...CHAPTER 1—WHAT IS ECONOMICS? MULTIPLE CHOICE 1. The basic problem of economics arises when there are unlimited resources available to fulfill society's limited wants. a.|True| b.|False| ANS: B PTS: 1 NAT: Financial theories, analysis, reporting, and markets LOC: Scarcity, tradeoffs, and opportunity cost TOP: Economics | Scarcity and Choice 2. Economics is the study of choice under conditions of a.|demand| b.|supply| c.|scarcity| d.|opportunity| e.|abundance| ANS: C PTS: 1 DIF: 1 NAT: Financial theories, analysis, reporting, and markets LOC: Scarcity, tradeoffs, and opportunity cost TOP: Economics | Scarcity and Choice 3. The study of economics would be superfluous if _____ did not exist. a.|demand| b.|capital| c.|corporations| d.|profit| e.|scarcity| ANS: E PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Scarcity, tradeoffs, and opportunity cost TOP: Economics | Scarcity and Choice 4. Which of the following disciplines is not a social science? a.|psychology| b.|mathematics| c.|economics| d.|political science| e.|sociology| ANS: B PTS: 1 DIF: 1 NAT: Financial theories, analysis, reporting, and markets LOC: The study of economics, and definitions of economics TOP: Economics | Scarcity and Choice 5. What does economics have in common with sociology? a.|Economics and sociology ask fundamentally the same questions.| b.|Economics and sociology use the same tools to analyze...
Words: 12936 - Pages: 52
...------------------------------------------------- Chapter 1—Introducing the Economic Way of Thinking MULTIPLE CHOICE 1. When economists say scarcity, they mean: a. | there are only a limited number of consumers who would be interested in purchasing goods. | b. | the human desire for goods exceeds the available supply of time, goods and resources. | c. | most people in poorer countries do not have enough goods. | d. | goods are so expensive that only the rich can afford it. | ANS: B PTS: 1 DIF: Easy REF: Full: 3 | Mic: 3 TOP: Scarcity TYP: RE 2. When economists say goods are scarce, they mean: a. | consumers are too poor to afford the goods and services available. | b. | consumers are unwilling to buy goods unless they have very low prices. | c. | goods are generally freely available from nature in most countries. | d. | the desire for goods and services exceeds our ability to produce them with the limited resources available. | ANS: D PTS: 1 DIF: Medium REF: Full: 3 | Mic: 3 TOP: Scarcity TYP: SA 3. Scarcity is a problem: a. | measured by the amount of goods available. | b. | of the poor, but not the rich. | c. | because human wants are unlimited while resources are limited. | d. | only in industrialized economies. | ANS: C PTS: 1 DIF: Easy REF: Full: 3 | Mic: 3 TOP: Scarcity TYP: RE 4. Scarcity can be eliminated if: a. | people satisfy needs rather than wants. | ...
Words: 9136 - Pages: 37
...Positive and Normative Analysis Positive analysis uses what is occurring in an economy as a basis for any statements regarding the future. A positive economic statement is based on fact and can have its accuracy tested. In contrast, a normative economic statement is subjective and cannot be proven or disproven. The statement “Minimum wages create unemployment among young and unskilled workers.” is a normative analysis. This theory could not be tested because every individual would have a different opinion regarding reasons for unemployment within the groups being discussed. Also, testing data from two different groups to see if their reasons for unemployment are the same would be extremely difficult to conclude with accuracy. “If the price of a product in a market decreases, with other things being equal, the quantity demanded will increase.” is an example of positive analysis. This theory could be tested using any product on the market and its accuracy would be proven or disproven easily. If you sold “Acme” hand soap at a discount of $0.50 a bottle, and all other hand soaps remained the same price, it would be reasonable to assume that “Acme” hand soap would sell more frequently. Another example of normative economics is “A little bit of inflation is worse for society than a little bit of unemployment.” because opinions would be varied on this topic. Personal beliefs would keep all people from agreeing on which is actually worse for society as a whole. Differences in social...
Words: 460 - Pages: 2
...Chapter 1 Exam – The Nature of Economics Multiple Choice. Choose the one alternative that best completes the statement or answers the question. 1) Economics is best defined as A) the study of how people make choices to satisfy their wants. B) the study of individual self—interests. C) the study of how government can most efficiently raise funds by taxation. D) the process by which goods are sold in free markets. 2) Microeconomics is defined as that part of economic analysis which A) studies the behavior of the economy as a whole. B) includes the problems of inflation and unemployment. C) studies the individual decision making by households and firms. D) concerns international finance and exchange rates. 3) In his book “An Inquiry into the Nature and Causes of the Wealth of Nations,” economist Adam Smith argued that individuals A) tend to act in an altruistic manner. B) always consider the impact of their actions on the welfare of others. C) are motivated by self—interest. D) are generally not concerned with economic questions. 4) When studying individuals’ economic behavior, economists assume that A) individuals understand the rationale for all their actions. B) individuals act as if they were rational. C) only educated people act as if they were rational. D) self—interest is of limited relevance in predicting an individual’s actions. 5) Holding all variables but one constant and assessing the impact of the one variable which has changed...
Words: 2402 - Pages: 10
...CHAPTER 1—WHAT IS ECONOMICS? MULTIPLE CHOICE 1. The basic problem of economics arises when there are unlimited resources available to fulfill society's limited wants. a.|True| b.|False| ANS: B PTS: 1 DIF: Difficulty: Easy NAT: BUSPROG: Analytic STA: DISC: Scarcity, tradeoffs, and opportunity cost TOP: Scarcity and Individual Choice KEY: Bloom's: Knowledge 2. Economics is the study of choice under conditions of a.|demand| b.|supply| c.|scarcity| d.|opportunity| e.|abundance| ANS: C PTS: 1 DIF: Difficulty: Easy NAT: BUSPROG: Analytic STA: DISC: Scarcity, tradeoffs, and opportunity cost TOP: Scarcity and Individual Choice KEY: Bloom's: Comprehension 3. The study of economics would be superfluous if __________ did not exist. a.|demand| b.|capital| c.|corporations| d.|profit| e.|scarcity| ANS: E PTS: 1 DIF: Difficulty: Moderate NAT: BUSPROG: Analytic STA: DISC: Scarcity, tradeoffs, and opportunity cost TOP: Scarcity and Individual Choice KEY: Bloom's: Comprehension 4. Which of the following disciplines is not a social science? a.|psychology| b.|mathematics| c.|economics| d.|political science| e.|sociology| ANS: B PTS: 1 DIF: Difficulty: Moderate NAT: BUSPROG: Analytic STA: DISC: The Study of economics, and definitions in economics TOP: Scarcity and Individual Choice KEY: Bloom's: Comprehension 5. What does economics have in common with sociology? a.|Economics and sociology ask fundamentally the same questions...
Words: 13032 - Pages: 53
...example of a well-established law for which no really satisfying theory is available. We can use the Law of Gravity, and even correct it for the effects of relativity (General Relativity), but we don't have any consensus notion of how it functions. 1b. WHY IS THE LAW OF DEMAND AND SUPPLY CALLED LAW? The common sense principle or law that defines the generally observed relationship between demand, supply, and prices: as demand increases the price goes up, which attracts new suppliers who increase the supply bringing the price back to normal. In microeconomics, supply and demand is an economic principle of price determination in a market. It concludes that in a competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers (at current price) will equal the quantity supplied by producers (at current price), resulting in an economic...
Words: 3729 - Pages: 15
...Exercise 1 Solution Chapter 1 Economics: Foundations and Models 1.1 Three Key Economic Ideas 1) Which of the following statements is true about scarcity? A) Scarcity refers to the situation in which unlimited wants exceed limited resources. B) Scarcity is not a problem for the wealthy. C) Scarcity is only a problem when a country has too large a population. D) Scarcity arises when there is a wide disparity in income distribution. Answer: A Comment: Recurring Diff: 1 Page Ref: 4/4 Topic: Scarcity Objective: LO1: Explain these three key economic ideas: People are rational. People respond to incentives. Optimal decisions are made at the margin. AACSB: Reflective Thinking Special Feature: None 2) By definition, economics is the study of A) how to make money in the stock market. B) how to make money in a market economy. C) the choices people make to attain their goals, given their scarce resources. D) supply and demand. Answer: C Comment: Recurring Diff: 1 Page Ref: 4/4 Topic: Scarcity Objective: LO1: Explain these three key economic ideas: People are rational. People respond to incentives. Optimal decisions are made at the margin. Special Feature: None 3) Where do economic agents such as individuals, firms and nations, interact with each other? A) in public locations monitored by the government B) in any arena that brings together buyers and sellers C) in any...
Words: 1579 - Pages: 7
...ics Economics as a Science and its relevance to Law Economics is the branch of knowledge concerned with the production, consumption, and transfer of wealth. It is the condition of a region or group as regards material prosperity. It is the social science that analyzes the production, distribution, and consumption of goods and services. Now the Question is whether Economics is a science or not? Economics is a science that treats of those social phenomena that are due to wealth getting and wealth using activities of Man. The word ―Economics‖ is derived from the Greeks word ―Oikonomos‖ which means to manage the house. So it means the management of a household especially in those matters, which are relating to the income and expenses of the family. After sometime, political economy term was also used for this topic and slowly political economy adopted the shape of Economics. There are numerous definitions of Economics offered from time to time but there is no clear and concise definition. Keeping in view this situation J.M. Keynes has rightly, stated ―Political Economy is said to have strangled itself with definition.‖ However, Economics is considered to be a science as well as an art. Some of its features like, self corrective nature, systematic body of knowledge, own laws and theories, universal validity of its laws (law of demand, marginal utility, law of diminishing returns etc) support economics to be a science, but its other features like lack of predictability and lack of...
Words: 2838 - Pages: 12
...economy based on self-interest, they are looking out for themselves, but they also are looking at how those decisions may affect the customer. These are the type of people you can trust and want to invest time and money into. If someone is making decisions out of selfishness, they are really looking out for themselves only. This kind of decision making cannot be trusted, since they only look out for themselves and would have no problem backing out of a situation and leaving the customer. 2. Does your textbook present only positive economics and avoid any normative economics? If not, give some examples of normative issues covered in your textbook. Positive economics is objective and fact based, and normative economics is subjective and value based. There is no way that our textbook can be just positive economics. It even states it in Roger Miller’s comment: “…the very choice of which topics to include in an introductory textbook involves normative economics. There is not a value-free, or objective, way to decide which topics to use in a textbook” This statement alone confirms the fact that...
Words: 528 - Pages: 3
...micro-economics and macro-economics is that micro-economics is concerned with the individual, group or company level; whereas macro-economics is concerned with the study of economics on a national as well as holistic scale. Therefore micro-economics specifically focusses on issues that affect individuals and associated company/enterprise 2. What is the ceteris paribus assumption? Why is it used in economics? Ceteris paribus is It is often safe to assume that “Ceteris Paribus” concerns itself with the notion that all other variables, except those under immediate consideration are ‘held at a constant’ A Latin phrase meaning “all other things remaining constant” In economics, this phrase is used and referred because in the real world – it is difficult to isolate all the different variables that may influence or change the outcome of what one is researching and how an individual makes a decision as a result. In economics, this phrase is used to rule out the possibility of other factors changing, which may as a result have impact on the overall outcome of individuals 3. What is the difference between positive and normative statements in economics? Provide an example of each Positive Economics is based on “objectives” and “facts” whereas Normative Economics is “subjective” and “value” based. It is considered that Positive Economics does not necessarily have to be a correct statement, but must be able to be tested and proved/disproved, whereas Normative Economic statements...
Words: 611 - Pages: 3
...available production technology Microeconomics- the study of how households and firms make decisions and how they interact in markets Macroeconomics- the study of economy-wide phenomena, including inflation, unemployment, and economic growth Positive Statements- claims that attempt to describe the world as it is Normative Statements- claims that attempt to prescribe how the world should be The Economist As Scientist Economists view subject with objectivity devise theories, collect data, analyze data use scientific method The Scientific Method: Observation, Theory, And More Observation interplay between theory and observation experiments difficult in economics: have to look to history allows us to examine present and predict future The Role Of Assumptions economists make assumptions to make the world easier to understand two countries, two goods applying correct assumption to right data different assumptions for short0run and long-run effects of a change in the quantity of money Economic Models models not often real but are accurate and helpful economists use diagrams and equations omit details to show what’s truly important models are built with assumptions Our First Model: The Circular-Flow Diagram simplifies our thinking about economic activities explains generally how economy is organized and how participants interact two types of decision makers (households and firms) inputs=factors of production markets for goods and services vs markets for factors...
Words: 642 - Pages: 3
...Economic Principles ECN220 Economic Principles Truly, the mind has been studied for many years, and is an amazing organ. Specifically, the study of economics and what causes people to make the decisions they do. “The National Science Foundation (NSF)-funded scientist is looking directly at brain activity to see whether, and how, certain portions of the brain correlate with the values people express, and the choices they later make,” (Cimons, 2014). What is economics? Economics is a study of people’s decisions, how they come to make those decisions and why. The decisions can be for the family, personal, or business. Indeed scarcity plays an important role in the decisions that people make, and unfortunately is a way of life. Everyone has their own view of what type of scarcity that causes them to make their decisions, as it can be the amount of time, money constraints, or labor issues. How do Economists use theories and models to understand important economic issues? Economists use theories and models as a tool, or a way to determine an answer. “John Maynard Keynes (1883–1946), one of the greatest economists of the twentieth century, pointed out that economics is not just a subject area but also a way of thinking,” (Principles of Economics, 2014). Identify each of the following topics as being part of microeconomics or macroeconomics: a. the impact of a change in consumer income on the purchase of luxury automobiles Microeconomics b. the effect of...
Words: 430 - Pages: 2
...1 Introduction: What Is Economics? Chapter Summary Economics is about making choices when options are limited. Options in an economy are limited because the factors of production are limited. We can use economic analysis to understand the consequences of our choices as individuals, organizations, and society as a whole. Here are the main points of the chapter: • Most of modern economics is based on positive analysis, which answers the question “What is?” or “What will be?” Economists contribute to policy debates by conducting positive analyses about the consequences of alternative actions. • Normative analysis answers the question “What ought to be?” • The choices made by individuals, firms, and governments answer three questions: What products do we produce? How do we produce the products? Who consumes the products? • To think like economists, we (a) use assumptions to simplify, (b) use the notion of ceteris paribus to focus on the relationship between two variables, (c) think in marginal terms, and (d) assume that rational people respond to incentives. • We use macroeconomics to understand why economies grow, to understand economic fluctuations, and to make informed business decisions. • We use microeconomics to understand how markets work, to make personal and managerial decisions, and to evaluate the merits of public policies. Learning Objectives 1. 2. 3. 4. 5. List the three key economic questions. Discuss the insights from economics for a real-world problem such as...
Words: 5328 - Pages: 22
...Principles of Economics Economy. . . . . . The word economy comes from a Greek word-Oekonomous- for “one who manages a household.” Any similarity between household and economics? Copyright © 2004 South-Western/Thomson Learning TEN PRINCIPLES OF ECONOMICS • A household and an economy face many decisions: • Who will work? • What goods and how many of them should be produced? • What resources should be used in production? • At what price should the goods be sold? Copyright © 2004 South-Western/Thomson Learning TEN PRINCIPLES OF ECONOMICS Society and Scarce Resources: • The management of society’s resources is important because resources are scarce. • Scarcity. . . means that society has limited resources and therefore cannot produce all the goods and services people wish to have. Copyright © 2004 South-Western/Thomson Learning TEN PRINCIPLES OF ECONOMICS Economics is the study of how society manages its scarce resources. Copyright © 2004 South-Western/Thomson Learning TEN PRINCIPLES OF ECONOMICS • How people make decisions. • • • • People face tradeoffs. The cost of something is what you give up to get it. Rational people think at the margin. People respond to incentives. Copyright © 2004 South-Western/Thomson Learning TEN PRINCIPLES OF ECONOMICS • How people interact with each other. • Trade can make everyone better off. • Markets are usually a good way to organize economic activity. • Governments can sometimes improve economic outcomes...
Words: 2845 - Pages: 12
...on home-country welfare? Who gains, who loses, and by how much? Illustrate your answer on your diagram. d. Which is a better way to restrict free trade—quotas or tariffs? Is the welfare loss under this quota system larger or smaller than the loss under a tariff with identical effects on import volume? Explain your answer. Answer: a. The supply curve shifts out, horizontally, by the amount of the quota, to Sdomestic + quota. This has no impact on price, compared to the tariff. The price remains[pic]with the quota. [pic] b. We know foreign firms' average costs of production are p*, so, if the licenses are free, foreign firms make a positive economic profit equal to [pic] per unit. Therefore, foreign firms will bid the price of a license up to [pic] and still earn a normal economic profit on all of their exports. c. Consumers lose the entire shaded area,...
Words: 2769 - Pages: 12