Questions:
1. What do economists mean when they state that a good is scarce?
a. There is a shortage or insufficient supply of the good at the existing price.
b. It is impossible to expand the availability of the good.
c. People will want to buy more of the good regardless of price.
d. The amount of the good that people would like to have exceeds the supply that is freely available from nature.
2. Economic choice and competitive behavior are the result of
a. basic human greed.
b. poverty.
c. private ownership of resources.
d. scarcity.
3. Rationing is
a. the allocation of a limited supply of a good or resource among users who would like to have more of it.
b. a function that can only be performed by market prices.
c. a function that is unnecessary except in cases where markets are used to allocate goods and resources.
d. essential only when the price of a product is set above market equilibrium.
4. The expression, "There's no such thing as a free lunch" implies that
a. everyone has to pay for his own lunch.
b. the person consuming a good must always pay for it.
c. costs are incurred when resources are used to produce goods and services.
d. no one has time for a good lunch anymore.
5. Which one of the following states a central element of the economic way of thinking?
a. Scarce goods are priceless.
b. Incentives matter--if the personal cost of a choice increases, individuals will be less likely to choose it.
c. The realism of the assumptions is the best test of an economic theory.
d. When deciding how to allocate time, the concept of opportunity cost is meaningless.
6. Which of the following is most clearly consistent with the basic postulate of economics with regard to human decision making?
a. People will never choose work over leisure.
b. People will buy less gas if the gasoline tax decreases 20 cents per gallon.
c. People will buy more orange juice at $2 per gallon than at $1 per gallon.
d. People will consume less beef if the price increases from $1 to $2 per pound.
7. Which one of the following is a positive economic statement?
a. An increase in the price of butter causes consumers to buy less butter.
b. Social conscience demands that we increase the minimum wage.
c. Taxes should be raised to halt inflation.
d. The sales tax on food should be repealed.
8. The basic difference between macroeconomics and microeconomics is that
a. macroeconomics looks at the forest (aggregate markets), while microeconomics is concerned with the individual trees (subcomponents).
b. macroeconomics is concerned with policy decisions, while microeconomics applies only to theory.
c. microeconomics is concerned with the forest (aggregate markets), while macroeconomics is concerned with the trees (components).
d. opportunity cost is applicable to macroeconomics, and the fallacy of composition relates to microeconomics.
9. Economic analysis assumes that
a. for the most part, individuals act out of selfish motives, and it is realistic to assume this is always true.
b. although individuals are at times selfish and at times altruistic, only their selfish actions may be predicted.
c. people are basically humanitarian and their actions are therefore difficult to predict.
d. changes in the personal benefits and costs associated with an activity will exert a predictable influence on human behavior.
10. Adam Smith believed that if people were free to pursue their own interests, then
a. greed and cheating would prevail in the market.
b. less would be produced than if altruism were our guiding principle.
c. they would generally be encouraged to produce goods and services that others valued highly (relative to their costs).
d. the public interest would be best served, but the interests of employers would be hurt.