Thinking Like An Economist Part III

31. 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. ANS: C 32. 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. ANS: D 33. 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. ANS: B 34. 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. ANS: A 35. 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. ANS: D 36. 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. ANS: B 37. In building economic models, economists often omit a. assumptions. b. theories. c. details. d. equations. ANS: C 38. 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. ANS: C 39. 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. ANS: D 40. 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. ANS: B 41. 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. ANS: C 42. 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. ANS: A 43. 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 ANS: B 44. Economists build economic models by a. generating data. b. conducting controlled experiments in a lab. c. making assumptions. d. reviewing statistical forecasts. ANS: C 45. Economic models are built with a. recommendations concerning public policies. b. facts about the legal system. c. assumptions. d. statistical forecasts. ANS: C 46. 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. make assumptions that are contrary to features of the real world. d. try to include every feature of the economy. ANS: C 47. 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. ANS: C 48. 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. ANS: B 49. 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. ANS: D 50. 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. ANS: B 51. 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. ANS: A 52. 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. ANS: D 53. 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. ANS: D 54. 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. ANS: B 55. 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. ANS: B 56. 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 ANS: D 57. 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. ANS: D 58. 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. ANS: D 59. 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. ANS: A 60. In the circular-flow diagram, which of the following is not a factor of production? a. labor b. land c. capital d. money ANS: D 61. 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. ANS: B 62. 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" ANS: C 63. Another term for factors of production is a. inputs. b. output. c. goods. d. services. ANS: A 64. 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. ANS: B 65. 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. ANS: B 66. 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. ANS: D 67. 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 ANS: A 68. 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. ANS: B 69. 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 ANS: C 70. 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. ANS: C 71. 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. ANS: B 72. 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. ANS: C 73. 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. ANS: A 74. 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. ANS: C 75. 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. ANS: A 76. 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 retired farmer sells his combine to a new farmer d. a woman buys corn for dinner ANS: D 77. Which of the following transactions does not take place in the markets for the factors of production in the circular-flow diagram? a. Kosuke provides plumbing services for a plumbing company and receives an hourly wage from the company for his services. b. Alfonso works as a marriage counselor and his clients pay him on a per-hour basis for his services. c. Geovany owns several shopping malls and receives rent payments from the companies that operate those malls. d. Carlos sells advertising for a newspaper and receives a commission from the newspaper company for each advertisement that he sells. ANS: B 78. 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. ANS: B 79. 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. ANS: D 80. 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. ANS: B 81. 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. ANS: B 82. 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. ANS: C 83. 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 ANS: D 84. 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 ANS: C 85. 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 ANS: C 86. 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 ANS: A 87. 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 ANS: D 88. 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 ANS: B 89. 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 ANS: A 90. 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. ANS: D