EconomicsTest Review
The Basics: Scarcity, OC, PPF
Vocabulary
EconomicsMicroeconomics
GoodsMacroeconomics
ServicesResources
ProducersConsumers
Factors of ProductionOpportunity Cost
MarketMarginal
Marginal BenefitMarginal Cost
Rational Choiceceteris paribus
Production Possibilities Frontier (PPF)Incentive
SpecializationUnderutilization (refer to PPF)
Absolute AdvantageComparative Advantage
Trade-offFree-Lunch
Provide examples of each of the following:
Factors of Production
Land (Natural resource)
Labor (Human Resource)
Capital Resource (distinguish between physical capital and human capital)
Entrepreneurship
Calculate:
Opportunity Cost (given choices)
Cost of a trade-off (using PPF data)
Area of underemployment (Underutilization) of resources on a PPF
Area of unattainable combinations on a PPF (in the short run)
Questions:
- What two things will allow us to move the PPF outward in the long run?
- Consumers are (limited/unlimited) in what they can acquire.
- What should one do when MB>MC?
- What should one do when MB<MC?
Practice Questions:
11.Which of the following best defines economics?
a.Economics teaches how to limit our wants.
b.Economics studies how to choose the best alternative when coping with scarcity.
c.Economics helps you earn as much money as possible.
d.Economics analyzes all aspects of human behavior in general.
Answer: b
12.Scarcity means we can’t
a.consume all the available goods and services.
b.satisfy all our wants.
c.increase our standard of living.
d.choose among alternatives.
Answer: b
13.Scarcity exists because
a.human wants exceed the resources available to satisfy them.
b.some individuals have low income.
c.the costs of production are high.
d.some people make bad economic decisions.
Answer: a
4.Scarcity forces everyone to
a.choose among available alternatives.
b.cheat and steal.
c.be unwilling to help others.
d.live at a low standard of living.
Answer: a
15.Scarcity means we must
a.consume less.
b.produce less.
c.make choices.
d.earn more.
Answer: c
16The study of the choices of one individual or business is called
a.macroeconomics.
b.microeconomics.
c.scarcity.
d.finance.
Answer: b
7.Which of the following best describes microeconomics?
a.It analyzes the issues that the entire economic system faces in dealing with scarcity.
b.It studies the choices that individuals and businesses make when coping with scarcity.
c.It examines choices that individuals, businesses, governments, and entire societies face because of scarcity.
d.None of these answers describe microeconomics.
Answer: b
18.The study of the choices of one individual or business is called
a.macroeconomics.
b.microeconomics.
c.scarcity.
d.finance.
Answer: b
9.Which of the following best describes microeconomics?
a.It analyzes the issues that the entire economic system faces in dealing with scarcity.
b.It studies the choices that individuals and businesses make when coping with scarcity.
c.It examines choices that individuals, businesses, governments, and entire societies face because of scarcity.
d.None of these answers describe microeconomics.
Answer: b
10.In order to make a rational choice, people must
a.only know what they want.
b.be able to afford the choice decided upon.
c.decide quickly without wasting time.
d.compare marginal costs and marginal benefits.
Answer: d
11.An opportunity cost is
a.the dollar amount that is paid.
b.anything the decision maker believes costs to be.
c.the benefits of the highest-valued alternative forgone.
d.whatever is paid out and cannot be reduced or reversed.
Answer: c
12.Suppose that, instead of taking this test, you could either have worked and earned income or partied and had a pleasurable time. Your opportunity cost of taking the test is the forgone
a.work.
b.party.
c.working and partying.
d.working or partying, depending on which is your second choice.
Answer: d
13.To make a rational choice, a person
a.compares the extra benefits of one more unit to the extra costs of one more unit.
b.adds the total benefits and the total costs and then compares the two totals.
c.adds the total benefits to determine if the total is large enough.
d.adds the total costs to determine if the total is small enough.
Answer: a
14.In order to produce goods and services, firms need to employ
a.consumption goods.
b.factors of production.
c.government goods.
d.factors of investment.
Answer: b
15.Reserves of oil are counted as
a.land.
b.labor.
c.capital.
d.entrepreneurship.
Answer: a
16.Human capital can be increased through
a.investment in new technology.
b.education, on-the-job training, and work experience.
c.investment in new machinery.
d.decreases in population.
Answer: b
17.Capital, as a factor of production, refers to
a.money, stocks, and bonds.
b.the production technology used by firms.
c.the physical goods used to produce other goods and services.
d.the production factors imported from abroad.
Answer: c
18.Entrepreneurship, as a factor of production, refers to
a.the technology used by firms.
b.the human capital accumulated by workers.
c.the value of the firm’s stock.
d.the human resource that organizes labor, land, and capital.
Answer: d
119.Which of the following correctly describes a production possibilities frontier?
a.The PPF is a boundary between what can be produced and what cannot be produced.
b.A PPF shows the maximum combinations of goods and services that can be produced.
c.A PPF shows the different production capabilities of an economy.
d.All of the above correctly describes a PPF.
Answer: d
120.The production possibilities frontier shows
a.how technology changes over time.
b.how total production is produced.
c.the combinations of any two goods which can be produced with the available factors of production.
d.the combinations of any two factors of production that can produce a certain quantity of goods.
Answer: c
21.A production possibilities frontier between bottled water and CDs shows that if all factors of production are devoted to produce bottled water, then
a.only bottled water production is a free lunch.
b.both bottled water and CD production are free lunches.
c.bottled water production is unlimited.
d.CD production is 0.
Answer: d
22A production possibilities frontier between bottled water and CDs shows that the more resources used for CD production, the
a.fewer are left for producing bottled water.
b.more are left for producing bottled water.
c.more units of bottled water that can be produced.
d.fewer CDs that can be produced.
Answer: a
23.Full employment of all factors of production in an economy is represented by a
a.point on the PPF.
b.point outside the PPF.
c.point inside the PPF.
d.All of the above answers can be correct depending on the status of the economy’s production.
Answer: a