Tutorial 2

(Topic 2: Understand The Two Economic Models)

1. For an economist, the idea of making assumptions is regarded generally as a

A. bad idea, since doing so leads to the omission of important ideas and
variables from economic models.
B. bad idea, since doing so invariably leads to data-collection problems.
C. good idea, since doing so helps to simplify the complex world and make it
easier to understand.
D. good idea, since economic analysis without assumptions leads to
complicated results that the general public finds hard to understand.

2. A model can be accurately described as a

A. theoretical abstraction with very little value.
B. device that is useful only to the people who created it.
C. realistic and carefully constructed theory.
D. simplification of reality.

3. An economic theory about international trade that is based on the assumption that there
are only two countries trading two goods
A. is useless, since the real world has many countries trading many goods.
B. can be useful only in situations involving two countries and two goods.
C. can be useful in the classroom, but is useless in the real world.
D. can be useful in helping economists understand the complex world of international
trade involving many countries and many goods.

4. The circular-flow diagram is an example of

A. a laboratory experiment.
B. an economic model.
C. a mathematical model.
D. All of the above are correct.

5. In the simple circular-flow diagram, the participants in the economy are

A. firms and government.
B. households and firms.
C. households and government.
D. households, firms, and government.

6. In the circular-flow diagram, firms produce

A. goods and services using factors of production.
B. output using inputs.
C. factors of production using goods and services.
D. Both (A) and (B) are correct.

7. In the circular-flow diagram, which of the following is not a factor of production?

A. labor
B. land
C. capital
D. money

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8. Which of these terms are used interchangeably?
A. "goods and services" and "inputs"
B. "goods and services" and "factors of production"
C. "inputs" and "factors of production"
D. "land, labor, and capital" and "goods and services"

9. In the simple circular-flow diagram,

A. households own the factors of production.
B. households buy all the goods and services that firms produce.
C. land, labor, and capital flow from households to firms.
D. All of the above are correct.

10. In the simple circular-flow diagram, who consumes the goods and services that firms
produce?
A. households only
B. firms only
C. both households and firms
D. neither households nor firms

11. Which markets are represented in the simple circular-flow diagram?

A. markets for goods and services and markets for financial assets
B. markets for factors of production and markets for financial assets
C. markets for goods and services and markets for factors of production
D. markets for goods and services and markets for imports and exports

12. In the markets for goods and services in the circular-flow diagram,
A. households and firms are both buyers.
B. households and firms are both sellers.
C. households are buyers and firms are sellers.
D. households are sellers and firms are buyers.

13. In the markets for the factors of production in the circular-flow diagram,
A. households are sellers and firms are buyers.
B. households are buyers and firms are sellers.
C. households and firms are both buyers.
D. households and firms are both sellers.

14. Which of the following transactions does not take place in the markets for the factors of
production in the circular-flow diagram?
A. Kosuke provides plumbing services for a plumbing company and receives an
hourly wage from the company for his services.
B. Alfonso works as a marriage counselor and his clients pay him on a per-hour
basis for his services.
C. Geovany owns several shopping malls and receives rent payments from the
companies that operate those malls.
D. Carlos sells advertising for a newspaper and receives a commission from the
newspaper company for each advertisement that he sells.