Unit 1- Multiple Choice

Which one of the following expressions best states the idea of opportunity cost? A) "A penny saved is a penny earned." B) "He who hesitates is lost." C) "There is no such thing as a free lunch." D) "All that glitters is not gold."

C) "There is no such thing as a free lunch."

Which of the following is a limitation of the simple circular flow model? A) product markets are ignored. B) resource markets are ignored. C) The determination of product and resource prices is not explained. D) households are included, but not businesses.

C) The determination of product and resource prices is not explained.

Microeconomics: A) is the basis for the "after this, therefore because of this" fallacy. B) is not concerned with details, but only with the overall big picture of the economy. C) is concerned with individual economic units and specific markets. D) describes the aggregate flows of output and income.

C) is concerned with individual economic units and specific markets.

Assume an economy is operating at some point on its production possibilities curve, which shows civilian and military goods. If the output of military goods is increased, the output of civilian goods: A) will remain unchanged. B) may be either increased or decreased. C) must be decreased. D) must also be increased.

C) must be decreased.

The term "ceteris paribus" means: A) that if event A precedes event B, A has caused B. B) that economics deals with facts, not values. C) other things equal. D) prosperity inevitably follows recession.

C) other things equal.

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.

Economic resources are also called: A) free gifts of nature. B) consumption goods. C) units of money capital. D) factors of production.

D) factors of production.

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

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 to use scarce resources efficiently. D) determining the most equitable distribution of society's output.

C) choices that are made in seeking to use scarce resources efficiently.

The law of increasing opportunity costs is reflected in a production possibilities curve that is: A) an upsloping straight line. B) a downsloping straight line. C) concave to the origin. D) convex to the origin.

C) concave to the origin.

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, but capital equipment should be privately owned. C) government should not interfere with the operation of the economy. D) government action is necessary if the economy is to achieve full employment and full production.

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

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.

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.

The production possibilities curve illustrates the basic principle that: A) the production of more of any one good will in time require smaller and smaller sacrifices of other goods. B) an economy will automatically obtain full employment of its resources. C) if all the resources of an economy are in use, more of one good can be produced only if less of another good is produced. D) an economy's capacity to produce increases in proportion to its population size.

C) if all the resources of an economy are in use, more of one good can be produced only if less of another good is produced.

The production possibilities curve: A) shows all of those levels of production that are consistent with a stable price level. B) indicates that any combination of goods lying outside the curve is economically inefficient. C) is a frontier between all combinations of two goods that can be produced and those combinations that cannot be produced. D) shows all of those combinations of two goods that are most preferred by society.

C) is a frontier between all combinations of two goods that can be produced and those combinations that cannot be produced.

The study of economics: A) is similar to management, marketing, and finance since it emphasizes how to make money. B) is helpful to businesses, but not particularly helpful in making personal buying decisions. C) is mainly an academic, not a vocational subject. D) looks at the economy from the viewpoint of one's own pocketbook, not from the standpoint of society's interest.

C) is mainly an academic, not a vocational subject.

The idea of opportunity cost: A) applies to consumers, but not to businesses. B) applies to businesses, but not to consumers. C) is relevant to economies of all ideological persuasions. D) would disappear if we were able to eliminate poverty.

C) is relevant to economies of all ideological persuasions.

The two general types of economic systems that exist today are: A) market systems and capitalism. B) socialism and central planning. C) market systems and command systems. D) laissez faire systems and pure command systems.

C) market systems and command systems.

For economists, the word "utility" means: A) versatility and flexibility. B) rationality. C) pleasure and satisfaction. D) purposefulness.

C) pleasure and satisfaction.

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

In terms of the circular flow diagram, households make expenditures in the _____ market and receive income through the _____ market. A) product; financial B) resource; product C) product; resource D) capital; product

C) product; resource

Which of the following is assumed in constructing a typical production possibilities curve? A) the economy is using its resources inefficiently. B) resources are perfectly shiftable among alternative uses. C) production technology is fixed. D) the economy is engaging in international trade.

C) production technology is fixed.

Which of the following is a land resource? A) a computer programmer B) a computer C) silicon (sand) used to make computer chips D) a piece of software used by a firm

C) silicon (sand) used to make computer chips

Which of the following is not correct? A typical production possibilities curve: A) indicates how much of two products a society can produce. B) reveals how much each additional unit of one product will cost in terms of the other product. C) specifies how much of each product society should produce. D) indicates that to produce more of one product society must forgo larger and larger amounts of the other product.

C) specifies how much of each product society should produce.

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 and efficient 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 and efficient use of available resources.

Which of the following is a distinguishing feature of a market system? A) public ownership of all capital. B) central planning. C) wide-spread private ownership of capital. D) a circular flow of goods, resources, and money.

C) wide-spread private ownership of capital.

Examples of command economies are: A) the United States and Japan. B) Sweden and Norway C) Mexico and Brazil. D) Cuba and North Korea.

D) Cuba and North Korea.

Which one of the following statements is correct? A) Relative scarcity is no longer a central idea in economics because we are in an age of abundance. B) Most production possibilities curves are convex to the origin. C) The production possibilities curve shows society's preferences for consumer goods relative to capital goods. D) The central concept underlying the production possibilities curve is that of limited resources.

D) The central concept underlying the production possibilities curve is that of limited resources.

Which of the following is a capital resource? A) a computer programmer B) a corporate bond issued by a computer manufacturer C) silicone (sand) used to make computer chips D) a piece of software used by a firm

D) a piece of software used by a firm

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 that allows farmers to produce more output from given inputs

D) a technological advance that allows farmers to produce more output from given inputs

Unemployment and/or productive inefficiencies: A) cause the production possibilities curve to shift outward. B) can exist at any point on a production possibilities curve. C) are both illustrated by a point outside the production possibilities curve. D) are both illustrated by a point inside the production possibilities curve.

D) are both illustrated by a point inside the production possibilities curve.

Which of the following lists includes only capital resources (and therefore no labor or land resources)? A) an ice arena; a professional hockey player; hockey uniforms. B) the owner of a new startup firm; a chemistry lab; a researcher. C) a hydroelectric dam; water behind the dam; power lines. D) autos owned by a car rental firm; computers at the car rental agency; the vans that shuffle rental customers to and from the airport.

D) autos owned by a car rental firm; computers at the car rental agency; the vans that shuffle rental customers to and from the airport.

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.

Learning economics: A) is detrimental to good citizenship because economics emphasizes individualism. B) is helpful to employers, but not to workers and consumers. C) is important because economics is the science of earning money. D) helps students improve analytical skills that are in great demand in the workplace.

D) helps students improve analytical skills that are in great demand in the workplace.

If an economy is operating on its production possibilities curve for consumer goods and capital goods, this means that: A) it is impossible to produce more consumer goods. B) resources cannot be reallocated between the two goods. C) it is impossible to produce more capital goods. D) more consumer goods can only be produced at the cost of fewer capital goods.

D) more consumer goods can only be produced at the cost of fewer capital goods.

The money payments made to owners of land, labor, capital, and entrepreneurial ability are: A) interest, wages, rent, and profits respectively. B) rent, wages, dividends, and interest respectively. C) rent, profits, wages, and interest respectively. D) rent, wages, interest, and profits respectively.

D) rent, wages, interest, and profits respectively.

Any point inside the production possibilities curve indicates: A) the realization of allocative efficiency. B) that resources are imperfectly shiftable among alternative uses. C) the presence of inflationary pressures. D) that more output could be produced with available resources.

D) that more output could be produced with available resources.

Opportunity cost is best defined as: A) the monetary price of any productive resource. B) the amount of labor that must be used to produce one unit of any product. C) the ratio of the prices of imported goods to the prices of exported goods. D) the amount of one product that must be given up to produce one more unit of another product.

D) the amount of one product that must be given up to produce one more unit of another product.

The production possibilities curve tells us: A) the specific combination of two products that is most desired by society. B) that costs do not change as society varies its output. C) costs are irrelevant in a society that has fixed resources. D) the combinations of two goods that can be produced with society's available resources.

D) the combinations of two goods that can be produced with society's available resources.

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.

Of the following countries, the one that best exhibits the characteristics of a market economy is: A) Canada. B) Cuba. C) North Korea. D) China.

A) Canada.

Which of the following is a macroeconomic statement? A) The gross profits of all U.S. businesses were $182 billion last year. B) The price of beef declined by 3 percent last year. C) General Motors' profits increased last year. D) The productivity of steelworkers increased by 1 percent last year.

A) The gross profits of all U.S. businesses were $182 billion last year.

The basic purpose of the other-things-equal assumption is to: A) allow one to reason about the relationship between variables X and Y without the intrusion of variable Z. B) allow one to focus upon micro variables by ignoring macro variables. C) allow one to focus upon macro variables by ignoring micro variables. D) determine whether X causes Y or vice versa.

A) allow one to reason about the relationship between variables X and Y without the intrusion of variable Z.

Through specialization and international trade a nation: A) can attain some combination of goods lying outside its production possibilities curve. B) can move from a high consumption-low investment to a high investment-low consumption point on its production possibilities curve. C) will attain some combination of goods lying within its production possibilities curve. D) will cause its production possibilities curve to shift leftward.

A) can attain some combination of goods lying outside its production possibilities curve.

Studying economics: A) helps one become a better-informed citizen and voter. B) is detrimental to good citizenship because economics emphasizes individualism. C) is a waste of time since we all participate in the economy whether we understand it or not. D) is important because economics is the science of earning money.

A) helps one become a better-informed citizen and voter.

In the circular flow model: A) households sell resources to firms. B) households receive income through the product market. C) households spend income in the resource market. D) businesses neither buy nor sell resources.

A) households sell resources to firms.

The law of increasing opportunity costs states that: A) if society wants to produce more of a particular good, it must sacrifice larger and larger amounts of other goods to do so. B) the sum of the costs of producing a particular good cannot rise above the current market price of that good. C) if the sum of the costs of producing a particular good rises by a specified percent, the price of that good must rise by a greater relative amount. D) if the prices of all the resources used to produce goods increase, the cost of producing any particular good will increase at the same rate.

A) if society wants to produce more of a particular good, it must sacrifice larger and larger amounts of other goods to do so.

The problems of aggregate inflation and unemployment are: A) major topics of macroeconomics. B) not relevant to the U.S. economy. C) major topics of microeconomics. D) peculiar to command economies.

A) major topics of macroeconomics.

Money is not an economic resource because: A) money, as such, is not productive. B) idle money balances do not earn interest income. C) the terms of trade can be determined in nonmonetary terms. D) money is not a free gift of nature.

A) money, as such, is not productive.

A nation's production possibilities curve is bowed out from the origin because: A) resources are not equally efficient in producing every good. B) the originator of the idea drew it this way and modern economists follow this convention. C) resources are scarce. D) wants are virtually unlimited.

A) resources are not equally efficient in producing every good.

The law of increasing opportunity costs exists because: A) resources are not equally efficient in producing various goods. B) the value of the dollar has diminished historically because of persistent inflation. C) wage rates invariably rise as the economy approaches full employment. D) consumers tend to value any good more highly when they have little of it.

A) resources are not equally efficient in producing various goods.

If the production possibilities curve were a straight downsloping line, this would suggest that: A) resources are perfectly shiftable between the production of these two goods. B) it is possible to produce more of both products. C) both products are equally capable of satisfying consumer wants. D) the two products have identical prices.

A) resources are perfectly shiftable between the production of these two goods.

A production possibilities curve illustrates: A) scarcity. B) market prices. C) consumer preferences. D) the distribution of income.

A) scarcity.

In drawing the production possibilities curve we assume that: A) technology is fixed. B) unemployment exists C) economic resources are unlimited. D) wants are limited.

A) technology is fixed.

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.

The fact that the slope of the production possibilities curve becomes steeper as we move down along the curve indicates that: A) the principle of increasing opportunity costs is relevant. B) society's resources are limited. C) the opportunity cost of producing each product is constant. D) resources are perfectly shiftable between alternative uses.

A) the principle of increasing opportunity costs is relevant.

The production possibilities curve shows: A) the various combinations of two goods that can be produced when society uses its scarce resources efficiently. 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 uses its scarce resources efficiently.

Which of the following most closely relates to the idea of opportunity costs? A) tradeoffs B) economic growth C) technological change D) capitalism

A) tradeoffs

A point inside a production possibilities curve best illustrates: A) unemployment. B) the efficient use of resources. C) the use of best-available technology. D) unlimited wants.

A) unemployment.

The French term "laissez-faire" means: A) "there is no free lunch." B) "let it be." C) "circular flow." D) "public ownership."

B) "let it be."

Which of the following is real capital? A) a pair of stockings B) a construction crane C) a savings account D) a share of IBM stock

B) a construction crane

Microeconomics is concerned with: A) the aggregate or total levels of income, employment, and output. B) a detailed examination of specific economic units that make up the economic system. C) positive economics, but not normative economics. D) the establishing of an overall view of the operation of the economic system.

B) a detailed examination of specific economic units that make up the economic system.

The production possibilities curve has: A) a positive slope that increases as we move along it from left to right. B) a negative slope that increases as we move along it from left to right. C) a negative slope that decreases as we move along it from left to right. D) a negative slope that is constant as we move along it from left to right

B) a negative slope that increases as we move along it from left to right.

Suppose an economist says that "Other things equal, the lower the price of bananas, the greater the amount of bananas purchased." This statement indicates that: A) the quantity of bananas purchased determines the price of bananas. B) all factors other than the price of bananas (for example, consumer tastes and incomes) are assumed to be constant. C) economists can conduct controlled laboratory experiments. D) one cannot generalize about the relationship between the price of bananas and the quantity purchased.

B) all factors other than the price of bananas (for example, consumer tastes and incomes) are assumed to be constant.

Which of the following is associated with macroeconomics? A) an examination of the incomes of Harvard Business School graduates B) an empirical investigation of the general price level and unemployment rates since 1990 C) a study of the trend of pecan prices since the Second World War D) a case study of pricing and production in the textbook industry

B) an empirical investigation of the general price level and unemployment rates since 1990

Which of the following would be most likely to shift the production possibilities curve to the right? A) a sudden and substantial expansion of consumer wants B) an improvement in the literacy level and general level of education C) a decline in the size of the population and labor force D) shifting resources from the production of capital goods to the production of consumer goods.

B) an improvement in the literacy level and general level of education

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.

Which of the following is a distinguishing feature of a command system? A) private ownership of all capital. B) central planning. C) heavy reliance on markets. D) wide-spread dispersion of economic power.

B) central planning.

The point on the production possibilities curve that produces allocative efficiency can be found by: A) estimating the marginal costs of both products in real or physical terms. B) comparing marginal benefits and marginal costs in monetary terms. C) determining where least-cost production occurs. D) calculating where economic growth will be greatest.

B) comparing marginal benefits and marginal costs in monetary terms.

Which of the following might shift a nation's production possibilities curve inward? A) improved technology. B) devastation by war. C) improved health care. D) a business downturn in which unemployment temporarily rises.

B) devastation by war.

If the production possibilities curve is a straight line: A) the two products will sell at the same market prices. B) economic resources are perfectly shiftable between the production of the two products. C) the two products are equally important to consumers. D) equal quantities of the two products will be produced at each possible point on the curve.

B) economic resources are perfectly shiftable between the production of the two products.

The slope of the typical production possibilities curve: A) is positive. B) increases as one moves southeast along the curve. C) is constant as one moves down the curve. D) decreases as one moves southeast along the curve.

B) increases as one moves southeast along the curve.

Which of the following will enable a nation to obtain a combination of consumer goods and capital goods outside its production possibilities curve? A) full employment B) international specialization and trade C) full production D) productive efficiency.

B) international specialization and trade

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 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

Suppose that a university decides to spend $1 million to upgrade personal computers and scientific equipment for faculty rather than spend $1 million to expand parking for students. This example illustrates: A) distorted priorities. B) opportunity costs. C) increasing opportunity costs. D) productive efficiency.

B) opportunity costs.

If all discrimination in the United States were eliminated, the economy would: A) have a less concave production possibilities curve. B) produce at some point closer to its production possibilities curve. C) be able to produce at some point outside of its production possibilities curve. D) produce more consumer goods and fewer investment goods.

B) produce at some point closer to its production possibilities curve.

Economics may best be defined as the: A) interaction between macro and micro considerations. B) social science concerned with the efficient use of scarce resources to achieve maximum satisfaction of economic wants. C) empirical testing of value judgments through the use of logic. D) use of policy to refute facts and hypotheses.

B) social science concerned with the efficient use of scarce resources to achieve maximum satisfaction of economic wants.

A country can achieve some combination of goods outside its production possibilities curve by: A) idling some of its resources. B) specializing and engaging in international trade. C) buying the debt (bonds and stocks) of foreign nations. D) producing more capital goods and fewer consumer goods.

B) specializing and engaging in international trade.

Macroeconomics can best be described as the: A) analysis of how a consumer tries to spend income. B) study of the large aggregates of the economy or the economy as a whole. C) analysis of how firms attempt to maximize their profits. D) study of how supply and demand determine prices in individual markets.

B) study of the large aggregates of the economy or the economy as a whole.

The concept of opportunity cost: A) is irrelevant in socialistic economies because of central planning. B) suggests that the use of resources in any particular line of production means that alternative outputs must be forgone. C) is irrelevant if the production possibilities curve is shifting to the right. D) suggests that insatiable wants can be fulfilled.

B) suggests that the use of resources in any particular line of production means that alternative outputs must be forgone.

The construction of a production possibilities curve assumes: A) the quantities of all resources are unlimited. B) technology is fixed. C) full employment, but not full production, is being realized. D) there is no inflation in the economy.

B) technology is fixed.

A typical concave (to the origin) production possibilities curve implies: A) that economic resources are unlimited. B) that society must choose among various attainable combinations of goods. C) decreasing opportunity costs. D) that society is using a market system to allocate resources.

B) that society must choose among various attainable combinations of goods.

Which of the following will not produce an outward shift of the production possibilities curve? A) an upgrading of the quality of a nation's human resources B) the reduction of unemployment C) an increase in the quantity of a society's labor force D) the improvement of a society's technological knowledge

B) the reduction of unemployment

The negative slope of the production possibilities curve is a graphical way of indicating that: A) any economy "can have its cake and eat it too." B) to produce more of one product we must do with less of another. C) the principle of increasing opportunity costs applies to only parts of the economy. D) consumers buy more when prices are low than when prices are high.

B) to produce more of one product we must do with less of another.

In drawing a production possibilities curve we hold constant: A) the money supply. B) the consumer price index. C) both technology and resource supplies. D) resource supplies only.

C) both technology and resource supplies.

If an economy is operating inside its production possibilities curve for consumer goods and capital goods, it: A) can only produce more consumer goods by producing fewer capital goods. B) can only produce more capital goods by producing fewer consumer goods. C) can produce more of both consumer goods and capital goods by using its resources more efficiently. D) must improve its technology to produce more output.

C) can produce more of both consumer goods and capital goods by using its resources more efficiently.

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 land in wheat. C) The national productivity rate grew by 2.7 percent last year. D) The Pumpkin Center State Bank increased its interest rate on consumer loans by 1 percentage point.

C) The national productivity rate grew by 2.7 percent last year.

Which of the following is a microeconomic statement? A) The real domestic output increased by 2.5 percent last year. B) Unemployment was 6.8 percent of the labor force last year. C) The price of personal computers declined last year. D) The general price level increased by 4 percent last year.

C) The price of personal computers declined last year.

The typical production possibilities curve is: A) an upsloping line that is concave to the origin. B) a downsloping line that is convex to the origin. C) a downsloping line that is concave to the origin. D) a straight upsloping line.

C) a downsloping line that is concave to the origin.

Other things equal, which of the following would shift an economy's production possibilities curve to the left? A) the discovery of a low-cost means of generating and storing solar energy B) the entrance of more women into the labor force C) a law requiring mandatory retirement from the labor force at age 55 D) an increase in the proportion of total output that consists of capital or investment goods

C) a law requiring mandatory retirement from the labor force at age 55

The term "other things equal" means that: A) the associated statement is normative. B) many variables affect the variable under consideration. C) a number of relevant variables are assumed to be constant. D) when variable X increases so does related variable Y.

C) a number of relevant variables are assumed to be constant.