Economics for Today, 7th Edition solutions manual and test bank Irvin B. Tucker
Chapter 1
CHAPTER SUMMARY
Scarcity permeates the entire human experience. Scarcity means we are unable to have as much as we would like to have. Our wants are unlimited. But, our production capabilities are limited by our factors of production, which include land, labor (the entrepreneur is a special type of labor) and capital (plant and equipment). Because we are faced with scarcity we must make choices. Choices are made at the "macro" and "micro" level. Macroeconomics is concerned with the entire economic system, whereas microeconomics is concerned with some particular segment of the economy.
NEW CONCEPTS INTRODUCED
INSTRUCTIONAL OBJECTIVES
I. Preview
II. The Problem of Scarcity
III. Scarce Resources and Production
Exhibit 1 "Three Categories of Resources"
IV. Economics: The Study of Scarcity and Choice
V. The Methodology of Economics
Exhibit 2 "The Steps in the Model-Building Process"
Checkpoint: "Can You Prove There Is No Trillion-Dollar Person?"
VI. Hazards of the Economic Way of Thinking
Checkpoint: "Should Nebraska State
You're The Economist: Analyze the Issue
VII. Why do Economists Disagree?
You're The Economist: Analyze the Issue
VII. Careers in Economics
Exhibit 3 "Average Yearly Salary Offers for Selected Majors"
VIII. List of Key Concepts
IX. Summary
XI. Study Questions and Problems
HINTS FOR EFFECTIVE TEACHING
1. Try to use this chapter for generating as much interest in economics as possible. Don't feel too pressed for time. Treat this chapter thoroughly---especially, "theories." It will be time well spent. (Some additional comments with respect to theories are found below.)
2. Indicate that in economics, capital is not money! It is defined as "plant and equipment." Students often get "capital" and "money" confused.
3. Point out that scarcity is not a synonym for poverty. Even "rich" nations like the United States
4. Give some examples of economic investigations and ask students to distinguish between whether they are of concern to "macro" or "micro."
5. Indicate that theories are realistic because they are based on facts. Theories are practical because they avoid unnecessary detail and enhance our understanding of relationships among economic variables. Theories (general statements about the causal relationship between variables based on facts) are extremely useful in developing workable policies to address a real-world problem. In sum, stress that economists derive economic theories because they are useful in the development of economic policies designed to solve real-world economic problems.
6. Indicate that there are really three forces at play in the real world in which we all live: economic, social and political. These three forces are often in conflict. Sound or rational economic reasoning doesn't always prevail---especially when it comes to developing "economic" policy in a political environment.
CRITICAL THINKING /GROUP DISCUSSION QUESTIONS
1. Why isn't money a resource
CLASSROOM GAMES
Approximately 170 non-computerized economic games (experiments) for use in the classroom are available for free at http://www.marietta.edu/~delemeeg/games/. The following games are recommended to help teach some of the concepts in this chapter:
ANSWERS TO: "You're the Economist: Analyze the Issue"
MOPS AND BROOMS, THE BOSTON
Do you believe any of the above indicators are examples of causation? Explain.
Each example involves association and not causation.
DOES RAISING THE MINIMUM WAGE HELP THE WORKING POOR?
1. Identify two positive and two normative statements given concerning raising the minimum wage. List other minimum wage arguments not discussed in the Economics in Practice, and classify them as either positive or normative economics.
"In 1938 Congress enacted. . ." (positive economics)
2. Give a positive and a normative argument why a business leader would oppose raising the minimum wage. Give a positive and a normative argument why a labor leader would favor raising the minimum wage.
A business leader might argue that a higher minimum wage raises labor costs and cuts profits (positive economics). The business leader might also argue that a higher minimum wage is unfair to businesses because the business should be able to set wages without government intervention (normative economics). A labor leader could state that there is no relationship between higher minimum wage rates and unemployment (positive economics). The labor leader may also argue that the government must insure that workers earn a decent living (normative economics).
3. Explain your position on this issue. Identify positive and normative reasons for your decision. Are there alternative ways to aid the working poor?
Students should give thoughtful answers. One alternative to aid the working poor is simply to mail them a check.
ANSWERS TO EVEN-NUMBERED "Study Questions and Problems"
2. Money itself cannot physically be used to produce anything. Money is only a means to purchase resources, such as labor or capital that can actually produce goods and services.
4. Macroeconomics applies an overview perspective to an economy by examining economy-wide variables such as inflation, unemployment, and growth of the economy. Microeconomics examines individual economic units such as the market for corn, gasoline, or ostrich eggs.
6. (c) simplified description of reality used to understand the way variables are related.
8. People are complicated, and their economic choices are usually influenced by many variables. In order to focus only on the most important variables that influence choices, the ceteris paribus assumption rules out changes in certain variables that might affect the model.
10. (b) The average rate of inflation was higher during George W. Bush’s presidency than during Bill Clinton’s presidency.
12. The positive argument is that airbags are worth an additional cost of about $600 because of the reduction in the number and severity of injuries to and deaths of motorists. This argument can be tested by data collected from drivers using airbags versus drivers using only seat belts. The normative argument is whether the government should make airbags mandatory or allow the decision to be voluntary. This policy question involves people's opinions on the appropriate role of government in the automobile market. Students can research the Internet and share their findings with the class.
CHAPTER 1 SUMMARY QUIZ
1. Scarcity:
2. Which of the following is not a resource?
3. Microeconomics is concerned with:
4. Which of the following is a normative economic statement?United States United States
5. A model (or theory):
ANSWERS TO CHAPTER 1 SUMMARY QUIZ
1. b
Appendix to Chapter 1
APPENDIX SUMMARY
In economics, graphs are used as visual aids to illustrate relationships between economic variables. If a relationship exists between two variables, then the relationship is either direct (also known as a positive relationship) or inverse (also known as a negative relationship).
NEW CONCEPTS INTRODUCED
direct relationship slope
INSTRUCTIONAL OBJECTIVES
1. Know what a direct relationship is and how it is reflected graphically.
APPENDIX TO CHAPTER 1 OUTLINE
I. A Direct Relationship
Exhibit A-1 "A Direct Relationship Between Variables"
II. An Inverse Relationship
Exhibit A-2 "An Inverse Relationship Between Variables"
III. The Slope of a Straight Line
Exhibit A-4 "The Slope of an Upward-Sloping Curve"
Exhibit A-5 "The Slope of a Downward-Sloping Curve"
V. A Three-Variable Relationship in One Graph
Exhibit A-6 "Changes in Price, Quantity, and Income in Two Dimensions"
VI. A Helpful Study Hint Using Graphs
HINTS FOR EFFECTIVE TEACHING
1. Stress the limitations of theory---especially association versus causation. Just because two things happen to occur together doesn't mean one necessarily causes the other. For example, the rooster may think his crowing is causing the sun to rise but we know better.
2. Providing a solid understanding of graphs will avoid many problems later. Point out that the dependent variable goes on the "Y" or vertical axis. The independent variable goes on the "X" or horizontal axis. A direct (also known as a positive) relationship is always expressed as a positively sloped line or curve. An inverse (negative) relationship always has a negative slope. Take several examples from outside the world of economics and ask students how they would be graphed (see "Critical Thinking/Group Discussion Question" # 6 below).
CRITICAL THINKING /GROUP DISCUSSION QUESTIONS
1. What is the relationship between the annual sale of umbrellas and the annual amount of rainfall received in inches. How would this relationship be graphed?
2. What is the relationship between a student's grade point average and the number of hours spent studying per week. How would this relationship be graphed?
3. What is the relationship between tuition and student enrollment at a university. How would this relationship be graphed?
Chapter 2—Production Possibilities, Opportunity Cost, and Economic Growth
MULTIPLE CHOICE
1. Which of the following correctly lists the three fundamental economic questions?
a.
If to produce? Why to produce? When to produce?
b.
If to produce? What to produce? How to produce?
c.
Why to produce? What to produce? How to produce?
d.
What to produce? How to produce? For whom to produce?
ANS: D PTS: 1 DIF: Easy REF: Full: 35 | Mic: 35
2. Three basic decisions must be made by all economies. What are they?
a.
How much will be produced, when it will be produced, and how much it will cost.
b.
What the price of each good will be, who will produce each good, and who will consume each good.
c.
What will be produced, how goods will be produced, and for whom goods will be produced.
d.
How the opportunity cost principle will be applied, if and how the law of comparative advantage will be utilized, and whether the production possibilities constraint will apply.
ANS: C PTS: 1 DIF: Easy REF: Full: 35 | Mic: 35
3. Because of the problem of scarcity, each economic system must make which of the following choices?
a.
How to produce?
b.
What to produce?
c.
For whom to produce?
d.
All of these.
ANS: D PTS: 1 DIF: Easy REF: Full: 35 | Mic: 35
4. Which fundamental economic question is most closely related to the issues of income distribution and poverty?
a.
The What to Produce question.
b.
The Why to Produce question.
c.
The How to Produce question.
d.
The For Whom to Produce question.
ANS: D PTS: 1 DIF: Medium REF: Full: 35 | Mic: 35
5. Which fundamental economic question requires society to choose the technological and resource mix used to produce goods?
a.
The What to Produce question.
b.
The Why to Produce question.
c.
The How to Produce question.
d.
The For Whom to Produce question.
ANS: C PTS: 1 DIF: Medium REF: Full: 35 | Mic: 35
6. The opportunity cost of an action is:
a.
the monetary payment the action required.
b.
the total time spent by all parties in carrying out the action.
c.
the value of the best opportunity that must be sacrificed in order to take the action.
d.
the cost of all alternative actions that could have been taken, added together.
ANS: C PTS: 1 DIF: Medium REF: Full: 36 | Mic: 36
7. The highest valued alternative that must be given up in order to choose an option is called the:
a.
opportunity cost.
b.
utility cost.
c.
scarcity expense.
d.
disutility option.
ANS: A PTS: 1 DIF: Easy REF: Full: 36 | Mic: 36
8. Which of the following sayings best reflects the concept of opportunity cost?
a.
"You can't teach an old dog new tricks."
b.
"There is no such thing as a free lunch."
c.
"I have a baker's dozen."
d.
"There's no business like show business."
ANS: B PTS: 1 DIF: Medium REF: Full: 36 | Mic: 36
9. The opportunity cost to a city for using local tax revenues to construct a new park is the:
a.
best alternative foregone by building the park.
b.
dollar cost of constructing the new park.
c.
dollar cost of the old park.
d.
increased taxes necessary to pay for maintenance of the new park.
ANS: A PTS: 1 DIF: Easy REF: Full: 36 | Mic: 36
10. A good or service that is forgone by choosing one alternative over another is called a(n):
a.
explicit cost.
b.
opportunity cost.
c.
historical cost.
d.
accounting cost.
ANS: B PTS: 1 DIF: Easy REF: Full: 36 | Mic: 36
11. Opportunity cost is the:
a.
cost incurred when one fails to take advantage of an opportunity.
b.
price paid for goods and services.
c.
cost of the best option forgone as a result of choosing an alternative option.
d.
undesirable aspects of an option.
ANS: C PTS: 1 DIF: Easy REF: Full: 36 | Mic: 36
12. The opportunity cost of a purchase is:
a.
the selling price of the good or service.
b.
zero if the good or service satisfies a need.
c.
greater for persons who are rich.
d.
the good or service given up for the good or service purchased.
ANS: D PTS: 1 DIF: Easy REF: Full: 36 | Mic: 36
13. The opportunity cost of watching television is:
a.
all of the alternative programs that appear on other stations.
b.
zero because there is no money expenditure involved.
c.
the alternative use of the time foregone by watching the program.
d.
zero if it benefits you.
ANS: C PTS: 1 DIF: Easy REF: Full: 36 | Mic: 36
14. Which of the following does not illustrate opportunity cost?
a.
If I study, I must give up going to the football game.
b.
If I buy a computer, I must do without a 35" television.
c.
More consumer spending now means more spending in the future.
d.
If I spend more on clothes, I must spend less on food.
ANS: C PTS: 1 DIF: Easy REF: Full: 36 | Mic: 36
15. Which of the following does not illustrate opportunity cost?
a.
If I study, I must give up going to the football game.
b.
If I buy a computer, I must do without a 35" television.
c.
If I spend more on clothes, I must spend less on food.
d.
All of these illustrate opportunity cost.
ANS: D PTS: 1 DIF: Easy REF: Full: 36 | Mic: 36
16. The opportunity cost of an economic decision is:
a.
the best alternative that was sacrificed.
b.
the amount of money needed to implement the decision.
c.
any land, labor, and capital that are wasted.
d.
all options that were lost due to scarcity.
ANS: A PTS: 1 DIF: Easy REF: Full: 36 | Mic: 36
17. Bill has $10 to spend on a Superman, Batman, or an X-Men T-shirt. Bill buys the Superman T-shirt and the Batman shirt was a close second choice. What is the opportunity cost?
a.
The amount he spent, $10.
b.
Nothing, since he got his preferred choice.
c.
The Batman T-shirt.
d.
The X-Men T-shirt.
ANS: C PTS: 1 DIF: Medium REF: Full: 36 | Mic: 36
18. On a production possibilities curve, the opportunity cost of good X, in terms of good Y, is represented by the:
a.
distance to the curve from the vertical axis.
b.
distance to the curve from the horizontal axis.
c.
movement along the curve.
d.
all of these.
ANS: C PTS: 1 DIF: Medium REF: Full: 36 | Mic: 36
19. Which of the following statements is true?
a.
An opportunity cost is what must be given up in order to get something else.
b.
The three fundamental economic questions refer to What to produce? How to produce? and When to produce?
c.
The term "investment" refers to the purchase of stocks and bonds and other financial securities.
d.
The law of increasing opportunity cost implies that as production of one type of good is expanded then fewer and fewer of other goods must be given up.
ANS: A PTS: 1 DIF: Easy REF: Full: 36 | Mic: 36
20. The amount of a good that must be given up to produce another good is the concept of:
a.
scarcity.
b.
specialization.
c.
trade.
d.
efficiency.
e.
opportunity cost.
ANS: E PTS: 1 DIF: Easy REF: Full: 36 | Mic: 36
21. The opportunity cost of an activity means the:
a.
amount of money the activity costs.
b.
number of hours that is required to engage in this activity.
c.
expected gains by engaging in the activity.
d.
amount of other things that must be sacrificed in order to engage in the activity.
e.
expected gains minus the expected costs of engaging in the activity.
ANS: D PTS: 1 DIF: Medium REF: Full: 36 | Mic: 36
22. In the context of the production possibilities curve, opportunity cost is measured in:
a.
dollars paid for the goods.
b.
the quantity of other goods given up.
c.
the value of the resources used.
d.
changing technology.
e.
units of satisfaction.
ANS: B PTS: 1 DIF: Medium REF: Full: 36 | Mic: 36
23. Mikki decides to work five hours the night before her economics exam. She earns an extra $75, but her exam score is 10 points lower than it would have been had she stayed home and studied. Her opportunity cost is the:
a.
five hours she worked.
b.
$75 she earned.
c.
10 points she lost on her exam.
d.
time she could have spent watching television.
e.
guilt she feels about neglecting her economics studies.
ANS: C PTS: 1 DIF: Medium REF: Full: 36 | Mic: 36
24. When the opportunity cost of producing carrots increases as more carrots are produced, then:
a.
no more carrots will be produced.
b.
resources are equally suited to the production of carrots and to other goods.
c.
the production possibilities curve is a straight line.
d.
the production possibilities curve becomes positively sloped.
e.
the law of increasing costs is present.
ANS: E PTS: 1 DIF: Difficult REF: Full: 36 | Mic: 36
25. The opportunity cost of your college education is:
a.
c and d.
b.
d and e.
c.
the actual dollar cost of your college education.
d.
your best alternative use of the money you spend for a college education.
e.
money you could have earned working instead of going to college.
ANS: B PTS: 1 DIF: Medium REF: Full: 36 | Mic: 36
26. The law of increasing costs indicates that the opportunity cost of producing a good:
a.
is proportional to the production of the good.
b.
is constant to the production of the good.
c.
increases as more of the good is produced.
d.
decreases as more of the good is produced.
e.
increases as less of the good is produced.
ANS: C PTS: 1 DIF: Medium REF: Full: 36 | Mic: 36
27. The amount of a good that is given up to produce another good is:
a.
its dollar cost.
b.
its opportunity cost.
c.
its relative cost.
d.
its absolute cost.
e.
all of these.
ANS: B PTS: 1 DIF: Easy REF: Full: 36 | Mic: 36
Exhibit 2-1 Production possibilities curve data
Consumption
Capital
10
0
9
1
7
2
4
3
0
4
28. In Exhibit 2-1, according to the information, the opportunity cost of producing 3 units of capital is:
a.
3 units of consumption goods.
b.
4 units of consumption goods.
c.
6 units of consumption goods.
d.
7 units of consumption goods.
ANS: A PTS: 1 DIF: Medium REF: Full: 36 | Mic: 36
29. In Exhibit 2-1, the opportunity cost of producing the fourth unit of capital is:
a.
0.
b.
1 unit of consumption goods.
c.
2 units of consumption goods.
d.
4 units of consumption goods.
e.
there is not enough information to estimate the opportunity cost.
ANS: D PTS: 1 DIF: Medium REF: Full: 36 | Mic: 36
Exhibit 2-2 Production possibilities curve
30. The production possibilities in Exhibit 2-2 indicates that the opportunity cost of corn is:
a.
increasing.
b.
decreasing.
c.
zero.
d.
constant.
e.
indeterminate.
ANS: D PTS: 1 DIF: Difficult REF: Full: 36 | Mic: 36
31. In Exhibit 2-2, the slope of the production possibilities curve indicates that the opportunity cost of:
a.
coffee is constant.
b.
coffee is increasing.
c.
coffee is decreasing.
d.
corn is increasing.
e.
corn is decreasing,
ANS: A PTS: 1 DIF: Difficult REF: Full: 36 | Mic: 36
32. In Exhibit 2-2, the opportunity cost of coffee when moving from A to B is:
a.
2 million bushels of corn.
b.
6 million bushels of corn.
c.
8 million bushels of corn.
d.
14 million bushels of corn.
e.
it is not possible to determine.
ANS: A PTS: 1 DIF: Medium REF: Full: 36 | Mic: 36
33. In Exhibit 2-2, the opportunity cost of coffee when moving from A to B is:
a.
the same as moving from A to C.
b.
the same as moving from A to D.
c.
the same as moving from B to D.
d.
the same as moving from B to C.
e.
it is not possible to determine.
ANS: D PTS: 1 DIF: Difficult REF: Full: 36 | Mic: 36
34. A farmer is deciding whether or not to add fertilizer to his or her crops. If the farmer adds 1 pound of fertilizer per acre, the value of the resulting crops rises from $80 to $100 per acre. According to marginal analysis, the farmer should add fertilizer if it costs less than:
a.
$12.50 per pound.
b.
$20 per pound.
c.
$80 per pound.
d.
$100 per pound.
ANS: B PTS: 1 DIF: Medium REF: Full: 37 | Mic: 37
35. In economics, the term marginal refers to:
a.
the change or difference from a current situation.
b.
man-made resources as opposed to natural resources.
c.
the satisfaction a consumer receives from a good.
d.
holding everything else constant in the analysis.
ANS: A PTS: 1 DIF: Easy REF: Full: 37 | Mic: 37
36. When deciding whether to buy a second car, marginal analysis indicates that the purchaser should compare the:
a.
benefits expected from two cars with the cost of both.
b.
additional benefits expected from a second car with the cost of the two cars.
c.
dollar cost of the two cars with the potential income that the cars will generate.
d.
additional benefits of the second car with the additional cost of the second car.
ANS: D PTS: 1 DIF: Difficult REF: Full: 37 | Mic: 37
37. While waiting in line to buy two tacos at 80 cents each and a medium drink for 90 cents, Jordan notices that the restaurant has a value meal containing three tacos and a medium drink all for $3. For Jordan, the marginal cost of the third taco would be:
a.
zero.
b.
50 cents.
c.
80 cents.
d.
$1.
ANS: B PTS: 1 DIF: Difficult REF: Full: 37 | Mic: 37
38. While waiting in line to buy a cheeseburger for $2 and a drink for 75 cents, Aaron notices that the restaurant has a value meal containing a cheeseburger, drink, and French fries for $3. For Aaron, the marginal cost of purchasing the French fries:
a.
would be zero.
b.
would be 25 cents.
c.
would be 50 cents.
d.
cannot be determined because the information about the price of the French fries is not provided.
ANS: B PTS: 1 DIF: Difficult REF: Full: 37 | Mic: 37
39. While waiting in line to buy one cheeseburger for $1.50 and a medium drink for $1.00, Sally notices that she could get a value meal that contains both the cheeseburger and medium drink and also a medium order of fries for $2.75. She thinks to herself, "Is it worth the extra 25 cents to get the medium fries?" To an economist, Sally's decision is an example of:
a.
marginal analysis.
b.
basing decisions on total, rather than marginal, value.
c.
an unintended consequence.
d.
the fallacy of composition.
ANS: A PTS: 1 DIF: Medium REF: Full: 37 | Mic: 37
40. Just before class, Jim tells Stuart, "Stuart, you shouldn't skip class today because you have paid tuition to enroll in the class." Stuart ignores Jim's advice, and instead makes the decision of whether to attend based on the importance to his grade that he feels he'd be missing that day in class relative to his value of the extra time he could have to finish the video game he is playing. To an economist, Stuart is:
a.
using marginal analysis.
b.
ignoring the total value of attending class.
c.
ignoring the concept of opportunity cost.
d.
irresponsible.
ANS: A PTS: 1 DIF: Difficult REF: Full: 37 | Mic: 37
41. Susan wishes to buy gasoline and have her car washed. She finds that if she buys 9 gallons of gasoline at $1.50 per gallon, the car wash costs $1, but if she buys 10 gallons of gasoline, the car wash is free. For Susan, the marginal cost of the tenth gallon of gasoline is:
a.
zero.
b.
50 cents.
c.
$1.
d.
$1.50.
ANS: B PTS: 1 DIF: Difficult REF: Full: 37 | Mic: 37
42. Ralph wants to buy some milk and a box of cereal. If Ralph buys 2 quarts of milk at $1 per quart, the box of cereal costs 75 cents. If he buys 3 quarts of milk at $1 per quart, the box of cereal is free. For Ralph, the marginal cost of the third quart of milk is:
a.
zero.
b.
25 cents.
c.
75 cents.
d.
$1.
ANS: B PTS: 1 DIF: Difficult REF: Full: 37 | Mic: 37
43. A local restaurant offers an "all you can eat" Sunday brunch for $12. Susan eats four servings, but leaves half of a fifth helping uneaten. Why?
a.
Her marginal value of a serving of brunch has fallen below $12.
b.
Her marginal value of a serving has fallen below $2.36 ($12 divided by 5 servings).
c.
Her marginal value of food has fallen to zero.
d.
The total value she places on brunch today exactly equals $12.
ANS: C PTS: 1 DIF: Difficult REF: Full: 37 | Mic: 37
44. According to marginal analysis, you should spend more time studying economics if the extra benefit from an additional hour of study:
a.
is positive.
b.
outweighs the extra cost.
c.
exceeds the benefits of the previous hour of study.
d.
will raise your exam score.
ANS: B PTS: 1 DIF: Easy REF: Full: 37 | Mic: 37
45. If an economy is operating at a point inside the production possibilities curve,
a.
its resources are not being used efficiently.
b.
the curve will begin to shift inward.
c.
the curve will begin to shift outward.
d.
This is a trick question because an economy cannot produce at a point inside the curve.
ANS: A PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
46. Which of the following most accurately indicates the implications of an economy's production possibilities curve?
a.
If all the resources of an economy are being used efficiently, more of one good can be produced only if less of another good is produced.
b.
If all the resources of an economy are being used efficiently, it is generally possible to produce more of one good without having to sacrifice the production of other goods.
c.
Over time, it is generally impossible for a country to expand its production of goods.
d.
An economy will automatically move toward a point that lies outside of the production possibilities constraint unless proper government policy constrains production.
ANS: A PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
47. Which of the following is true of the production possibilities curve?
a.
It assumes a fixed level of technology.
b.
It assumes resources are fixed.
c.
It assumes resources are fully employed.
d.
All of these are correct.
ANS: D PTS: 1 DIF: Easy REF: Full: 38 | Mic: 38
48. After the terrorist attacks on September 11, 2001, the United States began devoting substantial resources toward the War on Terrorism, homeland security, and relief efforts. As long as our resources were being used efficiently, the production possibilities curve would suggest that:
a.
we will have to give up the production of other goods that could have been produced with these resources.
b.
we will be able to produce the same amount of other goods as before.
c.
the military spending will result in an outward shift in the production possibilities curve but that the relief effort will result in an offsetting inward shift.
d.
we will be unable to devote the resources necessary toward these efforts unless there is an improvement in technology.
ANS: A PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
49. A point outside the production possibilities curve represents a combination of goods that is:
a.
inefficient.
b.
efficient.
c.
unattainable.
d.
attainable.
ANS: C PTS: 1 DIF: Easy REF: Full: 38 | Mic: 38
50. Which of the following will be most likely to cause the production possibilities curve for a country to shift inward?
a.
an increase in the labor force
b.
an increase in unemployment
c.
development of an improved technological method of production
d.
a decrease in the stock of physical capital
ANS: D PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
51. In Europe during the 14th century, the Black Plague killed 24 million people or close to 37 percent of the population. How would this affect the production possibilities curves for the countries of Europe at that time?
a.
The production possibilities curves for these countries would have shifted outward.
b.
The production possibilities curves for these countries would have shifted inward.
c.
The production possibilities curves for these countries would have been unaffected.
d.
This would have been illustrated by a movement along the production possibilities curves for these countries, but it would not have shifted them.
ANS: B PTS: 1 DIF: Easy REF: Full: 38 | Mic: 38
52. Which of the following would be least likely to cause the production possibilities curve to shift outward?
a.
a decreased desire for leisure by workers in the economy.
b.
an invention that requires fewer resources to produce a good.
c.
a shift in consumer preferences that causes expansion in the output of one product and a decline in output of other products.
d.
an expansion in the man-made productive resources available to the economy as the result of a high rate of investment.
ANS: C PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
53. Using a production possibilities curve, a technological advance that increases the amount of output for the same amount of inputs would be illustrated as a(n):
a.
flattening of the curve.
b.
movement from one point to another point along the curve.
c.
outward shift of the curve.
d.
movement from a point on the curve to a point inside the curve.
ANS: C PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
54. The production possibilities curve shows that:
a.
some of one good must be given up to get more of another good in an economy that is operating efficiently.
b.
no output combination is impossible.
c.
an economy that is operating efficiently can have more of one good without giving up some of another good.
d.
scarcity can be eliminated.
ANS: A PTS: 1 DIF: Easy REF: Full: 38 | Mic: 38
55. Any point on the production possibilities curve illustrates:
a.
minimum production combinations.
b.
maximum production combinations.
c.
economic growth.
d.
a nonfeasible production combination.
ANS: B PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
56. Production possibilities curve analysis includes the idea of:
a.
opportunity cost.
b.
scarcity.
c.
maximum production choices.
d.
all of these.
ANS: D PTS: 1 DIF: Easy REF: Full: 38 | Mic: 38
57. An efficient economy:
a.
uses available resources fully.
b.
uses the best division of labor.
c.
produces an output combination at some point along the production possibility curve.
d.
all of these.
ANS: D PTS: 1 DIF: Easy REF: Full: 38 | Mic: 38
58. A production possibility graph slopes down because of:
a.
the law of increasing costs.
b.
nonhomogeneous resources.
c.
inefficiency.
d.
improper output mix.
e.
unemployment.
ANS: B PTS: 1 DIF: Difficult REF: Full: 38 | Mic: 38
59. The production possibility curve is bowed outward from the origin because of:
a.
the law of increasing opportunity costs.
b.
the finite nature of the resource base.
c.
inefficiency.
d.
improper output mix.
e.
unemployment.
ANS: A PTS: 1 DIF: Difficult REF: Full: 38 | Mic: 38
60. The production possibilities curve demonstrates the basic economic principle that:
a.
market-based economies are more efficient.
b.
supply will determine demand in the economy.
c.
the production of more capital goods this year will cause the economy to produce less consumption goods next year.
d.
to produce more of any one thing, assuming full employment, the economy must produce less of something else.
e.
to produce more consumption goods this year requires the production of more capital goods this year.
ANS: D PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
61. A production possibilities curve shows the various:
a.
prices that can be charged for capital and consumption goods.
b.
combinations of prices and outputs that can be produced.
c.
combinations of goods the economy has the capacity to produce.
d.
combinations of resources and prices that the economy can produce.
ANS: C PTS: 1 DIF: Difficult REF: Full: 38 | Mic: 38
62. A production possibilities curve has "good X" on the horizontal axis and "good Y" on the vertical axis. On this diagram, the opportunity cost of good X, in terms of good Y, is represented by the:
a.
distance to the curve from the horizontal axis.
b.
distance to the curve from the vertical axis.
c.
distance from the origin to the curve.
d.
change in Y for each change in X along the curve.
ANS: D PTS: 1 DIF: Difficult REF: Full: 38 | Mic: 38
63. Of factors which affect any economy's production potential, the best two listed below are:
a.
resources and technology.
b.
prices and outputs.
c.
wages and prices.
d.
taxes and prices.
e.
resources and prices.
ANS: A PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
64. The various combinations of goods and services that can be produced, when an economy uses its available resources and technology efficiently, is called:
a.
scarcity.
b.
opportunity cost.
c.
unlimited production.
d.
capital accumulation.
e.
production possibilities.
ANS: E PTS: 1 DIF: Difficult REF: Full: 38 | Mic: 38
65. A production possibilities curve shows the:
a.
dollar costs of producing two different goods.
b.
amounts of labor and capital needed to produce one good.
c.
various combinations of goods that can be produced.
d.
prices of different goods that are produced in an economy.
e.
inefficient use of available resources and technology.
ANS: C PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
66. What shape is the production possibilities curve usually expected to exhibit?
a.
Upward-sloping.
b.
Bowed out.
c.
Bowed in.
d.
Straight line.
e.
U-shaped.
ANS: B PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
67. When the production possibilities curve is bowed out, resources are:
a.
equally well-suited to production of both goods.
b.
not being used efficiently.
c.
not equally suited to the production of both types of goods.
d.
increasing as more of one good is produced.
e.
of an inferior quality.
ANS: C PTS: 1 DIF: Difficult REF: Full: 38 | Mic: 38
68. When an economy's resources are not fully employed, then it must be true that the:
a.
production point is located outside and to the right of the production possibilities curve.
b.
production point is located along the production possibilities curve.
c.
production point is located inside and to the left of the production possibilities curve.
d.
production possibilities curve shifts to the right.
e.
production possibilities curve shifts to the left.
ANS: C PTS: 1 DIF: Difficult REF: Full: 38 | Mic: 38
69. The production possibilities curve shows different combinations of goods that:
a.
can be consumed by households.
b.
can be consumed by firms.
c.
can be produced with the available technology.
d.
are produced and consumed by firms.
e.
are bought and sold in the market.
ANS: C PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
70. The production possibilities curve illustrates all of the following concepts except:
a.
the law of increasing costs.
b.
unlimited wants.
c.
scarcity.
d.
opportunity cost.
e.
availability of resources.
ANS: B PTS: 1 DIF: Difficult REF: Full: 38 | Mic: 38
71. The production possibilities curve depicts the various combinations of two goods that can be:
a.
interchanged among two countries.
b.
produced with a given technology.
c.
consumed with a given quantity of resources.
d.
produced with increments in resources and changes in technology.
e.
consumed as the resources increase.
ANS: B PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
72. Efficient production means producing:
a.
less than feasible output for a given amount of resources.
b.
more than feasible output for a given amount of resources.
c.
the maximum feasible output for a given amount of resources.
d.
no more than what is needed.
e.
in excess of what is needed.
ANS: C PTS: 1 DIF: Easy REF: Full: 38 | Mic: 38
73. The law of increasing costs holds that the opportunity cost:
a.
of a good decreases as the quantity of the good produced increases.
b.
of a good is proportional to the resources used in its production.
c.
of a good increases as more of the good is produced.
d.
of a good does not change with the resources used its production.
e.
changes as more of the good is produced.
ANS: C PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
74. If an economy is producing at full employment, it means that:
a.
there are idle resources in this economy.
b.
the production is not efficient.
c.
the economy is producing along its production possibilities curve.
d.
the economy is producing at a point that is to the left of the production possibilities curve.
e.
the economy is producing at a point that is to the right of the production possibilities curve.
ANS: C PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
75. Which of the following is not true about a production possibilities curve? The curve:
a.
indicates the combinations of goods and services that can be produced with given technology.
b.
indicates the efficient production points.
c.
indicates the non-efficient production points.
d.
indicates the feasible (attainable) and non-feasible production points.
e.
indicates which production point will be chosen.
ANS: E PTS: 1 DIF: Difficult REF: Full: 38 | Mic: 38
76. Which of the following is true about the production possibilities curve when a technological progress occurs? The curve:
a.
shifts inwards to the left.
b.
becomes flatter at one end and steeper at the other end.
c.
becomes steeper.
d.
shifts outward to the right.
e.
does not change.
ANS: D PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
77. A point inside a production possibilities curve reflects:
a.
the law of increasing costs.
b.
technological innovation.
c.
less than full use of resources and technology.
d.
economic efficiency.
e.
a way to increase future economic growth.
ANS: C PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
78. A point outside a production possibilities curve reflects:
a.
efficiency.
b.
specialization.
c.
inefficiency.
d.
unemployment.
e.
an impossible choice.
ANS: E PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
79. Any point inside the production possibility curve is:
a.
efficient.
b.
nonfeasible.
c.
inefficient.
d.
optimal.
ANS: C PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
80. Using a production possibilities curve, an economy that produces an output combination less than the maximum possible is depicted by a point located:
a.
at the top corner of the curve.
b.
near the middle of the curve.
c.
at the bottom corner of the curve.
d.
outside the curve.
e.
inside the curve.
ANS: E PTS: 1 DIF: Easy REF: Full: 38 | Mic: 38
81. One of the assumptions underlying the production possibilities curve for any given economy is that:
a.
the state of technology changes.
b.
there is an unlimited supply of resources.
c.
there is full employment of resources when the economy is on the curve.
d.
goods can be produced outside the curve.
ANS: C PTS: 1 DIF: Difficult REF: Full: 38 | Mic: 38
82. Which of the following would be most likely to cause the production possibilities curve for computers and education to shift outward?
a.
A choice of more computers and less education.
b.
A choice of more education and less computers.
c.
A reduction in the labor force.
d.
An increase in the quantity of resources.
ANS: D PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
83. Given a production possibilities curve, a point:
a.
inside the curve represents unemployment.
b.
on the curve represents full employment.
c.
outside the curve is currently unattainable.
d.
all of these.
ANS: D PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
84. All points on the production possibilities curve are:
a.
unattainable.
b.
fair.
c.
efficient.
d.
optimal.
ANS: C PTS: 1 DIF: Easy REF: Full: 38 | Mic: 38
85. As production of a good increases, opportunity costs rise because:
a.
there will be more inefficiency.
b.
people always prefer having more goods.
c.
of inflationary pressures.
d.
workers are not equally suited to all tasks.
ANS: D PTS: 1 DIF: Difficult REF: Full: 38 | Mic: 38
86. If society leaves some of its resources unemployed, then it will be operating at a point:
a.
beneath its production possibilities curve.
b.
at a corner of its production possibilities curve.
c.
anywhere along its production possibilities curve.
d.
outside of its production possibilities curve.
ANS: A PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
87. The law of increasing opportunity costs causes the production possibilities curve to:
a.
be a straight line.
b.
slope upwards.
c.
have a bowed-out shape.
d.
shift inward.
ANS: C PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
88. Along a production possibilities curve showing capital and consumption goods production, which of the following pairs are being held fixed?
a.
Unemployment and capital goods production.
b.
Number of resources and consumption goods production.
c.
Composition of the economy's output and number of resources.
d.
Capital and consumption goods production.
e.
Technology and number of resources.
ANS: E PTS: 1 DIF: Difficult REF: Full: 38 | Mic: 38
Exhibit 2-3 Production possibilities curve data
A
B
C
D
E
Capital goods
0
1
2
3
4
Consumer goods
20
18
14
8
0
89. According to the data given in Exhibit 2-3, the production of 1 unit of capital goods and 14 units of consumer goods:
a.
is possible but would be inefficient.
b.
may be a result of unemployment.
c.
may be a result of unused natural resources.
d.
all of these.
ANS: D PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
Exhibit 2-4 Production possibilities curve data
A
B
C
D
E
Capital goods
0
10
20
30
40
Consumer goods
200
180
140
80
0
90. According to the data given in Exhibit 2-4, the production of 140 units of consumer goods and 10 units of capital goods:
a.
is possible but would be inefficient.
b.
may be a result of unemployment.
c.
may be a result of unused natural resources.
d.
all of the above.
e.
none of the above.
ANS: D PTS: 1 DIF: Difficult REF: Full: 38 | Mic: 38
91. According to the data in Exhibit 2-4, a total output of 140 units of consumer goods and 10 units of capital goods would:
a.
be unobtainable in this economy.
b.
be an efficient way of using the economy's scarce resources.
c.
result in the maximum use of the economy's labor force.
d.
result in a less than maximum rate of growth for this economy.
ANS: D PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
Exhibit 2-5 Production possibilities curve
92. In Exhibit 2-5, movement between which of the following points represents an increase in economic efficiency?
a.
A to C.
b.
C to D.
c.
D to B.
d.
A to B.
e.
A to D.
ANS: B PTS: 1 DIF: Difficult REF: Full: 38 | Mic: 38
Exhibit 2-6 Production possibilities curve data
A
B
C
D
E
F
Capital goods
150
140
120
90
50
0
Consumer goods
0
20
40
60
80
100
93. In Exhibit 2-6, the concept of increasing opportunity costs is represented by the fact that:
a.
the quantity of capital goods produced must be less than 150.
b.
the quantity of consumer goods is constant for each change in the quantity of capital goods produced.
c.
greater amounts of capital goods must be sacrificed to produce each additional unit of consumer goods.
d.
the amount of consumer goods produced must be greater than zero.
ANS: C PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
Exhibit 2-7 Production possibilities curve
94. For the economy shown in Exhibit 2-7, which of the following is true when the economy is at point A?
a.
More cars are being produced than are needed.
b.
There must be resources that are not being used fully.
c.
Some car production must be forgone in order to produce more grain in the same period.
d.
Increased grain production would be impossible.
ANS: C PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
95. For the economy shown in Exhibit 2-7 to operate at point C, it must:
a.
be willing to lower the price of grain.
b.
use its given resources more efficiently than it would at point A.
c.
experience resource unemployment.
d.
experience an increase in its resources and/or an improvement in its technology.
ANS: D PTS: 1 DIF: Easy REF: Full: 38 | Mic: 38
Exhibit 2-8 Production possibilities curve data
A
B
C
D
E
F
Capital goods
15
14
12
9
5
0
Consumer goods
0
2
4
6
8
10
96. As shown in Exhibit 2-8, the concept of increasing opportunity costs is reflected in the fact that:
a.
the quantity of consumer goods produced can never be zero.
b.
the labor force in the economy is homogeneous.
c.
greater amounts of capital goods must be sacrificed to produce an additional 2 units of consumer goods.
d.
a graph of the production data is a downward-sloping straight line.
ANS: C PTS: 1 DIF: Difficult REF: Full: 38 | Mic: 38
97. As shown in Exhibit 2-8, a total output of 0 units of capital goods and 10 units of consumer goods is:
a.
the maximum rate of output for this economy.
b.
an inefficient way of using the economy's scarce resources.
c.
the result of maximum use of the economy's labor force.
d.
unobtainable in this economy.
ANS: C PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
98. As shown in Exhibit 2-8, a total output of 14 units of consumer goods and 1 unit of capital goods is:
a.
the result of maximum use of the economy's labor force.
b.
an efficient way of using the economy's scarce resources.
c.
unobtainable in this economy.
d.
less than the maximum rate of output for this economy.
ANS: D PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
Exhibit 2-9 Production possibilities curve
99. If the economy represented in Exhibit 2-9 is operating at Point W:
a.
no tractor product must be forgone to produce more food in the current period.
b.
resources are not fully used.
c.
some tractor production must be forgone to produce more food in the current period.
d.
increased food production would be impossible.
ANS: C PTS: 1 DIF: Easy REF: Full: 38 | Mic: 38
100. Which of the following moves from one point to another in Exhibit 2-9 would represent an increase in economic efficiency?
a.
Z to W.
b.
W to Y.
c.
W to X.
d.
X to Y.
ANS: D PTS: 1 DIF: Difficult REF: Full: 38 | Mic: 38
101. Movement along this production possibilities curve shown in Exhibit 2-9 indicates:
a.
that labor is not equally productive or homogeneous (nonhomogeneous).
b.
decreasing opportunity costs.
c.
all inputs are homogeneous.
d.
all of these.
ANS: A PTS: 1 DIF: Difficult REF: Full: 38 | Mic: 38
Exhibit 2-10 Production possibilities curve data
A
B
C
D
E
Capital goods
0
1
2
3
4
Consumption goods
25
23
19
13
0
102. Suppose an economy is faced with the production possibilities table shown in Exhibit 2-10. If this economy chooses the combination of goods at point A,
a.
only capital goods are being produced.
b.
every resource in the economy is utilized in the production of capital goods.
c.
no capital goods are being used as factors of production.
d.
every resource in the economy is being used in the production of consumption goods.
e.
no consumption goods are being produced.
ANS: D PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
103. Suppose an economy is faced with the production possibilities table shown in Exhibit 2-10. The first unit of capital goods will cost the economy ____ units of consumption goods.
a.
25
b.
2
c.
1
d.
23
e.
11
ANS: B PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
104.
Chapter 1
Introducing the Economic Way of Thinking
CHAPTER SUMMARY
Scarcity permeates the entire human experience. Scarcity means we are unable to have as much as we would like to have. Our wants are unlimited. But, our production capabilities are limited by our factors of production, which include land, labor (the entrepreneur is a special type of labor) and capital (plant and equipment). Because we are faced with scarcity we must make choices. Choices are made at the "macro" and "micro" level. Macroeconomics is concerned with the entire economic system, whereas microeconomics is concerned with some particular segment of the economy.
Economics can be further subdivided into positive ("what is") and normative ("what ought to be") economic analysis. We would all be well advised to first have a firm grasp of "what is" before we argue "what ought to be." This takes us to a look at how economists derive positive economic theories---a look at the methodology of economics. That methodology is the same scientific methodology used in all sciences---it is the process of induction and deduction. Theories can be expressed: 1) verbally, or in written form, 2) as a numerical table, 3) graphically, or 4) mathematically. Theories are helpful to understanding the relationship between economic variables but should be used with caution. Two common pitfalls to clear thinking are the failure to understand the ceteris paribus assumption and confusing association and causation. This chapter concludes with a review of careers in economics.
The appendix to this chapter focuses on how theories can be expressed graphically. Graphs are visual aids that help us see the direct or inverse relationship between two or more sets of data or variables.
NEW CONCEPTS INTRODUCED
scarcity labor economics entrepreneurship ceteris paribus
resources capital macroeconomics normative economics
land model microeconomics positive economics
INSTRUCTIONAL OBJECTIVES
After completing this chapter, students should be able to:
1. Understand that if there was no scarcity there would be no such thing as economics. Economics is the study of scarcity and how we deal with it.
2. Understand that scarcity exists because we are unable to produce as much as we would like (our wants are unlimited while our means of production are limited).
3. Understand that we try to do the best we can with what we have---to maximize our production with our limited resources (factors of production).
4. List the factors of production: land, labor, and capital.
5. Distinguish between "macro" and "micro."
6. Distinguish between "positive" and "normative" economic analysis.
7. Explain why economists are interested in relationships between economic variables.
8. Explain why theories enable us to discern relationships between economic variables.
9. Know how theories can be expressed.
10. Explain the limitations to the use of theories.
CHAPTER OUTLINE
I. Preview
II. The Problem of Scarcity
III. Scarce Resources and Production
a. Land
b. Labor
c. Capital
Exhibit 1 "Three Categories of Resources"
IV. Economics: The Study of Scarcity and Choice
a. Macroeconomics
b. Microeconomics
V. The Methodology of Economics
a. Problem Identification
b. Model Development
c. Testing a Theory
Exhibit 2 "The Steps in the Model-Building Process"
Checkpoint: "Can You Prove There Is No Trillion-Dollar Person?"
VI. Hazards of the Economic Way of Thinking
a. The Ceteris Paribus Assumption
b. Association versus Causation
Checkpoint: "Should Nebraska State
You're The Economist: Analyze the Issue
"Mops and Brooms, the Boston Snow Index, the Super Bowl, and Other Economic Indicators" Applicable Concept: association versus causation.
VII. Why do Economists Disagree?
a. Positive Economics
b. Normative Economics
You're The Economist: Analyze the Issue
"Does Raising The Minimum Wage Help The Working Poor?" Applicable Concept: positive and normative analysis.
VII. Careers in Economics
Exhibit 3 "Average Yearly Salary Offers for Selected Majors"
VIII. List of Key Concepts
IX. Summary
X. Summary of Conclusion Statements
a. Financial capital by itself is not productive; instead, it is only a paper claim on economic capital.
b. A theory cannot be tested legitimately unless its ceteris paribus assumption is satisfied.
c. The fact that one event follows another does not necessarily mean that the first event caused the second event.
d. Forecasts of economists can differ because, using the same methodology, economists can agree that event A causes event B, but disagree over the assumption that event A will occur.
e. When opinions or points of view are not based on facts, they are scientifically untestable.
XI. Study Questions and Problems
XII. Checkpoint Answers
XIII. Practice Quiz
HINTS FOR EFFECTIVE TEACHING
1. Try to use this chapter for generating as much interest in economics as possible. Don't feel too pressed for time. Treat this chapter thoroughly---especially, "theories." It will be time well spent. (Some additional comments with respect to theories are found below.)
You may want to start the class by asking students what they want to get out of the class---what they always wanted to know and were afraid to ask. Let them know that there is no such thing as a "silly" question. (Establishing a rapport with your students at the first opportunity will pay off!) Although you may field some questions which are best treated in some detail later, go ahead and survey the issues at hand and indicate that they will be treated in more detail later when it is more logical to do so---but for now ask them to note that these issues stem from the fact that we are faced with scarcity. Moreover, you will probably be given the opportunity to stress the difference between "positive" and "normative" economic analysis---the difference between "fact" and "opinion." For the “You’re the Economist” on the minimum wage, be sure to note that you will return to this issue in Chapter 4 as an application of supply and demand analysis. Finally, take the opportunity to show by your actions that you will be keeping the course as application-oriented, or "user-friendly" as possible.
2. Indicate that in economics, capital is not money! It is defined as "plant and equipment." Students often get "capital" and "money" confused.
3. Point out that scarcity is not a synonym for poverty. Even "rich" nations like the United States
4. Give some examples of economic investigations and ask students to distinguish between whether they are of concern to "macro" or "micro."
5. Indicate that theories are realistic because they are based on facts. Theories are practical because they avoid unnecessary detail and enhance our understanding of relationships among economic variables. Theories (general statements about the causal relationship between variables based on facts) are extremely useful in developing workable policies to address a real-world problem. In sum, stress that economists derive economic theories because they are useful in the development of economic policies designed to solve real-world economic problems.
6. Indicate that there are really three forces at play in the real world in which we all live: economic, social and political. These three forces are often in conflict. Sound or rational economic reasoning doesn't always prevail---especially when it comes to developing "economic" policy in a political environment.
CRITICAL THINKING /GROUP DISCUSSION QUESTIONS
1. Why isn't money a resource
It isn't used in the production process; it merely facilitates trade.
2. Respond to the following statement: "Theories are of no use to me because they are not very practical. All I need are the facts because they speak for themselves."
Facts don't speak for themselves. Facts are meaningless unless there is a theory to tie them together.
3. Does economics help to teach us how to approach problems, or does it provide us with a set of answers to problems?
It teaches us "how to think." It doesn't provide us with answers.
4. To what extent do you think normative economic analysis, as opposed to positive economic analysis determines our nation's public policy decisions made by government? Why? Is that "good" or "bad?" Why?
This is debatable.
5. What are our nation's major macroeconomic goals? Are they in conflict with each other?
Full employment, low inflation, and high rates of economic growth are our nation's major macro goals. Also note that they are often in conflict with each other. For example, full employment and more rapid growth create higher rates of inflation.
CLASSROOM GAMES
Approximately 170 non-computerized economic games (experiments) for use in the classroom are available for free at http://www.marietta.edu/~delemeeg/games/. The following games are recommended to help teach some of the concepts in this chapter:
There are no recommended games for this chapter.
ANSWERS TO: "You're the Economist: Analyze the Issue"
MOPS AND BROOMS, THE BOSTON
Do you believe any of the above indicators are examples of causation? Explain.
Each example involves association and not causation.
DOES RAISING THE MINIMUM WAGE HELP THE WORKING POOR?
1. Identify two positive and two normative statements given concerning raising the minimum wage. List other minimum wage arguments not discussed in the Economics in Practice, and classify them as either positive or normative economics.
"In 1938 Congress enacted. . ." (positive economics)
"Today a minimum wage worker. . . deplorable annual increase." (normative economics)
"Only a small percentage. . . are full-time workers below the poverty line." (positive economics)
"They say it is outrageous that a worker can work full-time and. . ." (normative economics)
2. Give a positive and a normative argument why a business leader would oppose raising the minimum wage. Give a positive and a normative argument why a labor leader would favor raising the minimum wage.
A business leader might argue that a higher minimum wage raises labor costs and cuts profits (positive economics). The business leader might also argue that a higher minimum wage is unfair to businesses because the business should be able to set wages without government intervention (normative economics). A labor leader could state that there is no relationship between higher minimum wage rates and unemployment (positive economics). The labor leader may also argue that the government must insure that workers earn a decent living (normative economics).
3. Explain your position on this issue. Identify positive and normative reasons for your decision. Are there alternative ways to aid the working poor?
Students should give thoughtful answers. One alternative to aid the working poor is simply to mail them a check.
ANSWERS TO EVEN-NUMBERED "Study Questions and Problems"
2. Money itself cannot physically be used to produce anything. Money is only a means to purchase resources, such as labor or capital that can actually produce goods and services.
4. Macroeconomics applies an overview perspective to an economy by examining economy-wide variables such as inflation, unemployment, and growth of the economy. Microeconomics examines individual economic units such as the market for corn, gasoline, or ostrich eggs.
6. (c) simplified description of reality used to understand the way variables are related.
8. People are complicated, and their economic choices are usually influenced by many variables. In order to focus only on the most important variables that influence choices, the ceteris paribus assumption rules out changes in certain variables that might affect the model.
10. (b) The average rate of inflation was higher during George W. Bush’s presidency than during Bill Clinton’s presidency.
12. The positive argument is that airbags are worth an additional cost of about $600 because of the reduction in the number and severity of injuries to and deaths of motorists. This argument can be tested by data collected from drivers using airbags versus drivers using only seat belts. The normative argument is whether the government should make airbags mandatory or allow the decision to be voluntary. This policy question involves people's opinions on the appropriate role of government in the automobile market. Students can research the Internet and share their findings with the class.
CHAPTER 1 SUMMARY QUIZ
1. Scarcity:
a. exists because resources are unlimited while human wants are limited.
b. means we are unable to have as much as we would like to have.
c. will likely be eliminated as technology continues to expand.
d. is not an issue addressed in economics.
2. Which of the following is not a resource?
a. land
b. labor
c. money
d. capital
3. Microeconomics is concerned with:
a. some specific segment of the economic system.
b. the entire economic system.
c. reducing national unemployment and inflation rates.
d. what causes changes in the overall level of economic activity.
4. Which of the following is a normative economic statement?
a. The unemployment rate for the United States
b. The inflation rate in the United States
c. An increase in the price of a good will reduce the amount purchased.
d. Higher profits in an industry will attract more entrepreneurs into the industry.
5. A model (or theory):
a. is a general statement about the causal relationship between variables based on facts.
b. helps explain and predict the relationship between variables.
c. when expressed as a downward (negatively) sloping graph implies an inverse relationship between the variables.
d. all of the above.
ANSWERS TO CHAPTER 1 SUMMARY QUIZ
1. b
2. c
3. a
4. b
5. d
Appendix to Chapter 1
Applying Graphs to Economics
APPENDIX SUMMARY
In economics, graphs are used as visual aids to illustrate relationships between economic variables. If a relationship exists between two variables, then the relationship is either direct (also known as a positive relationship) or inverse (also known as a negative relationship).
A direct relationship between two variables means that as one variable increases (the independent variable) this causes the other variable (the dependent variable) to also increase in value; and vice versa. A direct relationship is illustrated graphically as an upward sloping, or positively sloped line or curve.
An inverse relationship between two variables means that as one variable increases (the independent variable) this causes the other variable (the dependent variable) to decrease in value; and vice versa. An inverse relationship is illustrated graphically as a downward sloping, or negatively sloped line or curve.
An independent relationship means there is no relationship between two variables. This is expressed graphically as a horizontal line.
A shift in a curve (or line) occurs when the ceteris paribus assumption is relaxed and a third variable not on either axis of the graph is allowed to change.
NEW CONCEPTS INTRODUCED
direct relationship slope
inverse relationship independent relationship
INSTRUCTIONAL OBJECTIVES
After completing this appendix, students should be able to:
1. Know what a direct relationship is and how it is reflected graphically.
2. Know what an inverse relationship is and how it is reflected graphically.
APPENDIX TO CHAPTER 1 OUTLINE
I. A Direct Relationship
Exhibit A-1 "A Direct Relationship Between Variables"
II. An Inverse Relationship
Exhibit A-2 "An Inverse Relationship Between Variables"
III. The Slope of a Straight Line
IV. The Slope of a Curve
Exhibit A-3 "An Independent Relationship Between Variables"
Exhibit A-4 "The Slope of an Upward-Sloping Curve"
Exhibit A-5 "The Slope of a Downward-Sloping Curve"
V. A Three-Variable Relationship in One Graph
Exhibit A-6 "Changes in Price, Quantity, and Income in Two Dimensions"
VI. A Helpful Study Hint Using Graphs
VII. List of Key Concepts
VIII. Summary
IX. Summary of Conclusion Statements
a. A shift in a curve occurs only when the ceteris paribus assumption is relaxed and a third variable not on either axis of the graph is allowed to change.
X. Study Questions and Problems
XI. Practice Quiz
HINTS FOR EFFECTIVE TEACHING
1. Stress the limitations of theory---especially association versus causation. Just because two things happen to occur together doesn't mean one necessarily causes the other. For example, the rooster may think his crowing is causing the sun to rise but we know better.
2. Providing a solid understanding of graphs will avoid many problems later. Point out that the dependent variable goes on the "Y" or vertical axis. The independent variable goes on the "X" or horizontal axis. A direct (also known as a positive) relationship is always expressed as a positively sloped line or curve. An inverse (negative) relationship always has a negative slope. Take several examples from outside the world of economics and ask students how they would be graphed (see "Critical Thinking/Group Discussion Question" # 6 below).
CRITICAL THINKING /GROUP DISCUSSION QUESTIONS
1. What is the relationship between the annual sale of umbrellas and the annual amount of rainfall received in inches. How would this relationship be graphed?
Direct relationship. The line or curve slopes upward (positive slope). The variable "annual sale of umbrellas" would be placed on the vertical axis (or "Y" axis) because it is the dependent variable while the variable "annual amount of rainfall received in inches" would be placed on the horizontal (or "X" axis) because it is the independent variable.
2. What is the relationship between a student's grade point average and the number of hours spent studying per week. How would this relationship be graphed?
Direct relationship. The line or curve slopes upward (positive slope). The variable "grade point average" would be placed on the vertical axis (or "Y" axis) because it is the dependent variable while the variable "hours spent studying per week" would be placed on the horizontal (or "X" axis) because it is the independent variable.
3. What is the relationship between tuition and student enrollment at a university. How would this relationship be graphed?
Chapter 2—Production Possibilities, Opportunity Cost, and Economic Growth
MULTIPLE CHOICE
1. Which of the following correctly lists the three fundamental economic questions?
a.
|
If to produce? Why to produce? When to produce?
|
b.
|
If to produce? What to produce? How to produce?
|
c.
|
Why to produce? What to produce? How to produce?
|
d.
|
What to produce? How to produce? For whom to produce?
|
ANS: D PTS: 1 DIF: Easy REF: Full: 35 | Mic: 35
TOP: Three economic questions TYP: RE
2. Three basic decisions must be made by all economies. What are they?
a.
|
How much will be produced, when it will be produced, and how much it will cost.
|
b.
|
What the price of each good will be, who will produce each good, and who will consume each good.
|
c.
|
What will be produced, how goods will be produced, and for whom goods will be produced.
|
d.
|
How the opportunity cost principle will be applied, if and how the law of comparative advantage will be utilized, and whether the production possibilities constraint will apply.
|
ANS: C PTS: 1 DIF: Easy REF: Full: 35 | Mic: 35
TOP: Three economic questions TYP: RE
3. Because of the problem of scarcity, each economic system must make which of the following choices?
a.
|
How to produce?
|
b.
|
What to produce?
|
c.
|
For whom to produce?
|
d.
|
All of these.
|
ANS: D PTS: 1 DIF: Easy REF: Full: 35 | Mic: 35
TOP: Three economic questions TYP: RE
4. Which fundamental economic question is most closely related to the issues of income distribution and poverty?
a.
|
The What to Produce question.
|
b.
|
The Why to Produce question.
|
c.
|
The How to Produce question.
|
d.
|
The For Whom to Produce question.
|
ANS: D PTS: 1 DIF: Medium REF: Full: 35 | Mic: 35
TOP: Three economic questions TYP: RE
5. Which fundamental economic question requires society to choose the technological and resource mix used to produce goods?
a.
|
The What to Produce question.
|
b.
|
The Why to Produce question.
|
c.
|
The How to Produce question.
|
d.
|
The For Whom to Produce question.
|
ANS: C PTS: 1 DIF: Medium REF: Full: 35 | Mic: 35
TOP: Three economic questions TYP: RE
6. The opportunity cost of an action is:
a.
|
the monetary payment the action required.
|
b.
|
the total time spent by all parties in carrying out the action.
|
c.
|
the value of the best opportunity that must be sacrificed in order to take the action.
|
d.
|
the cost of all alternative actions that could have been taken, added together.
|
ANS: C PTS: 1 DIF: Medium REF: Full: 36 | Mic: 36
TOP: Opportunity cost TYP: SA
7. The highest valued alternative that must be given up in order to choose an option is called the:
a.
|
opportunity cost.
|
b.
|
utility cost.
|
c.
|
scarcity expense.
|
d.
|
disutility option.
|
ANS: A PTS: 1 DIF: Easy REF: Full: 36 | Mic: 36
TOP: Opportunity cost TYP: RE
8. Which of the following sayings best reflects the concept of opportunity cost?
a.
|
"You can't teach an old dog new tricks."
|
b.
|
"There is no such thing as a free lunch."
|
c.
|
"I have a baker's dozen."
|
d.
|
"There's no business like show business."
|
ANS: B PTS: 1 DIF: Medium REF: Full: 36 | Mic: 36
TOP: Opportunity cost TYP: SA
9. The opportunity cost to a city for using local tax revenues to construct a new park is the:
a.
|
best alternative foregone by building the park.
|
b.
|
dollar cost of constructing the new park.
|
c.
|
dollar cost of the old park.
|
d.
|
increased taxes necessary to pay for maintenance of the new park.
|
ANS: A PTS: 1 DIF: Easy REF: Full: 36 | Mic: 36
TOP: Opportunity cost TYP: SA
10. A good or service that is forgone by choosing one alternative over another is called a(n):
a.
|
explicit cost.
|
b.
|
opportunity cost.
|
c.
|
historical cost.
|
d.
|
accounting cost.
|
ANS: B PTS: 1 DIF: Easy REF: Full: 36 | Mic: 36
TOP: Opportunity cost TYP: RE
11. Opportunity cost is the:
a.
|
cost incurred when one fails to take advantage of an opportunity.
|
b.
|
price paid for goods and services.
|
c.
|
cost of the best option forgone as a result of choosing an alternative option.
|
d.
|
undesirable aspects of an option.
|
ANS: C PTS: 1 DIF: Easy REF: Full: 36 | Mic: 36
TOP: Opportunity cost TYP: RE
12. The opportunity cost of a purchase is:
a.
|
the selling price of the good or service.
|
b.
|
zero if the good or service satisfies a need.
|
c.
|
greater for persons who are rich.
|
d.
|
the good or service given up for the good or service purchased.
|
ANS: D PTS: 1 DIF: Easy REF: Full: 36 | Mic: 36
TOP: Opportunity cost TYP: SA
13. The opportunity cost of watching television is:
a.
|
all of the alternative programs that appear on other stations.
|
b.
|
zero because there is no money expenditure involved.
|
c.
|
the alternative use of the time foregone by watching the program.
|
d.
|
zero if it benefits you.
|
ANS: C PTS: 1 DIF: Easy REF: Full: 36 | Mic: 36
TOP: Opportunity cost TYP: RE
14. Which of the following does not illustrate opportunity cost?
a.
|
If I study, I must give up going to the football game.
|
b.
|
If I buy a computer, I must do without a 35" television.
|
c.
|
More consumer spending now means more spending in the future.
|
d.
|
If I spend more on clothes, I must spend less on food.
|
ANS: C PTS: 1 DIF: Easy REF: Full: 36 | Mic: 36
TOP: Opportunity cost TYP: SA
15. Which of the following does not illustrate opportunity cost?
a.
|
If I study, I must give up going to the football game.
|
b.
|
If I buy a computer, I must do without a 35" television.
|
c.
|
If I spend more on clothes, I must spend less on food.
|
d.
|
All of these illustrate opportunity cost.
|
ANS: D PTS: 1 DIF: Easy REF: Full: 36 | Mic: 36
TOP: Opportunity cost TYP: SA
16. The opportunity cost of an economic decision is:
a.
|
the best alternative that was sacrificed.
|
b.
|
the amount of money needed to implement the decision.
|
c.
|
any land, labor, and capital that are wasted.
|
d.
|
all options that were lost due to scarcity.
|
ANS: A PTS: 1 DIF: Easy REF: Full: 36 | Mic: 36
TOP: Opportunity cost TYP: RE
17. Bill has $10 to spend on a Superman, Batman, or an X-Men T-shirt. Bill buys the Superman T-shirt and the Batman shirt was a close second choice. What is the opportunity cost?
a.
|
The amount he spent, $10.
|
b.
|
Nothing, since he got his preferred choice.
|
c.
|
The Batman T-shirt.
|
d.
|
The X-Men T-shirt.
|
ANS: C PTS: 1 DIF: Medium REF: Full: 36 | Mic: 36
TOP: Opportunity cost TYP: SA
18. On a production possibilities curve, the opportunity cost of good X, in terms of good Y, is represented by the:
a.
|
distance to the curve from the vertical axis.
|
b.
|
distance to the curve from the horizontal axis.
|
c.
|
movement along the curve.
|
d.
|
all of these.
|
ANS: C PTS: 1 DIF: Medium REF: Full: 36 | Mic: 36
TOP: Opportunity cost TYP: SA
19. Which of the following statements is true?
a.
|
An opportunity cost is what must be given up in order to get something else.
|
b.
|
The three fundamental economic questions refer to What to produce? How to produce? and When to produce?
|
c.
|
The term "investment" refers to the purchase of stocks and bonds and other financial securities.
|
d.
|
The law of increasing opportunity cost implies that as production of one type of good is expanded then fewer and fewer of other goods must be given up.
|
ANS: A PTS: 1 DIF: Easy REF: Full: 36 | Mic: 36
TOP: Opportunity cost TYP: RE
20. The amount of a good that must be given up to produce another good is the concept of:
a.
|
scarcity.
|
b.
|
specialization.
|
c.
|
trade.
|
d.
|
efficiency.
|
e.
|
opportunity cost.
|
ANS: E PTS: 1 DIF: Easy REF: Full: 36 | Mic: 36
TOP: Opportunity cost TYP: RE
21. The opportunity cost of an activity means the:
a.
|
amount of money the activity costs.
|
b.
|
number of hours that is required to engage in this activity.
|
c.
|
expected gains by engaging in the activity.
|
d.
|
amount of other things that must be sacrificed in order to engage in the activity.
|
e.
|
expected gains minus the expected costs of engaging in the activity.
|
ANS: D PTS: 1 DIF: Medium REF: Full: 36 | Mic: 36
TOP: Opportunity cost TYP: RE
22. In the context of the production possibilities curve, opportunity cost is measured in:
a.
|
dollars paid for the goods.
|
b.
|
the quantity of other goods given up.
|
c.
|
the value of the resources used.
|
d.
|
changing technology.
|
e.
|
units of satisfaction.
|
ANS: B PTS: 1 DIF: Medium REF: Full: 36 | Mic: 36
TOP: Opportunity cost TYP: SA
23. Mikki decides to work five hours the night before her economics exam. She earns an extra $75, but her exam score is 10 points lower than it would have been had she stayed home and studied. Her opportunity cost is the:
a.
|
five hours she worked.
|
b.
|
$75 she earned.
|
c.
|
10 points she lost on her exam.
|
d.
|
time she could have spent watching television.
|
e.
|
guilt she feels about neglecting her economics studies.
|
ANS: C PTS: 1 DIF: Medium REF: Full: 36 | Mic: 36
TOP: Opportunity cost TYP: SA
24. When the opportunity cost of producing carrots increases as more carrots are produced, then:
a.
|
no more carrots will be produced.
|
b.
|
resources are equally suited to the production of carrots and to other goods.
|
c.
|
the production possibilities curve is a straight line.
|
d.
|
the production possibilities curve becomes positively sloped.
|
e.
|
the law of increasing costs is present.
|
ANS: E PTS: 1 DIF: Difficult REF: Full: 36 | Mic: 36
TOP: Opportunity cost TYP: CA
25. The opportunity cost of your college education is:
a.
|
c and d.
|
b.
|
d and e.
|
c.
|
the actual dollar cost of your college education.
|
d.
|
your best alternative use of the money you spend for a college education.
|
e.
|
money you could have earned working instead of going to college.
|
ANS: B PTS: 1 DIF: Medium REF: Full: 36 | Mic: 36
TOP: Opportunity cost TYP: SA
26. The law of increasing costs indicates that the opportunity cost of producing a good:
a.
|
is proportional to the production of the good.
|
b.
|
is constant to the production of the good.
|
c.
|
increases as more of the good is produced.
|
d.
|
decreases as more of the good is produced.
|
e.
|
increases as less of the good is produced.
|
ANS: C PTS: 1 DIF: Medium REF: Full: 36 | Mic: 36
TOP: Opportunity cost TYP: CA
27. The amount of a good that is given up to produce another good is:
a.
|
its dollar cost.
|
b.
|
its opportunity cost.
|
c.
|
its relative cost.
|
d.
|
its absolute cost.
|
e.
|
all of these.
|
ANS: B PTS: 1 DIF: Easy REF: Full: 36 | Mic: 36
TOP: Opportunity cost TYP: RE
Exhibit 2-1 Production possibilities curve data
Consumption
Goods
|
Capital
Goods
|
10
|
0
|
9
|
1
|
7
|
2
|
4
|
3
|
0
|
4
|
28. In Exhibit 2-1, according to the information, the opportunity cost of producing 3 units of capital is:
a.
|
3 units of consumption goods.
|
b.
|
4 units of consumption goods.
|
c.
|
6 units of consumption goods.
|
d.
|
7 units of consumption goods.
|
ANS: A PTS: 1 DIF: Medium REF: Full: 36 | Mic: 36
TOP: Opportunity cost TYP: SA
29. In Exhibit 2-1, the opportunity cost of producing the fourth unit of capital is:
a.
|
0.
|
b.
|
1 unit of consumption goods.
|
c.
|
2 units of consumption goods.
|
d.
|
4 units of consumption goods.
|
e.
|
there is not enough information to estimate the opportunity cost.
|
ANS: D PTS: 1 DIF: Medium REF: Full: 36 | Mic: 36
TOP: Opportunity cost TYP: SA
Exhibit 2-2 Production possibilities curve
30. The production possibilities in Exhibit 2-2 indicates that the opportunity cost of corn is:
a.
|
increasing.
|
b.
|
decreasing.
|
c.
|
zero.
|
d.
|
constant.
|
e.
|
indeterminate.
|
ANS: D PTS: 1 DIF: Difficult REF: Full: 36 | Mic: 36
TOP: Opportunity cost TYP: CA
31. In Exhibit 2-2, the slope of the production possibilities curve indicates that the opportunity cost of:
a.
|
coffee is constant.
|
b.
|
coffee is increasing.
|
c.
|
coffee is decreasing.
|
d.
|
corn is increasing.
|
e.
|
corn is decreasing,
|
ANS: A PTS: 1 DIF: Difficult REF: Full: 36 | Mic: 36
TOP: Opportunity cost TYP: CA
32. In Exhibit 2-2, the opportunity cost of coffee when moving from A to B is:
a.
|
2 million bushels of corn.
|
b.
|
6 million bushels of corn.
|
c.
|
8 million bushels of corn.
|
d.
|
14 million bushels of corn.
|
e.
|
it is not possible to determine.
|
ANS: A PTS: 1 DIF: Medium REF: Full: 36 | Mic: 36
TOP: Opportunity cost TYP: SA
33. In Exhibit 2-2, the opportunity cost of coffee when moving from A to B is:
a.
|
the same as moving from A to C.
|
b.
|
the same as moving from A to D.
|
c.
|
the same as moving from B to D.
|
d.
|
the same as moving from B to C.
|
e.
|
it is not possible to determine.
|
ANS: D PTS: 1 DIF: Difficult REF: Full: 36 | Mic: 36
TOP: Opportunity cost TYP: CA
34. A farmer is deciding whether or not to add fertilizer to his or her crops. If the farmer adds 1 pound of fertilizer per acre, the value of the resulting crops rises from $80 to $100 per acre. According to marginal analysis, the farmer should add fertilizer if it costs less than:
a.
|
$12.50 per pound.
|
b.
|
$20 per pound.
|
c.
|
$80 per pound.
|
d.
|
$100 per pound.
|
ANS: B PTS: 1 DIF: Medium REF: Full: 37 | Mic: 37
TOP: Marginal analysis TYP: SA
35. In economics, the term marginal refers to:
a.
|
the change or difference from a current situation.
|
b.
|
man-made resources as opposed to natural resources.
|
c.
|
the satisfaction a consumer receives from a good.
|
d.
|
holding everything else constant in the analysis.
|
ANS: A PTS: 1 DIF: Easy REF: Full: 37 | Mic: 37
TOP: Marginal analysis TYP: RE
36. When deciding whether to buy a second car, marginal analysis indicates that the purchaser should compare the:
a.
|
benefits expected from two cars with the cost of both.
|
b.
|
additional benefits expected from a second car with the cost of the two cars.
|
c.
|
dollar cost of the two cars with the potential income that the cars will generate.
|
d.
|
additional benefits of the second car with the additional cost of the second car.
|
ANS: D PTS: 1 DIF: Difficult REF: Full: 37 | Mic: 37
TOP: Marginal analysis TYP: CA
37. While waiting in line to buy two tacos at 80 cents each and a medium drink for 90 cents, Jordan notices that the restaurant has a value meal containing three tacos and a medium drink all for $3. For Jordan, the marginal cost of the third taco would be:
a.
|
zero.
|
b.
|
50 cents.
|
c.
|
80 cents.
|
d.
|
$1.
|
ANS: B PTS: 1 DIF: Difficult REF: Full: 37 | Mic: 37
TOP: Marginal analysis TYP: CA
38. While waiting in line to buy a cheeseburger for $2 and a drink for 75 cents, Aaron notices that the restaurant has a value meal containing a cheeseburger, drink, and French fries for $3. For Aaron, the marginal cost of purchasing the French fries:
a.
|
would be zero.
|
b.
|
would be 25 cents.
|
c.
|
would be 50 cents.
|
d.
|
cannot be determined because the information about the price of the French fries is not provided.
|
ANS: B PTS: 1 DIF: Difficult REF: Full: 37 | Mic: 37
TOP: Marginal analysis TYP: CA
39. While waiting in line to buy one cheeseburger for $1.50 and a medium drink for $1.00, Sally notices that she could get a value meal that contains both the cheeseburger and medium drink and also a medium order of fries for $2.75. She thinks to herself, "Is it worth the extra 25 cents to get the medium fries?" To an economist, Sally's decision is an example of:
a.
|
marginal analysis.
|
b.
|
basing decisions on total, rather than marginal, value.
|
c.
|
an unintended consequence.
|
d.
|
the fallacy of composition.
|
ANS: A PTS: 1 DIF: Medium REF: Full: 37 | Mic: 37
TOP: Marginal analysis TYP: SA
40. Just before class, Jim tells Stuart, "Stuart, you shouldn't skip class today because you have paid tuition to enroll in the class." Stuart ignores Jim's advice, and instead makes the decision of whether to attend based on the importance to his grade that he feels he'd be missing that day in class relative to his value of the extra time he could have to finish the video game he is playing. To an economist, Stuart is:
a.
|
using marginal analysis.
|
b.
|
ignoring the total value of attending class.
|
c.
|
ignoring the concept of opportunity cost.
|
d.
|
irresponsible.
|
ANS: A PTS: 1 DIF: Difficult REF: Full: 37 | Mic: 37
TOP: Marginal analysis TYP: CA
41. Susan wishes to buy gasoline and have her car washed. She finds that if she buys 9 gallons of gasoline at $1.50 per gallon, the car wash costs $1, but if she buys 10 gallons of gasoline, the car wash is free. For Susan, the marginal cost of the tenth gallon of gasoline is:
a.
|
zero.
|
b.
|
50 cents.
|
c.
|
$1.
|
d.
|
$1.50.
|
ANS: B PTS: 1 DIF: Difficult REF: Full: 37 | Mic: 37
TOP: Marginal analysis TYP: CA
42. Ralph wants to buy some milk and a box of cereal. If Ralph buys 2 quarts of milk at $1 per quart, the box of cereal costs 75 cents. If he buys 3 quarts of milk at $1 per quart, the box of cereal is free. For Ralph, the marginal cost of the third quart of milk is:
a.
|
zero.
|
b.
|
25 cents.
|
c.
|
75 cents.
|
d.
|
$1.
|
ANS: B PTS: 1 DIF: Difficult REF: Full: 37 | Mic: 37
TOP: Marginal analysis TYP: CA
43. A local restaurant offers an "all you can eat" Sunday brunch for $12. Susan eats four servings, but leaves half of a fifth helping uneaten. Why?
a.
|
Her marginal value of a serving of brunch has fallen below $12.
|
b.
|
Her marginal value of a serving has fallen below $2.36 ($12 divided by 5 servings).
|
c.
|
Her marginal value of food has fallen to zero.
|
d.
|
The total value she places on brunch today exactly equals $12.
|
ANS: C PTS: 1 DIF: Difficult REF: Full: 37 | Mic: 37
TOP: Marginal analysis TYP: CA
44. According to marginal analysis, you should spend more time studying economics if the extra benefit from an additional hour of study:
a.
|
is positive.
|
b.
|
outweighs the extra cost.
|
c.
|
exceeds the benefits of the previous hour of study.
|
d.
|
will raise your exam score.
|
ANS: B PTS: 1 DIF: Easy REF: Full: 37 | Mic: 37
TOP: Marginal analysis TYP: RE
45. If an economy is operating at a point inside the production possibilities curve,
a.
|
its resources are not being used efficiently.
|
b.
|
the curve will begin to shift inward.
|
c.
|
the curve will begin to shift outward.
|
d.
|
This is a trick question because an economy cannot produce at a point inside the curve.
|
ANS: A PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: SA
46. Which of the following most accurately indicates the implications of an economy's production possibilities curve?
a.
|
If all the resources of an economy are being used efficiently, more of one good can be produced only if less of another good is produced.
|
b.
|
If all the resources of an economy are being used efficiently, it is generally possible to produce more of one good without having to sacrifice the production of other goods.
|
c.
|
Over time, it is generally impossible for a country to expand its production of goods.
|
d.
|
An economy will automatically move toward a point that lies outside of the production possibilities constraint unless proper government policy constrains production.
|
ANS: A PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: SA
47. Which of the following is true of the production possibilities curve?
a.
|
It assumes a fixed level of technology.
|
b.
|
It assumes resources are fixed.
|
c.
|
It assumes resources are fully employed.
|
d.
|
All of these are correct.
|
ANS: D PTS: 1 DIF: Easy REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: RE
48. After the terrorist attacks on September 11, 2001, the United States began devoting substantial resources toward the War on Terrorism, homeland security, and relief efforts. As long as our resources were being used efficiently, the production possibilities curve would suggest that:
a.
|
we will have to give up the production of other goods that could have been produced with these resources.
|
b.
|
we will be able to produce the same amount of other goods as before.
|
c.
|
the military spending will result in an outward shift in the production possibilities curve but that the relief effort will result in an offsetting inward shift.
|
d.
|
we will be unable to devote the resources necessary toward these efforts unless there is an improvement in technology.
|
ANS: A PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: SA
49. A point outside the production possibilities curve represents a combination of goods that is:
a.
|
inefficient.
|
b.
|
efficient.
|
c.
|
unattainable.
|
d.
|
attainable.
|
ANS: C PTS: 1 DIF: Easy REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: RE
50. Which of the following will be most likely to cause the production possibilities curve for a country to shift inward?
a.
|
an increase in the labor force
|
b.
|
an increase in unemployment
|
c.
|
development of an improved technological method of production
|
d.
|
a decrease in the stock of physical capital
|
ANS: D PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: SA
51. In Europe during the 14th century, the Black Plague killed 24 million people or close to 37 percent of the population. How would this affect the production possibilities curves for the countries of Europe at that time?
a.
|
The production possibilities curves for these countries would have shifted outward.
|
b.
|
The production possibilities curves for these countries would have shifted inward.
|
c.
|
The production possibilities curves for these countries would have been unaffected.
|
d.
|
This would have been illustrated by a movement along the production possibilities curves for these countries, but it would not have shifted them.
|
ANS: B PTS: 1 DIF: Easy REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: SA
52. Which of the following would be least likely to cause the production possibilities curve to shift outward?
a.
|
a decreased desire for leisure by workers in the economy.
|
b.
|
an invention that requires fewer resources to produce a good.
|
c.
|
a shift in consumer preferences that causes expansion in the output of one product and a decline in output of other products.
|
d.
|
an expansion in the man-made productive resources available to the economy as the result of a high rate of investment.
|
ANS: C PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: CA
53. Using a production possibilities curve, a technological advance that increases the amount of output for the same amount of inputs would be illustrated as a(n):
a.
|
flattening of the curve.
|
b.
|
movement from one point to another point along the curve.
|
c.
|
outward shift of the curve.
|
d.
|
movement from a point on the curve to a point inside the curve.
|
ANS: C PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: CA
54. The production possibilities curve shows that:
a.
|
some of one good must be given up to get more of another good in an economy that is operating efficiently.
|
b.
|
no output combination is impossible.
|
c.
|
an economy that is operating efficiently can have more of one good without giving up some of another good.
|
d.
|
scarcity can be eliminated.
|
ANS: A PTS: 1 DIF: Easy REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: RE
55. Any point on the production possibilities curve illustrates:
a.
|
minimum production combinations.
|
b.
|
maximum production combinations.
|
c.
|
economic growth.
|
d.
|
a nonfeasible production combination.
|
ANS: B PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: SA
56. Production possibilities curve analysis includes the idea of:
a.
|
opportunity cost.
|
b.
|
scarcity.
|
c.
|
maximum production choices.
|
d.
|
all of these.
|
ANS: D PTS: 1 DIF: Easy REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: RE
57. An efficient economy:
a.
|
uses available resources fully.
|
b.
|
uses the best division of labor.
|
c.
|
produces an output combination at some point along the production possibility curve.
|
d.
|
all of these.
|
ANS: D PTS: 1 DIF: Easy REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: SA
58. A production possibility graph slopes down because of:
a.
|
the law of increasing costs.
|
b.
|
nonhomogeneous resources.
|
c.
|
inefficiency.
|
d.
|
improper output mix.
|
e.
|
unemployment.
|
ANS: B PTS: 1 DIF: Difficult REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: CA
59. The production possibility curve is bowed outward from the origin because of:
a.
|
the law of increasing opportunity costs.
|
b.
|
the finite nature of the resource base.
|
c.
|
inefficiency.
|
d.
|
improper output mix.
|
e.
|
unemployment.
|
ANS: A PTS: 1 DIF: Difficult REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: CA
60. The production possibilities curve demonstrates the basic economic principle that:
a.
|
market-based economies are more efficient.
|
b.
|
supply will determine demand in the economy.
|
c.
|
the production of more capital goods this year will cause the economy to produce less consumption goods next year.
|
d.
|
to produce more of any one thing, assuming full employment, the economy must produce less of something else.
|
e.
|
to produce more consumption goods this year requires the production of more capital goods this year.
|
ANS: D PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: SA
61. A production possibilities curve shows the various:
a.
|
prices that can be charged for capital and consumption goods.
|
b.
|
combinations of prices and outputs that can be produced.
|
c.
|
combinations of goods the economy has the capacity to produce.
|
d.
|
combinations of resources and prices that the economy can produce.
|
ANS: C PTS: 1 DIF: Difficult REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: SA
62. A production possibilities curve has "good X" on the horizontal axis and "good Y" on the vertical axis. On this diagram, the opportunity cost of good X, in terms of good Y, is represented by the:
a.
|
distance to the curve from the horizontal axis.
|
b.
|
distance to the curve from the vertical axis.
|
c.
|
distance from the origin to the curve.
|
d.
|
change in Y for each change in X along the curve.
|
ANS: D PTS: 1 DIF: Difficult REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: SA
63. Of factors which affect any economy's production potential, the best two listed below are:
a.
|
resources and technology.
|
b.
|
prices and outputs.
|
c.
|
wages and prices.
|
d.
|
taxes and prices.
|
e.
|
resources and prices.
|
ANS: A PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: SA
64. The various combinations of goods and services that can be produced, when an economy uses its available resources and technology efficiently, is called:
a.
|
scarcity.
|
b.
|
opportunity cost.
|
c.
|
unlimited production.
|
d.
|
capital accumulation.
|
e.
|
production possibilities.
|
ANS: E PTS: 1 DIF: Difficult REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: CA
65. A production possibilities curve shows the:
a.
|
dollar costs of producing two different goods.
|
b.
|
amounts of labor and capital needed to produce one good.
|
c.
|
various combinations of goods that can be produced.
|
d.
|
prices of different goods that are produced in an economy.
|
e.
|
inefficient use of available resources and technology.
|
ANS: C PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: RE
66. What shape is the production possibilities curve usually expected to exhibit?
a.
|
Upward-sloping.
|
b.
|
Bowed out.
|
c.
|
Bowed in.
|
d.
|
Straight line.
|
e.
|
U-shaped.
|
ANS: B PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: RE
67. When the production possibilities curve is bowed out, resources are:
a.
|
equally well-suited to production of both goods.
|
b.
|
not being used efficiently.
|
c.
|
not equally suited to the production of both types of goods.
|
d.
|
increasing as more of one good is produced.
|
e.
|
of an inferior quality.
|
ANS: C PTS: 1 DIF: Difficult REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: CA
68. When an economy's resources are not fully employed, then it must be true that the:
a.
|
production point is located outside and to the right of the production possibilities curve.
|
b.
|
production point is located along the production possibilities curve.
|
c.
|
production point is located inside and to the left of the production possibilities curve.
|
d.
|
production possibilities curve shifts to the right.
|
e.
|
production possibilities curve shifts to the left.
|
ANS: C PTS: 1 DIF: Difficult REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: CA
69. The production possibilities curve shows different combinations of goods that:
a.
|
can be consumed by households.
|
b.
|
can be consumed by firms.
|
c.
|
can be produced with the available technology.
|
d.
|
are produced and consumed by firms.
|
e.
|
are bought and sold in the market.
|
ANS: C PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: SA
70. The production possibilities curve illustrates all of the following concepts except:
a.
|
the law of increasing costs.
|
b.
|
unlimited wants.
|
c.
|
scarcity.
|
d.
|
opportunity cost.
|
e.
|
availability of resources.
|
ANS: B PTS: 1 DIF: Difficult REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: CA
71. The production possibilities curve depicts the various combinations of two goods that can be:
a.
|
interchanged among two countries.
|
b.
|
produced with a given technology.
|
c.
|
consumed with a given quantity of resources.
|
d.
|
produced with increments in resources and changes in technology.
|
e.
|
consumed as the resources increase.
|
ANS: B PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: SA
72. Efficient production means producing:
a.
|
less than feasible output for a given amount of resources.
|
b.
|
more than feasible output for a given amount of resources.
|
c.
|
the maximum feasible output for a given amount of resources.
|
d.
|
no more than what is needed.
|
e.
|
in excess of what is needed.
|
ANS: C PTS: 1 DIF: Easy REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: SA
73. The law of increasing costs holds that the opportunity cost:
a.
|
of a good decreases as the quantity of the good produced increases.
|
b.
|
of a good is proportional to the resources used in its production.
|
c.
|
of a good increases as more of the good is produced.
|
d.
|
of a good does not change with the resources used its production.
|
e.
|
changes as more of the good is produced.
|
ANS: C PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: CA
74. If an economy is producing at full employment, it means that:
a.
|
there are idle resources in this economy.
|
b.
|
the production is not efficient.
|
c.
|
the economy is producing along its production possibilities curve.
|
d.
|
the economy is producing at a point that is to the left of the production possibilities curve.
|
e.
|
the economy is producing at a point that is to the right of the production possibilities curve.
|
ANS: C PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: CA
75. Which of the following is not true about a production possibilities curve? The curve:
a.
|
indicates the combinations of goods and services that can be produced with given technology.
|
b.
|
indicates the efficient production points.
|
c.
|
indicates the non-efficient production points.
|
d.
|
indicates the feasible (attainable) and non-feasible production points.
|
e.
|
indicates which production point will be chosen.
|
ANS: E PTS: 1 DIF: Difficult REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: CA
76. Which of the following is true about the production possibilities curve when a technological progress occurs? The curve:
a.
|
shifts inwards to the left.
|
b.
|
becomes flatter at one end and steeper at the other end.
|
c.
|
becomes steeper.
|
d.
|
shifts outward to the right.
|
e.
|
does not change.
|
ANS: D PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: SA
77. A point inside a production possibilities curve reflects:
a.
|
the law of increasing costs.
|
b.
|
technological innovation.
|
c.
|
less than full use of resources and technology.
|
d.
|
economic efficiency.
|
e.
|
a way to increase future economic growth.
|
ANS: C PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: SA
78. A point outside a production possibilities curve reflects:
a.
|
efficiency.
|
b.
|
specialization.
|
c.
|
inefficiency.
|
d.
|
unemployment.
|
e.
|
an impossible choice.
|
ANS: E PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: SA
79. Any point inside the production possibility curve is:
a.
|
efficient.
|
b.
|
nonfeasible.
|
c.
|
inefficient.
|
d.
|
optimal.
|
ANS: C PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: SA
80. Using a production possibilities curve, an economy that produces an output combination less than the maximum possible is depicted by a point located:
a.
|
at the top corner of the curve.
|
b.
|
near the middle of the curve.
|
c.
|
at the bottom corner of the curve.
|
d.
|
outside the curve.
|
e.
|
inside the curve.
|
ANS: E PTS: 1 DIF: Easy REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: SA
81. One of the assumptions underlying the production possibilities curve for any given economy is that:
a.
|
the state of technology changes.
|
b.
|
there is an unlimited supply of resources.
|
c.
|
there is full employment of resources when the economy is on the curve.
|
d.
|
goods can be produced outside the curve.
|
ANS: C PTS: 1 DIF: Difficult REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: CA
82. Which of the following would be most likely to cause the production possibilities curve for computers and education to shift outward?
a.
|
A choice of more computers and less education.
|
b.
|
A choice of more education and less computers.
|
c.
|
A reduction in the labor force.
|
d.
|
An increase in the quantity of resources.
|
ANS: D PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: SA
83. Given a production possibilities curve, a point:
a.
|
inside the curve represents unemployment.
|
b.
|
on the curve represents full employment.
|
c.
|
outside the curve is currently unattainable.
|
d.
|
all of these.
|
ANS: D PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: SA
84. All points on the production possibilities curve are:
a.
|
unattainable.
|
b.
|
fair.
|
c.
|
efficient.
|
d.
|
optimal.
|
ANS: C PTS: 1 DIF: Easy REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: RE
85. As production of a good increases, opportunity costs rise because:
a.
|
there will be more inefficiency.
|
b.
|
people always prefer having more goods.
|
c.
|
of inflationary pressures.
|
d.
|
workers are not equally suited to all tasks.
|
ANS: D PTS: 1 DIF: Difficult REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: CA
86. If society leaves some of its resources unemployed, then it will be operating at a point:
a.
|
beneath its production possibilities curve.
|
b.
|
at a corner of its production possibilities curve.
|
c.
|
anywhere along its production possibilities curve.
|
d.
|
outside of its production possibilities curve.
|
ANS: A PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: SA
87. The law of increasing opportunity costs causes the production possibilities curve to:
a.
|
be a straight line.
|
b.
|
slope upwards.
|
c.
|
have a bowed-out shape.
|
d.
|
shift inward.
|
ANS: C PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: SA
88. Along a production possibilities curve showing capital and consumption goods production, which of the following pairs are being held fixed?
a.
|
Unemployment and capital goods production.
|
b.
|
Number of resources and consumption goods production.
|
c.
|
Composition of the economy's output and number of resources.
|
d.
|
Capital and consumption goods production.
|
e.
|
Technology and number of resources.
|
ANS: E PTS: 1 DIF: Difficult REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: CA
Exhibit 2-3 Production possibilities curve data
A
|
B
|
C
|
D
|
E
| |
Capital goods
|
0
|
1
|
2
|
3
|
4
|
Consumer goods
|
20
|
18
|
14
|
8
|
0
|
89. According to the data given in Exhibit 2-3, the production of 1 unit of capital goods and 14 units of consumer goods:
a.
|
is possible but would be inefficient.
|
b.
|
may be a result of unemployment.
|
c.
|
may be a result of unused natural resources.
|
d.
|
all of these.
|
ANS: D PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: CA
Exhibit 2-4 Production possibilities curve data
A
|
B
|
C
|
D
|
E
| |
Capital goods
|
0
|
10
|
20
|
30
|
40
|
Consumer goods
|
200
|
180
|
140
|
80
|
0
|
90. According to the data given in Exhibit 2-4, the production of 140 units of consumer goods and 10 units of capital goods:
a.
|
is possible but would be inefficient.
|
b.
|
may be a result of unemployment.
|
c.
|
may be a result of unused natural resources.
|
d.
|
all of the above.
|
e.
|
none of the above.
|
ANS: D PTS: 1 DIF: Difficult REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: CA
91. According to the data in Exhibit 2-4, a total output of 140 units of consumer goods and 10 units of capital goods would:
a.
|
be unobtainable in this economy.
|
b.
|
be an efficient way of using the economy's scarce resources.
|
c.
|
result in the maximum use of the economy's labor force.
|
d.
|
result in a less than maximum rate of growth for this economy.
|
ANS: D PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: SA
Exhibit 2-5 Production possibilities curve
92. In Exhibit 2-5, movement between which of the following points represents an increase in economic efficiency?
a.
|
A to C.
|
b.
|
C to D.
|
c.
|
D to B.
|
d.
|
A to B.
|
e.
|
A to D.
|
ANS: B PTS: 1 DIF: Difficult REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: CA
Exhibit 2-6 Production possibilities curve data
A
|
B
|
C
|
D
|
E
|
F
| |
Capital goods
|
150
|
140
|
120
|
90
|
50
|
0
|
Consumer goods
|
0
|
20
|
40
|
60
|
80
|
100
|
93. In Exhibit 2-6, the concept of increasing opportunity costs is represented by the fact that:
a.
|
the quantity of capital goods produced must be less than 150.
|
b.
|
the quantity of consumer goods is constant for each change in the quantity of capital goods produced.
|
c.
|
greater amounts of capital goods must be sacrificed to produce each additional unit of consumer goods.
|
d.
|
the amount of consumer goods produced must be greater than zero.
|
ANS: C PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: SA
Exhibit 2-7 Production possibilities curve
94. For the economy shown in Exhibit 2-7, which of the following is true when the economy is at point A?
a.
|
More cars are being produced than are needed.
|
b.
|
There must be resources that are not being used fully.
|
c.
|
Some car production must be forgone in order to produce more grain in the same period.
|
d.
|
Increased grain production would be impossible.
|
ANS: C PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: SA
95. For the economy shown in Exhibit 2-7 to operate at point C, it must:
a.
|
be willing to lower the price of grain.
|
b.
|
use its given resources more efficiently than it would at point A.
|
c.
|
experience resource unemployment.
|
d.
|
experience an increase in its resources and/or an improvement in its technology.
|
ANS: D PTS: 1 DIF: Easy REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: SA
Exhibit 2-8 Production possibilities curve data
A
|
B
|
C
|
D
|
E
|
F
| |
Capital goods
|
15
|
14
|
12
|
9
|
5
|
0
|
Consumer goods
|
0
|
2
|
4
|
6
|
8
|
10
|
96. As shown in Exhibit 2-8, the concept of increasing opportunity costs is reflected in the fact that:
a.
|
the quantity of consumer goods produced can never be zero.
|
b.
|
the labor force in the economy is homogeneous.
|
c.
|
greater amounts of capital goods must be sacrificed to produce an additional 2 units of consumer goods.
|
d.
|
a graph of the production data is a downward-sloping straight line.
|
ANS: C PTS: 1 DIF: Difficult REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: CA
97. As shown in Exhibit 2-8, a total output of 0 units of capital goods and 10 units of consumer goods is:
a.
|
the maximum rate of output for this economy.
|
b.
|
an inefficient way of using the economy's scarce resources.
|
c.
|
the result of maximum use of the economy's labor force.
|
d.
|
unobtainable in this economy.
|
ANS: C PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: SA
98. As shown in Exhibit 2-8, a total output of 14 units of consumer goods and 1 unit of capital goods is:
a.
|
the result of maximum use of the economy's labor force.
|
b.
|
an efficient way of using the economy's scarce resources.
|
c.
|
unobtainable in this economy.
|
d.
|
less than the maximum rate of output for this economy.
|
ANS: D PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: SA
Exhibit 2-9 Production possibilities curve
99. If the economy represented in Exhibit 2-9 is operating at Point W:
a.
|
no tractor product must be forgone to produce more food in the current period.
|
b.
|
resources are not fully used.
|
c.
|
some tractor production must be forgone to produce more food in the current period.
|
d.
|
increased food production would be impossible.
|
ANS: C PTS: 1 DIF: Easy REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: SA
100. Which of the following moves from one point to another in Exhibit 2-9 would represent an increase in economic efficiency?
a.
|
Z to W.
|
b.
|
W to Y.
|
c.
|
W to X.
|
d.
|
X to Y.
|
ANS: D PTS: 1 DIF: Difficult REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: CA
101. Movement along this production possibilities curve shown in Exhibit 2-9 indicates:
a.
|
that labor is not equally productive or homogeneous (nonhomogeneous).
|
b.
|
decreasing opportunity costs.
|
c.
|
all inputs are homogeneous.
|
d.
|
all of these.
|
ANS: A PTS: 1 DIF: Difficult REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: CA
Exhibit 2-10 Production possibilities curve data
A
|
B
|
C
|
D
|
E
| |
Capital goods
|
0
|
1
|
2
|
3
|
4
|
Consumption goods
|
25
|
23
|
19
|
13
|
0
|
102. Suppose an economy is faced with the production possibilities table shown in Exhibit 2-10. If this economy chooses the combination of goods at point A,
a.
|
only capital goods are being produced.
|
b.
|
every resource in the economy is utilized in the production of capital goods.
|
c.
|
no capital goods are being used as factors of production.
|
d.
|
every resource in the economy is being used in the production of consumption goods.
|
e.
|
no consumption goods are being produced.
|
ANS: D PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: SA
103. Suppose an economy is faced with the production possibilities table shown in Exhibit 2-10. The first unit of capital goods will cost the economy ____ units of consumption goods.
a.
|
25
|
b.
|
2
|
c.
|
1
|
d.
|
23
|
e.
|
11
|
ANS: B PTS: 1 DIF: Medium REF: Full: 38 | Mic: 38
TOP: Production possibilities curve TYP: SA
104.
No comments:
Post a Comment