Question 1

Opportunity cost always arises when a trade-off decision is made.

Accepted Answer

A) True 
 B)False

Question 2

Adam Smith and David Ricardo worked together to develop the law of comparative advantage.

Accepted Answer

A) True 
 B)False

Question 3

Carefully define the following terms and explain their importance to the study of economics. 
a. Resources 
b. Rational decision 
c. Scarcity 
d. Opportunity cost

Accepted Answer

a. Resources are the instruments provide

Question 4

Goods are distributed among people by means of

Accepted Answer

A)  a central authority. 
B)  prices. 
C)  markets. 
D)  All of these are correct. 
A)  a central authority. 
B)  prices. 
C)  markets. 
D)  All of these are correct.

Question 5

Which of the following is considered by economists to be the most fundamentally scarce?

Accepted Answer

A)  Money 
B)  Ideas 
C)  Needs 
D)  Food 
E)  Physical resources 
A)  Money 
B)  Ideas 
C)  Needs 
D)  Food 
E)  Physical resources

Question 6

Trade-offs can always be considered in terms of opportunity costs.

Accepted Answer

A) True 
 B)False

Question 7

The concept of opportunity cost is more applicable to society as a whole than it is for an individual household.

Accepted Answer

A) True 
 B)False

Question 8

From a society's viewpoint, when all resources are fully employed, a decision to have more of one thing means we must give up something else.

Accepted Answer

A) True 
 B)False

Question 9

How are the slope of a production possibilities frontier and the opportunity cost of the goods related?

Accepted Answer

A)  The slope is a graphical representation of the cost of expanding production of both goods. 
B)  The slope is a graphical measure of the growth rate of the economy. 
C)  The slope is a graphical representation of the cost of decreasing unemployment. 
D)  The slope is a graphical representation of the rate of trade-off between the goods. 
E)  The slope is a graphical representation of the cost of economic growth in the economy. 
A)  The slope is a graphical representation of the cost of expanding production of both goods. 
B)  The slope is a graphical measure of the growth rate of the economy. 
C)  The slope is a graphical representation of the cost of decreasing unemployment. 
D)  The slope is a graphical representation of the rate of trade-off between the goods. 
E)  The slope is a graphical representation of the cost of economic growth in the economy.

Question 10

If the quantity of one good that must be forgone increases as successive units of another good are produced, then there is said to be increasing opportunity cost between the two goods.

Accepted Answer

A) True 
 B)False

Question 11

Money costs and opportunity costs are concepts that are

Accepted Answer

A)  not related in any meaningful way. 
B)  used by tax accountants. 
C)  related through the relative prices of goods and services. 
D)  used by economists to learn the most efficient level of output. 
A)  not related in any meaningful way. 
B)  used by tax accountants. 
C)  related through the relative prices of goods and services. 
D)  used by economists to learn the most efficient level of output.

Question 12

How are money cost and opportunity cost related to each other?

Accepted Answer

A)  If markets function well, they are closely related. 
B)  They are always identical in any economic system. 
C)  Opportunity cost must always exceed money cost. 
D)  Money cost is greater than or equal to opportunity cost. 
E)  In a market economy, they must be equal to each other. 
A)  If markets function well, they are closely related. 
B)  They are always identical in any economic system. 
C)  Opportunity cost must always exceed money cost. 
D)  Money cost is greater than or equal to opportunity cost. 
E)  In a market economy, they must be equal to each other.

Question 13

Goods that are actually produced by firms are not really limited in supply, because the firms can always produce more of them.

Accepted Answer

A) True 
 B)False

Question 14

What are the three coordination tasks that markets resolve?

Accepted Answer

They are (1) how to produce an

Question 15

Opportunity cost cannot be measured in money terms, only in conceptual terms.

Accepted Answer

A) True 
 B)False

Question 16

Rational production decisions require an understanding of

Accepted Answer

A)  trade-offs. 
B)  opportunity costs. 
C)  scarcity of resources. 
D)  All of the responses are correct. 
A)  trade-offs. 
B)  opportunity costs. 
C)  scarcity of resources. 
D)  All of the responses are correct.

Question 17

Rob took the afternoon off from his job as a tire salesman to mow his lawn. Rob told his wife that this made sense because he would be saving the $50 he would have to pay a lawn service, noting that this would be the opportunity cost to the family. Rob's wife disagreed. What did Rob's wife say?

Accepted Answer

A)  The opportunity cost would be Rob's lost income from selling tires that afternoon plus the $50. 
B)  The opportunity cost would be Rob's lost income from selling tires that afternoon minus the $50. 
C)  That Rob just wanted to take the afternoon off. 
D)  The opportunity cost would be Rob's lost income from selling tires that afternoon. 
A)  The opportunity cost would be Rob's lost income from selling tires that afternoon plus the $50. 
B)  The opportunity cost would be Rob's lost income from selling tires that afternoon minus the $50. 
C)  That Rob just wanted to take the afternoon off. 
D)  The opportunity cost would be Rob's lost income from selling tires that afternoon.

Question 18

If the production possibilities curve is a straight line,

Accepted Answer

A)  opportunity costs rise as output of either commodity is expanded. 
B)  resources are not equally productive in the production of both goods. 
C)  opportunity costs are negative. 
D)  resources can be moved from the production of one good to production of others with no loss of productivity. 
A)  opportunity costs rise as output of either commodity is expanded. 
B)  resources are not equally productive in the production of both goods. 
C)  opportunity costs are negative. 
D)  resources can be moved from the production of one good to production of others with no loss of productivity.

Question 19

Which principle states that as the production of one good expands, the opportunity cost of producing another unit of this good generally increases?

Accepted Answer

A)  Principle of total cost 
B)  Principle of increasing cost 
C)  Principle of opportunity cost 
D)  Principle of increasing marginal utility 
A)  Principle of total cost 
B)  Principle of increasing cost 
C)  Principle of opportunity cost 
D)  Principle of increasing marginal utility

Question 20

A large government encounters a production possibilities frontier essentially the same as one faced by a business firm.

Accepted Answer

A) True 
 B)False

Exam 3: The Fundamental Economic Problem: Scarcity and Choice

Opportunity cost always arises when a trade-off decision is made.

Adam Smith and David Ricardo worked together to develop the law of comparative advantage.

Carefully define the following terms and explain their importance to the study of economics. a. Resources b. Rational decision c. Scarcity d. Opportunity cost

Goods are distributed among people by means of

Which of the following is considered by economists to be the most fundamentally scarce?

Trade-offs can always be considered in terms of opportunity costs.

The concept of opportunity cost is more applicable to society as a whole than it is for an individual household.

From a society's viewpoint, when all resources are fully employed, a decision to have more of one thing means we must give up something else.

How are the slope of a production possibilities frontier and the opportunity cost of the goods related?

If the quantity of one good that must be forgone increases as successive units of another good are produced, then there is said to be increasing opportunity cost between the two goods.

Money costs and opportunity costs are concepts that are

How are money cost and opportunity cost related to each other?

Goods that are actually produced by firms are not really limited in supply, because the firms can always produce more of them.

What are the three coordination tasks that markets resolve?

Opportunity cost cannot be measured in money terms, only in conceptual terms.

Rational production decisions require an understanding of

Rob took the afternoon off from his job as a tire salesman to mow his lawn. Rob told his wife that this made sense because he would be saving the $50 he would have to pay a lawn service, noting that this would be the opportunity cost to the family. Rob's wife disagreed. What did Rob's wife say?

If the production possibilities curve is a straight line,

Which principle states that as the production of one good expands, the opportunity cost of producing another unit of this good generally increases?

A large government encounters a production possibilities frontier essentially the same as one faced by a business firm.

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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