Test 1

Question 1

The quantity demanded of a good is the amount that buyers are:

a. able to buy.
b. willing, able, and need to buy.
c. willing to buy.
d. willing and able to buy.

Answer 1

d. willing and able to buy.

Question 2

A supply curve illustrates a(n) ____ relationship between ____ and ____.

a. direct; price; quantity demanded
b. direct; price; quantity supplied
c. direct; price; supply
d. inverse; price; quantity demanded

Answer 2

b. direct; price; quantity supplied

Question 3

Assume the demand schedule for cookies is downward sloping. If the price of cookies falls from $2.50 to $2.25 per dozen:

a. the demand for cookies will rise.
b. the demand for cookies will fall.
c. a larger quantity of cookies will be demanded.
d. a smaller quantity of cookies will be demanded.

Answer 3

c. a larger quantity of cookies will be demanded.

Question 4

“Other things equal, when the price of a good rises, the quantity demanded of the good falls, and when the price falls, the quantity demanded rises.” This relationship between price and quantity demanded is referred to as

a. the law of demand.
b. equilibrium.
c. the relationship between demand and income.
d. the definition of a normal good.

Answer 4

a. the law of demand.

Question 5

An increase in the price of a good will

a. increase supply.
b. decrease supply.
c. increase quantity supplied.
d. decrease quantity supplied.

Answer 5

c. increase quantity supplied.

Question 6

A market is not really a place but rather the process of buyers and sellers exchanging goods and services.

a. true
b. false

Answer 6

a. true

Question 7

Which of the following demonstrates the law of supply?

a. When lemon prices rose, lemon growers increased their quantity supplied of lemons.
b. When sweater producers expected sweater prices to rise in the near future, they decreased their current supply of sweaters.
c. When car production technology improved, car producers increased their supply of cars.
d. When leather became more expensive, belt producers decreased their supply of belts.

Answer 7

a. When lemon prices rose, lemon growers increased their quantity supplied of lemons.

Question 8

Based on widespread reaction to the threat of the H1N1 virus, the likely effect on the demand curve for hand sanitizers would be

a. a shift of the demand curve to the right.
b. a movement upward along the demand curve to the left.
c. a movement downward along the demand curve to the right.
d. a shift of the demand curve to the left.

Answer 8

a. a shift of the demand curve to the right.

Question 9

Which of the following is most likely to be an inferior good?

a. Used clothing.
b. An Ivy League education.
c. Porsches.
d. Lobster.

Answer 9

a. Used clothing.

Question 10

Which of the following would lead to a decrease in the supply of watches?

a. A decrease in the expected future price of watches
b. A decrease in the price of watches
c. An increase in the price of watches
d. None of the above

Answer 10

d. None of the above

Question 11

Downward shifts are

a. increases in demand and decreases in supply.
b. increases in supply and decreases in demand.
c. decreases in both demand and supply.
d. increases in both demand and supply.

Answer 11

b. increases in supply and decreases in demand.

Question 12

Which of the following would cause an increase in the demand curve for oranges?

a. an announcement by the FDA that oranges lowers cholesterol
b. a new machine that allows orange growers to harvest oranges faster
c. a freeze in Florida (a major orange producing state)
d. a decrease in the price of apples

Answer 12

a. an announcement by the FDA that oranges lowers cholesterol

Question 13

Which of the following is a positive statement?

a. The average high temperature in Miami, Florida in February is lower than the average high temperature in Chicago, Illinois.
b. 30 minutes of exercise three or more times per week will decrease the occurrence of heart disease.
c. An increase in cigarette smoking will lead to a decrease in the likelihood of getting lung cancer.
d. all of the above

Answer 13

d. all of the above

Question 14

Self-interest could never include benevolence.

a. true
b. false

Answer 14

false

Question 15

Scarcity is:

a. a problem that necessitates making choices and tradeoffs.
b. only a problem in modern industrialized economies.
c. only a problem in centrally planned economies.
d. only a problem in impoverished economies.

Answer 15

a. a problem that necessitates making choices and tradeoffs.

Question 16

Which of the following is an example of an individual motivated be self-interest?

a. an attorney providing free legal service to low income families
b. a man buying a new Camaro
c. a student volunteering at a soup kitchen
d. all of the above

Answer 16

d. all of the above

Question 17

Since resources are abundant, we do not have to make choices about their use.

a. true
b. false

Answer 17

b. false

Question 18

The central question in economics is how to:

a. find more resources to satisfy everyone’s wants.
b. make the best use of scarce resources to satisfy our unlimited wants.
c. regulate the supply of money.
d. reduce the wants of individuals, businesses and government.

Answer 18

b. make the best use of scarce resources to satisfy our unlimited wants.

Question 19

If individuals who sit in the back of the classroom receive lower grades on average than the rest of the class, does that mean that sitting in the back of a classroom causes one to perform poorly on exams?

a. It is not possible for an economist to determine causation between variables.
b. The reoccurrence of such a relationship is sufficient evidence that sitting in the back of a classroom will lead to lower grades.
c. Not necessarily. The reoccurrence of a certain relationship between two variables does not necessarily imply causation.
d. none of the above

Answer 19

Not necessarily. The reoccurrence of a certain relationship between two variables does not necessarily imply causation.

Question 20

.

From an economists’ perspective, which of the following observations is not true?

a. Self-interest can include benevolence.
b. Self-interest is purely monetary in nature.
c. Self-interest is a good predictor of human behavior in most situations.
d. Self-interest is not the same as selfishness.

Answer 20

b. Self-interest is purely monetary in nature.

Question 21

The fallacy of composition is:

a. the erroneous view that an economic activity can sometimes exceed the sum of its components.
b. the idea that association need not imply causation.
c. the view that the aggregation of economic activity will necessarily lead to an outcome that is different than the outcome generated by each individual in the group.
d. the erroneous view that what is true for the individual will also be true for the group.

Answer 21

d. the erroneous view that what is true for the individual will also be true for the group.

Question 22

The best test of an economic theory is:

a. the rigor of its mathematical formulation.
b. the level of real-world detail it captures.
c. the accuracy of its assumptions.
d. its ability to explain and predict.

Answer 22

d. its ability to explain and predict.

Question 23

Microeconomics primarily models:

a. the overall economy.
b. the behavior of households but not firms.
c. the behavior of both firms and households and how they interact in the marketplace.
d. the behavior of firms but not households.

Answer 23

c. the behavior of both firms and households and how they interact in the marketplace.

Question 24

“Ceteris paribus” means:

a. if events A and B occur together, one must cause the other.
b. all relevant details are included.
c. holding other things constant.
d. what is true for the individual must be true for the whole.

Answer 24

c. holding other things constant.

Question 25

Which of the following is false?

a. A hypothesis is a normative statement.
b. The majority of disagreements in economics stem from normative issues.
c. Normative analysis involves subjective, non-testable statements.
d. A positive statement must be testable but need not be true.

Answer 25

a. A hypothesis is a normative statement.

Question 26

The fallacy of composition states that even if something is true for an individual, it is not necessarily true for many individuals as a group.

a. true
b. false

Answer 26

a. true

Question 27

In Europe, birth rates have fallen as the stork population decreased. This is likely

a. the fallacy of composition.
b. a normative statement.
c. confusing correlation and causation.
d. all of the above

Answer 27

c. confusing correlation and causation.

Question 28

Which of the following forces us to choose among alternatives?

a. Value
b. Rarity
c. Scarcity
d. Market mechanism

Answer 28

c. Scarcity

Question 29

Understanding economics would be helpful to which of the following individuals?

a. a restaurant owner deciding whether to expand his establishment’s hours of operation
b. a college student planning her next semester courses
c. a fashion designer selecting fabric for a new spring collection
d. All of the above

Answer 29

d. All of the above

Question 30

Which of the following is true?

a. The fallacy of composition is that, even if something is true for an individual, it is not necessarily true for many individuals as a group.
b. Virtually all theories in economics are expressed using a ceteris paribus (“let everything else be equal” or “holding everything else constant”) assumption.
c. One must always be careful not to confuse correlation with causation.
d. All of the above are true.

Answer 30

d. All of the above are true.

Question 31

Which of the following statements can explain why an association between Event A and Event B may not imply causality from A to B?

a. There may be a third variable that is responsible for causing both events.
b. Causality may run from Event B to Event A instead of in the opposite direction.
c. The observed association may be coincidental.
d. All of the above can explain why an association between Event A and Event B may not imply causality from A to B.

Answer 31

d. All of the above can explain why an association between Event A and Event B may not imply causality from A to B.

Question 32

The fallacy of composition is essentially the error of:

a. generalizing from the individual to the whole.
b. omitting relevant variables from an economic model.
c. confusing normative economics with positive economics.
d. confusing association with causation.

Answer 32

a. generalizing from the individual to the whole.

Question 33

“The government should levy higher taxes on the rich and use the additional revenues to provide better housing for the poor.” This statement illustrates:

a. a positive economic statement.
b. the fallacy of composition.
c. a normative economic statement.
d. the basic principle of economics.

Answer 33

c. a normative economic statement.

Question 34

Which of the following graphs or charts must add up to one hundred percent?

a. a scatter diagram
b. a labor graph
c. a time-series graph
d. a pie chart

Answer 34

d. a pie chart

Question 35

An economic hypothesis:

a. cannot be tested since it is normative in nature.
b. cannot be tested since it is a positive economic statement.
c. can be tested using empirical analysis.
d. can be tested using normative analysis.

Answer 35

c. can be tested using empirical analysis.

Question 36

Most people consider economics a(n):

a. accounting science.
b. earth science.
c. physical science.
d. social science.

Answer 36

d. social science.

Question 37

Since resources are abundant, we do not have to make choices about their use.

a. true
b. false

Answer 37

b. false

Question 38

Economics can be divided into two main branches of study:

a. demand and supply.
b. capitalism and socialism.
c. microeconomics and macroeconomics.
d. capitalism and communism.

Answer 38

c. microeconomics and macroeconomics.

Question 39

When two variables repeatedly change at the same time, there must be a causal relationship between them.

a. true
b. false

Answer 39

b. false

Question 40

“A reduction in the rate at which stock dividends are taxed will lead to greater investment in the stock market.” This is an example of:

a. a negative economic statement.
b. a positive economic statement.
c. the fallacy of composition.
d. a normative economic statement.

Answer 40

b. a positive economic statement.

Question 41

Bill says: “The imposition of a tax on tequila will increase its price.” Bob says: “Taxes should be imposed on tequila because college students drink too much.”

a. Both statements are normative.
b. Bill’s statement is positive, and Bob’s statement is normative.
c. Bill’s statement is normative, and Bob’s statement is positive.
d. Both statements are positive.

Answer 41

b. Bill’s statement is positive, and Bob’s statement is normative.

Question 42

A theory asserts that consumers will purchase less of a good at higher prices than they will at lower prices, ceteris paribus. However, when the average price of cars increased throughout the 1990s, more cars were purchased. Which of the following best explains the apparent conflict between theory and data?

a. It is likely that variables other than the price and quantity of cars demanded were changing.
b. The theory must be invalid.
c. The ceteris paribus assumption is valid.
d. The theory is valid. However, the price and quantity data gathered by researchers was clearly measured incorrectly.

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Correct Response
a

Answer 42

a. It is likely that variables other than the price and quantity of cars demanded were changing.

Question 43

Which of the following is a normative statement?

a. Running government budget deficits leads to higher market interest rates.
b. An increase in tariffs will increase the domestic prices paid by consumers.
c. Income should be redistributed from the top 2% of wage earners to the lower income brackets.
d. An increase in taxes will cause higher unemployment.

Answer 43

c. Income should be redistributed from the top 2% of wage earners to the lower income brackets.

Question 44

An economist at the University of Alaska at Anchorage has been asked to explain why the price of Alaskan crude oil has fallen recently. In order to assemble a scholarly answer, the professor should take which steps?

a. Ask people in Alaska why they are not purchasing oil.
b. Develop a hypothesis, test the proposition by engaging in empirical analysis, and examine the data to see if it fits with the facts.
c. Gather data on crude oil prices and seemingly unrelated variables in order to look for associations, then formulate a hypothesis based on those unexpected associations.
d. None of the above. The oil industry is controlled by a cartel; therefore price changes in the industry cannot be explained using economic theories.

Answer 44

b. Develop a hypothesis, test the proposition by engaging in empirical analysis, and examine the data to see if it fits with the facts.