Chapter 1
141.
b
Economics is about how people use:
a.
limited resources to satisfy limited material wants and needs.
b.
limited resources to satisfy unlimited material wants and needs.
c.
unlimited resources to satisfy limited material wants and needs.
d.
unlimited resources to satisfy unlimited material wants and needs.
142.
c
Which of the following statements is FALSE?
a.
Scarcity is the basic reason for studying economics.
b.
Scarcity forces people to make decisions about how to best satisfy material wants and needs.
c.
The study of economics is simplified because value judgments have no effect on the choices
people make because of scarcity.
d.
People must make tradeoffs, or give up one thing to get something else, because of scarcity.
143.
c
The opportunity cost of an item purchased is:
a.
the tax paid on the item.
b.
the time required to make a decision about the purchase.
c.
the alternative purchase that is forgone to acquire the item.
d.
the dissatisfaction experienced by the buyer when the item is no longer desired.
144.
b
Efficiency and equity refer to, respectively:
a.
producing at the lowest possible cost, and producing the largest attainable output.
b.
producing the largest possible output from a given set of resources, and fairness in the
distribution of goods and services.
c.
paying people based on what they need, and paying them based on what they contribute to
output.
d.
the main goal of economies that do not face a scarcity problem, and those that do face a scarcity
problem.
145.
d
Entrepreneurship involves:
a.
taking the risk for the success or failure of a business venture.
b.
organizing factors of production to produce goods and services.
c.
human effort not included in the factor of production category called labor.
d.
all of the above
146.
John receives a wage, Carol receives profit, and Sandy receives interest. John's, Carol's, and Sandy's
incomes are from, respectively:
a.
land, labor, and entrepreneurship.
b.
entrepreneurship, land, and capital.
c.
labor, capital, and entrepreneurship.
d.
labor, entrepreneurship, and capital.
d
147.
d
Resources, or factors of production, are scarce:
a.
only because of inefficiency; if we produced efficiently scarcity would disappear.
b.
both in an absolute sense and relative to the wants and needs they must satisfy.
c.
in an absolute sense, but not relative to the wants and needs they must satisfy.
d.
relative to the wants and needs they must satisfy, but some are abundant in an absolute sense.
148.
d
Which of the following is NOT a basic element of a model?
a.
Assumptions, which are conditions held to be true in developing economic theories.
b.
Two variables whose relationship is to be explored.
c.
Data collection and analysis.
d.
Recommendations for action based on the reported relationship between the variables.
149.
b
Which of the following statements concerning economic theories is FALSE?
a.
A model is a setting within which an economic theory is presented.
b.
Any time a hypothetical situation is created in a model or in a theory, the model or theory
becomes invalid.
c.
Theories are generalized explanations of the relationships between economic variables.
d.
Since a graph illustrates a relationship between variables, a graph could portray an economic
theory.
150.
a
Which of the following is an example of an economic policy?
a.
A tax cut passed by Congress to reduce unemployment.
b.
Statistics indicating the rate of unemployment since 2000.
c.
An explanation as to why a tax cut might reduce unemployment.
d.
The relationship between changes in taxes and rates of unemployment.
151.
d
If A increases as B decreases, then A and B are:
a.
directly related, and the line showing their relationship slopes upward on a graph.
b.
directly related, and the line showing their relationship slopes downward on a graph.
c.
inversely related, and the line showing their relationship slopes upward on a graph.
d.
inversely related, and the line showing their relationship slopes downward on a graph.
152.
How much of good X would be demanded at a price of $15.00 if the relationship between the price of
good X and the quantity demanded were shown by the equation:
quantity demanded = 1000 - 50 (price of good X)?
a.
50 units.
b.
250 units.
c.
750 units.
d.
950 units.
b
153.
c
A point inside, or to the left of, a production possibilities curve indicates that:
a.
the economy is growing.
b.
the economy is operating at full employment.
c.
some of the economy’s resources are unemployed.
d.
more of one good can be produced only by giving up some of another good.
Answer questions 154 through 157 on the basis of the following production
possibilities curve.
154.
d
Currently, it would be impossible for this economy to
produce the combination of goods X and Y shown by :
a.
A.
b.
B.
c.
D.
d.
E.
155.
b
A move from B to D would occur if the economy:
a.
experienced economic growth.
b.
began to experience some unemployment.
c.
went from unemployment to full employment.
d.
none of the above.
156.
d
Which of the following statements is true?
a.
There is no opportunity cost when going from
B to C.
b.
The economy cannot go from B to C because it is at full employment at point B.
c.
The opportunity cost of going from B to C is the amount of good Y that must be given up.
d.
The opportunity cost of going from B to t C is the amount of good X that must be given up.
157.
c
If the economy were growing, the production possibilities curve would:
a.
remain in its current position.
b.
shift inward to the left.
c.
shift outward to the right.
d.
become perfectly horizontal.
158.
c
Which of the following is an example of a capital good?
a.
In-line skates.
b.
Frozen yogurt.
c.
A cash register.
d.
Food donated to flood victims.
159.
The study of the U.S. economy as a whole, and how all households in the economy interact with all
businesses and the government is:
a.
macroeconomics.
b.
megaeconomics.
c.
metaoeconomics.
d.
microeconomics.
a
160.
c
(appendix) Which of the following steps in constructing a graph would result in a faulty graph?
a.
Use a zero at the origin where the vertical and horizontal axes meet.
b.
When assigning numbers, use equal spaces for equal amounts.
c.
When assigning numbers to the horizontal axis, work from right to left along the axis so that
the largest number is at the origin.
d.
Plot data points that reflect specific combinations of the two variables, and connect the points.
Chapter 2
141.
c
Which of the following is NOT one of the three basic economic decisions?
a.
Who will receive goods and services.
b.
How goods and services will be produced.
c.
When and where goods and services will be produced.
d.
What and how many goods and services will be produced.
142.
c
Markets are important in economies where decisions are made:
a.
collectively.
b.
by planners.
c.
by individuals.
d.
by the government.
143.
b
In a pure market economy, buyers and sellers communicate their intentions to one another through:
a.
planners.
b.
prices paid or charged.
c.
individuals elected to public office.
d.
negotiations overseen by government agencies.
144.
b
In a pure market economy:
a.
households buy and businesses sell resources.
b.
goods and services are distributed to those who can afford them.
c.
what is produced is based on what businesses think is best for society.
d.
goods and services are produced using the smallest total number of resources.
145.
c
Which of the following occurs in a pure market economy?
a.
Businesses are guaranteed a profit.
b.
Government has an important role in the circular flow model.
c.
Households are sellers and businesses are buyers in resource markets.
d.
Collective decision making is valued more highly than individual decision making.
E
146.
d
Which of the following statements is FALSE?
a.
In a market economy, goods and services are produced using least-cost production techniques.
b.
In a market economy, the basic economic questions are answered through the interaction of
buyers and sellers.
c.
In a planned economy, how goods and services are produced is determined largely by the
resources made available to producers.
d.
In most economies, the basic economic decisions are made either entirely by private
individuals, or entirely by centralized authorities.
147.
The economic system in which all of the basic decisions are made through a centralized authority, such
as a government agency, is termed a:
a.
mixed economy.
b.
planned economy.
c.
capitalistic economy.
d.
market socialist economy.
b
148.
c
A lack of incentives to protect the environment when producing goods and services is a weakness of:
a.
a pure market economy.
b.
a pure planned economy.
c.
both a pure market economy and a pure planned economy.
d.
neither a pure market economy nor a pure planned economy.
Answer questions 149 through 151 on the basis of the following circular flow
model.
149.
b
If this were a pure market
economy, households would be
shown by:
a.
box A.
b.
box B.
c.
lines (1) and (2).
d.
none of the above.
150.
b
Line (3) illustrates the flow of:
a.
factors of production.
b.
goods and services to
their final users.
c.
payments to owners of
factors of production.
d.
payments for the
purchase of goods and
services.
151.
b
The flow of resources to businesses is shown by:
a.
line (1).
b.
line (2).
c.
152.
b
Free enterprise exists where:
a.
limits are set on how much government can tax.
b.
businesses can make their own decisions and seek profits.
c.
the government provides free goods and services to the needy.
d.
resources are publicly owned and available free to anyone who wants to produce goods and
services.
line (3).
d.
lines (2) and (3).
153.
b
The economic system where private individuals own the factors of production is:
a.
socialism.
b.
capitalism.
c.
collectivism.
d.
a people’s republic.
154.
c
After studying the various economic systems, it is clear that:
a.
the U.S. has a pure market economy.
b.
an economy based on collective decision making needs markets to function.
c.
the economies of the world can be differentiated from one another by how they mix individual
and collective decision making.
d.
all of the above.
155.
Since the mid-1990s, the economies of Eastern Europe, the former Soviet Union, and China have
depended:
a.
completely on central planning.
b.
completely on individual decision making.
c.
less on individual decision making than before.
d.
more on individual decision making than before.
d
156.
a
The economic system, important in Britain in the 17th and 18th centuries, in which national economic
interests outweighed individuals' economic interests, was:
a.
mercantilism.
b.
market socialism.
c.
laissez-fair capitalism.
d.
a free enterprise system.
157.
a
Which of the following statements about the U.S. economy is true?
a.
A major current concern is over the size of the federal debt.
b.
The Sherman Act was passed to ensure there would be full employment.
c.
The New Deal programs decreased government's role in the economy during the 1930s.
d.
The Employment Act of 1946 was passed to control poor working conditions.
158.
The economic programs and legislative reforms developed in the U.S. during the Great Depression
were named:
a.
the New Deal.
b.
the Employment Act.
c.
Free Enterprise Reforms.
d.
none of the above.
a
Answer questions 159 and 160 on the basis of the following figure.
159.
d
The type of economy advocated by Adam Smith in The Wealth of Nations would operate at or near point:
a.
A.
b.
C.
c.
D.
d.
F.
160.
The change in the U.S. economy following the Employment Act of 1946 might best be illustrated by a
movement from point:
a.
B to point A.
b.
E to point D.
c.
F to point D.
d.
F to point A.
b
Chapter 3
181.
b
The Law of Demand states that:
a.
there is a direct relationship between a product's price and the quantity demanded.
b.
the quantity demanded of a product will decrease when the product's price increases.
c.
the demand curve for a product will shift to the left when the product's price increases.
d.
consumers buy more of a product when its price is low because sellers supply more.
182.
c
When constructing a supply schedule for a product, nonprice factors affecting supply:
a.
and the product's price are held constant.
b.
and the product's price are allowed to change.
c.
are held constant, but the product's price is allowed to change.
d.
are allowed to change, but the product's price is held constant.
183.
If the equilibrium price of a product were $6 and the actual price charged in the market were $8, you
would expect:
a.
a shortage of this product at $6.
b.
a surplus of this product at $8.
c.
the equilibrium price to rise to $8.
d.
the amount supplied to be equal to the amount demanded at $8.
b
184.
d
A surplus of a product in a market indicates that the quantity demanded:
a.
exceeds the quantity supplied and that the equilibrium price is above the price charged.
b.
exceeds the quantity supplied and that the equilibrium price is below the price charged.
c.
is less than the quantity supplied and that the equilibrium price is above the price charged.
d.
is less than the quantity supplied and that the equilibrium price is below the price charged.
185.
b
A change in the quantity supplied of a product:
a.
means the entire supply schedule changes.
b.
is caused by a change in the price of the product.
c.
is caused by a change in the number of sellers in the market.
d.
causes the product supply curve to shift to the right or left.
186.
b
The demand curve for a product would shift to the left if:
a.
the price of the product decreased.
b.
the popularity of the product decreased.
c.
the number of sellers in the market decreased.
d.
buyers expected the product's price to be much higher in the future.
187.
d
Which of the following would cause an increase in the supply of a particular product?
a.
The product's price increases.
b.
The cost of producing the product increases.
c.
The profit on another product the seller produces increases.
d.
None of the above.
Answer questions 188 through 191 on the basis of the following graph.
188.
a
189.
d
190.
a
191.
d
192.
a
An increase in the number of sellers in the market
would cause a movement from:
a.
S1 to S2. b.
S2 to S1.
c.
D1 to D2.
d.
D2 to D1.
The movement from point B to point C represents:
a.
a decrease in demand.
b.
a decrease in quantity demanded.
c.
an increase in supply.
d.
an increase in quantity supplied.
The movement from D2 to D1 represents:
a.
a decrease in demand.
b.
an increase in demand.
c.
a decrease in quantity demanded.
d.
an increase in quantity demanded.
There would be a surplus in this market if the price
were:
a.
$2.00 and demand and supply were shown by D2 and S1.
b.
$2.00 and demand and supply were shown by D2 and S2.
c.
$3.00 and demand and supply were shown by D2 and S1.
d.
$3.00 and demand and supply were shown by D1 and S2.
If there were an increase in the demand for a product in a market and no change in supply, you would
expect:
a.
an increase in the product's equilibrium price and equilibrium quantity.
b.
an increase in the product's equilibrium price and a decrease in its equilibrium quantity.
c.
a decrease in the product's equilibrium price and an increase in its equilibrium quantity.
d.
a decrease in the product's equilibrium price and equilibrium quantity.
193.
a
A decrease in the equilibrium price and quantity of a good sold in a market would be caused by:
a.
a decrease in the number of buyers in the market.
b.
a decrease in the cost of producing the good sold in the market.
c.
an increase in the number of sellers in the market.
d.
an increase in the price of a good that competes with the good sold in the market.
194.
If there were a decrease in the cost of producing a good sold in a market, you would expect the market's
equilibrium price:
a.
and equilibrium quantity to decrease.
b.
and equilibrium quantity to increase.
c.
to decrease and equilibrium quantity to increase.
d.
to increase and equilibrium quantity to decrease.
c
195.
b
If the price of a product is at its legally imposed ceiling rather than at equilibrium, then:
a.
a surplus develops.
b.
a shortage develops.
c.
no surplus or shortage develops.
d.
the ceiling price must be above the equilibrium price.
Answer questions 196 and 197 on the
basis of the following figure.
196.
d
197.
c
198.
b
199.
c
200.
c
If the government imposed a price floor of
$5.00 in this market there would be:
a.
a surplus of 1800 units.
b.
a shortage of 1200 units.
c.
a shortage of 1800 units.
d.
none of the above.
If the government imposed a price ceiling of
$5.00 in this market there would be:
a.
a surplus of 1200 units.
b.
a surplus of 1800 units.
c.
a shortage of 1800 units.
d.
none of the above.
(appendix) If the price elasticity of demand for a product were 0.8, buyers' demand for that product
would be:
a.
price elastic.
b.
price inelastic.
c.
unitary price elastic.
d.
directly related to the product's price.
(appendix) Price elasticity of demand is equal to:
original quantity demanded
original price
a.
|
b.
|
c.
|
percentage change in quantity demanded
percentage change in price
|.
d.
|
percentage change in price
percentage change in quantity demanded
|.
change in price
change in quantity demanded
|.
|.
(appendix) 100 units of a product were supplied by sellers at a price of $20 per unit, but only 70 units
are supplied because the price fell to $16. The price elasticity of supply for this product is:
a.
0.67.
b.
1.0.
c.
1.5.
d.
3.0.
10
Households and Businesses:
131.
c
Over recent years in the United States the number of households:
a.
and the average number of persons per household have been increasing.
b.
and the average number of persons per household have been decreasing.
c.
has been increasing and the average number of persons per household has been
decreasing.
d.
has been decreasing and the average number of persons per household has
been increasing.
H
132.
a
E
133.
d
H
134.
c
M
135.
b
E
136.
d
An Overview
The majority of earned income in the United States is:
a.
wages.
b.
profits.
c.
interest.
d.
transfer payments.
From 1980 through 2005:
a.
transfer payments increased as a percentage of total income.
b.
proprietor’s income increased as a percentage of total income.
c.
labor income remained the largest component of total income.
d.
all of the above.
You would expect the highest average money income to go to households headed by
a:
a.
married couple.
b.
person 65 years of age or older.
c.
person with a bachelor’s degree.
d.
person between 25 and 34 years of age.
A good with a useful lifetime of more than one year is a:
a.
normal good.
b.
durable good.
c.
consumer good.
d.
nondurable good.
Individuals in households maximize their economic well-being by:
a.
working as few hours as possible.
b.
buying the lowest priced items they can find.
E
c.
d.
137.
To maximize satisfaction from consuming goods and services, a person should
purchase the:
a.
trendiest goods available.
b.
least expensive goods available.
c.
goods they have wanted for the longest time.
d.
goods that add the most utility per dollar spent.
d
M
138.
a
H
139.
c
M
140.
c
M
141.
d
M
acquiring as many goods and services as possible.
none of the above.
If you receive the same amount of satisfaction from a grocery store's house brand soda
as you do from a popular name brand soda that costs twice as much, to maximize
satisfaction you should drink:
a.
the house brand soda.
b.
equal amounts of each.
c.
one-half as much as you normally do, but drink the name brand soda.
d.
neither one since you cannot arrive at a perfect relationship between them.
Suppose Good X costs twice as much as Good Y. To maximize satisfaction, you should
buy Good X only if it adds at least:
a.
half as much satisfaction as is added by Good Y.
b.
as much satisfaction as is added by Good Y.
c.
twice as much satisfaction as is added by Good Y.
d.
none of the above.
To maximize satisfaction from earning income you should:
a.
always choose the higher paying of two jobs.
b.
work as many hours as possible in order to purchase more want-satisfying
goods and services.
c.
balance the additional satisfaction from the income against what is given up to
earn that income.
d.
determine which goods and services you want, and then work only as much as
is needed to afford those products.
Which of the following statements about a partnership is FALSE?
a.
It is not necessary to obtain a charter to form a partnership.
b.
Total partnership receipts are less than total corporate receipts.
c.
A partnership is a business organization owned by two or more persons.
d.
142.
b
E
143.
b
M
144.
a
E
145.
d
E
146.
b
E
147.
c
It is possible to form a partnership where none of the partners have unlimited
liability for the debts of the business.
Who of the following is NOT personally responsible for all the debts of a business?
a.
A sole proprietor.
b.
A stockholder in a corporation.
c.
A general partner in a partnership.
d.
None of the above are personally responsible for all the debts of the business.
The ownership share in a corporation that does not return a specified dividend to its
holder is:
a.
a bond.
b.
common stock.
c.
preferred stock.
d.
a letter of credit.
Which of the following is NOT an owner of a company?
a.
A bondholder.
b.
A sole proprietor.
c.
A general partner.
d.
A preferred stockholder.
The majority of business firms in the United States are organized as:
a.
trusts.
b.
corporations.
c.
partnerships.
d.
sole proprietorships.
The majority of business receipts in the United States goes to:
a.
trusts.
b.
corporations.
c.
partnerships.
d.
sole proprietorships.
A communications company acquiring a clothing manufacturer is an example of a:
a.
vertical merger.
b.
horizontal merger.
H
c.
d.
148.
b
A holding company is a corporation:
a.
that has been acquired in an unfriendly takeover.
b.
whose purpose is to own stock in other corporations.
c.
whose charter is under review by a state government.
d.
owned by another corporation for the purpose of issuing bonds.
E
149.
c
E
150.
a
M
conglomerate merger.
none of the above.
In economics, it is generally assumed that the basic goal of a firm is to:
a.
maximize sales revenue.
b.
drive its rivals out of business.
c.
maximize profit or minimize loss.
d.
maximize the recognition of the company among its buyers.
Profit maximization:
a.
is not the only goal a business may pursue.
b.
cannot be achieved by a business concerned with protecting its workers and the
environment.
c.
is likely not to be an objective of executives who do not own stock in the
corporations they manage.
d.
all of the above.