Economic approach. Basic test (50 questions)

Economic approach

The economic approach is a method of analyzing and understanding economic phenomena and decision-making processes. It is based on the principles of micro- and macroeconomics, which are the study of how individuals, businesses, and governments make decisions regarding the allocation of scarce resources.

One of the key principles of the economic approach is that individuals and organizations will make decisions that maximize their utility or profit. This is known as the principle of rational choice. For example, a consumer will purchase a good or service that gives them the most satisfaction for their money, and a business will produce a good or service that generates the most profit.

Another important principle of the economic approach is the concept of opportunity cost. This refers to the cost of foregone opportunities when a decision is made. For example, if a company decides to invest in a new factory, the opportunity cost is the potential profits from alternative investments that were not chosen.

The economic approach also utilizes various models and theories to explain economic phenomena. For example, supply and demand models are used to analyze the behavior of markets, while macroeconomic models such as the IS-LM model are used to analyze the economy as a whole.

The economic approach is widely applied in various fields, such as policymaking, business strategy, and personal finance. It provides a framework for understanding how economic decisions are made and how they impact society and individuals.

Overall, the economic approach is a powerful tool for analyzing and understanding economic phenomena and decision-making processes. It is based on the principles of rational choice, opportunity cost, and the use of models and theories to explain economic phenomena. It is widely used in various fields to make more informed decisions.

1.Marginal decision-making by individuals

leads to irrational decisions

is only possible when opportunity costs are absent

involves comparing the change in the total cost to the change in total benefit when considering alternatives

is applicable to decisions involving consumption choices but not to those involving business choices

2.Which of the following is a statement that properly reflects the «incentives matter» postulate of economics?

Senior-citizen voters are more likely to support political candidates who favors higher Social Security benefits

A higher tax on businesses will have no impact on the number of businesses in an area nor the amount of business income

A higher tax on funerals will have no effect on the number of funerals performed because the same number of people will die

The severity of the legal punishment for a crime has no impact on criminal activity

3.In economics, the term utility refers to:

the subjective benefit or satisfaction a person expects from a choice

the opportunity cost of an action in terms of the value of forgone alternatives

the change in productivity resulting from capital equipment such as a tool or machine

an unintended consequence, or secondary effect, of a change in incentives

4.According to economists, an individual making a rational choice will:

compare marginal benefit to marginal cost

focus on the total cost and total benefit, rather than marginal cost and marginal benefit

always prefer the lower cost option, regardless of benefit

ignore the opportunity cost of their choices

5.Suppose Oliver is going to purchase a hamburger at a price of $2 with a drink that is priced at $1. A value meal combo is available that includes the hamburger, drink, and French fries for $3.50. Within the framework of marginal analysis, what is the proper way to state state the decision of whether to get the combo for $3.50 instead of the hamburger and drink for $3?

Is it worth $0.50 extra to get the French fries?

Is the drink worth $2.50 less than the French fries?

Is the hamburger worth $3.50 if it comes only with a drink?

Do I value the hamburger and fries without a drink at more than $3?

6.The logical mistake of assuming something that applies to an individual also applies to a group as a whole is called:

A violation of ceteris paribus conditions

The fallacy that association is causation

The mistake of ignoring secondary effects

The fallacy of composition

7.Which of the following is true of the concept of scarcity?

It is subjective

It is objective

It is relevant only in normative analysis

It is identical to the concept of poverty

8.Which of the following topics is studied in macroeconomics?

The impact of an increase in demand on the price of a good

The causes of inflation in the economy

The trade-off between quantity demanded and price for a good

A choice made by a firm of how much output to produce

9.Vivian, an economic analyst, assumes that if two events seem to have a statistical association, one must necessarily cause the other. Which of the following mistakes in reasoning is being committed by her?

A violation of ceteris paribus conditions

The fallacy of composition

The mistake of ignoring secondary effects

The fallacy that association is causation

10.The unintended indirect impacts of an event or policy that alters incentives in a manner that may not be easily and immediately observable are known in economics as:

imported effects

secondary effects

opportunity effects

external effects

11.Which of the following is analyzed in macroeconomics?

The factors that affect the demand for a narrowly defined good

The factors that affect the output of a single business firm

The overall rate of economic growth and unemployment in the economy as a whole

The decision-making process of an individual consumer

12.Which of the following statements can be considered a positive economic statement?

If the government increases the tax on automobiles, it will result in lower profits for automobile-manufacturing firms.

The government should increase the minimum wage to $20 per hour to reduce poverty

The government should impose heavy pollution taxes on pollution-causing vehicles

To reduce the incidence of cardiovascular disease, the government should ban smoking and vaping

13.Which of the following is a consequence of a scarcity of resources in an economy?

Decision-makers facing trade-offs between alternate choices

Individuals hoarding essential goods due to widespread shortages

Producers facing zero opportunity costs when making decisions

The potential for unlimited production of goods and services

14.In economics, the highest valued alternative forgone as a result of a choice is called:

opportunity cost

implicit cost

secondary cost

tradeoff value

15.Which of the following is true of the concept of utility?

It is objective

It is subjective

It is not relevant for current choices as it has already been incurred

It is identical and comparable across individuals

16.Which of the following is true of scarcity?

It reduces the prices of essential goods and services

It makes rationing a necessity

It lowers the desire for goods and services

It eliminates the need for choice

17.The term «resources» refers to:

only those items that are provided freely by nature

services provided by the government

inputs used for producing goods and services

services provided by the government

18.Which of the following statements is a normative economic statement?

Higher interest rates will decrease asset prices

A reduction in marginal income tax rates will result in higher tax revenue and an increase in employment

An increase in the demand for pizzas will increase the price of pizzas

The government should ban all imports to protect American jobs

19.Which of the following is an example of economizing behavior?

If Arthur enjoys an ice cream worth $4 as much as a smoothie worth $5, he will buy the ice cream

If Joe enjoys a pizza worth $5 more than one burger worth $3, he will buy more pizzas

If Chen enjoys two cotton candies as much as one cotton candy, he will buy more cotton candies

If Jonathan enjoys a strawberry smoothie more than a hot chocolate and both items cost the same, he will be indifferent between any one of the two items

20.Which of the following is an example of physical resources?

The knowledge acquired by an individual during college

The machines and tools used in a manufacturing facility

Administrative staff who help with employee benefits and payroll

The skills a person acquires during on-the-job training

21.Which of the following is an example of a human resource?

Machines and equipment

Productive knowledge and skills

Buildings and land

Mineral deposits and other natural resources

22.For the same price, Oliver can choose to either have a burger, a pizza, a hot dog, or a smoothie. Oliver gets more utility from a burger than from pizza, more utility from a pizza than from a hot dog, and Oliver does not like smoothies at all. In such a case, an economizing behavior implies that he will buy the:

burger

pizza

smoothie

hot dog

23.Which of the following is true of rationing in a market economy?

It fails to provide any incentive for individuals to work and produce for others

The government makes most decisions regarding which individuals get which goods and services, and the price they pay

Price is used to ration goods only to those who are willing and able to pay the price

The need for it is eliminated by increasing technology overcoming scarcity

24.Which of the following is an advantage of using price as a rationing mechanism to allocate scarce goods and resources in an economy?

It encourages individuals to waste time and other resources in competing with others to gain political influence over the prices of goods

It eliminates scarcity by increasing the production of goods and services and moving the economy to a higher production possibilities frontier

It encourages individuals to wait in long lines due to the shortages created by the first-come, first-served nature of price rationing

It encourages individuals to engage in the production of goods and services to generate income

25.The satisfaction that an individual expects from the choice of a specific alternative is the:

utility derived from that alternative

opportunity cost of a foregone alternative

marginal cost from the alternative

sunk cost already incurred from the alternative

26.Comproot Industries currently produces and sells widgets for $20 each. The company is considering purchasing a new industrial 3D printer for $10,000 that would reduce waste and improve production with existing resources. If the new 3D printer would result in output increasing from 3,000 units to 4,000 units, then based on this information the firm should:

shut down operations due to losses

purchase the new 3D printer

reduce its level of production to 1,000 units

not purchase the new 3D printer

27.Which of the following is true of scarcity?

It only exists in less developed countries

It necessitates individuals make choices among competing alternatives

It eliminates the need for rationing

It is the same as poverty

28.Which of the following is true of economic theory?

It is only useful for analyzing consumer purchase decisions and has little to say about the behavior of individuals as producers or participants in the political process

It includes a set of principles that have been developed without relying upon any assumptions or basic principles of human behavior

It includes a set of postulates and principles that make clear the cause-and-effect relationship between variables

It is based on always assuming variables that are associated with each other are causally related

29.Which of the following would be a microeconomic topic?

The study of how individual business firms operate in a market

The study of unemployment rates in an economy

The study of the impact of government debt on the economy

The study of inflation in an economy

30.In economics, the term capital refers to:

the total amount of savings held in bank accounts in an economy

the level of inventory held by all firms in the economy

domestic services produced divided by imported goods consumed

human-made resources (such as tools, equipment, and structures) used to produce other goods and services

31.Which of the following is a difference between scarcity and poverty?

Poverty cannot be eliminated, while scarcity can be eliminated some day

Poverty implies that our desires for goods are not fully satisfied, while scarcity implies that some basic level of need has not been met

Poverty exists as long as resources are available in limited amounts, while scarcity exists until there is a technological breakthrough in production

Poverty implies that some basic level of need has not been met, while scarcity implies that individuals’ desires for goods are not fully satisfied

32.On weekends, Martha can either go to dinner with her family or go bowling with her friends. The opportunity cost of choosing to go for the dinner is equal to:

the monetary cost of the meal

her hourly wage from her weekday job

the utility she gains from the dinner

the forgone night of bowling

33.Scarcity indicates that:

the supply of resources is infinite

market forces tend to overproduce goods and services

the supply of resources exceeds the demand for resources

there is less of a good or resource freely available than people would like

34.When economists state that individuals make rational choices, they mean:

individuals always make the right choice that improves their health and longevity

price is generally less relevant than benefit when an individual makes decisions

most consumer decisions require individuals to spend a long time doing substantial background research

individuals compare the expected benefits and costs of actions when making decisions

35.Which of the following statements is true regarding the information individuals use to make choices in economics?

Acquiring more information is always worthwhile

Information is costly to acquire

The information required to make rational choices is never available

Depending on external sources to gather information is irrational

36.Jonathan can either choose to go to a movie with friends or stay at home and sleep a few extra hours. If he chooses to sleep, then the opportunity cost of sleeping is equal to:

the cost of the movie ticket

the money saved by not buying popcorn and soda

the time spent in watching the movie

the utility lost from not going to the movie

37.The branch of economics that studies individual consumer and business firm choices and how those are coordinated within markets is called:

macroeconomics

microeconomics

positive economics

normative economics

38.Fiona would get identical utility from consuming either a burger, a walnut pie, a hot dog, or a chocolate mousse. If the price of a burger is $4, a walnut pie is $2, a hot dog is $1, and a chocolate mousse is $3, economizing behavior implies that she will buy the: burger

hot dog

burger

walnut pie

chocolate mousse

39.A clothing store is having a sale in which all shirts are $20 each, or you can get three for $50. Sarah has found two shirts she wishes to purchase and is now considering a third shirt. What is the marginal cost of the third shirt for Sarah?

$20

$50

$60

$10

40.Economists argue that:

people respond to incentives only because they are selfish and greedy

rational behavior will prevent people from responding to incentives

rational behavior will lead to the elimination of scarcity

people are motivated by humanitarian and selfish goals and incentives matter equally in both

41.Which of the following correctly describes the opportunity cost of a choice?

It is a cost that has already been incurred and cannot be recovered

It is an indirect cost that are not dependent on the level of goods or services produced by a firm

It is the change in the total monetary cost that occurs when an additional unit of a good or service is produced

It is the highest valued option given up when a choice is made

42.Which of the following is a result of competition between employers for workers in a market economy?

A lack of employee training opportunities offered

A reduction in the incentive for workers to be productive and invest in their education and skill development

An increase in wage rates and better working conditions

Equal income for all workers regardless of productivity or education levels

43.Economizing behavior:

always results in maximum savings and minimum consumption spending

is choosing the option that offers the greatest benefit at the least possible cost

results in consumers always choosing the lowest price option, regardless of the difference in benefit

is the result of irrational decision-making that fails to consider costs and benefits

44.When deciding whether to produce an additional unit of a good, marginal analysis suggests a producer will compare:

marginal costs with opportunity costs

the additional (marginal) cost with the additional (marginal) revenue

labor costs with resource costs

additional (marginal) revenue with price

45.Which of the following is true regarding competition?

Competition results in a wasteful duplication of efforts by multiple producers attempting to produce the same product

Competition between employers for workers results in low wages and poor working conditions

Competition among business firms for customers results in more expensive goods and services because of the money wasted on advertising

Competition is natural outgrowth of scarcity

46.Which of the following correctly states the basic postulate of economics?

Changes in incentives influence human choices in a predictable way

Human desires are limited, but our productive resources are unlimited

Pricing is an inefficient method of rationing scarce goods and resources to individuals

Shortages and surpluses generally prevail at market equilibrium prices

47.When the rationing criterion is price, individuals:

will not be able to properly identify the opportunity costs of their purchases

will engage in income-generating activities that enhance their ability to pay the price needed to buy the goods and services they want

with very high incomes will be the only ones who can afford any of the goods and services produced in the economy

will have little incentive to work in income-producing activities, and instead try to produce everything they consume at home

48.Which of the following provides the foundation for economic analysis?

The basic ideas of scarcity and choice, along with the associated trade-offs

The irrationality of all human decision making

The fact that people rarely react to changes in personal incentives

The unlimited knowledge possessed by all decision makers in an economy

49.Microeconomics examines topics such as:

the international trade levels among global economies

the price of a good in a competitive market

the national debt

the impact of GDP growth on the unemployment rate

50.Rational decision-makers continue to acquire information as long as:

the expected marginal benefit from that information exceeds the marginal cost of gathering it

the expected marginal benefit from that information is less than the marginal cost of gathering it

it can be acquired within a specific time period without depending on an external agency

it can be acquired at zero marginal cost and is easily comprehensible

Economic approach

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