1. __________, a term referring to the fact that for many good, as the level of production increases, the average cost of producing each individual unit declines.
a. Economies of scale
b. Specialization
c. Division of labor
d. Skill
2. Which of the following best characterizes the circular flow of income?
a. Household buy factors of production from business, and business buy goods and services from household
b. Business buy resources from the government and household buy goods and services from business.
c. Businesses buy resources from households, and household use their income from the sale of resources to buy goods and services from businesses
d. The government purchases resources from businesses and households and then sells goods and services to businesses and households.
3. Philosophers draw a distinction between positive statements, which describe the world as it is, and _____________ which describe how the world should be.
a. Opportunity cost
b. Trade-off
c. Normative statement
d. Budget constraint
4. Scarcity implies that:
a. It is impossible to completely fulfil the unlimited human desire for goods and services with the limited resources available
b. Consumers are too poor to afford the goods and services available
c. At the current market price, consumers are willing to purchase more of a good than suppliers are willing to produce.
d. Consumers would be willing to purchase the same quantity of a good at a higher price.
5. The opportunity cost of an action.
a. Can be determined by considering both the benefits that flow from as well as the monetary costs incurred as a result of the action.
b. Can be determined by adding up the bills incurring as a result of the action
c. Can be objectively determined only by economist
d. Is a subjective valuation that can be determined only by the individual who chooses the action.
6. “if I didn’t have class tonight, I would save the $4 campus parking fee and spend four hours at work where I earn $10 per hour.” The opportunity cost of attending class this evening is:
a. $4
b. $40
c. $44
d. $0
7. The model that economist use for illustrating the process of individual choice in a situation of scarcity is the _______________ sometimes also called the opportunity set, a diagram which shows what choices are possible.
a. Income cap
b. Consumption set
c. Budget constraint
d. Original budget
8. The marginal benefit of a slice of pizza is the:
a. Price of the slice pizza
b. Maximum amount that a consumer is willing to pay for the slice
c. Total amount that a consumer is willing to pay for a whole pizza, divided by the number of slices
d. Difference between the value of the slice to the consumer and the price of the slice.
9. The lesson of ____________ is to forget about the money that’s irretrievable gone and instead to focus on the marginal cost and benefits of future options.
a. Marginal utility
b. Sunk costs
c. Marginal analysis
d. Budget constraints
10. The leader of a federal political party made the following campaign promise: “my administration will increase national defense without requiring sacrifices elsewhere in the economy.” The promise can be kept if:
a. The production possibilities frontier shifts outward due to an improvement in technology
b. The economy moves along the production possibilities in the direction of a greater quantity of defense
c. Either b) or c) occurs, but not as a result of a).
d. The economy moves from a point inside the production possibilities curve toward a point on the production possibilities curve.
11. Philosophers draw a distinction between _ __________, which describe the world as it is, and normative statements, which describe how the world should be.
a. Positive statements
b. Tradeoffs
c. Negative statements
d. Utilitarianism
12. Which of the following would most likely shift the production possibilities curve inward?
a. Technological progress
b. An increase in the production of capital goods
c. A decrease in the average number of hours worked per week as the labor force chooses to enjoy more leisure time
d. An increase in the number of hours factories are in use
13. The slope of the _____________ is determined by the relative price of the two goods, which is calculated by taking the price of one good and dividing it by the price of the other good.
a. Budget constraint
b. Production possibilities frontier
c. Opportunity cost
d. Productive efficiency
14. The lesson of __________________ is to forget about the money that’s irretrievable gone and instead to focus on the marginal costs and benefits of future options.
a. Sunk cost
b. Marginal analysis
c. Opportunity cost
d. Budget constraint
15. The model that economist use for illustrating the process of individual choice in a situation of scarcity is the budget constraint, sometimes also called the ________________, a diagram which shows what choices are possible.
a. Opportunity set
b. Consumption choice
c. Risk premium
d. Time value of money
16. Economist refer to this pattern, the __________________, which means that as a person receives more of a good, the additional or marginal utility from each additional unit of the good declines.
a. Production possibilities frontier
b. Law of increasing marginal utility
c. Law of trade-offs
d. Law of diminishing marginal utility