3) A positive statement is
A) about what ought to be.
B) about what is.
C) always true.
D) one that does not use marginal concepts.
4) Which of the following are TRUE regarding “positive” statements?
I. They describe what “ought to be.”
II. They describe what is believed about how the world appears.
III. They can be tested as to their accuracy.
A) I and II
B) II and III
C) I and III
D) I, II and III
5) Positive and normative statements differ in that
A) positive statements can be tested, whereas normative statements cannot.
B) normative statements can be tested, whereas positive statements cannot.
C) normative statements depict “what is” and positive statements depict “what ought to be.”
D) normative statements never use the word “should.”
6) Positive economic statements
A) prescribe what should be.
B) are related only to microeconomics.
C) can be tested against the facts.
D) cannot be tested against the facts.
7) Which of the following is a positive statement?
A) An unemployment rate of 9 percent is a national disgrace.
B) Unemployment is a more important problem than inflation.
C) When the national unemployment rate is 9 percent, the unemployment rate for inner-city
youth is often close to 40 percent.
D) Unemployment and inflation are equally important problems.
8) Which of the following is a positive statement?
A) The United States should fight inflation even if it raises unemployment.
B) What to do with Social Security is the most important economic issue today.
C) A 5 percent increase in income leads to a 3 percent increase in the consumption of orange
juice.
D) Because they decrease productivity, labor unions should be eliminated.
9) Which of the following is a positive statement?
A) People buy more of a good or service when its price falls.
B) The distribution of income is fair.
C) The government ought to provide health care to everyone.
D) Corporations should be more socially responsible.
10) Which of the following is an example of a positive statement?
A) Government should not redistribute income.
B) Business firms ought to contribute more to charities.
C) Households are the primary source of saving.
D) The foreign sector should be more tightly controlled.
11) Which of the following is an example of a positive statement?
A) We should cut back on our use of carbon-based fuels such as coal and oil.
B) Increasing the minimum wage results in more unemployment.
C) Every American should have equal access to health care.
D) The Federal Reserve ought to cut the interest rate.
12) Which of the following is a positive statement?
A) Taxes should be lower because then people get to keep more of what they earn.
B) My economics class should last for two terms because it is my favorite class.
C) A 10 percent increase in income leads to a 4 percent increase in the consumption of beef.
D) Given their negative impact on productivity, the government should eliminate labor unions.
13) Which of the following is a positive statement?
A) Our planet is warming because of an increased carbon dioxide buildup in the atmosphere.
B) A minimum wage of $7.50 per hour is a shame for a rich country like the United States.
C) Both these statements are positive.
D) Neither of these statements is positive.
14) Which of the following is a positive statement?
A) The government must lower the price of a pizza so that more students can afford to buy it.
B) The best level of taxation is zero percent because then people get to keep everything they
earn.
C) My economics class should last for two terms because it is my favorite class.
D) An increase in tuition means fewer students will apply to college.
15) Which of the following is a positive statement?
A) Low rents decrease the amount of housing landlords make available for rent.
B) Low rents are good because they make apartments more affordable.
C) Housing costs too much.
D) Owners of apartment buildings ought to be free to charge whatever rent they want.
16) When Al makes the statement, “The cost of living has increased 10 percent over the past 10
years,” he is
A) making a normative statement.
B) making a positive statement.
C) testing an economic model.
D) facing the standard of living tradeoff.
17) Which of the following is a positive statement?
A) State lotteries are good methods to use for raising revenues.
B) Increased prison sentences are the best way to reduce the crime rate.
C) An increase in gas prices leads people to car pool more.
D) Inflation is a more serious problem than is deflation.
18) The statement “Managers with a college education earn $18 an hour while ski instructors
who did not complete college earn $10″ is
A) a political statement.
B) a positive statement.
C) a normative statement.
D) an ethical statement.
19) The statement “An increase in the price of gasoline will lead to a decrease in the amount
purchased” is
A) a political statement.
B) a positive statement.
C) a normative statement.
D) a scientific statement.
20) The statement “The unemployment rate for teens is higher than that for adults” is
A) a political statement.
B) a positive statement.
C) a normative statement.
D) an ethical statement.
21) Which of the following is NOT a normative statement?
A) People buy more of a good or service when its price falls.
B) The distribution of income is fair.
C) The government ought to provide health care to everyone.
D) Corporations should be more socially responsible.
22) A normative statement concerns
A) what is provable.
B) what is correct.
C) what is incorrect.
D) a value judgment.
23) Normative economic statements
A) describe what ought to be.
B) describe what is rather than what ought to be.
C) describe the process of economic policy-making.
D) deal with economic hypotheses that are not well-established laws.
24) The statement that “peach ice cream is better than chocolate ice cream”
A) can be tested using the scientific approach.
B) is a normative statement.
C) is a positive statement.
D) provides a basis for predicting which type of ice cream will exhibit the most sales.
25) The statement “Unemployment should be below 6 percent” is
A) a positive statement.
B) a normative statement.
C) a prediction.
D) an assumption.
26) Statements about what ought to be are called
A) positive statements.
B) normative statements.
C) assumptions.
D) implications.
27) Normative statements are statements about
A) prices.
B) quantities.
C) what is.
D) what ought to be.
28) A normative statement is
A) about what ought to be.
B) about what is.
C) always true.
D) one that does not use marginal concepts.
29) In economics, normative statements are about
A) the way things ought to be.
B) the way things are.
C) marginal benefits, not marginal costs.
D) marginal costs, not marginal benefits.
30) Which of the following is a normative statement?
A) The price of candy bars is $1.25 each.
B) Candy bars are more expensive than newspapers.
C) You should eat less candy.
D) Popcorn and candy are sold in movie theaters.
31) Which of the following is a normative statement?
A) The unemployment rate is too high.
B) Forty percent of the public believes that the unemployment rate is too high.
C) The unemployment rate rose last month.
D) None of the above are normative statements.
32) Which of the following is a normative statement?
A) The United States has a comparative advantage compared to the European Union in the
production of wheat.
B) The main reason why the United States has a trade deficit with China is because China’s trade
practices are unfair.
C) Both these statements are normative.
D) Neither of these statements is normative.
33) “Government should act to reduce poverty levels.”
A) This statement is a normative statement.
B) This statement is a positive statement.
C) This statement is an example of the fallacy of composition.
D) This statement is an example of the post hoc fallacy.
34) When Susan makes the statement, “The government should spend less money to take care of
national parks,” she is
A) making a normative statement.
B) making a positive statement.
C) testing an economic model.
D) not dealing with scarcity.
35) “The rich should pay higher income tax rates than the poor” is an example of a
A) normative statement.
B) positive statement.
C) descriptive statement.
D) theoretical statement.
36) Which of the following is a normative statement?
A) Studying more hours leads to an increase in your GPA.
B) An increase in tax rates means people work fewer hours.
C) Taking extra vitamin C prevents catching a cold.
D) States should require all motorcycle riders to wear helmets to reduce the number of riders
killed.
37) Which of the following is a normative statement?
A) Low rents will restrict the supply of housing.
B) Low rents are good because they make apartments more affordable.
C) Housing costs are rising.
D) Owners of apartment buildings are free to charge whatever rent they want.
38) Which of the following is a normative statement?
A) Next year’s inflation rate will be under 4 percent.
B) Consumers will buy more gasoline over the Christmas holiday even if the price of gas is 10
cents higher than it was during the Thanksgiving holiday.
C) The government’s cuts in welfare spending impose an unfair hardship on the poor.
D) The current butter surplus is the result of federal policies.
39) Economic models
A) are essentially different from those used in other sciences.
B) always use graphs.
C) simplify reality.
D) include all relevant facts.
40) A good economic model
A) describes every aspect of the economic world, with no exception.
B) includes all those features of the world that can be described numerically.
C) includes only those features of the world that are needed for the purpose at hand.
D) should not include more than two variables.
41) An economic model is
A) a generalization that summarizes all the normative assumptions we make about a particular
issue.
B) a description of some aspect of the economic world that includes only those features of the
world that are needed for the purpose at hand.
C) a statement that describes how the world should be.
D) a collection of facts that describe the real world.
42) A normative statement is
A) about what ought to be.
B) about what is.
C) always true.
D) one that is based on an economic experiment.
43) Which of the following is a positive statement?
A) The government must provide health insurance so that the poor can obtain decent medical
treatment.
B) The government should spend more on education.
C) My favorite dinner is pizza and soda.
D) An increase in the price of pizza will lead fewer students to buy pizza.
44) An economic model includes
A) only normative statements.
B) no use of marginal concepts.
C) all known details in order to increase its accuracy.
D) only details considered essential.
45) The statement that ________ is a positive statement.
A) more students should study economics
B) the price of gasoline is too high
C) too many people in the United States have no health care insurance
D) the price of sugar in the United States is higher than the price in Australia
46) Mark Zuckerberg believes everyone in the world should have Internet access.
A) This is a positive statement and is not in the social interest if the marginal benefit of Internet
access exceeds the marginal cost.
B) This is a positive statement and is not in the social interest if the marginal cost of Internet
access exceeds the marginal benefit.
C) This is a normative statement and is not in the social interest if the marginal benefit of
Internet access exceeds the marginal cost.
D) This is a normative statement and is not in the social interest if the marginal cost of Internet
access exceeds the marginal benefit.
5 News Based Questions
1) Janet Yellen, Chair of the Federal Reserve, must choose whether tomorrow she meets with the
Secretary of the Treasury or with the Congress regarding the financial crisis. This choice reflects
the
A) fact that Ms. Yellen faces scarcity.
B) concept of entrepreneurship.
C) fact that Ms. Yellen responds to incentives.
D) use of capital.
2) When the president of the Bank of America addresses Congress regarding lending standards in
that industry, he is discussing
A) a macroeconomic topic.
B) a microeconomic topic.
C) incentives.
D) the big tradeoff.
3) When Janet Yellen, Chair of the Federal Reserve, addresses Congress regarding the United
States role in the world economy, she is discussing
A) a macroeconomic topic.
B) a microeconomic topic.
C) scarcity.
D) incentives.
4) Dell Computers decides to produce PCs and sell them directly over the Internet and via Best
Buy. This is an example of
A) incentives.
B) a microeconomic decision.
C) a macroeconomic decision.
D) scarcity.
5) Consider the following events:
I. Samsung hires associates to market their HDTV sets to Best Buy.
II. The Dallas Cowboys build a new football stadium.
III. Ebay fires 10 percent of its workforce.
IV. Ten million stocks were traded on the New York Stock Exchange in one day.
V. Pennsylvania builds a new state park.
Which of the events describe use of factors of production?
A) I, II, III, and V
B) II, IV, and V
C) I and III only
D) IV only
6) Panasonic sends its HDTV salespeople to training sessions. This is an example of
A) a macroeconomic decision.
B) scarcity.
C) a firm investing in workers’ human capital.
D) entrepreneurship.
7) “When OPEC increases the supply of oil to the market, the price of gasoline falls.” This is an
example of
A) a normative statement.
B) the failure of opportunity cost to determine prices.
C) a positive statement.
D) a macroeconomic statement.
8) “As part of the financial crisis bailout plan in 2009, the Federal Reserve bought stakes in
banks. This policy will result in an increase in the inflation rate.” This is an example of
A) a positive statement.
B) a normative statement.
C) a microeconomic statement.
D) an economic model.
9) “As part of the financial crisis bailout plan in 2008, the Federal Reserve should not bail out
banks that made risky loans.” This is an example of
A) a positive statement.
B) the Federal Reserve taking actions that are not at the margin.
C) opportunity costs.
D) a normative statement.
10) “OPEC should supply more oil so that the world’s economies can grow more rapidly.” This is
an example of
A) a normative statement.
B) a positive statement.
C) a decision at the margin.
D) OPEC overcoming scarcity.
6 Essay Questions
1) What do economists mean when they discuss “scarcity”?
2) What is the relationship between wants, factors of production, scarcity, and choices? Discuss
the relationship for an individual and for a society.
3) Why do economists say that even very rich people face scarcity?
4) Explain why both rich and poor people experience scarcity.
5) What is the difference between scarcity and poverty?
6) Define economics and describe its branches of study.
7) What is the difference between microeconomics and macroeconomics?
8) What is the difference between microeconomics and macroeconomics? Give an example of an
issue each studies.
9) Below is a student’s answer to the question “What is microeconomics?” If you were the
instructor, how would you correct the student’s answer?
“Microeconomics is the study of how government influences the choices made by individuals
and businesses and of the performance of the whole national economy.”
10) China’s population is over 1.5 billion, while the population of the United States is about 300
million. This fact means that China has much more human capital than the U.S. does. True or
false? Explain your answer.
11) Explain what entrepreneurship is and why it is considered a factor of production.
12) An analyst on a local news channel argues that the recent corporate scandals “demonstrated
very clearly that self interest always contradicts social interest.” Do you agree or disagree?
Substantiate your answer.
13) What is a tradeoff? Give an example.
14) What is opportunity cost?
15) Your friend is preparing for this exam and in your practice session makes the following
statement: “Instead of attending microeconomics class for two hours, Kiki could have played
tennis or watched a movie. Therefore, the opportunity cost of attending class is the tennis and the
movie she had to give up.” Is your friend’s analysis correct or not? Explain your answer.
16) Rather than go out to eat by yourself, you decide to stay at home and fix dinner for yourself
and your two roommates. Your roommates applaud your decision. Your first roommate tells you
that your decision to eat at home has no opportunity cost because you already have all the dinner
ingredients in your pantry. Is this roommate’s comment correct?
17) Define marginal cost and marginal benefit.
18) In New State, the bottling law requires that people get a refund of five cents when they return
an empty bottle or can. Why does the state pay people to return bottles? In your answer, be sure
to mention the role played by incentives.
19) If the government raises the tax on cigarettes, what is the effect on people’s incentives and
choices?
20) What is the difference between positive and normative statements?
21) “The difference between positive and normative statements is that a positive statement is
always true while a normative statement might or might not be true.” True or false? Explain.
22) Two economists can agree that raising the minimum wage creates unemployment yet one
might argue that raising the minimum wage is a good policy and the other that it is a bad policy.
Why can this difference exist? Be sure to use the terms positive and normative in your answer.
23) Explain whether the statement, “There is life on Mars,” is a normative or positive statement.
24) Explain whether the statement, “Hillary Clinton was elected President of the United States in
2012,” is a normative or positive statement.