1. Which of the following statements is true about scarcity?
A) Scarcity refers to the situation in which unlimited wants exceed limited resources.
B) Scarcity is not a problem for the wealthy.
C) Scarcity is only a problem when a country has too large a population.
D) Scarcity arises when there is a wide disparity in income distribution.
2. By definition, economics is the study of
A) how to make money in the stock market.
B) how to make money in a market economy.
C) the choices people make to attain their goals, given their scarce resources.
D) supply and demand.
3. The term ________ in economics refers to a group of buyers and sellers of a product and the
arrangement by which they come together to trade.
4. Economists reason that the optimal decision is to continue any activity up to the point where the
A) marginal benefit is zero.
B) marginal benefit is greater than the marginal cost.
C) marginal cost is zero.
D) marginal benefit equals the marginal cost.
5. The three fundamental questions that any economy must address are:
A) What will be the prices of goods and services; how will these goods and services be
produced; and who will receive them?
B) What goods and services to produce; how will these goods and services be produced; and
who receives them?
C) Who gets jobs; what wages do workers earn; and who owns what property?
D) How much will be saved; what will be produced; and how can these goods and services be
6. The idea that because of scarcity, producing more of one good or service means producing less
of another good or service refers to the economic concept of
7. The highest valued alternative that must be given up to engage in an activity is the definition of
A) economic equity.
B) marginal benefit.
C) opportunity cost.
D) marginal cost.
8. Arlene quits her $125,000-a-year job to take care of her ailing parents. What is the opportunity
cost of her decision?
A) zero, since she will no longer be earning a salary
B) It depends on the ʺgoing rateʺ for home-care providers.
C) at least $125,000
D) the value she attributes to the satisfaction she receives from taking care of her parents
9. Who, in a centrally planned economy, decides what goods and services will be produced with
the scarce resources available in that economy?
A) the government
D) consumers and producers
E) the government, consumers and producers
10. The decision about what goods and services will be produced made in a market economy is made by
A) lawmakers in the government voting on what will be produced.
B) workers deciding to produce only what the boss says must be produced.
C) producers deciding what society wants most.
D) consumers and firms choosing which goods and services to buy or produce.
E) consumers dictating to firms what they need most.
11. How are the fundamental economic questions answered in a market economy?
A) The government alone decides the answers.
B) Individuals, firms, and the government interact in markets to decide the answers to these
C) Households and firms interact in markets to decide the answers to these questions.
D) Large corporations alone decide the answers.
12. Which of the following is a positive economic statement?
A) The standard of living in the United States should be higher.
B) If the price of iPhones falls, a larger quantity of iPhones will be purchased.
C) The government should revamp the health care system.
D) The U.S. government should not have bailed out U.S. auto manufacturers.
13. Which of the following is a normative economic statement?
A) Rising global demand for coal has led to increases in the price of coal.
B) With rising mortgage rates and rising unemployment rates, the number of unsold homes
C) The state of Texas is considering increasing funds for light-rail development to promote
the use of public transportation.
D) Pharmaceutical manufacturers should not be allowed to patent their products so
prescription drugs would be more affordable.
14. Microeconomics is the study of
A) how households and firms make choices.
B) the economy as a whole.
C) the global economy.
D) topics such as unemployment, inflation, and economic growth.
15. Macroeconomics is the study of
A) how households make choices.
B) how firms make choices.
C) how households and firms make choices.
D) the economy as a whole.
16. Which of the following statements is true about profit?
A) Profit refers to the revenue received from the sale of a quantity of goods.
B) Profit is calculated by multiplying price and quantity sold.
C) The terms accounting profit and economic profit can be used interchangeably.
D) Profit is the difference between revenue and cost.
17. Which of the following is an example of an activity undertaken by an entrepreneur?
A) designing your landscaping for your new home
B) holding a position as the president of a liberal arts college
C) running for the president of the United States
D) starting your own pet sitting business
18. Which is NOT a factor of production:
B) Natural Resources
19 Positive analysis is concerned with “what ought to be”, while normative analysis is concerned with “what is”.
A) TRUE B) FALSE
20 The points outside the production possibilities frontier are
21. The production possibilities frontier shows the ________ combinations of two products that may
be produced in a particular time period with available resources.
A) minimum attainable
B) maximum attainable
22. The production possibilities frontier model shows that
A) if consumers decide to buy more of a product its price will increase.
B) a market economy is more efficient in producing goods and services than is a centrally
C) economic growth can only be achieved by free market economies.
D) if all resources are fully and efficiently utilized, more of one good can be produced only by
producing less of another good.
23. In a production possibilities frontier model, a point ________ the frontier is productively
D) at either intercept of
24. An inward shift of a nation’s production possibilities frontier can occur due to
A) a reduction in unemployment.
B) a natural disaster like a hurricane or bad earthquake.
C) a change in the amounts of one good desired.
D) an increase in the labor force.
25. Without an increase in the supplies of factors of production, how can a nation achieve economic
A) by producing more high-value goods and less of low-value goods
B) through technological advancement which enables more output with the same quantity of
C) by lowering the prices of factors of production
D) by increasing the prices of factors of production
26. Which of the following would shift a nation’s production possibilities frontier outward?
A) discovering a cheap way to convert sunshine into electricity
B) an increase in demand for the nation’s products
C) a decrease in the unemployment rate
D) a law requiring workers to retire at age 50
27. The Great Depression of the 1930s with a large number of workers and factories unemployed
would be represented in a production possibilities frontier graph by
A) a point inside the frontier.
B) a point outside the frontier.
C) a point on the frontier.
D) an intercept on either the vertical or the horizontal axis.
28. An organization of producers that limits the amount of a good produced is known as a
A) free market organization.
29. The opportunity cost of taking a semester-long economics class is
A) the cost of tuition and fees only.
B) the value of the time spent in the classroom.
C) zero because there is no admission charged if you are enrolled in the course.
D) equal to the highest value of an alternative use of the time and money spent on the class.
E) the knowledge and enjoyment you receive from attending the class.
30. You have an absolute advantage whenever you
A) are better educated than someone else.
B) can produce more of something than others with the same resources.
C) prefer to do one particular activity.
D) can produce something at a lower opportunity cost than others.
31. Comparative advantage means the ability to produce a good or service
A) at a lower selling price than any other producer.
B) at a lower opportunity cost than any other producer.
C) of a higher quality than any other producer.
D) at a higher profit level than any other producer.
32. Which of the following is not a factor of production?
A) an acre of farmland
B) a drill press in a machine shop
C) the manager of the local tire shop
D) $1,000 in cash
33. “An Inquiry into the Nature and Causes of the Wealth of Nations” published in 1776 was written
A) John Maynard Keynes.
B) Karl Marx.
C) Alfred Marshall.
D) Adam Smith.
34. Adam Smith’s behavioral assumption about humans was that people
A) typically act irrationally.
B) usually act in a rational, self-interested way.
C) are consistently greedy.
D) typically act randomly.
35. Adam Smith’s invisible hand refers to
A) the government’s unobtrusive role in ensuring that the economy functions efficiently.
B) property ownership laws and the rule of the court system.
C) the process by which individuals acting in their own self-interest bring about a market
outcome that benefits society as a whole.
D) the laws of nature that influence economics decisions.
36. In economics, the term ________ means “additional” or “extra”.
37. Marginal analysis involves undertaking an activity
A) until its marginal costs start declining.
B) only when its marginal benefits are positive.
C) until its marginal benefits equal marginal costs.
D) only if its marginal costs are greater than its marginal benefits.
38. Economists assume that individuals
A) behave in unpredictable ways.
B) will never take actions to help others.
C) prefer to live in a society that values fairness above all else.
D) are rational and respond to incentives.
39. How are the fundamental economic decisions determined in North Korea?
A) Individuals, firms, and the government interact in a market to make these economic
B) These decisions are made by the country’s elders who have had much experience in
answering these questions.
C) The government decides because North Korea is a centrally planned economy.
D) The United Nations decides because North Korea is a developing economy.
40, The government makes all economic decisions in a mixed economy.
A) True B) False
41. In economics, choices must be made because we live in a world of
D) unlimited resources.
42. The natural resources used in production are made available in the
A) goods and services market.
B) product market.
C) government market.
D) factor market.
43. When you purchase a new pair of jeans you do so in the
A) factor market.
B) input market
C) product market
D) resource market
44. The ________ demonstrates the roles played by households and firms in the market system.
A) production possibilities frontier
B) circular flow model
C) theory of comparative advantage
D) business cycle
45. Households ________ final goods and services in the ________ market.
A) purchase; factor
B) purchase; product
C) sell; factor
D) sell; product
46. In the circular flow model, producers
A) sell goods and services in the input market.
B) and households spend earnings from resource sales on goods and services in the factor market.
C) hire resources sold by households in the factor market.
D) spend earnings from resource sales on goods and services in the product market.
47. Which of the following statements about a simple circular flow model is false?
A) Producers are buyers in the factor market and sellers in the product market.
B) Households are neither buyers nor sellers in the input market.
C) Producers are buyers in the factor market.
D) Households are sellers in the product market.
48. All of the following are critical functions of the government in facilitating the operation of a market economy except
A) protecting private property.
B) enforcing property rights.
C) ensuring an equal distribution of income to all citizens.
D) enforcing contracts.
49. Entrepreneurs bring together the factors of production to produce goods and services.
A) TRUE B) FALSE
50. An economic ________ is a simplified version of some aspect of economic life used to analyze an
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