Chapter 01 – Limits, Alternatives, and Choices
Chapter 01
Limits, Alternatives, and Choices
Multiple Choice Questions
1. Economics is the study of:
A. increasing the level of productive resources so there is maximum output in society.
B. increasing the level of productive resources so there is a minimum level of income.
C. how people, institutions, and society make choices under conditions of scarcity.
D. the efficient use of scarce resources paid for at the minimum level of cost to consumers and
businesses.
2. The primary focus of the study of economics is with:
A. expanding the production of goods and services.
B. equalizing the distribution of consumer income and wealth.
C. making the most efficient use of scarce productive resources.
D. reallocating resources from consumption to production in the economy.
3. The general concern of economics is with the study of the:
A. degree of competition in stock and bond markets in the economy.
B. efficient use of limited productive resources to satisfy economic wants.
C. issue of equality in the distribution of income and wealth among households.
D. budget deficits in the domestic economy and trade deficits in the international economy.
4. Which of the following is not a central focus of the “economic perspective”?
A. Scarcity and choice.
B. The scientific method.
C. Purposeful behavior.
D. Marginal analysis.
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Chapter 01 – Limits, Alternatives, and Choices
5. The term scarcity in economics refers to the fact that:
A. economic wants are limited and resources are abused.
B. even in the richest country some people go hungry.
C. no country can produce enough products to satisfy everybody’s economic wants.
D. it is impossible to produce too much of any particular good or service in a market
economy.
6. The basic economic problem is essentially one of deciding how to make the best use of:
A. limited resources to satisfy limited economic wants.
B. limited resources to satisfy unlimited economic wants.
C. unlimited resources to satisfy unlimited economic wants.
D. unlimited resources to satisfy limited economic wants.
7. The key economic concept that serves as the basis for the study of economics is:
A. inflation.
B. unemployment.
C. money.
D. scarcity.
8. As a student of economics, when you speak of scarcity, you are referring to the ability of
society to:
A. employ all of its resources.
B. consume all that is produced.
C. satisfy economic wants given limited resources.
D. continually make technological breakthroughs and increase production.
9. As a consequence of the condition of scarcity:
A. there is never enough of anything.
B. production has to be centrally planned.
C. things which are plentiful have relatively high prices.
D. individuals and communities have to make choices from among alternatives.
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Chapter 01 – Limits, Alternatives, and Choices
10. What is the economic meaning of the expression that “there is no such thing as a free
lunch”?
A. It refers to “free-riders,” who do not pay for the cost of a product, but who receive the
benefit from it.
B. It means that economic freedom is limited by the amount of income available to the
consumer.
C. It means that there is an opportunity cost when resources are used to provide “free”
products.
D. It indicates that products only have value because people are willing to pay for them.
11. According to the Gates, Winfrey, and Rodriguez illustration:
A. Gates, Winfrey, and Rodriguez made a mistake by not attending college.
B. Gates, Winfrey, and Rodriguez did not weigh marginal benefits against marginal costs
when making decisions.
C. Opportunity costs vary greatly between individuals and matter in decision-making.
D. Attending college has little effect on lifetime earnings.
12. One major feature of the economic perspective is:
A. that scarcity is more important than choice.
B. that costs are more important than benefits.
C. the assumption of purposeful behavior by individuals.
D. the recognition of economic resources in the economy.
13. The satisfaction or pleasure one gets from consuming a good or service is:
A. price.
B. utility.
C. consumption.
D. preferences.
14. The utility of a specific product:
A. is determined by consumer income.
B. is determined by the price of the product.
C. varies from person to person using the product.
D. is constant from person to person using the product.
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Chapter 01 – Limits, Alternatives, and Choices
15. Which expression is another way of saying “marginal cost”?
A. total cost
B. additional cost
C. rational behavior
D. scarcity
16. Henry wants to buy a book. The economic perspective suggests that Henry will buy the
book if:
A. the book will give him utility.
B. his income is high.
C. the marginal cost of the book is greater than its marginal benefit.
D. the marginal benefit of the book is greater than its marginal cost.
17. From an economic perspective, when a consumer decides to buy more life insurance, the
consumer has most likely concluded that the:
A. marginal costs of more insurance coverage have decreased.
B. marginal benefits of more insurance coverage have increased.
C. marginal benefits of more insurance coverage are greater than the marginal costs.
D. opportunity costs of more insurance coverage are greater than the payment for more
insurance coverage.
18. From an economic perspective, when a student decides to attend another year of college,
the student has concluded that the marginal:
A. costs of attending college has decreased that year.
B. benefits of attending college has increased that year.
C. benefits of attending college are greater than the marginal costs.
D. costs of attending college will be subsidized by someone else such as parents or the
government.
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Chapter 01 – Limits, Alternatives, and Choices
19. When an economist says that there is “too much of a good thing,” the economist is
suggesting that:
A. scarcity is not a problem.
B. wants are not unlimited.
C. the marginal cost of the thing is less than the marginal benefit.
D. the marginal benefit of the thing is less than the marginal cost.
20. The concept of “purposeful behavior” suggests that:
A. macroeconomics is more important then microeconomics.
B. microeconomics is more important than macroeconomics.
C. people make different choices because their circumstances and information differ.
D. there is a logical fallacy of composition that affects microeconomic thinking but not
macroeconomic thinking.
21. Are the goods that businesses offer for “free” to consumers also free to society?
A. Yes, because the individual consumer does not have to pay for them.
B. Yes, because the marginal benefit is greater than the marginal cost.
C. No, because scarce resources were used to produce the free goods.
D. No, because society does not assign a value to free goods.
22. When producers maximize their profits from the production of a good or service, they
are:
A. testing a hypothesis.
B. exhibiting purposeful behavior.
C. assuming that all other things are equal.
D. making a tradeoff between economic efficiency and economic freedom.
23. How is the economic perspective reflected in lines for fast food?
A. Customers select the shortest line because they have perfect information.
B. Customers select the shortest line because they believe it will reduce their time cost of
obtaining food.
C. Lines will typically be of unequal length because of the inefficiencies in counter service.
D. The set of food choices is often too complex for most customers and thus creates long
lines.
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Chapter 01 – Limits, Alternatives, and Choices
24. From an economic perspective, when consumers leave a fast-food restaurant because the
lines to be served are too long, they have concluded that the:
A. marginal cost of waiting is less than the marginal benefit of being served.
B. marginal cost of waiting is greater than the marginal benefit of being served.
C. management is exhibiting irrational behavior by not maximizing profits.
D. management is making an assumption that other things are equal.
25. The process of developing hypotheses, testing them against facts, and using the results to
construct theories is called:
A. opportunity cost calculation.
B. the scientific method.
C. marginal analysis.
D. microeconomics.
26. The statement that “the unemployment rate will increase as the economy moves into a
recession” is an example of:
A. a normative statement.
B. a microeconomic statement.
C. marginal analysis.
D. a generalization.
27. An economic model is:
A. a value judgment.
B. a fact.
C. built using theory.
D. built on policies.
28. Economic models do not reflect the full complexity of reality and instead are based on:
A. tradeoffs.
B. purposeful simplifications.
C. value judgments.
D. the fallacy of composition.
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Chapter 01 – Limits, Alternatives, and Choices
29. The role of an assumption in an economic theory is to:
A. add realism.
B. prove the theory.
C. cover special cases.
D. simplify the theory.
30. The purpose of the ceteris paribus assumption used in economic analysis is to:
A. make sure that all relevant factors are considered.
B. avoid making normative statements.
C. aggregate economic data.
D. restrict the analysis to the effect of a single economic factor.
31. A basic assumption used in most economic theories is that:
A. what is true for a part of the whole must also be true for the whole.
B. as price decreases, quantity demanded will increase.
C. whatever goes up must come down.
D. all other things remain the same.
32. Economists have difficulty applying the scientific method because:
A. economic conditions are constant.
B. controlled laboratory experiments are impossible or often infeasible.
C. people are involved, and their behavior is entirely predictable.
D. the scientific method does not apply to economics.
33. Which question is an illustration of a macroeconomic question?
A. What is the amount of profit for Intel and other makers of microchips?
