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1. In every economic system, choices must be made because resources are: A) infinite, but economic wants are finite. B) finite, but economic wants are insatiable. C) unlimited, but economic wants are limited. D) limited, and so are economic wants. 8. In every economic system, choices must be made because resources are: A) infinite, but economic wants are finite. B) finite, but economic wants are insatiable. C) unlimited, but economic wants are limited. D) limited, and so are economic wants. 2. When an economist states that "there is no free lunch," the economist means that: A) the marginal cost is greater than the marginal benefit. B) the marginal benefit is greater than the marginal cost. C) there is a foregone opportunity from resource use. D) there is a tradeoff between cost and benefit. 10. Which of the following will NOT entail an outward shift of the PPC? A) an upgrading of the quality of a nation's human resources B) an increase in the quantity of a society's labor force C) the reduction of unemployment D) the improvement of a society's technological knowledge 11. According to economists, economic self-interest: A) is a reality that underlies economic behavior. C) is more characteristic of men than of women. B) has the same meaning as selfishness. D) is usually self-defeating. 3. The basic economic problem is the combined existence of: A) inflation and unemployment. B) economic freedom and income equality. C) scarce economic resources and unlimited economic wants. D) growing populations and the depletion of natural resources. 12. Opportunity cost is best defined as: A) marginal cost minus marginal benefit. B) the time spent on an economic activity. C) the value of the best foregone alternative. D) the money cost of an economic decision. 4. The reason that the production possibilities curve bows outward from the origin is that: A) opportunity costs are increasing. B) opportunity costs are decreasing. C) there are no opportunity costs. D) opportunity costs are constant. 13. Another description for ceteris paribus is: A) other things equal. B) loaded terminology. C) the fallacy of composition. D) post hoc, ergo propter hoc. 14. The basic economic problem is the combined existence of: A) inflation and unemployment. B) economic freedom and income equality. C) scarce economic resources and unlimited economic wants. D) growing populations and the depletion of natural resources. 5. A tradeoff exists between two economic goals, X and Y. This tradeoff means that: A) X causes Y. B) X and Y are equal. C) getting more of X requires getting more of Y. D) getting more of X requires getting less of Y. 6. Opportunity cost is best defined as: A) marginal cost minus marginal benefit. B) the time spent on an economic activity. C) the value of the best foregone alternative. D) the money cost of an economic decision. 15. The basic purpose of the other-things-equal assumption is to: A) allow one to reason about the relationship between variables X and Y without the intrusion of variable Z. B) allow one to focus upon micro variables by ignoring macro variables. C) allow one to focus upon macro variables by ignoring micro variables. D) determine whether X causes Y or vice versa. 7. Cuba is a command economy that suffered decline in economic growth because of a cut in support from the former Soviet Union when it collapsed. As a consequence, Cuba: A) experienced a shift outward in its production possibilities curve. B) experienced a shift inward in its production possibilities curve. C) moved along its existing production possibilities curve. D) went to a point inside its PPC. 16. Macroeconomics approaches the study of economics from the viewpoint of: A) the entire economy. B) governmental units. C) the operation of specific product and resource markets. D) individual firms. Page 1 17. Which is one of the four simplifying assumptions made in the chapter about the construction of the production possibilities model? A) The state of technology is constantly changing. B) The number of products produced is more than two. C) The economy is fully employed and is using least-cost methods of production. D) The quantities of all resources available to the economy are not fixed, but are variable. 23.If an economy is operating at a point inside the production possibilities curve, it indicates that: A) society's resources are being poorly utilized. B) the production decisions are made by government. C) unlimited resources must satisfy scarce desires of people. D) there is a scarcity of resources relative to human wants. 24. Which of the following will not produce an outward shift of the production possibilities curve? A) an upgrading of the quality of a nation's human resources B) the reduction of unemployment C) an increase in the quantity of a society's labor force D) the improvement of a society's technological knowledge 18. The production possibilities curve represents: A) the maximum amount of labor and capital available for production. B) combinations of goods and services among which consumers are indifferent. C) maximum combinations of products available with fixed resources and technology. D) the maximum rate of growth of capital and labor in an economy. 25. Which of the following concepts provides the basic rationale for international trade? A) increasing opportunity costs. B) comparative advantage. C) consumer sovereignty. D) the law of supply. 19. If variables X and Y are positively correlated, this means that: A) X is the cause of Y . B) Y is the cause of X. C) causation necessarily exists, but we don't know whether X or Y is the cause. D) causation may or may not exist between X and Y. 26.Which statement is an economic rationale for the law of increasing opportunity cost? A) The economy is employing all of its available resources. B) Many economic resources are better at producing one product than another. C) In any economy, the state of technology is changing and resources are variable. D) The economy is achieving productive efficiency by producing goods and services at the least cost. Production possibilities (alternatives) A B C D E F Capital goods 5 4 3 2 1 0 Consumer goods 0 5 9 12 14 15 20. Which of the following is a land resource? A) a computer programmer B) silicon (sand) used to make computer chips C) a computer D) a piece of software used by a firm 21. Which of the following lists includes only capital resources (and therefore no labor or land resources)? A) an ice arena; a professional hockey player; hockey uniforms. B) the owner of a new startup firm; a chemistry lab; a researcher. C) a hydroelectric dam; water behind the dam; power lines. D) autos owned by a car rental firm; computers at the car rental agency; the vans that shuffle rental customers to and from the airport. 27. Refer to the above table. If the economy is producing at production alternative C, the opportunity cost of the tenth unit of consumer goods will be: A) 4 units of capital goods. C) 3 units of capital goods. B) 2 units of capital goods. D) 1/3 of a unit of capital goods. 22. A point inside the production possibilities curve is: A) attainable and the economy is efficient. B) attainable, but the economy is inefficient. C) unattainable, but the economy is inefficient. D) unattainable and the economy is efficient. 28. Refer to the above table. As compared to production alternative D, the choice of alternative C would: A) tend to generate a more rapid growth rate. B) entail unemployment. C) be unattainable. D) tend to generate a slower growth rate. Page 2 Production possibilities (alternatives) A B C D Capital goods 5 4 3 2 Consumer goods 0 5 9 12 E 1 14 40. exists if a producer can produce more of a good than all other producers. 41. a producer has comparative advantage if he can produce a good at lower opportunity cost than all other producers. 42. the percentage change in the CPI from one period to the next. F 0 15 29. Refer to the above table. A total output of 3 units of capital goods and 4 units of consumer goods: A) is irrelevant because the economy is capable of producing a larger total output. B) will result in the maximum rate of growth available to this economy. C) would involve an inefficient use of the economy's scarce resources. D) is unobtainable in this economy. List the four Factors of Production. 43. __________________________________ 44. __________________________________ 45. __________________________________ 46. __________________________________ 30. Refer to the above table. For these data the law of increasing opportunity costs is reflected in the fact that: A) the amount of consumer goods that must be sacrificed to get more capital goods diminishes beyond a point. B) larger and larger amounts of capital goods must be sacrificed to get additional units of consumer goods. C) the production possibilities data would graph as a straight downsloping line. D) the economy's resources are presumed to be scarce. What are the two things that will shift the curve outward. 47. 48. Match the following terms with the most appropriate definition / description. A. Expansion B. Peak C. Contraction D. Trough E. Economic Growth F. Specialization G. Resources 31. the bottom of the business cycle 32. a period where real GDP is growing. 33. called factors of production 34. when firms focus their resources on production of goods for which they have comparative advantage 35. the top of a business cycle; expansion has ended. 36. occurs when an economy’s production possibilities increase. 37. the period where real GDP is falling A. B. C. D. E. Absolute Advantage Comparative Advantage Opportunity Cost Scarcity Inflation 38. the imbalance between limited productive resources and unlimited human wants. 39. the value of the sacrifice made to pursue a course of action. Page 3