Economics is the study of:
A) how to invest in the stock market.
B) how society uses limited resources.
C) the role of money in markets.
D) how government officials decide which goods and services are produced.
B Thus, Economics answers the questions of What goods to produce, How to produce them, and For Whom, i.e., who can consume them.
Scarcity can best be defined as a situation in which:
A) there are no buyers willing to purchase what sellers have produced.
B) there are not enough goods to satisfy all of the buyers' demand.
C) resources are limited in quantity and can be used in different ways.
D) there is more than enough money to satisfy consumers' wants.
C There would be no discipline of Economics without scarcity in resources
Because resources are limited:
D)
Which of the following is not a factor of production?
A) human capital
B) physical capital
C) money
D) natural resource
C Factors of production are inputs that go into the "production function," which is what produces output or products for consumption. Money is not an input.
Factors of production are the:
D)
An example of human capital is:
B)
An example of physical capital is:
A)
We say that a combination of goods and services is attainable if:
A) it can be produced given the available factors of production.
B) it can be consumed by society within a given time period.
C) some resources are fully employed.
D) some factors of production are efficiently utilized.
A Thus, goods and services are limited because factors of production are limited.
An arrangement that allows buyers and sellers to exchange things is called:
A) a contract.
B) a market.
C) money.
D) efficient.
B Question -- where did markets, which mesh decisions of consumers and firm, come from? Did someone invent them, or did they just naturally evolve somehow?
Adam Smith used the metaphor of the invisible hand to explain how:
A) markets mismatch buyers and sellers.
B) the butcher and the baker are benevolent.
C) people acting in their own self-interest promote the interest of society as a whole.
D) the production possibilities frontier illustrates efficient outcomes.
C Invisible hand is Adam Smith's descriptor for a market. Markets work well with perfect competition, yet as we will see this is not always the case, i.e., few buyers and/or sellers, externalities, etc. Much more on this to come.
In a modern market economy, most of the answers to the questions of how much to produce, how to produce it, and who should get the production are made by:
A) governments.
B) consumers.
C) firms.
D) both B and C
D Actually, governments have a pretty big role in demanding and supplying goods, not just consumers and firm.
Positive economics:
A) is the focus of most modern economic reasoning.
B) concerns the forces that affect economic activity.
C) predicts the consequences of alternative actions.
D) All of the above are correct.
D Positive economics is What Is, i.e., explaining economic reality.
Which of the following is not an example of a question answered by positive economics?
D)
Normative economics:
A) is the focus of most modern economic reasoning.
B) answers the question "What ought to be?"
C) predicts the consequences of alternative actions.
D) All of the above are correct.
B Normative economics is What Ought to be, i.e., what might be the best way to change economic reality.
Which of the following is an example of a normative question?
B)
Economists use assumptions to:
A) make things simpler.
B) focus on what really matters.
C) simplify decision-making.
D) all of the above
D This is just the approach of the Scientific Method.
The Latin phrase ceteris paribus means that when a relationship between two variables is being studied:
A) both are treated as unpredictable.
B) neither of those two variables is allowed to change.
C) all other variables are held fixed.
D) we recognize that some factors are unknown.
C This is how economists run controlled experiments as in the physical sciences, i.e., can hold other factors constant. Statistical analysis is the approach, as long as you have data on all relevant variable.
A small change in a relevant variable is:
A) an average change.
B) a ceteris paribus change.
C) an efficient change.
D) a marginal change.
D Much more on this later!
Which of the following is an example of a marginal question?
C)
The study of the choices made by individual households, firms, and government is called:
C)
Which of the following is a microeconomic question?
C)
Macroeconomics is best described as the study of:
B)
Which of the following is a macroeconomic question?
