the number of new apartments constructed.
d.
Government control of rent is an injustice.
107. Select the positive statement that completes the sentence: If wages rise more rapidly than productivity:
a.
profits will fall.
c.
the rate of inflation increases.
b.
workers will earn 3/4 of GDP.
d.
all of these.
108. “An increase in the federal minimum wage causes an increase in unemployment among teenagers” is
a:
a.
statement of positive economics.
c.
testable value judgment.
b.
statement of normative economics.
d.
fallacy of composition.
109. What type of economic analysis is limited to testable, verifiable statements?
a.
Macroeconomics.
c.
Positive economics.
b.
Entrepreneurial economics.
d.
Normative economics.
110. Which of the following is a positive statement?
a.
I think we should pass a constitutional amendment to reduce the deficit.
b.
President Clinton’s way of dealing with the economy is better than President Bush’s.
c.
I hope interest rates come down soon.
d.
If taxes are raised, unemployment will drop.
111. “An increase in the federal minimum wage will provide a living wage for the working poor” is:
a.
a statement of positive economics.
c.
a tautology.
b.
a fallacy of composition.
d.
a statement of normative economics.
112. A positive economic statement is:
a.
an opinion of an action that should be taken.
b.
an action that will have a positive effect on the economy.
c.
a statement testable by facts.
d.
a claim that the speaker is positive will occur.
e.
always a microeconomic position.
113. The Secretary of Labor states that wage rates in the country have risen by 2 percent this past year. The
head of a local labor union states that wage gains should have been higher. The Secretary’s statement is
a (n) ____ economic statement, and the labor head’s statement is a (n) ____ economic statement.
a.
normative; normative
b.
normative; positive
c.
positive; normative
d.
positive; positive
e.
proper; improper
114. Positive economics is a(n):
a.
reflection of a country’s values.
b.
judgment of the correctness of an economic outcome.
c.
statement of fact.
d.
analysis of what ought to be.
e.
analysis of all the good market outcomes.
115. A positive economic statement:
a.
contains personal and social value judgments.
b.
is always a mathematical expression.
c.
should never be used by an economist.
d.
is proper provided the advocator is clear the position rests on personal assessment.
e.
is an unbiased report of the facts of the economy.
116. Which of the following is an example of a positive economic statement?
a.
The economy’s real output increased at about 3 percent last year and the unemployment
rate decreased.
b.
A central bank should not print too much money because inflation could result.
c.
Congress should stabilize the social security system by raising taxes now.
d.
The government farm products surplus should be distributed to the needy.
117. A positive statement is:
a.
something good or desirable.
b.
a call for improvement.
c.
a statement of opinion.
d.
a statement testable by facts.
e.
a suggestion for policy.
118. Which of the following is a normative statement?
a.
A decrease in price leads to an increase in quantity consumed.
b.
Incomes grow more rapidly in high-tax states than low-tax states.
c.
People would be better off if government expenditures were higher.
d.
People will buy less butter at $1.50 per pound than they will at $1 per pound.
119. In a congressional debate about agricultural price supports, senators, members of congress, and other
experts made the following four statements. Which of these is a normative statement?
a.
“Price supports are important because America should preserve the small family farm.”
b.
“Without price supports, the price of wheat and corn will fall by over twenty percent.”
c.
“The decline in commodity prices caused by the removal of price supports will result in
fewer, larger farms.”
d.
“The decline in commodity prices caused by the removal of price supports will reduce the
number of tractors sold in the United States.”
120. A normative economic statement:
a.
is a model used to collect data.
b.
is a statement of fact.
c.
is a statement of what ought to be, not what is.
d.
indicates what will occur if certain assumptions are true.
121. A normative economic statement is:
a.
a statement of fact.
b.
a statement of opinion which advocates a particular position.
c.
not acceptable in the economics profession.
d.
the only acceptable manner to present economic information.
e.
a statement based upon government-supplied information.
122. Normative economics is:
a.
usually incorrect.
b.
a statement of fact.
c.
the analysis of what is.
d.
the study of what ought to be.
e.
free of value judgments.
123. Which of the following is an example of a normative economic statement?
a.
The inflation rate in the United States decreased from 4 percent last year to 3 percent this
year as a result of lower energy prices.
b.
The economy grew at an annual rate of 5 percent during the first quarter of this year.
c.
If two automobile companies merge, it is likely that the price of automobiles will rise.
d.
An increase in international trade benefits some workers but hurts others.
e.
The minimum wage should be increased so that low income workers can afford to keep up
with the cost of living.
124. Which of the following is a normative statement?
a.
The deduction for state taxes cost the federal government $100 billion per year.
b.
Taxpayers in North Carolina pay state taxes which are above the national average.
c.
Twenty-two states use a lottery to raise state taxes.
d.
Congress is considering the president’s tax plan to increase taxes which is a fair plan.
125. Select the normative statement that completes the following sentence: If the minimum wage is raised:
a.
cost per unit of output will rise.
b.
workers will gain their rightful share of total income.
c.
the rate of inflation will increase.
d.
profits will fall.
126. Which of the following is a normative economic statement?
a.
The unemployment rate for the United States is currently 5.4 percent.
b.
The inflation rate in the United States is too high.
c.
An increase in the price of a good will reduce the amount purchased.
d.
Higher profits in an industry will attract more entrepreneurs into the industry.
127. “The government should provide health care for all citizens.” This statement is an illustration of:
a.
positive economic analysis.
c.
fallacy of association analysis.
b.
correlation analysis.
d.
normative economic analysis.
128. Which of the following is the best example of a normative economic statement?
a.
A rise in gasoline prices will cause gasoline purchases to fall.
b.
The federal government should spend more on health care.
c.
Raising the minimum wage will result in greater unemployment.
d.
If more money is printed, then the economy’s price level will rise.
129. The Secretary of Labor states that wage rates in the country have risen by 2 percent this past year. The
head of a local labor union states that wage gains have not kept pace with the 3 percent rate of
inflation. The Secretary’s statement is a (n) ____ economic statement, and the labor head’s statement is
a (n) ____ economic statement.
a.
normative; normative
b.
normative; positive
c.
positive; normative
d.
positive; positive
e.
proper; improper
130. Normative economics deals with ____ and positive economics deals with ____.
a.
what should be; what is
b.
fiction; fact
c.
microeconomics; macroeconomics
d.
negative aspects; positive aspects
e.
changing circumstances; same circumstances
131. Which phrase(s) is (are) associated with normative statements?
a.
c and e.
b.
Has been shown.
c.
Should be.
d.
Can be.
e.
More than.
132. Economists use ____ economic analysis to understand an individual market. They then use ____
economic analysis to guide future national economic policy.
a.
b and d
c.
positive; normative
b.
macro; micro
d.
normative; positive
1. Scarcity means we are unable to have as much as we would like to have.
2. All human wants cannot be satisfied because of the problem of scarcity.
3. Your scarcity problem would disappear if you were rich.
4. Capital resources include money and other financial assets.
5. Money is one of our nation’s resources (factors or means of production).
6. Economics could be defined as the study of scarcity.
7. Economics is the study of decisions made necessary by the problem of unlimited wants and limited
means to satisfy them.
8. Economics is the study of people making choices faced with the problem of unlimited wants and
limited resources.
9. An analysis of IBM’s pricing decisions would be classified as a macroeconomic study.
10. Policies to determine the price of troll dolls are a concern of macroeconomics.
11. Microeconomics is the branch of economics in which you study inflation and unemployment in the
economy.
12. Macroeconomics studies economywide issues like inflation and unemployment.
13. Factors which determine the price of corn would be studied in macroeconomics.
14. Policies to increase the supply of money in the economy are primarily a concern of microeconomics.
15. Microeconomics only looks at the behavior of one consumer or one firm in a market, while
macroeconomics looks at the behavior of an entire industry or group of consumers.
16. Microeconomics and macroeconomics use different types of analysis.
17. Economic models are of limited use since they cannot be tested empirically with actual data.
18. A good economic model should capture as many details about real-world behavior as possible.
19. Economic theories, or models, enable us to predict and to give reasonable explanations regarding
economic variables.
20. Abstracting from reality is an important element of all economic models.
21. “Ceteris paribus” is a Latin expression that essentially means “holding everything else constant.”
22. The Ceteris paribus assumption is important when building economic models.
23. A normative economic statement can be proven either true or false.
24. A positive economic statement must be verifiable.
25. A positive economic statement simply describes what is.
26. The statement “The income tax is unfair to those who work hard to earn their incomes” is an example
of positive economic analysis.
27. Campaign speeches normally include normative economic statements.
28. Economists most often disagree over positive rather than normative economic issues.
29. The statement “A tax cut would be the fairest way to stimulate the economy” is an example of positive
economic analysis.
30. The statement “It would be better to put up with price controls than to have continuing higher medical
care prices” is an example of normative economic analysis.
31. The statement “Cutting government spending is the best way to boost consumer confidence” is an
example of normative economics.
32. The statement “It is better to suffer a little more unemployment than a little lower price” is an example
of normative economic analysis.
33. The statement “American workers are lazy” is an example of positive economic analysis.
ESSAY
1. What is scarcity and why does it exist? How is scarcity related to the study of economics?
2. Distinguish macroeconomics and microeconomics.
3. What is an economic theory or model? What constitutes a “good” economic theory or model?
4. What is the difference between positive and normative economics? How can knowledge of positive
economics be useful in normative economics?