Test Bank 1

to accompany

Economics

Sixteenth Edition

Campbell R. McConnell
University of Nebraska

Stanley L. Brue
Pacific Lutheran University Prepared by
Stanley L. Brue

Test Bank 1 to accompany
ECONOMICS
Campbell R. McConnell and Stanley L. Brue

Published by McGraw-Hill,
an imprint of The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas,
New York, NY 10020. Copyright 
2005 by The McGraw-Hill Companies, Inc.
All rights reserved.

The contents, or parts thereof, may be reproduced in print form solely for classroom use with
ECONOMICS
provided such reproductions bear copyright notice, but may not be reproduced in any other form or for any
other purpose without the prior written consent of The McGraw-Hill Companies, Inc., including, but not limited
to, in any network or other electronic storage or transmission, or broadcast for distance learning.
1 2 3 4 5 6 7 8 9 0
Text printer code/Cover printer code 0 9 8 7 6 5 4

ISBN
0-07-288479-7

Table of Contents
30 Government and Market Failure 929
31 Public Choice Theory and Taxation 953
32 Antitrust Policy and Regulation 979
33 Agriculture: Economics and Policy 1001
34 Income Inequality and Poverty 1021
35 Labor Market Institutions and Issues: Unionism,
Discrimination, and Immigration 1047
36 The Economics of Health Care 1077
37 International Trade 1097
38 Exchange Rates, the Balance of Payments, and Trade Deficits 1127
39W The Economics of Developing Countries (Internet-Only Chapter) 1157
40W Transition Economies: Russia and China (Internet-Only Chapter) 1177
Preface

Test Bank I contains more than 6,300 multiple-choice and true-false questions. We have created
approximately 670 new question for this edition; the remaining 5,630 have been checked and refined to
ensure compatibility with the 16
th
Edition.

Test Bank I continues to be accurate, functional, and user-friendly.

1. New questions: All new question are so identified. This will provide long-time users of
Economics with a fresh set of questions.

2. Grouping by topic: As in previous editions, all questions are grouped by topic and sequenced in
the same order as the text material. A table at the beginning of each Test Bank chapter lists the
topics and corresponding question numbers. Each topic has been numbered for easy reference.
This sequencing should reduce the time required to make up well-balanced exams.


edition of McConnell/Brue Economics:
Macroeconomics, Microeconomics, and Economics. Test Bank I follows the Economics
chapter order. Use the following chart to see how Test Bank I/Economics chapters
correspond with the other two books:
Economics/TB I Chapter
Macroeconomics Chapter Microeconomics Chapter
1-6 1-6 1-6
7-19 7-19 ***
20-36 *** 7-23
37-38 20-21 24-25
3W 3W 3W
39W 22W ***
40W 23W 26W Bold type indicates chapters common to all three books.
*** indicates chapters that do not appear in a particular split version of the text.
W indicates chapters that are available only at the book’s website,
www.mcconnell16.com. Coding System for Test Bank I
The codes above each question indicate the following question types: A = Application of Concept
A question that tests student understanding of a definition or concept.

Edition

MI = Microeconomics, 16
th
Edition
CHAPTER 1

The Nature and Method of Economics Topic Question numbers

___________________________________________________________________________________________________1. Economics; economic perspective 1-20

2. Benefits of studying economics 21-23

3. Methodology 24-40

4. Economic policy and goals 41-47

5. Macroeconomics and microeconomics 48-56

6. Positive and normative statements 57-66



Answer: C
Type: D Topic: 1 E: 4 MI: 4 MA: 4 Status: New

2. In economics, the pleasure, happiness, or satisfaction received from a product is called:

A) marginal cost. B) rational outcome. C) status fulfillment. D) utility.

Answer: D
Type: A Topic: 1 E: 4 MI: 4 MA: 4 Status: New

3. When economists say that people act rationally in their self interest, they mean that individuals:

A) look for and pursue opportunities to increase their utility.

B) generally disregard the interests of others.

C) are mainly creatures of habit.

D) are unpredictable.

Answer: A

Type: A Topic: 1 E: 4 MI: 4 MA: 4

6. When entering a building, Sam diverts his path to go through an open door rather than make the physical
effort to open the closed door that is directly in his path. This is an example of:

A) irrational behavior. C) marginal benefit-marginal cost analysis.

B) a lazy person. D) programmed learning.

Answer: C
Type: A Topic: 1 E: 4 MI: 4 MA: 4

7. Joe sold gold coins for $1000 that he bought a year ago for $1000. He says, "At least I didn't lose any
money on my financial investment." His economist friend points out that in effect he did lose money,
because he could have received a 3 percent return on the $1000 if he had bought a bank certificate of
deposit instead of the coins. The economist's analysis in this case incorporates the idea of:

A) opportunity costs C) imperfect information.

B) marginal benefits that exceed marginal costs. D) normative economics.

Answer: A
Type: A Topic: 1 E: 4-5 MI: 4-5 MA: 4-5


McConnell/Brue: Economics, 16/e Page 3

Type: D Topic: 1 E: 3 MI: 3 MA: 3

10. The study of economics is primarily concerned with:

A) keeping private businesses from losing money.

B) demonstrating that capitalistic economies are superior to socialistic economies.

C) choices that are made in seeking to use scarce resources efficiently.

D) determining the most equitable distribution of society's output.

Answer: C
Type: D Topic: 1 E: 4 MI: 4 MA: 4

11. The economic perspective refers to:

A) macroeconomic phenomena, but not microeconomic phenomena.

B) microeconomic phenomena, but not macroeconomic phenomena.

C) the making of rational decisions in a context of marginal costs and marginal benefits.

D) unlimited resources in a context of limited economic wants.


D) an individual's economic goals cannot involve tradeoffs.

Answer: C
Type: D Topic: 1 E: 4 MI: 4 MA: 4

14. Economics involves marginal analysis because:

A) most decisions involve changes from the present situation.

B) marginal benefits always exceed marginal costs.

C) marginal costs always exceed marginal benefits.

D) much economic behavior is irrational.

Answer: A
Type: A Topic: 1 E: 5 MI: 5 MA: 5

15. You should decide to go to a movie:

A) if the marginal cost of the movie exceeds its marginal benefit.

B) if the marginal benefit of the movie exceeds its marginal cost.

Type: D Topic: 1 E: 3 MI: 3 MA: 3

17. The assertion that "There is no free lunch" means that:

A) there are always tradeoffs between economic goals.

B) all production involves the use of scarce resources and thus the sacrifice of alternative goods.

C) marginal analysis is not used in economic reasoning.

D) choices need not be made if behavior is rational.

Answer: B
Type: A Topic: 1 E: 4 MI: 4 MA: 4

18. Consumers spend their incomes to get the maximum benefit or satisfaction from the goods and services
they purchase. This is a reflection of:

A) resource scarcity and the necessity of choice.

B) rational behavior.

C) marginal costs that exceed marginal benefits.

D) the tradeoff problem that exists between competing goals.

Answer: B


D) implies that, for most people, the marginal benefit of reading a second newspaper is less than the
marginal cost.

Answer: DChapter 1: The Nature and Method of Economics
McConnell/Brue: Economics, 16/e Page 5

Benefits of studying economics
Type: A Topic: 2 E: 5 MI: 5 MA: 5

21. Studying economics:

A) helps one become a better-informed citizen and voter.

B) is detrimental to good citizenship because economics emphasizes individualism.

C) is a waste of time since we all participate in the economy whether we understand it or not.

D) is important because economics is the science of earning money.

Answer: A

interest.

Answer: C
Methodology
Type: D Topic: 3 E: 6 MI: 6 MA: 6

24. An economic hypothesis:

A) has the same meaning as an economic principal or economic law.

B) is usually a normative statement.

C) is a possible explanation of cause and effect.

D) is a stronger generalization than an economic law.

Answer: C
Type: A Topic: 3 E: 6 MI: 6 MA: 6

25. Which of the following terms implies the least degree of confidence in an economic generalization?



Type: C Topic: 3 E: 7 MI: 7 MA: 7

28. Economists:

A) use both the economic perspective and the scientific method.

B) use the economic perspective but not the scientific method.

C) make positive economic statements, but not normative economic statements.

D) reject theorizing as being impractical.

Answer: A
Type: A Topic: 3 E: 6 MI: 6 MA: 6

29. The scientific method is:

A) not applicable to economics, because economics deals with human beings.

B) also known as the economic perspective.

C) analysis that moves from broad generalizations called laws to theories and then to hypotheses.

D) used by economists and other social scientists, as well as by physical scientists and life scientists.

Answer: D

Type: A Topic: 3 E: 6 MI: 6 MA: 6

32. Theoretical economics:

A) is also known as policy economics.

B) is the process of deriving principles of economics.

C) is highly impractical since it does not deal with the real world.

D) rejects the scientific method as being inappropriate for the social sciences.

Answer: BChapter 1: The Nature and Method of Economics
McConnell/Brue: Economics, 16/e Page 7

Type: D Topic: 3 E: 7 MI: 7 MA: 7

33. Which of the following is a correct statement?

A) Economic concepts or laws that are valid during depression are necessarily valid during prosperity.

B) Though not quantitatively exact, economic laws are useful because they allow us to predict and
therefore control or adjust to events.


C) emphasize basic economic relationships by abstracting from the complexities of the real world.

D) are unrealistic and therefore of no practical consequence.

Answer: C
Type: D Topic: 3 E: 7 MI: 7 MA: 7

36. The term "ceteris paribus" means:

A) that if event A precedes event B, A has caused B.

B) that economics deals with facts, not values.

C) other things equal.

D) prosperity inevitably follows recession.

Answer: C
Type: D Topic: 3 E: 7 MI: 7 MA: 7

37. The basic purpose of the other-things-equal assumption is to:

A) allow one to reason about the relationship between variables X and Y without the intrusion of variable
Z.

Answer: B
Type: D Topic: 3 E: 6 MI: 6 MA: 6

39. An hypothesis is:

A) a fundamental truth that all economists accept.

B) a tentative, untested statement of possible cause and effect.

C) the same as a normative statement.

D) also known as a principle or law.

Answer: B
Type: D Topic: 3 E: 8 MI: 8 MA: 8

40. The term "other things equal" means that:

A) the associated statement is normative.

B) many variables affect the variable under consideration.

C) a number of relevant variables are assumed to be constant.



A) use only positive economics, not normative economics.

B) consider the benefits and costs of the various policy options for reaching desired goals.

C) avoid outcomes for which marginal benefits exceed marginal costs.

D) use only normative economics, not positive economics.

Answer: BChapter 1: The Nature and Method of Economics
McConnell/Brue: Economics, 16/e Page 9

Type: D Topic: 4 E: 9 MI: 9 MA: 9

43. If there is a tradeoff between goals A and B:

A) greater fulfillment of A means lesser fulfillment of B.

B) goals A and B are positively correlated.

C) causation exists between the two goals.

D) greater fulfillment of A means greater fulfillment of B.

Type: A Topic: 4 E: 10 MI: 10 MA: 10

46. Most of the disagreement among economists involves:

A) the use of statistics. B) the gathering of facts. C) generalizing upon facts. D) policy economics.

Answer: D
Type: A Topic: 4 E: 9 MI: 9 MA: 9

47. With respect to the basic economic goals of society, for example, economic growth, full employment,
economic efficiency, price level stability, economic freedom, distributional equity, and economic security,
it can be said that:

A) all are accepted and assigned similar priorities in every industrialized society.

B) all are precisely measurable.

C) some goals are complementary and others are conflicting.

D) all are conflicting goals.

Answer: C


B) an empirical investigation of the general price level and unemployment rates since 1990

C) a study of the trend of pecan prices since the Second World War

D) a case study of pricing and production in the textbook industry

Answer: B
Type: A Topic: 5 E: 9 MI: 9 MA: 9

50. The problems of aggregate inflation and unemployment are:

A) major topics of macroeconomics. C) major topics of microeconomics.

B) not relevant to the U.S. economy. D) peculiar to command economies.

Answer: A
Type: A Topic: 5 E: 9 MI: 9 MA: 9

51. Which of the following statements pertains to macroeconomics?

A) Because the minimum wage was raised, Mrs. Olsen decided to enter the labor force.

B) A decline in the price of soybeans caused farmer Wanek to plant more land in wheat.


B) a detailed examination of specific economic units that make up the economic system.

C) positive economics, but not normative economics.

D) the establishing of an overall view of the operation of the economic system.

Answer: B
Type: D Topic: 5 E: 9 MI: 9 MA: 9

54. Microeconomics:

A) is the basis for the "after this, therefore because of this" fallacy.

B) is not concerned with details, but only with the overall big picture of the economy.

C) is concerned with individual economic units and specific markets.

D) describes the aggregate flows of output and income.

Answer: CChapter 1: The Nature and Method of Economics

Answer: C
Positive and normative statements
Type: D Topic: 6 E: 10 MI: 10 MA: 10

57. A normative statement is one that:

A) is based on the law of averages. C) applies only to macroeconomics.

B) applies only to microeconomics. D) is based on value judgments.

Answer: D
Type: A Topic: 6 E: 10 MI: 10 MA: 10

58. Which of the following is a normative statement?

A) The temperature is high today. C) It is too hot to play tennis today.

B) The humidity is high today. D) It will cool off later this evening.

Answer: C


A) facts and theories. C) what is.

B) what ought to be. D) rational choice involving costs and benefits.

Answer: B

Chapter 1: The Nature and Method of Economics
McConnell/Brue: Economics, 16/e Page 12

Type: D Topic: 6 E: 10 MI: 10 MA: 10

62. A positive statement is concerned with:

A) some goal that is desirable to society. C) what is.

B) what should be. D) the formulation of economic policy.

Answer: C
Type: A Topic: 6 E: 10 MI: 10 MA: 10

63. Ideally, value judgments are involved at the:

A) levels of facts, theory, and policy. C) level of facts only.



66. Ben says that "An increase in the tax on beer will raise its price." Holly argues that "Taxes should be
increased on beer because college students drink too much." We can conclude that:

A) Ben's statement is normative, but Holly's is positive.

B) Holly's statement is normative, but Ben's is positive.

C) Both statements are normative.

D) Both statements are positive.

Answer: B
Logical pitfalls
Type: D Topic: 7 E: 11 MI: 11 MA: 11

67. The fallacy of composition states that:

A) because economic systems are composed of so many diverse economic units, economic laws are
necessarily inexact.

B) the anticipation of a particular event can affect the composition of that event when it occurs.

C) what is true for the individual must necessarily be true for the group.


Type: A Topic: 7 E: 11 MI: 11 MA: 11

69. The safest way for an individual to leave a burning theater is to run for the nearest exit; it is therefore also
the best means of escape for a large audience. This assertion illustrates the:

A) "after this, therefore because of this" fallacy. C) fallacy of composition.

B) correlation fallacy. D) fallacy of limited decisions.

Answer: C
Type: D Topic: 7 E: 11 MI: 11 MA: 11

70. Which of the following has to do with the idea that generalizations that apply to individuals are also always
valid for a group?

A) the law of large numbers C) the fallacy of composition

B) the law of averages D) the post hoc, ergo propter hoc fallacy

Answer: C
Type: D Topic: 7 E: 11 MI: 11 MA: 11

71. The fallacy of composition states that:


73. If you leave a football game at the end of the third quarter, you will avoid traffic and get home more
quickly. Therefore, everyone should leave the game early. This assertion illustrates the:

A) moral hazard problem. C) fallacy of limited decisions.

B) adverse selection problem. D) fallacy of composition.

Answer: DChapter 1: The Nature and Method of Economics
McConnell/Brue: Economics, 16/e Page 14

Type: D Topic: 7 E: 11 MI: 11 MA: 11

74. Which of the following has to do with the problem of distinguishing cause and effect in economic
reasoning?

A) the law of large numbers C) the post hoc, ergo propter hoc fallacy

B) the law of averages D) the fallacy of composition

Answer: C
Type: D Topic: 7 E: 11 MI: 11 MA: 11

77. The post hoc fallacy and the correlation problem both relate to:

A) the calculation of marginal costs and marginal benefits of any economic activity.

B) the issue of determining causation.

C) the frequent inability of households and businesses to behave rationally.

D) the tradeoff problem associated with competing goals.

Answer: B
Type: A Topic: 7 E: 11 MI: 11 MA: 11

78. If variables X and Y are positively correlated, this means that:

A) X is the cause of Y .

B) Y is the cause of X.

C) causation necessarily exists, but we don't know whether X or Y is the cause.

D) causation may or may not exist between X and Y .


B) the "after this, therefore because of this fallacy."

C) the fallacy of composition.

D) the economic perspective.

Answer: A
Type: A Topic: 7 E: 10 MI: 10 MA: 10 Status: New

81. A caller to a radio talk show states that protesters against globalization are a collection of "anarchist punks,
naïve college students, and trade union radicals." This is an example of:

A) the fallacy of composition. C) loaded terminology.

B) the economic perspective. D) marginal analysis.

Answer: C
Type: F Topic: 7 E: 11 MI: 11 MA: 11 Status: New

82. A study found that the incidence of skin cancer increases along with the amount of time people work under
fluorescent light, leading some people to conclude that fluorescent lighting is a cause of skin cancer. But
further analysis found that people who work in offices, where fluorescent light is common, suffer more
sunburn on their vacations than other workers. The sunburns, not the fluorescent light, were the cause of
the higher incidence of skin cancer. The original conclusion illustrates:

Type: F E: 4 MI: 4 MA: 4 Status: New

84. (Consider This) The assertion by economists that "there is no free lunch" is:

A) contradicted by the presence of free goods offered by firms.

B) applies to goods that have prices, not to goods given away free by firms.

C) remains true even for goods given away free by firms.

D) applies to agricultural goods, but not to manufactured goods.

Answer: CChapter 1: The Nature and Method of Economics
McConnell/Brue: Economics, 16/e Page 16

Last Word Questions
Type: A E: 12 MI: 12 MA: 12



Type: A E: 12 MI: 12 MA: 12

87. (Last Word) Consumers might leave a fast-food restaurant without being served because:

A) they are misinformed about the marginal cost and marginal benefits of the food being served.

B) they conclude that the marginal cost (monetary plus time costs) exceeds the marginal benefit.

C) the environment is not conducive to a rational choice.

D) the lines waiting for service are not of equal length.

Answer: B
True/False Questions
Type: D E: 7 MI: 7 MA: 7

88. An economic model is an ideal or utopian type of economy that society should strive to obtain through
economic policy.

Answer: False


92. Positive statements are expressions of value judgments.

Answer: False
Type: D E: 3 MI: 3 MA: 3

93. The primary objective of economics is to help businesspersons operate their firms profitably.

Answer: False
Type: D E: 9 MI: 9 MA: 9

94. The basic goals for the U.S. economy are always complementary since the achievement of any one goal
simultaneously furthers the attainment of other basic goals.

Answer: False
Type: D E: 9 MI: 9 MA: 9

95. Macroeconomics explains the behavior of individual households and business firms; microeconomics is
concerned with the behavior of aggregates or the economy as a whole.

Answer: False


99. Rational individuals may make different choices because their preferences and circumstances differ.

Answer: True
Type: D E: 4 MI: 4 MA: 4

100. Choices entail marginal costs because resources are scarce.

Answer: TrueChapter 1: The Nature and Method of Economics
McConnell/Brue: Economics, 16/e Page 18

AppendixMultiple Choice QuestionsConstruction and interpretation of graphs
Type: D Topic: 8 E: 16 MI: 16 MA: 16

103. Economists:

A) always put the independent variable on the horizontal axis and the dependent variable on the vertical
axis.

B) always put the dependent variable on the horizontal axis and the independent variable on the vertical
axis.

C) are somewhat arbitrary in assigning independent and dependent variables to the horizontal and vertical
axes.

D) measure the slope of a line differently than do mathematicians.

Answer: C
Type: D Topic: 8 E: 16 MI: 16 MA: 16

104. Which of the following statements is correct?

A) The value of the independent variable is determined by the value of the dependent variable.

B) The value of the dependent variable is determined by the value of the independent variable.

C) The dependent variable designates the "cause" and the independent variable the "effect."
Type: G Topic: 8 E: 16 MI: 16 MA: 16

106. Refer to the above diagram. Which line(s) show(s) a negative relationship between x and y?

A) A only B) both A and D C) A, B, and D D) both C and E

Answer: D
Type: G Topic: 8 E: 18 MI: 18 MA: 18

107. Refer to the above diagram. Which line(s) show(s) a positive vertical intercept?

A) A and D only B) B and C only C) A, D, and E D) A, D, and B

Answer: C
Type: G Topic: 8 E: 18 MI: 18 MA: 18

108. Refer to the above diagram. Which line(s) show(s) a negative vertical intercept?

A) C only B) both C and E C) B, C, and E D) both B and C

Answer: D