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MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) Which of the following statements is true?

1)

A) A worker who shirks work is not an economic agent.

B) A street gang is not an economic agent.

C) All economic agents are necessarily individuals.

D) A government is an example of an economic agent.

Answer: D

2) Which of the following best describes scarce resources?

2)

A) Resources that can only be distributed efficiently by the government

B) Resources for which the quantity that people want exceeds the quantity that is freely available

C) Resources for which the quantity demanded is the same for all economic agents

D) Resources that most people cannot afford to buy

Answer: B

3) Which of the following is NOT a scarce resource?

A) Petroleum

B) Gold

Answer: C

C) Pollution

3) D) iPhones

4) In economics, scarcity refers to the situation of:

4)

A) optimizing with the use of limited information.

B) having more wants than the amount of available resources.

C) sellers setting the prices of their products too high for people to be able to afford them.

D) rationing of available goods and services by the government.

Answer: B

5) Which of the following statements is true?

5)

A) Scarcity means that there is an imbalance between unlimited resources and limited wants.

B) Gold is not a scarce resource.

C) If a scarce resource is given away for free, everyone will be able to consume it.

D) Both life-saving drugs and ice cream are examples of scarce goods.

Answer: D

6) Economic reasoning implies that economic agents will make decisions:

6)

A) by replicating the choices made by other economic agents.

B) solely on the basis of tastes and preferences for various options.

C) by random selection.

D) by comparing the costs and benefits of various options.

Answer: D

7) Economics is primarily the study of:

7)

A) how agents choose to allocate scarce resources and how the choices affect society.

B) the mental functions and behavior of individuals and groups.

C) the problems related to existence and evolution of society.

D) the state, nation, government, and politics and policies of governments.

Answer: A

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8) Economics is primarily the study of:

8)

A) the relationship between matter and its motion.

B) events of the past, and how these events affect present human behavior.

C) agents' choices and their impact on society.

D) the different types of governments and the impact of their policies on a nation.

Answer: C

9) ________ economics is analysis that generates objective descriptions or predictions about the world 9)

that can be verified with data.

A) Normative

B) Positive

C) Marginal

D) Negative

Answer: B

10) Which of the following is an example of a positive economic statement?

10)

A) Pollution is one of the most serious economic problems.

B) Higher interest rates will encourage more savings.

C) The pricing policies of monopolies should be strictly supervised.

D) Unemployment is more harmful than inflation.

Answer: B

11) Which of the following is an example of a positive economic statement?

11)

A) The government should ideally work as a welfare state.

B) Eliminating poverty is more important than reducing inflation.

C) An increase in income causes an increase in savings.

D) Economics is the most useful social science.

Answer: C

12) ________ economics prescribes what an individual or society ought to do.

12)

A) Behavioral

B) Negative

C) Positive

D) Normative

Answer: D

13) Which of the following is an example of a normative economic statement?

13)

A) A relaxation in import duties will encourage imports.

B) An increase in social security benefits will increase the welfare of all economic agents.

C) An increase in subsidies to farmers will boost agricultural production.

D) A cut in the tax rate will lead to an increase in consumption.

Answer: B

14) Which of the following is an example of a normative economic statement?

14)

A) An increase in the money supply will lead to an increase in the inflation rate.

B) An increase in income is accompanied by an increase in consumption.

C) An increase in government expenditure will lead to an increase in well-being.

D) An increase in income is accompanied by an increase in savings.

Answer: C

15) Which of the following statements is true?

15)

A) Positive economics deals with issues that are subjective.

B) Normative economic statements can be confirmed or disproven.

C) Normative statements depend on personal preferences.

D) Positive economics recommends what people ought to do.

Answer: C

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16) Which of the following statements correctly differentiates between positive and normative

16)

economics?

A) Positive economics can only be applied to microeconomics, whereas normative economics can

be applied to both microeconomics and macroeconomics.

B) Positive economics is based on judgments, whereas normative economics is not.

C) Positive economics is descriptive, whereas normative economics is advisory.

D) Positive economics describes what people ought to do, whereas normative economics

describes what people actually do.

Answer: C

17) Positive economics is descriptive because:

17)

A) it prescribes what an individual or society ought to do.

B) it explains what has happened or predicts what will happen.

C) its predictions cannot be verified with data.

D) it is based on ethical judgments.

Answer: B

18) Which of the following statements is true?

18)

A) Normative economics describes what people actually do.

B) Normative economics is free from value judgments, tastes, and preferences of economic

agents.

C) Positive economics generates objective descriptions that can be verified with data.

D) Positive economics describes what people ought to do.

Answer: C

19) ________ is the study of how individuals, households, governments, and firms make choices and 19)

how those choices affect prices, the allocation of resources, and the well-being of other agents.

A) Macroeconomics

B) Monetary economics

C) Microeconomics

D) Growth theory

Answer: C

20) Which of the following is an example of a topic studied by microeconomists?

20)

A) Price determination by a firm

B) National income calculations

C) Measures to combat inflation

D) Interest rate determination

Answer: A

21) Which of the following is an example of a topic studied by microeconomists?

21)

A) Economic growth as a means to alleviate poverty

B) Aggregate demand and aggregate supply in an economy

C) Energy consumption by a firm

D) Nationwide inflation rate

Answer: C

22) ________ is the study of an economy as a whole.

22)

A) Macroeconomics

B) Behavioral economics

C) Microeconomics

D) Game theory

Answer: A

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23) Which of the following is an example of a topic studied by macroeconomists?

23)

A) Price determination by a firm

B) Aggregate demand in an economy

C) Utility maximization by a consumer

D) Decision making by a producer

Answer: B

24) Which of the following is an example of a topic studied by macroeconomists?

24)

A) Productivity of an agricultural farm

B) Savings of a single household

C) Total output of an economy

D) Price determination by a monopolist

Answer: C

25) Which of the following statements is true?

25)

A) Macroeconomics studies how individuals make choices.

B) Microeconomics is the study of an economy as a whole.

C) The study of the inflation rate is covered under microeconomics.

D) The study of the unemployment rate is covered under macroeconomics.

Answer: D

26) Which of the following statements correctly highlights the difference between microeconomics and 26) macroeconomics? A) Microeconomics describes what economic agents actually do, whereas macroeconomics describes what economic agents ought to do. B) Microeconomics is descriptive, whereas macroeconomics is advisory. C) Microeconomics primarily deals with positive analysis, whereas macroeconomics primarily deals with normative analysis. D) Microeconomics deals with a small part of the economy, whereas macroeconomics deals with aggregate economic performance.
Answer: D

27) The understanding of why an economy is contracting during slowdowns and how to recommend 27)

appropriate policies is studied under:

A) microeconomics.

B) agricultural economics.

C) international economics.

D) macroeconomics.

Answer: D

28) Understanding the impact of carbon taxes on the energy usage of individual households and firms 28)

is studied under:

A) financial economics.

B) microeconomics.

C) fiscal economics.

D) macroeconomics.

Answer: B

29) The relationship between the unemployment rate and inflation is studied under:

29)

A) macroeconomics.

B) international economics.

C) microeconomics.

D) behavioral economics.

Answer: A

30) The relationship between a firm's advertising expenditure and its profit is studied under:

30)

A) public economics.

B) microeconomics.

C) macroeconomics.

D) international economics.

Answer: B

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SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.

31) Define economics. Who are economic agents?

31)

Answer: Economics is the study of how agents choose to allocate scarce resources and how these choices affect society. An economic agent is an individual or a group that makes choices.

32) What are scarce resources? Why are economic agents concerned with the allocation of

32)

these resources?

Answer: Scarce resources are resources for which the quantity that people want exceeds the quantity that is freely available. Economic agents need to satisfy their unlimited wants in a world of limited resources. This makes it important for them to understand how these scarce resources are to be used and distributed in order to optimize allocation.

33) Differentiate between positive and normative economics using examples.

33)

Answer:

Positive economics is analysis that generates objective descriptions or predictions about the world that can be verified with data. It is analysis that describes what people actually do. "A 5% fall in the unemployment rate will lead to a 2% increase in the inflation rate" is an example of a positive economic statement. Normative economics, on the other hand, is analysis that prescribes what an individual or society ought to do. It is subjective and depends on personal preferences, tastes, attitudes, feelings, or ethical judgments. "Pollution in developing countries is one of the biggest global environmental problems" is an example of a normative economic statement.

34) How does microeconomics differ from macroeconomics?

34)

Answer:

Microeconomics is the study of how individuals, households, firms, and governments make choices, and how those choices affect prices, the allocation of resources, and the well-being of other agents. On the other hand, macroeconomics is the study of the economy as a whole. The scope of macroeconomics extends to the study of economy-wide phenomena, like the growth rate of an economy, the nation-wide unemployment rate, or the inflation rate.

ESSAY. Write your answer in the space provided or on a separate sheet of paper.

35) Robert and Janet are discussing unemployment and inflation in their country. Robert, on the basis of a recent newspaper report, claims that a 5% reduction in unemployment will lead to a 2% rise in inflation. On the other hand, Janet insists that inflation is a far bigger problem than unemployment and should be addressed with prime importance. Classify Robert's and Janet's statements as descriptive or advisory. Explain your answer.

Answer:

Robert claims that a 5% reduction in unemployment will lead to a rise in a 2% in inflation. This statement represents predictions that can be verified with data. Therefore, Robert's approach is positive, which means it is an analysis of things as they are. Positive economics describes what has happened or predicts what will happen. The conclusion of his statement can be verified with data and is not subject to his tastes and preferences. Janet claims that inflation is a far bigger problem than unemployment and should be addressed with prime importance. Janet's statement is normative. Normative economics is analysis that recommends what people ought to do. Unlike Robert's statement, Janet's belief that inflation is a bigger problem than unemployment is based on her values and/or ethical judgments. Therefore, while Robert's statement is descriptive in nature, Janet's statement is advisory.

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36) Classify the following as positive economics statements or normative economics statements. a) An increase in an individual's income increases consumption, but by an amount less than the increase in income. b) The government should undertake the responsibility of providing healthcare to all its citizens. c) A negative current account deficit can be advantageous to an economy. d) An increase in net exports has a positive effect on a country's national income. e) The gross domestic product of India is increasing at 5% annually.

Answer:

The statements can be classified as follows: a) An increase in an individual's income increases consumption, but by an amount less than the increase in income: Positive economic statement b) The government should undertake the responsibility of providing healthcare to all its citizens: Normative economic statement c) A negative current account deficit can be advantageous to an economy: Normative economic statement d) An increase in net exports has a positive effect on a country's national income: Positive economic statement e) The gross domestic product of India is increasing at 5% annually: Positive economic statement

37) a) A recent news report stated that the unemployment rate in the country Lithasia had increased from 10.2% to 18.2% from 2003 to 2013 and that the government has adopted strict fiscal measures to expand employment. Would this report be considered microeconomic or macroeconomic analysis?

b) Students in a class are discussing how a monopolist should determine his profit-maximizing output. Would this discussion be considered microeconomic or macroeconomic analysis?
Answer: a) This report will pertain to macroeconomics. Macroeconomics refers to the study of an economy as a whole. Macroeconomics covers economy-wide phenomena, like the growth rate of a country's total economic output, the inflation rate, or the unemployment rate. The report suggests that the total unemployment rate in Lithasia has increased from 10.2% to 18.2% from 2003 to 2013. This estimation is a measure of the economy-wide aggregate unemployment, and is covered under macroeconomics.

b) Microeconomics is the study of how individuals, households, firms, and governments make choices. The students are discussing how a single monopolist should determine its profit-maximizing output. This is a discussion of an individual entity and so is considered microeconomic analysis.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

38) Which of the following correctly defines the term "equilibrium"?

38)

A) It refers to analysis that uses data to arrive at conclusions.

B) It refers to a situation where all agents are simultaneously optimizing.

C) It refers to government intervention that efficiently allocates scarce resources.

D) It refers to an optimizing decision made by an individual economic agent.

Answer: B

39) Which of the following best describes equilibrium?

39)

A) A situation where only one individual or firm takes an optimum decision

B) A situation where economic agents do not optimize as they do not have perfect information

C) A situation where no economic agent would benefit by changing his or her behavior

D) A situation where the government intervenes to allocate resources

Answer: C

40) Empiricism is analysis that uses ________ to test theories.

40)

A) illustrations

B) value judgments

C) data

D) philosophy

Answer: C

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41) Which of the following is NOT a key principle of economics?

A) Equilibrium

B) Optimization

C) Substitution

Answer: C

41) D) Empiricism

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.

42) Define the three key principles of economics.

42)

Answer: a) Optimization: Optimization refers to the process of choosing the best option from a set of alternatives, given the available information. b) Equilibrium: Equilibrium is a special situation where everyone is simultaneously optimizing, so that nobody would benefit personally by changing his or her behavior. c) Empiricism: Empiricism is analysis that is evidence-based as it uses data to test theories and to determine what is causing things to happen in the world.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

43) Which of the following statements is true of optimization?

43)

A) Optimization analysis only relates to the financial budget of an economic agent.

B) Economic agents who optimize attempt to choose the best feasible option, given the

information that they have.

C) Economic agents can optimize only when they are able to perfectly estimate all future costs

and benefits.

D) Individuals who optimize do not consider costs when choosing the most feasible alternative.

Answer: B

44) Feasible options are options: A) that are available and affordable. C) that are optimal for an economic agent.
Answer: A

44) B) that are affordable but not available. D) that are available but not affordable.

45) A consumer has $40 that he wants to spend. He is faced with four options: a camera that costs $60, 45)

a cell phone that costs $150, a book that costs $10, and a Bluetooth speaker that costs $45. Which of

the following is a feasible option for the consumer?

A) The cell phone

B) The book

C) The Bluetooth speaker

D) The camera

Answer: B

46) A decision or a choice that is made after using optimization analysis:

46)

A) has zero opportunity cost.

B) cannot be justified using normative analysis.

C) is not necessarily risk free.

D) is the same for all individuals.

Answer: C

47) Which of the following statements is true?

47)

A) The less information that is available, the easier it is to make optimal decisions.

B) An optimizing individual is also likely to exhibit rationality.

C) An optimizing individual need not consider the risks involved in various choices.

D) Optimization requires individuals to foresee the future perfectly.

Answer: B

7

48) Which of the following statements is true?

48)

A) The principle of optimization is only accurate when it comes to making monetary decisions.

B) It is not necessary to consider the risks of a particular alternative while making an optimal

decision.

C) Rational economic agents maximize more than just monetary income.

D) An individual does not require information to make optimal decisions.

Answer: C

49) Which of the following correctly identifies the trade-off that a budget constraint represents?

49)

A) The amount of income that must be given up to obtain an additional unit of a good

B) The optimum combination of goods that a consumer with a given income should purchase

C) The maximum amount of two goods that a consumer can purchase given his income

D) The amount of one good that has to be given up to purchase an additional unit of the other

good

Answer: D

50) A budget constraint represents the:

50)

A) goods and services an economic agent can choose given her limited income.

B) aggregate income earned by all the firms in an economy.

C) total money income that an agent earns in different time periods.

D) inequality in the incomes earned by various economic agents.

Answer: A

51) Which of the following statements is true?

51)

A) A budget constraint is a function of the income of the consumer and not the prices of the

goods and services available for consumption.

B) A budget constraint is based on the minimum amount of money that an economic agent can

spend on goods and services.

C) A budget constraint quantifies the trade-offs that economic agents face while making

decisions.

D) A budget constraint is the same for a consumer at all levels of income.

Answer: C

52) A consumer has $20 that he wants to spend on two goods: pens priced at $2 each, and pencils

52)

priced at $1 each. Which of the following correctly represents his budget constraint?

A) $20 = ($2/Quantity of pens) + ($1/Quantity of pencils)

B) $20 = ($3/Quantity of pens + Quantity of pencils)

C) $20 = $3 × (Quantity of pens - Quantity of pencils)

D) $20 = ($2 × Quantity of pens) + ($1 × Quantity of pencils)

Answer: D

53) An individual has 8 hours to spare. He has to divide his time between two activities: reading and

53)

writing. Which of the following allocations will exactly satisfy the individual's budget constraint?

A) 4 hours of reading and 6 hours of writing

B) 5 hours of reading and 3 hours of writing

C) 2 hours of reading and 2 hours of writing

D) 3 hours of reading and 4 hours of writing

Answer: B

8

54) A consumer has $50 to spend. He has to decide between buying two goods: magazines priced at $5 54)

each and DVDs priced at $10 each. Which of the following combinations of the two goods will

exactly satisfy his budget constraint?

A) 3 magazines and 4 DVDs

B) 2 magazines and 2 DVDs

C) 6 magazines and 1 DVD

D) 2 magazines and 4 DVDs

Answer: D

55) Which of the following statements is true?

55)

A) A trade-off refers to the exchange of goods between economic agents through a barter system

or mutual exchange.

B) A rational consumer makes his decisions depending on what the majority chooses.

C) A budget constraint is an economic tool that quantifies the trade-off between consumption of

two goods.

D) All rational economic agents attempt to maximize their income.

Answer: C

56) The best alternative use of a resource is referred to as its:

56)

A) opportunity cost.

B) sunk cost.

C) marginal utility.

D) market price.

Answer: A

57) A student has two options: she can either surf the web, or work part-time. Working part-time pays 57)

her $20 per hour. What is the student's opportunity cost of surfing the web for 5 hours?

A) $100

B) $50

C) $20

D) $4

Answer: A

58) John has to choose between two jobs: one that offers him $50 per hour and one that offers him $35 58)

per hour. The opportunity cost of choosing the job that offers him $50 per hour is:

A) $35 per hour.

B) $85 per hour.

C) $1.5 per hour.

D) $15 per hour.

Answer: A

59) ________ is a calculation that adds up costs and benefits using a common unit of measurement, like 59)

dollar values.

A) Budget constraint analysis

B) Revenue-income analysis

C) Expenditure-income analysis

D) Cost-benefit analysis

Answer: D

60) Cost-benefit analysis requires:

60)

A) all costs and benefits to be measured in the same unit.

B) evaluating the budget constraint before making a choice.

C) choosing the alternative with the least net benefit.

D) that the risks associated with different alternatives are ignored.

Answer: A

9

61) Suppose that Jinelle, an engineer, has to choose between two jobs. Which of the following

61)

statements is true?

A) While deciding between jobs, she should consider the wage attributes and ignore the

non-wage attributes of each job.

B) When deciding between both jobs, she should consider both wage and non-wage attributes of

each job.

C) While deciding between jobs, she should only focus on the benefits from each job and ignore

the costs.

D) While deciding between jobs, she should focus only on the costs of each job and ignore the

benefits.

Answer: B

62) The net benefit of a particular alternative equals:

62)

A) the benefits received from the alternative divided by the costs incurred in choosing the

alternative.

B) the costs incurred in choosing the alternative divided by the benefits received from the

alternative.

C) the benefits received from the alternative minus the costs incurred in choosing the alternative.

D) the benefits received from the alternative plus the costs incurred in choosing the alternative.

Answer: C

63) Out of a set of feasible alternatives, an optimizer should choose the alternative with the:

63)

A) lowest total cost, regardless of benefit.

B) highest total benefit, regardless of cost.

C) highest net benefit.

D) highest opportunity cost.

Answer: C

64) If a particular choice that an individual faces gives him a benefit of $20 but costs $30, the net benefit 64)

from making this choice equals:

A) -$30.

B) -$10.

C) $20.

D) $10.

Answer: B

65) If a job pays a wage of $50 per hour, but has a non-wage cost valued at $20 per hour, the net benefit 65)

of taking the job equals:

A) $2.5 per hour.

B) $30 per hour.

C) $70 per hour.

D) $20 per hour.

Answer: B

Scenario: Maria has to choose between driving and taking a train to destination A. Travelling by train will cost her $400 and will take 4 hours. Driving to destination A takes 6 hours, and the required amount of gasoline costs $250. Her opportunity cost of time is $15 per hour.

66) Refer to the scenario above. What is the total cost involved if Maria chooses to travel by train?

66)

A) $420

B) $460

C) $60

D) $400

Answer: B

67) Refer to the scenario above. If Maria borrows her parents' car and pays for only the gasoline, what 67)

is her total cost of driving to destination A?

A) $340

B) $250

C) $90

D) $300

Answer: A

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Economics Global 1st Edition Acemoglu Test Bank