1.

Resources are
a. Scarce for households but plentiful for economies
b. Plentiful for households but scarce for economie
c. Scarce for households and scarce for economies
d. Plentiful for households and plentiful for economies

2. Economics is the study of

a. production methods
b. how society manages its scarce resources.
c. how households decide who performs which tasks.
d. the interaction of business and government.

3. Guns and butter are used to represent the classic societal tradeoff between
spending on
a. durable and nondurable goods.
b. imports and exports.
c. national defense and consumer goods.
d. law enforcement and agriculture

4. Which of the following is true?

a. Eficiency refers to the size of the economic pie; equity refers to how the pie is
divided.
b. Government policies usually improve upon both equity and eficiency.
c. As long as the economic pie continually gets larger, no one will have to
go hungry.
d. Eficiency and equity can both be achieved if the economic pie is cut into equal
pieces.

5. Carolyn decides to spend an additional hour working overtime rather than watching
a video with her friends. She earns $8 for her hour’s work. Her opportunity cost of
working is
a. the $8 she earns.
b. the enjoyment she would have received had she watched the video.
c. the $8 minus the enjoyment she would have received from watching the video.
d. nothing, since she would have received less than $8 of enjoyment from the video.
6. The term used to describe a situation in which markets fail to allocate resources
eficiently is called
a. economic meltdown.
b. market failure.
c. disequilibrium.
d. the effect of the invisible hand.
7. People make decisions at the margin by
 a. following tradition.
b. comparing costs and benefits.
c. experience.
d. calculating dollar costs.
8. Economists understand that people respond to
a. the wishes of policymakers.
b. incentives.
c. threats more than rewards.
d. tax breaks, but not tax hikes.

9. The “invisible hand” directs economic activity through

a. prices.
b. mass media.
c. subliminal messages.
d. government regulations.

10. Productivity is defined as

a. the actual amount of effort workers put into an hour of working time.
b. the number of workers required to produce a given amount of goods and services.
c. the amount of labor which can be saved by replacing workers with machines.
d. the amount of goods and services produced from each hour of a worker’s time.

11. Inflation is defined as

a. a period of rising productivity in the economy.
b. an increase in the overall level of output in the economy.
c. a period of rising income in the economy.
d. an increase in the overall level of prices in the economy.

12. Inflation causes

a. the value of money to fall.
b. productivity to increase.
c. the government to lower taxes.
d. the value of money to rise.

13. Which of the following is the most correct statement about the relationship between
inflation and unemployment?
a. In the short run, reducing inflation is associated with rising unemployment.
b. In the short run, reducing inflation is associated with falling unemployment.
a. In the long run, reducing inflation is associated with falling unemployment.
b. In the long run, reducing inflation is associated with rising unemployment.

14. Economists make assumptions

a. to diminish the chance of wrong answers.
b. to make certain that all necessary variables are included.
c. because all scientists make assumptions.
d. to make the world easier to understand.
15. Economists use models in order to
a. learn how the economy works.
b. make their profession appear more precise.
c. make economics difficult for students.
d. make sure that all of the details of the economy are included in their analysis.

16. A model
a. simplifies reality.
b. can explain how the economy is organized.
c. assumes away irrelevant details.
d. all of the above

17. A circular-flow diagram is

a. a model that illustrates cost-benefit analysis.
b. a model that explains how the economy is organized.
c. a model that shows the flow of traffic in an economic region.
d. a model that explains how banks circulate money in the economy.

18. Factors of production are

a. inputs into the production process.
b. weather, social, and political conditions that affect production.
c. the physical relationships between economic inputs and outputs.
d. the mathematical calculations firms make to determine production.

19. In a circular-flow diagram,

a. taxes flow from households to firms, and transfer payments flow from firms to
households.
b. income payments flow from firms to households, and sales revenue flows from
households to firms.
c. resources flow from households to firms, and goods and services flow from firms
to households.
d. b and c

20. In the circular-flow diagram,

a. firms are sellers in the resource market and the product market.
b. households are sellers in the resource market.
c. firms are buyers in the product market.
d. spending on goods and services flow from firms to households.

21. The production possibilities frontier is

a. a map which shows the frontier beyond which agriculture is unprofitable.
b. a map which shows areas of the world in which capitalist production is now
possible.
c. a graph that shows the various combinations of output the economy can possibly
produce given the available resources and technology.
d. a graph which shows the various combinations of resources that can be used to
produce a given level of output.
22. On a production possibilities frontier, production is efficient if
a. the production point is inside the frontier.
b. the production point is outside the frontier.
c. the production point is on or inside the frontier.
d. the production point is on the frontier.

23. The opportunity cost of obtaining more of one good is shown on the production
possibilities frontier as
a. the amount of the other good which must be given up.
b. the market price of the additional amount produced.
c. the amount of resources which must be devoted to its production.
d. the number of dollars which must be spent to produce it.

24. For economists, statements about the world are of two types:
a. assumptions and theories.
b. true statements and false statements.
c. specific statements and general statements.
d. positive statements and normative statements.

25. For economists, positive statements are

a. descriptive, making a claim about how the world is.
b. optimistic, putting the best possible interpretation on things.
c. affirmative, justifying existing economic policy.
d. prescriptive, making a claim about how the world ought to be.

26. Normative statements are

a. descriptive, making a claim about how the world is.
b. statements about the normal condition of the world.
c. prescriptive, making a claim about how the world ought to be.
d. statements which establish production goals for the economy.

27. Which one of the following statements is a positive statements

a. Government-provided healthcare increases public expenditures.
b. The government should provide basic healthcare to all citizens.
c. People should drive electric cars instead of consuming fossil fuels.
d. Companies should not use child labor.

28. Which one of the following statements is a normative statements

a. High interest rates discourages many young people to buy their first home.
b. An increase in the minimum wage increases unemployment among teenagers.
c. The government ought to supply a medical insurance scheme for everyone free
of charge.
d. Incomes isn’t equal in all countries.

29. Which one of the following statements is a normative statements

a. Higher education should be free.
b. Unemployment is more harmful than inflation.
c. Prices rise when the government prints too much money.
 d. a and b.

30. A rancher can produce only hamburgers, and a farmer can produce only french fries.
The rancher and the farmer both like both foods. They
a. cannot gain from trade.
b. could gain from trade under certain circumstances, but not always.
c. could gain from trade because each would enjoy a greater variety of food.
d. could gain from trade only if each were indifferent between hamburgers and
french fries.

31. Which of the following is NOT correct?

a. Trade allows for specialization.
b. Trade is good for nations.
c. Trade is based on absolute advantage.
d. Trade allows individuals to consume outside of their individual production
possibilities curve.

32. Without trade

a. a country is better off.
b. a country’s production possibilities frontier is also its consumption possibilities
frontier.
c. a country can still benefit from international specialization.
d. more product variety is available in a country.

33. A country’s consumption possibilities frontier can be outside its production

possibilities frontier
a. with trade.
b. by allocating resources differently.
c. by producing a greater variety of goods and services.
d. by lowering unemployment in the country.

34. Which of the following is NOT correct?

a. Trade allows for specialization.
b. Trade is good for nations.
c. Trade is based on absolute advantage.
d. Trade allows individuals to consume outside of their individual production
possibilities curve.

35. If labor in Mexico is less productive than labor in the U.S. in all areas of production
a. neither nation can benefit from trade.
b. Mexico can benefit from trade but the U.S. cannot.
c. Mexico will not have a comparative advantage in any good.
d. nations can benefit from trade.