Economics Chapter One Review

Which of the following principles underlie the interaction of individual choices? A) Resources are scarce. B) There are gains from trade. C) Marginal analysis is used for "how much" decisions. D) People usually exploit opportunities to make themselves better off.

B) There are gains from trade.

Exchanges taking place in a market system: A) are voluntary. B) are inefficient. C) will benefit one party at the expense of another. D) are monitored by the government to ensure that scarce resources are being used wisely.

A) are voluntary.

An economy is __________ if it has exploited all opportunities to benefit someone without making anyone else worse off. A) efficient B) equitable C) wealthy D) failing

A) efficient

When a nation experiences economic growth: A) its production possibility frontier shifts outward. B) its production possibility frontier shifts inward. C) it has been able to reach full employment. D) it has moved to a more consumer-oriented position on its production possibility frontier.

A) its production possibility frontier shifts outward.

An equilibrium outcome is one in which: A) no one has as incentive to change his or her decisions or behavior. B) there is no scarcity. C) there is no opportunity cost. D) the distribution of wealth is fair.

A) no one has as incentive to change his or her decisions or behavior.

Water is considered a scarce good because: A) not enough clean water is available for all of society's wants. B) it does not have any uses. C) scarce goods are less expensive. D) there is not enough clean water available to meet all of society's wants and it is also less expensive.

A) not enough clean water is available for all of society's wants.

Market failure results when the: A) pursuit of individual self-interest leads to bad results for society as a whole. B) market fails to create an equal distribution of wealth. C) market fails to create an equal distribution of income. D) market fails to eliminate scarcity.

A) pursuit of individual self-interest leads to bad results for society as a whole.

One of the uses of marginal analysis is that it: A) refers to decisions about whether to do a bit more or a bit less of an activity. B) helps when considering the total cost of a choice. C) does not consider trade-offs. D) looks at the initial cost of a choice.

A) refers to decisions about whether to do a bit more or a bit less of an activity.

In Colorado, there has been a drought, and rural communities are fighting with urban areas over water. This statement best represents the economic concept of: A) resources are scarce. B) resources should be used as efficiently as possible to achieve society's goals. C) when markets don't achieve efficiency, government intervention can improve society's welfare. D) government policies can change spending.

A) resources are scarce.

If market failures exist, the market can become efficient when: A) the government intervenes to improve society's welfare. B) people just ignore the problem. C) the government eliminates all market transactions. D) all citizens immigrate to a country where the market failure does not exist.

A) the government intervenes to improve society's welfare.

Most individuals choose careers in which they specialize in producing only one type of good or service, yet as consumers they have access to a wide variety of goods and services. What principle allows for this? A) trade B) equity C) scarcity D) opportunity cost

A) trade

Specialization in production was the starting point for what book in economics that many regard as the beginning of economics? A)The Wealth of Nations by Adam Smith B)The General Theory by John Maynard Keynes C) Das Kapital by Karl Marx D) Free to Choose by Milton Friedman

A)The Wealth of Nations by Adam Smith

Economists generally agree that people are most likely to change their behavior when they: A) are asked to do so voluntarily. B) are given incentives to do so. C) live in a world without scarcity. D) live in a world without opportunity costs.

B) are given incentives to do so.

The condition of scarcity means that: A) when the government produces something, there is no opportunity cost. B) choices must be made in the allocation of productive resources. C) you will not incur an opportunity cost if you make the right choice. D) only a command economy can make efficient use of resources.

B) choices must be made in the allocation of productive resources.

When someone says resources are scarce, this suggests that: A) lower-income individuals must be especially careful about the choices they make. B) choices need to be made in order to utilize resources in the best manner possible. C) additional resources could be found if there were additional funds allocated to the effort. D) we can use resources for whatever purpose we choose.

B) choices need to be made in order to utilize resources in the best manner possible.

Economists define an efficient use of resources as a situation where: A) one person can be made better off, but only by making another person worse off. B) some persons can be made better off, without making anyone worse off. C) all persons receive an equal share of the resources. D) all persons are made worse off when one person is made better off.

B) some persons can be made better off, without making anyone worse off.

In his book The Wealth of Nations, Adam Smith used the example of pin-making to illustrate the advantages of: A) equity. B) specialization. C) marginal analysis. D) interaction of choices.

B) specialization.

The local Taco Hut charges the same price for everything on its menu: $3 will buy a taco, a burrito, or nachos. You buy the taco and think that if you had not purchased the taco, you would have purchased the burrito. The opportunity cost of the taco is: A) the $3. B) the burrito. C) the $3 and the burrito. D) the $3, the burrito, and the nachos

B) the burrito.

Specialization and trade usually lead to: A) lower economic growth. B) the exchange of more goods and services in markets. C) lower living standards. D) higher prices.

B) the exchange of more goods and services in markets.

When a chef creates a dinner plate of food for a customer, which of the following represents the physical capital resource? A) the chef himself/herself B) the oven C) the food ingredients D) the chef's training and experience

B) the oven

Nate and Dylan are brothers. They have to mow the lawn and clean their rooms before they can go to the high school football game. Nate mows the lawn and Dylan picks up the rooms, and they make it to the football game on time. This statement best represents the economic concept of: A) people usually exploit opportunities to make themselves better off. B) there are gains from trade. C) markets usually lead to efficiency. D) one person's spending is another person's income.

B) there are gains from trade.

A production possibility frontier illustrates the ________ facing an economy that ________ only two goods. A) prices; sells B) trade-offs; produces C) trade-offs; consumes D) shortages; produces

B) trade-offs; produces

Economic theory asserts that people will behave in ways that: A) will be unfair to others. B) will enhance their own overall well-being. C) will not take advantage of opportunities for self-improvement. D) do not follow generally predictable patterns.

B) will enhance their own overall well-being.

Which one of the following statements is not true of a market economy? A) Productive resources are scarce. B) Every choice involves an opportunity cost. C) A central planning authority makes decisions about production and consumption. D) People will respond to incentives.

C) A central planning authority makes decisions about production and consumption.

Economists would most likely agree with which one of the following statements? A) When transactions occur voluntarily, the seller gains and the buyer loses. B) Market economies generate economic growth, but they do not promote efficiency. C) People usually exploit opportunities to make themselves better off. D) If people make wise decisions, they can avoid incurring any opportunity cost.

C) People usually exploit opportunities to make themselves better off.

Which of the following is an example of a positive statement? A) The poverty rate should be 4%. B) A high rate of economic growth is good for the country. C) The federal government pays for 46% of U.S. health care costs. D) Everyone in the country needs to be covered by national health insurance.

C) The federal government pays for 46% of U.S. health care costs.

The purpose of an economic system is to: A) eliminate scarcity. B) protect the environment. C) allocate scarce resources. D) create an equal distribution of wealth.

C) allocate scarce resources.

Overall, trade between China and the United States will: A) benefit the United States more than China. B) benefit China more than the United States. C) benefit both countries. D) hurt both countries

C) benefit both countries.

Positive economics: A) describes opinions and perspectives on how the world should work. B) is based on opinion polls. C) describes how the world does work. D) is the same as normative economics

C) describes how the world does work.

Resources are being used efficiently when: A) scarcity is no longer an issue. B) they are also used equitably. C) every opportunity to make people better off without making others worse off has been utilized. D) there are still gains from trade available.

C) every opportunity to make people better off without making others worse off has been utilized.

Adam Smith used the idea of the invisible hand to refer to the ability of market economies to: A) recover from recessions. B) solve the problem of market failure. C) harness the power of individual self-interest for the good of society as a whole. D) convince people that society is better off if its members sacrifice their own self-interest for the cause of the greater good.

C) harness the power of individual self-interest for the good of society as a whole.

The focal point of economic inquiry is: A) the stock market. B) the value of the dollar. C) individual choice. D) business ethics. c. individual choice.

C) individual choice.

An increase in efficiency means that an economy has: A) reduced its opportunity costs. B) increased the equity of its distribution of goods and services. C) made some people better off without making others worse off. D) increased the incentives for its citizens to follow their own self-interest.

C) made some people better off without making others worse off.

A new startup airline is offering free round-trip tickets to anywhere to the first 600 people who enter the office on the airline's first day of business. You arrive 24 hours before the office is scheduled to open to be sure to get the freetickets, and you buy food from vendors while waiting in line. The cost of the tickets to you is: A) zero. B) just the cost of food while you wait in line. C) the cost of food while you wait in line and the opportunity cost of your time. D) the actual value of the ticket

C) the cost of food while you wait in line and the opportunity cost of your time.

If the market for corn is in equilibrium: A) every buyer who wants to consume corn can acquire corn. B) every producer who wants to sell corn can do so. C) the price is at a level where the quantity of corn produced is equal to the quantity of corn consumed. D) all producers of corn earn the same amount of income from the sale of corn

C) the price is at a level where the quantity of corn produced is equal to the quantity of corn consumed.

Economists would most likely disagree with which of the following statements? A) People respond to incentives. B) Making a choice involves an opportunity cost. C) Markets move towards equilibrium. D) Resources and inputs used in production are unlimited.

D) Resources and inputs used in production are unlimited.

You are planning to study eight hours this week for your economics final and are considering studying a ninth hour.You should: A) compare the benefits of one more hour of study with the cost of one less hour of sleep. B) compare the benefits of one more hour of study with the cost of one less hour of studying calculus. C) compare the benefits of one more hour of study with the cost of one less hour of work at your part-time job. D) compare the benefits of one more hour of study with the cost of your next best alternative use of your time.

D) compare the benefits of one more hour of study with the cost of your next best alternative use of your time.

An economic system is in __________ when no individual would be better off by making a different choice. A) chaos B) decline C) jeopardy D) equilibrium

D) equilibrium

Macroeconomics is the branch of economics studying: A) how prices are determined. B) why trade-offs exist. C) how decisions are made at the margin. D) fluctuations in the overall level of business activity.

D) fluctuations in the overall level of business activity.

After finishing high school, LeBron James decided to enter the NBA rather that going to college to begin his studies to become a doctor. This choice between the two careers can best be described by: A) equilibrium. B) scarcity. C) market failure. D) opportunity cost.

D) opportunity cost.

The federal government regulates how much carbon dioxide a factory can emit. This statement best represents the economic concept of: A) resources are scarce. B) "how much?" is a decision at the margin. C) markets usually lead to efficiency. D) when markets don't achieve efficiency, government intervention can improve society's welfare.

D) when markets don't achieve efficiency, government intervention can improve society's welfare.

An opportunity cost arises: A) only when a monetary cost is incurred. B) only when a time cost is incurred. C) only when the wrong decision is made. D) whenever any choice is made.

D) whenever any choice is made.