Name _________________________________
Class Hour __
Chapter 1.2 Economic Theory
Part 1 True or False Directions: Please write “TRUE” in the blank if the statement is true and “FALSE” if it is false.
__________________________1. In order to be accurate, theories should be detailed in nature. (p. 11)
__________________________2. According to the circular-flow model, the flows of resources and products are supported by the flows of income and expenditure. (p. 16)
__________________________3. Although it is assumed that people are driven by rational self-interest, this does not mean that people are not concerned for others. (p. 12)
__________________________4. Making rational consumer choices can be done without time and information. (p. 14)
__________________________5. In the context of economics, marginal is defined as incremental or additional. (p. 13)
__________________________6. All circular-flow models focus on interactions between households and firms. (p. 15)
__________________________7. Households both demand services and supply resources in the economy. (p. 15)
__________________________8. Market economics might focus on the shoe industry. (p. 14)
__________________________9. Economists agree on most theoretical principles based on positive economic analysis. (p. 13)
__________________________10. Economic theories are directly responsible for causing future economic trends. (p. 11)
Part 2—Multiple Choice Directions: Write the CAPITAL letter of the most correct answer in the blank.
__ 11. A rational decision maker will change the status quo when the following condition occurs the expected marginal: (p. 13)
A. cost from the change exceeds the expected marginal benefit.
B. benefit from the change exceeds the expected marginal cost.
C. benefit from the change equals the expected marginal cost.
D. none of these
__ 12. Which of the following is a positive economic statement? (p. 13)
A. The economy should experience a recession by next year.
B. The US experienced its sharpest decrease
C. More jobs should be created as a result of this administration’s plans. D. The recession must be over by the end of this year.
__ 13. Which of the following would be a concern for microeconomists? (p. 14)
A. how the recession affected the unemployment rate
B. how the stock market behaved during the last quarter
C. how many people were hired throughout the country last year
D. how a baby boom affected the number of diapers sold during the past year
__ 14. Which of the following is not an example of a market? (p. 15)
A. a nuclear plant
B. the mall C. help-wanted ads
D. the Internet
__ 15. According to the circular-flow model, firms do which of the following things? (p. 16)
A. supply goods and services to households
B. demand human resources from households
C. demand capital goods through resource markets D. A, B, and C
__ 16. Consumer goods and services are bought in which of these markets? (p. 15)
B. service markets l
__ 17. Which of the following would be a concern for macroeconomists? (p. 15)
A. how the U.S. economy fared during 2004
C. how many nonfiction books were published last year
__ 18. Which of the following is a normative economic statement? (p. 13)
A. Interest rates were raised twice last year.
C. The price of gasoline increased by 3 cents since yesterday.
__ 19. Which of the following is not a participant in the economy? p. 15) A. firms
A. goods markets
C. product markets
D. resource markets
B. how Toyota car sales were affected by a recession
D. how higher interest rates affected the ABC Home Construction Company
B. Cookies in the Jar, a new baking company, doubled its sales this year as compared to last year.
D. The largest grocery store chains should hire more workers because the economy has improved.
B. government
C. households
D. all of the previous participate in the economy
__ 20. Which of the following is necessary in developing an economic theory? (p. 11)
A. simplify the problem
B. never assume that people make rational choices concerning their self-interests
C. assume that all factors are variables and change constantly
D. A, B, and C
Part 3 Short Answer Directions: Read the following questions, and write your response.
21. Describe an exchange between your family and a particular business. (The product market) (p. 15)
22. Describe an exchange between a firm and your family. (The resource market) (p. 15)
Part 4 Critical Thinking Directions: Read the following questions, and write your response.
Following is a cost-benefit analysis of a decision: (A) Attend state college or (B) Attend out-of-state college. Create two cost-benefit grids to analyze a decision you have to make. Assign
weights to each quadrant based on how important each cost or benefit is to you (1 being not important, 5 being very important). Add your columns and analyze your results. Does this
help you with your decision? Explain. (p. 13)