NAME :

CLASS :
Eco01H_Revision_Chapter 1
40 Questions DATE :

1. When a society cannot produce all the goods and services people wish to have, it is said that
the economy is experiencing

A scarcity B surpluses

C inefficiencies D inequalities

2. The phenomenon of scarcity stems from the fact that

in most economies, wealthy people

most economies’ production methods are
A B consume disproportionate quantities of
not very good.
goods and services.

governments restrict production of too

C D resources are limited.
many goods and services.

3. Economists use the word equality to describe a situation in which

each member of society has access to

each member of society has the same
A B abundant quantities of goods and
income.
services, regardless of his or her income.

society is getting the maximum benefits

C D society's resources are used efficiently.
from its scarce resources.

4. Efficiency means that

society's goods and services are

society is conserving resources in order to
A B distributed equally among society's
save them for the future.
members.

society's goods and services are

society is getting the maximum benefits
C distributed fairly, though not necessarily D
from its scarce resources.
equally, among society's members.
 5. When computing the opportunity cost of attending a concert you should include

the price you pay for the ticket and the the price you pay for the ticket, but not the
A B
value of your time. value of your time.

the value of your time, but not the price neither the price of the ticket nor the value
C D
you pay for the ticket. of your time.

6. Denise decides to spend three hours working overtime rather than watching a video with
her friends. She earns $10 an hour. Her opportunity cost of working is

the $30 minus the enjoyment she would

A the $30 she earns working. B
have received from watching the video.

nothing, since she would have received

the enjoyment she would have received
C D less than $30 of enjoyment from the
had she watched the video.
video.

7. Making rational decisions "at the margin" means that people

make those decisions that do not impose evaluate how easily a decision can be
A B
a marginal cost reversed if problems arise.

compare the marginal costs and marginal always calculate the dollar costs for each
C D
benefits of each decision. decision.

8. A rational decision maker takes an action only if the

marginal benefit is less than the marginal marginal benefit is greater than the
A B
cost. marginal cost.

average benefit is greater than the marginal benefit is greater than both the
C D
average cost. average cost and the marginal cost.

9. You are considering staying in college another semester so that you can complete a major in
economics. In deciding whether or not to stay you should

compare the total cost of your education

compare the total cost of your education
A B to the benefits of staying one more
to the total benefits of your education.
semester.

compare the cost of staying one more compare the total benefits of your
C semester to the benefits of staying one D education to the cost of staying one more
more semester. semester.

10. In the circular-flow diagram, which of the following is not a factor of production?

A labor B land

C capital D money
11. In a market economy, who makes the decisions that guide most economic activity?

A firms only B households only

C firms and households D Government

12. Which markets are represented in the simple circular-flow diagram?

markets for goods and services and markets for factors of production and
A B
markets for financial assets markets for financial assets

markets for goods and services and markets for goods and services and
C D
markets for factors of production markets for imports and exports

13. The two loops in the circular-flow diagram represent

the flow of dollars and the flow of financial

A the flow of goods and the flow of services. B
assets.

the flow of inputs into production

the flows of inputs and outputs and the
C processes and the flow of outputs from D
flow of dollars.
production processes.

14. Suppose a nation is currently producing at a point inside its production possibilities frontier.
We know that

the nation is not using all available

the nation is producing beyond its
A B resources or is using inferior technology
capacity, so inflation will occur.
or both.

there will be a large opportunity cost if the

the nation is producing an efficient
C D nation tries to increase production of any
combination of goods.
good.

15. An economy’s production of two goods is efficient if

all members of society consume equal the goods are produced using only some
A B
portions of the goods. of society’s available resources.

it is impossible to produce more of one the opportunity cost of producing more of

C D
good without producing less of the other. one good is zero.

16. Which of the following statements is correct about the roles of economists?

Economists are best viewed as policy

A B Economists are best viewed as scientists.
advisers.

In trying to explain the world, economists In trying to explain the world, economists
C are policy advisers; in trying to improve D are scientists; in trying to improve the
the world, they are scientists. world, they are policy advisers.
17. Economists speaking like scientists make

A positive statements. B prescriptive statements.

C claims about how the world should be. D More than one of the above is correct.

18. The most common data for testing economic theories come from

carefully controlled and conducted

A B computer models of economies.
laboratory experiments.

C historical episodes of economic change. D centrally planned economies.

19. Government policies that improve equality usually increase efficiency at the same time.

A TRUE B FALSE

20. If wages for accountants rose, then accountants’ leisure time would have a lower
opportunity cost.

A TRUE B FALSE

21. In most societies, resources are allocated by

A a single central planner. B a small number of central planners.

those firms that use resources to provide the combined actions of millions of
C D
goods and services. households and firms.

22. Which of the following examples does not illustrate the principle represented by the adage,
"There is no such thing as a free lunch"?W

Pete must choose between buying a new

Joe needs to pay his rent and his electric
A B flat screen television and buying his
bill.
textbooks for this semester.

Kevin must decide between studying for

Lisa can spend her money on a new
C his economics exam and working at his D
sweater or a pair of jeans.
part-time job.

23. The principle that "people face tradeoffs" applies to

A individuals. B families.

C societies. D All of the above are correct.

24. Which of the following words and phrases best captures the notion of equality?

A minimum waste B maximum benefit

C sameness D efficiency

25. Suppose your management professor has been offered a corporate job with a 30 percent
pay increase. He has decided to take the job. For him, the marginal

cost of leaving was greater than the benefit of leaving was greater than the
A B
marginal benefit. marginal cost.

benefit of teaching was greater than the

C D All of the above are correct.
marginal cost.

26. Central planning refers to

markets guiding economic activity. Today markets guiding economic activity. Today
A many countries that had this system have B many countries that did not have this
abandoned it. system have implemented it.

government guiding economic activity. government guiding economic activity.

C Today many countries that had this D Today many countries that did not have
system have abandoned it. this system have implemented it.

27. The self-interest of the participants in an economy is guided into promoting general
economic self-interest by

A the invisible hand. B market power.

C government intervention. D oikonomos.

28. An example of an externality is the impact of

the personal income tax on a person's

A bad weather on the income of farmers. B
ability to purchase goods and services.

pollution from a factory on the health of increases in health care costs on the
C D
people in the vicinity of the factory. health of individuals in society.

29. With respect to how economists study the economy, which of the following statements is
most accurate?

Economists study the past, but they do not Economists use “rules of thumb” to predict
A B
try to predict the future. the future.

Economists use controlled experiments in

Economists devise theories, collect data,
C D much the same way that biologists and
and analyze the data to test the theories.
physicists do.
30. Which of the following statements about models is correct?

The more details a model includes, the

A B Models assume away irrelevant details.
better the model.

Models cannot be used to explain how the Models cannot be used to make
C D
economy functions. predictions.

31. Which of the following is not correct about most economic models?

They are composed of equations and They contribute very little to economists’
A B
diagrams. understanding of the real world.

They omit many features of the real-world In constructing models, economists make
C D
economy. assumptions.

32. In economics, capital refers to

the finances necessary for firms to buildings and machines used in the
A B
produce their products. production process.

the money households use to purchase

C D stocks and bonds.
firms' output.

33. In the simple circular-flow diagram, households

A are the only decision makers. B own the factors of production.

consume only some of the goods and

C are buyers of inputs. D
services that firms produce.

34. In the simple circular-flow diagram,

households buy all the goods and services

A households own the factors of production. B
that firms produce.

land, labor, and capital flow from

C D All of the above are correct.
households to firms.

35. In the circular-flow diagram, which of the following items flows from households to firms
through the markets for the factors of production?

A goods and services B land, labor, and capital

C dollars spent on goods and services D wages, rent, and profit

36. A production possibilities frontier can shift outward if

government increases the amount of

A B there is a technological improvement.
money in the economy.

resources are shifted from the production the economy abandons inefficient
C of one good to the production of the other D production methods in favor of efficient
good. production methods.

37. Which of the following would likely be studied by a microeconomist rather than a
macroeconomist?

the effect of foreign direct investment on the effect of a sales tax on the cigarette
A B
economic growth industry

the effect of an investment tax credit on the effect of a war on government

C D
the economy’s capital stock spending

38. A microeconomist — as opposed to a macroeconomist — might study

the effect of borrowing by the federal the effect of rising oil prices on
A B
government on the inflation rate. employment in the airline industry.

changes in the nation’s unemployment alternative policies to promote higher

C D
rate over short periods of time. living standards throughout the nation.

39. Economists view positive statements as

affirmative, justifying existing economic optimistic, putting the best possible

A B
policy. interpretation on things.

descriptive, making a claim about how the prescriptive, making a claim about how
C D
world is. the world ought to be.

40. Economists view normative statements as

prescriptive, making a claim about how descriptive, making a claim about how the
A B
the world ought to be. world is.

statements about the normal condition of pessimistic, putting the worst possible
C D
the world. interpretation on things.
Answer Key

1.a 2.d 3.a 4.d

5.a 6.c 7.c 8.b

9.c 10.d 11.c 12.c

13.d 14.b 15.c 16.d

17.a 18.c 19.b 20.b

21.d 22.a 23.d 24.c

25.b 26.c 27.a 28.c

29.c 30.b 31.b 32.b

33.b 34.d 35.b 36.b

37.b 38.b 39.c 40.a