Chapters 1 & 2

Question 1

Economics may best be defined as the:

a) empirical testing of value judgments through the use of logic.
b) interaction between macro and micro considerations
c) study of why people are rational.
d) social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity.

Answer 1

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

Question 2

Any point inside the production possibilities curve indicates:

a) that more output could be produced with the available resources.
b) that resources are imperfectly substitutable among alternative uses.
c) the presence of technological change.
d) the presence of inflationary pressures.

Answer 2

that more output could be produced with the available resources.

Question 3

The Latin term “ceteris paribus” means:

a) prosperity inevitably follows recession.
b) that economics deals with facts, not values.
c) other things equal.
d) that if event A precedes event B, A has caused B.

Answer 3

other things equal.

Question 4

The economic perspective entails:

a) rejection of the scientific method.
b) a comparison of marginal benefits and marginal costs in decision making.
c) short-term but not long-term thinking.
d) irrational behavior by individuals and institutions.

Answer 4

a comparison of marginal benefits and marginal costs in decision making.

Question 5

The basic difference between consumer goods and capital goods is that:

a) an economy that commits a relatively large proportion of its resources to capital goods must accept a lower growth rate.
b) consumer goods are produced in the private sector and capital goods are produced in the public sector.
c) consumer goods satisfy wants directly while capital goods satisfy wants indirectly.
d) the production of capital goods is not subject to the law of increasing opportunity costs.

Answer 5

consumer goods satisfy wants directly while capital goods satisfy wants indirectly.

Question 6

Which of the following is a capital resource?

a) A computer programmer.
b) A corporate bond issued by a computer manufacturer.
c) Silicon (sand) used to make computer chips.
d) A piece of software used by a firm.

Answer 6

A piece of software used by a firm.

Question 7

A production possibilities curve illustrates:

a) scarcity.
b) the distribution of income.
c) market prices.
d) consumer preferences.

Answer 7

scarcity.

Question 8

Which of the following will shift the production possibilities curve to the right?

a) An increase in the unemployment rate from 6 to 8 percent.
b) A technological advance that allows farmers to produce more output from given inputs.
c) A decrease in the unemployment rate from 8 to 6 percent.
d) A decline in the efficiency with which the present labor force is allocated.

Answer 8

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

Question 9

A normative statement is one that:

a) is based on value judgments.
b) is based on the law of averages.
c) applies only to microeconomics.
d) applies only to macroeconomics.

Answer 9

is based on value judgments.

Question 10

Economics involves marginal analysis because:

a) most decisions involve changes from the present situation.
b) marginal benefits always exceed marginal costs.
c) marginal costs always exceed marginal benefits.
d) much economic behavior is irrational.

Answer 10

most decisions involve changes from the present situation.

Question 11

The optimal allocation of resources is found:

a) at every point along a production possibilities curve.
b) where the marginal cost is at its lowest.
c) where MB = MC.
d) where the marginal benefit is at its greatest.

Answer 11

where MB = MC.

Question 12

Two major virtues of the market system are that it:

a) results in price level stability and a fair personal distribution of income.
b) allocates resources efficiently and allows economic freedom.
c) results in an equitable personal distribution of income and always maintains full employment.
d) eliminates discrimination and minimizes environmental pollution.

Answer 12

allocates resources efficiently and allows economic freedom.

Question 13

A fundamental difference between the command system and laissez-faire capitalism is that, in command systems:

a) scarcity does not exist, whereas it does in laissez-faire capitalism.
b) money is not used, whereas it is in laissez-faire capitalism.
c) all economic decisions are made by the government, whereas there is no government in laissez-faire capitalism.
d) the division of output is decided by central planning rather than by individuals operating freely through markets.

Answer 13

the division of output is decided by central planning rather than by individuals operating freely through markets.

Question 14

Households and businesses are:

a) sellers in the product and resource markets respectively.
b) both buyers in the resource market.
c) both sellers in the product market.
d) sellers in the resource and product markets respectively.

Answer 14

sellers in the resource and product markets respectively.

Question 15

According to the concept of the “invisible hand,” if Susie opens and operates a profitable childcare center, then:

a) this demonstrates that consumer sovereignty is not present in this market.
b) government should regulate the business to ensure quality.
c) the profit Susie earns indicates that she is overcharging for her services.
d) she has served society’s interests by providing a desired good or service.

Answer 15

she has served society’s interests by providing a desired good or service.

Question 16

Which of the following is a land resource?

A) An oil drilling rig.
B) Natural gas.
C) A farmer.
D) A machine for detecting earthquakes.

Answer 16

Natural gas.

Question 17

Which of the following is a microeconomics statement?

a) The price of personal computers declined 4.7 percent last year.
b) Unemployment was 6.5 percent of the labor force last year.
c) The general price level increased by 3.1 percent last year.
d) The real domestic output increased by 2.3 percent last year.

Answer 17

The price of personal computers declined 4.7 percent last year.

Question 18

Which of the following is not considered by economists to be an economic resource?

a) A forest.
b) Computers at a retail store.
c) Factory workers.
d) Money.

Answer 18

Money.

Question 19

If an economy is operating inside its production possibilities curve for consumer goods and capital goods, it:

a) must improve its technology to produce more output.
b) can produce more of both consumer goods and capital goods by using resources that are currently idle.
c) can only produce more consumer goods by producing fewer capital goods.
d) can only produce more capital goods by producing fewer consumer goods.

Answer 19

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

Question 20

Economists contend that most economic decisions are:

a) spontaneous.
b) chaotic.
c) purposeful.
d) random.

Answer 20

purposeful.

Question 21

Examples of command economies are:

a) Sweden and Norway.
b) the United States and Japan.
c) Mexico and Brazil.
d) Cuba and North Korea.

Answer 21

Cuba and North Korea.

Question 22

The French term “laissez-faire” means:

a) “circular flow.”
b) “let it be.”
c) “public ownership.”
d) “there is no free lunch.”

Answer 22

“let it be.”

Question 23

The market system’s answer to the fundamental question “What will be produced?” is essentially:

A) “Goods and services that can be produced using large amounts of capital.”

B) “Low-cost goods and services.”

C) “Goods and services that are profitable.”

D) “Goods and services that possess lasting value.”

Answer 23

“Goods and services that are profitable.”

Question 24

An exception to the advice “go to college, stay in college, and earn a degree” occurs when:

a) the economy is growing rapidly and jobs are plentiful.
b) the price of textbooks is high and rising.
c) tuition expenses are high and rising.
d) the opportunity cost of attending college is extraordinarily high.

Answer 24

the opportunity cost of attending college is extraordinarily high.

Question 25

Which of the following do economists consider to be capital?

a) A share of IBM stock.
b) A savings account.
c) A construction crane.
d) A pair of stockings.

Answer 25

A construction crane.