ECON 202 Chapters 1-7 Test

economists at which of the following offices help formulate spending plans and regulatory policies? a. Congressional Budget Office b. Office of Management and Budget c. The Federal Reserve d. Department of the Treasury

office of management and budget

What must be given up to obtain an item is called a. opportunity cost. b. comparative worth. c. out-of-pocket cost. d. absolute value.

opportunity cost

The production possibilities frontier provides an illustration of the principle that a. governments can sometimes improve market outcomes. b. people respond to incentives. c. people face trade-offs. d. trade can make everyone better off.

people face trade-offs

Which of the following is not correct? a. The gains from specialization and trade are based not on comparative advantage but on absolute advantage. b. The producer who gives up less of other goods to produce Good X has the smaller opportunity cost of producing Good X. c. The producer who requires a smaller quantity of inputs to produce a good is said to have an absolute advantage in producing that good. d. The producer who has the smaller opportunity cost of producing a good is said to have a comparative advantage in producing that good.

The gains from specialization and trade are based not on comparative advantage but on absolute advantage.

The circular-flow diagram is a a. visual model of how the economy is organized. b. mathematical model of how the economy works. c. model that shows the effects of government on the economy. d. visual model of the relationship among money, prices, and businesses.

a visual model of how the economy is organized

Productivity is defined as the a. actual amount of effort workers put into an hour of working time. b. amount of goods and services produced from each unit of labor input. c. amount of labor that can be saved by replacing workers with machines. d. number of workers required to produce a given amount of goods and services.

amount of goods and services produced from each unit of labor input

the business cycle is measured by the a. production of goods and services. b. number of people employed. c. the interest rate. d. Both a and b are correct.

both a and b are correct

Irregular fluctuations in economic activity are known as the a. broken window fallacy. b. business cycle. c. ten principles of economics. d. tradeoff between inflation and unemployment.

business cycle

Economists have helped modify the debate over the environment a. by arguing against tradeable permits for pollution. b. by focusing discussion on issues of resource allocation. c. by pointing out that nature is invaluable. d. by lobbying Congress for acid rain legislation.

by focusing discussion on issues of resource allocation.

The production possibilities frontier is a graph that shows the various combinations of output that an economy a. should produce. b. can produce. c. demands. d. wants to produce.

can produce

a model that shows how dollars flow through markets among households and firms is called the a. demand and supply diagram. b. production possibilities frontier. c. circular-flow diagram. d. comparative advantage model.

circular-flow diagram

When describing the opportunity cost of two producers, economists use the term a. comparative advantage. b. natural advantage. c. trading advantage. d. absolute advantage.

comparative advantage

People who provide you with goods and services a. do so because they get something in return. b. are acting out of generosity. c. are required to do so by the government. d. have chosen not to become interdependent.

do so because they get something in return

By definition, imports are a. goods produced abroad and sold domestically. b. goods in which a country has an absolute advantage. c. people who work in foreign countries. d. limits placed on the quantity of goods leaving a country.

goods produced abroad and sold domestically

In the simple circular-flow diagram, the participants in the economy are a. households and firms. b. households, firms, and government. c. firms and government. d. households and government.

households and firms

Economics is the study of a. production methods. b. how society manages its scarce resources. c. how households decide who performs which tasks. d. the interaction of business and government.

how society manages its scarce resources

Goods produced abroad and sold domestically are called a. imports. b. opportunity costs. c. exports. d. exchange rates.

imports

Trade between countries tends to a. increase competition and reduce specialization. b. reduce both competition and specialization. c. increase both competition and specialization. d. reduce competition and increase specialization.

increase both competition and specialization

A person can benefit from specialization and trade by obtaining a good at a price that is a. lower than his or her opportunity cost of that good. b. the same as his or her opportunity cost of that good. c. different than his or her opportunity cost of that good. d. higher than his or her opportunity cost of that good.

lower than his or her opportunity cost of that good.

The term used to describe a situation in which markets do not allocate resources efficiency is a. the effect of the invisible hand. b. equilibrium. c. economic meltdown. d. market failure.

market failure

The adage, "There is no such thing as a free lunch," means a. the cost of living is always increasing. b. people face tradeoffs. c. all costs are included in the price of a product. d. even people on welfare have to pay for food.

people face tradeoffs

A certain cowboy spends 10 hours per day mending fences and herding cattle. For the cowboy, a graph that shows his various possible mixes of output (fences mended per day and cattle herded per day) is called his a. consumption possibilities frontier. b. production possibilities frontier. c. line of tastes. d. trade-off curve.

production possibilities frontier

When an economist points out that you and millions of other people are interdependent, he or she is referring to the fact that we all a. rely upon one another for the goods and services we consume. b. have similar tastes and abilities. c. rely upon the government to provide us with the basic necessities of life. d. are concerned about one another's well-being.

rely upon one another for the goods and services

In a market economy, economic activity is guided by a. the government. b. corporations. c. central planners. d. self-interest and prices.

self-interest and prices

the slope of a line is equal to a. the horizontal distance divided by the vertical distance. b. the change in the value of x divided by the change in the value of y. c. the value of y divided by the value of x. d. the change in the value of y divided by the change in the value of x.

the change in the value of y divided by the change in the value of x

"Other things equal, when the price of a good rises, the quantity demanded of the good falls, and when the price falls, the quantity demanded rises." This relationship between price and quantity demanded is referred to as a. equilibrium. b. the definition of an inferior good. c. the law of demand. d. the relationship between supply and demand.

the law of demand

It once took 90 percent of our population to grow our food. It now takes only 3 percent of the population to grow our food. Which of the following statements is true?

this is progress because freed-up labor that is used to produce other goods.

The opportunity cost of an item is a. always less than the dollar value of the item. b. what you give up to get that item. c. always greater than the cost of producing the item. d. the number of hours that one must work in order to buy one unit of the item.

what you give up to get that item

The opportunity cost of an item is a. the number of hours needed to earn money to buy the item. b. what you give up to get that item. c. usually less than the dollar value of the item. d. the dollar value of the item.

what you give up to get that item