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  • 1. 
    Which of the following expresses the most nearly correct cause-effect explanation?                 
    • A. 

      A. Scarcity implies that choices have to be made; when people make choices they incur costs.

    • B. 

      B. When people make choices, they incur costs, which creates scarcity.

    • C. 

      C. Because people incur costs, they will make choices, which leads to scarcity.

    • D. 

      d. Scarcity implies that costs will be made and choices regretted.


  • 2. 
    Deciding at the margin is __________ an all-or-nothing decision.
    • A. 

      A. consistent with

    • B. 

      B. inconsistent with

    • C. 

      C. the same as making

    • D. 

      D. conditioned upon making


  • 3. 
    Economists use the ceteris paribus assumption in order to
    • A. 

      A. make their analyses easier for them to conduct.

    • B. 

      b. designate what they believe is the correct relationship between two variables.

    • C. 

      c. explain why people sometimes consume more of a good when its price rises.

    • D. 

      D. explain why those things that come first do not necessarily cause those things that come later.


  • 4. 
    The economist says, “The data show that interest rates rose soon after the budget deficit increased in size. This proves that a rising budget deficit causes higher interest rates.” This economist should
    • A. 

      A. be believed, because the evidence supports what he says.

    • B. 

      B. not be believed, because he has committed the fallacy of composition.

    • C. 

      C. not be believed, because he has assumed that association is causation, and this is not necessarily true.

    • D. 

      D. not be believed, because while he says the data support his contention, he hasn’t cited the source of the data.


  • 5. 
    Which of the following is a positive economic statement?
    • A. 

      A. We should raise the minimum wage in order to provide a decent wage for more people.

    • B. 

      B. Consumers bought fewer cars when the relative price of cars increased.

    • C. 

      c. The budget deficit has been declining in recent years.

    • D. 

      d. b and c


  • 6. 
    “If you hadn’t gone to dinner with your friends, you would have stayed home and “surfed” the Internet.” It follows that                                       
    • A. 

      a. surfing the Internet is the opportunity cost of having dinner with your friends.

    • B. 

      B. the price of having dinner with your friends is more than the price you would have had to pay to surf the Internet.

    • C. 

      C. the opportunity cost of having dinner with your friends is lower than the opportunity cost of surfing the Internet.

    • D. 

      D. it is less costly to surf the Internet than to have dinner with your friends.


  • 7. 
    A three-word synonym for the term ceteris paribus is   
    • A. 

      a. “nothing else changes.”

    • B. 

      B. “in my opinion.”

    • C. 

      C. “it is proved.”

    • D. 

      D. “under this assumption.”


  • 8. 
    There is no such thing as a free lunch is a saying that expresses the idea that  
    • A. 

      A. opportunity costs are incurred whenever a choice is made.

    • B. 

      B. association is not necessarily causation.

    • C. 

      C. the fallacy of composition is responsible for many errors in economic thinking.

    • D. 

      D. food is very expensive these days because of inflation.


  • 9. 
    The study of an economy’s price level is explicitly a part of                                             
    • A. 

      A. macroeconomics.

    • B. 

      B. microeconomics.

    • C. 

      c. positive economics.

    • D. 

      D. normative economics.


  • 10. 
    Which statement is correct?                                           
    • A. 

      A. Economic theories cannot be tested.

    • B. 

      B. Economic theories do not need to be tested.

    • C. 

      C. Economic theories are abstractions from reality.

    • D. 

      D. Economic theories are always true in the real world.


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