Chapter 1: Introduction to Economics
Multiple Choice
1. The basic reason we study study economics is because material wants and needs are: A) limited and so are resources. B) limited but resources are not. C) unlimited and so are resources. D) unlimited but resources are not. Ans: D Diiculty: E Topic: !"AT I# EC$%$MIC#&
'. The basic problem that (ies (ies rise to the study study o economics is the the need to: A) control the eects eects o actions by orei(n orei(n (oernments. B) be sure all the (oods and serices serices produced in an economy (et sold. C) use scarce resources to satisy satisy people*s unlimited material material wants and needs. D) control people*s tastes and wishes so that the the aailable resources can produce all the (oods and serices they want. Ans: C Diiculty: E Topic: !"AT I# EC$%$MIC#&
+. The basic concern o economics is: A) to proide stable economic conditions to ensure political stability. stability. B) to match limited resources to people*s limited material material wants and needs. C) the scarcity problem created because people*s desires desires or material thin(s e,ceed the ability to produce them. D) to encoura(e society to ac-uire enou(h (oods and serices serices so that eerybody has a ob. Ans: C Diiculty: M Topic: !"AT I# EC$%$MIC#&
/. Economics is is concerned with: A) earnin( as much money as possible. B) limitin( indiiduals* wants so that our scarce resources resources will not be used up. C) usin( scarce resources to satisy satisy irtually limitless limitless material wants and needs. D) usin( as many wor0ers as possible to produce any (ien (ien leel o output. Ans: C Diiculty: E Topic: !"AT I# EC$%$MIC#&
. The 2economic problem2 e,ists because: A) or the irst time time in history3 people are earnin( more money than they can spend. B) resources are limited while wants and needs or (oods and serices are irtually limitless. limitless. C) people are unwillin( to put orth orth the eort re-uired to attain the (oods and serices they want. D) there are more (oods and serices serices bein( produced than people want3 causin( some businesses to (o ban0rupt. Ans: B Diiculty: M Topic: !"AT I# EC$%$MIC#&
4. There would be no need to study study economics i: A) there were no (oernment controls on people*s actions. B) people were ree to do whateer they wanted with their lies. C) there were enou(h resources to produce all the (oods and serices people would li0e li0e to obtain. D) all o the the aboe. Ans: C Diiculty: M Topic: !"AT I# EC$%$MIC#&
5. !hich o the ollowin( ollowin( statements is 6A7#E& 6A7#E&
A) Economics is the study study o decision ma0in( in a world world o scarcity. scarcity. B) #carcity is aced by all indiiduals3 businesses3 and societies. societies. C) #carcity arises because people*s wants and needs are irtually unlimited3 unlimited3 while the resources aailable to satisy those wants and needs are not. D) #carcity could be oercome i people were willin( to wor0 harder to produce all the (oods and serices that would satisy their material wants and needs. Ans: D Diiculty: M Topic: !"AT I# EC$%$MIC#&
8. #carcity is a problem aced by: A) households3 but not businesses and (oernments. B) households and businesses3 but not (oernments because they can pass laws to (et the (oods and serices they need. C) households and (oernments3 but not businesses businesses because they are the ones that produce produce the (oods and serices that people want. D) households3 businesses businesses and (oernments. Ans: D Diiculty: M Topic: !"AT I# EC$%$MIC#&
9. In economics3 scarcity reers to the act that there there are not enou(h: A) (oods and serices to completely satisy eeryone*s wants and needs. B) hours in the day to consume all all the (oods and serices aailable in the economy. C) (oods and serices produced to allow eeryone wantin( wantin( to wor0 to hold down a ulltime ulltime ob. D) dollars or spendin( on (oods that hae already been produced and directly satisy satisy our wants3 such as ood and clothin(. Ans: A Diiculty: M Topic: !"AT I# EC$%$MIC#&
1;. !e study economics to: A) understand how an economy operates. B) deelop more sophisticated thou(ht thou(ht processes.
C) deelop s0ills which which can be used in in our careers. D) all o the the aboe. Ans: D Diiculty: E Topic: !"AT I# EC$%$MIC#&
11. Because resources are scarce3 indiiduals must: must: A) learn to do without. B) ma0e alue ud(ments. C) try to be more eicient. D) all o the the aboe. Ans: D Diiculty: M Topic: !"AT I# EC$%$MIC#&
1'. Because o scarcity: A) indiiduals and societies are not able to choose which material wants and needs to satisy. satisy. B) indiiduals and societies must choose which material wants and needs to satisy. satisy. C) all choices about satisyin( wants and usin( resources must must be made by the (oernment. D) choices can be made about which wants to satisy3 but not about which resources to use. Ans: B Diiculty: M Topic: !"AT I# EC$%$MIC#&
1+. Economics is concerned with tradeos caused by scarcity. scarcity. 2Tradeos2 2Tradeos2 reers to: A) the alternaties (ien up when ma0in( choices. B) recyclin( old (oods into new (oods to to reduce the scarcity problem. C) the buyin( and sellin( that occurs when unwanted (oods are e,chan(ed or (oods that are desired. D) the decisions about whether households or businesses should bear the entire burden o the scarcity problem. Ans: A Diiculty: M
Topic: !"AT I# EC$%$MIC#&
1/.
1. The relatie importance a person person assi(ns to arious actions or alternaties: A) relects the the person*s alue ud(ments. B) is the same or all people who earn the same income. income. C) depends only on the dollar prices o the actions or alternaties. alternaties. D) all o the the aboe. Ans: A Diiculty: M Topic: !"AT I# EC$%$MIC#&
14. The choices that are made because o scarcity: A) are always correct correct i soled mathematically. B) dier when they inole people*s wants3 but are similar when they inole people*s needs. C) depend on the decision ma0er*s alue ud(ments about the relatie importance o dierent dierent alternaties. D) are important in poor countries3 but not in economically adanced countries where people earn hi(h incomes. Ans: C Diiculty: M Topic: !"AT I# EC$%$MIC#&
15. The opportunity cost o a purchase or a decision is: A) the lowest possible cost to ma0e that purchase or decision. B) the hi(hest cost that must must be paid to ma0e that purchase or decision. C) the actual amount paid paid to ma0e that purchase or decision. D) what had to be (ien up to ma0e ma0e that purchase or decision. Ans: D Diiculty: M Topic: !"AT I# EC$%$MIC#&
18. The cost o a purchase or decision measured by what is is (ien up to ma0e the purchase or carry out the decision is its: A) sun0 cost. B) hidden cost. C) oerhead cost. D) opportunity cost. Ans: D Diiculty: E Topic: !"AT I# EC$%$MIC#&
19. The opportunity cost o (oin( to school rather than wor0in( is the: A) cost o ood and clothin(. B) cost o tuition and housin(. C) cost o (ettin( (ettin( to and rom school. D) wa(es which could hae been earned. Ans: D Diiculty: M Topic: !"AT I# EC$%$MIC#&
';. The opportunity cost o wor0in( wor0in( rather than (oin( to school is: A) the cost o ood and housin(. B) the cost o clothin( and transportation. C) the hi(her wa(es that come with additional education. D) =ero3 since the person is earnin( an income.
Ans: C Diiculty: M Topic: !"AT I# EC$%$MIC#&
'1. An opportunity cost: A) e,ists only or decisions decisions inolin( e,penditures o money. money. B) e,ists because there is only one way money and time can be spent. C) is e-ual to the alue o what is (ien up to ma0e a purchase or ta0e an action. D) accompanies eery decision made by indiiduals and businesses3 but not by (oernment (oernment because that relects the wishes o society. society. Ans: C Diiculty: M Topic: !"AT I# EC$%$MIC#&
''. The opportunity cost to a student o preparin( or an e,amination is: A) impossible to measure. B) the alternatie use o the time time re-uired to prepare or the e,am. C) hi(h or a student with a hi(h h i(h >?A and low or a student with a low >?A. >?A. D) =ero since the tuition tuition has already been paid or the course course and there is not an e,tra ee to ta0e the e,am. Ans: B Diiculty: " Topic: !"AT I# EC$%$MIC#&
'+. The opportunity cost o a purchase is: is: A) =ero i the the item is what you want most. B) always e-ual to the sellin( price o the ac-uired item. C) always (reater or people who are are out o wor0 than or people who are wor0in(. D) the alternatie (ood or serice serice that must be (ien up because this this item is purchased. Ans: D Diiculty: " Topic: !"AT I# EC$%$MIC#&
'/. I there there were no scarcity: A) there would be no opportunity costs. B) there would be no need to ma0e tradeos. tradeos. C) both o the aboe. D) none o the aboe. Ans: C Diiculty: M Topic: !"AT I# EC$%$MIC#&
'. Application Applicati on 1.13 2To !or0 !or0 or %ot to !or032 !or032 ocuses ocu ses on the: A) cost to parents when adult wor0in( children moe bac0 home ater (raduatin( (raduatin( rom colle(e. B) eects on hi(h school students* (rades3 and social and other other actiities rom wor0in( wor0in( lon( hours while in school. C) amounts cities spend to 0eep businesses businesses rom relocatin( elsewhere in order to 0eep employment rates hi(h. D) amounts people spend on child care3 transportation3 transportation3 and 2proessional wardrobes32 wardrobes32 in order to 0eep hi(hpayin( obs. Ans: B Diiculty: " Topic: !"AT I# EC$%$MIC#&
'4. Eiciency means: A) producin( output o a desired -uality -uality at the lowest possible possible cost. B) producin( the lar(est possible possible output o a desired -uality -uality with a (ien set o resources. C) usin( the minimum cost inputs to produce a (ien amount o output o a desired -uality. -uality. D) all o the the aboe. Ans: D Diiculty: M Topic: !"AT I# EC$%$MIC#&
'5. Increasin( eiciency will: A) increase the problem o scarcity.
B) reduce the problem o scarcity. scarcity. C) eliminate the problem o scarcity. D) hae no eect on the the problem o scarcity because there is a i,ed supply o resources. Ans: B Diiculty: M Topic: !"AT I# EC$%$MIC#&
'8. I all (oods and serices were produced eiciently: eiciently: A) there would be no more opportunity costs. B) there would no lon(er be a problem with with scarcity. scarcity. C) the lar(est attainable output would be produced rom aailable resources. resources. D) all o the the aboe. Ans: C Diiculty: M Topic: !"AT I# EC$%$MIC#&
'9. A student earnin( an A in a course would be considered eicient i she (ot that (rade by: A) lettin( her (rade (rade drop in another course. B) -uittin( her ob to spend more time studyin(. C) masterin( the re-uired material material in the least amount o time. D) studyin( the subect matter matter or at least 1 hours per wee0. Ans: C Diiculty: M Topic: !"AT I# EC$%$MIC#&
+;. I there there were no scarcity: A) e-uity and eiciency eiciency would no lon(er be important concerns. B) both e-uity and eiciency eiciency would continue to to be important concerns. C) e-uity would continue to be an important concern3 but eiciency would not. not. D) eiciency would continue to to be an important concern3 but e-uity would would not. Ans: A Diiculty: M Topic: !"AT I# EC$%$MIC#&
+1. @uestions about e-uity are diicult diicult to answer because people: A) hae dierent alue ud(ments about what is air. air. B) disa(ree oer how airness can be achieed. C) disa(ree oer whether airness should be an economic (oal. D) all o the the aboe. Ans: D Diiculty: M Topic: !"AT I# EC$%$MIC#&
+'. !hether a distribution o (oods and serices is air air or ust is a -uestion o: A) e-uity. B) eiciency. C) how to produce produce at minimum minimum cost. D) ma,imi=in( the employment o scarce resources. Ans: A Diiculty: E Topic: !"AT I# EC$%$MIC#&
++. !hich o the the ollowin( statements statements is true& true& A) E-uity re-uires that eery person receie the same amount o (oods and serices. B) E-uity re-uires that eery person person receie a suicient amount o (oods and serices to to satisy their needs. C) E-uity re-uires that eery person person receie an amount o (oods and serices proportional to what they contribute to society. D) The deinition o e-uity depends on a person*s alue ud(ments3 and any o the aboe could ulill an indiidual*s concept o e-uity. Ans: D Diiculty: M Topic: !"AT I# EC$%$MIC#&
+/. E-uity as deined in a mar0et mar0et system re-uires that that eery person receie: A) the same amount o (oods and serices as eery other person. person. B) a suicient amount o (oods and serices to satisy satisy their needs. C) an amount o (oods and serices based on their contribution to production. production. D) none o the aboe. Ans: C Diiculty: M Topic: !"AT I# EC$%$MIC#&
+. Eiciency and e-uity: A) can neer be achieed at the same time time because increasin( e-uity necessarily reduces eiciency. B) can always be achieed at the same time time because increasin( eiciency eiciency automatically increases e-uity. C) are separate (oals that can be pursued pursued independently. D) none o the aboe. Ans: C Diiculty: " Topic: !"AT I# EC$%$MIC#&
+4. The actor o production that that or(ani=es economic actiity and bears the ris0 o success or ailure in a business enture is: A) labor. B) capital. C) entrepreneurship. D) all o the the aboe. Ans: C Diiculty: E Topic: 6ACT$<# $6 ?<$DCTI$% ?<$DC TI
%$+5. An en(ineer employed by a city city is an e,ample o: A) land. B) labor. C) capital.
D) entrepreneurship. Ans: B Diiculty: E Topic: 6ACT$<# $6 ?<$DCTI$% ?<$DC TI
%$+8. A tractor used to harest corn crops on a arm is: A) land B) labor C) capital. D) entrepreneurship. Ans: C Diiculty: E Topic: 6ACT$<# $6 ?<$DCTI$% ?<$DC TI
%$+9. A woman who owns and operates her own real estate company is an e,ample o: A) land. B) labor. C) capital. D) entrepreneurship. Ans: D Diiculty: E Topic: 6ACT$<# $6 ?<$DCTI$% ?<$DC TI
%$/;. An auto repair shop3 shop3 a corn ield3 and a person mana(in( a coee shop that they they own are3 respectiely3 e,amples o: A) land3 capital3 capital3 and labor. B) capital3 land3 and labor. labor. C) land3 capital3 and entrepreneurship. entrepreneurship. D) capital3 land3 and entrepreneurship. Ans: D Diiculty: M Topic: 6ACT$<# $6 ?<$DCTI$% ?<$DC TI
%$ /1. !hen classiyin( actors actors o production3 capital reers reers to: A) stoc0s3 bonds3 and money B) machinery and e-uipment to produce (oods and serices serices C) the inancial payments by an entrepreneur to start a business. D) all o the the aboe Ans: B Diiculty: M Topic: 6ACT$<# $6 ?<$DCTI$% ?<$DC TI
%$/'. The our actors o production are: A) interest3 proit3 proit3 rent3 and wa(es. B) capital3 entrepreneurship3 labor3 and land. C) buildin(s3 e-uipment3 natural resources3 and supplies. D) mana(ement3 money3 natural resources3 and wor0ers. Ans: B Diiculty: M Topic: 6ACT$<# $6 ?<$DCTI$% ?<$DC TI
%$/+. A salaried corporate attorney3 a ein o coal3 the owner o a ba0ery3 and a snowplow are3 respectiely: A) labor3 capital3 entrepreneurship3 and land. B) labor3 land3 entrepreneurship3 and capital. C) entrepreneurship3 capital3 labor3 and land. D) entrepreneurship3 land3 labor3 and capital. Ans: B Diiculty: M Topic: 6ACT$<# $6 ?<$DCTI$% ?<$DC TI
%$//. The two unctions unctions o an entrepreneur entrepreneur are: A) supply and or(ani=e or(ani=e resources. B) or(ani=e and pay resources.
C) supply resources and bear the ris0 ris0 o a business* ailure. D) or(ani=e resources and bear the the ris0 o a business* business* ailure. Ans: D Diiculty: M Topic: 6ACT$<# $6 ?<$DCTI$% ?<$DC TI
%$/. !hich o the the ollowin( statements statements is true& true& A) $r(ani=in( other resources resources is one unction o an entrepreneur. B) $nly real estate is included in the actor o production production cate(ory termed land. C) The actor o production cate(ory termed capital includes stoc0s3 bonds3 and money. D) All o the statements are true. Ans: A Diiculty: " Topic: 6ACT$<# $6 ?<$DCTI$% ?<$DC TI
%$/4. !hich o the the ollowin( statements statements is true& true& A) 7and reers only to arm land3 oil3 and coal reseres. reseres. B) Money is important or economic actiity3 actiity3 but it is not a actor o production. C) #toc0s and bonds are included in the actor actor o production cate(ory termed capital. capital. D) 7abor reers to uns0illed wor0ers all other human eort is classiied classiied as entrepreneurship. Ans: B Diiculty: " Topic: 6ACT$<# $6 ?<$DCTI$% ?<$DC TI
%$/5. The incomes receied by entrepreneurs3 by labor3 and by the the owners o land and o capital resources are3 respectiely: A) rents3 wa(es3 interest and proits. B) proits3 wa(es3 rents3 and interest. C) wa(es3 rents3 proits and interest. D) interest3 rents3 rents3 wa(es3 and proits. Ans: B Diiculty: M Topic: 6ACT$<# $6 ?<$DCTI$% ?<$DC TI
%$ /8. The incomes receied receied by the our actors o production are: A) rents3 wa(es3 interest3 and proits. B) rents3 salaries3 salaries3 diidends3 and net income. C) rents3 proit sharin(3 diidends3 and net income. D) capital (ains3 wa(es3 diidends3 and net income. income. Ans: A Diiculty: E Topic: 6ACT$<# $6 ?<$DCTI$% ?<$DC TI
%$/9. An employee in a local shoppin( mall earns 9.;; per hour3 the owner o heay construction e-uipment receies 13;;; per month or the use o that e-uipment by contractors that build brid(es and hi(hways3 and the owner o acres o land receies 8;; per month rom a business that stores school buses on that land. These incomes are3 respectiely: A) interest3 proit3 and rent. B) proit3 rent3 rent3 and interest. C) wa(es3 interest3 interest3 and rent. D) wa(es3 interest3 interest3 and proit. Ans: C Diiculty: M Topic: 6ACT$<# $6 ?<$DCTI$% ?<$DC TI
%$;. A student earns 8 per hour rom a parttime ob3 her mother receies ;; per month rom a man who harests crops rom 8; acres o armland that she owns3 and her brother (ets 1;; eery -uarter rom stoc0 he owns in a corporation. These incomes are3 respectiely: A) wa(es3 rent3 rent3 and proit. B) proit3 interest3 interest3 and rent. C) wa(es3 interest3 and proit. D) wa(es3 proit3 proit3 and interest. Ans: A Diiculty: M Topic: 6ACT$<# $6 ?<$DCTI$% ?<$DC TI
%$ 1. !a(es !a(es are earned by: A) owners o land. B) suppliers o labor. labor. C) owners o capital. D) entrepreneurs. Ans: B Diiculty: E Topic: 6ACT$<# $6 ?<$DCTI$% ?<$DC TI
%$'. Interest is earned by: A) owners o land. B) suppliers o labor. labor. C) owners o capital. D) entrepreneurs. Ans: C Diiculty: E Topic: 6ACT$<# $6 ?<$DCTI$% ?<$DC TI
%$+.
%$/. ?roits are earned by: A) owners o land. B) suppliers o labor. labor. C) owners o capital. D) entrepreneurs.
Ans: D Diiculty: E Topic: 6ACT$<# $6 ?<$DCTI$% ?<$DC TI
%$. Distinctions between the dierent dierent actor incomes incomes are important because they aect: aect: A) ta,es paid by actor owners. B) class perceptions within society. society. C) le(islatie and public policy initiaties. D) all o the the aboe. Ans: D Diiculty: " Topic: 6ACT$<# $6 ?<$DCTI$% ?<$DC TI
%$4. To an economist3 scarce resources means that: A) the number o resources at our disposal is numerically small. B) resources are scarce compared to the the (oods and serices people want and need. C) resources are hard to locate3 and resource suppliers are unwillin( unwillin( to sell their resources. D) all o the the aboe. Ans: B Diiculty: M Topic: 6ACT$<# $6 ?<$DCTI$% ?<$DC TI
%$5. All resources are: A) scarce both in relatie terms terms and in absolute terms. terms. B) abundant both in relatie relatie terms and in absolute terms. terms. C) scarce relatie to the wants and needs they must satisy3 satisy3 but many resources are abundant in absolute terms. D) scarce in absolute terms3 terms3 but many resources are abundant compared to to the wants and needs they must satisy. Ans: C Diiculty: " Topic: 6ACT$<# $6 ?<$DCTI$% ?<$DC TI
%$ 8.
%$9. Accordin( to Application 1.'3 Does Money Buy "appiness&: A) there hae been no studies on how hain( more money aects happiness. B) there hae been studies on money buyin( happiness3 but they hae not arried at the same conclusion. C) there is clear eidence that hain( more more money will always increase increase a person*s happiness more than anythin( else. D) almost all studies studies show that hain( more money ma0es people less happy because the more money they hae the more (oods they want. Ans: B Diiculty: M Topic: 6ACT$<# $6 ?<$DCTI$% ?<$DC TI
%$4;. A ormal e,planation o the relationship between economic ariables is an A) assumption. B) economic theory. C) economic policy. D) opinion that usually cannot be supported. Ans: B Diiculty: E Topic: EC$%$MIC T"E$
41. Economic theories are: A) always e,pressed in terms o mathematical e-uations. B) actions3 such as ta, cuts3 to chan(e economic conditions. C) ormal e,planations o the relationships between economic ariables. D) all o the the aboe. Ans: C Diiculty: E Topic: EC$%$MIC T"E$
4'. !hich o the ollowin( ollowin( is an e,ample o an economic theory& A) The actual behaior o the economy oer a oneyear period. B) A ta, cut to increase spendin( by businesses and households. C) #tatistics showin( the chan(e in the unemployment rate since ';;8. D) An e,planation as to why raisin( the price o a product would cause people to buy less o that product. Ans: D Diiculty: M Topic: EC$%$MIC T"E$
4+. Economic theory is: A) a set o conditions which are held to be true. true. B) an action ta0en to chan(e economic conditions. C) a ormal e,planation o the relationship relationship between economic ariables. ariables. D) the statistical techni-ues techni-ues used to determine the relationship relationship between economic ariables. Ans: C Diiculty: M Topic: EC$%$MIC T"E$
4/. An economic theory theory may be disputed disputed because it: A) ocuses on ust two ariables. B) sometimes uses unrealistic assumptions. assumptions. C) cannot (ie a precise causeandeect relationship3 li0e that ound ound in the physical sciences. D) all o the the aboe.
Ans: D Diiculty: M Topic: EC$%$MIC T"E$
4. Disputes about economic theories: A) proe that the economy is too comple, to be studied. studied. B) would neer occur i the theories were were lo(ically presented. C) can arise rom disa(reements about the choice o ariables or assumptions in the theories. theories. D) are a matter o concern because they show that some people don*t understand economics. Ans: C Diiculty: M Topic: EC$%$MIC T"E$
44. Econometrics: A) helps us better understand the economy. B) is useul in in deendin( the accuracy o economic theories. C) is the use o statistical statistical techni-ues to describe describe the relationship between economic ariables. ariables. D) all o the the aboe. Ans: D Diiculty: M Topic: EC$%$MIC T"E$
45. Econometrics is: A) the set o conditions held to be true in a model. B) measures ta0en to chan(e economic conditions. C) a ormal e,planation o the relationship relationship between economic ariables. ariables. D) the use o the statistical statistical techni-ues to determine determine the relationship between economic ariables. Ans: D Diiculty: E Topic: EC$%$MIC T"E$
48. In this theory3 theory3 people*s ob status and the re-uency with which emotional distress occurs are: A) ariables. B) assumptions. C) conclusions. D) none o the aboe. Ans: A
49. "oldin( the condition that this theory is true only in urban areas with lar(e lar(e populations is an e,ample o the use o: A) data in in a model. B) ariables in a model. C) conclusions in in a model. D) assumptions in a model. Ans: D
5;. The inormation supplied by the people meetin( with local counselors counselors proides the: A) data or or the the model. B) ariables or the model.
C) conclusions or the model. D) assumptions or the model. Ans: A
51. To say that ob loss plays a 0ey role in determinin( who e,periences seere emotional distress: A) is a conclusion o the model. B) cannot be challen(ed since that that is what the model shows. C) can3 on the basis o this model3 be said to be true or people re(ardless o where they lie. D) all o the the aboe. Ans: A
5'. Assumptions: A) must accurately relect eery detail o the real world. B) hae no eect on the e,planations a theory proides. C) are always (ien alon( alon( the hori=ontal a,is o a (raph. D) are conditions held to be true true when deelopin( a theory. theory. Ans: D Diiculty: E Topic: EC$%$MIC T"E$
5+. Application 1.+3 $G3 !hat Are They& They& is about unidentiied lyin( obects3 or 6$s. !hich o the ollowin( is true& A) There are no similarities in in the rules or ud(in( economic theories and theories about 6$s. B) Hust li0e there are competin( theories about economic conditions3 there there are also competin( theories about 6$s. C) Economic theories are always based on realistic measurable assumptions3 assumptions3 while there are no assumptions supportin( theories about 6$s.
D) All o the aboe. Ans: B Diiculty: M Topic: EC$%$MIC T"E$
5/. Economic policy policy is a: A) condition held to be true in a model. B) (uide to chan(e an economic situation. situation. C) ormal e,planation o the relationship between economic ariables. D) statistical techni-ue to to determine the relationship between economic ariables. Ans: B Diiculty: E Topic: EC$%$MIC T"E$
5. Economic policies: A) are (uides to chan(e economic conditions. B) hae conse-uences that ary rom rom policy to policy. C) are based on the alue ud(ments o the persons ormin( the policies. policies. D) all o the the aboe. Ans: D Diiculty: E Topic: EC$%$MIC T"E$
54. !hich o the the ollowin( is an economic policy& A) Assumin( that that you will earn more i i you hae more education. B) E,plainin( what happens to the supply o a product as its price rises. C) nderstandin( that the scarcity problem is at the oundation o economics. D) >iin( amilies a ta, brea0 on colle(e tuition in order to encoura(e more de(rees. Ans: D Diiculty: E Topic: EC$%$MIC T"E$
55. It is important important or policy ma0ers to understand economic theory because: A) there are dierent dierent ways or or achiein( a policy policy (oal. B) their decisions can alter the distribution o income income in society. C) their decisions can produce undesirable undesirable unintended conse-uences. D) all o the the aboe. Ans: D Diiculty: M Topic: EC$%$MIC T"E$
58. p or Debate3 #hould #t. 7ouis County3 Missouri3 Impose Mandatory Trash Trash ?ic0up and
59. !hich o the ollowin( ollowin( can be used to e,press economic theories& theories& A) !ords. B) >raphs. C) Mathematical e-uations. D) All o the aboe. Ans: D Diiculty: E Topic: To pic: T$$7# $6 T"E EC$%$MI#T
8;. A line that slopes upward on a (raph indicates that the ariables measured on the (raph are: A) unrelated. B) directly related.
C) inersely related. D) always increasin( increasin( but neer decreasin(. Ans: B Diiculty: E Topic: To pic: T$$7# $6 T"E EC$%$MI#T
81. A line that slopes downward on a (raph indicates that the ariables measured on the (raph are: A) unrelated. B) directly related. C) inersely related. D) always decreasin( decreasin( but neer increasin(. Ans: C Diiculty: E Topic: To pic: T$$7# $6 T"E EC$%$MI#T
8'. I A increases as B increases3 a line on a (raph showin( the relationship between A and B would be: A) upward slopin(. B) downward slopin(. C) perectly hori=ontal. D) perectly ertical. Ans: A Diiculty: M Topic: To pic: T$$7# $6 T"E EC$%$MI#T
8+. I A decreases as B decreases3 a line on a (raph showin( the relationship between A and B would be: A) upward slopin(. B) downward slopin(. C) perectly hori=ontal. D) perectly ertical. Ans: A
Diiculty: M Topic: To pic: T$$7# $6 T"E EC$%$MI#T
8/. I A increases as B decreases3 a line on a (raph showin( the relationship between A and B would be: A) upward slopin(. B) downward slopin(. C) perectly hori=ontal. D) perectly ertical. Ans: B Diiculty: M Topic: To pic: T$$7# $6 T"E EC$%$MI#T
8. Two Two ariables are directly related when: A) neither ariable increases nor decreases. B) one ariable decreases as the other decreases. C) one ariable increases as the other decreases. D) one ariable does not chan(e as the other decreases. Ans: B Diiculty: E Topic: To pic: T$$7# $6 T"E EC$%$MI#T
84. Two Two ariables are inersely related when: A) neither ariable decreases nor increases. B) one ariable increases as the other increases. C) one ariable decreases as as the other increases. increases. D) one ariable does not chan(e as the other increases. Ans: C Diiculty: E Topic: To pic: T$$7# $6 T"E EC$%$MI#T
85. !hen (raphin( a direct relationship relationship between two ariables3 the line on the (raph will be: A) ertical. B) hori=ontal. C) upward slopin(. D) downward slopin(. Ans: C Diiculty: E Topic: To pic: T$$7# $6 T"E EC$%$MI#T
88. !hen (raphin( an inerse relationship relationship between two ariables3 the line line on the (raph will be: A) ertical. B) hori=ontal. C) upward slopin(. D) downward slopin(. Ans: D Diiculty: E Topic: To pic: T$$7# $6 T"E EC$%$MI#T
89. A direct relationship occurs when when two ariables moe in: A) the same direction3 direction3 and (raph as an upwardslopin( line. B) opposite directions3 and (raph as an upwardslopin( line. C) the same direction3 and (raph as a downwardslopin( line. D) opposite directions3 and (raph as a downwardslopin( line. Ans: A Diiculty: M Topic: To pic: T$$7# $6 T"E EC$%$MI#T
9;. An inerse relationship relationship occurs when two ariables moe in: A) the same direction3 direction3 and (raph as an upwardslopin( line. B) opposite directions3 and (raph as an upwardslopin( line. C) the same direction3 and (raph as a downwardslopin( line. D) opposite directions3 and (raph as a downwardslopin( line. Ans: D
Diiculty: M Topic: To pic: T$$7# $6 T"E EC$%$MI#T
91. The statement 2direct relationships relationships (raph as downwardslopin( downwardslopin( lines2 is: A) true. B) alse. C) true only when two two ariables moe in opposite directions. directions. D) true only when ariables decrease it is not true true when they increase. Ans: B Diiculty: M Topic: To pic: T$$7# $6 T"E EC$%$MI#T
9'. The statement inerse relationships relationships (raph as upwardslopin( upwardslopin( lines is: A) true B) alse. C) true only when two two ariables moe in the same direction. D) true only when ariables increase increase it is not true when they decrease. Ans: B Diiculty: M Topic: To pic: T$$7# $6 T"E EC$%$MI#T
9+. Accordin( to this i(ure:
A) ariables A and B are directly related.
B) an increase in the alue o ariable A is accompanied by an increase in the alue o ariable B. C) there is no relationship between ariables A and B because the line in the i(ure is not strai(ht. D) none o the aboe. Ans: D Diiculty: M Topic: To pic: T$$7# $6 T"E EC$%$MI#T
9/. I the -uantity o prerecorded CDs demanded is e-ual to 4;; 1; price o the CD)3 at a price o 14 each3 the number o CDs demanded would be: A) 14. B) 14;. C) //;. D) 5/. Ans: C Diiculty: M Topic: To pic: T$$7# $6 T"E EC$%$MI#T
9. >ien the e-uation: -uantity o (ood J K 94 1'price o (ood J)3 i the price o (ood J were '.;;3 the -uantity would be: A) 1' units. B) '/ units. C) 5' units. D) 8/ units. Ans: C Diiculty: M Topic: To pic: T$$7# $6 T"E EC$%$MI#T
94. >ien that @ K +;; 4;?3 where @ is -uantity and ? is price: price: A) i ? K '3 then @ K18;. B) i ? K 3 then @ K ;. C) both o the aboe. D) none o the aboe.
Ans: C Diiculty: M Topic: To pic: T$$7# $6 T"E EC$%$MI#T
95. >ien that @ K '; L ;?3 where @ is -uantity and ? is price: A) i ? K 13 then @ K +;;. B) i ? K +3 then @ K /;;. C) both o the aboe D) none o the aboe. Ans: C Diiculty: M Topic: To pic: T$$7# $6 T"E EC$%$MI#T
98. >ien the e-uation: -uantity o (ood J K '8; /; price o (ood J)3 the -uantity o (ood J would be =ero i its price were: A) .;;. B) 5.;;. C) +.;;. D) not enou(h inormation to answer the -uestion. Ans: B Diiculty: M Topic: To pic: T$$7# $6 T"E EC$%$MI#T
99. A model: A) includes assumptions or conditions that are held to be true. B) is a ramewor0 in which a relationship between ariables is e,plored. C) can use mathematics andor lo(ic to analy=e the relationship relationship e,plored. D) all o the the aboe. Ans: D Diiculty: M Topic: To pic: T$$7# $6 T"E EC$%$MI#T
1;;. !hich is %$T an e,ample o a model& A) a loor plan. B) a list o 0ey economic indicators indicators or a year. year. C) a ramewor0 to e,plore the primary primary causes o a disease. D) an illustration o a boo0shel in a set o instructions or assemblin( boo0sheles. Ans: B Diiculty: M Topic: To pic: T$$7# $6 T"E EC$%$MI#T
1;1. An economist deelopin( a production possibilities model o an economy operatin( at pea0 capacity at a speciic point in time would assume: A) resources are ully employed. B) production technolo(y is held constant. C) the number o aailable resources is held constant. D) all o the the aboe. Ans: D Diiculty: M Topic: To pic: T$$7# $6 T"E EC$%$MI#T
1;'. An economist deelopin( a model o how an economy is e,pected to to behae oer the ne,t 1; years would li0ely assume: A) population is increasin(. B) resources are i,ed in in amount. C) production technolo(y is constant. D) all o the the aboe. Ans: A Diiculty: " Topic: To pic: T$$7# $6 T"E EC$%$MI#T
1;+. Conditions held to be true in deelopin( an economic model are: A) assumptions. B) economic theories.
C) ariables o the model. D) conclusions o the model. Ans: A Diiculty: E Topic: To pic: T$$7# $6 T"E EC$%$MI#T
1;/. !hich o the the ollowin( best describes a model& A) Data on student (radepoint aera(es at a particular school. B) A hypothetical economy used to analy=e the eects o a ta, cut. C) The imposition o a hi(her (asoline ta, to und hi(hway construction. D) The assumption that most most people would preer lar(e lar(e incomes to small incomes. Ans: B Diiculty: M Topic: To pic: T$$7# $6 T"E EC$%$MI#T
1;. !hich o the ollowin( ollowin( statements is 6A7#E& 6A7#E& A) Assumptions are conditions held to be true true in a model. B) A model is a settin( within which an economic theory is presented. C) Any time a hypothetical situation is created created in a model3 the model is inalid. D) $ne problem with model buildin( buildin( is that important ariables may be e,cluded rom the the model. Ans: C Diiculty: M Topic: To pic: T$$7# $6 T"E EC$%$MI#T
1;4. A production possibilities table table or (raph shows: A) dierent ways a particular (ood can be produced. B) dierent combinations o (oods that a particular resource can produce. C) dierent amounts o two (oods that an economy can produce at ull ull employment with resources and technolo(y held constant. D) the time it ta0es ta0es to produce two (oods when the economy is is at ull employment and resources and technolo(y are held constant. Ans: C
Diiculty: M Topic: #CA3 A%D A%D >
1;5. A production possibilities cure cure shows: A) the two (oods that are in the best interest o an economy to produce. B) the most desirable amounts o two (oods that an economy can produce. C) the dierent amounts o two (oods that an economy can produce when it it is at ull ull employment with i,ed resources and technolo(y. D) all o the the aboe. Ans: C Diiculty: M Topic: #CA3 A%D A%D >
1;8. !hich o the ollowin( ollowin( concepts is illustrated illustrated by a production possibilities possibilities model& A) #carcity. B) Tradeos. C) $pportunity cost. D) All o the aboe. Ans: D Diiculty: M Topic: #CA3 A%D A%D >
1;9. The concept o opportunity cost is is illustrated in a production possibilities model by the: A) area under the production possibilities cure. B) area beyond the production possibilities possibilities cure. C) possibility that the cure cure would shit to the the ri(ht. D) amount o one (ood that must be (ien up to (et more o the other (ood while moin( alon( the production possibilities cure. Ans: D Diiculty: " Topic: #CA3 A%D A%D >
11;. The concept o unemployment is illustrated in a production possibilities possibilities model by operatin( at a point: A) on the production possibilities possibilities cure. B) in the area under3 or to the let o3 the production possibilities possibilities cure. C) in the area aboe3 or to the ri(ht ri(ht o3 the production possibilities possibilities cure. D) none o the aboe. Ans: D Diiculty: M Topic: #CA3 A%D A%D >
111. I the economy in the production possibilities i(ure were operatin( at less 111. less than ull employment3 it would be at point: A) N. B) !. C) O. D) none o the aboe. Ans: A 3 A%D A%D >
11'. It would be impossible or the economy in the production possibilities possibilities i(ure to produce the output shown by point: A) N. B) O. C) ! or F. F. D) J. Ans: B 3 A%D A%D >
11+. The economy represented in the production possibilities i(ure would (ain more o (ood A and (ie up some o (ood B by moin( rom point: A) N to point F. F. B) ! to point O. C) ! to point J. D) F to point J. Ans: D 3 A%D A%D >
11/. The economy represented in the production production possibilities i(ure i(ure would (ain more o (ood B and (ie up some o (ood A by moin( rom point: A) N to point J. B) ! to point J. C) F to point N. N. D) F to point !. !. Ans: B 3 A%D A%D >
11. The economy represented in the production possibilities i(ure would (ain more o (ood A without (iin( up any o (ood B by moin( rom point: A) N to point J. B) ! to point F. F. C) F to point !. !. D) none o the aboe. Ans: A 3 A%D A%D >
114. I there were an increase increase in the number o wor0ers in the economy represented in the production possibilities i(ure3 the production possibilities possibilities cure would: A) remain where it is. is. B) shit inward to the let. C) shit outward to the ri(ht. D) slope upward to the ri(ht. Ans: C 3 A%D A%D >
115. I there were a decrease decrease in the number o wor0ers in the economy represented in the the production possibilities i(ure3 the production possibilities possibilities cure would: A) remain where it is. is. B) shit inward to the let. C) shit outward to the ri(ht. D) slope upward to the ri(ht. Ans: B 3 A%D A%D >
118. I the economy represented in the production possibilities i(ure i(ure moed rom point ! to point J3 it would e,perience: A) economic (rowth. B) an opportunity cost e-ual to the amount o (ood A it would (ie up. C) an opportunity cost e-ual to the amount o (ood B it would (ie (ie up. D) no opportunity cost since it it would continue to produce at ull ull employment. Ans: B 3 A%D A%D >
119. I the economy represented in the production possibilities i(ure i(ure moed rom point F to point J3 it would e,perience: A) economic (rowth. B) an opportunity cost e-ual to the amount o (ood A it would (ie up. C) an opportunity cost e-ual to the amount o (ood B it would (ie (ie up. D) no opportunity cost since it it would continue to operate at ull ull employment. Ans: C 3 A%D A%D >
1';. nemployment can be represented on a production possibilities possibilities (raph by a point located: A) anywhere on the (raph. B) on the production possibilities possibilities cure itsel. C) to the ri(ht o the production possibilities cure. D) inside3 or to the let o3 the production possibilities possibilities cure. Ans: D Diiculty: M Topic: #CA3 A%D A%D >
1'1. Economic (rowth is illustrated illustrated usin( a production possibilities possibilities cure by: A) a letward shit o the cure.
B) a ri(htward shit o the cure. C) moin( rom one point on the cure to another point on the cure. D) moin( rom a point inside3 inside3 or to the let o3 the cure to a point on the cure. Ans: B Diiculty: M Topic: #CA3 A%D A%D >
1''. !hich o the the ollowin( can lead lead to economic (rowth& (rowth& A) Improed technolo(y. B) An increase in the the supply o labor. labor. C) An increase in the amount o aailable capital. D) All o the aboe. Ans: D Diiculty: E Topic: #CA3 A%D A%D >
1'+. $n the basis o the production possibilities cure3 what is the opportunity cost cost o increasin( the stoc0 o CDs rom 13;; to '35;& A) 13';; DNDs. B) 134;; DNDs. C) '3'; DNDs. D) Impossible to determine rom this this inormation. Ans: A 3 A%D A%D >
1'/. $n the basis o the production possibilities cure3 what is the opportunity cost cost o increasin( the stoc0 o DNDs rom 134;; to '3/;;& '3/ ;;& A) /;; CDs. B) 8;; CDs. C) 13;;; CDs. D) '3;;; CDs. Ans: C 3 A%D A%D >
1'. As the shop adds more and more CDs to its its inentory3 the the number o DNDs it must (ie up: A) remains the same. B) (ets lar(er. C) (ets smaller. D) (ets lar(er or smaller3 smaller3 dependin( on how many compact discs the shop started out with. Ans: B 3 A%D A%D >
se the ollowin( i(ure.
1'4. This production possibilities cure shows: A) that the production o (ood J is directly related to the production o (ood F. F. B) that the combination o (oods J and F shown by point E is out o reach or this economy. C) the dierent combinations o (oods J and F that this economy could produce at ull employment. D) all o the the aboe. Ans: C 3 A%D A%D >
1'5. !hen the economy is operatin( on its production possibilities possibilities cure: A) more o (ood J is produced as each additional unit o (ood F is produced. B) the same amount o (ood J is (ien up or each additional unit o (ood F that that is produced. C) a decreasin( amount o (ood J is (ien up or each additional unit o (ood F that is produced. D) an increasin( amount o (ood J must be (ien up or each additional unit o (ood F that is produced. Ans: D 3 A%D A%D >
1'8. !hich combination o (oods J and F shows that the economy is e,periencin( unemployment3 and which combination is out o reach o the economy& A) A and D3 respectiely. respectiely. B) E and 63 respectiely. respect iely. C) 6 and A3 respectiely. respectiely. D) 6 and E3 respectiely. respectiely. Ans: B 3 A%D A%D >
1'9. >oods3 such as bottlin( machines3that machines3that are used to produce other (oods and serices are: A) cost (oods. B) credit (oods. C) capital (oods. D) consumer (oods. Ans: C Diiculty: E Topic: #CA3 A%D A%D >
1+;. >oods3 such as corn chips3 that that are produced or inal buyers are: A) credit (oods. B) capital (oods. C) consumer (oods. D) e,penditure (oods. Ans: C Diiculty: E Topic: #CA3 A%D A%D >
Capital Goods (millions of units)
Consumer Goods (millions of units)
0
';; 1 4; 1 '; 8; /; ;
'; +4 /8 4 4;
1+1. Accordin( to this production possibilities possibilities table3 the opportunity cost o (oin( rom 1'; to 14; million units o consumer (oods is: A) 14 million million units o capital (oods. B) '; million units o capital (oods. C) +4 million units o capital (oods. D) /; million million units o capital (oods. Ans: A 3 A%D A%D >
1+'. Based on the inormation in this production possibilities possibilities table3 the opportunity cost cost o (oin( rom ; to /; million units o consumer con sumer (oods is: A) the same as the opportunity cost o (oin( rom /; to 8; million units o consumer (oods. B) (reater than the opportunity cost o (oin( rom /; to 8; million million units o consumer (oods. C) smaller than the opportunity cost o (oin( rom /; to 8; million million units o consumer (oods. D) not enou(h inormation to answer the -uestion. Ans: C 3 A%D A%D >
1++. Accordin( to this this production possibilities table3 an increase in the production o capital
(oods rom /8 to 4 million units would: A) cost 8; million million units o consumer (oods. B) si(nal that the economy is e,periencin( unemployment. C) be impossible (ien (ien aailable resources and technolo(y. D) increase the li0elihood li0elihood the economy would (row in the uture. Ans: D 3 A%D A%D >
1+/. I you were to draw a production possibilities cure based on these numbers3 the cure cure would: A) be a strai(ht line. B) slope downward to the ri(ht. C) identiy which o the possible possible combinations o capital (oods and consumer (oods is best or or this economy. D) all o the the aboe. Ans: B 3 A%D A%D >
1+. Macroeconomics is the study o: A) the economic moties o oters and elected oicials. oicials. B) indiidual decisionma0in( units3 such as households and business irms. irms. C) the operation o the economy as a whole3 whole3 and economic topics such as total total output3 employment3 and inlation. D) how (oernment purchases aect speciic mar0ets3 such such as the mar0et or computers. computers. Ans: C Diiculty: M Topic: To pic: MAC<$EC$%$MIC# A%D MIC<$EC$%$MIC# MIC<$EC$%$MIC#
1+4. Microeconomics is the study o: A) how (oernment actiities aect the economy.
B) indiidual decisionma0in( units3 such as households and business irms. irms. C) collectie decisionma0in( and the economic moties o oters and elected oicials. oicials. D) the operation o the economy as a whole3 and economic topics such as total output3 employment3 and inlation. Ans: D Diiculty: M Topic: To pic: MAC<$EC$%$MIC# A%D MIC<$EC$%$MIC# MIC<$EC$%$MIC#
1+5. An increase in in production costs at a 6ord automobile plant3 and an increase in the the (eneral leel o prices in the .#. economy are e,amples o: A) microeconomic problems. B) macroeconomic problems. C) a microeconomic problem and a macroeconomic problem3 respectiely. respectiely. D) a macroeconomic problem and a microeconomic problem3 problem3 respectiely. respectiely. Ans: C Diiculty: E Topic: To pic: MAC<$EC$%$MIC# A%D MIC<$EC$%$MIC# MIC<$EC$%$MIC#
1+8. !hich o the the ollowin( statements statements is true& true& A) %eer use =ero where the hori=ontal hori=ontal and ertical a,es meet on a (raph. B) The relationship between two ariables is neer easily represented in a (raph. C) It is impossible impossible to loo0 at a (raph and determine determine whether two ariables are directly or inersely related. D) The appearance o the relationship relationship between two ariables on a (raph can be altered by chan(in( the numberin( on the (raph*s a,es. Ans: D Diiculty: M Topic: To pic: A??E%DIJ T$ T$ C"A?TE< $%E: >
1+9. !hich o the ollowin( ollowin( statements is 6A7#E& 6A7#E& A) A (raph is a picture illustratin( the relationship between ariables. B) Two Two ariables that are inersely related are represented by a downwardslopin( line on a (raph. C) I two points on a (raph are 1; and '; items3 and '; and 1; items3 the relationship bein(
(raphed is direct. D) $ne problem with (raphs is is that the appearance o the relationship relationship between two ariables can be altered by the choice o numbers on a (raph*s a,es. Ans: C Diiculty: M Topic: To pic: A??E%DIJ T$ T$ C"A?TE< $%E: >
1/;. !hich o the ollowin( ollowin( is %$T a (eneral rule or constructin( constructin( a (raph& A) se e-ual spaces alon( an a,is or e-ual amounts. B) Ma0e the hori=ontal and ertical a,es o e-ual len(th. C) se =ero where the the ertical and hori=ontal a,es meet. D) !or0 !or0 up the number scale as you moe out alon( the ertical a,is and the hori=ontal a,is. Ans: B Diiculty: E Topic: To pic: A??E%DIJ T$ T$ C"A?TE< $%E: >
1/1. The ollowin( points showin( showin( dierent price-uantity price-uantity combinations are plotted on a (raph: 1.;; and /; units)3 un its)3 '.;; and +; units)3 /.;; and '; units). A line connectin( these points would be: A) upward slopin(. B) downward slopin(. C) perectly ertical. D) perectly hori=ontal. Ans: B Diiculty: E Topic: To pic: A??E%DIJ T$ T$ C"A?TE< $%E: >
1/'. !hich o the ollowin( ollowin( combinations illustrates an inerse relationship& A) 1.;;3 1; units)3 1.;;3 '; units)3 1.;;3 +; units). B) 1.;;3 +; units)3 '.;;3 '; units)3 +.;;3 1; units). C) 1.;;3 1; units)3 '.;;3 '; units)3 +.;;3 +; units). D) 1.;;3 1; units)3 '.;;3 1; units)3 +.;;3 1; units). Ans: B
Diiculty: M Topic: To pic: A??E%DIJ T$ T$ C"A?TE< $%E: >
1/+. !hich o the ollowin( ollowin( combinations illustrates a direct relationship& A) 1.;;3 1; units)3 1.;;3 '; units)3 1.;;3 +; units). B) 1.;;3 +; units)3 '.;;3 '; units)3 +.;;3 1; units). C) 1.;;3 1; units)3 '.;;3 '; units)3 +.;;3 +; units). D) 1.;;3 1; units)3 '.;;3 1; units)3 +.;;3 1; units). Ans: C Diiculty: M Topic: To pic: A??E%DIJ T$ T$ C"A?TE< $%E: >
1//. Economics is about how people use: A) limited resources to to satisy limited limited material wants and needs. B) limited resources to satisy satisy unlimited material material wants and needs. C) unlimited resources to satisy satisy limited material material wants and needs. D) unlimited resources to to satisy unlimited material wants and needs. Ans: B Diiculty: M Topic: !"AT I# EC$%$MIC#&
1/. !hich o the ollowin( ollowin( statements is 6A7#E& 6A7#E& A) #carcity is the basic reason or studyin( economics. B) #carcity orces people to ma0e decisions decisions about how to best satisy satisy their material wants and needs. C) The study o economics is simpliied because alue ud(ments hae no eect on the choices people ma0e because o scarcity. D) ?eople must ma0e tradeos3 or (ie up one thin( to (et somethin( else3 because o scarcity. scarcity. Ans: C Diiculty: E Topic: !"AT I# EC$%$MIC#&
1/4. The opportunity cost o an item purchased is: A) the ta, paid on the the item. B) the time re-uired re-uired to ma0e a decision about the purchase. C) the alternatie purchase that is or(one to ac-uire the item. item. D) the dissatisaction dissatisaction e,perienced by the buyer when the item is is no lon(er desired. Ans: C Diiculty: E Topic: !"AT I# EC$%$MIC#&
1/5. Eiciency and e-uity reer to3 respectiely: A) producin( at the lowest possible possible cost3 and producin( the lar(est lar(est attainable output. B) producin( the lar(est possible possible output rom a (ien set set o resources3 and airness airness in the distribution o (oods and serices. C) payin( people based on what they need3 and payin( them based on what they contribute to output. D) the main (oal o economies that do not ace a scarcity problem3 and those that do ace a scarcity problem. Ans: B Diiculty: M Topic: !"AT I# EC$%$MIC#&
1/8. Entrepreneurship inoles: A) ta0in( the ris0 or or the success or ailure ailure o a business enture. B) or(ani=in( actors o production to produce (oods and serices. serices. C) human eort not included included in the actor o production cate(ory called called labor. D) all o the the aboe Ans: D Diiculty: M Topic: 6ACT$<# $6 ?<$DCTI$% ?<$DC TI
%$1/9. Hohn receies a wa(e3 Carol receies proit3 and #andy receies interest. interest. Hohn*s3 Carol*s3 and #andy*s incomes are rom3 respectiely: A) land3 labor3 labor3 and entrepreneurship.
B) entrepreneurship3 land3 land3 and capital. C) labor3 capital3 and entrepreneurship. D) labor3 entrepreneurship3 and capital. Ans: D Diiculty: M Topic: 6ACT$<# $6 ?<$DCTI$% ?<$DC TI
%$1;.
%$11. !hich o the ollowin( ollowin( statements concernin( economic theories is is 6A7#E& 6A7#E& A) A model is a settin( within which an economic theory is presented. B) Any time a hypothetical situation is created created in a model or in a theory3 the model model or theory becomes inalid. C) Theories are (enerali=ed e,planations o the relationships between economic ariables. ariables. D) #ince a (raph illustrates illustrates a relationship between ariables3 a (raph could portray an economic theory. Ans: B Diiculty: E Topic: EC$%$MIC T"E$
1'. !hich o the ollowin( ollowin( is %$T a basic element o a model& A) Assumptions3 which are conditions held to be true true in deelopin( economic theories. B) Two Two ariables whose relationship relationship is to be e,plored. C) Data collection collection and analysis. D)
Diiculty: M Topic: EC$%$MIC T"E$
1+. !hich o the ollowin( ollowin( is an e,ample o an economic policy& policy& A) A ta, cut passed by Con(ress to to reduce unemployment. B) #tatistics indicatin( indicatin( the rate o unemployment since ';;;. C) An e,planation as to to why a ta, cut mi(ht reduce reduce unemployment. D) The relationship between chan(es in ta,es and rates o unemployment. Ans: A Diiculty: E Topic: EC$%$MIC T"E$
1/. I A increases as B decreases3 then A and B are: A) directly related3 and the line line showin( their relationship relationship slopes upward on a (raph. B) directly related3 and the line showin( showin( their relationship slopes slopes downward on a (raph. C) inersely related3 and the line showin( showin( their relationship slopes slopes upward on a (raph. D) inersely related3 and the line line showin( their relationship slopes downward on a (raph. Ans: D Diiculty: M Topic: To pic: T$$7# $6 T"E EC$%$MI#T
1. "ow much o (ood J would be demanded demanded at a price o 1.;; i the the relationship between the price o (ood J and the -uantity demanded were shown by the e-uation: -uantity demanded K 1;;; ; price o (ood J)& A) ; units. B) '; units. C) 5; units. D) 9; units. Ans: B Diiculty: M Topic: To pic: T$$7# $6 T"E EC$%$MI#T
14. A point inside3 or to the let o3 a production possibilities cure indicates that: A) the economy is (rowin(. B) the economy is operatin( operatin( at ull employment. C) some o the economy*s resources are unemployed. D) more o one (ood can be produced only by (iin( (iin( up some o another (ood. Ans: C Diiculty: M Topic: #CA3 A%D A%D >
15. !hich o the ollowin( ollowin( is an e,ample o a capital (ood& A) Inline s0ates. B) 6ro=en yo(urt. C) A cash re(ister. D) 6ood donated to lood lood ictims. Ans: C Diiculty: E Topic: #CA3 A%D A%D >
18. Currently3 it would be impossible or this economy to produce the combination o (oods J and F shown by point: A) A B) B C) D D) E Ans: D 3 A%D A%D >
19. A moe rom point B to point D would occur i the economy: A) e,perienced economic (rowth. B) be(an to e,perience some unemployment. C) went rom unemployment to ull employment. D) none o the aboe. Ans: B 3 A%D A%D >
14;. !hich o the the ollowin( statements statements is true& true& A) There is no opportunity cost cost when (oin( rom point B to point C. B) The economy cannot (o rom point B to point C because it is is at ull employment employment at point B. C) The opportunity cost o (oin( rom point B to point C is the amount o (ood F that must be (ien up. D) The opportunity cost o (oin( rom point B to point C is the amount o (ood J that must be (ien up. Ans: D 3 A%D A%D >
141. I the economy were (rowin(3 the production possibilities possibilities cure would: A) remain in its current position. B) shit inward to the let. C) shit outward to the ri(ht. D) become perectly hori=ontal. Ans: C 3 A%D A%D >
14'. The study o the .#. economy as a whole3 and how all households in in the economy interact with all businesses and the (oernment is: A) macroeconomics. B) me(aeconomics. C) metaoeconomics. D) microeconomics. Ans: A Diiculty: e Topic: To pic: MAC<$EC$%$MIC# A%D MIC<$EC$%$MIC# MIC<$EC$%$MIC#
14+. !hich o the ollowin( ollowin( steps in constructin( a (raph would result in a aulty (raph& A) se a =ero at the ori(in where the ertical and hori=ontal hori=ontal a,es meet. B) !hen assi(nin( numbers3 use e-ual spaces or e-ual amounts. C) !hen assi(nin( numbers to the hori=ontal a,is3 wor0 rom ri(ht ri(ht to let alon( the a,is so that the lar(est number is at the ori(in. D) ?lot data points that relect speciic combinations o the two ariables3 and connect the points. Ans: C Diiculty: E Topic: To pic: A??E%DIJ T$ T$ C"A?TE< $%E: >
True6alse
14/. There would be no need to study economics i scarcity were were eliminated. Ans: 6alse Diiculty: M Topic: !"AT I# EC$%$MIC#&
14. !e could produce all o the (oods and serices needed to satisy people*s material wants and needs i resources were used eectiely. Ans: 6alse Diiculty: M Topic: !"AT I# EC$%$MIC#&
144. The concept o opportunity cost applies only to cases where dollar alues alues can be assi(ned to alternaties between which people must choose. choo se. Ans: 6alse Diiculty: M Topic: !"AT I# EC$%$MIC#&
145. The opportunity cost o a purchase or decision is measured measured by what is (ien up to ma0e the purchase or decision. Ans: True Diiculty: E Topic: !"AT I# EC$%$MIC#&
148. The income receied by an owner o capital is classiied classiied as interest by economists. economists. Ans: True Diiculty: E Topic: 6ACT$<# $6 ?<$DCTI$% ?<$DC TI
%$ 149. To be useul3 an economic model must include all ariables that could possibly aect what is bein( studied. Ans: 6alse Diiculty: M Topic: EC$%$MIC T"E$
15;. A (oernment pro(ram to create aordable housin( or low income amilies is is an e,ample o an economic policy. Ans: True Diiculty: E Topic: EC$%$MIC T"E$
151. Nariable ariable A decreases wheneer ariable B decreases. A line on a (raph showin( the relationship between A and B would slope downward. Ans: 6alse Diiculty: M Topic: To pic: T$$7# $6 T"E EC$%$MI#T
15'. An economy e,periencin( (rowth can be represented by a shit o the economy*s production possibilities cure to the ri(ht. Ans: True Diiculty: M Topic: #CA3 A%D A%D >
15+. I an economy can (ain more o (ood A without (iin( up some o (ood B3 the economy is operatin( on its production produc tion possibilities cure or (oods A and B.
Ans: 6alse Diiculty: M Topic: #CA3 A%D A%D >
#hort Answer
15/. !hy must choices be made made about economic matters3 and why would you you e,pect people*s choices to dier& Ans: Choices must be made because resources are are scarce3 while wants are unlimited. unlimited. ?eoplePs choices will dier because people alue (oods dierently. Diiculty: M Topic: !"AT I# EC$%$MIC#&
15. !hat are tradeos tradeos and opportunity costs3 and why does scarcity ma0e tradeos tradeos and opportunity costs unaoidable& Ans: Tradeos Tradeos and opportunity costs represent what must be (ien up to consume a (ood because (oods are scarce3 a tradeo will always e,ist. Diiculty: " Topic: !"AT I# EC$%$MIC#&
154. !hat is eiciency3 eiciency3 and why does scarcity ma0e eiciency an important (oal or an economy& Ans: Eiciency occurs when an economy is is able to (et the most output or a (ien set o resources. Because resources are scarce3 it is important that an economy produce as much output as possible or the ewest amount o inputs to ensure that other resources are aailable or other (oods. Diiculty: M Topic: !"AT I# EC$%$MIC#&
155. Are e-uity and eiciency necessarily conlictin( conlictin( (oals& !hy& Ans: E-uity and eiciency are not necessarily conlictin( (oals because e-uity describes the distribution o production3 as as opposed to production techni-ues itsel. itsel. "oweer3 dependin( upon societyPs alues see0in( eiciency may re-uire a tradeo with e-uity. Diiculty: M Topic: !"AT I# EC$%$MIC#&
158. !hy are resources said said to be scarce when so many o them are aailable in lar(e lar(e numbers& Ans: In absolute terms3 terms3 resources are are aailable in lar(e lar(e numbers. "oweer3 relatie relatie to the lar(e number o wants that e,ist in society3 resources are indeed scarce. Diiculty: M Topic: 6ACT$<# $6 ?<$DCTI$% ?<$DC TI
%$159. Briely describe the roles roles o assumptions3 ariables3 ariables3 and data analysis in deelopin( an economic theory. Ans: Assumptions are are conditions held to be true in a theory3 while while ariables are economic data that may share a causal relationship with each other. Data analysis helps economists test the relationships o ariables in an economic theory. Diiculty: M Topic: EC$%$MIC T"E$
18;. !hy mi(ht disputes deelop oer the inormation alue or useulness useulness o a particular particular economic model& Ans:
181. !hat is the dierence dierence between economic theory and economic policy& policy& Ans: An economic theory is an attempt to e,plain relationships relationships between economic ariables3 while economic policy represents a (uide to action3 perhaps based on the results o economic theory. Diiculty: E Topic: EC$%$MIC T"E$
18'. !hat does it mean mean to say that two ariables are inersely related3 and how would inersely related ariables appear on a (raph& Ans: I ariables are inersely related3 related3 then as one rises the other alls. This would be represented by a ne(atiely sloped line on a (raph. Diiculty: M Topic: To pic: T$$7# $6 T"E EC$%$MI#T
18+. !hy must an economy (ie up some some o one (ood to (ain more o another when it is operatin( on its production possibilities cure& Ans: I an economy is on the production possibilities cure3 then it is ma,imi=in( ma,imi=in( the use o its resources in production. To produce anythin( else would re-uire less production o another (ood. Diiculty: M Topic: #CA3 A%D A%D >
18/. !hat does a point outside3 outside3 or to the ri(ht o3 o3 a production possibilities possibilities cure represent3 and what does a point inside3 or to the let o3 the cure represent& Ans: A point outside the production possibilities cure represents a combination combination o outputs that is not possible in an economy3 while a point inside the cure represents a easible3 but ineiciently produced3 point or an economy. Diiculty: M Topic: #CA3 A%D A%D >
18. !hat is economic (rowth3 and how would it be illustrated illustrated usin( a production possibilities possibilities cure& Ans: Economic (rowth represents an increase increase in output resultin( rom rom an increase in the amount o inputs aailable. This would be represented represented by a shit outward in in the production possibilities possibilities cure. Diiculty: M Topic: #CA3 A%D A%D >
184. !hat is the dierence dierence between capital (oods and consumer (oods& Ans: Consumer (oods are inal (oods and serices3 while capital (oods are are used to produce other (oods. Diiculty: E Topic: #CA3 A%D A%D >
185. !hat would happen to an economy oer time time i it produced only consumer (oods& Ans: I an economy produced only consumer (oods it would -uic0ly lose the ability to produce additional consumer (oods. Diiculty: " Topic: #CA3 A%D A%D >
188. !hat is macroeconomics and what is microeconomics& Ans: Macroeconomics is the study o the oerall economy3 while microeconomics is the study o indiidual decisionma0in( units in the economy. Diiculty: E Topic: To pic: MAC<$EC$%$MIC# A%D MIC<$EC$%$MIC# MIC<$EC$%$MIC#
