Deck 1: Limits, Alternatives, and Choices

Question 1

The satisfaction or pleasure one gets from consuming a good or service is called:

A) price.
B) utility.
C) consumption.
D) preferences.

Answer 1

B

Question 2

According to the Gates,Winfrey,and Rodriguez illustration:

A) Gates,Winfrey,and Rodriguez made a mistake by not attending college.
B) Gates,Winfrey,and Rodriguez did not weigh marginal benefits against marginal costs when making decisions.
C) Opportunity costs vary greatly between individuals and matter in decision making.
D) Attending college has little effect on lifetime earnings.

Answer 2

C

Question 3

The term "scarcity" in economics can refer to the fact that:

A) economic wants are limited and resources are abused.
B) even in the richest country some people go hungry.
C) no country can produce enough products to satisfy everybody's economic wants.
D) it is impossible to produce too much of any particular good or service in a market economy.

Answer 3

C

Question 4

From an economic perspective,when a consumer decides to buy more life insurance,the consumer has most likely concluded that the:

A) marginal costs of more insurance coverage have increased.
B) marginal benefits of more insurance coverage have decreased.
C) marginal benefits of more insurance coverage are greater than the marginal costs.
D) opportunity costs of more insurance coverage are greater than the payment for more insurance coverage.

Question 5

Henry wants to buy a book.The economic perspective suggests that Henry will buy the book if:

A) the book will give him utility.
B) his income is high.
C) the marginal cost of the book is greater than its marginal benefit.
D) the marginal benefit of the book is greater than its marginal cost.

Question 6

What is the economic meaning of the expression that "there is no such thing as a free lunch"?

A) It refers to "free-riders," who do not pay for the cost of a product but who receive the benefit from it.
B) It means that economic freedom is limited by the amount of income available to the consumer.
C) It means there is an opportunity cost when resources are used to provide "free" products.
D) It indicates that products only have value because people are willing to pay for them.

Question 7

One major feature of the economic perspective is:

A) that scarcity is more important than choice.
B) that costs are more important than benefits.
C) the assumption of purposeful behavior by individuals.
D) the idea that the economy has unproductive resources.

Question 8

Which of the following is not a central focus of the "economic perspective"?

A) Scarcity and choice
B) The scientific method
C) Purposeful behavior
D) Marginal analysis

Question 9

Among competing issues,the most important concern of economics is with the:

A) degree of competition in stock and bond markets in the economy.
B) efficient use of limited productive resources to satisfy economic wants.
C) issue of equality in the distribution of income and wealth among households.
D) budget deficits in the domestic economy and trade deficits in the international economy.

Question 10

The utility of a specific product:

A) is determined by consumer income.
B) is determined by the price of the product.
C) varies from person to person using the product.
D) is constant from person to person using the product.

Question 11

When an economist says that there is "too much of a good thing," the economist is suggesting that:

A) scarcity is not a problem.
B) wants are limited.
C) the marginal cost of the thing is less than the marginal benefit.
D) the marginal benefit of the thing is less than the marginal cost.

Question 12

From an economic perspective,when a student decides to attend another year of college,the student has concluded that the marginal:

A) costs of attending college have increased that year.
B) benefits of attending college have decreased that year.
C) benefits of attending college are greater than the marginal costs.
D) costs of attending college will be subsidized by someone else such as parents or the government.

Question 13

As a consequence of the condition of scarcity:

A) there is never enough of anything.
B) production has to be centrally planned.
C) things that are plentiful have relatively high prices.
D) individuals and communities have to make choices from among alternatives.

Question 14

Economics can best be described as the study of:

A) how to increase the level of productive resources so there is maximum output in society.
B) how to use productive resources to maximize income level.
C) how people,institutions,and society make choices under conditions of scarcity.
D) how business structures influence the allocation of income among firms.

Question 15

As a student of economics,when you speak of scarcity,you are referring to the ability of society to:

A) employ all of its resources.
B) consume all that is produced.
C) satisfy economic wants given limited resources.
D) continually make technological breakthroughs and increase production.

Question 16

The key concept that serves as the basis for the study of economics is:

A) opportunity cost.
B) unemployment.
C) money.
D) scarcity.

Question 17

Are the goods that businesses offer for "free" to consumers also free to society?

A) Yes,because the individual consumer does not have to pay for them.
B) Yes,because the marginal benefit is greater than the marginal cost.
C) No,because scarce resources were used to produce the free goods.
D) No,because society does not assign a value to free goods.

Question 18

Which expression is another way of saying "marginal cost"?

A) total cost
B) additional cost
C) average cost
D) scarcity

Question 19

The basic economic problem is essentially one of deciding how to make the best use of:

A) limited resources to satisfy limited economic wants.
B) limited resources to satisfy unlimited economic wants.
C) unlimited resources to satisfy unlimited economic wants.
D) unlimited resources to satisfy limited economic wants.

Question 20

The primary goal of economic activities is to:

A) expand the production of goods and services.
B) equalize the distribution of consumer income and wealth.
C) make the most efficient use of scarce productive resources.
D) reallocate resources from consumption to production in the economy.

Question 21

The statement that "the unemployment rate will increase as the economy moves into a recession" is an example of:

A) a normative statement.
B) a microeconomic statement.
C) marginal analysis.
D) a generalization.

Question 22

The process of developing hypotheses,testing them against facts,and using the results to construct theories is called:

A) opportunity cost calculation.
B) the scientific method.
C) marginal analysis.
D) microeconomics.

Question 23

Which would be considered a macroeconomic study? A study of the effect of:

A) a decrease in the price of automobiles on automobile sales.
B) changing government spending to increase employment.
C) a new tax on the profits of a business.
D) lower interest rates on a firm's investment.

Question 24

A basic assumption used in most economic theories is that:

A) what is true for a part of the whole must also be true for the whole.
B) as price decreases,quantity demanded will decrease.
C) whatever goes up must come down.
D) all other things remain the same.

Question 25

How is the economic perspective reflected in lines for fast food?

A) Customers select the shortest line because they have perfect information.
B) Customers select the shortest line because they believe it will reduce their time cost of obtaining food.
C) Lines will typically be of unequal length because of the inefficiencies in counter service.
D) The set of food choices is often too complex for customers and thus creates long lines.

Question 26

The role of an assumption in an economic theory is to:

A) add realism.
B) prove the theory.
C) increase the scope of application.
D) simplify the theory.

Question 27

When producers maximize their profits from the production of a good or service,they are:

A) testing a hypothesis.
B) exhibiting purposeful behavior.
C) assuming that all other things are equal.
D) making a trade-off between economic efficiency and economic freedom.

Question 28

One reason economists have difficulty applying the scientific method is because:

A) economic conditions are constant.
B) controlled laboratory experiments are often infeasible and sometimes impossible.
C) people are involved,and their behavior is entirely unpredictable.
D) the scientific method does not apply to economics.

Question 29

From an economic perspective,when consumers leave a fast food restaurant because the lines to be served are too long,they have concluded the:

A) marginal cost of waiting is less than the marginal benefit of being served.
B) marginal cost of waiting is greater than the marginal benefit of being served.
C) management is exhibiting irrational behavior by not maximizing profits.
D) management is making an assumption that other things are equal.

Question 30

The purpose of the ceteris paribus assumption used in economic analysis is to:

A) make sure that all relevant factors are considered.
B) avoid making normative statements.
C) avoid making positive statements.
D) restrict the analysis to the effect of a single economic factor.

Question 31

The study of how a single business firm sets its prices would fall under the study of:

A) macroeconomics.
B) microeconomics.
C) income distribution.
D) economic growth.

Question 32

Microeconomics focuses on:

A) the workings of the whole economy or large sectors of it.
B) the individual units that make up the whole of the economy.
C) issues such as unemployment and inflation.
D) total output and the general level of prices.

Question 33

An "aggregate":

A) treats a collection of specific units as one unit.
B) treats a single unit as if it were a collection of specific units.
C) is the primary unit of analysis in microeconomics.
D) is too large to analyze using standard macroeconomic theories.

Question 34

Which question is an illustration of a microeconomic question?

A) Is the quantity of wine purchased in one year dependent upon the price of wine?
B) Does government spending influence the total level of employment in the economy?
C) Is the purchasing power of the dollar higher or lower today than it was in 2005?
D) Is capitalism superior to socialism?

Question 35

An economic model is:

A) a value judgment.
B) a fact.
C) built using theory.
D) built on policies.

Question 36

Economic models do not reflect the full complexity of reality and instead are based on:

A) trade-offs.
B) purposeful simplifications.
C) value judgments.
D) the fallacy of composition.

Question 37

The branch of economics that focuses primarily on aggregates is:

A) macroeconomics.
B) microeconomics.
C) scientific economics.
D) consumer economics.

Question 38

Which is an illustration of a microeconomic question?

A) What is the current national rate of unemployment?
B) Is the economy experiencing a declining rate of inflation?
C) Will a new type of television set increase the number of buyers?
D) Is the production of goods and services in the economy greater this year than last year?

Question 39

Which question is an example of a microeconomic question?

A) What should the federal government do to reduce the trade deficit with Japan?
B) Will the merger of two airlines likely result in higher airline ticket prices?
C) What factors are contributing to the rise of unemployment in the economy?
D) Will the inflation rate remain relatively stable this year?

Question 40

Macroeconomics focuses on:

A) the individual units that make up the whole of the economy.
B) studies of how individual markets and industries are organized.
C) total output and the general level of prices in the economy.
D) how a business determines how much output to produce.

Question 41

When modeling consumer choice,the price ratio of the two products is the:

A) equilibrium exchange rate.
B) slope of the budget line.
C) point of tangency for equilibrium.
D) demand for the two products.

Question 42

In the diagram above,Cheri's budget line shifts outward from AB to CD.Which statement below is consistent with this shift?

A) Both prices double;her income doubles.
B) Her income is reduced;no change in either price.
C) Both prices are reduced by 50 percent;her income is reduced by less than 50 percent.
D) Both the price of good 1 and Cheri's income increase;there is no change in the price of good 2.

Question 43

The individual who brings together economic resources and assumes the risk in a capitalist economy is called the:

A) manager.
B) entrepreneur.
C) stockbroker.
D) banker.

Question 44

Suppose a consumer has an income of $16,the price of A is $2,and the price of B is $1.Which combination is on the consumer's budget line?

A) 4A and 9B
B) 5A and 6B
C) 6A and 6B
D) 8A and 8B
The consumer can buy 5A for $10 and 6B for $6,which exhausts the budget constraint of $16.

Question 45

Refer to the above graphs.Which pairs of budget constraints represent only an increase in income but no change in the prices of goods A and B?

A) Graph A
B) Graph B
C) Graph C
D) Graph D

Question 46

The macroeconomist would most likely study:

A) the effects of changing beer prices on the market for pretzels.
B) the effects of an increased income tax on a typical household's purchase of goods.
C) the effects of a reduction in income tax rates on the nation's total output.
D) how consumers in Gary,Indiana,respond to lower gasoline prices.

Question 47

Decreases in product prices causes the consumer's:

A) production possibilities curves to shift outward from the origin.
B) production possibilities curves to shift inward to the origin.
C) budget line to shift outward from the origin.
D) budget line to shift inward to the origin.

Question 48

The alternative combinations of two goods that a consumer can purchase with a given money income is:

A) a production possibilities curve.
B) a demand curve.
C) consumer equilibrium.
D) a budget line.

Question 49

If a product's price falls and the consumer buys 4 units,as they did before the price change,then the:

A) budget line will be unaffected.
B) budget line must shift inward to the origin.
C) budget line may shift either outward from or inward to the origin.
D) consumer will no longer be in equilibrium.

Question 50

Macroeconomics is the study of economics from the standpoint of:

A) individual economic units.
B) a typical firm.
C) a typical household.
D) the overall economy.

Question 51

Which question is an illustration of a macroeconomic question?

A) Is a business unresponsive to the demands of consumers?
B) Is a consumer boycott an effective means of reducing product prices?
C) Is the level of employment in the economy sensitive to the level of consumer spending?
D) Are oil companies engaging in a rip-off of consumers by charging exorbitantly high prices for gasoline?

Question 52

Refer to the above graphs.Which pairs of budget constraints represent only a decrease in the price of good A,but no change in income?

A) Graph A
B) Graph B
C) Graph C
D) Graph D

Question 53

Refer to the above graph.The shift of the budget line from CD to AB is consistent with:

A) a decrease in money income.
B) an increase in money income.
C) an increase in the price of Good 1 and no change in the price of Good 2.
D) a decrease in the price of Good 2 and no change in the price of Good 1.

Question 54

Refer to the above graphs.Which pairs of budget constraints represent only a decrease in income,but no change in the price of X and Y?

A) Graph A
B) Graph B
C) Graph C
D) Graph D

Question 55

Refer to the above graph.The shift of the budget line from AB to CD is consistent with:

A) a decrease in money income.
B) an increase in money income.
C) an increase in the price of Good 1 and no change in the price of Good 2.
D) a decrease in the price of Good 2 and no change in the price of Good 1.

Question 56

Refer to the above graphs.Which of the above pairs of budget constraint lines illustrates a decrease in the price of good X and an increase in the price of good Y?

A) Graph A
B) Graph B
C) Graph C
D) Graph D

Question 57

Refer to the above graphs.Which pairs of budget constraints represent only a decrease in the price of X,but no change in income and no change in the price of Y?

A) Graph A
B) Graph B
C) Graph C
D) Graph D

Question 58

If a consumer has an income of $200,the price of X is $5,and the price of Y is $10,the maximum quantity of X the consumer is able to purchase is:

A) 5.
B) 10.
C) 20.
D)

Question 59

In the graph above,A is the initial budget line and B is the new budget line.Which of the following changes might have occurred?

A) P₁ was unchanged,P₂ increased,income decreased.
B) P₁ decreased,P₂ increased,income was unchanged.
C) P₁ increased,P₂ decreased,income was unchanged.
D) P₁ decreased,P₂ was unchanged,income increased.

Question 60

Assume that a consumer purchases two products and the consumer's money income increases.All other things equal,the most likely effect is:

A) an outward shift in the production possibilities curve because the consumer can now satisfy more wants.
B) an inward shift in the budget line because the consumer can now purchase less of both products.
C) an outward shift in the budget line because the consumer can now purchase more of both products.
D) no change in the consumer's buying pattern.

Question 61

Which is a factor of production?

A) Money
B) Interest
C) Rent
D) Capital

Question 62

The following economy produces two products. Given the production possibilities schedule above,a combination of three tanks and 350 autos:

A) illustrates the trade-off between tanks and autos.
B) is attainable but involves the unemployment or inefficient use of some of society's resources.
C) cannot be produced by society,given its current level of resources and production technology.
D) is not attainable because this combination is not listed in the schedule.

Question 63

The production possibilities curve represents which of the following?

A) The amount of goods attainable with variable resources
B) The maximum amount of goods attainable with variable resources
C) The maximum combinations of goods attainable with fixed resources
D) The amount of goods attainable if prices decline

Question 64

The following economy produces two products. Refer to the above table.The total opportunity cost of the three units of tanks is:

A) 200 units of autos.
B) 350 units of autos.
C) 650 units of autos.
D) 1000 units of autos.
To get 3 units of tanks,this economy had to give up 350 (1,000 - 650 = 350)autos.

Question 65

Money is not considered to be an economic resource because:

A) as such it is not productive.
B) money is not a free gift of nature.
C) the terms of trade can be determined in nonmonetary terms.
D) idle money balances do not earn interest income.

Question 66

On a production possibilities curve,the optimal or best combination of output for any society:

A) is at a point near the top of the curve.
B) is at the precise midpoint of the curve.
C) is at a point near the bottom of the curve.
D) depends upon the preferences of society.

Question 67

Refer to the above graph.The total opportunity cost of nine drill presses is:

A) 1 unit of bread.
B) 2 units of bread.
C) 3 units of bread.
D) 4 units of bread.
To get 9 drill presses,this economy must give up 3 (4 - 1 = 3)units of bread.

Question 68

The following economy produces two products. Refer to the above table.The marginal opportunity cost of the third unit of steel is:

A) 10 units of wheat.
B) 15 units of wheat.
C) 20 units of wheat.
D) 30 units of wheat.
If this economy goes from 2 units of steel to 3,then it must give up 20 units of wheat.

Question 69

The following economy produces two products. Refer to the above table.The marginal opportunity cost of the fourth unit of tanks is:

A) 200.
B) 300.
C) 350.
D)

Question 70

Which would not be considered as capital by an economist?

A) A share of corporate stock issued by General Motors
B) An automobile used by a salesperson at General Electric
C) A crane used by a building contractor
D) A razor used by a barber

Question 71

Economic resources in the capitalist system are brought together by:

A) government units.
B) entrepreneurs.
C) labor unions.
D) the managerial elite.

Question 72

The following economy produces two products. Refer to the above table.According to the production possibilities schedule,a combination of four tanks and 650 autos is:

A) attainable and involves an efficient use of society's resources.
B) attainable,but would not be in the best interests of a strong national defense.
C) not attainable because it is not listed in the schedule.
D) not attainable because society does not have sufficient resources to produce this combination.

Question 73

The following economy produces two products. Refer to the above table.The opportunity cost of each additional tank in terms of autos:

A) remains constant.
B) falls as more tanks are produced.
C) increases as more tanks are produced.
D) cannot be measured because there is no currency.

Question 74

The following economy produces two products. Refer to the above table.The total opportunity cost of the three units of steel is:

A) 15 units of wheat.
B) 20 units of wheat.
C) 45 units of wheat.
D) 55 units of wheat.
If this economy decides to produce three units of steel,it must give up 45 units of wheat (100 - 55 = 45).

Question 75

The following economy produces two products. Refer to the above table.A change from possibility C to B means that:

A) 1 unit of steel is given up to get 75 units of wheat.
B) 2 units of steel are given up to get 75 units of wheat.
C) 1 unit of steel is given up to get 15 more units of wheat.
D) 2 units of steel are given up to get 15 more units of wheat.

Question 76

The following economy produces two products. Refer to the above table.In moving from possibility A to F,the cost of a unit of steel in terms of a unit of wheat:

A) increases.
B) decreases.
C) remains constant.
D) increases from A to B,and decreases from B to f.

Question 77

Which is considered to be an economic resource by economists?

A) Rent
B) Money
C) Labor
D) Wages

Question 78

Which is not considered to be an economic resource?

A) Land (or other natural resources)
B) Money
C) Labor
D) Tools and machinery

Question 79

Society wants to use its scarce resources efficiently.To achieve this economic goal it must:

A) have full employment and full production.
B) have a fixed resource base and fixed technology.
C) expand the use of capital goods and reduce the use of labor.
D) increase the rental,interest,wage,and profit payments to the factors of production.

Question 80

When an economy is at full employment and full production,more of any one product:

A) cannot be produced because there is full production.
B) can be produced only if there is a general decrease in prices.
C) can be produced only if there is less production of some other products.
D) cannot be produced unless private enterprise does so rather than government.