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If all economists were laid end to end, they would not reach a conclusion." Who made this whimsical observation?
a. Harry Truman
b. George Bernard Shaw
c. John Maynard Keynes
d. Ronald Reagan
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b
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Economists sometimes give conflicting advice because
a. graduate students in economics are encouraged to argue with each other.
b. economists have different values and scientific judgment.
c. economists acting as scientists do not like to agree with economists acting as policy advisers.
d. economics is more of a belief system than a science.
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b
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Joe and Fred are economists. Joe thinks that the wealthiest 10% of the US population should be taxed a rate higher than the rest of society because they can better afford it. Fred thinks that everyone should be taxed at the same rate because that is the fairest scenario and the wealthy should not be penalized for their success. In this example, Joe and Fred
a. disagree about the validity of a positive theory.
b. have different normative views about tax policy.
c. must both be incorrect because tax policy is never that simple.
d. None of the above is correct.
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b
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Almost all economists agree that rent control
a. has no effect on the rental income of landlords.
b. allows the market for housing to work more efficiently.
c. adversely affects the availability and quality of housing.
d. is a very inexpensive way to help the most needy members of society.
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c
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Policies such as rent control and trade barriers persist
a. because economists are about evenly divided as to the merits of those policies.
b. because almost all economists agree that those policies have no discernible economic effects.
c. because almost all economists agree that those policies are desirable.
d. despite the fact that almost all economists agree that those policies are undesirable.
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d
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When economists are trying to explain the world, they are
a. scientists.
b. policy advisers.
c. in the realm of microeconomics rather than macroeconomics.
d. in the realm of normative economics rather than positive economics.
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a
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Which of the following statements is correct about the roles of economists?
a. Economists are best viewed as policy advisers.
b. Economists are best viewed as scientists.
c. In trying to explain the world, economists are policy advisers; in trying to improve the world, they are scientists.
d. In trying to explain the world, economists are scientists; in trying to improve the world, they are policy advisers.
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d
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For economists, statements about the world are of two types:
a. assumptions and theories.
b. true statements and false statements.
c. specific statements and general statements.
d. positive statements and normative statements.
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d
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Normative statements are
a. not usually made by economists.
b. claims about how the world should be.
c. claims about how variables in the economy normally behave.
d. pessimistic interpretations of the economy.
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b
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Positive statements are
a. prescriptive.
b. claims about how the world should be.
c. claims about how the world is.
d. made by economists speaking as policy advisers.
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c
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When economists make positive statements, they are
a. speaking as scientists.
b. speaking as policy advisers.
c. making claims about how the world should be.
d. revealing that they are very conservative in their views of how the world works.
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a
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When economists make normative statements, they are
a. speaking as scientists.
b. speaking as policy advisers.
c. making claims about how the world is.
d. revealing that they are very liberal in their views of how the world works.
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b
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Normative conclusions
a. come from positive analysis alone.
b. are based on ignorance of positive analysis.
c. involve value judgments.
d. reflect the economist’s role as scientist.
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c
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"Prices rise when the quantity of money rises rapidly" is an example of a
a. negative economic statement.
b. positive economic statement.
c. normative economic statement.
d. statement that contradicts one of the basic principles of economics.
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b
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Which of the following is an example of a normative, as opposed to positive, statement?
a. Gasoline prices ought to be lower than they are now.
b. The federal government should raise taxes on wealthy people.
c. The social security system is a good system and it deserves to be preserved as it is.
d. All of the above are normative statements.
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d
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Which of the following is an example of a normative, as opposed to positive, statement?
a. If the price of a product decreases, people’s willingness to buy that product will increase.
b. Reducing tax rates on the wealthy would benefit the nation.
c. If the national saving rate were to increase, so would the rate of economic growth.
d. The elimination of trade restrictions would increase an economy’s standard of living.
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b
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Which of the following is not an example of a positive, as opposed to normative, statement?
a. Higher gasoline prices will reduce gasoline consumption.
b. Equality is more important than efficiency.
c. Trade restrictions lower our standard of living.
d. If a nation wants to avoid inflation, it will restrict the growth rate of the quantity of money.
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b
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Suppose an economist advises a city’s mayor to begin charging drivers a fee to drive on a busy highway during congested times. The mayor does not implement the policy because it would not be popular with voters. Which of the following statements best describes the scenario?
a. This is a common occurrence. The policymaker knows the best policy but chooses not to institute it for other reasons.
b. This is a common occurrence. The policymaker usually disregards an economist’s advice because they do not believe it is the most efficient policy.
c. This is an unlikely occurrence. Most of the time, policymakers follow the advice of economists and institute the most efficient policies.
d. This would never happen. Policymakers always follow the advice of economists.
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a
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Which of the following is an example of a positive, as opposed to normative, statement?
a. When the minimum wage is increased, unemployment is a predictable consequence.
b. The income tax rate should be increased to offset the budget deficit.
c. Increasing government spending is the best way to help the economy move out of a recession.
d. More than one of the above are positive statements.
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a
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Which of the following is an example of a positive, as opposed to normative, statement?
a. Inflation is more harmful to the economy than unemployment is.
b. If welfare payments increase, the world will be a better place.
c. Prices rise when the government prints too much money.
d. When public policies are evaluated, the benefits to the economy of improved equality should be considered more important than the costs of reduced efficiency.
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c
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The production possibilities frontier is a graph that shows the various combinations of outputs that the economy can possibly produce given the available factors of production and the available production technology.
a. True
b. False
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a
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The trade-off between the production of one good and the production of another good can change over time because of technological advances.
a. True
b. False
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a
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Economic growth causes a production possibilities frontier to shift outward.
a. True
b. False
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a
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Positive statements can be evaluated using data alone, but normative statements cannot.
a. True
b. False
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a
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"Society would be better off if the welfare system were abolished" is a normative statement, not a positive statement.
a. True
b. False
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a
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"Minimum wage laws result in unemployment" is a normative statement, while "the minimum wage should be higher" is a positive statement.
a. True
b. False
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b
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Tom produces baseball gloves and baseball bats. Steve also produces baseball gloves and baseball bats, but Tom is better at producing both goods. In this case, trade could
a. benefit both Steve and Tom.
b. benefit Steve, but not Tom.
c. benefit Tom, but not Steve.
d. benefit neither Steve nor Tom.
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a
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A production possibilities frontier is bowed outward when
a. the more resources the economy uses to produce one good, the fewer resources it has available to produce the other good.
b. an economy is self-sufficient instead of interdependent and engaged in trade.
c. the rate of tradeoff between the two goods being produced is constant.
d. the rate of tradeoff between the two goods being produced depends on how much of each good is being produced.
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d
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A production possibilities frontier is a straight line when
a. the more resources the economy uses to produce one good, the fewer resources it has available to produce the other good.
b. an economy is interdependent and engaged in trade instead of self-sufficient.
c. the rate of tradeoff between the two goods being produced is constant.
d. the rate of tradeoff between the two goods being produced depends on how much of each good is being produced.
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c
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The opportunity cost of an item is
a. the number of hours that one must work in order to buy one unit of the item.
b. what you give up to get that item.
c. always less than the dollar value of the item.
d. always greater than the cost of producing the item.
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b
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What must be given up to obtain an item is called
a. out-of-pocket cost.
b. comparative worth.
c. opportunity cost.
d. absolute value.
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c
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Suppose a gardener produces both tomatoes and squash in his garden. If he must give up 8 bushels of squash to get 5 bushels of tomatoes, then his opportunity cost of 1 bushel of tomatoes is
a. 0.63 bushels of squash.
b. 1.6 bushels of squash.
c. 3 bushels of squash.
d. 5 bushels of squash.
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b
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If Shawn can produce donuts at a lower opportunity cost than Sue, then
a. Shawn has a comparative advantage in the production of donuts.
b. Sue has a comparative advantage in the production of donuts.
c. Shawn should not produce donuts.
d. Shawn is capable of producing more donuts than Sue in a given amount of time.
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a
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For two individuals who engage in the same two productive activities, it is impossible for one of the two individuals to
a. have a comparative advantage in both activities.
b. have an absolute advantage in both activities.
c. be more productive per unit of time in both activities.
d. gain from trade with each other.
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a
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Which of the following statements about comparative advantage is not true?
a. Comparative advantage is determined by which person or group of persons can produce a given quantity of a good using the fewest resources.
b. The principle of comparative advantage applies to countries as well as to individuals.
c. Economists use the principle of comparative advantage to emphasize the potential benefits of free trade.
d. A country may have a comparative advantage in producing a good, even though it lacks an absolute advantage in producing that good.
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a
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Suppose that a worker in Radioland can produce either 4 radios or 1 television per year and a worker in Teeveeland can produce either 2 radios or 5 televisions per year. Each nation has 100 workers, and each country specializes according to the principle of comparative advantage. If Radioland trades 100 televisions to Teeveeland in exchange for 100 radios each year, then each country’s maximum consumption of new radios and televisions per year will be
a. higher than it would be in the absence of trade because of the gains from trade.
b. the same as it would be in the absence of trade.
c. less than it would be in the absence of trade because neither country is specializing in the product in which it has a comparative advantage.
d. less than it would be in the absence of trade because Teeveeland has an absolute advantage in both goods and so it cannot benefit by trading with Radioland.
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c
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Economists generally support
a. trade restrictions.
b. government management of trade.
c. export subsidies.
d. free international trade.
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d
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Which of the following statements is not correct?
a. Trade allows for specialization.
b. Trade has the potential to benefit all nations.
c. Trade allows nations to consume outside of their production possibilities curves.
d. Absolute advantage is the driving force of specialization.
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d
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Assume that Greece has a comparative advantage in fish and Germany has a comparative advantage in cars. Also assume that Germany has an absolute advantage in both fish and cars. If these two countries specialize and trade so as to maximize the benefits of specialization and trade, then
a. the two countries’ combined output of both goods will be higher than it would be in the absence of trade.
b. Greece will produce more fish than it would produce in the absence of trade.
c. Germany will produce more cars than it would produce in the absence of trade.
d. All of the above are correct.
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d
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The gains from trade are
a. evident in economic models, but seldom observed in the real world.
b. evident in the real world, but impossible to capture in economic models.
c. a result of more efficient resource allocation than would be observed in the absence of trade.
d. based on the principle of absolute advantage.
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c
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