Chapter 01 Test Bank Key
1. Which of the following is not one of the three core economic issues that must be resolved?
2. The fundamental problem of economics is
3. In economics, scarcity means that
A. A shortage of a particular good will cause the price to fall.
4. Given that resources are scarce,
5. A consequence of the economic problem of scarcity is that
A. Choices have to be made about how resources are used.
6. The basic factors of production include
A. Land, labor, money, and capital.
7. Factors of production are
8. Which of the following is not a factor of
production? A. A psychiatrist.
148. With respect to factors of production, which of the following statements is not true?
10. Which of the following is the best example of land?
A. The ethanol refined from corn.
11. Capital, as economists use the term, refers
to A.
The cash needed to start a new business.
12. Which economist argued that free markets unleashed the “animal spirits” of entrepreneurs, propelling
innovation, technology, and growth?
A. Lord Kelvin.
13. The role of the entrepreneur in an economy is to
A. Bring the factors of production together and assume the risk of production.
14. Economics can be defined as the study of
15. Opportunity cost is
16. Opportunity cost may be defined as the
17. The opportunity cost of studying for an economics test is
A. Negative because it may improve your grade.
18. The “guns versus butter” dilemma that all nations confront is that
A. Guns and butter can be produced using the same resources at the same time.
19. A production possibilities curve indicates the
A. Combinations of goods and services an economy is actually producing.
20. Which of the following is an assumption under which the production possibilities curve is drawn?
21. A point on a nation’s production possibilities curve represents
A. An undesirable combination of goods and services.
22. The production possibilities curve illustrates which two of the following essential principles?
23. If an economy experiences constant opportunity costs with respect to two goods, then the
production possibilities curve between the two goods will be?
24. The production possibilities curve illustrates
A. The limitations that exist because of scarce resources.
25. According to the law of increasing opportunity costs,
A. The more one is willing to pay for resources, the smaller will be the possible level of production.
26. According to the law of increasing opportunity costs,
A. Greater production leads to greater inefficiency.
27. If an economy experiences increasing opportunity costs with respect to two goods, then the
production possibilities curve between the two goods will be
28. If the United States decides to convert automobile factories to tank production, as it did during World War II, but
finds that some auto manufacturing facilities are not well suited to tank production, then
29. If North Korea is currently producing at efficiency, and it proceeds to increase the size of its military, then,
as long as nothing else changes, its
30. When an economy is producing efficiently, it is
A. Producing a combination of goods and services beyond the production possibilities curve.
31. Which of the following is true when an economy is producing efficiently?
A. The economy is producing on the production possibilities curve.
32. The points on a production possibilities curve show
33. In terms of the production possibilities curve, inefficiency is represented by
34. If an economy is producing inside the production possibilities curve, then
35. A technological advance would best be represented by
A. A shift outward of the production possibilities curve.
36. Which of the following events would allow the production possibilities curve to shift outward?
37. Economic growth would best be represented by a
A. Shift outward of the production possibilities curve.
38. Which of the following will cause the production possibilities curve to shift inward?
39. Which of the following is not a basic decision that all nations must confront?
A. Should we have economic growth?
40. In a market economy, the people who receive the goods and services that are produced are those who
A. Need the goods and services the most.
41. Adam Smith’s invisible hand is now called
42. The market mechanism may best be defined as
43. The market mechanism
A. Is not a very efficient means of communicating consumer demand to the producers of goods and services.
44. The invisible hand refers to
45. The doctrine of laissez faire is based on the belief that
A. Markets are likely to do a better job of allocating resources than government directives.
46. A city’s decision to limit smoking in public areas is an example of
A. The invisible hand at work.
47. A mixed economy
A. Is justified by the superiority of laissez faire over government intervention.
48. Which of the following can be used to correct market failure?
49. When the invisible hand does not produce optimal outcomes for the economy, there is evidence of
A. Market failure.
50. Government intervention may achieve a more optimal outcome than the market mechanism
when addressing
A. Inefficient bureaucracy.
51. If market signals result in pollution beyond the optimal level, then
A. The economy experiences government failure.
52. Which of the following has occurred when government directives do not produce better economic outcomes?
53. Which of the following is an example of government failure?
54. Macroeconomics focuses on the performance of
55. Which of the following is not a macroeconomic statement?
56. The study of microeconomic theory focuses on the
57. Microeconomics is concerned with issues such as
A. The demand for bottled water by individuals.
58. Economic models are used by economists to
59. The Latin phrase ceteris paribus means
60.
At which point is society employing some of its available technology but not all of it? (See Figure 1.1.)
61.
At which point is society producing the most output possible with the available resources and technology?
(See Figure 1.1.)
62.
At which point is society producing some of each type of structure but still producing inefficiently? (See Figure
1.1.)
63.
At which point might society be able to produce if new resources were discovered but cannot produce
with current resources? (See Figure 1.1.)
64.
Choose the letter of the curve in Figure 1.2 that best represents a production possibilities curve for two goods
that obey the law of increasing opportunity costs:
65.
Choose the letter of the curve in Figure 1.2 that best represents a production possibilities curve for two goods
for which there are constant opportunity costs:
66.
Using Figure 1.3 and starting from PP1, an increase in the capacity to produce can be represented by a
movement from
67.
Using Figure 1.3 and PP1, at point A,