b.
False
69. Only economists and other “social” scientists have areas of dispute within their disciplines.
a.
True
b.
False
70. Economists probably agree more often than they disagree.
a.
True
b.
False
71. Value judgments are based on people’s tastes, preferences, and ethical opinions.
a.
True
b.
False
72. Individuals will have different value judgments about the appropriate rate of unemployment and the appropriate rate
of inflation.
a.
True
b.
False
73. In economic theorizing, common sense will always lead to the correct answer.
a.
True
b.
False
74. A graph conveys information about a cause-and-effect relationship.
a.
True
b.
False
75. Graphs are valuable because they facilitate interpretation of data.
a.
True
b.
False
76. All two-dimensional graphs must have an origin, a horizontal axis, and a vertical axis.
a.
True
b.
False
77. A graph’s origin is the point of intersection of all lines or curves in the graph.
a.
True
b.
False
78. The lower left-hand corner of a graph where the two axes meet is called the graph’s origin.
a.
True
b.
False
79. A vertical line always has a slope of one.
a.
True
b.
False
80. A horizontal line always has a slope of one.
a.
True
b.
False
81. A horizontal line has a slope of 0.
a.
True
b.
False
82. A line that rises from left to right has a positive slope.
a.
True
b.
False
83. A line that slopes downward from left to right has a positive slope.
a.
True
b.
False
84. Slope is measured as rise/run.
a.
True
b.
False
85. Slope is measured as run/rise.
a.
True
b.
False
86. The slope of a line with rise of five and run of two is positive.
a.
True
b.
False
87. The steepness of a curve is partially determined by the units of measurement.
a.
True
b.
False
88. Slope will vary along a curve (as opposed to a straight line).
a.
True
b.
False
89. A graph with a positive slope indicates that the variables depicted on the axes move in the same directions.
a.
True
b.
False
90. A ray through the origin always has a slope of one.
a.
True
b.
False
91. A contour map illustrates a cause and effect relationship among three variables.
a.
True
b.
False
92. The government uses fiscal and monetary policy to mitigate the effects of economic fluctuations.
a.
True
b.
False
93. When the economy experiences a bust, the government knows exactly which policies will spur an economic recovery.
a.
True
b.
False
94. Abstract economic theory can be used by academicians, but not by politicians or business people.
a.
True
b.
False
95. Statistical correlation always implies causation.
a.
True
b.
False
Multiple Choice
96. Opportunity cost can best be defined as the
a.
value of what must be given up in order to acquire an item.
b.
money cost to the buyer to acquire a good or service.
c.
total value of all the other items that otherwise could be acquired.
d.
cost to the seller to produce an item.
e.
time cost to obtain the money to buy an item.
97. Rational choice requires that opportunity cost be
a.
ignored in making a decision.
b.
considered for individual choices, but not for societal choices.
c.
computed, but not actually used in making a decision.
d.
considered as part of making a decision.
e.
used as the sole decision criterion.
98. To an economist, the cost of a college education
a.
includes the income that the student could have earned during the time spent in college.
b.
can be measured solely by the dollar cost of tuition, books, and other fees.
c.
includes only the cost of schooling, not the cost of housing and food.
d.
excludes financial aid in computation of the cost of schooling.
e.
All of the above are correct.
99. Which person has the highest opportunity cost of obtaining a college degree (assuming that attending college requires
giving up his or her current position)?
a.
b.
c.
d.
e.
100. Some college students think that because a college degree greatly increases their earning potential there is no
opportunity cost of attending college. How would an economist look at the matter?
a.
There is no opportunity cost, assuming that future earnings actually increase as expected.
b.
The opportunity cost is much less than it would appear, assuming that earnings increase.
c.
Opportunity cost is a meaningless concept in this situation.
d.
The college students are completely correct in all respects.
e.
There is still an opportunity cost, even if it is justified by higher future earnings.
101. Consider the following information regarding a person’s decision to go to college: college tuition is $20,000 per year,
room and board is $10,000 per year, and books and materials are $2,000 per year. Suppose that instead of going to college
this person could have earned $18,000 working in a store. An economist would calculate the cost of going to college as
a.
$20,000.
b.
$30,000.
c.
$32,000.
d.
$50,000.
e.
$18,000.
102. The term opportunity cost refers to the
a.
value of what is gained when a choice is made.
b.
difference between the value of what is gained and the value of what is forgone when a choice is made.
c.
value of what is forgone when a choice is made.
d.
direct costs involved in making a choice.
103. Jack buys a computer from Sam, knowing fully well that the technology used in it is obsolete. In this case, the trade
is
a.
beneficial to both parties.
b.
beneficial only to Sam.
c.
beneficial only to Jack.
d.
not beneficial to either of them.
104. Which of the following is an example of an externality?
a.
Drug abuse affecting David’s health.
b.
Sara taking a break from work.
c.
A transaction between two parties, affecting them alone.
d.
Tom’s smoking affecting his roommate’s health.
105. Which of the following is an example of a fiscal policy initiative?
a.
Lowering of interest rates.
b.
Increase in reserve requirements.
c.
Reduction in taxes.
d.
Decrease in money supply.
106. The opportunity cost to you of an action is
a.
how much you must pay for the opportunity to take the action.
b.
the value to you of the next best action you could have taken.
c.
the cost to society of giving you the opportunity to take the action.
d.
the dollar cost to you of the action.
107. Opportunity cost is the
a.
cost incurred when one fails to take advantage of an opportunity.
b.
cost incurred in order to increase the availability of attractive opportunities.
c.
cost of the best option forgone as a result of choosing an alternative.
d.
drudgery of the undesirable aspects of an option.
108. During a war, a government will often draft people, most of whom are presently employed, into the army. An
economist, computing the real cost of the war, would be sure to include which of the following items?
a.
the value of the civilian goods no longer produced by the new soldiers
b.
the cost of feeding and clothing the new soldiers
c.
the dollar cost of the payroll
d.
the higher prices of civilian goods due to wartime shortages
e.
the cost of transporting the soldiers to combat
109. The opportunity cost of any good or service is the
a.
actual dollar cost of doing or making it.
b.
highest price that a seller can get for the item.
c.
value of the next best alternative.
d.
cost associated with a value judgment.
e.
cost of producing the good or service.
110. Throughout the 1980s, accounting departments in U.S. universities were unable to fill many available faculty
positions. This fact suggests that the salaries offered by these departments
a.
suffered from the cost disease of the service sector.
b.
were below the market price for qualified accountants.
c.
created externalities.
d.
failed to reflect productivity growth in teaching.
111. The principle of comparative advantage explains how
a.
one nation can take advantage of another one through international trade.
b.
two nations may engage in mutually beneficial trade, even though one of them is more productive than the
other.
c.
one individual can take advantage of another through international trade.
d.
some people are good at producing everything, while others have no comparative advantages.
e.
some nations end up with large trade surpluses.
112. If Taiwanese workers can produce all goods at lower wages than American workers, then
a.
Americans can still gain by trading with Taiwan.
b.
Americans can only lose if they import from Taiwan.
c.
Taiwan can only lose if it trades with America.
d.
there are no gains from trade that are possible in this case.
e.
Americans should be self-sufficient.
113. Suppose Tammy grew up on a farm and is very good at plowing. In addition suppose she is a popular country singer
who earns $4,000 per performance. If her husband Bob can plow (but not as well as Tammy) but he can’t carry a tune,
then it would be most efficient if
a.
Tammy did both the plowing and the singing.
b.
Tammy specialized in plowing and Bob in singing.
c.
Bob did both the plowing and singing.
d.
Tammy specialized in singing and Bob in plowing.
e.
They both plowed and sang.
114. The United States produces both automobiles and computers more efficiently than Mexico. Nevertheless, it is
possible that both nations would benefit from trade in these items. The reason for this is
a.
the law of comparative advantage.
b.
the inflation-unemployment trade-off.
c.
externalities.
d.
the cost disease of personal services.
e.
attempts to repeal the law of supply and demand.
115. The law of comparative advantages explains why
a.
advanced nations will not trade with less-developed countries.
b.
an advanced nation will not trade with other countries.
c.
less-developed countries only trade among themselves.
d.
nations trade with each other, regardless of their relative levels of economic development.
e.
nations erect trade barriers.
116. You have just bought a used car, and drive away satisfied that you’ve made a good deal on the purchase. What would
an economist say about your “gain” on the deal?
a.
Your gain has clearly meant that the seller lost on the deal.
b.
The seller has clearly gained, and you have actually lost on the deal.
c.
Both you and the seller have gained something.
d.
If your gain is too large, then the deal should be re-negotiated.
e.
If the seller’s loss is too large, then the deal should be re-negotiated.
117. If trade between two countries is voluntary, one can expect that
a.
one country’s gain is necessarily the other’s loss.
b.
one country will exploit the other one.
c.
neither country really gains from trade.
d.
the larger country will always gain at the expense of the smaller.
e.
both countries expect to gain something.
118. When economists are critical of government regulations that prohibit free individuals from making certain kinds of
contracts, for example, to purchase a good or service, they will usually invoke the concept of
a.
marginal analysis.
b.
mutual gains from voluntary trade.
c.
inflation-unemployment trade-off.
d.
the need for abstraction.
e.
externalities.
119. If a decision maker uses marginal analysis, then the relevant costs are the
a.
full costs of a particular activity or product.
b.
fixed costs which do not vary with the extra activity or output.
c.
profits obtained on the activity or product.
d.
average costs for a particular activity or product.
e.
additional costs of a particular activity or product.
120. Standby passengers on airlines who pay low rates for seats benefit from the low price. How are the airlines affected?
a.
They lose, because the standby passengers do not cover the full cost of the seats.
b.
They gain, because the additional revenue covers the “fixed costs” of the flight.
c.
They lose, because the gain of the passengers must necessarily come at the expense of the airline.
d.
They benefit as long as the additional revenue from the passengers exceeds the marginal cost.
e.
Uncertain, because economic theory says nothing about this sort of situation.
121. If an airline company has several empty seats on a flight and the full price of an air ticket is $500 and the marginal
cost per passenger is $100, then it will be profitable for the airline to
a.
charge a stand-by passenger no less than the full fare of $500.
b.
charge a stand-by passenger less than $100.
c.
charge a stand-by passenger more than $500.
d.
charge a stand-by passenger more than $100.
e.
fill the seats at the last minute for any price.
122. When a teacher in a private school points out to her high school principal that since there are empty seats in all
classrooms, the cost of additional students is really zero, she is using the
a.
law of comparative advantage.
b.
principle of marginal analysis.
c.
theory of externalities.
d.
notion of the cost decreases of the service sector.
e.
concept of opportunity cost.
123. An externality is defined as
a.
an opportunity cost that is not considered, which causes inefficiency.
b.
a social cost that affects parties external to a transaction.
c.
a transaction which imposes a loss on one of the parties involved.
d.
a “cost of doing business” that cannot be allocated to any particular good.
e.
the increase in cost associated with increased production.
124. Which of the following is an example of an undesirable side effect of the operation of the market mechanism?
a.
negative externalities
b.
comparative advantages
c.
abstractions
d.
productivity growth
125. When residents surrounding an airport complain about noise from aircraft landings and takeoffs, the relevant
economic analysis is that of
a.
externalities.
b.
equality-efficiency trade-off.
c.
comparative advantage.
d.
the cost decrease of the service sector.
e.
the cost disease of personal services.
126. In Egypt, in 1970, the Aswan Dam was completed. By preventing the annual flood of the Nile (thereby providing
millions of acres of arable land) and by providing electricity, the dam was expected to raise the living standard of the
Egyptian people-and it has. However, it has also led to a rise in the water table which causes Egypt’s limestone structures,
including the pyramids, to absorb more salt water and to suffer serious erosion from crystallized salts. Combined with air
pollution and traffic vibration, this erosion is turning the pyramids to dust. Economists analyze this type of problem with
the concept of
a.
an externality.
b.
the antiquity problem.
c.
a free-rider problem.
d.
the public good problem.
e.
the trade-off between equity and output.
127. A large factory pours its toxic wastewater into a nearby river, and as a result, the residents of a downstream
community experience high rates of illness and birth defects. The economic problem illustrated by this example is
a.
marginal thinking.
b.
comparative advantage.
c.
repealing the laws of supply and demand.
d.
externalities.
e.
productivity growth.