70. A society must make three sorts of decision: what goods to produce, how to produce them, and how to distribute them.
a.
True
b.
False
71. Only a market economy must answer the questions of what goods to produce, how to produce them, and for whom to
produce them.
a.
True
b.
False
72. In the Wealth of Nations, Adam Smith wrote about how countries could increase their consumption of goods and
services through specialization and trade with other countries.
a.
True
b.
False
73. Division of labor has caused output to rise dramatically since the industrial revolution.
a.
True
b.
False
74. While specialization and exchange were very important to Adam Smith in 1776, they have largely lost their
importance in the 21st century.
a.
True
b.
False
75. The principle of comparative advantage helps explain trade between nations.
a.
True
b.
False
76. The principle of comparative advantage explains specialization and trade among countries but not among individuals.
a.
True
b.
False
77. Voluntary exchange results in mutual gains.
a.
True
b.
False
78. If two persons trade, one must gain at the expense of the other.
a.
True
b.
False
79. Specialization of labor makes sense only if there is some means of exchange.
a.
True
b.
False
80. Specialization and division of labor are made easier by the existence of money.
a.
True
b.
False
81. Firms are encouraged by the profit motive to use inputs efficiently.
a.
True
b.
False
82. A market system is not considered an effective way of controlling self-interest.
a.
True
b.
False
83. Karl Marx was critical of markets on the grounds that they are not efficient.
a.
True
b.
False
84. A market society will always protect the natural environment.
a.
True
b.
False
85. If a society uses the market system, it must rely solely on markets to solve all of its problems.
a.
True
b.
False
86. Adam Smith believed that markets coordinated the self-interests of consumers.
a.
True
b.
False
87. Free markets further all of society’s goals.
a.
True
b.
False
88. The scarcity of physical resources such as fuel means:
a.
we should keep our homes cooler in the winter
b.
we should keep our homes warmer in the summer
c.
we should live close to our jobs to conserve fuel
d.
all of these are true.
89. Economics is the study of the logic of
a.
rational decisions.
b.
decision-making activities.
c.
ends and means.
d.
choosing options from those available.
e.
All of the above are correct.
90. A rational decision is one that
a.
satisfies all desires.
b.
avoids the intentional allocation of resources.
c.
assigns available resources in the manner most preferred by decision makers.
d.
assigns available resources to the uses with the lowest opportunity costs.
91. The economic problem of scarcity
a.
b.
c.
d.
92. Economics is generally concerned with
a.
the operation of banks and the stock market.
b.
business management.
c.
how resources are allocated among alternative goals.
d.
the right time to start a business.
93. The central question in economics is how to
a.
make the best use of scarce resources.
b.
use government planning agencies.
c.
induce people to want less.
d.
increase human knowledge.
94. One popular definition of economics is the study of
a.
how scarcity increases opportunities to meet ends.
b.
how markets overcome scarcity.
c.
one goal and three tasks.
d.
how to use limited means to meet unlimited wants.
e.
wants versus needs.
95. The problem of scarcity
a.
has been “cooked up” by disenchanted anticapitalists.
b.
exists because resources are limited relative to wants.
c.
is solved by promoting economic growth.
d.
is caused by artificially high prices.
96. Because of scarcity, every economic decision involves
a.
a trade-off.
b.
a free good.
c.
a trade-in.
d.
an increasing cost.
e.
a money payment.
97. Which of the following must cope with scarcity?
a.
individuals
b.
companies
c.
governments
d.
families
e.
All of the above are correct.
98. A principle that economists emphasize is that the ____ of decision makers are always limited.
a.
ideas
b.
goals
c.
resources
d.
opportunities
e.
offices
99. Which of the following is considered by economists to be the most fundamentally scarce?
a.
money
b.
ideas
c.
needs
d.
food
e.
physical resources
100. The main reason that finished goods are scarce is that
a.
raw material resources are scarce.
b.
factories are not operated efficiently.
c.
distribution systems are clogged.
d.
taxes are destroying work incentives.
e.
All of the above are correct.
101. How does scarcity affect the range of possible choices that decision makers face?
a.
It narrows the choice to a single option.
b.
It narrows the range of choices.
c.
It increases the possible methods for solving problems.
d.
It clarifies the choices by highlighting the best solutions.
e.
It simplifies the choices and therefore widens the range.
102. Scarcity is a concept that applies to all of the following except
a.
time.
b.
natural resources.
c.
human wants.
d.
machinery.
103. The fundamental goal of economics is to
a.
allow everyone to have five yachts and two automobiles.
b.
redistribute income and eliminate poverty.
c.
reduce unemployment so that lower welfare payments are necessary.
d.
learn to cope with the scarcity of virtually all resources.
104. What is the basic task that economists expect the market to carry out?
a.
deal with the fundamental problem of scarcity
b.
balance the government’s budget
c.
lessen wants to the level of income available
d.
meet all human wants
105. An optimal decision is one that is selected based on an analysis of
a.
explicit costs but not implicit costs.
b.
implicit costs but not explicit costs.
c.
both explicit costs and implicit costs.
d.
neither explicit costs nor implicit costs.
106. Ex-London School of Economics student Mick Jagger sang, “You can’t always get what you want, but if you try
sometime, you just might find you can get what you need.” Another statement of the basic economic principle expressed
in this lyric is that
a.
rational decisions are not always possible.
b.
you can allocate your resources to what gives you the highest value.
c.
you can create the supply to meet your own demand.
d.
you can maximize social welfare by making optimal decisions.
107. Every economic decision involves a trade-off because of
a.
theory.
b.
opportunism.
c.
consumption.
d.
scarcity.
e.
efficiency.
108. An optimal decision is one that chooses
a.
the most desirable alternative among the possibilities permitted by the resources available.
b.
the lowest cost method of meeting goals, without regard to quality or any other feature.
c.
among various possible goals and offends no one, so that all are equally happy.
d.
among equally important goals, and thereby avoids the “indispensable necessity” syndrome.
e.
among possible goals in such a way that spends as little money as possible.
109. A student has a chance to see Katy Perry in concert. The student also has a major economics exam in the morning. If
the student goes to the concert,
a.
she will get a lower grade on the economics exam.
b.
the opportunity cost of the concert is time spent studying.
c.
this decision implies a trade-off.
d.
All of the above are correct.
110. The concept of opportunity cost in a fully employed economy with technology and resources held constant tells us
that
a.
expansion of output in one industry means expansion cannot occur in another industry.
b.
expansion of output in one industry means output in another industry must contract.
c.
output cannot be increased in any industry.
d.
output of all industries must contract until more resources are found.
111. Opportunity cost can best be defined as the
a.
money cost of a good or service.
b.
money cost plus interest on money borrowed to buy a good or service.
c.
cost of the resources used to produce a good or service.
d.
value of the best alternative forgone when the alternative at hand is chosen.
112. The idea of opportunity cost is relevant
a.
only in consumption decisions.
b.
only in production decisions.
c.
only in financial decisions.
d.
in almost any kind of decision.
113. Which of the following quotations best captures the idea of opportunity cost?
a.
“Opportunity knocks but once.”
b.
“Every choice involves a sacrifice.”
c.
“Let’s not ask for the moon; we have the stars.”
d.
“Fools rush in where wise men fear to tread.”
e.
“All that glitters is not gold.”
114. Opportunity cost is best defined as the value of
a.
all of the other possible options that the decision maker could have chosen.
b.
the alternative which the decision maker would choose if more resources were available.
c.
what is gained from the alternative which is chosen.
d.
resources that are given up to obtain the alternative that is chosen.
e.
the next best alternative that the decision forces one to give up.
115. Hutch Technology makes computer monitors, which sell for $100 each. What is the opportunity cost of ten monitors?
a.
$1,000.
b.
the other goods that could be produced with the resources that produce the ten monitors
c.
the profits that Hutch earns when it sells the ten monitors
d.
the profits that Hutch loses if it does not produce the monitors
e.
All of the above are correct.
116. The money cost of a particular good will approximate its opportunity cost if
a.
there are serious distortions in the market.
b.
the market functions well.
c.
there is much specialization in the market.
d.
nations are exploiting the law of comparative advantage.
117. As the term “opportunity cost” is defined in the text, the opportunity cost of going to college includes
a.
both tuition and the value of the student’s time.
b.
tuition but not the value of the student’s time, which is a cash cost.
c.
the value of the student’s time but not tuition, which is a monetary cost.
d.
neither tuition nor the value of the student’s time, since obtaining a college degree makes one’s income higher
in the future.
e.
neither tuition nor the value of the student’s time, at least at subsidized state universities.
118. The divergence between money costs and opportunity costs will be greatest in which of the following situations?
a.
A university purchases 100 computers.
b.
A university employs people from town in the commissary (people prefer this job to working in the paper
factory).
c.
A university employs otherwise unemployed teenagers to paint crosswalks and curbs.
d.
A university replaces the roof of the fine arts building.
119. The divergence between money costs and opportunity costs is the least in which of the following situations?
a.
China uses millions of otherwise unemployable workers to build roads with picks and shovels.
b.
Wilhelm, an engineer at Exxon, is drafted-his army salary is $2,000 per month.
c.
Colleen quits her job to stay at home and raise her children.
d.
A university, using a private contractor, builds a field house on land it purchased at full market value from a
local farmer.
120. What is Jim’s opportunity cost of operating his own business?
a.
the total amount of money he puts into capital equipment
b.
the value of his labor that is put into the business
c.
the cost of hiring his laborers
d.
All of the above are correct.
121. How are money cost and opportunity cost related to each other?
a.
If markets function well, they are closely related.
b.
They are always identical in any economic system.
c.
Opportunity cost always exceeds money cost.
d.
Money cost is less than or equal to opportunity cost.
e.
In a market economy, they are always equal to each other.
122. Which of the following is an example of opportunity cost not measured by money cost?
a.
the time spent eating a business lunch at a restaurant
b.
the time spent preparing a meal eaten at home
c.
the time spent studying to obtain an “A” in economics
d.
the time spent repairing a car in one’s own garage
e.
All of the above are correct.
123. Generally, the opportunity cost and the money cost of a good
a.
are identical only if the good sells in a free market.
b.
are different.
c.
matter only to the purchaser of the good.
d.
are not reflected in its price.
124. Why would it be a mistake to treat opportunity costs and explicit monetary costs as identical?
a.
Because sometimes the market does not function well.
b.
Because opportunity costs are different for different goods.
c.
Because there are trade-offs involved in any decision.
d.
Because of existence of efficient markets.
125. If a market system is functioning well, we can conclude that goods with
a.
high opportunity costs tend to have high money costs.
b.
low opportunity costs tend to have high money costs.
c.
high opportunity costs tend to have low money costs.
d.
low opportunity costs tend to have zero money costs.
e.
high opportunity costs tend to have zero money costs.
126. A ticket to an Eric Clapton concert costs $45. If you have a ticket, you can “scalp” it (sell it illegally) for $75. To a
ticket holder, the opportunity cost of actually attending the concert is
a.
$45.
b.
$50.
c.
$75.
d.
$115.
127. Do all valuable items have price tags?
a.
No, because some valuable items have no opportunity cost.
b.
Yes, because everything has its price.
c.
Yes, because price is the measure of opportunity cost.
d.
No, some have no explicit price on them.
e.
Yes, because only items that can be sold in markets have value.
128. In a market economy, the decision regarding allocation of resources is made by
a.
automatic forces of supply and demand.
b.
authorities in Washington, D.C.
c.
planners in state capitals.
d.
committees from a variety of economic interest groups.
e.
All of the above are correct.
129. Money costs and opportunity costs are concepts that are
a.
not related in any meaningful way.
b.
used by tax accountants.
c.
related through relative prices of goods and services.
d.
used by economists to learn the most efficient level of output.