5. The English word that comes from the Greek word for "one who manages a household" is a. market b. consumer c. producer d.

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1 1. A worker in Equador can earn $3 per day making cotton cloth on a hand loom. A worker in the United States can earn $70 per day making cotton cloth with a mechanical loom. What accounts for the difference in wages? a. U.S. textile workers belong to a union. b. There is little demand for cotton cloth in Equador and great demand in the U.S. c. Labor is more productive making cotton cloth with a mechanical loom than with a hand loom. d. Equador has a low-wage policy to make its textile industry more competitive in world markets. 2. Unemployment would cause an economy to a. produce inside its production possibilities frontier. b. produce on its production possibilities frontier. c. produce outside its production possibilities frontier. d. experience an inward shift of its production possibilities frontier. 3. Any point on a country's production possibilities frontier represents a combination of two goods that an economy a. will never be able to produce. b. can produce using all available resources and technology. c. can produce using some portion, but not all, of its resources and technology. d. may be able to produce in the future with more resources and/or superior technology. 4. Market power refers to the a. power of a single person or small group to influence market prices. b. ability of a person or small group to successfully market new products. c. power of the government to regulate a market. d. importance of a certain market in relation to the overall economy. 5. The English word that comes from the Greek word for "one who manages a household" is a. market b. consumer c. producer d. economy 6. The marginal benefit Colin gets from eating a fourth slice of pizza is a. the total benefit Colin gets from eating four slices of pizza minus the total benefit Colin gets from eating three slices of pizza. b. the same as the total benefit of eating four slices of pizza. c. less than the marginal cost of eating the fourth slice of pizza since he chose to eat the fourth slice. d. the total benefit Colin gets from eating five slices of pizza minus the total benefit Colin gets from eating four slices of pizza.

2 7. Denise decides to spend three hours working overtime rather than watching a video with her friends. She earns $10 an hour. Her opportunity cost of working is a. the $30 she earns working. b. the $30 minus the enjoyment she would have received from watching the video. c. the enjoyment she would have received had she watched the video. d. nothing, since she would have received less than $30 of enjoyment from the video. 8. For which of the following individuals would the opportunity cost of going to college be highest? a. a promising young mathematician who will command a high salary once she earns her college degree b. a student with average grades who never held a job c. a famous, highly-paid actor who wants to take time away from show business to finish college and earn a degree d. a student who is the best player on his college basketball team, but who lacks the skills necessary to play professional basketball 9. The phenomenon of scarcity stems from the fact that most economies production methods are not very good. b. in most economies, wealthy people consume disproportionate quantities of goods and services. c. governments restrict production of too many goods and services. d. resources are limited. 10. Which of the following concepts cannot be illustrated by the production possibilities frontier? a. efficiency b. opportunity cost c. equality d. trade-offs 11. When an economy is operating inside its production possibilities frontier, we know that a. there are unused resources or inefficiencies in the economy. b. all of the economy s resources are fully employed. c. economic growth would have to occur in order for the economy to move to a point on the frontier. d. in order to produce more of one good, the economy would have to give up some of the other good. 12. In the circular-flow diagram, which of the following items flows from households to firms through the markets for goods and services? a. goods and services b. dollars paid to land, labor, and capital c. dollars spent on goods and services d. wages, rent, and profit

3 13. Refer to Figure 2-5 If this economy devotes one-half of its available resources to the production of soccer balls and the other half to the production of sweaters, it could produce a. 150 sweaters and 100 soccer balls. b. 150 sweaters and 150 soccer balls. c. 300 sweaters and 200 soccer balls. d. We would have to know the details of this economy s technology in order to determine this. 14. When France trades with Russia, a. both countries are likely made better off. b. only Russia benefits since France can produce all goods at a higher level of quality than Russia. c. only France benefits since Russia s low wages guarantee profitable firms in Russia regardless of trade. d. neither country will benefit since France is more efficient than Russia at producing all goods. 15. Suppose the cost of operating a 100 room hotel for a night is $10,000 and there are 5 empty rooms for tonight. If the marginal cost of operating one room for one night is $30 and a customer is willing to pay $60 for the night, the hotel manager should a. rent the room because the marginal benefit exceeds the marginal cost. b. rent the room because the marginal benefit exceeds the average cost. c. not rent the room because the marginal benefit is less than the marginal cost. d. not rent the room because the marginal benefit is less than the average cost.

4 16. When society requires that firms reduce pollution, there is a. a tradeoff because of reduced incomes to the firms' owners and workers. b. a tradeoff only if some firms are forced to close. c. no tradeoff, since the cost of reducing pollution falls only on the firms affected by the requirements. d. no tradeoff, since everyone benefits from reduced pollution. 17. Table 2-3 Production Possibilities for Libraryland Books Magazines Refer to Table 2-3. What is the opportunity cost to Libraryland of increasing the production of books from 200 to 300? a. 100 magazines b. 150 magazines c. 200 magazines d. 350 magazines 18. Which of the following statements about markets is most accurate? a. Markets are usually a good way to organize economic activity. b. Markets are usually inferior to central planning as a way to organize economic activity. c. Markets fail and are therefore not an acceptable way to organize economic activity. d. Markets are a good way to organize economic activity in developed nations, but not in less developed nations. 19. In the markets for the factors of production in the circular-flow diagram, a. households are sellers and firms are buyers. b. households are buyers and firms are sellers. c. households and firms are both buyers. d. households and firms are both sellers. 20. A production possibilities frontier shifts outward when a.the economy experiences economic growth. b.the desires of the economy s citizens change. c. at least one of the basic principles of economics is violated. d. opportunity costs are lessened.

5 21. The economy of the former Soviet Union is best described as a a. primitive economy. b. market economy. c. hybrid economy. d. centrally-planned economy. 22. Which of the following transactions does not take place in the markets for the factors of production in the circular-flow diagram? a. Mike provides plumbing services for a plumbing company and receives an hourly wage from the company for his services. b. Susan works as a marriage counselor and her clients pay her on a per-hour basis for her services. c. Tina owns several shopping malls and receives rent payments from the companies that operate those malls. d. Juan sells advertising for a newspaper and receives a commission from the newspaper company for each advertisement that she sells. 23. Refer to Figure 2-6. If this economy moved from point C to point F, then a. it still would not be producing efficiently. b. there would be no gain in either candles or clocks. c. it would be producing more candles and more clocks than at point C. d. It is not possible for this economy to move from point C to point F without additional resources.

6 24. A construction company has built 25 houses so far this year at a total cost to the company of $7.2 million. If the company builds a 26th house, its total cost will increase to $7.5 million. Which of the following statements is correct? a. For the first 25 houses, the average cost per house was $288,000. b. The marginal cost of the 26th house, if it is built, will be equal to the average cost per house. c. If the company can experience a marginal benefit of $288,000 by building the 26th house, then the company should build it. d. All of the above are correct. 25. A barber currently cuts hair for 50 clients per week and earns a profit. He is considering expanding his operation in order to serve more clients. Should he expand? a. Yes, because cutting hair is profitable. b. No, because he may not be able to sell more services. c. It depends on the marginal cost of serving more clients and the marginal revenue he will earn from serving more clients. d. It depends on the average cost of serving more clients and the average revenue he will earn from serving more clients. 26. Senator Bright, who understands economic principles, is trying to convince workers in her district that trade with other countries is beneficial. Senator Bright should argue that trade can be beneficial a. only if it allows us to obtain things that we couldn't make for ourselves. b. because it allows specialization, which increases total output. c. to us if we can gain and the others involved in the trade lose. d. in only a limited number of circumstances because others are typically self-interested. 27. Slow growth in US incomes during the 1970s and 1980s was primarily due to a. slow productivity growth in the US. b. increased competition from Japan. c. increased competition from European countries. d. a rapid decrease in the quantity of money in the economy. 28. In the markets for goods and services in the circular-flow diagram, households provide firms with savings for investment. households provide firms with labor, land, and capital. c. firms provide households with output. firms provide households with profit. 29. For economists, statements about the world are of two types: a. assumptions and theories. b. true statements and false statements. c. specific statements and general statements. d. positive statements and normative statements.

7 30. In a particular country in 1998, the average worker needed to work 40 hours to produce 100 units of output. In that same country in 2008, the average worker needed to work 36 hours to produce 72 units of output. In that country, the productivity of the average worker a. decreased between 1998 and 2008, so we would expect the standard of living to have decreased accordingly. b. increased between 1998 and 2008, so we would expect the standard of living to have increased accordingly. c. decreased between 1998 and 2008, so we would expect inflation to have decreased accordingly. d. increased between 1998 and 2008, so we would expect inflation to have increased accordingly. 31. Economic growth can be pictured in a production possibilities frontier diagram by A) making the production possibilities frontier more bowed out. B) making the production possibilities frontier less bowed out. C) shifting the production possibilities frontier outward. D) shifting 32. Refer to Figure 2-6. This economy cannot produce at which point(s)? a. A, B, D b. C, D, F, G c. C, F, G d. D 33. A statement describing how the world is a. is a normative statement. b. is a positive statement. c. would only be made by an economist speaking as a policy adviser. would only be d. made by an economist employed by the government. 34. In the simple circular-flow diagram, the participants in the economy are a. firms and government. b. households and firms. c. households and government. d. households, firms, and government.

8 35. Table 2-4 Production Possibilities for Batterland Pancakes Waffles Refer to Table 2-4. What is the opportunity cost to Batterland of increasing the production of pancakes from 150 to 300? a. 75 waffles b. 150 waffles c. 250 waffles d. 325 waffles 36. Economists speaking like scientists make a. normative statements. b. prescriptive statements. c. claims about how the world is. d. claims about how the world should be. 37. Table 2-3 Production Possibilities for Libraryland Books Magazines Refer to Table 2-3. Which of the following statements is correct? a. The opportunity cost of an additional 100 books is constant at 50 magazines. b. The opportunity cost of an additional 100 books is constant at 100 magazines. c. Libraryland s production possibilities frontier is a straight, downward-sloping line. d. The opportunity cost of an additional 100 books increases as more books are produced.

9 38. Factors of production are a. the mathematical calculations firms make in determining their optimal production levels. b. social and political conditions that affect production. c. the physical relationships between economic inputs and outputs. d. inputs into the production process. 39. A statement describing how the world should be a. is a normative statement. b. is a positive statement. c. would only be made by an economist speaking as a scientist. would only be made by d. an economist employed by the government. 40. The term market failure refers to a. a situation in which the market on its own fails to allocate resources efficiently. b. an unsuccessful advertising campaign which reduces demand for a product. c. a situation in which competition among firms becomes ruthless. d. a firm which is forced out of business because of losses. 41. Refer to Figure 2-5. If this economy devotes all of its resources to the production of sweaters, then it will produce a. 0 sweaters and 200 soccer balls b. 180 sweaters and 125 soccer balls c. 300 sweaters and 0 soccer balls d. 300 sweaters and 200 soccer balls 42. Refer to Figure 2-5. A movement from point C to point D could be caused by a. unemployment b. a decrease in society s preference for sweaters c. fewer resources available for production of sweaters d. all of the above 43. Refer to Figure 2-5. If this economy moves from point A to point B, then which of the following statements is correct? a. This economy has moved from point of inefficient production to a point of efficient production. b. this economy has experienced an increase in employment c. this economy has experienced economic growth d. none of the above