Question 1

The rationality assumption says that

Accepted Answer

A)  people do not intentionally make decisions that would leave them worse off.
B)  people never make decisions that would leave them worse off.
C)  people do not respond to incentives since incentives require scarce resources.
D)  all economic analysis must be normative.

Question 2

A characteristic of a good model is that

Accepted Answer

A)  its predictions can be tested using real-world data.
B)  it is useful for making irrefutable predictions.
C)  it applies to all situations.
D)  it predicts perfectly.

Question 3

If psychological limitations and other complications cause people to be unable to examine and think through every possible choice available to them and rely instead on rules of thumb, then these individuals exhibit

Accepted Answer

A)  unbounded rationality.
B)  normative thinking.
C)  bounded rationality.
D)  positive thinking.

Question 4

Ceteris paribus means

Accepted Answer

A)  "all variables are independent."
B)  "other things being equal."
C)  "some assumptions must be accepted without proof."
D)  "some theories are not rational."

Question 5

In his book, An Inquiry into the Nature and Causes of the Wealth of Nations, economist Adam Smith argued that individuals

Accepted Answer

A)  always tend to act in an altruistic manner.
B)  always consider the impact of their actions on the welfare of others.
C)  are motivated by self-interest.
D)  are generally not concerned with economic questions.

Question 6

In economics, the word "aggregate" refers to

Accepted Answer

A)  the government.
B)  how individual households differ from each other.
C)  the public sector itself.
D)  an economy as a whole.

Question 7

The impact of higher taxes would be examined by

Accepted Answer

A)  a microeconomist.
B)  a macroeconomist.
C)  both a macroeconomist and a microeconomist.
D)  neither a macroeconomist nor a microeconomist.

Question 8

The term ceteris paribus means

Accepted Answer

A)  the greatest good for all.
B)  the study of scarcity and choice.
C)  all other things remaining constant or equal.
D)  value-free and testable.

Question 9

In a market system, ________ provide signals about whether resources are relatively scarce or abundant.

Accepted Answer

A)  prices
B)  economists
C)  government officials
D)  scientists and engineers

Question 10

A theory or a model

Accepted Answer

A)  is a simplified, abstract view of reality.
B)  is based on each economist's value judgments.
C)  is a detailed analysis of what ought to be.
D)  captures all aspects of the real world.

Question 11

In building a model to analyze economic situations, one of the important assumptions is

Accepted Answer

A)  ceteris paribus.
B)  scarcity.
C)  conversion abstraction.
D)  cognitive dissonance.

Question 12

It is assumed in economics that people make decisions based upon

Accepted Answer

A)  altruism.
B)  rational self-interest.
C)  tradition.
D)  governmental persuasion.

Question 13

Microeconomics is the study of

Accepted Answer

A)  the behavior of the economy as a whole.
B)  how rising prices affect the level of employment in the economy.
C)  how individuals and firms make decisions.
D)  the effect that money has in the economic system.

Question 14

Sara looks into her closet and discovers a pair of like-new shoes she no longer wears because they give her blisters. From the economist's perspective, was Sara behaving rationally when she bought those shoes?

Accepted Answer

A)  No. If any of a person's decisions have poor results, that person is irrational.
B)  Yes, as long as Sara didn't intentionally purchase blister-causing shoes.
C)  No. The rationality assumption states that rational people never make mistakes.
D)  It's not clear because psychology, not economics, deals with the rationality assumption.

Question 15

The distinction between microeconomics and macroeconomics is

Accepted Answer

A)  clearly drawn, and there is no overlap between them.
B)  determined by economists in a clear and concise manner.
C)  narrowly drawn, and microeconomic analysis often relies on macroeconomic tools.
D)  often blurred because aggregates are made up of individuals and firms.

Question 16

A good economic model

Accepted Answer

A)  cannot be refuted.
B)  describes the real world completely and in detail.
C)  captures the essential relationships of the problem under consideration.
D)  captures all relationships about the problem under consideration.

Question 17

Which of the following is a normative statement?

Accepted Answer

A)  An increase in consumer income will lead to increased sales of beef.
B)  A decrease in the rate of unemployment will lead to upward pressure on consumer prices.
C)  An increase in the income tax will cause a greater reduction in savings than an increase in the sales tax.
D)  An economy with high unemployment can be worse off than an economy with high inflation.

Question 18

The rationality assumption states that

Accepted Answer

A)  all actions taken by consumers are based on what is good for society.
B)  people make decisions regardless of how the outcome will affect them.
C)  people make decisions to buy only those goods that they need rather than goods that they want.
D)  people do not intentionally make decisions that would leave them worse off.

Question 19

If the government offers to reduce your property taxes by 10 percent if you install solar heating for your home, this would be an example of

Accepted Answer

A)  police power.
B)  incentives.
C)  disincentives.
D)  ceteris paribus.

Question 20

Do economists analyze people's thought processes or do they look at what people actually do?

Accepted Answer

A)  Economists focus only on people's thought processes.
B)  Economists focus on what people do, not their thought processes.
C)  An economist's focus is about half-and-half between actions and thought processes.
D)  Macroeconomists focus on thought processes while microeconomists focus on actions.

Exam 1: The Nature of Economics

In a market system, ________ provide signals about whether resources are relatively scarce or abundant.

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The impact of higher taxes would be examined by

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In building a model to analyze economic situations, one of the important assumptions is

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The rationality assumption states that

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The term ceteris paribus means

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Ceteris paribus means

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It is assumed in economics that people make decisions based upon

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If psychological limitations and other complications cause people to be unable to examine and think through every possible choice available to them and rely instead on rules of thumb, then these individuals exhibit

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Microeconomics is the study of

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In economics, the word "aggregate" refers to

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Which of the following is a normative statement?

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Do economists analyze people's thought processes or do they look at what people actually do?

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In his book, An Inquiry into the Nature and Causes of the Wealth of Nations, economist Adam Smith argued that individuals

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A characteristic of a good model is that

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If the government offers to reduce your property taxes by 10 percent if you install solar heating for your home, this would be an example of

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The distinction between microeconomics and macroeconomics is

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A good economic model

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Sara looks into her closet and discovers a pair of like-new shoes she no longer wears because they give her blisters. From the economist's perspective, was Sara behaving rationally when she bought those shoes?

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A theory or a model

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The rationality assumption says that

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