Economic Economic Analysis of

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Economic Analysis of Social Issues (Grant)

Chapter 1 Fundamental Concepts in Economics

1.1 What is Economics?

1) Economics is the study of how ________ manages its ________ resources to satisfy its wants.

A) society; unlimited

B) society; scarce

C) a household; unlimited

D) a household; scarce

Answer: B

Diff: 1 Page Ref: 2

Topic: What Is Economics?

Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to

think like an economist.

AACSB : Application of knowledge

2) An economy’s resources include

A) raw materials.

B) factories and machinery.

C) human knowledge.

D) all of the above

Answer: D

Diff: 1 Page Ref: 2

Topic: What Is Economics?

Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to

think like an economist.

AACSB : Application of knowledge

3) Economies can be organizations such as

A) households.

B) individual states of the United States.

C) entire countries.

D) households, states, and countries.

Answer: D

Diff: 1 Page Ref: 2

Topic: Key Features of an Economy

Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to

think like an economist.

AACSB : Application of knowledge

2

4) Which of the following is a key question that must be addressed by an economy?

A) What will be made with our resources?

B) How much will we spend producing products?

C) Where will we produce our products?

D) When should we produce our products?

Answer: A

Diff: 2 Page Ref: 3

Topic: Key Questions Every Economy Must Answer

Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to

think like an economist.

AACSB : Application of knowledge

5) Which of the following is a key question that must be addressed by an economy?

A) Why should we produce a product?

B) When should we replenish out resources?

C) How will we distribute our products?

D) What should we do when we use up all our resources?

Answer: C

Diff: 2 Page Ref: 3

Topic: Key Questions Every Economy Must Answer

Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to

think like an economist.

AACSB : Application of knowledge

6) In a market system, the ultimate decision about what to produce is left to

A) buyers.

B) the government.

C) sellers.

D) households.

Answer: C

Diff: 1 Page Ref: 3

Topic: Key Questions Every Economy Must Answer

Learning Outcome: Micro-3: Discuss different types of market systems and the gains that can be

made from trade.

AACSB : Application of knowledge

7) In a command economy, the ultimate decision about what to produce is left to

A) buyers.

B) the government.

C) sellers.

D) households.

Answer: B

Diff: 1 Page Ref: 3

Topic: Key Questions Every Economy Must Answer

Learning Outcome: Micro-3: Discuss different types of market systems and the gains that can be

made from trade.

AACSB : Application of knowledge

3

8) In a mixed economy, the ultimate decision about what to produce is left to

A) buyers.

B) the government.

C) sellers.

D) all of the above

Answer: D

Diff: 1 Page Ref: 3

Topic: Key Questions Every Economy Must Answer

Learning Outcome: Micro-3: Discuss different types of market systems and the gains that can be

made from trade.

AACSB : Application of knowledge

9) Economies where production and distribution decisions are made by the government are

called

A) command economies.

B) market economies.

C) mixed economies.

D) capitalist economies.

Answer: A

Diff: 1 Page Ref: 3

Topic: Key Questions Every Economy Must Answer

Learning Outcome: Micro-3: Discuss different types of market systems and the gains that can be

made from trade.

AACSB : Application of knowledge

10) Economies where some production decisions are made by the government and some are

made by buyers and sellers are called

A) command economies.

B) market economies.

C) mixed economies.

D) capitalist economies.

Answer: C

Diff: 1 Page Ref: 3

Topic: Key Questions Every Economy Must Answer

Learning Outcome: Micro-3: Discuss different types of market systems and the gains that can be

made from trade.

AACSB : Application of knowledge

4

11) Of the following countries, which is the best example of a command economy?

A) the United States

B) Cuba

C) Japan

D) Brazil

Answer: B

Diff: 2 Page Ref: 3

Topic: Key Questions Every Economy Must Answer

Learning Outcome: Micro-3: Discuss different types of market systems and the gains that can be

made from trade.

AACSB : Application of knowledge

12) Of the following countries, which is the best example of a mixed economy?

A) Mexico

B) Cuba

C) North Korea

D) China

Answer: A

Diff: 2 Page Ref: 3

Topic: Key Questions Every Economy Must Answer

Learning Outcome: Micro-3: Discuss different types of market systems and the gains that can be

made from trade.

AACSB : Application of knowledge

13) Resources are items that a society uses to create goods and services.

Answer: TRUE

Diff: 1 Page Ref: 2

Topic: What Is Economics?

Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to

think like an economist.

AACSB : Application of knowledge

14) An economy is an organization that produces goods and services and then allocates those

goods and services to its members.

Answer: TRUE

Diff: 1 Page Ref: 2

Topic: Key Features of an Economy

Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to

think like an economist.

AACSB : Application of knowledge

5

15) Command economies are never effective at organizing the production and distribution of

goods and services.

Answer: FALSE

Diff: 2 Page Ref: 3

Topic: Key Questions Every Economy Must Answer

Learning Outcome: Micro-3: Discuss different types of market systems and the gains that can be

made from trade.

AACSB : Application of knowledge

16) What is an economy?

Answer: An economy is a type of organization that produces goods and services and then

allocates those goods and services to its members.

Diff: 1 Page Ref: 2

Topic: Key Features of an Economy

Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to

think like an economist.

AACSB : Application of knowledge

17) Explain the differences between a market system, a command economy, and a mixed

economy with respect to production and distribution decisions.

Answer: In a market system, sellers primarily make production and distribution decisions, but

they must satisfy the tastes of buyers. In a command economy, the government makes production

and distribution decisions. In a mixed economy, buyers and sellers make some production and

distribution decisions and the government makes others.

Diff: 2 Page Ref: 3

Topic: Key Questions Every Economy Must Answer

Learning Outcome: Micro-3: Discuss different types of market systems and the gains that can be

made from trade.

AACSB : Application of knowledge

6

1.2 Key Principles of Economics: Scarcity, Trade-offs, and Opportunity Costs

1) A situation where limited resources make it impossible to fulfill all of our wants is known as

A) scarcity.

B) opportunity cost.

C) a trade-off.

D) responding to incentives.

Answer: A

Diff: 1 Page Ref: 4

Topic: Scarcity

Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to

think like an economist.

AACSB : Application of knowledge

2) The opportunity cost of an activity is

A) the dollar cost to engage in the activity.

B) the value of the resources needed to conduct the activity.

C) the same for all who participate in the activity.

D) what you sacrifice to engage in the activity.

Answer: D

Diff: 1 Page Ref: 4

Topic: Trade-offs and Opportunity Costs

Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to

think like an economist.

AACSB : Application of knowledge

3) Who faces trade-offs?

A) individuals

B) households

C) governments

D) all of the above

Answer: D

Diff: 1 Page Ref: 4

Topic: Trade-offs and Opportunity Costs

Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to

think like an economist.

AACSB : Application of knowledge

4) You decide to spend time studying for a philosophy exam, even though you have offers to go

to see a movie, go out to dinner, or go to a poetry reading. This is a difficult choice for you

because you really want to go to the poetry reading and would choose that over seeing the movie

or going out to dinner. Your opportunity cost of spending time studying for your philosophy

exam is

A) going to the movie.

B) going out to dinner.

C) going to the poetry reading.

D) all of the above, since you have offers to do all three

Answer: C

Diff: 2 Page Ref: 5

Topic: Trade-offs and Opportunity Costs

Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to

think like an economist.

AACSB : Application of knowledge

5) Your opportunity cost of attending a lecture on the number of brain cells lost by binge-

watching episodes of Here Comes Honey Boo Boo is

A) zero, since you already know that binge-watching will kill all of your brain cells.

B) the price of the ticket for the lecture.

C) the value of attending a meditation class, which is your next-best alternative.