102 Miller Economics Today, 16th Edition
92) Briefly explain the factors of production and give an example of each.
93) Explain why even the most affluent people, businesses and counties never solve the problem of
scarcity.
94) Labor, human capital, and entrepreneurship are resources related to human beings. Distinguish
among the three resources.
95) Distinguish between scarcity and shortages.
96) Are all goods economic goods? Are all economic goods also goods? Explain.
97) Economics is the study of how people eliminate scarcity. Do you agree or disagree? Why?
2.2 Wants and Needs
1) From the economist s point of view,
A) wants and needs are exactly the same.
B) a want is a lifesaving necessity.
C) needs are objectively undefinable.
D) we all have wants but only very poor people have needs.
2) A friend says, I really, really need a new car. As an economist, you re thinking
A) Right! Everyone needs a new car.
B) This is an example of how objectively undefinable needs are. Many would argue that this
friend could get along just fine with a reliable used car.
C) If this friend says she needs a new car, then we must all agree that a new car is a need and
not just a want.
D) that a new car can only be considered a need if at least 51% of the public agrees.
3) Why is it that all of our wants cannot be satisfied?
A) Because of shortages
B) Because we cannot seem to decide what we really want
C) Because other people try to change your mind about what you want
D) Because limited resources mean all the goods we want cannot be obtained
4) Wants
A) is another term for needs.
B) refer to services while needs refer to goods.
C) is the term used by economists instead of needs because needs are not objectively
definable.
D) are used by economists and refer to the same thing as needs when used by psychologists.
5) Human beings
A) have unlimited wants.
B) think they have unlimited wants, but really have limited needs.
C) have limited wants, but unlimited needs.
D) know what their needs are, but do not know what their wants are.
6) Economists are concerned with an individual s
A) needs because needs represent the most important goods to an individual.
B) needs because economists define needs to be the goods people need to survive.
C) wants because, unlike needs, wants lead to shortages in the economy.
D) wants because the existence of wants leads to scarcity.
7) To an economist, the term needs
A) means the purchase of necessary goods.
B) is objectively undefinable.
C) identifies the purchases of basic goods and services.
D) refers to the purchase of goods by the poor.
8) Wants as an economic concept includes
A)
b
oth material and nonmaterial desires.
B) only the purchase of necessary basic goods.
C) only the desire for luxury goods.
D) only those goods that can be purchased with one s paycheck.
9) Economics deals with human needs. Do you agree or disagree? Why?
10) Explain the difference between human needs and wants.
106 Miller Economics Today, 16th Edition
2.3 Scarcity, Choice, and Opportunity Cost
1) The opportunity cost of attending college might best be described as
A) the money that must be paid in order to attend college.
B) the lowest valued alternative use of the student s time.
C) the highest valued alternative use of the student s time.
D) the value that the student attaches to not working.
2) The value of the best alternative sacrificed to obtain something you want is referred to as
A) explicit cost. B) opportunity cost.
C) marginal cost. D) sunk cost.
3) Opportunity cost
A) can only be measured as a paid cost.
B) is always the value of the next best forgone opportunity.
C) does not exist since there are no receipts.
D) is always the lowest valued alternative.
4) Opportunity cost is defined as
A) the value of the next
b
est alternative that must be sacrificed to attain a want.
B) the least costly means to produce output.
C) the value of the output currently received by an individual or a corporation.
D) the return from a given unit of labor.
5) One opportunity cost associated with going to college is
A) purchasing text books.
B) paying tuition.
C) giving up employment possibilities while in college.
D) paying for room, board, and other living expenses.
6) Bill Bonecrusher graduates from college with a choice of playing professional football at $2
million a year or coaching for $50,000 a year. He decides to play football, but eight years later he
quits football to make movies for $3 million a year. His opportunity cost at graduation was
________ and eight years later was ________.
A) $50,000; $2 million B) $2 million; $2 million
C) $2 million; $3 million D) $50,000; $50,000
7) Fred and Ann both decide to see the same movie when they are given free movie tickets. We
know that
A)
b
oth bear an opportunity cost since they could have done other things instead of see the
movie.
B)
b
oth bear the same opportunity cost since they are doing the same thing.
C) the cost of going to the movie is greater for the one who had more choices to do other
things.
D) neither bears an opportunity cost because the tickets were free.
8) Opportunity cost is
A) the intrinsic value of an economic good.
B) the total value of all the alternatives forsaken when a choice is made.
C) the value of the opportunity selected when a need is satisfied.
D) the value of the next highest ranked alternative that must be sacrificed to obtain a want.
9) Suppose you have four choices go to a movie, read a book, watch television, or go to a concert.
You choose to go to a movie. The opportunity cost of the movie is
A) the value of the book not read.
B) the value of the television program not watched.
C) the value of the concert that you didn t attend.
D) the value of the activity that you would have selected if you hadn t gone to the movie.
10) For every choice a person makes it can be assumed that
A) the chooser has full knowledge of the situation.
B) some opportunity cost was involved.
C) there is a fifty fifty chance the choice was the wrong one.
D) a good is involved and satisfaction is gained.
11) The opportunity cost of going to college for a student receiving a scholarship
A) is the income that she would have earned if she did not go to college.
B) is the risk of dropping out.
C) is the food and living expenses that she has to purchase while in college.
D) is zero because she does not have to pay tuition.
12) The concept of opportunity cost exists because
A) of scarcity.
B) goods have different prices.
C) of shortages.
D) the value of services is hard to determine.
13) Opportunity cost is
A) the cost of producing all goods and services in the United States.
B) the value of the next
b
est alternative that must be sacrificed to satisfy a want.
C) the fixed cost of production.
D) the value of the most useful alternative that must be sacrificed to obtain something or
satisfy a want.
14) Which of the following statements is FALSE about opportunity cost?
A) Cost is always foregone opportunity.
B) Opportunity cost is the next best alternative.
C)
J
ohn wants a burger and fries. The concept of opportunity cost applies even though he has
enough funds to buy both.
D) Opportunity cost exists only for goods with monetary values.
15) Opportunity cost is
A) the combined value of all the alternatives not selected.
B) the same thing as the money price of a good.
C) the value of the next best alternative which was given up.
D)
b
ased on the intrinsic value of the good itself.
16) Steve and Karen decide to attend the same concert when they are each given free tickets to it.
We know that
A)
b
oth bear the same opportunity cost because they are seeing the same thing.
B)
b
oth bear the same opportunity cost because the tickets have the same face value.
C)
b
oth bear an opportunity cost that depends on what each person is giving up to attend the
concert.
D) neither bears an opportunity cost since the tickets were given free to them.
17) Samia has decided that with the two hours in between classes she can do one of 3 things. She
has ranked her choices, from highest to lowest as, (1) chat with her friends, (2) study economics
or (3) take a nap. The opportunity cost of chatting with her friends is
A) the combined value of studying economics and taking a nap.
B) the value of studying economics, the next best use of time.
C) the value of chatting with her friends.
D) zero since she does not pay her friends to talk to her.
18) Stephanie has decided to eat lunch between classes. She has ranked her choices, from highest to
lowest as, (1) turkey sandwich, (2) tuna sandwich, (3) slice of cheese pizza, (4) cheeseburger. The
opportunity cost of the eating turkey sandwich is
A) the combined value of the tuna sandwich, slice of cheese pizza and cheeseburger.
B) the value of tuna sandwich, the next best choice.
C) the value of the cheeseburger.
D) zero since she has satisfied a want.
19) Which of the following is a true statement?
A) Cost is always measured in the nation s currency.
B) Opportunity cost is an objective measure since the cost of an activity is the same for
everyone.
C) The less alternatives there are the greater the cost.
D) Opportunity cost is always a foregone opportunity.
20) Opportunity cost exists because
A) of scarcity.
B) prices must adjust to eliminate shortages.
C) production could not occur without the opportunity cost of using resources.
D) the value of economic goods is positive while the value of goods is zero.
21) The opportunity cost of a decision is the
A) value of the best alternative not chosen.
B) value of all the alternatives not chosen.
C) cost of making the wrong choice.
D) cost incurred by others who are unhappy with your decision.
22) The saying that You cannot have your cake and eat it too illustrates the economic concept of
A) a positive statement. B) a normative statement.
C) physical capital. D) opportunity cost.
23) On an afternoon that a class meets, you could alternatively study for an exam that will take
place in another class the next morning, go to a movie with a friend, or, most desirable to you at
present, take a nap. The opportunity cost of attending the afternoon class is
A) forgoing the nap.
B) missing seeing the movie with your friend.
C) giving up the time to study for the next morning s exam.
D)
b
eing unable to engage in all three of the above activities.
24) Opportunity cost is best defined as
A) the sum of the dollar values of all alternatives given up when choices are made.
B) the cost of producing the purchased goods.
C) the next highest valued alternative when a choice is made.
D) the dollar price of the purchased item.
25) You have the option of consuming one cup of coffee or two donuts or three oranges. You picked
the cup of coffee. Therefore the opportunity cost of this cup of coffee is
A) the price of the cup of coffee.
B) the difference in the prices of these three products.
C) the price of the donuts as they are usually consumed with coffee.
D) either the donuts or the oranges, whichever you like more.
26) The opportunity cost of going to college full time away from home is
A) the income you could have earned from a full time job.
B) the funds you would have saved if you had not paid the tuition.
C) the time you could have spent with friends back home.
D) All of the above are correct.
27) A student has a job that pays a wage rate of $10 per hour. The night before an economics exam,
the student has set aside four hours to study for the exam, estimating that for each hour spent
studying, her grade will rise by 5 points. That night, she gets a call from her employer to come
to work for a wage rate of $15 per hour for that night. She decides to work for three hours and
earn an extra $45.00. The next day she takes the test and gets a grade of 75. The opportunity cost
for her work is
A) the $45.00 she earned.
B) the 15 extra points she estimates that she could have earned on the exam if she had studied
the extra three hours.
C) the three hours she did not study.
D) the entire four hours she set aside for studying.
28) Opportunity cost can best be defined as
A) the interest cost of financing a business loan at the bank.
B) the value of all of the alternatives sacrificed.
C) the value of the next highest ranked alternative.
D) There is no real definition for opportunity cost.
29) If Joey goes surfing for four hours instead of earning $10 per hour for those four hours, his
opportunity cost is
A) the good time spent surfing.
B) the cost of gasoline used to get to the beach.
C) the travel time to the beach.
D) $40.
30) Opportunity cost exists because of
A) poverty. B) scarcity. C) greed. D) self interest.
31) You like to sleep until 11:00 am during the semester. What is the opportunity cost of attending
an 8:00 am class?
A) nothing, since you can go back to bed later
B) sleep
C) obtaining the notes from the 8:00 am class
D) the money you spend on coffee to stay awake
32) Opportunity costs arise from
A) choices. B) taxes. C) mistakes. D) regrets.
33) The high opportunity cost of voting in the United States is due to
A) the value of time devoted to casting a ballot.
B) the inability of candidates to differentiate themselves from one another.
C) the inability of the typical voter to change the election outcome by voting.
D) the confusion generated by the voting machines.
34) Which of the following sets of terms describes the problem of scarcity in economics?
A) Goods, land, and needs
B) Labor, needs, and opportunity costs
C) Choices, opportunity costs, and trade offs
D) Production, consumption, and wants
35) Briefly explain why people make choices.
36) Briefly explain the concept of opportunity cost. What is the opportunity cost of attending
college?
37) How are scarcity, choice, and opportunity cost related?
38) Suppose that nuclear power plants are banned. What are examples of the opportunity costs of
this decision?
39) Suppose you order a slice of pepperoni pizza and a soda at a shopping mall food court. What
are examples of the opportunity costs of this decision?
40) It is not uncommon for people to say something like, If we can put someone on the moon we
should be able to . . . , followed by the person s favorite project. What response can an
economist make to this person?
41) Both an NBA basketball player and a fast food cook are going to graduate school. Who has a
higher opportunity cost? Explain.
116 Miller Economics Today, 16th Edition
2.4 The World of Trade Offs
1) In the above figure, the opportunity cost of moving from producing 75 guitars and 25 ukuleles
to producing 50 guitars and 50 ukuleles is
A) 25 ukuleles. B) 50 guitars. C) 100 guitars. D) 25 guitars.
2) In the above figure, the opportunity cost of moving from producing 50 guitars and 50 ukuleles
to producing 25 guitars and 75 ukuleles is
A) 25 guitars. B) 75 ukuleles. C) 25 ukuleles. D) 50 guitars.
3) In the above figure, as more ukuleles are produced, the opportunity cost in terms of guitars is
A) decreasing. B) increasing. C) constant. D) zero.
4) In the above figure, moving from producing 50 guitars and 50 ukuleles to producing 25 guitars
and 75 ukuleles, the opportunity cost of one ukulele is
A) 25 guitars. B) 75 ukuleles. C) 25 ukuleles. D) 1 guitar.
5) In the above figure, the opportunity cost of moving from producing 75 guitars and 25 ukuleles
to producing 25 guitars and 75 ukuleles is
A) 25 guitars. B) 75 ukuleles. C) 25 ukuleles. D) 50 guitars.
6) Opportunity cost is illustrated on the production possibilities curve by a
A)
b
owed out shape of the curve. B) shift to the right of the curve.
C) shift to the left of the curve. D) movement along the curve.
7) A farmer has 100 acres of land on which he can grow soybeans or corn. An acre of land yields
200 bushels of soybeans or 100 bushels of corn. The above figure refers to the farmer s
A) production possibilities curve. B) substitution options curve.
C) demand curve. D) opportunity cost curve.
8) In the above figure, how many bushels of corn are produced at point a ?
A) 10,000 B) 2,500 C) 1,000 D) 0
9) In the above figure, what is the opportunity cost of one bushel of soybeans?
A) 1 bushel of corn B) 0.5 bushels of corn
C) 2 bushels of corn D) unable to determine
10) In the above figure, what is the opportunity cost of one bushel of corn?
A) 1 bushel of soybeans B) 0.5 bushel of soybeans
C) 2 bushels of soybeans D) unable to determine
11) If opportunity costs are constant, then
A) the production possibilities curve does not exist.
B) the production possibilities curve bows outward.
C) the production possibilities curve is a negatively sloped straight line.
D) factors of production must not be fully employed.
12) The production possibilities curve represents the maximum feasible production combinations
resulting from
A) the mix of current resources that utilizes all available inputs using current technology.
B) a fixed amount of demand by consumers.
C) the lack of trade offs in production.
D) the lack of technology used in production.
13) The production possibilities curve represents
A) the maximum amount of labor and capital available to society.
B) the combinations of goods and services among which consumers are indifferent.
C) the maximum combination of goods and services that can be produced with fixed
resources and technology, given efficient use of the resources.
D) the maximum rate of growth of capital and labor in a country.
14) If all resources were perfectly adaptable for alternative uses, the production possibilities curve
would
A)
b
e bowed out. B)
b
e bowed in.
C)
b
e a straight line. D) not exist.
15) A straight line production possibilities curve takes this shape because
A) the opportunity cost of producing a good is constant.
B) the opportunity cost of producing more of a good is decreasing.
C) resources are better suited for producing one output than another.
D) resources are fixed.
A B C D E
Pizza (Pies) 0 30 60 90 120
Bread (Loaves) 300 240 180 120 60
The above table shows the daily production possibilities for a bakery.
Currently the bakery bakes 60 pizzas and 180 loaves of bread, that is it is at alternative C.
16) Using the above table, what is the opportunity cost of moving from alternative C to alternative
D?
A) 60 loaves of bread B) 2 loaves of bread
C) 30 loaves of bread D) 1/2 loaf of bread
17) Using the above table, what is the opportunity cost of moving from alternative C to alternative
B?
A) 1/2 a pizza pie B) 60 pizza pies C) 90 pizza pies D) 30 pizza pies
18) Using the above table, moving from alternative C to alternative B, what is the opportunity cost
of one loaf of bread?
A) 1 pizza pie B) 30 pizza pies C) 2 pizza pies D) 0.5 pizza pie
19) Using the above table but now the bakery bakes 30 pizzas and 240 loaves of bread (alternative
B), moving from alternative B to alternative D, what is the opportunity cost of one pizza pie?
A) 2.5 loaves of bread B) 2 loaves of bread
C) 0.5 loaf of bread D) 150 loaves of bread
20) People always face trade offs because
A) they always have more than one use for their time and money.
B) they buy goods with money.
C) trading takes place in a market economy.
D) they can make themselves better off through trade.
21) Which of the following statements indicates the idea of trade offs?
A) I chose the road less traveled. B) The devil made me do it.
C) You ve got me under your spell. D) Always give it the best that you can.
22) The production possibilities curve represents
A) the total amount of stocks and bonds that exist in the economy.
B) the trade off between human capital and physical capital that exists.
C) all possible combinations of total output that can be produced.
D) society s needs.