Economics: The World Around You

Chapter 01 Economics: The World Around You MULTIPLE CHOICE 1. Which of the following categories of educated workforce in the U.S., aged between 25 and 64, usually receive the highest income? a. College graduates b. Individuals with professional degrees c. Individuals with a master degree d. College drop-outs e. High school students ANS: B DIF: Easy REF: 1.a OBJ: ch. 01, 1 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: Why Study Economics? MSC: Knowledge 2. The wage disparity between college-educated and non-college-educated workers in the U.S. has declined since 2001 because: a. more Americans are pursuing college education. b. the colleges emphasize on technical education rather then textual knowledge. c. most of the skilled sector jobs have been outsourced to India and China. d. the variety of courses offered by the U.S. institutions have increased. e. the number of non-college-educated workers in the workforce has declined. ANS: C DIF: Moderate OBJ: ch. 01, 1 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: Why Study Economics? MSC: Knowledge 3. Which of the following trends has been observed in the U.S. with respect to higher education? a. Students from less educated families stand a better chance of getting admitted to colleges. b. The divorce rate for college grads is twice as high as that of high school grads. c. The divorce rates for college grads are accelerating every year. d. High school grads are twice as likely to smoke as college grads. e. College grads are likely to live shorter and less healthy lives than high school grads. ANS: D DIF: Moderate REF: 1.a OBJ: ch. 01, 1 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: Why Study Economics? MSC: Knowledge 4. According to the U.S. Census Bureau, what is the difference between the earnings of a high school diploma holder and a medical practitioner between the ages of 25 and 64? a. $3.2 million b. $1.2 million c. $5 million d. No wage disparity e. $8.5 million ANS: A DIF: Moderate REF: 1.a OBJ: ch. 01, 1 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: Why Study Economics? MSC: Knowledge 5. Approximately how many American adults hold a college degree? a. 70 percent b. 10 percent c. 30 percent d. 45 percent e. 50 percent ANS: C DIF: Easy REF: 1.a OBJ: ch. 01, 1 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: Why Study Economics? MSC: Knowledge 6. Identify the logic of economics that those who have not studied economics may fail to understand. a. The implicit cost of a commodity is always higher than the explicit cost. b. Individual wants are limited by means. c. Private goods do not have a social cost. d. Public goods are available to us freely. e. There are costs to everything. ANS: E DIF: Easy REF: 1.b OBJ: ch. 01, 1 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: Why Study Economics? MSC: Knowledge 7. In its most fundamental sense, economics is the study of: a. production and cost. b. supply and demand. c. scarcity and choice. d. specialization and trade. e. externality and public goods. ANS: C DIF: Easy REF: 2 OBJ: ch. 01, 2 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Knowledge 8. Economics is the study of how people cope with: a. limited human wants. b. scarcity. c. unlimited resources. d. greed. e. limited time and unlimited income. ANS: B DIF: Easy REF: 2.a OBJ: ch. 01, 2 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Knowledge 9. Which of the following is considered to be the basic economic problem across all countries of the world? a. Inflation b. Unemployment c. Poverty d. Scarcity e. Wage disparity ANS: D DIF: Easy OBJ: ch. 01, 2 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: Why Study Economics? MSC: Knowledge 10. The heart of the economic problem is to: a. provide for full employment. b. stimulate GDP growth. c. improve the standard of living of people. d. allocate limited resources among unlimited uses. e. increase leisure. ANS: D DIF: Moderate REF: 2.a OBJ: ch. 01, 2 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Knowledge 11. A good or service is said to be scarce when: a. its price is too low. b. it is offered only to high income earners. c. no one wishes to purchase it. d. it cannot be transported easily. e. at a price of zero, there will not be enough to satisfy everyone’s desire for it. ANS: E DIF: Moderate REF: 2.a OBJ: ch. 01, 2 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Knowledge 12. The statement "people have unlimited wants," implies that people: a. always want more goods/services than they can purchase with their incomes. b. always have a desire to hold liquid money. c. always strive to be the best they can be. d. generally desire for goods and services which they can afford out of their income. e. try to earn more and more money as their experience at work increases. ANS: A DIF: Easy OBJ: ch. 01, 2 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Knowledge 13. Goods are scarce when: a. their price is too high. b. their price is too low. c. the amount people want is more than the amount available at a zero price. d. they are necessities. e. their price is controlled. ANS: C DIF: Moderate REF: 2.a OBJ: ch. 01, 2 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Knowledge 14. Which of the following defines an economic good? a. Anything that is provided by the government b. Anything that is provided by the nonprofit institutions c. Anything with a price on it d. Anything that has a very high demand in the market e. Anything that has a very high supply in the market ANS: C DIF: Easy REF: 2.a OBJ: ch. 01, 2 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Knowledge 15. To say that “there is a scarcity of gold” means that: a. gold prices will plummet. b. there is not enough gold to satisfy people’s demand. c. there are a very few substitutes for gold. d. gold is relatively less expensive than other metals. e. the demand for gold is changing. ANS: B DIF: Easy OBJ: ch. 01, 2 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Application 16. A good or service becomes scarcer over time if: a. the difference between the quantity demanded and the quantity supplied at a zero price decreases. b. the excess of the quantity demanded over the quantity supplied at a zero price increases. c. the economy is capable of producing more goods and services. d. people begin to reduce their requirements for the goods and services that are actually available e. the amount of a good available equals the amount desired ANS: B DIF: Easy REF: 2.a OBJ: ch. 01, 2 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Knowledge 17. The good for which has no scarcity is called: a. a necessity. b. an economic good. c. a free good. d. an economic bad. e. a social bad. ANS: C DIF: Easy REF: 2.a.1 OBJ: ch. 01, 2 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Knowledge 18. A(n) _____ is anything that you would pay to get rid of. a. economic good b. economic bad c. resource d. free good e. public good ANS: B DIF: Easy REF: 2.a.1 OBJ: ch. 01, 2 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Knowledge 19. Which of the following is a free good? a. Toll free roads b. Purified water c. Flora and fauna at a national park d. Air e. Congested roads ANS: D DIF: Moderate REF: 2.a.1 OBJ: ch. 01, 2 NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Application 20. Which of the following in an example of an economic bad? a. Corruption b. Bureaucracy c. Pollution d. A five year old car e. Life insurance ANS: C DIF: Moderate REF: 2.a.1 OBJ: ch. 01, 2 NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Application 21. Goods used to produce other goods are called: a. valuables. b. final goods. c. inputs. d. intermediaries. e. externalities. ANS: C DIF: Easy REF: 2.a.1 OBJ: ch. 01, 2 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Knowledge 22. Which of the following can be categorized as financial capital? a. Offices and warehouses b. Stocks and bonds c. Machinery d. Land e. Equipment ANS: B DIF: Easy REF: 2.a.1 OBJ: ch. 01, 2 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Application 23. Which of the following resources will not be considered as land? a. Minerals b. Timber c. Water d. Fertile soil e. Processed cotton fibre ANS: E DIF: Easy REF: 2.a.1 OBJ: ch. 01, 2 NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Application 24. People earn an income by selling their resources or by using them. Owners of land receive _____, while the owners of capital receive _____. a. rent; profit b. wage; profit c. profit; rent d. rent; interest e. interest; profit ANS: D DIF: Easy REF: 2.a.1 OBJ: ch. 01, 2 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Knowledge 25. Which of the following phrases correctly describes at least one of the factors of production? a. Natural resources, such as minerals, timber, and water, as well as land itself b. The physical and intellectual services of technological advances c. Buildings and warehouses, but not factories d. Inventories e. Automobiles ANS: A DIF: Easy REF: 2.a.1 OBJ: ch. 01, 2 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Knowledge 26. People can increase their wealth by: a. increasing the value of the resources they own. b. selling the land they own. c. investing in risky ventures. d. purchasing shares of stock. e. trading bonds they own for stocks. ANS: A DIF: Easy REF: 2.a.1 OBJ: ch. 01, 2 NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Application 27. Which of the following is an example of capital as a factor of production? a. Products such as machinery and equipment that are used in the production process b. The financial condition of a privately held corporation c. The value of a company’s stock on the New York Stock Exchange d. A company’s outstanding liabilities e. A business cash flow ANS: A DIF: Easy REF: 2.a.1 OBJ: ch. 01, 2 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Knowledge 28. Oil found underground in Texas is an example of: a. a labor resource. b. physical capital. c. financial capital. d. human capital. e. a land resource. ANS: E DIF: Moderate REF: 2.a.1 OBJ: ch. 01, 2 NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Application 29. Which of the following is not physical capital, as economists use the term? a. An office building b. Machinery on an assembly line c. An industrial robot d. Cash paid for raw materials e. A computer used by a business ANS: D DIF: Moderate REF: 2.a.1 OBJ: ch. 01, 2 NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Application 30. Which of the following statements is true of resources? a. Capital resources include unskilled labor. b. Natural resources are produced by nature and are available at a zero price. c. Labor includes the skills and training that people acquire to use in production. d. Technological know-how is an example of a natural resource. e. Stocks and bonds are referred to as capital. ANS: C DIF: Moderate REF: 2.a.1 OBJ: ch. 01, 2 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Knowledge 31. An economy’s resources: a. are limited in quantity. b. are always efficiently utilized. c. consist of land, labor, capital, and money. d. are unrelated to its standard of living. e. increase with the use of the latest technology. ANS: A DIF: Easy OBJ: ch. 01, 2 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Knowledge 32. It seems as if the Internet has made the number of choices individuals have infinite. This means that: a. resources have become more plentiful. b. wants have become more limited. c. wants have become less limited. d. scarcity continues to exist because resources have not become unlimited. e. scarcity has been reduced. ANS: D DIF: Moderate REF: 2.b OBJ: ch. 01, 2 NAT: Reflective Thinking |The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Comprehension 33. Economics is the study of how people use: a. their scarce resources to satisfy their basic wants. b. their scarce resources to attempt to satisfy their unlimited wants. c. the natural resources to satisfy their basic wants. d. the natural resources to attempt to satisfy their unlimited wants. e. their resources to influence the tastes and preferences of others. ANS: B DIF: Moderate REF: 2.b OBJ: ch. 01, 2 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Knowledge 34. The term rational self-interest, as viewed by economists, means: a. consumers would never pay more for a good simply because it carried a certain designer label. b. only economists are capable of making choices according to rational self-interest. c. people never act until they have perfect information in order to guarantee that they act in their own self-interest. d. consumers always seek the least expensive option when making a purchase, regardless of individual preferences. e. people will make the choices that, given the information available, will give them the greatest amount of satisfaction. ANS: E DIF: Easy REF: 2.c OBJ: ch. 01, 2 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Knowledge 35. When an individual is behaving according to “rational self-interest,” he/she: a. is behaving out of greed. b. will always choose the path of least resistance. c. will always buy the cheapest product. d. is making choices that provide the greatest amount of satisfaction. e. is making a lot of money. ANS: D DIF: Easy REF: 2.c OBJ: ch. 01, 2 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Knowledge 36. Economists use the term _____ to emphasize the point that people do not have perfect knowledge or perfect insight. a. fallacy of composition b. rational self-interest c. cold call d. cognitive bias e. bounded rationality ANS: E DIF: Moderate REF: 2.c OBJ: ch. 01, 2 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Knowledge 37. Individuals acting with rational self-interest: a. always choose the same options as other rational individuals. b. never do voluntary work. c. always try to attain satisfaction at the expense of others. d. choose options that give them the greatest amount of satisfaction. e. are selfish. ANS: D DIF: Moderate REF: 2.c OBJ: ch. 01, 2 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Knowledge 38. A rational consumer: a. never makes mistakes. b. is also a successful entrepreneur. c. always has perfect information. d. never acts until he or she has perfect information e. seeks to gain the greatest possible satisfaction from purchases, using the available information. ANS: E DIF: Easy REF: 2.c OBJ: ch. 01, 2 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Knowledge 39. According to the text, human beings are self-interested, not selfish. This means: a. people are never selfish. b. people never act in a spiteful or belligerent manner. c. people never act in a fit of rage. d. people contribute to charities and otherwise help others. e. people care only about themselves and their families. ANS: D DIF: Easy REF: 2.c OBJ: ch. 01, 2 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Comprehension 40. When people make choices that (at the time and with the information they have at their disposal) give them the greatest amount of satisfaction, they are said to be: a. behaving irrationally. b. applying econometric models to their everyday behavior. c. living under a communist dictator. d. acting in their own rational self-interest. e. showing no willingness to plan for the future. ANS: D DIF: Moderate OBJ: ch. 01, 2 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Knowledge 41. A rational worker: a. always works for the least number of hours. b. always works for the highest money wage, other things being equal. c. never acts under conditions of uncertainty. d. deals only with positive and never with normative issues. e. would never quit a job until he or she had a better one ANS: B DIF: Moderate REF: 2.c OBJ: ch. 01, 2 NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Comprehension 42. Which of the following is not an example of rational self-interest, as defined by economists? a. A person risking his or her life to save someone else. b. A wealthy widow leaving a million dollars in her will to her cat. c. A farmer turning down an offer for his land that would make him independently wealthy. d. A collector paying $4 million for a particular painting, when other paintings by the same painter were available at a lower price. e. An individual paying a high price for an electronic widget at a store instead of buying it at the adjacent store offering the same widget at a lower price. ANS: E DIF: Challenging REF: 2.c OBJ: ch. 01, 2 NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Application 43. Rational self-interest depends on: a. the level of education attained by individuals. b. the general family background. c. the social status of an individual. d. the amount of information available with an individual. e. the financial status of the individual. ANS: D DIF: Moderate REF: 2.c OBJ: ch. 01, 2 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Knowledge 44. People who choose to do voluntary work: a. are not acting with rational self-interest. b. find it more satisfying than the alternatives. c. are not concerned with their own satisfaction. d. never consider the alternative options. e. are beyond the scope of economics. ANS: B DIF: Easy OBJ: ch. 01, 2 NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Application 45. An economic approach used to search out answers to questions about the real world depends on the principles of: a. scarcity and rational self-interest. b. cost and benefit. c. public good and private good. d. economic good and economic bad. e. self-interest and selfishness. ANS: A DIF: Easy REF: 3 OBJ: ch. 01, 2 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Knowledge 46. Identify the correct statement. a. Positive economics deals with what ought to be. b. Positive economics is subjective. c. Normative economics is objective. d. Normative economics deals with what is. e. Normative economics expresses someone’s opinion ANS: E DIF: Easy REF: 3.a OBJ: ch. 01, 3 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Economic Approach MSC: Knowledge 47. The category of economics that contains statements about "what ought to be" is known as: a. positive economics. b. normative economics. c. objective economics. d. applied economics. e. welfare economics. ANS: B DIF: Easy OBJ: ch. 01, 3 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Economic Approach MSC: Knowledge 48. For an analysis to be considered positive, and not normative, it must include: a. some consideration of what ought to be. b. conclusions based on opinion. c. the rigors of the scientific method. d. suggestions for laws designed to protect people from harming themselves. e. strict implementation of policy prescriptions. ANS: C DIF: Moderate REF: 3.a OBJ: ch. 01, 3 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Economic Approach MSC: Knowledge 49. Which of the following is a normative statement? a. Higher prices for cigarettes discourage people from buying cigarettes. b. The Federal Reserve should lower interest rates to help boost residential construction. c. High demand for cars drove up fuel prices. d. Government expenditure on public health and sanitation declined over the years. e. The U.S. experienced a high rate of unemployment in 2009. ANS: B DIF: Moderate REF: 3.a OBJ: ch. 01, 3 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Economic Approach MSC: Application 50. Which of the following is true of positive economics? a. It is concerned with what ought to be. b. It will usually indicate which economic policy is the best. c. It produces verifiable statements. d. It is strictly quantitative and so has little to say to those with philosophical goals to achieve in policymaking e. It is the same as normative economics. ANS: C DIF: Easy REF: 3.a OBJ: ch. 01, 3 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Economic Approach MSC: Knowledge 51. Whether to have more or less government involvement in the overall economy: a. is essentially a normative issue. b. is essentially a political issue, and therefore the techniques of economic analysis are not applicable. c. is essentially a positive issue. d. could be either a positive or a normative issue. e. is essentially a matter of personal opinion. ANS: D DIF: Easy REF: 3.a OBJ: ch. 01, 3 NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics TOP: The Economic Approach MSC: Comprehension 52. Which of the following statements is in the realm of positive economics? a. The president should propose a tax cut because taxes are too high. b. Studies show that if taxes are cut, unemployment falls. c. The budget deficit is too high and should be lowered. d. Studies show that a national debt of over a trillion dollars is bad for the country and should not be allowed to occur. e. The share of defense spending in the budget ought to be changed. ANS: B DIF: Challenging REF: 3.a OBJ: ch. 01, 3 NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics TOP: The Economic Approach MSC: Application 53. When a presidential candidate with a Ph.D. in economics makes a statement about what should be done to balance the budget, he or she is making a: a. normative statement. b. positive statement. c. microeconomic statement. d. statement that is objective. e. statement of fact. ANS: A DIF: Moderate OBJ: ch. 01, 3 NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics TOP: The Economic Approach MSC: Application 54. The statement, “All Americans should be entitled to public health care,” made by a politician would be considered a: a. positive statement. b. macroeconomic statement. c. microeconomic statement. d. normative statement. e. model. ANS: A DIF: Challenging REF: 3.a OBJ: ch. 01, 3 NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics TOP: The Economic Approach MSC: Application 55. “Inflation is a more serious problem than education.” This statement is an example of: a. a microeconomic analysis. b. bounded rationality. c. the fallacy of composition. d. a positive statement. e. a normative statement. ANS: E DIF: Challenging REF: 3.a OBJ: ch. 01, 3 NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics TOP: The Economic Approach MSC: Application 56. “The Super Bowl on January 28, 2001, was won by the Baltimore Ravens. Since the Ravens were originally from Cleveland and are part of the old NFL, the stock market is expected to decline in 2001.” This statement is an example of: a. the interpretation of association as causation. b. ceteris paribus (“everything else held constant”), analysis. c. rational behavior. d. the fallacy of composition. e. marginal analysis. ANS: A DIF: Challenging REF: 3.b OBJ: ch. 01, 3 NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics TOP: The Economic Approach MSC: Application 57. Some economists have noted that throughout recent U.S. history, as the occurrence of sun spots has increased, so has the rate of overall inflation. If any of these economist based this observation on a short-term forecast of inflation, he/she would be: a. confusing the problems of scarcity and abundance. b. committing the fallacy of composition. c. committing the error of interpreting association as causation. d. using normative analysis. e. committing the fallacy of double counting. ANS: C DIF: Challenging REF: 3.b OBJ: ch. 01, 3 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Economic Approach MSC: Application 58. The fallacy of composition: a. is illustrated by the saying that if one moviegoer runs to an exit during a fire to get out of the building, then all the moviegoers should rush to that exit. b. is the error of attributing what applies to many to the case of one. c. is the same as interpreting association as causation. d. is illustrated by the assertion that the stock market rises when hemlines of current fashions rise. e. implies that not all variables are held constant. ANS: A DIF: Challenging REF: 3.b OBJ: ch. 01, 3 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Economic Approach MSC: Knowledge 59. The common logical mistake of implying a cause-and-effect relationship between two events is called: a. rational self-interest. b. interpreting association as causation. c. the fallacy of composition. d. ceteris paribus (“everything else held constant”). e. normative analysis. ANS: B DIF: Moderate REF: 3.b OBJ: ch. 01, 3 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Economic Approach MSC: Knowledge 60. The common logical mistake of interpreting association as causation: a. never occurs in the real world. b. is another term for the fallacy of composition. c. occurs when unrelated or coincidental events that occur at about the same time are said to have a cause-and-effect relationship. d. is the error of attributing what applies in the case of one to the case of many. e. occurs when one variable is closely associated with another variable. ANS: C DIF: Moderate REF: 3.b OBJ: ch. 01, 3 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Economic Approach MSC: Application 61. “Since a household cannot afford to keep adding indefinitely to its debt, a country cannot afford to do so either.” This statement is an example of: a. interpretation of association as causation. b. ceteris paribus (“everything else held constant”) analysis. c. rational behavior. d. the fallacy of composition. e. marginal analysis. ANS: D DIF: Moderate OBJ: ch. 01, 3 NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics TOP: The Economic Approach MSC: Application 62. “If I stand up at a baseball game, I can see better; therefore, everyone should stand up to see better.” This statement illustrates: a. the fallacy of composition. b. interpreting association as causation. c. the scientific method. d. positive economics. e. normative economics. ANS: A DIF: Challenging REF: 3.b OBJ: ch. 01, 3 NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics TOP: The Economic Approach MSC: Application 63. Tim has noticed that every time women’s hemlines rise, stock market prices rise. He is therefore poised to invest in stocks the next time the local fashion editor predicts that shorter skirts will be in for the next season. Tim’s error is called: a. ceteris paribus. b. the fallacy of composition. c. the interpretation of association as causation. d. the scientific method. e. selfish behavior. ANS: C DIF: Challenging REF: 3.b OBJ: ch. 01, 3 NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics TOP: The Economic Approach MSC: Application 64. Aunt Flora has discovered that her sick potted philodendron plant responds well to a certain type of fertilizer. She applies the fertilizer to the many flowers in her garden to make them all grow better. All but the philodendron die. Aunt Flora’s mistake is called: a. ceteris paribus. b. the fallacy of composition. c. the interpretation of association as causation d. the problem of heteroscedasticity. e. the problem of autocorrelation. ANS: B DIF: Challenging REF: 3.b OBJ: ch. 01, 3 NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics TOP: The Economic Approach MSC: Application 65. Which of the following is true of microeconomics? a. It is often a focal point of debates in a presidential campaign. b. It is the study of the behavior of individual firms and individual consumers. c. It is often focused on the tradeoff between the rate of inflation and the unemployment rate. d. It is based on theories that help us understand the relationship between the money supply and interest rates. e. It is the study of the economy in aggregate. ANS: B DIF: Easy REF: 3.c OBJ: ch. 01, 3 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Economic Approach MSC: Knowledge 66. Macroeconomics is concerned primarily with: a. the operation of a particular firm. b. the labor market. c. individual consumer behavior. d. aggregate sectors of the economy such as the consumer sector or the business sector. e. a detailed examination of how price and output decisions are made in specific markets. ANS: D DIF: Easy REF: 3.c OBJ: ch. 01, 3 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Economic Approach MSC: Knowledge 67. Both microeconomic and macroeconomic theories: a. clearly state the public policies that should be undertaken to avoid or solve a particular problem under consideration. b. deal with the aggregate. c. deal with what ought to be as opposed to what is. d. are forms of positive economics. e. deal with individual entities in an economy. ANS: D DIF: Easy REF: 3.c OBJ: ch. 01, 3 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Economic Approach MSC: Knowledge 68. Microeconomics is the branch of economics that focuses on: a. deficit spending. b. the problems of inflation and unemployment. c. state and local economic problems. d. the individual units that make up an economy. e. development in the absence of economic growth. ANS: D DIF: Easy REF: 3.c OBJ: ch. 01, 3 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Economic Approach MSC: Knowledge 69. Which of the following is a microeconomic concern? a. The rate of economic growth in the United States b. The unemployment level for a country c. How to maintain or improve the profits of a particular firm d. Inflation e. The national output of the United States ANS: C DIF: Moderate REF: 3.c OBJ: ch. 01, 3 NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics TOP: The Economic Approach MSC: Knowledge 70. Which of the following is considered a macroeconomic question? a. How can one particular firm maximize profits? b. How does a family allocate income among various available goods and services? c. How can economic policy fight inflation? d. What factors determine the wage rate in a certain industry? e. What is the impact of competition on the profits of a business? ANS: C DIF: Moderate REF: 3.c OBJ: ch. 01, 3 NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics TOP: The Economic Approach MSC: Application TRUE/FALSE 1. According to the American Shareholders Association, a majority of Americans prefer to invest in education rather than stock markets, because of the volatility in the rate of return from the latter. ANS: F DIF: Moderate REF: 1.a OBJ: ch. 01, 1 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: Why Study Economics? MSC: Knowledge 2. Economics is probably best defined as the study of unintended consequences. ANS: T DIF: Easy REF: 1.b OBJ: ch. 01, 1 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: Why Study Economics? MSC: Knowledge 3. Because economics recognizes that any action has costs, it is often counterintuitive in its ability to point out the unintended consequences of public choices. ANS: T DIF: Moderate REF: 1.b OBJ: ch. 01, 1 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: Why Study Economics? MSC: Knowledge 4. It has been generally observed, the rich have limited wants while the poor have unlimited wants. ANS: F DIF: Moderate REF: 2 OBJ: ch. 01, 2 NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Comprehension 5. A haircut at an upscale beauty salon would be regarded as a good in economics. ANS: F DIF: Moderate REF: 2.a OBJ: ch. 01, 2 NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Application 6. Purified bottled water is an example of a free good. ANS: F DIF: Moderate REF: 2.a.1 OBJ: ch. 01, 2 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Application 7. A positive (nonzero) price for a good means the good is in surplus. ANS: F DIF: Easy REF: 2.a OBJ: ch. 01, 2 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Knowledge 8. Producers use inputs, or resources, to produce their goods. ANS: T DIF: Easy REF: 2.a.1 OBJ: ch. 01, 2 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Knowledge 9. In economics, money is capital because it can be used to buy resources to produce goods. ANS: F DIF: Moderate REF: 2.a.1 OBJ: ch. 01, 2 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Application 10. Producers use the money received from selling their goods and services in the market to pay for the resource services. ANS: T DIF: Easy REF: 2.a.1 OBJ: ch. 01, 2 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Knowledge 11. Scarcity impels an individual to make choices. ANS: T DIF: Easy REF: 2.b OBJ: ch. 01, 2 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Knowledge 12. People are compelled to make a choice because of the lack of time and money to buy everything they want. ANS: T DIF: Easy REF: 2.b OBJ: ch. 01, 2 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Knowledge 13. Only poor countries have to make choices because of limited resources. ANS: F DIF: Easy REF: 2.b OBJ: ch. 01, 2 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Knowledge 14. People who choose not to wear seat belts even after being aware that it reduces the probability of death in an accident are considered to be irrational by economists. ANS: F DIF: Challenging REF: 2.c OBJ: ch. 01, 2 NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics TOP: The Definition of Economics MSC: Comprehension 15. If you agree that government should use a lottery to raise funds for improving education, you are using normative analysis. ANS: T DIF: Challenging REF: 3.a OBJ: ch. 01, 3 NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics TOP: The Economic Approach MSC: Application 16. If two variables change, then it must mean that the change in one variable is caused by a change in the other variable. ANS: F DIF: Moderate REF: 3.b OBJ: ch. 01, 3 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Economic Approach MSC: Knowledge 17. If unemployment rises when beer consumption rises, then the statement “Rising unemployment is the result of increased beer consumption” is an example of the ceteris paribus fallacy. ANS: F DIF: Challenging REF: 3.b OBJ: ch. 01, 3 NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics TOP: The Economic Approach MSC: Application 18. “If a tax cut is good for me, it must be good for the whole economy.” This statement is an example of the pitfall called the fallacy of composition. ANS: T DIF: Moderate OBJ: ch. 01, 3 NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics TOP: The Economic Approach MSC: Application 19. Microeconomics is concerned primarily with how individuals make their economic decisions. ANS: T DIF: Easy REF: 3.c OBJ: ch. 01, 3 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: The Economic Approach MSC: Knowledge 20. The study of inflation and unemployment in East Timor is in the realm of microeconomics. ANS: F DIF: Moderate REF: 3.c OBJ: ch. 01, 3 NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics TOP: The Economic Approach MSC: Application