The Fundamentals of the Economic Perspective

The Fundamentals of the Economic Perspective
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Questions 1 to 20: Select the best answer to each question. Note that a question and its answers may be split across a page
break, so be sure that you have seen the entire question and all the answers before choosing an answer.
1. The problems of aggregate inflation and unemployment are
A. major topics of microeconomics.
B. not relevant to the US economy.
C. major topics of macroeconomics.
D. peculiar to command economies.
2. “Because the outputs of many industries are the inputs to other industries, the failure of any single
industry to fulfill the output quantities specified in the central plan caused a chain reaction of adverse
repercussions on production.” This quotation best identifies the
A. coordination problem under central planning.
B. self-sufficiency dilemma under communism.
C. incentive problem under central planning.
D. resource overcommitment problem under communism.
3. Which of the following statements is an explanation of the law of increasing opportunity costs?
A. The opportunity cost of producing additional units of a particular good decreases as production increases.
B. The economy is achieving productive efficiency by producing goods at the least cost.
C. The opportunity cost of producing additional units of a particular good rises as production increases.
D. The opportunity cost of producing additional units of a particular good remains the same as production increases.
4. Why do economists make the assumption that most variables will be held constant when creating models
of economic ideas?
A. Assumptions allow economists to study cause and effect of one variable without being confused by changes in other variables.
B. Assumptions must be made to reflect the real-life complexity of realistic economic behavior.
C. Real-life economic situations only have one variable.
D. Economists are unable to accurately describe real-life behavior.
5. Suppose that a university decides to spend $1 million to upgrade personal computers and scientific
equipment for faculty rather than spend $1 million to expand parking for students. This example illustrates
A. opportunity costs.
B. distorted priorities.
C. increasing opportunity costs.
D. productive efficiency.6. What is likely to happen to the production possibilities curve of a society that has experienced
technological advances?
A. It will shift to the right reflecting decreased production.
B. It will shift to the left reflecting increased production.
C. It will shift to the left reflecting decreased production.
D. It will shift to the right reflecting increased production.
7. Which economic resource consists of human effort and skills?
A. Labor
B. Tools
C. Land
D. Capital
8. Who ultimately decides what will be produced in a market economy?
A. Workers
B. The consumers
C. The government
D. Resource suppliers
9. Mia wants to buy a book. The economic perspective suggests that Mia will buy the book if
A. she has enough money to pay for the marginal cost of the book.
B. the marginal benefit of the book is a positive value.
C. the marginal benefit of the book is greater than its marginal cost.
D. the marginal cost of the book is greater than its marginal benefit.
10. The government may not implement policies intended to redistribute income in which of the following
economic systems?
A. Mixed economy
B. Command system
C. Laissez-faire capitalism
D. Market system
11. Opportunity costs exist because
A. the decision to engage in one activity means forgoing some other activity.
B. most decisions don’t involve sacrifices or trade-offs.
C. wants are scarce relative to resources.
D. households and businesses make rational decisions.
12. Robin gave up a Saturday afternoon with friends to do some yard work. The time given up with friends
can best be described as
A. scarcity.
B. opportunity cost.C. utility.
D. aggregate.
13. The above graph is the production possibilities curve of a nation. Based on this graph, which of the
following combinations would be unattainable?
A. 7 drill presses and 2 bread
B. 2 drill presses and 3 bread
C. 10 drill presses and 4 bread
D. 8 drill presses and 1 bread
14. The Latin term “ceteris paribus” means
A. that if event A precedes event B, A has caused B.
B. other things equal.
C. that economics deals with facts, not values.
D. prosperity inevitably follows recession.
15. Which of the following is a difficulty faced by command economic systems?
A. Profits become too large for certain firms within the economy.
B. The difficulty people have in terms of access to health care.
C. The difficulty central planners have raising revenues for production.
D. The difficulty central planners have accurately predicting consumer demand.
16. McDonald’s introduced the “Big Mac” in 1968 and it turned out to be a hit, but the “Arch Deluxe”
introduced in 1996 was not. The success or failure of a product in the market system is determined by
A. capitalism and entrepreneurship.
B. specialization and exchange.
C. capital goods and roundabout production.
D. consumer sovereignty and dollar votes.
17. What is one of the benefits of restricting risk to business owners?
A. Restricting risk makes it easier for a business to get loans.
B. Business owners typically have the excess money to lose.End of exam
C. Workers are more willing to supply labor to the business since they don’t risk losing financial resources.
D. There is very little risk in running a business, therefore restricting risk is fair.
18. In a competitive market economy, firms select the least-cost production technique because
A. “dollar voting” by consumers mandates such a choice.
B. this will prevent new firms from entering the industry.
C. to do so will maximize the firms’ profits.
D. such choices will result in full employment of available resources.
19. Which of the following is a way specialization increases the productivity of a business or society?
A. Specialization leads to greater job satisfaction.
B. Specialization allows workers to get trained in all areas of production.
C. Specialization requires less training.
D. Specialization saves time by not having workers constantly switch jobs.
20. A budget line is a graph that shows the various combinations of two products that a
A. household can produce with a given amount of resources.
B. business can produce with a given budget.
C. consumer can buy with a given amount of income.
D. nation can trade with another nation.