Principles of Microeconomics CH.1 Quiz

Scarcity exists because economies cannot produce enough to meet the perceived desires of all individuals. 1) True 2) False

1) True

Which of the following best describes a monetary policy tool? 1) interest rates 2) taxes 3) household savings 4) government spending

1) interest rates

The branch of economics that focuses primarily on aggregates is: 1) macroeconomics. 2) microeconomics. 3) scientific economics. 4) consumer economics.

1) macroeconomics.

Macroeconomic topics do not usually include: 1) the profit maximizing decisions of an individual manufacturer. 2) the rate of inflation. 3) the rate of unemployment. 4) economic growth.

1) the profit maximizing decisions of an individual manufacturer.

Economics is the study of how society manages its: 1) unlimited wants and limited resources. 2) limited wants and limited resources. 3) unlimited wants and unlimited resources. 4) limited wants and unlimited resources.

1) unlimited wants and limited resources.

Who would probably argue that you need to study the forest before you can understand the trees? Question 15 options: 1) A microeconomist 2) A macroeconomist 3) A normative economist 4) A classical economist

2) A macroeconomist

Economic systems: 1) can eliminate scarcity. 2) address the questions what is produced, how it is produced, and for whom it is produced. 3) provide all the goods people want and desire. 4) provide equal distribution of well-being among its participants.

2) address the questions what is produced, how it is produced, and for whom it is produced.

The study of inflation is a topic in: 1) microeconomics. 2) macroeconomics. 3) classical economics. 4) normative economics.

2) macroeconomics.

Fundamentally, economics deals with: 1) banking. 2) scarcity. 3) money. 4) poverty.

2) scarcity.

Microeconomics focuses on: 1) the workings of the whole economy or large sectors of it. 2) the individual units that make up the whole of the economy. 3) issues such as unemployment and inflation. 4) total output and the general level of prices.

2) the individual units that make up the whole of the economy.

The process of developing hypotheses, testing them against facts, and using the results to construct theories is called: 1) opportunity cost calculation. 2) the scientific method. 3) marginal analysis. 4) microeconomics.

2) the scientific method.

An economic model is: 1) a value judgment. 2) a fact. 3) built using theory. 4) built on policies.

3) built using theory.

In the ______________, households receive goods and services and pay firms for them. 1) labor market 2) financial capital market 3) goods and services market 4) savings market

3) goods and services market

In the ____________, households work and receive payment from firms. 1) financial investment market 2) financial capital market 3) labor market 4) savings market

3) labor market

When nations desire a healthy macroeconomy, they typically focus on three goals, one of these being: 1) balanced budget 2) prudent monetary policy 3) low inflation 4) assuring competition between firms

3) low inflation

Macroeconomics is: 1) the study of individual choice and how that choice is influenced by economic forces. 2) the study of the pricing policies of firms and the purchasing decisions of households. 3) the study of aggregate economic relationships. 4) an analysis of economic reality that proceeds from the parts to the whole.

3) the study of aggregate economic relationships.

Which of the following is least likely to be studied in macroeconomics? 1) Inflation 2) Unemployment 3) Business cycles 4) Advertising

4) Advertising

As a consequence of the condition of scarcity: 1) there is never enough of anything. 2) production has to be centrally planned. 3) things that are plentiful have relatively high prices. 4) individuals and communities have to make choices from among alternatives.

4) individuals and communities have to make choices from among alternatives.

Scarcity exists because: 1) individuals cannot solve the three central coordination problems. 2) governments cannot solve the three central coordination problems. 3) the supply of goods is always less than the demand. 4) new wants continue to develop and willingness to meet them is limited.

4) new wants continue to develop and willingness to meet them is limited.

The key concept that serves as the basis for the study of economics is: 1) opportunity cost. 2) unemployment. 3) money. 4) scarcity.

4) scarcity.

Macroeconomics is the study of economics from the standpoint of: 1) individual economic units. 2) a typical firm. 3) a typical household. 4) the overall economy.

4) the overall economy.

_____________ - a term referring to the fact that for many goods, as the level of production increases, the average cost of producing each individual unit declines. 1) Skill 2) Specialization 3) Economies of scale 4) Division of labor

3) Economies of scale

Which question is an illustration of a macroeconomic question? 1) Is a business unresponsive to the demands of consumers? 2) Is a consumer boycott an effective means of reducing product prices? 3) Is the level of employment in the economy sensitive to the level of consumer spending? 4) Are oil companies engaging in a rip-off of consumers by charging exorbitantly high prices for gasoline?

3) Is the level of employment in the economy sensitive to the level of consumer spending?

What is the economic meaning of the expression that "there is no such thing as a free lunch"? 1) It refers to "free-riders," who do not pay for the cost of a product but who receive the benefit from it. 2) It means that economic freedom is limited by the amount of income available to the consumer. 3) It means there is an opportunity cost when resources are used to provide "free" products. 4) It indicates that products only have value because people are willing to pay for them.

3) It means there is an opportunity cost when resources are used to provide "free" products.

Which is considered to be an economic resource by economists? 1) Rent 2) Money 3) Labor 4) Wages

3) Labor

The adage, "There ain't no such thing as a free lunch," means: 1) the cost of living is always increasing. 2) even people on welfare have to pay for food. 3) all costs are included in the price of a product. 4) people face tradeoffs.

3) all costs are included in the price of a product.

An economic principle: 1) should be used to make every individual decision. 2) generally is stated as a normative statement. 3) can be combined with knowledge of economic institutions to make policy proposals. 4) is an action taken to influence the course of economic events.

3) can be combined with knowledge of economic institutions to make policy proposals.

Regardless of whether you are looking through the microeconomics microscope or the macroeconomics telescope, the fundamental subject material of the interconnected __________ doesn't change. 1) market 2) economy 3) production 4) firm

2) economy

The macroeconomist would most likely study: 1) the effects of changing beer prices on the market for pretzels. 2) the effects of an increased income tax on a typical household's purchase of goods. 3) the effects of a reduction in income tax rates on the nation's total output. 4) how consumers in Gary, Indiana, respond to lower gasoline prices.

3) the effects of a reduction in income tax rates on the nation's total output.

When computing the opportunity cost of attending a professional football game as a spectator, you should include: 1) neither the price of the ticket nor the value of your time. 2) the value of your time, but not the price you pay for the ticket. 3) the price you pay for the ticket and the value of your time. 4) the price you pay for the ticket, but not the value of your time.

3) the price you pay for the ticket and the value of your time.

Macroeconomics focuses on: 1) the individual units that make up the whole of the economy. 2) studies of how individual markets and industries are organized. 3) total output and the general level of prices in the economy. 4) how a business determines how much output to produce.

3) total output and the general level of prices in the economy.

If macroeconomics looks at the economy as a whole, it focuses on which of the following? 1) households 2) business firms 3) unemployed people 4) the division of labor

3) unemployed people

Which is a factor of production? 1) Money 2) Interest 3) Rent 4) Capital

4) Capital

Which of the following statements best represents the principle represented by the adage, "There ain't no such thing as a free lunch"? 1) Alivia must put gas in her truck before she can drive it to school. 2) Bo can go swimming only if he takes his brother with him. 3) Benjamin must decide between going to Florida or Brazil for summer vacation. 4) Jada is starving and homeless.

2) Bo can go swimming only if he takes his brother with him.

Which of the following best characterizes the circular flow of income? 1) Businesses buy resources from the government, and households buy goods and services from businesses. 2) Businesses buy resources from households, and households use their income from the sale of resources to buy goods and services from businesses. 3) The government purchases resources from businesses and households and then sells goods and services to businesses and households. 4) Households buy factors of production from businesses, and businesses buy goods and services from households.

2) Businesses buy resources from households, and households use their income from the sale of resources to buy goods and services from businesses.

In which of the following countries will the national government have the greatest influence with respect to the nation's economy? 1) China 2) Cuba 3) Canada 4) Chile

2) Cuba

Macroeconomics is the study of how individual choices are affected by economic forces. 1) True 2) False

2) False

Which of the following is not a central focus of the "economic perspective"? 1) Scarcity and choice 2) The scientific method 3) Purposeful behavior 4) Marginal analysis

2) The scientific method

Which of the following best denotes the reason for the existence of substantial black markets? 1) a market-oriented economy 2) a command economy 3) government laws and rules 4) the microeconomy

2) a command economy

Who probably would argue that you need to study the trees before you can understand the forest? 1) A microeconomist 2) A macroeconomist 3) A positive economist 4) A Keynesian economist

1) A microeconomist

The outer loop of the circular-flow diagram represents the flow of dollars in the economy. Which of the following is not measured in dollars and therefore does not appear on the outer loop? 1) Capital 2) Wages 3) Rent 4) Income

1) Capital

Which question is an illustration of a microeconomic question? 1) Is the quantity of wine purchased in one year dependent upon the price of wine? 2) Does government spending influence the total level of employment in the economy? 3) Is the purchasing power of the dollar higher or lower today than it was in 2005? 4) Is capitalism superior to socialism?

1) Is the quantity of wine purchased in one year dependent upon the price of wine?

The economic decision rule is to undertake an action only when the marginal benefits of that action are greater than its total costs. 1) True 2) False

1) True

An economic model: 1) applies economic theory to understand real-world events. 2) is so abstract that it cannot be applied to real-world events. 3) can be used only to understand free markets. 4) is an action taken to influence the course of economic events.

1) applies economic theory to understand real-world events.

Economic forces: 1) are a reaction to scarcity. 2) give rise to scarcity. 3) are not related to scarcity. 4) are not related to rationing.

1) are a reaction to scarcity.

The circular flow diagram of economic activity is a model of the: 1) flow of goods, services, and payments between households and firms. 2) influence of government on business behavior. 3) role of unions and government in the economy. 4) interaction among taxes, prices, and profits.

1) flow of goods, services, and payments between households and firms.

In a command economy, the __________ either makes most economic decisions itself or at least strongly influences how the decisions are made. 1) government 2) market 3) firm 4) business sector

1) government

Which of the following best describes a fiscal policy tool? 1) government spending 2) bank lending 3) financial capital markets 4) household spending

1) government spending

Macroeconomics includes the study of: 1) inflation. 2) firm pricing policies. 3) the relative prices of oil and coal. 4) individual choice.

1) inflation.

In a _______________________, most economic decisions about what to produce, how to produce it, and for whom to produce it are made by buyers and sellers. 1) market-oriented economy 2) macroeconomy 3) microeconomy 4) command economy

1) market-oriented economy

The study of individual choice is a focus in: 1) microeconomics. 2) macroeconomics. 3) normative economics. 4) Ricardian economics.

1) microeconomics.

Resources are: 1) scarce for households and scarce for economies. 2) scarce for households but plentiful for economies. 3) plentiful for households and plentiful for economies. 4) plentiful for households but scarce for economies.

1) scarce for households and scarce for economies.

People are willing to pay more for a diamond than for a bottle of water because: 1) the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water. 2) producers of diamonds have a much greater ability to manipulate diamond prices than producers of water have to manipulate water prices. 3) water prices are held artificially low by governments, since water is necessary for life. 4) the marginal cost of producing an extra diamond far exceeds the marginal cost of producing an extra bottle of water.

1) the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water.

An "aggregate": 1) treats a collection of specific units as one unit. 2) treats a single unit as if it were a collection of specific units 3) is the primary unit of analysis in microeconomics. 4) is too large to analyze using standard macroeconomic theories.

1) treats a collection of specific units as one unit.

In countries like _____________ the command economy predominates. 1) China and Vietnam 2) Cuba and North Korea 3) South Africa and Kenya 4 Germany and France

2) Cuba and North Korea

Economics is primarily: 1) a normative science. 2) an observational science. 3) a laboratory science. 4) a natural science.

2) an observational science.

Specialization: 1) leads to greater self-sufficiency. 2) can lead to an increase in overall production. 3) allows workers to develop skills by working on a large number of tasks 4) is always the result of an inefficient use of resources

2) can lead to an increase in overall production.

Which would be considered a macroeconomic study? A study of the effect of: 1) a decrease in the price of automobiles on automobile sales. 2) changing government spending to increase employment. 3) a new tax on the profits of a business. 4) lower interest rates on a firm's investment.

2) changing government spending to increase employment.

The quantity of goods and services available to society: 1) is fixed. 2) depends on human action. 3) is not of economic importance. 4) will always grow to meet individuals' wants and desires.

2) depends on human action.

Among competing issues, the most important concern of economics is with the: 1) degree of competition in stock and bond markets in the economy. 2) efficient use of limited productive resources to satisfy economic wants. 3) issue of equality in the distribution of income and wealth among households. 4) budget deficits in the domestic economy and trade deficits in the international economy.

2) efficient use of limited productive resources to satisfy economic wants.

The basic economic problem is essentially one of deciding how to make the best use of: 1) limited resources to satisfy limited economic wants. 2) limited resources to satisfy unlimited economic wants. 3) unlimited resources to satisfy unlimited economic wants. 4) unlimited resources to satisfy limited economic wants.

2) limited resources to satisfy unlimited economic wants.

From an economic perspective, when consumers leave a fast food restaurant because the lines to be served are too long, they have concluded the: 1) marginal cost of waiting is less than the marginal benefit of being served. 2) marginal cost of waiting is greater than the marginal benefit of being served. 3) management is exhibiting irrational behavior by not maximizing profits. 4) management is making an assumption that other things are equal.

2) marginal cost of waiting is greater than the marginal benefit of being served.

The phenomenon of scarcity stems from the fact that: 1) governments restrict production of too many goods and services. 2) resources are limited. 3) in most economies, wealthy people consume disproportionate quantities of goods and services. 4) most economies' production methods are not very good.

2) resources are limited.

The overriding reason why households and societies face many decisions is that: 1) people, by nature, tend to disagree. 2) resources are scarce. 3) incomes fluctuate with business cycles. 4) goods and services are not scarce.

2) resources are scarce.

Economics can best be described as the study of: 1) how to increase the level of productive resources so there is maximum output in society. 2) how to use productive resources to maximize income level. 3) how people, institutions, and society make choices under conditions of scarcity. 4) how business structures influence the allocation of income among firms.

3) how people, institutions, and society make choices under conditions of scarcity.

People can reasonably expect that an economic system will decide all of the following except: 1) what goods to produce 2) how to produce the goods 3) how to assign initial property rights 4) for whom to produce the goods

3) how to assign initial property rights

According to the text, economics is the study of how: 1) governments allocate resources in the face of constraints. 2) government policies can be used to meet individuals' wants and desires. 3) human beings coordinate their wants and desires. 4) scarce resources are allocated between capitalists and workers.

3) human beings coordinate their wants and desires.

Microeconomics and macroeconomics are: 1) not related because they are taught as separate courses. 2) virtually identical, though one is much more difficult than the other. 3) interrelated because what happens in the economy as a whole is based on individual decisions. 4) interrelated because both are taught by the same teacher.

3) interrelated because what happens in the economy as a whole is based on individual decisions.

The primary goal of economic activities is to: 1) expand the production of goods and services. 2) equalize the distribution of consumer income and wealth. 3) make the most efficient use of scarce productive resources. 4) reallocate resources from consumption to production in the economy.

3) make the most efficient use of scarce productive resources.

The basic difference between macroeconomics and microeconomics is: 1) microeconomics concentrates on individual markets while macroeconomics focuses primarily on international trade. 2) microeconomics concentrates on the behavior of individual consumers while macroeconomics focuses on the behavior of firms. 3) microeconomics concentrates on the behavior of individual consumers and firms while macroeconomics focuses on the performance of the entire economy. 4) microeconomics explores the causes of inflation while macroeconomics focuses on the causes of unemployment.

3) microeconomics concentrates on the behavior of individual consumers and firms while macroeconomics focuses on the performance of the entire economy.

A basic difference between microeconomics and macroeconomics is that: 1) microeconomics focuses on the choices of individual consumers, whereas macroeconomics considers the behavior of large businesses. 2) microeconomics focuses on financial reporting by individuals, whereas macroeconomics focuses on financial reporting by large firms. 3) microeconomics examines the choices made by individual participants in an economy, whereas macroeconomics considers the economy's overall performance. 4) microeconomics focuses on national markets, whereas macroeconomics concentrates on international markets.

3) microeconomics examines the choices made by individual participants in an economy, whereas macroeconomics considers the economy's overall performance.

The term "scarcity" in economics can refer to the fact that: 1) economic wants are limited and resources are abused. 2) even in the richest country some people go hungry. 3) no country can produce enough products to satisfy everybody's economic wants. 4) it is impossible to produce too much of any particular good or service in a market economy.

3) no country can produce enough products to satisfy everybody's economic wants.

Candice is planning her activities for a hot summer day. She would like to go to the local swimming pool and see the latest blockbuster movie, but because she can only get tickets to the movie for the same time that the pool is open she can only choose one activity. This illustrates the basic principle that: 1) rational people think at the margin. 2) people respond to incentives. 3) people face tradeoffs. 4) improvements in efficiency sometimes come at the expense of equality.

3) people face tradeoffs.

As a student of economics, when you speak of scarcity, you are referring to the ability of society to: 1) employ all of its resources. 2) consume all that is produced. 3) satisfy economic wants given limited resources. 4) continually make technological breakthroughs and increase production.

3) satisfy economic wants given limited resources.

In most societies, resources are allocated by: 1) a single central planner. 2) those firms that use resources to provide goods and services. 3) the combined actions of millions of households and firms. 4) a small number of central planners.

3) the combined actions of millions of households and firms.

In the circular flow diagram model: 1) households receive income from businesses in exchange for providing inputs and use that income to buy goods and services from businesses. 2) businesses receive revenues from households in exchange for providing goods and services and use those revenues to buy inputs from households. 3) households receive revenue for selling goods and services to businesses, and use that revenue to buy inputs from businesses. 4) Both (a) and (b) are correct

4) Both (a) and (b) are correct 1) households receive income from businesses in exchange for providing inputs and use that income to buy goods and services from businesses. 2) businesses receive revenues from households in exchange for providing goods and services and use those revenues to buy inputs from households.

Which of the following topics is best categorized as a macroeconomic issue? 1) The choices a student makes in selecting college courses 2) The decision by Apple to produce fewer Macintosh computers 3) The effect of a drought on the price of corn 4) The effect of an increase in federal spending on the unemployment rate

4) The effect of an increase in federal spending on the unemployment rate

Which of the following is most likely a topic of discussion in macroeconomics? 1) an increase in the price of a hamburger 2) a decrease in the production of DVD players by a consumer electronics company 3) an increase in the wage rate paid to automobile workers 4) a decrease in the unemployment rate

4) a decrease in the unemployment rate

Microeconomics includes the study of: 1) inflation. 2) unemployment. 3) business cycles. 4) a firm's pricing policies.

4) a firm's pricing policies.

Economic forces: 1) are more powerful than social and political forces. 2) are more powerful than social forces but less powerful than political forces. 3) are less powerful than social and political forces. 4) can be more or less powerful than political and social forces depending on the circumstances.

4) can be more or less powerful than political and social forces depending on the circumstances.

When gasoline prices fall, the demand for alternative fuel cars likely: 1) falls, lowering their equilibrium price and raising equilibrium quantity. 2) rises, raising their equilibrium price and quantity. 3) falls, raising their equilibrium price and lowering equilibrium quantity. 4) falls, lowering their equilibrium price and quantity.

4) falls, lowering their equilibrium price and quantity.

The opportunity cost of an item is: 1) usually less than the dollar value of the item. 2) the number of hours needed to earn money to buy the item. 3) the dollar value of the item. 4) what you give up to get that item.

4) what you give up to get that item.