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7/21/2019 Ch2 Test Bank

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CHAPTER2

The Economizing Problem

Topic Question numbers_________________________________________________ __________________________________________________

1. Economizing problem 1-122. Economic resources 13-233. Efficiency; full employment and full production 24-274. Production possibilities analysis 28-955. Opportunity costs 96-1056. Allocative efficiency 106-1177. Economic growth and decline 118-1328. Applications 133-140

9. Economic systems 141-14910. Circular flow model 150-165Consider This 166-167Last Word 168-170True-False 171-184

_________________________________________________ __________________________________________________

Multiple Choice Questions

Economizing problem

Type: D Topic: 1 E: 22 MI: 22 MA: 22

1. 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.Answer: B

Type: D Topic: 1 E: 24 MI: 24 MA: 242. The concept of economic efficiency is primarily concerned with:

A) the limited wants-unlimited resources dilemma.B) considerations of equity in the distribution of wealth.C) obtaining the maximum output from available resources.

D) the conservation of irreplaceable natural resources.Answer: C


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Chapter 2: The Economizing Problem

McConnell/Brue: Economics, 16/e Page 32

Type: D Topic: 1 E: 23 MI: 22 MA: 223. When the economist says that economic wants are insatiable, this means that:

A) economic resources are valuable only because they can be used to produce consumer goods.B) economic resources--land, labor, capital, and entrepreneurial ability--are scarce.C) these wants are virtually unlimited and therefore incapable of complete satisfaction.D) the structure of consumer demand varies from time to time and from country to country.Answer: C

Type: D Topic: 1 E: 22 MI: 23 MA: 234. The fundamental problem of economics is:

A) to establish a democratic political framework for the provision of social goods and services.B) the establishment of prices that accurately reflect the relative scarcities of products and resources.C) the scarcity of productive resources relative to economic wants.D) to achieve a more equitable distribution of money income in order to mitigate poverty.Answer: C


5. The science of economics stems from the fact that:A) the production possibilities curve is bowed inward to the origin.B) resources are scarce relative to people's demand for goods and services.C) individuals and institutions behave only in their self-interest.D) historically the production possibilities curve has been shifting toward the origin.Answer: B

Type: D Topic: 1 E: 23 MI: 23 MA: 236. The study of economics exists because:

A) government interferes with the efficient allocation of scarce resources.B) resources are scarce in relation to economic wants.C) the market system is an obstacle to the efficient use of plentiful resources to satisfy constrained wants.D) resources are overly abundant as compared to wants; thus, an allocation problem exists.Answer: B

Type: D Topic: 1 E: 23 MI: 23 MA: 237. The scarcity problem:

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

Type: D Topic: 1 E: 24 MI: 24 MA: 248. Because of their scarcity, the efficient use of resources is:A) an important issue in all economies.B) an important issue only in centrally planned economies.C) an important issue only in market economies.D) not an important issue.Answer: A


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Type: A Topic: 1 E: 24 MI: 24 MA: 249. An increase in efficiency suggests that an economy:

A) has moved from a point outside of, to a point on, its production possibilities curve.B) has decided to produce more consumer goods and fewer capital goods.C) has moved from a point on, to a point inside, its production possibilities curve.D) is able to get more output from a given amount of inputs.Answer: D

Type: D Topic: 1 E: 24 MI: 24 MA: 2410. Economics can best be described as the study of:

A) how to profitably invest one's income in stocks and bonds.B) how to use scarce productive resources efficiently.C) how government policies affect businesses and labor.D) managing business enterprises for profit.Answer: B


11. As used in economics, the idea of scarce resources means that:A) mineral deposits are only available in finite amounts.B) resources are not so plentiful that all economic wants can be fulfilled.C) some resources are free while others have price tags on them.D) the quantities available of some resources exceed the demand for them.Answer: B

Type: D Topic: 1 E: 24 MI: 24 MA: 2412. Economics is primarily the study of:

A) why resources are scarce.B) how advertising and sales promotion shape consumer wants.C) how to make profitable financial investments.D) how to use scarce resources efficiently.Answer: D

Economic resources

Type: D Topic: 2 E: 23 MI: 23 MA: 23 Status: New13. Which of the following is a land resource?

A) a computer programmer C) silicon (sand) used to make computer chipsB) a computer D) a piece of software used by a firmAnswer: C

Type: D Topic: 2 E: 23 MI: 23 MA: 23 Status: New14. Which of the following is a labor resource?

A) a computer programmer C) silicon (sand) used to make computer chipsB) a computer D) a piece of software used by a firmAnswer: A


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Type: D Topic: 2 E: 23 MI: 23 MA: 23 Status: New15. Which of the following is a capital resource?

A) a computer programmerB) a corporate bond issued by a computer manufacturerC) silicone (sand) used to make computer chipsD) a piece of software used by a firmAnswer: D

Type: D Topic: 2 E: 23 MI: 23 MA: 23 Status: New16. The four factors of production are:

A) land, labor, capital, and moneyB) land, labor, capital, and entrepreneurial abilityC) labor, capital, technology, and entrepreneurial abilityD) labor, capital, entrepreneurial ability, and moneyAnswer: B


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

Type: D Topic: 2 E: 23 MI: 23 MA: 2318. Which of the following lists includes only capital resources (and therefore no labor or land resources)?

A) an ice arena; a professional hockey player; hockey uniforms.B) the owner of a new startup firm; a chemistry lab; a researcher.C) a hydroelectric dam; water behind the dam; power lines.D) autos owned by a car rental firm; computers at the car rental agency; the vans that shuffle rental

customers to and from the airport.Answer: D

Type: A Topic: 2 E: 23 MI: 23 MA: 2319. Money is not an economic resource because:

A) money, as such, is not productive.B) idle money balances do not earn interest income.C) the terms of trade can be determined in nonmonetary terms.D) money is not a free gift of nature.Answer: A

Type: D Topic: 2 E: 24 MI: 24 MA: 2420. The money payments made to owners of land, labor, capital, and entrepreneurial ability are:

A) interest, wages, rent, and profits respectively.B) rent, wages, dividends, and interest respectively.C) rent, profits, wages, and interest respectively.D) rent, wages, interest, and profits respectively.Answer: D


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Type: D Topic: 2 E: 24 MI: 24 MA: 2421. Economic resources are also called:

A) free gifts of nature. B) consumption goods. C) units of money capital. D) factors of production.Answer: D

Type: D Topic: 2 E: 23 MI: 23 MA: 2322. Which of the following is real capital?A) a pair of stockings B) a construction crane C) a savings account D) a share of IBM stockAnswer: B

Type: D Topic: 2 E: 23 MI: 23 MA: 2323. The main function of the entrepreneur is to:

A) make routine pricing decisions. B) innovate. C) purchase capital. D) create market demand.Answer: B

Efficiency; full employment and full production

Type: D Topic: 3 E: 24 MI: 24 MA: 2424. Assuming an economy has fixed quantities of resources, that economy:

A) is more efficient, the larger the amount of goods and services it produces.B) is able to satisfy all consumer wants.C) will produce the same output whether or not resources are used efficiently.D) is able to produce the same amount of output regardless of the production technologies it chooses.Answer: A

Type: D Topic: 3 E: 24 MI: 24 MA: 2425. Productive efficiency refers to:

A) the use of the least-cost method of production.B) the production of the product-mix most wanted by society.C) the full employment of all available resources.D) production at some point inside of the production possibilities curve.Answer: A

Type: A Topic: 3 E: 24 MI: 24 MA: 2426. If an economy produces its most wanted goods but uses outdated production methods, it is:

A) achieving productive efficiency, but not allocative efficiency.B) not achieving productive efficiency.C) achieving both productive and allocative efficiency.D) engaged in roundabout production.

Answer: B

Type: D Topic: 3 E: 24 MI: 24 MA: 2427. To realize full production a society must achieve:

A) income inequality.B) productive efficiency only.C) both allocative and productive efficiency.D) any output lying inside of its production possibilities curve.Answer: C


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Production possibilities analysis

Type: A Topic: 4 E: 26 MI: 26 MA: 2628. 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 othergoods.

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.Answer: C

Type: A Topic: 4 E: 29 MI: 29 MA: 2929. Which of the following will notproduce an outward shift of the production possibilities curve?

A) an upgrading of the quality of a nation's human resourcesB) the reduction of unemploymentC) an increase in the quantity of a society's labor forceD) the improvement of a society's technological knowledgeAnswer: B

Type: A Topic: 4 E: 29 MI: 29 MA: 2930. Unemployment and/or productive inefficiencies:

A) cause the production possibilities curve to shift outward.B) can exist at any point on a production possibilities curve.C) are both illustrated by a point outside the production possibilities curve.D) are both illustrated by a point inside the production possibilities curve.Answer: D

Type: A Topic: 4 E: 27 MI: 27 MA: 2731. If the production possibilities curve is a straight line:

A) the two products will sell at the same market prices.B) economic resources are perfectly shiftable between the production of the two products.C) the two products are equally important to consumers.D) equal quantities of the two products will be produced at each possible point on the curve.Answer: B

Type: A Topic: 4 E: 26 MI: 26 MA: 2632. A production possibilities curve illustrates:

A) scarcity. B) market prices. C) consumer preferences. D) the distribution of income.Answer: A


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Type: A Topic: 4 E: 26 MI: 26 MA: 2633. 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 and efficient use of

available resources.D) combinations of capital and labor necessary to produce specific levels of output.Answer: C

Type: A Topic: 4 E: 27 MI: 27 MA: 2734. A nation's production possibilities curve is bowed out from the origin because:

A) resources are not equally efficient in producing every good.B) the originator of the idea drew it this way and modern economists follow this convention.C) resources are scarce.D) wants are virtually unlimited.Answer: A

Use the following to answer questions 35-39:Answer the next question(s) on the basis of the data given in the following production possibilities table:

Production possibilities (alternatives)

A B C D E F

Capital goods 5 4 3 2 1 0

Consumer goods 0 5 9 12 14 15

Type: T Topic: 4 E: 27 MI: 27 MA: 27

35. Refer to the above table. If the economy is producing at production alternative C, the opportunity cost of

the tenth unit of consumer goods will be:

A) 4 units of capital goods. C) 3 units of capital goods.

B) 2 units of capital goods. D) 1/3of a unit of capital goods.Answer: D

Type: C Topic: 4 E: 27 MI: 27 MA: 27

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

A) tend to generate a more rapid growth rate. C) entail unemployment.

B) be unattainable. D) tend to generate a slower growth rate.

Answer: A


37. Refer to the above 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.

Answer: C


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38. Refer to the above table. For this economy to produce a total output of 3 units of capital goods and 13 units

of consumer goods it must:

A) achieve economic growth.

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.

Answer: A

Type: A Topic: 4 E: 27 MI: 27 MA: 27

39. Refer to the above 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.

Answer: B


40. When an economy is operating with maximum efficiency, 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 shiftable.

Answer: C


41. 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 suffering from unemployment and/or the inefficient use of 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.

Answer: A


42. The production possibilities curve:

A) shows all of those levels of production that are consistent with a stable price level.

B) indicates that any combination of goods lying outside the curve is economically inefficient.

C) is a frontier between all combinations of two goods that can be produced and those combinations that

cannot be produced.

D) shows all of those combinations of two goods that are most preferred by society.

Answer: C


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43. Assume an economy is operating at some point on its production possibilities curve, which shows civilian

and military goods. If the output of military goods is increased, the output of civilian goods:

A) will remain unchanged. C) must be decreased.B) may be either increased or decreased. D) must also be increased.

Answer: C


44. Any point inside the production possibilities curve indicates:

A) the realization of allocative efficiency.

B) that resources are imperfectly shiftable among alternative uses.

C) the presence of inflationary pressures.

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

Answer: D

Use the following to answer questions 45-46:

Type: G Topic: 4 E: 30 MI: 30 MA: 30

45. Refer to the above diagram. Other things equal, this economy will achieve the most rapid rate of growth if:

A) the ratio of capital to consumer goods is minimized.

B) it chooses point C.

C) it chooses pointB.

D) it chooses pointA.

Answer: D

Type: G Topic: 4 E: 29 MI: 29 MA: 29

46. Refer to the above diagram. This economy will experience unemployment if it produces at point:

A) A. B) B. C) C. D) D.

Answer: D


47. In drawing the production possibilities curve we assume that:

A) technology is fixed. C) economic resources are unlimited.B) unemployment exists. D) wants are limited.Answer: A


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48. 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.Answer: C


49. If the production possibilities curve were a straight downsloping line, this would suggest that:

A) resources are perfectly shiftable between the production of these two goods.

B) it is possible to produce more of both products.

C) both products are equally capable of satisfying consumer wants.

D) the two products have identical prices.

Answer: A


50. The typical production possibilities curve is:A) an upsloping line that is concave to the origin. C) a downsloping line that is concave to the origin.

B) a downsloping line that is convex to the origin. D) a straight upsloping line.

Answer: C


51. Deltonia produces both consumer and capital goods. Other things equal, if Deltonia reduces the percentage

of its output devoted to capital goods, then:

A) its rate of growth will decline.

B) its production possibilities curve will shift to the left.

C) it must also reduce the percentage of its output devoted to consumer goods.

D) its rate of growth will increase.

Answer: A


52. 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.

Answer: B


53. Assume an economy is incurring unemployment and failing to realize least-cost production. The effect ofresolving these problems will be to:

A) move the level of actual output 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.

Answer: A


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Duckistan

Production possibilities

A B C D ECivilian goods 20 18 14 8 0Military goods 0 1 2 3 4

Herbania

Production possiblities

A B C D ECivilian goods 40 36 26 14 0Military goods 0 1 2 3 4

Type: T Topic: 4 E: 30 MI: 30 MA: 30 Status: New54. Refer to the above 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.Answer: D

Type: T Topic: 4 E: 31 MI: 31 MA: 31 Status: New55. Refer to the above 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 Herbania.C) Duckistan has greater opportunity costs than Herbania.D) Prices are twice as high in Herbania as in Duckistan.

Answer: B

Type: T Topic: 4 E: 27 MI: 27 MA: 27 Status: New56. Refer to the above tables. Opportunity costs 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.Answer: D

Type: T Topic: 4 E: 30 MI: 30 MA: 30 Status: New

57. Refer to the above 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.Answer: C


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Type: T Topic: 4 E: 30 MI: 30 MA: 30 Status: New58. Refer to the above tables. Suppose that Duckistan and Herbania are each producing 14 units of civilian

goods and 2 unit of military goods. Then:A) Duckistan is fully and efficiently using its resources but Herbania is not.B) both Duckistan and Herbania are fully and efficiently using their resources.C) Herbania is fully and efficiently using its resources by Duckistan is not.D) neither Duckistan nor Herbania are fully and efficiently using their resource.Answer: A

Type: G Topic: 4 E: 27 MI: 27 MA: 2759.

In the figure above are two linear production possibilities curves for countries Alpha and Beta. We canconclude 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.Answer: D

Type: D Topic: 4 E: 23 MI: 23 MA: 2360. The process of producing and accumulating capital goods is called:

A) money capital. B) depreciation. C) investment. D) consumption.Answer: C

Type: D Topic: 4 E: 26 MI: 26 MA: 2661. Which of the following is notcorrect? A typical production possibilities curve:

A) indicates how much of two products a society can produce.B) reveals how much each additional unit of one product will cost in terms of the other product.C) specifies how much of each product society should produce.D) indicates that to produce more of one product society must forgo larger and larger amounts of the other

product.Answer: C


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Type: A Topic: 4 E: 31 MI: 31 MA: 3162. 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.Answer: B

Type: A Topic: 4 E: 29 MI: 29 MA: 2963. A point inside a production possibilities curve best illustrates:

A) unemployment. C) the use of best-available technology.B) the efficient use of resources. D) unlimited wants.Answer: A


Type: G Topic: 4 E: 27 MI: 27 MA: 2764. Refer to the above 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 diminishes as more bread is produced.D) the opportunity cost of both bread and tractors increases as more of each is produced.Answer: D

Type: G Topic: 4 E: 10, 31 MI: 10, 31 MA: 10, 3165. Refer to the above diagram. Which of the following is a normative statement?

A) Point Cis superior to pointBbecause it is important to enhance the future of society.B) If society is initially at pointC, 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 withmaximum efficiency.

D) Other things equal, the combination of outputs represented by pointDwill result in more rapideconomic growth than will the combination represented by point C.

Answer: A


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Type: G Topic: 4 E: 10, 26 MI: 10, 26 MA: 10, 2666. Refer to the above 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 formerrequires less work effort.

B) Because any society should stress economic growth as its major goal, pointDis superior to point C.C) PointBis preferable to point Cbecause 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.Answer: D

Type: G Topic: 4 E: 27 MI: 27 MA: 2767. Refer to the above diagram. Starting at pointA, the opportunity cost of producing each successive unit of

tractors is:A) a constant 2 units of bread. C) 8, 6, 4, and 2 units of bread.B) 2, 4, 6, and 8 units of bread. D) the reciprocal of the output of tractors.Answer: B

Type: G Topic: 4 E: 27 MI: 27 MA: 2768. Refer to the above diagram. Starting at pointE, the production of successive units of bread will cost:

A) a constant 8 units of tractors. C) 1/8, 1/6, 1/4, and 1/2units of tractors.

B) a constant 6 units of tractors. D) 1/2, 1/4, 1/6, and 1/8units of tractors.

Answer: C


b d

a c

Civilian goods (butter)

Wargoosguns

Type: G Topic: 4 E: 29, 32 MI: 29, 32 MA: 29, 3269. Refer to the above 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 towartime can best be described by the movement from point:A) cto point b. B) bto point c. C) ato point b. D) cto point d.Answer: C


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Type: G Topic: 4 E: 30 MI: 30 MA: 3070. Refer to the above 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 describedby the movement from point:A) cto point b. B) bto point c. C) ato point b. D) cto point d.Answer: A

Type: D Topic: 4 E: 26 MI: 26 MA: 2671. The production possibilities curve shows:

A) the various combinations of two goods that can be produced when society uses its scarce resourcesefficiently.

B) the minimum outputs of two goods that will sustain a society.C) the various combinations of two goods that can be produced when some resources are unemployed.D) the ideal, but unattainable, combinations of two goods that would maximize consumer satisfactions.Answer: A


72. 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.Answer: B

Type: A Topic: 4 E: 26 MI: 26 MA: 2673. If an economy is operating onits 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.Answer: D

Type: D Topic: 4 E: 25 MI: 25 MA: 2574. In drawing a production possibilities curve we hold constant:

A) the money supply. C) both technology and resource supplies.B) the consumer price index. D) resource supplies only.Answer: C


75. The construction of a production possibilities curve assumes:A) the quantities of all resources are unlimited.B) technology is fixed.C) full employment, but not full production, is being realized.D) there is no inflation in the economy.Answer: B


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Type: D Topic: 4 E: 27 MI: 27 MA: 2776. A typical concave (to 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.Answer: B

Type: D Topic: 4 E: 26 MI: 26 MA: 2677. The production possibilities curve tells us:

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


78. 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.Answer: B

Type: A Topic: 4 E: 26 MI: 26 MA: 2679. Which one of the following statements is correct?

A) Relative scarcity is no longer a central idea in economics because we are in an age of abundance.B) Most production possibilities curves are convex to the origin.C) The production possibilities curve shows society's preferences for consumer goods relative to capital

goods.D) The central concept underlying the production possibilities curve is that of limited resources.Answer: D


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Answer the next question(s) on the basis of the following production possibilities tables for two countries, NorthCantina and South Cantina:

North CantinaProduction possibilities

A B C D E FCapital goods 5 4 3 2 1 0

Consumer goods 0 10 18 24 28 30

South CantinaProduction possibilities

A B C D E F

Capital goods 5 4 3 2 1 0Consumer goods 0 8 15 21 25 27

Type: T Topic: 4 E: 27 MI: 27 MA: 2780. Refer to the above 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. C) 5 units of consumer goods.B) 4 units of consumer goods. D) 6 units of consumer goods.Answer: D

Type: T Topic: 4 E: 27 MI: 27 MA: 2781. Refer to the above 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. C) 8 units of capital goods.B) 1/4of a unit of capital goods. D) 1/8of a unit of capital goods.

Answer: D

Type: T Topic: 4 E: 27 MI: 27 MA: 2782. Refer to the above 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 are fully and efficiently using their resources.D) both South Cantina and North Cantina are fully and efficiently using their resources.Answer: B


83. Refer to the above tables. Suppose that resources in North Cantina and South Cantina are identical inquantity 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.Answer: D


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Type: T Topic: 4 E: 27 MI: 27 MA: 2784. Refer to the above 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.Answer: A

Type: A Topic: 4 E: 26 MI: 26 MA: 2685. 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 its resources more efficiently.D) must improve its technology to produce more output.Answer: C


Type: G Topic: 4 E: 26 MI: 26 MA: 2686. Refer to the above diagram. PointsA,B, C,D, andE 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 computers is greater than its demand for bicycles.Answer: B

Type: G Topic: 4 E: 27 MI: 27 MA: 2787. Refer to the above diagram. This production possibilities curve is:

A) convex to the origin because opportunity costs are constant.B) linear because opportunity costs are constant.C) concave to the origin because of increasing opportunity costs.D) convex to the origin because of increasing opportunity costs.Answer: C


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Type: G Topic: 4 E: 27 MI: 27 MA: 2788. Refer to the above 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.Answer: A

Type: G Topic: 4 E: 26 MI: 26 MA: 2689. Refer to the above diagram. The combination of computers and bicycles shown by point Gis:

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.Answer: B

Type: G Topic: 4 E: 27 MI: 27 MA: 2790. Refer to the above diagram. If society is currently producing the combination of bicycles and computersshown by pointD, 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.Answer: B

Type: G Topic: 4 E: 27 MI: 27 MA: 2791. Refer to the above diagram. The combination of computers and bicycles shown by pointF:

A) is unattainable, given currently available resources and technology.B) is attainable, but entails economic inefficiency.C) is irrelevant because it is inconsistent with consumer preferences.D) suggests that opportunity costs are constant.Answer: B

Type: G Topic: 4 E: 27 MI: 27 MA: 2792. Refer to the above diagram. The movement down the production possibilities curve from pointAto pointE

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 are subject to constant opportunity costs.D) both bicycles and computers are subject to increasing opportunity costs.Answer: D


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Consumer goods

C

DB

A

0

Capitalgoods

Type: G Topic: 4 E: 27 MI: 27 MA: 2793. Refer to the above 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) DAnswer: C

Type: G Topic: 4 E: 27 MI: 27 MA: 2794. Refer to the above 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 demanded increases as the price of

capital falls.D) technology frontier curve.Answer: A

Type: G Topic: 4 E: 27 MI: 27 MA: 2795. Refer to the above diagram. Curve C

A) reflects increasing opportunity costs because the slope of the curve becomes less steep as one movesdown 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.Answer: C


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Opportunity costs

Type: A Topic: 5 E: 27 MI: 27 MA: 2796. In deciding whether to study for an economics quiz or go to a movie, one is confronted by the idea(s) of:

A) scarcity and opportunity costs. C) complementary economic goals.B) money and real capital. D) full production.Answer: A

Type: D Topic: 5 E: 27 MI: 27 MA: 2797. Which one of the following expressions best states the idea of opportunity cost?

A) "A penny saved is a penny earned." C) "There is no such thing as a free lunch."B) "He who hesitates is lost." D) "All that glitters is not gold."Answer: C

Type: A Topic: 5 E: 27 MI: 27 MA: 2798. The fact that the slope of the production possibilities curve becomes steeper as we move down along the

curve indicates that:A) the principle of increasing opportunity costs is relevant.B) society's resources are limited.C) the opportunity cost of producing each product is constant.D) resources are perfectly shiftable between alternative uses.Answer: A

Type: C Topic: 5 E: 27 MI: 27 MA: 2799. The idea of opportunity cost:

A) applies to consumers, but not to businesses.B) applies to businesses, but not to consumers.C) is relevant to economies of all ideological persuasions.D) would disappear if we were able to eliminate poverty.Answer: C

Type: A Topic: 5 E: 27 MI: 27 MA: 27100. Which of the following is an economic explanation for why most college-aged movie stars do not attend

college.A) they are too dumb to get into collegeB) they would find college life boringC) the opportunity cost in terms of reduced income is too greatD) they cannot afford the room, board, and tuition fees most colleges charge.Answer: C


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Type: D Topic: 5 E: 27 MI: 27 MA: 27101. 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 ofother goods to do so.

B) the sum of the costs of producing a particular good cannot rise above the current market price of thatgood.

C) if the sum of the costs of producing a particular good rises by a specified percent, the price of that goodmust rise by a greater relative amount.

D) if the prices of all the resources used to produce goods increase, the cost of producing any particulargood will increase at the same rate.

Answer: A

Type: D Topic: 5 E: 27 MI: 27 MA: 27102. 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.Answer: B

Type: A Topic: 5 E: 27 MI: 27 MA: 27103. The law of increasing opportunity costs exists because:

A) resources are not equally efficient in producing various goods.B) the value of the dollar has diminished historically because of persistent inflation.C) wage rates invariably rise as the economy approaches full employment.D) consumers tend to value any good more highly when they have little of it.Answer: A

Type: A Topic: 5 E: 27 MI: 27 MA: 27104. The law of increasing opportunity costs is reflected in a production possibilities curve that is:

A) an upsloping straight line. C) concave to the origin.B) a downsloping straight line. D) convex to the origin.Answer: C

Type: D Topic: 5 E: 27 MI: 27 MA: 27105. Opportunity cost is best defined as:

A) the monetary price of any productive resource.B) the amount of labor that must be used to produce one unit of any product.C) the ratio of the prices of imported goods to the prices of exported goods.D) the amount of one product that must be given up to produce one more unit of another product.Answer: D


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Allocative efficiency

Type: D Topic: 6 E: 27 MI: 27 MA: 27106. Allocative efficiency is concerned with:

A) producing the combination of goods most desired by society.B) achieving the full employment of all available resources.C) producing every good with the least-cost combination of inputs.D) reducing the concavity of the production possibilities curve.Answer: A

Type: D Topic: 6 E: 27 MI: 27 MA: 27107. Allocative efficiency involves determining:

A) which output-mix will result in the most rapid rate of economic growth.B) which production possibilities curve reflects the lowest opportunity costs.C) the point on the production possibilities curve that will maximize society's satisfaction.D) the optimal rate of technological progress.Answer: C

Type: D Topic: 6 E: 27 MI: 27 MA: 27108. The point on the production possibilities curve that produces allocative efficiency can be found by:

A) estimating the marginal costs of both products in real or physical terms.B) comparing marginal benefits and marginal costs in monetary terms.C) determining where least-cost production occurs.D) calculating where economic growth will be greatest.Answer: B

Type: D Topic: 6 E: 27 MI: 27 MA: 27109. Allocative efficiency refers to:

A) the use of the least-cost method of production.B) the production of the product-mix most wanted by society.C) the full employment of all available resources.D) production at some point inside of the production possibilities curve.Answer: B

Type: D Topic: 6 E: 27 MI: 27 MA: 27110. The optimal or allocatively efficient 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.Answer: B

Type: D Topic: 6 E: 28 MI: 28 MA: 28111. 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 utility.C) downsloping because of increasing marginal opportunity costs.D) downsloping because successive units of a specific product yield less and less extra utility.Answer: D


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Type: D Topic: 6 E: 28 MI: 28 MA: 28112. 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.Answer: A

Type: A Topic: 6 E: 28 MI: 28 MA: 28113. The output of compact disc 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.Answer: B


114. 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.Answer: A


Margna

ene

t

and

marg

inalcost

(do

llars)

Marginal

Cost

MarginalBenefit

0

Quantity of shoes

Q1 Q2 Q3

Type: A Topic: 6 E: 28 MI: 28 MA: 28115. Refer to the above diagram for athletic shoes. The optimal output of shoes is:

A) Q1. B) Q2. C) Q3. D) greater than Q3.Answer: B


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Type: A Topic: 6 E: 28 MI: 28 MA: 28116. Refer to the above 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 products.B) society would consider additional units of shoes to be less valuable than alternative products.C) society would experience a net loss by producing more shoes.D) resources are being allocated efficiently to the production of shoes.

Answer: A

Type: A Topic: 6 E: 28 MI: 28 MA: 28117. Refer to the above 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.Answer: C

Economic growth and decline


Consumer Goods

E

C

A

G

0 H B D F

Cap

tal

goo

ds

Type: G Topic: 7 E: 30 MI: 30 MA: 30118. 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.Answer: A

Type: G Topic: 7 E: 30 MI: 30 MA: 30119. Technological advance that is useful in producing capital goods but not in producing consumer goods is

shown by the shift of the production possibilities curve from AB to:A) CD. B) BE. C) AF. D) GH.Answer: B


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Type: G Topic: 7 E: 30 MI: 30 MA: 30120. 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.Answer: C

Type: D Topic: 7 E: 25 MI: 25 MA: 25121. 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.Answer: D

Type: A Topic: 7 E: 32 MI: 32 MA: 32122. Which of the following would be most likely to shift the production possibilities curve to the right?

A) a sudden and substantial expansion of consumer wantsB) an improvement in the literacy level and general level of educationC) a decline in the size of the population and labor forceD) shifting resources from the production of capital goods to the production of consumer goods.Answer: B

Type: D Topic: 7 E: 32 MI: 32 MA: 32123. Which of the following will shift the production possibilities curve to the right?

A) an increase in the unemployment rate from 6 to 8 percentB) a decline in the efficiency with which the present labor force is allocatedC) a decrease in the unemployment rate from 8 to 6 percentD) a technological advance that allows farmers to produce more output from given inputsAnswer: D

Type: C Topic: 7 E: 32 MI: 32 MA: 32124. 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 energyB) the entrance of more women into the labor forceC) a law requiring mandatory retirement from the labor force at age 55D) an increase in the proportion of total output that consists of capital or investment goodsAnswer: C


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Type: G Topic: 7 E: 27 MI: 27 MA: 27125. Refer to the above 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.Answer: D

Type: G Topic: 7 E: 27 MI: 27 MA: 27126. Refer to the above diagram. The concept of opportunity cost is best represented by the:

A) shift of the production possibilities curve fromPP1toPP2.

B) move fromBonPP1 toE onPP2.

C) move fromBonPP1 to ConPP1.

D) move fromD insidePP1 toBonPP1.

Answer: C

Type: C Topic: 7 E: 31 MI: 31 MA: 31127. Refer to the above diagram. Which of the following positions relative toPP1would be the most likely to

result in a future production possibilities curve ofPP3, rather thanPP2 ?

A) A. B) B. C) C. D) D.Answer: A

Type: G Topic: 7 E: 30 MI: 30 MA: 30128. Refer to the above diagram. An improvement in technology will:

A) shift the production possibilities curve fromPP1toPP2.

B) shift the production possibilities curve fromPP2toPP1.

C) move the economy fromAto CalongPP1.

D) move the economy fromA,B, or ConPP1toD.

Answer: A


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Type: G Topic: 7 E: 30 MI: 30 MA: 30129. Refer to the above diagram. Which one of the following would shift the production possibilities curve

fromPP1toPP2?

A) immigration of skilled workers into the economyB) worsening of the AIDS epidemicC) an increase in consumer prices

D) a reduction in hourly wagesAnswer: A

Type: D Topic: 7 E: 31 MI: 31 MA: 31130. Which of the following statements, if any, is correct for a nation that is producing only consumption 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 the above statements is correct.Answer: B

Type: A Topic: 7 E: 32 MI: 32 MA: 32131. All of the following could immediately or eventually lead to an inward shift of a nation's production

possibilities curve, except:A) emigration of skilled workers from the nation.B) a decline in the birth rate.C) an increase in the average skill level of all occupational groups.D) depletion and reduced availability of major energy resources.Answer: C

Type: A Topic: 7 E: 32 MI: 32 MA: 32132. 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.Answer: C

Applications


133. Which of the following might shift a nation's production possibilities curve inward?A) improved technology.B) devastation by war.C) improved health care.D) a business downturn in which unemployment temporarily rises.Answer: B


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Type: A Topic: 8 E: 32 MI: 32 MA: 32134. 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. C) increasing opportunity costs.B) opportunity costs. D) productive efficiency.Answer: B

Type: A Topic: 8 E: 32 MI: 32 MA: 32135. Which of the following most closely relates to the idea of opportunity costs?

A) tradeoffs B) economic growth C) technological change D) capitalismAnswer: A

Type: A Topic: 8 E: 32 MI: 32 MA: 32136. 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 C) full productionB) international specialization and trade D) productive efficiency.

Answer: B

Type: C Topic: 8 E: 32 MI: 32 MA: 32137. Suppose that Zualia, which has full employment and full production, can obtain 1 unit of capital goods by

sacrificing 2 units of consumer goods domestically, but can obtain 1 unit of capital goods from anothercountry 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.Answer: C

Type: A Topic: 8 E: 31 MI: 31 MA: 31138. 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 attain some combination of goods lying within its production possibilities curve.D) will cause its production possibilities curve to shift leftward.Answer: A


139. Some agricultural sub-Saharan nations of Africa have overfarmed and overgrazed their land to the extentthat significant portions of it have turned into desert. This suggests that:A) the concavity of the production possibilities curves of such nations has increased.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.Answer: B


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Type: A Topic: 8 E: 32 MI: 32 MA: 32140. 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.Answer: B

Economic systems

Type: F Topic: 9 E: 33 MI: 33 MA: 33141. The two general types of economic systems that exist today are:

A) market systems and capitalism.B) socialism and central planning.C) market systems and command systems.D) laissez faire systems and pure command systems.Answer: C

Type: D Topic: 9 E: 33 MI: 33 MA: 33142. Which of the following is a distinguishing feature of a command system?

A) private ownership of all capital. C) heavy reliance on markets.B) central planning. D) wide-spread dispersion of economic power.Answer: B

Type: D Topic: 9 E: 33 MI: 33 MA: 33143. Which of the following is a distinguishing feature of a market system?

A) public ownership of all capital. C) wide-spread private ownership of capital.B) central planning. D) a circular flow of goods, resources, and money.Answer: C

Type: A Topic: 9 E: 33 MI: 33 MA: 33144. Examples of command economies are:

A) the United States and Japan. C) Mexico and Brazil.B) Sweden and Norway. D) Cuba and North Korea.Answer: D

Type: A Topic: 9 E: 33 MI: 33 MA: 33145. Of the following countries, the one that best exhibits the characteristics of a market economy is:

A) Canada. B) Cuba. C) North Korea. D) China.

Answer: A

Type: D Topic: 9 E: 33 MI: 33 MA: 33146. The French term "laissez-faire" means:

A) "there is no free lunch." B) "let it be." C) "circular flow." D) "public ownership."Answer: B


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Type: D Topic: 9 E: 33 MI: 33 MA: 33147. An economic system:

A) requires a grouping of private markets linked to one another.B) is a particular set of institutional arrangements and a coordinating mechanism used to respond to the

economizing problem.C) requires some sort of centralized authority (such as government) to coordinate economic activity.D) is a plan or scheme that allows a firm to make money at some other firm's expense.Answer: B

Type: D Topic: 9 E: 33 MI: 33 MA: 33148. The term laissez faire suggests that:

A) land and other natural resources should be privately owned, but capital should be publicly owned.B) land and other natural resources should be publicly owned, but capital equipment should be privately

owned.C) government should not interfere with the operation of the economy.D) government action is necessary if the economy is to achieve full employment and full production.Answer: C

Type: D Topic: 9 E: 33 MI: 33 MA: 33149. Economic scarcity:

A) is peculiar to the United States economy. C) is peculiar to command systems.B) applies to all economies. D) is peculiar to market systems.Answer: B

Circular flow model

Type: D Topic: 10 E: 34 MI: 34 MA: 34150. The simple circular flow model shows that:

A) households are on the buying side of both product and resource markets.B) businesses are on the selling side of both product and resource markets.C) households are on the selling side of the resource market and on the buying side of the product market.D) businesses are on the buying side of the product market and on the selling side of the resource market.Answer: C

Type: D Topic: 10 E: 34 MI: 34 MA: 34151. The two basic markets shown by the simple circular flow model are:

A) capital goods and consumer goods. C) product and resource.B) free and controlled. D) household and business.Answer: C

Type: D Topic: 10 E: 36 MI: 36 MA: 36152. In the resource market:

A) businesses borrow financial capital from households.B) businesses sell services to households.C) households sell resources to businesses.D) firms sell raw materials to households.Answer: C


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Type: A Topic: 10 E: 34 MI: 34 MA: 34153. Which of the following is a limitation of the simple circular flow model?

A) product markets are ignored.B) resource markets are ignored.C) The determination of product and resource prices is not explained.D) households are included, but not businesses.Answer: C

Type: D Topic: 10 E: 36 MI: 36 MA: 36154. In the simple circular flow model:

A) households are buyers of resources.B) businesses are sellers of final products.C) households are sellers of final products.D) there are real flows of goods, services, and resources, but not money flows.Answer: B


Type: A Topic: 10 E: 34 MI: 34 MA: 34155. Refer to the above diagram. Flow (1) represents:

A) wage, rent, interest, and profit income. C) goods and services.B) land, labor, capital, and entrepreneurial ability. D) consumer expenditures.Answer: A


A) wage, rent, interest, and profit income. C) goods and services.B) land, labor, capital, and entrepreneurial ability. D) consumer expenditures.Answer: B


A) wage, rent, interest, and profit income. C) goods and services.B) land, labor, capital, and entrepreneurial ability. D) consumer expenditures.Answer: C


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A) wage, rent, interest, and profit income. C) goods and services.B) land, labor, capital, and entrepreneurial ability. D) consumer expenditures.Answer: D

Type: D Topic: 10 E: 36 MI: 36 MA: 36159. In terms of the circular flow diagram, households make expenditures in the _____ market and receive

income through the _____ market.A) product; financial B) resource; product C) product; resource D) capital; productAnswer: C

Type: D Topic: 10 E: 36 MI: 36 MA: 36160. In terms of the circular flow diagram, businesses obtain revenue through the _____ market and make

expenditures in the _____ market.A) product; financial B) resource; product C) product; resource D) capital; productAnswer: C

Type: D Topic: 10 E: 36 MI: 36 MA: 36161. Households and businesses are:

A) both buyers in the resource market.B) both sellers in the product market.C) sellers in the resource and product markets respectively.D) sellers in the product and resource markets respectively.Answer: C

Type: D Topic: 10 E: 36 MI: 36 MA: 36162. In the circular flow model:

A) households sell resources to firms.B) households receive income through the product market.C) households spend income in the resource market.D) businesses neither buy nor sell resources.Answer: A


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Type: A Topic: 10 E: 34 MI: 34 MA: 34163. Refer to the above diagram. Arrows (1) and (2) represent:

A) goods and resources respectively. C) output and money incomes respectively.

B) money incomes and output respectively. D) resources and goods respectively.Answer: D

Type: A Topic: 10 E: 34 MI: 34 MA: 34164. Refer to the above diagram. Arrows (3) and (4) represent:

A) goods and services respectively.B) incomes and consumer expenditures respectively.C) resources and goods respectively.D) consumer expenditures and income respectively.Answer: B

Type: A Topic: 10 E: 36 MI: 36 MA: 36165. Refer to the above diagram. Arrows (1) and (3) are associated with:

A) the money market. B) the resource market. C) the product market. D) international trade.Answer: B

Consider This Questions

Type: D E: 32 MI: 32 MA: 32 Status: New166. (Consider This) A direct cost of going to college is:

A) tuition, while an indirect cost (opportunity cost) is books and other supplies.B) forgone income while in college, while an indirect cost (opportunity cost) is tuition.

C) tuition, while an indirect cost (opportunity cost) is forgone income while in college.D) books and supplies, while an indirect cost (opportunity cost) is food and housing.Answer: C


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Type: A E: 32 MI: 32 MA: 32 Status: New167. (Consider This) An exception to the advice "go to college, stay in college, and earn a degree" occurs when:

A) tuition expenses are high and rising.B) the opportunity cost of attending college is extraordinarily high.C) the price of textbooks is high and rising.D) the economy is growing rapidly and jobs are plentiful.Answer: B

Last Word Questions


B D

A

C

0 Defense goods

xy

Civiliangoods

Type: G E: 35 MI: 35 MA: 35 Status: New168. (Last Word) Refer to the above diagram. The direct economic impact of the destruction and loss of lives

caused by the terrorist attacks of September 11, 2001 is illustrated by the:A) shift of the production possibilities curve from CD to AB.B) shift of the production possibilities curve from AB to CD.C) move fromxtoyon production possibilities curve AB.D) move fromytoxon production possibilities curve AB.Answer: A

Type: G E: 35 MI: 35 MA: 35 Status: New169. (Last Word) Refer to the above diagram. The U.S. response to the events of September 11, 2001, is

illustrated by the:

A) shift of the production possibilities curve from CD to AB.B) shift of the production possibilities curve from AB to CD.C) move fromxtoyon production possibilities curve AB.D) move fromytoxon production possibilities curve AB.Answer: C


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Type: G E: 35 MI: 35 MA: 35 Status: New170. (Last Word) Refer to the above diagram. Suppose that pointyrepresents the optimal combination of

civilian goods and defense goods. We can conclude that atythe marginal benefit of defense goods:A) exceeds the marginal cost of defense goods. C) is zero.B) equals the marginal cost of defense goods. D) is negative.Answer: B

True/False Questions

Type: D E: 24 MI: 24 MA: 24171. Full production means that all available workers have jobs.

Answer: False

Type: D E: 26 MI: 26 MA: 26172. The production possibilities curve shows various combinations of two products that an economy can

produce when achieving full employment and productive efficiency.

Answer: True

Type: D E: 23 MI: 23 MA: 23173. The entrepreneur's sole function is to combine other resources (land, labor, and capital) in the production of

some good or service.Answer: False

Type: D E: 23 MI: 23 MA: 23174. Products and services are scarce because resources are scarce.

Answer: True

Type: D E: 26 MI: 26 MA: 26175. An economy cannot produce at a point outside of its production possibilities curve because human

economic wants are insatiable.Answer: False

Type: D E: 23 MI: 23 MA: 23176. The process by which capital goods are accumulated is known as investment.

Answer: True

Type: D E: 30 MI: 30 MA: 30

177. The present choice of position on the production possibilities curve will not influence the future location ofthe curve.Answer: False

Type: A E: 27 MI: 27 MA: 27178. Although sleeping in on a work day or school day has an opportunity cost, sleeping late on the weekend

does not.Answer: False


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Type: A Topic: 5 E: 26 MI: 26 MA: 26179. Refer to the above diagram. Given production possibilities curve (a), the combination of civilian and war

goods indicated by pointXis unattainable to this economy.

Answer: False

Type: G E: 26 MI: 26 MA: 26180. Refer to the above diagram. Given production possibilities curve (a), point Yindicates that society is failing

to use available resources efficiently.Answer: False

Type: G E: 30 MI: 30 MA: 30181. Refer to the above diagram. The movement from curve (a) to curve (b) implies an increase in the quantity

and/or quality of society's productive resources.Answer: True

Type: G E: 30 MI: 30 MA: 30182. Refer to the above diagram. The movement from curve (a) to curve (c) indicates an improvement in civilian

goods technology but not in war goods technology.Answer: False

Type: G E: 29 MI: 29 MA: 29183. An economy will always operate at some point on its production possibilities curve.

Answer: False

Type: G E: 33 MI: 33 MA: 33184. The increasing wealth of the United States has reduced the relevance of economics.

Answer: False

ch2 test bank

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