Deck 3: The Fundamental Economic Problem: Scarcity and Choice

Question 1

Resources are used to create goods and services.

Answer 1

True

Question 2

Economics studies the logic of choices made from among available possibilities.

Answer 2

True

Question 3

Market economies are not constrained by scarcity; only planned economies have that problem.

Answer 3

False

Question 4

The scarcity of physical resources is far more fundamental to the study of economics than the scarcity of funds.

Question 5

Money is scarce, but resources are not.

Question 6

Opportunity cost is the value of the next best alternative that is given up.

Question 7

All actions and purchases, even those of wealthy people, involve a sacrifice.

Question 8

An optimal decision is one that chooses the most desirable from among all possibilities that are available.

Question 9

Economics examines the options open to households, business firms, governments, and entire societies by the limited resources at their command.

Question 10

Millionaires do not face the problem of scarcity.

Question 11

If the budget deficit was eliminated, the federal government would have more money than it could spend.

Question 12

Scarcity is the fundamental problem of the economy.

Question 13

Inputs in production processes are called resources.

Question 14

Given its size, the United States does not have to worry about limitations on resources.

Question 15

The opportunity cost of any decision is the forgone value of the next best alternative that is not chosen.

Question 16

Economics examines the options open to households and business firms, but ignores the options of governments and entire societies.

Question 17

Scarcity of resources implies that people must make decisions consistent with the means they have available to them.

Question 18

Goods that are actually produced by firms are not really limited in supply, because the firms can always produce more of them.

Question 19

Rational decision making must always be based on the concept of opportunity cost.

Question 20

Centrally planned economies are not constrained by the problem of scarcity.

Question 21

Being on the PPF implies that increasing the production of one good or service can only be accomplished by decreasing the quantity produced of another good or service.

Question 22

In a properly functioning economy, money costs approximate opportunity costs.

Question 23

Any point on or outside the PPF is attainable.

Question 24

Individuals face scarcity; whole societies do not.

Question 25

A well-functioning market will have high monetary costs applied to high opportunity costs.

Question 26

The production possibilities frontier can be used to show a manufacturer's possible combinations of output of two goods.

Question 27

Opportunity cost cannot be measured in money terms, only in conceptual terms.

Question 28

Opportunity cost can always be measured in money terms.

Question 29

Monetary costs and opportunity costs are always identical.

Question 30

Opportunity cost is the combined value of all other alternatives that go unchosen.

Question 31

The opportunity cost of a college education includes wages lost while enrolled in school.

Question 32

Opportunity cost always arises when a trade-off decision is made.

Question 33

High opportunity costs go hand in hand with high money costs in a properly functioning economy.

Question 34

The production possibilities frontier slopes downward and to the right because of limited resources.

Question 35

A production possibilities frontier shows the combinations of various goods that should be produced.

Question 36

The production possibilities frontier has a tendency to bow outward from the origin.

Question 37

The term "satisficing" indicates an optimal choice.

Question 38

Although finished goods are scarce, the inputs to produce them are not scarce.

Question 39

Waiting in line to get a free ticket does not involve any opportunity cost.

Question 40

Since it is a centrally planned economy, China does not face opportunity costs when economic decisions are made.

Question 41

The political party that is in power determines the position and shape of the production possibilities frontier that constrains the choices of the economy.

Question 42

Economists use the term capital to describe that factor of production that includes human-made resources such as factories, buildings, machinery and tools.

Question 43

From a society's viewpoint, when all resources are fully employed, a decision to have more of one thing means we must give up some of another thing.

Question 44

According to the principle of increasing costs, as the production of one good expands, the opportunity cost of producing another unit of the good tends to increase.

Question 45

If the U.S.government decides to increase military spending, one opportunity cost will be lower spending on education.

Question 46

If a farmer's opportunity cost of producing 50,000 bushels of wheat is 20,000 fewer bushels of soybeans, then her opportunity cost of producing 50,000 bushels of soybeans must also be 20,000 fewer bushels of wheat.

Question 47

If society produces at a point inside the production possibilities frontier, it is characterized by full employment of resources.

Question 48

The concept of opportunity cost is more applicable to society as a whole than it is for an individual household.

Question 49

Since it spent over $3.6 trillion in 2010, opportunity cost was not an issue for the U.S.government.

Question 50

A market economy allocates resources primarily in accordance with orders from government bureaucrats.

Question 51

The U.S.government spent over $3.6 trillion in budget year 2010.

Question 52

Economic growth solves the problem of scarcity.

Question 53

If a farmer's opportunity cost of producing 10,000 bushels of wheat is 5,000 fewer bushels of soybeans, then her opportunity cost of producing 5,000 bushels of soybeans must be 10,000 fewer bushels of wheat.

Question 54

Society can produce at a point outside the production possibilities frontier, but only if it is using all of its resources efficiently.

Question 55

The negative slope of a production possibilities frontier is a graphic representation of opportunity cost.

Question 56

If the quantity of one good that must be forgone increases as successive units of another good are produced, then there is said to be increasing opportunity cost between the two goods.

Question 57

A society's decision to produce more tanks may require it to forgo production of some cars.

Question 58

As more of a good is produced, its opportunity cost tends to increase because resources are not equally efficient at producing all goods.

Question 59

A large government faces a production possibilities frontier much like a business firm does.

Question 60

If the PPF for guns and butter is bowed outward from the origin, this indicates constant opportunity cost between the two goods.

Question 61

The definition of efficiency implies that production is carried out on the production possibilities frontier.

Question 62

Specialization and division of labor are made easier by the existence of money.

Question 63

While specialization and exchange were very important to Adam Smith in 1776, they have largely lost their importance in the 21st century.

Question 64

Specialization of labor makes sense only if there is some means of exchange.

Question 65

In the Wealth of Nations, Adam Smith wrote about how countries could increase their consumption of goods and services through specialization and trade with other countries.

Question 66

The principle of comparative advantage explains specialization and trade among countries but not among individuals.

Question 67

A decrease in the unemployment rate will shift the PPF outward from the origin.

Question 68

Economists define "efficiency" as the absence of waste.

Question 69

Division of labor has caused output to rise dramatically since the industrial revolution.

Question 70

The principle of comparative advantage helps explain trade between nations.

Question 71

A society must make three sorts of decision: what goods to produce, how to produce them, and how to distribute them.

Question 72

In terms of efficiency, any point on a production possibilities frontier is as good another.

Question 73

Only a market economy must answer the questions of what goods to produce, how to produce them, and for whom to produce them.

Question 74

Voluntary exchange results in mutual gains.

Question 75

Although all points on the PPF are efficient, that alone does not tell us which point is "best" for the society.

Question 76

Efficiency is defined as minimizing waste.

Question 77

A society which is inside its production possibilities frontier is efficient.

Question 78

If two persons trade, one must gain at the expense of the other.

Question 79

Efficient production can be carried out anywhere on or below the production possibilities frontier.

Question 80

In a market economy, government decides the answers to the three economic decisions.