a.
confuses positive and normative analysis.
b.
commits the fallacy of composition.
c.
fails to recognize that association is not causation.
d.
confuses macroeconomics with microeconomics.
159. Someone notices that sunspot activity is high just prior to recessions and concludes that sunspots cause
recessions. This person has
a.
confused association and causation.
b.
misunderstood the ceteris paribus assumption.
c.
used normative economics to answer a positive question.
d.
built an untestable model.
160. The fallacy of composition is the fallacious view that
a.
economic activity will benefit everyone.
b.
what is true for the individual will also be true for the group.
c.
it is possible for the whole to be greater than the sum of the individual parts.
d.
association does not necessarily indicate causation.
161. The fallacy of composition is the incorrect view that
a.
everything else is always held constant when a change occurs.
b.
a small change in an economic variable will have unrecognizable but significant
consequences on the economy.
c.
when two events are associated, the one observed first must have caused the second.
d.
if something is true for an individual, then it must also be true for the group.
162. Which of the following best illustrates the fallacy of composition?
a.
If Mr. Johnson had more money, he could afford to buy more goods.
b.
If Ms. Dawes stood up at a basketball game, she could get a better view of the game; if
everyone stood up at a basketball game, everyone could have a better view of the game.
c.
If the price of bread rose, consumers would buy less; if consumers bought less bread, the
price of bread would rise.
d.
High housing prices cause people to buy less housing, but an increase in income might
cause them to buy more housing.
163. Which of the following best illustrates the fallacy of composition?
a.
If the price of a product rises, the quantity produced will decline.
b.
The average wage rate tends to increase at approximately the same rate as inflation; hence,
wage increases must cause inflation.
c.
Resources are scarce; therefore, there is no such thing as a free lunch.
d.
If Susan had more money she could buy more. If everyone had more money they could
buy more.
164. “If Tom had twice as much money, he could consume twice as much. If everyone had twice as much
money, they could consume twice as much.” This quote illustrates
a.
the difference between positive and normative economics.
b.
the fallacy of composition.
c.
that association is not causation.
d.
the law of unintended consequences.
165. Which of the following is true?
a.
Scarcity and poverty are basically the same thing.
b.
Poverty implies that some basic level of need has not been attained.
c.
Scarcity is the result of prices being set too high.
d.
All of the above are true.
166. Economics is the study of how
a.
individuals make choices because of scarcity.
b.
to succeed in business.
c.
to make money in the stock market.
d.
the morals and values of people are formed.
167. When an economist states a good is scarce, she means that
a.
production cannot expand the availability of the good.
b.
it is rare.
c.
desire for the good exceeds the amount that is freely available from nature.
d.
people would want to purchase more of the good at any price.
168. When economists say an individual displays economizing behavior, they simply mean that the
individual is
a.
making a lot of money.
b.
purchasing only those products that are cheap and of low quality.
c.
learning how to run a business more effectively.
d.
making choices to gain the maximum benefit at the least possible cost.
169. “The national debt is too large. The government must stop spending so much money.” This statement
is
a.
a normative statement.
b.
a positive statement.
c.
a testable hypothesis.
d.
both b and c.
170. Which of the following is a guidepost to economic thinking?
a.
The value of a good can be objectively measured.
b.
Individuals should never make a decision without having complete information.
c.
Incentives matter.
d.
Goods are scarce for the poor but not for the rich.
171. Competitive behavior
a.
occurs as a reaction to scarcity.
b.
occurs only in a market system.
c.
occurs only when the government allocates goods and services.
d.
always generates waste.
172. In economics, the statement, “There is no such thing as a free lunch,” refers to which of the following?
a.
Individuals must always pay personally for the lunch they consume.
b.
Production of a good requires the use of scarce resources regardless of whether it is
supplied free to the consumers.
c.
Restaurant owners would never give away free lunches.
d.
All good theories are testable.
173. “If income were redistributed in favor of the poor, we would eliminate scarcity.” The preceding
statement is
a.
essentially correct.
b.
incorrect because scarcity has already been eliminated among the poor in wealthy
countries such as the United States.
c.
incorrect; it fails to recognize that poverty will be present as long as resources are scarce.
d.
incorrect; it confuses the elimination of poverty with the elimination of the constraint
imposed by scarcity.
174. Which of the following is not scarce?
a.
an individual’s time
b.
air
c.
pencils
d.
automobiles
175. People make decisions at the margin. Thus, when deciding whether to purchase a second car, they
would compare
a.
the total benefits expected from two cars with the costs of the two cars.
b.
the additional benefits expected from a second car with the total cost of the two cars.
c.
the dollar cost of the two cars with the potential income that the two cars will generate.
d.
the additional benefits of the second car with the additional costs of the second car.
176. The basic difference between macroeconomics and microeconomics is that
a.
macroeconomics looks at how people make choices, and microeconomics looks at why
they make those choices.
b.
macroeconomics is concerned with economic policy, and microeconomics is concerned
with economic theory.
c.
macroeconomics focuses on the aggregate economy, and microeconomics focuses on
small components of that economy.
d.
macroeconomics is associated with the fallacy of composition, and microeconomics has
little to do with the fallacy of composition.
177. The highest valued alternative that must be given up in order to choose an action is called its
a.
opportunity cost.
b.
utility.
c.
scarcity.
d.
ceteris paribus.
178. Which of the following actions is consistent with the basic economic postulate (the guidepost) that
incentives matter?
a.
Consumers buy fewer potatoes when the price of potatoes increases.
b.
A politician votes against a pay raise for himself because most of his constituents are
strongly opposed to it and would vote against him in the next election.
c.
Farmers produce less corn because corn prices have declined.
d.
All of the above.
179. If Susan bought nine gallons of gasoline at $1.50 per gallon, the car wash cost $1, but if she bought 10
gallons of gasoline, the car wash was free. Given that Susan is going to get the car wash, the marginal
cost of the tenth gallon of gasoline is
a.
zero.
b.
$.50.
c.
$1.00.
d.
$1.50.
180. Positive economics differs from normative economics in that
a.
positive economics deals with how people react to changes in benefits, and normative
economics deals with how people react to changes in costs.
b.
positive economic statements are testable, and normative statements are not.
c.
positive economic statements tell us what we should be doing, and normative economics
tells us what we should have done.
d.
positive economic statements focus on the application of the theory, and normative
economic statements are theoretical.
181. Which of the following represents a normative statement?
a.
Incentives matter.
b.
The temperature in this room is 120 degrees.
c.
It is too hot in this room.
d.
People will buy less butter at $1.50 per pound than they will at $1.00 per pound.
182. The economic way of thinking stresses that
a.
changes in personal costs and benefits will exert a predictable influence on the choices of
human decision makers.
b.
only direct monetary costs matter in making decisions.
c.
if a good is provided free to an individual, its production will not consume valuable scarce
resources.
d.
secondary effects are not important to consider when making decisions.
183. Which of the following is a positive economic statement?
a.
The federal minimum wage should be raised to $6.50 per hour.
b.
The United States spends too much on national defense.
c.
Higher rates of investment lead to higher rates of economic growth.
d.
Economics is more interesting to study than history.
184. When economists use the term ceteris paribus, they indicate
a.
the causal relationship between two economic variables cannot be determined.
b.
the analysis is true for the individual but not for the economy as a whole.
c.
all other factors are assumed to be constant.
d.
their conclusions are based on normative economics rather than positive economic
analysis.
185. In economics, the benefit (or satisfaction) that an individual gets from an activity is called
a.
scarcity.
b.
utility.
c.
opportunity cost.
d.
ceteris paribus.
186. Economics is primarily the study of
a.
how to make money in the stock market.
b.
how to find lower cost methods of production.
c.
the choices we must make among alternatives because of scarcity.
d.
the proper form of industrial structure for the United States.
187. Which of the following are NOT scarce?
a.
time for leisure activities
b.
computers
c.
compact discs
d.
the air we breathe
188. The expression “There’s no such thing as a free lunch” means
a.
in an exchange, if one person gains, someone else must lose.
b.
each person must pay for exactly what he or she receives.
c.
the use of resources to meet one need means that those resources can no longer be used to
meet another need.
d.
in an exchange, if one person gains, someone else must lose and equal amount.
189. The highest valued alternative option that must be given up in order to choose an action is called its
a.
utility.
b.
opportunity cost.
c.
capital.
d.
ceteris paribus
190. Positive economics
a.
postulates a relationship that is potentially refutable and then seeks to determine whether
the stated relationship is correct.
b.
uses value judgments to determine which policy alternatives should be chosen.
c.
is of no use to policy makers because it reflects the value judgments of the researcher.
d.
is the scientific study of “what ought to be” among economic relationships.
191. The fallacy of composition is the incorrect view that
a.
decisions are always made at the margin.
b.
incentives matter only to those who behave selfishly.
c.
if something is true for an individual, then it must also be true for the group.
d.
the value of a good can be objectively measured by its cost of production.
192. The basic difference between macroeconomics and microeconomics is that
a.
microeconomics is concerned with aggregate markets and the entire economy, while
macroeconomics is concerned with specific individual markets.
b.
macroeconomics is concerned with policy decisions, while microeconomics applies only
to theory.
c.
microeconomics is concerned with individual markets and the behavior of people and
firms, while macroeconomics is concerned with aggregate markets and the entire
economy.
d.
macroeconomics is concerned with positive economics, while microeconomics is
concerned with normative economics.
193. When the Hometown football team is winning by a lot of points after halftime, they often play their
second and third team players. One of the coaches notices that when the third team plays that
Oklahoma wins by a bigger margin than when just the first team plays. He recommends that the third
team see more playing time as a result. What is wrong with his way of thinking?
a.
association is not causation
b.
it is a violation of ceteris paribus
c.
the fallacy of composition
d.
good intentions do not guarantee desirable outcomes
194. The economic way of thinking stresses that
a.
changes in personal costs and benefits generally do not influence human behavior.
b.
incentives matter—when an option becomes less costly, people will be more likely to
choose it.
c.
if one individual gains from an economic activity, then someone else must lose.
d.
goods provided by government do not consume valuable scarce resources since
government activity is not part of the market economy.
195. Which of the following is a positive economic statement?
a.
reducing unemployment should be the highest priority of the federal government.
b.
a reduction in the payroll tax will reduce the unemployment rate.
c.
corporations should be prohibited from laying off workers during a recession.
d.
the current unemployment rate is too high.
196. The Latin phrase “ceteris paribus” means
a.
that one event causes another.
b.
that one event is associated with, but not caused by, another.
c.
that other potential causes are assumed to remain constant.
d.
the way things should be.
197. Which of the following was a key belief of Adam Smith?
a.
he felt that human goodness would provide adequate goods and services to everyone.
b.
he stressed that limited exchange and command economies would prevent the exploitation
of the poor.
c.
he believed that individuals pursuing their own interests would direct economic activity in
the most advantageous way.
d.
he lectured about the importance of gold and silver in providing a stable monetary system.
198. If you win the lottery this would be great for you, but if everyone simultaneously won the lottery this
wouldn’t be nearly as good, why?
a.
association is not causation
b.
it is a violation of ceteris paribus
c.
the fallacy of composition
d.
what appear to be positive outcomes in society are actually normative.
199. The consequences of an economic change that are not immediately identifiable but are felt only with
the passage of time are known in economics as
a.
opportunity costs.
b.
utility curves.
c.
secondary effects.
d.
comparative advantages.
200. Ralph wants to buy some milk and a box of cereal. If Ralph buys 4 gallons of milk at $3.00 per gallon,
the box of cereal costs $2.00. If he buys 5 gallons of milk, the box of cereal is free. For Ralph, the
marginal cost of buying a fifth gallon of milk is:
a.
zero.
b.
$1.00.
c.
$2.00.
d.
$3.00.
ESSAY
201. If economics is correct in its assumption that people are rational, why then would anyone choose to
smoke cigarettes?
202. A radio station gives “free money” to those listeners whose names are drawn and announced over the
airwaves from postcards the listeners sent into the radio station. Is the money really free for the
listener?
203. Why would a radio station give money to listeners? Does this violate the economic way of thinking?
204. Joe observes that a car in 1925 sold for an average of $500 versus $20,000 for a 2005 model. He
concludes that 2005 cars must be 40 times better than 1925 cars. What’s wrong with this way of
thinking?
205. Evaluate this statement: “People engaged in economizing behavior will always buy the lowest priced
item they can find.”
206. Homeowners can deduct interest payments on their mortgages from their federal income tax. If this
deduction were removed, how would the housing market be affected?
207. If people are self-interested, why does anyone give money to public radio?
208. When Mother Theresa won the Nobel Peace Prize, the monetary award was well in excess of
$100,000. Did she accept the money? If so, what did she do with it?
209. Who is more likely to drive carelessly, Sue in her 1980 Ford with bad brakes or Sally, who has a 2005
BMW with all the most recent safety options?
210. A popular video program, used to teach primary school children about economics, defines scarcity as
“when you don’t have enough of something.” Evaluate this definition based on your understanding of
the scarcity concept.