1. A good economic theory:

a. includes every detail that affects the economic behavior of interest.

b. relies on simplifying assumptions in order to explain economic behavior.

c. does not rely on simplifying assumptions.

d. is impossible to achieve because of the difficulty of conducting controlled experiments.

2. In Europe, birth rates have fallen as the stork population decreased. This is likely

a. a normative statement.

b. confusing correlation and causation.

c. the fallacy of composition.

d. all of the above

3. Which of the following best illustrates the fallacy of composition?

a. If I have more money, I will be better off; therefore if we all had more money, we all would be better off.

b. If I buy more gas each week, my gas consumption increases; therefore, if all gas consumers buy more gas each week, total gas consumption will increase.

c. If I spend more time studying, I will learn more; therefore, if all students spend more time studying, they will learn more.

d. If women's hemlines are higher this year, the Dow Jones Industrials average will fall.

4. Scarcity is the result of:

a. inappropriate normative judgments.

b. wants that exceed the resources necessary to provide them.

c. government decision making.

d. positive economics.

5. Which of the following will shift a production possibilities curve outward?

a. a decrease in the unemployment rate from 18% to 15%

b. a decrease in available labor and capital

c. an increase in the unemployment rate

d. an improvement in technology

6. In a market economy, resources are allocated:

a. by individual decision makers responding to market prices.

b. by decentralized planners at the local level.

c. by government bureaucracies because of the absence of a price system.

d. by central planners using a price system.

7. Which of the following is considered to be the best method of production?

a. Labor-intensive method

b. Capital-intensive method

c. Least-cost method

d. Scarce resource method

8. Refer to Exhibit 3-14 below.

Which move to the new production possibilities curve will lead to more food and the same level of housing?

a. A to C

b. B to C

c. C to B

d. A to B

9. If Bill expects to earn a higher income next month, he may choose to

a. save less now and spend more of his current income on goods and services.

b. decrease his current demand for goods and services.

c. save more now and spend less of his current income on goods and services.

d. move along his current demand curve for goods and services.

10. Which of the following best represents the effects of a decrease in the price of tea?

a. A leftward shift in the demand for tea.

b. A rightward shift in the demand for tea.

c. A downward movement along the demand curve for tea.

d. An upward movement along the demand curve for tea.