Ch.1 Test. Name: Class: Date: ID: A. Multiple Choice Identify the choice that best completes the statement or answers the question.

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1 Class: Date: Ch.1 Test Multiple Choice Identify the choice that best completes the statement or answers the question. 1. The situation in which some necessities have little value while some non-necessities have a much higher value is known as a. paradox of value. c. trade-offs. b. opportunity cost. d. economic interdependence. 2. Manufactured goods needed to produce other goods and services are called a. nondurable goods. c. Gross Domestic Product (GDP). b. capital goods. d. consumer goods. 3. To arrive at an economic decision, a decision-making grid may be used to evaluate a. productivity. c. alternative choices of action. b. only durable goods. d. only capital goods. 4. Division of labor is a characteristic of a. home craft businesses. c. classroom education. b. assembly line production. d. entrepreneurship. 5. The study of economics is important because it enables us to a. describe our standard of living. b. increase our consumption of consumer goods. c. become better decision makers. d. determine what goods ought to be produced. 6. The dollar value of all final goods and services and the most comprehensive measure of a country's total production output is a. its standard of living. c. a cost-benefit analysis. b. financial capital. d. Gross Domestic Product (GDP). 7. A popular model used to illustrate the concept of opportunity cost is a. the production possibilities frontier. c. the paradox of value. b. entrepreneurship. d. the factors of production. 8. An economy at its production possibilities frontier is operating a. with slow economic growth. c. without division of labor. b. at full potential. d. as a free enterprise economy. 9. The money used to buy the tools and equipment needed for production is known as a. capital goods. c. financial capital. b. the factors of production. d. wealth. 10. Actions in one part of the country or world that have an economic impact on what happens elsewhere are examples of a. opportunity costs. c. specialization. b. trade-offs. d. economic interdependence. 1

2 11. Study the graph. Suppose this nation starts with producing all military goods. It then decides to produce a mix of civilian and military goods represented by point B. What represents the cost in military goods given up? a. the vertical distance between point x and point y b. the horizontal distance between point y and point z c. the horizontal distance between point z and point E d. the vertical distance from point A to point x 12. What factor of production do these images illustrate? a. land c. capital b. labor d. entrepreneurship 2

3 13. To take an example,... One man draws out the wire, another straightens it, a third cuts it, a fourth points it;...and [the making of] a pin is, in this manner, divided into about eighteen distinct operations. Adam Smith, The Wealth of Nations, In this passage, Adam Smith is describing the basic economic concept of a. paradox of value. c. division of labor. b. utility. d. opportunity cost. The study of economic theory is not defensible on aesthetic grounds it hardly rivals in elegance the mathematics or physics our sophomores learn. The theory is studied only as an aid in solving real problems, and it is good only in the measure that it performs this function. George J. Stigler, "Monopolistic Competition in retrospect," in Five Lectures on Economic Problems, London: Longmans, Green and Co., 1949, p. 22. According to this author, a good economic theory is one that a. is as elegant as a theory in mathematics or physics. b. helps solve real problems. c. includes mathematics. d. is aesthetically sound. 15. Which of the following choices best describes what this production possibilities frontier is depicting? a. alternative possibilities c. cost of idle resources b. opportunity cost d. economic growth 3

4 16. In the production possibilities frontier shown in this graph, what could cause production to move from point b to point d? a. a strike by industry workers b. increased productivity c. an increase in butter production while gun production remains the same d. an increase in gun production while butter production remains the same In this production possibilities frontier, what could cause production to move from point a to point e? a. factories that are available but idle c. the availability of additional resources b. increased productivity d. economic growth Research has long demonstrated the educational value of early intervention for America s at-risk children, but a new study also shows the federal programs are a wise public investment. [A] cost-benefit analysis of the federally funded Chicago Child-Parent Center program, which serves children from low-income families in Chicago s inner city [shows that] an average annual cost of $6,730 per child...generated a total return to society at large of $47,759 per participant. Source: Cost Benefit Analysis, AScribe Newswire, June 26, 2001 In the cost-benefit analysis described in the passage, who are the investors? a. parents c. all of society b. children d. local businesses 4

5 19. Too much marketing today focuses on awareness rather than reasons to buy. In the old days, awareness advertising was more effective. There was less competition. All you had to worry about was whether or not people remembered your product. As technology and more kinds of media have come about, it s no longer enough to be remembered. The consumer has too many choices. Your marketing has to send the message that you are relevant. You need to be sending reasons to buy. Source: Business Week, June 7, This passage advises advertisers to focus on the economic concept of a. scarcity. c. utility. b. the paradox of value. d. opportunity cost. Economic literacy is [like] having a working knowledge of a foreign language. If you are with a group of foreigners and don t speak their language at all,...you feel excluded... If you have a rudimentary working knowledge of the language, you can at least follow the drift of the conversation, ask a few questions and feel that, even if you are not getting the fine points, you are not totally left out and you have a basis for acquiring more knowledge. That, it seems to me, is what economic literacy means a rudimentary working knowledge of the concepts and language of economic activity... Source: Alice Rivlin, economist. According to Alice Rivlin in the passage, if you have a rudimentary working knowledge of economic concepts, you will be a. left out of conversations about economic issues. b. able to ask questions to gain more knowledge. c. unable to talk about economic issues with foreigners. d. able to understand the fine points about economic issues. 5

6 Matching Match each statement with the correct item below. a. diagram representing various combinations of goods and/or services that an economy can produce when all productive resources are fully employed b. any good that lasts three years or more when used regularly c. process of using up goods and services to satisfy wants and needs d. process of creating goods and services e. market where productive resources are bought and sold f. economy in which consumers and privately owned businesses make the majority of the WHAT, HOW, and FOR WHOM decisions g. basic requirement for survival h. manufactured goods that are used to produce other goods i. way of expressing a need that leads to a preference for some goods over others j. work that is performed for someone 21. capital good 22. consumption 23. production possibilities frontier 24. factor market 25. free enterprise economy 6