Scarcity & Opportunity Cost
What is meant by the statement that every economic system faces the problem of scarcity?
a) The additional benefits of goods and services are greater than their additional costs.
b) There are times when some products can be purchased only at high prices.
c) There are never enough productive resources to satisfy all human wants.
d) All economies have depressions during which scarcities exist.
c) There are never enough productive resources to satisfy all human wants.
In a competitive market, the price of a product is $5.00. If the government passes a law that sets a minimum price of the product at $6.00, this change will result in:
a) a surplus of the product.
b) a shortage of the product.
c) a decrease in the supply of the product.
d) an increase in the demand for the product.
a) surplus of the product.
The specialization of labor usually results in:
a) a decrease in economic interdependence.
b) an increase in output per hour worked.
c) a more equal distribution of income.
d) an increase in inflation.
b) an increase in output per hour worked.
A city council operating on a fixed budget makes more resources available for hiring police officers but cuts back on road construction. One can conclude from this decision that
a) there is no cost to hiring more police officers for the city.
b) there is no benefit from new road construction for the city.
c) there is a trade-off between police protection and other public services.
d) the only way to get more resources for police protection is to raise taxes.
c) there is a trade-off between police protection and other public services.
Inflation is a
a) sharp rise in the price of a major product.
b) substantial decline in the consumer price index.
c) sustained increase in the general level of prices.
d) rapid movement of the economy toward full-employment.
c) sustained increase in the general level of prices.
The opportunity cost of a new city park is the
a) cost of staff and maintenance for the park.
b) increased congestion from traffic around the park.
c) best alternative use of resources given up for the park.
d) negative effects on people and neighborhoods around the park.
c) best alternative use of resources given up for the park.
Which would most likely decrease the quantity of corn sold in a competitive market?
a) An increase in the price of fertilizer.
b) An increase in the incomes of consumers.
c) A decrease in the price of farm equipment.
d) An improvement in the technology of growing corn.
a) An increase in the price of fertilizer.
Which would most likely decrease the productivity of labor?
a) An increase in the pay of workers.
b) An increase in capital investment.
c) A decrease in job training.
d) A decrease in taxes.
c) A decrease in job training.
Which is most essential for an efficient market economy?
a) Effective labor unions.
b) Strong government regulation.
c) Active competition in the marketplace.
d) Responsible decisions by business leaders.
c) Active competition in the marketplace.
The consumer price index in an economy is 180 one year and 189 the next year. The rate of inflation in the economy over that year period is:
a)1 percent.
b) 5 percent.
c) 8 percent.
d) 18 percent.
b) 5 percent.
The maximum output a nation could possibly produce in any one year is limited by its:
a) productive resources.
b) business investment.
c) unemployment rate.
d) consumer income.
a) productive resources.
A newspaper reports that the price of gasoline increased and the quantity sold decreased. In a competitive market, this situation would most likely be the result of
a) an increase in demand.
b) an increase in supply.
c) a decrease in demand.
d) a decrease in supply.
d) a decrease in supply.
Which of the following is most important in increasing a nation’s economic growth in the long run?
a) higher rates of technological change
b) higher levels of government spending
c) increasing exports and decreasing imports
d) increasing consumer spending in the economy
a) higher rates of technological change
When workers join unions and elect representatives to negotiate with their employers, this is referred to as
a) a closed shop.
b) the seniority system.
c) collective bargaining.
d) right to work legislation.
c) collective bargaining.
An increase in real interest rates provides an incentive for people to save
a) less and borrow less.
b) more and borrow less.
c) less and borrow more.
d) more and borrow more.
b) more and borrow less.
Why do medical doctors generally earn more than farmers?
a) Medical doctors are more efficient than farmers.
b) Medical doctors provide a service rather than make a product.
c) There are fewer medical doctors than farmers in our economy.
d) Medical doctors are more scarce, given the demand for their services.
d) Medical doctors are more scarce, given the demand for their services.
Suppose a city facing a shortage of rental apartments eliminates rent controls. Which of the following is most likely to occur?
a) a decrease in rents and a decrease in the number of apartment units supplied
b) an increase in rents and an increase in the number of apartment units supplied
c) a decrease in the demand for apartments and an increase in the number of apartment units supplied
d) an increase in the demand for apartments and a decrease in the number of apartment units supplied
b) an increase in rents and an increase in the number of apartment units supplied
As a firm increases its output level in the short run, the costs of producing additional units of output eventually increase because of:
a) diseconomies of scale.
b) diminishing marginal returns.
c) increases in average fixed costs.
d) specialization and division of labor.
b) diminishing marginal returns.
A high school student buys a dinner at a restaurant. The restaurant offers a special price which takes 20 percent off the regular price of the dinner. In this exchange,
a) the student and the restaurant benefit.
b) the student benefits, but the restaurant does not.
c) the restaurant benefits, but the student does not.
d) neither the student nor the restaurant benefits.
a) the student and the restaurant benefit.
Unexpected inflation is most likely to benefit people
a) saving money in accounts at financial institutions.
b) owing money on loans at fixed interest rates.
c) living on fixed incomes and pensions.
d) holding life insurance policies.
b) owing money on loans at fixed interest rates.
From an economic point of view, which approach to controlling pollution is most efficient?
a) Abolish the use of toxic chemicals.
b) Use economic resources to eliminate all pollution.
c) Reduce pollution as long as the additional benefits are greater than the additional costs.
d) Adopt laws and regulations that prohibit economic activities that cause pollution problems.
c) Reduce pollution as long as the additional benefits are greater than the additional costs.
In the short run, aggregate demand in a country will increase if there is an increase in the:
a) tax rates in the country.
b) money supply of the country.
c) prices of resources in the country.
d) level of technology in the country.
b) money supply of the country.
People who take the risks of organizing productive resources to produce goods and services in the expectation of making profits are
a) business managers.
b) entrepreneurs.
c) stockbrokers.
d) Economists.
b) entrepreneurs.
Government would rather provide a public good such as flood control, rather than private businesses because
a) private businesses do not like to produce services for the government.
b) those who do not pay for a public good still receive the benefits.
c) when a person uses a public good, less is available for others.
c) a public good does not benefit individuals.
b) those who do not pay for a public good still receive the benefits.
The exchange rate between the U.S. dollar and the Japanese yen changes from $1=100 yen to $1=125 yen. This change means that
a) there will be a decrease in U.S. exports to Japan.
b) there will be an increase in U.S. exports to Japan.
c) Japanese goods will be more expensive for Americans.
d) U.S. goods will be less expensive for Japanese.
a) there will be a decrease in U.S. exports to Japan.