Exam 3: The Fundamental Economic Problem: Scarcity and Choice

At various times, the United States has undergone the painful process of reducing military spending. Military bases from the Carolinas to California pleaded to be spared, citing huge job losses if they close. How can one rationally decide which bases to shut down, given the necessity of jobs?

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Question 1

Correct Answer:

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One must examine the opportunity cost of continuing to operate each base. As an example, the money used to operate the San Diego Naval Station might have a next best alternative use in improving California's state universities, which would add to productivity and so enhance growth. While closing the base would sacrifice military jobs, the opportunity cost would depend on the next best alternative employment for these workers. In the future, new jobs would be created for those trained. One would carry out the same exercise for each military installation and cut those with the highest opportunity cost. An example might be a New England base using antiquated defense equipment that provides little defense per dollar spent.

Which of these options best reflects Jim's opportunity cost of operating his own business?

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Question 2

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Division of labor has caused output to rise dramatically since the industrial revolution.

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Question 3

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True

Any point on or outside the production possibilities frontier is attainable.

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Question 4

Because of scarcity, every economic decision involves

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Question 5

A market system (market economy) depends on the market to

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Question 6

The political party that is in power determines the position and shape of the production possibilities frontier that constrains the choices of the economy.

(True/False)

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Question 7

In terms of efficiency, any point on a production possibilities frontier is as good another.

(True/False)

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Question 8

The idea of opportunity cost is relevant

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Question 9

A normal production possibilities frontier has a

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Question 10

Economists define efficiency as

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Question 11

The statement "Resources employed in producing X are better suited to making Y" is another way of saying

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Question 12

Draw a production possibilities frontier for an economy, with the axes labeled "military goods" and "peace goods." Indicate the region that is attainable and the region that is not. Explain the shape of the curve. What assumptions did you make in drawing it?

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Question 13

The first economist to point out the importance of specialization of labor was

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Question 14

What mechanism assures that producers use inputs efficiently?

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Question 15

The opportunity cost and the money cost of a good

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Question 16

One common definition of economics is the study of

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Question 17

Scarcity is a concept that applies to all of the following except

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Question 18

According to the principle of increasing costs, as the production of one good expands, the opportunity cost of producing another unit of the good tends to increase.

(True/False)

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Question 19

A government, based upon its policy decisions, can determine the position and shape of the production possibilities frontier that the economy faces.

(True/False)

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Question 20

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Exam 3: The Fundamental Economic Problem: Scarcity and Choice

At various times, the United States has undergone the painful process of reducing military spending. Military bases from the Carolinas to California pleaded to be spared, citing huge job losses if they close. How can one rationally decide which bases to shut down, given the necessity of jobs?

Which of these options best reflects Jim's opportunity cost of operating his own business?

Division of labor has caused output to rise dramatically since the industrial revolution.

Any point on or outside the production possibilities frontier is attainable.

Because of scarcity, every economic decision involves

A market system (market economy) depends on the market to

The political party that is in power determines the position and shape of the production possibilities frontier that constrains the choices of the economy.

In terms of efficiency, any point on a production possibilities frontier is as good another.

The idea of opportunity cost is relevant

A normal production possibilities frontier has a

Economists define efficiency as

The statement "Resources employed in producing X are better suited to making Y" is another way of saying

Draw a production possibilities frontier for an economy, with the axes labeled "military goods" and "peace goods." Indicate the region that is attainable and the region that is not. Explain the shape of the curve. What assumptions did you make in drawing it?

The first economist to point out the importance of specialization of labor was

What mechanism assures that producers use inputs efficiently?

The opportunity cost and the money cost of a good

One common definition of economics is the study of

Scarcity is a concept that applies to all of the following except

According to the principle of increasing costs, as the production of one good expands, the opportunity cost of producing another unit of the good tends to increase.

A government, based upon its policy decisions, can determine the position and shape of the production possibilities frontier that the economy faces.

What Is Economics

The Economy: Myth and Reality

Supply and Demand: an Initial Look

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation

Bringing in the Supply Side: Unemployment and Inflation

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

Monetary Policy: Conventional and Unconventional

The Financial Crisis and the Great Recession

The Debate Over Monetary and Fiscal Policy

Budget Deficits in the Short and Long Run

The Trade-Off Between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder

Exchange Rates and the Macroeconomy

Contemporary Issues in the Us Economy

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