Chapter 2 Quiz

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Tennessee Technological University *

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ECON-201

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Economics

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Feb 20, 2024

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1. Opportunity cost is objective; therefore, its value does not change as circumstances change. True or False 2. Opportunity costs exists because Technology is fixed at any point in time the law of comparative advantage is working resources are scare but wants are unlimited the value of lost opportunity varies from person to person 3. The opportunity cost of going to college is best measured by the Cost of room and board Cost of tuition Cost of room and board plus tuition Income forgone by not working, plus tuition Income forgone by not working, plus tuition and room and board 4. In exhibit 2-4, if all the economy’s resources are used efficiently to produce good A, then the economy is at point h e d i c 5. A point inside the production possibilities curve illustrates a situation in which resources are not fully employed True or False 6. If an economy is operating at a point inside the production possibilities frontier, then Some of the nation’s resources are unemployed The production decisions are made by the government Unlimited resources must satisfy scare desires There is a scarcity of human resources relative to human wants therefore society must have some mechanism for making choices 7. In exhibit 2-4, if resources are used fully and efficiently, then the economy can produce at point f h, d, or e a, b, or c d or e g, h, or i 8. Which of the following points in exhibits 2-4 represents an inefficient use of the economy’s resources? g i f d h

9. Which of the following would shift the production possibilities frontier outward? An increase in the size of the labor force More efficient use of existing resources and technology The government prints more money The end of a strike by a labor union Society’s desire to produce more of one of the goods 10. The economic question of what will be produced is Primarily answered by the government in a system of pure capitalism Primarily answered by markets in a command economy Faced by all economies regardless of their wealth Does not have to be answered by economics possessing great wealth Cannot be illustrated by the economic concept of the production possibilities 11. When faced with a choice, a person assesses alternatives as long as the expected marginal ______ of gathering more information about the person’s opinions _____ the expected marginal _____. Benefit, is less than, cost Cost, exceeds, benefits Benefit, exceeds, cost Benefit, is greater than benefit Cost, is greater than benefit 12. One flaw of pure capitalism is that a person who owns no resources could starve. True or False 13. Every economy must answer each of the following questions except one. Which is the exception? Which goods will be produced? Why are these particular goods produced? Which resources should be used? How should resources be combined to produce each product? Who will actually consume the goods produced? 14. A mixed capitalist economy is one in which Decisions are based primarily on religion or custom All resources are publicly owned and economic playing is centralized All resources are privately owned and prices are used to coordinate economic activity Resources are both publicly and privately owned and some markets are regulated All resources are publicly owned and prices are used to coordinate economic activity 15. The opportunity cost of an activity is best measured Only by the monetary costs By the number of alternative activities that were forgone By the cost of difference between the chosen activity and the next best alternative By the value expected from the best alternative that is forgone As the time wasted choosing among various activities 16. It is impossible for one person to have a comparative advantage in all tasks True or False

17. The opportunity cost of a particular activity Must be the same for everyone Is the value of all alternative activities that are forgone Has a maximum value equal to the minimum wage Varies from person to person Can usually be known with certainty 18. In economics, specialization means Producing something using only one type of resource, such as labor Producing something using only one type of labor Focusing efforts on a particular product or a single task Producing only one unit of output Producing something using only one unit of a variable resource 19. Division of labor increases productivity because Tasks can be assigned according to individual tastes and abilities. Workers who repeatedly perform the same tasks become bored. Each worker must learn each of the numerous tasks in the total production process. Specialization of labor allows for the introduction of cheaper, less sophisticated production techniques. Managers can force workers to produce goods that are value more highly than the costs of producing them. 20. Each point along a nation’s production possibilities frontier represents efficient use of all resources True or False 1. Specialization can sometimes create problems such as boredom and repetitive motion injuries True or False 2. Specialization often leads to gains in productivity for society as a whole True or False 3. A person who can produce more of a good than another person is said to possess a comparative advantage True or False 4. In command economy A dictator makes every economic decision Owners can sell their resources to the highest bidder No individual or group coordinates the economy In theory, individual choices are reflected in collective decisions, and decisions are made by central planners Public ownership of resources is combined with free markets to direct economic activity

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5. Adam smith believed that people’s pursuit of their own self-interests Tended to promote the general welfare Required the government’s “invisible hand” to keep the economy running smoothly Might cause aggregate demand to be greater than aggregate supply Would increase the wealth of a nation, which was the quantity of gold and silver it owned Would decrease the wealth of a nation, which was its ability to produce goods and services 6. An outward shift of the production possibilities frontier Reflects economic stability Reflects economic growth Reflects economic decline Does not relate to the state of the economy Is always a parallel shift 7. One of the most centrally planned economies in the world today is found in The United States Germany Canada Japan North Korea 8. The U.S. economy is best characterized as Pure capitalism A command economy Socialism A mixed capitalist economy Market socialism 9. Division of labor allows people to do tasks for which they have greater natural ability True or False 10. At various points along the production possibilities frontier, The greatest achievable output levels are illustrated Resources are not fully employed More of one good can be obtained without giving up more of the other More efficient output levels are possible Society is equally well off 11. When drawing a production possibilities frontier, all of the following are usually assumed except one. Why? The quantity of resources is rapidly growing Technology is fixed Resources can be shifted between production of the two goods The production possibilities frontier is drawn for a particular time period Resources are fully efficiently employed

12. On a production possibilities frontier showing possible output levels of good A and good B, the opportunity cost of producing the first 10 units of A will usually be The same as the opportunity cost if producing the second 10 units of A Less than the opportunity cost of producing the second 10 units of A Greater than the opportunity cost of making the second 10 units of A 10 units of A 10 units of B 13. Point f in exhibit 2-4 represents An efficient combination of good A and good B The only efficient combination of good A and good B The combination of good A and good B that the economy will produce An inefficient combination of good A and good B The only unattainable combination of good A and good B 14. In exhibit 2-4, if all the economy’s resources are used efficiently to produce good B, then the economy is at point g b h i e 15. Points inside the production possibilities frontier represent Full and efficient use of all resources Inefficiency or unemployment (or both) Currently unattainable combination of outputs Currently unattainable combinations of resources The most desirable combinations of outputs 16. A production possibilities frontier will shift outward if there is an improvement in technology True or False 17. Points outside the production possibilities frontier represent Unemployment of resources Inefficient use of resources Combinations that are attainable only if all resources are used fully and efficiently Currently unattainable combinations of outputs The only currently attainable combinations from which society must choose 18. The opportunity cost of colleges is the same for all students who are receiving full-tuition scholarships True or False 19. The idea that resources are scarce but wants are unlimited is known as Marginal cost Opportunity cost Sunk cost Resource cost Production cost

20. Opportunity cost is the difference between the benefits and the costs of a choice True or False

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Chapter 2 Quiz

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