ECON 2301 Ch 1 & 2

Which of the following statements is true? a) Microeconomics focuses on specific decision-making units of the economy; macroeconomics examines the economy as a whole. b) Macroeconomics focuses on specific decision-making units of the economy; microeconomics examines the economy as a whole. c) Every topic in economics is either a microeconomic or a macroeconomic issue; a topic cannot be both. d) Topics in microeconomics have public policy implications; topics in macroeconomics do not.

a) Microeconomics focuses on specific decision-making units of the economy; macroeconomics examines the economy as a whole.

Which of the following is not considered by economists to be an economic resource? a) Money. b) Factory workers. c) Computers at a retail store. d) A forest.

a) Money

Which of the following is a fundamental characteristic of the market system? a) Property rights. b) Central planning by government. c) Unselfish behavior. d) Government-set wages and prices.

a) Property rights.

Which of the following best describes the invisible-hand concept? a) The desires of resource suppliers and producers to further their own self-interest will automatically further the public interest. b) The nonsubstitutability of resources creates a conflict between private and public interests and calls for government intervention. c) The market system is the best system for overcoming the scarce resources-unlimited wants problem. d) Central direction by the government will improve resource allocation in a capitalistic economy.

a) The desires of resource suppliers and producers to further their own self-interest will automatically further the public interest.

Which of the following is not a main function of the entrepreneur? a) To make routine pricing decisions. b) To innovate. c) To assume the risk of economic losses. d) To make strategic business decisions.

a) To make routine pricing decisions.

Enterprise managers and workers in the Soviet Union often resisted innovations in production methods because: a) production targets were often increased when innovation occurred. b) there was a chronic shortage of computers. c) workers could not be reallocated geographically. d) innovations ordinarily increased dependence on world markets.

a) production targets were often increased when innovation occurred.

Opportunity costs exist because: a) the decision to engage in one activity means forgoing some other activity. b) wants are scarce relative to resources. c) households and businesses make rational decisions. d) most decisions do not involve sacrifices or trade-offs.

a) the decision to engage in one activity means forgoing some other activity.

The economizing problem is: a) the need to make choices because economic wants exceed economic means. b) how to distribute resources equally among all members of society. c) that people's means often exceed their wants. d) that people do not know how to rationally allocate resources.

a) the need to make choices because economic wants exceed economic means.

The production possibilities curve shows: a) the various combinations of two goods that can be produced when society employs all of its scarce resources. b) the minimum outputs of two goods that will sustain a society. c) the various combinations of two goods that can be produced when some resources are unemployed. d) the ideal, but unattainable, combinations of two goods that would maximize consumer satisfactions.

a) the various combinations of two goods that can be produced when society employs all of its scarce resources.

In what type of business do the owners bear no personal financial responsibility for the company's debts and obligations? a) Partnerships. b) Corporations. c) Sole proprietorships. d) In all of the businesses listed in the other answers.

b) Corporations.

The budget line shows: a) the amount of product A that a consumer is willing to give up to obtain one more unit of product B. b) all possible combinations of two goods that can be purchased, given money income and the prices of the goods. c) the minimum amount of two goods that a consumer can purchase with a specific money income. d) all possible combinations of two goods that yield the same level of utility to the consumer.

b) all possible combinations of two goods that can be purchased, given money income and the prices of the goods.

In the simple circular flow model: a) households are buyers of resources. b) businesses are sellers of final products. c) households are sellers of final products. d) there are real flows of goods, services, and resources, but not money flows.

b) businesses are sellers of final products.

The dollar votes of consumers ultimately determine the composition of output and the allocation of resources in a market economy. This statement best describes the concept of: a) derived demand. b) consumer sovereignty. c) the invisible hand. d) market failure.

b) consumer sovereignty.

The optimal point on a production possibilities curve is achieved where: a) the smallest physical amounts of inputs are used to produce each good. b) each good is produced at a level where marginal benefits equal marginal costs. c) large amounts of capital goods are produced relative to consumer goods. d) large amounts of consumer goods are produced relative to capital goods.

b) each good is produced at a level where marginal benefits equal marginal costs.

Refer to the diagram. Arrows (3) and (4) represent: a) goods and services respectively. b) incomes and consumer expenditures respectively. c) resources and goods respectively. d) consumer expenditures and income respectively.

b) incomes and consumer expenditures respectively.

Broadly defined, competition involves: a) private property and freedom of expression. b) independently acting buyers and sellers and freedom to enter or leave markets. c) increasing opportunity costs and diminishing marginal utility. d) capital goods and division of labor.

b) independently acting buyers and sellers and freedom to enter or leave markets.

An economic system: a) requires a grouping of private markets linked to one another. b) is a particular set of institutional arrangements and a coordinating mechanism used to respond to the economizing problem. c) requires some sort of centralized authority (such as government) to coordinate economic activity. d) is a plan or scheme that allows a firm to make money at some other firm's expense.

b) is a particular set of institutional arrangements and a coordinating mechanism used to respond to the economizing problem.

The most efficient combination of resources in producing a given output is the combination that: a) comes closest to using the same quantities of land, labor, capital, and entrepreneurial ability. b) minimize the cost per unit of output. c) uses the smallest total quantity of all resources. d) conserves most on the use of labor.

b) minimize the cost per unit of output.

Purposeful behavior means that: a) people are selfish in their decision making. b) people weigh costs and benefits to make decisions. c) people are immune from emotions affecting their decisions. d) decision makers do not make mistakes when weighing costs and benefits.

b) people weigh costs and benefits to make decisions.

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) purposeful behavior. c) marginal costs that exceed marginal benefits. d) the trade-off problem that exists between competing goals.

b) purposeful behavior.

The construction of a production possibilities curve assumes: a) the quantities of all resources are unlimited. b) technology is fixed. c) some resources are unemployed. d) there is no inflation in the economy.

b) technology is fixed.

Refer to the diagram. Arrows (1) and (3) are associated with: a) the money market. b) the resource market. c) the product market. d) international trade.

b) the resource market.

The process by which economists test hypotheses against facts to develop theories, principles, and models is called: a) the economic perspective. b) the scientific method. c) policy economics. d) microeconomics.

b) the scientific method.

Which of the following is not a typical characteristic of a market system? a) Private property. b) Freedom of enterprise. c) Government ownership of most property resources. d) Competition in product and resource markets

c) Government ownership of most property resources.

Which of the following is a distinguishing feature of laissez-faire capitalism? a) Public ownership of all capital. b) Central planning. c) Minimal government intervention. d) A circular flow of goods, resources, and money.

c) Minimal government intervention.

Which of the following terms implies the greatest degree of confidence in an economic generalization? a) Hypothesis. b) Comparison. c) Principle. d) Anomaly.

c) Principle.

A well-tested economic theory is often called: a) a hypothesis. b) a prototype. c) a principle. d) an anomaly.

c) a principle.

Economic theories: a) are useless because they are not based on laboratory experimentation. b) that are true for individual economic units are never true for the economy as a whole. c) are generalizations based on a careful observation of facts. d) are abstractions and therefore of no application to real situations.

c) are generalizations based on a careful observation of facts.

Barter: a) is the major means of exchange in centrally planned economies. b) accounts for over 30 percent of the dollar volume of all exchange in the U.S. economy. c) entails the exchange of goods for goods. d) is used to circumvent the problem of a lack of coincidence of wants among potential buyers and sellers.

c) entails the exchange of goods for goods.

In the resource market: a) businesses borrow financial capital from households. b) businesses sell services to households. c) households sell resources to businesses. d) firms sell raw materials to households.

c) households sell resources to businesses.

Risk is a problem faced: a) only in market systems. b) only in command systems. c) in both market systems and command systems. d) in neither market systems nor command systems, only in laissez-faire capitalism.

c) in both market systems and command systems.

If two variables are inversely related, then as the value of one variable: a) increases, the value of the other may either increase or decrease. b) decreases, the value of the other decreases. c) increases, the value of the other decreases. d) increases, the value of the other increases.

c) increases, the value of the other decreases.

The process of producing and accumulating capital goods is called: a) money capital. b) depreciation. c) investment. d) consumption.

c) investment.

If products were in short or surplus supply in the Soviet Union: a) price and profit signals eliminated those shortages and surpluses. b) price and profit signals intensified those shortages and surpluses. c) producers would not react because no price or profit signals occurred. d) the planners would immediately adjust production to achieve equilibrium.

c) producers would not react because no price or profit signals occurred.

The two basic markets shown by the simple circular flow model are: a) capital goods and consumer goods. b) free and controlled. c) product and resource. d) household and business.

c) product and resource.

In terms of the circular flow diagram, businesses obtain revenue through the _____ market and make expenditures in the _____ market. a) product; financial b) resource; product c) product; resource d) capital; product

c) product; resource

Households and businesses are: a) both buyers in the resource market. b) both sellers in the product market. c) sellers in the resource and product markets respectively. d) sellers in the product and resource markets respectively.

c) sellers in the resource and product markets respectively.

A production possibilities curve shows: a) that resources are unlimited. b) that people prefer one of the goods more than the other. c) the maximum amounts of two goods that can be produced, assuming the full use of available resources. d) combinations of capital and labor necessary to produce specific levels of output.

c) the maximum amounts of two goods that can be produced, assuming the full use of available resources.

(Consider This) A direct cost of going to college is: a) tuition, while an indirect cost (opportunity cost) is books and other supplies. b) forgone income while in college, while an indirect cost (opportunity cost) is tuition. c) tuition, while an indirect cost (opportunity cost) is forgone income while in college. d) books and supplies, while an indirect cost (opportunity cost) is food and housing.

c) tuition, while an indirect cost (opportunity cost) is forgone income while in college.

(Last Word) 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. d) because event A precedes event B, A is necessarily the cause of B.

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

A positive statement is concerned primarily with: a) some goal that is desirable to society. b) what should be. c) what is. d) the formulation of economic policy.

c) what is.

The division of labor means that: a) labor markets are geographically segmented. b) unskilled workers outnumber skilled workers. c) workers specialize in various production tasks. d) each worker performs a large number of tasks.

c) workers specialize in various production tasks.

Which of the following is a land resource? a) A farmer. b) An oil drilling rig. c) A machine for detecting earthquakes. d) Natural gas.

d) Natural gas.

(Consider This) Since World War II: a) North Korea's command economy has significantly outperformed South Korea's market economy. b) South Korea's command economy has significantly outperformed North Korea's market economy. c) North Korea's market economy has significantly outperformed South Korea's command economy. d) South Korea's market economy has significantly outperformed North Korea's command economy.

d) South Korea's market economy has significantly outperformed North Korea's command economy.

Which of the following is one of the Five Fundamental Questions? a) Which products will be in scarce supply and which in excess supply? b) Who should appoint the head of the central bank? c) How much should society save? d) What goods and services will be produced?

d) What goods and services will be produced?

Command systems are also known as: a) market systems. b) pure capitalism. c) laissez-faire capitalism. d) communism.

d) communism.

The basic difference between consumer goods and capital goods is that: a) consumer goods are produced in the private sector and capital goods are produced in the public sector. b) an economy that commits a relatively large proportion of its resources to capital goods must accept a lower growth rate. c) the production of capital goods is not subject to the law of increasing opportunity costs. d) consumer goods satisfy wants directly while capital goods satisfy wants indirectly.

d) consumer goods satisfy wants directly while capital goods satisfy wants indirectly.

The marginal benefit curve is: a) upsloping because of increasing marginal opportunity costs. b) upsloping because successive units of a specific product yield less and less extra benefit. c) downsloping because of increasing marginal opportunity costs. d) downsloping because successive units of a specific product yield less and less extra benefit.

d) downsloping because successive units of a specific product yield less and less extra benefit.

Refer to the diagram. Arrows (1) and (2) represent: a) goods and resources respectively. b) money incomes and output respectively. c) output and money incomes respectively. d) resources and goods respectively.

d) resources and goods respectively.

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, to formulate and test hypotheses.

d) used by economists and other social scientists, as well as by physical scientists and life scientists, to formulate and test hypotheses.