ECN Exam 1 Study Guide 2026 | Economics Review, Practice Questions & Test
Prep
"We should support the market because it is efficient" is an example of: - ✔✔normative
economics.
Positive economics is: - ✔✔more objective than normative economics.
Scarcity exists because: - ✔✔new wants continue to develop and willingness to meet them is
limited.
Your opportunity cost of taking this course is the: - ✔✔net benefit of the activity you would
have chosen if you had not taken the course.
The marginal benefit of another T-shirt this month to Mary is $15. If the $10 price of a T-shirt
reflects its marginal cost to Mary and Mary uses economic reasoning, she: - ✔✔will buy
another T-shirt this month.
a. Which of the following are microeconomic problems? - ✔✔The pricing policies of firms
How wages are determined in labor markets
b. Which of the following are macroeconomic problems? - ✔✔Unemployment
Inflation
Economists Henry Saffer of Kean University, Frank J. Chaloupka of the University of Illinois at
Chicago, and Dhaval Dave of Bentley College estimated that the government must spend $4,170
on drug control to deter one person from using drugs and that the cost one drug user imposes
on society is $897. Based on this information alone, should the government spend the money
,on drug control? - ✔✔No, since the marginal cost of drug control exceeds the marginal benefit,
the government should not spend $4,170 to deter one person from using drugs. Correct
What is the difference between normative and positive statements?
A. Normative statements
B.Positive statements - ✔✔A. reflect ethical judgements about what should be. It reflects
values.
B. refer to a fact or a logical relationship. It is in principle testable or is the result of logic
analysis.
State whether the following are primarily microeconomic or macroeconomic policy issues.
a. Should U.S. interest rates be lowered to decrease the amount of unemployment?
b. Will the fact that more and more doctors are selling their practices to managed care networks
increase the efficiency of medical providers?
c. Should the current federal income tax be lowered to reduce unemployment?
d. Should the federal minimum wage be raised?
e. Should Sprint and Verizon both be allowed to build local phone networks?
f. Should commercial banks be required to provide loans in all areas of the territory from which
they accept deposits? - ✔✔a. Macroeconomic
b. Microeconomic
c. Macroeconomic
,d. Microeconomic with macroeconomic implications
e. Microeconomic
f. Microeconomic Correct
State whether the following statements belong in positive economics, normative economics, or
the art of economics.
a. In a market, when quantity supplied exceeds quantity demanded, price tends to fall.
b. When determining tax rates, the government should take into account the income needs of
individuals.
c. Given society's options and goals, a broad-based tax is generally preferred to a narrowly-
based tax.
d. California currently rations water to farmers at subsidized prices. Once California allows the
trading of water rights, it will allow economic forces to be a market force. - ✔✔a. Positive
economics
b. Normative economics
c. Could be either normative economics or art of economics
d. Positive economics
Suppose you currently earn $35,000 a year. You are considering a job that will increase your
lifetime earnings by $350,000 but that requires an MBA. The job will mean also attending
business school for two years at an annual cost of $20,000. You already have a bachelor's
degree, for which you spent $95,000 in tuition and books.
Which of the above information is relevant to your decision on whether to take the job? -
✔✔The relevant costs are the opportunity cost of taking the job (forgone earnings from your
, current job) and other things you could have done with the money you need to pay for business
school. The tuition for the bachelor's degree is a sunk cost and is not relevant. The relevant
benefit is the increased lifetime earnings of $350,000.
Does economic theory prove that the free market system is best?
Why? - ✔✔A. No
B. It simply gives ways to look at systems and determine what the advantages and
disadvantages of various systems will likely be. Normative decisions about what is best can only
follow from one's value judgments.
Two examples of political or legal forces that interact with market forces are - ✔✔rent control
laws and restrictions on immigration.
What is the opportunity cost of buying a $20,000 car? - ✔✔The benefit from spending that
$20,000 on the next-best alternative
Suppose your college has been given $5 million. You have been asked to decide how to spend it
to improve your college. Use the economic decision rule and the concept of opportunity costs
to decide how to spend it. - ✔✔You should spend the $5 million on projects that provide the
highest marginal benefit per dollar spent.
You rent a car for $29.95. The first 100 miles are free, but each mile thereafter costs 10 cents.
You plan to drive it 200 miles. What is the marginal cost of driving the car beyond the first 100
free miles? - ✔✔The marginal cost is $10.00 plus the cost of gas.
a. Which of the following are microeconomic problems?
b. Which of the following are macroeconomic problems? - ✔✔A. Negative Externalities, House
loan installments
Prep
"We should support the market because it is efficient" is an example of: - ✔✔normative
economics.
Positive economics is: - ✔✔more objective than normative economics.
Scarcity exists because: - ✔✔new wants continue to develop and willingness to meet them is
limited.
Your opportunity cost of taking this course is the: - ✔✔net benefit of the activity you would
have chosen if you had not taken the course.
The marginal benefit of another T-shirt this month to Mary is $15. If the $10 price of a T-shirt
reflects its marginal cost to Mary and Mary uses economic reasoning, she: - ✔✔will buy
another T-shirt this month.
a. Which of the following are microeconomic problems? - ✔✔The pricing policies of firms
How wages are determined in labor markets
b. Which of the following are macroeconomic problems? - ✔✔Unemployment
Inflation
Economists Henry Saffer of Kean University, Frank J. Chaloupka of the University of Illinois at
Chicago, and Dhaval Dave of Bentley College estimated that the government must spend $4,170
on drug control to deter one person from using drugs and that the cost one drug user imposes
on society is $897. Based on this information alone, should the government spend the money
,on drug control? - ✔✔No, since the marginal cost of drug control exceeds the marginal benefit,
the government should not spend $4,170 to deter one person from using drugs. Correct
What is the difference between normative and positive statements?
A. Normative statements
B.Positive statements - ✔✔A. reflect ethical judgements about what should be. It reflects
values.
B. refer to a fact or a logical relationship. It is in principle testable or is the result of logic
analysis.
State whether the following are primarily microeconomic or macroeconomic policy issues.
a. Should U.S. interest rates be lowered to decrease the amount of unemployment?
b. Will the fact that more and more doctors are selling their practices to managed care networks
increase the efficiency of medical providers?
c. Should the current federal income tax be lowered to reduce unemployment?
d. Should the federal minimum wage be raised?
e. Should Sprint and Verizon both be allowed to build local phone networks?
f. Should commercial banks be required to provide loans in all areas of the territory from which
they accept deposits? - ✔✔a. Macroeconomic
b. Microeconomic
c. Macroeconomic
,d. Microeconomic with macroeconomic implications
e. Microeconomic
f. Microeconomic Correct
State whether the following statements belong in positive economics, normative economics, or
the art of economics.
a. In a market, when quantity supplied exceeds quantity demanded, price tends to fall.
b. When determining tax rates, the government should take into account the income needs of
individuals.
c. Given society's options and goals, a broad-based tax is generally preferred to a narrowly-
based tax.
d. California currently rations water to farmers at subsidized prices. Once California allows the
trading of water rights, it will allow economic forces to be a market force. - ✔✔a. Positive
economics
b. Normative economics
c. Could be either normative economics or art of economics
d. Positive economics
Suppose you currently earn $35,000 a year. You are considering a job that will increase your
lifetime earnings by $350,000 but that requires an MBA. The job will mean also attending
business school for two years at an annual cost of $20,000. You already have a bachelor's
degree, for which you spent $95,000 in tuition and books.
Which of the above information is relevant to your decision on whether to take the job? -
✔✔The relevant costs are the opportunity cost of taking the job (forgone earnings from your
, current job) and other things you could have done with the money you need to pay for business
school. The tuition for the bachelor's degree is a sunk cost and is not relevant. The relevant
benefit is the increased lifetime earnings of $350,000.
Does economic theory prove that the free market system is best?
Why? - ✔✔A. No
B. It simply gives ways to look at systems and determine what the advantages and
disadvantages of various systems will likely be. Normative decisions about what is best can only
follow from one's value judgments.
Two examples of political or legal forces that interact with market forces are - ✔✔rent control
laws and restrictions on immigration.
What is the opportunity cost of buying a $20,000 car? - ✔✔The benefit from spending that
$20,000 on the next-best alternative
Suppose your college has been given $5 million. You have been asked to decide how to spend it
to improve your college. Use the economic decision rule and the concept of opportunity costs
to decide how to spend it. - ✔✔You should spend the $5 million on projects that provide the
highest marginal benefit per dollar spent.
You rent a car for $29.95. The first 100 miles are free, but each mile thereafter costs 10 cents.
You plan to drive it 200 miles. What is the marginal cost of driving the car beyond the first 100
free miles? - ✔✔The marginal cost is $10.00 plus the cost of gas.
a. Which of the following are microeconomic problems?
b. Which of the following are macroeconomic problems? - ✔✔A. Negative Externalities, House
loan installments
