Chapter:
Scarcity and Choice: The Economic Problem
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1. The central question in economics is how to
a. make the best use of scarce resources.
b. use government planning agencies.
c. induce people to want less.
d. increase human knowledge.
2. Ex-London School of Economics student Mick Jagger sang, "You can't always get what you want, but if you try sometime you just might find you can get what you need." Another statement of the basic economic principle expressed in this lyric is that
a. rational decisions are not always possible.
b. you can allocate your resources to what gives you the highest value.
c. you can create the supply to meet your own demand.
d. you can maximize social welfare by making optimal decisions.
3. Opportunity cost can best be defined as the
a. money cost of a good or service.
b. money cost plus interest on money borrowed to buy a good or service.
c. cost of the resources used to produce a good or service.
d. value of the best alternative forgone when the alternative at hand is chosen.
4. The divergence between money costs and opportunity costs is the least in which of the following situations?
a. China uses millions of otherwise unemployable workers to build roads with picks and shovels.
b. Wilhelm, an engineer at Exxon, is drafted; his army salary is $300 per month.
c. Colleen quits her job to stay at home and raise her children.
d. A university, using a private contractor, builds a field house on land it purchased at full market value from a local farmer.
5. Money costs and opportunity costs are concepts that are
a. not related in any meaningful way.
b. used by tax accountants.
c. related through relative prices of goods and services.
d. used by economists to learn the most efficient level of output.
6. Rational production decisions require an understanding of
a. trade-offs.
b. opportunity costs.
c. scarcity of resources.
d. All of the above are correct.
7. All of the points inside a production possibilities frontier are ______; all of the points outside the production possibilities frontier are ______.
a. efficient, inefficient
b. optimal, irrational
c. attainable, unattainable
d. rational, zero-cost
e. unattainable, efficient
8. The basic difference between a consumption good and an investment good is that the
a. production of investment goods is always done by the public sector.
b. production of consumption goods does not allow for the specialization of labor.
c. production of investment goods produces satisfaction in the future while the production of consumption goods produces satisfaction now.
d. production of consumption goods is subject to personal and corporate income taxes
9. Baumol and Blinder state that "any point not on the frontier cannot be best." What is their reasoning to support this?
a. A point inside the frontier implies that society is not facing up to the problem of scarcity.
b. A point inside the frontier limits growth, and growth is always a goal worth pursuing.
c. A point inside the frontier represents inflation, and inflation is a dangerous situation.
d. A point inside the frontier leads to deflation, which is undesirable.
e. A point inside the frontier is inefficient, and represents wasted resources.
10. Which of the following is a good example of efficient specialization and voluntary exchange?
a. A college professor hires someone to rototill a garden for spring planting.
b. A college professor works on the engine of a car for a neighbor who is a mechanic.
c. A lawyer decides to babysit his young child and agrees to do so for others for cash.
d. A physician agrees to help a neighbor work on her income tax return in exchange for bookkeeping services.
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