Chapter 01 Limits, Alternatives, and Choice

Chapter 01 - Limits, Alternatives, and Choices

Chapter 01

Limits, Alternatives, and Choices

Multiple Choice Questions

1. Economics is a social science concerned with:
A. Increasing the level of productive resources so there is maximum output in society
B. Increasing the level of productive resources so there is a minimum level of income
C. The best use of scarce resources to achieve the maximum satisfaction of economic wants
D. The best use of scarce resources paid for at the minimum level of cost to consumers and businesses

AACSB: Analytical Skills
Bloom's: Knowledge
Learning Objective: 1-1
Level: Easy
Topic: Economics; economic perspective

2. The study of economics is primarily concerned with:
A. Expanding the production of goods and services
B. Making the best use of scarce productive resources
C. Equalizing the distribution of consumer income and wealth
D. Reallocating resources from consumption to production in the economy

AACSB: Analytical Skills
Bloom's: Knowledge
Learning Objective: 1-1
Level: Easy
Topic: Economics; economic perspective

3. The key economic concept that serves as the basis for the study of economics is:
A. Inflation
B. Unemployment
C. Money
D. Scarcity

AACSB: Analytical Skills
Bloom's: Knowledge
Learning Objective: 1-1
Level: Difficult
Topic: Economics; economic perspective

4. A recurring theme in economics is:
A. Unlimited resources and unlimited economic wants
B. People can increase resources by limiting their economic wants
C. People have limited economic wants and limited resources
D. People have unlimited economic wants, but limited resources

AACSB: Analytical Skills
Bloom's: Knowledge
Learning Objective: 1-1
Level: Moderate
Topic: Economics; economic perspective

5. As a consequence of the condition of scarcity:
A. There is never enough of anything
B. Production has to be planned by government
C. Things which are plentiful have relatively high prices
D. Individuals have to make choices from among alternatives

AACSB: Analytical Skills
Bloom's: Knowledge
Learning Objective: 1-1
Level: Easy
Topic: Economics; economic perspective

6. The general concern of economics is with the study of the:
A. Degree of competition in stock and bond markets in the economy
B. Optimal use of limited productive resources to satisfy economic wants
C. Issue of equality in the distribution of income and wealth among households
D. Budget deficits in the domestic economy and trade deficits in the international economy

AACSB: Analytical Skills
Bloom's: Knowledge
Learning Objective: 1-1
Level: Easy
Topic: Economics; economic perspective

7. Which statement would best complete a short definition of economics? "Economics is the study of:
A. The production and distribution of capital goods"
B. How the economy generates incomes for people"
C. The optimal use of scarce productive resources"
D. How the stock market creates wealth for investors"

AACSB: Analytical Skills
Bloom's: Knowledge
Learning Objective: 1-1
Level: Easy
Topic: Economics; economic perspective

8. Economics is a:
A. Natural science
B. Social science
C. Managerial science
D. Business science

AACSB: Analytical Skills
Bloom's: Knowledge
Learning Objective: 1-1
Level: Easy
Topic: Economics; economic perspective

9. What is the economic meaning of the expression that "there is no such thing as a free lunch"?
A. It refers to "free-riders," who do not pay for the cost of a product, but who receive the benefit from it
B. It means that economic freedom is limited by the amount of income available to the consumer
C. It means that there is an opportunity cost when resources are used to provide "free" products
D. It indicates that products only have value because people are willing to pay for them

AACSB: Analytical Skills
Bloom's: Knowledge
Learning Objective: 1-1
Level: Moderate
Topic: Economics; economic perspective

10. 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

AACSB: Analytical Skills
Bloom's: Knowledge
Learning Objective: 1-1
Level: Difficult
Topic: Economics; economic perspective

11. The idea in economics that "there is no free lunch" means that:
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 when scarce resources are used for free lunches
D. Businesses use free lunches to attract customers but this advertising practice is inefficient

AACSB: Analytical Skills
Bloom's: Knowledge
Learning Objective: 1-1
Level: Easy
Topic: Economics; economic perspective

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

AACSB: Analytical Skills
Bloom's: Knowledge
Learning Objective: 1-1
Level: Difficult
Topic: Economics; economic perspective

13. Tammie makes $150 a day as a bank clerk. She takes off two days of work without pay to fly to another city to attend the concert of her favorite music group. The cost of transportation for the trip is $250. The cost of the concert ticket is $50. The opportunity cost of Tammie's trip to the concert is:
A. $300
B. $450
C. $500
D. $600

AACSB: Analytical Skills
Bloom's: Application
Learning Objective: 1-1
Level: Difficult
Topic: Economics; economic perspective

14. When a state government chooses to build more roads, the required resources are no longer available for spending on public education. This dilemma illustrates the concept of:
A. Marginal analysis
B. Full employment
C. Full production
D. Opportunity cost

AACSB: Analytical Skills
Bloom's: Application
Learning Objective: 1-1
Level: Moderate
Topic: Economics; economic perspective

15. The value of the best alternative to any action you undertake is referred to as its:
A. Production cost
B. Opportunity cost
C. Resource cost
D. Increasing cost

AACSB: Analytical Skills
Bloom's: Knowledge
Learning Objective: 1-1
Level: Easy
Topic: Economics; economic perspective

16. The opportunity cost of a new national park is the:
A. Cost of hiring staff and park rangers to provide services for visitors
B. Cost of constructing park buildings and highways to get to it
C. Alternative uses for the land and funding for the park
D. Increased pollution to the wildlife habitat at the park

AACSB: Analytical Skills
Bloom's: Knowledge
Learning Objective: 1-1
Level: Easy
Topic: Economics; economic perspective

17. The opportunity cost of a new public highway is the:
A. Money cost of hiring contractors and construction workers for the new highway
B. Other goods and services that must be sacrificed to construct the new highway
C. Cost of constructing the new highway in a future year
D. Increased traffic from the use of the new highway

AACSB: Analytical Skills
Bloom's: Application
Learning Objective: 1-1
Level: Easy
Topic: Economics; economic perspective

18. After graduating from high school, Ron Willis plans to go to college. The college tuition is $15,000 a year. But, instead of going to college, Ron could take a full-time job paying $20,000. If Ron decides to go to college, what is his opportunity cost for attending for one year?
A. $5,000
B. $15,000
C. $20,000
D. $35,000

AACSB: Analytical Skills
Bloom's: Application
Learning Objective: 1-1
Level: Moderate
Topic: Economics; economic perspective

19. The opportunity cost for a consumer who smokes cigarettes is the:
A. Costs imposed on others who inhale tobacco smoke
B. Amount of tax levied on the cigarettes the consumer buys
C. Products that the consumer could have consumed instead of cigarettes
D. Cost of complementary products such as lighters, ashtrays, and cigarette holders

AACSB: Analytical Skills
Bloom's: Knowledge
Learning Objective: 1-1
Level: Moderate
Topic: Economics; economic perspective

20. One major feature of the economic perspective is:
A. That scarcity is more important than choice
B. That costs are more important than benefits
C. The assumption of rational self-interest by individuals
D. The recognition of economic resources in the economy

AACSB: Analytical Skills
Bloom's: Knowledge
Learning Objective: 1-1
Level: Easy
Topic: Economics; economic perspective

21. The "economic perspective" focuses largely on:
A. Normative economics
B. The post hoc fallacy
C. Marginal analysis
D. The fallacy of composition

AACSB: Analytical Skills
Bloom's: Knowledge
Learning Objective: 1-1
Level: Difficult
Topic: Economics; economic perspective

22. The observation that people compare the marginal benefits with the marginal costs in making such decisions as how to spend time, which products to buy, whether or not to work, and which goods to produce and sell, is most closely associated with:
A. The other things being equal assumption
B. The economic perspective
C. Macroeconomics
D. Policy economics

AACSB: Analytical Skills
Bloom's: Knowledge
Learning Objective: 1-1
Level: Moderate
Topic: Economics; economic perspective

23. Which expression is another way of saying "marginal cost"?
A. Total cost
B. Additional cost
C. Rational behavior
D. Scarcity

AACSB: Analytical Skills
Bloom's: Knowledge
Learning Objective: 1-1
Level: Easy
Topic: Economics; economic perspective

24. Which expression is another way of saying "marginal benefit"?
A. Profit
B. Loss
C. Total benefit
D. Extra benefit

AACSB: Analytical Skills
Bloom's: Knowledge
Learning Objective: 1-1
Level: Easy
Topic: Economics; economic perspective

25. Henry wants to buy a book. The economic perspective suggests that Henry will buy the book if:
A. Positive economics is more important than normative economics in the decision making
B. Normative economics is more important than positive economics in the decision making
C. The marginal cost of the book is greater than its marginal benefit
D. The marginal benefit of the book is greater than its marginal cost

AACSB: Analytical Skills
Bloom's: Application
Learning Objective: 1-1
Level: Easy
Topic: Economics; economic perspective

26. From an economic perspective, when a consumer decides to buy more life insurance, the consumer has most likely concluded that the:
A. Marginal costs of more insurance coverage have decreased
B. Marginal benefits of more insurance coverage have increased
C. Marginal benefits of more insurance coverage are greater than the marginal costs
D. Opportunity costs of more insurance coverage are greater than the payment for more insurance coverage

AACSB: Analytical Skills
Bloom's: Application
Learning Objective: 1-1
Level: Easy
Topic: Economics; economic perspective

27. Comparing marginal costs with marginal benefits is an essential element of:
A. Self-interest
B. Normative economics
C. The fallacy of composition
D. The economic perspective

AACSB: Analytical Skills
Bloom's: Knowledge
Learning Objective: 1-1
Level: Easy
Topic: Economics; economic perspective

28. From an economic perspective, when a student decides to attend another year of college, the student has concluded that the marginal:
A. Costs of attending college has decreased that year
B. Benefits of attending college has increased that year
C. Benefits of attending college are greater than the marginal costs
D. Costs of attending college will be subsidized by someone else such as parents or the government

AACSB: Analytical Skills
Bloom's: Application
Learning Objective: 1-1
Level: Moderate
Topic: Economics; economic perspective

29. When an economist says that there is "too much of a good thing," the economist is suggesting that:
A. Economic goals are conflicting
B. Economic goals are complementary
C. The marginal cost of the thing is less than the marginal benefit
D. The marginal benefit of the thing is less than the marginal cost

AACSB: Analytical Skills
Bloom's: Knowledge
Learning Objective: 1-1
Level: Easy
Topic: Economics; economic perspective

30. The concept of "rational behavior" suggests that:
A. Positive economics is more important then normative economics
B. Normative economics is more important than positive economics
C. People make different choices because their circumstances and information differ
D. There is a logical fallacy of composition that affects microeconomic thinking but not macroeconomic thinking

AACSB: Analytical Skills
Bloom's: Knowledge
Learning Objective: 1-1
Level: Moderate
Topic: Economics; economic perspective

31. When studying human actions and economic institutions, economists typically assume that:
A. There is an economics-for-citizenship perspective that must be addressed
B. There is a confusion between correlation and causation
C. The long-term costs outweigh the short-term benefits
D. There is rational or purposeful behavior

AACSB: Analytical Skills
Bloom's: Knowledge
Learning Objective: 1-1
Level: Difficult
Topic: Economics; economic perspective

32. When producers maximize their profits from the production of a good or service, they are:
A. Testing a hypothesis
B. Exhibiting rational behavior
C. Assuming that all other things are equal
D. Making a tradeoff between economic efficiency and economic freedom

AACSB: Analytical Skills
Bloom's: Knowledge
Learning Objective: 1-1
Level: Easy
Topic: Economics; economic perspective

33. The process of developing hypotheses, testing them against facts, and using the results to construct theories is called:
A. Opportunity cost calculation
B. The scientific method
C. Marginal analysis
D. Microeconomics

AACSB: Analytical Skills
Bloom's: Knowledge
Learning Objective: 1-2
Level: Easy
Topic: Theories, principles, and models

34. Developing economic principles or explanations about how individuals behave or institutions act is referred to as:
A. Microeconomics
B. Macroeconomics
C. Normative economics
D. Economic theory

AACSB: Analytical Skills
Bloom's: Knowledge
Learning Objective: 1-2
Level: Easy
Topic: Theories, principles, and models

35. From the perspective of economists, which term provides the highest degree of confidence for explaining economic behavior?
A. A fact
B. A principle
C. A hypothesis
D. An assumption

AACSB: Analytical Skills
Bloom's: Knowledge
Learning Objective: 1-2
Level: Easy
Topic: Theories, principles, and models

36. The statement that "the unemployment rate will increase as the economy moves into a recession" is an example of:
A. A normative statement
B. A fallacy of composition
C. Loaded terminology
D. A generalization

AACSB: Analytical Skills
Bloom's: Application
Learning Objective: 1-2
Level: Easy
Topic: Theories, principles, and models

37. An economic model is:
A. A value judgment
B. A fact
C. Built using theory
D. Built on policies

AACSB: Analytical Skills
Bloom's: Knowledge
Learning Objective: 1-2
Level: Easy
Topic: Theories, principles, and models

38. Economic models do not reflect the full complexity of reality, but instead are based on:
A. Tradeoffs
B. Simplifications
C. Value judgments
D. The fallacy of composition

AACSB: Analytical Skills
Bloom's: Knowledge
Learning Objective: 1-2
Level: Easy
Topic: Theories, principles, and models

39. The role of an assumption in an economic theory is to:
A. Add realism
B. Prove the theory
C. Cover special cases
D. Simplify the theory

AACSB: Analytical Skills
Bloom's: Knowledge
Learning Objective: 1-2
Level: Easy
Topic: Theories, principles, and models

40. The ceteris paribus assumption is employed in economic analysis to:
A. State economic goals
B. Simplify the complex world
C. Evaluate an economic system
D. Approximate real-world conditions

AACSB: Analytical Skills
Bloom's: Knowledge
Learning Objective: 1-2
Level: Difficult
Topic: Theories, principles, and models

41. Another description for ceteris paribus is:
A. Other things equal
B. Loaded terminology
C. The fallacy of composition
D. Post hoc, ergo propter hoc

AACSB: Analytical Skills
Bloom's: Knowledge
Learning Objective: 1-2
Level: Easy
Topic: Theories, principles, and models

42. The purpose of the ceteris paribus assumption used in economic analysis is to:
A. Avoid making normative statements
B. Avoid the post hoc, ergo propter hoc fallacy
C. Make sure that all relevant factors are considered
D. Restrict the analysis to the effect of a single economic factor

AACSB: Analytical Skills
Bloom's: Knowledge
Learning Objective: 1-2
Level: Difficult
Topic: Macroeconomics and microeconomics

43. A basic assumption used in most economic theories is that:
A. What is true for a part of the whole must also be true for the whole
B. As price decreases, quantity demanded will increase
C. Whatever goes up must come down
D. All other things remain the same

AACSB: Analytical Skills
Bloom's: Knowledge
Learning Objective: 1-2
Level: Easy
Topic: Theories, principles, and models

44. Economists have difficulty applying the scientific method because:
A. Economic conditions are constant
B. The scientific method does not apply to economics
C. People are involved, and their behavior is entirely predictable
D. Controlled laboratory experiments are impossible or often infeasible

AACSB: Analytical Skills
Bloom's: Knowledge
Learning Objective: 1-2
Level: Easy
Topic: Theories, principles, and models

45. Which question is an illustration of a macroeconomic question?
A. What is the amount of profit for Intel and other makers of microchips?
B. How does a cut in the business tax rate increase business investment in the economy?
C. What will be the level of stock market and bond market prices at the end of the year?
D. How does the supply of fruits and vegetables change when there is bad weather affecting crops?