Chapter 6 : Multiple Choice Questions 1. When economists refer to scarcity they mean: a.

Population growth will lead to massive shortages of goods in the future. b. Resources are finite in quantity c. Human desires for goods are greater than the available resources d. Human desires for goods and services are infinite

2. Which of the following is a capital good? a. b. c. d. Investments in education Water A grill to cook hamburgers Lumber

3. Opportunity cost refers to: a. b. c. d. The amount of money you spend to purchase a good What you give up when you make an economic choice The opportunities that you receive when you make a choice All of the economic opportunities that are available to you

4. The opportunity cost of increased defense spending is: a. b. c. d. The money that is spent on defense $300 billion dollars 3.4% of output The production of other goods which could be produced with those same resources

5. Which of the following does not describe scarce resources: a. b. c. d. There is a limited amount of resources The amount of labor available is always changing The capital stock of a nation is fixed for the moment There is only so much technological knowledge available

6. In drawing a countrys production possibility curve, we assume that:

a. b. c. d.

Technology will change over time The economy will be producing at a point of efficient production The number of workers available for production is infinite The available resources are fixed in quantity

Figure 1-1 A Production Possibility Graph

Consumer Goods Pt A
Pt D

Pt C Pt B

Defense Goods
7. In Figure 1-1, points A and B are: a. b. c. d. Possible to produce with current resources Impossible to produce with current resources Represent inefficient uses of resources Not desirable

8. In Figure 1-1, which point represents an economy at less than full production?

a. b. c. d.

Point A Point B Point C Point D

9. In Figure 1-1, the production possibilities curve implies all of the following except: a. Opportunity costs are constant b. Scarcity requires economic choices c. The shape of the production possibilities curve illustrates the law of increasing cost d. An increase in the production of more defense goods means fewer consumer goods

10. In Figure 1-1, which point represents a point where some resources are not being utilized? a. b. c. d. Point A Point B Point C Point D

11. The law of increasing opportunity cost exists because: a. b. c. d. Resources can be easily moved from one industry to another It is difficult to move resources from one industry to another Resources are scarce Opportunity costs remain the same as you change the mix of output

12. The WHAT question refers to: a. b. c. d. Will products be made with machines? How will goods be distributed? Will we produce more defense goods or more consumer goods? Will products be made efficiently or not?

13. Adam Smith, the author of The Wealth of Nations, argued that the WHAT economic question should be handled by: a. The invisible hand

b. What consumers want to buy c. What is most profitable to business d. All of the above

14. India is privatizing state enterprises because: a. India was producing at a point inside the production possibility curve b. Government-run companies were not efficient c. The market better determines what to produce d. All of the above

15. The FOR WHOM question in a market economy is answered by: a. b. c. d. The most profitable way to produce a good What is in demand The person who is willing to pay the price The most efficient way to produce a good

True or False Questions 1. The United States economy is so affluent, that it does not face the scarcity problem. 2. Economics is the study of how to use scarce resources. 3. The government of North Korea decided to increase food production and give up military production. 4. All choices on the production possibility curve are both desirable and efficient. 5. India is attempting to move its production from a point inside their production possibility curve to one on the curve.