Question 1

The production possibilities curve illustrates the basic principle that

Accepted Answer

A)  an economy's capacity to produce increases in proportion to its population.
B)  if all resources of an economy are in use, more of one good can be produced only if less of another is produced.
C)  an economy will automatically seek that output at which all of its resources are employed.
D)  no opportunity cost exists in production.

Question 2

Whenever two individuals trade with each other, one will benefit and the other will lose.

Accepted Answer

A) True 
 B)False

Question 3

In his concept of "the invisible hand," Adam Smith explains that

Accepted Answer

A)  if each person looks out for himself or herself, then chaos will inevitably ensue.
B)  the pursuit of self-interest promotes economic well-being for society as a whole.
C)  governmental rule actually results in greater good than is apparent at the time.
D)  traditional religion is an appropriate guide for human behavior.
E)  All of the responses are correct.

Question 4

-If the producer is at combination B as shown in Table 3-2, the opportunity cost of increasing corn production by 1 unit is

Accepted Answer

A)  29 units of cotton.
B)  5 units of cotton.
C)  12 units of cotton.
D)  4 units of cotton.
E)  1 unit of cotton.

Question 5

Although specialization of labor increases efficiency of production, another step is necessary

Accepted Answer

A)  to exchange goods among producers.
B)  to remain fully employed.
C)  to a reallocation of natural resources.
D)  to assure that exchange leads to mutual gains.
E)  All of the responses are correct.

Question 6

Specialization and division of labor are made easier by the existence of money.

Accepted Answer

A) True 
 B)False

Question 7

A government, based upon its policy decisions, can determine the position and shape of the production possibilities frontier that the economy faces.

Accepted Answer

A) True 
 B)False

Question 8

A market system solves the

Accepted Answer

A)  "what" and "how" decisions but not the "to whom."
B)  "what" and "to whom" decisions but not the "how."
C)  "how" and "to whom" decisions but not the "what."
D)  "what," "how," and "to whom" decisions.

Question 9

Why might the money price for something be higher than the opportunity cost? Why might it be lower? Give an example of each to illustrate your answer.

Accepted Answer

Money price can be higher than opportuni...

Question 10

The principle of comparative advantage explains specialization and trade among countries but not among individuals.

Accepted Answer

A) True 
 B)False  False

Question 11

The negative slope of a production possibilities frontier is a graphic representation of opportunity cost.

Accepted Answer

A) True 
 B)False

Question 12

In order to make an optimal choice, we must use

Accepted Answer

A)  percentage analysis.
B)  total analysis.
C)  average analysis.
D)  marginal analysis.

Question 13

Money is scarce, but resources are not.

Accepted Answer

A) True 
 B)False  False

Question 14

In the 1960s, the lyrics of a rock song asked, "Did you ever have to make up your mind to say yes to one and leave the others behind?" What economic principle was demonstrated in the song? Explain.

Accepted Answer

The principle is that of oppor...

Question 15

In a properly functioning economy, money costs approximate opportunity costs.

Accepted Answer

A) True 
 B)False

Question 16

The opportunity cost of a college education does not include any income that is foregone while enrolled in school, since this is not measured using monetary costs.

Accepted Answer

A) True 
 B)False

Question 17

In early 1996, the upper Midwest suffered record cold, with wind chills of 50° below zero or worse. Yet, grocery stores stocked fresh citrus fruit (which was clearly not grown locally) . Why did grocers stock the fruit?

Accepted Answer

A)  The desire for profit
B)  Concern for their neighbors
C)  The need to dispose of excess production
D)  Government orders to distribute fruit
E)  All of the responses are correct. A

Question 18

Inputs in production processes are called resources.

Accepted Answer

A) True 
 B)False

Question 19

Given its size, the United States does not have to worry about limitations on resources.

Accepted Answer

A) True 
 B)False

Question 20

In terms of the production possibilities diagram, the principle of increasing cost simply asserts that the frontier is

Accepted Answer

A)  downward sloping.
B)  upward sloping.
C)  bowed inward.
D)  bowed outward.
E)  undefined, because no market will exist in this case.

Exam 3: The Fundamental Economic Problem: Scarcity and Choice

The production possibilities curve illustrates the basic principle that

Correct AnswerverifiedShow Answer

Whenever two individuals trade with each other, one will benefit and the other will lose.

Correct AnswerverifiedShow Answer

In his concept of "the invisible hand," Adam Smith explains that

Correct AnswerverifiedShow Answer

-If the producer is at combination B as shown in Table 3-2, the opportunity cost of increasing corn production by 1 unit is

Correct AnswerverifiedShow Answer

Although specialization of labor increases efficiency of production, another step is necessary

Correct AnswerverifiedShow Answer

Specialization and division of labor are made easier by the existence of money.

Correct AnswerverifiedShow Answer

A government, based upon its policy decisions, can determine the position and shape of the production possibilities frontier that the economy faces.

Correct AnswerverifiedShow Answer

A market system solves the

Correct AnswerverifiedShow Answer

Why might the money price for something be higher than the opportunity cost? Why might it be lower? Give an example of each to illustrate your answer.

Correct AnswerverifiedMoney price can be higher than opportuni...View AnswerShow Answer

The principle of comparative advantage explains specialization and trade among countries but not among individuals.

Correct AnswerverifiedFalse

The negative slope of a production possibilities frontier is a graphic representation of opportunity cost.

Correct AnswerverifiedShow Answer

In order to make an optimal choice, we must use

Correct AnswerverifiedShow Answer

Money is scarce, but resources are not.

Correct AnswerverifiedFalse

In the 1960s, the lyrics of a rock song asked, "Did you ever have to make up your mind to say yes to one and leave the others behind?" What economic principle was demonstrated in the song? Explain.

Correct AnswerverifiedThe principle is that of oppor...View AnswerShow Answer

In a properly functioning economy, money costs approximate opportunity costs.

Correct AnswerverifiedShow Answer

The opportunity cost of a college education does not include any income that is foregone while enrolled in school, since this is not measured using monetary costs.

Correct AnswerverifiedShow Answer

In early 1996, the upper Midwest suffered record cold, with wind chills of 50° below zero or worse. Yet, grocery stores stocked fresh citrus fruit (which was clearly not grown locally) . Why did grocers stock the fruit?

Correct AnswerverifiedA

Inputs in production processes are called resources.

Correct AnswerverifiedShow Answer

Given its size, the United States does not have to worry about limitations on resources.

Correct AnswerverifiedShow Answer

In terms of the production possibilities diagram, the principle of increasing cost simply asserts that the frontier is

Correct AnswerverifiedShow Answer

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Money price can be higher than opportuni...
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False

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False

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The principle is that of oppor...
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A

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