Chapter 1—Introducing the Economic Way of Thinking
MULTIPLE CHOICE
1. Which of the following illustrates the concept of scarcity?
a.
a. There is usually more than one use of your “free” time in the evening.
b.
More clean air is wanted than is available in large polluted metropolitan areas such as Los
Angeles.
c.
There are many competing uses for the annual budget of your city, county, or state.
d.
All of the answers are correct.
2. When economists say scarcity, they mean:
a.
there are only a limited number of consumers who would be interested in purchasing
goods.
b.
the human desire for goods exceeds the available supply of time, goods and resources.
c.
most people in poorer countries do not have enough goods.
d.
goods are so expensive that only the rich can afford it.
3. When economists say goods are scarce, they mean:
a.
consumers are too poor to afford the goods and services available.
b.
consumers are unwilling to buy goods unless they have very low prices.
c.
goods are generally freely available from nature in most countries.
d.
the desire for goods and services exceeds our ability to produce them with the limited
resources available.
4. Scarcity is a problem:
a.
measured by the amount of goods available.
b.
of the poor, but not the rich.
c.
because human wants are unlimited while resources are limited.
d.
only in industrialized economies.
5. Scarcity can be eliminated if:
a.
people satisfy needs rather than wants.
b.
sufficient new resources were discovered.
c.
output of goods and services were increased.
d.
none of these.
6. Scarcity is a(n):
a.
problem only in industrialized economies.
b.
condition measured by the quantity of goods available.
c.
subjective concept that human wants can never be satisfied.
d.
problem only in poor economies.
7. The condition of scarcity:
a.
cannot be eliminated.
b.
prevails in poor economies.
c.
prevails in rich economies.
d.
All of these.
8. Scarcity:
a.
exists because resources are unlimited while human wants are limited.
b.
means we are unable to have as much as we would like to have.
c.
will likely be eliminated as technology continues to expand.
d.
is not an issue addressed in economics.
9. Which of the following would eliminate scarcity as an economic problem?
a.
Moderation of people’s competitive instincts.
b.
Discovery of sufficiently large new energy reserves.
c.
Resumption of steady productivity growth.
d.
None of these.
10. The finite nature of the economy’s resource base:
a.
will be solved if only we would learn to conserve.
b.
is only a problem in developing countries.
c.
will be solved as technology advances.
d.
will always be with us.
11. Human wants:
a.
are unfilled only in the poorer countries of the world.
b.
can be completely satisfied by advancing technology.
c.
can never be fully satisfied.
d.
only apply to necessities.
e.
exist only if we are selfish.
12. Scarcity:
a.
is a problem only in the poorer countries of the world.
b.
can be solved by rapid advances in technology.
c.
is a problem that exists in every economy.
d.
is not a problem for the very rich.
13. The perpetual problem in economics is:
a.
our inability to work together effectively.
b.
our inability to satisfy everyone’s wants with the available resources.
c.
a recognition of continual class differences.
d.
our inability to utilize resources efficiently.
e.
likely to be solved in resource-rich countries.
14. The perpetual state of insufficiency of resources to satisfy people’s unlimited wants is:
a.
apparent only in poor countries.
b.
completely unrealistic.
c.
present in modern economies, but not in the past.
d.
the definition of scarcity.
15. People are forced to make choices because of:
a.
unlimited wants and unlimited resources.
b.
limited wants and unlimited resources.
c.
unlimited wants and limited resources.
d.
limited wants and limited resources.
e.
irrational wants and limited resources.
16. Economists believe that scarcity forces everyone to:
a.
satisfy all their wants.
b.
abandon consumer sovereignty.
c.
lie about their wants.
d.
create unlimited resources.
e.
make choices.
17. The factors of production are which of the following?
a.
The outputs generated by the production process of transforming land, labor, and capital
into goods and services.
b.
The land resources, such as natural resources, that are unimproved by human economic
activity.
c.
Land (natural resources), labor (human capital, entrepreneurship), and capital (constructed
inputs such as factories).
d.
Labor and capital in industrialized countries, where natural resources are no longer used to
produce goods and services.
18. Which of the following is true of resources?
a.
Resources are inputs used to produce goods and services.
b.
Labor is the mental and physical capacity of workers to produce goods and services.
c.
Entrepreneurship organizes resources to produce goods and services.
d.
All of these are true.
19. Natural resources are:
a.
not considered scarce because no one pays for them.
b.
only desired for use in producing other goods.
c.
included in the category of resources called land.
d.
available in unlimited quantities.
20. Which of the following would an economist classify as capital?
a.
100 shares of Microsoft stock.
c.
credit card.
b.
$50 bill.
d.
lawyer’s personal computer.
21. An entrepreneur is a(n):
a.
individual who has much education.
b.
organizer who seeks profitable opportunities and is willing to accept risks.
c.
business organization that uses inputs to produce output.
d.
depot or warehouse for commercial products.
22. Which of the following is not an example of a factor of production?
a.
A forest.
c.
A labor leader.
b.
A computer program.
d.
Dollars.
23. The sun is an example of:
a.
a natural resource.
c.
labor.
b.
capital.
d.
none of these.
24. An economics textbook is an example of:
a.
capital.
c.
a natural resource.
b.
labor.
d.
entrepreneurship.
25. Computer programs or software are an example of:
a.
land.
c.
capital.
b.
labor.
d.
none of these.
26. A chain saw is an example of which of the following factors of production?
a.
Land.
c.
Capital.
b.
Labor.
d.
None of these.
27. The creative ability of persons to combine and direct resources to produce new products is known as:
a.
economizing.
c.
value judgment.
b.
entrepreneurship.
d.
product sensitivity.
28. Which of the following is not a factor of production?
a.
A computer chip.
c.
Dollars.
b.
The service of a lawyer.
d.
All of these are factors of production.
29. A textbook is an example of:
a.
capital.
c.
labor.
b.
a natural resource.
d.
all of these.
30. Which of the following is not a resource?
a.
Land.
c.
Money.
b.
Labor.
d.
Capital.
31. Which of the following is the best example of a nonrenewable resource?
a.
Forests.
c.
Clean air.
b.
Oil.
d.
Fish in the ocean.
32. Which of the following would not be classified as a capital resource?
a.
The Empire State Building.
b.
A Caterpillar bulldozer.
c.
A Macintosh computer.
d.
100 shares of stock in General Motors.
33. The three basic categories of resources are land, labor, and:
a.
money.
c.
energy.
b.
time.
d.
capital.
34. Which of the following is the best example of an activity that would be undertaken by an
entrepreneur?
a.
Buying and selling of stocks and bonds.
b.
Starting a new business.
c.
Working on an assembly line.
d.
Running for political office.
35. A factor of production is the same as:
a.
the amount of a good produced.
b.
the price of a good.
c.
a profit of a firm.
d.
an opportunity cost.
e.
a resource.
36. All of the following are examples of capital except:
a.
the robot used to help produce your car.
b.
a computer used by your professor to write this exam.
c.
the factory that produces the costume jewelry you buy.
d.
the inventory of unsold goods at your local hardware store.
e.
an uncut diamond that you discover in your backyard.
37. The silly clothes worn by a circus clown are an example of:
a.
a natural resource.
c.
labor.
b.
capital goods.
d.
entrepreneurship.
38. The person who assumes the risks and uncertainties of starting a new business is considered to be:
a.
the manager.
c.
a sales representative.
b.
the out-resourcer.
d.
an entrepreneur.
39. Entrepreneurs can delegate every one of the following tasks to labor except:
a.
hiring and training new employees.
b.
assuming business risk and uncertainty.
c.
supervision of the production process.
d.
researching ideas for new products.
e.
marketing the goods and services produced.
40. Which of the following is closest to the definition of capital?
a.
c and e.
b.
c and d.
c.
Tools, equipment, means of transportation
d.
Factories and machinery.
e.
Borrowed money.
41. An entrepreneur is:
a.
an employee in a factory.
b.
the manager of a factory.
c.
the person who conceives and starts a business.
d.
the person who contracts to work for a specific price.
e.
the person who does not assume any risk in business.
42. Labor resources:
a.
include only physical activities.
b.
are only counted as a resource if used in the production of other resources.
c.
include only skilled labor.
d.
include both physical and mental activities.
e.
include human effort involved in the production of goods, but not services.
43. Which of the following is the best definition of economics?
a.
Economics is the study of how to manage corporations to generate the greatest return on
shareholder investment.
b.
Economics is the study of how to manage city and country government to generate the
greatest good to its citizens.
c.
Economics is the study of how society chooses to allocate its scarce resources.
d.
Economics is the study of how to track revenues and costs within a business.
44. Economics is the study of how people:
a.
vote for political leaders who decide what is to be produced.
b.
make choices to produce and consume goods and services.
c.
establish social institutions that maximize well-being.
d.
develop value systems that affect their consumption choices.
45. Which one of the following is the most accurate definition of economics?
a.
Economics is the study of stocks and bonds.
b.
Economics is the study of how people allocate unlimited resources.
c.
Economics is the study of how consumers choose to spend their income.
d.
Economics is the study of how society chooses to allocate scarce resources.
46. The central question in economics is how to:
a.
deal with the problem of scarcity.
b.
change government economic policy.
c.
change people’s wants to match their needs.
d.
manage money and become wealthy.
47. The subject of economics is primarily the study of:
a.
the government decision-making process.
b.
how to operate a business successfully.
c.
decision-making because of the problem of scarcity.
d.
how to make money in the stock market.
48. The most fundamental concepts underlying the discipline of economics are:
a.
scarcity and choice.
c.
money, stocks, and bonds.
b.
supply and demand.
d.
inflation and unemployment.
49. Economics, according to its definition, studies how people:
a.
earn and spend money.
c.
make choices in the face of scarcity.
b.
invest in the stock and bond markets.
d.
supply goods in response to demand.
50. Microeconomics approaches the study of economics from the viewpoint of:
a.
inflation, unemployment, and economic growth.
b.
the federal government.
c.
individual economic units, such as consumers, firms, and units of government.
d.
the economy as a whole.
51. The basic difference between macroeconomics and microeconomics is:
a.
microeconomics concentrates on individual markets while macroeconomics focuses
primarily on international trade.
b.
microeconomics concentrates on the behavior of individual consumers while
macroeconomics focuses on the behavior of firms.
c.
microeconomics concentrates on the behavior of individual consumers and firms while
macroeconomics focuses on the performance of the entire economy.
d.
microeconomics explores the causes of inflation while macroeconomics focuses on the
causes of unemployment.
52. Determining the price of compact discs is a concern of:
a.
macroeconomics.
b.
microeconomics.
c.
both macroeconomics and microeconomics.
d.
neither macroeconomics nor microeconomics.
53. Which of the following is the best example of a microeconomic topic?
a.
The impact that the money supply has on inflation.
b.
The reasons for increases in the price of soft drinks.
c.
The effect that federal budget deficits have on the interest rate.
d.
The tradeoff between inflation and unemployment.
54. Microeconomics approaches the study of economics from the viewpoint of:
a.
individual or specific markets.
c.
government units.
b.
the national economy.
d.
economywide markets.
55. Microeconomics is concerned with:
a.
some specific market in the economic system.
b.
the entire economic system.
c.
reducing national unemployment and inflation rates.
d.
what causes changes in the overall level of economic activity.
56. Which of the following would be of particular interest to a microeconomist?
a.
The price of fruit the typical household consumes.
b.
The nation’s inflation rate.
c.
The nation’s rate of unemployment.
d.
The budget of the national government.
e.
The growth of the economy.
57. The study of microeconomics and macroeconomics differ in that:
a.
microeconomics is concerned with the domestic economy and macroeconomics is
concerned only with the international economy.
b.
microeconomics examines the individual markets of the economy while macroeconomics
studies the whole economy.
c.
microeconomics studies the actions of households and macroeconomics studies the actions
of business firms.
d.
microeconomics examines the whole economy while macroeconomics studies the
individual units of the economy.
58. The sub-discipline of economics that focuses especially on individual markets is:
a.
normative economics.
b.
positive economics.
c.
microeconomics.
d.
macroeconomics.
e.
econometrics.
59. Microeconomics deals with the analysis of all the following questions except how:
a.
the wages of carpenters are determined.
b.
high did unemployment rise during the Great Depression.
c.
does Ford decide how to price its cars.
d.
does a college student decide how to spend her income.
e.
do monopolies and competitive markets differ.
60. Which of the following is a microeconomics topic?
a.
A price of a new home.
b.
The inflation rate.
c.
The economy’s growth rate.
d.
The unemployment rate.
e.
Forecasts of a recession next year.
61. Which of the following is a macroeconomics topic?
a.
Wages of textile workers in the Northeast.
b.
The cost of producing 10,000 bookcases.
c.
The economy’s annual growth rate.
d.
National demand for fish.
e.
Effects of farm subsidies on food prices.
62. The branch of economics that focuses on decision making for the economy as a whole is called:
a.
normative economics.
c.
microeconomics.
b.
macroeconomics.
d.
consumer economics.
63. Which of the following is included in the study of macroeconomics?
a.
Wage rate of college students.
c.
Unemployment in the nation.
b.
Prices of automobiles.
d.
Price of silver and gold.
64. Policies to lower the price level of goods in the nation are a concern of:
a.
macroeconomics.
b.
microeconomics.
c.
both microeconomics and macroeconomics.
d.
political science.
65. Policies to create jobs in the nation are the concern of:
a.
macroeconomics.
b.
microeconomics.
c.
both microeconomics and macroeconomics.
d.
neither microeconomics nor macroeconomics.
66. A review of the performance of the economy during the Bush administration is the concern of:
a.
macroeconomics.
b.
microeconomics.
c.
both macroeconomics and microeconomics.
d.
neither macroeconomics nor microeconomics.
67. Which of the following is included in the study of macroeconomics?
a.
Salaries of college professors.
c.
Unemployment in the nation.
b.
Computer prices.
d.
Silver prices.
68. The branch of economics that focuses on economywide variables like inflation and unemployment is
called:
a.
macroeconomics.
c.
free-market economics.
b.
microeconomics.
d.
aggregate economics.
69. The television network newscaster reports that the national inflation rate the past year equaled 4
percent. This report would be of particular interest to a ____.
a.
microeconomist.
b.
normative economist.
c.
macroeconomist.
d.
Ceteris paribus.
e.
social science economist.
70. A sub-discipline of economics that looks at the economy as a whole is:
a.
macroeconomics.
b.
microeconomics.
c.
positive economics.
d.
normative economics.
e.
impossible to model.
71. Macroeconomics deals with the analysis of all of the following questions except:
a.
why do national economies grow.
b.
what determines a nation’s savings and investments.
c.
how does a central bank influence inflation.
d.
why does a country experience recessions.
e.
how does Microsoft price its software packages.
72. Which of the following is a macroeconomic subject?
a.
Shipping rates.
c.
Market price of Japanese cars.
b.
Price of corporate stock.
d.
Unemployment rate in the nation.
73. Which of the following markets is closely related to macroeconomics?
a.
Cattle futures market.
c.
Skilled labor market.
b.
Fulton’s fish market.
d.
Nation’s unemployment rate.
74. Which of the following questions would not be studied by a microeconomist but would be studied by a
macroeconomist?
a.
Why do national economies grow?
b.
What percentage of consumer income is spent on entertainment?
c.
Why do workers prefer the 4-day workweek?
d.
How is the electric industry harmed by the passage of new clean air legislation?
75. The basic purpose of economic models is to:
a.
construct simplifying assumptions about the real world.
b.
explain reality in all its complexity.
c.
construct situations where controlled experiments can be carried out.
d.
provide explanations for, and predictions of the relationship between variables.
76. Economists use models to:
a.
abstract from the complexities of the world.
b.
understand economic behavior.
c.
explain and help predict human behavior.
d.
do all of these.
77. An economist at the University of Alaska at Anchorage has been asked to explain why the price of
Alaskan crude oil has fallen recently. In order to develop a model, the professor should take which
steps?
a.
Identify the problem, develop a model based on simplifying assumptions and test the
model to formulate a conclusion.
b.
Gather data on crude oil prices and seemingly unrelated variables in order to look for
associations, then formulate a hypothesis based on those unexpected associations.
c.
Ask people in Alaska why they are not purchasing oil.
d.
None of these. The oil industry is controlled by a cartel; therefore price changes in the
industry cannot be explained using economic theories.
78. A model is defined as a:
a.
description of all variables affecting a situation.
b.
positive analysis of all variables affecting an event.
c.
simplified description of reality to understand and predict an economic event.
d.
prediction based on historical evidence.
79. A theory is:
a.
based only on critical factors or variables.
b.
a simplified abstraction of the real world.
c.
a detailed description of reality.
d.
a and b.
80. An economic model is defined as:
a.
a value judgment.
b.
a presentation of all possible relevant real-world variables.
c.
a simplified representation of the way in which facts are related.
d.
data adjusted for irrational actions.
81. An economic model is useful only if it:
a.
contains no positive statements.
b.
captures all the complexities of reality.
c.
yields accurate predictions.
d.
has both macro- and microeconomic applications.
82. An economic theory claims that a rise in gasoline prices will cause gasoline purchases to fall, Ceteris
paribus. The phrase “Ceteris paribus” means that:
a.
other relevant factors like consumer incomes must be held constant.
b.
the gasoline prices must first be adjusted for inflation.
c.
the theory is widely accepted but cannot be accurately tested.
d.
consumers’ need for gasoline remains the same regardless of the price.
83. The definition of a model is a:
a.
description of all variables affecting a situation.
b.
positive analysis of all variables affecting an event.
c.
simplified description of reality to understand and predict an economic event.
d.
data adjusted for rational action.
84. A model (or theory):
a.
is a general statement about the causal relationship between variables based on facts.
b.
helps explain and predict the relationship between variables.
c.
when expressed as a downward (negatively) sloping graph implies an inverse relationship
between the variables.
d.
all of these.
85. When building a model, an economist must:
a.
adjust for exceptional situations.
b.
provide a complete description of reality.
c.
make simplifying assumptions.
d.
develop a set of behavioral equations.
86. An economic model is:
a.
a plastic scaled version of the economy.
b.
a complete depiction of reality.
c.
an abstraction from reality.
d.
applicable to consumer behavior but not to producer behavior.
e.
not an accepted tool of the economics profession.
87. Complete the following analogy: A criminal is to a police artist’s sketch as the economy is to:
a.
money.
b.
an economic model.
c.
a resource.
d.
Ceteris paribus.
e.
scarcity.
88. To abstract from reality in an economic model means that:
a.
we include only a few of the essential aspects of reality.
b.
the economic study surveys only a very limited period of time.
c.
we include only those elements which support our hypothesis.
d.
the model includes every aspect of the real world.
e.
the model examines the actions of the consumers in the absence of producers and the
government.