Chapter 1 Introduction to Economics and the Economy

Alternative combinations of two goods that a consumer can purchase with a given income.

A budget line shows the: 1. alternative combinations of two goods that a consumer can purchase with a given income. 2. alternative combinations of two goods that will yield the same level of total utility to a consumer. 3. quantities of a particular good that a consumer will buy at various prices. 4. ratio of income to product price.

Resources are not equally efficient in producing every good.

A nation's production possibilities curve is bowed out from the origin because: 1. resources are not equally efficient in producing every good. 2. the originator of the idea drew it this way and modern economists follow this convention. 3. resources are scarce. 4. wants are virtually unlimited.

The depletion of its soil fertility due to overplanting and overgrazing.

A nation's production possibilities curve might shift to the left (inward) as a result of: 1. technological advance. 2. increases in the size of the labor force. 3. the depletion of its soil fertility due to overplanting and overgrazing. 4. investing in more capital goods.

The maximum amounts of two goods that can be produced assuming the full use of available resources.

A production possibilities curve shows: 1. that resources are unlimited. 2. that people prefer one of the goods more than the other. 3. the maximum amounts of two goods that can be produced assuming the full use of available resources. 4. combinations of capital and labor necessary to produce specific levels of output.

Shifts the consumer's budget line to the right.

An increase in income: 1. shifts the consumer's budget line to the right. 2. shifts the consumer's budget line to the left. 3. increases the slope of the budget line. 4. has no effect on the budget line.

Is unattainable, given the consumer's income.

Any combination of goods lying outside of the budget line: 1. implies that the consumer is not spending all his income. 2. yields less utility than any point on the budget line. 3. yields less utility than any point inside the budget line. 4. is unattainable, given the consumer's income.

That more output could be produced with available resources.

Any point inside the production possibilities curve indicates: 1. the presence of technological change 2. that resources are imperfectly substitutable among alternative uses 3. the presence of inflationary pressures 4. that more output could be produced with available resources

Move the level of actual output to the economy's production possibilities curve.

Assume an economy is incurring unemployment. The effect of resolving this problem will be to: 1. move the level of actual output to the economy's production possibilities curve. 2. create a less equal distribution of income. 3. shift its production possibilities curve to the left. 4. shift its production possibilities curve to the right.

Must be decreased.

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: 1. will remain unchanged. 2. may be either increased or decreased. 3. must be decreased. 4. must also be increased.

$.50 and $1.00.

Coke is at 20, popcorn is at 10. Suppose you have a money income of $10 all of which you spend on Coke and popcorn. In the above diagram, the prices of Coke and popcorn respectively are: 1. $.50 and $1.00. 2. $1.00 and $.50. 3. $1.00 and $2.00. 4. $.40 and $.50.

Social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity.

Economics may best be defined as the: 1. interaction between macro and micro considerations. 2. social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity. 3. empirical testing of value judgments through the use of logic. 4. use of policy to refute facts and hypotheses.

Can produce more of both consumer goods and capital goods by using resources that are currently idle.

If an economy is operating inside its production possibilities curve for consumer goods and capital goods, it: 1. can only produce more consumer goods by producing fewer capital goods. 2. can only produce more capital goods by producing fewer consumer goods. 3. can produce more of both consumer goods and capital goods by using resources that are currently idle. 4. must improve its technology to produce more output.

Resources are perfectly shiftable between the production of these two goods.

If the production possibilities curve were a straight downsloping line, this would suggest that: 1. resources are perfectly shiftable between the production of these two goods. 2. it is possible to produce more of both products. 3. both products are equally capable of satisfying consumer wants. 4. the two products have identical prices.

Scarcity and opportunity costs

In deciding whether to study for an economics quiz or go to a movie, one is confronted by the idea(s) of: 1. scarcity and opportunity costs. 2. money and real capital. 3. complementary economic goals. 4. full production.

Both technology and resource supplies.

In drawing a production possibilities curve we hold constant: 1. the money supply. 2. the consumer price index. 3. both technology and resource supplies. 4. resource supplies only.

Technology is fixed.

In drawing the production possibilities curve we assume that: 1. technology is fixed. 2. unemployment exists. 3. economic resources are unlimited. 4. wants are limited.

The prices of both products and money income are assumed to be constant.

In moving along a given budget line: 1. the prices of both products and money income are assumed to be constant 2. each point on the line will be equally satisfactory to consumers 3. money income varies, but the prices of the two goods are constant 4. the prices of both products are assumed to vary, but money income is constant

Opportunity costs

Joe sold gold coins for $1000 that he bought a year ago for $1000. He says, "At least I didn't lose any money on my financial investment." His economist friend points out that in effect he did lose money, because he could have received a 3 percent return on the $1000 if he had bought a bank certificate of deposit instead of the coins. The economist's analysis in this case incorporates the idea of: 1. opportunity costs 2. marginal benefits that exceed marginal costs. 3. imperfect information. 4. normative economics.

Study of the large aggregates of the economy or the economy as a whole.

Macroeconomics can best be described as the: 1. analysis of how a consumer tries to spend income. 2. study of the large aggregates of the economy or the economy as a whole. 3. analysis of how firms attempt to maximize their profits. 4. study of how supply and demand determine prices in individual markets.

A detailed examination of specific economic units that make up the economic system.

Microeconomics is concerned with: 1. the aggregate or total levels of income, employment, and output. 2. a detailed examination of specific economic units that make up the economic system. 3. positive economics, but not normative economics. 4. the establishing of an overall view of the operation of the economic system.

Is concerned with individual economic units and specific markets.

Microeconomics: 1. is the basis for the "after this, therefore because of this" fallacy 2. is not concerned with details, but only with the overall big picture of the economy 3. is concerned with individual economic units and specific markets 4. describes the aggregate flows of output and income

The amount of one product that must be given up to produce one more unit of another product.

Opportunity cost is best defined as: 1. the monetary price of any productive resource. 2. the amount of labor that must be used to produce one unit of any product. 3. the ratio of the prices of imported goods to the prices of exported goods. 4. the amount of one product that must be given up to produce one more unit of another product.

Shifts her budget line rightward because she can now purchase more of both products.

Other things equal, an increase in a consumer's money income: 1. increases the amount of utility a consumer receives from a given quantity of a good 2. shifts her budget line rightward because she can now purchase more of both products 3. eliminates the individual's economizing problem 4. causes the consumer to choose a different combination of goods along a given budget line

Shift the production possibilities curve from PP1 to PP2.

Refer to the above diagram. An improvement in technology will: 1. shift the production possibilities curve from PP1 to PP2 2. shift the production possibilities curve from PP2 to PP1 3. move the economy from A to C along PP1 4. move the economy from A, B, or C on PP1 to D.

Will be 4 units of bicycles.

Refer to the above diagram. If society is currently producing 9 units of bicycles and 4 units of computers and it now decides to increase computer output to 6, the cost: 1. will be 4 units of bicycles 2. will be 2 units of bicycles 3. will be zero because unemployed resources are available 4. of doing so cannot be determined from the information given

It chooses point B.

Refer to the above diagram. Other things equal, this economy will achieve the most rapid rate of growth if: 1. the ratio of capital to consumer goods is minimized. 2. it chooses point C. 3. it chooses point B. 4. it chooses point A.

Combinations of bicycles and computers that society can produce by using its resources efficiently.

Refer to the above diagram. Points A, B, C, D, and E show: 1. that the opportunity cost of bicycles increases, while that of computers is constant 2. combinations of bicycles and computers that society can produce by using its resources efficiently 3. that the opportunity cost of computers increases, while that of bicycles is constant 4. that society's demand for computers is greater than its demand for bicycles

Is attainable but implies that the economy is not using all its resources.

Refer to the above diagram. The combination of computers and bicycles shown by point F: 1. is unattainable, given currently available resources and technology 2. is attainable, but implies that the economy is not using all its resources 3. is irrelevant because it is inconsistent with consumer preferences 4. suggests that opportunity costs are constant

Unattainable, given currently available resources and technology.

Refer to the above diagram. The combination of computers and bicycles shown by point G is: 1. attainable, but too costly. 2. unattainable, given currently available resources and technology. 3. attainable but involves unemployment. 4. irrelevant because it is inconsistent with consumer preferences.

Immigration of skilled workers into the economy

Refer to the above diagram. Which one of the following would shift the production possibilities curve from PP1 to PP2? 1. immigration of skilled workers into the economy 2. worsening of the AIDS epidemic 3. an increase in consumer prices 4. a reduction in hourly wages

Would involve an inefficient use of the economy's scarce resources

Refer to the above table. A total output of 6 units of capital goods and 10 units of consumer goods: 1. is irrelevant because the economy is capable of producing a larger total output. 2. will result in the maximum rate of growth available to this economy. 3. would involve an inefficient use of the economy's scarce resources. 4. is unobtainable in this economy.

Achieve economic growth.

Refer to the above table. For this economy to produce a total output of 6 units of capital goods and 19 units of consumer goods it must: 1. achieve economic growth 2. use its resources more efficiently than the data in the table now indicate 3. allocate its available resources most efficiently among alternative uses 4. achieve the full employment of available resources

2/9 of a unit of capital goods

Refer to the above table. If the economy is producing at production alternative D, the opportunity cost of the tenth unit of consumer goods will be: 1. 4 units of capital goods 2. 2/9 of a unit of capital goods 3. 1/4 of a unit of capital goods 4. 18 units of capital goods

6 units of consumer goods.

Refer to the above tables. If South Cantina is producing at production alternative D, the opportunity cost of the third unit of capital goods will be: 1. 3 units of consumer goods. 2. 4 units of consumer goods. 3. 5 units of consumer goods. 4. 6 units of consumer goods.

South Cantina is fully and efficiently using its resources, but North Cantina is not.

Refer to the above tables. Suppose that North Cantina is producing 2 units of capital goods and 17 units of consumer goods while South Cantina is producing 2 units of capital goods and 21 units of consumer goods. We can conclude that: 1. North Cantina is fully and efficiently using its resources, but South Cantina is not. 2. South Cantina is fully and efficiently using its resources, but North Cantina is not. 3. neither South Cantina nor North Cantina are fully and efficiently using their resources. 4. both South Cantina and North Cantina are fully and efficiently using their resources.

price of C is $4 and the price of D is $2.

Refer to the budget line shown in the diagram above. If the consumer's money income is $20, the: 1. prices of C and D cannot be determined 2. price of C is $2, and the price of D is $4 3. price of C is $2, and the price of D is $4 4. price of C is $4, and the price of D is $2

4 units of C, and 6 units of D.

Refer to the budget line shown in the diagram above. If the consumer's money income is $20, which of the following combinations of goods is unattainable? 1. 4 units of C, and 6 units of D. 2. 5 units of C, and no units of D. 3. 1 unit of C, and 8 units of D. 4. 2 units of C, and 6 units of D.

Be unaffected.

Suppose Elroy's budget line is as shown on the above diagram. If his tastes change in favor of Coke and against popcorn, the budget line will: 1. become steeper 2. become flatter 3. shift rightward 4. be unaffected

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

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: 1. the quantity of bananas purchased determines the price of bananas. 2. all factors other than the price of bananas (for example, consumer tastes and incomes) are assumed to be constant. 3. economists can conduct controlled laboratory experiments. 4. one cannot generalize about the relationship between the price of bananas and the quantity purchased.

Opportunity costs

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: 1. distorted priorities. 2. opportunity costs. 3. increasing opportunity costs. 4. productive efficiency.

A budget line.

The alternative combinations of two goods which a consumer can purchase with a given money income is shown by: 1. a production possibilities curve. 2. a demand curve. 3. consumer expenditure line. 4. a budget line.

All production involves the use of scarce resources and thus the sacrifice of alternative goods.

The assertion that "There is no free lunch" means that: 1. tradeoffs between economic goals never exist 2. all production involves the use of scarce resources and thus the sacrifice of alternative goods 3. marginal analysis is not used in economic reasoning 4. choices need not be made if behavior is rational

All possible combinations of two goods that can be purchased, given money income and the prices of the goods.

The budget line shows: 1. the amount of product A that a consumer is willing to give up to obtain one more unit of product B. 2. all possible combinations of two goods that can be purchased, given money income and the prices of the goods. 3. the minimum amount of two goods that a consumer can purchase with a given money income. 4. all possible combinations of two goods that yield the same level of utility to the consumer.

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

The concept of opportunity cost: 1. is irrelevant in socialistic economies because of central planning. 2. suggests that the use of resources in any particular line of production means that alternative outputs must be forgone. 3. is irrelevant if the production possibilities curve is shifting to the right. 4. suggests that insatiable wants can be fulfilled.

Limited resources to satisfy virtually unlimited wants.

The economizing problem is one of deciding how to make the best use of: 1. virtually unlimited resources to satisfy virtually unlimited wants. 2. limited resources to satisfy virtually unlimited wants. 3. unlimited resources to satisfy limited wants. 4. limited resources to satisfy limited wants.

Land, labor, capital, and entrepreneurial ability

The four factors of production are: 1. land, labor, capital, and money 2. land, labor, capital, and entrepreneurial ability 3. labor, capital, technology, and entrepreneurial ability 4. labor, capital, entrepreneurial ability, and money

Resources are not equally efficient in producing various goods.

The law of increasing opportunity costs exists because: 1. resources are not equally efficient in producing various goods. 2. the value of the dollar has diminished historically because of persistent inflation. 3. wage rates invariably rise as the economy approaches full employment. 4. consumers tend to value any good more highly when they have little of it.

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

The law of increasing opportunity costs states that: 1. if society wants to produce more of a particular good, it must sacrifice larger and larger amounts of other goods to do so. 2. the sum of the costs of producing a particular good cannot rise above the current market price of that good. 3. 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. 4. 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.

Investment

The process of producing and accumulating capital goods is called: 1. money capital 2. depreciation 3. investment 4. consumption

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 illustrates the basic principle that: 1. the production of more of any one good will in time require smaller and smaller sacrifices of other goods. 2. an economy will automatically obtain full employment of its resources. 3. 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. 4. an economy's capacity to produce increases in proportion to its population size.

The various combinations of two goods that can be produced when society employs all of its scarce resources.

The production possibilities curve shows: 1. the various combinations of two goods that can be produced when society employs all of its scarce resources. 2. the minimum outputs of two goods that will sustain a society. 3. the various combinations of two goods that can be produced when some resources are unemployed. 4. the ideal, but unattainable, combinations of two goods that would maximize consumer satisfactions.

The combinations of two goods that can be produced with society's available resources

The production possibilities curve tells us: 1. the specific combination of two products that is most desired by society 2. that costs do not change as society varies its output 3. costs are irrelevant in a society that has fixed resources 4. the combinations of two goods that can be produced with society's available resources

Persists because economic wants exceed available productive resources.

The scarcity problem: 1. persists only because countries have failed to achieve continuous full employment 2.persists because economic wants exceed available productive resources 3. has been solved in all industrialized nations 4. has been eliminated in affluent societies such as the United States and Canada

A decrease in income.

The shift of the budget line from cd to ab in the above figure is consistent with: 1. decreases in the prices of both M and N . 2. an increase in the price of M and a decrease in the price of N. 3. a decrease in income. 4. an increase in income.

Choices that are made in seeking the best use of resources.

The study of economics is primarily concerned with: 1. keeping private businesses from losing money 2. demonstrating that capitalistic economies are superior to socialistic economies 3. choices that are made in seeking the best use of resources 4. determining the most equitable distribution of society's output

A number of relevant variables are assumed to be constant.

The term "other things equal" means that: 1. the associated statement is normative. 2. many variables affect the variable under consideration. 3. a number of relevant variables are assumed to be constant. 4. when variable X increases so does related variable Y.

False

True or False? Although sleeping in on a work day or school day has an opportunity cost, sleeping late on the weekend does not.

False

True or False? An economy will always operate at some point on its production possibilities curve.

True

True or False? Increasing the amount of resources a society has will increase its production possibilities.

False

True or False? Macroeconomics explains the behavior of individual households and business firms; microeconomics is concerned with the behavior of aggregates or the economy as a whole.

False

True or False? The entrepreneur's sole function is to combine other resources (land, labor, and capital) in the production of some good or service.

False

True or False? The lower the consumer's income, the higher (further to the right) his or her budget line.

True

True or False? The process by which capital goods are accumulated is known as investment.

True

True or False? The production possibilities curve shows various combinations of two products that an economy can produce when achieving full employment.

Is illustrated by a point inside the production possibilities curve.

Unemployment: 1. causes the production possibilities curve to shift outward. 2. can exist at any point on a production possibilities curve. 3. is illustrated by a point outside the production possibilities curve. 4. is illustrated by a point inside the production possibilities curve.

A piece of software used by a firm

Which of the following is a capital resource? 1. a computer programmer 2. a corporate bond issued by a computer manufacturer 3. silicon (sand) used to make computer chips 4. a piece of software used by a firm

A computer programmer

Which of the following is a labor resource? 1. a computer programmer 2. a computer 3. silicon (sand) used to make computer chips 4. a piece of software used by a firm

Silicon (sand) used to make computer chips

Which of the following is a land resource? 1. a computer programmer 2. a computer 3. silicon (sand) used to make computer chips 4. a piece of software used by a firm

Natural gas

Which of the following is a land resource? 1. a farmer 2. an oil drilling rig 3. a machine for detecting earthquakes 4. natural gas

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

Which of the following is a macroeconomic statement? 1. The gross profits of all U.S. businesses were $182 billion last year. 2. The price of beef declined by 3 percent last year. 3. General Motors' profits increased last year. 4. The productivity of steelworkers increased by 1 percent last year.

The opportunity cost in terms of reduced income is too great

Which of the following is an economic explanation for why most college-aged movie stars do not attend college? 1. they are too dumb to get into college 2. they would find college life boring 3. the opportunity cost in terms of reduced income is too great 4. they cannot afford the room, board, and tuition fees most colleges charge.

An empirical investigation of the general price level and unemployment rates since 1990.

Which of the following is associated with macroeconomics? 1. an examination of the incomes of Harvard Business School graduates 2. an empirical investigation of the general price level and unemployment rates since 1990 3. a study of the trend of pecan prices since the Second World War 4. a case study of pricing and production in the textbook industry

Specifies how much of each product society should produce.

Which of the following is not correct? A typical production possibilities curve: 1. indicates how much of two products a society can produce 2. reveals how much each additional unit of one product will cost in terms of the other product 3. specifies how much of each product society should produce 4. indicates that to produce more of one product society must forgo larger and larger amounts of the other product.

Devastation by war

Which of the following might shift a nation's production possibilities curve inward? 1. improved technology. 2. devastation by war. 3. improved health care. 4. a business downturn in which unemployment temporarily rises.

Tradeoffs

Which of the following most closely relates to the idea of opportunity costs? 1. tradeoffs 2. economic growth 3. technological change 4. capitalism

National income grew by 2.7 percent last year.

Which of the following statements pertains to macroeconomics? 1. Because the minimum wage was raised, Mrs. Olsen decided to enter the labor force. 2. A decline in the price of soybeans caused farmer Wanek to plant more land in wheat. 3. National income grew by 2.7 percent last year. 4. The Pumpkin Center State Bank increased its interest rate on consumer loans by 1 percentage point.

A technological advance that allows farmers to produce more output from given inputs.

Which of the following will shift the production possibilities curve to the right? 1. an increase in the unemployment rate from 6 to 8 percent 2. a decline in the efficiency with which the present labor force is allocated 3. a decrease in the unemployment rate from 8 to 6 percent 4. a technological advance that allows farmers to produce more output from given inputs

An improvement in the literacy level and general level of education.

Which of the following would be most likely to shift the production possibilities curve to the right? 1. a sudden and substantial expansion of consumer wants 2. an improvement in the literacy level and general level of education 3. a decline in the size of the population and labor force 4. shifting resources from the production of capital goods to the production of consumer goods.