Deck 1: Limits, Alternatives, and Choices

Question 1

The notion of "purposeful behavior" in the economic perspective suggests that:

A) People will tend to stick with a particular choice for a long period of time
B) Economic analysis will provide people with a single "right" way to behave
C) Economists do not believe that people can sometimes behave impulsively
D) One person's choice may differ from another's if their circumstances and information differ

Answer 1

One person's choice may differ from another's if their circumstances and information differ

Question 2

When a state government chooses to build more roads, the resources used are no longer available for public education programs. This dilemma illustrates the concept of:

A) Production expenses
B) Unemployment issues
C) Unintended consequences
D) Opportunity cost

Answer 2

Opportunity cost

Question 3

The economic perspective focuses largely on marginal analysis, which means analyzing:

A) Peripheral elements of a given issue or action
B) The minor aspects of a given issue or decision
C) The changes in the situation that would result from a given action
D) Emotional and psychological facets of a given action

Answer 3

The changes in the situation that would result from a given action

Question 4

What does "there is no such thing as a free lunch" mean in economics?

A) That scarce resources are used up to provide "freebies" and giveaways
B) That sometimes people may take friends out to lunch and pay for them
C) That all items in the lunch menu have specific prices
D) That products only have value because people are willing to pay for them

Question 5

Economic analysis assumes "purposeful behavior", which means that people will pursue decisions or actions:

A) That will increase their well-being
B) Always based on full or complete information
C) With minimal consideration for their emotions
D) Without any logical faults

Question 6

Which of the following is the best synonym for "marginal" in economics?

A) Scarce
B) Additional
C) Basic
D) Minor

Question 7

When studying human behavior, economists assume rational self-interest. This means that:

A) People make decisions based on some desired outcome
B) People are quite selfish, and are not concerned about others
C) People always make the right decisions
D) People have all the information they need to make a decision

Question 8

The opportunity cost of doing or getting something is best and fully defined as:

A) The difference between the marginal cost and benefit of doing something
B) The materials used in doing or getting something
C) The value of the best alternative that is given up in order to do or get something
D) The money spent in doing or getting something

Question 9

The idea in economics that "there is no free lunch" means that:

A) Businesses would go bankrupt if they offered free lunches
B) The thought of a free lunch is often better than the reality of consuming it
C) There are opportunity costs involved even in free lunches
D) Free lunches used by businesses to attract customers is an inefficient marketing ploy

Question 10

The basic truth that underlies the study of economics is the fact that we all face:

A) Death
B) Taxes
C) Risk
D) Scarcity

Question 11

The opportunity cost of constructing a new public highway is the:

A) Money cost of hiring contractors and construction workers for the new highway
B) Value of other goods and services that are sacrificed in order to construct the new highway
C) Expected cost of constructing the new highway in a future year
D) Value of shorter driving times and distances when the new highway is completed

Question 12

The opportunity cost to a consumer who smokes cigarettes consists of the:

A) Costs imposed on others who inhale second-hand smoke
B) Products that the consumer could have bought instead of cigarettes
C) Amount of cigarette-taxes paid by this consumer
D) Cost of complementary products such as lighters, ashtrays, and cigarette holders

Question 13

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

A) She has enough money to pay for the marginal cost of the book
B) The marginal benefit of the book is a positive value
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 14

Which of the following is another way of saying "marginal benefits of an action"?

A) Benefits given up, once the action is taken
B) Unintended gains from taking the action
C) Benefits accruing to others, as a result of one's action
D) Extra benefits resulting from the action

Question 15

Lauren makes $150 a day as a bank clerk. She takes two days off work without pay, to fly to another city to attend the concert of her favorite band. The cost of transportation and lodging for the trip is $250. The cost of the concert ticket is $50. The opportunity cost of Lauren's decision to attend the concert is:

A) $600
B) $450
C) $300
D) $250

Question 16

After graduating from high school, Adam is thinking about going to college. The college tuition is $15,000 a year. Instead of going to college, Adam could take a full-time job that pays $25,000. What is Adam's opportunity cost of attending college for one year?

A) $10,000
B) $15,000
C) $25,000
D) $40,000

Question 17

Economics is a social science that studies how individuals, institutions, and society may:

A) Expand the amount of resources available to them
B) Attain a minimum level of production
C) Best use resources to maximize satisfaction of economic wants
D) Reduce the amount of goods and services they need

Question 18

A recurring theme in economics is that people:

A) Have unlimited resources, but limited economic wants
B) Can increase resources by limiting their economic wants
C) Have limited economic wants and limited resources
D) Have unlimited economic wants, but limited resources

Question 19

In analyzing human decision and action, economists assume that:

A) Scarcity is more important than choice
B) Costs are more important than benefits
C) People's behavior reflects rational self-interest
D) There are scarce resources in the economy

Question 20

As a consequence of the problem of scarcity:

A) There is never enough of anything
B) Individuals have to make choices from among alternatives
C) Only some people can "have it all"
D) Things which are plentiful have relatively high prices

Question 21

Which question is an example of a macroeconomic question?

A) What is the level of industrial concentration in the U.S. automobile industry?
B) What economic incentives can be used to reduce the cost of health care in the nation?
C) What policies would be recommended for stimulating national economic growth?
D) What market conditions are expected for milk in the nation this year?

Question 22

Another way of saying "ceteris paribus" is:

A) Other things equal
B) In general
C) In reality
D) Because of this

Question 23

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

A) Simplifications
B) Tradeoffs
C) Value judgments
D) Predictions

Question 24

The ceteris paribus assumption is employed in economic analysis, in order to:

A) State economic goals
B) Simplify the complex world
C) Evaluate an economic system
D) Approximate real-world conditions

Question 25

Which of the following exemplifies a microeconomic question?

A) What is the current national rate of unemployment?
B) Is the economy experiencing a decline in the rate of inflation?
C) Will a new type of electronic reader or tablet increase the number of buyers?
D) Is the aggregate output in the economy greater this year than last year?

Question 26

The economic principle that "unemployment rate will tend to increase as the economy moves into a recession" is an example of:

A) A normative statement
B) An assumption
C) A loaded terminology
D) A generalization

Question 27

From an economic perspective, when consumers leave a fast-food restaurant because the lines to be served are too long, they have concluded that 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 28

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 lead to higher cost of air travel in the economy?
C) What factors are contributing to the steep rise in the federal government's total debt?
D) Will the inflation rate remain relatively stable this year?

Question 29

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

A) Avoid making normative statements
B) Distinguish macroeconomics from microeconomics
C) Make sure that all relevant factors are considered
D) Focus on the effect of a single factor on a certain variable

Question 30

What is a major opportunity cost of going to college on a full-time basis?

A) The cost of transportation to college instead of to a job
B) The cost of living expenses (room and board) to attend college
C) The foregone income that could be earned working full-time job
D) The greater income that will be earned from having a college degree

Question 31

An economic model is a purposeful simplification of reality, whose function includes:

A) Understanding the full complexity of the real world
B) Predicting the behavior of each and every individual or organization
C) Analyzing the behavior of a typical or average consumer or firm
D) Forecasting economic random events with a high level of accuracy

Question 32

Which question is an illustration of a macroeconomic question?

A) Is a corporation unresponsive to the demands of its customers?
B) Is a consumer boycott an effective means of reducing a product's price?
C) How will the government's budget deficit be affected by public infrastructure projects?
D) Are oil companies ripping off consumers by charging exorbitantly high prices for gasoline?

Question 33

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

A) Marginal cost of more insurance coverage is negative
B) Marginal benefit of more insurance coverage is greater than zero
C) Marginal benefit of more insurance coverage is greater than the marginal cost
D) Marginal cost of more insurance coverage is equal to the payment for the extra coverage

Question 34

Which of the following illustrates a macroeconomic question?

A) Should the salaries of financial executives be regulated by the government?
B) Are increasing wage demands by workers contributing to price inflation?
C) What is the least costly way to produce automobiles and trucks in the United States?
D) Will the introduction of a new computer chip change the demand for computers?

Question 35

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

A) Add realism
B) Prove the theory
C) Cover special cases
D) Simplify the complex reality

Question 36

Economists have difficulty applying the scientific method because:

A) Economics has a short history
B) The scientific method does not really apply to economics
C) People are the focus of economics, and their behavior is highly predictable
D) Controlled laboratory experiments in economics are often not feasible

Question 37

What is the best economic explanation for why a person would drop out of college to take a job or start a business?

A) he has a good idea for starting a business
B) he has to pay a higher tuition to attend college
C) the expected future benefits from starting a business now are greater than the costs
D) the opportunity cost of starting a business is high now, but will be low later in life

Question 38

The process of observing real-world behavior, developing hypotheses, testing them against facts, then using the results to construct theories is called:

A) Opportunity cost estimation
B) The scientific method
C) Marginal analysis
D) Normative analysis

Question 39

From an economic perspective, when a student decides to go to the movies instead of studying for a test, it indicates that in the student's thinking the marginal:

A) Benefit of studying is greater than the marginal cost of studying
B) Cost of going to the movies is less than the marginal benefit of going to the movies
C) Benefit of studying are greater than the marginal benefit of going to the movies
D) Cost of going to the movies is greater than the marginal cost of studying

Question 40

Which question is an illustration of a microeconomic question?

A) Is the volume of wine produced in one year dependent upon the price of wine?
B) Does government spending influence interest rates in the economy?
C) Is the purchasing power of the dollar higher or lower today than it was in 2008?
D) Which economic system is better for consumers and firms?

Question 41

Assume that a consumer has a given budget or income of $12, and that she can buy only two goods, apples or bananas. The price of an apple is $1.50 and the price of a banana is $0.75. Refer to the information given above. If the consumer decides to buy 4 apples, how many bananas can she also buy with the remainder of her budget?

A) 8 bananas
B) 4 bananas
C) 6 bananas
D) 10 bananas

Question 42

One major part of the opportunity costs of one's decision to go to college after high-school graduation is the:

A) Additional income that one can get if one had a college degree
B) Education that one gets while in college
C) High-school diploma needed in order to apply for college
D) Full-time job that one could have gotten instead of going to college

Question 43

Assume that a consumer purchases only two products and there is a decrease in the consumer's income. The prices of the two products stay constant. The decrease in income will result in a:

A) Shift of the budget line inward to the left
B) Shift of the budget line outward to the right
C) A decrease in the slope of the budget line
D) An increase in the slope of the budget line

Question 44

Suppose that a consumer purchases just two goods, X and Y. The ratio of the price of good X to the price of good Y is the:

A) Intercept on the Y axis of the budget line
B) Intercept on the X axis of the budget line
C) Size of the shift in the budget line
D) Slope of the budget line

Question 45

Suppose that a consumer purchases just two goods, X and Y. The slope of the budget line would indicate the:

A) Opportunity cost of good Y in terms of good X given up for each unit of Y
B) Opportunity cost of good X in terms of good Y given up for each unit of Y
C) Maximum quantity of good Y that the consumer could buy with a given budget
D) Maximum quantity of good X that the consumer could buy with a given budget

Question 46

Which one of the following is a normative economic statement?

A) The unemployment rate fell for the fourth straight month, reflecting the effects from stronger economic growth in the second quarter
B) The worsening balance of trade must be corrected if this nation is to remain competitive in the world economy
C) Consumer prices are rising at a faster rate than in past months, indicating a renewal of inflationary pressures on the economy
D) To help balance the Federal budget, Congress increased the tax on gasoline to its highest level in the past ten years

Question 47

The statement in a newspaper that "consumer prices rose last month by 1 percent, and if this trend continues, the annual rate of inflation will be 12 percent for the year" is an example of:

A) A normative economic statement
B) A positive economic statement
C) Microeconomic analysis
D) Rational self-interest

Question 48

Which of the following is a normative economic statement?

A) The Federal budget deficit rose by 120 billion dollars
B) The unemployment rate is expected to fall next month
C) A trade surplus of 200 billion dollars should be our policy goal
D) The federal funds rate was reduced by half a percentage point

Question 49

Assume that a consumer has a given budget or income of $12, and that she can buy only two goods, apples or bananas. The price of an apple is $1.50 and the price of a banana is $0.75. Refer to the information given above. What is the slope of the budget line, if the quantity of apples were measured on the horizontal axis and bananas on the vertical axis?

A) -0.5
B) -0.8
C) -1.6
D) -2.0

Question 50

Matt observes that "there is a high correlation between educational attainment and the level of income." Jean concurs and adds that "high school graduates should all proceed to college."

A) Both Matt's and Jean's statements are positive
B) Both Matt's and Jean's statements are normative
C) Matt's statement is normative while Jean's statement is positive
D) Matt's statement is positive while Jean's statement is normative

Question 51

Which of the following statements regarding people's wants is true?

A) Over time, people's wants tend to be stable and constant
B) As people consume more products, their wants will be reduced
C) Intangible serves, like tangible goods, may satisfy people's wants
D) People's wants do not include their basic needs

Question 52

Which of the following is a positive economic statement?

A) Government must maintain the current level of defense spending to keep the nation safe
B) The minimum wage should be increased to give people a decent wage
C) Americans should buy American products in order to boost the national economy
D) Stock prices rose to a new record last month for the fourth month in a row

Question 53

Assume that a consumer spends a given budget on only two goods, and that the prices of the two goods are constant. The budget line in this case would:

A) Definitely be a straight downward-sloping line
B) Possibly be a straight upward-sloping line
C) Be a curved graph bowed outwards
D) Be a curved bell-shaped graph

Question 54

Assume that a consumer purchases only two products. Suppose that the consumer's money income doubles, and the prices of the two products also double. These changes in income and prices will result in:

A) A shift of the budget line inward to the left
B) A shift of the budget line outward to the right
C) No change in the budget line
D) An increase in the slope of the budget line

Question 55

Which of the following is a normative economic statement?

A) The poverty rate hit a new high last year and income distribution also worsened
B) Health care accounts for roughly a third of total spending in the economy
C) The government needs to revamp the Social Security program to make it sustainable
D) Retail sales are expected to continue on their downward trend in the next three quarters

Question 56

A budget line is a graph that shows the various combinations of two products that a:

A) Consumer can buy with a given amount of money income
B) Business firm can produce with a given budget
C) Household can produce with a given amount of resources
D) Nation can trade with another nation

Question 57

A point or product-combination to the left of and inside a budget line:

A) Is attainable, but a combination or point to the right of the line is unattainable
B) Is unattainable, but a combination or point to the right of the line is attainable
C) Costs more than a combination or point on the budget line
D) Costs more than a combination or point outside the budget line

Question 58

Assume that a consumer has a given budget or income of $12, and that she can buy only two goods, apples or bananas. The price of an apple is $1.50 and the price of a banana is $0.75. Refer to the information given above. If the consumer spent all of her budget on just apples or just bananas, how many apples or bananas maximum would she be able to buy?

A) 12 apples or 8 bananas
B) 8 apples or 12 bananas
C) 16 apples or 12 bananas
D) 8 apples or 16 bananas

Question 59

The economizing problem for individuals is a consequence of the fact that:

A) Economic means or incomes are greater than economic wants
B) Economic wants are greater than economic means or incomes
C) Positive economics is more important than normative economics
D) Normative economics is more important than positive economics

Question 60

Suppose that a consumer purchases just two goods, X and Y. The Y-intercept of the budget line in this case would indicate the:

A) Maximum dollar amount of budget that the consumers has for good Y
B) Price that the consumer has to pay for each unit of good Y
C) Maximum quantity of good Y that the consumer could buy with a given budget
D) Quantity of good Y that the consumer would want to buy

Question 61

One basic difference between "land" and "capital" resources is that land is:

A) Manufactured while capital is man-made
B) Unlimited while capital is limited
C) Natural while capital is man-made
D) Limited while capital is unlimited

Question 62

Which of the following is considered an economic resource?

A) The ice cream that kids buy at the ice cream parlor
B) The HD-TV sets in people's homes
C) The land that is designated as national parks by the government
D) shoppers buying stuff at the mall

Question 63

The economizing problem faced by a society is:

A) To achieve a more equitable distribution of income in the society
B) A consequence of the fact that productive resources are scarce relative to economic wants
C) To establish prices which are fair for both producers and consumers
D) That product prices often rise more rapidly than incomes of consumers

Question 64

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

A) Manager
B) Entrepreneur
C) Stockbroker
D) Banker

Question 65

Economists would classify all of the following as "land," except:

A) Two thousand acres of virgin forest
B) A hydroelectric dam
C) Crude oil reserves
D) Iron ore deposits

Question 66

The production possibilities curve is a graph of:

A) The maximum amounts of labor and capital resources available for production
B) Various combinations of goods and services among which consumers are indifferent
C) The maximum combinations of products that can be produced
D) The maximum amount of capital and labor that the economy can employ

Question 67

A nation can produce two products: steel and wheat. The table below is the nation's production possibilities schedule: Refer to the above table. If the nation uses all of its resources to produce only wheat, then its production combination will be:

A) A
B) B
C) E
D) F

Question 68

Which of the following is one of the simplifying assumptions made in constructing a production possibilities curve?

A) The state of technology is constantly changing
B) A wide variety of products are produced
C) Resources are fully employed and are used in least-cost methods of production
D) Quantities of available resources in the economy vary from one point to another

Question 69

All of the following would affect the position and shape of a nation's production possibilities curve, except:

A) The amount of labor available
B) The level of unemployment
C) The amount of the capital resources
D) The rate of technological progress

Question 70

Which of the following would not be considered a capital resource by economists?

A) A van used by a mother to transport the family around
B) An office computer used by an accountant
C) A crane used by a building contractor
D) A camera used by a professional photographer

Question 71

If a nation produces more consumer goods and less capital goods, then the nation will have:

A) More consumption now, but less consumption later
B) Less consumption now, but more consumption later
C) More consumption now, with no effect on consumption later
D) Less consumption later, with no effect on consumption now

Question 72

On a production possibilities curve, the single 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 73

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

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

Question 74

Which of the following is not a factor of production?

A) Money
B) Labor
C) Capital
D) Entrepreneur

Question 75

Which of the following is considered to be an entrepreneur?

A) A self-employed person
B) An MBA graduate hired by a firm to be its CEO
C) A production-line worker
D) A customer of a firm

Question 76

The role of the entrepreneur in society is to:

A) Provide capital to the firm which the management combines with labor
B) Bring the factors of production together and take the risks of producing
C) Control the land upon which all production takes place to get the most rent
D) Regulate what products are considered safe to market

Question 77

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) Money is made by man
D) Idle money balances do not earn interest income

Question 78

Which of the following is considered a firm's "factor of production"?

A) Money or cash balances of the firm
B) The firm's shares of common stock
C) U.S. Treasury bonds owned by the firm
D) The office building occupied by the firm

Question 79

A nation can produce two products: steel and wheat. The table below is the nation's production possibilities schedule: Refer to the above table. Which of the following output-combinations is unattainable:

A) 1 steel and 80 wheat
B) 4 steel and 55 wheat
C) 30 wheat and 3 steel
D) 95 wheat and 0 steel

Question 80

One basic difference between "labor" and "entrepreneur" is that:

A) Labor is hired by a firm whereas the entrepreneur owns the firm
B) An entrepreneurs has high-level skills whereas labor does not
C) Labor performs manual work whereas an entrepreneur performs mental work
D) Education is important for an entrepreneur but not for labor