Economics Chapter One and Two Quiz

Chapter One and Two Quiz 1. Economic analysis assumes that A. individuals act only out of selfish motives. B. “although individuals are at times selfish and at times unselfish, only their selfish actions may be predicted.” C. “people are basically humanitarian, and their actions are, therefore, impossible to predict.” D. changes in the personal benefits and costs associated with a choice will exert a predictable influence on human behavior. 2. Which one of the following is a positive economic statement? A. An increase in the minimum wage will reduce employment. B. The minimum wage should be increased. C. Social justice will be served by increasing the minimum wage. D. Thoughtful people oppose an increase in the minimum wage. 3. “The price of an airline ticket from Denver to Washington, D.C. costs $600. A bus ticket costs $150. Traveling by plane takes 6 hours compared with 51 hours by bus. Other things constant, an individual would gain by choosing air travel if, and only if, his time were valued at more than” A. $6 per hour B. $8 per hour C. $10 per hour D. $15 per hour 4. "The standard of living is too low for many individuals in the United States. The government should implement policies designed to achieve a more equal distribution of income." The preceding statements are A. Positive economic statements based on cause and effect B. Normative economic statements based on value judgments C. Based on the fallacy of composition argument D. An empirically validated economic principle 5. "If Tom had twice as much money, he could consume twice as much. If everyone had twice as much money, they could consume twice as much." This quote illustrates A. The difference between positive and normative economics B. The fallacy of composition C. That association is not causation D. The law of unintended consequences 6. Three basic decisions must be made by all economies. What are they? A. "how much will be produced, when it will be produced, and how much it will cost" B. "what the price of each good will be, who will produce each good, and who will consume each good" C. "what will be produced, how goods will be produced, and for whom goods will be produced" D. "how the opportunity cost principle will be applied, if and how the law of comparative advantage will be utilized, and whether the production possibilities constraint will apply" 7. "If an economy is operating at a point inside the production possibilities curve," A. Its resources are not being used efficiently B. The curve will begin to shift inward C. The curve will begin to shift outward D. This is a trick question because an economy cannot produce at a point inside the curve 8. "As soon as I announced my 'get tough on crime' policy, criminals got scared and the crime rate went down." Suppose that the lower crime rate was actually caused by freezing cold temperatures in January--it was just too cold for anybody to be out robbing other people. Which fundamental economic mistake did the politician make? A. Believing that what’s good for one person is good for the whole group (the fallacy of composition) B. Failing to take into account the benefits of crime (the payoff fallacy) C. Believing that association is the same as causation D. Failing to understand the theory of comparative advantage 9. The primary benefit that results when a nation employs its resources in accordance with the principle of comparative advantage is A. an expansion in investment resulting from a reallocation of resources away from consumption B. a larger output resulting from a more efficient use of resources C. greater equality of income resulting from an increase in the number of workers D. an increase in the profitability of business enterprises resulting from an increase in investment 10. The economic wealth of this country is primarily the result of the profit made by some individuals at the expense of others. The person who made this statement A. Has failed to comprehend that mutual gains result from specialization and exchange B. has failed to comprehend the fallacy of composition C. has failed to understand the significance of the production possibilities constraint D. has utilized the economic way of thinking; the statement is essentially correct 11. "While waiting in line to buy two tacos at 75 cents each, and a medium drink for 80 cents, Jordan notices that the restaurant has a value meal containing three tacos and a medium drink all for $2.50. For Jordan, the marginal cost of purchasing the third taco would be" A. zero B. 20 cents C. 75 cents D. 80 cents 12. Does voluntary exchange create wealth (value)? A. "No, exchange does not expand output." B. "No, if one person gains, the other party must lose an equal amount." C. "Uncertain: It does when it results in the creation of additional goods and services; otherwise, it does not." D. "Yes, trade generally permits the trading partners to gain more of what they value; this is why they agree to the terms of the exchange." 13. Which of the following is most clearly consistent with the basic postulate of economics regarding the reaction of people to a change in incentives. A. Farmers produce fewer bushels of wheat in response to an increase in the price of wheat. B. People will buy more milk at a price of $2 per gallon than at $1 per gallon C. People will buy less gas if the price of gas increases by $.20 per gallon D. People will consume more beef if the price increases from $1 to $2 per pound 14. Which of the following will most likely occur under a system of clearly defined and enforced private property rights? A. "Resource owners will fail to conserve vital resources, even if they expect their supply to be highly limited in the future." B. "Resource owners will ignore the wishes of others, including others who would like to use the resource that is privately owned." C. Resource owners will fail to consider the wishes of potential future buyers when they decide how to employ privately owned resources. D. Resource owners will gain by discovering and employing their resources in ways that are highly valued by others. 15. Which of the following sayings best reflects the concept of opportunity cost? A. You can t teach an old dog new tricks B. Time is money C. I have a baker’s dozen D. There’s no business like show business