Economics Unit 1

1) Economics is best defined as the
A) study of how people make choices to satisfy their wants.
B) study of individual self-interests.
C) study of how government can most efficiently raise funds by taxation.
D) process by which goods are sold in free markets.
A) study of how people make choices to satisfy their wants.
2) In economic analysis, people’s resources are
A) limited and their wants are unlimited.
B) unlimited and their wants are also unlimited.
C) limited and their wants are also limited.
D) unlimited and their wants are limited.
A) limited and their wants are unlimited.
3) In economics, items that are used to produce goods and services are known as
A) wants.
B) aggregates.
C) factors of need.
D) resources.
D) resources.
4) Economics is a part of the
A) social sciences.
B) natural sciences.
C) biological sciences.
D) organizational sciences.
A) social sciences.
5) Microeconomics is defined as that part of economic analysis that
A) studies the behavior of the economy as a whole.
B) includes the problems of inflation and unemployment.
C) studies individual decision making by households and firms.
D) concerns aggregate production and consumption.
C) studies individual decision making by households and firms.
6) Macroeconomics is the study of
A) aggregate economic variables.
B) output in particular industries.
C) prices in particular industries.
D) all of the above.
A) aggregate economic variables.
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7) One topic of study for a microeconomist would be the
A) causes of inflation.
B) causes of aggregate unemployment.
C) effects of a gasoline price increase on consumer behavior.
D) effects of an increase in government spending on overall economic activity.
C) effects of a gasoline price increase on consumer behavior.
8) Which of the following would likely be studied in a macroeconomics course?
A) the unemployment rate
B) total output for an economy
C) the inflation rate
D) all of the above
D) all of the above
9) Another word for “aggregate” is
A) government.
B) partial.
C) public.
D) total.
D) total.
10) An economic system is
A) the universe of all resources.
B) a way to create new resources.
C) a mechanism to allocate scarce resources.
D) an organization that generates profits.
C) a mechanism to allocate scarce resources.
11) Which of the following is NOT one of the basic questions that an economic system attempts to answer?
A) How to eliminate choices?
B) What to produce?
C) How much will goods and services be produced?
D) For whom will goods and services be produced?
A) How to eliminate choices?
12) What is the type of economic system that relies on one central authority to make economic decisions?
A) Free market
B) Price system
C) Command system
D) Mixed economic system
C) Command system
13) A mixed economic system is best described an economy with a mix of
A) state and federal governments.
B) domestic and foreign buyers.
C) free markets and government control.
D) for-profit organizations and not-for-profit organizations.
C) free markets and government control.
14) In a market system, ________ provide signals about whether resources are relatively scarce or abundant.
A) prices
B) economists
C) government officials
D) scientists and engineers
A) prices
15) Economists assume that people are motivated by
A) benevolence.
B) altruism.
C) greed.
D) rational self-interest.
D) rational self-interest.
16) The potential rewards that are available to an individual if a particular activity is undertaken are known as
A) premiums.
B) gifts.
C) incentives.
D) intrinsic values.
C) incentives.
17) If the government offers to reduce your property taxes by 10 percent if you install solar heating for your home, this would be an example of
A) police power.
B) incentives.
C) disincentives.
D) ceteris paribus.
B) incentives.
18) A simplified representation of the real world that is used to explain economic phenomena is a(n)
A) map.
B) model.
C) assumption.
D) implication.
B) model.
19) Holding all variables constant but one and assessing the impact of the one variable that has changed is an example of using
A) the ceteris paribus assumption.
B) an economic model based on unrealistic assumptions.
C) a flawed economic model.
D) an untestable proposition.
A) the ceteris paribus assumption.
20) Why is economics called an empirical science?
A) because economics has been used to both create and destroy empires
B) because economics uses impressions to evaluate the usefulness of its models
C) because economics relies on real-world data to determine the usefulness of a model
D) because economics utilizes intuition rather than data to evaluate a model’s worth
C) because economics relies on real-world data to determine the usefulness of a model
21) In the production of goods and services, trade-offs exist because
A) not all production is efficient.
B) society has only a limited amount of productive resources.
C) buyers and sellers often must negotiate prices.
D) human wants and needs are limited at a particular point in time.
B) society has only a limited amount of productive resources.
22) The difference between scarcity and a shortage is that
A) scarcity is caused by poverty and shortages are caused by natural disasters.
B) shortages are a type of scarcity caused by natural disasters while scarcity is caused by human errors.
C) scarcity always is a part of human life while shortages usually are temporary.
D) shortages are always part of human life while scarcity is usually temporary.
C) scarcity always is a part of human life while shortages usually are temporary.
23) In 2006, hurricanes damaged many parts of Texas, destroying homes, businesses, schools, and infrastructure. In strictly economic terminology, these hurricanes are said to have caused
A) scarcity, because the damages made food and shelter scarce.
B) scarcity, because some goods were difficult to get.
C) shortages, because supplies were cut off and goods were destroyed.
D) tradeoffs, because some areas of the country were damaged when others were not.
C) shortages, because supplies were cut off and goods were destroyed.
24) Human resources that perform the functions of organizing, managing, and assembling the other factors of production are called
A) physical capital.
B) venture capital.
C) entrepreneurs.
D) productive capital.
C) entrepreneurs.
25) In economic terminology, when a resource is used to produce output it is referred to as
A) an intangible.
B) a factor of production.
C) a service.
D) a fifth element.
B) a factor of production.
26) Physical capital is distinguished from human capital because
A) physical capital refers to trained people.
B) physical capital refers to equipment and machinery, whereas human capital refers to trained people.
C) human capital refers only to day laborers.
D) physical capital refers to trained people, whereas human capital refers to equipment and machinery.
B) physical capital refers to equipment and machinery, whereas human capital refers to trained people.
27) Human capital is
A) what people get from physical capital.
B) the accumulation of skills, training and education of workers.
C) the value obtained from selling stocks and bonds.
D) the human resources that perform the function of raising capital.
B) the accumulation of skills, training and education of workers.
28) Economic goods are defined as
A) tangible items only.
B) services only.
C) anything from which an individual derives satisfaction.
D) any item which is available in sufficient quantity at zero price.
C) anything from which an individual derives satisfaction.
29) A tractor used to prepare land for planting is called
A) land.
B) labor.
C) physical capital.
D) human capital.
C) physical capital.
30) Naturally occurring diamonds are an example of
A) land.
B) labor.
C) physical capital.
D) human capital.
A) land.
31) Opportunity cost is defined as
A) the value of the next-best alternative that must be sacrificed to attain a want.
B) the least-costly means to produce output.
C) the value of the output currently received by an individual or a corporation.
D) the return from a given unit of labor.
A) the value of the next-best alternative that must be sacrificed to attain a want.
32) Opportunity costs arise from
A) choices.
B) taxes.
C) mistakes.
D) regrets.
A) choices.
33) The production possibilities curve represents
A) the maximum amount of labor and capital available to society.
B) the combinations of goods and services among which consumers are indifferent.
C) the maximum combination of goods and services that can be produced with fixed resources and technology, given efficient use of the resources.
D) the maximum rate of growth of capital and labor in a country
C) the maximum combination of goods and services that can be produced with fixed resources and technology, given efficient use of the resources.
34) A country operates inside its production possibilities curve; this may be caused by
A) unemployed resources.
B) total efficiency in industry.
C) a new resource being discovered.
D) a lack of modern products being produced.
A) unemployed resources.
35) How is economic growth shown by the production possibilities curve?
A) By shifting the curve to the right.
B) By moving the curve to the left.
C) By moving up the existing curve.
D) By changing the shape of the curve from a straight line to one that is bowed.
A) By shifting the curve to the right
36) Generally, if a nation produces more consumer goods than capital goods
A) more of all goods may be produced in the future.
B) less of all goods may be produced in the future.
C) about the same amount of capital goods may be produced in the future as are being produced today.
D) society will have to forego future consumption of capital goods .
B) less of all goods may be produced in the future.
37) Comparative advantage is
A) when a country can produce a good at a lower opportunity cost compared to other countries.
B) when a country can produce all goods more quickly than any other country.
C) when the production possibilities curve shifts outward to the right.
D) only for individuals and not countries.
A) when a country can produce a good at a lower opportunity cost compared to other countries.
38) Which is the best example of specialization?
A) A high school math teacher who teaches only calculus.
B) A firm that produces both luggage and cooking oil.
C) A person whose job includes accounting, personnel and maintenance tasks.
D) A high
A) A high school math teacher who teaches only calculus.
39) Absolute advantage is
A) producing at a lower opportunity cost.
B) producing a good using the fewest inputs.
C) producing a good only when demand is high.
D) producing a good that requires imported components.
B) producing a good using the fewest inputs.
40) A person has a comparative advantage in an activity whenever she
A) has an absolute advantage in the activity.
B) can perform the activity at a lower opportunity cost than another person can.
C) can do the activity in less time than anyone else.
D) can do everything better than anyone else.
B) can perform the activity at a lower opportunity cost than another person can.
41) In economics, “demand” refers to
A) the intensity of desire for a good.
B) the amount of a good people need rather than the amount they want.
C) the satisfaction a good will provide a person.
D) the quantities of a good that people will buy at various prices.
D) the quantities of a good that people will buy at various prices.
42) The law of demand states that
A) consumers have unlimited demands for a good.
B) a higher price will lead to increased sales.
C) the price can never be too high for some consumers.
D) quantity demanded will vary inversely with the price of the good.
D) quantity demanded will vary inversely with the price of the good.
43) A fundamental principle in demand analysis is that a change in price leads to
A) a movement along the demand curve.
B) a rightward shift of the demand curve.
C) a leftward shift of the demand curve.
D) a complementary movement on the supply curve.
A) a movement along the demand curve.
44) The money price of a good is that price
A) expressed in constant 2005 dollars.
B) expressed in purchasing power against a common item like bread.
C) expressed in today’s dollars.
D) that would clear the market.
C) expressed in today’s dollars.
45) The relative price of a good is that price
A) expressed in today’s dollars.
B) expressed in constant 2012 dollars.
C) expressed in terms of the price of another good.
D) that is equal to the equilibrium price.
C) expressed in terms of the price of another good.
46) Markets are
A) a mechanism through which prices of goods and services are determined by the forces of supply and demand.
B) specific geographic locations.
C) hypothetical constructs used to analyze how people form their tastes and preferences.
D) places where people can inspect goods and services carefully.
A) a mechanism through which prices of goods and services are determined by the forces of supply and demand.
47) Ceteris paribus, as the price of a good or service increases,
A) people will buy more of it.
B) people will buy less of it.
C) people will want less of it.
D) people will want more of it.
B) people will buy less of it.
48) The demand curve shows the relationship between quantity demanded and
A) income.
B) price.
C) supply.
D) quantity supplied.
B) price.
49) A demand curve
A) slopes down because of the inverse relationship between price and quantity demanded.
B) slopes up because of the direct relationship between price and quantity demanded.
C) can slope up or down depending on the tastes of the consumer.
D) is vertical for necessities, upward sloping for luxury goods, and downward sloping for all other goods.
A) slopes down because of the inverse relationship between price and quantity demanded.
50) Adding the quantities demanded by all consumers at every price will yield
A) the market-clearing price.
B) the number of consumers.
C) the total substitution effect from a price change.
D) the market demand curve.
D) the market demand curve.
51) If a decrease in the price of good A causes a decrease in demand for good B, the two goods are
A) substitutes.
B) complements.
C) normal.
D) inferior.
A) substitutes.
52) Assuming that turkey, chicken, pork, and beef are substitutes, suppose that the price of turkey has fallen. This will, other things being equal
A) reduce demand for chicken, pork, and beef.
B) leave demand for chicken, pork, and beef unchanged.
C) increase demand for chicken, pork, and beef.
D) increase quantity demanded of beef.
A) reduce demand for chicken, pork, and beef.
53) The quantity supplied of a particular good is the amount of the good that
A) households are willing to consume at each particular price.
B) firms will actually end up buying at a particular price during a given time period.
C) firms are willing to sell at each price during a particular time period.
D) households want firms to sell at each price during a particular time period.
C) firms are willing to sell at each price during a particular time period.
54) According to the law of supply,
A) people buy more of a good when the price increases.
B) people buy less of a good when the price decreases.
C) producers provide more of a good when the price decreases.
D) producers provide less of a good when the price decreases.
D) producers provide less of a good when the price decreases.
55) A given supply curve illustrates
A) the relationship between price and quantity supplied.
B) the effect of a change in resource costs on quantity supplied.
C) the effect of a change in technology on quantity supplied.
D) the relationship between expected future prices and quantity supplied.
A) the relationship between price and quantity supplied.
56) For typical goods, supply curves are
A) downward sloping.
B) upward sloping.
C) horizontal.
D) vertical.
B) upward sloping.
57) Total market supply can be derived by
A) horizontally summing individual supply curves at each and every price level.
B) vertically summing individual supply curves at the current technology level.
C) adding up the largest quantity demanded at various prices.
D) looking at the changes in the price of raw materials needed to produce the product.
A) horizontally summing individual supply curves at each and every price level.
58) Other things being equal, an increase in wages paid to workers in the steel industry will cause
A) the quantity of steel demanded to increase.
B) the quantity of steel supplied to decrease.
C) the supply of steel to decrease.
D) the demand for steel to decrease.
C) the supply of steel to decrease.
59) An improvement in technology in the production of computers would
A) increase the demand for computers.
B) increase the supply of computers.
C) decrease the demand for computers.
D) decrease the supply of computers.
B) increase the supply of computers.
60) There will be an increase in supply when
A) a consumer’s income increases.
B) there is an improvement in technology.
C) the demand curve shifts.
D) the market price rises from $3 to $4.
B) there is an improvement in technology.
61) A country’s labor force is equal to
A) the population between the ages of 16 and 65.
B) the number of employed people.
C) the total number of employed and unemployed people.
D) the total number of employed people, unemployed people, and discouraged workers.
C) the total number of employed and unemployed people.
62) The term “unemployment” is best described as the total number of
A) people not working.
B) people who have been laid off and have stopped looking for work.
C) adults who work fewer hours than they wish to work.
D) adults who are looking for work but have not found a job.
D) adults who are looking for work but have not found a job.
63) Individuals who have stopped looking for work because they are convinced that they will not find a job are considered
A) structurally unemployed.
B) discouraged workers.
C) part of the labor force.
D) underemployed.
B) discouraged workers.
64) The rate of unemployment is calculated as the number of
A) unemployed workers divided by the number of employed workers.
B) people in the civilian labor force divided by the number of unemployed.
C) unemployed divided by the number of people in the civilian labor force.
D) employed workers divided by the number of unemployed workers.
C) unemployed divided by the number of people in the civilian labor force.
65) To be officially counted as unemployed, a person must be
A) at least 16 years old.
B) at least 18 years old.
C) at least 21 years old.
D) any age, so long as you are looking for work.
A) at least 16 years old.
66) Costs of unemployment include
A) structural unemployment.
B) the output lost due to the fact that the economy is not running at full employment.
C) reduction in the labor force.
D) higher wages.
B) the output lost due to the fact that the economy is not running at full employment.
67) Frictional unemployment will always exist since
A) some workers will always want to make a job transition.
B) the capitalist system promotes unemployment.
C) mismatches in skills will always exist.
D) the U.S. economy will continue to shrink.
A) some workers will always want to make a job transition.
68) Bob’s assembly line job has been replaced by robots, and Bob lacks abilities and skills required to attain other jobs. He is considered
A) structurally unemployed.
B) frictionally unemployed.
C) seasonally unemployed.
D) a discouraged worker.
A) structurally unemployed.
69) A lifeguard who is out of work in the winter is
A) frictionally unemployed.
B) structurally unemployed.
C) cyclically unemployed.
D) seasonally unemployed.
D) seasonally unemployed.
70) Cyclical unemployment occurs when
A) individuals enter the labor market and make the rounds of potential employers.
B) individuals with skills no longer valued in the domestic labor market cannot find employment.
C) individuals give up the search for employment.
D) a downturn in economic activity decreases employment.
D) a downturn in economic activity decreases employment.
71) Inflation is best described as a situation in which
A) relative prices are changing.
B) some prices are rising faster than others.
C) relative prices are changing, but the purchasing power of the dollar is unchanged.
D) the average of all prices are on a sustained rise over a period of time.
D) the average of all prices are on a sustained rise over a period of time.
72) A sustained decrease in the average of all prices of goods and services in the economy is known as
A) inflation.
B) disinflation.
C) deflation.
D) hyperinflation.
C) deflation.
73) The rate of inflation and the purchasing power of money are
A) positively related.
B) totally unrelated.
C) inversely related.
D) randomly related.
C) inversely related.
74) The consumer price index shows
A) the current cost of a basket of goods.
B) the relative price of necessities.
C) the price of goods in the future.
D) the cost of today’s goods expressed in terms of the cost of goods in a base year.
D) the cost of today’s goods expressed in terms of the cost of goods in a base year.
75) The value of money for buying goods and services is known as
A) inflation.
B) nomination.
C) nominal income.
D) purchasing power.
D) purchasing power.
76) The year that is chosen as the point of reference for comparison of prices in other years is known as the
A) base year.
B) price index.
C) purchasing power.
D) consumer price index.
A) base year.
77) The GDP deflator is a
A) statistical measure of a weighted average of prices of a specific set of goods and services purchased by wage earners in urban areas.
B) statistical measure of a weighted average of prices of commodities that firms produce and sell.
C) price index measuring the changes in prices of all new goods and services produced in the economy.
D) price index that tracks the price level of commodities that firms purchase from other firms.
C) price index measuring the changes in prices of all new goods and services produced in the economy.
78) Fully anticipated inflation occurs when
A) the actual inflation rate equals the anticipated inflation rate.
B) the actual inflation rate is less than the anticipated inflation rate.
C) the inflation rate is zero.
D) the anticipated inflation rate and the unanticipated inflation rate are equal.
A) the actual inflation rate equals the anticipated inflation rate.
79) Who stands to gain as a result of unanticipated inflation?
A) Creditors
B) Debtors
C) Persons living on a fixed income
D) Retired individuals
B) Debtors
80) A COLA is
A) unanticipated positive inflation.
B) unanticipated negative inflation.
C) the cost associated with recalculating prices and printing new price lists when there is inflation.
D) an automatic increase in wages that takes into account increases in the price level.
D) an automatic increase in wages that takes into account increases in the price level.