Chapter 2 Thinking Like an Economist
MULTIPLE CHOICE
1. Which of the following is not correct?
a.
Economists use some familiar words in specialized ways.
b.
Economics has its own language and its own way of thinking, but few other fields of study do.
c.
Supply, demand, elasticity, comparative advantage, consumer surplus, and deadweight loss are all
terms that are part of the economist’s language.
d.
The value of the economist’s language lies in its ability to provide you with a new and useful way
of thinking about the world in which you live.
2. Economists use some familiar terms in specialized ways
a.
to make the subject sound more complex than it is.
b.
because every respectable field of study has its own language.
c.
to provide a new and useful way of thinking about the world.
d.
because it was too difficult to come up with new terms.
THE ECONOMIST AS SCIENTIST
1. Economists, like mathematicians, physicists, and biologists,
a.
make use of the scientific method.
b.
try to address their subject with a scientist’s objectivity.
c.
devise theories, collect data, and then analyze these data in an attempt to verify or refute their
theories.
d.
All of the above are correct.
2. The essence of science is
a.
the laboratory experiment.
b.
the scientific method.
c.
the study of nature, but not the study of society.
d.
All of the above are correct.
3. The scientific method is
a.
the use of modern technology to understand the way the world works.
b.
the use of controlled laboratory experiments to understand the way the world works.
c.
the dispassionate development and testing of theories about how the world works.
d.
the search for evidence to support preconceived theories about how the world works.
2 ❖ Chapter 2/Thinking Like an Economist
4. The scientific method is applicable to studying
a.
natural sciences, but not social sciences.
b.
social sciences, but not natural sciences.
c.
both natural sciences and social sciences.
d.
None of the above is correct.
5. Who said, “The whole of science is nothing more than the refinement of everyday thinking”?
a.
Isaac Newton
b.
Albert Einstein
c.
Adam Smith
d.
Benjamin Franklin
6. Albert Einstein once made the following observation about science:
a.
“The whole of science is nothing more than the refinement of everyday thinking.”
b.
“The whole of science is nothing more than an interesting intellectual exercise.”
c.
“In order to understand science, one must rely solely on abstraction.”
d.
“In order to understand science, one must transcend everyday thinking.”
7. Sir Isaac Newton’s development of the theory of gravity after observing an apple fall from a tree is an example
of
a.
a controlled experiment that lead to the formulation of a scientific theory.
b.
being in the right place at the right time.
c.
an idea whose time had come.
d.
the interplay between observation and theory in science.
8. Which of the following is an example of using the scientific method with a natural experiment?
a.
Measuring how long it takes a marble to fall from a ten story building.
b.
Comparing plant growth with and without a soil additive.
c.
Tracking the price of oil when a war in the Middle East interrupts the flow of crude oil.
d.
Observing the reaction when two chemicals are mixed together.
9. The goal of an economist who formulates new theories is to
a.
provide an interesting framework of analysis, whether or not the framework turns out to be of much
use in understanding how the world works.
b.
provoke stimulating debate in scientific journals.
c.
contribute to an understanding of how the world works.
d.
demonstrate that economists, like other scientists, can formulate testable theories.
Chapter 2/Thinking Like an Economist ❖ 3
10. Which of the following statements applies to economics, as well as to other sciences such as physics?
a.
Experiments are considered valid only when they are conducted in a laboratory.
b.
Good theories do not need to be tested.
c.
Real-world observations often lead to theories.
d.
Economics, as well as other sciences, is concerned primarily with abstract concepts.
11. With respect to how economists study the economy, which of the following statements is most accurate?
a.
Economists study the past, but they do not try to predict the future.
b.
Economists use “rules of thumb” to predict the future.
c.
Economists devise theories, collect data, and analyze the data to test the theories.
d.
Economists use controlled experiments in much the same way that biologists and physicists do.
12. Economists face an obstacle that many other scientists do not face. What is that obstacle?
a.
It is often difficult to formulate theories in economics.
b.
It is often difficult and sometimes impossible to perform experiments in economics.
c.
Economics cannot be addressed objectively; it must be addressed subjectively.
d.
The scientific method cannot be applied to the study of economics.
13. In conducting their research, economists face an obstacle that not all scientists face; specifically, in economics,
it is often difficult and sometimes impossible to
a.
make use of theory and observation.
b.
rely upon the scientific method.
c.
conduct laboratory experiments.
d.
find articles or books that were written before 1900.
14. The use of theory and observation is more difficult in economics than in sciences such as physics due to the
difficulty in
a.
performing an experiment in an economic system.
b.
applying mathematical methods to economic analysis.
c.
analyzing available data.
d.
formulating theories about economic events.
15. Which of the following statements is (are) correct?
a.
Relative to some other scientists, economists find it more difficult to conduct experiments.
b.
Theory and observation are important in economics as well as in other sciences.
c.
To obtain data, economists often rely upon the natural experiments offered by history.
d.
All of the above are correct.
4 ❖ Chapter 2/Thinking Like an Economist
16. Because it is difficult for economists to use experiments to generate data, they generally must
a.
do without data.
b.
substitute assumptions for data when data are unavailable.
c.
rely upon hypothetical data that were previously concocted by other economists.
d.
use whatever data the world gives them.
17. Which of the following statements is correct?
a.
Economists almost always find it easy to conduct experiments in order to test their theories.
b.
Economics is not a true science because economists are not usually allowed to conduct experiments
to test their theories.
c.
Economics is a social science rather than a true science because it cannot employ the scientific
method.
d.
Economists are usually not able to conduct experiments, so they must rely on natural experiments
offered by history.
18. Instead of conducting laboratory experiments to generate data to test their theories, economists often
a.
ask winners of the Nobel Prize in Economics to evaluate their theories.
b.
argue that data is impossible to collect in economics.
c.
gather data from historical episodes of economic change.
d.
assume that data would support their theories.
19. The most common data for testing economic theories come from
a.
carefully controlled and conducted laboratory experiments.
b.
computer models of economies.
c.
historical episodes of economic change.
d.
centrally planned economies.
20. In conducting their research, economists often substitute historical events and historical episodes for
a.
theories and observations.
b.
laboratory experiments.
c.
models.
d.
assumptions.
21. For economists, substitutes for laboratory experiments often come in the form of
a.
natural experiments offered by history.
b.
untested theories.
c.
“rules of thumb” and other such conveniences.
d.
reliance upon the wisdom of elders in the economics profession.
Chapter 2/Thinking Like an Economist ❖ 5
22. Economists regard events from the past as
a.
irrelevant, since history is unlikely to repeat itself.
b.
of limited interest, since those events seldom provide any useful economic data.
c.
interesting but not particularly valuable, since those events cannot be used to evaluate present-day
economic theories.
d.
interesting and valuable, since those events are capable of helping us to understand the past, the
present, and the future.
23. For economists, historical episodes
a.
are not worthy of study because they offer few insights into current economic events and problems.
b.
are not worthy of study because laboratory experiments provide more reliable data.
c.
are worthy of study because economists rely entirely on observation, rather than on theory.
d.
are worthy of study because they serve as valuable substitutes for laboratory experiments.
24. Historical episodes are
a.
valuable to economists because they allow economists to see how the science of economics has
evolved.
b.
valuable to economists because they allow economists to evaluate economic theories.
c.
not of concern to economists because economics is about predicting the future, not dwelling on the
past.
d.
not of concern to economists because the exact circumstances of historical episodes are unlikely to
be observed again.
25. One thing economists do to help them understand how the real world works is
a.
make assumptions.
b.
ignore the past.
c.
try to capture every aspect of the real world in the models they construct.
d.
All of the above are correct.
26. Economists make assumptions in order to
a.
mimic the methodologies employed by other scientists.
b.
minimize the number of experiments that yield no useful data.
c.
minimize the likelihood that some aspect of the problem at hand is being overlooked.
d.
focus their thinking on the essence of the problem at hand.
6 ❖ Chapter 2/Thinking Like an Economist
27. Economists make use of assumptions, some of which are unrealistic, for the purpose of
a.
teaching economics to people who have never before studied economics.
b.
advancing their political agendas.
c.
developing models when the scientific method cannot be used.
d.
focusing their thinking.
28. For an economist, the idea of making assumptions is regarded generally as a
a.
bad idea, since doing so leads to the omission of important ideas and variables from economic
models.
b.
bad idea, since doing so invariably leads to data-collection problems.
c.
good idea, since doing so helps to simplify the complex world and make it easier to understand.
d.
good idea, since economic analysis without assumptions leads to complicated results that the
general public finds hard to understand.
29. Economists make assumptions to
a.
provide issues for political discussion.
b.
make a complex world easier to understand.
c.
make it easier to teach economic concepts and analysis.
d.
create policy alternatives that are incomplete or subject to criticism.
30. A circular-flow model and production possibilities frontier are similar in that
a.
neither allows economic analysis to occur.
b.
neither can be represented visually on a graph.
c.
both make use of assumptions.
d.
both make use of complex equations to arrive at solutions.
31. An economic theory about international trade that is based on the assumption that there are only two countries
trading two goods
a.
is useless, since the real world has many countries trading many goods.
b.
can be useful only in situations involving two countries and two goods.
c.
can be useful in the classroom, but is useless in the real world.
d.
can be useful in helping economists understand the complex world of international trade involving
many countries and many goods.
Chapter 2/Thinking Like an Economist ❖ 7
32. The art in scientific thinking — whether in chemistry, economics, or biology — is
a.
the design and implementation of laboratory experiments.
b.
knowing when to stop collecting data and when to start analyzing the data.
c.
deciding which assumptions to make.
d.
being able to mathematically model natural phenomena.
33. The art in scientific thinking is
a.
finding the right problem to study.
b.
deciding which assumptions to make.
c.
the ability to make an abstract subject easy to understand.
d.
not something in which economists have to be skilled.
34. The decision of which assumptions to make is
a.
an easy decision for an economist, but a difficult decision for a physicist or a chemist.
b.
not a particularly important decision for an economist.
c.
usually regarded as an art in scientific thinking.
d.
usually regarded as the easiest part of the scientific method.
35. 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.
36. 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.
37. 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.
8 ❖ Chapter 2/Thinking Like an Economist
38. 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.
39. 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.
40. In building economic models, economists often omit
a.
assumptions.
b.
theories.
c.
details.
d.
equations.
41. 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.
42. 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.
43. 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.
Chapter 2/Thinking Like an Economist ❖ 9
44. 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.
45. 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.
46. 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.
47. 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
48. 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.
10 ❖ Chapter 2/Thinking Like an Economist
49. Economists build economic models by
a.
generating data.
b.
conducting controlled experiments in a lab.
c.
making assumptions.
d.
reviewing statistical forecasts.
50. Economic models are built with
a.
recommendations concerning public policies.
b.
facts about the legal system.
c.
assumptions.
d.
statistical forecasts.
51. 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.
52. 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.
53. 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.
54. 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.
Chapter 2/Thinking Like an Economist ❖ 11
55. 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.
56. 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.
57. 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.
58. 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.
59. 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.
60. 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.
12 ❖ Chapter 2/Thinking Like an Economist
61. 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
62. 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.
63. 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.
64. 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.
65. In the circular-flow diagram, which of the following is not a factor of production?
a.
labor
b.
land
c.
capital
d.
money
66. 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.
Chapter 2/Thinking Like an Economist ❖ 13
67. 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”
68. Another term for factors of production is
a.
inputs.
b.
output.
c.
goods.
d.
services.
69. 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.
70. 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.
71. 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.
72. 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.
14 ❖ Chapter 2/Thinking Like an Economist
73. In the simple circular-flow diagram, who consumes the goods and services that firms produce?
a.
households only
b.
firms only
c.
both households and firms
d.
neither households nor firms
74. 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
75. In the circular-flow diagram, another name for goods and services produced by firms is
a.
factors of production.
b.
output.
c.
inputs.
d.
resources.
76. Which markets are represented in the simple circular-flow diagram?
a.
markets for goods and services and markets for financial assets
b.
markets for factors of production and markets for financial assets
c.
markets for goods and services and markets for factors of production
d.
markets for goods and services and markets for imports and exports
77. In the markets for goods and services in the circular-flow diagram,
a.
households and firms are both buyers.
b.
households and firms are both sellers.
c.
households are buyers and firms are sellers.
d.
households are sellers and firms are buyers.
78. In the circular-flow diagram, in the markets for
a.
goods and services, households and firms are both sellers.
b.
goods and services, households are buyers and firms are sellers.
c.
the factors of production, households are buyers and firms are sellers.
d.
the factors of production, households and firms are both buyers.
Chapter 2/Thinking Like an Economist ❖ 15
79. In the circular-flow diagram, in the markets for
a.
goods and services, households and firms are both sellers.
b.
goods and services, households are sellers and firms are buyers.
c.
the factors of production, households are sellers and firms are buyers.
d.
the factors of production, households and firms are both buyers.
80. In the markets for goods and services in the circular-flow diagram,
a.
households provide firms with savings for investment.
b.
households provide firms with labor, land, and capital.
c.
firms provide households with output.
d.
firms provide households with profit.
81. In the markets for the factors of production in the circular-flow diagram,
a.
households are sellers and firms are buyers.
b.
households are buyers and firms are sellers.
c.
households and firms are both buyers.
d.
households and firms are both sellers.
82. In the markets for factors of production in the circular-flow diagram,
a.
households provide firms with labor, land, and capital.
b.
households provide firms with savings for investment.
c.
firms provide households with goods and services.
d.
firms provide households with profit.
83. Which of the following transactions does not take place in the markets for factors of production in the circular-
flow diagram?
a.
a landowner leases land to a farmer
b.
a farmer hires a teenager to help with harvest
c.
a construction company rents trucks for its business
d.
a woman buys corn for dinner
16 ❖ Chapter 2/Thinking Like an Economist
84. Which of the following transactions does not take place in the markets for the factors of production in the cir-
cular-flow diagram?
a.
Jason provides plumbing services for a plumbing company and receives an hourly wage from the
company for his services.
b.
Jennifer works as a marriage counselor and her clients pay her on a per-hour basis for her services.
c.
Brody owns several shopping malls and receives rent payments from the companies that operate
those malls.
d.
Bree sells advertising for a newspaper and receives a commission from the newspaper company for
each advertisement that she sells.
85. In the circular-flow diagram,
a.
firms are buyers in the markets for goods and services.
b.
households are sellers in the markets for the factors of production.
c.
firms are sellers in the markets for factors of production and in the markets for goods and services.
d.
dollars that are spent on goods and services flow directly from firms to households.
86. The two loops in the circular-flow diagram represent
a.
the flow of goods and the flow of services.
b.
the flow of dollars and the flow of financial assets.
c.
the flow of inputs into production processes and the flow of outputs from production processes.
d.
the flows of inputs and outputs and the flow of dollars.
87. The outer loop of the circular-flow diagram represents the flows of dollars in the economy. Which of the fol-
lowing does not appear on the outer loop?
a.
Wages
b.
Income
c.
Capital
d.
Rent
88. The inner loop of the circular-flow diagram represents the flows of inputs and outputs. Which of the follow-
ing does not appear on the inner loop?
a.
Wages
b.
Land
c.
Capital
d.
Goods and services sold
Chapter 2/Thinking Like an Economist ❖ 17
89. In the circular-flow diagram,
a.
profit flows from households to firms.
b.
labor flows from households to firms.
c.
services flow from households to firms.
d.
All of the above are correct.
90. In the circular-flow diagram,
a.
taxes flow from households to firms, and transfer payments flow from firms to households.
b.
income payments flow from firms to households, and sales revenue flows from households to firms.
c.
resources flow from firms to households, and goods and services flow from households to firms.
d.
inputs and outputs flow in the same direction as the flow of dollars, from firms to households.
91. In the circular-flow diagram,
a.
factors of production flow from government to firms.
b.
goods and services flow from households to firms.
c.
income paid to the factors of production flows from firms to households.
d.
spending on goods and services flows from firms to households.
92. In the circular-flow diagram, which of the following items does not flow from households to firms?
a.
revenue
b.
land, labor, and capital
c.
factors of production
d.
profit
93. In the circular-flow diagram, which of the following items does not flow from firms to households?
a.
goods
b.
services
c.
capital
d.
profit
94. In the circular-flow diagram, which of the following items flows from households to firms through the markets
for goods and services?
a.
goods and services
b.
dollars paid to land, labor, and capital
c.
dollars spent on goods and services
d.
wages, rent, and profit
18 ❖ Chapter 2/Thinking Like an Economist
95. In the circular-flow diagram, which of the following items flows from firms to households through the markets
for goods and services?
a.
goods and services
b.
dollars paid to land, labor, and capital
c.
dollars spent on goods and services
d.
wages, rent, and profit
96. In the circular-flow diagram, which of the following items flows from firms to households through the markets
for the factors of production?
a.
goods and services
b.
land, labor, and capital
c.
dollars spent on goods and services
d.
wages, rent, and profit
97. In the circular-flow diagram, which of the following items flows from households to firms through the markets
for the factors of production?
a.
goods and services
b.
land, labor, and capital
c.
dollars spent on goods and services
d.
wages, rent, and profit
98. In the circular-flow diagram, which of the following items represents a payment for a factor of production?
a.
interest
b.
capital
c.
spending by households on goods
d.
spending by households on services
99. Among economic models, the circular-flow diagram is unusual in that it
a.
drastically simplifies the real world.
b.
features more than one type of market.
c.
features flows of dollars.
d.
does not involve mathematics.
Chapter 2/Thinking Like an Economist ❖ 19
Figure 2-1
100. Refer to Figure 2-1. Which arrow represents the flow of goods and services?
a.
A
b.
B
c.
C
d.
D
101. Refer to Figure 2-1. Which arrow represents the flow of spending by households?
a.
A
b.
B
c.
C
d.
D
102. Refer to Figure 2-1. Which arrow represents the flow of land, labor, and capital?
a.
A
b.
B
c.
C
d.
D
103. Refer to Figure 2-1. Which arrow represents the flow of income payments?
a.
A
b.
B
c.
C
d.
D
20 ❖ Chapter 2/Thinking Like an Economist
104. Refer to Figure 2-1. Ali buys a new pair of shoes at a shoe store. To which of the arrows does this transac-
tion directly contribute?
a.
A only
b.
A and B
c.
C only
d.
C and D
105. Refer to Figure 2-1. Sonia completes her first week of employment working as a hairdresser at a salon. On
Friday of that week, she receives her first paycheck. To which of the arrows does this transaction directly con-
tribute?
a.
B only
b.
A and B
c.
C only
d.
C and D
Figure 2-2
106. Refer to Figure 2-2. Boxes A and B of this circular-flow diagram represent
a.
firms and households.
b.
households and government.
c.
the markets for goods and services and the markets for financial assets.
d.
the markets for goods and the markets for services.
107. Refer to Figure 2-2. Boxes C and D of this circular-flow diagram represent
a.
households and government.
b.
firms and government.
c.
the markets for goods and services and the markets for financial assets.
d.
the markets for goods and services and the markets for factors of production.