Quiz -1

Econ 2420-010. Instructor: Obid A. Hakimov

01-24-2006
1. Both households and societies face many decisions because
a. resources are scarce.
b. populations may increase or decrease over time.
c. wages for households and therefore society fluctuate with business cycles.
d. people, by nature, tend to disagree.
ANSWE! a. resources are scarce.
". Scarcity e#ists when
a. there is less than an infinite amount of a resource or good.
b. society can meet the wants of every individual.
c. there is less of a good or resource available than people wish to have.
d. the government fails to produce goods.
ANSWE! c. there is less of a good or resource available than people wish to have.
$. Economists use the phrase %&here is no such thing as a free lunch,' to illustrate
a. how inflation increases prices.
b. that to get one thing, we must give up something else.
c. that nothing is free in a mar(et economy.
d. that if something loo(s too good to be true, it probably is.
ANSWE! b. that to get one thing, we must give up something else.
). Efficiency means that
a. society is conserving resources in order to save them for the future.
b. society*s goods and services are distributed fairly among society*s members.
c. society has lessened its dependence on foreign energy sources.
d. society is getting the most it can from its scarce resources.
ANSWE! d. society is getting the most it can from its scarce resources.
+. &he opportunity cost of an item is
a. the number of hours needed to earn money to buy it.
b. what you give up to get that item.
c. usually less than the dollar value of the item.
d. the dollar value of the item.
ANSWE! b. what you give up to get that item.
,. -eople ma(e decisions at the margin by
a. following tradition.
b. e#perience.
c. calculating dollar costs.
d. comparing costs and benefits.
ANSWE! d. comparing costs and benefits.
.. A rational decision ma(er ta(es an action only if the
a. marginal benefit is less than the marginal cost.
b. marginal benefit is greater than the marginal cost.
c. average benefit is greater than the average cost.
d. marginal benefit is greater than both the average cost and the marginal cost.
ANSWE! b. marginal benefit is greater than the marginal cost.
/. Which is the most accurate statement about trade0
a. &rade can ma(e every nation better off.
b. &rade ma(es some nations better off and others worse off.
c. &rading for a good can ma(e a nation better off only if the nation cannot produce that good itself.
d. &rade helps rich nations and hurts poor nations.
ANSWE! a. &rade can ma(e every nation better off.
1. Which of the following is the best statement about mar(ets0
a. 2ar(ets are usually a good way to organi3e economic activity.
b. 2ar(ets are usually inferior to central planning as a way to organi3e economic activity.
c. 2ar(ets fail and are therefore not an acceptable way to organi3e economic activity.
d. 2ar(ets are a good way to organi3e economic activity in developed nations, but not in less developed
nations.
ANSWE! a. 2ar(ets are usually a good way to organi3e economic activity.
14. &he term mar(et failure refers to
a. a situation in which the mar(et on its own fails to allocate resources efficiently.
b. an unsuccessful advertising campaign which reduces buyer demand.
c. a situation in which competition among firms becomes ruthless.
d. a firm which is forced out of business because of losses.
ANSWE! a. a situation in which the mar(et on its own fails to allocate resources efficiently.
11. &wo reasons for a government to intervene in a mar(et are to
a. raise revenues and to promote stability.
b. promote e5uity and to promote efficiency.
c. promote e5uity and to promote stability.
d. promote efficiency and to promote stability.
ANSWE! b. promote e5uity and to promote efficiency.
1". Almost all variation in living standards is attributable to differences in countries*
a. population growth rates.
b. endowments of natural resources.
c. national government budgets.
d. productivity.
ANSWE! d. productivity.
1$. Which is the best statement about the way economists study the economy0
a. &hey study the past, but do not try to predict the future.
b. &hey use a probabilistic approach based on correlations between economic events.
c. &hey devise theories, collect data, then analy3e the data to test the theories.
d. &hey use controlled e#periments much the same way a biologist or physicist does.
ANSWE! c. &hey devise theories, collect data, then analy3e the data to test the theories.
1). By scientific method we mean
a. the use of modern electronic testing e5uipment to understand the world.
b. the dispassionate development and testing of theories about how the world wor(s.
c. the use of controlled e#periments in understanding the way the world wor(s.
d. finding evidence to support preconceived theories about how the world wor(s.
ANSWE! b. the dispassionate development and testing of theories about how the world wor(s.
1+. Economists ma(e assumptions
a. to diminish the chance of wrong answers.
b. to ma(e the world easier to understand.
c. because all scientists ma(e assumptions.
d. to ma(e certain that all necessary variables are included.
ANSWE! b. to ma(e the world easier to understand.
1,. 6ood economic models
a. often leave out important variables, causing serious errors.
b. omit many details to allow us to see what is truly important.
c. are designed to give a complete picture of a given relationship.
d. cause economics to be misunderstood by the general public.
ANSWE! b. omit many details to allow us to see what it truly important.
1.. A model is
a. a theoretical abstraction with very little value.
b. useful to only the ones who constructed it.
c. a realistic and carefully constructed theory.
d. a simplification of real life.
ANSWE! d. a simplification of real life.
1/. Another name for goods and services produced by firms is
a. factors of production.
b. output.
c. inputs.
d. resources.
ANSWE! b. output.
11. 7actors of production are
a. used to produce goods and services.
b. owned by firms.
c. abundant in most economies.
d. used by both firms and households.
ANSWE! a. used to produce goods and services.
"4. 8n the mar(ets for factors of production,
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. the government provides firms with inputs for the production process.
ANSWE! a. households provide firms with labor, land, and capital.
"1. An economic outcome is said to be efficient if the economy is
a. using all of the resources it has available.
b. conserving on resources and not using all it has.
c. getting all it can from the scarce resources it has available.
d. able to produce more than its current production without additional resources.
ANSWE! c. getting all it can from the scarce resources it has available.

"". 9n the production possibilities frontier shown, the economy can produce at which point or points0
a. B, :, E
b. A, B, :, E
c. :, ;
d. :
ANSWE! a. B, :, E
"$. 9n the production possibilities frontier shown, which point represents the ma#imum possible production of
tubas0
a. A
b. B
c. :
d. E
ANSWE! d. E.
"). Economists view positive statements as
a. affirmative, <ustifying e#isting economic policy.
b. optimistic, putting the best possible interpretation on things.
c. descriptive, ma(ing a claim about how the world is.
d. prescriptive, ma(ing a claim about how the world ought to be.
ANSWE! c. descriptive, ma(ing a claim about how the world is.
"+. Economists consider normative statements to be
a. descriptive, ma(ing a claim about how the world is.
b. statements about the normal condition of the world.
c. prescriptive, ma(ing a claim about how the world ought to be.
d. statements which establish production goals for the economy.
ANSWE! c. prescriptive, ma(ing a claim about how the world ought to be.