Survey of Economics: Principles, Applications and Tools Eighth Edition Arthur O’Sullivan Steven M. Sheffrin Stephen J. Perez Test Bank for Survey of Economics: Principles, Applications and Tools Brian Rosario 1 Survey of Economics: Principles, Applications, and Tools, 8e (O'Sullivan/Sheffrin/Perez) Chapter 1 Introduction: What Is Economics? 1.1 What Is Economics? 1) Economics is best defined as the study of: A) financial decision - making. B) how consumers ma ke purchasing decisions. C) the choices made by people faced with scarcity. D) inflation, unemployment, and economic growth. Answer: C Diff: 1 Topic: What Is Economics? Skill: Definition AACSB: Reflective Thinking Learning Outcome: Mic ro - 1: Identify t he basic principles of economics and explain how to think like an economist 2) Economics is the study of: A) how to invest in the stock market. B) how society uses limited resources. C) the role of money in markets. D) how government offic ials decide whic h goods and services are produced. Answer: B Diff: 1 Topic: What Is Economics? Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro - 1: Identify the basic principles of economics and explain how to think like an economis t 3) Scarcity c an best be defined as a situation in which: A) there are no buyers willing to purchase what sellers have produced. B) there are not enough goods to satisfy all of the buyers' demand. C) the resources we use to produce goods and services are limited. D) the re is more than enough money to satisfy consumers' wants. Answer: C Diff: 1 Topic: What Is Economics? Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro - 1: Identify the basic principles of economics and explain how to think like an e conomist 2 4) An arrangement that allows buyers and sellers to exchange things is called: A) a contract. B) a market. C) money. D) efficient. Answer: B Diff: 1 Topic: What Is Economics? Skill: Definition AACSB: Reflective Thinking Learning Outcome: Mi cro - 1: Identify the basic principles of economics and explain how to think like an economist 5) Because resources are limited: A) only the very wealthy can get everything they want. B) firms will be forced out of business. C) the availability of goods wil l be limited but the availability of services will not. D) people must make choices. Answer: D Diff: 1 Topic: What Is Economics? Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro - 1: I dentify the basic principles of economics and exp lain how to think like an economist 6) A trade - off refers to: A) allowing the government and other organizations to choose for us. B) sacrificing one thing for another. C) deciding who consumes the products produced in an economy. D) holding other variabl es fixed. Answer: B Diff: 1 Topic: What Is Economics? Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro - 1: Identify the basic principles of economics and explain how to think like an economist 3 7) Resources are all of the following EXCEPT: A) unlimited and in abundance. B) the things we use to produce goods and services. C) limited in quantit y and can be used in different ways. D) scarce and therefore require choices to be made. Answer: A Diff: 1 Topic: What Is Economics? Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro - 1: Identify the basic principles of economics and explain how to think like an economist 8) The knowledge and skills acquired by a worker through education and experience is a description of which factor of production? A) physical capital B) human capital C) labor D) entrepreneurship Answer: B Diff: 1 Topic: What Is Economics? Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro - 1: Identify the basic principles of economic s and explain how to think like an economist 9) The physical and mental effort people use to produce goods and services is a description of which factor of production? A) physical capita l B) human capital C) labor D) entrepreneurship Answer: C Diff: 1 To pic: What Is Economics? Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro - 1: Identify the basic principles of economics and explain how to think like an economist 4 10) The effort used to coordinate the factors of production is a des cription of: A) physical capital. B) human capital. C) labor. D) entrepreneurship. Answer: D Diff: 1 Topic: What Is Economics? Skill: Definition AACSB: Reflective Thinking Learning Out come: Micro - 1: Identify the basic principles of economics and expla in how to think like an economist 11) All of the following are considered natural resources EXCEPT: A) a coral reef. B) gold. C) labor. D) a redwood forest. Answer: C Diff: 1 Top ic: What Is Economics? Skill: Conceptual AACSB: Reflective Thinking Learn ing Outcome: Micro - 1: Identify the basic principles of economics and explain how to think like an economist 12) Normative economics: A) is the focus of most modern economic reaso ning. B) answers the question "What ought to be?" C) predicts the consequenc es of alternative actions. D) answers the question "What is?" Answer: B Diff: 1 Topic: Positive versus Normative Analysis Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro - 1: Identify the basic principles of economics and explain ho w to think like an economist 5 13) Which of the following is an example of a normative question? A) How will an increase in the inheritance tax affect tax revenues? B) What fraction of an income tax cut will be spent on imported goods? C) Should Florida im plement a state income tax to reduce its deficit? D) How will an increase in unemployment benefits affect the unemployment rate? Answer: C Diff: 1 Topic: Positive versus Normative Analysis Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro - 1: Identify the basic principles of economics and explain how to think like an economist 14) Which of the following is a question answered w ith positive economic analysis? A) Should the college reduce tuition for out - of - state residents? B) Should t he college charge higher tuition for part - time students? C) If the college increased its eligibility requirements for enrollment, will class sizes d ecline? D) Should the college eliminate its athletic program to cut its costs? Answer: C Diff: 2 Topic: Po sitive versus Normative Analysis Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro - 1: Identify the basic principles of economi cs and explain how to think like an economist 15) Which of the following is a question answered with normat ive economic reasoning? A) If the college offers free textbooks for students, will more students read their textbooks? B) If the college provided le ss financial aid for out - of - state students, would more in - state students benefit? C) If the college increase d its enrollment requirements, would class size decline? D) Should the college increase tuition to fund its athletic programs? Answer: D Diff: 2 To pic: Positive versus Normative Analysis Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: M icro - 1: Identify the basic principles of economics and explain how to think like an economist 6 16) The 3 key econ omic questions include all of the following EXCEPT: A) "What products do we produce?" B) "How do we produce these products?" C) "Where should these products be produced?" D) "Who consumes the products?" Answer: C Diff: 1 Topic: The Three Key Economic Que stions: What, How, and Who? Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro - 1: Identify the basic principles of econom ics and explain how to think like an economist 17) Deciding how a society's products are distributed among its ci tizens answers the economic question of: A) "Who consumes the products produced?" B) "What products will be produced?" C) "Where will the prod ucts be consumed?" D) "How will the products be produced?" Answer: A Diff: 1 Topic: The Three Key Economic Quest ions: What, How, and Who? Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro - 1: Identify the basic principles of economic s and explain how to think like an economist 18) Deciding if a company will produce automobiles by robotics or ma nual labor answers the economic question of: A) "Who consumes the products produced?" B) "What products will be produced?" C) "Where will the products be consumed?" D) "How will the products be produced?" Answer: D Diff: 1 Topic: The Three Key Economic Questions: What, How, and Who? Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro - 1: Identify the basic principles of econ omics and explain how to think like an economist 7 19) Deciding if a power company will generate electricity from wind power or coal answers the economic question of: A) "Who consumes the products produced?" B) "What products will be produced?" C) "Where w ill the products be consumed?" D) "How will the products be produced.?" Answer: D Diff: 1 Topic: The Three Key Economic Questions: What, How, and Who? Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro - 1: Identify the basic principle s of economics and explain how to think like an economist 20) An economic model is a: A) realistic version of an economic environment. B) detailed version of an economic issue. C) fictional representation of an entire economy. D) simplified representation of an economic environment. Answer: D Diff: 1 Topic: Economic Models Skill: Def inition AACSB: Reflective Thinking Learning Outcome: Micro - 1: Identify the basic principles of economics and explain how to think like an economist 21) Economic models ar e used to: A) explain every detail of an economic theory. B) explore decision making by individuals, firms and other organizations. C) build physical renditions of government construction projects. D) represent the complexities of economic environments. An swer: B Di ff: 1 Topic: Economic Models Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro - 1: Identify the basic principles of economics and explain how to think like an economist 8 22) Talking about alternatives is the first step in a process th at helps us make better choices about how we use our resources. Answer: TRUE Diff: 1 Topic: What Is Economics? Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro - 1: Identify the basic principles of economics and explain h ow to think like an economist 23) In the past few centuries, choices have led to a substantial decline in the standards of living around the globe. Answer: FALSE Diff: 1 Topic: What Is Economics? Skill: Fact AACSB: Reflective Thinking Learning Outcome : Micro - 1: Identify the basic principles of economics and explain how to think like an economist 24) Scarcity is a situation in which resources are unlimited in quantity and can be used in different ways. Answer: FALSE Diff: 1 Topic: What Is Economics? Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro - 1: Identify the basic principles of economics and explain how to think like an economist 25) Positive economics answers the question, "What ought to be?" No rmative economics predicts the consequences of alternative actions, answering the questions, "What is ?" or "What will be ?" Answer: FALSE Diff: 1 Topic: Positive versus Normative Analysis Skill: Definition AACSB: Reflective Thinking Learning Outcome: M icro - 1: Identify the basic principles of economics and explain how to think like an economist 9 26) Normative economics answers the question, "What ought to be?" Positive economics predicts the consequences of alternative actions, answering the questions, " What is ?" or "What will b e ?" Answer: TRUE Diff: 1 Topic: Positive versus Normative Analysis Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro - 1: Identify the basic principles of economics and explain how to think like an economist 27) Most modern economic analysis is normative in nature, but involves questions with positive aspects. Answer: FALSE Diff: 1 Topic: Positive versus Normative Analysi s Skill: Fact AACSB: Reflective Thinking Learning Outcome: Micro - 1: Identify the basic principles of economics and explain how to think like an economist 28) Economists will always reach the same conclusion in their positive analyses. Answer: FALSE Diff: 1 Topic: Positive versus Normative Ana lysis Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro - 1: Identify the basic principles of economics and explain how to think like an economist 29) One of the key economic questions is, "Where should products be produced?" Answer: FALSE Diff: 1 Topic: The Three Key Economic Questions: What, How, and Who? Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro - 1: Identify the basic principles of economics and explain how to think like an economist 30) One of the key economic questions is, "Who consumes the products?" Answer: TRUE Dif f: 1 Topic: The Three Key Economic Questions: What, How, and Who? Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro - 1: Identify the basic principles of economics a nd explain how to think like an economist 10 31) An economic model is a d etailed version of an economic environment. Answer: FALSE Diff: 1 Topic: The Three Key Economic Questions: What, How, and Who? Skill: Definition AACSB: Reflective Thinking Learning Outcome: Micro - 1: Identify the basic principles of economics and expla in how to think like an economist 32) Economic models explore decision making by individuals, firms and other organizations. Answer: TRUE Diff: 1 Topic: The Three Key Econom ic Questions: What, How, and Who? Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro - 1: Identify the basic principles of economics and explain how to think like an economist 33) Would an economist consider clean air a scarce resource? Explain. Answer: Yes, because the air has alternative uses. We can choose to u se it to either breathe or to undertake activities that pollute it. The more we want to breathe clean air the more we must limit the production of pollutants. The more we pollu te the air the less we can breathe clean air. Diff: 2 Topic: What Is Economics? Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro - 1: Identify the basic principles of economics and explain how to think like an economist 34) List and briefly describe the five factors of production. Answer: Natural resources — thos e resources provided by nature. Labor — the physical and mental effort used by people to produce goods and services. Physical capital — the infrastructure, equipment, machines and structures used to produce goods and services. Human capital — the knowledge and s kills obtained by workers through education and experience. Entrepreneurship — the organizing and coordination of the other four factors of production needed to produce and sell products. Diff: 2 Topic: What Is Economics? Skill: Conceptual AACSB: Reflecti ve Thinking Learning Outcome: Micro - 1: Identify the basic principles of economics and explain how to think like an economist 11 35) Give an example of something that is scarce in your life and explain the choices you've made because of scarcity. Answer: R esponses are numerous and will vary by students. Diff: 1 Topic: What Is Economics? Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro - 1: Identify the basic principles of economics and explain how to think like an economist 36) Positi ve economic a nalysis answers what question? Answer: Positive economic analysis answers the question "what is?" or "what will be?" Diff: 1 Topic: Positive versus Normative Analysis Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro - 1: Identify the basic principles of economics and explain how to think like an economist 37) Normative economic analysis answers what question? Answer: Normative economic analysis answers the question "what ought to be?" Diff: 1 Topic: Positive versus Nor mative Analys is Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro - 1: Identify the basic principles of economics and explain how to think like an economist 38) Richard runs a pizza delivery restaurant. List the three basic types of de cisions studi ed in economics and give an example from Richard's restaurant. Answer: How to produce? With what resources will the pizzas be produced? What to produce? What sorts of pizza do people order? Who consumes the products? Which people decided to c ome to the re staurant on a given day? Diff: 2 Topic: The Three Key Economic Questions: What, How, and Who? Skill: Analytical AACSB: Analytical Thinking Learning Outcome: Micro - 1: Identify the basic principles of economics and explain how to think like an economist 12 1.2 Economic Analysis and Modern Problems 1) According to the Texas Transportation Institute, the typical U.S. commuter wastes approximate ly how much time per year due to traffic congestion? A) 47 hours B) 22 hours C) 42 hours D) 96 hours Answer: C Diff: 1 Topic: Economic View of Traffic Congestion Skill: Fact AACSB: Reflective Thinking Learning Outcome: Micro - 1: Identify the basic prin ciples of economics and explain how to think like an economist 2) In the U.S., which of the followi ng government programs assist workers find jobs when they lose their jobs due to trade? A) Trade Adjustment Assistance program B) Social Security C) workers ' compensation D) Obamacare Answer: A Diff: 1 Topic: Trade - offs from International Trade Skill: F act AACSB: Analytical Thinking Learning Outcome: Micro - 5: List ways in which governments intervene in markets and explain the consequences of such intervention 3) When Canada buys lemons from Mexico instead of growing lemons in heated greenhouses: A) Ca nadian consumers will gain because lemon prices will drop. B) Canadian lemon producers will gain because lemon prices will drop. C) Canadian consumers will gain because lemon prices will rise. D) Mexican lemon producers will lose because lemon prices in Ca nada will rise. Answer: A Diff: 1 Topic: Trade - offs from International Trade Skill: Conc eptual AACSB: Reflective Thinking Learning Outcome: Micro - 3: Discuss different types of market systems and the gains that can be made from trade 13 4) When countrie s trade with each other, does it result in a gain for everybody? A) No. Producers of a good that is imported would be hurt. B) No. Consumers of a good that is imported would be hurt. C) No. Producers of a good that is exported would be hurt. D) Yes. All pr oducers and consumers from both exporting and importing countries will gain. Answer: A Diff : 1 Topic: Trade - offs from International Trade Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro - 3: Discuss different types of market systems and the gains that can be made from trade 5) The financial crisis and recession which bega n in 2007: A) impacted only high - income countries. B) did not impact the United States. C) impacted many countries in the world. D) impacted only low - income countri es. Answer: C Diff: 1 Topic: Economic View of the Man aging the U.S. Economy Skill: Fact AACSB: Reflective Thinking Learning Outcome: Macro - 1: Define macroeconomics and identify its basic concerns 6) To combat the financial crisis and recession which began in 2007, governments worldwide made it: A) easie r for firms and households to borrow money for investment and consumer goods. B) easier for other countries to borrow money for infrastructure projects. C) easier for firms to pay their taxes by provid ing a tax amnesty. D) easier for workers to purchase he alth insurance through their employers. Answer: A Diff: 1 Topic: Economic View of the Managing the U.S. Economy Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Macro - 12: Explain how monetary policy influences interest rates, aggregate d emand, real GDP and inflation 7) Congestion taxes tend to cause an increase in traffic volume during rush hours. Answer: FALSE Diff: 1 Topic: Economic View of Traffic Congestion Skill: Conceptual A ACSB: Reflective Thinking Learning Outcome: Micro - 5: List ways in which governments intervene in markets and explain the consequences of such intervention 14 8) Economic expansion and growth are the only objectives t hat U.S. policymakers consider when they implement tax, spending and financial policies that affect the U.S. economy. Answer: FALSE Diff: 1 Topic: Economic View of the Managing the U.S. Economy Skill: Conceptual AACSB: Reflective Thinking Learning Outc ome: Macro - 1: Define macroeconomics and identify its basic concerns 1.3 The Economic Way of Thinking 1) Who is associated with the following summary of the economic way of thinking: "The theory of economics does not furnish a body of settled conclusio ns immediately acceptable to policy. It i s a method rather than a doctrine, an apparatus of the mind, a technique of thinking which helps its processer draw correct conclusions." A) John Maynard Keynes B) Alfred Marshall C) Adam Smith D) President Harry Tr uman Answer: A Diff: 1 Topic: The Econo mic Way of Thinking Skill: Fact AACSB: Reflective Thinking Learning Outcome: Micro - 1: Identify the basic principles of economics and explain how to think like an economist 2) To make things simpler and focus att ention on what really matters, economists : A) use assumptions. B) ignore all variables. C) think at the margin. D) respond to incentives. Answer: A Diff: 1 Topic: Use Assumptions to Simplify Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro - 1: Identify the basic principles of economics and explain how to think like an economist