Deck 1: Economics: the Core Issues

Question 1

The production possibilities curve illustrates

A)The limitations that exist because of scarce resources.
B)That there is no limit to what an economy can produce.
C)That there is no limit to the level of output.
D)The existence of unlimited wants and resources.

Answer 1

A

Question 2

Factors of production are

A)Scarce in every society.
B)Scarce only in advanced countries.
C)Scarce only in the poorest countries of the world.
D)Unlimited in quantity.

Answer 2

A

Question 3

Given that resources are scarce,

A)A "free lunch" is possible, but only for a limited number of people.
B)Opportunity costs are experienced whenever choices are made.
C)Poor countries must make choices, but rich countries with abundant resources do not have to make choices.
D)Some choices involve opportunity costs while other choices do not.Any choice requires us to give something up.

Answer 3

B

Question 4

In economics, scarcity means that

A)A shortage of a particular good will cause the price to fall.
B)A production possibilities curve cannot accurately represent the trade-off between two goods.
C)Society's desires exceed resources available.
D)The market mechanism has failed.

Question 5

A point on a nation's production possibilities curve represents

A)An undesirable combination of goods and services.
B)Combinations of production that are unattainable, given current technology and resources.
C)Levels of production that will cause both unemployment and inflation.
D)The full employment of resources to achieve a particular combination of goods and services.Being on the curve is efficient because we are getting the most we can out of our resources.

Question 6

The fundamental problem of economics is

A)The law of increasing opportunity costs.
B)The scarcity of resources relative to human wants.
C)How to get government to operate efficiently.
D)How to create employment for everyone.Wants will always exceed resources.

Question 7

The "guns versus butter" dilemma that all nations confront is that

A)Guns and butter can be produced using the same resources at the same time.
B)An increase in national defense implies more sacrifices of civilian goods and services.
C)An increase in national defense is possible only if we produce more butter.
D)All of the choices are correct.

Question 8

Which of the following is not a factor of production?

A)A psychiatrist.
B)The $100,000 cash.
C)A bulldozer.
D)Six thousand acres of farmland.

Question 9

Which economist argued that free markets unleashed the "animal spirits" of entrepreneurs, propelling innovation, technology, and growth?

A)Lord Kelvin.
B)Kenneth Olsen.
C)Irving Fisher.
D)John Maynard Keynes.

Question 10

The production possibilities curve illustrates which two of the following essential principles?

A)Factors of production and price signals.
B)Scarce resources and opportunity cost.
C)Market mechanisms and laissez faire.
D)Economic growth and market failure.

Question 11

Which of the following is not one of the three core economic issues that must be resolved?

A)How to produce the goods and services we select.
B)What to produce with unlimited resources.
C)Who should get the goods and services we produce.
D)What to produce with limited resources.

Question 12

Which of the following is the best example of land?

A)The ethanol refined from corn.
B)A factory that produces new goods and services.
C)The water used to make a soft drink.
D)A barber's chair.

Question 13

Capital, as economists use the term, refers to

A)The cash needed to start a new business.
B)The costs of operating a business.
C)Shares of stock issued by businesses.
D)Final goods that are used to produce other goods and services.

Question 14

Opportunity cost may be defined as the

A)Goods or services that are forgone in order to obtain something else.
B)Dollar prices paid for final goods and services.
C)Dollar cost of producing a particular product.
D)Difference between wholesale and retail prices.

Question 15

A production possibilities curve indicates the

A)Combinations of goods and services an economy is actually producing.
B)Maximum combinations of goods and services an economy can produce given its available resources and technology.
C)Maximum combinations of goods and services an economy can produce given unlimited resources.
D)Average combinations of goods and services an economy can produce given its available resources and technology.

Question 16

If an economy experiences constant opportunity costs with respect to two goods, then the production possibilities curve between the two goods will be?

A)Bowed outward or concave from below.
B)A straight, downward-sloping line.
B)Bowed inward or convex from below.
C)Bowed outward until the two goods are equal, and then bowed inward.

Question 17

Which of the following is an assumption under which the production possibilities curve is drawn?

A)Total unemployment is zero.
B)The supply of resources is fixed.
C)The price level is changing.
D)Technology is changing.

Question 18

A consequence of the economic problem of scarcity is that

A)Choices have to be made about how resources are used.
B)There is never too much of any good or service produced.
C)The production of goods and services must be controlled by the government.
D)The production possibilities curve is bowed outward.

Question 19

The basic factors of production include

A)Land, labor, money, and capital.
B)Land, labor, money, and inputs.
C)Labor and money.
D)Land, labor, capital, and entrepreneurship.

Question 20

The role of the entrepreneur in an economy is to

A)Bring the factors of production together and assume the risk of production.
B)Work with government planners to determine what goods are produced.
C)Arrange bank financing for the owners of new businesses.
D)Ensure full employment of labor.

Question 21

Economic growth would best be represented by a

A)Shift outward of the production possibilities curve.
B)Shift inward of the production possibilities curve.
C)Movement from inside the production possibilities curve to a point on the production possibilities curve.
D)Movement from the production possibilities curve to a point inside the production possibilities curve.Economic growth allows more of both goods.

Question 22

If North Korea is currently producing at efficiency, and it proceeds to increase the size of its military, then, as long as nothing else changes, its

A)Production possibilities curve will shift outward.
B)Production possibilities curve will shift inward.
C)Production of nonmilitary goods will increase.
D)Production of nonmilitary goods will decrease.

Question 23

Which of the following will cause the production possibilities curve to shift inward?

A)An increase in the working-age population.
B)A decrease in the size of the labor force.
C)A technological advance.
D)An increase in knowledge.

Question 24

If an economy is producing inside the production possibilities curve, then

A)There is full employment of resources.
B)It is operating efficiently.
C)It can produce more of one good without giving up some of another good.
D)There are not enough resources available to produce more output.

Question 25

The invisible hand refers to

A)Intervention in the economy by the government bureaucrats we do not see and over whom we have no control.
B)Undiscovered natural resources.
C)The allocation of resources by market forces.
D)The person who has the responsibility to coordinate all the markets in a market economy.Resources are allocated efficiently as if directed by an unseen force.

Question 26

In terms of the production possibilities curve, inefficiency is represented by

A)All points on the curve.
B)All points outside the curve.
C)All points inside the curve.
D)A rightward shift of the curve.

Question 27

Adam Smith's invisible hand is now called

A)Economic growth.
B)The market mechanism.
C)Opportunity cost.
D)Laissez faire.

Question 28

If the United States decides to convert automobile factories to tank production, as it did during World War II, but finds that some auto manufacturing facilities are not well suited to tank production, then

A)The production possibilities curve between tanks and automobiles will appear as a straight line.
B)The production possibilities curve between tanks and automobiles will shift outward.
C)Decreasing opportunity costs will occur with greater automobile production.
D)Increasing opportunity costs will occur with greater tank production.

Question 29

The points on a production possibilities curve show

A)Desired output.
B)Actual output.
C)Potential output.
D)None of the choices are correct.

Question 30

The market mechanism

A)Is not a very efficient means of communicating consumer demand to the producers of goods and services.
B)Works through central planning by government.
C)Eliminates market failures created by government.
D)Works because prices serve as a means of communication between consumers and producers.Buyers choose how much to buy based on price; profitability and therefore production are driven by prices.

Question 31

The market mechanism may best be defined as

A)The use of market prices and sales to signal desired output.
B)The use of market signals and government directives to select economic outcomes.
C)The process by which the production possibilities curve shifts inward.
D)Price regulation by government.

Question 32

In a market economy, the people who receive the goods and services that are produced are those who

A)Need the goods and services the most.
B)Have the most political power.
C)Want the goods and services the most.
D)Are willing to pay the highest price.

Question 33

When an economy is producing efficiently, it is

A)Producing a combination of goods and services beyond the production possibilities curve.
B)Getting the maximum goods and services possible from the available resources.
C)Experiencing decreasing opportunity costs.
D)Producing equal amounts of all goods.

Question 34

A technological advance would best be represented by

A)A shift outward of the production possibilities curve.
B)A shift inward of the production possibilities curve.
C)A movement from inside the production possibilities curve to a point on the production possibilities curve.
D)A movement from the production possibilities curve to a point inside the production possibilities curve.The shift would move the production possibilities curve away from the origin so that we can get more of both goods.

Question 35

Which of the following is true when an economy is producing efficiently?

A)The economy is producing on the production possibilities curve.
B)The economy is producing outside the production possibilities curve.
C)The economy is getting the fewest goods and services from the available resources.
D)Everyone in the economy is happy.

Question 36

Which of the following events would allow the production possibilities curve to shift outward?

A)The economy's capital stock declines.
B)More teenagers enter the labor force.
C)Technology is lost.
D)People begin to retire at earlier ages.

Question 37

According to the law of increasing opportunity costs,

A)The more one is willing to pay for resources, the smaller will be the possible level of production.
B)Increasing the production of a particular good will cause the price of the good to remain constant.
C)In order to produce additional units of a particular good, it is necessary for society to sacrifice increasingly larger amounts of alternative goods.
D)None of the choices are correct.

Question 38

According to the law of increasing opportunity costs,

A)Greater production leads to greater inefficiency.
B)Greater production means factor prices rise.
C)Greater production of one good requires increasingly larger sacrifices of other goods.
D)Higher opportunity costs induce higher output per unit of input.

Question 39

Which of the following is not a basic decision that all nations must confront?

A)Should we have economic growth?
B)How should we produce goods and services?
C)For whom should goods and services be produced?
D)What goods and services should we produce?

Question 40

If an economy experiences increasing opportunity costs with respect to two goods, then the production possibilities curve between the two goods will be

A)Bowed outward or concave from below.
B)A straight, downward-sloping line.
C)Bowed inward or convex from below.
D)Bowed outward until the two goods are equal, and then bowed inward.

Question 41

Which of the following can be used to correct market failure?

A)The market mechanism.
B)Laws and regulations.
C)Laissez faire price policies.
D)Government failure.

Question 42

When the invisible hand does not produce optimal outcomes for the economy, there is evidence of

A)Market failure.
B)Government failure.
C)Macroeconomic failure.
D)Scarcity.

Question 43

Which of the following is an example of government failure?

A)Bureaucratic delays.
B)Required use of pollution control technology that is obsolete.
C)Inefficient incentives.
D)All of the choices are correct.

Question 44

If market signals result in pollution beyond the optimal level, then

A)The economy experiences government failure.
B)A laissez faire approach will reduce the level of pollution.
C)The market mechanism has failed to achieve social efficiency.
D)The government is allocating resources inefficiently.

Question 45

At which point is society producing some of each type of structure but still producing inefficiently? (See Figure 1.1.)

A)A
B)B.
C)C.
D)D.

Question 46

The study of microeconomic theory focuses on the

A)Structure and performance of individual markets and the operation of the price system.
B)Operation of the entire economy.
C)Role of the banking system in the economy.
D)Interaction of international trade and domestic production of goods and services.Microeconomics studies how the foundation of an economy and individual markets work.

Question 47

The Latin phrase ceteris paribus means

A)The production possibilities curve never shifts.
B)Laissez faire.
C)Other things remain equal.
D)The invisible hand.

Question 48

Microeconomics is concerned with issues such as

A)The demand for bottled water by individuals.
B)The level of inflation in the economy.
C)Maintaining a strong level of economic growth.
D)All of the choices are correct.

Question 49

At which point is society employing some of its available technology but not all of it? (See Figure 1.1.)

A)A
B)B.
C)C.
D)D.

Question 50

Choose the letter of the curve in Figure 1.2 that best represents a production possibilities curve for two goods that obey the law of increasing opportunity costs:

A)A
B)B.
C)C.
D)D.

Question 51

Which of the following is not a macroeconomic statement?

A)The unemployment rate for the United States rose to 5 percent in the last quarter.
B)The Federal Reserve lowered interest rates at its last meeting.
C)Congress increased the minimum wage rate in January.
D)Jenny's wage rate rose, and in response, she decided to work more hours.

Question 52

Government intervention may achieve a more optimal outcome than the market mechanism when addressing

A)Inefficient bureaucracy.
B)Consumption of cigarettes.
C)Theme park construction.
D)None of the choices are correct.

Question 53

A city's decision to limit smoking in public areas is an example of

A)The invisible hand at work.
B)The market mechanism at work.
C)Market success.
D)Government intervention.

Question 54

Economic models are used by economists to

A)Predict economic behavior.
B)Develop economic policies.
C)Explain economic behavior.
D)All of the choices are correct.

Question 55

The doctrine of laissez faire is based on the belief that

A)Markets are likely to do a better job of allocating resources than government directives.
B)Government directives are likely to do a better job of allocating resources than markets.
C)Government failure does not exist.
D)Markets result in an unfair distribution of income.

Question 56

Which of the following has occurred when government directives do not produce better economic outcomes?

A)Government failure.
B)Market failure.
C)Macroeconomic failure.
D)Scarcity.

Question 57

At which point might society be able to produce if new resources were discovered but cannot produce with current resources? (See Figure 1.1.)

A)A
B)B.
C)C.
D)D.

Question 58

At which point is society producing the most output possible with the available resources and technology? (See Figure 1.1.)

A)A
B)B.
C)C.
D)D.

Question 59

A mixed economy

A)Is justified by the superiority of laissez faire over government intervention.
B)Utilizes both market and nonmarket signals to allocate goods and services.
C)Relies on the use of central planning by private firms rather than the government.
D)Is one that allows trade with other countries.

Question 60

Macroeconomics focuses on the performance of

A)Individual consumers.
B)Government agencies.
C)The overall economy.
D)All of the choices are correct.

Question 61

A movement from point C to point A in Figure 1.4 results in

A)More efficient production.
B)Permanent unemployment of workers producing plasma televisions.
C)A reallocation of resources from MP3 player production to plasma television production.
D)A reallocation of resources from plasma television production to MP3 player production.

Question 62

Which of the following is true about the combination of plasma televisions and MP3 players represented by point F in Figure 1.4?

A)Point F is inefficient now.
B)Point F is unattainable even with advances in technology.
C)Point F will be more easily attainable if the government takes control of all privately run factories.
D)Point F can possibly be reached if more economic resources become available or technology improves.This point is not possible with the current endowment of resources and technology.

Question 63

Refer to Figure 1.7.The cost of producing at point D rather than point J is

A)KM units of clothing.
B)AC units of food.
C)OM units of clothing.
D)OA units of food.

Question 64

Refer to Figure 1.7.The benefit of producing at point G rather than point D is

A)OA units of food.
B)KL units of clothing.
C)AB units of food.
D)OL units of clothing.

Question 65

Choose the letter of the curve in Figure 1.2 that best represents a production possibilities curve for two goods for which there are constant opportunity costs:

A)A
B)B.
C)C.
D)D.

Question 66

An increase in the proportion of the population that is unemployed above the normal rate is best represented in Figure 1.3 and using PP1 by a movement from point

A)C to point D.B.D to point C.C.C to point A.D.E to point D.

Question 67

In Figure 1.4, a shift of the production possibilities curve from PP1 to PP2 could be caused by

A)An increase in the unemployment rate.
B)Implementation of training programs that improve the skills of workers.
C)A flu epidemic that makes many workers sick.
D)Tougher pollution controls for the producers of plasma televisions and MP3 players.

Question 68

A movement from point F to point D in Figure 1.3 results in

A)A reallocation of resources from mop production to broom production.
B)Permanent unemployment of workers producing brooms.
C)A reallocation of resources from broom production to mop production.
D)More efficient production.

Question 69

In Figure 1.6, if the opportunity cost of producing cars was zero at all levels of production, the production possibilities curve would be best be represented by a

A)Vertical line.
B)45-degree line starting at the origin.
C)Horizontal line.
D)Circle.

Question 70

Using Figure 1.3 and PP1, at point A,

A)There is inefficient use of available resources.
B)The available technology keeps production inside PP1.
C)All available resources are being used efficiently.
D)An increase in the production of mops would definitely require a decrease in the production of brooms.Any point below the production possibilities curve is considered an inefficient point.

Question 71

Using Figure 1.4 and starting at PP1, an increase in the capacity to produce can be represented by a movement from point

A)A to point B.B.C to point E.C.A to point C.D.D to point E.

Question 72

Refer to Figure 1.7.The cost of producing at point G rather than point D is

A)OA units of food.
B)KL units of clothing.
C)AB units of food.
D)OL units of clothing.

Question 73

Refer to Figure 1.7.This economy will achieve efficiency in production at

A)Point D only.
B)Point G only.
C)Point J only.
D)Points D, G, and J.

Question 74

Which of the following is true about the combination of mops and brooms represented by point E in Figure 1.3 and using PP1?

A)Point E is efficient now.
B)Point E is attainable if this economy uses more of its available resources.
C)Point E is unattainable if this economy becomes more efficient.
D)Point E is attainable only if more resources become available or technological advances are made.Any point outside the production possibilities curve cannot be attained without growth in resources or better technology.

Question 75

Using Figure 1.6, if an economy has the capacity to produce represented by PP1, then point E represents

A)A combination of cars and SUVs that is not attainable.
B)A constant trade-off between cars and SUVs.
C)A change in technology.
D)An efficient use of resources.

Question 76

Refer to Figure 1.7.Which of the following points show unemployment of resources above the normal rate?

A)H.
B)J.
C)N.D.
D)

Question 77

Refer to Figure 1.7.If this economy is currently producing at point F, then by employing more resources this economy

A)Can move to point D, but not points G or J.
B)Can move to points D, G, or J.
C)Can move to point G, but not points D or J.
D)Will remain at point
F)Inefficient production results when resources are not being fully used. Using more resources moves us toward-in this case, onto-the production possibilities curve.

Question 78

Using Figure 1.5, if an economy has the capacity to produce represented by PP2, then point E represents

A)A constant trade-off between potato chips and doughnuts.
B)A combination of potato chips and doughnuts that is not attainable.
C)An efficient use of resources.
D)None of the choices are correct.

Question 79

Using Figure 1.5, if an economy is currently producing on PP2, which of the following would shift the production possibilities curve toward PP1?

A)An increase in the quantity of labor available.
B)A decrease in the amount of capital available.
C)An increase in the level of unemployment above the normal level.
D)An advancement in technology.

Question 80

In Figure 1.3, a shift of the production possibilities curve from PP1 to PP2 could be caused by

A)A decrease in the quantity of raw materials available.
B)A decline in the production skills of workers.
C)The use of improved production technology.
D)All of the choices are correct.