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Chapter 2. The Economic Problem: Scarcity, Wants, and Choices


1. Which is the correct match of an economic resource and payment for that resource?
A. land and wages
B. labour and interest income
C. capital and rental income
D. entrepreneurial ability and profit



2. An "innovator" is defined as an entrepreneur who
A. makes basic policy decisions in a business firm
B. combines factors of production to produce a good or service
C. invents a new product or process for producing a product
D. introduces new products on the market or employs a new method to produce a product



3. An economy is efficient when it has achieved
A. full employment
B. full production
C. either full employment or full production
D. both full employment and full production



4. Allocative and productive efficiency are conditions that best characterize
A. full employment
B. full production
C. traditional economies
D. command economies



5. When a production possibilities schedule is written (or a production possibilities curve is drawn) in this chapter, four assumptions are made. Which of the following is one of those assumptions?
A. more than two products are produced
B. the state of technology changes
C. the economy has both full employment and full production
D. the quantities of all resources available to the economy are variable, not fixed



6.
R-1 2a

At point A on the production possibilities curve in the above illustration,

A. wheat production is inefficient
B. tractor production is inefficient
C. the economy is employing all its resources
D. the economy is not employing all its resources



7.
R-1 2a

Unemployment and production inefficiency would best be represented in the graph by point:

A. A
B. B
C. C
D. D



8.
R-1 2a

The choice of point B over point A as the optimal product mix for society would be based on

A. productive efficiency
B. full employment of resources
C. the law of increasing opportunity costs
D. a comparison of marginal costs and benefits



9.
R-1 2a

Economic growth could be represented by

A. a movement from point A to point B
B. a movement from point B to point A
C. a shift in the production possibilities curve out to point C
D. a shift in the production possibilities curve out to point D



10. The production possibilities curve is
A. concave
B. convex
C. linear
D. positive



11. What is the economic rationale for the law of increasing opportunity cost?
A. full production and full employment of resources have not been achieved
B. economic resources are not completely adaptable to alternative uses
C. economic growth is being limited by the pace of technological advancement
D. an economy's present choice of output is determined by fixed technology and fixed resources



12. If there is an increase in the resources available within the economy,
A. more goods and services will be produced in the economy
B. the economy will be capable of producing more goods and services
C. the standard of living in the economy will rise
D. the technological efficiency of the economy will
improve



13.
R-2 2b

If the production possibilities curve below moves from position A to position B, then

A. the economy has increased the efficiency with which it produces wheat
B. the economy has increased the efficiency with which it produces tractors
C. the economy has put previously idle resources to work
D. the economy has gone from full employment to less than full employment



14. Which would be the best example of allocative efficiency? When society devoted resources to the production of
A. slide rules instead of hand-held calculators
B. horse-drawn carriages instead of automobiles
C. word processors instead of manual typewriters
D. long-playing records instead of compact discs or cassette tapes



15. Which situation would most likely shift the production possibilities curve for a nation in an outward direction?
A. deterioration in product quality
B. reductions in the supply of resources
C. increases in technological advances
D. rising levels of discrimination



16. The opportunity cost of a new public stadium is the
A. money cost of hiring guards and staff for the new stadium
B. cost of constructing the new stadium in a future year
C. change in the real estate tax rate to pay off the new stadium
D. other goods and services that must be sacrificed to construct the new stadium



17. Which situation would most likely cause a nation's production possibilities curve to shift inward?
A. investing more resources in new plants and equipment
B. eliminating discrimination based on race and ethnic background
C. increasing international trade or incurring a trade deficit
D. going to war with another nation and suffering a major defeat



18. The combination of products in society's production possibilities table which is the most valued or optimal is determined
A. at the midpoint of the production possibilities table
B. at the endpoint of the production possibilities table
C. where the marginal benefits equal marginal costs
D. where the opportunity costs are maximized



19. The underallocation of resources by society to the production of a product means that the
A. marginal benefit is greater than the marginal cost
B. marginal benefit is less than the marginal cost
C. opportunity cost of production is rising
D. consumption of the product is falling



20.
R-3 2c

The choice of alternative B compared with alternative D would tend to promote

A. a slower rate of economic growth
B. a faster rate of economic growth
C. increased consumption in the present
D. central economic planning



21.
R-3 2c

If the economy is producing at production alternative D the opportunity cost of 40 more units of consumer goods is about

A. 5 units of capital goods
B. 10 units of capital goods
C. 15 units of capital goods
D. 20 units of capital goods



22.
R-3 2c

In the table, the law of increasing opportunity costs is suggested by the fact that

A. greater and greater quantities of consumer goods must be given up to get more capital goods
B. smaller and smaller quantities of consumer goods must be given up to get more capital goods
C. capital goods are relatively more scarce than consumer goods
D. the production possibilities curve will eventually shift outward as the economy expands



23. The private ownership of property resources and use of the market system to direct and coordinate economic activity is characteristic of
A. pure capitalism
B. the command economy
C. market socialism
D. the traditional economy



24. The two kinds of markets found in the circular flow model are
A. real and money markets
B. real and traditional markets
C. money and authoritarian markets
D. product and resource markets



25. In the circular flow model, businesses
A. demand both products and resources
B. supply both products and resources
C. demand products and supply resources
D. supply products and demand resources




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