61. The price of computers has fallen each year for the last 30 years. This is probably an example of the working of:
A. economic forces.
B. political forces.
C. social forces.
D. nonmarket forces.
62. A cultural norm is:
A. an economic force.
B. a social force.
C. a political force.
D. a market force.
63. The price mechanism is:
A. not affected by social and political forces.
B. affected by social but not political forces.
C. affected by political but not social forces.
D. affected by both political and social forces.
64. Political forces:
A. affect the price mechanism through cultural norms.
B. affect the price mechanism through the legal system.
C. affect the price mechanism through scarcity.
D. do not affect the price mechanism.
65. Social forces:
A. affect the price mechanism through cultural norms.
B. affect the price mechanism but not the legal system.
C. affect the price mechanism through scarcity.
D. do not affect the price mechanism.
66. Even though 80,000 individuals in the United States wait for kidney transplants and, for a price, there are many
individuals who would be willing to supply a kidney (a healthy person can donate one kidney without any
problems), it remains illegal to buy and sell organs in the United States. A market for kidneys does not exist because
of:
A. political forces.
B. social forces.
C. economic forces.
D. market forces.
67. Many drugs are illegal in the United States. Despite this law, illegal drugs are usually available at a price many
times higher than they would be if the drugs weren’t illegal. The high price of illegal drugs is an example of:
A. the market affecting political forces.
B. political forces affecting the market.
C. the failure of the market.
D. the failure of political forces.
68. The fact that the price of a gallon of milk is likely to be more expensive at a convenience store than at a
supermarket is an example of:
A. market forces.
B. political forces.
C. social forces.
D. normative economics.
69. Economic forces:
A. are more powerful than social and political forces.
B. are more powerful than social forces but less powerful than political forces.
C. are less powerful than social and political forces.
D. can be more or less powerful than political and social forces depending on the circumstances.
70. An economic model:
A. applies economic theory to understand real-world events.
B. is so abstract that it cannot be applied to real-world events.
C. can be used only to understand free markets.
D. is an action taken to influence the course of economic events.
71. An economic principle:
A. should be used to make every individual decision.
B. generally is stated as a normative statement.
C. can be combined with knowledge of economic institutions to make policy proposals.
D. is an action taken to influence the course of economic events.
72. Economics is primarily:
A. a normative science.
B. an observational science.
C. a laboratory science.
D. a natural science.
73. Experimental economics:
A. includes naturally occurring events that approximates a controlled experiment.
B. is not possible given that economists study real-world events.
C. creates its own data rather than using data from the real world.
D. is what all economists do when they develop their models.
74. An economist secures volunteers from her college campus and divides them into two groups that are ushered
into different rooms. Both groups are given a test. Those in the first group who score 90 percent or more receive an
Apple iPod. Upon exiting the room, those given iPods are offered the choice of receiving $150 in exchange for the
iPod. Only a few take the exchange. Those in the second group who score 90 percent are offered either an Apple
iPod or $150. About half the students choose $150. The professor uses these data to support a principle known as the
endowment effect. The professor is engaging in:
A. experimental economics.
B. natural experiments.
C. the economic decision rule.
D. a market coordination mechanism.
75. A natural experiment is:
A. a naturally occurring event that approximates a controlled experiment.
B. not possible given that economists study real-world events.
C. a branch of economics that studies the economy through controlled lab experiments.
D. what all economists do when they develop their models.
76. New Jersey raises its minimum wage while neighboring Pennsylvania does not. Economists compared the labor
market in both states to draw conclusions about the effect of a minimum wage on employment and wages. This is an
example of:
A. simulation economics.
B. a natural experiment.
C. an economic principle.
D. the economic decision rule.
77. A theorem is:
A. the application of models combined with judgment.
B. a policy rule that concludes that a particular course of action is preferable.
C. a proposition that is logically true based on the assumptions of a model.
D. a set of equations that define a model.
78. Propositions that are logically true based on the assumptions of a model are known as:
A. precepts.
B. theorems.
C. insights.
D. policies.
79. A precept is:
A. the application of models combined with judgment.
B. a policy rule that concludes that a particular course of action is preferable.
C. a proposition that is logically true based on the assumptions of a model.
D. a set of equations that define a model.
80. A policy rule that concludes that a particular course of action is preferable is known as a(n):
A. precept.
B. theorem.
C. insight.
D. policy.
81. The statement, “because the invisible hand allocates resources efficiently, economies ought to minimize
government interference” is an example of:
A. an economic theorem.
B. an economic precept.
C. a natural experiment.
D. efficiency.
82. Which statement best summarizes the invisible hand theorem?
A. Government policies direct people’s selfish desires (tempered by social and economic forces) to the common
good.
B. Cultural norms direct people’s selfish desires (tempered by political and economic forces) to the common good.
C. Markets direct people’s selfish desires (tempered by political and social forces) to the common good.
D. Social, political, and economic forces act against people’s selfish desires to promote the common good.
83. A necessary assumption behind the invisible hand theorem is that:
A. market forces are determined by cultural norms.
B. market forces produce inefficient outcomes.
C. the price mechanism is not constrained by political or social forces.
D. people behave rationally.
84. An economist who is studying the relationship between the money supply, interest rates, and the rate of inflation
is engaged in:
A. microeconomic research.
B. macroeconomic research.
C. theoretical research because there are no data on these variables.
D. empirical research because there is no economic theory related to these variables.
85. The invisible hand theorem comes from:
A. microeconomics.
B. macroeconomics.
C. sociology.
D. political science.
86. Microeconomics and macroeconomics are:
A. not related because they are taught as separate courses.
B. virtually identical, though one is much more difficult than the other.
C. interrelated because what happens in the economy as a whole is based on individual decisions.
D. interrelated because both are taught by the same teacher.
87. Which of the following is least likely to be studied in macroeconomics?
A. Inflation
B. Unemployment
C. Business cycles
D. Advertising
88. Macroeconomics is:
A. the study of individual choice and how that choice is influenced by economic forces.
B. the study of the pricing policies of firms and the purchasing decisions of households.
C. the study of aggregate economic relationships.
D. an analysis of economic reality that proceeds from the parts to the whole.
89. Which of the following topics is best categorized as a macroeconomic issue?
A. The choices a student makes in selecting college courses
B. The decision by Apple to produce fewer Macintosh computers
C. The effect of a drought on the price of corn
D. The effect of an increase in federal spending on the unemployment rate
90. Who would probably argue that you need to study the forest before you can understand the trees?
A. A microeconomist
B. A macroeconomist
C. A normative economist
D. A classical economist
91. Who probably would argue that you need to study the trees before you can understand the forest?
A. A microeconomist
B. A macroeconomist
C. A positive economist
D. A Keynesian economist
92. Microeconomics includes the study of:
A. inflation.
B. unemployment.
C. business cycles.
D. a firm’s pricing policies.
93. Macroeconomics includes the study of:
A. inflation.
B. firm pricing policies.
C. the relative prices of oil and coal.
D. individual choice.
94. The invisible hand theorem relates mostly to:
A. microeconomics.
B. macroeconomics.
C. normative economics.
D. supra-economics.
95. The study of individual choice is a focus in:
A. microeconomics.
B. macroeconomics.
C. normative economics.
D. Ricardian economics.
96. The study of inflation is a topic in:
A. microeconomics.
B. macroeconomics.
C. classical economics.
D. normative economics.
97. A basic difference between microeconomics and macroeconomics is that:
A. microeconomics focuses on the choices of individual consumers, whereas macroeconomics considers the
behavior of large businesses.
B. microeconomics focuses on financial reporting by individuals, whereas macroeconomics focuses on financial
reporting by large firms.
C. microeconomics examines the choices made by individual participants in an economy, whereas macroeconomics
considers the economy’s overall performance.
D. microeconomics focuses on national markets, whereas macroeconomics concentrates on international markets.
98. Which of the following topics is most appropriately studied in a microeconomics course?
A. The decision by a nurse to change professions
B. When the next recession will arrive
C. Why unemployment is so low and inflation has not accelerated
D. How the presidential candidates’ tax plans might affect economic growth
99. Which of the following is not an economic institution?
A. Corporations
B. Government
C. Cultural norms
D. None of these options
100. An economic policy is:
A. a generalization about the workings of an abstract economy.
B. a physical or mental structure that significantly influences economic decisions.
C. an action taken to influence the course of economic events.
D. a standard people use when they determine whether a particular activity or behavior is acceptable.
101. Positive economics seeks to:
A. determine the most appropriate economic goals for society.
B. determine what government economic policies are best.
C. objectively explain how the economy functions.
D. objectively explain how societies value different economic outcomes.
102. Normative economics seeks to:
A. determine the most appropriate economic goals for a society.
B. determine how government policies affect the economy.
C. objectively explain how the economy functions.
D. objectively explain economic problems such as inflation and unemployment.
103. The statement “government should provide affordable health care coverage for every member of society” is:
A. a statement that everyone agrees with.
B. a statement that everyone disagrees with.
C. a positive statement.
D. a normative statement.
104. Say that an economic model concludes that “government raising payroll takes is a measure that can maintain
current Social Security benefit levels for every retiree.” This conclusion is:
A. a normative statement because there is disagreement over whether Social Security benefits should be maintained.
B. a positive statement because raising payroll taxes is one way to maintain Social Security benefits.
C. a statement in the art of economics because it is about policy.
D. false because there is no payroll tax rate high enough to maintain current benefits.
105. Which of the following statements about urban sprawl and traffic congestion is the best illustration of a
normative statement?
A. Snarled traffic cost motorists in the 85 largest U.S. cities 3.5 billion hours.
B. The average U.S. urban traveler is stuck in road traffic 46 hours a year.
C. Traffic congestion has increased in the last 20 years.
D. Because urban sprawl is the result of individual choice, it is okay.
106. Which of the following is the best example of a positive question?
A. How should the government deal with the next recession?
B. Should the government reduce inflation?
C. How are price and quantity demanded related?
D. Should government allow two large companies to merge?
107. Positive economics is:
A. subjective.
B. neither objective nor subjective.
C. more objective than normative economics.
D. more subjective than normative economics.
108. Value judgments in economics:
A. are necessary when objective analysis cannot address a question.
B. can always be avoided with the use of objective analysis.
C. are essential parts of positive economics.
D. can be avoided through the use of normative economics.
109. The art of economics is:
A. the application of the knowledge gained by positive economics to the goals set in normative economics.
B. purely technical and therefore more objective than positive or normative economics.
C. purely subjective so that the economist as artist does not have to strive for the same level of objectivity that
positive or normative economists do.
D. the branch of economics farthest removed from practical application, since its goal is to create the most elegant
mathematical models.
110. “We should support the market because it is efficient” is an example of:
A. positive economics.
B. normative economics.
C. objective economics.
D. negative economics.
111. “The distribution of income should be left to the market” is an example of:
A. positive economics.
B. normative economics.
C. the art of economics.
D. negative economics.
112. What relates positive economics to normative economics?
A. Microeconomics
B. Macroeconomics
C. The art of economics
D. The science of economics
113. “Price controls in competitive markets cause shortages” is an example of:
A. positive economics.
B. normative economics.
C. the art of economics.
D. Keynesian economics.
114. “Government should not use price controls” is an example of:
A. positive economics.
B. normative economics.
C. the art of economics.
D. Marshallian economics.
115. Maintaining objectivity is easiest in:
A. positive economics.
B. the art of economics.
C. normative economics.
D. subjective economics.
116. Identifying the effect of an increase in the money supply on prices requires the use of:
A. positive economics.
B. the art of economics.
C. normative economics.
D. subjective economics.
117. Which of the following is a normative statement?
A. Reducing the budget deficit will also reduce the balance of trade deficit.
B. Tariffs on imported cars result in higher prices for domestic auto consumers.
C. A tax cut will cause higher inflation.
D. The governments should spend more to aid the poor.
118. Which of the following is the best example of a normative question?
A. How does the market for corn work?
B. How do prices affect the market for coffee?
C. Will increasing the money supply affect interest rates?
D. Will the redistribution of income make society better off?