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Chapter 2
The United States Within the World Economy
 Multiple Choice Questions
1.
Exchanges taking place in a price system
(a) are voluntary.
(b) are intended to benefit one person at the expense of the other.
(c) always leave one party to the transaction worse off.
(d) are monitored by the government to ensure that resources are not being wasted.
Answer: A
Topic: Basic Questions
Difficulty: 1
2.
The rationing function of prices means that
(a) government is responsible for setting the prices of basic foods.
(b) all goods and services are produced by large firms.
(c) businesses determine what goods consumers should purchase.
(d) buyers and sellers synchronize their decisions through the price system.
Answer: D
Topic: Basic Questions
Difficulty: 1
3.
Buyers and sellers receive information about the markets
(a) by listening to the TV news programs.
(b) through the price system.
(c) from the gossip columns in the newspapers.
(d) from their friends and acquaintances.
Answer: B
Topic: Basic Questions
Difficulty: 1
4.
The market system is also called the price system because
(a) rising prices are the signal to producers to make more of a particular good.
(b) people pay money in markets.
(c) everything has a price tag.
(d) inflation is a disturbing problem.
Answer: A
Topic: Basic Questions
Difficulty: 2
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Roger LeRoy Miller • Understanding Modern Economics
5.
In a market system, how are the terms of exchange established?
(a) Consumer advocacy groups establish fair prices for items, and most firms follow these pricing
guidelines because they don’t want to anger their consumers.
(b) Industry associations establish an acceptable price range for each commodity sold within the
industry, and member firms are obligated to abide by association guidelines.
(c) The forces underlying supply and demand interact to determine a market price.
(d) Federal legislation establishes maximum prices for most goods, and state governments regulate
the prices of any remaining items.
Answer: C
Topic: Basic Questions
Difficulty: 3
6.
What is the purpose of a market system?
(a) To facilitate efficient exchange
(b) To ensure that everyone is treated fairly
(c) To ensure an equal distribution of income
(d) To encourage consumers to buy goods on credit
Answer: A
Topic: Basic Questions
Difficulty: 2
7.
Why does a sports car cost more than a mountain bike?
(a) Because sports car manufacturers are greedier than mountain bike manufacturers
(b) Because sports cars are priced higher in order to make them attractive as status symbols
(c) Because more scarce resources are needed to produce a sports car than to produce a mountain
bike
(d) Because mountain bike manufacturers know that their customers have relatively low incomes
Answer: C
Topic: Basic Questions
Difficulty: 2
8.
Why does an economy need a rationing mechanism?
(a) Because of scarcity
(b) Because it preserves the power of the wealthy
(c) Because it eliminates poverty
(d) All of the above are correct.
Answer: A
Topic: Basic Questions
Difficulty: 1
Chapter 2
9.
The United States Within the World Economy
31
Economic growth in the United States
(a) has produced an increasing level of income inequality.
(b) allows most citizens to enjoy higher standards of living than they would otherwise have.
(c) has eroded the ability of the market mechanism to allocate goods well.
(d) has eliminated scarcity.
Answer: B
Topic: Basic Questions
Difficulty: 2
10.
An economic system
(a) is a means of organizing our use of scarce resources.
(b) is efficient at allocating resources only if production decisions are made according to popular
vote.
(c) is efficient at allocating resources only if consumption decisions are made according to popular
vote.
(d) works best if based on the assumption that all goods are equally scarce.
Answer: A
Topic: Basic Questions
Difficulty: 1
11.
The condition of scarcity means that
(a) when the government produces something, there is no opportunity cost.
(b) it is always better to produce goods using labor, rather than machinery.
(c) choices must be made in the allocation of productive resources.
(d) opportunity cost is not relevant in deciding on the best use of each resource.
Answer: C
Topic: Basic Questions
Difficulty: 3
12.
The purpose of an economic system is to
(a) create an equal distribution of income.
(b) allocate scarce resources among various possible alternative uses.
(c) protect the environment.
(d) create political stability.
Answer: B
Topic: Basic Questions
Difficulty: 2
13.
In a free market economy,
(a) prices affect the distribution of income, but they do not affect what is produced.
(b) prices matter only to consumers, not to producers.
(c) the most efficient use of resources does not depend on their opportunity costs.
(d) demand and supply interact to determine prices.
Answer: D
Topic: Basic Questions
Difficulty: 2
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Roger LeRoy Miller • Understanding Modern Economics
14.
Markets tend to
(a) exist primarily in towns or cities.
(b) benefit sellers at the expense of buyers.
(c) benefit buyers at the expense of sellers.
(d) facilitate exchange.
Answer: D
Topic: Basic Questions
Difficulty: 2
15.
In a price system, if the most someone is willing to pay for a good is less than the minimum cost of
producing it, then
(a) the resources used to produce the good are not scarce.
(b) the good will not be produced.
(c) government will restrict production of the good.
(d) firms will supply the good at a price below the cost of production.
Answer: B
Topic: Basic Questions
Difficulty: 2
16.
How does a consumer decide whether to purchase a particular item?
(a) By comparing the value she expects to derive from consuming it with its purchase price
(b) By comparing the value she expects to derive from consuming it with its cost of production
(c) By comparing its cost of production with its purchase price
(d) By comparing its relative scarcity with its cost of production
Answer: A
Topic: Basic Questions
Difficulty: 1
17.
The relative scarcity of a good is reflected in its
(a) marketing.
(b) packaging.
(c) price.
(d) sales volume.
Answer: C
Topic: Basic Questions
Difficulty: 2
18.
Before purchasing a good, a customer will want to know
(a) how much the firm had to pay in taxes throughout the process of producing the good.
(b) how many other customers are purchasing the good.
(c) its cost of production.
(d) its price.
Answer: D
Topic: Basic Questions
Difficulty: 1
Chapter 2
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The United States Within the World Economy
Suppose new research shows that soymilk and other products derived from soybeans provide more
health benefits than previously thought. At the same time, drought conditions result in extensive
damage to the soybean crop. What will be the combined impact of these two factors on the market
for soybeans?
(a) There will be no change in the price of soybeans, but more people will consume them.
(b) Soybeans will no longer be scarce.
(c) The price that consumers will be willing to pay for a given quantity of soybeans will decline.
(d) Soybeans will become relatively more scarce.
Answer: D
Topic: Basic Questions
Difficulty: 3
20.
A newspaper headline asserts: “Rising Demand Pulls Up Housing Prices.” This headline
(a) incorrectly implies that the demand for housing can affect its price.
(b) incorrectly implies that more housing will be demanded at higher prices.
(c) correctly implies that an increase in demand for housing will increase its price.
(d) correctly implies that the production cost of housing does not affect its price.
Answer: C
Topic: Basic Questions
Difficulty: 3
21.
Before producing a good, a firm will want to know
(a) how many of the consumers who buy it will actually use it.
(b) how long each consumer will spend searching for the good.
(c) whether the consumer will recycle the packaging for the good.
(d) its price.
Answer: D
Topic: Basic Questions
Difficulty: 2
22.
What will lead a firm to produce a good?
(a) The expectation of making a profit by doing so
(b) The expectation of creating jobs by doing so
(c) The expectation of generating tax revenue by doing so
(d) The expectation of generating growth for the economy by doing so
Answer: A
Topic: Basic Questions
Difficulty: 2
23.
What would lead a customer to purchase a product?
(a) Her expected value from consuming it exceeds the cost of producing it.
(b) Her expected value from consuming it exceeds the cost of purchasing it.
(c) She believes the firm will earn a fair profit by selling the product to her.
(d) She believes the price is an accurate reflection of the good’s relative scarcity.
Answer: B
Topic: Basic Questions
Difficulty: 2
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24.
Using the least-cost combination of inputs enables a firm to
(a) sell its products at a price everyone can afford.
(b) eliminate the scarcity of the good.
(c) compete with other firms selling the same item.
(d) All of the above
Answer: C
Topic: Basic Questions
Difficulty: 3
25.
How do firms choose which production methods to use?
(a) They select those methods that are most popular with their workers.
(b) They select those methods requiring the most labor input.
(c) They select those requiring the least-cost combination of inputs.
(d) They select those that will get the goods to market as quickly as possible, regardless of cost.
Answer: C
Topic: Basic Questions
Difficulty: 3
26.
In the past five years, two trends have characterized the residential construction industry in Las
Vegas, Nevada. First, the growing population has resulted in an increased demand for housing. Also,
wages of skilled tradesmen working in construction have risen rapidly. Taken together, how have
these two trends affected the market for new homes?
(a) The price of housing has not changed, and new people moving into Las Vegas can easily find
affordable housing.
(b) New home buyers in Las Vegas will pay any price for a home.
(c) Home builders in Las Vegas are guaranteed high rates of profit.
(d) The price of housing will reflect the fact that it is relatively more scarce.
Answer: D
Topic: Basic Questions
Difficulty: 3
27.
Which one of the following is TRUE?
(a) Firms that lower their production costs can in turn lower their prices.
(b) Before purchasing a good, the consumer wants to know the cost of producing it.
(c) Before purchasing a good, the consumer wants to know the wage rate paid to workers who
produce it.
(d) Before purchasing a good, the consumer wants to know the cost of transporting the good to
market.
Answer: A
Topic: Basic Questions
Difficulty: 2
Chapter 2
28.
The United States Within the World Economy
In a free market economy,
(a) as a good becomes relatively more scarce, its price declines.
(b) government decides what is produced, and producers decide who gets to consume it.
(c) goods and services are allocated by a price system.
(d) firms choose only to produce the most fashionable goods, regardless of the cost of production.
Answer: C
Topic: Basic Questions
Difficulty: 2
29.
Consumers will purchase those goods
(a) for which the highest cost production methods have been used.
(b) for which the price is no greater than the value derived from consumption.
(c) which have been produced in an environmentally sound manner.
(d) which have been produced by workers earning more than the minimum hourly wage.
Answer: B
Topic: Basic Questions
Difficulty: 2
30.
In choosing whether to produce something, a firm wants to know
(a) how many other firms are producing the same good.
(b) how frequently consumers who purchase the good will actually use it.
(c) how long the typical consumer will shop before making this purchase.
(d) how the cost of producing the good compares to its selling price.
Answer: D
Topic: Basic Questions
Difficulty: 2
31.
Rationing goods on the basis of price is a direct result of
(a) scarcity.
(b) queuing.
(c) government intervention.
(d) the profit motive.
Answer: A
Topic: Basic Questions
Difficulty: 2
32.
Why does a wool coat cost more than a cotton T-shirt?
(a) Because cotton T-shirts are not scarce.
(b) Because cotton T-shirts are priced so they will be in shortage.
(c) Because wool coats are priced so they will be in surplus.
(d) Because more scarce resources are needed to produce a wool coat than to produce a cotton
T-shirt.
Answer: D
Topic: Basic Questions
Difficulty: 2
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Roger LeRoy Miller • Understanding Modern Economics
33.
Why do we need an economic system?
(a) To eliminate scarcity.
(b) To allocate scarce resources.
(c) To educate consumers about their wants.
(d) To educate consumers about their needs.
Answer: B
Topic: Basic Questions
Difficulty: 2
34.
All of the following are methods of rationing goods, EXCEPT
(a) political power.
(b) the profit motive.
(c) first come, first served.
(d) prices.
Answer: B
Topic: Basic Questions
Difficulty: 2
35.
Because of scarcity
(a) rationing is unimportant because people get what they want.
(b) rationing is necessary because people cannot get everything they want.
(c) rationing is unimportant because prices will clear markets.
(d) rationing is not a problem because governments can determine what everybody wants.
Answer: B
Topic: Basic Questions
Difficulty: 2
36.
Which one of the following is TRUE?
(a) Your money income determines how productive you are.
(b) Consumers allocate their incomes so as to purchase the goods that are the most scarce.
(c) Your ability to purchase goods and services is determined by your ability to sell your labor
services.
(d) The combination of goods and services you buy depends only on your preferences and is not
related to your money income.
Answer: C
Topic: Producing Goods and Services Requires Resources
Difficulty: 3
37.
GDP is a measure of what has been
(a) saved.
(b) produced.
(c) conserved.
(d) invested.
Answer: B
Topic: Measuring How Much We Produce
Difficulty: 2
Chapter 2
38.
The United States Within the World Economy
37
Which one of the following transactions would NOT be included in GDP?
(a) Breakfast cereal sold at a grocery store
(b) Breakfast cereal sold at a convenience store
(c) Breakfast cereal sold at an all-night diner
(d) Cardboard sold from a paper mill to a cereal manufacturer
Answer: D
Topic: Measuring How Much We Produce
Difficulty: 2
39.
A recession occurs when
(a) prices are too low.
(b) prices are too high.
(c) economic growth is below its long-term trend rate.
(d) the distribution of income becomes more equal.
Answer: C
Topic: Measuring How Much We Produce
Difficulty: 1
40.
Which one of the following is TRUE?
(a) Economic growth always makes the distribution of income more equal.
(b) During the past 15 years, the distribution of income within the U.S. has become more equal.
(c) During the past 15 years, both those at the bottom and at the top of the income distribution have
experienced higher average incomes.
(d) There is not enough data collected to know how the income distribution is changing.
Answer: C
Topic: Measuring How Much We Produce
Difficulty: 2
41.
Which one of the following is NOT true?
(a) GDP measures the value of what is invested.
(b) GDP statistics are not equally reliable in all countries.
(c) Real GDP increases as economic growth occurs.
(d) GDP is a measure of production.
Answer: A
Topic: Measuring How Much We Produce
Difficulty: 2
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Roger LeRoy Miller • Understanding Modern Economics
42.
Which one of the following is NOT true?
(a) The distribution of wealth is not the same as the distribution of income.
(b) While the distribution of income has become more equal over the past 15 years, the income of
the average American has not increased.
(c) An unequal distribution of income can serve as an incentive for people to work hard to earn an
income that will provide them with what they want.
(d) Even as the distribution of income has become less equal over the past 15 years, the poor have
seen improvements in their average income.
Answer: B
Topic: Measuring How Much We Produce
Difficulty: 2
43.
Changes in GDP over the years tell us
(a) what the rate of economic growth has been.
(b) how fast the population is growing.
(c) whether the distribution of income is becoming more equal.
(d) whether the distribution of wealth is becoming more equal.
Answer: A
Topic: Measuring How Much We Produce
Difficulty: 3
44.
Which one of the following is NOT true?
(a) Both producers and consumers pay attention to prices.
(b) Firms react to higher prices by producing more.
(c) Consumers react to higher prices by buying more.
(d) The price of a good indicates its relative scarcity.
Answer: C
Topic: Basic Questions
Difficulty: 2
45.
Which one of the following is NOT true?
(a) A consumer needs to know the cost of producing a good before deciding whether to buy it.
(b) Firms seek to use the least-cost combination of inputs.
(c) Competition from other firms forces a producer to pay attention to costs.
(d) Lower production costs result in lower selling prices.
Answer: A
Topic: Basic Questions
Difficulty: 2
46.
How are prices set in a free market economy?
(a) By the interaction of consumers and governments
(b) By the interaction of producers and governments
(c) By the interaction of supply and demand
(d) By the interaction of imports and exports
Answer: C
Topic: Basic Questions
Difficulty: 2
Chapter 2
47.
The United States Within the World Economy
Which one of the following best describes how economists view prices?
(a) Prices are signals of relative scarcity.
(b) High prices are good; low prices are bad.
(c) Low prices are good; high prices are bad.
(d) The best price is a fair price.
Answer: A
Topic: Basic Questions
Difficulty: 2
48.
An increasing selling price signals a firm to
(a) cut its costs.
(b) increase its costs.
(c) produce more of its product.
(d) produce less of its product.
Answer: C
Topic: Basic Questions
Difficulty: 2
49.
In the U.S. economy, the decisions of producers and consumers are coordinated through
(a) periodic meetings of consumer groups and industry councils.
(b) a first-come, first served method of rationing.
(c) the political process.
(d) the price system.
Answer: D
Topic: Basic Questions
Difficulty: 1
50.
Firms seek the least-cost combination of inputs because
(a) that is best for the environment.
(b) they want to earn a profit.
(c) they have the best interests of their customers at heart.
(d) they have the best interests of their employees at heart.
Answer: B
Topic: Producing Goods and Services Requires Resources
Difficulty: 2
51.
Production refers to
(a) physically producing material goods only.
(b) any activity carried on by a firm, whether a corporation, partnership, or sole proprietorship.
(c) any activity that results in the conversion of resources into goods and services that can be
consumed.
(d) any activity that causes a material conversion of an object.
Answer: C
Topic: Producing Goods and Services Requires Resources
Difficulty: 1
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52.
Resources are also known as
(a) minerals.
(b) factories.
(c) factors of production.
(d) stocks, bonds, and other financial instruments.
Answer: C
Topic: Producing Goods and Services Requires Resources
Difficulty: 1
53.
By going to school an individual will obtain which resource?
(a) Money
(b) Power
(c) Physical capital
(d) Human capital
Answer: D
Topic: Producing Goods and Services Requires Resources
Difficulty: 1
54.
A manufactured resource such as a building or a machine is an example of which resource?
(a) Entrepreneurial ability
(b) Labor
(c) Physical capital
(d) Human capital
Answer: C
Topic: Producing Goods and Services Requires Resources
Difficulty: 1
55.
Which of the following is not a factor of production?
(a) Money
(b) Low-skilled labor
(c) Office telephones
(d) A registered nurse
Answer: A
Topic: Producing Goods and Services Requires Resources
Difficulty: 2
56.
A person goes to college to become an engineer. This is an example of an
(a) investment in physical capital.
(b) investment in human capital.
(c) increase in entrepreneurship.
(d) increase in labor.
Answer: B
Topic: Producing Goods and Services Requires Resources
Difficulty: 2
Chapter 2
57.
The United States Within the World Economy
An irrigation system is installed on a farm in North Dakota. This is an example of which factor of
production?
(a) Labor
(b) Land
(c) Human capital
(d) Physical capital
Answer: D
Topic: Producing Goods and Services Requires Resources
Difficulty: 2
58.
Which of the following is not an investment in human capital?
(a) A medical student’s internship
(b) The purchase of a personal computer
(c) A mechanic attends a training workshop on a new type of engine
(d) A new employee at a grocery store learns how to stock produce
Answer: B
Topic: Producing Goods and Services Requires Resources
Difficulty: 2
59.
Suppose that extremely cold winter weather destroys the current crop of oranges on the trees in
Florida. Which of the following statements is then TRUE?
(a) The price of oranges can be expected to decline.
(b) The price that the typical consumer is willing to pay for an orange will decline.
(c) Oranges are now relatively more scarce.
(d) Oranges are now relatively less scarce.
Answer: C
Topic: Producing Goods and Services Requires Resources
Difficulty: 2
60.
A recent study found that eating dark chocolate can provide cardiovascular health benefits. What
effect does this have on the market for dark chocolate?
(a) The price of dark chocolate can be expected to decline.
(b) The price that the typical consumer is willing to pay for dark chocolate will decline.
(c) Dark chocolate is now relatively more scarce.
(d) Dark chocolate is now relatively less scarce.
Answer: C
Topic: Producing Goods and Services Requires Resources
Difficulty: 2
61.
Which variable do both producers and consumers pay attention to?
(a) Costs of producing the product
(b) Wages of employees engaged in manufacturing the product
(c) Transportation costs of getting the good to market
(d) Selling price of the product
Answer: D
Topic: Producing Goods and Services Requires Resources
Difficulty: 2
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Roger LeRoy Miller • Understanding Modern Economics
62.
Gifts of nature used in the production process are considered
(a) land.
(b) labor.
(c) capital.
(d) entrepreneurship.
Answer: A
Topic: Producing Goods and Services Requires Resources
Difficulty: 1
63.
Labor productivity increases when
(a) more labor input is added.
(b) firms reduce wages.
(c) firms reduce prices.
(d) more capital is added.
Answer: D
Topic: Producing Goods and Services Requires Resources
Difficulty: 1
64.
Free interstate trade within the U.S. has served to
(a) enhance economic growth.
(b) erode labor productivity.
(c) dampen growth of the labor force.
(d) dampen entrepreneurial initiative.
Answer: A
Topic: Putting the US Economy in Perspective
Difficulty: 2
65.
Most jobs are created by
(a) local government decree.
(b) federal government decree.
(c) economic growth.
(d) replacing capital-intensive production processes with labor-intensive ones.
Answer: C
Topic: Putting the U.S. Economy in Perspective
Difficulty: 2
66.
The current size of the U.S. labor force is about
(a) 210 million workers.
(b) 150 million workers.
(c) 110 million workers.
(d) 75 million workers.
Answer: B
Topic: Putting the U.S. Economy in Perspective
Difficulty: 2
Chapter 2
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The United States Within the World Economy
The majority of workers in the U.S. labor force are employed in
(a) manufacturing.
(b) agriculture.
(c) services.
(d) mining.
Answer: C
Topic: Putting the U.S. Economy in Perspective
Difficulty: 2
68.
Which one of the following is TRUE?
(a) As many jobs that were once performed in the U.S. have moved off-shore, the level of
employment within U.S. borders has fallen.
(b) The only jobs that have moved off-shore from the U.S. are unskilled jobs in manufacturing.
(c) Firms use off-shore labor in an attempt to achieve the least-cost combination of inputs.
(d) By moving jobs off-shore, U.S. firms have caused the domestic economy to shrink.
Answer: C
Topic: Putting the U.S. Economy in Perspective
Difficulty: 3
69.
What is the incentive effect?
(a) A disparity of wealth causes people to strive to become successful.
(b) Generous welfare benefits for the unemployed create a productive labor force.
(c) Our global economy results in firms with supply lines running through several countries.
(d) Current communications technology allows many people to work from home.
Answer: A
Topic: Putting the U.S. Economy in Perspective
Difficulty: 3
70.
When the rate of economic growth dips below its long-term trend rate, we say
that a ________ has occurred.
(a) labor shortage
(b) recession
(c) period of inflation
(d) trade deficit
Answer: B
Topic: Measuring How Much We Produce
Difficulty: 1
71.
Which one of the following is TRUE?
(a) Stock ownership is an increasingly smaller part of Americans’ net worth.
(b) Economic growth has eliminated the occurrence of recessions.
(c) Income inequality can lead to economic growth through the incentive effect.
(d) Stock ownership is a greater component of the wealth of Europeans than it is of the wealth of
Americans.
Answer: C
Topic: Measuring How Much We Produce
Difficulty: 2
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72.
Which one of the following is FALSE?
(a) Increased availability of reliable communication channels at lower and lower costs have led to
companies relocating their manufacturing operations offshore.
(b) Inflation stops economic growth.
(c) The size of the U.S. labor force continues to grow despite many jobs being moved off-shore.
(d) The U.S. labor force will continue to grow through immigration.
Answer: B
Topic: Putting the US Economy in Perspective
Difficulty: 3
73.
GDP does NOT include
(a) the value of goods produced for government purchase.
(b) the value of what businesses spend on plant and equipment.
(c) the value of what consumers purchase to give as gifts.
(d) the value of goods sold on the second-hand market.
Answer: D
Topic: Measuring How Much We Produce
Difficulty: 2
74.
GDP is expressed in
(a) physical units.
(b) monetary units.
(c) levels of satisfaction.
(d) statistical terminology used to measure efficiency.
Answer: B
Topic: Measuring How Much We Produce
Difficulty: 2
75.
Which of the following statements is FALSE?
(a) Land is a factor of production only in agricultural endeavors.
(b) Investments in human capital make workers more productive.
(c) Manufactured goods used in providing services are considered capital.
(d) Individuals who innovate new production methods and management techniques are engaged in
entrepreneurship.
Answer: A
Topic: Producing Goods and Services Requires Resources
Difficulty: 2
76.
A free market system allocates scarce goods
(a) fairly.
(b) by price.
(c) on a first-come, first-served basis.
(d) in a manner such that what each person consumes bears no relationship to what he or she
produces.
Answer: B
Topic: Basic Questions
Difficulty: 1
Chapter 2
77.
The United States Within the World Economy
How do consumers typically react to a decline in the market price of a good they like to buy
frequently?
(a) They lose interest in this item.
(b) They reduce their work effort since they no longer need such a high income to buy the same
amount of this item.
(c) They investigate the industry producing this item to see if there was a legitimate reason for
production costs to decline.
(d) They buy more of the item.
Answer: D
Topic: Basic Questions
Difficulty: 2
78.
Changes in the average standard of living are measured by changes in
(a) per capita real GDP.
(b) the length of recessions.
(c) the size of the labor force.
(d) the rate of inflation.
Answer: A
Topic: Measuring How Much We Produce
Difficulty: 1
79.
An increase in real per capita GDP means that
(a) the size of the labor force has grown.
(b) the distribution of income has become more equal.
(c) the distribution of income has become less equal.
(d) the amount of output per person has risen.
Answer: D
Topic: Measuring How Much We Produce
Difficulty: 1
80.
How could GDP increase without there also being an increase in real GDP?
(a) The rate of population growth matched the rate of growth in output.
(b) The rate of population growth matched the growth of the labor force.
(c) Output increased, but it was not shared equally among all consumers.
(d) All of the increase in GDP was due to higher prices.
Answer: D
Topic: Measuring How Much We Produce
Difficulty: 3
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81.
What must be true in order for per capita real GDP to increase when the population is also
increasing?
(a) The rate of inflation must be zero.
(b) The rate of inflation must be less than the rate of economic growth.
(c) The rate of growth of output must exceed the population growth rate.
(d) The economy must be importing some essential goods.
Answer: C
Topic: Measuring How Much We Produce
Difficulty: 2
82.
Why does a projected population decline concern European leaders?
(a) Because it will lead to a decline in per capita real GDP
(b) Because it will lead to economic recessions
(c) Because it will lead to inflation
(d) Because an aging population will increase the burden of providing pensions which is borne by
younger workers
Answer: D
Topic: Sustaining U.S. Population Growth
Difficulty: 3
83.
Most of the population growth of the next 50 years will be concentrated in
(a) North America.
(b) South America.
(c) Europe.
(d) Asia.
Answer: D
Topic: Sustaining US Population Growth
Difficulty: 2
84.
Which one of the following is TRUE?
(a) Population growth makes a country poorer, because there are more mouths to feed.
(b) Real per capita GDP can increase only if there is no inflation.
(c) Real per capita GDP can increase only if there is inflation.
(d) The growth of the U.S. population over the next several decades will come from immigration.
Answer: D
Topic: Sustaining U.S. Population Growth
Difficulty: 2
85.
Which one of the following is TRUE?
(a) The factors of production are land, labor, capital, and entrepreneurship.
(b) Land is a factor of production only in agricultural endeavors.
(c) Labor is a factor of production only in providing services.
(d) Capital is a factor of production only in high-tech industries.
Answer: A
Topic: Producing Goods and Services Requires Resources
Difficulty: 1
Chapter 2
86.
The United States Within the World Economy
47
Which one of the following is FALSE?
(a) Using capital in the production process does not add to output; it simply allows the firm to earn
a greater profit than it would otherwise.
(b) Using capital in the production process allows each worker to produce more.
(c) Firms will employ capital in the production process if it creates the least-cost combination of
inputs.
(d) Human capital arises from a worker’s education, training, and experience.
Answer: A
Topic: Producing Goods and Services Requires Resources
Difficulty: 1
87.
What are the four factors of production?
(a) Money, interest, savings, and investment.
(b) Land, labor, capital, and entrepreneurship.
(c) Land, management, investment, and technology.
(d) Technology, money, marketing, and venture capital.
Answer: B
Topic: Producing Goods and Services Requires Resources
Difficulty: 1
88.
Why do firms seek to use the least-cost combination of inputs?
(a) Because managers and supervisors find their jobs are easiest when the least-cost combination is
used.
(b) Because they want to keep costs low in order to appear to the media as a well-run business.
(c) Because they won’t be able to stay in business if they don’t.
(d) Because that is the combination that their employees prefer.
Answer: C
Topic: Basic Questions
Difficulty: 2
89.
Which one of the following is a good measure of the average standard of living?
(a) GDP
(b) The inflation rate
(c) The median age
(d) Real per capita GDP
Answer: D
Topic: Measuring How Much We Produce
Difficulty: 2
90.
How will immigration into the U.S. affect the population over the next several decades?
(a) It will allow the labor force to grow.
(b) It will result in a declining real per capita GDP.
(c) It will deteriorate the stock of human capital.
(d) It will cause recessions.
Answer: A
Topic: Sustaining U.S. Population Growth
Difficulty: 2
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Roger LeRoy Miller • Understanding Modern Economics
91.
You buy organic pears and frozen yogurt at your local health food store. Which of the following
statements correctly describes the contribution of the factors of production to your purchase?
(a) The freezer which holds the store’s inventory of frozen yogurt is a capital resource.
(b) The pears and other produce displayed as inventory are a capital resource.
(c) The worker who stocks the produce bins is a capital resource.
(d) Labor, capital, and entrepreneurship have contributed to your purchase, but land has not.
Answer: A
Topic: Producing Goods and Services Requires Resources
Difficulty: 3
92.
You hire a handyman to repair some broken floorboards on your deck. Which of the following
statements correctly describes the contribution of the factors of production to this transaction?
(a) No scarce resources are involved, because you are just repairing an existing resource.
(b) The handyman’s time is a capital resource.
(c) Tools used by the handyman are a capital resource.
(d) Tools used by the handyman are a land resource.
Answer: C
Topic: Producing Goods and Services Requires Resources
Difficulty: 3
93.
The person who creates a product innovation and brings it to market is providing the resource of
(a) land.
(b) labor.
(c) capital.
(d) entrepreneurship.
Answer: D
Topic: Producing Goods and Services Requires Resources
Difficulty: 2
94.
The sunlight and rain which allow crops to flourish are providing the resource of
(a) land.
(b) labor.
(c) capital.
(d) entrepreneurship.
Answer: A
Topic: Producing Goods and Services Requires Resources
Difficulty: 2
Chapter 2
95.
The United States Within the World Economy
You start up an internet-based business run from your apartment, offering economic advice to
subscribers to your website. Which one of the following statements correctly describes how a factor
of production contributes to your business?
(a) The computer you use is a land resource.
(b) The computer you use is a capital resource.
(c) The computer you use is an entrepreneurial resource.
(d) Your knowledge of economics is a land resource.
Answer: B
Topic: Producing Goods and Services Requires Resources
Difficulty: 2
96.
The factors of production are
(a) abundant without limit on the planet.
(b) valuable only because they are owned by corporations seeking to make a profit from them.
(c) scarce resources.
(d) never as useful as people expect them to be.
Answer: C
Topic: Producing Goods and Services Requires Resources
Difficulty: 3
97.
Land refers to
(a) natural resources present as gifts of nature.
(b) the skills workers acquire through training and education.
(c) manufactured items used to produce goods or provide services.
(d) the time workers spend carrying out their jobs.
Answer: A
Topic: Producing Goods and Services Requires Resources
Difficulty: 2
98.
99.
49
Human capital refers to
(a) natural resources present as gifts of nature.
(b) the skills workers acquire through training and education.
(c) manufactured items used to produce goods or provide services.
(d) the time workers spend carrying out their jobs.
Answer: B
Topic: Producing Goods and Services Requires Resources
Difficulty: 2
Capital refers to
(a) natural resources present as gifts of nature.
(b) the skills workers acquire through training and education.
(c) manufactured items used to produce goods or provide services.
(d) the time workers spend carrying out their jobs.
Answer: C
Topic: Producing Goods and Services Requires Resources
Difficulty: 3
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Roger LeRoy Miller • Understanding Modern Economics
100. Entrepreneurship refers to
(a) the time workers spend carrying out their jobs.
(b) the ability of individuals to start new businesses and improve management techniques.
(c) the skills workers acquire on the job.
(d) the human capital workers acquire by attending college.
Answer: B
Topic: Producing Goods and Services Requires Resources
Difficulty: 2

Fill in the Blank
1.
An economic system is a way of organizing the use of _________ resources.
Answer: scarce
2.
Both consumers and producers pay attention to the _________ of the product.
Answer: price
3.
Producers seek to use the least-cost combination of _________ .
Answer: inputs
4.
A firm cannot continue in business unless it earns a _________ .
Answer: profit
5.
In a free market system, _________ signal the relative scarcity of various goods.
Answer: prices
6.
Firms react to a rising price by producing _________ .
Answer: more
7.
Firms react to a falling price by producing _________ .
Answer: less
8.
Firms have to care about their costs because consumers care about _________.
Answer: prices
9.
Your money income is determined by how well you sell your _________ .
Answer: labor
Chapter 2
The United States Within the World Economy
51
10.
Competition and the lure of higher _________ force producers to seek the least-cost combination of
inputs.
Answer: profits
11.
The factors of production are _________, _________ , _________ , and _________ .
Answer: land; labor; capital; entrepreneurship
12.
Land refers to productive resources present without _________ intervention.
Answer: human
13.
Manufactured goods used to produce other goods and services are _________.
Answer: capital
14.
_________ _________ is the accumulated education and training of workers.
Answer: Human capital
15.
_________ is the ability of individuals to start new businesses, to introduce new products and
processes, and to improve management techniques.
Answer: Entrepreneurship
16.
Typically, productivity increases through the increased use of _________.
Answer: capital
17.
The number of workers who telecommute has increased due to lower costs of communication and
_________ power.
Answer: computing
18.
Most workers in the U.S. labor force are engaged in the _________ sector.
Answer: service
19.
A number of firms headquartered in the U.S. have moved their manufacturing operations overseas in
order to _________ _________ .
Answer: reduce costs
20.
A _________ is a period of time in which the economic growth rate is below its long-term trend.
Answer: recession
21.
The theory of the incentive effect asserts that income _________ can encourage people to work
harder to secure their own wealth.
Answer: inequality
22.
GDP is the current value of all _________ goods and services produced within our nation over the
course of one year.
Answer: final
23.
GDP stands for gross _________ product.
Answer: domestic
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Roger LeRoy Miller • Understanding Modern Economics
24.
Real GDP is GDP adjusted for _________.
Answer: inflation
25.
Most of the growth in the U.S. labor force over the upcoming decades will be through _________.
Answer: immigration

Short Answer
1.
Why is there constitutional protection of free interstate trade?
Answer: Because a far-reaching territory of trade enhances economic growth.
2.
What are the four factors of production?
Answer: Land, labor, capital, and entrepreneurship
3.
How do firms react to a rising selling price of their product?
Answer: They increase their output of the product.
4.
What determines your ability to earn money income?
Answer: Your ability to sell your skills and services in the labor market
5.
What variable coordinates the preferences of consumers with the decisions of producers?
Answer: Price
6.
What tasks constitute the activity of entrepreneurship?
Answer: Starting a new business, improving the production process, and implementing new
management techniques
7.
What term is given to the market value of all final goods and services produced within an economy
over the course of a year?
Answer: Gross domestic product
8.
How does real GDP differ from GDP?
Answer: Real GDP is GDP adjusted for inflation
9.
What will be the source of growth in the U.S. labor force over the next several decades?
Answer: Immigration
10.
Why do firms like to use the least-cost combination of inputs?
Answer: Because doing so allows them to stay in business
11.
What is the current size of the U.S. labor force?
Answer: About 150 million workers
12.
What is a recession?
Answer: A dip in economic growth below the long-term trend rate of growth
13.
Why do some firms relocate their manufacturing operations overseas?
Answer: In order to lower their costs
14.
Which economic statistic is a good indicator of the average standard of living?
Chapter 2
The United States Within the World Economy
Answer: Per capita real GDP
15.
What economic change accounts for the increasing number of people who work from home by
telecommuting?
Answer: Lower communication and computing costs

True and False
1.
In a free market economy, scarce resources are allocated through the price system.
Answer: true
2.
An economic system is a way of eliminating scarcity.
Answer: false
3.
Throughout the history of the U.S., the poor have gotten poorer and the rich have gotten richer.
Answer: false
4.
The current size of the U.S. labor force is less than 100 million workers.
Answer: false
5.
Economic decisions made by governments do not involve trade-offs of scarce resources.
Answer: false
6.
The price of a good tells the consumer how much he or she will enjoy consuming it.
Answer: false
7.
The price of a good increases when it becomes relatively more scarce.
Answer: true
8.
In a free market system, the price of a good is determined by how essential it is for life, with the
most essential goods being the most expensive.
Answer: false
9.
Firms supply those products that they believe can be produced and sold at a profit.
Answer: true
10.
In choosing a method of production, firms will seek to use the least-cost combination of inputs.
Answer: true
11.
Consumers decide whether or not to purchase a good based on what they estimate its production
costs to be.
Answer: false
12.
The fact that consumers care about prices means that firms have to care about costs.
Answer: true
13.
Your money income is largely determined by how well you can sell your labor services.
Answer: true
14.
The distribution of wealth is identical to the distribution of income.
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Roger LeRoy Miller • Understanding Modern Economics
Answer: false
Chapter 2
The United States Within the World Economy
15.
What you consume is determined only by your preferences, not by your income.
Answer: false
16.
The distribution of finished products to consumers is determined by government policy.
Answer: false
17.
Firms respond to an increased selling price by producing more.
Answer: true
18.
A consumer needs to know the cost of producing a good before she decides whether to purchase it.
Answer: false
19.
Producers do not have to monitor their production costs because they can always pass off higher
costs of production in the form of higher prices.
Answer: false
20.
Entrepreneurship involves initiative and the willingness to take risks in order to reap profits.
Answer: true
21.
GDP includes the value of both goods produced and service provided.
Answer: true
22.
GDP is a measure of what consumers have saved.
Answer: false
23.
Labor typically becomes more productive through the addition of more physical capital or the
accumulation of more human capital.
Answer: true
24.
Labor productivity determines the prices of goods but does not affect the overall level of output.
Answer: false
25.
The factors of production are land, machinery, labor, and technology.
Answer: false
26.
Human capital is the accumulated education and training of workers.
Answer: true
27.
The size of the U.S. labor force has declined over the past 20 years as many jobs have been
outsourced from the U.S. to other countries.
Answer: false
28.
Economic growth steadily produces a more equal income distribution.
Answer: false
29.
To a certain extent, the productivity of the labor force determines the overall level of output.
Answer: true
30.
Your ability to purchase goods in the marketplace is largely determined by your ability to sell your
time and talents in the labor market.
Answer: true
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Roger LeRoy Miller • Understanding Modern Economics
31.
Most workers in the U.S. labor force are involved in providing services, rather than in
manufacturing physical goods.
Answer: true
32.
Every year, the U.S. consumes an increasingly greater proportion of world energy usage.
Answer: false
33.
The U.S. labor force is shrinking due to manufacturing jobs being moved off-shore.
Answer: false
34.
A recession occurs when economic growth slips below its long-term trend rate.
Answer: true
35.
To the extent that there is an incentive effect, an unequal distribution of income will encourage
people to strive to do well in providing for themselves.
Answer: true
36.
GDP stands for Growth in Domestic Production.
Answer: false
37.
Real GDP is GDP adjusted for price level changes.
Answer: true
38.
Per capita real GDP is GDP adjusted both for inflation and population growth.
Answer: true
39.
Increases in real per capita GDP indicate that the distribution of income is becoming more equal.
Answer: false
40.
Increases in real per capita GDP indicate that the distribution of wealth is becoming more equal.
Answer: false
41.
Changes in real per capita GDP do not tell us what is happening to the average standard of living.
Answer: false
42.
Reliable GDP figures are collected by statisticians for every nation in the world.
Answer: false
43.
By comparing GDP figures between nations, one can determine how effective firms in each country
are at controlling their costs of production.
Answer: false
44.
The U.S. labor force is projected to grow over the next two decades due to high birth rates.
Answer: false
45.
Over the next 50 years, Europe will contain a relatively smaller proportion of the world’s
population.
Answer: true