TRUE OR FALSE
If the statement is true, skip it. If the statement is false, write a sentence that explains why the statement is false.
1. If there were no scarcity of resources, there would be no economic problems.
2. The scientific method consists of collecting data, formulating testable hypotheses. Making predictions based on those hypotheses, and comparing those predictions with the actual data.
3. Because it costs time and money to collect information, economic choices are often made on the basis of partial or even incorrect information.
4. External costs of an economic decision are the costs paid by someone who is not a party to the decision.
5. Scarcity results in both competition and cooperation.
6. There are three major types of markets: goods markets, factor markets and financial markets.
7. The efforts of workers, supervisors and plant managers would all be classified by economists as "labor"
8. Forests, oil deposits and rivers all fit under the economists definition of "land"
9. By "capital" the economist means buildings, machines and inventories.
10. In a market economy the questions of what to produce, how to produce and for whom to produce are answered by changes in market prices.
11. In a market economy, shortages are eliminated by falling prices and surpluses are eliminated by rising prices.
12. Since producers wish to maximize their profits, they have an economic incentive to use the least expensive inputs and the most efficient methods of production.
13. Adam Smith argued that government should act to ensure that each individual would act in such a way as to do what is best for society as a whole.
14. In a "theoretically pure capitalist economy" producers would have an incentive to join together and form monopolies.
15. In a "theoretically pure capitalist" economy goods with negative externalities would not be produced.
16. In a "theoretically pure capitalist economy" it is possible to have macroeconomic problems such as inflation, unemployment, business cycles and slow economic growth.
17. All modern economies may be described as "mixed economies" because they use all three coordinating methods, customs, markets and command.
18. In recent decades the economic systems of nations have tended to become more similar, economists call this process "convergence".
19. The aim of normative economics is to explain how society makes decisions about production, consumption and income distribution.
20. A normative statement can be tested and proven to be false.
21. Positive economics offers policy recommendations based on value judgements.
22. Microeconomics tends to be focussed on how individual markets work and tends to ignore the interactions between markets.
23. Microeconomics provides an essential foundation for the study of macroeconomics.
24. Economic models tend to assume that many things remain constant even though in the real world those things do not remain constant.
25. Econometric techniques are necessary to test economic theories because the assumption that "all other things remain equal" seldom applies in the real world.
26. Once an economic theory has been tested and accepted, it becomes an economic law and it need not be tested again.
27. If two economic events occur at the same time, it is certain that one event was the cause of the other.
28. If one economic event follows another in time, it is certain that the first event was the cause of the second event.
29. If something is true for every member of a group considered individually, then the same thing must be true for the group considered as whole.
30. A time series is a sequence of measurements of a variable over time.
31. Cross section data record at a point in time the way an economic variable differs across individuals or groups.
32. Graphs are better than tables for presenting precise values of economic data.
33. As a method of presenting economic data, tables have the advantage of giving a clearer picture of the nature of economic relationships.
34. It is only possible to graph positive values of economic variables.
35. When drawing supply and demand curves, the dependent variable (Quantity) is normally placed on the vertical axis and the independent variable (Price) is normally placed on the horizontal axis.
36. Graphs often show one of four basic patterns: (1) A negative relationship (2) a positive relationship (3) a direct relationship and (4) an inverse relationship.
37. A vertical or a horizontal line would indicate that there was a very strong relationship between the two variables.
38. Linear relationships are rarely used in macroeconomic models.
39. The slope of a curve is equal to the change in the value on the horizontal axis divided by the change in the value of the variable on the vertical axis.
40. The slope of a curve is a pure number and does not depend on the units in which the variables are measured.
41. In graphing an equation of the form Y = a + b X, the parameter "a" indicates the slope of the line and the parameter "b" indicates where the line will cut the vertical axis.
42. All the important relationships in macroeconomics are approximately linear.
43. The slope of a point on a curved line is equal to exactly one-half the slope of a line drawn tangent to that point.
44. It is possible to show the effect of two independent variables by drawing a series of lines, each corresponding to a given value of the second independent variable.
45. Every point on the production possibility frontier assumes maximum efficiency in using a fixed resource base and a fixed technology.
46. Combinations above the production possibility frontier are attainable, but they are not efficient.
47. The opportunity cost of an economic action is the least attractive alternative that was given up in order to take that action.
48. The "Law of Increasing Opportunity Cost" states that over time opportunity costs generally increase.
49. Over time nations can increase the rate at which their production possibility frontiers shift outward by transferring resources from the production of capital goods towards the production of consumer goods.
50. A growth in a nation's labor force will tend to shift outward its production possibility curve.
51. In economics, the terms "law", "principle", "theory' and "model" mean essentially the same thing.
52. Economists generally assume that people make their choices rationally.
53. Economists generally assume that people make their choices based on what is best for society as a whole.
54. "Ceteris paribus" means that other variables are changing at the same time.
55. "Profit" is defined as the reward paid to those who supply the economy with capital.
56. Resources are scarce because society's wants are limited.
57. The opportunity cost of producing a good tends to increase as more of it is produced because resources less suitable to its production must be employed.
58. It is not possible for an economy producing just two goods to increase its production of both goods.
59. The more capital goods an economy produces today, the greater will be the total output of all goods it can produce in the future.
60. A production possibility curve is normally linear.
61. If an individual spends less, he can save more. To conclude, therefore, that if a nation spends less, it can save more is an example of the fallacy of "Post hoc ergo propter hoc".
FILL IN THE BLANKS
1. ________________________ is the study of how people manage their limited resources to try to best deal with the problem of scarcity.
2. _________________________ are economic arrangements that reduce the transactions costs involved in buying and selling.
3. Market economists generally classify economic resources as "land", "labor" and ______________________ .
4. The three ways of achieving coordination in economies are: (1) custom and tradition, (2) _____________________ and (3) central planning.
5. A _________________________ statement attempts to describe the world as it actually is.
6. A _________________________ statement attempts to describe how the world should be.
7. There are two main types of economic data. They are time series data and ________________________________________ data.
8. _____________________________ graphs are useful in providing an understanding of the average level of an economic variable, whether it changes rapidly or slowly and whether there are trends and cycles in the series.
9. If a curve has a _____________________________ slope, it means that an increase in one of the variables will correspond to a decrease in the other variable.
10. The ________________________________________ frontier shows for each level of output of one good, the maximum amount of another good that can be produced.
11. The "Law of ______________________________________________" is based on the fact that some resources are more effective in producing certain products than they are in producing other products.
12. Customarily the _______________________________ variable is placed on the horizontal axis of a graph.
13. If the graph of a relationship slopes downward to the right, there is a ___________________________ relationship between the two variables.
14. A variable that changes as a consequence of another variable is considered to be the ________________________ variable.