Chapter 1Economics: The World Around You

MULTIPLE CHOICE
1. According to the text, over their lifetimes college-educated people earn
a. nearly twice as much as people without college degrees.
b. nearly 10 times as much as people without college degrees.
c. more than people with limited college but less than those with just a high school degree.
d. more than people with a high school degree but no more than those with two years of
college.
e. more than those without a college degree for the first ten years of working, but after that
the two are nearly the same.
ANS: A
OBJ: Ch 1, 1

PTS: 1
DIF: Easy
TOP: College degree

REF: Ch 1, 1.a
TYP: Factual

2. According to the text, the objective of economics is

a. to understand why the real world is what it is.
b. to understand money.
c. to understand the stock market.
d. to understand scarcity.
e. to understand greed.
ANS: A
OBJ: Ch 1, 2

PTS: 1
DIF: Easy
TOP: Objective of economics

REF: Ch 1, 2.a
TYP: Factual

3. According to the text, there are some fundamental regularities of human behavior. One such regularity
is
a. that people behave in ways that make themselves happier.
b. that people behave in ways that make those around them miserable.
c. that people care about others.
d. that people are fundamentally selfish.
e. that people are generous to a fault.
ANS: A
OBJ: Ch 1, 2

PTS: 1
DIF: Easy
TOP: Human behavior

REF: Ch 1, 2.c
TYP: Factual

4. According to the text, the divorce rate of high school graduates is

a. the same as that of college students.
b. one third lower than that of college students.
c. twice as high as that of college students.
d. three times that of college students
e. half that of college students.
ANS: C
OBJ: Ch 1, 1

PTS: 1
DIF: Easy
TOP: College degree

REF: Ch 1, 1.a
TYP: Factual

5. In the United States, before the 2006-2009 stock market collapse, the return on the money spent to
earn a bachelor's degree is
a. 3 percent.
b. 5 percent.
c. 7 percent.
d. 10 percent.
e. 12 percent.

ANS: E
OBJ: Ch 1, 1

PTS: 1
DIF: Easy
TOP: College degree

REF: Ch 1, 1.a
TYP: Factual

6. Earning a bachelor's degree in economics is good preparation for a career in

a. business.
b. banking.
c. education.
d. the non-profit sector.
e. all of these areas, and more.
ANS: E
OBJ: Ch 1, 1

PTS: 1
DIF: Easy
TOP: College degree

REF: Ch 1, 1.a
TYP: Interpretive

7. Even though the public often hears of economists' disagreements, economists agree on a wide variety
of topics. Particularly, economists tend to agree on
a. the role of fiscal policy in the economy.
b. the role of monetary policy in the economy.
c. the best method of providing health care in the United States.
d. the logic of economics.
e. the latest verdict in the Microsoft anti-trust trial.
ANS: D
OBJ: Ch 1, 1

PTS: 1
TOP: Economics

DIF: Medium
TYP: Interpretive

REF: Ch 1, 1.b

8. Which of the following statements is true?

a. One definition of economics provided in the text is that economics is the study of
unintended consequences.
b. Although there is wide agreement concerning the logic of economics, economists often
disagree about the results of that logic.
c. In studying the world, economists recognize that every action has costs.
d. If the United States spends more on war, it must give up some domestic spending.
e. All of these choices.
ANS: E
OBJ: Ch 1, 1

PTS: 1
TOP: Economics

DIF: Medium
TYP: Interpretive

REF: Ch 1, 1.b

9. Which of the following issues was of most concern in the 2008 campaign for the US Presidency?
a. Health care.
b. National security.
c. Economics.
d. Foreign policy.
e. Religion.
ANS: C
OBJ: Ch 1, 1

PTS: 1
TOP: Economics

DIF: Medium
TYP: Interpretive

REF: Ch 1, 1.b

10. By the statement "people have unlimited wants," the author of the text means
a. people always want more goods and services than they have or can purchase with their
incomes.
b. people always have a desire to have more money.
c. people always strive to be the best they can be.
d. people always give 110 percent.
e. None of these; the text actually refers to needs, not wants.
ANS: A

PTS: 1

DIF: Easy

REF: Ch 1, 2.a

OBJ: Ch 1, 2

TOP: Economics

TYP: Factual

11. Scarcity
a. ensures that people become satisfied with less than they want.
b. exists only during a recession.
c. exists only in some countries.
d. affects only poor people.
e. requires people to make choices.
ANS: E
OBJ: Ch 1, 2

PTS: 1
TOP: Scarcity

DIF: Medium
TYP: Interpretive

REF: Ch 1, 2.a

12. Which of the following statements is true?

a. Goods are scarcer for the poor than for the rich.
b. Goods are scarce neither for the poor nor for the rich.
c. Goods are scarce for both the poor and the rich.
d. Goods are scarce for the poor but not for the rich.
e. Goods are scarce for the rich but not for the poor.
ANS: C
OBJ: Ch 1, 2

PTS: 1
TOP: Scarcity

DIF: Medium
TYP: Applied

REF: Ch 1, 2.a

13. An economic bad is

a. an item that cannot command a price.
b. a faulty product.
c. an item people would pay to have less of.
d. an item that commands a very high price.
e. high unemployment.
ANS: C
OBJ: Ch 1, 2

PTS: 1
DIF: Medium
TOP: Economic bad

REF: Ch 1, 2.a
TYP: Factual

14. Economics is
a. concerned with the problem of scarce resources combined with unlimited wants.
b. the study of how to make money in the stock market.
c. highly theoretical and has little practical application.
d. primarily concerned with day-to-day business decision making.
e. a decision-making process involving individuals and firms rather than governments.
ANS: A
OBJ: Ch 1, 2

PTS: 1
TOP: Scarcity

DIF: Easy
TYP: Factual

REF: Ch 1, 2.a

15. To say that something is scarce means that

a. it is no longer available in stores.
b. it must be conserved at any cost.
c. even the government cannot supply it.
d. sufficient amounts of it are available only at full employment and inflated prices.
e. not enough of it is available to satisfy people's wants at a zero price.
ANS: E
OBJ: Ch 1, 2

PTS: 1
TOP: Scarcity

16. A positive (nonzero) price for a good means

a. the good is scarce.
b. there is a shortage.

DIF: Medium
TYP: Factual

REF: Ch 1, 2.a

c. the good is in surplus.

d. only the wealthy will purchase the good.
e. there is enough of the good to satisfy people's wants.
ANS: A
OBJ: Ch 1, 2

PTS: 1
TOP: Scarcity

DIF: Difficult
TYP: Interpretive

REF: Ch 1, 2.a

DIF: Medium
TYP: Factual

REF: Ch 1, 2.a

DIF: Easy
TYP: Factual

REF: Ch 1, 2.a

17. A free good is a good that

a. people do not need.
b. people do not want.
c. is of poor quality.
d. is not scarce.
e. is inherited.
ANS: D
OBJ: Ch 1, 2

PTS: 1
TOP: Scarcity

18. The basic economic problem is

a. inflation.
b. unemployment.
c. poverty.
d. scarcity.
e. lack of money.
ANS: D
OBJ: Ch 1, 2

PTS: 1
TOP: Scarcity

19. The Economic Insight in the text referred to "free" air. What was the point of the insight?
a. Air is a free good.
b. There is no scarcity of air.
c. Air is unlimited.
d. Quality, breathable air is not free.
e. There is a cost to air.
ANS: D
OBJ: Ch 1, 2

PTS: 1
TOP: Scarcity

DIF: Easy
TYP: Factual

REF: Ch 1, 2.a

20. When some goods are used to produce other goods, those goods that are used in the production process
are called
a. money.
b. economic bads.
c. unskilled workers.
d. factors of production.
e. capital rents.
ANS: D
OBJ: Ch 1, 2

PTS: 1
TOP: Scarcity

DIF: Easy
TYP: Factual

REF: Ch 1, 2.a

21. In economics, which of the following is not considered capital?

a. Offices and warehouses
b. Stocks and bonds
c. Machinery
d. Factories
e. Equipment
ANS: B

PTS: 1

DIF: Easy

REF: Ch 1, 2.a

OBJ: Ch 1, 2

TOP: Resources

TYP: Interpretive

22. Economists refer to financial capital and physical capital. Financial capital is
a. the money used to purchase physical capital.
b. the assets that are backed by stocks and bonds.
c. the accounting value of physical capital not paid for by debt.
d. the economic value of physical capital not paid for by debt.
e. the same as net income.
ANS: A
OBJ: Ch 1, 2

PTS: 1
TOP: Resources

DIF: Easy
TYP: Interpretive

REF: Ch 1, 2.a

23. An economy's resources

a. are limited in quantity.
b. are always efficiently utilized.
c. consist of land, labor, capital, and money.
d. are unrelated to its standard of living.
e. are unlimited when we use the latest technology.
ANS: A
OBJ: Ch 1, 2

PTS: 1
TOP: Resources

DIF: Easy
TYP: Factual

REF: Ch 1, 2.a

24. Each of the following is a factor of production except

a. entrepreneurial ability.
b. a farmer.
c. water.
d. the government.
e. machinery in a factory.
ANS: D
OBJ: Ch 1, 2

PTS: 1
TOP: Resources

DIF: Easy
TYP: Applied

REF: Ch 1, 2.a

25. For the use of their resources, owners of capital receive

a. profit.
b. interest.
c. wages.
d. rent.
e. gifts.
ANS: B
OBJ: Ch 1, 2

PTS: 1
TOP: Resources

DIF: Medium
TYP: Factual

REF: Ch 1, 2.a

26. For the use of their resources, owners of labor receive

a. profit.
b. interest.
c. wages.
d. rent.
e. gifts.
ANS: C
OBJ: Ch 1, 2

PTS: 1
TOP: Resources

DIF: Medium
TYP: Factual

27. Labor resources (input) include

a. skilled workers, but not unskilled workers.
b. unskilled workers, but not skilled workers.

REF: Ch 1, 2.a

c. robots.
d. education and training of workers.
e. coffee breaks.
ANS: D
OBJ: Ch 1, 2

PTS: 1
TOP: Resources

DIF: Medium
TYP: Applied

REF: Ch 1, 2.a

DIF: Medium
TYP: Applied

REF: Ch 1, 2.a

28. A skilled worker is an example of

a. scarcity.
b. entrepreneurial ability.
c. labor resources.
d. capital resources.
e. both labor and capital resources.
ANS: C
OBJ: Ch 1, 2

PTS: 1
TOP: Resources

29. The hardware and software used to design and maintain a webpage for a business are examples of
a. capital.
b. scarcity.
c. enterprise.
d. entrepreneurial ability.
e. output.
ANS: A
OBJ: Ch 1, 2

PTS: 1
TOP: Resources

DIF: Easy
TYP: Interpretive

REF: Ch 1, 2.a

DIF: Easy
TYP: Factual

REF: Ch 1, 2.b

30. Choices must be made because of unlimited

a. resources.
b. income.
c. wants.
d. time.
e. availability of goods.
ANS: C
OBJ: Ch 1, 2

PTS: 1
TOP: Choices

31. According to the text, which of the following is not true?

a. People do not have everything they want.
b. People do not have the time to do everything they want.
c. People do not have the money to purchase everything they want.
d. When people choose one good they must give up other things.
e. People do not have to make choices if they don't want to.
ANS: E
OBJ: Ch 1, 2

PTS: 1
TOP: Choices

DIF: Easy
TYP: Interpretive

REF: Ch 1, 2.b

32. According to the text, rational self-interest

a. is the term economists use to describe how people make choices.
b. means that people have perfect information about choices.
c. means that people try to make themselves better off only when the cost of doing so is
small.
d. means that people are never fooled by crafty marketing.
e. means that people never act foolishly in the eyes of others.
ANS: A

PTS: 1

DIF: Easy

REF: Ch 1, 2.c

OBJ: Ch 1, 2

TOP: Rational self-interest

TYP: Factual

33. When people make choices that, at the time and with the information they have at their disposal, will
give them the greatest amount of satisfaction, they are said to be
a. behaving irrationally.
b. applying econometric models to their everyday behavior.
c. living under a communist dictator.
d. acting in their own rational self-interest.
e. showing no willingness to plan for the future.
ANS: D
OBJ: Ch 1, 2

PTS: 1
DIF: Easy
TOP: Rational self-interest

REF: Ch 1, 2.c
TYP: Factual

34. Rational behavior in economics assumes that individuals

a. are motivated by self-interest.
b. do not make mistakes.
c. are selfish and will not help others.
d. will always buy the least expensive items when faced with various choices.
e. do not make value judgments.
ANS: A
OBJ: Ch 1, 2

PTS: 1
DIF: Medium
TOP: Rational self-interest

REF: Ch 1, 2.c
TYP: Factual

35. Rational self-interest implies that

a. individuals are selfish.
b. individuals have studied economics.
c. all other variables are held constant.
d. individuals consider themselves better off when they take actions that make others worse
off.
e. individuals make choices that provide them with the greatest satisfaction.
ANS: E
OBJ: Ch 1, 2

PTS: 1
DIF: Easy
TOP: Rational self-interest

REF: Ch 1, 2.c
TYP: Factual

36. A person who chooses not to wear a seat belt when driving an automobile
a. should be put in prison.
b. is exercising rational self-interest by choosing the option that gives him or her the greatest
satisfaction.
c. has a death wish.
d. should not be allowed to drive a car.
e. cannot possibly be exercising rational self-interest.
ANS: B
OBJ: Ch 1, 2

PTS: 1
DIF: Easy
TOP: Rational self-interest

REF: Ch 1, 2.c
TYP: Factual

37. Mother Teresa, a nun who lived in the bowels of poverty to aid the poor and downtrodden,
a. did not have a selfish bone in her body.
b. was never self-interested.
c. was always self-interested.
d. was never rationally self-interested.
e. was an exception to the economic view of humans.
ANS: C
OBJ: Ch 1, 2

PTS: 1
DIF: Easy
TOP: Rational self-interest

REF: Ch 1, 2.c
TYP: Applied

38. People who choose to do voluntary work

a. are not acting with rational self-interest.
b. find it more satisfying than the alternatives.
c. are not concerned with their own satisfaction.
d. never look at the alternative options.
e. are beyond the scope of economics.
ANS: B
OBJ: Ch 1, 2

PTS: 1
DIF: Medium
TOP: Rational self-interest

REF: Ch 1, 2.c
TYP: Applied

39. The object of the "economic approach" or "economic thinking" is

a. to impose the value judgments of economists on the members of society.
b. to quantify economic variables
c. to prove that low rates of unemployment are more important to society than low rates of
inflation.
d. to impose the political opinions of economists on influential government officials.
e. to use the principles of scarcity and rational self-interest in a specific way to search out
answers to questions about the real world.
ANS: E
OBJ: Ch 1, 3

PTS: 1
DIF: Easy
TOP: Economic thinking

REF: Ch 1, 3.a
TYP: Factual

40. The category of economics that contains statements about "what ought to be" is known as
a. macroeconomics.
b. normative economics.
c. objective economics.
d. microeconomics.
e. positive economics.
ANS: B
OBJ: Ch 1, 3

PTS: 1
DIF: Easy
TOP: Positive / normative analysis

REF: Ch 1, 3.a
TYP: Factual

41. Positive economics

a. always gives an optimistic outlook for the economy.
b. produces the best economic policies.
c. deals with what it is.
d. deals with what ought to be.
e. is concerned with how people should behave.
ANS: C
OBJ: Ch 1, 3

PTS: 1
DIF: Medium
TOP: Positive / normative analysis

REF: Ch 1, 3.a
TYP: Factual

42. Which of the following is a positive statement?

a. Tariffs should be imposed on imported cars to increase domestic employment.
b. Tariffs should be imposed on imported cars to put pressure on other countries to open their
markets to foreign competition.
c. Unemployment in the United States falls when people purchase domestically produced
cars.
d. People should purchase U.S. cars if they wish to help the economy.
e. Congress should protect the U.S. automobile industry from foreign competition.
ANS: C
OBJ: Ch 1, 3

PTS: 1
DIF: Medium
TOP: Positive / normative analysis

43. A normative statement

REF: Ch 1, 3.a
TYP: Applied

a.
b.
c.
d.
e.

concerns what is.

is always accurate.
deals with values and opinions.
cannot be tested in the real world.
may also be objective.

ANS: C
OBJ: Ch 1, 3

PTS: 1
DIF: Easy
TOP: Positive / normative analysis

REF: Ch 1, 3.a
TYP: Factual

44. When a presidential candidate with a Ph.D. in economics makes a statement about what should be
done to balance the budget, he or she is making a
a. normative statement.
b. positive statement.
c. microeconomic statement.
d. statement of fact.
e. statement that is objective.
ANS: A
OBJ: Ch 1, 3

PTS: 1
DIF: Medium
TOP: Positive / normative analysis

REF: Ch 1, 3.a
TYP: Applied

45. "Inflation is a more serious problem than education." This statement is an example of
a. microeconomics.
b. macroeconomics.
c. the fallacy of composition.
d. a positive statement.
e. a normative statement.
ANS: E
OBJ: Ch 1, 3

PTS: 1
DIF: Medium
TOP: Positive / normative analysis

REF: Ch 1, 3.a
TYP: Applied

46. What problem is associated with assuming that what is appropriate for an individual is appropriate for
the economy?
a. Normative analysis
b. Interpretation of association as causation
c. Rational self-interest
d. The fallacy of composition
e. Hypothesis testing
ANS: D
OBJ: Ch 1, 3

PTS: 1
DIF: Medium
TOP: Fallacy of composition

REF: Ch 1, 3.b
TYP: Factual

47. "Since a household cannot afford to keep adding indefinitely to its debt, a country cannot afford to do
so either." This statement is an example of
a. interpretation of association as causation.
b. ceteris paribus ("everything else held constant") analysis.
c. rational behavior.
d. the fallacy of composition.
e. marginal analysis.
ANS: D
OBJ: Ch 1, 3

PTS: 1
DIF: Medium
TOP: Fallacy of composition

REF: Ch 1, 3.b
TYP: Applied

48. "If a tax cut is good for me, it must be good for the whole economy." This statement is an example of
the pitfall called
a. the scientific method.

b.
c.
d.
e.

rational self-interest.
the fallacy of composition.
interpretation of association as causation.
ceteris paribus.

ANS: C
OBJ: Ch 1, 3

PTS: 1
DIF: Medium
TOP: Fallacy of composition

REF: Ch 1, 3.b
TYP: Applied

49. If a driver is able to avoid a traffic jam on the freeway by taking a side street, that person is made
better off. However, if we had assumed everybody would be better off by taking the side street, which
of the following would be involved?
a. The fallacy of composition
b. The scientific method
c. Ceteris paribus
d. Interpretation of association as causation
e. Normative analysis
ANS: A
OBJ: Ch 1, 3

PTS: 1
DIF: Medium
TOP: Fallacy of composition

REF: Ch 1, 3.b
TYP: Interpretive

50. If unemployment rises when beer consumption rises, then the statement "Rising unemployment is the
result of increased beer consumption"
a. is an example of the fallacy of composition.
b. is an example of the interpretation of association as causation.
c. describes rational behavior.
d. describes marginal analysis.
e. describes a negative relationship.
ANS: B
OBJ: Ch 1, 3

PTS: 1
DIF: Medium
TOP: Association as causation

REF: Ch 1, 3.b
TYP: Applied

51. This past year, whenever you wore your college's colors, the football team won. During the last two
weeks you continued to wear the college colors and bet a lot of money on your team, but your college's
football team lost both games. Your mistaken belief is a result of
a. the fallacy of composition.
b. ceteris paribus ("everything else held constant").
c. the interpretation of association as causation.
d. the scientific method.
e. positive analysis.
ANS: C
OBJ: Ch 1, 3

PTS: 1
DIF: Medium
TOP: Association as causation

REF: Ch 1, 3.b
TYP: Interpretive

52. According to Super Bowl theorem, when NFC team won Super Bowl stock market went up and when
AFC team Super Bowl stock market went down. This year if NFC team wins Super Bowl, you should
buy stocks."
a. is an example of the fallacy of composition.
b. is an example of the interpretation of association as causation.
c. describes rational behavior.
d. describes marginal analysis.
e. describes a negative relationship.
ANS: B
OBJ: Ch 1, 3

PTS: 1
DIF: Medium
TOP: Association as causation

REF: Ch 1, 3.b
TYP: Interpretive

53. Macroeconomics is concerned with

a. normative issues.
b. individual entities such as firms and households.
c. the New England economy.
d. what ought to be rather than what is.
e. the unemployment rate in the economy.
ANS: E
OBJ: Ch 1, 3

PTS: 1
DIF: Medium
TOP: Macro / micro

REF: Ch 1, 3.c
TYP: Factual

54. According to the text, the study of economics is usually separated into two general areas. These areas
are
a. microeconomics and labor economics.
b. monetary policy and macroeconomics.
c. human behavior and scarcity.
d. microeconomics and macroeconomics.
e. the firm and the consumer.
ANS: D
OBJ: Ch 1, 3

PTS: 1
DIF: Easy
TOP: Macro / micro

REF: Ch 1, 3.c
TYP: Factual

55. Which of the following is a microeconomic concern?

a. Choices made by all consumers
b. The rate of unemployment in the country
c. The individual firm's pricing decision.
d. The inflation rate in the country.
e. The trade deficit in the country.
ANS: C
OBJ: Ch 1, 3

PTS: 1
DIF: Medium
TOP: Macro / micro

REF: Ch 1, 3.c
TYP: Applied

56. Which of the following is more of a microeconomic concept than a macroeconomic concept?
a. The rate of economic growth
b. How the composition of output is determined in an economy
c. Concern over an entire economy's balance of payments
d. Concern over simultaneous high rates of inflation and of unemployment
e. Price determination in the resource market
ANS: E
OBJ: Ch 1, 3

PTS: 1
DIF: Difficult
TOP: Macro / micro

REF: Ch 1, 3.c
TYP: Applied

57. Macroeconomics is primarily concerned with

a. aggregate economic activity.
b. unemployment in a particular firm or industry caused by mechanization and automation.
c. how individual decision makers behave.
d. how to produce a particular good.
e. what goods a nation should produce in the world economy.
ANS: A
OBJ: Ch 1, 3

PTS: 1
DIF: Easy
TOP: Macro / micro

REF: Ch 1, 3.c
TYP: Factual

58. Which of the following is a microeconomic concern?

a. How the Federal reserve conducts monetary policy during recession.
b. The rate of unemployment in the country
c. The measure the banking industry uses to turn around.

d. The inflation rate the US faces.

e. How an individual consumer responds the economic recession.
ANS: E
OBJ: Ch 1, 3

PTS: 1
DIF: Medium
TOP: Macro / micro

REF: Ch 1, 3.c
TYP: Applied

59. According to the article in the text, the women comprised what percent of college students in 2005?
a. 35 percent.
b. 40 percent.
c. 45 percent.
d. 50 percent.
e. 55 percent.
ANS: E
OBJ: Ch 1, 1

PTS: 1
DIF: Easy
TOP: College enrollment

REF: Ch 1, 1.a
TYP: Factual

60. According to the article in the text, in the first year after graduating, women on average working fulltime make
a. the same as their male classmates.
b. 10 percent more than their male classmates.
c. 20 percent more than their male classmates.
d. 10 percent less than their male classmates.
e. 20 percent less than their male classmates art history.
ANS: E
OBJ: Ch 1, 1

PTS: 1
DIF: Medium
TOP: Gender income gap

REF: Ch 1, 1.a
TYP: Factual

61. According to the article, women make less than males because of
a. sex discrimination.
b. lower productivity
c. permission by the law.
d. their development into candidates for the world of work with 15 percent less market value
than men.
e. their less competitiveness.
ANS: D
OBJ: Ch 1, 1

PTS: 1
DIF: Easy
TOP: Discrimination
TYP:

REF: Ch 1, 1.a
Applied

62. According to the article, the biggest choice a college student needs to make is
a. major.
b. friend.
c. party.
d. sport
e. all of these choices.
ANS: A
OBJ: Ch 1, 1

PTS: 1
DIF: Easy
TOP: Decision making

REF: Ch 1, 1.a
TYP: Applied

63. According to the article, which college degree has highest cost?
a. History.
b. Liberal art study.
c. Engineering.
d. Education.
e. Mathematics.
ANS: C

PTS: 1

DIF: Easy

REF: Ch 1, 1.a

OBJ: Ch 1, 1

TOP: Opportunity cost

TYP: Applied

TRUE/FALSE
1. According to the text, today only about 20 percent of l Americans aged 25 and older hold a college
degree.
ANS: F
OBJ: Ch 1, 1

PTS: 1
DIF: Easy
TOP: College degree

REF: Ch 1, 1.a
TYP: Factual

2. On average, college-educated workers in the United States earn 10 times as much lifetime income as
those without a college degree.
ANS: F
OBJ: Ch 1, 1

PTS: 1
DIF: Medium
TOP: College degree

REF: Ch 1, 1.a
TYP: Factual

3. In the long run before 2006-2009 stock market collapse, money invested in the stock market yields a
higher return than a college education.
ANS: F
OBJ: Ch 1, 1

PTS: 1
DIF: Medium
TOP: College degree

REF: Ch 1, 1.a
TYP: Factual

4. The difference in earnings between those with a medical degree and those with a high school diploma
is about $3.2 million, according to the U.S. Census Bureau.
ANS: T
OBJ: Ch 1, 1

PTS: 1
DIF: Medium
TOP: College degree

REF: Ch 1, 1.a
TYP: Factual

5. Economics ranks among the lowest-paid fields in the social sciences.

ANS: F
OBJ: Ch 1, 1

PTS: 1
DIF: Easy
TOP: College degree

REF: Ch 1, 1.a
TYP: Factual

6. A bachelor's degree in economics is not limited in that it prepares one only for a career in business.
ANS: T
OBJ: Ch 1, 1

PTS: 1
DIF: Easy
TOP: College degree

REF: Ch 1, 1.a
TYP: Factual

7. Economics is useful because it contains a logic that helps to solve many complex problems faced by
society.
ANS: T
OBJ: Ch 1, 1

PTS: 1
TOP: Economics

DIF: Easy
TYP: Factual

REF: Ch 1, 1.b

8. Economists are famous for their ability to agree with each other, both in the logic of their approach to
the subject and in their remedies to specific social problems.
ANS: F
OBJ: Ch 1, 1

PTS: 1
TOP: Economics

DIF: Easy
TYP: Interpretive

REF: Ch 1, 1.b

9. Economics can be defined as the study of intended consequences.

ANS: F

PTS: 1

DIF: Medium

REF: Ch 1, 1.b

OBJ: Ch 1, 1

TOP: Economics

TYP: Applied

10. If scarcity does not exist we still need to study economics.

ANS: F
OBJ: Ch 1, 2

PTS: 1
TOP: Scarcity

DIF: Medium
TYP: Interpretive

REF: Ch 1, 2.a

11. Scarcity is the result of an unfair distribution of income.

ANS: F
OBJ: Ch 1, 2

PTS: 1
TOP: Scarcity

DIF: Medium
TYP: Interpretive

REF: Ch 1, 2.a

12. Economics is the study of the allocation of scarce resources and scarce time, and of the ways in which
people utilize those resources or that time.
ANS: T
OBJ: Ch 1, 2

PTS: 1
TOP: Scarcity

DIF: Medium
TYP: Factual

REF: Ch 1, 2.a

13. Bill Gates is the richest person in the world, so he does not have to make choices.
ANS: F
OBJ: Ch 1, 2

PTS: 1
TOP: Scarcity

DIF: Medium
TYP: Interpretive

REF: Ch 1, 2.a

14. The factors of production are ingredients used to produce inputs.

ANS: F
OBJ: Ch 1, 2

PTS: 1
DIF: Medium
TOP: Factors of production

REF: Ch 1, 2.a
TYP: Factual

15. In economics the money you have is capital.

ANS: F
OBJ: Ch 1, 2

PTS: 1
TOP: Resources

DIF: Medium
TYP: Applied

REF: Ch 1, 2.a

16. Labor (input) includes skilled workers, but not unskilled workers.
ANS: F
OBJ: Ch 1, 2

PTS: 1
TOP: Resources

17. Choices must be made because of scarcity

everything they want.
ANS: T
OBJ: Ch 1, 2

PTS: 1
TOP: Choices

DIF: Medium
TYP: Applied

REF: Ch 1, 2.a

people do not have enough time or money to get

DIF: Easy
TYP: Factual

REF: Ch 1, 2.b

18. One can define economics as the study of how people choose to use their scarce resources to attempt
to satisfy their unlimited wants.
ANS: T
OBJ: Ch 1, 2

PTS: 1
TOP: Economics

DIF: Easy
TYP: Factual

REF: Ch 1, 2.b

19. People make a choice in order to avoid scarcity problem.

ANS: F

PTS: 1

DIF: Easy

REF: Ch 1, 2.b

OBJ: Ch 1, 2

TOP: Choices

TYP: Factual

20. When an individual is behaving according to "rational self-interest," he or she is behaving out of greed.
ANS: F
OBJ: Ch 1, 2

PTS: 1
DIF: Medium
TOP: Rational self-interest

REF: Ch 1, 2.c
TYP: Factual

21. A rational consumer always has perfect information.

ANS: F
OBJ: Ch 1, 2

PTS: 1
DIF: Medium
TOP: Rational self-interest

REF: Ch 1, 2.c
TYP: Applied

22. A rational businessperson is concerned with his or her self-interest.

ANS: T
OBJ: Ch 1, 2

PTS: 1
DIF: Difficult
TOP: Rational self-interest

REF: Ch 1, 2.c
TYP: Applied

23. Rational self-interest is the same as selfishness.

ANS: F
OBJ: Ch 1, 2

PTS: 1
DIF: Difficult
TOP: Rational self-interest

REF: Ch 1, 2.c
TYP: Applied

24. Whether to have more or less government involvement in the overall economy is essentially a political
issue, and therefore, the techniques of economic analysis are not applicable.
ANS: F
OBJ: Ch 1, 3

PTS: 1
DIF: Medium
TOP: Positive / normative analysis

REF: Ch 1, 3.a
TYP: Factual

25. Positive economics is the study of how people and institutions should behave.
ANS: F
OBJ: Ch 1, 3

PTS: 1
DIF: Medium
TOP: Positive / normative analysis

REF: Ch 1, 3.a
TYP: Factual

26. "The government should tax health benefit to reduce budget deficit." This is a positive statement.
ANS: F
OBJ: Ch 1, 3

PTS: 1
DIF: Medium
TOP: Positive / normative analysis

REF: Ch 1, 3.a
TYP: Factual

27. "If a tax cut is good for me, it must be good for the whole economy." This statement is an example of
the pitfall called the interpretation of association as causation.
ANS: F
OBJ: Ch 1, 3

PTS: 1
DIF: Medium
TOP: Fallacy of composition

REF: Ch 1, 3.b
TYP: Applied

28. This past year, whenever you wore your college's colors, the football team won. During the last two
weeks you continued to wear the college colors and bet a lot of money on your team, but your college's
football team lost both games. Your mistaken belief is a result of the interpretation of association as
causation.
ANS: T
OBJ: Ch 1, 3

PTS: 1
DIF: Medium
TOP: Association as causation

REF: Ch 1, 3.b
TYP: Interpretive

29. The fallacy of composition and the fallacy of ceteris paribus are two commonly made errors in
economic analysis.

ANS: F
OBJ: Ch 1, 3

PTS: 1
DIF: Easy
TOP: Common mistakes

REF: Ch 1, 3.b
TYP: Factual

30. You leave concert ten minutes before it ends you may avoid traffic jam. If all audience act you do they
also may avoid traffic jam. Your mistaken belief is a result of the fallacy of composition.
ANS: T
OBJ: Ch 1, 3

PTS: 1
DIF: Easy
TOP: Common mistakes

REF: Ch 1, 3.b
TYP: Factual

31. Microeconomics is concerned primarily with the overall functioning of a single economic system.
ANS: F
OBJ: Ch 1, 3

PTS: 1
DIF: Medium
TOP: Macro / micro

REF: Ch 1, 3.c
TYP: Factual

32. Macroeconomics is concerned primarily with aggregate sectors of the economy, such as the consumer
sector or the business sector.
ANS: T
OBJ: Ch 1, 3

PTS: 1
DIF: Medium
TOP: Macro / micro

REF: Ch 1, 3.c
TYP: Factual

33. Both microeconomic and macroeconomic theories deal with individual entities in an economy.
ANS: F
OBJ: Ch 1, 3

PTS: 1
DIF: Difficult
TOP: Macro / micro

REF: Ch 1, 3.c
TYP: Interpretive

34. According to the article in the text, on average, art education majors have a higher pay after graduation
than do engineering majors.
ANS: F
OBJ: Ch 1, 1

PTS: 1
DIF: Medium
TOP: Choice of major

REF: Ch 1, 1.a
TYP: Applied

35. According to the article in the text, the main reason that women workers make less than male workers
is sex discrimination.
ANS: F
OBJ: Ch 1, 1

PTS: 1
DIF: Easy
TOP: Discrimination
TYP:

REF: Ch 1, 1.a
Applied

36. According to the article in the text, the most competitive workers the women workers face are single
and childless.
ANS: T
OBJ: Ch 1, 1

PTS: 1
DIF: Easy
TOP: Job market competition

REF: Ch 1, 1.a
TYP: Applied

37. According to the article in the text, 25 percent more men than women go to "highly selective" schools.
ANS: T
OBJ: Ch 1, 1

PTS: 1
TOP: Choice

DIF: Easy
TYP: Applied

REF: Ch 1, 1.a

38. According to the article in the text, women are more willing to take higher risks that often accompany
higher-paying jobs.
ANS: F
OBJ: Ch 1, 1

PTS: 1
DIF: Easy
TOP: Compensation

REF: Ch 1, 1.a
TYP: Applied