Chapter 2: Thinking Like an Economist
1. What is the purpose of a siSmplifying assumption in an economic model?
A. It affects the model's final results
B. It eliminates unnecessary details
C. It increases detail and complexity
D. It limits the model’s accuracy
2. What is the ultimate goal of an economic model?
A. To perfectly match reality
B. To guide political debates
C. To help us understand economic behavior
D. To describe all variables in the economy
3. Which of the following best describes an economic model?
A. A complete representation of the real world
B. A tool that simplifies to focus on essential elements
C. A theory that ignores all assumptions
D. A purely mathematical formula
4. Which is an example of a market for factors of production?
A. A student buying a laptop
B. A company hiring new employees
C. Someone mowing their lawn
D. A family buying groceries
5. Which of the following is an activity in the goods and services market?
A. Hiring workers
B. Buying a concert ticket
C. Paying taxes
D. Receiving wages
6. What are the three main sources of income for households?
A. Wages, rent, and profit
B. Taxes, subsidies, and rent
C. Wages, rebates, and taxes
D. Profits, donations, and subsidies
7. In the circular-flow diagram, households are:
A. Only buyers of goods and services
B. Only suppliers of labor
C. Buyers of goods and services and sellers of factors of production
D. Government-controlled units
8. Which is NOT an assumption of the production possibilities frontier (PPF)?
A. Fixed resources
B. Full employment
C. Constant technology
D. Fixed income
9. What would NOT shift the PPF outward?
A. Technological improvement
B. More available resources
C. Decreased unemployment
D. Higher inflation
10. What does the PPF illustrate?
A. The price level
B. The trade-offs and opportunity costs in production
C. The government’s production decisions
D. Total spending in an economy
11. If an economy moves from inside the PPF to on the curve, it indicates:
A. More unemployment
B. Improved efficiency
C. A technological regression
D. Fewer resources
12. Why do opportunity costs usually rise along the PPF?
A. Resources are perfectly adaptable
B. Demand increases rapidly
C. Resources have specialized uses
D. Prices fluctuate frequently
13. Points on the PPF represent:
A. Maximum output with given resources and technology
B. Minimum usage of inputs
C. Full unemployment
D. Government control of production
14. Macroeconomics is the study of:
A. Individual consumer behavior
B. Firm-level pricing
C. The overall performance of the economy
D. Resource management in a household
15. Which question is NOT typically addressed in microeconomics?
A. Why do economies grow?
B. How do consumers spend their income?
C. How do businesses respond to taxes?
D. What factors affect labor supply in a firm?
16. Reporting the national unemployment rate is most closely related to the work of
a:
A. Microeconomist
B. Philosopher
C. Normative economist
D. Macroeconomist
17. A statement saying wages increased by 3% is:
A. Normative
B. Biased
C. Positive
D. Political
18. “Taxes should be reduced for low-income workers” is an example of:
A. Positive economics
B. Normative economics
C. Statistical inference
D. A market prediction
19. What helps explain why economists sometimes disagree?
A. They only use qualitative data
B. They have different values or interpretations
C. Economics is not a real science
D. They always use the same data
20. Which topic best fits under positive economics?
A. Whether the rich should pay more taxes
B. Measuring the effect of education on income
C. Arguing for equal wealth distribution
D. Deciding how many holidays workers should have
21. When two variables increase or decrease together, they are:
A. Uncorrelated
B. Negatively correlated
C. Positively correlated
D. Statistically random
22. The relationship between rainfall and sunscreen sales is likely to be:
A. Positively correlated
B. Negatively correlated
C. Perfectly correlated
D. Not correlated
Answer Key
1. B 2. C 3. B 4. B
5. B 6. A 7. C 8. D
9. D 10. B 11. B 12. C
13. A 14. C 15. A 16. D
17. C 18. B 19. B 20. B
21. C 22. B