Chapter 01 Limits, Alternatives, and Choices
Economic growth may be represented by a: A. rightward shift of the production possibilities curve. B. leftward shift of the production possibilities curve. C. production possibilities curve which remains fixed. D. point outside (to the right) of the production possibilities curve.
A
The opportunity cost of a new national park is the: A. alternative uses for the land and funding for the park .B. cost of constructing park buildings and highways to get to it. C. cost of hiring staff and park rangers to provide services for visitors. D. increased pollution to the wildlife habitat at the park.
A
Which question is an illustration of a microeconomic question? A. Is the quantity of wine purchased in one year dependent upon the price of wine? B. Does government spending influence the total level of employment in the economy? C. Is the purchasing power of the dollar higher or lower today than it was in 2000? D. Is capitalism superior to socialism?
A
A point inside the production possibilities curve is: A. attainable and the economy is efficient. B. attainable, but the economy is inefficient. C. unattainable, but the economy is inefficient. D. unattainable and the economy is efficient.
B
All of the following would affect the position of a country's production possibilities curve, except: A. the quantity of labor. B. the level of unemployment. C. the amount of the capital stock .D. technological progress.
B
Consider a society that is producing inside its production possibilities frontier. This society could best achieve efficiency in its production of output by: A. distributing incomes more equally. B. fully employing all available resources. C. increasing the levels of wages and prices. D. producing relatively more capital goods and relatively fewer consumer goods.
B
Economic models do not reflect the full complexity of reality and instead are based on: A. tradeoffs. B. purposeful simplifications. C. value judgments. D. the fallacy of composition.
B
Microeconomics focuses on: A. the workings of the whole economy or large sectors of it. B. the individual units that make up the whole of the economy. C. issues such as unemployment and inflation. D. total output and the general level of prices.
B
Which situation would most likely shift the production possibilities curve for a nation in an outward direction? A. a decrease in the quality of products B. an increase in the supply of resources C. a decrease in the state of technology D. an increase in the amount of discrimination
B
Which statement is an economic rationale for the law of increasing opportunity cost? A. The economy is employing all of its available resources. B. Many economic resources are better at producing one product than another. C. In any economy, the state of technology is changing and resources are variable. D. The economy is achieving productive efficiency by producing goods and services at the least cost.
B
the individual who brings together economic resources and assumes the risk in a capitalist economy is called the: A. manager. B. entrepreneur. C. stockbroker. D. banker.
B
An economic model is: A. a value judgment. B. a fact. C. built using theory. D. built on policies.
C
The law of increasing opportunity cost explains why the shape of the production possibilities curve is: A. a straight line parallel to the horizontal axis. B. a straight line from one axis to the other. C. bowed out from the origin of the graph. D. bowed toward the origin of the graph.
C
By using the same ceteris paribus assumptions, economic principles are just as certain and precise as those of the laboratory sciences.
False
From the "economic perspective" people make purposeful decisions based on hypotheses.
False
The economizing problem arises from the conflict between having relatively unlimited resources and relatively limited wants.
False
A point inside the production possibilities curve illustrates that resources are not being used as efficiently as possible.
True
Economic growth is shown by a shift of the production possibilities curve outward and to the right.
True
Economics is primarily concerned with marginal changes from the status quo.
True
Economics is the study of the efficient use of scarce resources to achieve maximum satisfaction of economic wants.
True
Macroeconomics is concerned with the whole economy or its major sectors.
True
Marginal analysis is the comparison of additional benefits with the additional costs.
True
If the marginal benefits are greater than the marginal cost of an activity, then society is overallocating resources to this activity.
false
A basic assumption used in most economic theories is that: A. what is true for a part of the whole must also be true for the whole. B. as price decreases, quantity demanded will increase. C. whatever goes up must come down. D. all other things remain the same.
D
A movement along the production possibilities curve would imply that: A. the labor force has grown. B. productivity has increased. C. productivity has declined. D. society has chosen a different set of outputs.
D
If a nation is incurring a trade deficit (it is buying more from abroad - importing, then it is selling abroad - exporting), then it is most likely producing beyond the frontier of its production possibilities curve.
False
If the marginal benefits of the output from resources devoted to the production of a product are greater than the marginal costs, then there has been an overallocation of resources to the production of that product.
False
The four factors of production are land, labor, capital, and government services.
False
the marginal cost curve for a product slopes upward as more units are produced because of the law of increasing costs.
False
The fundamental economic problem is that productive resources are scarce in relation to the demand for them.
True
The implied production possibilities curve between work time and grades suggests that more hours spent working will mean more income, but also less study time and a lower grade average.
True
the concave, or bowed-out, shape of the production possibilities curve illustrates the law of increasing opportunity costs.
True
the scientific method involves developing hypotheses from factual observations, and then testing the hypotheses.
True
Which is a factor of production? A. money B. interest C. rent D. capital
D
A nation that devotes more of its resources to capital investment is likely to: A. shift outward its production possibilities curve. B. shift inward its production possibilities curve. C. increase the slope of its production possibilities curve. D. decrease the slope of its production possibilities curve.
A
A point on the frontier of the production possibilities curve is: A. attainable and the economy is efficient. B. attainable, but the economy is inefficient. C. unattainable, but the economy is inefficient. D. unattainable and the economy is efficient.
A
Along a production possibilities curve, an increase in the production of one type of good can be accomplished only by: A. decreasing the production of the other type of good. B. increasing the production of the other type of good. C. holding constant the production of the other type of good. D. decreasing the price of the other type of good.
A
An "aggregate:" A. treats a collection of specific units as one unit. B. treats a single unit as if it were a set or collection of specific units C. is the primary unit of analysis in microeconomics. D. is too large to analyze using standard macroeconomic theories.
A
Money is not considered to be an economic resource because: A. as such it is not productive. B. money is not a free gift of nature. C. the terms of trade can be determined in nonmonetary terms. D. idle money balances do not earn interest income.
A
Refer to the above graph. The shift of the budget line from CD to AB is consistent with: A. a decrease in money income. B. an increase in money income. C. an increase in the price of Good 1. D. a decrease in the price of Good 2.
A
Scaling back the U.S. "war on terror" would: A. Shift U.S. production from "defense goods" to "civilian goods." B. Shift U.S. production from "civilian goods" to "defense goods." C. Shift the production possibilities curve inward. D. Suggest that we were allocating less than the optimal amount of resources to the war on terror.
A
Society wants to use its scarce resources efficiently. To achieve this economic goal it must: A. have full employment and full production. B. have a fixed resource base and fixed technology. C. expand the use of capital goods and reduce the use of labor. D. increase the rental, interest, wage, and profit payments to the factors of production.
A
Which would not be considered as capital (or an economic resource) by an economist? A. a share of corporate stock issued by General Motors B. an automobile used by General Electric C. a crane used by a building contractor D. a razor used by a barber
A
the branch of economics that focuses primarily on aggregates is: A. macroeconomics. B. microeconomics. C. scientific economics. D. consumer economics.
A
Suppose a consumer has an income of $16, the price of A is $2, and the price of B is $1. Which combination is on the consumer's budget line? A. 4A and 9B B. 5A and 6B C. 6A and 6B D. 8A and 8B
B
Cuba is a command economy that suffered decline in economic growth because of a cut in support from the former Soviet Union when it collapsed. As a consequence, Cuba: A. experienced a shift outward in its production possibilities curve. B. experienced a shift inward in its production possibilities curve. C. moved along its existing production possibilities curve. D. went to a point inside its production possibilities curve.
B
Economic resources in the capitalist system are brought together by: A. government units. B. entrepreneurs. C. corporate shareholders. D. the managerial elite.
B
Economists have difficulty applying the scientific method because: A. economic conditions are constant. B. controlled laboratory experiments are impossible or often infeasible. C. people are involved, and their behavior is entirely predictable. D. the scientific method does not apply to economics.
B
From an economic perspective, when consumers leave a fast-food restaurant because the lines to be served are too long, they have concluded that the: A. marginal cost of waiting is less than the marginal benefit of being served. B. marginal cost of waiting is greater than the marginal benefit of being served. C. management is exhibiting irrational behavior by not maximizing profits. D. management is making an assumption that other things are equal.
B
How is the economic perspective reflected in lines for fast food? A. Customers select the shortest line because they have perfect information. B. Customers select the shortest line because they believe it will reduce their time cost of obtaining food. C. Lines will typically be of unequal length because of the inefficiencies in counter service. D. The set of food choices is often too complex for most customers and thus creates long lines.
B
If a production possibilities boundary is a concave curve and not a straight line, then: A. resources are equally suited to producing alternative products. B. resources are not equally suited to producing alternative products. C. resources are perfectly interchangeable to alternative uses. D. there are unemployed resources.
B
Opportunity cost is best defined as: A. marginal cost minus marginal benefit. B. the value of the best foregone alternative. C. the time spent on an economic activity. D. the money cost of an economic decision.
B
Refer to the above graph. The shift of the budget line from AB to CD is consistent with: A. a decrease in money income. B. an increase in money income. C. an increase in the price of Good 1. D. a decrease in the price of Good 2.
B
Suppose there are two economies, Alpha and Beta, which have the same production possibilities curves and are on the same point on each curve. If Beta then devotes more resources to investment goods than consumer goods when compared to Alpha, then in the future: A. Alpha will experience greater economic growth than Beta. B. Beta will experience greater economic growth than Alpha. C. Alpha will not be able to achieve full employment or productive efficiency. D. Beta will not be able to achieve full employment or productive efficiency
B
The basic economic problem is essentially one of deciding how to make the best use of: A. limited resources to satisfy limited economic wants. B. limited resources to satisfy unlimited economic wants. C. unlimited resources to satisfy unlimited economic wants. D. unlimited resources to satisfy limited economic wants.
B
The general concern of economics is with the study of the: A. degree of competition in stock and bond markets in the economy. B. efficient use of limited productive resources to satisfy economic wants. C. issue of equality in the distribution of income and wealth among households. D. budget deficits in the domestic economy and trade deficits in the international economy.
B
The overallocation of resources by society to the production of a product means that the: A. marginal benefit is greater than the marginal cost. B. marginal cost is greater than the marginal benefit. C. entrepreneurs are making too much profit in the economy. D. workers are not being paid adequate wages and salaries.
B
The production possibilities curve bows outward from the origin because: A. opportunity costs decrease as the production of a good increases. B. opportunity costs increase as the production of a good increases. C. more production of one good results in more production of the other good. D. resources are of uniform quality.
B
The satisfaction or pleasure one gets from consuming a good or service is: A. price. B. utility. C. consumption. D. preferences.
B
The study of how one business firm sets its prices would fall under the study of: A. macroeconomics. B. microeconomics. C. income distribution. D. economic growth.
B
When producers maximize their profits from the production of a good or service, they are: A. testing a hypothesis. B. exhibiting purposeful behavior. C. assuming that all other things are equal. D. making a tradeoff between economic efficiency and economic freedom.
B
Which expression is another way of saying "marginal cost"? A. total cost B. additional cost C. rational behavior D. scarcity
B
Which is not considered to be an economic resource? A. land (or natural resources) B. money C. labor D. tools and machinery
B
Which of the following is not a central focus of the "economic perspective"? A. Scarcity and choice. B. The scientific method. C. Purposeful behavior. D. Marginal analysis.
B
Which question is an example of a microeconomic question? A. What should the Federal government do to reduce the trade deficit with Japan? B. Will the merger of two airlines likely lead to higher airline ticket prices? C. What factors are contributing to the rise of unemployment in the economy? D. Will the inflation rate remain relatively stable this year?
B
Which question is an illustration of a macroeconomic question? A. What is the amount of profit for Intel and other makers of microchips? B. How does a cut in the business tax rate increase business investment in the economy? C. What will be the level of stock market and bond market prices at the end of the year? D. How does the supply of fruits and vegetables change when there is bad weather affecting crops?
B
Which would be considered a macroeconomic study? A study of the effect of: A. a decrease in the price of automobiles on automobile sales. B. government spending to increase employment. C. a new tax on the profits of a business. D. interest rates on a firm's investment.
B
he process of developing hypotheses, testing them against facts, and using the results to construct theories is called: A. opportunity cost calculation. B. the scientific method. C. marginal analysis. D. microeconomics.
B
increases in resources or improvements in technology will tend to cause a society's production possibilities curve to: A. shift inward or to the left. B. shift outward or to the right. C. become horizontal. D. become vertical.
B
the price ratio of the two products is the: A. marginal rate of substitution. B. slope of the budget line. C. point of tangency for equilibrium. D. demand for the two products.
B
A nation can increase its production possibilities by: A. shifting resources from investment good production to consumer good production .B. shifting resources from private goods to public goods. C. improving labor productivity. D. eliminating discrimination.
C
A reduction in the level of unemployment would have which effect with respect to the nation's production possibilities curve? A. It would shift the curve to the right. B. It would shift the curve to the left. C. It would not shift the curve; it would be represented by moving from a point inside the curve toward the curve. D. It would not shift the curve; it would be represented by moving from a point on the curve to a point to the right of the curve.
C
According to the Gates, Winfrey, and Rodriguez illustration: A. Gates, Winfrey, and Rodriguez made a mistake by not attending college. B. Gates, Winfrey, and Rodriguez did not weigh marginal benefits against marginal costs when making decisions. C. Opportunity costs vary greatly between individuals and matter in decision-making. D. Attending college has little effect on lifetime earnings.
C
Are the goods that businesses offer for "free" to consumers also free to society? A. Yes, because the individual consumer does not have to pay for them. B. Yes, because the marginal benefit is greater than the marginal cost. C. No, because scarce resources were used to produce the free goods. D. No, because society does not assign a value to free goods.
C
As a student of economics, when you speak of scarcity, you are referring to the ability of society to: A. employ all of its resources. B. consume all that is produced. C. satisfy economic wants given limited resources. D. continually make technological breakthroughs and increase production.
C
Assume that for Indy, one hour of study time in economics is perfectly substitutable for an hour of study time in calculus. Indy has exams in both subjects tomorrow and he determines that if spends all of his time studying economics, he will receive scores of 96 on his economics exam and 45 on his calculus exam. If he studies only calculus, his econ score will be 81 and his calculus score 90. Based on this information and assuming that Indy has no better alternative use of his time, what is the opportunity cost of improving his econ score by one (1) point? A. 1 point on his calculus exam. B. 1/3 point on his calculus exam. C. 3 points on his calculus exam. D. The opportunity cost cannot be determined with the information given.
C
Assume that money income decreases and the prices of products X and Y both decrease, then the budget line: A. must shift outward from the origin. B. must shift inward to the origin. C. may shift either outward from or inward to the origin. D. will no longer be in equilibrium.
C
Decreases in the price of a product causes the consumer's: A. production possibilities curves to shift outward from the origin. B. production possibilities curves to shift inward to the origin. C. budget line to shift outward from the origin. D. budget line to shift inward to the origin.
C
Economics is the study of: a. increasing the level of productive resources so there is maximum output in society b.increasing the level of productive resources so there is a minimum level of income. c.how people, institutions, and society make choices under conditions of scarcity. d.the efficient use of scarce resources paid for at the minimum level of cost to consumers and businesses.
C
From an economic perspective, when a consumer decides to buy more life insurance, the consumer has most likely concluded that the: A. marginal costs of more insurance coverage have decreased. B. marginal benefits of more insurance coverage have increased. C. marginal benefits of more insurance coverage are greater than the marginal costs. D. opportunity costs of more insurance coverage are greater than the payment for more insurance coverage.
C
From an economic perspective, when a student decides to attend another year of college, the student has concluded that the marginal: A. costs of attending college has decreased that year. B. benefits of attending college has increased that year. C. benefits of attending college are greater than the marginal costs. D. costs of attending college will be subsidized by someone else such as parents or the government.
C
If an economy that produces capital and consumer goods is operating at a point on its production possibilities curve, this indicates that: A. it is achieving full employment but not full production. B. it is achieving full production but not full employment. C. more capital goods can be produced only at the cost of some consumer goods. D. the economy is incapable of achieving significant economic growth.
C
If economic resources are perfectly shiftable between the two products shown on a production possibilities graph: A. the economy will always be at full employment. B. more of one product can be produced without producing less of the other product. C. the production possibilities curve would be a straight line. D. the two products are of equal value to the economy.
C
In a production possibilities table, the most-valued or optimal point for society is determined by: A. a combination of products at the midpoint of the table. B. a combination of products at the ends of the table. C. the equality of marginal benefits and marginal costs. D. the maximization of opportunity costs.
C
In the diagram above, Cheri's budget line shifts outward from AB to CD. Which statement below is consistent with this shift? A. Both prices double; her income doubles. B. Her income is reduced; no change in either price. C. Both prices are reduced by 50 percent; her income is reduced by less than 50 percent. D. Both the price of good 1 and Cheri's income increase; there is no change in price for good 2.
C
Macroeconomics focuses on: A. the individual units that make up the whole of the economy. B. studies of how individual markets and industries are organized. C. total output and the general level of prices in the economy. D. how a business determines how much of a product to produce.
C
One major feature of the economic perspective is: A. that scarcity is more important than choice. B. that costs are more important than benefits. C. the assumption of purposeful behavior by individuals. D. the recognition of economic resources in the economy.
C
The law of increasing opportunity costs indicates that: A. resources are perfectly mobile except for transportation costs. B. the sum of all costs cannot rise above the market price of a product. C. to produce more of one good, society must sacrifice larger and larger amounts of alternative goods. D. if the prices of all the resources involved in the production of goods increase, the cost of producing those goods will increase at the same rate.
C
The macroeconomist would most likely study: A. the effects of changing beer prices on the market for pretzels. B. the effects of an increased income tax on a typical household's purchase of goods. C. the effects of a reduction in income tax rates on the nation's total output. D. how consumers in Gary, Indiana, respond to a reduction in gasoline prices.
C
The production possibilities curve represents which of the following? A. the amount of goods attainable with variable resources B. the maximum amount of goods attainable with variable resources C. maximum combinations of goods attainable with fixed resources D. the amount of goods attainable if prices decline
C
The production possibility curve: A. is convex to the origin. B. is based on the law of diminishing returns. C. is the boundary between attainable and unattainable outputs. D. reflects the mixed economy found with most economic systems.
C
The term scarcity in economics refers to the fact that: A. economic wants are limited and resources are abused. B. even in the richest country some people go hungry. C. no country can produce enough products to satisfy everybody's economic wants. D. it is impossible to produce too much of any particular good or service in a market economy.
C
The utility of a specific product: A. is determined by consumer income. B. is determined by the price of the product. C. varies from person to person using the product. D. is constant from person to person using the product.
C
What is the economic meaning of the expression that "there is no such thing as a free lunch"? A. It refers to "free-riders," who do not pay for the cost of a product, but who receive the benefit from it. B. It means that economic freedom is limited by the amount of income available to the consumer. C. It means that there is an opportunity cost when resources are used to provide "free" products. D. It indicates that products only have value because people are willing to pay for them.
C
When an economy is at full employment and full production, more of any one product: A. cannot be produced because there is full production. B. can be produced only if there is a general decrease in prices. C. can be produced only if there is less production of some other products. D. cannot be produced unless private enterprise does so rather than government.
C
Which is an illustration of a microeconomic question? A. What is the current national rate of unemployment? B. Is the economy experiencing a decline in the rate of inflation? C. Will a new type of television set increase the number of buyers? D. Is the production of goods and services in the economy greater this year than last year?
C
Which is considered to be an economic resource by economists? A. rent B. money C. labor D. wages
C
Which question is an illustration of a macroeconomic question? A. Is a business unresponsive to the demands of consumers? B. Is a consumer boycott an effective means of reducing product prices? C. Is the level of employment in the economy sensitive to the quantity of consumer spending? D. Are oil companies engaging in a rip-off of the consumer by charging exorbitantly high prices for gasoline?
C
assume that a consumer purchases two products and there is an increase in the consumer's money income. All other things equal, the most likely effect is: A. an outward shift in the production possibilities curve because the consumer can now satisfy more wants. B. an inward shift in the budget line because the consumer can now purchase less of both products. C. an outward shift in the budget line because the consumer can now purchase more of both products. D. no change in the equilibrium of the consumer.
C
if an economy is producing at a point inside a production possibilities curve: A. the economy is efficient. B. there is economic growth. C. resources are unemployed. D. resources are fully employed.
C
the concept of "purposeful behavior" suggests that: A. macroeconomics is more important then microeconomics. B. microeconomics is more important than macroeconomics. C. people make different choices because their circumstances and information differ. D. there is a logical fallacy of composition that affects microeconomic thinking but not macroeconomic thinking.
C
the primary focus of the study of economics is with: A. expanding the production of goods and services. B. equalizing the distribution of consumer income and wealth. C. making the most efficient use of scarce productive resources. D. reallocating resources from consumption to production in the economy.
C
As a consequence of the condition of scarcity: A. there is never enough of anything. B. production has to be centrally planned. C. things which are plentiful have relatively high prices. D. individuals and communities have to make choices from among alternatives.
D
Henry wants to buy a book. The economic perspective suggests that Henry will buy the book if: A. the book will give him utility. B. his income is high. C. the marginal cost of the book is greater than its marginal benefit. D. the marginal benefit of the book is greater than its marginal cost.
D
If a consumer has an income of $200, the price of X is $5, and the price of Y is $10, the maximum quantity of X the consumer is able to purchase is: A. 5. B. 10. C. 20. D. 40.
D
Macroeconomics is the study of economics from the standpoint of: A. individual economic units. B. a typical firm. C. a typical household. D. the overall economy.
D
On a production possibilities curve, the single optimal or best combination of output for any society: A. is at a point near the top of the curve. B. is at the precise midpoint of the curve. C. is at a point near the bottom of the curve. D. depends upon the preferences of society.
D
Tammie makes $150 a day as a bank clerk. She takes off two days of work without pay to fly to another city to attend the concert of her favorite music group. The cost of transportation for the trip is $250. The cost of the concert ticket is $50. The opportunity cost of Tammie's trip to the concert is: A. $300. B. $450. C. $500. D. $600.
D
The "war on terror" waged by the United States: A. Shifted the production possibilities curve to the right. B. Shifted the production possibilities curve inward. C. Caused the U.S. to shift from "defense goods" to "civilian goods." D. Caused the perceived marginal benefit curve for "defense goods" to shift out.
D
The key economic concept that serves as the basis for the study of economics is: A. inflation. B. unemployment. C. money. D. scarcity
D
The statement that "the unemployment rate will increase as the economy moves into a recession" is an example of: A. a normative statement. B. a microeconomic statement. C. marginal analysis. D. a generalization.
D
When a state government chooses to build more roads, the required resources are no longer available for spending on public education. This dilemma illustrates the concept of: A. marginal analysis. B. full employment. C. full production. D. opportunity cost.
D
When an economist says that there is "too much of a good thing," the economist is suggesting that: A. scarcity is not a problem. B. wants are not unlimited. C. the marginal cost of the thing is less than the marginal benefit. D. the marginal benefit of the thing is less than the marginal cost.
D
When society overallocates resources to the production of a product it means that the: A. investment in the product is declining. B. opportunity cost of the product is decreasing. C. marginal benefit is greater than the marginal cost. D. marginal benefit is less than the marginal cost.
D
Which situation would most likely cause a nation's production possibilities curve to shift inward? A. the construction of more capital goods B. an increase in discrimination based on race C. an increase in the number of skilled immigrant workers D. the destruction from bombing and warfare in a losing military conflict
D
fter graduating from high school, Ron Willis plans to go to college. The college tuition is $15,000 a year. But, instead of going to college, Ron could take a full-time job paying $20,000. If Ron decides to go to college, what is his opportunity cost for attending for one year? A. $5,000 B. $15,000 C. $20,000 D. $35,000
D
the alternative combinations of two goods which a consumer can purchase with a given money income is: A. a production possibilities curve. B. a demand curve. C. consumer equilibrium. D. a budget line.
D
the purpose of the ceteris paribus assumption used in economic analysis is to: A. make sure that all relevant factors are considered. B. avoid making normative statements. C. aggregate economic data. D. restrict the analysis to the effect of a single economic factor.
D
the role of an assumption in an economic theory is to: A. add realism. B. prove the theory. C. cover special cases. D. simplify the theory.
D