Some tools of the economist.

Some tools of the economist

Economics is a social science that studies how individuals, businesses, and governments make decisions regarding the allocation of scarce resources. Economists use a variety of tools to analyze and understand economic phenomena and make informed decisions. Some of these tools include:

Data analysis: Economists use data to analyze economic trends and make predictions about future economic conditions. They use statistical tools such as regression analysis, time-series analysis, and econometrics to analyze data and make predictions.
Game theory: This is a tool used to study strategic decision-making. Game theory models the interactions between individuals, businesses, and governments and predicts how they will behave in different situations.
Microeconomic theory: Microeconomics is the study of how individuals and businesses make decisions regarding the allocation of resources. The microeconomic theory provides a framework for analyzing how market forces such as supply and demand impact prices and production.
Macroeconomic theory: Macroeconomics is the study of the economy as a whole. The macroeconomic theory provides a framework for analyzing how factors such as inflation, unemployment, and GDP impact the economy.
Economic models: Economists use models to represent real-world economic phenomena and make predictions about future economic conditions. These models can range from simple supply and demand diagrams to complex mathematical equations.
Experimental economics: This is an approach in which economists use controlled experiments to study economic behavior. This allows them to isolate specific variables and test hypotheses about economic decision-making.

These tools allow economists to make predictions about economic conditions, test hypotheses and understand how economic decisions are made. They are essential for policy-making, business strategy, and personal finance.

In conclusion, economists have a wide range of tools at their disposal for analyzing and understanding economic phenomena. These tools include data analysis, game theory, microeconomic and macroeconomic theory, economic models, and experimental economics, which help them to make informed decisions.

1.Which of the following is a feature of an economy under market organization?

Market prices are controlled by government regulations, and government permission is required for any new business desiring to produce

There is a central planning authority making key decisions regarding resource use and production

The government plays an active role in the economy by producing most goods

Individual buyers and sellers make their own decentralized decisions regarding resource use, production and exchange

2.Which of the following would expand an economy’s production possibilities over time?

Adoption of more widespread central planning and elimination of private ownership

An increase in investment and a decrease in current consumption

An increase in current consumption and a decrease in investment

A declining population and labor force

3.Which of the following explains why the owner of a home is likely to paint and fix it up prior to putting it on the market for sale?

Because only homes that are freshly painted sell in the marketplace

Because they will likely not sell the property and will enjoy the benefit of the paint and repairs for years to come

Because they can take the leftover paint to their new home to fix it up

Because they personally gain from the increase in the value of their property that occurs when their property becomes more valuable to others

4.The opportunity cost of a choice:

is objective and can be determined only by economists

can be determined by adding up the marginal costs incurred in making the choice

can be measured in terms of the transaction costs involved in making the choice

is subjective and can be determined only by the decision-maker

5.Which of the following is true of the opportunity cost of a choice?

It can be determined only by someone other than the person making the choice

It is the highest valued alternative sacrificed in order to make the choice

It does not depend on the value a decision-maker places on alternative options while making a choice

It equals the monetary costs of making the choice

6.Linda, who owns a manufacturing company, discovers an innovation that improves the productivity of her capital equipment resulting in increased production from her resources. As a result, her revenue and profit both increase. Which of the following is true?

Linda’s actions will reduce the well being of society as in the long run it will result in less labor utilization and more unemployment

Linda has gained but somewhere else in the economy there must be an offsetting loss to someone else

Linda has created wealth and expanded the size of the economic pie

Linda has reduced the consumption opportunities available to consumers in the economy by taking up a larger share of the wealth

7.Which of the following is true of private-property ownership in a market economy?

Private owners do not employ their resources in ways that are beneficial to others

Private ownership leads to the overuse of resources when compared with common ownership

Private property can be exclusively used, transferred, sold, or mortgaged at the owner’s discretion

Private owners have no protection or legal recourse if others damage their property

8.Which of the following is an example of a middleman that helps to reduce transaction costs?

A farmer who grows a crop of wheat

A realtor who helps in the process of buying or selling homes

An inventor who discovers and patents a new pharmaceutical drug

A consumer who purchases a hot dog to eat

9.How do the actions of successful entrepreneurs such as Jeff Bezos, Henry Ford, or Steve Jobs affect the size of a country’s “economic pie”?

Their actions expand the size of the overall economic pie, creating wealth and improving the well-being of themselves as well as workers and consumers

Their actions have no effect on the overall economic pie, which is fixed, however, they do transfer a larger share of that fixed wealth to themselves that is taken away from workers and consumers

The total economic pie shrinks as a result of their actions which all involved automations that reduce labor utilization and increase unemployment

Corporate profits were expanded by their actions but offsetting reductions in wages and consumer prices resulted in the size of the overall economic pie being unchanged

10.Entrepreneurs such as Bill Gates, Jeff Bezos, or Henry Ford.

not only earned substantial income from their actions personally, but also expanded the size of the economic pie and improved the lives of their consumers and workers

expanded their own wealth at the expense of their consumers and workers who were made worse off by their actions

earned billions for themselves and reduced the well being of society as a whole

were able to earn their income by forcing consumers to purchase their inferior products when other, better, alternatives were available

11.The slope of the production possibilities curve indicates:

the ratio of the wages of the workers involved in the production of two different goods

the ratio of the marginal utilities from two consecutive units consumed of a good

the amount of one good that must be given up to produce more of the other

the ratio of the prices of two goods

12.Which of the following is a function of the government in a market organization?

It gathers information on the preferences of citizens and makes detailed plans for resource utilization to meet consumer desires

It owns and controls the basic means of production as an active player in the economic system

It determines the prices of goods to be exchanged

It enforces contracts, protects private property rights, and provides the overall legal structure protecting people from violence and fraud

13.Division of labor is a method:

in which different categories of labor are not allowed to communicate and are forced to compete without the knowledge of the other groups efforts

in which each of a series of specific tasks is performed by a different worker

in which each good is produced by the person who values it the most

in which the time of workers are divided among many tasks so that each unit of output is produced entirely by a single worker

14.Which of the following is a characteristic of private ownership?

It fails to offer legal protection against invasion from other individuals

It ensures access to the good or resource for everyone without the owner’s permission

It increases the difficulty in making exchanges involving large assets such as buildings or ships

It creates powerful incentives for conservation and efficient use

15.A student graduating college has three options: to stay an extra year in school full time to earn an MBA degree, to accept a full-time job that pays $5,000 per month, or to accept part-time job for a monthly salary of $2,000. The part-time job is viewed as the least desirable of the three options for the student. Which of the following represents the student’s opportunity cost of staying in school to get the MBA degree?

The time spent attending classes minus the value of the part time job

The income from the full-time job that is forgone for one year

The income from the part-time job that is forgone for one year

The annual tuition for the MBA program

16.An outward shift of the production possibilities curve would be caused by a(n):

increase in unemployed resources

decrease in the size of the resource base

improvement in technology

decline in labor productivity

17.Which of the following is true of the private owners of property?

They have an incentive to care for and efficiently use what they own

They have no incentive to conserve resources they own for the future

They have the right to use their properties but cannot sell them to others

They do not enjoy legal protection of their property rights

18.Which of the following is true in an economy characterized by market organization?

The key resources and factors of production are controlled by the government

Individuals are free to privately own property, and to compete and trade at terms agreed to under voluntary exchange

There is no planning by individuals undertaken regarding the use of the resources they control

Democratic decision making is used to determine which goods and services are produced and which resources are used to produce them

19.Which of the following is true of an entrepreneur?

An entrepreneur who suffers economic losses creates more value for society more than one who earns economic profits

An entrepreneur is a person who decides what resources will be used, how they will be combined, and what goods and services they will be utilized to produce

Typically, entrepreneurs do not undertake their activities within a business enterprise, but rather do so in the government sector

A successful entrepreneur’s actions will decrease the value of resources and shrink the size of the economic pie

20.Which of the following is true of middleman?

They reduce the overall value created by limited resources

They result in higher costs to buyers and seller with no corresponding benefit

They reduce the number of exchanges in an economy

They reduce transactions costs and expand the number of exchanges

21.Which of the following occurs when goods are voluntarily exchanged in a manner that moves them from individuals who value them less to individuals who value them more?

The total value created by limited resources increases

Both parties are made worse off

The total value created by limited resources decreases

The number of goods exchanged decreases

22.Which of the following is represented by an outward shift in a country’s production possibilities curve over time?

Depreciation of the country’s capital equipment and machinery

Economic growth

An increase in unemployment

An increase in transactions costs

23.The use of the political process to make economic decisions and allocate resources is known as:

market organization

marginal decision-making

collective decision-making

capitalism

24.Innovation:

results in an expansion of the production possibilities of an economy

prohibits the purchase, construction, or development of resources

occurs without private entrepreneurship as most new innovations come from government agencies

refers to a reduction in the value of an asset over time

25.Which of the following is the definition of innovation?

The exchange of one product or service directly for another across international borders

The creation of a new product or process, often facilitated by the knowledge of engineering and science

The successful introduction and adoption of a new product or process; the economic application of inventions and marketing techniques

The level of technological knowledge available in an economy at any given time embodied in current production possibilities

26.Which of the following methods is likely to reduce transaction costs incurred in an exchange?

An increase in the cost of resources such as oil and gas

An increase in taxes and regulations on voluntary transactions

A reduction in transportation and communications costs

A reduction in information available to consumers and producers

27.Which of the following is true of trade?

It results in a decrease in the total value created by limited resources

It moves goods from a geographically larger country to a smaller country

It results in the creation of goods but not services

It moves goods from those who value them less to those who value them more

28.The costs of the time, effort, and other resources needed to search out, negotiate, and complete an exchange are called:

transportation costs

transaction costs

opportunity costs

marginal costs

29.Which of the following is an implication of the law of comparative advantage?

The production of high opportunity cost goods by a country allows for the highest prices to be earned from selling exports to other countries

Countries will increase their consumption opportunities when they engage in international trade

High tariffs are necessary to ensure production does not relocate to low-wage countries

A country should try to produce everything it consumes and be self-sufficient

30.Which of the following is true of comparative advantage?

It states that individuals, firms, regions, or nations should produce all goods they consume with their available resources

It states that individuals, firms, regions, or nations can gain by specializing in the production of goods that they produce at a higher opportunity cost and buying those they could have produced at low opportunity cost

It states that individuals, firms, regions, or nations can gain by specializing in the production of goods that they produce at a lower opportunity cost and trading for others they can only produce at high opportunity cost

It states that individuals, firms, regions, or nations can gain by specializing in the goods they can produce the most of when compared with others

31.Suppose China produces laptops but lacks the resources to produce wheat. India, on the other hand, produces wheat in abundance but lacks resources to produce laptops. Both the countries agree to enter into a trade agreement. Which of the following will be true in this case?

Both countries will be better off

China will be better off, while India will be worse off

India will be better off, while China will be worse off

Both countries will be worse off

32.Creative destruction is a term that refers to:

the economic application of inventions to new military equipment that can be used in combat

the development of human resources, such as better education

the highest valued alternative forgone as a result of a choice

the replacement of old products and production methods by innovative new ones that consumers judge to be superior

33.Which of the following is true in countries that have expanded the use of private ownership rights to endangered species?

They have seen widespread increases in poverty because of the reductions in income generated from the lower availability of these species

These species have gone completely extinct

It has increased the populations and survival rates of these species

The populations have increased, but not by as much as they have in areas where these species are subject to common ownership or no ownership

34.Which of the following is necessary for efficient resource use and efficient functioning of markets?

Government management and production in all major industries that produce essential goods

The widespread use of common property ownership rights to ensure access of all individuals to the resources in a society

Private property ownership rights that are well defined and enforced

High transactions costs that ensure middlemen are compensated for their efforts and exchanges only take place when necessary

35.Which of the following is necessary for efficient resource use and efficient functioning of markets?

Government management and production in all major industries that produce essential goods

The widespread use of common property ownership rights to ensure access of all individuals to the resources in a society

Private property ownership rights that are well defined and enforced

High transactions costs that ensure middlemen are compensated for their efforts and exchanges only take place when necessary

36.Innovation, mass production methods, and the specialization and division of labor are all increased through:

expansions in the ease and volume of trade

less reliance on markets and greater utilization of democratic central planning

higher transactions costs

ensuring each country produces all of the goods it consumes and is self-sufficient

37.Which of the following assumptions holds true for a production possibilities curve?

The curve is always positively sloped

There is inefficient use of all productive resources

The curve can never shift due to changes in resource abundance or forms of economic organization

There is a given amount of technical knowledge and resources

38.Which of the following features of socialism distinguishes it from the market system?

Voluntary exchange at market determined prices takes place

Political forces and collective-decision making direct and control the economy

Individual decision-making guides the economy

Private firms can enter freely into the market to produce goods and compete

39.The production possibilities curve is concave to the origin (bowed outward) because of:

increasing transactions costs

increasing opportunity costs

decreasing information costs

decreasing marginal costs

40.Trade makes it possible for people to generate more output and higher living standards through:

the use of labor-intensive techniques in production

specialization and the division of labor

absolute advantage

small-scale production processes

41.Which of the following is a distinguishing feature of market organization?

The use of central planning by government through collective decision-making

The lack of contracting and the widespread use of violence and theft

Common collective ownership of productive assets

Prices determined through the decentralized voluntary interaction of buyers and sellers

42.If a socialist centrally planned economy were to reform and adopt a market based economic system we would expect:

an inward shift in the production possibilities curve as creative destruction would be halted

the availability and production of goods and services to be more affected by political connections and decisions

an increase in poverty as production capacity declines under private ownership in the long run

an increase in innovation, an expansion in production possibilities, and faster economic growth

43.Transaction costs

are never a marginal cost so should be ignored when making decisions

are the costs needed to search out, negotiate, and conclude an exchange

are the costs incurred in a production process but not in consumption

when high, ensure all potentially valuable trades take place

44.Suppose Germany and Argentina begin with the same production possibilities curve. Germany allocates more of its resources to investment and less to current consumption when compared to Argentina. Over time we would expect:

a greater inward shift of Germany’s production possibilities curve over time than Argentina’s

Argentina’s production possibilities curve to become vertical

Germany’s production possibilities curve to shift inward due to the lack of consumption opportunities

a greater outward shift of Germany’s production possibilities curve over time than Argentina’s

45.Jean is a high school student. He can spend his time either studying or attending a soccer match. His opportunity cost of studying is:

the enjoyment he otherwise could have experienced by attending the soccer match

the increase in his grades for each additional hour that he studies

the tuition fees that he pays for a term

the number of books that he buys before an examination

46.Which of the following is a key difference between capitalism and socialism?

In capitalism, planning and decisions are made through the political process, while in socialism, individual decision guides the economy

In capitalism, resources are allocated by market forces, while in socialism, resource allocation is determined by centralized planning

In capitalism, resources are allocated by the government, while in socialism, resource allocation is determined by private authorities

In capitalism, the ownership and control of the basic means of production rest with the state, while in socialism, goods and resources are owned privately

47.Fiona decides to spend a day attending a cooking class rather than studying. Her opportunity cost of attending the class is:

the benefit to her grades from studying for a day

the increase in the cooking skills she obtains from attending

the amount of time she decides to dedicate to it

the cost of the ingredients she might need while cooking

48.Which of the following groups of countries are examples of ones that rely predominantly on socialism and government planning to organize economic activity?

Denmark, Norway, Sweden, and Finland

France, Germany, Ireland, and Estonia

United States, United Kingdom, Canada, and Australia

Venezuela, Zimbabwe, Angola, Cuba, and North Korea

Some tools of the economist

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