True / False
1. Both parties gain in a voluntary exchange.
a.
True
b.
False
2. Even though international trade in undertaken voluntarily, a country that engages in trade may not benefit from it.
a.
True
b.
False
3. In international trade, one country’s gain is another country’s loss.
a.
True
b.
False
4. It is impossible for both nations to gain when trading with one other.
a.
True
b.
False
5. In economics the true cost of making a choice is the value of what must be given up.
a.
True
b.
False
6. Opportunity cost is the value of the next best alternative to a given choice.
a.
True
b.
False
7. Opportunity cost is the highest possible price you can receive when you sell an object.
a.
True
b.
False
8. As a student, one of the costs of sleeping in rather than going to class is likely to be a lower grade in the class.
a.
True
b.
False
9. In her calculation of the cost of going to college, an economist would include the amount of forgone earnings over the
years spent at college.
a.
True
b.
False
10. Government controls over market prices frequently “backfire.”
a.
True
b.
False
11. There are never any adverse consequences of government attempts to modify the laws of supply and demand.
a.
True
b.
False
12. Comparative advantage explains how two nations can benefit from trade.
a.
True
b.
False
13. If Japan is twice as good at producing cameras and three times as good at producing TV sets as the United States,
Japan is said to have a comparative advantage in TV sets and the United States has a comparative advantage in cameras.
a.
True
b.
False
14. The marginal cost of an airline ticket is the total cost of flying the plane divided by the number of passengers.
a.
True
b.
False
15. Marginal analysis involves looking at the extra costs involved in a decision.
a.
True
b.
False
16. There are frequently market solutions that the government can use to deal with externalities.
a.
True
b.
False
17. Externalities are social costs that affect parties external to a particular economic transaction.
a.
True
b.
False
18. Externalities affect only the buyer and seller involved in an exchange.
a.
True
b.
False
19. Externalities are created when parties not involved in an economic transaction are affected by it.
a.
True
b.
False
20. All economic transactions involve only buyers and sellers; no third parties are involved.
a.
True
b.
False
21. The market mechanism provides a financial incentive for firms to minimize the pollution they create.
a.
True
b.
False
22. The relatively low rate of inflation coupled with a low unemployment rate that occurred in the 1990s represented a
“normal” economic situation.
a.
True
b.
False
23. In both the 1970s and the 1990s, extreme economic events caused unemployment to move in the same direction as
inflation.
a.
True
b.
False
24. The high unemployment of 2008-2010 caused a substantial decrease in inflation which created fears of deflation.
a.
True
b.
False
25. A small increase in productivity growth can have a huge impact on a country’s standard of living.
a.
True
b.
False
26. Greater economic efficiency often leads to greater economic inequality.
a.
True
b.
False
27. The concept of economic efficiency refers to the size of the “economic pie” whereas the concept of equality refers to
how the “pie” is distributed.
a.
True
b.
False
28. There is no trade-off between efficiency and equality.
a.
True
b.
False
29. The United States has chosen to balance the competing claims of efficiency versus equality by emphasizing greater
efficiency over greater equality.
a.
True
b.
False
30. The achievement of greater efficiency in the United States has been at the expense of growing inequality.
a.
True
b.
False
31. One problem with the European Union’s choice regarding equality versus efficiency is that it may inadvertently shrink
the size of its “economic pie”.
a.
True
b.
False
32. The United States has been willing to trade off greater efficiency for greater wage equality.
a.
True
b.
False
33. One of the consequences of preventing wages from falling in the European Union has been growing unemployment.
a.
True
b.
False
34. One of the consequences of allowing wages to fall in the United States has been growing wage inequality.
a.
True
b.
False
35. Economic efficiency and income equality are often conflicting goals in an economy.
a.
True
b.
False
36. Lower inflation rates are usually correlated with lower unemployment rates.
a.
True
b.
False
37. Attempts by the government to reduce the rate of inflation often result in higher unemployment in the short run.
a.
True
b.
False
38. Productivity growth is the main cause of rising living standards.
a.
True
b.
False
39. Over the past century, the main factor responsible for rising living standards in the United States has been productivity
growth.
a.
True
b.
False
40. The growth rate of productivity is the most important determinant of material well-being in the short run.
a.
True
b.
False
41. Unemployment and inflation are important determinants of short-run material welfare, whereas productivity growth is
an important determinant of long-run material well-being.
a.
True
b.
False
42. Economic analysis requires both mathematical reasoning and historical study.
a.
True
b.
False
43. Abstraction ignores many details in order to focus on the most important elements of a problem.
a.
True
b.
False
44. Abstraction can lead to gross distortions of pertinent facts.
a.
True
b.
False
45. Economists are often required to make unrealistic assumptions concerning the problems they are investigating.
a.
True
b.
False
46. In economics, abstraction from reality is necessary because of the complexity of the real world.
a.
True
b.
False
47. Eliminating important details in economic analysis is necessary to understand the complexity of the economy.
a.
True
b.
False
48. The optimal degree of abstraction depends on the objective of the analysis.
a.
True
b.
False
49. A model that is an oversimplification for one purpose will likely be an oversimplification for other purposes as well.
a.
True
b.
False
50. Economic problems are made manageable by stripping away some of the unnecessary details.
a.
True
b.
False
51. The use of abstraction in economics is analogous to the use of a road map providing directions to a location.
a.
True
b.
False
52. Abstraction is used in economics to omit unnecessary details and focus on the essence of the problem being studied.
a.
True
b.
False
53. Inaccurate prediction generally invalidates the use of theory in economics.
a.
True
b.
False
54. The word “theory” means the same to the scientist as it does to the man on the street.
a.
True
b.
False
55. In scientific language, a theory is an untested assertion of alleged fact.
a.
True
b.
False
56. The statement “saccharine causes cancer” is not a theory; it is a hypothesis.
a.
True
b.
False
57. A theory is a deliberate simplification or abstraction of factual relationships.
a.
True
b.
False
58. A theory is an explanation of the causal mechanism behind observed phenomena.
a.
True
b.
False
59. Economic theory is necessary and extremely important because of its relationship to economic policy.
a.
True
b.
False
60. A theory is an untested assertion of alleged fact.
a.
True
b.
False
61. “Correlation” is a measure of how one variable causes another to change.
a.
True
b.
False
62. The terms “correlation” and “causation” are synonymous.
a.
True
b.
False
63. Two variables that systematically change together are correlated.
a.
True
b.
False
64. Models are used to describe cause-and-effect relationships.
a.
True
b.
False
65. Models are simplifications that are used to observe the workings of a system.
a.
True
b.
False
66. Economic theory simplifies relationships to explain how the relationships interact.
a.
True
b.
False
67. An economic model is a realistic depiction of the operation of the economy.
a.
True
b.
False
68. Economists disagree on most economic issues facing an economy.
a.
True