The Economy Today, 13th Edition Test Bank

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Chapter 01Economics: The Core IssuesMultiple Choice Questions1.Which of the following is not one of the three core economic issues that must beresolved?A.How to produce the goods and services we select.B.What to produce withunlimited resources.C.Who should get the goods and services we produce.D.What to produce with limited resources.2.The fundamental problem of economics isA.The law of increasing opportunity costs.B.The scarcity ofresources relative to human wants.C.How to get government to operate efficiently.D.How to create employment for everyone.3.In economics, scarcity means thatA.A shortage of a particular good will cause the price to fall.B.Aproduction possibilities curve cannot accurately represent the trade-offbetween two goods.C.Society's desires exceed the want-satisfying capability of the resourcesavailable to satisfy those desires.D.The market mechanism has failed.

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4.Given that resources are scarce,A.A "free lunch" is possible, but only for a limited number of people.B.Opportunity costs are experienced whenever choices are made.C.Poor countries must make choices, but rich countries withabundant resourcesdo not have to make choices.D.Some choices involve opportunity costs while other choices do not.5.A consequence of the economic problem of scarcity is thatA.Choices have to be made about how resources are used.B.There is never too much of any good or service produced.C.The production of goods and services must be controlled by the government.D.The production possibilities curve is bowed outward.6.The basic factors of productionincludeA.Land, labor, money, and capital.B.Land, labor, money, and inputs.C.Labor and money.D.Land, labor, capital, and entrepreneurship.7.Factors of production areA.Scarce in every society.B.Scarce only inadvanced countries.C.Scarce only in the poorest countries of the world.D.Unlimited in quantity.

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8.Which of the following is not a factor of production?A.A psychiatrist.B.The $100,000 used to start a new business.C.Abulldozer.D.Six thousand acres of farmland.9.With respect to factors of production, which of the following statements isnottrue?A.Factors of production are also known as resources.B.In order to produce any good or service, it isnecessary to have factors ofproduction.C.Factors of production include land, labor, capital, and entrepreneurship.D.Only those resources that are privately owned are counted as factors ofproduction.10.Which of the following is thebest example of land?A.The ethanol refined from corn.B.A factory that produces new goods and services.C.The water used to make a soft drink.D.A barber's chair.11.Capital,as economists use the term, refers toA.The money needed to start a new business.B.The costs of operating a business.C.Shares of stock issued by businesses.D.Final goods that are used to produce other goods and services.

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12.Which economist argued that free markets unleashed the "animal spirits" ofentrepreneurs, propelling innovation, technology, and growth?A.Lord Kelvin.B.Kenneth Olsen.C.Irving Fisher.D.John Maynard Keynes.13.The role of theentrepreneur in an economy is toA.Bring the factors of production together and assume the risk of production.B.Work with government planners to determine what goods are produced.C.Arrange bank financing for the owners of newbusinesses.D.Ensure full employment of labor.14.Economics can be defined as the study ofA.For whom resources are allocated to increase efficiency.B.How society spends the income of individuals.C.How scarce resources areallocated on a macro level to best meet society'sgoals or on a micro level to best meet an individual's or firm's goals.D.None of the choices are correct.15.Opportunity cost isA.Measured only in dollars and cents.B.The totaldollar cost to society of producing the goods.C.The difficulty associated with using one good in place of another.D.The best alternative that must be given up in order to get something else.

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16.Opportunity cost may be defined as theA.Goods or services that are forgone in order to obtain something else.B.Dollar prices paid for final goods and services.C.Dollar cost of producing a particular product.D.Difference between wholesale and retail prices.17.Theopportunity cost of studying for an economics test isA.Negative because it may improve your grade.B.Zero because you knew when you registered for the class that studying wouldbe required.C.The money you spent on tuition for theclass.D.The best alternative use of your time.18.The "guns versus butter" dilemma that all nations confront is thatA.Guns and butter can be produced using the same resources at the same time.B.An increase in national defenseimplies more sacrifices of civilian goods andservices.C.An increase in national defense is possible only if we produce more butter.D.All of the choices are correct.19.A production possibilities curve indicates theA.Combinations of goods and services an economy is actually producing.B.Maximum combinations of goods and services an economy can produce givenits available resources and technology.C.Maximum combinations of goods and services an economy canproduce givenunlimited resources.D.Average combinations of goods and services an economy can produce givenits available resources and technology.

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20.Which of the following is an assumption under which the production possibilitiescurve is drawn?A.Total unemployment is zero.B.The supply of resources is fixed.C.The price level is changing.D.Technology is changing.21.A point on a nation's production possibilities curve representsA.An undesirablecombination of goods and services.B.Combinations of production that are unattainable, given current technology andresources.C.Levels of production that will cause both unemployment and inflation.D.The full employment of resources toachieve a particular combination of goodsand services.22.The production possibilities curve illustrates which two of the following essentialprinciples?A.Factors of production and price signals.B.Scarce resources andopportunity cost.C.Market mechanisms and laissez faire.D.Economic growth and market failure.23.Which of the following correctly characterizes the shape of a constant opportunitycost production possibilities curve?A.Astraight line indicating that the law of increasing opportunity costs applies.B.A straight line when there is constant opportunity costs.C.A line that curves outward when resources are perfectly adaptable in theproduction of differentgoods.D.A line that curves inward when resources are perfectly adaptable in theproduction of different goods.

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24.The production possibilities curve illustratesA.The limitations that exist because of scarce resources.B.Thatthere is no limit to what an economy can produce.C.That there is no limit to the level of output.D.The existence of unlimited wants and resources.25.According to the law of increasing opportunity costs,A.The more one iswilling to pay for resources, the smaller will be the possiblelevel of production.B.Increasing the production of a particular good will cause the price of the goodto remain constant.C.In order to produce additional units of a particular good, it is necessary forsociety to sacrifice increasingly larger amounts of alternative goods.D.None of the choices are correct.26.According to the law of increasing opportunity costs,A.Greater production leads to greaterinefficiency.B.Greater production means factor prices rise.C.Greater production of one good requires increasingly larger sacrifices of othergoods.D.Higher opportunity costs induce higher output per unit of input.27.If aneconomy experiences increasing opportunity costs with respect to twogoods, then the production possibilities curve between the two goods will beA.Bowed outward or concave from below.B.A straight, downward-sloping line.C.Bowed inward or convex from below.D.Bowed outward until the two goods are equal, and then bowed inward.

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28.If the United States decides to convert automobile factories to tank production, asit did during World War II, but finds that some automanufacturing facilities are notwell suited to tank production, thenA.The production possibilities curve between tanks and automobiles will appearas a straight line.B.The production possibilities curve between tanks and automobiles willshiftoutward.C.Decreasing opportunity costs will occur with greater automobile production.D.Increasing opportunity costs will occur with greater tank production.29.If North Korea is currently producing at efficiency, and itproceeds to increase thesize of its military, then, as long as nothing else changes, itsA.Production possibilities curve will shift outward.B.Production possibilities curve will shift inward.C.Production of nonmilitary goods will increase.D.Production of nonmilitary goods will decrease.30.When an economy is producing efficiently, it isA.Producing a combination of goods and services beyond the productionpossibilities curve.B.Getting the most goods andservices from the available resources.C.Experiencing decreasing opportunity costs.D.Producing equal amounts of all goods.31.Which of the following is true when an economy is producing efficiently?A.The economy is producing on theproduction possibilities curve.B.The economy is producing outside the production possibilities curve.C.The economy is getting the fewest goods and services from the availableresources.D.Everyone in the economy is happy.

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32.Thepoints on a production possibilities curve showA.Desired output.B.Actual output.C.Potential output.D.None of the choices are correct.33.In terms of the production possibilities curve, inefficiency is represented byA.All points on the curve.B.All points outside the curve.C.All points inside the curve.D.A rightward shift of the curve.34.If an economy is producing inside the production possibilities curve, thenA.There is fullemployment of resources.B.It is operating efficiently.C.It can produce more of one good without giving up some of another good.D.There are not enough resources available to produce more output.35.A technological advance would bestbe represented byA.A shift outward of the production possibilities curve.B.A shift inward of the production possibilities curve.C.A movement from inside the production possibilities curve to a point on theproductionpossibilities curve.D.A movement from the production possibilities curve to a point inside theproduction possibilities curve.

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36.Which of the following events would allow the production possibilities curve toshift outward?A.The economy's capital stock declines.B.More teenagers enter the labor force.C.Technology is lost.D.People begin to retire at earlier ages.37.Economic growth would best be represented by aA.Shift outward of the productionpossibilities curve.B.Shift inward of the production possibilities curve.C.Movement from inside the production possibilities curve to a point on theproduction possibilities curve.D.Movement from the production possibilities curve to apoint inside theproduction possibilities curve.38.Which of the following will cause the production possibilities curve to shiftinward?A.An increase in the working-age population.B.A decrease in the size of the labor force.C.Atechnological advance.D.An increase in knowledge.39.Which of the following is not a basic decision that all nations must confront?A.Should we have economic growth?B.How should we produce goods and services?C.For whomshould goods and services be produced?D.What goods and services should we produce?

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40.In a market economy, the people who receive the goods and services that areproduced are those whoA.Need the goods and services the most.B.Havethe most political power.C.Want the goods and services the most.D.Are willing to pay the highest price.41.Adam Smith's invisible hand is now calledA.Economic growth.B.The market mechanism.C.Opportunity cost.D.Laissez faire.42.The market mechanism may best be defined asA.The use of market prices and sales to signal desired output.B.The use of market signals and government directives to select economicoutcomes.C.The process by whichthe production possibilities curve shifts inward.D.Price regulation by government.43.The market mechanismA.Is not a very efficient means of communicating consumer demand to theproducers of goods and services.B.Works through central planning by government.C.Eliminates market failures created by government.D.Works because prices serve as ameans of communication betweenconsumers and producers.

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44.The invisible handrefers toA.Intervention in the economy by the government bureaucrats we do not see andover whom we have no control.B.Undiscovered natural resources.C.The allocation of resources by market forces.D.The person who has the responsibility to coordinate all the markets in a marketeconomy.45.The doctrine of laissez faire is based on the belief thatA.Markets are likely to do a better jobof allocating resources than governmentdirectives.B.Government directives are likely to do a better job of allocating resources thanmarkets.C.Government failure does not exist.D.Markets result in an unfair distribution of income.46.A city's decision to limit smoking in public areas is an example ofA.The invisible hand at work.B.The market mechanism at work.C.Market success.D.Government intervention.47.A mixed economyA.Is justified by thesuperiority of laissez faire over government intervention.B.Utilizes both market and nonmarket signals to allocate goods and services.C.Relies on the use of central planning by private firms rather than thegovernment.D.Is one that allows trade with other countries.

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48.Which of the following can be used to correct market failure?A.The market mechanism.B.Laws and regulations.C.Laissez faire price policies.D.Government failure.49.Whenthe invisible hand does not produce optimal outcomes for the economy,there is evidence ofA.Market failure.B.Government failure.C.Macroeconomic failure.D.Scarcity.50.Government intervention may achieve a more optimaloutcome than the marketmechanism when addressingA.Inefficient bureaucracy.B.Consumption of cigarettes.C.Theme park construction.D.None of the choices are correct.51.If market signals result in pollution beyond theoptimal level, thenA.The economy experiences government failure.B.A laissez faire approach will reduce the level of pollution.C.The market mechanism has failed to achieve social efficiency.D.The government is allocatingresources inefficiently.

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52.Which of the following has occurred when government directives do not producebetter economic outcomes?A.Government failure.B.Market failure.C.Macroeconomic failure.D.Scarcity.53.Which ofthe following is an example of government failure?A.Bureaucratic delays.B.Required use of pollution control technology that is obsolete.C.Inefficient incentives.D.All of the choices are correct.54.Macroeconomics focuses onthe performance ofA.Individual consumers.B.Government agencies.C.The overall economy.D.All of the choices are correct.55.Which of the following isnota macroeconomic statement?A.The unemployment rate for theUnited States rose to 5 percent in the lastquarter.B.The Federal Reserve lowered interest rates at its last meeting.C.Congress increased the minimum wage rate in January.D.Jenny's wage rate rose, and in response, she decided to workmore hours.

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56.The study of microeconomic theory focuses on theA.Structure and performance of individual markets and the operation of the pricesystem.B.Operation of the entire economy.C.Role of the banking system in theeconomy.D.Interaction of international trade and domestic production of goods andservices.57.Microeconomics is concerned with issues such asA.The demand for bottled water by individuals.B.The level of inflation in theeconomy.C.Maintaining a strong level of economic growth.D.All of the choices are correct.58.Economic models are used by economists toA.Predict economic behavior.B.Develop economic policies.C.Explain economicbehavior.D.All of the choices are correct.59.The Latin phraseceteris paribusmeansA.The production possibilities curve never shifts.B.Laissez faire.C.Other things remain equal.D.The invisible hand.

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