Chapter 1 Notes/ Study Guide

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For economists, the word 'utility' means:

Pleasure and satisfaction

Economics may best be defined as the

Social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity.

The study of economics is primarily concerned with

Choices that are made in seeking the best use of resources

Which one of the following expressions best states the idea of opportunity cost?

There is no such thing as a free lunch

Which of the following terms implies the LEAST degree of confidence in an economic generalization?

2.
Hypothesis

Which of the following terms implies that GREATEST degree of confidence in an economic generalization?

Principle

A well-tested economic theory is often called:

1.
Principle

Economists:

Use both the economic perspective and the scientific method

The process by which economists test hypotheses against facts to develop theories, principles, and models is called:

The scientific method

Economic theories

Are generalizations based on a careful observation of facts

The term 'ceteris paribus' means:

other things equal

The basic purpose of other-things-equal assumptions is to:

Allow one to reason about the relationship between variables X and Y without the intrusion of variable Z

Suppose an economist says that 'Other things equal, the lower the price of bananas, the greater the amount of bananas purchased. This statement indicates that:

All factors other than the price of bananas (for example, consumer tastes and incomes) are assumed to be constant

The term 'other things equal' means that:

A number of relevant variables are assumed to be constant

Which of the following is associated with macroeconomics?

An empirical investigation of the general price level and unemployment rates since 1990

The problems of aggregate inflation and unemployment are:

Major topics of macroeconomics

Which of the following statements pertains to macroeconomics?

National income grew by 2.7 percent last year

Macroeconomics can best be described as the

study of the large aggregates of the economy or the economy as a whole

Microeconomics is concerned with:

a detailed examination of specific economic units that make up the economic system

Microeconomics

is concerned with individual economic units and specific markets

Which of the following is a macroeconomic statement?

the gross profits of all US businesses were $182 billion last year

Which of the following is a microeconomic statement?

the price of personal computers declined last year

A normative statement is one that:

is based on value judgments

Which of the following is a normative statement?

4.
it is too hot to play tennis today

Which of the following is a positive statement?

3.
the temperature is 92 degrees today

Normative statements are concerned with:

2.
what ought to be

Economics is concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity. This statement:

4.
positive and correct

Ben says that 'an increase in the tax on beer will raise its price.' Holly argues that 'taxes should be increased on beer because college students drink too much' we can conclude that:

4.
Holly's statement is normative, but Ben's is positive

The economizing problem is:

1.
the need to make choices because economic wants exceed economic means

The economizing problem is one of deciding how to make the best use of:

2.
limited resources to satisfy virtually unlimited wants

When the economist says that economic wants are insatiable, this means that:

these wants are virtually unlimited and therefore incapable of complete satisfaction

The alternative combinations of two goods which a consumer can purchase with a given money income is shown by:

3.
a budget line

The budget line shows:

4.
all possible combinations of two goods that can be purchased, given money income and the prices of the goods

Any combination of good lying outside of the budget line:

3.
is unattainable, given the consumer's income

Which of the following is a labor resource?

3.
a computer programmer

The four factors of production are:

3.
land , labor, capital, and entrepreneurial ability

Which of the following lists includes only capital resources and therefore no labor or land resources?

2.
autos owned by a car rental firm; computers at the car rental agency; the vans that shuttle rental customers to and fro the airport

Money is not an economic resource because:

4.
money, as such, is not productive

Economic Resources are also called:

1.
factors of production

Which of the following is real capital?

1.
a construction crane

Which of the following in NOT a main function of the entrepreneur?

4.
make routine pricing decisions

The process of producing and accumulating capital goods is called:

3.
investment

The production possibilities curve illustrates the basic principle that:

1.
if all the resources of an economy are in use, more of one good can be produced only if less of another good is produced.

A production possibilities curve illustrates:

scarcity

A production possibilities curve shows:

4.
the maximum amounts of two goods that can be produced assuming the full use of available resources

When an economy is operating under conditions of full employment, the production of more of commodity A will mean the production of less of commodity B because:

3.
resources are limited

Any point inside the production possibilities curve indicates:

1.
that more output could be produced with available resources

In drawing the production possibilities curve we assume that:

2.
technology is fixed

Which of the following is NOT correct? A typical production possibilities curve:

3.
specifies how much of each product society should produce

A point inside a production possibilities curve best illustrates:

4.
unemployment

The negative slope of the production possibilities curve is a graphical way of indicating that:

3.
to produce more of one product we must do with less of another

The construction of a production possibilities curve assumes:

4.
technology is fixed

The production possibilities curve tells us:

2.
the combinations of two goods that can be produced with society's available resources

Which one of the following statements is correct?

The central concept underlying the production possibilities curve is that of limited resources

Refer to the graph your brilliant instructor has graciously drawn on the board: This production possibilities curve is:

2.
Concave to the origin because of increasing opportunity costs and Abell said so

Refer to the graph your brilliant instructor has graciously drawn on the board: The combination of computers and bicycles shown by point G is:

2.
unattainable, given currently available resources and technology

Refer to the graph your brilliant instructor has graciously drawn on the board: If society is currently producing the combination of bicycles and computers shown by point D, the production of 2 more units of bicycles:

1.
will cost 1 unit of computers

Refer to the graph your brilliant instructor has graciously drawn on the board: the combination of computers and bicycles shown by point F:

4.
is attainable, but implies that the economy is not using all its resources

Refer to the graph your brilliant instructor has graciously drawn on the board: the movement down the production possibilities curve from point A to point E suggests that the production of:

4.
both bicycles and computers are subject to increasing opportunity costs

The law of increasing opportunity costs exists because:

2.
resources are not equally efficient in producing various goods

Opportunity cost is best defined as:

3.
the amount of one product that must be given up to produce one more unit of another product.

Which of the following would be most likely to shift the production possibilities curve to the right?

4.
an improvement in the literacy level and general level of education

Which of the following will shift the production possibilities curve to the right?

1.
a technological advance that allows farmers to produce more output from given inputs

Other things equal, which of the following would shift an economy's production possibilities curve to the left?

2.
a law requiring mandatory retirement from the labor force at age 55

Which of the following statements, if any, is correct for a nation that is producing only consumer and capital goods?

1.
other things equal, the more capital goods a nation produces, the greater will be its future growth rate

All of the following could immediately or eventually lead to an inward shift of a nation's production possibilities curve, EXCEPT:

3.
an increase in the average skill level of all occupational groups

A nations production possibilities curve might shift to the left (inward) as a result of:

3.
the depletion of its soil fertility due to overplanting and overgrazing

Which of the following might shift a nation's production possibilities curve inward?

devastating by war

Free products offered by firms:

may or may not be free to individuals, but are never free to society

The assertion by economists that 'there is not free lunch'

remains true even for good given away free by firms

The "after this, therefore because of this" fallacy states that:

because event A precedes event B, A is necessarily the cause of B.

The safest way for an individual to leave a burning theater is to run for the nearest exit;it is therefore also the nest means of escape for a large audience. This assertion illustrates the:

fallacy of composition.

Which of the following has to do with the idea that generalizations that apply to individuals are also always valid for a group?

the fallacy of composition.

The fallacy of composition states that:

generalizations pertaining to individuals always apply to the group.

If you leave a football game at the end of the third quarter, you will avoid traffic and get home more quickly. Therefore, everyone should leave the game early. This assertion illustrates the:

fallacy of composition.

Which of the following has to do with the problem of distinguishing cause and effect in economic reasoning?

the post hoc fallacy.

Which of the following best illustrates the post hoc fallacy?

I took the day off work to go to the beach and that's why it rained.

The post hoc fallacy and the correlation problem both relate to:

the issue of determining causation.

A caller to a radio talk show states that protesters against globalization are a collection of "anarchist punks, naive college students, and trade union radicals." This is an example of"

loaded terminology.

A study found that the incidence of skin cancer increases along with the amount of time people work under fluorescent light, leading some people to conclude that fluorescent lighting is a cause of skin cancer. But further analysis found that people who work in offices, where fluorescent light is common, suffer more sunburn on their vacations than other workers. The sunburns, not the fluorescent light, were the cause of higher incidence of skin cancer. The original conclusion illustrates:

confusion of correlation and causation.

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