Introduction to Economic Reasoning, 8e (Rohlf)
Chapter 1: The Study of Economics
1) Economics is the study of how to use
A) limited resources to fully satisfy unlimited wants.
B) unlimited resources to satisfy unlimited wants as fully as possible.
C) limited resources to satisfy unlimited wants as completely as possible.
D) unlimited resources to partially satisfy limited wants.
E) limited resources to satisfy unlimited wants as fairly as possible.
2) Economics is the study of
A) how to distribute goods and services in as fair or just a manner as possible.
B) how to become a successful businessperson.
C) how to use limited resources to satisfy unlimited wants as fully as possible.
D) how to create wants or “needs.”
E) happiness and how to achieve it.
3) The four categories of economic resources are
A) raw materials, land, equipment, and management.
B) labor, capital, entrepreneurship, and land.
C) raw materials, land, labor, and management.
D) equipment, raw materials, capital, and labor.
E) money, land, labor, and equipment.
4) In economics, the term “capital” means
A) stocks and bonds.
B) raw materials, such as timber and mineral resources.
C) money.
D) machinery and other human-made aids to production.
E) managerial talent.
5) Which of the following is an example of “capital” as the term is used by economists?
A) the stoves and other food preparation equipment in a restaurant
B) minerals and other resources in their natural state
C) money
D) stocks and bonds owned by businesses and individuals
E) the managers who run the company
6) The opportunity cost of the U.S. space exploration program is
A) negative, because it is generally agreed that the benefits derived from space exploration far
exceed the costs.
B) whatever other goods and services could have been produced with the resources devoted to
the space program.
C) nonexistent, because the space program was paid for by the government rather than by private
consumers.
D) equal to the sum of all the salaries paid to the government personnel involved in the space
program.
E) equal to the sum of the salaries of the astronauts.
7) The opportunity cost of a college education is
A) the income you must forgo to attend college.
B) the cost of tuition, books, and fees.
C) the recreational activities you must sacrifice.
D) the other goods you must sacrifice plus any foregone income and activities.
E) the income you could have earned and the work experience you could have obtained if you
had not attended college.
8) If you were given a free ticket to a rock concert, then
A) there would be no opportunity cost associated with attending the concert.
B) the opportunity cost of attending the concert would be equal to the cost of transportation to
the concert.
C) the opportunity cost of attending the concert would be equal to the monetary value of the
ticket.
D) there would be no opportunity cost associated with attending the concert unless you could sell
the ticket.
E) there would still be an opportunity cost associated with attending the concert.
9) A production possibilities curve shows
A) the combinations of two products that an economy is actually producing with its stock of
economic resources.
B) the combinations of two products that an economy is capable of producing with its finite
resource stock.
C) the combinations of two products that society desires the most.
D) all the combinations of two economic resources that will maximize the economy’s output.
E) all the combinations of two economic resources that are permitted by the existing technology.
10) A nation’s production possibilities curve is constructed under the assumption that
A) the combinations of products produced by the economy will remain unchanged.
B) the economy’s resource stock is fixed or unchanged.
C) there is no inflation in the economy.
D) consumer preferences do not change.
E) there is continuous economic growth.
11) Suppose an economy is operating at a point on its production possibilities curve showing
clothing and food. If the economy desires to produce additional clothing
A) it must reduce its output of food.
B) it cannot do so, since the economy is fully utilizing its resources.
C) it must also increase its output of food.
D) it cannot do so, since clothing production has already been maximized.
E) it cannot do so until there is an outward shift in the production possibilities curve.
12) If an economy is operating on its production possibilities curve for consumer goods and
capital goods
A) some of the nation’s resources are unemployed.
B) it cannot expand its output of capital goods.
C) it can only produce more consumer goods if it produces fewer capital goods.
D) it is not fully utilizing its production capabilities.
E) it cannot expand its output of consumer goods.
13) If a nation could produce 300 units of civilian goods and 300 units of military goods or 350
units of civilian goods and 200 units of military goods
A) the opportunity cost of 50 units of civilian goods is 300 units of military goods.
B) the opportunity cost of 100 units of military goods is 50 units of civilian goods.
C) the opportunity cost of 50 units of civilian goods is 50 units of military goods.
D) the opportunity cost of 200 units of military goods is 150 units of civilian goods.
E) the opportunity cost of 50 units of military goods is 100 units of civilian goods.
14) If a nation could produce 400 units of civilian goods and 200 units of military goods or 300
units of civilian goods and 240 units of military goods
A) the opportunity cost of 40 units of military goods is 60 units of civilian goods.
B) the opportunity cost of 100 units of civilian goods is 60 units of military goods.
C) the opportunity cost of 40 units of military goods is 100 units of civilian goods.
D) the opportunity cost of 100 units of civilian goods is 200 units of military goods.
E) the opportunity cost of 200 units of military goods is 100 units of civilian goods.
15) If a society is operating inside its production possibilities curve for guns and butter, then
A) to produce more guns it must sacrifice some butter.
B) to produce more butter it must sacrifice some guns.
C) some economic resources are unemployed.
D) economic growth must occur in order to move the economy to a point on the curve.
E) consumer preferences must have changed.
16) An economy’s production possibilities curve would shift outward as a result of
A) an increase in consumer wants.
B) a decrease in consumer wants.
C) a reduction in the unemployment rate.
D) a resource-saving advance in production technology.
E) a change in consumer preferences.
17) Economic growth would be depicted by
A) an outward shift of the production possibilities curve.
B) an inward shift of the production possibilities curve.
C) movement from a point inside the production possibilities curve to a point on the curve.
D) movement from a point on the production possibilities curve to a point outside the curve.
E) movement along the production possibilities curve.
18) Given its present resource stock and existing techniques of production, an economy is
capable of producing any combination of products
A) on its production possibilities curve, but no combination inside or outside the curve.
B) inside or outside its production possibilities curve, but no combination on the curve.
C) inside its production possibilities curve, but no combination on or outside the curve.
D) on or inside its production possibilities curve, but no combination outside the curve.
E) on its production possibilities curve, but no combination outside the curve.
19) According to the law of increasing costs
A) if a society desires more of some particular product, it must sacrifice larger and larger
amounts of other products.
B) society can obtain additional units of a given product by sacrificing smaller and smaller
amounts of other products.
C) whenever output increases by a given percentage, production costs will increase at twice that
rate.
D) whenever input prices increase by a given percentage, production costs will increase at twice
that rate.
E) inflation accelerates as economies mature.
Answer the following question(s) on the basis of the following graph.
20) Based on the figure above, if the economy is operating at point C, the opportunity cost of
producing 20 additional units of food would be
A) 40 units of clothing.
B) 60 units of clothing.
C) 80 units of clothing.
D) 140 units of clothing.
E) 20 units of clothing.
21) Based on the figure above, which of the following statements is FALSE?
A) If the economy is operating at point A, it is producing only clothing.
B) If the economy is operating at point B, the opportunity cost of producing 20 additional units
of food would be 40 units of clothing.
C) If the economy is operating at point D, the opportunity cost of acquiring 100 additional units
of clothing would be 40 units of food.
D) If the economy is operating at point E, the opportunity cost of producing 80 additional units
of clothing would be 30 units of food.
E) If the economy is operating at point D, the opportunity cost of acquiring 20 additional units of
food would be 80 units of clothing.
22) Based on the figure above, if the economy were operating at point F
A) the opportunity cost of producing 20 additional units of food would be 30 units of clothing.
B) the opportunity cost of acquiring 30 additional units of clothing would be 20 units of food.
C) additional food could be produced at no opportunity cost in terms of sacrificed clothing.
D) the opportunity cost of acquiring 20 additional units of food would be 40 units of clothing.
E) additional clothing cannot be produced unless there is a technological advance or new
resources are discovered.
23) Based on the figure above, point G on the graph represents
A) the same combination of products that is available at point C.
B) a combination of products that reflects the existence of unemployed resources.
C) a combination of products that is beyond the economy’s current production capability.
D) the combination of products that the economy is currently producing.
E) a combination of products that is forever beyond the economy’s production capability.
24) Based on the figure above, as we move along the production possibilities curve from point A
to point B to point C, the opportunity cost of an additional 20-unit increment of food
A) rises, because resources are not equally well suited to producing food and clothing.
B) falls, because resources are not equally well suited to producing food and clothing.
C) rises, because the economy is moving closer to its maximum production potential.
D) falls, because the economy is using its resources more and more efficiently.
E) remains constant.
25) Foreign trade can enable a nation to
A) acquire products at a lower opportunity cost than they can be produced domestically.
B) acquire products at zero opportunity cost.
C) acquire products at a higher opportunity cost than they can be produced domestically.
D) operate inside its production possibilities curve.
E) fully satisfy the wants of its population.
26) Trade with other nations can make it possible for a country to
A) acquire products at zero opportunity cost.
B) eliminate the problem of scarcity.
C) operate outside its production possibilities curve.
D) operate inside its production possibilities curve.
E) have unlimited production possibilities.
27) Which of the following is not an economic resource?
A) capital
B) land
C) money
D) entrepreneurship
E) labor
28) Economic efficiency requires that
A) the economy’s output be distributed in a fair or just manner.
B) each product be produced using the maximum amount of scarce resources.
C) the economy produce the goods and services most desired by consumers.
D) each product be produced without using scarce resources.
E) the economy’s output of goods and services expand over time.
29) Which of the following is an example of a normative statement?
A) College enrollment is expected to decline by 5 percent next year.
B) The price of gasoline increased by 10 percent in the last 2 years.
C) College students ought to spend more time studying and less time partying.
D) Season tickets for the Podunk Hasbeens are selling for $75 each.
E) The weather forecaster says it will be a sunny day, with temperatures in the high 80s.
30) “The federal government ought to spend more money on medical treatment for the poor and
less on the military.” This sentence is an example of
A) a statement of fact.
B) an economic theory.
C) a descriptive statement.
D) a normative judgment.
E) a positive statement.
31) Economic theories
A) are more complex than economic models.
B) leave out some of the complexities of the real world.
C) are also called facts.
D) are tested in laboratories, much as chemists test their theories.
E) are generalizations about the relationship between economic principles and economic models.
32) The term ceteris paribus means
A) after this, therefore because of this.
B) other things being equal.
C) according to the model.
D) what will be, will be.
E) what “should” be.
33) When the outcome predicted by a theory is inconsistent with the outcome observed in the
real world
A) the theory should always be discarded and replaced with a new theory.
B) we should continue to use the theory and ignore our real-world observations.
C) we should consider discarding the theory if the assumption of ceteris paribus has been
violated.
D) we should consider discarding the theory unless the assumption of ceteris paribus has been
violated.
E) we should change the real world.
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34) Microeconomics differs from macroeconomics in that
A) microeconomics deals with issues such as unemployment and inflation, while
macroeconomics examines topics such as how the prices of particular products are determined.
B) microeconomics deals with value judgments while macroeconomics deals with facts.
C) microeconomics looks at the individual units in the economy, while macroeconomics studies
the economy’s overall performance.
D) microeconomics uses theory, while macroeconomics relies only on facts.
E) macroeconomics uses theory, while microeconomics relies only on facts.
35) Which of the following is an example of macroeconomic analysis?
A) a study to determine why corn prices increased in 2007
B) a survey to determine how clothing manufacturers arrive at their selling prices
C) a study of the factors that influence the overall unemployment rate
D) a study of the personal values of business executives
E) a survey to determine the average amount of time required to eat a Big Mac
36) An inverse relationship exists between two variables if
A) the value of one variable increases as the value of the other decreases.
B) the value of one variable increases as the value of the other increases.
C) the value of one variable remains constant as the value of the other increases or decreases.
D) the value of one variable decreases as the value of the other decreases.
E) the value of one variable is independent of the value of the other variable.
37) If two variables are directly or positively related, then
A) as one variable increases, the other decreases.
B) as one variable decreases, the other increases.
C) as one variable increases, the other does also.
D) the value of one variable remains unchanged as the value of the other increases or decreases.
E) they should never marry.
1) Economics is the study of how to
A) distribute output fairly.
B) do the best we can with what we have.
C) reduce our unlimited wants.
D) expand our stock of economic resources.
2) The opportunity cost of attending summer school is
A) whatever you could have purchased with the money spent for tuition and books.
B) negative, because you will finish college more rapidly by attending summer school.
C) the income you could have earned over the summer.
D) the products, income, and recreational opportunities that must be forgone.
3) The four categories of economic resources are
A) labor, management, machinery, and money.
B) land, labor, capital, and entrepreneurship.
C) money, land, capital, and labor.
D) air, soil, water, and money.
4) Producing the most-wanted products in the least costly way is
A) full employment.
B) economic growth.
C) a fair income distribution.
D) economic efficiency.
5) Economists have trouble testing their theories because
A) people are unpredictable.
B) the real world is too complicated to be explained.
C) they can’t hold constant the “other factors” that might influence the outcome of the
experiment.
D) the necessary economic data are almost never available.
6) Economists should not be permitted to
A) devise policies to achieve economic goals.
B) determine society’s economic goals.
C) explain how the economy works.
D) explain how particular economic goals conflict.
7) Which of the following statements reflects a normative judgment?
A) A newspaper headline that reads, “Gas prices headed up after supply disruptions.”
B) A doctor who tells you, “If you consume more calories than you burn, you will gain weight.”
C) An editorial that argues, “We are spending too many of our tax dollars on the military and too
few on preventative health care.”
D) A scientist who predicts that “San Francisco will suffer a major earthquake sometime in the
next 100 years.”
8) Was Ted Williams the greatest hitter ever to grace a baseball diamond? An economist would
say it’s hard to know because there is a ceteris paribus problem. In this context what does that
mean?
A) Officials didn’t keep the careful records needed to make a valid comparison.
B) Ted faced different pitchers and conditions than those confronting modern batters.
C) Some comparisons are normative judgments and can’t be made objective..
D) All of the above..
9) Of the three fundamental questions, the “distribution” question has to do with
A) who will receive the output.
B) how the output will be shipped from the place of production to the consumer.
C) how economic resources are distributed to producers.
D) what products will be produced.
10) Suppose that you have just found $10 on the street and are thinking of using it to buy a ticket
to the movies. The opportunity cost of going to the show would be
A) nothing since you found the money, you are sacrificing nothing to spend it.
B) whatever you would have bought with the money if you hadn’t used it to go to the show.
C) the other activities you would have to sacrifice to attend the show.
D) B and C