Test #1

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Test #1

Multiple Choice

Identify the letter of the choice that best completes the statement or answers the question.

The word that comes from the Greek word for "one who manages a household" is

a.	market.
b.	consumer.
c.	producer.
d.	economy.

Which of the following goods best meets the definition of scarcity?

a.	air
b.	water in the ocean
c.	water in a city
d.	wood in a forest

Economists study all of the following EXCEPT

a.	how people make decisions.
b.	how people interact with one another.
c.	the forces and trends that affect the economy as a whole.
d.	how societies change over time.

Which of the following is true?

a.	Efficiency refers to the size of the economic pie; equity refers to how the pie is divided.
b.	Fortunately, government policies are designed to promote both equity and efficiency.
c.	As long as the economic pie continually gets larger, no one will have to go hungry.
d.	Efficiency and equity can both be achieved if the economic pie is cut into equal pieces.

When the government redistributes income from the rich to the poor,

a.	efficiency is improved, but equity is not.
b.	both rich people and poor people benefit directly.
c.	people work less and produce fewer goods and services.
d.	rich people consume fewer goods, but poor people consume more goods, resulting in no real change.

What you give up to obtain an item is called your

a.	opportunity cost.
b.	explicit cost.
c.	true cost.
d.	direct cost.

People make decisions at the margin by

a.	following tradition.
b.	experience.
c.	calculating dollar costs.
d.	comparing costs and benefits.

Trade can benefit a family

a.	by allowing the family to buy a greater variety of goods and services at a lower cost.
b.	by allowing each person to specialize in the activities he or she does best.
c.	only if the family is not in economic competition with other families.
d.	All of the above are correct.
e.	Both a and b are correct.

Taxes adversely affect the allocation of resources in society because

a.	they do not always fall more heavily on the rich.
b.	the taxes collected are not enough to finance government spending.
c.	not everyone pays taxes.
d.	they distort prices and thus the decisions of households and firms.

10.

Which of these consumption activities will most likely impose an external cost?

a.	An executive plays a vigorous game of golf.
b.	A student in a dorm plays her CDs at 120 decibels late at night.
c.	A young mother exercises to an aerobics video.
d.	A construction worker eats a sandwich during his lunch break.

11.

If a sawmill creates too much air pollution,

a.	interference by the government will surely make the matter worse.
b.	a sense of social responsibility will cause the owners of the mill to reduce pollution.
c.	the government can raise economic well-being by providing health care to those affected by the pollution.
d.	the government can raise economic well-being through environmental regulation.

12.

The slow growth of U.S. incomes during the 1970s and 1980s can best be explained by

a.	unstable economic conditions in Eastern Europe.
b.	increased competition from abroad.
c.	a decline in the rate of increase in U.S. productivity.
d.	a strong U.S. dollar abroad, hurting U.S. exports.

13.

The business cycle is the

a.	relationship between unemployment and inflation.
b.	irregular fluctuations in economic activity.
c.	positive relationship between the quantity of money in an economy and inflation.
d.	predictable changes in economic activity due to changes in government spending and taxes.

14.

Terms used by an economist would include

a.	vector spaces and axioms.
b.	torts and venues.
c.	ego and cognitive dissonance.
d.	comparative advantage and elasticity.

15.

Albert Einstein once made the following observation about science:

a.	"The whole of science is nothing more than the refinement of everyday thinking."
b.	"The whole of science is nothing more than an interesting intellectual exercise."
c.	"In order to understand science, one must rely solely on abstraction."
d.	"In order to understand science, one must transcend everyday thinking."

Figure 2-2

16.

Refer to Figure 2-2. The outer loop represents the flow of

a.	goods and services.
b.	spending.
c.	factors of production.
d.	All of the above are correct.

17.

When economists are trying to explain the world they are

a.	scientists.
b.	policy advisors.
c.	in the realm of normative economics.
d.	in over their heads.

18.

The Federal Reserve

a.	designs tax policy.
b.	enforces the nation's antitrust laws.
c.	sets the nation's monetary policy.
d.	analyzes the data on workers.

19.

In 2002, the Bush administration imposed large tariffs to protect domestic

a.	steel producers.
b.	shoe producers.
c.	wine producers.
d.	clothing producers.

Figure 2-9

20.

Refer to Figure 2-9. What would you say about the relationship between coffee and hours without sleep?

a.	The less coffee a person drinks per day, the more time he can go without sleep.
b.	There is no relationship between how much coffee per day a person drinks and how long they can go without sleep.
c.	The more coffee a person drinks per day, the longer he can go without sleep.
d.	The relationship between cups of coffee per day and time without sleep is too unpredictable to consider.

21.

Which of the following statements is true?

a.	Economists are usually allowed to conduct experiments in order to test their theories.
b.	Economics is not a true science because economists are not usually allowed to conduct experiments to test their theories.
c.	Economics is a social science rather than a true science because it cannot employ the scientific method.
d.	Economists are usually not allowed to conduct experiments, and so must rely on natural experiments offered by history.

22.

Two economists, Adam and Joan, are discussing the possibility of substantially reforming the current federal tax system. Adam thinks the current system is fine but Joan is in favor of reform. Which of the following is the least likely explanation for the disagreement?

a.	Adam is a positive economist and Joan is a normative economist.
b.	Adam and Joan have different positive views about the effect of changing the tax system.
c.	Adam and Joan have different values, and so have different normative views about policy.
d.	Adam is better off under the current system and Joan would be better off if the reforms were implemented.

23.

A country's consumption possibilities frontier can be outside its production possibilities frontier if

a.	additional resources become available.
b.	there is an increase in the level of technology.
c.	the country engages in trade.
d.	All of the above are correct.
e.	Both a and b are correct.

Table 3-1

	Labor Hours Needed to Make 1 Pound of:		Pounds produced in 40 hours:
	Meat	Potatoes	Meat	Potatoes
Farmer	8	2	5	20
Rancher	4	5	10	8

24.

Refer to Table 3-1. The Farmer and Rancher both could benefit by the Farmer specializing in

a.	meat and the Rancher specializing in potatoes.
b.	potatoes and the Rancher specializing in meat.
c.	neither good and the Rancher specializing in both goods.
d.	They cannot benefit by specialization and trade.

Figure 3-1

25.

Refer to Figure 3-1. If Paul divides his time equally between corn and wheat, he will be able to produce

a.	2 bushels of wheat and 2 bushels of corn.
b.	3 bushels of wheat and 3 bushels of corn.
c.	4 bushels of wheat and 5 bushels of corn.
d.	4 bushels of wheat and 6 bushels of corn.

26.

Refer to Figure 3-1. Assume that Cliff and Paul were both producing wheat and corn, and each were dividing their time equally between the two. Then they decide to specialize in the product they have a comparative advantage in and trade 3 bushels of wheat for 3 bushels of corn. Cliff would now be able to consume.

a.	4 bushels of wheat and 3 bushels of corn.
b.	3 bushels of wheat and 4 bushels of corn.
c.	3 bushels of wheat and 3 bushels of corn.
d.	2 bushels of wheat and 3 bushels of corn.

Figure 3-2

27.

Refer to Figure 3-2. Ben has an absolute advantage in

a.	ice cream and Jerry has an absolute advantage in cones.
b.	cones and Jerry has an absolute advantage in ice cream.
c.	neither good and Jerry has an absolute advantage in both goods.
d.	both goods and Jerry has an absolute advantage in neither good.

28.

Refer to Figure 3-2. Suppose that Ben and Jerry have both decided to produce at point A on their production possibilities frontiers, we know that

a.	this is not an efficient combination for either Ben or Jerry.
b.	Ben and Jerry are both allocating 1/2 their time to the production of each good.
c.	no other production point is as efficient for both Ben and Jerry to produce as point A.
d.	both should always attempt to produce an equal number of cones and ice cream.

Table 3-3

	Labor Hours Needed to Make One Unit of:		Amount Produced in 24 Hours:
	Baskets	Birdhouses	Baskets	Birdhouses
Montana	6	2	4	12
Missouri	3	4	8	6

29.

Refer to Table 3-3. The opportunity cost of 1 basket for Missouri is

a.	1/4 birdhouse.
b.	3/4 birdhouse.
c.	1 birdhouse.
d.	4/3 birdhouses.

30.

Mike and Sandy are two woodworkers who both make tables and chairs. In one month, Mike can make 4 tables or 20 chairs, where Sandy can make 6 tables or 18 chairs. Given this, we know that the opportunity cost of 1 chair for

a.	Mike is 1/5 table and 1/3 table for Sandy.
b.	Mike is 5 tables and 3 tables for Sandy.
c.	Mike is 1/3 table and 1/5 table for Sandy.
d.	Mike is 3 tables and 5 tables for Sandy.

31.

Adam Smith

a.	wrote An Inquiry into the Nature and Causes of the Wealth of Nations.
b.	opposed free trade.
c.	wrote the General Theory of Economics.
d.	All of the above are correct.

32.

Economists generally support

a.	trade restrictions.
b.	government management of trade.
c.	export subsidies.
d.	free international trade.

Use the accompanying table to answer the following questions:

Table 3-5

	Labor hours needed to make one unit of		Amount produced in 40 hours
	Cheese	Bread	Cheese	Bread
England	1	2	40	20
Spain	2	8	20	5

33.

Refer to Table 3-5. The opportunity cost of 1 unit of cheese in England is

a.	4 breads.
b.	2 breads.
c.	1/2 bread.
d.	1/4 bread.

34.

Refer to Table 3-5. The opportunity cost of 1 unit of bread in Spain is

a.	4 cheeses.
b.	2 cheeses.
c.	1 cheese.
d.	1/4 cheese.

35.

Refer to Table 3-5. England and Spain could benefit by England specializing in

a.	bread and Spain specializing in cheese.
b.	cheese and Spain specializing in bread.
c.	both goods and Spain specializing in neither good.
d.	neither good and Spain specializing in both goods.

True/False

Indicate whether the sentence or statement is true or false.

36.

With careful planning, we can usually get something that we like without having to give up something else that we like.

37.

The cost of an action is measured in terms of foregone opportunities.

38.

A circular-flow diagram is a visual model of how an economy is organized.

39.

"Society would be better if the welfare system were abolished" is a normative statement, not a positive statement.

40.

The producer who has the smaller opportunity cost of producing a good is said to have an absolute advantage in producing that good.