Deck 2: The United States Within the World Economy  

Question 1

Exchanges taking place in a price system

A) are voluntary.
B) are intended to benefit one person at the expense of the other.
C) always leave one party to the transaction worse off.
D) are monitored by the government to ensure that resources are not being wasted.

Answer 1

are voluntary.

Question 2

In a market system, how are the terms of exchange established?

A) Consumer advocacy groups establish fair prices for items, and most firms follow these pricing guidelines because they don't want to anger their consumers.
B) Industry associations establish an acceptable price range for each commodity sold within the industry, and member firms are obligated to abide by association guidelines.
C) The forces underlying supply and demand interact to determine a market price.
D) Federal legislation establishes maximum prices for most goods, and state governments regulate the prices of any remaining items.

Answer 2

The forces underlying supply and demand interact to determine a market price.

Question 3

What is the purpose of a market system?

A) To facilitate efficient exchange
B) To ensure that everyone is treated fairly
C) To ensure an equal distribution of income
D) To encourage consumers to buy goods on credit

Answer 3

To facilitate efficient exchange

Question 4

Economic growth in the United States

A) has produced an increasing level of income inequality.
B) allows most citizens to enjoy higher standards of living than they would otherwise have.
C) has eroded the ability of the market mechanism to allocate goods well.
D) has eliminated scarcity.

Question 5

An economic system

A) is a means of organizing our use of scarce resources.
B) is efficient at allocating resources only if production decisions are made according to popular vote.
C) is efficient at allocating resources only if consumption decisions are made according to popular vote.
D) works best if based on the assumption that all goods are equally scarce.

Question 6

The condition of scarcity means that

A) when the government produces something, there is no opportunity cost.
B) it is always better to produce goods using labor, rather than machinery.
C) choices must be made in the allocation of productive resources.
D) opportunity cost is not relevant in deciding on the best use of each resource.

Question 7

The purpose of an economic system is to

A) create an equal distribution of income.
B) allocate scarce resources among various possible alternative uses.
C) protect the environment.
D) create political stability.

Question 8

In a free market economy,

A) prices affect the distribution of income, but they do not affect what is produced.
B) prices matter only to consumers, not to producers.
C) the most efficient use of resources does not depend on their opportunity costs.
D) demand and supply interact to determine prices.

Question 9

Markets tend to

A) exist primarily in towns or cities.
B) benefit sellers at the expense of buyers.
C) benefit buyers at the expense of sellers.
D) facilitate exchange.

Question 10

In a price system, if the most someone is willing to pay for a good is less than the minimum cost of producing it, then

A) the resources used to produce the good are not scarce.
B) the good will not be produced.
C) government will restrict production of the good.
D) firms will supply the good at a price below the cost of production.

Question 11

How does a consumer decide whether to purchase a particular item?

A) By comparing the value she expects to derive from consuming it with its purchase price
B) By comparing the value she expects to derive from consuming it with its cost of production
C) By comparing its cost of production with its purchase price
D) By comparing its relative scarcity with its cost of production

Question 12

The relative scarcity of a good is reflected in its

A) marketing.
B) packaging.
C) price.
D) sales volume.

Question 13

Before purchasing a good, a customer will want to know

A) how much the firm had to pay in taxes throughout the process of producing the good.
B) how many other customers are purchasing the good.
C) its cost of production.
D) its price.

Question 14

Suppose new research shows that soymilk and other products derived from soybeans provide more health benefits than previously thought. At the same time, drought conditions result in extensive damage to the soybean crop. What will be the combined impact of these two factors on the market for soybeans?

A) There will be no change in the price of soybeans, but more people will consume them.
B) Soybeans will no longer be scarce.
C) The price that consumers will be willing to pay for a given quantity of soybeans will decline.
D) Soybeans will become relatively more scarce.

Question 15

A newspaper headline asserts: "Rising Demand Pulls Up Housing Prices." This headline

A) incorrectly implies that the demand for housing can affect its price.
B) incorrectly implies that more housing will be demanded at higher prices.
C) correctly implies that an increase in demand for housing will increase its price.
D) correctly implies that the production cost of housing does not affect its price.

Question 16

Before producing a good, a firm will want to know

A) how many of the consumers who buy it will actually use it.
B) how long each consumer will spend searching for the good.
C) whether the consumer will recycle the packaging for the good.
D) its price.

Question 17

What will lead a firm to produce a good?

A) The expectation of making a profit by doing so
B) The expectation of creating jobs by doing so
C) The expectation of generating tax revenue by doing so
D) The expectation of generating growth for the economy by doing so

Question 18

What would lead a customer to purchase a product?

A) Her expected value from consuming it exceeds the cost of producing it.
B) Her expected value from consuming it exceeds the cost of purchasing it.
C) She believes the firm will earn a fair profit by selling the product to her.
D) She believes the price is an accurate reflection of the good's relative scarcity.

Question 19

Using the least-cost combination of inputs enables a firm to

A) sell its products at a price everyone can afford.
B) eliminate the scarcity of the good.
C) compete with other firms selling the same item.
D) All of the above

Question 20

How do firms choose which production methods to use?

A) They select those methods that are most popular with their workers.
B) They select those methods requiring the most labor input.
C) They select those requiring the least-cost combination of inputs.
D) They select those that will get the goods to market as quickly as possible, regardless of cost.

Question 21

In the past five years, two trends have characterized the residential construction industry in Las Vegas, Nevada. First, the growing population has resulted in an increased demand for housing. Also, wages of skilled tradesmen working in construction have risen rapidly. Taken together, how have these two trends affected the market for new homes?

A) The price of housing has not changed, and new people moving into Las Vegas can easily find affordable housing.
B) New home buyers in Las Vegas will pay any price for a home.
C) Home builders in Las Vegas are guaranteed high rates of profit.
D) The price of housing will reflect the fact that it is relatively more scarce.

Question 22

Which one of the following is TRUE?

A) Firms that lower their production costs can in turn lower their prices.
B) Before purchasing a good, the consumer wants to know the cost of producing it.
C) Before purchasing a good, the consumer wants to know the wage rate paid to workers who produce it.
D) Before purchasing a good, the consumer wants to know the cost of transporting the good to market.

Question 23

In a free market economy,

A) as a good becomes relatively more scarce, its price declines.
B) government decides what is produced, and producers decide who gets to consume it.
C) goods and services are allocated by a price system.
D) firms choose only to produce the most fashionable goods, regardless of the cost of production.

Question 24

Consumers will purchase those goods

A) for which the highest cost production methods have been used.
B) for which the price is no greater than the value derived from consumption.
C) which have been produced in an environmentally sound manner.
D) which have been produced by workers earning more than the minimum hourly wage.

Question 25

In choosing whether to produce something, a firm wants to know

A) how many other firms are producing the same good.
B) how frequently consumers who purchase the good will actually use it.
C) how long the typical consumer will shop before making this purchase.
D) how the cost of producing the good compares to its selling price.

Question 26

Why does a wool coat cost more than a cotton T-shirt?

A) Because cotton T-shirts are not scarce.
B) Because cotton T-shirts are priced so they will be in shortage.
C) Because wool coats are priced so they will be in surplus.
D) Because more scarce resources are needed to produce a wool coat than to produce a cotton T-shirt.

Question 27

Why do we need an economic system?

A) To eliminate scarcity.
B) To allocate scarce resources.
C) To educate consumers about their wants.
D) To educate consumers about their needs.

Question 28

Which one of the following is TRUE?

A) Your money income determines how productive you are.
B) Consumers allocate their incomes so as to purchase the goods that are the most scarce.
C) Your ability to purchase goods and services is determined by your ability to sell your labor services.
D) The combination of goods and services you buy depends only on your preferences and is not related to your money income.

Question 29

GDP is a measure of what has been

A) saved.
B) produced.
C) conserved.
D) invested.

Question 30

Which one of the following transactions would NOT be included in GDP?

A) Breakfast cereal sold at a grocery store
B) Breakfast cereal sold at a convenience store
C) Breakfast cereal sold at an all-night diner
D) Cardboard sold from a paper mill to a cereal manufacturer

Question 31

A recession occurs when

A) prices are too low.
B) prices are too high.
C) economic growth is below its long-term trend rate.
D) the distribution of income becomes more equal.

Question 32

Which one of the following is TRUE?

A) Economic growth always makes the distribution of income more equal.
B) During the past 15 years, the distribution of income within the U.S. has become more equal.
C) During the past 15 years, both those at the bottom and at the top of the income distribution have experienced higher average incomes.
D) There is not enough data collected to know how the income distribution is changing.

Question 33

Which one of the following is NOT true?

A) GDP measures the value of what is invested.
B) GDP statistics are not equally reliable in all countries.
C) Real GDP increases as economic growth occurs.
D) GDP is a measure of production.

Question 34

Which one of the following is NOT true?

A) The distribution of wealth is not the same as the distribution of income.
B) While the distribution of income has become more equal over the past 15 years, the income of the average American has not increased.
C) An unequal distribution of income can serve as an incentive for people to work hard to earn an income that will provide them with what they want.
D) Even as the distribution of income has become less equal over the past 15 years, the poor have seen improvements in their average income.

Question 35

Changes in GDP over the years tell us

A) what the rate of economic growth has been.
B) how fast the population is growing.
C) whether the distribution of income is becoming more equal.
D) whether the distribution of wealth is becoming more equal.

Question 36

Which one of the following is NOT true?

A) Both producers and consumers pay attention to prices.
B) Firms react to higher prices by producing more.
C) Consumers react to higher prices by buying more.
D) The price of a good indicates its relative scarcity.

Question 37

Which one of the following is NOT true?

A) A consumer needs to know the cost of producing a good before deciding whether to buy it.
B) Firms seek to use the least-cost combination of inputs.
C) Competition from other firms forces a producer to pay attention to costs.
D) Lower production costs result in lower selling prices.

Question 38

How are prices set in a free market economy?

A) By the interaction of consumers and governments
B) By the interaction of producers and governments
C) By the interaction of supply and demand
D) By the interaction of imports and exports

Question 39

Which one of the following best describes how economists view prices?

A) Prices are signals of relative scarcity.
B) High prices are good; low prices are bad.
C) Low prices are good; high prices are bad.
D) The best price is a fair price.

Question 40

An increasing selling price signals a firm to

A) cut its costs.
B) increase its costs.
C) produce more of its product.
D) produce less of its product.

Question 41

In the U.S. economy, the decisions of producers and consumers are coordinated through

A) periodic meetings of consumer groups and industry councils.
B) a first-come, first served method of rationing.
C) the political process.
D) the price system.

Question 42

Firms seek the least-cost combination of inputs because

A) that is best for the environment.
B) they want to earn a profit.
C) they have the best interests of their customers at heart.
D) they have the best interests of their employees at heart.

Question 43

Which of the following is not a factor of production?

A) Money
B) Low-skilled labor
C) Office telephones
D) A registered nurse

Question 44

Suppose that extremely cold winter weather destroys the current crop of oranges on the trees in Florida. Which of the following statements is then TRUE?

A) The price of oranges can be expected to decline.
B) The price that the typical consumer is willing to pay for an orange will decline.
C) Oranges are now relatively more scarce.
D) Oranges are now relatively less scarce.

Question 45

A recent study found that eating dark chocolate can provide cardiovascular health benefits. What effect does this have on the market for dark chocolate?

A) The price of dark chocolate can be expected to decline.
B) The price that the typical consumer is willing to pay for dark chocolate will decline.
C) Dark chocolate is now relatively more scarce.
D) Dark chocolate is now relatively less scarce.

Question 46

Which variable do both producers and consumers pay attention to?

A) Costs of producing the product
B) Wages of employees engaged in manufacturing the product
C) Transportation costs of getting the good to market
D) Selling price of the product

Question 47

Gifts of nature used in the production process are considered

A) land.
B) labor.
C) capital.
D) entrepreneurship.

Question 48

Labor productivity increases when

A) more labor input is added.
B) firms reduce wages.
C) firms reduce prices.
D) more capital is added.

Question 49

Free interstate trade within the U.S. has served to

A) enhance economic growth.
B) erode labor productivity.
C) dampen growth of the labor force.
D) dampen entrepreneurial initiative.

Question 50

Most jobs are created by

A) local government decree.
B) federal government decree.
C) economic growth.
D) replacing capital-intensive production processes with labor-intensive ones.

Question 51

The current size of the U.S. labor force is about

A) 210 million workers.
B) 150 million workers.
C) 110 million workers.
D) 75 million workers.

Question 52

The majority of workers in the U.S. labor force are employed in

A) manufacturing.
B) agriculture.
C) services.
D) mining.

Question 53

Which one of the following is TRUE?

A) As many jobs that were once performed in the U.S. have moved off-shore, the level of employment within U.S. borders has fallen.
B) The only jobs that have moved off-shore from the U.S. are unskilled jobs in manufacturing.
C) Firms use off-shore labor in an attempt to achieve the least-cost combination of inputs.
D) By moving jobs off-shore, U.S. firms have caused the domestic economy to shrink.

Question 54

What is the incentive effect?

A) A disparity of wealth causes people to strive to become successful.
B) Generous welfare benefits for the unemployed create a productive labor force.
C) Our global economy results in firms with supply lines running through several countries.
D) Current communications technology allows many people to work from home.

Question 55

When the rate of economic growth dips below its long-term trend rate, we say
That a ________ has occurred.

A) labor shortage
B) recession
C) period of inflation
D) trade deficit

Question 56

Which one of the following is TRUE?

A) Stock ownership is an increasingly smaller part of Americans' net worth.
B) Economic growth has eliminated the occurrence of recessions.
C) Income inequality can lead to economic growth through the incentive effect.
D) Stock ownership is a greater component of the wealth of Europeans than it is of the wealth of Americans.

Question 57

Which one of the following is FALSE?

A) Increased availability of reliable communication channels at lower and lower costs have led to companies relocating their manufacturing operations offshore.
B) Inflation stops economic growth.
C) The size of the U.S. labor force continues to grow despite many jobs being moved off-shore.
D) The U.S. labor force will continue to grow through immigration.

Question 58

GDP does NOT include

A) the value of goods produced for government purchase.
B) the value of what businesses spend on plant and equipment.
C) the value of what consumers purchase to give as gifts.
D) the value of goods sold on the second-hand market.

Question 59

GDP is expressed in

A) physical units.
B) monetary units.
C) levels of satisfaction.
D) statistical terminology used to measure efficiency.

Question 60

Which of the following statements is FALSE?

A) Land is a factor of production only in agricultural endeavors.
B) Investments in human capital make workers more productive.
C) Manufactured goods used in providing services are considered capital.
D) Individuals who innovate new production methods and management techniques are engaged in entrepreneurship.

Question 61

A free market system allocates scarce goods

A) fairly.
B) by price.
C) on a first-come, first-served basis.
D) in a manner such that what each person consumes bears no relationship to what he or she produces.

Question 62

How do consumers typically react to a decline in the market price of a good they like to buy frequently?

A) They lose interest in this item.
B) They reduce their work effort since they no longer need such a high income to buy the same amount of this item.
C) They investigate the industry producing this item to see if there was a legitimate reason for production costs to decline.
D) They buy more of the item.

Question 63

Changes in the average standard of living are measured by changes in

A) per capita real GDP.
B) the length of recessions.
C) the size of the labor force.
D) the rate of inflation.

Question 64

An increase in real per capita GDP means that

A) the size of the labor force has grown.
B) the distribution of income has become more equal.
C) the distribution of income has become less equal.
D) the amount of output per person has risen.

Question 65

How could GDP increase without there also being an increase in real GDP?

A) The rate of population growth matched the rate of growth in output.
B) The rate of population growth matched the growth of the labor force.
C) Output increased, but it was not shared equally among all consumers.
D) All of the increase in GDP was due to higher prices.

Question 66

What must be true in order for per capita real GDP to increase when the population is also increasing?

A) The rate of inflation must be zero.
B) The rate of inflation must be less than the rate of economic growth.
C) The rate of growth of output must exceed the population growth rate.
D) The economy must be importing some essential goods.

Question 67

Why does a projected population decline concern European leaders?

A) Because it will lead to a decline in per capita real GDP
B) Because it will lead to economic recessions
C) Because it will lead to inflation
D) Because an aging population will increase the burden of providing pensions which is borne by younger workers

Question 68

Most of the population growth of the next 50 years will be concentrated in

A) North America.
B) South America.
C) Europe.
D) Asia.

Question 69

Which one of the following is TRUE?

A) Population growth makes a country poorer, because there are more mouths to feed.
B) Real per capita GDP can increase only if there is no inflation.
C) Real per capita GDP can increase only if there is inflation.
D) The growth of the U.S. population over the next several decades will come from immigration.

Question 70

Which one of the following is TRUE?

A) The factors of production are land, labor, capital, and entrepreneurship.
B) Land is a factor of production only in agricultural endeavors.
C) Labor is a factor of production only in providing services.
D) Capital is a factor of production only in high-tech industries.

Question 71

Which one of the following is FALSE?

A) Using capital in the production process does not add to output; it simply allows the firm to earn a greater profit than it would otherwise.
B) Using capital in the production process allows each worker to produce more.
C) Firms will employ capital in the production process if it creates the least-cost combination of inputs.
D) Human capital arises from a worker's education, training, and experience.

Question 72

What are the four factors of production?

A) Money, interest, savings, and investment.
B) Land, labor, capital, and entrepreneurship.
C) Land, management, investment, and technology.
D) Technology, money, marketing, and venture capital.

Question 73

Why do firms seek to use the least-cost combination of inputs?

A) Because managers and supervisors find their jobs are easiest when the least-cost combination is used.
B) Because they want to keep costs low in order to appear to the media as a well-run business.
C) Because they won't be able to stay in business if they don't.
D) Because that is the combination that their employees prefer.

Question 74

How will immigration into the U.S. affect the population over the next several decades?

A) It will allow the labor force to grow.
B) It will result in a declining real per capita GDP.
C) It will deteriorate the stock of human capital.
D) It will cause recessions.

Question 75

You buy organic pears and frozen yogurt at your local health food store. Which of the following statements correctly describes the contribution of the factors of production to your purchase?

A) The freezer which holds the store's inventory of frozen yogurt is a capital resource.
B) The pears and other produce displayed as inventory are a capital resource.
C) The worker who stocks the produce bins is a capital resource.
D) Labor, capital, and entrepreneurship have contributed to your purchase, but land has not.

Question 76

You hire a handyman to repair some broken floorboards on your deck. Which of the following statements correctly describes the contribution of the factors of production to this transaction?

A) No scarce resources are involved, because you are just repairing an existing resource.
B) The handyman's time is a capital resource.
C) Tools used by the handyman are a capital resource.
D) Tools used by the handyman are a land resource.

Question 77

The person who creates a product innovation and brings it to market is providing the resource of

A) land.
B) labor.
C) capital.
D) entrepreneurship.

Question 78

The sunlight and rain which allow crops to flourish are providing the resource of

A) land.
B) labor.
C) capital.
D) entrepreneurship.

Question 79

You start up an internet-based business run from your apartment, offering economic advice to subscribers to your website. Which one of the following statements correctly describes how a factor of production contributes to your business?

A) The computer you use is a land resource.
B) The computer you use is a capital resource.
C) The computer you use is an entrepreneurial resource.
D) Your knowledge of economics is a land resource.

Question 80

The factors of production are

A) abundant without limit on the planet.
B) valuable only because they are owned by corporations seeking to make a profit from them.
C) scarce resources.
D) never as useful as people expect them to be.