F1.

Choices must be made in the use of resources

a. because they are in finite supply.
b. because they are in finite demand.
c. only if the resources are nonrenewable.
d. because they are in infinite supply.
2. The cost to an airline of letting its employees fly at no charge
a. is zero.
b. will depend on the value employees place upon travel.
c. is greater during the Christmas holidays than at most other times.
d. depends on the alternatives open to the employees.
3. Social security programs are aimed at making the distribution of resources in an economy more
a. efficient.
b. inefficient.
c. equitable.
d. inequitable.
4. The opportunity cost of building an additional parking lot at your school is
a. the cost of concrete, labor, etc. used to build the lot.
b. the value of the property and resources used at their next-best alternative use.
c. the value of the property and resources used at all of their alternative uses.
d. infinite; we cannot estimate it.
5. Suppose you are considering going to the movies, and you place a $12 value on your anticipated
enjoyment of the movie. The ticket price is $6 and you would be giving up two hours of work, where you
earn $5 per hour. You would go to
a. work; the opportunity cost of the movies exceeds the expected benefit.
b. the movies; your incentive is the $6 excess expected benefit.
c. the movies; your enjoyment will exceed the lost wages by $2.
d. the movies; the benefit of $18 exceeds the lost wages.
6. Metro North Railway is trying to decide whether or not to run an additional train into New York City
from New Haven, Connecticut at 8:15 a.m. The total cost of running trains between 8:00 a.m. and 9:00
a.m. is $45,000 and the expected revenues on any given day are $100,000 during this time period. The cost
of running the additional train is $4,000 and it is expected that revenues will rise to $103,500. Metro
North
should
a. run the train because the total revenues are greater than the total costs.
b. run the train because the firm’s revenues will rise.
c. not run the train because the total costs are already too high.
d. not run the train because the marginal cost of $4000 is greater than the marginal revenue of $3,500.
7. A proposed regulation to require infants traveling in airplanes to sit in approved safety seats has never
been adopted. If we think about how people respond to incentives, the most likely reason is that
a. people would switch from flying to driving, so the death rate would rise.
b. the airline industry is a powerful lobby in Washington.
c. it would require every seat in airplanes to be made wider so the infant seats would fit.
d. the airlines threatened to bring a lawsuit against the government.
8. A nation’s standard of living can be increased by
a. improvements in technology and international trade.
b. improvements in technology but not international trade.
c. international trade but not improvements in technology
d. neither international trade nor improvements in technology.
9. In a market economy, the economic well being of society is the responsibility of
a. central planners.
b. central bankers.
c. government policymakers.
d. no one; self-interested individuals bring about the well-being of society.
10. An important element of the market process is that
a. although people trade voluntarily, one party “wins” and the other party “loses.”
b. the government determines the extent of market activity in order for all parties to benefit.
c. people are better off if they are self-sufficient than if they trade with others in the market.
d. people trade voluntarily and all parties expect to benefit.
11. Adam Smith argues in the Wealth of Nations that an economy will produce more goods and services if
a. people act in the public interest than if they act selfishly.
b. people act selfishly, than if the government directs economic activity.
c. the government controls the use of the nation’s scarce resources.
d. people ignore their own interests and contribute to national wealth as a whole.
12. If there is a way to change a situation so that at least some people gain while no one in the economy
loses, the situation is
a. economically inefficient.
b. economically efficient.
c. providing an inequitable distribution of resources to the community.
d. neither equitable nor efficient
13. Assume that there are spillover benefits associated with keeping cars in good mechanical conditions.
Without government intervention (i.e., with a free market), we would expect people to
a. give their cars too much maintenance.
b. stop driving and start walking.
c. subsidize each other’s car maintenance bills.
d. not maintain their cars as much as they should.
14. Suppose that Rebecca throws her soda bottle out the car window and it smashes on the road. Jim
drives over the broken glass and gets a flat tire. Rebecca’s soda consumption has resulted in
a. the production of a public good.
b. an externality.
c. monopoly power for Rebecca.
d. greater efficiency in consumption.
15. The market power that your school’s bookstore has is now limited by
a. new federal antitrust laws.
b. public goods provided by the government.
c. university policies against monopoly power.
d. increased access to other booksellers provided by the internet.
16. The Department of Justice recently brought a suit against Microsoft for
a. generating external costs.
b. generating external benefits.
c. creating excess market power for itself.
d. providing public goods to the marketplace
17. The poor in the United States are disproportionately people who
a. have less than a high school education.
b. have incomes that are essentially nonwage incomes.
c. have families with over five children.
d. live in cities.
18. According to economists who emphasize the connection between productive contribution and
economic reward, a more equal income distribution
a. is fundamental to economic growth.
b. always helps the poor in the long run.
c. creates inefficiency.
d. generates greater productivity.
19. Inflation reduces
a. the price level.
b. employment.
c. the money supply.
d. the purchasing power of money.
20. The inflation rate is the
a. price level.
b. average price of goods and services in an economy.
c. growth rate of the price level.
d. purchasing power of money.
21. What caused the collapse of the German economy after World War I?
a. hyperinflation due to large amounts of currency printed
b. too many returning soldiers taking jobs away from other people
c. low interest rates causing too much investment
d. high business profits and racketeering
22. The long-run relationship between inflation and the growth rate of the money supply
a. is unique to the United States.
b. is a recent phenomenon.
c. is quite different for industrialized countries than for LDCs.
d. exists in a wide variety of countries throughout the world.
24. When we say that prices are “sticky” in the short run, we mean that
a. prices will not change without government intervention.
b. prices change slowly in response to changes in the economy.
c. prices will never change unless resource costs fall.
d. labor unions will not make concessions in the short run.
25. Policymakers can make effective short-term policy actions because
a. prices will immediately respond to changes in the macroeconomy.
b. central banks always accommodate changes in the economy by increasing or decreasing the money supply.
c. prices are sticky so that changes in the economy occur relatively slowly.
d. the Phillips curve is downward sloping
26. An economic model is
a. a mechanical machine that replicates the functioning of the economy.
b. a fully detailed, realistic description of the economy.
c. a simplified representation of some aspect of the economy.
d. a computer program that predicts the future of the economy.
27. The circular-flow diagram illustrates that, in markets for the factors of production,
a. households are sellers, and firms are buyers.
b. households are buyers, and firms are sellers.
c. households and firms are both buyers.
d. households and firms are both sellers.
28. A point inside the production possibilities frontier is
a. efficient but not feasible.
b. feasible but not efficient.
c. both efficient and feasible.
d. neither efficient nor feasible.
1. A simplifying assumption
a. affects the important conclusions of an economic model.
b. increases the level of detail in an economic model.
c. limits the validity of an economic model’s conclusion.
d. eliminates unnecessary details from an economic model.
2. The ultimate purpose of an economic model is to
a. explain reality as completely as possible.
b. establish assumptions that closely resemble reality.
c. help us to understand economic behavior.
d. guide government policy decisions.
3. An economic model
a. uses equations to understand normative economic phenomena.
b. often omits crucial elements.
c. simplifies reality in order to focus on crucial elements.
d. cannot be proven wrong.
3. Which of the following activities would occur in a market for factors of production?
a. Reesa buys a new computer to help balance her personal checkbook.
b. Randy pays a speeding ticket
c. Ian mows his grass.
d. General Motors hires additional workers to run a third-shift at a factory.
4. Which of the following activities would occur in a market for goods and services?
a. Harry mows his grass.
b. General Motors hires additional workers to run a third shift at a factory.
c. Jane bakes pies for Thanksgiving dinner.
d. Dolly buys a ticket to a ball game.
5. The three sources of income for the household are
a. taxes, subsidies from the government, and rent.
b. wages, rent, and profit.
c. wages, rent, and subsidies from the government.
d. wages, rebates, and rent.
6. Households play what role(s) in the circular flow diagram?
a. purchasers of factors of production and sellers of services
b. purchasers of factors of production and sellers of goods
c. purchasers of goods and services only
d. purchasers of goods and services and sellers of factors of production
7. Which of the following is not an assumption that underlies an economy’s production possibilities
frontier?
a. fixed income
b. fixed resources
c. unchanged technology
d. fully employed resources
8. Which of the following would not result in an outward shift of a nation’s production possibilities
frontier?
a. a reduction in the unemployment rate
b. a rise in labor productivity
c. advances in technology
d. an expanding resource base
9. The production possibilities frontier demonstrates the basic economic principle that:
a. economies are always efficient.
b. assuming full employment, supply will always determine demand.
c. assuming full employment, an economy is efficient only when the production of capital goods in a particular
year is greater than the production of consumption goods in that year.
d. assuming full employment, to produce more of any one thing, the economy must produce less of at least one
other good.
10. Suppose an economy has the production possibilities frontier shown in the diagram
and is operating at position A. Which of the statements below is false?
a. This economy could produce more of both capital and consumption goods.
b. This economy is experiencing full employment.
c. This economy could produce more capital goods without decreasing the quantity of consumption goods
produced.
d. This economy could produce more consumption goods without decreasing the quantity of capital goods
produced
11. If the economy shown in the diagram moves from position A to position B, we would know that
a. the rate of unemployment increased.
b. consumption goods production increased, but capital goods production decreased
c. its unemployment decreased, but at the expense of either capital or consumption good production.
d. it has achieved full employment of its resources.
12. Opportunity costs most often increase as you move down a production possibilities frontier because
a. resources are not completely adaptable to alternative uses.
b. factors of production are limited and human wants are unlimited.
c. efficiencies are generated by large-scale production.
d. economic efficiency is only possible in the short run.
13. All points on a production possibilities frontier show the
a. maximum satisfaction that households receive from their purchases of goods.
b. minimum quantities of resources that must be used to produce a given quantity of output.
c. maximum output that society can produce with given resources and technology.
d. minimum output that society can produce with given resources and technology.
14. The branch of economics that is concerned with the overall performance of the economy is called
a. resource economics.
b. contemporary economics.
c. macroeconomics.
d. microeconomics.
15. Which of the following questions would not be of particular interest to a microeconomist?
a. Why do national economies grow?
b. What percentage of consumer income is spent on entertainment?
c. Why do workers prefer the 4-day workweek?
d. What happens to worker productivity when a business shifts to a 4-day workweek?
16. The television network newscaster reports that the national inflation rate in the past year equaled 4
percent. This report is most likely prepared from work done by a(n)
a. microeconomist.
b. normative economist.
c. macroeconomist.
d. social scientist rather than an economist.
17. The Secretary of Labor states that wage rates in the country have risen by 2 percent this past year.
The head of a local labor union states that wage gains should have been higher. The Secretary’s statement
is a __________ economic statement, and the labor head’s statement is a __________economic statement.
a. normative; normative
b. normative; positive
c. positive; normative
d. positive; positive
18. “An increase in interest rates will lower economic growth.” This statement is
a. a positive economic statement.
b. a normative economic statement.
c. untrue in every case.
d. controversial, and so not a valid economic issue.
19. The distinction between positive and normative economics
a. is that positive economics applies only to microeconomic problems.
b. is that normative economics applies only to microeconomic problems
c. explains why economics is not a social science but a natural science.
d. helps us to understand why economists sometimes disagree with one another.
20. Which of the following is most closely associated with positive economics?
a. Determining the impact of government spending on the actual level of total employment.
b. Determining the best level of immigration into a country.
c. Determining whether too many luxury goods are being produced.
d. Determining whether or not the government should reduce poverty.
25. If two variables tend to increase and decrease together, they are
a. positively correlated.
b. negatively correlated.
c. uncorrelated.
d. quasi-correlated
26. The number of rainy days in the year and annual sales of suntan lotion are probably
a. positively correlated.
b. negatively correlated.
c. uncorrelated.
d. quasi-correlated.
27. A student’s course grade and amount of time spent studying for the course are generally
a. positively correlated.
b. negatively correlated.
c. uncorrelated.
d. quasi-correlated
Your opportunity cost of going to a movie is
a. the price of the ticket plus the cost of any soda and popcorn you buy at the theater.
b. the total cash expenditure needed to go to the movie plus the value of your time.
c. zero, as long as you enjoy the movie and consider it a worthwhile use of time and money.
d. the price of the ticket.
A marginal change is one that
a.is not important for public policy.
b. does not influence incentives.
c. makes an outcome inefficient.
d. incrementally alters an existing plan.
All of the following topics fall within the study of microeconomics EXCEPT
a. the impact of cigarette taxes on the smoking behavior of teenagers.
b. the effectiveness of antipoverty programs in reducing homelessness.
c. the role of Microsoft’s market power in the pricing of software.
d. the influence of the government budget deficit on economic growth
Adam Smith’s “invisible hand” refers to
a. the ability of government regulation to benefit consumers, even if the consumers are unaware of the
regulations.
b. the way in which producers or consumers in unregulated markets impose costs on innocent bystanders.
c. the ability of free markets to reach desirable outcomes, despite the self-interest of market participants.
d. the subtle and often hidden methods that businesses use to profit at consumers’ expense.
An economy produces hot dogs and hamburgers. If a discovery of the remarkable health benefits of hot
dogs were to change consumers’ preferences, it would
a. contract the production possibilities frontier.
b. move the economy along the production possibilities frontier.
c. move the economy inside the production possibilities frontier
d. expand the production possibilities frontier.
If a nation has high and persistent inflation, the most likely explanation is
a. unions bargaining for excessively high wages.
b. the central bank creating excessive amounts of money.
c. firms using their monopoly power to enforce excessive price hikes.
d. the government imposing excessive levels of taxation.