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Chapter 2 Thinking Like An Economist

TRUE/FALSE 1. Economists try to address their subject with a scientists objectivity. ANS: T DIF: 1 EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Economists )S&: De'initiona# !. Economists devise theories* co##ect data* and then ana#y+e these data in an attem,t to veri'y or re'ute their theories. ANS: T DIF: 1 EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Economists )S&: De'initiona# -. The scienti'ic method is the dis,assionate deve#o,ment and testin. o' theories about how the wor#d wor/s. ANS: T DIF: 1 EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Scienti'ic method )S&: De'initiona# 0. The scienti'ic method can be a,,#ied to the study o' economics. ANS: T DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Scienti'ic method )S&: Inter,retive 1. 2hi#e the scienti'ic method is a,,#icab#e to studyin. natura# sciences* it is not a,,#icab#e to studyin. a nations economy. ANS: F DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Scienti'ic method )S&: Inter,retive 3. For economists* conductin. e4,eriments is o'ten di''icu#t and sometimes im,ossib#e. ANS: T DIF: 1 EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Economists )S&: De'initiona# 5. Economists usua##y have to ma/e do with whatever data the wor#d ha,,ens to .ive them. ANS: T DIF: 1 EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Economists )S&: De'initiona# 6. It is di''icu#t 'or economists to ma/e observations and deve#o, theories* but it is easy 'or economists to run e4,eriments to .enerate data to test their theories. ANS: F DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Economists )S&: Inter,retive 7. Since economists cannot use natura# e4,eriments o''ered by history* they must use care'u##y constructed #aboratory e4,eriments instead. ANS: F DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Economists )S&: Inter,retive 18. 9istorica# e,isodes are not va#uab#e to economists. ANS: F DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Economists )S&: Inter,retive

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11. 9istorica# e,isodes a##ow economists to i##ustrate and eva#uate economic theories o' the ,resent. ANS: T DIF: 1 EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Economists )S&: De'initiona# 1!. ;ood assum,tions sim,#i'y a ,rob#em without substantia##y a''ectin. the answer. ANS: T DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Assum,tions )S&: Inter,retive 1-. Assum,tions can sim,#i'y the com,#e4 wor#d and ma/e it easier to understand. ANS: T DIF: 1 EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Assum,tions )S&: De'initiona# 10. Economists o'ten 'ind it worthwhi#e to ma/e assum,tions that do not necessari#y describe the rea# wor#d. ANS: T DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Economists )S&: Inter,retive 11. Economists use one standard set o' assum,tions to answer a## economic <uestions. ANS: F DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Economists )S&: Inter,retive 13. Economic mode#s are most o'ten com,osed o' dia.rams and e<uations. ANS: T DIF: 1 EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: Economic mode#s )S&: De'initiona# 15. Economic mode#s omit many detai#s to a##ow us to see what is tru#y im,ortant. ANS: T DIF: 1 EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: Economic mode#s )S&: De'initiona# 16. Economic mode#s can he#, us understand rea#ity on#y when they inc#ude a## detai#s o' the economy. ANS: F DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: Economic mode#s )S&: Inter,retive 17. An economic mode# can accurate#y e4,#ain how the economy is or.ani+ed because it is desi.ned to inc#ude* to the e4tent ,ossib#e* a## 'eatures o' the rea# wor#d. ANS: F DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: Economic mode#s )S&: Inter,retive !8. A## scienti'ic mode#s* inc#udin. economic mode#s* sim,#i'y rea#ity in order to im,rove our understandin. o' it. ANS: T DIF: 1 EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: Economic mode#s )S&: De'initiona# !1. The circu#ar"'#ow dia.ram e4,#ains* in .enera# terms* how the economy is or.ani+ed and how ,artici,ants in the economy interact with one another. ANS: T DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: Inter,retive !!. A circu#ar"'#ow dia.ram is a visua# mode# o' the economy. ANS: T DIF: 1 EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: De'initiona#

&ha,ter !:Thin/in. $i/e An Economist !-. In the circu#ar"'#ow dia.ram* househo#ds and 'irms are the decision ma/ers. ANS: T DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: Inter,retive !0. In the circu#ar"'#ow dia.ram* 'irms ,roduce .oods and services usin. the 'actors o' ,roduction. ANS: T DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram > Factors o' ,roduction )S&: Inter,retive !1. In the circu#ar"'#ow dia.ram* 'actors o' ,roduction are the .oods and services ,roduced by 'irms. ANS: F DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram > Factors o' ,roduction )S&: Inter,retive !3. In the circu#ar"'#ow dia.ram* 'actors o' ,roduction inc#ude #and* #abor* and ca,ita#. ANS: T DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram > Factors o' ,roduction )S&: Inter,retive

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!5. In the circu#ar"'#ow dia.ram* 'irms own the 'actors o' ,roduction and use them to ,roduce .oods and services. ANS: F DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram > Factors o' ,roduction )S&: Inter,retive !6. In the circu#ar"'#ow dia.ram* 'irms consume a## the .oods and services that they ,roduce. ANS: F DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: Inter,retive !7. In the circu#ar"'#ow dia.ram* the two ty,es o' mar/ets in which househo#ds and 'irms interact are the mar/ets 'or .oods and services and the mar/ets 'or 'actors o' ,roduction. ANS: T DIF: 1 EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: De'initiona# -8. In the mar/ets 'or .oods and services in the circu#ar"'#ow dia.ram* househo#ds are buyers and 'irms are se##ers. ANS: T DIF: 1 EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: De'initiona# -1. In the mar/ets 'or the 'actors o' ,roduction in the circu#ar"'#ow dia.ram* househo#ds are buyers and 'irms are se##ers. ANS: F DIF: 1 EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: De'initiona# -!. In the circu#ar"'#ow dia.ram* one #oo, re,resents the '#ow o' .oods* services* and 'actors o' ,roduction* and the other #oo, re,resents the corres,ondin. '#ow o' do##ars. ANS: T DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: Inter,retive --. In the circu#ar"'#ow dia.ram* one #oo, re,resents the '#ow o' .oods and services* and the other #oo, re,resents the '#ow o' 'actors o' ,roduction. ANS: F DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: Inter,retive

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&ha,ter !:Thin/in. $i/e An Economist

In the circu#ar"'#ow dia.ram* ,ayments 'or #abor* #and* and ca,ita# '#ow 'rom 'irms to househo#ds throu.h the mar/ets 'or the 'actors o' ,roduction. ANS: T DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: Inter,retive -1. The ,roduction ,ossibi#ities 'rontier is a .ra,h that shows the various combinations o' out,uts that the economy can ,ossib#y ,roduce .iven the avai#ab#e 'actors o' ,roduction and the avai#ab#e ,roduction techno#o.y. ANS: T DIF: 1 EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: De'initiona# Figure 2-14
01 08 -1 -8 !1 !8 11 18 1 11 -8 01 38 51 doghouses ? D A & dishwashers

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Refer to Figure 2-14. I' this economy uses a## its resources in the dishwasher industry* it ,roduces -1 dishwashers and no do.houses. ANS: T DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: A,,#icative -5. Refer to Figure 2-14. It is ,ossib#e 'or this economy to ,roduce 51 do.houses. ANS: F DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: A,,#icative -6. Refer to Figure 2-14. It is ,ossib#e 'or this economy to ,roduce -8 do.houses and !8 dishwashers. ANS: T DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: A,,#icative -7. Refer to Figure 2-14. It is ,ossib#e 'or this economy to ,roduce 01 do.houses and -8 dishwashers. ANS: F DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: A,,#icative 08. Refer to Figure 2-14. ;iven the techno#o.y avai#ab#e 'or manu'acturin. do.houses and dishwashers* this economy does not have enou.h o' the 'actors o' ,roduction to su,,ort the #eve# o' out,ut re,resented by ,oint &. ANS: T DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: A,,#icative

&ha,ter !:Thin/in. $i/e An Economist 01. Refer to Figure 2-14. (oints A* ?* and D re,resent 'easib#e outcomes 'or this economy. ANS: T DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: A,,#icative 0!. Refer to Figure 2-14. (oints ? and & re,resent in'easib#e outcomes 'or this economy. ANS: F DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: A,,#icative 0-. Refer to Figure 2-14. (oints A* ?* and D re,resent e''icient outcomes 'or this economy. ANS: F DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > E''iciency )S&: A,,#icative 00. Refer to Figure 2-14. (oint ? re,resents an ine''icient outcome 'or this economy. ANS: T DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > E''iciency )S&: A,,#icative 01. Refer to Figure 2-14. =nem,#oyment cou#d cause this economy to ,roduce at ,oint ?. ANS: T DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > =nem,#oyment )S&: A,,#icative 03. Refer to Figure 2-14. The o,,ortunity cost o' movin. 'rom ,oint A to ,oint D is 18 dishwashers. ANS: T DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > %,,ortunity cost )S&: A,,#icative 05. Refer to Figure 2-14. The o,,ortunity cost o' movin. 'rom ,oint ? to ,oint D is 11 do.houses. ANS: F DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > %,,ortunity cost )S&: A,,#icative 06. Refer to Figure 2-14. The o,,ortunity cost o' movin. 'rom ,oint ? to ,oint A is +ero. ANS: T DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > %,,ortunity cost )S&: A,,#icative 07. Refer to Figure 2-14. The o,,ortunity cost o' an additiona# do.house increases as more do.houses are ,roduced. ANS: T DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > %,,ortunity cost )S&: A,,#icative 18. 2ith the resources it has* an economy can ,roduce at any ,oint on or outside the ,roduction ,ossibi#ities 'rontier* but it cannot ,roduce at ,oints inside the 'rontier. ANS: F DIF: 1 EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: De'initiona# 11. (oints inside the ,roduction ,ossibi#ities 'rontier re,resent 'easib#e #eve#s o' ,roduction. ANS: T DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: Inter,retive 1!. (oints outside the ,roduction ,ossibi#ities 'rontier re,resent in'easib#e #eve#s o' ,roduction. ANS: T DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: Inter,retive

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1-. An outcome is said to be e''icient i' an economy is .ettin. a## it can 'rom the scarce resources it has avai#ab#e. ANS: T DIF: 1 EF: !"1 NAT: Ana#ytic $%&: E''iciency and e<ua#ity T%(: E''iciency )S&: De'initiona# 10. An outcome is said to be e''icient i' an economy is conservin. the #ar.est ,ossib#e <uantity o' its scarce resources whi#e sti## meetin. the basic needs o' society. ANS: F DIF: ! EF: !"1 NAT: Ana#ytic $%&: E''iciency and e<ua#ity T%(: E''iciency )S&: Inter,retive 11. A ,roduction ,oint is said to be e''icient i' there is no way 'or the economy to ,roduce more o' one .ood without ,roducin. #ess o' another. ANS: T DIF: ! EF: !"1 NAT: Ana#ytic $%&: E''iciency and e<ua#ity T%(: E''iciency )S&: Inter,retive 13. I' an economy can ,roduce more o' one .ood without .ivin. u, any o' another .ood* then the economys current ,roduction ,oint is ine''icient. ANS: T DIF: ! EF: !"1 NAT: Ana#ytic $%&: E''iciency and e<ua#ity T%(: E''iciency )S&: Inter,retive 15. (oints on the ,roduction ,ossibi#ities 'rontier re,resent e''icient #eve#s o' ,roduction. ANS: T DIF: 1 EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > E''iciency )S&: De'initiona# 16. (oints inside the ,roduction ,ossibi#ities 'rontier re,resent ine''icient #eve#s o' ,roduction. ANS: T DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > E''iciency )S&: Inter,retive 17. =nem,#oyment causes ,roduction #eve#s to be ine''icient. ANS: T DIF: ! EF: !"1 NAT: Ana#ytic $%&: E''iciency and e<ua#ity T%(: )S&: Inter,retive 38. The o,,ortunity cost o' somethin. is what you .ive u, to .et it. ANS: T DIF: 1 EF: !"1 NAT: Ana#ytic $%&: Scarcity* tradeo''s* and o,,ortunity cost T%(: %,,ortunity cost )S&: De'initiona# 31. The ,roduction ,ossibi#ities 'rontier shows the o,,ortunity cost o' one .ood as measured in terms o' the other .ood. ANS: T DIF: 1 EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > %,,ortunity cost )S&: De'initiona# 3!. 2hen a ,roduction ,ossibi#ities 'rontier is bowed outward* the o,,ortunity cost o' one .ood in terms o' the other is constant. ANS: F DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > %,,ortunity cost )S&: Inter,retive 3-. 2hen a ,roduction ,ossibi#ities 'rontier is bowed outward* the o,,ortunity cost o' one .ood in terms o' the other de,ends on how much o' each .ood is bein. ,roduced. ANS: T DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > %,,ortunity cost )S&: Inter,retive

E''iciency

&ha,ter !:Thin/in. $i/e An Economist 30. 2hen a ,roduction ,ossibi#ities 'rontier is bowed outward* the o,,ortunity cost o' the 'irst .ood in terms o' the second .ood increases as more o' the second .ood is ,roduced. ANS: F DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > %,,ortunity cost )S&: Inter,retive 31.

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2hen a ,roduction ,ossibi#ities 'rontier is bowed outward* the o,,ortunity cost o' the second .ood in terms o' the 'irst .ood increases as more o' the second .ood is ,roduced. ANS: T DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > %,,ortunity cost )S&: Inter,retive 33. 2hen a ,roduction ,ossibi#ities 'rontier is bowed outward* the o,,ortunity cost o' the second .ood in terms o' the 'irst .ood is hi.her when the economy is ,roducin. much o' the second .ood and #itt#e o' the 'irst .ood than it is when the economy is ,roducin. #itt#e o' the second .ood and much o' the 'irst .ood. ANS: T DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > %,,ortunity cost )S&: Inter,retive 35. 2hen a ,roduction ,ossibi#ities 'rontier is bowed outward* the o,,ortunity cost o' the 'irst .ood in terms o' the second .ood is hi.her when the economy is ,roducin. much o' the second .ood and #itt#e o' the 'irst .ood than it is when the economy is ,roducin. #itt#e o' the second .ood and much o' the 'irst .ood. ANS: F DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > %,,ortunity cost )S&: Inter,retive 36. Economists be#ieve that ,roduction ,ossibi#ities 'rontiers rare#y have a bowed sha,e. ANS: F DIF: 1 EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Economists > (roduction ,ossibi#ities 'rontier )S&: De'initiona# 37. A ,roduction ,ossibi#ities 'rontier wi## be bowed outward i' some o' the economys resources are better suited to ,roducin. one .ood than another. ANS: T DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: Inter,retive 58. The trade"o'' between the ,roduction o' one .ood and the ,roduction o' another .ood can chan.e over time because o' techno#o.ica# advances. ANS: T DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > Trade"o''s )S&: Inter,retive 51. A techno#o.ica# advance in the ,roduction o' the 'irst .ood increases the o,,ortunity cost o' the 'irst .ood in terms o' the second .ood. ANS: T DIF: EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > %,,ortunity cost > Techno#o.ica# advance )S&: Ana#ytica# 5!. 2hi#e the ,roduction ,ossibi#ities 'rontier is a use'u# mode#* it cannot be used to i##ustrate economic .rowth. ANS: F DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > Economic .rowth )S&: Inter,retive 5-. Economic .rowth causes a ,roduction ,ossibi#ities 'rontier to shi't outward. ANS: T DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > Economic .rowth )S&: Inter,retive

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50.

&ha,ter !:Thin/in. $i/e An Economist

I' new .overnment re.u#ations desi.ned to ,rotect wet#ands remove very ,roductive 'arm#and 'rom ,roduction* then the ,roduction ,ossibi#ities 'rontier wi## shi't inward. ANS: T DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: A,,#icative 51. (roduction ,ossibi#ities 'rontiers can be used to i##ustrate scarcity* trade"o''s* o,,ortunity cost* e''iciency* unem,#oyment* techno#o.ica# advances* and economic .rowth. ANS: T DIF: EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: Ana#ytica# 53. )icroeconomics is the study o' how househo#ds and 'irms ma/e decisions and how they interact in s,eci'ic mar/ets. ANS: T DIF: 1 EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: )icroeconomics )S&: De'initiona# 55. )acroeconomics is the study o' economywide ,henomena. ANS: T DIF: 1 EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: )acroeconomics )S&: De'initiona# 56. The e''ects o' borrowin. by the 'edera# .overnment wou#d be studied by a microeconomist rather than a macroeconomist. ANS: F DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: )icroeconomics > )acroeconomics )S&: A,,#icative 57. The e''ects o' 'orei.n com,etition on the =.S. te4ti#e industry wou#d be studied by a microeconomist rather than a macroeconomist. ANS: T DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: )icroeconomics > )acroeconomics )S&: A,,#icative 68. )icroeconomics and macroeconomics are c#ose#y intertwined. ANS: T DIF: 1 EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: )icroeconomics > )acroeconomics )S&: De'initiona# 61. 2hen economists are tryin. to e4,#ain the wor#d* they are scientists* and when they are tryin. to he#, im,rove the wor#d* they are ,o#icy advisers. ANS: T DIF: 1 EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Economists )S&: De'initiona# 6!. Economists actin. as scientists ma/e ,ositive statements* whi#e economists actin. as ,o#icy advisers ma/e normative statements. ANS: T DIF: ! EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: (ositive statements > Normative statements )S&: Inter,retive 6-. Normative statements describe how the wor#d is* whi#e ,ositive statements ,rescribe how the wor#d shou#d be. ANS: F DIF: ! EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: (ositive statements > Normative statements )S&: Inter,retive 60. (ositive statements are descri,tive* whi#e normative statements are ,rescri,tive. ANS: T DIF: ! EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: (ositive statements > Normative statements )S&: Inter,retive

&ha,ter !:Thin/in. $i/e An Economist 61. (ositive statements can be eva#uated usin. data a#one* but normative statements cannot. ANS: T DIF: ! EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: (ositive statements > Normative statements )S&: Inter,retive 63. Eva#uatin. normative statements invo#ves va#ues as we## as 'acts. ANS: T DIF: 1 EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Normative statements )S&: De'initiona# 65. @Society wou#d be better o'' i' the we#'are system were abo#ished@ is a normative statement* not a ,ositive statement. ANS: T DIF: ! EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: (ositive statements > Normative statements )S&: A,,#icative 66.

15

@%ther thin.s e<ua#* an increase in su,,#y causes a decrease in ,rice@ is a normative statement* not a ,ositive statement. ANS: F DIF: ! EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: (ositive statements > Normative statements )S&: A,,#icative 67. Trade"o''s are invo#ved in most ,o#icy decisions. ANS: T DIF: 1 EF: !"! NAT: Ana#ytic $%&: Scarcity* tradeo''s* and o,,ortunity cost T%(: Trade"o''s > (o#icy decisions )S&: De'initiona# 78. Since 1703* the ,resident o' the =nited States has received .uidance 'rom the &ounci# o' Economic Advisers. ANS: T DIF: 1 EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: &ounci# o' Economic Advisers )S&: De'initiona# 71. The &ounci# o' Economic Advisers consists o' thirty members and a sta'' o' severa# do+en economists. ANS: F DIF: 1 EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: &ounci# o' Economic Advisers )S&: De'initiona# 7!. The duties o' the &ounci# o' Economic Advisers are to advise the ,resident o' the =nited States and to determine =.S. monetary ,o#icy. ANS: F DIF: 1 EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: &ounci# o' Economic Advisers )S&: De'initiona# 7-. The &ounci# o' Economic Advisers Economic Report of the President discusses recent deve#o,ments in the economy and ,resents the counci#s ana#ysis o' current ,o#icy issues. ANS: T DIF: 1 EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: &ounci# o' Economic Advisers )S&: De'initiona# 70. Economists at the =.S. De,artment o' the Treasury he#, desi.n =.S. coins and ,a,er money. ANS: F DIF: 1 EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Economists )S&: De'initiona# 71. Economists at the =.S. De,artment o' Austice he#, en'orce the nations antitrust #aws. ANS: T DIF: 1 EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Economists )S&: De'initiona#

16

&ha,ter !:Thin/in. $i/e An Economist

73. Economists wor/ both inside and outside the administrative branch o' the =.S. .overnment. ANS: T DIF: ! EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Economists )S&: Inter,retive 75. The &on.ressiona# ?ud.et %''ice* which is sta''ed by economists* ,rovides &on.ress with inde,endent eva#uations o' ,o#icy ,ro,osa#s. ANS: T DIF: 1 EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Economists )S&: De'initiona# 76. There is on#y one e4,#anation 'or why economists .ive con'#ictin. advice on ,o#icy issues* and it is that they have di''erent va#ues about what ,o#icy shou#d try to accom,#ish. ANS: F DIF: ! EF: !"NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Economists )S&: Inter,retive 77. Economists may disa.ree about the va#idity o' a#ternative ,ositive theories about how the wor#d wor/s. ANS: T DIF: 1 EF: !"NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Economists )S&: De'initiona# 188. In surveys o' ,ro'essiona# economists* 'ourteen ,ro,ositions were endorsed by an overwhe#min. majority o' res,ondents. ANS: T DIF: 1 EF: !"NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Economists )S&: De'initiona# 181. In economics* .ra,hs serve two ,ur,oses: they o''er a way to visua##y e4,ress ideas* and they ,rovide a way o' 'indin. and inter,retin. ,atterns when ana#y+in. economic data. ANS: T DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: ;ra,hs )S&: Inter,retive 18!. E4am,#es o' .ra,hs o' a sin.#e variab#e inc#ude ,ie charts* bar .ra,hs* and time"series .ra,hs. ANS: T DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: ;ra,hs )S&: Inter,retive 18-. In the ordered ,air B18*-8C* 18 is the y"coordinate and -8 is the +"coordinate. ANS: F DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: ;ra,hs )S&: A,,#icative 180. In the ordered ,air B18*-8C* 18 is the hori+onta# #ocation o' the ,oint and -8 is the vertica# #ocation o' the ,oint. ANS: T DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: ;ra,hs )S&: A,,#icative 181. Two variab#es that have a ,ositive corre#ation move in the same direction. ANS: T DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: ;ra,hs )S&: Inter,retive 183. Two variab#es that have a ne.ative corre#ation move in o,,osite directions. ANS: T DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: ;ra,hs )S&: Inter,retive

&ha,ter !:Thin/in. $i/e An Economist 185. 2hen two variab#es move in o,,osite directions* the curve re#atin. them is u,ward s#o,in.* and we say the variab#es are ,ositive#y re#ated. ANS: F DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: ;ra,hs )S&: Inter,retive

17

186. 2hen two variab#es move in the same direction* the curve re#atin. them is downward s#o,in.* and we say the variab#es are ne.ative#y re#ated. ANS: F DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: ;ra,hs )S&: Inter,retive 187. 2hen a variab#e that is named on an a4is o' a .ra,h chan.es* the curve shi'ts. ANS: F DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: ;ra,hs )S&: Inter,retive 118. 2hen a variab#e that is not named on either a4is o' a .ra,h chan.es* we read the chan.e as a movement a#on. the curve. ANS: F DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: ;ra,hs )S&: Inter,retive 111. The conce,t o' s#o,e can be used to answer <uestions about how much one variab#e res,onds to chan.es in another variab#e. ANS: T DIF: 1 EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: ;ra,hs )S&: De'initiona# 11!. The s#o,e o' a #ine is e<ua# to the chan.e in the 4"variab#e divided by the chan.e in the y"variab#e. ANS: F DIF: 1 EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: ;ra,hs )S&: De'initiona# 11-. The s#o,e o' an u,ward"s#o,in. #ine is ,ositive* and the s#o,e o' a downward"s#o,in. #ine is ne.ative. ANS: T DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: ;ra,hs )S&: Inter,retive 110. The s#o,e o' a hori+onta# #ine is in'inite* and the s#o,e o' a vertica# #ine is +ero. ANS: F DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: ;ra,hs )S&: Inter,retive 111. I' a #ine ,asses throu.h the ,oints B!8*1C and B18*18C* then the s#o,e o' the #ine is 1:!. ANS: F DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: ;ra,hs )S&: A,,#icative 113. I' a #ine ,asses throu.h the ,oints B!8*1C and B18*18C* then the s#o,e o' the #ine is "!. ANS: F DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: ;ra,hs )S&: A,,#icative 115. &han.es in one variab#e on a .ra,h mi.ht be caused by the other variab#e on the .ra,h or by a third omitted variab#e. ANS: T DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: ;ra,hs )S&: Inter,retive

38
1.

&ha,ter !:Thin/in. $i/e An Economist =sin. the out#ine be#ow* draw a circu#ar"'#ow dia.ram re,resentin. the interactions between househo#ds and 'irms in a sim,#e economy. E4,#ain brie'#y the various ,arts o' the dia.ram.

S !RT A"S#ER

ANS:

This dia.ram shou#d du,#icate the essentia# characteristics o' the dia.ram in the te4t* with an e4,#anation o' the meanin. o' each '#ow and each mar/et. It is im,ortant that the student understands that the inner #oo, re,resents the '#ow o' rea# .oods and services and that the outer #oo, re,resents the corres,ondin. '#ow o' ,ayments. DIF: 1 EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: )S&: De'initiona# &ircu#ar"'#ow dia.ram

&ha,ter !:Thin/in. $i/e An Economist !.

31

The ,rairie do. has a#ways been considered a ,rob#em 'or American catt#e ranchers. They di. ho#es that catt#e and horses can ste, in* and they eat .rass necessary 'or catt#e. ecent#y* ranchers have discovered that there is a demand 'or ,rairie do.s as ,ets. In some areas* ,rairie do.s can se## 'or as hi.h as D118 each. &att#emen are now 'encin. o'' ,rairie do. towns on their #and so these towns wi## not be disturbed by their catt#e.

Draw a ranchers ,roduction ,ossibi#ities 'rontier showin. increasin. o,,ortunity cost o' catt#e ,roduction in terms o' ,rairie do. ,roduction. =sin. a se,arate .ra,h 'or each situation* show what wou#d ha,,en to the initia# ,roduction ,ossibi#ities 'rontier in each o' the 'o##owin. situations: a. The outcome is e''icient* with ranchers choosin. to ,roduce e<ua# numbers o' catt#e and ,rairie do.s. b. As a ,rotest a.ainst the .overnment introducin. the .ray wo#' bac/ into the wi#d in their state* ranchers decide to withho#d !1 ,ercent o' the avai#ab#e .rass#and 'or .ra+in.. c. The ,rice o' ,rairie do.s increases to D!88 each* so ranchers decide to a##ot additiona# #and 'or ,rairie do.s. d. The .overnment .rants new #eases to ranchers* .ivin. them 18*888 new acres o' .rass#and each 'or .ra+in.. e. A drou.ht destroys most o' the avai#ab#e .rass 'or .ra+in. o' catt#e* but not 'or ,rairie do.s since they a#so eat ,#ant roots.

3!
ANS:

&ha,ter !:Thin/in. $i/e An Economist BaC


cattle cattle

BbC

A ?

prairie dogs

prairie dogs

BcC
cattle cattle

BdC

& D

prairie dogs

prairie dogs

BeC
cattle

prairie dogs

DIF: EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: Ana#ytica#

&ha,ter !:Thin/in. $i/e An Economist -. Draw a ,roduction ,ossibi#ities 'rontier showin. increasin. o,,ortunity cost o' hammers in terms o' horseshoes. a. %n the .ra,h* identi'y the area o' 'easib#e outcomes and the area o' in'easib#e outcomes. b. %n the .ra,h* #abe# a ,oint that is e''icient and a ,oint that is ine''icient. c. %n the .ra,h* i##ustrate the e''ect o' the discovery o' a new vein o' iron ore* a resource needed to ma/e both horseshoes and hammers* on this economy. d. %n a second .ra,h* i##ustrate the e''ect o' a new com,uteri+ed assemb#y #ine in the ,roduction o' hammers on this economy. Ba"cC
hammers hammers

3-

ANS: BdC

in'easib#e

discovery

'easib#e e''icient ine''icient horseshoes horseshoes

DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: A,,#icative 0. Identi'y each o' the 'o##owin. to,ics as bein. ,art o' microeconomics or macroeconomics: a. the im,act o' a chan.e in consumer income on the ,urchase o' #u4ury automobi#es b. the e''ect o' a chan.e in the ,rice o' &o/e on the ,urchase o' (e,si c. the im,act o' a war in the )idd#e East on the rate o' in'#ation in the =nited States d. 'actors in'#uencin. the rate o' economic .rowth e. 'actors in'#uencin. the demand 'or tractors '. the im,act o' ta4 ,o#icy on nationa# savin. .. the e''ect o' ,o##ution ta4es on the =.S. co,,er industry h. the de.ree o' com,etition in the cab#e te#evision industry i. the e''ect o' a ba#anced"bud.et amendment on economic stabi#ity j. the im,act o' dere.u#ation on the savin.s and #oan industry

ANS: a* b* e* .* h* and j are microeconomic to,ics. c* d* '* and i are macroeconomic to,ics. DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: )icroeconomics > )acroeconomics 1.

)S&: A,,#icative

2hich o' the 'o##owin. statements are ,ositive and which are normativeE a. The minimum wa.e creates unem,#oyment amon. youn. and uns/i##ed wor/ers. b. The minimum wa.e ou.ht to be abo#ished. c. I' the ,rice o' a ,roduct in a mar/et decreases* then* other thin.s e<ua#* <uantity demanded wi## increase. d. A #itt#e bit o' in'#ation is worse 'or society than a #itt#e bit o' unem,#oyment. e. There is a tradeo'' between in'#ation and unem,#oyment in the short run. '. I' consumer income increases* then* other thin.s e<ua#* the demand 'or automobi#es wi## increase. .. The =.S. income distribution is not 'air. h. =.S. wor/ers deserve more #ibera# unem,#oyment bene'its. i. I' interest rates increase* then investment wi## decrease. j. I' we#'are bene'its were reduced* then the country wou#d be better o''.

30

&ha,ter !:Thin/in. $i/e An Economist

ANS: a* c* e* '* and i are ,ositive statements. b* d* .* h* and j are normative statements. DIF: ! EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: (ositive statements > Normative statements 3.

)S&: A,,#icative

=se the 'o##owin. .ra,h to answer the 'o##owin. <uestions. a. 9ow wou#d ,oint A be re,resented as an ordered ,airE b. 2hat ty,e o' curve is thisE c. Does this curve show a ,ositive or ne.ative corre#ation between ,rice and <uantityE d. &om,ute the s#o,e o' D1 between ,oints A and $. e. 2hat is the s#o,e o' D1 between ,oints $ and NE 2hy wou#d you not have to ca#cu#ate this answerE '. 2hat is it ca##ed i' we move 'rom D1 to D!E .. 9ow do you /now that the s#o,e o' D! is the same as the s#o,e o' D1E
08 -3 -! !6 !0 !8 13 1! 6 0 18 !8 -8 08 18 38 N $ ) A F price

D1 58 68

D! quantity

ANS: a. b. c. d. e. '. .. B!8*!0C a demand curve a ne.ative corre#ation between ,rice and <uantity "6:!8 or "!:1 "!:1G because the s#o,e o' a strai.ht #ine is constant an increase in demand. because the ! #ines are ,ara##e# T%(: ;ra,hs

DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics )S&: A,,#icative

Sec$$ - Thinking Like an Economist


%ULT&'LE C !&CE 1. 2hich o' the 'o##owin. is not correctE a. Economists use some 'ami#iar words in s,ecia#i+ed ways. b. Economics has its own #an.ua.e and its own way o' thin/in.* but 'ew other 'ie#ds o' study do. c. Su,,#y* demand* e#asticity* com,arative advanta.e* consumer sur,#us* and deadwei.ht #oss are a## terms that are ,art o' the economists #an.ua.e. d. The va#ue o' the economists #an.ua.e #ies in its abi#ity to ,rovide you with a new and use'u# way o' thin/in. about the wor#d in which you #ive. DIF: ! EF: !"8 $%&: The study o' economics and de'initions o' economics )S&: Inter,retive

ANS: ? NAT: Ana#ytic T%(: Economics

&ha,ter !:Thin/in. $i/e An Economist

31

Sec$1 - Thinking Like an Economist - The Economist as Scientist


%ULT&'LE C !&CE 1. Economists* #i/e mathematicians* ,hysicists* and bio#o.ists* a. ma/e use o' the scienti'ic method. b. try to address their subject with a scientists objectivity. c. devise theories* co##ect data* and then ana#y+e these data in an attem,t to veri'y or re'ute their theories. d. A## o' the above are correct. DIF: ! EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: Inter,retive

ANS: D NAT: Ana#ytic T%(: Economists !.

The essence o' science is a. the #aboratory e4,eriment. b. the scienti'ic method. c. the study o' nature* but not the study o' society. d. A## o' the above are correct.

ANS: ? DIF: 1 EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Scienti'ic method )S&: De'initiona# -. The scienti'ic method is a. the use o' modern techno#o.y to understand the way the wor#d wor/s. b. the use o' contro##ed #aboratory e4,eriments to understand the way the wor#d wor/s. c. the dis,assionate deve#o,ment and testin. o' theories about how the wor#d wor/s. d. the search 'or evidence to su,,ort ,reconceived theories about how the wor#d wor/s.

ANS: & DIF: 1 EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Scienti'ic method )S&: De'initiona# 0. The scienti'ic method is a,,#icab#e to studyin. a. natura# sciences* but not socia# sciences. b. socia# sciences* but not natura# sciences. c. both natura# sciences and socia# sciences. d. None o' the above is correct.

ANS: & DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Scienti'ic method )S&: Inter,retive 1. 2ho said* @The who#e o' science is nothin. more than the re'inement o' everyday thin/in.@E a. Isaac Newton b. A#bert Einstein c. Adam Smith d. ?enjamin Fran/#in

ANS: ? DIF: 1 EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Scienti'ic method )S&: De'initiona# 3. A#bert Einstein once made the 'o##owin. observation about science: a. @The who#e o' science is nothin. more than the re'inement o' everyday thin/in..@ b. @The who#e o' science is nothin. more than an interestin. inte##ectua# e4ercise.@ c. @In order to understand science* one must re#y so#e#y on abstraction.@ d. @In order to understand science* one must transcend everyday thin/in..@

ANS: A DIF: 1 EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Scienti'ic method )S&: De'initiona#

33
5.

&ha,ter !:Thin/in. $i/e An Economist Sir Isaac NewtonHs deve#o,ment o' the theory o' .ravity a'ter observin. an a,,#e 'a## 'rom a tree is an e4am,#e o' a. a contro##ed e4,eriment that #ead to the 'ormu#ation o' a scienti'ic theory. b. bein. in the ri.ht ,#ace at the ri.ht time. c. an idea whose time had come. d. the inter,#ay between observation and theory in science.

ANS: D DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Scienti'ic method )S&: Inter,retive 6. The .oa# o' an economist who 'ormu#ates new theories is to a. ,rovide an interestin. 'ramewor/ o' ana#ysis* whether or not the 'ramewor/ turns out to be o' much use in understandin. how the wor#d wor/s. b. ,rovo/e stimu#atin. debate in scienti'ic journa#s. c. contribute to an understandin. o' how the wor#d wor/s. d. demonstrate that economists* #i/e other scientists* can 'ormu#ate testab#e theories. DIF: ! EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: Inter,retive

ANS: & NAT: Ana#ytic T%(: Economists 7.

2hich o' the 'o##owin. statements a,,#ies to economics* as we## as to other sciences such as ,hysicsE a. E4,eriments are considered va#id on#y when they are conducted in a #aboratory. b. ;ood theories do not need to be tested. c. ea#"wor#d observations o'ten #ead to theories. d. Economics* as we## as other sciences* is concerned ,rimari#y with abstract conce,ts. DIF: ! EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: Inter,retive

ANS: & NAT: Ana#ytic T%(: Economists 18.

2ith res,ect to how economists study the economy* which o' the 'o##owin. statements is most accurateE a. Economists study the ,ast* but they do not try to ,redict the 'uture. b. Economists use Iru#es o' thumbJ to ,redict the 'uture. c. Economists devise theories* co##ect data* and ana#y+e the data to test the theories. d. Economists use contro##ed e4,eriments in much the same way that bio#o.ists and ,hysicists do. DIF: ! EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: Inter,retive

ANS: & NAT: Ana#ytic T%(: Economists 11.

Economists 'ace an obstac#e that many other scientists do not 'ace. 2hat is that obstac#eE a. It is o'ten di''icu#t to 'ormu#ate theories in economics. b. It is o'ten di''icu#t and sometimes im,ossib#e to ,er'orm e4,eriments in economics. c. Economics cannot be addressed objective#yG it must be addressed subjective#y. d. The scienti'ic method cannot be a,,#ied to the study o' economics. DIF: ! EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: Inter,retive

ANS: ? NAT: Ana#ytic T%(: Economists 1!.

In conductin. their research* economists 'ace an obstac#e that not a## scientists 'aceG s,eci'ica##y* in economics* it is o'ten di''icu#t and sometimes im,ossib#e to a. ma/e use o' theory and observation. b. re#y u,on the scienti'ic method. c. conduct #aboratory e4,eriments. d. 'ind artic#es or boo/s that were written be'ore 1788. DIF: ! EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: Inter,retive

ANS: & NAT: Ana#ytic T%(: Economists

&ha,ter !:Thin/in. $i/e An Economist 1-. The use o' theory and observation is more di''icu#t in economics than in sciences such as ,hysics due to the di''icu#ty in a. ,er'ormin. an e4,eriment in an economic system. b. a,,#yin. mathematica# methods to economic ana#ysis. c. ana#y+in. avai#ab#e data. d. 'ormu#atin. theories about economic events. DIF: ! EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: Inter,retive

35

ANS: A NAT: Ana#ytic T%(: Economists 10.

2hich o' the 'o##owin. statements is BareC correctE a. e#ative to other scientists* economists 'ind it more di''icu#t to .enerate use'u# data. b. Theory and observation are im,ortant in economics as we## as in other sciences. c. To obtain data* economists o'ten re#y u,on the natura# e4,eriments o''ered by history. d. A## o' the above are correct. DIF: ! EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: Inter,retive

ANS: D NAT: Ana#ytic T%(: Economists 11.

?ecause it is di''icu#t 'or economists to use e4,eriments to .enerate data* they .enera##y must a. do without data. b. substitute assum,tions 'or data when data are unavai#ab#e. c. re#y u,on hy,othetica# data that were ,revious#y concocted by other economists. d. use whatever data the wor#d .ives them. DIF: ! EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: Inter,retive

ANS: D NAT: Ana#ytic T%(: Economists 13.

2hich o' the 'o##owin. statements is correctE a. Economists a#most a#ways 'ind it easy to conduct e4,eriments in order to test their theories. b. Economics is not a true science because economists are not usua##y a##owed to conduct e4,eriments to test their theories. c. Economics is a socia# science rather than a true science because it cannot em,#oy the scienti'ic method. d. Economists are usua##y not a##owed to conduct e4,eriments* so they must re#y on natura# e4,eriments o''ered by history. DIF: ! EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: Inter,retive

ANS: D NAT: Ana#ytic T%(: Economists 15.

Instead o' conductin. #aboratory e4,eriments to .enerate data to test their theories* economists o'ten a. as/ winners o' the Nobe# (ri+e in Economics to eva#uate their theories. b. ar.ue that data is im,ossib#e to co##ect in economics. c. .ather data 'rom historica# e,isodes o' economic chan.e. d. assume that data wou#d su,,ort their theories. DIF: ! EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: Inter,retive

ANS: & NAT: Ana#ytic T%(: Economists 16.

The most common data 'or testin. economic theories come 'rom a. care'u##y contro##ed and conducted #aboratory e4,eriments. b. com,uter mode#s o' economies. c. historica# e,isodes o' economic chan.e. d. centra##y ,#anned economies. DIF: ! EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: Inter,retive

ANS: & NAT: Ana#ytic T%(: Economists

36
17.

&ha,ter !:Thin/in. $i/e An Economist In conductin. their research* economists o'ten substitute historica# events and historica# e,isodes 'or a. theories and observations. b. #aboratory e4,eriments. c. mode#s. d. assum,tions. DIF: ! EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: Inter,retive

ANS: ? NAT: Ana#ytic T%(: Economists !8.

For economists* substitutes 'or #aboratory e4,eriments o'ten come in the 'orm o' a. natura# e4,eriments o''ered by history. b. untested theories. c. Iru#es o' thumbJ and other such conveniences. d. re#iance u,on the wisdom o' e#ders in the economics ,ro'ession. DIF: ! EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: Inter,retive

ANS: A NAT: Ana#ytic T%(: Economists !1.

Economists re.ard events 'rom the ,ast as a. irre#evant* since history is un#i/e#y to re,eat itse#'. b. o' #imited interest* since those events se#dom ,rovide any use'u# economic data. c. interestin. but not ,articu#ar#y va#uab#e* since those events cannot be used to eva#uate ,resent"day economic theories. d. interestin. and va#uab#e* since those events are ca,ab#e o' he#,in. us to understand the ,ast* the ,resent* and the 'uture. DIF: ! EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: Inter,retive

ANS: D NAT: Ana#ytic T%(: Economists !!.

For economists* historica# e,isodes a. are not worthy o' study because they o''er 'ew insi.hts into current economic events and ,rob#ems. b. are not worthy o' study because #aboratory e4,eriments ,rovide more re#iab#e data. c. are worthy o' study because economists re#y entire#y on observation* rather than on theory. d. are worthy o' study because they serve as va#uab#e substitutes 'or #aboratory e4,eriments. DIF: ! EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: Inter,retive

ANS: D NAT: Ana#ytic T%(: Economists !-.

9istorica# e,isodes are a. va#uab#e to economists because they a##ow economists to see how the science o' economics has evo#ved. b. va#uab#e to economists because they a##ow economists to eva#uate economic theories o' the ,resent. c. not o' concern to economists because economics is about ,redictin. the 'uture* not dwe##in. on the ,ast. d. not o' concern to economists because the e4act circumstances o' historica# e,isodes are un#i/e#y to be observed a.ain. DIF: ! EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: Inter,retive

ANS: ? NAT: Ana#ytic T%(: Economists !0.

%ne thin. economists do to he#, them understand how the rea# wor#d wor/s is a. ma/e assum,tions. b. i.nore the ,ast. c. they try to ca,ture every as,ect o' the rea# wor#d in the mode#s they construct. d. A## o' the above are correct. DIF: ! EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: Inter,retive

ANS: A NAT: Ana#ytic T%(: Assum,tions

&ha,ter !:Thin/in. $i/e An Economist !1. Economists ma/e assum,tions in order to a. mimic the methodo#o.ies em,#oyed by other scientists. b. minimi+e the number o' e4,eriments that yie#d no use'u# data. c. minimi+e the #i/e#ihood that some as,ect o' the ,rob#em at hand is bein. over#oo/ed. d. 'ocus their thin/in. on the essence o' the ,rob#em at hand. DIF: ! EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: Inter,retive

37

ANS: D NAT: Ana#ytic T%(: Assum,tions !3.

Economists ma/e use o' assum,tions* some o' which are unrea#istic* 'or the ,ur,ose o' a. teachin. economics to ,eo,#e who have never be'ore studied economics. b. advancin. their ,o#itica# a.endas. c. deve#o,in. mode#s when the scienti'ic method cannot be used. d. 'ocusin. their thin/in.. DIF: ! EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: Inter,retive

ANS: D NAT: Ana#ytic T%(: Assum,tions !5.

For an economist* the idea o' ma/in. assum,tions is re.arded .enera##y as a a. bad idea* since doin. so #eads to the omission o' im,ortant ideas and variab#es 'rom economic mode#s. b. bad idea* since doin. so invariab#y #eads to data"co##ection ,rob#ems. c. .ood idea* since doin. so he#,s to sim,#i'y the com,#e4 wor#d and ma/e it easier to understand. d. .ood idea* since economic ana#ysis without assum,tions #eads to com,#icated resu#ts that the .enera# ,ub#ic 'inds hard to understand. DIF: ! EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: Inter,retive

ANS: & NAT: Ana#ytic T%(: Assum,tions !6.

An economic theory about internationa# trade that is based on the assum,tion that there are on#y two countries tradin. two .oods a. is use#ess* since the rea# wor#d has many countries tradin. many .oods. b. can be use'u# on#y in situations invo#vin. two countries and two .oods. c. can be use'u# in the c#assroom* but is use#ess in the rea# wor#d. d. can be use'u# in he#,in. economists understand the com,#e4 wor#d o' internationa# trade invo#vin. many countries and many .oods. DIF: ! EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: Inter,retive

ANS: D NAT: Ana#ytic T%(: Assum,tions !7.

The art in scienti'ic thin/in. "" whether in chemistry* economics* or bio#o.y "" is a. the desi.n and im,#ementation o' #aboratory e4,eriments. b. /nowin. when to sto, co##ectin. data and when to start ana#y+in. the data. c. decidin. which assum,tions to ma/e. d. bein. ab#e to mathematica##y mode# natura# ,henomena. DIF: 1 EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: De'initiona#

ANS: & NAT: Ana#ytic T%(: Assum,tions -8.

The art in scienti'ic thin/in. is a. 'indin. the ri.ht ,rob#em to study. b. decidin. which assum,tions to ma/e. c. the abi#ity to ma/e an abstract subject easy to understand. d. not somethin. in which economists have to be s/i##ed. DIF: 1 EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: De'initiona#

ANS: ? NAT: Ana#ytic T%(: Assum,tions

58
-1.

&ha,ter !:Thin/in. $i/e An Economist The decision o' which assum,tions to ma/e is a. an easy decision 'or an economist* but a di''icu#t decision 'or a ,hysicist or a chemist. b. not a ,articu#ar#y im,ortant decision 'or an economist. c. usua##y re.arded as an art in scienti'ic thin/in.. d. usua##y re.arded as the easiest ,art o' the scienti'ic method. DIF: ! EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: Inter,retive

ANS: & NAT: Ana#ytic T%(: Assum,tions -!.

An e4am,#e o' a ,rice that chan.es on#y in're<uent#y is the ,rice o' a. stoc/s on the New Kor/ Stoc/ E4chan.e. b. crude oi#. c. residentia# rea# estate. d. ma.a+ines so#d at newsstands.

ANS: D DIF: 1 EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Assum,tions > (rices )S&: De'initiona# --. 2hen studyin. the e''ects o' ,ub#ic ,o#icy chan.es* economists a. a#ways re'rain 'rom ma/in. assum,tions. b. sometimes ma/e di''erent assum,tions about the short run and the #on. run. c. consider on#y the direct e''ects o' those ,o#icy chan.es and not the indirect e''ects. d. consider on#y the short"run e''ects o' those ,o#icy chan.es and not the #on."run e''ects.

ANS: ? DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: (ub#ic ,o#icy > Assum,tions > Short run > $on. run )S&: Inter,retive -0. 2hen studyin. the e''ects o' chan.es in ,ub#ic ,o#icy* economists be#ieve that a. it is im,ortant to distin.uish between the short run and the #on. run. b. the assum,tions used in studyin. those e''ects shou#d be the same 'or the short run as 'or the #on. run. c. the short"run e''ects o' those chan.es are a#ways more bene'icia# to society than are the #on."run e''ects. d. the #on."run e''ects o' those chan.es are a#ways more bene'icia# to society than are the short"run e''ects.

ANS: A DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: (ub#ic ,o#icy > Short run > $on. run )S&: Inter,retive -1. A mode# can be accurate#y described as a a. theoretica# abstraction with very #itt#e va#ue. b. device that is use'u# on#y to the ,eo,#e who created it. c. rea#istic and care'u##y constructed theory. d. sim,#i'ication o' rea#ity.

ANS: D DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: Economic mode#s )S&: Inter,retive -3. 2hich o' the 'o##owin. statements about mode#s is correctE a. The more detai#s a mode# inc#udes* the better the mode#. b. )ode#s assume away irre#evant detai#s. c. )ode#s cannot be used to e4,#ain how the economy 'unctions. d. )ode#s cannot be used to ma/e ,redictions.

ANS: ? DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: Economic mode#s )S&: Inter,retive

&ha,ter !:Thin/in. $i/e An Economist -5. In bui#din. economic mode#s* economists o'ten omit a. assum,tions. b. theories. c. detai#s. d. e<uations.

51

ANS: & DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: Economic mode#s )S&: Inter,retive -6. 2hich o' the 'o##owin. statements about economic mode#s is correctE a. Economic mode#s are bui#t to mirror rea#ity e4act#y. b. Economic mode#s are use'u#* but they shou#d not be used 'or the ,ur,ose o' im,rovin. ,ub#ic ,o#icies. c. ?ecause economic mode#s omit many detai#s* they a##ow us to see what is tru#y im,ortant. d. Economic mode#s se#dom incor,orate e<uations or dia.rams.

ANS: & DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: Economic mode#s )S&: Inter,retive -7. Economic mode#s a. cannot be use'u# i' they are based on 'a#se assum,tions. b. were once thou.ht to be use'u#* but that is no #on.er true. c. must incor,orate a## as,ects o' the economy i' they are to be use'u#. d. can be use'u#* even i' they are not ,articu#ar#y rea#istic.

ANS: D DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: Economic mode#s )S&: Inter,retive 08. 2hich o' the 'o##owin. is not correct about most economic mode#sE a. They are com,osed o' e<uations and dia.rams. b. They contribute very #itt#e to economists understandin. o' the rea# wor#d. c. They omit many 'eatures o' the rea#"wor#d economy. d. In constructin. mode#s* economists ma/e assum,tions.

ANS: ? DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: Economic mode#s )S&: Inter,retive 01. Economic mode#s a. are constructed to mirror rea#ity as c#ose#y as ,ossib#e* and in this res,ect economic mode#s are no di''erent 'rom other scienti'ic mode#s. b. are constructed to mirror rea#ity as c#ose#y as ,ossib#e* and in this res,ect economic mode#s are very di''erent 'rom other scienti'ic mode#s. c. are sim,#i'ications o' rea#ity* and in this res,ect economic mode#s are no di''erent 'rom other scienti'ic mode#s. d. are sim,#i'ications o' rea#ity* and in this res,ect economic mode#s are very di''erent 'rom other scienti'ic mode#s.

ANS: & DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: Economic mode#s )S&: Inter,retive 0!. Aust #i/e mode#s constructed in other areas o' science* economic mode#s a. incor,orate assum,tions that contradict rea#ity. b. incor,orate a## detai#s o' the rea# wor#d. c. com,#icate rea#ity. d. avoid the use o' dia.rams and e<uations.

ANS: A DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: Economic mode#s )S&: Inter,retive

5!
0-.

&ha,ter !:Thin/in. $i/e An Economist 2hich ty,es o' mode#s are bui#t with assum,tionsE a. economic mode#s* but not mode#s in other disci,#ines such as ,hysics and bio#o.y b. economic mode#s as we## as mode#s in other disci,#ines such as ,hysics and bio#o.y c. mode#s that are bui#t 'or teachin. ,ur,oses but not 'or research ,ur,oses d. bad mode#s

ANS: ? DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: Economic mode#s )S&: Inter,retive 00. Economists bui#d economic mode#s by a. .eneratin. data. b. conductin. contro##ed e4,eriments in a #ab. c. ma/in. assum,tions. d. reviewin. statistica# 'orecasts.

ANS: & DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: Economic mode#s )S&: Inter,retive 01. Economic mode#s are bui#t with a. recommendations concernin. ,ub#ic ,o#icies. b. 'acts about the #e.a# system. c. assum,tions. d. statistica# 'orecasts.

ANS: & DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: Economic mode#s )S&: Inter,retive 03. In constructin. mode#s* economists a. #eave out e<uations* since e<uations and mode#s tend to contradict one another. b. i.nore the #on. run* since mode#s are use'u# on#y 'or short"run ana#ysis. c. ma/e assum,tions that are contrary to 'eatures o' the rea# wor#d. d. try to inc#ude every 'eature o' the economy.

ANS: & DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: Economic mode#s )S&: Inter,retive 05. Economic mode#s a. are ,eo,#e who act out the behavior o' 'irms and househo#ds so that economists can study this behavior. b. are usua##y detai#ed re,#ications o' rea#ity. c. incor,orate sim,#i'yin. assum,tions that o'ten contradict rea#ity* but a#so he#, economists better understand rea#ity. d. are use'u# to researchers but not to teachers because economic mode#s omit many detai#s o' the rea#" wor#d economy.

ANS: & DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: Economic mode#s )S&: Inter,retive 06. 2hich o' the 'o##owin. statements is correctE a. Few economic mode#s incor,orate assum,tions. b. Di''erent economic mode#s em,#oy di''erent sets o' assum,tions. c. ;ood economic mode#s attem,t to mimic rea#ity as c#ose#y as ,ossib#e. d. Economic mode#s* to be acce,ted* must be tested by conductin. e4,eriments.

ANS: ? DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: Economic mode#s )S&: Inter,retive

&ha,ter !:Thin/in. $i/e An Economist 07. 2hich o' these statements about economic mode#s is correctE a. For economists* economic mode#s ,rovide insi.hts about the wor#d. b. Economic mode#s are bui#t with assum,tions. c. Economic mode#s are o'ten com,osed o' e<uations and dia.rams. d. A## o' the above are correct.

5-

ANS: D DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: Economic mode#s )S&: Inter,retive 18. The circu#ar"'#ow dia.ram is an e4am,#e o' a. a #aboratory e4,eriment. b. an economic mode#. c. a mathematica# mode#. d. A## o' the above are correct.

ANS: ? DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: Inter,retive 11. The circu#ar"'#ow dia.ram is a a. visua# mode# o' the economy. b. visua# mode# o' the re#ationshi,s amon. money* ,rices* and businesses. c. mode# that shows the e''ects o' .overnment on the economy. d. mathematica# mode# o' how the economy wor/s.

ANS: A DIF: 1 EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: De'initiona# 1!. A circu#ar"'#ow dia.ram is a mode# that a. he#,s to e4,#ain how ,artici,ants in the economy interact with one another. b. he#,s to e4,#ain how the economy is or.ani+ed. c. incor,orates a## as,ects o' the rea# economy. d. ?oth BaC and BbC are correct.

ANS: D DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: Inter,retive 1-. The circu#ar"'#ow dia.ram a. is an economic mode#. b. incor,orates two ty,es o' decision ma/ers: househo#ds and 'irms. c. re,resents the '#ows o' in,uts* out,uts* and do##ars. d. A## o' the above are correct.

ANS: D DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: Inter,retive 10. 2hich o' the 'o##owin. statements about the circu#ar"'#ow dia.ram is correctE a. %ne must ima.ine that the economy o,erates without money in order to ma/e sense o' the dia.ram. b. The dia.ram #eaves out detai#s that are not essentia# 'or understandin. the economic transactions that occur between househo#ds and 'irms. c. The .overnment cannot be e4c#uded as a decision ma/er in a circu#ar"'#ow dia.ram. d. A## o' the above are correct.

ANS: ? DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: Inter,retive

50
11.

&ha,ter !:Thin/in. $i/e An Economist In the sim,#e circu#ar"'#ow dia.ram* the ,artici,ants in the economy are a. 'irms and .overnment. b. househo#ds and 'irms. c. househo#ds and .overnment. d. househo#ds* 'irms* and .overnment.

ANS: ? DIF: 1 EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: De'initiona# 13. 2hich two .rou,s o' decision ma/ers are inc#uded in the sim,#e circu#ar"'#ow dia.ramE a. mar/ets and .overnment b. househo#ds and .overnment c. 'irms and .overnment d. househo#ds and 'irms

ANS: D DIF: 1 EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: De'initiona# 15. In the circu#ar"'#ow dia.ram* 'irms ,roduce a. .oods and services usin. 'actors o' ,roduction. b. out,ut usin. in,uts. c. 'actors o' ,roduction usin. .oods and services. d. ?oth BaC and BbC are correct.

ANS: D DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: Inter,retive 16. Factors o' ,roduction are a. the mathematica# ca#cu#ations 'irms ma/e in determinin. their o,tima# ,roduction #eve#s. b. socia# and ,o#itica# conditions that a''ect ,roduction. c. the ,hysica# re#ationshi,s between economic in,uts and out,uts. d. in,uts into the ,roduction ,rocess.

ANS: D DIF: 1 EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Factors o' ,roduction )S&: De'initiona# 17. Factors o' ,roduction are a. used to ,roduce .oods and services. b. a#so ca##ed out,ut. c. abundant in most economies. d. assumed to be owned by 'irms in the circu#ar"'#ow dia.ram.

ANS: A DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Factors o' ,roduction )S&: Inter,retive 38. In the circu#ar"'#ow dia.ram* which o' the 'o##owin. is not a 'actor o' ,roductionE a. #abor b. #and c. ca,ita# d. money

ANS: D DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram > Factors o' ,roduction )S&: Inter,retive 31. In the circu#ar"'#ow dia.ram* a. 'irms own the 'actors o' ,roduction. b. the 'actors o' ,roduction are #abor* #and* and ca,ita#. c. the 'actors o' ,roduction are a#so ca##ed Iout,ut.J d. A## o' the above are correct.

&ha,ter !:Thin/in. $i/e An Economist ANS: ? DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram > Factors o' ,roduction )S&: Inter,retive 3!. 2hich o' these terms are used interchan.eab#yE a. @.oods and services@ and @in,uts@ b. @.oods and services@ and @'actors o' ,roduction@ c. @in,uts@ and @'actors o' ,roduction@ d. @#and* #abor* and ca,ita#@ and @.oods and services@

51

ANS: & DIF: 1 EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Factors o' ,roduction )S&: De'initiona# 3-. Another term 'or 'actors o' ,roduction is a. in,uts. b. out,ut. c. .oods. d. services.

ANS: A DIF: 1 EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Factors o' ,roduction )S&: De'initiona# 30. In economics* ca,ita# re'ers to a. the 'inances necessary 'or 'irms to ,roduce their ,roducts. b. bui#din.s and machines used in the ,roduction ,rocess. c. the money househo#ds use to ,urchase 'irmsH out,ut. d. stoc/s and bonds. DIF: 1 EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: De'initiona#

ANS: ? NAT: Ana#ytic T%(: &a,ita# 31.

In the sim,#e circu#ar"'#ow dia.ram* househo#ds a. are the on#y decision ma/ers. b. own the 'actors o' ,roduction. c. are buyers o' in,uts. d. consume on#y some o' the .oods and services that 'irms ,roduce.

ANS: ? DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: Inter,retive 33. In the sim,#e circu#ar"'#ow dia.ram* a. househo#ds own the 'actors o' ,roduction. b. househo#ds buy a## the .oods and services that 'irms ,roduce. c. #and* #abor* and ca,ita# '#ow 'rom househo#ds to 'irms. d. A## o' the above are correct.

ANS: D DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: Inter,retive 35. In the sim,#e circu#ar"'#ow dia.ram* who consumes the .oods and services that 'irms ,roduceE a. househo#ds on#y b. 'irms on#y c. both househo#ds and 'irms d. neither househo#ds nor 'irms

ANS: A DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: Inter,retive

53
36.

&ha,ter !:Thin/in. $i/e An Economist In the circu#ar"'#ow dia.ram* another name 'or .oods and services ,roduced by 'irms is a. 'actors o' ,roduction. b. out,ut. c. in,uts. d. resources.

ANS: ? DIF: 1 EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: De'initiona# 37. 2hich mar/ets are re,resented in the sim,#e circu#ar"'#ow dia.ramE a. mar/ets 'or .oods and services and mar/ets 'or 'inancia# assets b. mar/ets 'or 'actors o' ,roduction and mar/ets 'or 'inancia# assets c. mar/ets 'or .oods and services and mar/ets 'or 'actors o' ,roduction d. mar/ets 'or .oods and services and mar/ets 'or im,orts and e4,orts

ANS: & DIF: 1 EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: De'initiona# 58. In the mar/ets 'or .oods and services in the circu#ar"'#ow dia.ram* a. househo#ds and 'irms are both buyers. b. househo#ds and 'irms are both se##ers. c. househo#ds are buyers and 'irms are se##ers. d. househo#ds are se##ers and 'irms are buyers.

ANS: & DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: Inter,retive 51. In the circu#ar"'#ow dia.ram* in the mar/ets 'or a. .oods and services* househo#ds and 'irms are both se##ers. b. .oods and services* househo#ds are buyers and 'irms are se##ers. c. the 'actors o' ,roduction* househo#ds are buyers and 'irms are se##ers. d. the 'actors o' ,roduction* househo#ds and 'irms are both buyers.

ANS: ? DIF: 1 EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: De'initiona# 5!. In the mar/ets 'or .oods and services in the circu#ar"'#ow dia.ram* a. househo#ds ,rovide 'irms with savin.s 'or investment. b. househo#ds ,rovide 'irms with #abor* #and* and ca,ita#. c. 'irms ,rovide househo#ds with out,ut. d. 'irms ,rovide househo#ds with ,ro'it.

ANS: & DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: Inter,retive 5-. In the mar/ets 'or the 'actors o' ,roduction in the circu#ar"'#ow dia.ram* a. househo#ds are se##ers and 'irms are buyers. b. househo#ds are buyers and 'irms are se##ers. c. househo#ds and 'irms are both buyers. d. househo#ds and 'irms are both se##ers.

ANS: A DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram > Factor mar/ets )S&: Inter,retive 50. In the circu#ar"'#ow dia.ram* in the mar/ets 'or a. .oods and services* househo#ds and 'irms are both se##ers. b. .oods and services* househo#ds are se##ers and 'irms are buyers. c. the 'actors o' ,roduction* househo#ds are se##ers and 'irms are buyers. d. the 'actors o' ,roduction* househo#ds and 'irms are both buyers.

&ha,ter !:Thin/in. $i/e An Economist ANS: & DIF: 1 EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram > Factor mar/ets )S&: De'initiona# 51. In the mar/ets 'or 'actors o' ,roduction in the circu#ar"'#ow dia.ram* a. househo#ds ,rovide 'irms with #abor* #and* and ca,ita#. b. househo#ds ,rovide 'irms with savin.s 'or investment. c. 'irms ,rovide househo#ds with .oods and services. d. 'irms ,rovide househo#ds with ,ro'it.

55

ANS: A DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram > Factor mar/ets )S&: Inter,retive 53. 2hich o' the 'o##owin. transactions does not ta/e ,#ace in the mar/ets 'or 'actors o' ,roduction in the circu#ar" '#ow dia.ramE a. a #andowner #eases #and to a 'armer b. a 'armer hires a teena.er to he#, with harvest c. a retired 'armer se##s his combine to a new 'armer d. a woman buys corn 'or dinner

ANS: D DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram > Factor mar/ets )S&: A,,#icative 55. 2hich o' the 'o##owin. transactions does not ta/e ,#ace in the mar/ets 'or the 'actors o' ,roduction in the circu#ar"'#ow dia.ramE a. Fosu/e ,rovides ,#umbin. services 'or a ,#umbin. com,any and receives an hour#y wa.e 'rom the com,any 'or his services. b. A#'onso wor/s as a marria.e counse#or and his c#ients ,ay him on a ,er"hour basis 'or his services. c. ;eovany owns severa# sho,,in. ma##s and receives rent ,ayments 'rom the com,anies that o,erate those ma##s. d. &ar#os se##s advertisin. 'or a news,a,er and receives a commission 'rom the news,a,er com,any 'or each advertisement that he se##s.

ANS: ? DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram > Factor mar/ets )S&: A,,#icative 56. In the circu#ar"'#ow dia.ram* a. 'irms are buyers in the mar/ets 'or .oods and services. b. househo#ds are se##ers in the mar/ets 'or the 'actors o' ,roduction. c. 'irms are se##ers in the mar/ets 'or 'actors o' ,roduction and in the mar/ets 'or .oods and services. d. do##ars that are s,ent on .oods and services '#ow direct#y 'rom 'irms to househo#ds.

ANS: ? DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: Inter,retive 57. The two #oo,s in the circu#ar"'#ow dia.ram re,resent a. the '#ow o' .oods and the '#ow o' services. b. the '#ow o' do##ars and the '#ow o' 'inancia# assets. c. the '#ow o' in,uts into ,roduction ,rocesses and the '#ow o' out,uts 'rom ,roduction ,rocesses. d. the '#ows o' in,uts and out,uts and the '#ow o' do##ars.

ANS: D DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: Inter,retive 68. In the circu#ar"'#ow dia.ram* a. ,ro'it '#ows 'rom househo#ds to 'irms. b. #abor '#ows 'rom househo#ds to 'irms. c. services '#ow 'rom househo#ds to 'irms. d. A## o' the above are correct.

56

&ha,ter !:Thin/in. $i/e An Economist

ANS: ? DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: Inter,retive 61. In the circu#ar"'#ow dia.ram* a. ta4es '#ow 'rom househo#ds to 'irms* and trans'er ,ayments '#ow 'rom 'irms to househo#ds. b. income ,ayments '#ow 'rom 'irms to househo#ds* and sa#es revenue '#ows 'rom househo#ds to 'irms. c. resources '#ow 'rom 'irms to househo#ds* and .oods and services '#ow 'rom househo#ds to 'irms. d. in,uts and out,uts '#ow in the same direction as the '#ow o' do##ars* 'rom 'irms to househo#ds.

ANS: ? DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: Inter,retive 6!. In the circu#ar"'#ow dia.ram* a. 'actors o' ,roduction '#ow 'rom .overnment to 'irms. b. .oods and services '#ow 'rom househo#ds to 'irms. c. income ,aid to the 'actors o' ,roduction '#ows 'rom 'irms to househo#ds. d. s,endin. on .oods and services '#ows 'rom 'irms to househo#ds.

ANS: & DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: Inter,retive 6-. In the circu#ar"'#ow dia.ram* which o' the 'o##owin. items does not '#ow 'rom househo#ds to 'irmsE a. revenue b. #and* #abor* and ca,ita# c. 'actors o' ,roduction d. ,ro'it

ANS: D DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: Inter,retive 60. In the circu#ar"'#ow dia.ram* which o' the 'o##owin. items does not '#ow 'rom 'irms to househo#dsE a. .oods b. services c. ca,ita# d. ,ro'it

ANS: & DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: Inter,retive 61. In the circu#ar"'#ow dia.ram* which o' the 'o##owin. items '#ows 'rom househo#ds to 'irms throu.h the mar/ets 'or .oods and servicesE a. .oods and services b. do##ars ,aid to #and* #abor* and ca,ita# c. do##ars s,ent on .oods and services d. wa.es* rent* and ,ro'it

ANS: & DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: Inter,retive 63. In the circu#ar"'#ow dia.ram* which o' the 'o##owin. items '#ows 'rom 'irms to househo#ds throu.h the mar/ets 'or .oods and servicesE a. .oods and services b. do##ars ,aid to #and* #abor* and ca,ita# c. do##ars s,ent on .oods and services d. wa.es* rent* and ,ro'it

&ha,ter !:Thin/in. $i/e An Economist ANS: A DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: Inter,retive 65.

57

In the circu#ar"'#ow dia.ram* which o' the 'o##owin. items '#ows 'rom 'irms to househo#ds throu.h the mar/ets 'or the 'actors o' ,roductionE a. .oods and services b. #and* #abor* and ca,ita# c. do##ars s,ent on .oods and services d. wa.es* rent* and ,ro'it

ANS: D DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: Inter,retive 66. In the circu#ar"'#ow dia.ram* which o' the 'o##owin. items '#ows 'rom househo#ds to 'irms throu.h the mar/ets 'or the 'actors o' ,roductionE a. .oods and services b. #and* #abor* and ca,ita# c. do##ars s,ent on .oods and services d. wa.es* rent* and ,ro'it

ANS: ? DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: Inter,retive 67. In the circu#ar"'#ow dia.ram* which o' the 'o##owin. items re,resents a ,ayment 'or a 'actor o' ,roductionE a. interest b. ca,ita# c. s,endin. by househo#ds on .oods d. s,endin. by househo#ds on services

ANS: A DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: Inter,retive 78. Amon. economic mode#s* the circu#ar"'#ow dia.ram is unusua# in that it a. drastica##y sim,#i'ies the rea# wor#d. b. 'eatures more than one ty,e o' mar/et. c. 'eatures '#ows o' do##ars. d. does not invo#ve mathematics.

ANS: D DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram > Economic mode#s )S&: Inter,retive

68

&ha,ter !:Thin/in. $i/e An Economist

Figure 2-1

71.

Refer to Figure 2-1. 2hich arrow re,resents the '#ow o' .oods and servicesE a. A b. ? c. & d. D

ANS: ? DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: Inter,retive 7!. Refer to Figure 2-1. 2hich arrow re,resents the '#ow o' s,endin. by househo#dsE a. A b. ? c. & d. D

ANS: A DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: Inter,retive 7-. Refer to Figure 2-1. 2hich arrow re,resents the '#ow o' #and* #abor* and ca,ita#E a. A b. ? c. & d. D

ANS: & DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: Inter,retive 70. Refer to Figure 2-1. 2hich arrow re,resents the '#ow o' income ,aymentsE a. A b. ? c. & d. D

ANS: D DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: Inter,retive 71. Refer to Figure 2-1( Au#io buys a new ,air o' shoes at a shoe store. To which o' the arrows does this transaction direct#y contributeE a. A on#y b. A and ? c. & on#y d. & and D

&ha,ter !:Thin/in. $i/e An Economist ANS: ? DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: A,,#icative 73. Refer to Figure 2-1( Enid com,#etes her 'irst wee/ o' em,#oyment wor/in. as a hairdresser at a sa#on. %n Friday o' that wee/* she receives her 'irst ,aychec/. To which o' the arrows does this transaction direct#y contributeE a. ? on#y b. A and ? c. & on#y d. & and D

61

ANS: D DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: A,,#icative Figure 2-2

75.

Refer to Figure 2-2. ?o4es A and ? o' this circu#ar"'#ow dia.ram re,resent a. 'irms and househo#ds. b. househo#ds and .overnment. c. the mar/ets 'or .oods and services and the mar/ets 'or 'inancia# assets. d. the mar/ets 'or .oods and the mar/ets 'or services.

ANS: A DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: Inter,retive 76. Refer to Figure 2-2. ?o4es & and D o' this circu#ar"'#ow dia.ram re,resent a. househo#ds and .overnment. b. 'irms and .overnment. c. the mar/ets 'or .oods and services and the mar/ets 'or 'inancia# assets. d. the mar/ets 'or .oods and services and the mar/ets 'or 'actors o' ,roduction.

ANS: D DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: Inter,retive 77. Refer to Figure 2-2( I' ?o4 A o' this circu#ar"'#ow dia.ram re,resents 'irms* then which bo4 re,resents househo#dsE a. ?o4 ? b. ?o4 & c. ?o4 D d. Any one o' the other bo4es B?* &* or DC cou#d re,resent househo#ds.

ANS: A DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: Inter,retive

6!

&ha,ter !:Thin/in. $i/e An Economist

188. Refer to Figure 2-2. I' househo#ds are se##ers in the mar/ets re,resented by ?o4 D o' this circu#ar"'#ow dia.ram* then a. ?o4 D must re,resent the mar/ets 'or 'actors o' ,roduction. b. ?o4 & must re,resent the mar/ets 'or .oods and services. c. 'irms are buyers in the mar/ets re,resented by ?o4 D. d. A## o' the above are correct. ANS: D DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: Inter,retive 181. Refer to Figure 2-2. I' househo#ds are buyers in the mar/ets re,resented by ?o4 & o' this circu#ar"'#ow dia.ram* then a. ?o4 & must re,resent the mar/ets 'or the 'actors o' ,roduction. b. ?o4 D must re,resent the mar/ets 'or .oods and services. c. 'irms are se##ers in the mar/ets re,resented by ?o4 &. d. A## o' the above are correct. ANS: & DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: Inter,retive 18!. Refer to Figure 2-2. I' the owners o' #and* #abor* and ca,ita# are re,resented by ?o4 ? o' this circu#ar"'#ow dia.ram* then a. househo#ds are re,resented by ?o4 A. b. 'irms are re,resented by ?o4 &. c. 'irms are re,resented by ?o4 A. d. 'irms are se##ers in ?o4 ?. ANS: & DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: Inter,retive 18-. Refer to Figure 2-2. I' the outer #oo, o' this circu#ar"'#ow dia.ram re,resents '#ows o' do##ars* then the inner #oo, inc#udes a. '#ows o' .oods and services 'rom househo#ds to 'irms. b. '#ows o' in,uts 'rom househo#ds to 'irms. c. '#ows o' rent ,ayments ,aid to owners o' #and. d. '#ows o' wa.es and sa#aries ,aid to wor/ers. ANS: ? DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: Inter,retive 180. Refer to Figure 2-2. I' the '#ow o' .oods and services is ,art o' what is re,resented by the inner #oo, o' this circu#ar"'#ow dia.ram* then a. the '#ow o' 'actors o' ,roduction is a#so ,art o' what is re,resented by the inner #oo,. b. the '#ow o' income ,aid to househo#ds is a#so ,art o' what is re,resented by the inner #oo,. c. the '#ow o' revenue to 'irms is a#so ,art o' what is re,resented by the inner #oo,. d. househo#ds must be se##ers o' out,ut. ANS: A DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: Inter,retive 181. Refer to Figure 2-2. )a#i/a wor/s as an attorney 'or a cor,oration and is ,aid a sa#ary in e4chan.e 'or the #e.a# services she ,er'orms. Aare# owns o''ice bui#din.s and rents his bui#din.s to com,anies in e4chan.e 'or rent ,ayments. I' )a#i/as income is re,resented by a '#ow o' do##ars 'rom ?o4 D to ?o4 ? o' this circu#ar" '#ow dia.ram* then Aare#s income is re,resented by a '#ow o' do##ars a. 'rom ?o4 A to ?o4 &. b. 'rom ?o4 & to ?o4 A. c. 'rom ?o4 ? to ?o4 D. d. 'rom ?o4 D to ?o4 ?.

&ha,ter !:Thin/in. $i/e An Economist ANS: D DIF: EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: Ana#ytica#

6-

183. Refer to Figure 2-2. A#isha re.u#ar#y buys 'ruits and ve.etab#es at a .rocery store. Santo re.u#ar#y ,ays a #awn"care com,any to mow his #awn. I' the '#ow o' 'ruits and ve.etab#es 'rom the .rocery store to A#isha is re,resented by an arrow 'rom ?o4 & to ?o4 ? o' this circu#ar"'#ow dia.ram* then the money ,aid by Santo to the #awn"care com,any is re,resented by an arrow a. 'rom ?o4 A to ?o4 D. b. 'rom ?o4 ? to ?o4 &. c. 'rom ?o4 & to ?o4 ?. d. 'rom ?o4 D to ?o4 A. ANS: ? DIF: EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: &ircu#ar"'#ow dia.ram )S&: Ana#ytica# 185. The ,roduction ,ossibi#ities 'rontier is a .ra,h that shows the various combinations o' out,ut that an economy can ,ossib#y ,roduce .iven the avai#ab#e 'actors o' ,roduction and a. societys ,re'erences. b. the avai#ab#e ,roduction techno#o.y. c. a 'air distribution o' the out,ut. d. the avai#ab#e demand 'or the out,ut. ANS: ? DIF: 1 EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: De'initiona# 186. The ,roduction ,ossibi#ities 'rontier is a .ra,h that shows the various combinations o' out,ut that an economy a. shou#d ,roduce. b. wants to ,roduce. c. can ,roduce. d. demands. ANS: & DIF: 1 EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: De'initiona# 187. 2hen constructin. a ,roduction ,ossibi#ities 'rontier* which o' the 'o##owin. assum,tions is not madeE a. The economy ,roduces on#y two .oods or two ty,es o' .oods. b. Firms ,roduce .oods usin. 'actors o' ,roduction. c. The techno#o.y avai#ab#e to 'irms is .iven. d. The <uantities o' the 'actors o' ,roduction that are avai#ab#e are increasin. over the re#evant time ,eriod. ANS: D DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: Inter,retive 118. Any ,oint on a countryHs ,roduction ,ossibi#ities 'rontier re,resents a combination o' two .oods that an economy a. wi## never be ab#e to ,roduce. b. can ,roduce usin. a## avai#ab#e resources and techno#o.y. c. can ,roduce usin. some ,ortion* but not a##* o' its resources and techno#o.y. d. may be ab#e to ,roduce in the 'uture with more resources and:or su,erior techno#o.y. ANS: ? DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: Inter,retive

60

&ha,ter !:Thin/in. $i/e An Economist

111. 2hich o' the 'o##owin. is a correct statement about ,roduction ,ossibi#ities 'rontiersE a. An economy can ,roduce on#y on the ,roduction ,ossibi#ities 'rontier. b. An economy can ,roduce at any ,oint inside or outside a ,roduction ,ossibi#ities 'rontier. c. An economy can ,roduce at any ,oint on or inside the ,roduction ,ossibi#ities 'rontier* but not outside the 'rontier. d. An economy can ,roduce at any ,oint inside the ,roduction ,ossibi#ities 'rontier* but not on or outside the 'rontier. ANS: & DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: Inter,retive 11!. 2here can an economy not ,roduceE a. inside its ,roduction ,ossibi#ities 'rontier b. on its ,roduction ,ossibi#ities 'rontier c. outside its ,roduction ,ossibi#ities 'rontier d. at the end,oints o' its ,roduction ,ossibi#ities 'rontier ANS: & DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: Inter,retive 11-. An economic outcome is said to be e''icient i' the economy is a. usin. a## o' the scarce resources it has avai#ab#e. b. conservin. on resources* rather than usin. a## avai#ab#e resources. c. .ettin. a## it can .et 'rom the scarce resources it has avai#ab#e. d. ab#e to ,roduce more than what is current#y bein. ,roduced without additiona# resources. ANS: & NAT: Ana#ytic )S&: De'initiona# DIF: 1 EF: !"1 $%&: E''iciency and e<ua#ity T%(: E''iciency

110. (roduction is e''icient i' the economy is ,roducin. at a ,oint a. on the ,roduction ,ossibi#ities 'rontier. b. outside the ,roduction ,ossibi#ities 'rontier. c. on or inside the ,roduction ,ossibi#ities 'rontier. d. inside the ,roduction ,ossibi#ities 'rontier. ANS: A DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > E''iciency )S&: Inter,retive 111. I' an economy is ,roducin. e''icient#y* then a. there is no way to ,roduce more o' one .ood without ,roducin. #ess o' another .ood. b. it is ,ossib#e to ,roduce more o' both .oods without increasin. the <uantities o' in,uts that are bein. used. c. it is ,ossib#e to ,roduce more o' one .ood without ,roducin. #ess o' another .ood. d. it is not ,ossib#e to ,roduce more o' any .ood at any cost. ANS: A NAT: Ana#ytic )S&: Inter,retive DIF: ! EF: !"1 $%&: E''iciency and e<ua#ity T%(: E''iciency

113. An economys ,roduction o' two .oods is e''icient i' a. a## members o' society consume e<ua# ,ortions o' the .oods. b. the .oods are ,roduced usin. on#y some o' societys avai#ab#e resources. c. it is im,ossib#e to ,roduce more o' one .ood without ,roducin. #ess o' the other. d. the o,,ortunity cost o' ,roducin. more o' one .ood is +ero. ANS: & NAT: Ana#ytic )S&: Inter,retive DIF: ! EF: !"1 $%&: E''iciency and e<ua#ity T%(: E''iciency

&ha,ter !:Thin/in. $i/e An Economist 115. 2hen an economy is o,eratin. at a ,oint on its ,roduction ,ossibi#ities 'rontier* then a. consumers are content with the mi4 o' .oods and services that is bein. ,roduced. b. there is no way to ,roduce more o' one .ood without ,roducin. #ess o' the other. c. e<ua# amounts o' the two .oods are bein. ,roduced. d. A## o' the above are correct. ANS: ? DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: Inter,retive 116. E''iciency is i##ustrated by a. both the ,roduction ,ossibi#ities 'rontier and the circu#ar"'#ow dia.ram. b. neither the ,roduction ,ossibi#ities 'rontier nor the circu#ar"'#ow dia.ram. c. the ,roduction ,ossibi#ities 'rontier on#y. d. the circu#ar"'#ow dia.ram on#y. ANS: NAT: T%(: )S&: & DIF: ! EF: !"1 Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s (roduction ,ossibi#ities 'rontier > &ircu#ar"'#ow dia.ram > E''iciency Inter,retive

61

117. Su,,ose a nation is current#y ,roducin. at a ,oint inside its ,roduction ,ossibi#ities 'rontier. 2e /now that a. the nation is ,roducin. beyond its ca,acity* so in'#ation wi## occur. b. the nation is not usin. a## avai#ab#e resources or is usin. in'erior techno#o.y or both. c. the nation is ,roducin. an e''icient combination o' .oods. d. there wi## be a #ar.e o,,ortunity cost i' the nation tries to increase ,roduction o' any .ood. ANS: ? DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: Inter,retive 1!8. 2hen an economy is o,eratin. inside its ,roduction ,ossibi#ities 'rontier* we /now that a. there are unused resources or ine''iciencies in the economy. b. a## o' the economys resources are 'u##y em,#oyed. c. economic .rowth wou#d have to occur in order 'or the economy to move to a ,oint on the 'rontier. d. in order to ,roduce more o' one .ood* the economy wou#d have to .ive u, some o' the other .ood. ANS: A DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: Inter,retive 1!1. It is ,ossib#e 'or an economy to increase its ,roduction o' both .oods i' the economy a. moves downward and to the ri.ht a#on. its ,roduction ,ossibi#ities 'rontier and the 'rontier is bowed outward. b. moves u,ward and to the #e't a#on. its ,roduction ,ossibi#ities 'rontier and the 'rontier is bowed outward. c. moves in either direction a#on. its ,roduction ,ossibi#ities 'rontier and the 'rontier is a strai.ht #ine. d. moves 'rom a situation o' ine''icient ,roduction to a situation o' e''icient ,roduction. ANS: D DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > E''iciency )S&: Inter,retive 1!!. =nem,#oyment wou#d cause an economy to a. ,roduce inside its ,roduction ,ossibi#ities 'rontier. b. ,roduce on its ,roduction ,ossibi#ities 'rontier. c. ,roduce outside its ,roduction ,ossibi#ities 'rontier. d. e4,erience an inward shi't o' its ,roduction ,ossibi#ities 'rontier. ANS: A DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > =nem,#oyment )S&: Inter,retive

63

&ha,ter !:Thin/in. $i/e An Economist

1!-. The ,roduction ,ossibi#ities 'rontier ,rovides an i##ustration o' the ,rinci,#e that a. trade can ma/e everyone better o''. b. .overnments can sometimes im,rove mar/et outcomes. c. ,eo,#e 'ace trade"o''s. d. ,eo,#e res,ond to incentives. ANS: & DIF: 1 EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > Trade"o''s )S&: De'initiona# 1!0. The ,roduction ,ossibi#ities 'rontier i##ustrates a. the trade"o'' between e''iciency and e<ua#ity. b. the combination o' out,ut that an economy shou#d ,roduce. c. the combination o' out,ut that each member o' society shou#d consume. d. None o' the above is correct. ANS: D DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: Inter,retive 1!1. 2hich o' the 'o##owin. trade"o''s does the ,roduction ,ossibi#ities 'rontier i##ustrateE a. i' an economy wants to increase e''iciency in ,roduction* then it must sacri'ice e<ua#ity in consum,tion b. once an economy has reached the e''icient ,oints on its ,roduction ,ossibi#ities 'rontier* the on#y way o' .ettin. more o' one .ood is to .et #ess o' the other c. 'or an economy to consume more o' one .ood* it must sto, consumin. the other .ood entire#y d. 'or an economy to ,roduce and consume .oods* it must sacri'ice environmenta# <ua#ity ANS: ? DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: Inter,retive 1!3. 2hich o' the 'o##owin. conce,ts cannot be i##ustrated by the ,roduction ,ossibi#ities 'rontierE a. e''iciency b. o,,ortunity cost c. e<ua#ity d. trade"o''s ANS: & DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: Inter,retive 1!5. The o,,ortunity cost o' obtainin. more o' one .ood is shown on the ,roduction ,ossibi#ities 'rontier as the a. amount o' the other .ood that must be .iven u,. b. mar/et ,rice o' the additiona# amount ,roduced. c. amount o' resources that must be devoted to its ,roduction. d. number o' do##ars that must be s,ent to ,roduce it. ANS: A DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > %,,ortunity cost )S&: Inter,retive 1!6. The bowed sha,e o' the ,roduction ,ossibi#ities 'rontier can be e4,#ained by the 'act that a. a## resources are scarce. b. economic .rowth is a#ways occurrin.. c. the o,,ortunity cost o' one .ood in terms o' the other de,ends on how much o' each .ood the economy is ,roducin.. d. the on#y way to .et more o' one .ood is to .et #ess o' the other. ANS: & DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > %,,ortunity cost )S&: Inter,retive

&ha,ter !:Thin/in. $i/e An Economist 1!7. 2hen a ,roduction ,ossibi#ities 'rontier is bowed outward* the o,,ortunity cost o' ,roducin. an additiona# unit o' a .ood a. increases as more o' the .ood is ,roduced. b. decreases as more o' the .ood is ,roduced. c. does not chan.e as more o' the .ood is ,roduced. d. may increase* decrease* or not chan.e as more o' the .ood is ,roduced. ANS: A DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > %,,ortunity cost )S&: Inter,retive

65

1-8. I' a ,roduction ,ossibi#ities 'rontier is bowed outward* then the o,,ortunity cost o' ,roducin. more o' the 'irst .ood is hi.hest when a. the economy is ,roducin. much o' the 'irst .ood and #itt#e o' the second .ood. b. the economy is ,roducin. e<ua# amounts o' the 'irst and second .oods. c. the economy is ,roducin. #itt#e o' the 'irst .ood and much o' the second .ood. d. None o' the above is correct because the o,,ortunity cost o' ,roducin. more o' the 'irst .ood is constant. ANS: A DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > %,,ortunity cost )S&: Inter,retive 1-1. (roduction ,ossibi#ities 'rontiers are usua##y bowed outward. This is because a. the more resources a society uses to ,roduce one .ood* the 'ewer resources it has avai#ab#e to ,roduce another .ood. b. it re'#ects the 'act that the o,,ortunity cost o' ,roducin. a .ood decreases as more and more o' that .ood is ,roduced. c. o' the e''ects o' techno#o.ica# chan.e. d. resources are s,ecia#i+edG that is* some are better at ,roducin. ,articu#ar .oods rather than other .oods. ANS: D DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: Inter,retive 1-!. Economists be#ieve that ,roduction ,ossibi#ities 'rontiers a. never have a bowed sha,e. b. rare#y have a bowed sha,e. c. o'ten have a bowed sha,e. d. a#ways have a bowed sha,e. ANS: & DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > Economists )S&: Inter,retive 1--. The 'o##owin. tab#e contains some ,roduction ,ossibi#ities 'or an economy 'or a .iven month. Sweaters 0 3 6 ;#oves -88 E 188

I' the ,roduction ,ossibi#ities 'rontier is bowed outward* then IEJ cou#d be a. 188. b. 118. c. !88. d. !18. ANS: D DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: A,,#icative

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&ha,ter !:Thin/in. $i/e An Economist

1-0. The 'o##owin. tab#e contains some ,roduction ,ossibi#ities 'or an economy 'or a .iven year: &ars 18 1! 10 News,a,ers 088 -38 E

I' the ,roduction ,ossibi#ities 'rontier is bowed outward* then @E@ cou#d be a. -08. b. --8. c. -!8. d. -18. ANS: D DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: A,,#icative 1-1. A ,roduction ,ossibi#ities 'rontier can shi't outward i' a. .overnment increases the amount o' money in the economy. b. there is a techno#o.ica# im,rovement. c. resources are shi'ted 'rom the ,roduction o' one .ood to the ,roduction o' the other .ood. d. the economy abandons ine''icient ,roduction methods in 'avor o' e''icient ,roduction methods. ANS: ? DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: Inter,retive 1-3. A ,roduction ,ossibi#ities 'rontier shi'ts outward when a. the economy e4,eriences economic .rowth. b. the desires o' the economys citi+ens chan.e. c. at #east one o' the basic ,rinci,#es o' economics is vio#ated. d. o,,ortunity costs are #essened. ANS: A DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > Economic .rowth )S&: Inter,retive 1-5. In a certain economy* ,eanuts and boo/s are ,roduced* and the economy current#y o,erates on its ,roduction ,ossibi#ities 'rontier. 2hich o' the 'o##owin. events wou#d a##ow the economy to ,roduce more ,eanuts and more boo/s* re#ative to the <uantities o' those .oods that are bein. ,roduced nowE a. =nem,#oyed #abor is ,ut to wor/ ,roducin. ,eanuts and boo/s. b. The economy ,uts its id#e ca,ita# to wor/ ,roducin. ,eanuts and boo/s. c. The economy e4,eriences economic .rowth. d. A## o' the above are correct. ANS: & DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > Economic .rowth )S&: A,,#icative 1-6. In a certain economy* brooms and radios are ,roduced* and the economy current#y o,erates on its ,roduction ,ossibi#ities 'rontier. 2hich o' the 'o##owin. events wou#d a##ow the economy to ,roduce more brooms and more radios* re#ative to the <uantities o' those .oods that are bein. ,roduced nowE a. The economy e4,eriences economic .rowth. b. There is a techno#o.ica# advance in the broom industry* but the radio industry e4,eriences no such advance. c. There is a techno#o.ica# advance in the radio industry* but the broom industry e4,eriences no such advance. d. A## o' the above are correct. ANS: D DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > Economic .rowth )S&: A,,#icative

&ha,ter !:Thin/in. $i/e An Economist

67

1-7. The country o' Econo#and ,roduces two .oods* te4tboo/s and wid.ets. $ast year* it ,roduced !88 te4tboo/s and 188 wid.ets. This year* it ,roduced !18 te4tboo/s and 388 wid.ets. ;iven no other in'ormation* which o' the 'o##owin. events cou#d not e4,#ain this chan.eE a. Econo#and e4,erienced a reduction in unem,#oyment. b. Econo#and e4,erienced an im,rovement in wid.et"ma/in. techno#o.y. c. Econo#and ac<uired more resources. d. Any o' these events cou#d* in 'act* e4,#ain the chan.e. ANS: D DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: A,,#icative 108. Su,,ose an economy ,roduces two .oods* 'ood and machines. This economy a#ways o,erates on its ,roduction ,ossibi#ities 'rontier. $ast year* it ,roduced 18 units o' 'ood and -8 machines. This year* it is ,roducin. 11 units o' 'ood and -- machines. 2hich o' the 'o##owin. events cou#d not e4,#ain the increase in out,utE a. a reduction in unem,#oyment b. an increase in avai#ab#e #abor c. an im,rovement in techno#o.y d. Any o' these events cou#d e4,#ain the increase in out,ut. ANS: A DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: A,,#icative 101. Su,,ose an economy ,roduces two .oods* 'ood and machines. This economy a#ways o,erates on its ,roduction ,ossibi#ities 'rontier. $ast year* it ,roduced 18 units o' 'ood and -8 machines. This year it e4,erienced a techno#o.ica# advance in its machine"ma/in. industry. As a resu#t* this year the society wants to ,roduce 11 units o' 'ood and -8 machines. 2hich o' the 'o##owin. statements is correctE a. ?ecause the techno#o.ica# advance occurred in the machine"ma/in. industry* it wi## not be ,ossib#e to increase 'ood ,roduction without reducin. machine ,roduction be#ow -8. b. ?ecause the techno#o.ica# advance occurred in the machine"ma/in. industry* increases in out,ut can on#y occur in the machine industry. c. In order to increase 'ood ,roduction in these circumstances without reducin. machine ,roduction* the economy must reduce ine''iciencies. d. The techno#o.ica# advance reduced the amount o' resources needed to ,roduce -8 machines* so these resources cou#d be used to ,roduce more 'ood. ANS: D DIF: EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: Ana#ytica# 10!. A certain ,roduction ,ossibi#ities 'rontier shows ,roduction ,ossibi#ities 'or two .oods: wheat and shirts. 2hich o' the 'o##owin. conce,ts cannot be i##ustrated by this mode#E a. the '#ow o' do##ars between se##ers o' wheat and shirts and buyers o' wheat and shirts b. the tradeo'' between ,roduction o' wheat and ,roduction o' shirts c. the o,,ortunity cost o' shirts in terms o' wheat d. the e''ect o' economic .rowth on ,roduction ,ossibi#ities invo#vin. wheat and shirts ANS: A DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: A,,#icative 10-. The ,roduction ,ossibi#ities 'rontier is used to i##ustrate some basic economic ideas* inc#udin. a. scarcity. b. o,,ortunity cost. c. economic .rowth. d. A## o' the above are correct. ANS: D DIF: 1 EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: De'initiona#

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&ha,ter !:Thin/in. $i/e An Economist

Table 2-1 'ro)uction 'ossi*i+ities for To,+an) Do##s 088 -88 !88 188 8 Fire Truc/s 8 !88 -18 018 188

100. Refer to Ta*+e 2-1. 2hat is the o,,ortunity cost to Toy#and o' increasin. the ,roduction o' do##s 'rom !88 to -88E a. 188 'ire truc/s b. 118 'ire truc/s c. !88 'ire truc/s d. -18 'ire truc/s ANS: ? DIF: ! EF: !"1 NAT: Ana#ytic $%&: Scarcity* trade"o''s* and o,,ortunity cost T%(: %,,ortunity cost )S&: Inter,retive 101. Refer to Ta*+e 2-1. 2hich o' the 'o##owin. statements is correctE a. The o,,ortunity cost o' an additiona# 188 do##s is constant at 18 'ire truc/s. b. The o,,ortunity cost o' an additiona# 188 do##s is constant at 188 'ire truc/s. c. Toy#ands ,roduction ,ossibi#ities 'rontier is a strai.ht* downward"s#o,in. #ine. d. The o,,ortunity cost o' an additiona# 188 do##s increases as more do##s are ,roduced. ANS: D DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > %,,ortunity cost )S&: A,,#icative Table 2-2 'ro)uction 'ossi*i+ities for -atter+an) (anca/es 388 018 -88 118 8 2a''#es 8 118 !18 -!1 -51

103. Refer to Ta*+e 2-2. 2hat is the o,,ortunity cost to ?atter#and o' increasin. the ,roduction o' ,anca/es 'rom 118 to -88E a. 51 wa''#es b. 118 wa''#es c. !18 wa''#es d. -!1 wa''#es ANS: A DIF: ! EF: !"1 NAT: Ana#ytic $%&: Scarcity* trade"o''s* and o,,ortunity cost T%(: %,,ortunity cost )S&: Inter,retive

&ha,ter !:Thin/in. $i/e An Economist Figure 2-3


tractors A

71

F $

N tubas

105. Refer to Figure 2-.. At which ,oint is this economy ,roducin. its ma4imum ,ossib#e <uantity o' tubasE a. A b. $ c. ) d. N ANS: D DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: A,,#icative 106. Refer to Figure 2-.. This economy has the abi#ity to ,roduce at which ,ointBsCE a. A* F* )* N b. F* )* N c. F* N d. ) ANS: ? DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: A,,#icative 107. Refer to Figure 2-.. This economy cannot ,roduce at which ,ointBsCE a. A b. A* $ c. A* $* ) d. $ ANS: ? DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: A,,#icative 118. Refer to Figure 2-.. E''icient ,roduction is re,resented by which ,ointBsCE a. A* F* N b. F* )* N c. F* N d. $* ) ANS: & DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > E''iciency )S&: A,,#icative 111. Refer to Figure 2-.. Ine''icient ,roduction is re,resented by which ,ointBsCE a. A* $ b. A* $* ) c. F* N d. )

7!

&ha,ter !:Thin/in. $i/e An Economist

ANS: D DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > E''iciency )S&: A,,#icative 11!. Refer to Figure 2-.. =nem,#oyment cou#d cause this economy to ,roduce at which ,ointBsCE a. A* $ b. A* $* ) c. F* N d. ) ANS: D DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > =nem,#oyment )S&: A,,#icative Figure 2-4
18 01 08 -1 -8 !1 !8 11 18 1 18 !8 -8 08 18 38 58 68 toothbrushes D ? A & toasters

11-. Refer to Figure 2-4. I' this economy devotes a## o' its resources to the ,roduction o' toothbrushes* then it wi## ,roduce a. 8 toothbrushes and 08 toasters. b. -1 toothbrushes and !8 toasters. c. 58 toothbrushes and 8 toasters. d. 58 toothbrushes and 08 toasters. ANS: & DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: A,,#icative 110. Refer to Figure 2-4. It is ,ossib#e 'or this economy to ,roduce a. 08 toothbrushes and !8 toasters. b. 18 toothbrushes and -8 toasters. c. 58 toothbrushes and 08 toasters. d. A## o' the above. ANS: A DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: A,,#icative 111. Refer to Figure 2-4. It is not ,ossib#e 'or this economy to ,roduce at ,oint a. A. b. ?. c. &. d. D. ANS: & DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: A,,#icative

&ha,ter !:Thin/in. $i/e An Economist 113. Refer to Figure 2-4. This economy cannot current#y ,roduce -8 toothbrushes and 01 toasters because a. some o' its resources are unem,#oyed. b. ine''iciencies e4ist in this economys ,roduction ,rocess. c. .iven its current techno#o.y* it does not have the resources to ,roduce that #eve# o' out,ut. d. A## o' the above are correct. ANS: & DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: A,,#icative 115. Refer to Figure 2-4( Su,,ose this economy is ,roducin. at ,oint D. 2hich o' the 'o##owin. statements wou#d best e4,#ain this situationE a. The economy #ac/s the resources to ,roduce at a more desirab#e ,oint. b. The economys avai#ab#e techno#o.y ,revents it 'rom ,roducin. at a more desirab#e ,oint. c. There is wides,read unem,#oyment in the economy. d. Any o' the above statements wou#d be a #e.itimate e4,#anation 'or this situation. ANS: & DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > =nem,#oyment )S&: A,,#icative 116. Refer to Figure 2-4. E''icient ,roduction is re,resented by which ,ointBsCE a. A* ? b. A* ?* & c. A* ?* D d. & ANS: A DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > E''iciency )S&: A,,#icative 117. Refer to Figure 2-4. Ine''icient ,roduction is re,resented by which ,ointBsCE a. A* ? b. & c. &* D d. D ANS: D DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > E''iciency )S&: A,,#icative 138. Refer to Figure 2-4. The o,,ortunity cost o' this economy movin. 'rom ,oint A to ,oint ? is a. 8 toasters. b. 18 toasters. c. 18 toothbrushes. d. !8 toasters. ANS: ? DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > %,,ortunity cost )S&: A,,#icative 131. Refer to Figure 2-4. The o,,ortunity cost o' obtainin. !8 additiona# toasters by movin. 'rom ,oint D to ,oint & is a. 8 toothbrushes. b. 18 toothbrushes. c. 18 toothbrushes. d. None o' the aboveG the economy cannot move 'rom ,oint D to ,oint &. ANS: D DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > %,,ortunity cost )S&: A,,#icative

7-

70

&ha,ter !:Thin/in. $i/e An Economist

13!. Refer to Figure 2-4. The o,,ortunity cost o' obtainin. 18 additiona# toasters by movin. 'rom ,oint D to ,oint A is a. 8 toothbrushes. b. 18 toothbrushes. c. 18 toothbrushes. d. None o' the aboveG the economy cannot move 'rom ,oint D to ,oint A. ANS: A DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > %,,ortunity cost )S&: A,,#icative Figure 2-5
!!1 !88 151 118 1!1 188 51 18 !1 F -8 38 78 1!8 118 168 !18 !08 !58 -88 --8 bananas D & ? baseballs A

13-. Refer to Figure 2-/. I' this economy devotes a## o' its resources to the ,roduction o' bananas* then it wi## ,roduce a. 8 bananas and !88 baseba##s. b. 168 bananas and 1!1 baseba##s. c. -88 bananas and 8 baseba##s. d. -88 bananas and !88 baseba##s. ANS: & DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: A,,#icative 130. Refer to Figure 2-/. I' this economy devotes one"ha#' o' its avai#ab#e resources to the ,roduction o' baseba##s and the other ha#' to the ,roduction o' bananas* it cou#d ,roduce a. 118 bananas and 188 baseba##s. b. 118 bananas and 118 baseba##s. c. -88 bananas and !88 baseba##s. d. 2e wou#d have to /now the detai#s o' this economys techno#o.y in order to determine this. ANS: D DIF: EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: Ana#ytica# 131. Refer to Figure 2-/. A movement 'rom ,oint & to ,oint D cou#d be caused by a. unem,#oyment. b. a decrease in societyHs ,re'erence 'or bananas. c. 'ewer resources avai#ab#e 'or ,roduction o' bananas. d. A## o' the above are correct. ANS: A DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > =nem,#oyment )S&: A,,#icative

&ha,ter !:Thin/in. $i/e An Economist

71

133. Refer to Figure 2-/( I' this economy moves 'rom ,oint A to ,oint ?* then which o' the 'o##owin. statements is correctE a. This economy has moved 'rom a ,oint o' ine''icient ,roduction to a ,oint o' e''icient ,roduction. b. This economy has e4,erienced economic .rowth. c. This economy has e4,erienced an increase in em,#oyment. d. None o' the above is correct. ANS: D DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: A,,#icative 135. Refer to Figure 2-/. The o,,ortunity cost o' this economy movin. 'rom ,oint A to ,oint & is a. 51 baseba##s. b. 1!1 baseba##s. c. 1!1 baseba##s and !08 bananas. d. !08 bananas. ANS: ? DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > %,,ortunity cost )S&: A,,#icative 136. Refer to Figure 2-/. The o,,ortunity cost o' this economy movin. 'rom ,oint D to ,oint ? is a. +ero. b. 18 baseba##s. c. 38 bananas. d. 18 baseba##s and 38 bananas. ANS: A DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > %,,ortunity cost )S&: A,,#icative Figure 2-6
barrels 01 08 -1 -8 !1 !8 11 18 1 ! 0 3 6 18 1! 10 13 bathtubs ; & ? F A D

137. Refer to Figure 2-0( I' this economy devotes a## o' its resources to the ,roduction o' bathtubs* then it wi## ,roduce a. 8 bathtubs and -1 barre#s. b. 18 bathtubs and !1 barre#s. c. 13 bathtubs and 8 barre#s. d. 13 bathtubs and -1 barre#s. ANS: & DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: A,,#icative

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&ha,ter !:Thin/in. $i/e An Economist

158. Refer to Figure 2-0. This economy has the abi#ity to ,roduce at which ,ointBsCE a. A* ? b. A* ?* D c. A* ?* &* F* ; d. &* F* ; ANS: & DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: A,,#icative 151. Refer to Figure 2-0. This economy cannot ,roduce at which ,ointBsCE a. A* ?* D b. &* D* F* ; c. &* F* ; d. D ANS: D DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: A,,#icative 15!. Refer to Figure 2-0. E''icient ,roduction is re,resented by which ,ointBsCE a. A* ? b. A* ?* &* F* ; c. &* F* ; d. D ANS: A DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > E''iciency )S&: A,,#icative 15-. Refer to Figure 2-0. Ine''icient ,roduction is re,resented by which ,ointBsCE a. A* ? b. &* D* F* ; c. &* F* ; d. D ANS: & DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > E''iciency )S&: A,,#icative 150. Refer to Figure 2-0. =nem,#oyment cou#d cause this economy to ,roduce at which ,ointBsCE a. A* ? b. &* D* F* ; c. &* F* ; d. D ANS: & DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > =nem,#oyment )S&: A,,#icative 151. Refer to Figure 2-0( I' this economy moved 'rom ,oint & to ,oint F* then a. it sti## wou#d not be ,roducin. e''icient#y. b. there wou#d be no .ain in either bathtubs or barre#s. c. it wou#d be ,roducin. more barre#s and more bathtubs than at ,oint &. d. It is not ,ossib#e 'or this economy to move 'rom ,oint & to ,oint F without additiona# resources. ANS: A DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > E''iciency )S&: A,,#icative 153. Refer to Figure 2-0( 2hat is the o,,ortunity cost o' movin. 'rom ,oint A to ,oint ?E a. +ero b. 3 bathtubs c. 3 bathtubs and 11 barre#s d. 11 barre#s

&ha,ter !:Thin/in. $i/e An Economist ANS: D DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > %,,ortunity cost )S&: A,,#icative Figure 2-1
!688 !088 !888 1388 1!88 688 088 ? 088 688 1!88 1388 books D ribeye steaks A &

75

155. Refer to Figure 2-1( (oint ? re,resents an outcome in which a. ,roduction is ine''icient. b. some o' the economys resources are unem,#oyed. c. the economy is usin. a## o' its resources to ,roduce boo/s. d. the economy is usin. a## o' its ribeye stea/s to ,roduce boo/s. ANS: & DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: A,,#icative 156. Refer to Figure 2-1( 2hich ,oint on the .ra,h best re,resents the 'act that* because resources are scarce* not every conceivab#e outcome is 'easib#eE a. ,oint A b. ,oint ? c. ,oint & d. ,oint D ANS: & DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: A,,#icative 157. Refer to Figure 2-1( E''icient ,roduction is re,resented by which ,ointBsCE a. A b. A* ? c. A* ?* & d. A* ?* D ANS: ? DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > E''iciency )S&: A,,#icative 168. Refer to Figure 2-1( Ine''icient ,roduction is re,resented by which ,ointBsCE a. ?* D b. & c. &* D d. D ANS: D DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > E''iciency )S&: A,,#icative

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161. Refer to Figure 2-1( In order to reach ,oint &* the economy wou#d have to a. ac<uire more resources or e4,erience a techno#o.ica# advance. b. be.in usin. its avai#ab#e resources more e''icient#y than it is current#y usin. them. c. shi't resources away 'rom the ,roduction o' ribeye stea/s and toward ,roduction o' boo/s. d. None o' the above are correctG the economy wi## never be ab#e to reach ,oint &. ANS: A DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: A,,#icative 16!. Refer to Figure 2-1( For this economy* as more and more boo/s are ,roduced* the o,,ortunity cost o' an additiona# boo/ ,roduced* in terms o' ribeye stea/s* a. remains constant. b. increases. c. decreases. d. This cannot be determined 'rom the .ra,h. ANS: ? DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > %,,ortunity cost )S&: A,,#icative Figure 2-8 'ane+ 2a3
5 3.1 3 1.1 1 0.1 0 -.1 !.1 ! 1.1 1 8.1 ) 1 ! 0 1 3 donuts 1 ! 0 1 3 donuts N F $ A cups of coffee 5 3.1 3 1.1 1 0.1 0 -.1 !.1 ! 1.1 1 8.1

'ane+ 2*3
cups of coffee

16-. Refer to Figure 2-45 'ane+ 2a3( (roduction at ,oint F is a. ,ossib#e and e''icient. b. ,ossib#e but ine''icient. c. im,ossib#e but e''icient. d. im,ossib#e and ine''icient. ANS: ? DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > E''iciency )S&: A,,#icative 160. Refer to Figure 2-45 'ane+ 2a3( (roduction is a. ,ossib#e at ,oints A* F* $* and )* but e''icient on#y at ,oints A* $* and ). b. ,ossib#e at ,oints A* F* $* and )* but e''icient on#y at ,oint F. c. ,ossib#e at ,oints A* $* )* and N* but e''icient on#y at ,oints A* $* and ). d. ,ossib#e at ,oints A* $* )* and N* but e''icient on#y at ,oint N.

&ha,ter !:Thin/in. $i/e An Economist ANS: A DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > E''iciency )S&: A,,#icative 161. Refer to Figure 2-45 'ane+ 2a3( The movement 'rom ,oint ) to ,oint F cou#d be caused by a. an advance in ,roduction techno#o.y. b. an im,rovement in e''iciency. c. economic .rowth. d. unem,#oyment. ANS: D DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > =nem,#oyment )S&: A,,#icative 163. Refer to Figure 2-45 'ane+ 2a3( The o,,ortunity cost o' movin. 'rom ,oint A to ,oint $ is a. ! donuts. b. ! donuts and ! cu,s o' co''ee. c. ! cu,s o' co''ee. d. 3 cu,s o' co''ee. ANS: & DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > %,,ortunity cost )S&: A,,#icative 165. Refer to Figure 2-45 'ane+ 2a3( The o,,ortunity cost o' movin. 'rom ,oint ) to ,oint $ is a. ! donuts. b. ! donuts and 0 cu,s o' co''ee. c. 0 donuts. d. 0 cu,s o' co''ee. ANS: A DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > %,,ortunity cost )S&: A,,#icative 166. Refer to Figure 2-45 'ane+ 2a3( The o,,ortunity cost o' movin. 'rom ,oint F to ,oint $ is a. 8 cu,s o' co''ee. b. 1 donut. c. ! donuts. d. 0 cu,s o' co''ee. ANS: A DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > %,,ortunity cost )S&: A,,#icative 167. Refer to Figure 2-45 'ane+ 2a3( The o,,ortunity cost o' one cu, o' co''ee is hi.hest when the economy ,roduces a. 8 cu,s o' co''ee. b. ! cu,s o' co''ee. c. 0 cu,s o' co''ee. d. 3 cu,s o' co''ee. ANS: D DIF: EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > %,,ortunity cost )S&: Ana#ytica# 178. Refer to Figure 2-45 'ane+ 2a3( In order to .ain ! donuts by movin. 'rom ,oint $ to ,oint )* society must sacri'ice a. e''iciency. b. em,#oyment. c. 0 cu,s o' co''ee. d. )ore than one o' the above is correct. ANS: & DIF: EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > %,,ortunity cost )S&: Ana#ytica#

77

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&ha,ter !:Thin/in. $i/e An Economist

171. Refer to Figure 2-45 'ane+ 2a3 an) 'ane+ 2*3( A shi't o' the economys ,roduction ,ossibi#ities 'rontier 'rom (ane# BaC to (ane# BbC cou#d be caused by a. unem,#oyment. b. an im,rovement in donut ,roduction techno#o.y. c. an im,rovement in co''ee ,roduction techno#o.y. d. an im,rovement in both donut and co''ee ,roduction techno#o.y. ANS: ? DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: A,,#icative 17!. Refer to Figure 2-45 'ane+ 2a3 an) 'ane+ 2*3( 2hich o' the 'o##owin. is not a resu#t o' the shi't o' the economys ,roduction ,ossibi#ities 'rontier 'rom (ane# BaC to (ane# BbCE a. the tradeo'' between the ,roduction o' donuts and co''ee chan.es b. the o,,ortunity cost o' a cu, o' co''ee is hi.her at a## #eve#s o' co''ee ,roduction c. ,roduction o' 0 donuts and ! cu,s o' co''ee becomes ,ossib#e d. ,roduction o' 1 donut and 0 cu,s o' co''ee becomes e''icient ANS: D DIF: EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: Ana#ytica# Figure 2-9 'ane+ 2a3
televisions 11! 11 18 7 6 5 3 1 0 ! 1 T 1 ! 0 1 3 radios 1 ! 0 1 3 5 6 7 18 radios S = L 11! 11 18 7 6 5 3 1 0 ! 1

'ane+ 2*3
televisions

17-. Refer to Figure 2-65 'ane+ 2a3( (roduction at ,oint a. im,ossib#e and ine''icient. b. im,ossib#e but e''icient. c. ,ossib#e but ine''icient. d. ,ossib#e and e''icient.

is

ANS: & DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > E''iciency )S&: A,,#icative 170. Refer to Figure 2-65 'ane+ 2a3( (roduction is a. ,ossib#e at ,oints L* * S* and T* but e''icient on#y at ,oints L* S* and T. b. ,ossib#e at ,oints L* * S* and T* but e''icient on#y at ,oint . c. ,ossib#e at ,oints L* S* T* and =* but e''icient on#y at ,oints L* S* and T. d. ,ossib#e at ,oints L* S* T* and =* but e''icient on#y at ,oint =.

&ha,ter !:Thin/in. $i/e An Economist ANS: A DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > E''iciency )S&: A,,#icative 171. Refer to Figure 2-65 'ane+ 2a3( The movement 'rom ,oint S to ,oint a. economic .rowth. b. unem,#oyment. c. an im,rovement in e''iciency. d. an advance in ,roduction techno#o.y. cou#d be caused by

181

ANS: ? DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > =nem,#oyment )S&: A,,#icative 173. Refer to Figure 2-65 'ane+ 2a3( The o,,ortunity cost o' one te#evision is hi.hest when the economy ,roduces a. 8 te#evisions. b. 3 te#evisions. c. 18 te#evisions. d. 1! te#evisions. ANS: D DIF: EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > %,,ortunity cost )S&: Ana#ytica# 175. Refer to Figure 2-65 'ane+ 2a3( In order to .ain ! radios by movin. 'rom ,oint S to ,oint T* society must sacri'ice a. 3 te#evisions. b. em,#oyment. c. e''iciency. d. )ore than one o' the above is correct. ANS: A DIF: EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > %,,ortunity cost )S&: Ana#ytica# 176. Refer to Figure 2-65 'ane+ 2a3 an) 'ane+ 2*3( A shi't o' the economys ,roduction ,ossibi#ities 'rontier 'rom (ane# BaC to (ane# BbC cou#d be caused by a. unem,#oyment. b. an im,rovement in te#evision ,roduction techno#o.y. c. an im,rovement in radio ,roduction techno#o.y. d. an im,rovement in both te#evision and radio ,roduction techno#o.y. ANS: & DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: A,,#icative 177. Refer to Figure 2-65 'ane+ 2a3 an) 'ane+ 2*3( 2hich o' the 'o##owin. is not a resu#t o' the shi't o' the economys ,roduction ,ossibi#ities 'rontier 'rom (ane# BaC to (ane# BbCE a. the tradeo'' between the ,roduction o' radios and te#evisions chan.es b. ,roduction o' ! radios and 1 te#evisions becomes e''icient c. ,roduction o' 3 radios and 5 te#evisions becomes ,ossib#e d. the o,,ortunity cost o' a te#evision is hi.her at a## #eve#s o' te#evision ,roduction ANS: ? DIF: EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: Ana#ytica#

18!

&ha,ter !:Thin/in. $i/e An Economist

Figure 2-10
batteries

bagels

!88. Refer to Figure 2-1$( 2hich o' the 'o##owin. events wou#d e4,#ain the shi't o' the ,roduction ,ossibi#ities 'rontier 'rom A to ?E a. The economys citi+ens deve#o,ed an enhanced taste 'or batteries. b. The economy e4,erienced a techno#o.ica# advance in the ,roduction o' batteries. c. )ore ca,ita# became avai#ab#e in the economy. d. )ore #abor became avai#ab#e in the economy. ANS: ? DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: A,,#icative !81. Refer to Figure 2-1$( The shi't o' the ,roduction ,ossibi#ities 'rontier 'rom A to ? i##ustrates a. simu#taneous techno#o.ica# advances in the battery and ba.e# industries. b. a rea##ocation o' resources away 'rom the ,roduction o' ba.e#s and toward the ,roduction o' batteries. c. economic .rowth. d. A## o' the above are correct. ANS: & DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > Economic .rowth )S&: A,,#icative Figure 2-11

!8!. Refer to Figure 2-11( 2hich o' the 'o##owin. wou#d most #i/e#y have caused the ,roduction ,ossibi#ities 'rontier to shi't outward 'rom A to ?E a. a decrease in unem,#oyment b. a techno#o.ica# advance in the consumer .oods industries c. a .enera# techno#o.ica# advance d. an increase in the avai#abi#ity o' ca,ita#",roducin. resources

&ha,ter !:Thin/in. $i/e An Economist ANS: & DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier )S&: A,,#icative

18-

!8-. Refer to Figure 2-11( The shi't o' the ,roduction ,ossibi#ities 'rontier 'rom A to ? can best be described as a. a downturn in the economy. b. economic .rowth. c. an enhancement o' e<ua#ity. d. an im,rovement in the a##ocation o' resources. ANS: ? DIF: ! EF: !"1 NAT: Ana#ytic $%&: =nderstandin. and a,,#yin. economic mode#s T%(: (roduction ,ossibi#ities 'rontier > Economic .rowth )S&: A,,#icative !80. The 'ie#d o' economics is traditiona##y divided into two broad sub'ie#ds* a. nationa# economics and internationa# economics. b. consumer economics and ,roducer economics. c. ,rivate sector economics and ,ub#ic sector economics. d. microeconomics and macroeconomics. ANS: D DIF: 1 EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: )icroeconomics > )acroeconomics )S&: De'initiona# !81. )icroeconomics is the study o' a. how money a''ects the economy. b. how individua# househo#ds and 'irms ma/e decisions. c. how .overnment a''ects the economy. d. how the economy as a who#e wor/s. ANS: ? DIF: 1 EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: )icroeconomics > )acroeconomics )S&: De'initiona# !83. )acroeconomics is the study o' a. individua# decision ma/ers. b. internationa# trade. c. economy"wide ,henomena. d. mar/ets 'or #ar.e ,roducts. ANS: & DIF: 1 EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: )icroeconomics > )acroeconomics )S&: De'initiona# !85. A microeconomist M as o,,osed to a macroeconomist M mi.ht study a. the e''ect o' borrowin. by the 'edera# .overnment on the in'#ation rate. b. the e''ect o' risin. oi# ,rices on em,#oyment in the air#ine industry. c. chan.es in the nations unem,#oyment rate over short ,eriods o' time. d. a#ternative ,o#icies to ,romote hi.her #ivin. standards throu.hout the nation. ANS: ? DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: )icroeconomics )S&: A,,#icative !86. 2hich o' the 'o##owin. areas o' study ty,i'ies microeconomics as o,,osed to macroeconomicsE a. the im,act o' minimum"wa.e #aws on em,#oyment in the 'ast 'ood industry b. the e''ect o' chan.es in househo#d savin. rates on the .rowth rate o' nationa# income c. the im,act o' 'aster money .rowth on the rate o' in'#ation d. a com,arison o' a#ternative ta4 ,o#icies and their res,ective im,acts on the rate o' the nations economic .rowth ANS: A DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: )icroeconomics )S&: A,,#icative

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!87. 2hich o' the 'o##owin. wou#d #i/e#y be studied by a microeconomist rather than a macroeconomistE a. the e''ect o' 'orei.n direct investment on economic .rowth b. the e''ect o' a sa#es ta4 on the ci.arette industry c. the e''ect o' an investment ta4 credit on the economys ca,ita# stoc/ d. the e''ect o' a war on .overnment s,endin. ANS: ? DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: )icroeconomics )S&: A,,#icative !18. A macroeconomist M as o,,osed to a microeconomist M mi.ht study a. the e''ect o' a.ricu#tura# ,rice su,,ort ,ro.rams on the cotton industry b. the e''ect on =.S. stee# ,roducers o' an im,ort <uota im,osed on 'orei.n stee# c. the e''ect o' an increasin. in'#ation rate on nationa# #ivin. standards d. the e''ect o' an increase in the ,rice o' im,orted co''ee beans on the =.S. co''ee industry ANS: & DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: )acroeconomics )S&: A,,#icative !11. 2hich o' the 'o##owin. areas o' study ty,i'ies macroeconomics as o,,osed to microeconomicsE a. the e''ects o' rent contro# on the avai#abi#ity o' housin. in New Kor/ &ity b. the economic im,act o' tornadoes on cities and towns in %/#ahoma c. how tari''s on shoes a''ects the shoe industry d. the e''ect on the economy o' chan.es in the nations unem,#oyment rate ANS: D DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: )acroeconomics )S&: A,,#icative !1!. 2hich o' the 'o##owin. wou#d #i/e#y be studied by a macroeconomist rather than a microeconomistE a. the e''ect o' an increase in the ci.arette ta4 on smo/ers b. the e''ect o' 'orei.n com,etition on the domestic te4ti#e industry c. the e''ect o' a war on automobi#e ,rices d. the e''ect o' an increase in the minimum wa.e on an economys overa## rate o' unem,#oyment ANS: D DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: )acroeconomics )S&: A,,#icative !1-. 2hich o' the 'o##owin. statements best ca,tures the re#ationshi, between microeconomics and macroeconomicsE a. For the most ,art* microeconomists are unconcerned with macroeconomics* and macroeconomists are unconcerned with microeconomics. b. )icroeconomists study mar/ets 'or sma## ,roducts* whereas macroeconomists study mar/ets 'or #ar.e ,roducts. c. )icroeconomics and macroeconomics are distinct 'rom one another* yet they are c#ose#y re#ated. d. )icroeconomics is oriented toward ,o#icy studies* whereas macroeconomics is oriented toward theoretica# studies. ANS: & DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: )icroeconomics > )acroeconomics )S&: Inter,retive

Sec$2 - Thinking Like an Economist - The Economist as 'o+ic, A)7iser


%ULT&'LE C !&CE 1. 2hen economists are tryin. to e4,#ain the wor#d* they are a. scientists. b. ,o#icy advisers. c. in the rea#m o' microeconomics rather than macroeconomics. d. in the rea#m o' normative economics rather than ,ositive economics.

&ha,ter !:Thin/in. $i/e An Economist ANS: A NAT: Ana#ytic T%(: Economists !. DIF: 1 EF: !"! $%&: The study o' economics and de'initions o' economics )S&: De'initiona#

181

2hen economists are tryin. to he#, im,rove the wor#d* they are a. in the rea#m o' ,ositive economics rather than normative economics. b. in the rea#m o' macroeconomics rather than microeconomics. c. scientists. d. ,o#icy advisers. DIF: 1 EF: !"! $%&: The study o' economics and de'initions o' economics )S&: De'initiona#

ANS: D NAT: Ana#ytic T%(: Economists -.

2hich o' the 'o##owin. statements is correct about the ro#es o' economistsE a. Economists are best viewed as ,o#icy advisers. b. Economists are best viewed as scientists. c. In tryin. to e4,#ain the wor#d* economists are ,o#icy advisersG in tryin. to im,rove the wor#d* they are scientists. d. In tryin. to e4,#ain the wor#d* economists are scientistsG in tryin. to im,rove the wor#d* they are ,o#icy advisers. DIF: ! EF: !"! $%&: The study o' economics and de'initions o' economics )S&: Inter,retive

ANS: D NAT: Ana#ytic T%(: Economists 0.

For economists* statements about the wor#d are o' two ty,es: a. assum,tions and theories. b. true statements and 'a#se statements. c. s,eci'ic statements and .enera# statements. d. ,ositive statements and normative statements.

ANS: D DIF: ! EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Economists > (ositive statements > Normative statements )S&: Inter,retive 1. Normative statements are a. ,rescri,tive* whereas ,ositive statements are descri,tive. b. descri,tive* whereas ,ositive statements are ,rescri,tive. c. bac/ward"#oo/in.* whereas ,ositive statements are 'orward"#oo/in.. d. 'orward"#oo/in.* whereas ,ositive statements are bac/ward"#oo/in..

ANS: A DIF: 1 EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: (ositive statements > Normative statements )S&: De'initiona# 3. (ositive statements are a. ,rescri,tive. b. c#aims about how the wor#d shou#d be. c. c#aims about how the wor#d is. d. made by economists s,ea/in. as ,o#icy advisers.

ANS: & DIF: 1 EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: (ositive statements )S&: De'initiona# 5. Normative statements are a. descri,tive. b. c#aims about how the wor#d shou#d be. c. c#aims about how the wor#d is. d. made by economists s,ea/in. as scientists.

ANS: ? DIF: 1 EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Normative statements )S&: De'initiona#

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6.

&ha,ter !:Thin/in. $i/e An Economist (ositive statements are not a. descri,tive. b. ,rescri,tive. c. c#aims about how the wor#d is. d. made by economists s,ea/in. as scientists.

ANS: ? DIF: ! EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: (ositive statements )S&: Inter,retive 7. Normative statements are not a. descri,tive. b. ,rescri,tive. c. c#aims about how the wor#d shou#d be. d. made by economists s,ea/in. as ,o#icy advisers.

ANS: A DIF: ! EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Normative statements )S&: Inter,retive 18. %ne way to characteri+e the di''erence between ,ositive statements and normative statements is as 'o##ows: a. (ositive statements tend to re'#ect o,timism about the economy and its 'uture* whereas normative statements tend to re'#ect ,essimism about the economy and its 'uture. b. (ositive statements o''er descri,tions o' the way thin.s are* whereas normative statements o''er o,inions on how thin.s ou.ht to be. c. (ositive statements invo#ve advice on ,o#icy matters* whereas normative statements are su,,orted by scienti'ic theory and observation. d. Economists outside o' .overnment tend to ma/e normative statements* whereas .overnment" em,#oyed economists tend to ma/e ,ositive statements.

ANS: ? DIF: ! EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: (ositive statements > Normative statements )S&: Inter,retive 11. Economists view ,ositive statements as a. a''irmative* justi'yin. e4istin. economic ,o#icy. b. o,timistic* ,uttin. the best ,ossib#e inter,retation on thin.s. c. descri,tive* ma/in. a c#aim about how the wor#d is. d. ,rescri,tive* ma/in. a c#aim about how the wor#d ou.ht to be.

ANS: & DIF: ! EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Economists > (ositive statements )S&: Inter,retive 1!. Economists view normative statements as a. ,rescri,tive* ma/in. a c#aim about how the wor#d ou.ht to be. b. descri,tive* ma/in. a c#aim about how the wor#d is. c. statements about the norma# condition o' the wor#d. d. ,essimistic* ,uttin. the worst ,ossib#e inter,retation on thin.s.

ANS: A DIF: ! EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Economists > Normative statements )S&: Inter,retive 1-. Economists s,ea/in. #i/e scientists ma/e a. normative statements. b. ,rescri,tive statements. c. c#aims about how the wor#d is. d. c#aims about how the wor#d shou#d be.

ANS: & DIF: ! EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Economists > (ositive statements )S&: Inter,retive

&ha,ter !:Thin/in. $i/e An Economist 10. Economists s,ea/in. #i/e ,o#icy advisers ma/e a. ,ositive statements. b. descri,tive statements. c. c#aims about how the wor#d is. d. c#aims about how the wor#d shou#d be.

185

ANS: D DIF: ! EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Economists > Normative statements )S&: Inter,retive 11. Economists s,ea/in. #i/e scientists ma/e a. ,ositive statements. b. ,rescri,tive statements. c. c#aims about how the wor#d shou#d be. d. )ore than one o' the above is correct.

ANS: A DIF: ! EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Economists > (ositive statements )S&: Inter,retive 13. Economists s,ea/in. #i/e ,o#icy advisers ma/e a. c#aims about how the wor#d is. b. descri,tive statements. c. normative statements. d. )ore than one o' the above is correct.

ANS: & DIF: ! EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Economists > Normative statements )S&: Inter,retive 15. 2hen economists ma/e ,ositive statements* they are a. s,ea/in. as scientists. b. s,ea/in. as ,o#icy advisers. c. ma/in. c#aims about how the wor#d shou#d be. d. revea#in. that they are very conservative in their views o' how the wor#d wor/s.

ANS: A DIF: ! EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Economists > (ositive statements )S&: Inter,retive 16. 2hen economists ma/e normative statements* they are a. s,ea/in. as scientists. b. s,ea/in. as ,o#icy advisers. c. ma/in. c#aims about how the wor#d is. d. revea#in. that they are very #ibera# in their views o' how the wor#d wor/s.

ANS: ? DIF: ! EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Economists > Normative statements )S&: Inter,retive 17. 2hen economists ma/e a. ,ositive statements* they are s,ea/in. not as ,o#icy advisers but as scientists. b. ,ositive statements* they are s,ea/in. not as scientists but as 'orecasters. c. normative statements* they are s,ea/in. not as scientists but as ,o#icy advisers. d. normative statements* they are s,ea/in. not as ,o#icy advisers but as mode#"bui#ders.

ANS: A DIF: ! EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Economists > (ositive statements )S&: Inter,retive !8. 2hen economists ma/e a. ,ositive statements* they are s,ea/in. not as scientists but as ,o#icy advisers. b. ,ositive statements* they are s,ea/in. not as scientists but as 'orecasters. c. normative statements* they are s,ea/in. not as scientists but as ,o#icy advisers. d. normative statements* they are s,ea/in. not as ,o#icy advisers but as mode#"bui#ders.

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ANS: & DIF: ! EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Economists > Normative statements )S&: Inter,retive !1. Kou /now an economist has crossed the #ine 'rom ,o#icy adviser to scientist when he or she a. c#aims that the ,rob#em at hand is wide#y misunderstood by non"economists. b. ma/es ,ositive statements. c. ta#/s about va#ues. d. ma/es a c#aim about how the wor#d shou#d be.

ANS: ? DIF: ! EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Economists > (ositive statements )S&: Inter,retive !!. Kou /now an economist has crossed the #ine 'rom scientist to ,o#icy adviser when he or she a. c#aims that the ,rob#em at hand is wide#y misunderstood by non"economists. b. ta#/s about the evidence. c. ma/es normative statements. d. ma/es a c#aim about how the wor#d is.

ANS: & DIF: ! EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Economists > Normative statements )S&: Inter,retive !-. A ,ositive economic statement such as I(o##ution ta4es decrease the <uantity o' ,o##ution .enerated by 'irmsJ a. wou#d #i/e#y be made by an economist actin. as a ,o#icy advisor. b. wou#d re<uire va#ues and data in order to be eva#uated. c. wou#d re<uire data but not va#ues in order to be eva#uated. d. cou#d not be eva#uated by economists actin. as scientists.

ANS: & DIF: ! EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: (ositive statements )S&: Inter,retive !0. A normative economic statement such as IThe minimum wa.e shou#d be abo#ishedJ a. wou#d #i/e#y be made by an economist actin. as a scientist. b. wou#d re<uire va#ues and data in order to be eva#uated. c. wou#d re<uire data but not va#ues in order to be eva#uated. d. cou#d not be eva#uated by economists actin. as ,o#icy advisers.

ANS: ? DIF: ! EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Normative statements )S&: Inter,retive !1. In ,rinci,#e* we can a. i.nore ,ositive statements when choosin. amon. various ,ub#ic ,o#icy a#ternatives. b. i.nore normative statements when choosin. amon. various ,ub#ic ,o#icy a#ternatives. c. con'irm or re'ute ,ositive statements by e4aminin. evidence. d. con'irm or re'ute normative statements by e4aminin. evidence.

ANS: & DIF: ! EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: (ositive statements )S&: Inter,retive !3. 2hich o' the 'o##owin. is not correctE a. Eva#uatin. statements about how the wor#d shou#d be invo#ves va#ues as we## as 'acts. b. (ositive statements can* in ,rinci,#e* be con'irmed or re'uted by e4aminin. evidence. c. Normative statements can be jud.ed usin. data a#one. d. Decidin. what is .ood or bad ,o#icy is not just a matter o' science.

ANS: & DIF: ! EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Normative statements )S&: Inter,retive

&ha,ter !:Thin/in. $i/e An Economist !5. 2hen an economist eva#uates a ,ositive statement* he or she is ,rimari#y a. e4aminin. evidence. b. eva#uatin. va#ues as we## as 'acts. c. actin. as a ,o#icy adviser. d. concerned with ma/in. a sound decision on how the wor#d ou.ht to be.

187

ANS: A DIF: ! EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Economists > (ositive statements )S&: Inter,retive !6. Normative conc#usions a. come 'rom ,ositive ana#ysis a#one. b. are based on i.norance o' ,ositive ana#ysis. c. invo#ve va#ue jud.ments. d. re'#ect the economists ro#e as scientist.

ANS: & DIF: ! EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Normative statements )S&: Inter,retive !7. 2hich o' the 'o##owin. is an e4am,#e o' a ,ositive* as o,,osed to normative* statementE a. In'#ation is more harm'u# to the economy than unem,#oyment is. b. I' we#'are ,ayments increase* the wor#d wi## be a better ,#ace. c. (rices rise when the .overnment ,rints too much money. d. 2hen ,ub#ic ,o#icies are eva#uated* the bene'its to the economy o' im,roved e<ua#ity shou#d be considered more im,ortant than the costs o' reduced e''iciency.

ANS: & DIF: ! EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: (ositive statements )S&: A,,#icative -8. 2hich o' the 'o##owin. is an e4am,#e o' a ,ositive* as o,,osed to normative* statementE a. Income ta4 rates shou#d not have been cut as they were a 'ew years a.o. b. The <uantity o' money has .rown too s#ow#y in recent years. c. 2hen the <uantity o' money .rows ra,id#y* in'#ation is a ,redictab#e conse<uence. d. A## o' the above are ,ositive statements.

ANS: & DIF: ! EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: (ositive statements )S&: A,,#icative -1. I(rices rise when the <uantity o' money rises ra,id#yJ is an e4am,#e o' a a. ne.ative economic statement. b. ,ositive economic statement. c. normative economic statement. d. statement that contradicts one o' the basic ,rinci,#es o' economics.

ANS: ? DIF: ! EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: (ositive statements )S&: A,,#icative -!. 2hich o' the 'o##owin. is not an e4am,#e o' a ,ositive* as o,,osed to normative* statementE a. 9i.her .aso#ine ,rices wi## reduce .aso#ine consum,tion. b. E<ua#ity is more im,ortant than e''iciency. c. Trade restrictions #ower our standard o' #ivin.. d. I' a nation wants to avoid in'#ation* it wi## restrict the .rowth rate o' the <uantity o' money.

ANS: ? DIF: ! EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: (ositive statements > Normative statements )S&: A,,#icative

118
--.

&ha,ter !:Thin/in. $i/e An Economist 2hich o' the 'o##owin. is an e4am,#e o' a normative* as o,,osed to ,ositive* statementE a. =niversa# hea#th care wou#d be .ood 'or =.S. citi+ens. b. An increase in the ci.arette ta4 wou#d cause a decrease in the number o' smo/ers. c. A decrease in the minimum wa.e wou#d decrease unem,#oyment. d. A #aw re<uirin. the 'edera# .overnment to ba#ance its bud.et wou#d increase economic .rowth.

ANS: A DIF: ! EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Normative statements )S&: A,,#icative -0. 2hich o' the 'o##owin. is an e4am,#e o' a normative* as o,,osed to ,ositive* statementE a. ;aso#ine ,rices ou.ht to be #ower than they are now. b. The 'edera# .overnment shou#d raise ta4es on wea#thy ,eo,#e. c. The socia# security system is a .ood system and it deserves to be ,reserved as it is. d. A## o' the above are normative statements.

ANS: D DIF: ! EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Normative statements )S&: A,,#icative -1. 2hich o' the 'o##owin. is an e4am,#e o' a normative* as o,,osed to ,ositive* statementE a. I' the ,rice o' a ,roduct decreases* ,eo,#es wi##in.ness to buy that ,roduct wi## increase. b. educin. ta4 rates on the wea#thy wou#d bene'it the nation. c. I' the nationa# savin. rate were to increase* so wou#d the rate o' economic .rowth. d. The e#imination o' trade restrictions wou#d increase an economys standard o' #ivin..

ANS: ? DIF: ! EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Normative statements )S&: A,,#icative -3. 2hich o' the 'o##owin. is an e4am,#e o' a normative* as o,,osed to ,ositive* statementE a. The ,rice o' .aso#ine came down shar,#y durin. the second ha#' o' !883. b. I' the .overnment were to set a ma4imum #e.a# ,rice on .aso#ine* then there wou#d be a shorta.e o' .aso#ine. c. Income ta4es shou#d be reduced. d. The 'edera# .overnment obtains much o' its revenue 'rom income ta4es.

ANS: & DIF: ! EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Normative statements )S&: A,,#icative -5. The &ounci# o' Economic Advisers a. was created in 1553 and consists o' three members and a sta'' o' severa# do+en economists. b. was created in 1553 and consists o' thirty members and a sta'' o' a do+en economists. c. was created in 1703 and consists o' three members and a sta'' o' severa# do+en economists. d. was created in 1703 and consists o' thirty members and a sta'' o' a do+en economists.

ANS: & DIF: ! EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: &ounci# o' Economic Advisers )S&: Inter,retive -6. The &ounci# o' Economic Advisers a. was created in 1703. b. advises the ,resident o' the =nited States on economic ,o#icy matters. c. writes the annua# Economic Report of the President. d. A## o' the above are correct.

ANS: D DIF: ! EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: &ounci# o' Economic Advisers )S&: Inter,retive

&ha,ter !:Thin/in. $i/e An Economist -7. Duties o' the &ounci# o' Economic Advisers inc#ude a. advisin. the ,resident and writin. the annua# Economic Report of the President. b. im,#ementin. the ,residents ta4 ,o#icies. c. trac/in. the behavior o' the nations money su,,#y. d. A## o' the above are correct.

111

ANS: A DIF: ! EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: &ounci# o' Economic Advisers )S&: Inter,retive 08. In addition to advisin. the ,resident* one duty o' the &ounci# o' Economic Advisors is to a. ,re,are the 'edera# bud.et. b. write .overnment re.u#ations. c. advise &on.ress on economic matters. d. write the annua# Economic Report of the President.

ANS: D DIF: 1 EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: &ounci# o' Economic Advisers )S&: De'initiona# 01. Economists at the De,artment o' the Treasury a. desi.n =.S. currency and coins. b. ,rovide &on.ress with the annua# bud.et. c. en'orce the =.S. antitrust #aws. d. ,rovide advice on ta4 ,o#icy to the (resident. DIF: 1 EF: !"! $%&: The study o' economics and de'initions o' economics )S&: De'initiona#

ANS: D NAT: Ana#ytic T%(: Economists 0!.

The ,resident o' the =nited States receives ta4 ,o#icy advice 'rom economists in the a. Federa# eserve. b. De,artment o' Austice. c. De,artment o' the Treasury. d. &on.ressiona# ?ud.et %''ice. DIF: 1 EF: !"! $%&: The study o' economics and de'initions o' economics )S&: De'initiona#

ANS: & NAT: Ana#ytic T%(: Economists 0-.

The desi.n o' ta4 ,o#icy is one o' the res,onsibi#ities o' economists who wor/ at the a. &ounci# o' Economic Advisers. b. Federa# eserve. c. De,artment o' the Treasury. d. &on.ressiona# ?ud.et %''ice. DIF: 1 EF: !"! $%&: The study o' economics and de'initions o' economics )S&: De'initiona#

ANS: & NAT: Ana#ytic T%(: Economists 00.

A duty o' economists at the De,artment o' $abor is to a. ana#y+e data on wor/ers. b. schedu#e 'edera# ho#idays. c. en'orce the nationHs antitrust #aws. d. A## o' the above are correct. DIF: 1 EF: !"! $%&: The study o' economics and de'initions o' economics )S&: De'initiona#

ANS: A NAT: Ana#ytic T%(: Economists 01.

Economists at the De,artment o' Austice a. trac/ the behavior o' the nations money su,,#y. b. advise &on.ress on economic matters. c. he#, en'orce the nations antitrust #aws. d. ,re,are the 'edera# bud.et.

11!

&ha,ter !:Thin/in. $i/e An Economist DIF: 1 EF: !"! $%&: The study o' economics and de'initions o' economics )S&: De'initiona#

ANS: & NAT: Ana#ytic T%(: Economists 03.

The nationHs antitrust #aws are en'orced by economists at the De,artment o' a. $abor. b. 9ea#th and 9uman Services. c. Austice. d. Treasury. DIF: 1 EF: !"! $%&: The study o' economics and de'initions o' economics )S&: De'initiona#

ANS: & NAT: Ana#ytic T%(: Economists 05.

Some* but not a##* .overnment economists are em,#oyed within the administrative branch o' .overnment. 2hich o' the 'o##owin. .overnment a.encies em,#oys economists outside o' the administrative branchE a. the De,artment o' $abor b. the De,artment o' the Treasury c. the &on.ressiona# ?ud.et %''ice d. the &ounci# o' Economic Advisers DIF: ! EF: !"! $%&: The study o' economics and de'initions o' economics )S&: Inter,retive

ANS: & NAT: Ana#ytic T%(: Economists 06.

Economists who are ,rimari#y res,onsib#e 'or advisin. &on.ress on economic matters wor/ in which a.encyE a. the Federa# eserve b. the &on.ressiona# ?ud.et %''ice c. the De,artment o' the Treasury d. the De,artment o' &ommerce DIF: 1 EF: !"! $%&: The study o' economics and de'initions o' economics )S&: De'initiona#

ANS: ? NAT: Ana#ytic T%(: Economists 07.

&on.ress re#ies on economists at the &on.ressiona# ?ud.et %''ice to a. en'orce the nationHs antitrust #aws. b. set the nations monetary ,o#icy. c. ,rovide evidence that incumbent members o' &on.ress are ,er'ormin. we## in their jobs. d. ,rovide inde,endent eva#uations o' ,o#icy ,ro,osa#s. DIF: ! EF: !"! $%&: The study o' economics and de'initions o' economics )S&: Inter,retive

ANS: D NAT: Ana#ytic T%(: Economists 18.

The Federa# eserve a. desi.ns ta4 ,o#icy. b. en'orces the nationHs antitrust #aws. c. sets the nationHs monetary ,o#icy. d. ana#y+es data on wor/ers.

ANS: & DIF: 1 EF: !"! NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: Federa# eserve )S&: De'initiona# 11. Aohn )aynard Feynes be#ieved the ideas o' economists to be a. .enera##y incorrect. b. ,ower'u#. c. academic and without ,ractica# a,,#ication. d. rantin.s o' madmen. DIF: 1 EF: !"! $%&: The study o' economics and de'initions o' economics )S&: De'initiona#

ANS: ? NAT: Ana#ytic T%(: Economists

&ha,ter !:Thin/in. $i/e An Economist

11-

Sec$. - Thinking Like an Economist - #h, Economists 8isagree


%ULT&'LE C !&CE 1. II' a## economists were #aid end to end* they wou#d not reach a conc#usion.J 2ho made this whimsica# observationE a. 9arry Truman b. ;eor.e ?ernard Shaw c. Aohn )aynard Feynes d. ona#d ea.an DIF: 1 EF: !"$%&: The study o' economics and de'initions o' economics )S&: De'initiona#

ANS: ? NAT: Ana#ytic T%(: Economists !.

(resident ona#d ea.an once jo/ed that a Trivia# (ursuit .ame desi.ned 'or economists wou#d a. have no <uestions but hundreds o' answers. b. have 188 <uestions and -*888 answers. c. have 1*888 <uestions but no answers. d. never ,roduce a winner. DIF: 1 EF: !"$%&: The study o' economics and de'initions o' economics )S&: De'initiona#

ANS: ? NAT: Ana#ytic T%(: Economists -.

Economists sometimes .ive con'#ictin. advice because a. .raduate students in economics are encoura.ed to ar.ue with each other. b. economists have di''erent va#ues and scienti'ic jud.ment. c. economists actin. as scientists do not #i/e to a.ree with economists actin. as ,o#icy advisers. d. economics is more o' a be#ie' system than a science. DIF: ! EF: !"$%&: The study o' economics and de'initions o' economics )S&: Inter,retive

ANS: ? NAT: Ana#ytic T%(: Economists 0.

The two basic reasons why economists o'ten a,,ear to .ive con'#ictin. advice to ,o#icyma/ers are di''erences in a. o,inions and education. b. o,inions and va#ues. c. scienti'ic jud.ments and education. d. scienti'ic jud.ments and va#ues. DIF: ! EF: !"$%&: The study o' economics and de'initions o' economics )S&: Inter,retive

ANS: D NAT: Ana#ytic T%(: Economists 1.

Sometimes economists disa.ree because their scienti'ic jud.ments di''er. 2hich o' the 'o##owin. instances best re'#ects this source o' disa.reementE a. %ne economist be#ieves income ta4 cuts are un'air to those with #ow incomesG another economist be#ieves income ta4 cuts are not un'air to those with #ow incomes. b. %ne economist be#ieves unem,#oyment causes more human su''erin. than does in'#ationG another economist be#ieves in'#ation causes more human su''erin. than does unem,#oyment. c. %ne economist be#ieves the ,o#icies o' the Democratic ,arty o''er the best ho,e 'or AmericaHs 'utureG another economist be#ieves the ,o#icies o' the e,ub#ican ,arty o''er the best ho,e 'or AmericaHs 'uture. d. %ne economist be#ieves increases in the minimum wa.e increase unem,#oymentG another economist be#ieves increases in the minimum wa.e do not increase unem,#oyment. DIF: ! EF: !"$%&: The study o' economics and de'initions o' economics )S&: Inter,retive

ANS: D NAT: Ana#ytic T%(: Economists

110
3.

&ha,ter !:Thin/in. $i/e An Economist Sometimes economists disa.ree because their va#ues di''er. 2hich o' the 'o##owin. instances best re'#ects this source o' disa.reementE a. %ne economist be#ieves the North American Free Trade A.reement BNAFTAC has #ed to a #oss o' American jobsG another economist dis,utes this c#aim. b. %ne economist be#ieves that when income ta4es are cut* ,eo,#e wi## increase their s,endin.G another economist be#ieves that when income ta4es are cut* ,eo,#e wi## increase their savin.. c. %ne economist advises a.ainst increases in sa#es ta4es because she thin/s such increases are un'air to #ow"income ,eo,#eG another economist dis,utes the idea that increases in sa#es ta4es are un'air to #ow"income ,eo,#e. d. %ne economist be#ieves that* ,rior to the &ivi# 2ar* s#avery contributed to economic .rowth in the SouthG another economist be#ieves that s#avery he#d bac/ the SouthHs economic .rowth. DIF: ! EF: !"$%&: The study o' economics and de'initions o' economics )S&: Inter,retive

ANS: & NAT: Ana#ytic T%(: Economists 5.

2hich o' the 'o##owin. statements is correct about the e4tent o' disa.reement amon. economistsE a. There is a .reat dea# o' a.reement amon. economists on virtua##y every economic issue. b. There is a .reat dea# o' a.reement amon. economists on many im,ortant economic issues. c. A## disa.reements amon. economists are attributab#e to di''erences in their va#ues. d. A## disa.reements amon. economists are attributab#e to the 'act that di''erent economists have di''erent de.rees o' 'aith in the va#idity o' a#ternative economic theories. DIF: ! EF: !"$%&: The study o' economics and de'initions o' economics )S&: Inter,retive

ANS: ? NAT: Ana#ytic T%(: Economists 6.

A survey which sou.ht the o,inion o' ,ro'essiona# economists on 'ourteen ,ro,ositions about economic ,o#icy 'ound that a. the res,ondents were a#most e<ua##y divided on the ,ro,ositions. b. the res,ondents 'avored the ,ro,ositions by a s#i.ht mar.in. c. the res,ondents disa.reed with the ,ro,ositions by a s#i.ht mar.in. d. there was overwhe#min. endorsement o' the ,ro,ositions amon. the res,ondents. DIF: 1 EF: !"$%&: The study o' economics and de'initions o' economics )S&: De'initiona#

ANS: D NAT: Ana#ytic T%(: Economists 7.

A survey o' ,ro'essiona# economists revea#ed that more than three"'ourths o' them a.reed with a number o' statements* inc#udin. which o' the 'o##owin.E a. Tari''s and im,ort <uotas usua##y reduce .enera# economic we#'are. b. A #ar.e 'edera# bud.et de'icit has an adverse e''ect on the economy. c. A minimum wa.e increases unem,#oyment amon. youn. and uns/i##ed wor/ers. d. A## o' the above are correct. DIF: 1 EF: !"$%&: The study o' economics and de'initions o' economics )S&: De'initiona#

ANS: D NAT: Ana#ytic T%(: Economists 18.

A survey o' ,ro'essiona# economists revea#ed that more than three"'ourths o' them a.reed with 'ourteen economic ,ro,ositions. 2hich o' the 'o##owin. is not one o' those ,ro,ositionsE a. The =nited States shou#d not restrict em,#oyers 'rom outsourcin. wor/ to 'orei.n countries. b. The =nited States shou#d withdraw 'rom the North American Free Trade A.reement BNAFTAC. c. The =nited States shou#d e#iminate a.ricu#tura# subsidies. d. $oca# and state .overnments shou#d e#iminate subsidies to ,ro'essiona# s,orts 'ranchises. DIF: 1 EF: !"$%&: The study o' economics and de'initions o' economics )S&: De'initiona#

ANS: ? NAT: Ana#ytic T%(: Economists

&ha,ter !:Thin/in. $i/e An Economist 11. A survey o' ,ro'essiona# economists revea#ed that more than three"'ourths o' them a.reed with 'ourteen economic ,ro,ositions. 2hich o' the 'o##owin. is not one o' those ,ro,ositionsE a. A cei#in. on rents reduces the <uantity and <ua#ity o' housin. avai#ab#e. b. Fisca# ,o#icy has a si.ni'icant stimu#ative im,act on a #ess than 'u##y em,#oyed economy. c. The .a, between Socia# Security 'unds and e4,enditures wi## become unsustainab#y #ar.e within the ne4t 'i'ty years i' current ,o#icies remain unchan.ed. d. The =nited States shou#d im,#ement universa# hea#th care 'or its citi+ens. DIF: 1 EF: !"$%&: The study o' economics and de'initions o' economics )S&: De'initiona#

111

ANS: D NAT: Ana#ytic T%(: Economists 1!.

A#most a## economists a.ree that rent contro# a. has no e''ect on the renta# income o' #and#ords. b. a##ows the mar/et 'or housin. to wor/ more e''icient#y. c. adverse#y a''ects the avai#abi#ity and <ua#ity o' housin.. d. is a very ine4,ensive way to he#, the most needy members o' society. DIF: 1 EF: !"$%&: The study o' economics and de'initions o' economics )S&: De'initiona#

ANS: & NAT: Ana#ytic T%(: Economists 1-.

(o#icies such as rent contro# and trade barriers ,ersist in s,ite o' the 'act that economists are virtua##y united in their o,,osition to such ,o#icies* ,robab#y because a. economists have not yet convinced the .enera# ,ub#ic that the ,o#icies are undesirab#e. b. economists en.a.e in ,ositive ana#ysis* not normative ana#ysis. c. economists have va#ues that are di''erent 'rom the va#ues o' most non"economists. d. economists theories are not easi#y con'irmed or re'uted in #aboratory ana#ysis. DIF: ! EF: !"$%&: The study o' economics and de'initions o' economics )S&: Inter,retive

ANS: A NAT: Ana#ytic T%(: Economists 10.

(o#icies such as rent contro# and trade barriers ,ersist a. because economists are about even#y divided as to the merits o' those ,o#icies. b. because a#most a## economists a.ree that those ,o#icies have no discernib#e economic e''ects. c. because a#most a## economists a.ree that those ,o#icies are desirab#e. d. des,ite the 'act that a#most a## economists a.ree that those ,o#icies are undesirab#e. DIF: ! EF: !"$%&: The study o' economics and de'initions o' economics )S&: Inter,retive

ANS: D NAT: Ana#ytic T%(: Economists

Sec$4 - Thinking Like an Economist - Let9s :et :oing


%ULT&'LE C !&CE 1. Aohn )aynard Feynes re'erred to economics as an easy subject* a. at which very 'ew e4ce#. b. but not as easy as ,hi#oso,hy or the ,ure sciences. c. which very 'ew can enjoy. d. which dea#s ,rimari#y with common sense. DIF: 1 EF: !"0 $%&: The study o' economics and de'initions o' economics )S&: De'initiona#

ANS: A NAT: Ana#ytic T%(: Economists

113
!.

&ha,ter !:Thin/in. $i/e An Economist 9ow did the in'#uentia# economist Aohn )aynard Feynes e4,#ain his remar/ that a#thou.h economics is an easy subject com,ared with the hi.her branches o' ,hi#oso,hy or ,ure science* it is a subject at which 'ew e4ce#E a. )ost ,eo,#e who study economics are not very bri.ht. b. ;ood economists must ,ossess a rare combination o' .i'ts. c. Economics is <uite borin.G hence* ,eo,#e tend to #ose interest in it be'ore masterin. it. d. ;ood thin/ers become 'rustrated with economics because it does not ma/e use o' the scienti'ic method. DIF: ! EF: !"0 $%&: The study o' economics and de'initions o' economics )S&: Inter,retive

ANS: ? NAT: Ana#ytic T%(: Economists

Sec$/ - Thinking Like an Economist - :raphing; A -rief Re7ie<


%ULT&'LE C !&CE 1. 2hich o' the 'o##owin. is not correctE a. 2hen deve#o,in. economic theories* .ra,hs o''er a way to visua##y e4,ress ideas that mi.ht be #ess c#ear i' described with e<uations or words. b. ;ra,hs are one way o' e4,ressin. the re#ationshi,s amon. variab#es. c. 2hen studyin. the re#ationshi, between two economic variab#es* .ra,hs a##ow economists to draw indis,utab#e conc#usions about causes and e''ects. d. 2hen ana#y+in. economic data* .ra,hs ,rovide a ,ower'u# way o' 'indin. and inter,retin. ,atterns. DIF: ! EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: Inter,retive

ANS: & NAT: Ana#ytic T%(: ;ra,hs !.

2hich o' the 'o##owin. is not an e4am,#e o' a .ra,h o' a sin.#e variab#eE a. a ,ie chart b. a bar .ra,h c. a time"series .ra,h d. a scatter,#ot DIF: ! EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: Inter,retive

ANS: D NAT: Ana#ytic T%(: ;ra,hs -.

;ra,hs such as bar .ra,hs and ,ie charts are #imited in that they a. can on#y show variab#es that are ,ositive#y re#ated. b. can on#y show variab#es that have a ne.ative corre#ation. c. ,rovide in'ormation on on#y one variab#e. d. ,rovide in'ormation on no more than two variab#es. DIF: ! EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: Inter,retive

ANS: & NAT: Ana#ytic T%(: ;ra,hs 0.

The use o' the coordinate system a##ows a. 'or the dis,#ay o' the '#ows o' do##ars* .oods and services* and 'actors o' ,roduction in an economic system. b. 'or the dis,#ay o' how #abor and other resources are or.ani+ed in the ,roduction ,rocess. c. 'or the dis,#ay o' two variab#es on a sin.#e .ra,h. d. 'or the creation o' ,ie charts and bar .ra,hs. DIF: ! EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: Inter,retive

ANS: & NAT: Ana#ytic T%(: ;ra,hs

&ha,ter !:Thin/in. $i/e An Economist 1. In order to dis,#ay in'ormation on two variab#es* an economist must use a. a bar .ra,h. b. a ,ie chart. c. the coordinate system. d. a time"series .ra,h. DIF: ! EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: Inter,retive

115

ANS: & NAT: Ana#ytic T%(: ;ra,hs 3.

An ordered ,air is a. the ,rocess o' chec/in. ca#cu#ations twice be'ore ,#acin. them on a .ra,h. b. two numbers that can be re,resented by a sin.#e ,oint on a .ra,h. c. two numbers that are re,resented by two ,oints on a .ra,h. d. two ,oints on a .ra,h that are o' e<ua# distance 'rom the ori.in. DIF: ! EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: Inter,retive

ANS: ? NAT: Ana#ytic T%(: ;ra,hs 5.

The 4"coordinate is the a. 'irst number o' an ordered ,air and re,resents the ,ointHs hori+onta# #ocation. b. second number o' an ordered ,air and re,resents the ,ointHs hori+onta# #ocation. c. 'irst number o' an ordered ,air and re,resents the ,ointHs vertica# #ocation. d. second number o' an ordered ,air and re,resents the ,ointHs vertica# #ocation. DIF: 1 EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: De'initiona#

ANS: A NAT: Ana#ytic T%(: ;ra,hs 6.

The 4"coordinate o' an ordered ,air s,eci'ies the a. dia.ona# #ocation o' the ,oint. b. vertica# #ocation o' the ,oint. c. hori+onta# #ocation o' the ,oint. d. <uadrant #ocation in which the ,oint is #ocated. DIF: 1 EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: De'initiona#

ANS: & NAT: Ana#ytic T%(: ;ra,hs 7.

The 'irst number in any ordered ,air is a. the 4"coordinate. b. the y"coordinate. c. the vertica# #ocation o' the ,oint. d. the s#o,e. DIF: 1 EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: De'initiona#

ANS: A NAT: Ana#ytic T%(: ;ra,hs 18.

The y"coordinate is the a. 'irst number o' an ordered ,air and re,resents the ,ointHs hori+onta# #ocation. b. second number o' an ordered ,air and re,resents the ,ointHs hori+onta# #ocation. c. 'irst number o' an ordered ,air and re,resents the ,ointHs vertica# #ocation. d. second number o' an ordered ,air and re,resents the ,ointHs vertica# #ocation. DIF: 1 EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: De'initiona#

ANS: D NAT: Ana#ytic T%(: ;ra,hs 11.

The y"coordinate o' an ordered ,air s,eci'ies the a. dia.ona# #ocation o' the ,oint. b. vertica# #ocation o' the ,oint. c. hori+onta# #ocation o' the ,oint. d. <uadrant #ocation in which the ,oint is #ocated.

116

&ha,ter !:Thin/in. $i/e An Economist DIF: 1 EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: De'initiona#

ANS: ? NAT: Ana#ytic T%(: ;ra,hs 1!.

The second number in any ordered ,air is a. the 4"coordinate. b. the y"coordinate. c. the hori+onta# #ocation o' the ,oint. d. the s#o,e. DIF: 1 EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: De'initiona#

ANS: ? NAT: Ana#ytic T%(: ;ra,hs 1-.

In the ordered ,air B15* 51C* 15 is the a. vertica# #ocation o' the ,oint. b. the s#o,e. c. the 4"coordinate. d. the y"coordinate. DIF: ! EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: A,,#icative

ANS: & NAT: Ana#ytic T%(: ;ra,hs 10.

In the ordered ,air B15* 51C* 51 is the a. hori+onta# #ocation o' the ,oint. b. the s#o,e. c. the 4"coordinate. d. the y"coordinate. DIF: ! EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: A,,#icative

ANS: D NAT: Ana#ytic T%(: ;ra,hs 11.

The ,oint where both 4 and y are +ero is /nown as the a. ori.in. b. nu##. c. +ero coordinate. d. center. DIF: 1 EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: De'initiona#

ANS: A NAT: Ana#ytic T%(: ;ra,hs 13.

The ordered ,air that re,resents the ori.in on a .ra,h is a. B1* 1C. b. B8* 8C. c. B"1* "1C. d. B C. DIF: ! EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: Inter,retive

ANS: ? NAT: Ana#ytic T%(: ;ra,hs 15.

2hen two variab#es have a ,ositive corre#ation* a. they tend to move in o,,osite directions. b. they tend to move in the same direction. c. one variab#e wi## move whi#e the other remains constant. d. the variab#es va#ues are never ne.ative. DIF: 1 EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: De'initiona#

ANS: ? NAT: Ana#ytic T%(: ;ra,hs

&ha,ter !:Thin/in. $i/e An Economist 16. 2hen two variab#es have a ,ositive corre#ation* a. when the 4"variab#e increases* the y"variab#e decreases. b. when the 4"variab#e decreases* the y"variab#e increases. c. when the 4"variab#e increases* the y"variab#e increases. d. )ore than one o' the above is correct. DIF: ! EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: Inter,retive

117

ANS: & NAT: Ana#ytic T%(: ;ra,hs 17.

2hen two variab#es have a ne.ative corre#ation* a. they tend to move in o,,osite directions. b. they tend to move in the same direction. c. one variab#e wi## move whi#e the other remains constant. d. the variab#es va#ues are never ,ositive. DIF: 1 EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: De'initiona#

ANS: A NAT: Ana#ytic T%(: ;ra,hs !8.

2hen two variab#es have a ne.ative corre#ation* a. when the 4"variab#e decreases* the y"variab#e decreases. b. when the 4"variab#e decreases* the y"variab#e increases. c. when the 4"variab#e increases* the y"variab#e increases. d. )ore than one o' the above is correct. DIF: ! EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: Inter,retive

ANS: ? NAT: Ana#ytic T%(: ;ra,hs Figure 2-12


cups of coffee per day

hours without sleep

!1.

Refer to Figure 2-12. The .ra,h shown is /nown as a a. time"series .ra,h. b. bar .ra,h. c. scatter,#ot. d. ,ie chart. DIF: 1 EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: De'initiona#

ANS: & NAT: Ana#ytic T%(: ;ra,hs !!.

Refer to Figure 2-12. &u,s o' co''ee ,er day and the hours that someone can .o without s#ee, a,,ear to have a. a ,ositive corre#ation. b. a ne.ative corre#ation. c. a random corre#ation. d. no corre#ation.

1!8

&ha,ter !:Thin/in. $i/e An Economist DIF: ! EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: A,,#icative

ANS: A NAT: Ana#ytic T%(: ;ra,hs !-.

Refer to Figure 2-12. Ta/in. cause and e''ect into account* which o' the 'o##owin. inter,retations wou#d be most reasonab#e re.ardin. the re#ationshi, between co''ee and hours without s#ee,E a. The #ess co''ee a ,erson drin/s ,er day* the more time he can .o without s#ee,. b. There is no re#ationshi, between how much co''ee ,er day a ,erson drin/s and how #on. he can .o without s#ee,. c. The more co''ee a ,erson drin/s ,er day* the more time he can .o without s#ee,. d. The more co''ee a ,erson drin/s ,er day* the #ess time he can .o without s#ee,. DIF: ! EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: A,,#icative

ANS: & NAT: Ana#ytic T%(: ;ra,hs !0.

2hen two variab#es move in o,,osite directions* the curve re#atin. them is a. u,ward s#o,in.* and we say the variab#es are ,ositive#y re#ated. b. u,ward s#o,in.* and we say the variab#es are ne.ative#y re#ated. c. downward s#o,in.* and we say the variab#es are ,ositive#y re#ated. d. downward s#o,in.* and we say the variab#es are ne.ative#y re#ated. DIF: ! EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: Inter,retive

ANS: D NAT: Ana#ytic T%(: ;ra,hs !1.

2hen two variab#es move in the same direction* the curve re#atin. them is a. u,ward s#o,in.* and we say the variab#es are ,ositive#y re#ated. b. u,ward s#o,in.* and we say the variab#es are ne.ative#y re#ated. c. downward s#o,in.* and we say the variab#es are ,ositive#y re#ated. d. downward s#o,in.* and we say the variab#es are ne.ative#y re#ated. DIF: ! EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: Inter,retive

ANS: A NAT: Ana#ytic T%(: ;ra,hs !3.

2hen a re#evant variab#e that is not named on either a4is chan.es* a. there wi## be a movement a#on. the curve. b. the curve wi## rotate c#oc/wise. c. the curve wi## be una''ected since on#y the variab#es on the a4is a''ect the curve. d. the curve wi## shi't. DIF: ! EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: Inter,retive

ANS: D NAT: Ana#ytic T%(: ;ra,hs !5.

Su,,ose ,rice is measured a#on. the vertica# a4is on a .ra,h. 2hen ,rice chan.es* there wi## be a a. rotation o' the curve. b. shi't o' the curve. c. movement a#on. the curve. d. chan.e in the s#o,e o' the curve. DIF: ! EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: A,,#icative

ANS: & NAT: Ana#ytic T%(: ;ra,hs !6.

A demand curve shows the re#ationshi, a. between income and <uantity demanded. b. between ,rice and income. c. between ,rice and <uantity demanded. d. amon. income* ,rice* and <uantity demanded. DIF: ! EF: $%&: Su,,#y and demand !"1 T%(: Demand

ANS: & NAT: Ana#ytic )S&: Inter,retive

&ha,ter !:Thin/in. $i/e An Economist !7.

1!1

I' Stevens income decreases and* as a resu#t* he chooses to buy 'ewer ba.e#s ,er month at each ,rice* then his demand curve wi## a. shi't to the ri.ht. b. shi't to the #e't. c. not shi'tG instead* Steven wi## move a#on. his demand curve downward and to the ri.ht. d. not shi'tG instead* Steven wi## move a#on. his demand curve u,ward and to the #e't. DIF: ! EF: $%&: Su,,#y and demand !"1 T%(: Demand

ANS: ? NAT: Ana#ytic )S&: A,,#icative Figure 2-13


price of a dozen roses 08 -1 -8 !1 !8 11 18 1 1 ! 0 A

& ?

6 7 18 dozens of roses

-8.

Refer to Figure 2-1.. The curves shown are a. su,,#y curves. b. demand curves. c. ,re'erence curves. d. income"consum,tion curves. DIF: 1 EF: $%&: Su,,#y and demand !"1 T%(: Demand

ANS: ? NAT: Ana#ytic )S&: De'initiona# -1.

Refer to Figure 2-1.. The movement 'rom ,oint A to ,oint ? is aBnC a. shi't o' the demand curve. b. indication o' a chan.e in ,re'erences 'or roses. c. movement a#on. the demand curve. d. indication o' an increase in income. DIF: ! EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: A,,#icative

ANS: & NAT: Ana#ytic T%(: ;ra,hs -!.

Refer to Figure 2-1.. The movement 'rom ,oint ? to ,oint & is aBnC a. shi't o' the demand curve. b. movement a#on. the demand curve. c. indication that the ,rice o' roses has chan.ed. d. indication that the costs incurred by 'irms that ,roduce roses have chan.ed. DIF: ! EF: !"1 $%&: The study o' economics and de'initions o' economics )S&: A,,#icative

ANS: A NAT: Ana#ytic T%(: ;ra,hs --.

Refer to Figure 2-1.. The movement 'rom ,oint ? to ,oint & cou#d have been caused by a. in'#ation. b. a chan.e in income. c. a chan.e in the ,rice o' roses. d. a chan.e in the cost o' ,roducin. roses.

1!!

&ha,ter !:Thin/in. $i/e An Economist DIF: ! EF: $%&: Su,,#y and demand !"1 T%(: Demand

ANS: ? NAT: Ana#ytic )S&: A,,#icative -0.

Refer to Figure 2-1$. The s#o,e o' the curve between ,oints A and ? is a. "1:! b. "!:1 c. !:1 d. 1:!

ANS: A DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: ;ra,hs > S#o,e )S&: A,,#icative -1. The s#o,e o' a #ine is e<ua# to a. the chan.e in the va#ue o' 4 divided by the chan.e in the va#ue o' y. b. the chan.e in the va#ue o' y divided by the chan.e in the va#ue o' 4. c. the hori+onta# distance divided by the vertica# distance. d. the va#ue o' y divided by the va#ue o' 4.

ANS: ? DIF: 1 EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: ;ra,hs > S#o,e )S&: De'initiona# -3. The s#o,e o' a #ine is e<ua# to a. rise divided by run. b. run divided by rise. c. rise minus run. d. rise ,#us run.

ANS: A DIF: 1 EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: ;ra,hs > S#o,e )S&: De'initiona# -5. 2hich o' the 'o##owin. is not correctE a. The s#o,e o' a #ine wi## be a sma## ,ositive number 'or a 'air#y '#at u,ward"s#o,in. #ine. b. The s#o,e o' a #ine wi## be a #ar.e ,ositive number 'or a stee, u,ward"s#o,in. #ine. c. The s#o,e o' a #ine wi## be a ne.ative number 'or a downward"s#o,in. #ine. d. The s#o,e o' a #ine wi## be in'inite 'or a hori+onta# #ine.

ANS: D DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: ;ra,hs > S#o,e )S&: Inter,retive -6. 2hich o' the 'o##owin. is correctE a. A hori+onta# #ine has an in'inite s#o,e* and a vertica# #ine has a +ero s#o,e. b. A hori+onta# #ine has a s#o,e o' 1* and a vertica# #ine has a s#o,e o' "1. c. A hori+onta# #ine has a +ero s#o,e* and a vertica# #ine has an in'inite s#o,e. d. A hori+onta# #ine has a s#o,e o' "1* and a vertica# #ine has a s#o,e o' 1.

ANS: & DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: ;ra,hs > S#o,e )S&: Inter,retive -7. The s#o,e o' a 'air#y '#at u,ward"s#o,in. #ine wi## be a a. sma## ,ositive number. b. #ar.e ,ositive number. c. sma## ne.ative number. d. #ar.e ne.ative number.

ANS: A DIF: 1 EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: ;ra,hs > S#o,e )S&: De'initiona#

&ha,ter !:Thin/in. $i/e An Economist 08. The s#o,e o' a stee, u,ward"s#o,in. #ine wi## be a a. sma## ,ositive number. b. #ar.e ,ositive number. c. sma## ne.ative number. d. #ar.e ne.ative number.

1!-

ANS: ? DIF: 1 EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: ;ra,hs > S#o,e )S&: De'initiona# 01. The s#o,e o' a #ine that ,asses throu.h the ,oints B18* 11C and B!8* 5C is a. "1:0. b. "0:1. c. 0:1. d. 1:0.

ANS: ? DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: ;ra,hs > S#o,e )S&: A,,#icative 0!. The s#o,e o' a #ine that ,asses throu.h the ,oints B11* 18C and B5* -8C is a. "1:!. b. "!:1. c. !:1. d. 1:!.

ANS: A DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: ;ra,hs > S#o,e )S&: A,,#icative 0-. A re#ative#y stee, demand curve indicates that a. <uantity demanded wi## adjust on#y s#i.ht#y to a ,rice chan.e. b. <uantity demanded wi## adjust si.ni'icant#y to a ,rice chan.e. c. <uantity demanded wi## not adjust to a ,rice chan.e. d. the chan.e in <uantity demanded wi## e4act#y e<ua# a chan.e in ,rice.

ANS: A DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: ;ra,hs > S#o,e )S&: A,,#icative 00. A re#ative#y '#at demand curve indicates that a. <uantity demanded wi## adjust on#y s#i.ht#y to a ,rice chan.e. b. <uantity demanded wi## adjust si.ni'icant#y to a ,rice chan.e. c. <uantity demanded wi## not adjust to a ,rice chan.e. d. the chan.e in <uantity demanded wi## e4act#y e<ua# a chan.e in ,rice.

ANS: ? DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: ;ra,hs > S#o,e )S&: A,,#icative 01. Su,,ose that someone ma/es the ar.ument that because em,ty a#coho# containers are 'ound at many accidents* the containers cause accidents. This wou#d be an e4am,#e o' a. sound #o.ic. b. reverse causa#ity. c. omitted variab#es. d. bias.

ANS: & DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: %mitted variab#e )S&: A,,#icative

1!0
03.

&ha,ter !:Thin/in. $i/e An Economist ?i## has noticed that increases in unem,#oyment insurance c#aims are associated with recessions* and there'ore he advocates #imits on unem,#oyment insurance so as to ,revent recessions. )artha has noticed that most dru. addicts once attended schoo#s* and there'ore she advocates .ettin. rid o' schoo#s so as to ,revent dru. addiction. a. The reasonin. o' both ?i## and )artha su''ers 'rom the omitted variab#e ,rob#em. b. The reasonin. o' both ?i## and )artha su''ers 'rom the reverse causa#ity ,rob#em. c. ?i##Hs reasonin. su''ers 'rom the reverse causa#ity ,rob#em* and )arthaHs reasonin. su''ers 'rom the omitted variab#e ,rob#em. d. )arthaHs reasonin. su''ers 'rom the reverse causa#ity ,rob#em* and ?i##Hs reasonin. su''ers 'rom the omitted variab#e ,rob#em.

ANS: A DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: %mitted variab#e )S&: A,,#icative 05. In the ear#y 17th century* the ussian .overnment sent doctors to southern ussian vi##a.es to ,rovide assistance durin. a cho#era e,idemic. The vi##a.ers noticed that wherever doctors a,,eared* ,eo,#e died. There'ore* many doctors were chased away 'rom vi##a.es* and some were even /i##ed. This reaction to the corre#ation between doctors and deaths is most #i/e#y a ,rob#em o' a. omitted variab#es. b. reverse causa#ity. c. .overnment ,ro,a.anda. d. medica# incom,etence.

ANS: ? DIF: ! EF: !"1 NAT: Ana#ytic $%&: The study o' economics and de'initions o' economics T%(: everse causa#ity )S&: A,,#icative

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