3) Which of the following statements about positive economic analysis is true?
A) Positive analysis uses an economic model to estimate the costs and benefits of different course of
actions.
B) There is much less disagreement among economists over normative economic analysis than over
positive economic analysis.
C) There is much more disagreement among economists over positive economic analysis than over
normative economic analysis.
D) Unlike positive economic analysis, normative economic analysis can be tested.
4) Which of the following is a positive economic statement?
A) Everyone should live at the same standard of living.
B) If the price of gasoline rises, a smaller quantity of it will be bought.
C) The government should close income tax loopholes.
D) U.S. firms should not be allowed to outsource production of goods and services.
5) Which of the following is a positive economic statement?
A) People should not buy imported fruits and vegetables.
B) The government should subsidize solar power for homeowners.
C) The minimum wage law causes unemployment.
D) The number of work visas should not be limited by the government.
6) Which of the following is a normative economic statement?
A) Rising global demand for diesel and heating oil has led to increases in the price of crude oil.
B) With falling home prices and rising mortgage interest rates, the amount of foreclosures has increased.
C) The federal government is considering raising the gasoline tax to promote the use of public
transportation.
D) Fashion designers should be allowed to copyright designs to promote innovation.
7) Which of the following is a normative economic statement?
A) The price of milk is too high.
B) The current high price of milk is the result of reduced worldwide supply.
C) When the price of milk rises, the quantity of milk purchased falls.
D) When the price of milk rises, the cost of milk-based products rises.
8) All of the following questions or statements regarding medical school are positive except:
A) How do changes in expected future incomes affect the decisions of medical students about which
specialty to choose?
B) Medical students who enter specialized fields make a larger contribution to society than do student
who enter primary care.
C) What role does tuition play in a student’s decision about whether to attend medical school?
D) Have tuition increases had a large effect or a small effect on the number of applications to medical
school?
9) The economic analysis of minimum wage involves both normative and positive analysis. Consider
the following consequences of a minimum wage:
a. The minimum wage law causes unemployment.
b. Unemployment would be lower without a minimum wage law.
c. Minimum wage laws benefit some workers and harm others.
d. The minimum wage should be more than $7.25 per hour.
Which of the consequences above are positive statements and which are normative statements?
A) a, b, and c are positive statements and d is a normative statement.
B) a and b are positive statements, c and d are normative statement.
C) Only a is a positive statement, b, c, and d are normative statements.
D) a and c are positive statements, b and d are normative statements.
10) Which of the following is part of an economic model?
A) preferences of economic agents
B) data
C) norms
D) opinions
11) Which of the following is a positive economic statement?
A) The inflation rate in the United States is too high.
B) Unemployment insurance payments increase when the unemployment rate rises.
C) The government should defund Obamacare.
D) States should be able to enact their own marijuana legalization laws.
12) Which of the following is a positive economic statement?
A) People should use public transportation more often.
B) The government should ban diesel engines in automobiles.
C) Due to a decrease in state funding, university tuition has risen.
D) Foreign citizens should not be allowed to work without a work visa.
13) Which of the following is a normative economic statement?
A) Falling global demand for pesticides has led to decreases in the price of pesticides.
B) With falling mortgage rates and falling unemployment rates, the number of new homes being built
has increased.
C) The state of Florida’s unemployment rate dropped when several large companies relocated to the
Miami area.
D) Global warming should be at the top of every economic agenda.
14) Which of the following is a normative economic statement?
A) Tobacco products should be banned in all public spaces.
B) The increase in tobacco taxes has caused an increase in the price of cigarettes.
C) Better awareness of health risks has decreased tobacco use.
D) A reduction in tobacco subsidies has caused the price of tobacco to increase.
15) “A decrease in the price of digital cameras will decrease the demand for camera film.” This statement
is an example of a positive economic statement.
16) “The distribution of income should be determined by the government” is an example of a normative
economic statement.
17) Policies based on normative economic ideas tend to increase economic efficiency and improve
equity.
18) “An increase in the price of oranges will increase the demand for grapefruits.” This statement is an
example of a normative economic statement.
19) “The unemployment rate is too high” is an example of a positive economic statement.
20) Normative analysis is concerned with “what ought to be,” while positive analysis is concerned with
“what is.”
21) What are the five steps by which economists arrive at a useful economic model?
22) What is an economic variable? Give an example of an economic variable.
23) Which of the following are positive economic statements and which are normative economic
statements?
a. An increase in the minimum wage causes unemployment.
b. The government should raise the minimum wage above $7.25 per hour.
c. The prolonged recession has caused the unemployment rate to reach a 30-year high.
d. Interest rates need to be lower for the economy to emerge from the recession.
e. Inflation has decreased since the onset of the recession.
f. Once the recession has ended, interest rates should increase to assure that inflation does not go up.
1.4 Microeconomics and Macroeconomics
1) Which of the following is a microeconomics question?
A) Why do economies experience periods of recession?
B) Will government intervention lower the unemployment rate?
C) Why has growth in the economy slowed down over the past decade?
D) How will Apple decide on a selling price for the iPad?
2) The branch of economics which studies how households and firms make choices, interact in markets,
and how government attempts to influence their choices is called
A) macroeconomics.
B) microeconomics.
C) positive economics.
D) normative economics.
3) Which of the following is a macroeconomics question?
A) What determines the unemployment rate?
B) How is the production quantity of digital cameras determined?
C) What factors determine the price of iPhones?
D) What determines the wages and benefits of flight attendants?
4) The branch of economics which studies the behavior of entire economies and policies that affect the
economy as a whole is called
A) public economics.
B) microeconomics.
C) macroeconomics.
D) normative economics.
5) When Dr. Goldfinger decides on the companies in which he will invest, a ________ issue is being
addressed.
A) microeconomic
B) macroeconomic
C) positive economic
D) normative economic
6) Which of the following is a microeconomics question?
A) When will the government better secure the borders?
B) Why hasn’t the federal government raised the minimum wage?
C) How does Fiat decide on the price of the 500 Pop model?
D) What determines the level of U.S. imports and exports?
7) Which of the following is a macroeconomics question?
A) What determines the minimum wage?
B) What determines the production of video game consoles?
C) What factors determine the price of Oreo cookies?
D) What determines the salaries of college professors?
8) Examining the conditions that could lead to inflation in an economy is an example of a
microeconomics topic.
9) Suppose that to move more people off the wait list for organ donations, surgeons and hospitals are
developing a market for organ swapping. This is an example of a macroeconomics topic.
10) Examining the conditions that could lead to economic growth is an example of a macroeconomics
topic.
11) The decisions General Motors makes in determining production levels for its Chevy Volt is an
example of a microeconomics topic.
12) Define macroeconomics.
13) Which of the following are primarily macroeconomic topics and which are primarily microeconomic
topics?
a. college tuition rates
b. farm subsidies
c. national income
d. automobile prices
e. air traffic congestion
f. economic recession
14) How does the study of microeconomics differ from that of macroeconomics? Give one example each
of an issue studied in microeconomics and in macroeconomics.
1.5 A Preview of Important Economic Terms
1) Which of the following statements is true about revenue?
A) Revenue is the total amount received for selling a good or service.
B) Revenue is calculated by dividing the price per unit by the number of units sold.
C) The terms “revenue” and “profit” can be used interchangeably.
D) A firm’s revenue will increase as its costs increase.
2) Human capital refers to
A) the money people have.
B) the machines workers have to work with.
C) the accumulated skills and training workers have.
D) the wealth people have.
3) Which of the following is an example of an activity undertaken by an entrepreneur?
A) choosing the color scheme for your renovated kitchen
B) being promoted to the position of Chief of Police
C) being appointed to the U.S. Supreme Court
D) starting your own snow cone business
4) Which of the following is counted as “capital” in economics?
A) the money people have
B) the machines workers have to work with
C) the labor force
D) the wealth people have
5) The processes used to produce goods and services describes
A) innovation.
B) entrepreneurship.
C) technology.
D) capital.
6) Which of the following statements about economic resources is false?
A) Economic resources include financial capital and money.
B) Economic resources are also called factors of production.
C) Economic resources are used to produce goods and services.
D) Some economic resources are human-made while others are found in nature.
7) The U.S. Health Resources and Services Administration (HRSA) forecasts that in 2020
A) there will be a shortage of doctors in the United States.
B) the number of doctors in the United States will decrease and the number of doctors needed will
increase.
C) the number of doctors in the United States will increase and the number of doctors needed will
decrease.
D) there will be a surplus of doctors in the United States.
8) In economics, the practical application of an invention is known as
A) technology.
B) entrepreneurship.
C) physical capital.
D) innovation.
9) In economics, tangible merchandise is referred to as
A) invention.
B) human capital.
C) services.
D) goods.
10) In economics, activities done for others, such as providing house cleaning or dental work, are
referred to as
A) technology.
B) physical capital.
C) services.
D) goods.
11) In economics, the total amount received for selling a good or service is referred to as
A) revenue.
B) profit.
C) capital gains.
D) factor payments.
12) In economics, the difference between a firm’s revenues and its costs is referred to as
A) physical capital.
B) profit.
C) capital gains.
D) factor payments.