Question 1

Do all valuable items have price tags?

Accepted Answer

A)  No, because some valuable items have no opportunity cost. 
B)  Yes, because everything has its price. 
C)  Yes, because price is the measure of opportunity cost. 
D)  No, some have no explicit price on them. 
E)  Yes, because only items that can be sold in markets have value. 
A)  No, because some valuable items have no opportunity cost. 
B)  Yes, because everything has its price. 
C)  Yes, because price is the measure of opportunity cost. 
D)  No, some have no explicit price on them. 
E)  Yes, because only items that can be sold in markets have value.

Question 2

The total amount of consumption of a society can be increased if

Accepted Answer

A)  firms allow each worker to perform multiple tasks. 
B)  resources are allocated by a central planning group. 
C)  individuals engage in specialization and voluntary trade. 
D)  barter exchange is used in place of money. 
A)  firms allow each worker to perform multiple tasks. 
B)  resources are allocated by a central planning group. 
C)  individuals engage in specialization and voluntary trade. 
D)  barter exchange is used in place of money.

Question 3

Which of the following must cope with scarcity?

Accepted Answer

A)  Individuals 
B)  Companies 
C)  Governments 
D)  Families 
E)  All of the responses are correct. 
A)  Individuals 
B)  Companies 
C)  Governments 
D)  Families 
E)  All of the responses are correct.

Question 4

In a market economy, government decides the answers to the three economic decisions.

Accepted Answer

A) True 
 B)False

Question 5

As a strategy to boost enrollment, in January 1996, a private college in Iowa offered free tuition for graduating high school seniors from the county where it is located. For students who accepted the offer, how did this offer affect the opportunity cost of attending college?

Accepted Answer

A)  The opportunity cost did not change, since lost earnings were still a factor. 
B)  The opportunity cost became zero for the typical student. 
C)  The opportunity cost was very low, because the only cost was for books and supplies. 
D)  The opportunity cost did not change, since tuition was not a factor in computing opportunity cost. 
E)  The opportunity cost was lower than if tuition was charged, but there was still a cost. 
A)  The opportunity cost did not change, since lost earnings were still a factor. 
B)  The opportunity cost became zero for the typical student. 
C)  The opportunity cost was very low, because the only cost was for books and supplies. 
D)  The opportunity cost did not change, since tuition was not a factor in computing opportunity cost. 
E)  The opportunity cost was lower than if tuition was charged, but there was still a cost.

Question 6

Adam Smith's book, one of the first systematic treatments of economics, was entitled

Accepted Answer

A)  The Plan of the Ages. 
B)  The General Theory of Money, Taxes, and Income. 
C)  The Wealth of Nations. 
D)  Principles of Economics. 
E)  Concepts in Moral Philosophy. 
A)  The Plan of the Ages. 
B)  The General Theory of Money, Taxes, and Income. 
C)  The Wealth of Nations. 
D)  Principles of Economics. 
E)  Concepts in Moral Philosophy.

Question 7

If society produces at a point inside the production possibilities frontier, it is characterized by full employment of resources.

Accepted Answer

A) True 
 B)False

Question 8

Given its size, the United States does not have to worry about limitations on resources.

Accepted Answer

A) True 
 B)False

Question 9

The definition of efficiency implies that production is carried out on the production possibilities frontier.

Accepted Answer

A) True 
 B)False

Question 10

If a farmer's opportunity cost of producing 10,000 bushels of wheat is 5,000 fewer bushels of soybeans, then his or her opportunity cost of producing 5,000 bushels of soybeans must be 10,000 fewer bushels of wheat.

Accepted Answer

A) True 
 B)False

Question 11

Why would it be a mistake to treat opportunity costs and explicit monetary costs as identical?

Accepted Answer

A)  Because sometimes the market does not function well. 
B)  Because opportunity costs are different for different goods. 
C)  Because there are trade-offs involved in any decision. 
D)  Because of existence of efficient markets. 
A)  Because sometimes the market does not function well. 
B)  Because opportunity costs are different for different goods. 
C)  Because there are trade-offs involved in any decision. 
D)  Because of existence of efficient markets.

Question 12

Economics is generally concerned with

Accepted Answer

A)  the operation of banks and the stock market. 
B)  business management. 
C)  how resources are allocated among alternative goals. 
D)  the right time to start a business. 
A)  the operation of banks and the stock market. 
B)  business management. 
C)  how resources are allocated among alternative goals. 
D)  the right time to start a business.

Question 13

Opportunity cost can best be defined as the

Accepted Answer

A)  money cost of a good or service. 
B)  money cost plus interest on money borrowed to buy a good or service. 
C)  cost of the resources used to produce a good or service. 
D)  value of the best alternative forgone when the alternative at hand is chosen. 
A)  money cost of a good or service. 
B)  money cost plus interest on money borrowed to buy a good or service. 
C)  cost of the resources used to produce a good or service. 
D)  value of the best alternative forgone when the alternative at hand is chosen.

Question 14

In Figure 3-2, at point B

Accepted Answer

A)  it is impossible to increase production of consumer goods. 
B)  it is impossible to increase production of capital goods. 
C)  it is possible to increase production of both capital goods and consumer goods simultaneously. 
D)  it is impossible to increase production of both capital goods and consumer goods simultaneously. 
A)  it is impossible to increase production of consumer goods. 
B)  it is impossible to increase production of capital goods. 
C)  it is possible to increase production of both capital goods and consumer goods simultaneously. 
D)  it is impossible to increase production of both capital goods and consumer goods simultaneously.

Question 15

A point lying inside (under) a production possibilities frontier indicates that

Accepted Answer

A)  the economy is saving money. 
B)  there are no associated opportunity costs. 
C)  more output could be produced with existing resources. 
D)  technology limits production. 
A)  the economy is saving money. 
B)  there are no associated opportunity costs. 
C)  more output could be produced with existing resources. 
D)  technology limits production.

Question 16

The production possibilities frontier has a tendency to bow outward from the origin.

Accepted Answer

A) True 
 B)False

Question 17

The divergence between money costs and opportunity costs is the smallest in which of the following situations?

Accepted Answer

A)  China hires millions of otherwise unemployable workers to build roads using picks and shovels. 
B)  Wilhelm, a petroleum engineer, is drafted, and his army salary is $1,000 per month. 
C)  Colleen quits her job to stay at home and raise her children. 
D)  A university employs a private contractor to build a field house on land it purchased at full market value from a local farmer. 
A)  China hires millions of otherwise unemployable workers to build roads using picks and shovels. 
B)  Wilhelm, a petroleum engineer, is drafted, and his army salary is $1,000 per month. 
C)  Colleen quits her job to stay at home and raise her children. 
D)  A university employs a private contractor to build a field house on land it purchased at full market value from a local farmer.

Question 18

Since it is a centrally planned economy, China does not face opportunity costs when economic decisions are made.

Accepted Answer

A) True 
 B)False

Question 19

Society can produce at a point outside the production possibilities frontier, but only if it is using all of its resources efficiently.

Accepted Answer

A) True 
 B)False

Question 20

A society must make three sorts of decision: what goods to produce, how to produce them, and how to distribute them.

Accepted Answer

A) True 
 B)False

Exam 3: The Fundamental Economic Problem: Scarcity and Choice

Do all valuable items have price tags?

The total amount of consumption of a society can be increased if

Which of the following must cope with scarcity?

In a market economy, government decides the answers to the three economic decisions.

As a strategy to boost enrollment, in January 1996, a private college in Iowa offered free tuition for graduating high school seniors from the county where it is located. For students who accepted the offer, how did this offer affect the opportunity cost of attending college?

Adam Smith's book, one of the first systematic treatments of economics, was entitled

If society produces at a point inside the production possibilities frontier, it is characterized by full employment of resources.

Given its size, the United States does not have to worry about limitations on resources.

The definition of efficiency implies that production is carried out on the production possibilities frontier.

If a farmer's opportunity cost of producing 10,000 bushels of wheat is 5,000 fewer bushels of soybeans, then his or her opportunity cost of producing 5,000 bushels of soybeans must be 10,000 fewer bushels of wheat.

Why would it be a mistake to treat opportunity costs and explicit monetary costs as identical?

Economics is generally concerned with

Opportunity cost can best be defined as the

In Figure 3-2, at point B

A point lying inside (under) a production possibilities frontier indicates that

The production possibilities frontier has a tendency to bow outward from the origin.

The divergence between money costs and opportunity costs is the smallest in which of the following situations?

Since it is a centrally planned economy, China does not face opportunity costs when economic decisions are made.

Society can produce at a point outside the production possibilities frontier, but only if it is using all of its resources efficiently.

A society must make three sorts of decision: what goods to produce, how to produce them, and how to distribute them.

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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