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38. An example of a price that changes only infrequently is the price of
a. stocks on the New York Stock Exchange.
b. crude oil.
c. residential real estate.
d. magazines sold at newsstands.
39. When studying the effects of public policy changes, economists
a. always refrain from making assumptions.
b. sometimes make different assumptions about the short run and the long run.
c. consider only the direct effects of those policy changes and not the indirect effects.
d. consider only the short-run effects of those policy changes and not the long-run effects.
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40. When studying the effects of changes in public policy, economists believe that
a. it is important to distinguish between the short run and the long run.
b. the assumptions used in studying those effects should be the same for the short run as for the
long run.
c. the short-run effects of those changes are always more beneficial to society than are the long–
run effects.
d. the long-run effects of those changes are always more beneficial to society than are the short-
run effects.
41. A model can be accurately described as a
a. theoretical abstraction with very little value.
b. device that is useful only to the people who created it.
c. realistic and carefully constructed theory.
d. simplification of reality.
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42. Which of the following statements about models is correct?
a. The more details a model includes, the better the model.
b. Models assume away irrelevant details.
c. Models cannot be used to explain how the economy functions.
d. Models cannot be used to make predictions.
43. In building economic models, economists often omit
a. assumptions.
b. theories.
c. details.
d. equations.
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44. Which of the following statements about economic models is correct?
a. Economic models are built to mirror reality exactly.
b. Economic models are useful, but they should not be used for the purpose of improving public
policies.
c. Because economic models omit many details, they allow us to see what is truly important.
d. Economic models seldom incorporate equations or diagrams.
45. Economic models
a. cannot be useful if they are based on false assumptions.
b. were once thought to be useful, but that is no longer true.
c. must incorporate all aspects of the economy if they are to be useful.
d. can be useful, even if they are not particularly realistic.
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46. Which of the following is not correct about most economic models?
a. They are composed of equations and diagrams.
b. They contribute very little to economists’ understanding of the real world.
c. They omit many features of the real-world economy.
d. In constructing models, economists make assumptions.
47. Economic models
a. are constructed to mirror reality as closely as possible, and in this respect economic models are
no different from other scientific models.
b. are constructed to mirror reality as closely as possible, and in this respect economic models are
very different from other scientific models.
c. are simplifications of reality, and in this respect economic models are no different from other
scientific models.
d. are simplifications of reality, and in this respect economic models are very different from other
scientific models.
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48. Economic models
a. are not useful because they omit many real-world details.
b. are usually composed of diagrams and equations.
c. are useful because they do not omit any real-world details.
d. are usually plastic representations of the economy.
49. Just like models constructed in other areas of science, economic models
a. incorporate assumptions that contradict reality.
b. incorporate all details of the real world.
c. complicate reality.
d. avoid the use of diagrams and equations.
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50. Which types of models are built with assumptions?
a. economic models, but not models in other disciplines such as physics and biology
b. economic models as well as models in other disciplines such as physics and biology
c. models that are built for teaching purposes but not for research purposes
d. bad models
51. An assumption an economist might make while studying international trade is
a. there are only two countries.
b. countries only produce two goods.
c. technology does not change.
d. All of the above are possible assumptions.
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52. Economists build economic models by
a. generating data.
b. conducting controlled experiments in a lab.
c. making assumptions.
d. reviewing statistical forecasts.
53. Economic models are built with
a. recommendations concerning public policies.
b. facts about the legal system.
c. assumptions.
d. statistical forecasts.
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54. In constructing models, economists
a. leave out equations, since equations and models tend to contradict one another.
b. ignore the long run, since models are useful only for short-run analysis.
c. sometimes make assumptions that are contrary to features of the real world.
d. try to include every feature of the economy.
55. Economic models
a. are people who act out the behavior of firms and households so that economists can study this
behavior.
b. are usually detailed replications of reality.
c. incorporate simplifying assumptions that often contradict reality, but also help economists better
understand reality.
d. are useful to researchers but not to teachers because economic models omit many details of
the real-world economy.
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56. Which of the following statements is correct?
a. Few economic models incorporate assumptions.
b. Different economic models employ different sets of assumptions.
c. Good economic models attempt to mimic reality as closely as possible.
d. Economic models, to be accepted, must be tested by conducting experiments.
57. Which of these statements about economic models is correct?
a. For economists, economic models provide insights about the world.
b. Economic models are built with assumptions.
c. Economic models are often composed of equations and diagrams.
d. All of the above are correct.
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58. The circular-flow diagram is an example of
a. a laboratory experiment.
b. an economic model.
c. a mathematical model.
d. All of the above are correct.
59. The circular-flow diagram is a
a. visual model of the economy.
b. visual model of the relationships among money, prices, and businesses.
c. model that shows the effects of government on the economy.
d. mathematical model of how the economy works.
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60. A circular-flow diagram is a model that
a. helps to explain how participants in the economy interact with one another.
b. helps to explain how the economy is organized.
c. incorporates all aspects of the real economy.
d. Both (a) and (b) are correct.
61. The circular–flow diagram
a. is an economic model.
b. incorporates two types of decision makers: households and firms.
c. represents the flows of inputs, outputs, and dollars.
d. All of the above are correct.
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62. Which of the following statements about the circular-flow diagram is correct?
a. One must imagine that the economy operates without money in order to make sense of the
diagram.
b. The diagram leaves out details that are not essential for understanding the economic
transactions that occur between households and firms.
c. The government cannot be excluded as a decision maker in a circular-flow diagram.
d. All of the above are correct.
63. In the simple circular-flow diagram, the participants in the economy are
a. firms and government.
b. households and firms.
c. households and government.
d. households, firms, and government.
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64. Which two groups of decision makers are included in the simple circular-flow diagram?
a. markets and government
b. households and government
c. firms and government
d. households and firms
65. In the circular-flow diagram, firms produce
a. goods and services using factors of production.
b. output using inputs.
c. factors of production using goods and services.
d. Both (a) and (b) are correct.
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66. Factors of production are
a. the mathematical calculations firms make in determining their optimal production levels.
b. social and political conditions that affect production.
c. the physical relationships between economic inputs and outputs.
d. inputs into the production process.
67. Factors of production are
a. used to produce goods and services.
b. also called output.
c. abundant in most economies.
d. assumed to be owned by firms in the circular-flow diagram.
68. In the circular–flow diagram, which of the following is not a factor of production?
a. labor
b. land
c. capital
d. money
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69. In the circular-flow diagram,
a. firms own the factors of production.
b. the factors of production are labor, land, and capital.
c. the factors of production are also called “output.”
d. All of the above are correct.
70. Which of these terms are used interchangeably?
a. “goods and services” and “inputs”
b. “goods and services” and “factors of production”
c. “inputs” and “factors of production“
d. “land, labor, and capital” and “goods and services“
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71. Another term for factors of production is
a. inputs.
b. output.
c. goods.
d. services.
72. In economics, capital refers to
a. the finances necessary for firms to produce their products.
b. buildings and machines used in the production process.
c. the money households use to purchase firms‘ output.
d. stocks and bonds.
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73. Which of the following is an example of a capital input?
a. a computer
b. a share of stock
c. an hour of a worker’s time
d. $50,000
74. A model that shows how dollars flow through markets among households and firms is called the
a. production possibilities frontier.
b. circular–flow diagram.
c. demand and supply diagram.
d. comparative advantage model.
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75. In the simple circular-flow diagram, households
a. are the only decision makers.
b. own the factors of production.
c. are buyers of inputs.
d. consume only some of the goods and services that firms produce.
76. In the simple circular-flow diagram,
a. households own the factors of production.
b. households buy all the goods and services that firms produce.
c. land, labor, and capital flow from households to firms.
d. All of the above are correct.
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77. In the simple circular-flow diagram, who buys the factors of production?
a. households only
b. firms only
c. both households and firms
d. neither households nor firms
78. The simple circular–flow diagram is a model that includes only some key players in the real
economy. Which of the following key players are omitted from the simple circular-flow model?
a. households
b. firms
c. government
d. markets for factors of production