Chapter 1

Question 1

Define Economics:

A. The study of how individuals spend money on goods and services.

B. The science of scarcity and choice, examining how individuals, businesses, and governments allocate resources to satisfy unlimited wants.

C. The analysis of financial markets and stock exchanges.

D. The study of historical economic events and their impact on societies.

Answer 1

B. The science of scarcity and choice, examining how individuals, businesses, and governments allocate resources to satisfy unlimited wants.

Question 2

What is the Fundamental problem in economics?

A. Excessive government intervention.

B. Lack of economic growth.

C. The challenge of addressing unlimited wants with limited resources.

D. Unequal distribution of wealth.

Answer 2

C. The challenge of addressing unlimited wants with limited resources.

Question 3

The three general categories of any economy’s resources are ______, ______, and ______. Economists refer to these resources as the ______ of production.

A. Land, Labor, Capital; Factors of Production

B. Money, Goods, Services; Inputs

C. Technology, Innovation, Education; Pillars

D. Demand, Supply, Price; Dynamics

Answer 3

A. Land, Labor, Capital; Factors of Production

Question 4

When we use any resource, the benefit given up by not using it in its best alternative way is known as the ______ of that resource.

A. Opportunity cost

B. Marginal cost

C. Sunk cost

D. Variable cost

Answer 4

A. Opportunity cost

Question 5

“Factors of production” is an economic term that describes

A. The inputs that are used in the production of goods or services in order to make an economic profit.

B. The factors that determine the market demand for a product.

C. The costs associated with manufacturing a product.

D. The financial resources available for investment in production.

Answer 5

A. The inputs that are used in the production of goods or services in order to make an economic profit.

Question 6

The concepts of scarcity, choice, and opportunity cost can be illustrated by a curve known as the ______

A. Demand curve

B. Marginal cost curve

C. Production possibilities frontier (PPF) curve

D. Supply curve

Answer 6

C. Production possibilities frontier (PPF) curve

Question 7

When looking at a production possibilities boundary, any point that is outside the boundary demonstrates ______. The ______ slope of the production possibilities boundary demonstrates ______.

A. Scarcity; steeper; economic growth

B. Scarcity; steeper; opportunity cost

C. Scarcity; negative; opportunity cost

D. Scarcity; negative; economic growth

Answer 7

C. Scarcity; negative; opportunity cost

Question 8

A straight line PPB indicates that the opportunity cost of each good is __________ no matter how much of that good is produced. A PPB that is concave to the origin indicates that a(n) ____________ amount of good must be given up to produce more of the other good.

A. Constant; increasing

B. Variable; decreasing

C. Decreasing; constant

D. Increasing; variable

Answer 8

A. Constant; increasing

Question 9

Consider the economy producing two goods A & B, with a PPB that is concave to the origin. As the economy produces more of a good A & less of good B, its opportunity cost of producing A ______________.

A. Increases

B. Decreases

C. Remains constant

D. Becomes negative

Answer 9

A. Increases

Question 10

What is the difference between microeconomics and​ macroeconomics?

A. Microeconomics studies the allocation of resources as it is affected by the workings of the price​ system, while macroeconomics studies the determination of economic aggregates.
B. Microeconomics deals with positive analysis of big corporations and its effect on​ long-term growth, while macroeconomics deals with normative analysis of small corporations and its effect on short term growth.
C. Microeconomics lends itself to empirical​ analysis, while macroeconomics uses the concept of incentives.
D. Microeconomics examines the big picture of the national​ economy, while macroeconomic examines individual units and how they affect one another.

Answer 10

A. Microeconomics studies the allocation of resources as it is affected by the workings of the price​ system, while macroeconomics studies the determination of economic aggregates.

Question 11

Production possibilities boundaries are typically drawn as being​ non-linear and
A. convex to the​ origin, since they reflect the increasing productivity of inputs.
B. concave to the​ origin, since they reflect the increasing opportunity cost of producing goods.
C. concave to the​ origin, since they reflect the constant opportunity cost of producing goods.
D. convex to the​ origin, since they reflect the decreasing opportunity cost of producing goods.
E. concave to the​ origin, since they reflect the constant productivity of inputs.

Answer 11

B. concave to the​ origin, since they reflect the increasing opportunity cost of producing goods.

Question 12

Which of the following is one of the four basic questions that must be answered in all​ economies?
A. Why are products sometimes prices too high?
B. Why are products sometimes priced too low?
C. What is consumed and by whom?
D. What is produced and where is it produced?

Answer 12

C. What is consumed and by whom?

Question 13

A point on a production possibilities boundary shows an
A. inefficient combination of goods.
B. efficient combination of goods.
C. unattainable combination of goods.
D. inefficient combination of inputs.

Answer 13

B. efficient combination of goods.

Question 14

Consider an economy that can produce video games and houses.
If worker productivity improves for the production of video games and remains unchanged for the production of​ houses, then the opportunity cost:
A. falls for houses and rises for video games.
B. falls for both goods.
C. stays the same for houses and falls for video games.
D. rises for houses and stays the same for video games.
E. rises for houses and falls for video games.

Answer 14

E. rises for houses and falls for video games.

Question 15

The concept of scarcity in economics usually refers to a condition:
A. Where more than three categories of resources are used in production.
B. Where the choices among competing alternatives must be made, implying the existence of costs.
C. Where too many frivolous goods and services are produces at the expense of socially desirable goods and services.
D. that afflict only the countries with limited subsoil resources
E. that is common only to developed countries due to high level of consumption there.

Answer 15

B. Where the choices among competing alternatives must be made, implying the existence of costs.

Question 16

An important insight by early economists was that an economy based on free-market transactions is:

A. Government-controlled
B. Self
C. Labor-driven
D. Community-dependent

Adam Smith developed the idea that ________, not benevolence, is the foundation of economic order:

A. Greed
B. Altruism
C. Selflessness
D. Self-interest

Answer 16

B. self D. self-interest

Question 17

What do self-interested buyers and sellers respond to?
A. Government regulations

B. Altruistic motives

C. Market prices and incentives

D. Incentives

Answer 17

D. Incentives

Question 18

Identify the types of decision makers in any economy. (can be multiple)
a. Law enforcement
b. consumers
c. producers
d. government
e. markers

Answer 18

b. consumers, c. producers, and d. government

Question 19

Consumers are assumed to make decisions that will_________. Producers are assumed to make decisions that will____________.
A. Maximize social welfare; minimize personal profit

B. Minimize personal satisfaction; maximize production costs

C. Maximize their utility, Maximize their profits.

D. Minimize social welfare; maximize personal wealth

Answer 19

C. Maximize their utility, Maximize their profits.

Question 20

Consumers and producers are assumed to weigh the costs and benefits of their decisions_______. For​ example, for a​ consumer, the benefit of buying​ “one more” unit of a good must outweigh the ____________ of buying that unit.

A. Over time; total cost

B. At the margin; total cost

C. At the margin; marginal cost

D. Simultaneously; opportunity cost

Answer 20

C. At the margin; marginal cost

Question 21

The interaction of consumers and producers through goods and factor markets is illustrated by the circular flow of:
A. wages and salaries.
B. profits and losses.
C. income and expenditure.
D. capital and consumer goods.

Answer 21

C. income and expenditure.

Question 22

The main characteristics of market economies that produce spontaneous​ self-organization include:
A. Mandates
B. Labour unions
C. Scarcity
D. Self-interest

Answer 22

D. Self-interest (It’s private ownership of resources and decisions made in a decentralized manner)

Question 23

Which of the following statements is​ true?
A. Firms and consumers who are trying to maximize should weigh the costs and benefits of their decisions at the margin.
B. A producer interested in maximizing his profits will hire the extra worker only if the benefit in terms of extra revenue exceeds the cost in terms of higher wages.
C. A consumer trying to maximize his utility will buy a CD only if he thinks the benefit to him in terms of extra utility exceeds the marginal cost.
D. All of the above are true.

Answer 23

D. All of the above are true.

Question 24

In the circular flow of​ income, the allocation of resources is largely decided by:
A. Central authorities and producers acting independently
B. Political parties and firms only.
C. Firms and households acting independently
D. Labour and trade unions
E. Consumers only.

Answer 24

C. Firms and households acting independently

Question 25

Which is not a type of economic​ system?

A. The​ free-market economic system is an economy in which most economic decisions are made by private households and firms.
B. The modern economic system is an economy that is constantly changing with no similarities to the past.
C. The traditional economic system is an economy based mostly on tradition.
D. The mixed economic system is an economy in which some economic decisions are made by firms and households and some by the government.
E. The command economic system is an economy in which most economic decisions are made by a central planning authority.

Answer 25

B. The modern economic system is an economy that is constantly changing with no similarities to the past.

Question 26

Within a pure market economy we will never see:
A. central planning.
B. market failure.
C. benevolence.
D. unemployment.
E. scarcity.

Answer 26

A. central planning. (A market economy is decentralized and prices are determined by supply and demand)

Question 27

Most modern economies in the world today:
A. having a mix of traditional, command, and market elements
B. ignore countries’ pressing social issues
C. have a high level of government interventions
D. are based on barter exchange
E. have solved the problem of scarcity

Answer 27

A. having a mix of traditional, command, and market elements