1. Since resources are abundant, we do not have to make choices about their use.
ANS: F PTS: 1
2. Economics has much in common with sociology because it is concerned with how societies organize
themselves. However, economics shares little in common with political science, psychology or
anthropology.
ANS: F PTS: 1
3. The main concern of economics is to study how well the stock markets are performing.
ANS: F PTS: 1
4. One topic that microeconomics explores is how prices are determined in individual markets, while
macroeconomics is concerned with issues such as the economy's overall rate of inflation, economic
growth and unemployment.
ANS: T PTS: 1
5. Microeconomics is the branch of economics in which you study inflation and unemployment in the
economy.
ANS: F PTS: 1
6. Microeconomics explores the allocation of scarce resources from the perspective of small economic
units such as consumers and firms.
ANS: T PTS: 1
7. To an economist, individuals are acting "rationally" if they are striving to do their best to achieve their
goals.
ANS: T PTS: 1
8. Economists presume that when making a decision, individuals consider both the current action and the
future consequences of that action.
ANS: T PTS: 1
9. Economic models are of limited use since they cannot be tested empirically.
ANS: F PTS: 1
10. A hypothesis is a normative statement.
ANS: F PTS: 1
, 11. A testable proposition that predicts how people will react to changed circumstances is called a
hypothesis.
ANS: T PTS: 1
12. A good economic theory should capture as many details about real-world behavior as possible.
ANS: F PTS: 1
13. Economists typically use controlled experiments to learn about how the economy functions.
ANS: F PTS: 1
14. "Ceteris paribus" is a Latin expression that means "holding everything else constant."
ANS: T PTS: 1
15. The fallacy of composition states that even if something is true for an individual, it is not necessarily
true for many individuals as a group.
ANS: T PTS: 1
16. When two variables repeatedly change at the same time, there must be a causal relationship between
them.
ANS: F PTS: 1
17. Normative analysis focuses on statements that can be tested against real-world data.
ANS: F PTS: 1
18. "A tax cut will lead to higher inflation" is an example of a positive economic statement.
ANS: T PTS: 1
19. To be a positive economic statement, an assertion must be factual.
ANS: F PTS: 1
20. Most disagreements among economists stem from normative issues.
ANS: T PTS: 1
MULTIPLE CHOICE
1. Economics is most importantly concerned with:
a. how to profit from trading in the stock market.
b. government taxation and spending.
c. studying how we allocate scarce resources to satisfy unlimited wants.
d. how to reduce inflation.
e. how to successfully launch a business.
ANS: C PTS: 1
, 2. The central question in economics is how to:
a. regulate the supply of money.
b. make the best use of scarce resources to satisfy our unlimited wants.
c. reduce the wants of individuals, businesses and government.
d. find more resources to satisfy everyone's wants.
ANS: B PTS: 1
3. Why is there scarcity?
a. Because theory dictates it.
b. Because human wants are limited.
c. Because our unlimited wants exceed our limited resources.
d. Because average costs may exceed average benefits.
e. Because of the limitations of normative analysis.
ANS: C PTS: 1
4. The problem of scarcity:
a. exists because resources are limited relative to wants.
b. exists because resources are unlimited relative to wants.
c. is solved by economists using abstract models.
d. can be eliminated through appropriate government intervention into markets.
e. does not exist in communist societies.
ANS: A PTS: 1
5. Which of the following forces us to chose among alternatives?
a. Value
b. Scarcity
c. Rarity
d. Market mechanism
ANS: B PTS: 1 NOT: NEW Question
6. Scarcity is the result of:
a. government decision making.
b. inappropriate normative judgements.
c. positive economics.
d. wants that exceed the resources necessary to provide them.
ANS: D PTS: 1
7. Scarcity exists because of:
a. the allocation of goods by prices.
b. specialization and division of labor.
c. the market mechanism.
d. unlimited wants and limited resources.
ANS: D PTS: 1
8. Economics is a social science that primarily explores how:
a. businesses market products under competitive conditions.
b. stock and bond prices fluctuate when there are changes in demand or supply.
c. the government allocates its budget among competing political interests.
d. goods and services are produced and distributed in a world with limited resources.
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