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Chapter 1
The Nature of Economics
1.1 The Power of Economic Analysis
1) The economic way of thinking will help you
A) make decisions in financing your home.
B) decide whether the U.S. government should encourage or discourage immigration.
C) make better decisions concerning your education.
D) all of the above
2) Economic analysis is used
A) only in economics classrooms. B) only by business people.
C) only by policy makers. D) in all decision making.
3) Economic analysis is
A) a tool that can aid all decision making.
B) a tool that can be used in only macroeconomics.
C) a tool that can be used in only microeconomics.
D) an unnecessary complication to decision making.
4) What is the purpose of knowing the economic way of thinking ?
5) What does scarcity have to do with the fact that people must make choices?
6) What is economics and what does it try to explain?
1.2 Defining Economics
1) Economics is best defined as the
A) study of how people make choices to satisfy their wants.
B) study of individual self interests.
C) study of how government can most efficiently raise funds by taxation.
D) process by which goods are sold in free markets.
2) Economics can be described as the study of how people use ________ resources to satisfy
________ wants.
A) unlimited; unlimited B) unlimited; limited
C) limited; unlimited D) limited; limited
3) Which statement most accurately defines economics?
A) Economics is the study of how people make money.
B) Economics is the study of how people make choices to satisfy their wants.
C) Economics is the study of values a society should choose.
D) Economics is the study of how to eliminate scarcity.
4) In economic analysis, people s resources are
A) limited and their wants are unlimited.
B) unlimited and their wants are also unlimited.
C) limited and their wants are also limited.
D) unlimited and their wants are limited.
5) In economics, items that are used to produce goods and services are known as
A) wants. B) aggregates.
C) factors of need. D) resources.
6) In economics, all the items that people would consume if they had unlimited income are known
as
A) wants. B) aggregates. C) outputs. D) needs.
7) In economics, ________ are limited but ________ are unlimited.
A) wants; resources B) resources; wants
C) money; ideas D) ideas; money
8) Economics is the study of how
A) people make money. B) preferences are determined.
C) psychology influences preferences.. D) people make choices.
9) A fundamental aspect of economics is to
A) ensure that every firm makes a profit.
B) analyze how choices are made.
C) satisfy all our wants.
D) make sure that our resources will always be unlimited.
10) Economics is the study of
A) how to get rich.
B) how people allocate their limited resources to satisfy their unlimited wants.
C) how people spend their income.
D) why people want certain goods and services rather than other goods and services.
11) Economics is the study of
A) nonhuman phenomena. B) the determinants of preferences.
C) scarce resources and unlimited wants. D) the physical sciences.
12) Economics deals with
A) how to profit from the stock market.
B) how to satisfy limited human wants.
C) how society allocates unlimited resources.
D) how individuals allocate scarce resources to satisfy unlimited human wants.
13) Economics is the study of
A) how to own as many resources as possible.
B) ceteris paribus.
C) the way people think rather than the way they act.
D) how people allocate their limited resources to satisfy their unlimited wants.
14) Economic resources are
A) all the items that people would purchase if they had limited wants.
B) all the unlimited items that people would purchase with limited income.
C) items of value that are used to make other things that satisfy people s wants.
D) the total planned expenditures throughout the nation.
15) Economics is concerned with choices
A) that involve the wants of individuals.
B) that involve the political goals of professional associations.
C) made by individuals only when they are consuming goods or services.
D) that involve making money.
16) Economics is a social science that involves the study of how individuals
A) develop their tastes and preferences.
B) maximize their wealth.
C) define happiness.
D) choose among alternatives to satisfy their unlimited wants.
17) Economics is a part of the
A) social sciences. B) natural sciences.
C)
b
iological sciences. D) organizational sciences.
18) Wants are
A) another term for needs.
B) the things people would consume if they had unlimited incomes.
C) the things people consume with their income.
D) all the things people really need in order to live comfortably.
19) The primary purpose of economics is to understand how people make
A) money. B) goods and services.
C) choices. D) a comfortable living.
20) The primary objective of economics is
A) to learn how to create more resources.
B) to study how people make choices with limited resources.
C) to learn how to make the most profits with a given amount of resources.
D) to study why some people are never happy with the resources they have.
21) The basic economic problem is a situation of
A) limited resources and unlimited wants.
B)
b
oth limited resources and limited wants.
C) limited incomes and unlimited choices.
D) unlimited incomes and limited choices.
22) Economics is the study of how people make
A)
j
udgments. B) investments. C) money. D) choices.
23) Economics is a
A) hard science. B) physical science.
C) natural science. D) social science.
24) Economics is a study of
A) how to make money in the stock market.
B) how to run a business successfully.
C) the allocation of scarce resources.
D) personal finance.
25) Economics is the study of
A) the allocation of scarce resources to satisfy unlimited wants.
B) inflation and unemployment in society.
C) making money.
D) maximization of profits for a firm.
26) Resources are
A) unlimited.
B) able to be replicated in large quantities.
C) what people would buy if their income was unlimited.
D) used to produce goods and services to satisfy people s wants.
27) ________ are the things that are used to produce items that satisfy people s wants.
A) Concepts B) Production possibilities curves
C) Resources D) Costs
28) Economics is most precisely defined as
A) a study of the mechanics of buying and selling on the stock exchange.
B) a study of how culture evolves in different geographic areas.
C) the same as the study of finance and management.
D) the study of how people make choices.
29) Economics
A) is a social science. B) is concerned with limited resources.
C) is concerned with unlimited wants. D) All of the above are correct.
30) Which of the following is NOT a focus of the study of economics?
A) how individual preferences are formed B) unemployment
C) inflation D) prices in particular markets
31) Because resources are scarce relative to wants, the study of economics concerns
A) how money is important to people.
B) how individuals, businesses, and governments make choices.
C) how money is used to buy what people want.
D) None of the above are correct.
32) In the definition of economics,
A)
b
oth resources and wants are limited.
B)
b
oth resources and wants are unlimited.
C) resources are limited and wants are unlimited.
D) resources are unlimited and wants are limited.
33) Microeconomics is defined as that part of economic analysis that
A) studies the behavior of the economy as a whole.
B) includes the problems of inflation and unemployment.
C) studies individual decision making by households and firms.
D) concerns aggregate production and consumption.
34) Macroeconomics is the study of
A) aggregate economic variables. B) output in particular industries.
C) prices in particular industries. D) all of the above.
35) Microeconomics is the study of
A) the behavior of the economy as a whole.
B) how rising prices affect the level of employment in the economy.
C) how individuals and firms make decisions.
D) the effect that money has in the economic system.
36) Macroeconomics is best defined by which of the following statements?
A) Macroeconomics is the study of how firms strive to maximize their profits.
B) Macroeconomics is the study of the behavior of the economy as a whole.
C) Macroeconomics is the study of individual economic units.
D) Macroeconomics is the study of how the prices of individual goods are determined.
37) Macroeconomics deals with ________ while microeconomics deals with ________.
A) choices important to people; choices not important to people
B) economywide choices; choices of individuals
C) choices that involve money; choices that does not involve money
D) choices of rich people; choices of poor people
38) Macroeconomics deals with
A) aggregates within the economy. B) specific sectors within the economy.
C) the retail industry only. D) decisions made by firms.
39) Which of the following would most likely NOT be taught in a microeconomics course?
A) changes in prices of automobiles
B) the effects of a gas tax on gas purchases
C) the effects of an increase in wheat prices on farmers behavior
D) the unemployment rate
40) A macroeconomist would study
A) the price changes at K Mart. B) the cost problems at several airlines.
C) the economy s unemployment level. D) none of the above.
41) A microeconomist would study all of the following issues EXCEPT
A) the impact of a change in consumer income on the sales of corn.
B) the impact of a snowstorm on the sales of snow shovels.
C) the most efficient means for General Motors to produce an automobile.
D) the effect of a change in income taxes on the nation s rate of unemployment.
42) The macroeconomist would most likely study
A) the effects of changing apple prices on the market for oranges.
B) the effects of an increase in wage rates on a woman s decision to enter the labor force.
C) the effects of a lower income tax rates on the nation s total production of goods and
services.
D) the effect of increased union wages on the cost of producing automobiles.
43) The impact of higher taxes would be examined by
A) a microeconomist.
B) a macroeconomist.
C)
b
oth a macroeconomist and a microeconomist.
D) neither a macroeconomist nor a microeconomist.
44) One topic of study for a microeconomist would be the
A) causes of inflation.
B) causes of aggregate unemployment.
C) effects of a gasoline price increase on consumer behavior.
D) effects of an increase in government spending on overall economic activity.
45) A friend wants to learn how the unemployment rate is calculated and how inflation is
measured. He asks you which economics course to take and you advise him to enroll in
A) macroeconomics.
B) microeconomics.
C) either micro or macroeconomics. They both concentrate equally on those issues.
D) financial accounting because economics doesn t address those topics in its courses.
46) Which of the following would likely be studied in a macroeconomics course?
A) the unemployment rate B) total output for an economy
C) the inflation rate D) all of the above
47) Macroeconomics is concerned with
A) individual consumers.
B) government decision making concerning farm price supports.
C) aggregates.
D) the effects on a corporation of a strike by the United Auto Workers.
48) Macroeconomics often relies on microeconomic analysis because
A) microeconomics is older than macroeconomics.
B) microeconomic theory can be tested and macroeconomic theory cannot be tested.
C) all aggregates are made up of individuals and firms.
D) the effects of macroeconomic subjects such as inflation and unemployment are
independent of individual consumers and firms.
49) Microeconomics is concerned with studying which of the following?
A) the determinants of national unemployment
B) the effects of monetary policy
C) the study of individual markets
D) all of the above
50) Microeconomics is concerned with the study of
A) the effects of inflation.
B) the effects of government spending.
C) the effects on individual producers of higher wages paid to workers.
D) aggregates.
51) Microeconomics focuses on
A) individual decision makers within the economy.
B) the large parts of the economy.
C) changes in national income.
D) satisfying the needs of the economy.
52) Macroeconomics is concerned with
A) individual business firms. B) specific industries.
C) individual consumers. D) a nation s entire economy.
53) Microeconomics examines the
A) total household expenditures.
B)
b
ehavior of the economy as a whole.
C) aggregate business spending.
D) decision making undertaken by individual households.
54) Macroeconomics is concerned with studying the
A)
b
ehavior of individual decision makers. B)
b
ehavior of the economy as a whole.
C) prices of specific companies stocks. D) wants of individuals.
55) Macroeconomics would be concerned with
A) implications of changes in unemployment and inflation.
B) the effects on individual consumers of changes in the price of gasoline for a business.
C) the effects of a tax on beer.
D) the effects of wage increases on steel manufacturers.
56) The study of an individual s choice about what type of computer to buy is a subject of
A) macroeconomics. B) microeconomics.
C) an aggregate concept. D) not a concern for economic analysis.
57) The study of the aggregate economic variables is
A) macroeconomics. B) microeconomics.
C) positive economics. D) normative economics.
58) Another word for aggregate is
A) government. B) partial. C) public. D) total.
59) The distinction between microeconomics and macroeconomics is
A) clearly drawn, and there is no overlap between them.
B) determined by economists in a clear and concise manner.
C) narrowly drawn, and microeconomic analysis often relies on macroeconomic tools.
D) often blurred because aggregates are made up of individuals and firms.
60) Modern economists are increasingly using microeconomic analysis in macroeconomics because
A) microeconomic theory is more scientific.
B) aggregate outcomes stem from decisions made by individuals, business firms and
government.
C) macroeconomic subjects such as inflation affect all individuals.
D) macroeconomics is older and more outdated.
61) Which of the following is NOT studied in microeconomics?
A) the effect of an increase in gasoline taxes on the purchase of gasoline
B) the impact of an increase in the unemployment rate on economic production
C) the impact of firms collective hiring choices on the aggregate unemployment rate
D) the impact of higher fuel prices on the cost of airline tickets
62) All of the following are examples of macroeconomic problems EXCEPT
A) inflationary pressures caused by an increase in the cost of petroleum.
B) unemployment caused by a fall off in the level of residential construction.
C) a decline in the rate of overall economic growth.
D) consumers deciding to buy more fish and less beef because of concerns about a healthier
diet.
63) Macroeconomics is concerned primarily with
A) positive economics.
B) production and prices in particular markets.
C) aggregate economic variables.
D) normative issues.
64) Microeconomics studies
A) decisions made by individual consumers and firms.
B) the changes in economic theory brought about by real world events.
C) how small changes in the unemployment rate can have far reaching effects.
D) how small changes in the money supply can have far reaching effects.
65) Which of the following terms identifies something that macroeconomists would study but that
microeconomists would NOT?
A) incentives B) resources C) rationality D) aggregates
66) Which of the following is a characteristic or focus of economics?
A) allocation of limited resources in an effort to satisfy potentially unlimited wants
B) positive economic analysis
C) empirical analysis
D) all of the above
67) Which of the following would likely be considered as falling into the domain of
microeconomics?
A) the U.S. unemployment rate
B) the Gross Domestic Product
C) the price of apples
D) the effects of fiscal policy on the U.S. economy
68) Macroeconomics might study which of the following?
A) the causes of domestic unemployment
B) decision making undertaken by firms
C) decision making undertaken by households
D) determinants of the prices of rare goods (e.g., diamonds)
69) Which of the following is NOT a characteristic or focus of microeconomics?
A) normative analysis.
B) analysis of aggregate economic variables.
C) empirical analysis.
D) empirical analysis
70) Which of the following is a microeconomic concern?
A) the rate of economic growth in the United States
B) the current unemployment rate in the United States
C) consumer behavior
D) national output of the United States
71) Which of the following is a macroeconomic concern?
A) the unemployment rate in a specific industry
B) the national output of the United States
C) wage levels in specific industries
D) the operation of an individual firm
72) The study of how a particular firm might choose to maximize its profits would fall into what
type of analysis?
A) macroeconomics B) microeconomics
C) labor economics D) aggregate economics
73) What type of economics would most typically deal with aggregates?
A) macroeconomics B) microeconomics
C) labor economics D) environmental economics
74) Which of the following is a microeconomic topic?
A) the unemployment rate of the United States economy as a whole
B) the rate at which prices increase in Brazil
C) the advertising strategy of a particular company
D) the increase in the national income of the United States over the past three months
75) Which of the following topics is a macroeconomic subject?
A) a proposed merger between two companies
B) the level of Christmas sales at a particular department store
C) the unemployment rate of the United States economy as a whole
D) the advertising strategy of a particular automobile firm
76) Which of the following is an aggregate?
A) the number of shoes in one man s closet
B) the bushels of apples one farmer sells
C) the price of a particular textbook
D) the total production of all goods and services
77) All of the following are aspects of microeconomics EXCEPT
A) monopolies.
B) a firm maximizing profit.
C) a worker choosing one job over another.
D) the average level of prices of all goods and services produced in a country in a year.
78) The impact of an increase in the gasoline tax on SUV sales is
A) a macroeconomics topic because it deals with taxes.
B) a microeconomics topic because it deals with one industry.
C) not an economic issue, but rather a political issue.
D) insignificant.
79) Which of the following would most likely be part of the study of microeconomics?
A) how General Motors makes decisions regarding its production goals
B) national income
C) the total economic output of our domestic economy
D) overall price stability in the United States
80) All of the following are aspects of macroeconomics EXCEPT
A) the U.S. unemployment rate.
B) the production decisions of a pharmaceutical firm.
C) the budget deficit of the United States.
D) foreign trade.
81) Individual decision making by consumers and producers is the focus of
A) macroeconomics. B) microeconomics.
C) aggregate measures. D) any economic model.
82) Aggregate measures are
A) anything to do with economics.
B) a total measure of a variable across the economy.
C) used only in microeconomics.
D) determined by the Bureau of Labor Statistics.
83) Microeconomics is the study of
A) aggregate measures of the economy. B) foreign policy economic issues.
C) federal budget details. D) individual decision making.
