Question 1

When firms give away "freebies" like free apps, free checking accounts, free maps, or free toothbrushes, they are contradicting economists' contention that "there is no free lunch."

Accepted Answer

Economists' contention that "there is no free lunch" means that there is always a cost involved, even if it's not immediately apparent. Firms giving away freebies often have underlying motives, such as attracting customers or promoting brand loyalty, which can lead to future profits.

Question 2

Economic growth is a result of
A) a reduction in the unemployment rate.
B) an increase in the opportunity costs of production.
C) a decrease in the demand for resources.
D) an increase in the supply of resources.

Accepted Answer

Economic growth is typically the result of an increase in the supply of resources, whether that be through technological advancements or an increase in physical capital or labor. Option A is incorrect as low unemployment is a potential result of economic growth, but not the cause. Option B is incorrect as an increase in opportunity cost may lead to a decrease in production, not growth. Option C is also incorrect, as a decrease in resource demand may indicate a decrease in economic activity, rather than growth.

Question 3

A reduction in the level of unemployment would have which effect with respect to the nation's production possibilities curve?
A) It would shift the curve to the right.
B) It would shift the curve to the left.
C) It would not shift the curve; it would be represented by a movement from a point inside the curve toward a point on the curve.
D) It would not shift the curve; it would be represented by a movement from a point on the curve to a point outside the curve.

Accepted Answer

A reduction in unemployment means that more resources are being utilized, moving the economy from a point inside the production possibilities curve to a point on the curve, indicating more efficient use of resources without shifting the curve itself.

Question 4

A nation that devotes more of its resources to the production of capital goods rather than consumer goods is likely to
A) cause its production possibilities curve to shift outward.
B) cause its production possibilities curve to shift inward.
C) increase the slope of its production possibilities curve.
D) decrease the slope of its production possibilities curve.

Accepted Answer

Devoting more resources to the production of capital goods, such as factories and equipment, will lead to an increase in the production capacity of the economy over time. This is because capital goods are used to produce other goods and services, which can lead to greater output in the long run. As a result, the production possibilities curve of the economy is likely to shift outwards.

Question 5

Economic growth may be represented by
A) a movement from one end of the production possibilities curve to the other.
B) an upward-sloping production possibilities curve.
C) a movement from a point inside to a point on the production possibilities curve.
D) a rightward shift of the production possibilities curve.

Accepted Answer

Economic growth is represented by a rightward shift of the production possibilities curve, indicating an increase in the economy's ability to produce goods and services. This could be due to factors such as an increase in resources, technology or productivity. Movement along the curve or a change in slope does not necessarily represent economic growth, as it may only indicate a change in the allocation of resources towards different goods and services.

Question 6

Increasing the share of your income that you save is good for you. Therefore, it would be good for the whole economy if everyone saved more. This exemplifies the
A) post hoc fallacy.
B) fallacy of composition.
C) use of loaded terminology.
D) confusion between correlation and causation.

Accepted Answer

The statement commits the fallacy of composition by assuming that what is good for an individual is also good for the entire economy. While saving more may benefit individuals by increasing their financial security, it may also harm the economy as a whole by reducing consumer spending and potentially causing a recession. Thus, it cannot be assumed that what is good for individuals is always good for the economy as a whole.

Question 7

A society can consume a combination of goods outside its production possibilities if there is
A) lower unemployment and increased capacity utilization.
B) specialization in production and International trade.
C) a change in consumers' tastes or preference for one good over another.
D) a change in prices of the two products.

Accepted Answer

Specialization in production allows a society to produce more efficiently, which can increase its production possibilities. International trade allows a society to consume goods that it cannot produce by trading with other countries that specialize in producing those goods. Therefore, a combination of goods can be consumed outside of a society's production possibilities if it engages in specialization and trade.

Question 8

You observe that when stock prices rise, interest rates soon fall, and therefore conclude that higher stock prices lead to lower interest rates. This would be an example of
A) the fallacy of composition.
B) trade-off among economic goals.
C) the post hoc fallacy.
D) the use of loaded terminology.

Accepted Answer

This is an example of the post hoc fallacy, which assumes that just because two events occur in sequence, one must have caused the other without taking into account other possible causes or factors. In reality, changes in stock prices and interest rates may be influenced by a variety of economic and market factors, and may not have a direct causal relationship between them.

Question 9

Specialization and international trade allow a nation to
A) produce a combination of goods that is beyond (or outside) its production possibilities.
B) consume a combination of goods that is beyond (or outside) its production possibilities.
C) have an upward-sloping production possibilities curve.
D) consume a lot of goods without having to produce any output.

Accepted Answer

Specialization and international trade enable a nation to consume beyond its production possibilities by trading for goods it does not produce efficiently.

Question 10

Which pitfall to sound economic reasoning is reflected in a person's view that "pharmaceutical and oil companies are price-gouging the consumers"?
A) faulty definition
B) post hoc fallacy
C) loaded terminology
D) confusing correlation and causation

Accepted Answer

The statement "pharmaceutical and oil companies are price-gouging the consumers" uses loaded terminology, which refers to words or phrases that are emotionally charged and can influence the listener's judgment. The use of the term "price-gouging" assumes that the companies are exploiting customers, without providing evidence or considering other factors that may affect prices. It is also important to note that prices are not solely determined by the seller but also by market forces such as supply and demand, production costs, and competition.

Question 11

Which situation would most likely cause a nation's production possibilities curve to shift inward?
A) an increase in unemployment
B) an increase in the amount of imports
C) an increase in the number of skilled immigrant workers
D) the destruction caused by bombing and warfare in a losing military conflict

Accepted Answer

The destruction caused by bombing and warfare in a losing military conflict would most likely cause a nation's production possibilities curve to shift inward as it would reduce the country's available resources and infrastructure, leading to a decrease in the potential output.

Question 12

A nation can increase its production possibilities by
A) shifting resources to produce more consumer goods and less investment goods.
B) shifting resources from private goods to public goods.
C) improving labor productivity.
D) eliminating unemployment.

Accepted Answer

Improving labor productivity means that workers can produce more output with the same amount of resources, which increases the nation's overall production possibilities. Shifting resources to produce more consumer goods may lead to short-term increases in output, but in the long-term, investment in capital goods may be necessary to sustain economic growth. Shifting resources from private goods to public goods may have social benefits but may not necessarily increase overall production possibilities. Eliminating unemployment may lead to more efficient use of resources, but it depends on the type of unemployment (cyclical or structural) and may not directly increase production possibilities.

Question 13

Economics is the social science concerned with the best use of scarce resources to achieve maximum satisfaction of economic wants.

Accepted Answer

This statement accurately describes the definition of economics. It emphasizes the concept of scarcity and the need to make choices about how to allocate resources to meet our unlimited wants and needs.

Question 14

A person observes that consumer prices often fall when a nation experiences economic growth. The person then concludes that falling consumer prices lead to economic growth. This would be an example of
A) the fallacy of composition.
B) biases.
C) confusing correlation and causation.
D) the use of loaded terminology.

Accepted Answer

The person is confusing correlation (the relationship between falling consumer prices and economic growth) with causation (the idea that falling consumer prices cause economic growth). Just because two things happen at the same time does not mean that one caused the other.

Question 15

Suppose there are two economies, Alpha and Beta, which have the same production possibilities curves. If Beta devotes more resources to produce capital goods than consumer goods as compared to Alpha, then in the future
A) Alpha will experience greater economic growth than Beta.
B) Beta will experience greater economic growth than Alpha.
C) Alpha will not be able to achieve full employment or productive efficiency.
D) Beta will not be able to achieve full employment or productive efficiency.

Accepted Answer

By devoting more resources to capital goods, Beta will be able to increase its future production possibilities and therefore experience greater economic growth than Alpha. This is because capital goods are used to produce consumer goods in the future, leading to a higher level of economic growth. As long as Beta is able to use its additional capital goods efficiently, it will be able to achieve full employment and productive efficiency. Alpha may also experience economic growth, but not to the same extent as Beta due to its lower investment in capital goods.

Question 16

Which of the following statements is not correct?
A) An increase in a nation's labor supply will cause its potential output to increase.
B) Economic growth can be illustrated by an expansion of a nation's production possibilities curve.
C) An increase in the quantity of a nation's resources will cause economic growth, but an increase in the quality of resources will not.
D) New technologies or new ways of producing output can cause a nation's production possibilities curve to shift outward.

Accepted Answer

An increase in the quality of resources, such as improved education or training of workers, can lead to an increase in productivity and economic growth. Therefore, statement C is not correct.

Question 17

The post hoc, ergo propter hoc fallacy consists of
A) using an example to "prove" a different point.
B) inferring causality from chronological sequence.
C) jumping to conclusions from an inadequate number of cases.
D) arguing for or against a person's character rather than his view or opinion.

Accepted Answer

The post hoc, ergo propter hoc fallacy, also known as the "after this, therefore because of this" fallacy, occurs when someone assumes that because one event happened after another, the first event caused the second. In other words, the fallacy is based on inferring causality from chronological sequence.

Question 18

Cuba is a command economy that suffered a decline in economic growth because of a cut in the aid provided by the former Soviet Union when the latter collapsed. As a consequence, Cuba
A) experienced an outward shift of its production possibilities curve.
B) experienced an inward shift of its production possibilities curve.
C) moved from one point to another along its existing production possibilities curve.
D) went to a point inside its production possibilities curve.

Accepted Answer

The loss of aid from the former Soviet Union caused a decrease in resources available for production, leading to a decrease in potential output. This is reflected by an inward shift of the production possibilities curve.

Question 19

Which of the following illustrates the fallacy of composition?
A) Whatever goes up must come down.
B) Facts are more important than theories.
C) What is true for the part is necessarily also true for the whole.
D) If event B occurs after event A, event A must have caused event B.

Accepted Answer

The fallacy of composition occurs when one assumes that what is true for the parts is necessarily true for the whole. In this case, choice C is an example of such a fallacy. Just because something is true for a part of a system does not mean it is true for the entire system.

Question 20

Which pitfall to sound economic reasoning is illustrated when a person comments that "capitalists focus only on profits and don't care about their workers"?
A) abstraction
B) biases
C) the fallacy of composition
D) confusing correlation and causation

Accepted Answer

The comment shows a bias against capitalists, assuming that they prioritize profits over the well-being of their employees. This is a common bias that ignores the fact that a successful business depends on satisfied and motivated workers.

Quiz 1: Limits, Alternatives, and Choices

When firms give away "freebies" like free apps, free checking accounts, free maps, or free toothbrushes, they are contradicting economists' contention that "there is no free lunch."

Economic growth is a result of

A reduction in the level of unemployment would have which effect with respect to the nation's production possibilities curve?

A nation that devotes more of its resources to the production of capital goods rather than consumer goods is likely to

Economic growth may be represented by

Increasing the share of your income that you save is good for you. Therefore, it would be good for the whole economy if everyone saved more. This exemplifies the

A society can consume a combination of goods outside its production possibilities if there is

You observe that when stock prices rise, interest rates soon fall, and therefore conclude that higher stock prices lead to lower interest rates. This would be an example of

Specialization and international trade allow a nation to

Which pitfall to sound economic reasoning is reflected in a person's view that "pharmaceutical and oil companies are price-gouging the consumers"?

Which situation would most likely cause a nation's production possibilities curve to shift inward?

A nation can increase its production possibilities by

Economics is the social science concerned with the best use of scarce resources to achieve maximum satisfaction of economic wants.

A person observes that consumer prices often fall when a nation experiences economic growth. The person then concludes that falling consumer prices lead to economic growth. This would be an example of

Suppose there are two economies, Alpha and Beta, which have the same production possibilities curves. If Beta devotes more resources to produce capital goods than consumer goods as compared to Alpha, then in the future

Which of the following statements is not correct?

The post hoc, ergo propter hoc fallacy consists of

Cuba is a command economy that suffered a decline in economic growth because of a cut in the aid provided by the former Soviet Union when the latter collapsed. As a consequence, Cuba

Which of the following illustrates the fallacy of composition?

Which pitfall to sound economic reasoning is illustrated when a person comments that "capitalists focus only on profits and don't care about their workers"?