Chapter 01 – Limits, Alternatives, and Choices (+ Appendix)
212. (Last Word) A study found that the incidence of skin cancer increases along with the
amount of time people work under fluorescent light, leading some people to conclude that
fluorescent lighting is a cause of skin cancer. But further analysis found that people who work
in offices, where fluorescent light is common, suffer more sunburn on their vacations than
other workers. The sunburns, not the fluorescent light, were the cause of the higher incidence
of skin cancer. The original conclusion illustrates:
213. An economic model is an ideal or utopian type of economy that society should strive to
obtain through economic policy.
214. Because economic generalizations are simplifications from reality, they are impractical
and useless.
Chapter 01 – Limits, Alternatives, and Choices (+ Appendix)
215. If economic theories are solidly based on relevant facts, then appropriate economic
policy becomes obvious and uncontroversial.
216. Normative statements are expressions of facts.
217. Positive statements are expressions of value judgments.
218. Macroeconomics explains the behavior of individual households and business firms;
microeconomics is concerned with the behavior of aggregates or the economy as a whole.
Chapter 01 – Limits, Alternatives, and Choices (+ Appendix)
219. Purposeful behavior implies that everyone will make identical choices.
220. Marginal analysis means that decision-makers compare the extra benefits with the extra
costs of a specific choice.
221. Rational individuals may make different choices because their preferences and
circumstances differ.
222. Choices entail marginal costs because resources are scarce.
Chapter 01 – Limits, Alternatives, and Choices (+ Appendix)
223. The production possibilities curve shows various combinations of two products that an
economy can produce when achieving full employment.
224. The entrepreneur’s sole function is to combine other resources (land, labor, and capital)
in the production of some good or service.
225. Products and services are scarce because resources are scarce.
226. An economy cannot produce at a point outside of its production possibilities curve
because human economic wants are insatiable.
Chapter 01 – Limits, Alternatives, and Choices (+ Appendix)
227. The process by which capital goods are accumulated is known as investment.
228. The present choice of position on the production possibilities curve will not influence the
future location of the curve.
229. Although sleeping in on a work day or school day has an opportunity cost, sleeping late
on the weekend does not.
Chapter 01 – Limits, Alternatives, and Choices (+ Appendix)
230. Refer to the above diagram. Given production possibilities curve (a), the combination of
civilian and war goods indicated by point X is unattainable to this economy.
231. Refer to the above diagram. Given production possibilities curve (a), point Y indicates
that society is failing to use available resources efficiently.
Chapter 01 – Limits, Alternatives, and Choices (+ Appendix)
232. Refer to the above diagram. The movement from curve (a) to curve (b) could be
explained by an increase in the quantity and/or quality of society’s productive resources.
233. Refer to the above diagram. The movement from curve (a) to curve (c) suggests an
improvement in civilian goods technology but not in war goods technology.
234. An economy will always operate at some point on its production possibilities curve.
235. In drawing a particular budget line, money income and the prices of the two products are
fixed.
Chapter 01 – Limits, Alternatives, and Choices (+ Appendix)
236. The lower the consumer’s income, the higher his or her budget line.
237. If we say that two variables are directly related, this means that:
238. If we say that two variables are inversely related, this means that:
Chapter 01 – Limits, Alternatives, and Choices (+ Appendix)
239. Economists:
240. Which of the following statements is correct?
Chapter 01 – Limits, Alternatives, and Choices (+ Appendix)
241. Refer to the above diagram. Which line(s) show(s) a positive relationship between x and
y?
242. Refer to the above diagram. Which line(s) show(s) a negative relationship between x and
y?
243. Refer to the above diagram. Which line(s) show(s) a positive vertical intercept?
Chapter 01 – Limits, Alternatives, and Choices (+ Appendix)
244. Refer to the above diagram. Which line(s) show(s) a negative vertical intercept?
245. If two variables are inversely related, then as the value of one variable:
246. If a positive relationship exists between x and y:
Chapter 01 – Limits, Alternatives, and Choices (+ Appendix)
247. Answer on the basis of the relationships shown in the above four figures. The amount of
Y is directly related to the amount of X in:
248. Answer on the basis of the relationships shown in the above four figures. The amount of
Y is inversely related to the amount of X in:
Chapter 01 – Limits, Alternatives, and Choices (+ Appendix)
249. If price (P) and quantity (Q) are directly related, this means that:
Answer the question on the basis of the following information. Assume that if the interest
rate that businesses must pay to borrow funds were 20 percent, it would be unprofitable for
businesses to invest in new machinery and equipment, so investment would be zero. But if the
interest rate were 16 percent, businesses would find it profitable to invest $10 billion. If the
interest rate were 12 percent, $20 billion would be invested. Assume that total investment
continues to increase by $10 billion for each successive 4 percentage point decline in the
interest rate.
250. Refer to the above information. Which of the following is an accurate verbal statement of
the described relationship?
Chapter 01 – Limits, Alternatives, and Choices (+ Appendix)
251. Refer to the above information. Using i and I to indicate the interest rate and investment
(in billions of dollars) respectively, which of the following is the correct tabular presentation
of the described relationship?
252. Refer to the above information. Which of the following correctly expresses the indicated
relationship as an equation?
Chapter 01 – Limits, Alternatives, and Choices (+ Appendix)
253.
Assume that if the interest rate that businesses must pay to borrow funds were 20 percent, it
would be unprofitable for businesses to invest in new machinery and equipment, so
investment would be zero. But if the interest rate were 16 percent, businesses would find it
profitable to invest $10 billion. If the interest rate were 12 percent, $20 billion would be
invested. Assume that total investment continues to increase by $10 billion for each
successive 4 percentage point decline in the interest rate. Refer to the above graph. Which of
the following is the correct graphical presentation of the indicated relationship?
Chapter 01 – Limits, Alternatives, and Choices (+ Appendix)
254. The above data suggest that:
255. The above data indicate that:
256. The above data suggest that: