ECON UNIT 1 REVIEW

12. Answer the question using the following data, which show all available techniques for producing 20 units of a particular commodity. In view of the indicated resource prices, the economically most efficient production technique(s): A. 1. B. 2 and 4 Technique #2 = (16+6+6+2) =30. Technique #4 = (16+3+3+8) =30. C. 3. D. 1 and 3.

B. 2 and 4

15. Which of the following is not one of the five fundamental questions? A. What prices will be charged for goods and services? B. Who will get the goods and services? C. What goods and services will be produced? D. How will the system promote progress?

A. What prices will be charged for goods and services?

11. In a market system, employees and suppliers A. are usually shielded from risk, but at the cost of not sharing in the profits of the firm. B. are usually shielded from risk and share in the profits of the firm. C. are generally subject to as much risk as firm owners but get to share in the profits. D. bear as much risk as firm owners but don't get to share in the profits.

A. are usually shielded from risk, but at the cost of not sharing in the profits of the firm.

18. A person should consume more of something when its marginal A. benefit exceeds its marginal cost. B. cost exceeds its marginal benefit. C. cost equals its marginal benefit. D. benefit is still better.

A. benefit exceeds its marginal cost.

29. If the demand for steak (a normal good) shifts to the left, the most likely reason is that A. consumer incomes have fallen. B. cattle production has declined. C. the price of steak has risen. D. the price of cattle feed has gone up.

A. consumer incomes have fallen.

27. Because successive units of a good produce less and less additional satisfaction, the price must fall to encourage a buyer to purchase more units of the good. This statement is most consistent with which explanation for the law of demand? A. diminishing marginal utility B. the rationing function of prices C. the substitution effect D. the income effect

A. diminishing marginal utility

40. Refer to the diagram above, which shows demand and supply conditions in the competitive market for product X. Other things equal, a shift of the supply curve from S0 to S1 might be caused by a(n) A. increase in the wage rates paid to laborers employed in the production of X. B. government subsidy per unit of output paid to firms producing X. C. decline in the price of the basic raw material used in producing X. D. increase in the number of firms producing X.

A. increase in the wage rates paid to laborers employed in the production of X.

34. Refer to the diagram above. An increase in quantity supplied is depicted by a A. move from point y to point x. B. shift from S1 to S2. C. shift from S2 to S1. D. move from point x to point y.

A. move from point y to point x.

24. The law of demand states that, other things equal, A. price and quantity demanded are inversely related. B. the larger the number of buyers in a market, the lower will be product price. C. price and quantity demanded are directly related. D. consumers will buy more of a product at high prices than at low prices.

A. price and quantity demanded are inversely related.

39. Allocative efficiency is concerned with A. producing the combination of goods most desired by society. B. achieving the full employment of all available resources. C. producing every good with the least-cost combination of inputs. D. reducing the concavity of the production possibilities curve.

A. producing the combination of goods most desired by society.

8. 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

20. 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.

21. Macroeconomics approaches the study of economics from the viewpoint of A. the entire economy. B. governmental units. C. the operation of specific product and resource markets. D. individual firms.

A. the entire economy.

2. The economizing problem is one of deciding how to make the best use of A. virtually unlimited resources to satisfy virtually unlimited wants. B. limited resources to satisfy virtually unlimited wants. C. unlimited resources to satisfy limited wants. D. limited resources to satisfy limited wants.

B. limited resources to satisfy virtually unlimited wants.

10. The most efficient combination of resources in producing a given output: A. comes closest to using the same quantities of land, labor, capital, and entrepreneurial ability. B. minimizes the cost per unit of output. C. uses the smallest total quantity of all resources. D. conserves most on the use of labor.

B. minimizes the cost per unit of output.

41. Refer to the diagram. A government price support program to aid farmers is best illustrated by A. quantity E. B. price C. C. price A. D. price B

B. price C.

38. Refer to the diagram above. If this is a competitive market, price and quantity will move toward A. $60 and 100, respectively. B. $60 and 200, respectively. C. $40 and 150, respectively. D. $20 and 150, respectively.

C. $40 and 150, respectively.

1. 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 wheat. C. National income grew by 2.7 percent last year. D. The PC State Bank increased its interest rate on consumer loans by 1 percentage point.

C. National income grew by 2.7 percent last year.

19. 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 the best use of resources. D. determining the most equitable distribution of society's output.

C. choices that are made in seeking the best use of resources.

If the price in this market was $4, A. the market would clear; quantity demanded would equal quantity supplied. B. buyers would want to purchase more wheat than is currently being supplied. C. farmers would not be able to sell all their wheat. D. there would be a shortage of wheat.

C. farmers would not be able to sell all their wheat.

7. The term "laissez-faire" suggests that A. land and other natural resources should be privately owned, but capital should be publicly owned. B. land and other natural resources should be publicly owned C. government should not interfere with the operation of the economy. D. government action is absolutely necessary if the economy is to achieve full employment.

C. government should not interfere with the operation of the economy.

16. The simple circular flow model shows that A. households are on the buying side of both product and resource markets. B. businesses are on the selling side of both product and resource markets. C. households are on the selling side of the resource market and on the buying side of the product market. D. businesses are on the buying side of the product market and on the selling side of the resource market.

C. households are on the selling side of the resource market and on the buying side of the product market.

45. An "increase in the quantity supplied" suggests a A. rightward shift of the supply curve. B. movement down along the same supply curve. C. movement up along the same supply curve. D. leftward shift of the supply curve.

C. movement up along the same supply curve.

42. A price floor means that A. inflation is severe in this particular market. B. sellers are artificially restricting supply to raise price. C. government is imposing a maximum legal price that is typically below the equilibrium price. D. government is imposing a minimum legal price that is typically above the equilibrium price.

D. government is imposing a minimum legal price that is typically above the equilibrium price.

23. Refer to the diagram above. Other things equal, this economy will (eventually) shift its production possibilities curve outward the most if A. the ratio of capital to consumer goods is minimized. B. it chooses point C. C. it chooses point B. D. it chooses point A.

D. it chooses point A. (Highest Up)

32. Refer to the diagram above. A decrease in quantity demanded is depicted by a A. move from point x to point y. B. shift from D1 to D2. C. shift from D2 to D1. D. move from point y to point x.

D. move from point y to point x.

43. If a legal ceiling price is set above the equilibrium price, A. a shortage of the product will occur. B. a surplus of the product will occur. C. a black market will evolve. D. neither the equilibrium price nor the equilibrium quantity will be affected.

D. neither the equilibrium price nor the equilibrium quantity will be affected.

6. If the marginal benefit of a good is less than its marginal cost, then the producer should A. produce more of that good. B. Maintain the current level of production of that good. C. reduce the marginal benefit of that good. D. reduce the production of that good.

D. reduce the production of that good.

37. Refer to the diagram above. A price of $20 in this market will result in a A. shortage of 50 units. B. surplus of 50 units. C. surplus of 100 units. D. shortage of 100 units.

D. shortage of 100 units.

26. Refer to the diagram above. This production possibilities curve is constructed so that A. resources are presumed to be perfectly shiftable between bread and tractors. B. the opportunity cost of bread diminishes as more bread is produced. C. the opportunity cost of tractors increases as more bread is produced. D. the opportunity costs of both bread and tractors increase as more of each is produced.

D. the opportunity costs of both bread and tractors increase as more of each is produced.

13. The market system's answer to the fundamental question "What will be produced?" is essentially A. "Goods and services that are profitable." B. "Low-cost goods and services." C. "Goods and services that can be produced using large amounts of capital." D. "Goods and services that possess lasting value."

A. "Goods and services that are profitable."

36. Refer to the diagram above. A surplus of 160 units would be encountered if the price was A. $1.10, that is, $1.60 minus $.50. B. $1.60. C. $1.00. D. $0.50.

B. $1.60.

25. Which of the following would not shift the demand curve for beef? A. a widely publicized study that indicates beef consumption increases one's cholesterol B. a reduction in the price of cattle feed C. an effective advertising campaign by pork producers D. a change in the incomes of beef consumers

B. a reduction in the price of cattle feed

4. As a consequence of the problem of scarcity, A. there is never enough of anything. B. individuals have to make choices from among alternatives. C. only some people can "have it all." D. things which are plentiful have relatively high prices.

B. individuals have to make choices from among alternatives.

22. The four factors of production are A. land, labor, capital, and money. B. land, labor, capital, and entrepreneurial ability. C. labor, capital, technology, and entrepreneurial ability. D. labor, capital, entrepreneurial ability, and money.

B. land, labor, capital, and entrepreneurial ability.

31. Refer to the diagram above. A decrease in demand is depicted by a A. move from point x to point y. B. shift from D1 to D2. C. shift from D2 to D1. D. move from point y to point x.

C. shift from D2 to D1.

33. Refer to the diagram. A decrease in supply is depicted by a A. move from point x to point y. B. Shift from S1 to S2. C. shift from S2 to S1. D. move from point y to point x.

C. shift from S2 to S1.

30. If products C and D are close substitutes, an increase in the price of C will A. tend to cause the price of D to fall. B. shift the demand curve for C to the left and the demand curve for D to the right. C. shift the demand curve for D to the right. D. shift the demand curves of both products to the right.

C. shift the demand curve for D to the right.

14. The market system's answer to the fundamental question "How will the goods and services be produced?" is essentially A. "With as much machinery as possible." B. "Using the latest technology." C. "By exploiting labor." D. "In ways that minimize the cost per unit of output."

D. "In ways that minimize the cost per unit of output."

28. If the demand curve for product B shifts to the right as the price of product A declines, then A. both A and B are inferior goods. B. A is a superior good and B is an inferior good. C. A is an inferior good and B is a superior good. D. A and B are complementary goods.

D. A and B are complementary goods.

44. Which of the diagrams above illustrates the effect of an increase in price of steel and energy on the market for automobiles? A. A and C B. B and D C. C and D D. D only

D. D only

5. Which of the following is a positive economic statement? A. Government must maintain the current level of defense spending to keep the nation safe. B. The minimum wage should be increased to give people a decent wage. C. Americans should buy American products in order to boost the national economy. D. Stock prices rose to a new record last month for the fourth month in a row.

D. Stock prices rose to a new record last month for the fourth month in a row.

9. 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?

3. Which of the following will shift the production possibilities curve to the right? A. an increase in the unemployment rate from 6 to 8 percent B. a decline in the efficiency with which the present labor force is allocated C. a decrease in the unemployment rate from 8 to 6 percent D. a technological advance allowing manufacturers to produce more output from given inputs.

D. a technological advance allowing manufacturers to produce more output from given inputs.

17. In economics, the pleasure, happiness, or satisfaction received from a product is called A. marginal cost. B. rational outcome. C. status fulfillment. D. utility

D. utility