Chapter 1

Question 1

Which of the following is NOT considered a “factor of production” in economics?

a) the espresso machine at your local cafe
b) the barista who makes the coffee
c) the espresso drink you purchase
d) the wood stir sticks
e) the land on which the cafe sits

Answer 1

c) the espresso drink you purchase

Question 2

scarcity is likely to be

a) a problem that will be solved by the proper use of available resources
b) unique to the twenty-first century
c) a problem that will always exist
d) a result of the work ethic
e) eliminated with a better understanding of economics

Answer 2

c) a problem that will always exist

Question 3

which of the following statements best describes the underlying feature of most economic problems?

a) people have unlimited wants in the face of limited resources
b) there are unlimited resources
c) resources are distributed fairly
d) people have limited wants in the face of limited resources
e) government should never interfere in the workings of a market economy

Answer 3

a) people have unlimited wants in the face of limited resources

Question 4

which of the following best completes the definition of opportunity cost? the opportunity cost of choosing any one alternative is the

a) market cost of the next best alternative
b) value of the next best alternative that is given up
c) the revenues that would be given up if that alternative is not chosen
d) value of all other alternatives combined
e) value of resources used to make that alternative available to the market

Answer 4

b) value of the next best alternative that is given up

Question 5

With a budget of $200 million, the government can choose to purchase 4 helicopters or repair 200 km of highway

Answer 5

b) 50 km of highway repair

Question 6

with a budget of $200 million, the government can choose to purchase 4 helicopters or repair 200 km of highway

Answer 6

c) the opportunity cost of the highway repair is 4 search and rescue helicopters

Question 7

7. Refer to figure 1-2. Suppose the school board chooses to allocate all $500,000 to the purchase of laptop computers. What is the opportunity cost of this entire purchase?

Answer 7

b) the opportunity cost is $20,000 textbooks

Question 8

8. the table below illustrates that, in one day, Tristan’s opportunity cost of producing one finishing lure?

Answer 8

d) 1/4 of a mowed lawn

Question 9

9. the table below illustrates that, in one day, Tristan can produce either 12 fishing lures or mow 3 lawns, while Thomas can produce either 6 fishing lures or mow 6 lawns

Answer 9

b) 1 mowed lawn

Question 10

Suppose you own a courier service and you use two types of delivery vehicles - model A, which costs $30,000 to purchase, and model B, which costs $50,000 to purchase. You have a budget of $300,000 for the purchase of new vehicles. What is the opportunity cost of one Model A vehicle

Answer 10

b) 3/5 of a model b vehicle

Question 11

Katie and hugh are producing pies and jars of pickles. Katie can produce either 200 jars of pickles or 100 pies per month. Hugh can produce either 800 jars of pickles or 200 pies per month. Which of the following statements is correct?

a) Katie’s opportunity cost of producing 1 jar of pickles is 2 pies
b) katie’s opportunity cost of producing 1 jar of pickles is 1/2 of a pie
c) hugh’s opportunity cost of producing 1 jar of pickles is 4 pies
d) hugh’s opportunity cost of producing 1 pie is 1/4 jar of pickles
e) hugh and katie’s opportunity costs of producing are the same

Answer 11

b) katie’s opportunity cost of producing 1 jar of pickles is 1/2 of pie

Question 12

define economics

Answer 12

the study of the use of scarce resources to satisfy unlimited human wants

Question 13

define factors of production

Answer 13

resources used to produce goods and services; frequently divided into the basic categories of land, labour, and capital

Question 14

define goods

Answer 14

tangible products, such as cars or shoes

Question 15

define services

Answer 15

intangible products, such as legal services and education

Question 16

define production

Answer 16

the act of making goods or services

Question 17

define consumption

Answer 17

the act of using goods or services to satisfy wants

Question 18

what does scarcity imply?

Answer 18

choices must be made and making choices implies the existence of costs

Question 19

when do opportunity costs occur?

Answer 19

every time a choice is made

Question 20

define opportunity cost

Answer 20

the value of the next best alternative that is forgone when one alternative is chosen

Question 21

define a production possibilities boundary

Answer 21

a curve showing which alternative combination of output can be attained if all available resources are used efficiently; it is the boundary between attainable and unattainable output combinations

Question 22

what concepts does a PPB illustrate?

Answer 22

• scarcity (unattainable combinations outside boundary)
• choice (need to choose among the alternative attainable points)
• opportunity cost (negative slope)

Question 23

define resource allocation

Answer 23

the allocation of an economy’s scarce resources among alternative uses

Question 24

define microeconomics

Answer 24

the study of the causes and consequences of the allocation of resources as it is affected by the workings of the price system

Question 25

define macroeconomics

Answer 25

the study of the determination of economic aggregates such as total output, employment, and growth

Question 26

an economy based on free-market transactions is _______________

Answer 26

self-organizing

Question 27

maximizing consumers/producers make _______ _______ to achieve objectives

Answer 27

marginal decisions

Question 28

define specialization of labour

Answer 28

the specialization of individual workers in the production of particular goods or services

Question 29

define division of labour

Answer 29

the breaking up of a production process into a series of specialized tasks each done by a different worker

Question 30

define barter

Answer 30

An economic system in which goods and services are traded directly for other goods and services

Question 31

specialization must be accompanied by _____

Answer 31

trade

Question 32

what does money facilitate

Answer 32

trade, which then facilitates specializations

Question 33

define traditional economy

Answer 33

an economy in which behavior is based mostly on tradition

Question 34

define command economy

Answer 34

an economy in which most economic decisions are made by central planning authority

Question 35

define free-market economy

Answer 35

an economy in which most economic decisions are made by private households and firms

Question 36

define mixed economy

Answer 36

economy in which some economic decisions are made by firms and households and some by the government

Question 37

in practice, every economy is a _______ economy

Answer 37

mixed

Question 38

key institutions

Answer 38

• private property

- freedom of contract

Question 39

what are the 4 basic questions in all economies?

Answer 39

1) what is produced and how?
2) what is consumed and by whom?
3) why are resources sometimes idle?
4) is productive capacity growing