Multiple Choice Tutorial
Chapter 1
Why Economics?
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1. When is a good or service scarce?
a. it is rare and hard to come by.
b. there is not enough of it available for
everybody who wants it for free.
c. there is plenty available for everyone who
wants it.
d. there is a shortage.
B. Scarcity means that there is not enough of
something so that everyone who wants it
cannot have it for free. In this case, how do
we decide who gets? Everything that is scarce
will have a price, the price determines who
gets and who does not get.
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2. Human wants and desires are
a. eventually satisfied in any society
b. constant from one time period to the next
c. virtually unlimited
d. limited and scarce
C. In our analysis of economics we assume
that when given a choice, people would
want more rather than less. Each time
people make a choice between alternatives,
the choice made is the one that they believe
will increase their total welfare.
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3. Scarcity is an economic problem
a. only in capitalist economies.
b. only in command economies.
c. only in poor countries.
d. in every country and in every household.
D. The only way not to have scarcity is for
everyone to have everything they want for
free, an impossible situation.
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4. Economic analysis would be unnecessary if
there were no
a. taxes
b. government
c. scarcity
d. money
C. All of economic analysis revolves around
the fact that we live in a world of scarce
resources. Therefore, the problem becomes,
how do we meet people’s wants and needs
in this world of scarcity?
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5. Because resources are scarce,
a. opportunity costs are zero
b. people must make choices among
alternatives
c. all human wants and desires can be
satisfied
d. resource prices are flexible
B. No matter what economic system people
live in, all people’s in every society are faced
with the problem of scarcity.
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6. Economics deals with the problems caused by
a. scarce resources and unlimited wants.
b. scarce resources and limited wants.
c. abundant resources and unlimited wants.
d. abundant resources and limited wants.
A. No matter what political system people
live under there will always be people
who want more than the economy can
provide them for free.
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7. Resources are divided into the following
broad categories:
a. men, money, and machines.
b. saving, spending, investment, and capital.
c. human, technological, and government.
d. land, labor, capital, and entrepreneurial
ability.
D. The four resources to grow an
economy are land, labor, capital, and in
a free market, entrepreneurship. In a
command system, the fourth resource
would be the government.
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8. In economics, “land” refers
a. only to plots of ground on the surface of the
earth.
b. to the specific area of the earth in a
country or region.
c. to rural regions as distinguished from
urban areas.
d. to any and all natural resources.
D. A land resource is anything from the earth.
Some examples of a land resource are:
timber, fresh water, fertile land, copper, iron
ore, gold, silver, and anything else that can be
used from the earth that can be used to
produce goods and services.
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9. Physical and mental human effort in the
attempt to solve the economic problem is
defined in economics as
a. labor
b. manpower
c. productivity
d. performance
A. The labor that we are talking about here is
directed and productive labor. Labor that is
directed to the production of goods and
services helps build a productive economy.
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10. Labor is ultimately derived from
a. capital
b. technology
c. natural resources
d. time
D. This is particularly true when it comes to
skilled labor. It takes time to acquire the
knowledge and skills to be productive in this
high tech economy we live in.
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11. In economics, “capital” refers to
a. money.
b. stocks, bonds, and other financial assets.
c. the seat of government.
d. machines, buildings, and tools.
D. Capital are those resources which can be
used to produce goods and services.
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12. Which of the following is not an example
of “capital”?
a.the copy machine which duplicated this
exam
b. an economics professor’s knowledge of
economics
c. the building in which this class is located
d. the amount of tuition which you paid for
this class
D. The copy machine and the school building
are tangible things used in the productive
process. The economic professor’s knowledge
is what we call human capital, the knowledge
necessary to work with capital. But the tuition
you pay is neither capital or human capital.13
13. An entrepreneur is
a. an intermediary between buyers and sellers
in the marketplace.
b. the organizer who seeks profitable
opportunities and is willing to accept risks.
c. a business organization involved in using
inputs to produce output.
d. the administrator who runs an enterprise
without accepting any risk of financial loss.
B. Someone has to decide what and how to
produce goods, in a command economy it is
the government, in a free market, it is the
entrepreneur.
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14. The driving force which directs and grows
the economy in a free market economy is
a. physical capital
b. technological ability
c. entrepreneurship
d. human labor
C. Anyone can be an entrepreneur, it does not
necessarily take a lot of money.
Entrepreneurship is an attitude more than
anything else. If you have dreams of owning
your own business and have a plan to start
and and develop that business into a
profitable venture, and take action on your
dreams, you are an entrepreneur.
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15. What is the difference between a democracy
and a republic?
a. In a democracy the majority rules whereas
a republic is a system based on law
b. There is no difference between a
democracy and a republic
c. A republic requires free elections whereas
a democracy does not
d. None of the above
A. According to our Constitution we are a
democracy in a republic, the purpose of many
laws is to protect the minority from the majority
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16. In the 1600s and 1700s the purpose of
colonies was to
a. Enrich the mother country
b. Spread Christianity
c. Explore new land
d. Spread the free market economy
throughout the world
A. The purpose of colonies, which America
was one, was to enrich the mother country,
in our case , England
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17. In a production process, profit is the
payment received by the
a. capital.
b. labor
c. technology.
d. entrepreneur.
D. The reward to someone to take risks in a
business venture is called profit.
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18. Profit is also known as
a. rent
b. mark-up
c. the monetary aggregate
d. the residual claimed by the entrepreneur
D. Residual is that which is left over. When
one tallies up the total revenue and the
total costs as a result of a business venture,
if there is something left over, that
something is called profit. If there is a
deficit, a loss is incurred.
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19. Unlike a service, a good
a. is desirable
b. uses resources to satisfy wants
c. is physical and tangible
d. is abundant and free
C. The word ‘good’ is a term economists use
to signify something physical and tangible
that is useful.
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20. Adam Smith believed that
a. A strong central government promoted
economic efficiency and growth
b. A republic would always foster economic
freedom and growth
c. Everyone would benefit from international
trade and minimal government
d. A pure democracy was the best form of
government
C. Adam Smith, the father of modern day
economics, believed that the invisible hand
of self interest would guide a free market
economy to prosperity and growth
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21. Which of the following is a trait of an
entrepreneur?
a. They own and sell resources
b. They are risk takers
c. produce goods and services
d. all of the above
d. Without the influence of the entrepreneur
a free market system could not function, if
the entrepreneur is not the driving force,
then the government takes over by default
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22. Which of the following traits are you
demonstrating because you are a student?
a. You have learned the lesson of delayed
gratification
b. You are a risk taker
c. You have learned that to have more
time and money in the future you have to
give up time and money
d. All of the above
d. You are demonstrating some of the traits
of an entrepreneur by the fact that you
are in college
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23.The labor market is an example of a
a. government market.
b. classified market.
c. communication market.
d. resource market.
D. Labor is one of the four resources. The
market that labor is bought and sold is
therefore called the resource market.
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24. The economic behavior of individual
decision makers and the determination of
price and output in specific markets are both
studies in
a. microeconomics.
b. macroeconomics.
c. positive economics.
d. normative economics.
A. Microeconomics is the study of the decision
making process of economics.
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25. In macroeconomics, we analyze the
a. all of the following.
b. overall performance of the economy as a
whole.
c. arrangements through which specific
products are exchanged.
d. influences on the decision making of
particular households.
B. Macroeconomics is the study the economy in
the large, it’s like if you were flying over the
economy and able to see how all the different
parts fit together.
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26. The assumption of rational self-interest
means that economic decision makers
a. have no concern for the welfare of others.
b. consider the welfare of others to be more
important than their own happiness.
c. know with certainty which choice will have
the best result.
d. make reasonable decisions based on their
expectations of results.
D. In order to make predictions as what people
will do when faced with choices, we have to
assume that they will act rationally.
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27. In a free market
a. There is always strife
b. Nothing is constant, everything is in flux
c. Economic slumps are inevitable
d. All of the above
d. In our attempt to avoid inequities,
slumps, and anything else we find
objectionable we often make the situation
worse, not better. We cannot thwart the
market.
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28.Rational economic decision makers will
make a change only if
a. the change is free of risk
b. there are no costs involved
c. their expectations are correct
d. expected marginal benefit exceeds
expected marginal cost
D. Marginal benefit is measured by how much
benefit one receives from the last act;
marginal cost is a measure of the cost of that
last act. One will chose to do something if the
marginal benefit of the last act is greater than
the marginal cost of that last act.
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29.When economic choice involves adjustment
to the existing situation, marginal analysis
a. has no practical applications or real-world
uses.
b. eliminates incorrect decisions and bad
choices.
c. means comparing the additional costs and
additional benefits of an activity before
deciding.
C. People make decisions based on the margin.
For example, a person will buy a soda pop
only if the expected pleasure received is
greater than the value placed on the money
that has to be given up to purchase the drink.
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30. Economic information
a. is scarce and costly to acquire
b. is available for free to any decision maker
c. is not required for rational decision making
d. must be complete before any decision is
made
A. The government and businesses spend an
enormous amount of resources on acquiring
information.
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31. The price mechanism
a. Gives incentives to the supplier
b. Determines the distribution of income
c. Will provide the skilled worker with a good
income
d. All of the above
D. The price mechanism can only work if we
allow prices to fluctuate in accordance to
market forces, the more we impede this free
flow of prices the less smooth the economic
system operates.
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32. The purpose of our Constitution is
a. To make sure the federal government has
enough power to regulate the economy
b. To make sure there is an equal distribution
of income
c. To make sure power remains decentralized
c. The largest threat to our personal freedom is
centralized power. Our Constitution divides
the power base among different parts of
government.
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33. The “ceteris paribus” assumption means
a. “after all other changes have been taken
into consideration”.
b. “all economic decision makers behave
according to rational self-interest”.
c. “marginal benefit equals marginal cost”
d. “holding all other variables constant”.
D. Economists can make predictions only if one
variable changes and everything else stays
the same. For example, people will buy more
Cadillac cars when the price goes down,
assuming that their incomes or the price of
other luxury cars do not change.
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34. In a free market profits are maximized when
a. Prices are kept as high as possible
b. Costs and prices both decline
c. The government controls prices
b. A good example of this principle is WalMart. Wal-Mart has prospered by lowering
its costs and then lowering its prices to
increase its sales volume.
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35. What causes unemployment?
a. A shortage of goods and services
b. Consumer’s greed
c. Greed on the part of business owners
d. A surplus of goods and services on the
market
D. That one thing that will cause business
owners to lay off employees is when they are
producing, or purchasing wholesale, more
units than they are selling retail.
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36. Which of the following events ushered in the
Great Depression of the 1930s
a. The Smoot Hawley Tariff
b. A decrease in the money supply
c. An increase in taxes
d. All of the above
D. The build up of excessive inventory due to
business greed led to the unemployment
problem in the early 1930s, but it was these
three policies of the government after
unemployment became a problem that
actually ushered in the depression.
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37.The difference between positive economic
statements and normative economic
statements is that
a. positive statements are based on opinion
and normative statements are based on fact.
b. positive statements are true and normative
statements are often false.
c. positive statements are based on fact and
normative statements are based on opinion.
C. Positive economics is the study of what
actually happens. For example, to predict that
people will buy more Cadillac cars when the
price goes down is an example of positive
economics. To say that people should not waste
money on luxury is normative economics. 38
38. What was the purpose of the Smoot-Hawley
Tariff in the early 1930s?
a. To raise money
b. Encourage international trade
c. To help bring down inflation
d. To increase the price of imports
d. The thinking was that if we raised the price of
imports Americans would buy more domestic
products. However, the higher prices led to a
decrease in buying power which made the
unemployment problem worse.
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39. The depression of 1920-1921 was
a. As severe as the depression of the 1930s
b. Was brief and swift
c. Was a case where the economy was allowed
to correct the problem itself
c. We did not come in and impose all kinds of
government programs as we did in the 1930s.
Some economists believe that it was
government policies of the 30s which led to
the length and severity of the depression.
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40. The increase in the size and expense of
national government worldwide has had a
very negative side effect. That side effect is
a. An increase in debt worldwide
b. Smaller government
c. A fall in the value of the dollar
d. None of the above
A. Large and increasing debts on the part of
almost all governments worldwide is causing
severe economic problems worldwide and
limits our ability to solve our problems.
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END
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