Chap 02

Chapter 2
Thinking Like an Economist
MULTIPLE CHOICE
1
. Because it is difficult for economists to use experiments to generate economic data,
a. they do without.
b. they use whatever data the world gives them.
c. they make up the data.
d. they ask policymakers to conduct experiments for them.
ANSWER: b. they use whatever data the world gives them.
TYPE: M KEY1: D SECTION: 1 OBJECTIVE: 2 RANDOM: Y
2
. Economists make assumptions
a. to diminish the chance of wrong answers.
b. to make certain that all necessary variables are included.
c. because all scientists make assumptions.
d. to make the world easier to understand.
ANSWER: d. to make the world easier to understand.
3
. Economists use models in order to
a. learn how the economy works.
b. make their profession appear more precise.
c. make economics difficult for students.
d. make sure that all of the details of the economy are included in their analysis.
ANSWER: a. learn how the economy works.
1 ANSWER: b. they use whatever data the world gives them.

2 ANSWER: d. to make the world easier to understand.

3 ANSWER: a. learn how the economy works.

Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. 1
2 Chapter 2/Thinking Like an Economist
4
. A model
a. simplifies reality.
b. can explain how the economy is organized.
c. assumes away irrelevant details.
d. all of the above
ANSWER: d. all of the above
5
. Which of the following is the most accurate statement about economic models?
a. Economic models attempt to mirror reality exactly.
b. Economic models are useful, but should not be used for policy-making.
c. Economic models cannot be used in the real world because they omit details.
d. Economic models omit many details to allow us to see what is truly important.
ANSWER: d. Economic models omit many details to allow us to see what is truly important.
6
. The foundation stones from which economic models are built are
a. economic policies.
b. the legal system.
c. assumptions.
d. statistical forecasts.
ANSWER: c. assumptions.
4 ANSWER: d. all of the above

5 ANSWER: d. Economic models omit many details to allow us to see what is truly important.
6 ANSWER: c. assumptions
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.
Chapter 2/Thinking Like an Economist 3
7
. Factors of production are
a. inputs into the production process.
b. weather, social, and political conditions that affect production.
c. the physical relationships between economic inputs and outputs.
d. the mathematical calculations firms make to determine production.
ANSWER: a. inputs into the production process.
8
. The two loops in the circular-flow diagram represent
a. the flow of goods and the flow of services.
b. the flow of goods and services and the flow of dollars.
c. the flow of dollars and the flow of financial assets.
d. the flow of capital goods and the flow of consumer goods.
ANSWER: b. the flow of goods and services and the flow of dollars.
9
. In the circular-flow diagram,
a. spending on goods and services flow from firms to households.
b. goods and services flow from households to firms.
c. factors of production flow from firms to households.
d. income from factors of production flows from firms to households.
ANSWER: d. income from factors of production flows from firms to households.
10
. The revenue from sales that firms have left after paying for the factors of production is
a. rent.
b. wages.
c. interest.
d. profit.
ANSWER: d. profit.
7 ANSWER: a. inputs into the production process.

8 ANSWER: b. the flow of goods and services and the flow of dollars.
9 ANSWER: d. income from factors of production flows from firms to households.

10 ANSWER: d. profit.
11
. In the circular-flow diagram shown, which arrow shows the flow of goods and services?
a. A
b. B
c. C
d. D
ANSWER: b. B
TYPE: M KEY1: G SECTION: 1 OBJECTIVE: 3 GRAPH FORMAT: M QUESTION INSTRUCTION: 1
RANDOM: N
12
. In the circular-flow diagram shown, which arrow shows the flow of spending by households?
a. A
b. B
c. C
d. D
ANSWER: a. A
RANDOM: N
11 ANSWER: b. B
RANDOM: N
12 ANSWER: a. A
RANDOM: N
13
. In the circular-flow diagram shown, which arrow shows the flow of the factors of production?
a. A
b. B
c. C
d. D
ANSWER: c. C
RANDOM: N
14
. In the circular-flow diagram shown, which arrow shows the flow of income payments?
a. A
b. B
c. C
d. D
ANSWER: d. D
RANDOM: N
15
. The production possibilities frontier is
a. a map which shows the frontier beyond which agriculture is unprofitable.
b. a map which shows areas of the world in which capitalist production is now possible.
c. a graph that shows the various combinations of output the economy can possibly produce given
the available resources and technology.
d. a graph which shows the various combinations of resources that can be used to produce a given
level of output.
ANSWER: c. a graph that shows the various combinations of output the economy can possibly
produce given the available resources and technology.
16
. Which of the following is the most accurate statement about production possibilities?
13 ANSWER: c. C
RANDOM: N
14 ANSWER: d. D
RANDOM: N
15 ANSWER: c. a graph that shows the various combinations of output the economy can possibly
produce given the available resources and technology.
16 ANSWER: c. An economy can produce at any point on or inside the production possibilities
frontier, but not outside the frontier.
a. An economy can produce only on the production possibilities frontier.

b. An economy can produce at any point inside or outside a production possibilities frontier.
c. An economy can produce at any point on or inside the production possibilities frontier, but not
outside the frontier.
d. An economy can produce at any point inside the production possibilities frontier, but not on or
outside the frontier.
ANSWER: c. An economy can produce at any point on or inside the production possibilities frontier,
but not outside the frontier.
17
. On a production possibilities frontier, production is efficient if
a. the production point is inside the frontier.
b. the production point is outside the frontier.
c. the production point is on or inside the frontier.
d. the production point is on the frontier.
ANSWER: d. the production point is on the frontier.
18
. An economy is said to be efficient if
a. it is possible to produce more of all goods.
b. it is possible to produce more of one good without producing less of another.
c. it is not possible to produce more of one good without producing less of another.
d. it is not possible to produce more of one good at any cost.
ANSWER: c. it is not possible to produce more of one good without producing less of another.
19
. Which of the following concepts is NOT illustrated by the production possibilities frontier?
a. efficiency
b. opportunity cost
c. equity
d. tradeoffs
ANSWER: c. equity
17 ANSWER: d. the production point is on the frontier.

18 ANSWER: c. it is not possible to produce more of one good without producing less of another.
19 ANSWER: c. equity
20
. On the production possibilities frontier shown, which point or points are possible for this economy to
produce?
a. A, B, C, D
b. A, B, C, F
c. A, B, C, D, E, F
d. D
ANSWER: a. A, B, C, D
RANDOM: Y
21
. On the production possibilities frontier shown, which point represents the maximum possible
production of CD s?
a. A
b. B
c. C
d. D
ANSWER: a. A
RANDOM: Y
20 ANSWER: a. A, B, C, D
RANDOM: Y
21 ANSWER: a. A
RANDOM: Y
22
. On the production possibilities frontier shown, which point or points are NOT possible for this
economy to produce?
a. D
b. E, F
c. A, B, C
d. D, E, F
ANSWER: b. E, F
RANDOM: Y
23
. On the production possibilities frontier shown, which point or points are efficient?
a. A, B, C
b. A, C, F
c. E
d. D
ANSWER: a. A, B, C
RANDOM: Y
24
. On the production possibilities frontier shown, which point or points are inefficient?
a. A, B, C
b. E, F
c. B
d. D
ANSWER: d. D
RANDOM: Y
25
. The opportunity cost of obtaining more of one good is shown on the production possibilities frontier
as
22 ANSWER: b. E, F
RANDOM: Y
23 ANSWER: a. A, B, C
RANDOM: Y
24 ANSWER: d. D
RANDOM: Y
25 ANSWER: a. the amount of the other good which must be given up.
TYPE: M KEY1: C SECTION: 1 OBJECTIVE: 3 RANDOM: Y
a. the amount of the other good which must be given up.

b. the market price of the additional amount produced.
c. the amount of resources which must be devoted to its production.
d. the number of dollars which must be spent to produce it.
ANSWER: a. the amount of the other good which must be given up.
26
. On the production possibilities frontier shown, the opportunity cost to the economy of getting 10
additional roller blades by moving from point A to point B is
a. 15 bikes.
b. 10 bikes.
c. 5 bikes.
d. It is impossible to know the opportunity cost without knowing the cost of the resources used to
produce the additional roller blades.
ANSWER: c. 5 bikes.
RANDOM: Y
27
. On the production possibilities frontier shown, the opportunity cost of getting 5 additional bikes by
moving from point A to point C is
a. 15 roller blades.
b. 10 roller blades.
c. 5 roller blades.
d. It is impossible for the economy to move from point A to point C.
ANSWER: d. It is impossible for the economy to move from point A to point C.
RANDOM: Y
26 ANSWER: c. 5 bikes.
RANDOM: Y
27 ANSWER: d. It is impossible for the economy to move from point A to point C.

RANDOM: Y
28
. On the production possibilities frontier shown, the opportunity cost of getting 20 additional roller
blades by moving from point D to point A is
a. 15 bikes.
b. 10 bikes.
c. 5 bikes.
d. 0.
ANSWER: d. 0.
RANDOM: Y
29
. According to the graph, the shift of the production possibilities frontier from frontier A to frontier B
was most likely caused by which of the following?
a. an improvement in the technology of producing capital goods.
b. an improvement in the technology of producing consumer goods.
c. a general improvement in technology.
d. a reduction in the availability of resources.
ANSWER: c. a general improvement in technology.
RANDOM: Y
28 ANSWER: d. 0.
RANDOM: Y
29 ANSWER: c. a general improvement in technology.

RANDOM: Y
30
. Which of the following would be considered a topic of study in macroeconomics?
a. the impact of agricultural price support programs in the cotton industry
b. the effect on U.S. steel producers of an import quota imposed on foreign steel
c. the effect of an increase in the price of imported oil on the U.S. inflation rate
d. the effect of an increase in the price of imported coffee beans on the U.S. coffee industry
ANSWER: c. the effect of an increase in the price of imported oil on the U.S. inflation rate
31
. Which of the following would be considered a topic of study in microeconomics?
a. the effect of changes in saving rates on GDP
b. the impact of minimum-wage laws on employment in the fast-food industry
c. the impact of monetary policy on the rate of inflation
d. the effect of tax policy on the rate of economic growth
ANSWER: b. the impact of minimum-wage laws on employment in the fast-food industry
32
. Which is the best statement about the roles of economists?
a. Economists are best viewed as policymakers.
b. Economists are best viewed as scientists.
c. In trying to explain the world, economists are scientists; in trying to improve the world, they are
policymakers.
d. In trying to explain the world, economists are policymakers; in trying to improve the world, they
are scientists.
ANSWER: c. In trying to explain the world, economists are scientists; in trying to improve the world,
they are policymakers.
30 ANSWER: c. the effect of an increase in the price of imported oil on the U.S. inflation rate
31 ANSWER: b. the impact of minimum-wage laws on employment in the fast-food industry

32 ANSWER: c. In trying to explain the world, economists are scientists; in trying to improve the
world, they are policymakers.
33
.
33 ANSWER: a. Economists have not yet convinced the general public that the policies are
undesirable.

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Chapter 2

Thinking Like an Economist

1 ANSWER: b. they use whatever data the world gives them.

2 ANSWER: d. to make the world easier to understand.

3 ANSWER: a. learn how the economy works.

4 ANSWER: d. all of the above

7 ANSWER: a. inputs into the production process.

9 ANSWER: d. income from factors of production flows from firms to households.

a. An economy can produce only on the production possibilities frontier.

17 ANSWER: d. the production point is on the frontier.

a. the amount of the other good which must be given up.

27 ANSWER: d. It is impossible for the economy to move from point A to point C.

29 ANSWER: c. a general improvement in technology.

31 ANSWER: b. the impact of minimum-wage laws on employment in the fast-food industry

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