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. There are three major types of markets: goods markets, factor markets and financial markets.
6. The efforts of workers, supervisors and plant managers would all be classified by economists as "labor"
7. Forests, oil deposits and rivers all fit under the economists definition of "land"
8. 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.
9. In a market economy, shortages are eliminated by falling prices and surpluses are eliminated by rising prices.
10. 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.
11. 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.
12. In a "theoretically pure capitalist economy" producers would have an incentive to join together and form monopolies.
13. In a "theoretically pure capitalist" economy goods with negative externalities would not be produced.
14. In an "economy guided by central planning" it is not possible to have macroeconomic problems such as inflation, unemployment, business cycles and slow economic growth.
15. All modern economies may be described as "mixed economies" because they use all three coordinating methods, customs, markets
and command.
16. The aim of normative economics is to explain how society makes decisions about production, consumption and income distribution.
17. A normative statement can be tested and proven to be false.
18. Positive economics offers policy recommendations based on value judgements.
19. Microeconomics tends to be focussed on how individual markets work and tends to ignore the interactions between markets.
20. Microeconomics provides an essential foundation for the study of macroeconomics.
21. Economic models tend to assume that many things remain constant even though in the real world most things do not remain constant.
22. Econometric techniques are necessary to test economic theories because the assumption that "all other things remain equal" seldom applies in the real world.
23. Once an economic theory has been tested and accepted, it becomes an economic law and it need not be tested again.
24. If one economic event follows another in time, it is certain that the first event was the cause of the second event.
25. 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.
26. A time series is a sequence of measurements of a variable over time.
27. Cross section data record at a point in time the way an economic variable differs across individuals or groups.
28. Graphs are better than tables for presenting precise values of economic data.
29. As a method of presenting economic data, tables have the advantage of giving a clearer picture of the nature of economic relationships than graphs.
30. It is only possible to graph positive values of economic variables.
31. 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.
32. 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.
33. A vertical or a horizontal line would indicate that there was a very strong relationship between the two variables.
34. Linear relationships are rarely used in macroeconomic models.
35. 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.
36. 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.
37. 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.
38. Every point on the production possibility frontier assumes maximum efficiency in using a fixed resource base and a fixed technology.
39. Combinations above the production possibility frontier are attainable, but they are not efficient.
40. The opportunity cost of an economic action is the least attractive alternative that was given up in order to take that action.
41. The "Law of Increasing Opportunity Cost" states that over time opportunity costs generally increase.
42. 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.
43. A growth in a nation's labor force will tend to shift outward its production possibility curve.
44. The demand for a good is the amount of that good that consumers plan to buy at a particular price.
45. The "Law of Demand" states that, all other things being constant the demand for a product is inversely related to its price.
46. A demand equation is normally written with price as the dependent variable and quantity demanded as the independent variable.
47. A demand schedule lists the quantities that people will purchase at various possible prices.
48. A change in the quantity demanded is caused by one thing, a change in the price of the product. Everything else will cause a change in demand.
49. If an decrease in incomes in the United States results in an increase in the demand for bicycles, then bicycles are "normal goods" in the United States.
50. An increase in expected future prices will increase the quantity demanded but it will not increase the demand.
51. The "Law of Supply" states that, other things being equal, the supply will go to those individuals who are willing to pay the most.
52. A movement along a supply curve is called a change in the quantity supplied.
53. If all other things remain constant, an expected increase in the future price of a product will result in a decrease in the current supply.
54. If all other things remain constant, an increase in the tax on the production of a good will result in an increase in the supply of that good.
55. The equilibrium price is one at which supply equals demand.
56. If the Laws of Supply and Demand are both obeyed we can be sure that the equilibrium in the goods market is a stable one.
57. If the Laws of Supply and Demand are both obeyed and the actual price is below the equilibrium price, there will be a surplus (Excess supply).
58. If the supply of a product increases while the demand for the product decreases, we can be sure that the equilibrium price will rise.
59. In most markets the determinants of supply and demand are constantly changing, hence most markets are in a state of disequilibrium most of the time.
60. When the government sets a maximum price that is below the equilibrium price, there is likely to be a shortage and some method of rationing the limited supply will be needed.
PART B
FILL IN THE BLANKS
1. Market economists generally classify economic resources as "land", "labor" and ____________ .
2. The three ways of achieving coordination in economies are: (1) custom and tradition, (2) ____________ and (3) central planning.
3. A _____________ statement attempts to describe how the world should be.
4. 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.
5. A decrease in the price of computers will cause an ______________ in the demand for of computer diskettes because computers and diskettes are complements of each other.
6. The __________________ is the amount that producers wish to sell at a particular price.
7. __________ refers to the entire relationship between the quantity supplied of a product and the price of the product.
8. If all other things remain constant, an increase in the cost of production will result in a _____________ in the supply of a product.
9. If both the supply and demand for a product increase, we can be sure that the equilibrium quantity will ____________ .