ECON 202 Ch.1

1. For economists, the word "utility" means:
A. versatility and flexibility.
B. rationality.
C. pleasure or satisfaction.
D. purposefulness.

C. pleasure or satisfaction.

2. In economics, the pleasure, happiness, or satisfaction received from a product is called:
A. marginal cost.
B. rational outcome.
C. status fulfillment.
D. utility.

D. utility.

3. When economists say that people act rationally in their self interest, they mean that individuals:
A. look for and pursue opportunities to increase their utility.
B. generally disregard the interests of others.
C. are mainly creatures of habit.
D. are usually impulsive and unpredictable.

A. look for and pursue opportunities to increase their utility.

According to Emerson: "Want is a growing giant whom the coat of Have was never large enough to cover." According to economists, "Want" exceeds "Have" because:
A. people are greedy.
B. productive resources are limited.
C. human beings are inherently insecure.
D. people are irrational.

B. productive resources are limited.

According to economists, economic self-interest:
A. is a reality that underlies economic behavior.
B. has the same meaning as selfishness.
C. is more characteristic of men than of women.
D. is usually self-defeating.

A. is a reality that underlies economic behavior.

Joe sold gold coins for $1000 that he bought a year ago for $1000. He says, "At least I didn't lose any money on my financial investment." His economist friend points out that in effect he did lose money, because he could have received a 3 percent return on the $1000 if he had bought a bank certificate of deposit instead of the coins. The economist's analysis in this case incorporates the idea of:
A. opportunity costs.
B. marginal benefits that exceed marginal costs.
C. imperfect information.
D. normative economics.

A. opportunity costs.

A person should consume more of something when its marginal:
A. benefit exceeds its marginal cost.
B. cost exceeds its marginal benefit.
C. cost equals its marginal benefit.
D. benefit is still positive.

A. benefit exceeds its marginal cost.

Economics may best be defined as the:
A. interaction between macro and micro considerations.
B. social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity.
C. empirical testing of value judgments through the use of logic.
D. use of policy to refute facts and hypotheses.

B. social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity.

The study of economics is primarily concerned with:
A. keeping private businesses from losing money.
B. demonstrating that capitalistic economies are superior to socialistic economies.
C. choices that are made in seeking the best use of resources.
D. determining the most equitable distribution of society's output.

C. choices that are made in seeking the best use of resources.

The economic perspective entails:
A. irrational behavior by individuals and institutions.
B. a comparison of marginal benefits and marginal costs in decision making.
C. short-term but not long-term thinking.
D. rejection of the scientific method.

B. a comparison of marginal benefits and marginal costs in decision making.

Purposeful behavior suggests that:
A. everyone will make identical choices.
B. resource availability exceeds economic wants.
C. individuals may make different choices because of different desired outcomes.
D. an individual's economic goals cannot involve tradeoffs.

C. individuals may make different choices because of different desired outcomes.

Purposeful behavior means that:
A. people are selfish in their decision-making.
B. people weigh costs and benefits to make decisions.
C. people are immune from emotions affecting their decisions.
D. decision-makers do not make mistakes when weighing costs and benefits.

B. people weigh costs and benefits to make decisions.

Economics involves marginal analysis because:
A. most decisions involve changes from the present situation.
B. marginal benefits always exceed marginal costs.
C. marginal costs always exceed marginal benefits.
D. much economic behavior is irrational.

A. most decisions involve changes from the present situation.

You should decide to go to a movie:
A. if the marginal cost of the movie exceeds its marginal benefit.
B. if the marginal benefit of the movie exceeds its marginal cost.
C. if your income will allow you to buy a ticket.
D. because movies are enjoyable.

B. if the marginal benefit of the movie exceeds its marginal cost.

Marginal costs exist because:
A. the decision to engage in one activity means forgoing some other activity.
B. wants are scarce relative to resources.
C. households and businesses make rational decisions.
D. most decisions do not involve sacrifices or tradeoffs.

A. the decision to engage in one activity means forgoing some other activity.

The assertion that "There is no free lunch" means that:
A. there are always tradeoffs between economic goals.
B. all production involves the use of scarce resources and thus the sacrifice of alternative goods.
C. marginal analysis is not used in economic reasoning.
D. choices need not be made if behavior is rational.

B. all production involves the use of scarce resources and thus the sacrifice of alternative goods.

Consumers spend their incomes to get the maximum benefit or satisfaction from the goods and services they purchase. This is a reflection of:
A. resource scarcity and the necessity of choice.
B. purposeful behavior.
C. marginal costs that exceed marginal benefits.
D. the tradeoff problem that exists between competing goals.

B. purposeful behavior.

If someone produced too much of a good, this would suggest that:
A. rational choice cannot be applied to many economic decisions.
B. the good was produced to the point where its marginal cost exceeded its marginal benefit.
C. certain goods and services such as education and health care are inherently desirable and should be produced regardless of costs and benefits.
D. the good was produced to the point where its marginal benefit exceeded its marginal cost.

B. the good was produced to the point where its marginal cost exceeded its marginal benefit.

Even though local newspapers are very inexpensive, people rarely buy more than one of them each day. This fact:
A. is an example of irrational behavior.
B. implies that reading should be taught through phonics rather than the whole language method.
C. contradicts the economic perspective.
D. implies that, for most people, the marginal benefit of reading a second newspaper is less than the marginal cost.

D. implies that, for most people, the marginal benefit of reading a second newspaper is less than the marginal cost.

In deciding whether to study for an economics quiz or go to a movie, one is confronted by the idea(s) of:
A. scarcity and opportunity costs.
B. money and real capital.
C. complementary economic goals.
D. full production.

A. scarcity and opportunity costs.

Which one of the following expressions best states the idea of opportunity cost?
A. "A penny saved is a penny earned."
B. "He who hesitates is lost."
C. "There is no such thing as a free lunch."
D. "All that glitters is not gold."

C. "There is no such thing as a free lunch."

Suppose that a university decides to spend $1 million to upgrade personal computers and scientific equipment for faculty rather than spend $1 million to expand parking for students. This example illustrates:
A. distorted priorities.
B. opportunity costs.
C. increasing opportunity costs.
D. productive efficiency.

B. opportunity costs.

Which of the following most closely relates to the idea of opportunity costs?
A. tradeoffs.
B. economic growth.
C. technological change.
D. capitalism.

A. tradeoffs.

Economists contend that most economic decisions are:
A. random
B. chaotic
C. spontaneous
D. purposeful

D. purposeful

Alex sees that his neighbors' lawns all need mowing. He offers to provide the service in exchange for a wage of $20 per hour. Some neighbors accept Alex's offer and others refuse. Economists would describe Alex's behavior as:
A. rational self-interest, because he attempting to increase his own income by identifying and satisfying someone else's wants.
B. greedy, because he is asking for a high wage.
C. selfish, because he is asking for a wage that is higher than others might charge.
D. irrational, because some neighbors refused his offer.

A. rational self-interest, because he attempting to increase his own income by identifying and satisfying someone else's wants.

Kara was out jogging and despite being tired, decided to run one more mile. Based on her actions, economists would conclude that Kara:
A. must be an avid runner.
B. decided that the marginal benefit of running one more mile would outweigh the cost of the additional mile.
C. decided that the marginal cost of running one more mile would outweigh the benefit of the additional mile.
D. was not very tired, so the marginal cost of the extra mile was very low

B. decided that the marginal benefit of running one more mile would outweigh the cost of the additional mile.

Macroeconomics approaches the study of economics from the viewpoint of:
A. the entire economy.
B. governmental units.
C. the operation of specific product and resource markets.
D. individual firms.

A. the entire economy.

Which of the following is associated with macroeconomics?
A. an examination of the incomes of Harvard Business School graduates
B. an empirical investigation of the general price level and unemployment rates since 1990
C. a study of the trend of pecan prices since the Second World War
D. a case study of pricing and production in the textbook industry

B. an empirical investigation of the general price level and unemployment rates since 1990

The problems of aggregate inflation and unemployment are:
A. major topics of macroeconomics.
B. not relevant to the U.S. economy.
C. major topics of microeconomics.
D. peculiar to command economies.

A. major topics of macroeconomics.

Which of the following statements pertains to macroeconomics?
A. Because the minimum wage was raised, Mrs. Olsen decided to enter the labor force.
B. A decline in the price of soybeans caused farmer Wanek to plant more land in wheat.
C. National income grew by 2.7 percent last year.
D. The Pumpkin Center State Bank increased its interest rate on consumer loans by 1 percentage point.

C. National income grew by 2.7 percent last year.

Macroeconomics can best be described as the:
A. analysis of how a consumer tries to spend income.
B. study of the large aggregates of the economy or the economy as a whole.
C. analysis of how firms attempt to maximize their profits.
D. study of how supply and demand determine prices in individual markets.

B. study of the large aggregates of the economy or the economy as a whole.

Microeconomics is concerned with:
A. the aggregate or total levels of income, employment, and output.
B. a detailed examination of specific economic units that make up the economic system.
C. positive economics, but not normative economics.
D. the establishing of an overall view of the operation of the economic system.

B. a detailed examination of specific economic units that make up the economic system.

Microeconomics:
A. is the basis for the "after this, therefore because of this" fallacy.
B. is not concerned with details, but only with the overall big picture of the economy.
C. is concerned with individual economic units and specific markets.
D. describes the aggregate flows of output and income.

C. is concerned with individual economic units and specific markets.

Which of the following is a microeconomic statement?
A. The real domestic output increased by 2.5 percent last year.
B. Unemployment was 6.8 percent of the labor force last year.
C. The price of personal computers declined last year.
D. The general price level increased by 4 percent last year.

C. The price of personal computers declined last year.

Which of the following statements is true?
A. Microeconomics focuses on specific decision-making units of the economy; macroeconomics examines the economy as a whole.
B. Macroeconomics focuses on specific decision-making units of the economy; microeconomics examines the economy as a whole.
C. Every topic in economics is either a microeconomic or a macroeconomic issue; a topic cannot be both.
D. Topics in microeconomics have public policy implications; topics in macroeconomics do not.

A. Microeconomics focuses on specific decision-making units of the economy; macroeconomics examines the economy as a whole.

A normative statement is one that:
A. is based on the law of averages.
B. applies only to microeconomics.
C. applies only to macroeconomics.
D. is based on value judgments.

D. is based on value judgments.

A positive statement is one which is:
A. derived by induction.
B. derived by deduction.
C. subjective and is based on a value judgment.
D. objective and is based on facts.

D. objective and is based on facts.

Which of the following is a positive statement?
A. The humidity is too high today.
B. It is too hot to jog today.
C. The temperature is 92 degrees today.
D. Summer evenings are nice when it cools off.

C. The temperature is 92 degrees today.

Normative statements are concerned primarily with:
A. facts and theories.
B. what ought to be.
C. what is.
D. rational choice involving costs and benefits.

B. what ought to be.

A positive statement is concerned primarily with:
A. some goal that is desirable to society.
B. what should be.
C. what is.
D. the formulation of economic policy

C. what is.

"Economics is concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity." This statement is:
A. positive, but incorrect.
B. positive and correct.
C. normative, but incorrect.
D. normative and correct.

B. positive and correct.

Ben says that "An increase in the tax on beer will raise its price." Holly argues that "Taxes should be increased on beer because college students drink too much." We can conclude that:
A. Ben's statement is normative, but Holly's is positive.
B. Holly's statement is normative, but Ben's is positive.
C. Both statements are normative.
D. Both statements are positive.

B. Holly's statement is normative, but Ben's is positive.

"Macroeconomics is the part of economics concerned with individual units such as a person, a household, a firm, or an industry." This statement is:
A. positive, but incorrect.
B. positive and correct.
C. normative, but incorrect.
D. normative and correct.

A. positive, but incorrect.

Brinley says that "Gas prices are rising because there aren't enough oil refineries." Katie argues that "Gas prices are rising because of the growing demand for gasoline from China and India." We can conclude that:
A. Brinley's statement is positive; Katie's statement is normative.
B. Brinley's statement is normative; Katie's statement is positive.
C. Both statements are positive.
D. Both statements are normative.

C. Both statements are positive.

Which of the following is a labor resource?
A. a computer programmer
B. a computer
C. silicon (sand) used to make computer chips
D. a piece of software used by a firm

A. a computer programmer

Which of the following is a capital resource?
A. a computer programmer
B. a corporate bond issued by a computer manufacturer
C. silicon (sand) used to make computer chips
D. a piece of software used by a firm

D. a piece of software used by a firm

The four factors of production are:
A. land, labor, capital, and money
B. land, labor, capital, and entrepreneurial ability
C. labor, capital, technology, and entrepreneurial ability
D. labor, capital, entrepreneurial ability, and money

B. land, labor, capital, and entrepreneurial ability

Which of the following is a land resource?
A. a farmer
B. an oil drilling rig
C. a machine for detecting earthquakes
D. natural gas

D. natural gas

Which of the following lists includes only capital resources (and therefore no labor or land resources)?
A. an ice arena; a professional hockey player; hockey uniforms.
B. the owner of a new startup firm; a chemistry lab; a researcher.
C. a hydroelectric dam; water behind the dam; power lines.
D. autos owned by a car rental firm; computers at the car rental agency; the vans that shuffle rental customers to and from the airport.

D. autos owned by a car rental firm; computers at the car rental agency; the vans that shuffle rental customers to and from the airport.

Money is not an economic resource because:
A. money, as such, does not produce anything.
B. idle money balances do not earn interest income.
C. it is not scarce.
D. money is not a free gift of nature.

A. money, as such, does not produce anything.

Economic resources are also called:
A. free gifts of nature.
B. consumption goods.
C. units of money capital.
D. factors of production.

D. factors of production.

Which of the following do economists consider to be capital?
A. a pair of stockings
B. a construction crane
C. a savings account
D. a share of IBM stock

B. a construction crane

The main function of the entrepreneur is to:
A. make routine pricing decisions.
B. innovate.
C. purchase capital.
D. create market demand.

B. innovate.

Which of the following is not a main function of the entrepreneur?
A. make routine pricing decisions.
B. innovate.
C. assume the risk of economic losses.
D. make strategic business decisions.

A. make routine pricing decisions

The process of producing and accumulating capital goods is called:
A. money capital.
B. depreciation.
C. investment.
D. consumption.

C. investment.

Which of the following is not considered by economists to be an economic resource?
A. money
B. factory workers
C. computers at a retail store
D. a forest

A. money

Which of the following would not be classified as an economic resource by economists?
A. a professional soccer player
B. water in a town's reservoir
C. money in a business checking account
D. the manager of the local hamburger restaurant

C. money in a business checking account

The production possibilities curve illustrates the basic principle that:
A. the production of more of any one good will in time require smaller and smaller sacrifices of other goods.
B. an economy will automatically obtain full employment of its resources.
C. if all the resources of an economy are in use, more of one good can be produced only if less of another good is produced.
D. an economy's capacity to produce increases in proportion to its population size.

C. if all the resources of an economy are in use, more of one good can be produced only if less of another good is produced.

Which of the following will not produce an outward shift of the production possibilities curve?
A. an upgrading of the quality of a nation's human resources
B. the reduction of unemployment
C. an increase in the quantity of a society's labor force
D. the improvement of a society's technological knowledge

B. the reduction of unemployment

Unemployment:
A. causes the production possibilities curve to shift outward.
B. can exist at any point on a production possibilities curve.
C. is illustrated by a point outside the production possibilities curve.
D. is illustrated by a point inside the production possibilities curve.

D. is illustrated by a point inside the production possibilities curve.

96. If the production possibilities curve is a straight line:
A. the two products will sell at the same market prices.
B. economic resources are perfectly substitutable between the production of the two products.
C. the two products are equally important to consumers.
D. equal quantities of the two products will be produced at each possible point on the curve.

B. economic resources are perfectly substitutable between the production of the two products.

A production possibilities curve illustrates:
A. scarcity.
B. market prices.
C. consumer preferences.
D. the distribution of income.

A. scarcity.

A production possibilities curve shows:
A. that resources are unlimited.
B. that people prefer one of the goods more than the other.
C. the maximum amounts of two goods that can be produced, assuming the full use of available resources.
D. combinations of capital and labor necessary to produce specific levels of output.

C. the maximum amounts of two goods that can be produced, assuming the full use of available resources.

A nation's production possibilities curve is bowed out from the origin because:
A. resources are not generally equally efficient in producing every good.
B. the originator of the idea drew it this way and modern economists follow this convention.
C. resources are scarce.
D. wants are virtually unlimited.

A. resources are not generally equally efficient in producing every good.

When an economy is operating under conditions of full employment, the production of more of commodity A will mean the production of less of commodity B because:
A. of the law of increasing opportunity costs.
B. economic wants are insatiable.
C. resources are limited.
D. resources are specialized and only imperfectly substitutable.

C. resources are limited.

Assume that a change in government policy results in greater production of both consumer goods and investment goods. We can conclude that:
A. the economy was not employing all of its resources before the policy change.
B. the economy's production possibilities curve has been shifted to the left as a result of the policy decision.
C. this economy's production possibilities curve is convex (bowed inward) to the origin.
D. the law of increasing opportunity costs does not apply in this society.

A. the economy was not employing all of its resources before the policy change.

The production possibilities curve:
A. shows all of those levels of production that are consistent with a stable price level.
B. indicates that any combination of goods lying outside the curve is economically inefficient.
C. is a frontier between all combinations of two goods that can be produced and those combinations that cannot be produced.
D. shows all of those combinations of two goods that are most preferred by society.

C. is a frontier between all combinations of two goods that can be produced and those combinations that cannot be produced.

Any point inside the production possibilities curve indicates:
A. the presence of technological change.
B. that resources are imperfectly substitutable among alternative uses.
C. the presence of inflationary pressures.
D. that more output could be produced with available resources.

D. that more output could be produced with available resources.

Which of the following is assumed in constructing a typical production possibilities curve?
A. the economy is using its resources inefficiently.
B. resources are perfectly shiftable among alternative uses.
C. production technology is fixed.
D. the economy is engaging in international trade.

C. production technology is fixed.

The typical production possibilities curve is:
A. an upsloping line that is bowed out from the origin.
B. a downsloping line that is bowed in toward the origin.
C. a downsloping line that is bowed out from the origin.
D. a straight upsloping line.

C. a downsloping line that is bowed out from the origin.

The slope of the typical production possibilities curve:
A. is positive.
B. increases as one moves southeast along the curve.
C. is constant as one moves down the curve.
D. decreases as one moves southeast along the curve.

B. increases as one moves southeast along the curve.

Assume an economy is incurring unemployment. The effect of resolving this problem will be to:
A. move the level of actual output on to the economy's production possibilities curve.
B. create a less equal distribution of income.
C. shift its production possibilities curve to the left.
D. shift its production possibilities curve to the right.

A. move the level of actual output on to the economy's production possibilities curve.

Which of the following is not correct? A typical production possibilities curve:
A. indicates how much of two products a society can produce.
B. reveals how much each additional unit of one product will cost in terms of the other product.
C. specifies how much of each product society should produce.
D. indicates that to produce more of one product society must forgo larger and larger amounts of the other product.

C. specifies how much of each product society should produce.

The production possibilities curve shows:
A. the various combinations of two goods that can be produced when society employs all of its scarce resources.
B. the minimum outputs of two goods that will sustain a society.
C. the various combinations of two goods that can be produced when some resources are unemployed.
D. the ideal, but unattainable, combinations of two goods that would maximize consumer satisfactions.

A. the various combinations of two goods that can be produced when society employs all of its scarce resources.

The negative slope of the production possibilities curve is a graphical way of indicating that:
A. any economy "can have its cake and eat it too."
B. to produce more of one product we must do with less of another.
C. the principle of increasing opportunity costs applies to only parts of the economy.
D. consumers buy more when prices are low than when prices are high.

B. to produce more of one product we must do with less of another.

If an economy is operating on its production possibilities curve for consumer goods and capital goods, this means that:
A. it is impossible to produce more consumer goods.
B. resources cannot be reallocated between the two goods.
C. it is impossible to produce more capital goods.
D. more consumer goods can only be produced at the cost of fewer capital goods.

D. more consumer goods can only be produced at the cost of fewer capital goods.

The construction of a production possibilities curve assumes:
A. the quantities of all resources are unlimited.
B. technology is fixed.
C. some resources are unemployed.
D. there is no inflation in the economy.

B. technology is fixed.

A typical concave (bowed out from the origin) production possibilities curve implies:
A. that economic resources are unlimited.
B. that society must choose among various attainable combinations of goods.
C. decreasing opportunity costs.
D. that society is using a market system to allocate resources.

B. that society must choose among various attainable combinations of goods.

The production possibilities curve tells us:
A. the specific combination of two products that is most desired by society.
B. that costs do not change as society varies its output.
C. costs are irrelevant in a society that has fixed resources.
D. the combinations of two goods that can be produced with society's available resources.

D. the combinations of two goods that can be produced with society's available resources.

The production possibilities curve has:
A. a positive slope that increases as we move along it from left to right.
B. a negative slope that increases as we move along it from left to right.
C. a negative slope that decreases as we move along it from left to right.
D. a negative slope that is constant as we move along it from left to right.

B. a negative slope that increases as we move along it from left to right.

If an economy is operating inside its production possibilities curve for consumer goods and capital goods, it:
A. can only produce more consumer goods by producing fewer capital goods.
B. can only produce more capital goods by producing fewer consumer goods.
C. can produce more of both consumer goods and capital goods by using resources that are currently idle.
D. must improve its technology to produce more output.

C. can produce more of both consumer goods and capital goods by using

The fact that the slope of the production possibilities curve becomes steeper as we move down along the curve indicates that:
A. the principle of increasing opportunity costs is relevant.
B. society's resources are limited.
C. the opportunity cost of producing each product is constant.
D. resources are perfectly shiftable between alternative uses.

C. the opportunity cost of producing each product is constant.

The law of increasing opportunity costs states that:
A. if society wants to produce more of a particular good, it must sacrifice larger and larger amounts of another good to do so.
B. the sum of the costs of producing a particular good cannot rise above the current market price of that good.
C. if the sum of the costs of producing a particular good rises by a specified percent, the price of that good must rise by a greater relative amount.
D. if the prices of all the resources used to produce goods increase, the cost of producing any particular good will increase at the same rate.

A. if society wants to produce more of a particular good, it must sacrifice larger and larger amounts of another good to do so.

The concept of opportunity cost:
A. is irrelevant in socialistic economies because of central planning.
B. suggests that the use of resources in any particular line of production means that alternative outputs must be forgone.
C. is irrelevant if the production possibilities curve is shifting to the right.
D. suggests that insatiable wants can be fulfilled.

B. suggests that the use of resources in any particular line of production means that alternative outputs must be forgone.

The law of increasing opportunity costs is reflected in a production possibilities curve that is:
A. an upsloping straight line.
B. a downsloping straight line.
C. bowed out from the origin.
D. bowed in toward the origin.

C. bowed out from the origin.

The point on the production possibilities curve that is most desirable can be found by:
A. estimating the marginal costs of both products in real or physical terms.
B. comparing marginal benefits and marginal costs.
C. determining where least-cost production occurs.
D. calculating where economic growth will be greatest.

B. comparing marginal benefits and marginal costs.

The optimal point on a production possibilities curve is achieved where:
A. the smallest physical amounts of inputs are used to produce each good.
B. each good is produced at a level where marginal benefits equal marginal costs.
C. large amounts of capital goods are produced relative to consumer goods.
D. large amounts of consumer goods are produced relative to capital goods.

B. each good is produced at a level where marginal benefits equal marginal costs.

The marginal benefit curve is:
A. upsloping because of increasing marginal opportunity costs.
B. upsloping because successive units of a specific product yield less and less extra benefit.
C. downsloping because of increasing marginal opportunity costs.
D. downsloping because successive units of a specific product yield less and less extra benefit.

D. downsloping because successive units of a specific product yield less and less extra benefit.

The marginal cost curve is:
A. upsloping because of increasing marginal opportunity costs.
B. upsloping because successive units of a specific product yield less and less extra utility.
C. downsloping because of increasing marginal opportunity costs.
D. downsloping because successive units of a specific product yield less and less extra utility.

A. upsloping because of increasing marginal opportunity costs.

The output of MP3 players should be:
A. reduced if marginal benefits exceed marginal costs.
B. reduced if marginal costs exceed marginal benefits.
C. increased if marginal costs exceed marginal benefits.
D. reduced to zero if their unit costs exceed the unit costs of alternative products.

B. reduced if marginal costs exceed marginal benefits.

If the output of product X is such that marginal benefit equals marginal cost:
A. the correct amount of resources is being allocated to X's production.
B. the value of producing X exceeds the value of producing alternative products with the available resources.
C. there can be a net gain to society by allocating either more or less resources to producing X.
D. resources are overallocated to the production of X.

A. the correct amount of resources is being allocated to X's production.

Suppose that a fully-employed economy produces only two goods, hamburgers and flat-panel TVs. If the economy is currently producing more than the optimal quantity of hamburgers, then to attain the optimal allocation of resources it should:
A. produce more hamburgers and fewer TVs.
B. produce more TVs and fewer hamburgers.
C. produce more of both goods.
D. produce fewer of both goods.

B. produce more TVs and fewer hamburgers.

Suppose that an economy is producing on its production possibilities curve, but is not producing quantities of each good where the marginal benefit equals the marginal cost for each good. This economy:
A. should not change its production because it cannot improve its allocation by shifting resources.
B. can improve its allocation by lowering the unemployment rate.
C. can improve its allocation by producing more of one good and less of the other.
D. can improve its allocation by producing more of both goods.

C. can improve its allocation by producing more of one good and less of the other.

The optimal allocation of resources is found:
A. where MB = MC.
B. at every point along a production possibilities curve.
C. where the marginal benefit is at its greatest.
D. where the marginal cost is at its lowest.

A. where MB = MC.

The basic difference between consumer goods and capital goods is that
A. consumer goods are produced in the private sector and capital goods are produced in the public sector.
B. an economy that commits a relatively large proportion of its resources to capital goods must accept a lower growth rate.
C. the production of capital goods is not subject to the law of increasing opportunity costs.
D. consumer goods satisfy wants directly while capital goods satisfy wants indirectly.

D. consumer goods satisfy wants directly while capital goods satisfy wants indirectly.

Which of the following will shift the production possibilities curve to the right?
A. an increase in the unemployment rate from 6 to 8 percent
B. a decline in the efficiency with which the present labor force is allocated
C. a decrease in the unemployment rate from 8 to 6 percent
D. a technological advance that allows farmers to produce more output from given inputs

D. a technological advance that allows farmers to produce more output from given inputs

Other things equal, which of the following would shift an economy's production possibilities curve to the left?
A. the discovery of a low-cost means of generating and storing solar energy
B. the entrance of more women into the labor force
C. a law requiring mandatory retirement from the labor force at age 55
D. an increase in the proportion of total output that consists of capital or investment goods

C. a law requiring mandatory retirement from the labor force at age 55

Which of the following statements, if any, is correct for a nation that is producing only consumer and capital goods?
A. Other things equal, the more consumer goods a nation produces, the greater will be its future growth rate.
B. Other things equal, the more capital goods a nation produces, the greater will be its future growth rate.
C. There is no general relationship between the current division of output between consumer and capital goods and the future growth rate.
D. None of these statements is correct.

B. Other things equal, the more capital goods a nation produces, the greater will be its future growth rate.

All of the following could immediately or eventually lead to an inward shift of a nation's production possibilities curve, except:
A. emigration of skilled workers from the nation.
B. a decline in the birth rate.
C. an increase in the average skill level of all occupational groups.
D. depletion and reduced availability of major energy resources.

C. an increase in the average skill level of all occupational groups.

A nation's production possibilities curve might shift to the left (inward) as a result of:
A. technological advance.
B. increases in the size of the labor force.
C. the depletion of its soil fertility due to overplanting and overgrazing.
D. investing in more capital goods.

C. the depletion of its soil fertility due to overplanting and overgrazing.

Which of the following will enable a nation to obtain a combination of consumer goods and capital goods outside its production possibilities curve?
A. full employment.
B. international specialization and trade.
C. full production.
D. productive efficiency.

B. international specialization and trade.

Suppose that Scoobania, which has full employment, can obtain 1 unit of capital goods by sacrificing 2 units of consumer goods domestically, but can obtain 1 unit of capital goods from another country by trading 1 unit of consumer goods for it. This reality illustrates:
A. a rightward (outward) shift of the production possibilities curve.
B. increasing opportunity costs.
C. achieving points beyond the production possibilities curve through international specialization and trade.
D. productive efficiency.

C. achieving points beyond the production possibilities curve through international specialization and trade.

Through specialization and international trade a nation:
A. can attain some combination of goods lying outside its production possibilities curve.
B. can move from a high consumption-low investment to a high investment-low consumption point on its production possibilities curve.
C. will only attain some combination of goods lying within its production possibilities curve.
D. will cause its production possibilities curve to shift leftward.

A. can attain some combination of goods lying outside its production possibilities curve.

Some agricultural sub-Saharan nations of Africa have overfarmed and overgrazed their land to the extent that significant portions of it have turned into desert. This suggests that:
A. the production possibilities curves of such nations are more bowed out from the origin.
B. the production possibilities curves of such nations have shifted inward.
C. the production possibilities curves of such nations have shifted outward.
D. these nations are operating at some point outside of their production possibilities curves.

B. the production possibilities curves of such nations have shifted inward.

If all discrimination in the United States were eliminated, the economy would:
A. have a less concave production possibilities curve.
B. produce at some point closer to its production possibilities curve.
C. be able to produce at some point outside of its production possibilities curve.
D. produce more consumer goods and fewer investment goods.

B. produce at some point closer to its production possibilities curve.

A country can achieve some combination of goods outside its production possibilities curve by:
A. idling some of its resources.
B. specializing and engaging in international trade.
C. buying the debt (bonds and stocks) of foreign nations.
D. producing more capital goods and fewer consumer goods.

B. specializing and engaging in international trade.

In recent years the economy of Japan has grown, despite the fact that the population of Japan has declined. Which of the following would best explain Japan's economic growth despite having a smaller population?
A. Immigration of new workers into Japan.
B. Advancements in technology that make labor more productive.
C. Reduced employment of capital because fewer workers are available to use it.
D. Greater consumption of goods imported from other countries.

B. Advancements in technology that make labor more productive.

ECON 202 Ch.1 - Subjecto.com

ECON 202 Ch.1

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1. For economists, the word "utility" means:
A. versatility and flexibility.
B. rationality.
C. pleasure or satisfaction.
D. purposefulness.

C. pleasure or satisfaction.

2. In economics, the pleasure, happiness, or satisfaction received from a product is called:
A. marginal cost.
B. rational outcome.
C. status fulfillment.
D. utility.

D. utility.

3. When economists say that people act rationally in their self interest, they mean that individuals:
A. look for and pursue opportunities to increase their utility.
B. generally disregard the interests of others.
C. are mainly creatures of habit.
D. are usually impulsive and unpredictable.

A. look for and pursue opportunities to increase their utility.

According to Emerson: "Want is a growing giant whom the coat of Have was never large enough to cover." According to economists, "Want" exceeds "Have" because:
A. people are greedy.
B. productive resources are limited.
C. human beings are inherently insecure.
D. people are irrational.

B. productive resources are limited.

According to economists, economic self-interest:
A. is a reality that underlies economic behavior.
B. has the same meaning as selfishness.
C. is more characteristic of men than of women.
D. is usually self-defeating.

A. is a reality that underlies economic behavior.

Joe sold gold coins for $1000 that he bought a year ago for $1000. He says, "At least I didn’t lose any money on my financial investment." His economist friend points out that in effect he did lose money, because he could have received a 3 percent return on the $1000 if he had bought a bank certificate of deposit instead of the coins. The economist’s analysis in this case incorporates the idea of:
A. opportunity costs.
B. marginal benefits that exceed marginal costs.
C. imperfect information.
D. normative economics.

A. opportunity costs.

A person should consume more of something when its marginal:
A. benefit exceeds its marginal cost.
B. cost exceeds its marginal benefit.
C. cost equals its marginal benefit.
D. benefit is still positive.

A. benefit exceeds its marginal cost.

Economics may best be defined as the:
A. interaction between macro and micro considerations.
B. social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity.
C. empirical testing of value judgments through the use of logic.
D. use of policy to refute facts and hypotheses.

B. social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity.

The study of economics is primarily concerned with:
A. keeping private businesses from losing money.
B. demonstrating that capitalistic economies are superior to socialistic economies.
C. choices that are made in seeking the best use of resources.
D. determining the most equitable distribution of society’s output.

C. choices that are made in seeking the best use of resources.

The economic perspective entails:
A. irrational behavior by individuals and institutions.
B. a comparison of marginal benefits and marginal costs in decision making.
C. short-term but not long-term thinking.
D. rejection of the scientific method.

B. a comparison of marginal benefits and marginal costs in decision making.

Purposeful behavior suggests that:
A. everyone will make identical choices.
B. resource availability exceeds economic wants.
C. individuals may make different choices because of different desired outcomes.
D. an individual’s economic goals cannot involve tradeoffs.

C. individuals may make different choices because of different desired outcomes.

Purposeful behavior means that:
A. people are selfish in their decision-making.
B. people weigh costs and benefits to make decisions.
C. people are immune from emotions affecting their decisions.
D. decision-makers do not make mistakes when weighing costs and benefits.

B. people weigh costs and benefits to make decisions.

Economics involves marginal analysis because:
A. most decisions involve changes from the present situation.
B. marginal benefits always exceed marginal costs.
C. marginal costs always exceed marginal benefits.
D. much economic behavior is irrational.

A. most decisions involve changes from the present situation.

You should decide to go to a movie:
A. if the marginal cost of the movie exceeds its marginal benefit.
B. if the marginal benefit of the movie exceeds its marginal cost.
C. if your income will allow you to buy a ticket.
D. because movies are enjoyable.

B. if the marginal benefit of the movie exceeds its marginal cost.

Marginal costs exist because:
A. the decision to engage in one activity means forgoing some other activity.
B. wants are scarce relative to resources.
C. households and businesses make rational decisions.
D. most decisions do not involve sacrifices or tradeoffs.

A. the decision to engage in one activity means forgoing some other activity.

The assertion that "There is no free lunch" means that:
A. there are always tradeoffs between economic goals.
B. all production involves the use of scarce resources and thus the sacrifice of alternative goods.
C. marginal analysis is not used in economic reasoning.
D. choices need not be made if behavior is rational.

B. all production involves the use of scarce resources and thus the sacrifice of alternative goods.

Consumers spend their incomes to get the maximum benefit or satisfaction from the goods and services they purchase. This is a reflection of:
A. resource scarcity and the necessity of choice.
B. purposeful behavior.
C. marginal costs that exceed marginal benefits.
D. the tradeoff problem that exists between competing goals.

B. purposeful behavior.

If someone produced too much of a good, this would suggest that:
A. rational choice cannot be applied to many economic decisions.
B. the good was produced to the point where its marginal cost exceeded its marginal benefit.
C. certain goods and services such as education and health care are inherently desirable and should be produced regardless of costs and benefits.
D. the good was produced to the point where its marginal benefit exceeded its marginal cost.

B. the good was produced to the point where its marginal cost exceeded its marginal benefit.

Even though local newspapers are very inexpensive, people rarely buy more than one of them each day. This fact:
A. is an example of irrational behavior.
B. implies that reading should be taught through phonics rather than the whole language method.
C. contradicts the economic perspective.
D. implies that, for most people, the marginal benefit of reading a second newspaper is less than the marginal cost.

D. implies that, for most people, the marginal benefit of reading a second newspaper is less than the marginal cost.

In deciding whether to study for an economics quiz or go to a movie, one is confronted by the idea(s) of:
A. scarcity and opportunity costs.
B. money and real capital.
C. complementary economic goals.
D. full production.

A. scarcity and opportunity costs.

Which one of the following expressions best states the idea of opportunity cost?
A. "A penny saved is a penny earned."
B. "He who hesitates is lost."
C. "There is no such thing as a free lunch."
D. "All that glitters is not gold."

C. "There is no such thing as a free lunch."

Suppose that a university decides to spend $1 million to upgrade personal computers and scientific equipment for faculty rather than spend $1 million to expand parking for students. This example illustrates:
A. distorted priorities.
B. opportunity costs.
C. increasing opportunity costs.
D. productive efficiency.

B. opportunity costs.

Which of the following most closely relates to the idea of opportunity costs?
A. tradeoffs.
B. economic growth.
C. technological change.
D. capitalism.

A. tradeoffs.

Economists contend that most economic decisions are:
A. random
B. chaotic
C. spontaneous
D. purposeful

D. purposeful

Alex sees that his neighbors’ lawns all need mowing. He offers to provide the service in exchange for a wage of $20 per hour. Some neighbors accept Alex’s offer and others refuse. Economists would describe Alex’s behavior as:
A. rational self-interest, because he attempting to increase his own income by identifying and satisfying someone else’s wants.
B. greedy, because he is asking for a high wage.
C. selfish, because he is asking for a wage that is higher than others might charge.
D. irrational, because some neighbors refused his offer.

A. rational self-interest, because he attempting to increase his own income by identifying and satisfying someone else’s wants.

Kara was out jogging and despite being tired, decided to run one more mile. Based on her actions, economists would conclude that Kara:
A. must be an avid runner.
B. decided that the marginal benefit of running one more mile would outweigh the cost of the additional mile.
C. decided that the marginal cost of running one more mile would outweigh the benefit of the additional mile.
D. was not very tired, so the marginal cost of the extra mile was very low

B. decided that the marginal benefit of running one more mile would outweigh the cost of the additional mile.

Macroeconomics approaches the study of economics from the viewpoint of:
A. the entire economy.
B. governmental units.
C. the operation of specific product and resource markets.
D. individual firms.

A. the entire economy.

Which of the following is associated with macroeconomics?
A. an examination of the incomes of Harvard Business School graduates
B. an empirical investigation of the general price level and unemployment rates since 1990
C. a study of the trend of pecan prices since the Second World War
D. a case study of pricing and production in the textbook industry

B. an empirical investigation of the general price level and unemployment rates since 1990

The problems of aggregate inflation and unemployment are:
A. major topics of macroeconomics.
B. not relevant to the U.S. economy.
C. major topics of microeconomics.
D. peculiar to command economies.

A. major topics of macroeconomics.

Which of the following statements pertains to macroeconomics?
A. Because the minimum wage was raised, Mrs. Olsen decided to enter the labor force.
B. A decline in the price of soybeans caused farmer Wanek to plant more land in wheat.
C. National income grew by 2.7 percent last year.
D. The Pumpkin Center State Bank increased its interest rate on consumer loans by 1 percentage point.

C. National income grew by 2.7 percent last year.

Macroeconomics can best be described as the:
A. analysis of how a consumer tries to spend income.
B. study of the large aggregates of the economy or the economy as a whole.
C. analysis of how firms attempt to maximize their profits.
D. study of how supply and demand determine prices in individual markets.

B. study of the large aggregates of the economy or the economy as a whole.

Microeconomics is concerned with:
A. the aggregate or total levels of income, employment, and output.
B. a detailed examination of specific economic units that make up the economic system.
C. positive economics, but not normative economics.
D. the establishing of an overall view of the operation of the economic system.

B. a detailed examination of specific economic units that make up the economic system.

Microeconomics:
A. is the basis for the "after this, therefore because of this" fallacy.
B. is not concerned with details, but only with the overall big picture of the economy.
C. is concerned with individual economic units and specific markets.
D. describes the aggregate flows of output and income.

C. is concerned with individual economic units and specific markets.

Which of the following is a microeconomic statement?
A. The real domestic output increased by 2.5 percent last year.
B. Unemployment was 6.8 percent of the labor force last year.
C. The price of personal computers declined last year.
D. The general price level increased by 4 percent last year.

C. The price of personal computers declined last year.

Which of the following statements is true?
A. Microeconomics focuses on specific decision-making units of the economy; macroeconomics examines the economy as a whole.
B. Macroeconomics focuses on specific decision-making units of the economy; microeconomics examines the economy as a whole.
C. Every topic in economics is either a microeconomic or a macroeconomic issue; a topic cannot be both.
D. Topics in microeconomics have public policy implications; topics in macroeconomics do not.

A. Microeconomics focuses on specific decision-making units of the economy; macroeconomics examines the economy as a whole.

A normative statement is one that:
A. is based on the law of averages.
B. applies only to microeconomics.
C. applies only to macroeconomics.
D. is based on value judgments.

D. is based on value judgments.

A positive statement is one which is:
A. derived by induction.
B. derived by deduction.
C. subjective and is based on a value judgment.
D. objective and is based on facts.

D. objective and is based on facts.

Which of the following is a positive statement?
A. The humidity is too high today.
B. It is too hot to jog today.
C. The temperature is 92 degrees today.
D. Summer evenings are nice when it cools off.

C. The temperature is 92 degrees today.

Normative statements are concerned primarily with:
A. facts and theories.
B. what ought to be.
C. what is.
D. rational choice involving costs and benefits.

B. what ought to be.

A positive statement is concerned primarily with:
A. some goal that is desirable to society.
B. what should be.
C. what is.
D. the formulation of economic policy

C. what is.

"Economics is concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity." This statement is:
A. positive, but incorrect.
B. positive and correct.
C. normative, but incorrect.
D. normative and correct.

B. positive and correct.

Ben says that "An increase in the tax on beer will raise its price." Holly argues that "Taxes should be increased on beer because college students drink too much." We can conclude that:
A. Ben’s statement is normative, but Holly’s is positive.
B. Holly’s statement is normative, but Ben’s is positive.
C. Both statements are normative.
D. Both statements are positive.

B. Holly’s statement is normative, but Ben’s is positive.

"Macroeconomics is the part of economics concerned with individual units such as a person, a household, a firm, or an industry." This statement is:
A. positive, but incorrect.
B. positive and correct.
C. normative, but incorrect.
D. normative and correct.

A. positive, but incorrect.

Brinley says that "Gas prices are rising because there aren’t enough oil refineries." Katie argues that "Gas prices are rising because of the growing demand for gasoline from China and India." We can conclude that:
A. Brinley’s statement is positive; Katie’s statement is normative.
B. Brinley’s statement is normative; Katie’s statement is positive.
C. Both statements are positive.
D. Both statements are normative.

C. Both statements are positive.

Which of the following is a labor resource?
A. a computer programmer
B. a computer
C. silicon (sand) used to make computer chips
D. a piece of software used by a firm

A. a computer programmer

Which of the following is a capital resource?
A. a computer programmer
B. a corporate bond issued by a computer manufacturer
C. silicon (sand) used to make computer chips
D. a piece of software used by a firm

D. a piece of software used by a firm

The four factors of production are:
A. land, labor, capital, and money
B. land, labor, capital, and entrepreneurial ability
C. labor, capital, technology, and entrepreneurial ability
D. labor, capital, entrepreneurial ability, and money

B. land, labor, capital, and entrepreneurial ability

Which of the following is a land resource?
A. a farmer
B. an oil drilling rig
C. a machine for detecting earthquakes
D. natural gas

D. natural gas

Which of the following lists includes only capital resources (and therefore no labor or land resources)?
A. an ice arena; a professional hockey player; hockey uniforms.
B. the owner of a new startup firm; a chemistry lab; a researcher.
C. a hydroelectric dam; water behind the dam; power lines.
D. autos owned by a car rental firm; computers at the car rental agency; the vans that shuffle rental customers to and from the airport.

D. autos owned by a car rental firm; computers at the car rental agency; the vans that shuffle rental customers to and from the airport.

Money is not an economic resource because:
A. money, as such, does not produce anything.
B. idle money balances do not earn interest income.
C. it is not scarce.
D. money is not a free gift of nature.

A. money, as such, does not produce anything.

Economic resources are also called:
A. free gifts of nature.
B. consumption goods.
C. units of money capital.
D. factors of production.

D. factors of production.

Which of the following do economists consider to be capital?
A. a pair of stockings
B. a construction crane
C. a savings account
D. a share of IBM stock

B. a construction crane

The main function of the entrepreneur is to:
A. make routine pricing decisions.
B. innovate.
C. purchase capital.
D. create market demand.

B. innovate.

Which of the following is not a main function of the entrepreneur?
A. make routine pricing decisions.
B. innovate.
C. assume the risk of economic losses.
D. make strategic business decisions.

A. make routine pricing decisions

The process of producing and accumulating capital goods is called:
A. money capital.
B. depreciation.
C. investment.
D. consumption.

C. investment.

Which of the following is not considered by economists to be an economic resource?
A. money
B. factory workers
C. computers at a retail store
D. a forest

A. money

Which of the following would not be classified as an economic resource by economists?
A. a professional soccer player
B. water in a town’s reservoir
C. money in a business checking account
D. the manager of the local hamburger restaurant

C. money in a business checking account

The production possibilities curve illustrates the basic principle that:
A. the production of more of any one good will in time require smaller and smaller sacrifices of other goods.
B. an economy will automatically obtain full employment of its resources.
C. if all the resources of an economy are in use, more of one good can be produced only if less of another good is produced.
D. an economy’s capacity to produce increases in proportion to its population size.

C. if all the resources of an economy are in use, more of one good can be produced only if less of another good is produced.

Which of the following will not produce an outward shift of the production possibilities curve?
A. an upgrading of the quality of a nation’s human resources
B. the reduction of unemployment
C. an increase in the quantity of a society’s labor force
D. the improvement of a society’s technological knowledge

B. the reduction of unemployment

Unemployment:
A. causes the production possibilities curve to shift outward.
B. can exist at any point on a production possibilities curve.
C. is illustrated by a point outside the production possibilities curve.
D. is illustrated by a point inside the production possibilities curve.

D. is illustrated by a point inside the production possibilities curve.

96. If the production possibilities curve is a straight line:
A. the two products will sell at the same market prices.
B. economic resources are perfectly substitutable between the production of the two products.
C. the two products are equally important to consumers.
D. equal quantities of the two products will be produced at each possible point on the curve.

B. economic resources are perfectly substitutable between the production of the two products.

A production possibilities curve illustrates:
A. scarcity.
B. market prices.
C. consumer preferences.
D. the distribution of income.

A. scarcity.

A production possibilities curve shows:
A. that resources are unlimited.
B. that people prefer one of the goods more than the other.
C. the maximum amounts of two goods that can be produced, assuming the full use of available resources.
D. combinations of capital and labor necessary to produce specific levels of output.

C. the maximum amounts of two goods that can be produced, assuming the full use of available resources.

A nation’s production possibilities curve is bowed out from the origin because:
A. resources are not generally equally efficient in producing every good.
B. the originator of the idea drew it this way and modern economists follow this convention.
C. resources are scarce.
D. wants are virtually unlimited.

A. resources are not generally equally efficient in producing every good.

When an economy is operating under conditions of full employment, the production of more of commodity A will mean the production of less of commodity B because:
A. of the law of increasing opportunity costs.
B. economic wants are insatiable.
C. resources are limited.
D. resources are specialized and only imperfectly substitutable.

C. resources are limited.

Assume that a change in government policy results in greater production of both consumer goods and investment goods. We can conclude that:
A. the economy was not employing all of its resources before the policy change.
B. the economy’s production possibilities curve has been shifted to the left as a result of the policy decision.
C. this economy’s production possibilities curve is convex (bowed inward) to the origin.
D. the law of increasing opportunity costs does not apply in this society.

A. the economy was not employing all of its resources before the policy change.

The production possibilities curve:
A. shows all of those levels of production that are consistent with a stable price level.
B. indicates that any combination of goods lying outside the curve is economically inefficient.
C. is a frontier between all combinations of two goods that can be produced and those combinations that cannot be produced.
D. shows all of those combinations of two goods that are most preferred by society.

C. is a frontier between all combinations of two goods that can be produced and those combinations that cannot be produced.

Any point inside the production possibilities curve indicates:
A. the presence of technological change.
B. that resources are imperfectly substitutable among alternative uses.
C. the presence of inflationary pressures.
D. that more output could be produced with available resources.

D. that more output could be produced with available resources.

Which of the following is assumed in constructing a typical production possibilities curve?
A. the economy is using its resources inefficiently.
B. resources are perfectly shiftable among alternative uses.
C. production technology is fixed.
D. the economy is engaging in international trade.

C. production technology is fixed.

The typical production possibilities curve is:
A. an upsloping line that is bowed out from the origin.
B. a downsloping line that is bowed in toward the origin.
C. a downsloping line that is bowed out from the origin.
D. a straight upsloping line.

C. a downsloping line that is bowed out from the origin.

The slope of the typical production possibilities curve:
A. is positive.
B. increases as one moves southeast along the curve.
C. is constant as one moves down the curve.
D. decreases as one moves southeast along the curve.

B. increases as one moves southeast along the curve.

Assume an economy is incurring unemployment. The effect of resolving this problem will be to:
A. move the level of actual output on to the economy’s production possibilities curve.
B. create a less equal distribution of income.
C. shift its production possibilities curve to the left.
D. shift its production possibilities curve to the right.

A. move the level of actual output on to the economy’s production possibilities curve.

Which of the following is not correct? A typical production possibilities curve:
A. indicates how much of two products a society can produce.
B. reveals how much each additional unit of one product will cost in terms of the other product.
C. specifies how much of each product society should produce.
D. indicates that to produce more of one product society must forgo larger and larger amounts of the other product.

C. specifies how much of each product society should produce.

The production possibilities curve shows:
A. the various combinations of two goods that can be produced when society employs all of its scarce resources.
B. the minimum outputs of two goods that will sustain a society.
C. the various combinations of two goods that can be produced when some resources are unemployed.
D. the ideal, but unattainable, combinations of two goods that would maximize consumer satisfactions.

A. the various combinations of two goods that can be produced when society employs all of its scarce resources.

The negative slope of the production possibilities curve is a graphical way of indicating that:
A. any economy "can have its cake and eat it too."
B. to produce more of one product we must do with less of another.
C. the principle of increasing opportunity costs applies to only parts of the economy.
D. consumers buy more when prices are low than when prices are high.

B. to produce more of one product we must do with less of another.

If an economy is operating on its production possibilities curve for consumer goods and capital goods, this means that:
A. it is impossible to produce more consumer goods.
B. resources cannot be reallocated between the two goods.
C. it is impossible to produce more capital goods.
D. more consumer goods can only be produced at the cost of fewer capital goods.

D. more consumer goods can only be produced at the cost of fewer capital goods.

The construction of a production possibilities curve assumes:
A. the quantities of all resources are unlimited.
B. technology is fixed.
C. some resources are unemployed.
D. there is no inflation in the economy.

B. technology is fixed.

A typical concave (bowed out from the origin) production possibilities curve implies:
A. that economic resources are unlimited.
B. that society must choose among various attainable combinations of goods.
C. decreasing opportunity costs.
D. that society is using a market system to allocate resources.

B. that society must choose among various attainable combinations of goods.

The production possibilities curve tells us:
A. the specific combination of two products that is most desired by society.
B. that costs do not change as society varies its output.
C. costs are irrelevant in a society that has fixed resources.
D. the combinations of two goods that can be produced with society’s available resources.

D. the combinations of two goods that can be produced with society’s available resources.

The production possibilities curve has:
A. a positive slope that increases as we move along it from left to right.
B. a negative slope that increases as we move along it from left to right.
C. a negative slope that decreases as we move along it from left to right.
D. a negative slope that is constant as we move along it from left to right.

B. a negative slope that increases as we move along it from left to right.

If an economy is operating inside its production possibilities curve for consumer goods and capital goods, it:
A. can only produce more consumer goods by producing fewer capital goods.
B. can only produce more capital goods by producing fewer consumer goods.
C. can produce more of both consumer goods and capital goods by using resources that are currently idle.
D. must improve its technology to produce more output.

C. can produce more of both consumer goods and capital goods by using

The fact that the slope of the production possibilities curve becomes steeper as we move down along the curve indicates that:
A. the principle of increasing opportunity costs is relevant.
B. society’s resources are limited.
C. the opportunity cost of producing each product is constant.
D. resources are perfectly shiftable between alternative uses.

C. the opportunity cost of producing each product is constant.

The law of increasing opportunity costs states that:
A. if society wants to produce more of a particular good, it must sacrifice larger and larger amounts of another good to do so.
B. the sum of the costs of producing a particular good cannot rise above the current market price of that good.
C. if the sum of the costs of producing a particular good rises by a specified percent, the price of that good must rise by a greater relative amount.
D. if the prices of all the resources used to produce goods increase, the cost of producing any particular good will increase at the same rate.

A. if society wants to produce more of a particular good, it must sacrifice larger and larger amounts of another good to do so.

The concept of opportunity cost:
A. is irrelevant in socialistic economies because of central planning.
B. suggests that the use of resources in any particular line of production means that alternative outputs must be forgone.
C. is irrelevant if the production possibilities curve is shifting to the right.
D. suggests that insatiable wants can be fulfilled.

B. suggests that the use of resources in any particular line of production means that alternative outputs must be forgone.

The law of increasing opportunity costs is reflected in a production possibilities curve that is:
A. an upsloping straight line.
B. a downsloping straight line.
C. bowed out from the origin.
D. bowed in toward the origin.

C. bowed out from the origin.

The point on the production possibilities curve that is most desirable can be found by:
A. estimating the marginal costs of both products in real or physical terms.
B. comparing marginal benefits and marginal costs.
C. determining where least-cost production occurs.
D. calculating where economic growth will be greatest.

B. comparing marginal benefits and marginal costs.

The optimal point on a production possibilities curve is achieved where:
A. the smallest physical amounts of inputs are used to produce each good.
B. each good is produced at a level where marginal benefits equal marginal costs.
C. large amounts of capital goods are produced relative to consumer goods.
D. large amounts of consumer goods are produced relative to capital goods.

B. each good is produced at a level where marginal benefits equal marginal costs.

The marginal benefit curve is:
A. upsloping because of increasing marginal opportunity costs.
B. upsloping because successive units of a specific product yield less and less extra benefit.
C. downsloping because of increasing marginal opportunity costs.
D. downsloping because successive units of a specific product yield less and less extra benefit.

D. downsloping because successive units of a specific product yield less and less extra benefit.

The marginal cost curve is:
A. upsloping because of increasing marginal opportunity costs.
B. upsloping because successive units of a specific product yield less and less extra utility.
C. downsloping because of increasing marginal opportunity costs.
D. downsloping because successive units of a specific product yield less and less extra utility.

A. upsloping because of increasing marginal opportunity costs.

The output of MP3 players should be:
A. reduced if marginal benefits exceed marginal costs.
B. reduced if marginal costs exceed marginal benefits.
C. increased if marginal costs exceed marginal benefits.
D. reduced to zero if their unit costs exceed the unit costs of alternative products.

B. reduced if marginal costs exceed marginal benefits.

If the output of product X is such that marginal benefit equals marginal cost:
A. the correct amount of resources is being allocated to X’s production.
B. the value of producing X exceeds the value of producing alternative products with the available resources.
C. there can be a net gain to society by allocating either more or less resources to producing X.
D. resources are overallocated to the production of X.

A. the correct amount of resources is being allocated to X’s production.

Suppose that a fully-employed economy produces only two goods, hamburgers and flat-panel TVs. If the economy is currently producing more than the optimal quantity of hamburgers, then to attain the optimal allocation of resources it should:
A. produce more hamburgers and fewer TVs.
B. produce more TVs and fewer hamburgers.
C. produce more of both goods.
D. produce fewer of both goods.

B. produce more TVs and fewer hamburgers.

Suppose that an economy is producing on its production possibilities curve, but is not producing quantities of each good where the marginal benefit equals the marginal cost for each good. This economy:
A. should not change its production because it cannot improve its allocation by shifting resources.
B. can improve its allocation by lowering the unemployment rate.
C. can improve its allocation by producing more of one good and less of the other.
D. can improve its allocation by producing more of both goods.

C. can improve its allocation by producing more of one good and less of the other.

The optimal allocation of resources is found:
A. where MB = MC.
B. at every point along a production possibilities curve.
C. where the marginal benefit is at its greatest.
D. where the marginal cost is at its lowest.

A. where MB = MC.

The basic difference between consumer goods and capital goods is that
A. consumer goods are produced in the private sector and capital goods are produced in the public sector.
B. an economy that commits a relatively large proportion of its resources to capital goods must accept a lower growth rate.
C. the production of capital goods is not subject to the law of increasing opportunity costs.
D. consumer goods satisfy wants directly while capital goods satisfy wants indirectly.

D. consumer goods satisfy wants directly while capital goods satisfy wants indirectly.

Which of the following will shift the production possibilities curve to the right?
A. an increase in the unemployment rate from 6 to 8 percent
B. a decline in the efficiency with which the present labor force is allocated
C. a decrease in the unemployment rate from 8 to 6 percent
D. a technological advance that allows farmers to produce more output from given inputs

D. a technological advance that allows farmers to produce more output from given inputs

Other things equal, which of the following would shift an economy’s production possibilities curve to the left?
A. the discovery of a low-cost means of generating and storing solar energy
B. the entrance of more women into the labor force
C. a law requiring mandatory retirement from the labor force at age 55
D. an increase in the proportion of total output that consists of capital or investment goods

C. a law requiring mandatory retirement from the labor force at age 55

Which of the following statements, if any, is correct for a nation that is producing only consumer and capital goods?
A. Other things equal, the more consumer goods a nation produces, the greater will be its future growth rate.
B. Other things equal, the more capital goods a nation produces, the greater will be its future growth rate.
C. There is no general relationship between the current division of output between consumer and capital goods and the future growth rate.
D. None of these statements is correct.

B. Other things equal, the more capital goods a nation produces, the greater will be its future growth rate.

All of the following could immediately or eventually lead to an inward shift of a nation’s production possibilities curve, except:
A. emigration of skilled workers from the nation.
B. a decline in the birth rate.
C. an increase in the average skill level of all occupational groups.
D. depletion and reduced availability of major energy resources.

C. an increase in the average skill level of all occupational groups.

A nation’s production possibilities curve might shift to the left (inward) as a result of:
A. technological advance.
B. increases in the size of the labor force.
C. the depletion of its soil fertility due to overplanting and overgrazing.
D. investing in more capital goods.

C. the depletion of its soil fertility due to overplanting and overgrazing.

Which of the following will enable a nation to obtain a combination of consumer goods and capital goods outside its production possibilities curve?
A. full employment.
B. international specialization and trade.
C. full production.
D. productive efficiency.

B. international specialization and trade.

Suppose that Scoobania, which has full employment, can obtain 1 unit of capital goods by sacrificing 2 units of consumer goods domestically, but can obtain 1 unit of capital goods from another country by trading 1 unit of consumer goods for it. This reality illustrates:
A. a rightward (outward) shift of the production possibilities curve.
B. increasing opportunity costs.
C. achieving points beyond the production possibilities curve through international specialization and trade.
D. productive efficiency.

C. achieving points beyond the production possibilities curve through international specialization and trade.

Through specialization and international trade a nation:
A. can attain some combination of goods lying outside its production possibilities curve.
B. can move from a high consumption-low investment to a high investment-low consumption point on its production possibilities curve.
C. will only attain some combination of goods lying within its production possibilities curve.
D. will cause its production possibilities curve to shift leftward.

A. can attain some combination of goods lying outside its production possibilities curve.

Some agricultural sub-Saharan nations of Africa have overfarmed and overgrazed their land to the extent that significant portions of it have turned into desert. This suggests that:
A. the production possibilities curves of such nations are more bowed out from the origin.
B. the production possibilities curves of such nations have shifted inward.
C. the production possibilities curves of such nations have shifted outward.
D. these nations are operating at some point outside of their production possibilities curves.

B. the production possibilities curves of such nations have shifted inward.

If all discrimination in the United States were eliminated, the economy would:
A. have a less concave production possibilities curve.
B. produce at some point closer to its production possibilities curve.
C. be able to produce at some point outside of its production possibilities curve.
D. produce more consumer goods and fewer investment goods.

B. produce at some point closer to its production possibilities curve.

A country can achieve some combination of goods outside its production possibilities curve by:
A. idling some of its resources.
B. specializing and engaging in international trade.
C. buying the debt (bonds and stocks) of foreign nations.
D. producing more capital goods and fewer consumer goods.

B. specializing and engaging in international trade.

In recent years the economy of Japan has grown, despite the fact that the population of Japan has declined. Which of the following would best explain Japan’s economic growth despite having a smaller population?
A. Immigration of new workers into Japan.
B. Advancements in technology that make labor more productive.
C. Reduced employment of capital because fewer workers are available to use it.
D. Greater consumption of goods imported from other countries.

B. Advancements in technology that make labor more productive.

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