Which of the following is true?

a. Scarcity and poverty are basically the same thing.

b. Poverty implies that some basic level of need has not been attained.

c. Scarcity is the result of prices being set too high.

d. All of the above are true.

Economics is the study of how

a. individuals make choices because of scarcity.

b. to succeed in business.

c. to make money in the stock market.

d. the morals and values of people are formed.

When an economist states a good is scarce, she means that

a. production cannot expand the availability of the good.

b. it is rare.

c. desire for the good exceeds the amount that is freely available from nature.

d. people would want to purchase more of the good at any price.

When economists say an individual displays economizing behavior, they simply mean that the individual is

a. making a lot of money.

b. purchasing only those products that are cheap and of low quality.

c. learning how to run a business more effectively.

d. making choices to gain the maximum benefit at the least possible cost.

"The national debt is too large. The government must stop spending so much money." This statement is which of the following?

a. a normative statement.

b. a positive statement.

c. a testable hypothesis.

d. both b and c

Which of the following is a guidepost to economic thinking?

a. The value of a good can be objectively measured.

b. Individuals should never make a decision without having complete information.

c. Incentives matter.

d. Goods are scarce for the poor but not for the rich.

Competitive behavior

a. occurs as a reaction to scarcity.

b. occurs only in a market system.

c. occurs only when the government allocates goods and services.

d. always generates waste

In economics, the statement, "There is no such thing as a free lunch," refers to which of the following?

a. Individuals must always pay personally for the lunch they consume.

b. Production of a good requires the use of scarce resources regardless of whether it is

supplied free to the consumers.

c. Restaurant owners would never give away free lunches.

d. All good theories are testable.

"If income were redistributed in favor of the poor, we would eliminate scarcity." The preceding statement is

a. essentially correct.

b. incorrect because scarcity has already been eliminated among the poor in wealthy

countries such as the United States.

c. incorrect; it fails to recognize that poverty will be present as long as resources are scarce.

d. incorrect; it confuses the elimination of poverty with the elimination of the constraint

imposed by scarcity.

Which of the following is not scarce?

a. an individual's time

b. air

c. pencils

d. automobiles

People make decisions at the margin. Thus, when deciding whether to purchase a second car, they would

compare

a. the total benefits expected from two cars with the costs of the two cars.

b. the additional benefits expected from a second car with the total cost of the two cars.

c. the dollar cost of the two cars with the potential income that the two cars will generate.

d. the additional benefits of the second car with the additional costs of the second car.

The basic difference between macroeconomics and microeconomics is that

a. macroeconomics looks at how people make choices, and microeconomics looks at why

they make those choices.

b. macroeconomics is concerned with economic policy, and microeconomics is concerned

with economic theory.

c. macroeconomics focuses on the aggregate economy, and microeconomics focuses on

small components of that economy.

d. macroeconomics is associated with the fallacy of composition, and microeconomics has

little to do with the fallacy of composition.

The highest valued alternative that must be given up in order to choose an action is called its

a. opportunity cost.

b. utility.

c. scarcity.

d. ceteris paribus.

Which of the following actions is consistent with the basic economic postulate (the guidepost) that incentives

matter?

a. Consumers buy fewer potatoes when the price of potatoes increases.

b. A politician votes against a pay raise for himself because most of his constituents are

strongly opposed to it and would vote against him in the next election.

c. Farmers produce less corn because corn prices have declined.

d. All of the above.

Positive economics differs from normative economics in that

a. positive economics deals with how people react to changes in benefits, and normative

economics deals with how people react to changes in costs.

b. positive economic statements are testable, and normative statements are not.

c. positive economic statements tell us what we should be doing, and normative economics

tells us what we should have done.

d. positive economic statements focus on the application of the theory, and normative

economic statements are theoretical.

Which of the following represents a normative statement?

a. Incentives matter.

b. The temperature in this room is 120 degrees.

c. It is too hot in this room.

d. People will buy less butter at $1.50 per pound than they will at $1.00 per pound.

The economic way of thinking stresses that

a. changes in personal costs and benefits will exert a predictable influence on the choices of

human decision makers.

b. only direct monetary costs matter in making decisions.

c. if a good is provided free to an individual, its production will not consume valuable scarce

resources.

d. secondary effects are not important to consider when making decisions.

Which of the following is a positive economic statement?

a. The federal minimum wage should be raised to $6.50 per hour.

b. The United States spends too much on national defense.

c. Higher rates of investment lead to higher rates of economic growth.

d. Economics is more interesting to study than history.

When economists use the term ceteris paribus, they indicate

a. the causal relationship between two economic variables cannot be determined.

b. the analysis is true for the individual but not for the economy as a whole.

c. all other factors are assumed to be constant.

d. their conclusions are based on normative economics rather than positive economic

analysis.

In economics, the benefit (or satisfaction) that an individual gets from an activity is called

a. scarcity.

b. utility.

c. opportunity cost.

d. ceteris paribus

The opportunity cost to the United States of placing a man on the moon was

a. the loss of government revenues that were allocated to the mission.

b. the cost of all production involved in the space program.

c. the loss of utility from the highest valued bundle of products that had to be forgone

because of the moon mission.

d. less than zero, because the long-run benefit of the project will be greater than the cost.

When Benjamin Franklin wrote, "Remember that time is money!" he understood

a. the incentives created by property rights.

b. the law of comparative advantage.

c. the concept of opportunity cost.

d. that watches cost money.

Which of the following best describes the implications of the law of comparative advantage? If each person

sells goods for which he or she has the greatest comparative advantage in production and buys those for

which his or her comparative advantage is least, the

a. total output available to each person can be expanded by specialization and exchange.

b. total output will fall.

c. buyers of goods will gain at the expense of sellers.

d. sellers of goods will gain at the expense of buyers.

Keri decided to sleep in today rather than attend her 9 a.m. economics class. According to economic analysis,

her choice was

a. irrational, because economic analysis suggests you should always attend classes that you

have already paid for.

b. irrational, because oversleeping is not in Keri's self-interest.

c. rational if Keri has not missed any other classes.

d. rational if Keri values sleep more highly than the benefit she expects to receive from

attending the class.

Which of the following is not one of the basic economic questions that all economies must answer?

a. What will be produced?

b. To whom will the goods produced be allocated?

c. How will goods be produced?

d. Which government agency will set the prices of the goods produced?

The owners of private property will

a. use their property for selfish ends, taking no account of the impact their behavior has on

others.

b. use their property in ways that others value because the market will generally reward them

with profits (or a higher selling price) if they do so.

c. find very little incentive to take care of the property or conserve it for the future.

d. lose profits when they take the wishes of others into consideration.

Ken values his boat at $5,000, and Monica values it at $8,000. If Monica buys it from Ken for $7,000, which

of the following is true?

a. Ken gains $2,000 of value, and Monica gains $1,000 of value.

b. Ken gains $7,000 of value, and Monica loses $7,000 of value.

c. Ken gains $7,000 of value, and Monica gains $3,000 of value.

d. Ken and Monica both gain $7,000 of value.

When collective decision making (the political process) is used to resolve economic questions regarding the

allocation of resources,

When resources are being used wastefully or inefficiently, the

C

Which of the following is a transaction cost?

a. price of a ticket to a concert

b. price of food eaten before a concert

c. time spent standing in line to buy the ticket

d. price of a T-shirt at the concert

Private property rights exist when property rights are

a. exclusively controlled by the owner or owners.

b. transferable to others.

c. protected by legal enforcement.

d. all of the above.

When an economy is operating efficiently, the production of more of one good will result in the production of less of some other good because

a. consumers do not want more of both goods.

b. resources are limited (scarce) and efficiency implies that all are already in use.

c. the production possibilities curve shifts inward as more of one good is produced.

d. technological improvement can only improve the production of a single good.

14. Which of the following would allow the production possibilities curve for an economy to shift outward?

a. a better social organization of economic activity, such as conversion from socialism to

capitalism

b. an increase in the labor force or resource base

c. more investment leading to better technology and more innovation

d. all of the above

According to the law of comparative advantage,

a. each producer should strive toward self-sufficiency in order to maximize the total

production of the economy.

b. each product should be produced by the lowest opportunity cost producer in order to

maximize output.

c. one should never compare one's abilities with those of another.

d. each product should be produced by the individual who can produce more of that product

than any other individual.

"The economic wealth of this country was built primarily by some individuals profiting from a transaction,

whereas others were harmed by that transaction." This statement indicates the speaker

a. fails to comprehend the idea that all voluntary trades benefit both parties involved.

b. fails to comprehend the fallacy of composition.

c. fails to understand the significance of the production possibilities curve.

d. uses the economic way of thinking. The statement is essentially correct.

(I) When individuals engage in a voluntary exchange, both parties are made better off.

(II) By channeling goods and resources to those who value them most, trade creates value and increases the

wealth created by a society's resources.

If the price of tickets to the World Series were set below the equilibrium price,

a. the quantity demanded would be smaller than the quantity supplied.

b. the demand for World Series tickets would be highly responsive to the price.

c. there would be no transactions between buyers and sellers of the tickets.

d. the number of persons seeking to obtain tickets to World Series games would be greater

than the number of tickets available.

Which of the following would cause the price of automobiles to rise?

a. a decrease in the wages of autoworkers

b. a reduction in the price of bus travel

c. an increase in the price of gasoline

d. an increase in consumer income

Which of the following would most likely cause the current demand for video cassette recorders (VCRs) to

fall?

a. an increase in consumer income

b. an increase in the price of VCRs

c. an increase in the price of laser disc players, a substitute good

d. the expectation that the price of VCRs will decrease sharply during the next six months

If the market price is above the equilibrium price, there will be a tendency for price to decrease,

causing

a. the quantity demanded to decrease and the quantity supplied to increase until they are

equal.

b. the quantity demanded to increase and the quantity supplied to decrease until they are

equal.

c. both quantity demanded and quantity supplied to decrease until they are equal.

d. both quantity demanded and quantity supplied to increase until they are equal.

According to the law of supply, as the price of a good decreases

a. buyers will buy more of the good.

b. sellers will produce more of the good.

c. buyers will buy less of the good.

d. sellers will produce less of the good.

Economic efficiency requires that

a. individuals take all actions within their power.

b. only long-lasting, high-quality products be produced.

c. income be distributed equally among individuals.

d. all economic activity generating more benefits than costs to individuals in the economy be

undertaken.

If the demand for FSU hats increased, what would be the effect on the equilibrium price and quantity of hats?

a. price increases, quantity decreases

b. price decreases, quantity decreases

c. price increases, quantity increases

d. price decreases, quantity increases

"If gasoline were taxed, the price of gasoline would rise. Consequently, the demand for gasoline would fall,

causing the price to fall to the original level." This statement is

a. essentially correct.

b. incorrect--after the demand falls, the price would fall but to some level higher than the

original level.

c. incorrect--demand and quantity demanded are confused. The price increase would reduce

quantity demanded, not demand.

d. incorrect--after the demand falls, the price would fall but to some level lower than the

original level.

Over the past 20 years both the quantity of health care provided and health care prices have been rising

rapidly. Economic theory would suggest that the observed data could best be explained as

a. an increase in supply, while demand remained relatively constant.

b. a decrease in both supply and demand.

c. an increase in demand, while supply remained relatively constant.

d. a sharp increase in both supply and demand.

A decrease in the supply of a good will

a. decrease the demand for the good.

b. cause the price of the good to fall.

c. lead to an increase in the price of the good.

d. increase the quantity of the good bought and sold.

Which of the following would most likely decrease the price of beef?

a. lower prices of grains used to produce cattle feed

b. higher prices for chicken, a substitute for beef

c. a cow disease that destroys millions of cattle (and makes their meat unfit for consumption)

before they are ready for market

d. an increase in consumer income

A decrease in the price of flour will shift the supply curve for donuts

a. leftward, causing the equilibrium price to increase and quantity to decrease.

b. leftward, causing the equilibrium price and quantity to decrease.

c. rightward, causing the equilibrium price to decrease and equilibrium quantity to increase.

d. rightward, causing the equilibrium price and quantity to increase.

When Adam Smith said economic activity was directed by an "invisible hand," he was referring to the fact

that

a. competitive markets motivate altruistic individuals to pursue productive activities that

only serve their private interests.

b. when economic activity is directed by competitive markets, the actions of self-interested

individuals will generally serve the public interest.

c. invisible forces will lead to economic chaos unless wise central planning directs economic

activity.

d. scarcity is largely the result of invisible forces that would be eliminated if individuals were

free to pursue their own self-interests.

A hurricane damaged much of the housing in Miami. Shortly thereafter, the price of plywood rose

significantly. The events suggest that

a. a decrease in the supply of plywood caused the price of plywood to rise.

b. an increase in the supply of plywood caused the price of plywood to rise.

c. a decrease in the demand for plywood caused the price of plywood to rise.

d. an increase in the demand for plywood caused the price of plywood to rise.

If the demand for a good increases, which of the following will generally occur in a market setting?

a. The price of the good will decrease.

b. The supply of the good will increase.

c. The quantity supplied will increase.

d. Producer profits will fall.

____ 16. A freeze in Florida devastates the orange crop at the same time a new study is released showing the health

benefits of vitamin C (leading consumers to want to buy more orange juice). How will the equilibrium price

and quantity of orange juice change in response to the combination of these two events?

a. Equilibrium quantity will decrease, equilibrium price will increase.

b. Equilibrium price will decrease, the effect on quantity is ambiguous.

c. Equilibrium price will increase, the effect on quantity is ambiguous.

d. Equilibrium quantity will increase, the effect on price is ambiguous.