Question 1

The process of observing real-world behavior, developing hypotheses, testing them against facts, then using the results to construct theories is called:

Accepted Answer

A)   Opportunity cost estimation
B)   The scientific method
C)   Marginal analysis
D)   Normative analysisE) All of the above
F) None of the above

Question 2

Suppose there are two economies, Alpha and Beta, which have the same production possibilities curves. If Beta devotes more resources to produce capital goods than consumer goods as compared to Alpha, then in the future:

Accepted Answer

A)   Alpha will experience greater economic growth than Beta
B)   Beta will experience greater economic growth than Alpha
C)   Alpha will not be able to achieve full employment or productive efficiency
D)   Beta will not be able to achieve full employment or productive efficiencyE) A) and C)
F) B) and C)

Question 3

The vertical intercept of line (3)  on the above graph is:

Accepted Answer

A)   16
B)   24/16 or 1.5
C)   24
D)   -24/16 or -1.5E) None of the above
F) All of the above

Question 4

A point inside the production possibilities curve is ____ while a point outside the curve is ____.

Accepted Answer

A)   Attainable; unattainable
B)   Unattainable; attainable
C)   Below the maximum possible; the maximum possible
D)   The maximum possible; below the maximum possibleE) None of the above
F) C) and D)

Question 5

Specialization and international trade allows a nation to:

Accepted Answer

A)   Produce a combination of goods that is beyond (or outside)  its production possibilities
B)   Consume a combination of goods that is beyond (or outside)  its production possibilities
C)   Have an upward-sloping production possibilities curve
D)   Consume a lot of goods without having to produce any outputE) B) and D)
F) A) and B)

Question 6

A nation can produce two products: steel and wheat. The table below is the nation's production possibilities schedule:  Refer to the above table. In moving stepwise from possibility A to B to C … to F, the opportunity cost of a unit of steel in terms of wheat:

Accepted Answer

A)   Increases
B)   Decreases
C)   Remains constant
D)   Increases at first then decreasesE) None of the above
F) A) and B)

Question 7

Which one of the following is a normative economic statement?

Accepted Answer

A)   The unemployment rate fell for the fourth straight month, reflecting the effects from stronger economic growth in the second quarter
B)   The worsening balance of trade must be corrected if this nation is to remain competitive in the world economy
C)   Consumer prices are rising at a faster rate than in past months, indicating a renewal of inflationary pressures on the economy
D)   To help balance the Federal budget, Congress increased the tax on gasoline to its highest level in the past ten yearsE) B) and C)
F) A) and D)

Question 8

A nation's consumption is strictly limited by its production possibilities, even with international trade.

Accepted Answer

A) True 
 B)False

Question 9

Assume that a consumer purchases only two products and there is a decrease in the consumer's income. The prices of the two products stay constant. The decrease in income will result in a:

Accepted Answer

A)   Shift of the budget line inward to the left
B)   Shift of the budget line outward to the right
C)   A decrease in the slope of the budget line
D)   An increase in the slope of the budget lineE) None of the above
F) B) and D)

Question 10

Assume that a consumer purchases only two products. Suppose that the consumer's money income doubles, and the prices of the two products also double. These changes in income and prices will result in:

Accepted Answer

A)   A shift of the budget line inward to the left
B)   A shift of the budget line outward to the right
C)   No change in the budget line
D)   An increase in the slope of the budget lineE) All of the above
F) A) and D)

Question 11

A nation can produce two products: tanks and autos. The table below is the nation's production possibilities:  Refer to the above table. According to the production possibilities schedule, a combination of 4 tanks and 650 autos is:

Accepted Answer

A)   Attainable, and involves an efficient use of society's resources
B)   Attainable, but would not be in the best interests of a strong national defense
C)   Less than (or below)  the maximum attainable output combination
D)   Not attainable because the nation does not have sufficient resourcesE) None of the above
F) B) and C)

Question 12

Assume that a consumer spends a given budget on only two goods, and that the prices of the two goods are constant. The budget line in this case would:

Accepted Answer

A)   Definitely be a straight downward-sloping line
B)   Possibly be a straight upward-sloping line
C)   Be a curved graph bowed outwards
D)   Be a curved bell-shaped graphE) B) and D)
F) None of the above

Question 13

"The role of government in the economy should be kept to a minimum" is an example of a positive economic statement.

Accepted Answer

A) True 
 B)False

Question 14

The opportunity cost to a consumer who smokes cigarettes consists of the:

Accepted Answer

A)   Costs imposed on others who inhale second-hand smoke
B)   Products that the consumer could have bought instead of cigarettes
C)   Amount of cigarette-taxes paid by this consumer
D)   Cost of complementary products such as lighters, ashtrays, and cigarette holdersE) A) and B)
F) A) and C)

Question 15

Which of the following is a normative economic statement?

Accepted Answer

A)   The poverty rate hit a new high last year and income distribution also worsened
B)   Health care accounts for roughly a third of total spending in the economy
C)   The government needs to revamp the Social Security program to make it sustainable
D)   Retail sales are expected to continue on their downward trend in the next three quartersE) All of the above
F) A) and C)

Question 16

In a graph of the relationship between income and saving, economists generally consider:

Accepted Answer

A)   Income to be the independent variable and place it on the vertical axis
B)   Income to be the dependent variable and place it on the horizontal axis
C)   Saving to be the dependent variable and place it on the vertical axis
D)   Saving to be the independent variable and place it on the vertical axisE) None of the above
F) All of the above

Question 17

The idea in economics that "there is no free lunch" means that:

Accepted Answer

A)   Businesses would go bankrupt if they offered free lunches
B)   The thought of a free lunch is often better than the reality of consuming it
C)   There are opportunity costs involved even in free lunches
D)   Free lunches used by businesses to attract customers is an inefficient marketing ployE) C) and D)
F) A) and C)

Question 18

Which of the following suggests a direct relationship between x and y?

Accepted Answer

A)   A change in y = -2 coupled with a change in x = -4
B)   A change in y = 2 coupled with a change in x = 0
C)   A change in y = -1 coupled with a change in x = 4
D)   A change in y = 6 coupled with a change in x = -11E) C) and D)
F) A) and B)

Question 19

The production possibilities curve is a graph of:

Accepted Answer

A)   The maximum amounts of labor and capital resources available for production
B)   Various combinations of goods and services among which consumers are indifferent
C)   The maximum combinations of products that can be produced
D)   The maximum amount of capital and labor that the economy can employE) A) and B)
F) A) and C)

Question 20

Cuba is a command economy that suffered a decline in economic growth because of a cut in the aid provided by the former Soviet Union when the latter collapsed. As a consequence, Cuba:

Accepted Answer

A)   Experienced an outward shift of its production possibilities curve
B)   Experienced an inward shift of its production possibilities curve
C)   Moved from one point to another along its existing production possibilities curve
D)   Went to a point inside its production possibilities curveE) C) and D)
F) All of the above

Exam 1: Limits, Alternatives, and Choices

Which one of the following is a normative economic statement?

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In a graph of the relationship between income and saving, economists generally consider:

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Specialization and international trade allows a nation to:

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Assume that a consumer purchases only two products and there is a decrease in the consumer's income. The prices of the two products stay constant. The decrease in income will result in a:

Correct AnswerverifiedShow Answer

The process of observing real-world behavior, developing hypotheses, testing them against facts, then using the results to construct theories is called:

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Which of the following suggests a direct relationship between x and y?

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The opportunity cost to a consumer who smokes cigarettes consists of the:

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A nation's consumption is strictly limited by its production possibilities, even with international trade.

Correct AnswerverifiedShow Answer

Suppose there are two economies, Alpha and Beta, which have the same production possibilities curves. If Beta devotes more resources to produce capital goods than consumer goods as compared to Alpha, then in the future:

Correct AnswerverifiedShow Answer

The production possibilities curve is a graph of:

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The vertical intercept of line (3) on the above graph is:

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Assume that a consumer spends a given budget on only two goods, and that the prices of the two goods are constant. The budget line in this case would:

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"The role of government in the economy should be kept to a minimum" is an example of a positive economic statement.

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A nation can produce two products: tanks and autos. The table below is the nation's production possibilities: Refer to the above table. According to the production possibilities schedule, a combination of 4 tanks and 650 autos is:

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A nation can produce two products: steel and wheat. The table below is the nation's production possibilities schedule: Refer to the above table. In moving stepwise from possibility A to B to C … to F, the opportunity cost of a unit of steel in terms of wheat:

Correct AnswerverifiedShow Answer

The idea in economics that "there is no free lunch" means that:

Correct AnswerverifiedShow Answer

Which of the following is a normative economic statement?

Correct AnswerverifiedShow Answer

A point inside the production possibilities curve is ____ while a point outside the curve is ____.

Correct AnswerverifiedShow Answer

Assume that a consumer purchases only two products. Suppose that the consumer's money income doubles, and the prices of the two products also double. These changes in income and prices will result in:

Correct AnswerverifiedShow Answer

Cuba is a command economy that suffered a decline in economic growth because of a cut in the aid provided by the former Soviet Union when the latter collapsed. As a consequence, Cuba:

Correct AnswerverifiedShow Answer

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A point inside the production possibilities curve is while a point outside the curve is .

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