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Identify the letter of the choice that best completes the statement or answers the question.
______ 9. Consider the statement: Taxes on people with incomes above 100,000 should be
increased and the revenue used to help university students. The statement is
a. positive in nature.
b. normative in nature.
c. empirical in nature.
d. a claim that there are no tradeoffs between equity and efficiency.
______ 10. The production possibilities frontier demonstrates the basic economic principle that:
a. economies are always efficient.
b. assuming full employment, supply will always determine demand.
c. assuming full employment, an economy is efficient only when the production of capital
goods in a particular year is greater than the production of consumption goods in that year.
d. assuming full employment, to produce more of any one thing, the economy must produce
less of at least one other good.
______ 11. Which of the following activities would occur in a market for factors of production?
a. Reesa buys a new computer to chat online.
b. Randy pays a speeding ticket.
c. Ian mows his grass.
d. Nissan hires additional workers to run a third shift at the factory in Sunderland.
______ 13. Which of the following is NOT true about most economic models?
a. They are built using the tools of mathematics.
b. They are useful to economists, but not to policymakers.
c. They do not include every feature of the economy.
d. They are built using assumptions.
______ 15. According to a simple circular-flow diagram, households and firms interact in
a. only one type of market.
b. two types of markets.
c. three types of markets.
d. Households and firms do not interact.
______ 17. When economists are speaking as policy advisors, they are more likely to use
a. normative statements.
b. positive statements.
c. objective statements.
d. All of the above are correct.
______ 19. Suppose an economy produces two goods, food and machines. This economy always
operates on its production possibilities frontier. Last year, it produced 50 units of food and 30
machines. This year it experienced a technological advance in its machine-making industry.
As a result, this year the society wants to produce 55 units of food and 30 machines. Which of
the following statements is true?
a. Because the technological advance occurred in the machine-making industry, it will not
be possible to increase food production without reducing machine production below 30.
b. Because the technological advance occurred in the machine-making industry, increases in
output can only occur in the machine industry.
c. In order to increase food production in these circumstances without reducing machine
production, the economy must reduce inefficiencies.
d. The technological advance reduced the amount of resources needed to produce 30
machines. These resources could be used to produce more food.
______ 20. The country of Econland produces two goods, textbooks and widgets. Last year it
produced 200 textbooks and 500 widgets. This year it produced 250 textbooks and 600
widgets. Given no other information, which of the following could NOT explain the change?
a. Econland experienced a reduction in unemployment.
b. Econland experienced an improvement in widget-making technology.
c. Econland experienced an improvement in textbook-making technology.
d. Econland eliminated trade barriers.
Name: _________________Class:________Date: __________ ID: _________
True/False
____ 21. With careful planning, we can usually get something that we like without having to give up
something else that we like.
____ 22. Equity refers to how the pie is divided, and efficiency refers to the size of the economic pie.
____ 23. A rational decision-maker takes an action if and only if the marginal cost exceeds the
marginal benefit.
____ 24. The relationship between inflation and economic growth is a microeconomic issue.
____ 25. An economic model can accurately explain how the economy is organized because it is
designed to include every feature of the real world.
____ 27. In a simple circular-flow diagram, firms own the factors of production and use them to
produce goods and services.
____ 28. If A and B are two points on a production possibilities frontier, then A must lie to the
north-east of B.
____ 29. When economists are trying to explain the world they are acting as scientists, and when
they are trying to improve it, they are policymakers.
Short Answer
31. Define opportunity cost. What is the opportunity cost to you of attending college? What was your
opportunity cost of coming to class today?
32. Under what conditions might government intervention in an economy improve the market
outcome?
33. Draw a circular-flow diagram representing the interactions between households and firms in a
simple economy. Explain briefly the various parts of the diagram.