Microeconomics Ch 1

For economists, the word "utility" means

A.versatility and flexibility.
B.rationality.
C. pleasure or satisfaction.
D. purposefulness.

C. Pleasure or satisfaction

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

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. means that people never make wrong decisions.
D. is usually self-defeating.

A. is a reality that underlies economic behavior.

1. Joe sold gold coins for $1,000 that he bought a year ago for $1,000. 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 $1,000 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 Cost

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 better.

A. Benefit exceeds the 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.study of why people are rational.

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 trade-offs.

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

Economies 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 IF

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. the marginal benefit of the movie exceeds its marginal costs

Opportunity cost exists 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 trade-offs.

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 trade-offs between economic goals.
B. all production involves the use of scarce resources and thus the sacrifice of alternative goods.
C. marginal analysis is 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 trade-off problem that exists between competing goals.

B. Purposeful behavior

If someone produced too little of a good, this would suggest that

A.rational choice cannot be applied to many economic decisions.
B.the good was produced past the point where its marginal cost exceeded its marginal benefit.
C.government should intervene to produce more of the good.
D. the good was produced to the point where its marginal benefit exceeded its marginal cost.

D. The good was produced to the point when its marginal benefit exceeded its marginal cost.

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 electronic media sources are displacing print sources for many consumers.
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 economic quiz or go to a concert, one is confronted by the idea 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 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.

Opportunity Cost

Which of the following closely relates to the idea of opportunity costs?

A.marginal cost.
B.rational outcome.
C.status fulfillment.
D. utility.

A. Trade-Offs

Economists contend the most economic decisions are

A.random.
B.chaotic.
C.spontaneous.
D. purposeful.

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 is attempting to increase his own income by identifying and satisfying someone else's wants.
B. greedy because he is asking for a high wage that some of his neighbors can't afford to pay.
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 is 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.

An economic hypothesis

A.has the same meaning as an economic principle or economic law.
B.is usually a normative statement.
C. is a possible explanation of cause and effect.
D. is a stronger generalization than an economic law.

C. Is a possible explanation of cause and effect

Which of the following terms implies the LEAST degree of confidence in an economic generalization?

A. Hypothesis
B. Theory
C. Principle
D. Law

A. Hypothesis

Which of he following terms implies the GREATEST degree of confidence in and economic generalization?

A. Hypothesis
B. Comparison
C. Theory
D. Anomaly

C. Theory

A well-tested economic theory is often called

A. Hypothesis
B. A Prototype
C. A Principle
D. An Anomaly

C. A principle

The scientific method is

A.not applicable to economics because economics deals with human beings.
B.also known as the economic perspective.
C.employed to form hypotheses out of existing laws and theories.
D. used by economists and other social scientists, as well as by physical scientists and life scientists, to formulate and test hypotheses.

D. used by economists and other social scientists, as well as by physical scientists and life scientists, to formulate and test hypotheses.

The process by which economists test hypotheses against facts to develop theories, principles, and models is called

A. the economic perspective.
B. the scientific method.
C.policy economics.
D.microeconomics.

B. The scientific method

Economic theories are:

A.are useless because they are not based on laboratory experimentation.
B.that are true for individual economic units are never true for the economy as a whole.
C. are generalizations based on hypotheses tested and supported with observed facts.
D. are abstractions and therefore of no application to real situations.

C. are generalizations based on hypotheses tested and supported with observed facts.

Which of the following is a CORRECT statement

A. Economic concepts or laws that are valid during recessions are necessarily valid during prosperity.
B. Although they are generalizations, economic laws are useful because they allow us to predict and therefore influence or adjust to events.
C.Economists use the scientific method. Therefore, economic laws are as quantitatively precise as the laws of physics or chemistry.
Because economics is primarily concerned with questions of "ought," it is a branch of applied ethics and not scientific

B. Although they are generalizations, economic laws are useful because they allow us to predict and therefore influence or adjust to events.

In constructing models, economists

A. make simplifying assumptions.
B.include all available information.
C.must use mathematical equations.
D.attempt to duplicate the real world

A. Make simplifying assumptions

The latin term "ceteris paribus"

A.that if event A precedes event B, A has caused B.
B.that economics deals with facts, not values.
C. other things equal.
D. prosperity inevitably follows recession.

C. Other things equal

The basic purpose of the other-things-eaul assumptions is to

A. allow one to reason about the relationship between variables X and Y without the intrusion of variable Z.
B.allow one to focus upon micro variables by ignoring macro variables.
C.allow one to focus upon macro variables by ignoring micro variables.
D.determine whether X causes Y or vice versa.

A. allow one to reason about the relationship between variables X and Y without the intrusion of variable Z.

Suppose an economist says that "other things equal, the lower the price of bananas, the greater the amount of bananas purchased." This statement indicates that

B. all factors other than the price of bananas (for example, consumer tastes and incomes) are assumed to be constant.

The term "other things equal" means that

A.the associated statement is normative.
B.many variables affect the variable under consideration.
C. a number of relevant variables are assumed to be constant.
D. when variable X increases, so does related variable Y.

C. a number of relevant variables are assumed to be constant.

Kelly works at an ice cream shop and observes that the number of people buying ice cream varies greatly from day to day. For a couple of weeks, she has recorded the number of people at the shop each day, as well as the daily temperature. If Kelly is using the scientific method to better understand ice cream buying habits, her next step
is to

A.conclude definitively that people buy more ice cream when the temperature rises.
B.state her findings as a well-tested economic principle.
C. use the observed data to form a hypothesis about ice cream buying behavior.
D. throw out the data if it does not show a perfect relationship between buying habits and the other information she has collected

C. use the observed data to form a hypothesis about ice cream buying behavior.

Rosa works at a gelato shop and observes that the number of people buying gelato varies greatly from day to day. For a couple of weeks, she has recorded the number of people at the shop each day, as well as the daily temperature, and has observed a positive relationship between temperature and the number of customers. Based on

her observations, Rosa should
A. conclude definitively that
people buy more gelato when the temperature rises.
B. determine if there are other relevant factors and attempt to hold these constant before drawing conclusions.
C.continue to gather data on the number of visitors and daily temperatures, because eventually other relevant variables will not matter.
D.throw out the data if it does not show a perfect relationship between buying habits and temperature.

B. determine if there are other relevant factors and attempt to hold these constant before drawing conclusions.

Macroeconomics approaches the stud 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 professional athletes
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 issues of inflation, unemployment, and business cycles are

A. major topics of macroeconomics.
B.not relevant to the U.S. economy.
C.the primary focus of microeconomics.
D.positive economic issues, but not normative issues.

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 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%

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 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.establishing an overall view of the operation of the economic system.

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

Which of the following is a microeconomic statement?

A.The real domestic output increased by 1.6 percent last year.
B.Unemployment was 5.2 percent of the labor force last year.
C. The price of smartphones declined 2.8 percent last year.
D. The general price level increased by 1.1 percent last year.

C. The price of smartphones declined 2.8 percent 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 judgements

A Positive statement is one that

A.is derived by induction.
B.is derived by deduction.
C.focuses on the best course of action and is based on value judgments.
D. focuses on facts, descriptions, and theoretical relationships.

D. Focuses on facts, descriptions and theoretical relationships

Which of the following is a positive statement?

A.A humidity level of 90 percent is too high.
B.It is too hot to run outside when the temperature exceeds 80 degrees.
C. The temperature is 92 degrees today.
D. Summer evenings are nice when it cools off to around 70 degrees.

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. Positive and incorrect
B. Positive and Correct
C. Normative and Correct
D. Normative and Incorrect

B. Positive and Correct

"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 correct

The economizing problem is:

A. the need to make choices because economic wants exceed economic means.
B.how to distribute resources equally among all members of society.
C.that people's means often exceed their wants.
D.that people do not know how to rationally allocate resources.

A. The need to make choices because economic wants exceed economic means

The economizing problem is one of deciding how to make the best use of
A. virtually unlimited resources to satisfy virtually unlimited wants.
B. limited resources to satisfy virtually unlimited wants.
C.unlimited resources to satisfy limited wants.
D.limited resources to satisfy limited wants.

B. limited resources o satisfy virtually unlimited wants

Scarcity
A. persists only because countries have failed to achieve continuous full employment.
B. persists because economic wants exceed available resources.
C.has been solved in all industrialized nations.
D. has been eliminated in affluent societies such as the United States and Canada.

B. Persists because economic wants exceeds available resources

The alternative combination of two goods that a consumer can purchase with a specific money income is shown by
A.a production possibilities curve.
B.a demand curve.
C.a consumer expenditure line.
D. a budget line.

D. A budget line

The budget line shows

A. the amount of product X that a consumer is willing to give up to obtain one more unit of product Y.
B. all possible combinations of two goods that can be purchased, given money income and the prices of the goods.
C.the minimum amount of two goods that a consumer can purchase with a specific money income.
D.all possible combinations of two goods that yield the same level of utility to the consumer.

B. All possible combination of two goods that can be purchased, given money income and the prices of the goods.

Refer to the budget line shown in the diagram. If the consumer's money income is $50, the

A.prices of C and D cannot be determined.
B.price of C is $5 and the price of D is $10.
C.consumer can obtain a combination of 5 units of both C and D.
D. price of C is $10 and the price of D is $5.

D. Price of C is $10 and the price of D is $5

Refer to the budget line shown in the diagram. Which of the following combinations of goods
is unattainable for this consumer?

A. 4 units of C and 6 units of D
B.5 units of C and no units of D
C.1 unit of C and 8 units of D
D.2 units of C and 6 units of D

A. 4 untis of C and 6 units of D

Refer to the budget line shown in the diagram. The absolute value of the slope of the budget line is

A.MUC / MUD.
B.one-half.
C.PD / PC.
D. PC / PD.

PC/PD

Refer to the budget line. The absolute value of the slope of the budget line is:

A. two.
B.one-half.
C.five.
D.ten.

A. Two

In moving along a given budget line:
A. the prices of both products and money income are assumed to be constant.
B.each point on the line will be equally satisfactory to consumers.
C.money income varies, but the prices of the two goods are constant.
D. the prices of both products are assumed to vary, but money income is constant.

A. The prices of both products and money income are assumed to be constant

An increase in money income

A. shifts the consumer's budget line to the right.
B.shifts the consumer's budget line to the left.
C.increases the slope of the budget line.
D.has no effect on the budget line.

A. Shifts the consumer's budget line to the right

The shift of the budget line from cd to ab in the figure is consistent with
A.decreases in the prices of both M and N.
B.an increase in the price of M and a decrease in the price of N.
C. a decrease in money income.
D. an increase in money income.

C. A decrease in money income

Any combination of goods lying outside of the budget line

A.implies that the consumer is not spending all of the consumer's income.
B.yields less utility than any point on the budget line.
C.yields less utility than any point inside the budget line.
D. is unattainable, given the consumer's income.

D. is unattainable, given the consumer's income

Suppose you have a money income of $10, all of which you spend on Coke and popcorn. In the diagram, the prices of Coke and popcorn, respectively, are

A. $.50 and $1.00.
B. $1.00 and $.50.
C. $1.00 and $2.00.
D. $.40 and $.50.

A. $.50 and $1.00

Other things equal, an increase in a consumer's money income

A. increases the amount of utility a consumer receives from a given quantity of a good.
B. shifts the individual's budget line rightward because she can now purchase more of both products.
C.eliminates the individual's economizing problem.
D.causes the consumer to choose a different combination of goods along a given budget line.

B. Shifts the individual's budget line rightward because she can now purchase more of both products.

The slope of the budget line reflects the

A. desirability of the two products.
B. price ratio of the two products.
C.amount of the consumer's income.
D.utility ratio of the two products.

B. price ratio of the two products

Suppose Elroy's budget line is as shown on the diagram. If his tastes change in favor of Coke and against popcorn, the budget line will

A.become steeper.
B.become flatter.
C.shift rightward.
D. be unaffected.

D. Be unaffected

Assume the price of product Y (the quantity of which is on the vertical axis) is $15 and the price of product X (the quantity of which is on the horizontal axis) is $3. Also assume that money income is $60. The absolute value of the slope of the resulting budget line is

A. 5.
B. 1/5.
C.4.
D. 20

B. 1/5

Refer to the graphs. Assume that pizza is measured in slices and beer in pints. In which of the graphs is the opportunity cost of a pint of beer equal to one slice of pizza?

A.graph A
B.graph B
C.graph C
D. graph D

D. Graph D

Refer to the graphs. Assume that pizza is measured in slices and beer in pints. In which of the graphs is the opportunity cost of a pint of beer the lowest?

A. graph A
B. graph B
C.graph C
D.graph D

B. Graph B

78. Suppose that Julia receives a $20 gift card for the local coffee shop, where she only buys lattes and muffins. If the price of a latte is $4 and the price of a muffin is $2, then we can conclude that Julia

A.should only buy muffins.
B.should only buy lattes.
C. can buy 5 lattes or 10 muffins if she chooses to buy only one of the two goods.
D. can buy 5 lattes and 10 muffins with her $20 gift card.

C. can buy 5 lattes or 10 muffins if she chooses to buy only one of the two goods.

Camille is at the candy store with Grandma Mary, who offers to buy her $6 worth of candy. If lollipops are $1 each and candy bars are $2 each, what combination of candy can Camille's Grandma Mary buy her?

A. six lollipops and three candy bars
B. two lollipops and two candy bars
C.three lollipops and two candy bars
D.one lollipop and three candy bars

B. two lollipops and two candy bars

Which of the following is a labor resource

A. a computer programmer
B.a computer
C.silicon (sand) used to make computer chips
D.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. software used by a firm

D. 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 start-up 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, vans used to shuttle rental customers to and from the airport

D. autos owned by a car rental firm, computers at the car rental agency, vans used to shuttle rental customers to and from the airport

Money isn't and 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 so 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 man 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. to make routine pricing decisions
B to innovate
C.to assume the risk of economic losses
D. to make strategic business decisions

A. To 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 and 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. upgrading the quality of a nation's human resources
B. reducing unemployment
C.increasing the quantity of a society's labor force
D.improving a society's technological knowledge

B. Reducing 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.

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

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

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.opportunity costs of producing a good tend to fall as more of the good is produced.
C.resources are scarce.
D.wants are virtually unlimited.

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

Refer to the table. If the economy is producing at production alternative C, the opportunity cost of the 10th unit of consumer goods will be
A.4 units of capital goods.
B.2 units of capital goods.
C.3 units of capital goods.
D. ⅓ of a unit of capital goods.

D. ⅓ of a unit of capital goods.

Refer to the table. As compared to production alternative D, the choice of alternative C would

A. tend to generate a more rapid growth rate.
B.be unattainable.
C.entail unemployment.
D. tend to generate a slower growth rate

A. tend to generate a more rapid growth rate.

Refer to the table.
A total output of 3 units of capital goods and 4 units of consumer goods
A.is irrelevant because the economy is capable of producing a larger total output.
B.will result in the maximum rate of growth available to this economy.
C. would involve an inefficient use of the economy's scarce resources.
D. is unobtainable in this economy.

C. would involve an inefficient use of the economy's scarce resources

Refer to the table. For this economy to produce a total output of 3 units of capital goods and 13 units of consumer goods, it must
A. expand its resources or improve its technology.
B.use its resources more efficiently than the data in the table now indicate.
C.allocate its available resources most efficiently among alternative uses.
D.achieve the full employment of available resources.

A. expand its resources or improve its technology.

Refer to the table. For these data, the law of increasing opportunity costs is reflected in the fact that

A. the amount of consumer goods that must be sacrificed to get more capital goods diminishes beyond a point.
B. larger and larger amounts of capital goods must be sacrificed to get additional units of consumer goods.
C.the production possibilities data would graph as a straight downsloping line.
D.the economy's resources are presumed to be scarce.

B. larger and larger amounts of capital goods must be sacrificed to get additional units of consumer goods.

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 possibility 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 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 the available resources

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

Refer to the diagram. Other things equal, this economy will shift its production possibilities curve outward the most if

A.the ratio of capital to consumer goods is minimized.
B.it chooses point C.
C.it chooses point B.
D. it chooses point A.

D. it chooses point A

Refer to the diagram. This economy will experience unemployment if it produces at point
A.A.
B.B.
C.C.
D. D.

D

111. 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 closer 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 closer to the economy's production possibilities curve.

Refer to the tables. Suppose that the amount and quality of resources are the same in both countries. We can conclude that

A. Duckistan is technologically better than Herbania at producing military goods.
B. Herbania is technologically better than Herbania at producing both military goods and civilian goods.
C. the total opportunity cost of producing 4 units of military goods is the same in both countries.
D. Herbania is technologically superior to Duckistan in producing civilian goods.

D. Herbania is technologically superior to Duckistan in producing civilian goods.

Refer to the tables. Suppose that technology and the quality of resources are the same in both countries. We can conclude that

A. Duckistan has more resources than Herbania.
B. Herbania has more resources than Duckistan.
C. Duckistan has greater opportunity costs than Herbania.
D. prices are twice as high in Herbania as in Duckistan

Refer to the tables. Suppose that technology and the quality of resources are the same in both countries. We can conclude that

Refer to the tables. Opportunity costs of producing military goods are
A. increasing in Duckistan but constant in Herbania.
B. constant in both Duckistan and Herbania.
C. larger in Duckistan than in Herbania.
D. smaller in Duckistan than Herbania.

D. smaller in Duckistan than Herbania.

Refer to the tables. Opportunity costs are
A. constant in both Duckistan and Herbania.
B. larger in Duckistan than in Herbania.
C. increasing in both Duckistan and Herbania.
D. increasing in Duckistan and constant in Herbania.

C. increasing in both Duckistan and Herbania.

Refer to the tables. Suppose that Duckistan and Herbania are each producing 14 units of civilian goods and 2 units of military goods. Then
A. Duckistan is fully employing its resources, but Herbania is not.
B. both Duckistan and Herbania are fully employing their resources.
C. Herbania is fully employing its resources, but Duckistan is not.
D. neither Duckistan nor Herbania is fully employing its resources.

A. Duckistan is fully employing its resources, but Herbania is not.

In the figure are two linear production possibilities curves for countries Alpha and Beta. We can conclude that
A. different value systems make it impossible to compare opportunity costs in the two countries.
B. the opportunity cost of shelter is greater in Beta than it is in Alpha.
C. the opportunity cost of food is greater in Alpha than it is in Beta.
D. the opportunity cost of shelter is greater in Alpha than it is in Beta.

D. the opportunity cost of shelter is greater in Alpha than it is in Beta.

Which of the following is not correct? A typical production possibilities curve
A. indicates how much of two products 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 a society will want to produce.
D. indicates that to produce more of one product, a society must forgo larger and larger amounts of the other product.

C. specifies how much of each product a society will want to produce.

Refer to the diagram. This production possibilities curve is constructed so that
A. resources are presumed to be perfectly shiftable between bread and tractors.
B. the opportunity cost of bread diminishes as more bread is produced.
C. the opportunity cost of tractors increases as more bread is produced.
D. the opportunity costs of both bread and tractors increase as more of each is produced.

D. the opportunity costs of both bread and tractors increase as more of each is produced.

Refer to the diagram. Which of the following is a normative statement?
A. Point C is superior to point B because it is important to enhance the future of society.
B. If society is initially at point C, it must sacrifice 6 units of bread to obtain one more unit of tractors.
C. If society produces 2 units of tractors and 12 units of bread, it is not using its available resources with maximum efficiency.
D. Other things equal, the combination of outputs represented by point D will result in more rapid economic growth than will the combination represented by point C.

A. Point C is superior to point B because it is important to enhance the future of society.

Refer to the diagram. Which of the following is a positive statement?
A. A point inside the production possibilities curve is superior to a point on the curve because the former requires less work effort.
B. Because any society should stress economic growth as its major goal, point D is superior to point C.
C. Point B is preferable to point C because the ultimate goal of economic activity is to maximize consumption.
D. Given its resources and technology, this society is incapable of simultaneously producing 3 units of tractors and 15 units of bread.

D. Given its resources and technology, this society is incapable of simultaneously producing 3 units of tractors and 15 units of bread.

Refer to the diagram. Starting at point A, the opportunity cost of producing each successive unit of tractors is
A. a constant 2 units of bread.
B. 2, 4, 6, and 8 units of bread.
C. 8, 6, 4, and 2 units of bread.
D. the reciprocal of the output of tractors.

B. 2, 4, 6, and 8 units of bread.

Refer to the diagram. Starting at point E, the production of successive units of bread will cost
A. a constant 8 units of tractors.
B. a constant 6 units of tractors.
C. 1/8, 1/6, 1/4, and 1/2 units of tractors.
D. 1/2, 1/4, 1/6, and 1/8 units of tractors.

C. 1/8, 1/6, 1/4, and 1/2 units of tractors.

Refer to the production possibilities curve. At the onset of the Second World War, the United States had large amounts of idle human and property resources. Its economic adjustment from peacetime to wartime can best be described by the movement from point

C. a to point b.

Refer to the production possibilities curve. At the onset of the Second World War, the Soviet Union was already at full employment. Its economic adjustment from peacetime to wartime can best be described by the movement from point
A. c to point b.
B. b to point c.
C. a to point b.
D. c to point d.

A. c to point b.

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 satisfaction.

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.
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. that 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.

Refer to the tables. If South Cantina is producing at production alternative D, the opportunity cost of the third unit of capital goods will be
A. 3 units of consumer goods.
B. 4 units of consumer goods.
C. 5 units of consumer goods.
D. 6 units of consumer goods.

D. 6 units of consumer goods.

Refer to the tables. If North Cantina is producing at production alternative B, the opportunity cost of the eleventh unit of consumer goods will be
A. 10 units of capital goods.
B. ¼ of a unit of capital goods.
C. 8 units of capital goods.
D. ⅛ of a unit of capital goods.

D. ⅛ of a unit of capital goods.

Refer to the tables. Suppose that North Cantina is producing 2 units of capital goods and 17 units of consumer goods, while South Cantina is producing 2 units of capital goods and 21 units of consumer goods. We can conclude that
A. North Cantina is fully and efficiently using its resources, but South Cantina is not.
B. South Cantina is fully and efficiently using its resources, but North Cantina is not.
C. neither South Cantina nor North Cantina is fully and efficiently using its resources.
D. both South Cantina and North Cantina are fully and efficiently using their resources.

B. South Cantina is fully and efficiently using its resources, but North Cantina is not.

Refer to the tables. Suppose that resources in North Cantina and South Cantina are identical in quantity and quality. We can conclude that

A. South Cantina has better technology than North Cantina in producing both capital and consumer goods.
B. North Cantina has better technology than South Cantina in producing both capital and consumer goods.
C. North Cantina is growing more rapidly than South Cantina.
D. North Cantina has better technology than South Cantina in producing consumer goods but not capital goods.

D. North Cantina has better technology than South Cantina in producing consumer goods but not capital goods.

Refer to the tables. The opportunity cost of the fifth unit of capital goods
A. is higher in North Cantina than in South Cantina.
B. is the same in North Cantina and South Cantina.
C. is lower in North Cantina than in South Cantina.
D. cannot be determined from the information provided.

A. is higher in North Cantina than in South Cantina.

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 resources that are currently idle.

Refer to the diagram. Points A, B, C, D, and E show
A. that the opportunity cost of bicycles increases, while that of computers is constant.
B. combinations of bicycles and computers that society can produce by using its resources efficiently.
C. that the opportunity cost of computers increases, while that of bicycles is constant.
D. that society's demand for bicycles is greater than its demand for computers.

B. combinations of bicycles and computers that society can produce by using its resources efficiently.

Refer to the diagram. If society is currently producing 9 units of bicycles and 4 units of computers and it now decides to increase computer output to 6, the cost
A. will be 4 units of bicycles.
B. will be 2 units of bicycles.
C. will be zero because unemployed resources are available.
D. of doing so cannot be determined from the information given

A. will be 4 units of bicycles.

Refer to the diagram. The combination of computers and bicycles shown by point G is
A. attainable but too costly.
B. unattainable given currently available resources and technology.
C. attainable but involves unemployment.
D. irrelevant because it is inconsistent with consumer preferences.

B. unattainable given currently available resources and technology.

Refer to the diagram. If society is currently producing the combination of bicycles and computers shown by point D, the production of 2 more units of bicycles
A. cannot be achieved because resources are fully employed.
B. will cost 1 unit of computers.
C. will cost 2 units of computers.
D. will cause some resources to become unemployed.

B. will cost 1 unit of computers.

Refer to the diagram. The combination of computers and bicycles shown by point F
A. is unattainable given currently available resources and technology.
B. is attainable but implies that the economy is not using all its resources.
C. is irrelevant because it is inconsistent with consumer preferences.
D. suggests that opportunity costs are constant

B. is attainable but implies that the economy is not using all its resources.

Refer to the diagram. The movement down the production possibilities curve from point A to point E suggests that the production of
A. computers, but not bicycles, is subject to increasing opportunity costs.
B. bicycles, but not computers, is subject to increasing opportunity costs.
C. both bicycles and computers is subject to constant opportunity costs.
D. both bicycles and computers is subject to increasing opportunity costs.

D. both bicycles and computers is subject to increasing opportunity costs.

Refer to the diagram. As it relates to production possibilities analysis, the law of increasing opportunity cost is reflected in curve
A. A.
B. B.
C. C.
D. D.

C. C

Refer to the diagram. Curve B is a
A. production possibilities curve indicating constant opportunity costs.
B. production possibilities curve indicating increasing opportunity costs.
C. demand curve indicating that the quantity of consumer goods D. demanded increases as the price of capital falls.
technology frontier curve

A. production possibilities curve indicating constant opportunity costs.

Refer to the diagram. All other things equal, curve C
A. reflects increasing opportunity costs because the slope of the curve becomes less steep as one moves down along the curve.
B. is a less desirable production possibilities curve for an economy than curve B.
C. is a more desirable production possibilities curve for an economy than curve A.
D. has a steeper slope throughout than curve B.

C. is a more desirable production possibilities curve for an economy than curve A.

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 substitutable between alternative uses.

A. the principle of increasing opportunity costs is relevant.

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 percentage, 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 digital music 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.

Refer to the diagram for athletic shoes. The optimal output of shoes is
A. Q1.
B. Q2.
C. Q3.
D. greater than Q3.

B. Q2.

Refer to the diagram for athletic shoes. If the current output of shoes is Q1, then

A. society would consider additional units of shoes to be more valuable than alternative uses of those resources.
B. society would consider additional units of shoes to be less valuable than alternative uses of those resources.
C. society would experience a net loss by producing more shoes.
D. resources are being allocated efficiently to the production of shoes.

A. society would consider additional units of shoes to be more valuable than alternative uses of those resources.

Refer to the diagram for athletic shoes. If the current output of shoes is Q3, then
A. resources are being allocated efficiently to the production of shoes.
B. society would consider additional units of shoes to be more valuable than alternative products.
C. society would consider additional units of shoes to be less valuable than alternative products.
D. society would experience a net gain by producing more shoes.

C. society would consider additional units of shoes to be less valuable than alternative products.

Refer to the diagram for athletic shoes. If the current output of shoes is Q3, then
A. society should produce fewer shoes to achieve the optimal allocation of resources.
B. society should produce more shoes to achieve the optimal allocation of resources.
C. resources are being allocated efficiently to the production of shoes.
D. shoes are more valuable to society than alternative products

A. society should produce fewer shoes to achieve the optimal allocation of resources.

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.

D. can improve its allocation by producing more of both goods.

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.

Refer to the diagram. Technological advance in producing both capital goods and consumer goods is shown by the shift of the production possibilities curve from AB to
A. CD.
B. EB.
C. AF.
D. GH.

A. CD.

Refer to the diagram. Technological advance that improves the ability to produce capital goods but not consumer goods is shown by the shift of the production possibilities curve from AB to
A. CD.
B. BE.
C. AF.
D. GH.

B. BE.

Refer to the diagram. Technological advance that is useful in producing consumer goods but not in producing capital goods is shown by the shift of the production possibilities curve from AB to
A. CD.
B. EB.
C. AF.
D. GH.

C. AF.

171. 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

Refer to the diagram. The concave shape of each production possibilities curve indicates that
A. resources are perfectly substitutable.
B. wants are virtually unlimited.
C. prices are constant.
D. resources are not equally suited for alternative uses.

D. resources are not equally suited for alternative uses.

Refer to the diagram. The concept of opportunity cost is best represented by the
A. shift of the production possibilities curve from PP1 to PP2.
B. move from B on PP1 to E on PP2.
C. move from B on PP1 to C on PP1.
D. move from D inside PP1 to B on PP1.

C. move from B on PP1 to C on PP1.

Refer to the diagram. Other things equal, which of the following positions relative to PP1 would be the most likely to result in a future production possibilities curve of
PP3 rather than PP2?
A. A
B. B
C. C
D. D

A

Refer to the diagram. An improvement in technology will

A. shift the production possibilities curve from PP1 to PP2.
B. shift the production possibilities curve from PP2 to PP1.
C. move the economy from A to C along PP1.
D. move the economy from A, B, or C on PP1 to D.

A. shift the production possibilities curve from PP1 to PP2.

Refer to the diagram. Which one of the following would shift the production possibilities curve from PP1 to PP2?
A. an outbreak of the Zika virus leading to an epidemic
B. immigration of skilled workers into the economy
C. an increase in consumer prices
D. a reduction in hourly wages

B. immigration of skilled workers into the economy

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 are 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 to other nations.
B. a decline in the birthrate.
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

(Consider This) Free products offered by firms
A. may or may not be free to society but are never free to individuals.
B. may or may not be free to individuals but are never free to society.
C. are produced and distributed at no cost to society.
D. are usually items nobody wants.

B. may or may not be free to individuals but are never free to society.

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Microeconomics Ch 1

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For economists, the word "utility" means

A.versatility and flexibility.
B.rationality.
C. pleasure or satisfaction.
D. purposefulness.

C. Pleasure or satisfaction

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

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. means that people never make wrong decisions.
D. is usually self-defeating.

A. is a reality that underlies economic behavior.

1. Joe sold gold coins for $1,000 that he bought a year ago for $1,000. 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 $1,000 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 Cost

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 better.

A. Benefit exceeds the 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.study of why people are rational.

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 trade-offs.

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

Economies 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 IF

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. the marginal benefit of the movie exceeds its marginal costs

Opportunity cost exists 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 trade-offs.

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 trade-offs between economic goals.
B. all production involves the use of scarce resources and thus the sacrifice of alternative goods.
C. marginal analysis is 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 trade-off problem that exists between competing goals.

B. Purposeful behavior

If someone produced too little of a good, this would suggest that

A.rational choice cannot be applied to many economic decisions.
B.the good was produced past the point where its marginal cost exceeded its marginal benefit.
C.government should intervene to produce more of the good.
D. the good was produced to the point where its marginal benefit exceeded its marginal cost.

D. The good was produced to the point when its marginal benefit exceeded its marginal cost.

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 electronic media sources are displacing print sources for many consumers.
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 economic quiz or go to a concert, one is confronted by the idea 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 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.

Opportunity Cost

Which of the following closely relates to the idea of opportunity costs?

A.marginal cost.
B.rational outcome.
C.status fulfillment.
D. utility.

A. Trade-Offs

Economists contend the most economic decisions are

A.random.
B.chaotic.
C.spontaneous.
D. purposeful.

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 is attempting to increase his own income by identifying and satisfying someone else’s wants.
B. greedy because he is asking for a high wage that some of his neighbors can’t afford to pay.
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 is 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.

An economic hypothesis

A.has the same meaning as an economic principle or economic law.
B.is usually a normative statement.
C. is a possible explanation of cause and effect.
D. is a stronger generalization than an economic law.

C. Is a possible explanation of cause and effect

Which of the following terms implies the LEAST degree of confidence in an economic generalization?

A. Hypothesis
B. Theory
C. Principle
D. Law

A. Hypothesis

Which of he following terms implies the GREATEST degree of confidence in and economic generalization?

A. Hypothesis
B. Comparison
C. Theory
D. Anomaly

C. Theory

A well-tested economic theory is often called

A. Hypothesis
B. A Prototype
C. A Principle
D. An Anomaly

C. A principle

The scientific method is

A.not applicable to economics because economics deals with human beings.
B.also known as the economic perspective.
C.employed to form hypotheses out of existing laws and theories.
D. used by economists and other social scientists, as well as by physical scientists and life scientists, to formulate and test hypotheses.

D. used by economists and other social scientists, as well as by physical scientists and life scientists, to formulate and test hypotheses.

The process by which economists test hypotheses against facts to develop theories, principles, and models is called

A. the economic perspective.
B. the scientific method.
C.policy economics.
D.microeconomics.

B. The scientific method

Economic theories are:

A.are useless because they are not based on laboratory experimentation.
B.that are true for individual economic units are never true for the economy as a whole.
C. are generalizations based on hypotheses tested and supported with observed facts.
D. are abstractions and therefore of no application to real situations.

C. are generalizations based on hypotheses tested and supported with observed facts.

Which of the following is a CORRECT statement

A. Economic concepts or laws that are valid during recessions are necessarily valid during prosperity.
B. Although they are generalizations, economic laws are useful because they allow us to predict and therefore influence or adjust to events.
C.Economists use the scientific method. Therefore, economic laws are as quantitatively precise as the laws of physics or chemistry.
Because economics is primarily concerned with questions of "ought," it is a branch of applied ethics and not scientific

B. Although they are generalizations, economic laws are useful because they allow us to predict and therefore influence or adjust to events.

In constructing models, economists

A. make simplifying assumptions.
B.include all available information.
C.must use mathematical equations.
D.attempt to duplicate the real world

A. Make simplifying assumptions

The latin term "ceteris paribus"

A.that if event A precedes event B, A has caused B.
B.that economics deals with facts, not values.
C. other things equal.
D. prosperity inevitably follows recession.

C. Other things equal

The basic purpose of the other-things-eaul assumptions is to

A. allow one to reason about the relationship between variables X and Y without the intrusion of variable Z.
B.allow one to focus upon micro variables by ignoring macro variables.
C.allow one to focus upon macro variables by ignoring micro variables.
D.determine whether X causes Y or vice versa.

A. allow one to reason about the relationship between variables X and Y without the intrusion of variable Z.

Suppose an economist says that "other things equal, the lower the price of bananas, the greater the amount of bananas purchased." This statement indicates that

B. all factors other than the price of bananas (for example, consumer tastes and incomes) are assumed to be constant.

The term "other things equal" means that

A.the associated statement is normative.
B.many variables affect the variable under consideration.
C. a number of relevant variables are assumed to be constant.
D. when variable X increases, so does related variable Y.

C. a number of relevant variables are assumed to be constant.

Kelly works at an ice cream shop and observes that the number of people buying ice cream varies greatly from day to day. For a couple of weeks, she has recorded the number of people at the shop each day, as well as the daily temperature. If Kelly is using the scientific method to better understand ice cream buying habits, her next step
is to

A.conclude definitively that people buy more ice cream when the temperature rises.
B.state her findings as a well-tested economic principle.
C. use the observed data to form a hypothesis about ice cream buying behavior.
D. throw out the data if it does not show a perfect relationship between buying habits and the other information she has collected

C. use the observed data to form a hypothesis about ice cream buying behavior.

Rosa works at a gelato shop and observes that the number of people buying gelato varies greatly from day to day. For a couple of weeks, she has recorded the number of people at the shop each day, as well as the daily temperature, and has observed a positive relationship between temperature and the number of customers. Based on

her observations, Rosa should
A. conclude definitively that
people buy more gelato when the temperature rises.
B. determine if there are other relevant factors and attempt to hold these constant before drawing conclusions.
C.continue to gather data on the number of visitors and daily temperatures, because eventually other relevant variables will not matter.
D.throw out the data if it does not show a perfect relationship between buying habits and temperature.

B. determine if there are other relevant factors and attempt to hold these constant before drawing conclusions.

Macroeconomics approaches the stud 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 professional athletes
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 issues of inflation, unemployment, and business cycles are

A. major topics of macroeconomics.
B.not relevant to the U.S. economy.
C.the primary focus of microeconomics.
D.positive economic issues, but not normative issues.

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 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%

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 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.establishing an overall view of the operation of the economic system.

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

Which of the following is a microeconomic statement?

A.The real domestic output increased by 1.6 percent last year.
B.Unemployment was 5.2 percent of the labor force last year.
C. The price of smartphones declined 2.8 percent last year.
D. The general price level increased by 1.1 percent last year.

C. The price of smartphones declined 2.8 percent 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 judgements

A Positive statement is one that

A.is derived by induction.
B.is derived by deduction.
C.focuses on the best course of action and is based on value judgments.
D. focuses on facts, descriptions, and theoretical relationships.

D. Focuses on facts, descriptions and theoretical relationships

Which of the following is a positive statement?

A.A humidity level of 90 percent is too high.
B.It is too hot to run outside when the temperature exceeds 80 degrees.
C. The temperature is 92 degrees today.
D. Summer evenings are nice when it cools off to around 70 degrees.

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. Positive and incorrect
B. Positive and Correct
C. Normative and Correct
D. Normative and Incorrect

B. Positive and Correct

"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 correct

The economizing problem is:

A. the need to make choices because economic wants exceed economic means.
B.how to distribute resources equally among all members of society.
C.that people’s means often exceed their wants.
D.that people do not know how to rationally allocate resources.

A. The need to make choices because economic wants exceed economic means

The economizing problem is one of deciding how to make the best use of
A. virtually unlimited resources to satisfy virtually unlimited wants.
B. limited resources to satisfy virtually unlimited wants.
C.unlimited resources to satisfy limited wants.
D.limited resources to satisfy limited wants.

B. limited resources o satisfy virtually unlimited wants

Scarcity
A. persists only because countries have failed to achieve continuous full employment.
B. persists because economic wants exceed available resources.
C.has been solved in all industrialized nations.
D. has been eliminated in affluent societies such as the United States and Canada.

B. Persists because economic wants exceeds available resources

The alternative combination of two goods that a consumer can purchase with a specific money income is shown by
A.a production possibilities curve.
B.a demand curve.
C.a consumer expenditure line.
D. a budget line.

D. A budget line

The budget line shows

A. the amount of product X that a consumer is willing to give up to obtain one more unit of product Y.
B. all possible combinations of two goods that can be purchased, given money income and the prices of the goods.
C.the minimum amount of two goods that a consumer can purchase with a specific money income.
D.all possible combinations of two goods that yield the same level of utility to the consumer.

B. All possible combination of two goods that can be purchased, given money income and the prices of the goods.

Refer to the budget line shown in the diagram. If the consumer’s money income is $50, the

A.prices of C and D cannot be determined.
B.price of C is $5 and the price of D is $10.
C.consumer can obtain a combination of 5 units of both C and D.
D. price of C is $10 and the price of D is $5.

D. Price of C is $10 and the price of D is $5

Refer to the budget line shown in the diagram. Which of the following combinations of goods
is unattainable for this consumer?

A. 4 units of C and 6 units of D
B.5 units of C and no units of D
C.1 unit of C and 8 units of D
D.2 units of C and 6 units of D

A. 4 untis of C and 6 units of D

Refer to the budget line shown in the diagram. The absolute value of the slope of the budget line is

A.MUC / MUD.
B.one-half.
C.PD / PC.
D. PC / PD.

PC/PD

Refer to the budget line. The absolute value of the slope of the budget line is:

A. two.
B.one-half.
C.five.
D.ten.

A. Two

In moving along a given budget line:
A. the prices of both products and money income are assumed to be constant.
B.each point on the line will be equally satisfactory to consumers.
C.money income varies, but the prices of the two goods are constant.
D. the prices of both products are assumed to vary, but money income is constant.

A. The prices of both products and money income are assumed to be constant

An increase in money income

A. shifts the consumer’s budget line to the right.
B.shifts the consumer’s budget line to the left.
C.increases the slope of the budget line.
D.has no effect on the budget line.

A. Shifts the consumer’s budget line to the right

The shift of the budget line from cd to ab in the figure is consistent with
A.decreases in the prices of both M and N.
B.an increase in the price of M and a decrease in the price of N.
C. a decrease in money income.
D. an increase in money income.

C. A decrease in money income

Any combination of goods lying outside of the budget line

A.implies that the consumer is not spending all of the consumer’s income.
B.yields less utility than any point on the budget line.
C.yields less utility than any point inside the budget line.
D. is unattainable, given the consumer’s income.

D. is unattainable, given the consumer’s income

Suppose you have a money income of $10, all of which you spend on Coke and popcorn. In the diagram, the prices of Coke and popcorn, respectively, are

A. $.50 and $1.00.
B. $1.00 and $.50.
C. $1.00 and $2.00.
D. $.40 and $.50.

A. $.50 and $1.00

Other things equal, an increase in a consumer’s money income

A. increases the amount of utility a consumer receives from a given quantity of a good.
B. shifts the individual’s budget line rightward because she can now purchase more of both products.
C.eliminates the individual’s economizing problem.
D.causes the consumer to choose a different combination of goods along a given budget line.

B. Shifts the individual’s budget line rightward because she can now purchase more of both products.

The slope of the budget line reflects the

A. desirability of the two products.
B. price ratio of the two products.
C.amount of the consumer’s income.
D.utility ratio of the two products.

B. price ratio of the two products

Suppose Elroy’s budget line is as shown on the diagram. If his tastes change in favor of Coke and against popcorn, the budget line will

A.become steeper.
B.become flatter.
C.shift rightward.
D. be unaffected.

D. Be unaffected

Assume the price of product Y (the quantity of which is on the vertical axis) is $15 and the price of product X (the quantity of which is on the horizontal axis) is $3. Also assume that money income is $60. The absolute value of the slope of the resulting budget line is

A. 5.
B. 1/5.
C.4.
D. 20

B. 1/5

Refer to the graphs. Assume that pizza is measured in slices and beer in pints. In which of the graphs is the opportunity cost of a pint of beer equal to one slice of pizza?

A.graph A
B.graph B
C.graph C
D. graph D

D. Graph D

Refer to the graphs. Assume that pizza is measured in slices and beer in pints. In which of the graphs is the opportunity cost of a pint of beer the lowest?

A. graph A
B. graph B
C.graph C
D.graph D

B. Graph B

78. Suppose that Julia receives a $20 gift card for the local coffee shop, where she only buys lattes and muffins. If the price of a latte is $4 and the price of a muffin is $2, then we can conclude that Julia

A.should only buy muffins.
B.should only buy lattes.
C. can buy 5 lattes or 10 muffins if she chooses to buy only one of the two goods.
D. can buy 5 lattes and 10 muffins with her $20 gift card.

C. can buy 5 lattes or 10 muffins if she chooses to buy only one of the two goods.

Camille is at the candy store with Grandma Mary, who offers to buy her $6 worth of candy. If lollipops are $1 each and candy bars are $2 each, what combination of candy can Camille’s Grandma Mary buy her?

A. six lollipops and three candy bars
B. two lollipops and two candy bars
C.three lollipops and two candy bars
D.one lollipop and three candy bars

B. two lollipops and two candy bars

Which of the following is a labor resource

A. a computer programmer
B.a computer
C.silicon (sand) used to make computer chips
D.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. software used by a firm

D. 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 start-up 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, vans used to shuttle rental customers to and from the airport

D. autos owned by a car rental firm, computers at the car rental agency, vans used to shuttle rental customers to and from the airport

Money isn’t and 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 so 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 man 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. to make routine pricing decisions
B to innovate
C.to assume the risk of economic losses
D. to make strategic business decisions

A. To 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 and 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. upgrading the quality of a nation’s human resources
B. reducing unemployment
C.increasing the quantity of a society’s labor force
D.improving a society’s technological knowledge

B. Reducing 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.

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

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

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.opportunity costs of producing a good tend to fall as more of the good is produced.
C.resources are scarce.
D.wants are virtually unlimited.

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

Refer to the table. If the economy is producing at production alternative C, the opportunity cost of the 10th unit of consumer goods will be
A.4 units of capital goods.
B.2 units of capital goods.
C.3 units of capital goods.
D. ⅓ of a unit of capital goods.

D. ⅓ of a unit of capital goods.

Refer to the table. As compared to production alternative D, the choice of alternative C would

A. tend to generate a more rapid growth rate.
B.be unattainable.
C.entail unemployment.
D. tend to generate a slower growth rate

A. tend to generate a more rapid growth rate.

Refer to the table.
A total output of 3 units of capital goods and 4 units of consumer goods
A.is irrelevant because the economy is capable of producing a larger total output.
B.will result in the maximum rate of growth available to this economy.
C. would involve an inefficient use of the economy’s scarce resources.
D. is unobtainable in this economy.

C. would involve an inefficient use of the economy’s scarce resources

Refer to the table. For this economy to produce a total output of 3 units of capital goods and 13 units of consumer goods, it must
A. expand its resources or improve its technology.
B.use its resources more efficiently than the data in the table now indicate.
C.allocate its available resources most efficiently among alternative uses.
D.achieve the full employment of available resources.

A. expand its resources or improve its technology.

Refer to the table. For these data, the law of increasing opportunity costs is reflected in the fact that

A. the amount of consumer goods that must be sacrificed to get more capital goods diminishes beyond a point.
B. larger and larger amounts of capital goods must be sacrificed to get additional units of consumer goods.
C.the production possibilities data would graph as a straight downsloping line.
D.the economy’s resources are presumed to be scarce.

B. larger and larger amounts of capital goods must be sacrificed to get additional units of consumer goods.

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 possibility 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 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 the available resources

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

Refer to the diagram. Other things equal, this economy will shift its production possibilities curve outward the most if

A.the ratio of capital to consumer goods is minimized.
B.it chooses point C.
C.it chooses point B.
D. it chooses point A.

D. it chooses point A

Refer to the diagram. This economy will experience unemployment if it produces at point
A.A.
B.B.
C.C.
D. D.

D

111. 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 closer 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 closer to the economy’s production possibilities curve.

Refer to the tables. Suppose that the amount and quality of resources are the same in both countries. We can conclude that

A. Duckistan is technologically better than Herbania at producing military goods.
B. Herbania is technologically better than Herbania at producing both military goods and civilian goods.
C. the total opportunity cost of producing 4 units of military goods is the same in both countries.
D. Herbania is technologically superior to Duckistan in producing civilian goods.

D. Herbania is technologically superior to Duckistan in producing civilian goods.

Refer to the tables. Suppose that technology and the quality of resources are the same in both countries. We can conclude that

A. Duckistan has more resources than Herbania.
B. Herbania has more resources than Duckistan.
C. Duckistan has greater opportunity costs than Herbania.
D. prices are twice as high in Herbania as in Duckistan

Refer to the tables. Suppose that technology and the quality of resources are the same in both countries. We can conclude that

Refer to the tables. Opportunity costs of producing military goods are
A. increasing in Duckistan but constant in Herbania.
B. constant in both Duckistan and Herbania.
C. larger in Duckistan than in Herbania.
D. smaller in Duckistan than Herbania.

D. smaller in Duckistan than Herbania.

Refer to the tables. Opportunity costs are
A. constant in both Duckistan and Herbania.
B. larger in Duckistan than in Herbania.
C. increasing in both Duckistan and Herbania.
D. increasing in Duckistan and constant in Herbania.

C. increasing in both Duckistan and Herbania.

Refer to the tables. Suppose that Duckistan and Herbania are each producing 14 units of civilian goods and 2 units of military goods. Then
A. Duckistan is fully employing its resources, but Herbania is not.
B. both Duckistan and Herbania are fully employing their resources.
C. Herbania is fully employing its resources, but Duckistan is not.
D. neither Duckistan nor Herbania is fully employing its resources.

A. Duckistan is fully employing its resources, but Herbania is not.

In the figure are two linear production possibilities curves for countries Alpha and Beta. We can conclude that
A. different value systems make it impossible to compare opportunity costs in the two countries.
B. the opportunity cost of shelter is greater in Beta than it is in Alpha.
C. the opportunity cost of food is greater in Alpha than it is in Beta.
D. the opportunity cost of shelter is greater in Alpha than it is in Beta.

D. the opportunity cost of shelter is greater in Alpha than it is in Beta.

Which of the following is not correct? A typical production possibilities curve
A. indicates how much of two products 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 a society will want to produce.
D. indicates that to produce more of one product, a society must forgo larger and larger amounts of the other product.

C. specifies how much of each product a society will want to produce.

Refer to the diagram. This production possibilities curve is constructed so that
A. resources are presumed to be perfectly shiftable between bread and tractors.
B. the opportunity cost of bread diminishes as more bread is produced.
C. the opportunity cost of tractors increases as more bread is produced.
D. the opportunity costs of both bread and tractors increase as more of each is produced.

D. the opportunity costs of both bread and tractors increase as more of each is produced.

Refer to the diagram. Which of the following is a normative statement?
A. Point C is superior to point B because it is important to enhance the future of society.
B. If society is initially at point C, it must sacrifice 6 units of bread to obtain one more unit of tractors.
C. If society produces 2 units of tractors and 12 units of bread, it is not using its available resources with maximum efficiency.
D. Other things equal, the combination of outputs represented by point D will result in more rapid economic growth than will the combination represented by point C.

A. Point C is superior to point B because it is important to enhance the future of society.

Refer to the diagram. Which of the following is a positive statement?
A. A point inside the production possibilities curve is superior to a point on the curve because the former requires less work effort.
B. Because any society should stress economic growth as its major goal, point D is superior to point C.
C. Point B is preferable to point C because the ultimate goal of economic activity is to maximize consumption.
D. Given its resources and technology, this society is incapable of simultaneously producing 3 units of tractors and 15 units of bread.

D. Given its resources and technology, this society is incapable of simultaneously producing 3 units of tractors and 15 units of bread.

Refer to the diagram. Starting at point A, the opportunity cost of producing each successive unit of tractors is
A. a constant 2 units of bread.
B. 2, 4, 6, and 8 units of bread.
C. 8, 6, 4, and 2 units of bread.
D. the reciprocal of the output of tractors.

B. 2, 4, 6, and 8 units of bread.

Refer to the diagram. Starting at point E, the production of successive units of bread will cost
A. a constant 8 units of tractors.
B. a constant 6 units of tractors.
C. 1/8, 1/6, 1/4, and 1/2 units of tractors.
D. 1/2, 1/4, 1/6, and 1/8 units of tractors.

C. 1/8, 1/6, 1/4, and 1/2 units of tractors.

Refer to the production possibilities curve. At the onset of the Second World War, the United States had large amounts of idle human and property resources. Its economic adjustment from peacetime to wartime can best be described by the movement from point

C. a to point b.

Refer to the production possibilities curve. At the onset of the Second World War, the Soviet Union was already at full employment. Its economic adjustment from peacetime to wartime can best be described by the movement from point
A. c to point b.
B. b to point c.
C. a to point b.
D. c to point d.

A. c to point b.

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 satisfaction.

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.
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. that 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.

Refer to the tables. If South Cantina is producing at production alternative D, the opportunity cost of the third unit of capital goods will be
A. 3 units of consumer goods.
B. 4 units of consumer goods.
C. 5 units of consumer goods.
D. 6 units of consumer goods.

D. 6 units of consumer goods.

Refer to the tables. If North Cantina is producing at production alternative B, the opportunity cost of the eleventh unit of consumer goods will be
A. 10 units of capital goods.
B. ¼ of a unit of capital goods.
C. 8 units of capital goods.
D. ⅛ of a unit of capital goods.

D. ⅛ of a unit of capital goods.

Refer to the tables. Suppose that North Cantina is producing 2 units of capital goods and 17 units of consumer goods, while South Cantina is producing 2 units of capital goods and 21 units of consumer goods. We can conclude that
A. North Cantina is fully and efficiently using its resources, but South Cantina is not.
B. South Cantina is fully and efficiently using its resources, but North Cantina is not.
C. neither South Cantina nor North Cantina is fully and efficiently using its resources.
D. both South Cantina and North Cantina are fully and efficiently using their resources.

B. South Cantina is fully and efficiently using its resources, but North Cantina is not.

Refer to the tables. Suppose that resources in North Cantina and South Cantina are identical in quantity and quality. We can conclude that

A. South Cantina has better technology than North Cantina in producing both capital and consumer goods.
B. North Cantina has better technology than South Cantina in producing both capital and consumer goods.
C. North Cantina is growing more rapidly than South Cantina.
D. North Cantina has better technology than South Cantina in producing consumer goods but not capital goods.

D. North Cantina has better technology than South Cantina in producing consumer goods but not capital goods.

Refer to the tables. The opportunity cost of the fifth unit of capital goods
A. is higher in North Cantina than in South Cantina.
B. is the same in North Cantina and South Cantina.
C. is lower in North Cantina than in South Cantina.
D. cannot be determined from the information provided.

A. is higher in North Cantina than in South Cantina.

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 resources that are currently idle.

Refer to the diagram. Points A, B, C, D, and E show
A. that the opportunity cost of bicycles increases, while that of computers is constant.
B. combinations of bicycles and computers that society can produce by using its resources efficiently.
C. that the opportunity cost of computers increases, while that of bicycles is constant.
D. that society’s demand for bicycles is greater than its demand for computers.

B. combinations of bicycles and computers that society can produce by using its resources efficiently.

Refer to the diagram. If society is currently producing 9 units of bicycles and 4 units of computers and it now decides to increase computer output to 6, the cost
A. will be 4 units of bicycles.
B. will be 2 units of bicycles.
C. will be zero because unemployed resources are available.
D. of doing so cannot be determined from the information given

A. will be 4 units of bicycles.

Refer to the diagram. The combination of computers and bicycles shown by point G is
A. attainable but too costly.
B. unattainable given currently available resources and technology.
C. attainable but involves unemployment.
D. irrelevant because it is inconsistent with consumer preferences.

B. unattainable given currently available resources and technology.

Refer to the diagram. If society is currently producing the combination of bicycles and computers shown by point D, the production of 2 more units of bicycles
A. cannot be achieved because resources are fully employed.
B. will cost 1 unit of computers.
C. will cost 2 units of computers.
D. will cause some resources to become unemployed.

B. will cost 1 unit of computers.

Refer to the diagram. The combination of computers and bicycles shown by point F
A. is unattainable given currently available resources and technology.
B. is attainable but implies that the economy is not using all its resources.
C. is irrelevant because it is inconsistent with consumer preferences.
D. suggests that opportunity costs are constant

B. is attainable but implies that the economy is not using all its resources.

Refer to the diagram. The movement down the production possibilities curve from point A to point E suggests that the production of
A. computers, but not bicycles, is subject to increasing opportunity costs.
B. bicycles, but not computers, is subject to increasing opportunity costs.
C. both bicycles and computers is subject to constant opportunity costs.
D. both bicycles and computers is subject to increasing opportunity costs.

D. both bicycles and computers is subject to increasing opportunity costs.

Refer to the diagram. As it relates to production possibilities analysis, the law of increasing opportunity cost is reflected in curve
A. A.
B. B.
C. C.
D. D.

C. C

Refer to the diagram. Curve B is a
A. production possibilities curve indicating constant opportunity costs.
B. production possibilities curve indicating increasing opportunity costs.
C. demand curve indicating that the quantity of consumer goods D. demanded increases as the price of capital falls.
technology frontier curve

A. production possibilities curve indicating constant opportunity costs.

Refer to the diagram. All other things equal, curve C
A. reflects increasing opportunity costs because the slope of the curve becomes less steep as one moves down along the curve.
B. is a less desirable production possibilities curve for an economy than curve B.
C. is a more desirable production possibilities curve for an economy than curve A.
D. has a steeper slope throughout than curve B.

C. is a more desirable production possibilities curve for an economy than curve A.

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 substitutable between alternative uses.

A. the principle of increasing opportunity costs is relevant.

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 percentage, 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 digital music 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.

Refer to the diagram for athletic shoes. The optimal output of shoes is
A. Q1.
B. Q2.
C. Q3.
D. greater than Q3.

B. Q2.

Refer to the diagram for athletic shoes. If the current output of shoes is Q1, then

A. society would consider additional units of shoes to be more valuable than alternative uses of those resources.
B. society would consider additional units of shoes to be less valuable than alternative uses of those resources.
C. society would experience a net loss by producing more shoes.
D. resources are being allocated efficiently to the production of shoes.

A. society would consider additional units of shoes to be more valuable than alternative uses of those resources.

Refer to the diagram for athletic shoes. If the current output of shoes is Q3, then
A. resources are being allocated efficiently to the production of shoes.
B. society would consider additional units of shoes to be more valuable than alternative products.
C. society would consider additional units of shoes to be less valuable than alternative products.
D. society would experience a net gain by producing more shoes.

C. society would consider additional units of shoes to be less valuable than alternative products.

Refer to the diagram for athletic shoes. If the current output of shoes is Q3, then
A. society should produce fewer shoes to achieve the optimal allocation of resources.
B. society should produce more shoes to achieve the optimal allocation of resources.
C. resources are being allocated efficiently to the production of shoes.
D. shoes are more valuable to society than alternative products

A. society should produce fewer shoes to achieve the optimal allocation of resources.

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.

D. can improve its allocation by producing more of both goods.

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.

Refer to the diagram. Technological advance in producing both capital goods and consumer goods is shown by the shift of the production possibilities curve from AB to
A. CD.
B. EB.
C. AF.
D. GH.

A. CD.

Refer to the diagram. Technological advance that improves the ability to produce capital goods but not consumer goods is shown by the shift of the production possibilities curve from AB to
A. CD.
B. BE.
C. AF.
D. GH.

B. BE.

Refer to the diagram. Technological advance that is useful in producing consumer goods but not in producing capital goods is shown by the shift of the production possibilities curve from AB to
A. CD.
B. EB.
C. AF.
D. GH.

C. AF.

171. 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

Refer to the diagram. The concave shape of each production possibilities curve indicates that
A. resources are perfectly substitutable.
B. wants are virtually unlimited.
C. prices are constant.
D. resources are not equally suited for alternative uses.

D. resources are not equally suited for alternative uses.

Refer to the diagram. The concept of opportunity cost is best represented by the
A. shift of the production possibilities curve from PP1 to PP2.
B. move from B on PP1 to E on PP2.
C. move from B on PP1 to C on PP1.
D. move from D inside PP1 to B on PP1.

C. move from B on PP1 to C on PP1.

Refer to the diagram. Other things equal, which of the following positions relative to PP1 would be the most likely to result in a future production possibilities curve of
PP3 rather than PP2?
A. A
B. B
C. C
D. D

A

Refer to the diagram. An improvement in technology will

A. shift the production possibilities curve from PP1 to PP2.
B. shift the production possibilities curve from PP2 to PP1.
C. move the economy from A to C along PP1.
D. move the economy from A, B, or C on PP1 to D.

A. shift the production possibilities curve from PP1 to PP2.

Refer to the diagram. Which one of the following would shift the production possibilities curve from PP1 to PP2?
A. an outbreak of the Zika virus leading to an epidemic
B. immigration of skilled workers into the economy
C. an increase in consumer prices
D. a reduction in hourly wages

B. immigration of skilled workers into the economy

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 are 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 to other nations.
B. a decline in the birthrate.
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

(Consider This) Free products offered by firms
A. may or may not be free to society but are never free to individuals.
B. may or may not be free to individuals but are never free to society.
C. are produced and distributed at no cost to society.
D. are usually items nobody wants.

B. may or may not be free to individuals but are never free to society.

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