Chapter 1- Limits, Alternatives, and Choices

One major feature of the economic perspective is:

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

A) that scarcity is more important than choice. B) the assumption of purposeful behavior by individuals.

The production possibilities table below shows the hypothetical relationship between the production of capital goods and consumer goods in an economy.

Production Possibilities
Products A B C D E
Capital Goods 0 1 2 3 4
Con. Goods 22 18 13 7 0

Refer to the table above. What is the opportunity cost of producing the third unit of capital goods?

A) 4 units of consumer goods
B) 7 units of consumer goods
C) 5 units of consumer goods
D) 6 units of consumer goods

D) 6 units of consumer goods

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

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

B) It means there is an opportunity cost when resources are used to provide "free" products.

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

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

D) no country can produce enough products to satisfy everybody's economic wants.

Which is an illustration of a microeconomic question?

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

C) Will a new type of television set increase the number of buyers?

Economics can best be described as the study of:

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

B) how people, institutions, and society make choices under conditions of scarcity.

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

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

C) No, because scarce resources were used to produce the free goods.

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) 10.
B) 40.
C) 5.
D) 20.

B) 40.

A point inside the production possibilities curve is:

A) unattainable and the economy is inefficient.
B) attainable and the economy is efficient.
C) attainable, but the economy is inefficient.
D) unattainable, but the economy is efficient.

C) attainable, but the economy is inefficient.

As a consequence of the condition of scarcity:

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

A) individuals and communities have to make choices from among alternatives.

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

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

A) restrict the analysis to the effect of a single economic factor.

Macroeconomics focuses on:

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

A) total output and the general level of prices in the economy.

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

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

A) the marginal benefit of the book is greater than its marginal cost.

The following economy produces two products.

PPC
Products A B C D E F
Steel 0 1 2 3 4 5
Wheat 100 90 75 55 30 0

Refer to the table. The total opportunity cost of the three units of steel is:

A) 20 units of wheat.
B) 45 units of wheat.
C) 15 units of wheat.
D) 55 units of wheat.

B) 45 units of wheat.

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Chapter 1- Limits, Alternatives, and Choices

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One major feature of the economic perspective is:

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

A) that scarcity is more important than choice. B) the assumption of purposeful behavior by individuals.

The production possibilities table below shows the hypothetical relationship between the production of capital goods and consumer goods in an economy.

Production Possibilities
Products A B C D E
Capital Goods 0 1 2 3 4
Con. Goods 22 18 13 7 0

Refer to the table above. What is the opportunity cost of producing the third unit of capital goods?

A) 4 units of consumer goods
B) 7 units of consumer goods
C) 5 units of consumer goods
D) 6 units of consumer goods

D) 6 units of consumer goods

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

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

B) It means there is an opportunity cost when resources are used to provide "free" products.

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

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

D) no country can produce enough products to satisfy everybody’s economic wants.

Which is an illustration of a microeconomic question?

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

C) Will a new type of television set increase the number of buyers?

Economics can best be described as the study of:

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

B) how people, institutions, and society make choices under conditions of scarcity.

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

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

C) No, because scarce resources were used to produce the free goods.

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) 10.
B) 40.
C) 5.
D) 20.

B) 40.

A point inside the production possibilities curve is:

A) unattainable and the economy is inefficient.
B) attainable and the economy is efficient.
C) attainable, but the economy is inefficient.
D) unattainable, but the economy is efficient.

C) attainable, but the economy is inefficient.

As a consequence of the condition of scarcity:

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

A) individuals and communities have to make choices from among alternatives.

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

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

A) restrict the analysis to the effect of a single economic factor.

Macroeconomics focuses on:

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

A) total output and the general level of prices in the economy.

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

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

A) the marginal benefit of the book is greater than its marginal cost.

The following economy produces two products.

PPC
Products A B C D E F
Steel 0 1 2 3 4 5
Wheat 100 90 75 55 30 0

Refer to the table. The total opportunity cost of the three units of steel is:

A) 20 units of wheat.
B) 45 units of wheat.
C) 15 units of wheat.
D) 55 units of wheat.

B) 45 units of wheat.

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