Chapter:
What Is Economics?
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1. Opportunity cost can best be defined as
a. the value of what must be given up in order to acquire an item.
b. the money cost to the buyer to acquire a good or service.
c. the total value of all the other items that could otherwise be acquired.
d. the cost to the seller to produce an item.
e. the time cost to obtain money to buy an item.
2. During a war, a government will often draft people, most of whom are presently employed, into the army. An economist, computing the real cost of the war, would be sure to include which of the following items?
a. the value of the civilian goods no longer produced by the new soldiers.
b. the cost of feeding and clothing the new soldiers.
c. the dollar cost of the payroll.
d. the higher prices of civilian goods due to wartime shortages.
e. the cost of transporting the soldiers to combat.
3. The United States produces both automobiles and computers more efficiently than Mexico. Nevertheless, it is possible that both nations would benefit from trade in these items. The reason for this is
a. the law of comparative advantage.
b. the inflation-unemployment trade-off.
c. externalities
d. the cost disease of personal services
e. e. attempts to repeal the law of supply and demand.
4. An externality is defined as
a. an opportunity cost that is not considered, which causes inefficiency.
b. a social cost that affects parties external to a transaction.
c. a transaction that imposes a loss on one of the parties involved.
d. a "cost of doing business" that cannot be allocated to any particular good.
e. the increase in cost associated with increased production.
5. In the United States, the fact that the gap between the rich and the poor has been increasing is often justified by economists on the grounds that
a. greater efficiency can never be achieved without greater inequality.
b. greater inequality does not create any problems.
c. greater inequality is a desirable end in itself.
d. greater inequality is an undesirable consequence of greater efficiency.
e. greater efficiency should be achieved at any cost.
6. Economics is a social science rather than a "hard" science like physics because
a. economists abstract from reality in creating their theories.
b. economics is easier to study than physics.
c. economists must explain their theories to policy makers who lack formal mathematical training.
d. economists study human behavior, which is affected by an unpredictable and vast range of influences.
7. Which of the following statements is correct?
a. Theory and hypothesis are interchangeable terms for the same thing.
b. A hypothesis may result from a tested and confirmed theory.
c. A theory may result from a tested and confirmed hypothesis.
d. A hypothesis is a theory whose formulation relies on mathematics.
8. Economics is the study of
a. the accumulation of wealth.
b. the redistribution of wealth to maximize peoples' happiness.
c. the use of scarce resources to satisfy unlimited human wants.
d. price controls.
9. Low inflation often comes at what cost?
a. Reduced unemployment.
b. Higher output.
c. Increased unemployment.
d. All of the above.
10. In the long-run, the greatest determinant of peoples' well-being is
a. low inflation.
b. government policy.
c. productivity growth.
d. the severity of recessions.
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