Test Bank Ch3 The Fundamental Economic Problem Scarcity And - Microeconomics Principles and Policy 14e | Test Bank by Baumol by William J. Baumol. DOCX document preview.
Indicate whether the statement is true or false. |
1. Division of labor has caused output to rise dramatically since the industrial revolution.
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2. Although finished goods are scarce, the inputs to produce them are not scarce.
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3. In an economy, unemployment exists only at points that are on the interior of the production possibilities frontier.
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4. Scarcity is only a temporary problem that a society can solve by promoting economic growth.
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5. Opportunity cost is the combined value of all of the other alternatives that go unselected.
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6. A society that is inside its production possibilities frontier is efficient.
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7. Goods that are actually produced by firms are not really limited in supply, because the firms can always produce more of them.
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8. Centrally planned economies are not constrained by the problem of scarcity.
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9. Opportunity cost can always be measured in money terms.
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10. Market economies are not constrained by scarcity; only planned economies have that problem.
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11. An optimal choice can be characterized as a decision made by someone who is satisficing.
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12. Scarcity of resources implies that people must make decisions consistent with the means they have available to them.
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13. From a society’s viewpoint, when all resources are fully employed, a decision to have more of one thing means we must give up something else.
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14. In a centrally planned economy, resources are allocated primarily in accordance with directives from government agencies.
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15. If a society produces at a point on the production possibilities frontier, this is consistent with the full employment of resources.
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16. Only a market economy must answer the questions of what goods to produce, how to produce them, and for whom to produce them.
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17. Economic growth solves the problem of scarcity.
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18. Specialization of labor makes sense only if there is some means of exchange.
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19. Adam Smith and David Ricardo worked together to develop the law of comparative advantage.
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20. Efficient production can be carried out anywhere on or below the production possibilities frontier.
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21. The term “satisficing” indicates an optimal choice.
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22. The production possibilities frontier can show a manufacturer’s possible combinations of output resulting from the combination of two goods.
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23. Monetary costs and opportunity costs are always identical.
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24. The U.S. government spent over $4 trillion in budget year 2018.
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25. Since it is a centrally planned economy, China does not face opportunity costs when economic decisions are made.
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26. Economics studies the logic of choices made from among available possibilities.
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27. Individuals face scarcity; whole societies do not.
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28. Opportunity cost cannot be measured in money terms, only in conceptual terms.
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29. The principle of comparative advantage was first explained by David Ricardo in the early 1800s.
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30. Whenever two individuals trade with each other, one will benefit and the other will lose.
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31. The opportunity cost of any decision is the forgone value of the next best alternative that is not chosen.
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32. The U.S. federal government spent more than $4 trillion in 2018, which implies that there were no opportunity costs faced by the United States.
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33. Economists define “efficiency” as the absence of waste.
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34. Specialization and division of labor are made easier by the existence of money.
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35. A society must make three sorts of decision: what goods to produce, how to produce them, and how to distribute them.
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36. A market economy allocates resources primarily in accordance with orders from government bureaucrats.
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37. In terms of efficiency, any point on a production possibilities frontier is as good another.
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38. A decrease in the unemployment rate will shift the production possibilities frontier outward from the origin.
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39. A production possibilities frontier shows the combinations of various goods that should be produced.
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40. If a society uses the market system, only markets are available to solve all of its problems.
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41. The production possibilities frontier slopes downward and to the right because of limited resources.
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42. The concept of opportunity cost is more applicable to society as a whole than it is for an individual household.
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43. The profit motive leads firms to use inputs efficiently.
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44. Money is scarce, but resources are not.
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45. Trade-offs can always be considered in terms of opportunity costs.
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46. Optimal decisions are made based upon the concept of opportunity cost.
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47. If the quantity of one good that must be forgone increases as successive units of another good are produced, then there is said to be increasing opportunity cost between the two goods.
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48. Karl Marx was critical of markets on the grounds that they are not efficient.
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49. If a farmer’s opportunity cost of producing 50,000 bushels of wheat is 20,000 fewer bushels of soybeans, then his or her opportunity cost of producing 50,000 bushels of soybeans must also be 20,000 fewer bushels of wheat.
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50. Resources are used to create goods and services.
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51. As more of a good is produced, its opportunity cost tends to increase because resources are not equally efficient at producing all goods.
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52. Millionaires do not face the problem of scarcity.
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53. While specialization and exchange were very important to Adam Smith in 1776, they have largely lost their importance in the 21st century.
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54. If the U.S. government decides to increase military spending, a possible opportunity cost could be lower spending on education.
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55. If a farmer’s opportunity cost of producing 10,000 bushels of wheat is 5,000 fewer bushels of soybeans, then his or her opportunity cost of producing 5,000 bushels of soybeans must be 10,000 fewer bushels of wheat.
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56. Economics examines the options open to households, business firms, governments, and entire societies by the limited resources at their command.
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57. A society’s decision to produce more tanks may require it to reduce the production of some cars.
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58. Given its size, the United States does not have to worry about limitations on resources.
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59. Waiting in line for a free ticket involves no opportunity cost.
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60. Opportunity cost always arises when a trade-off decision is made.
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61. A society can occasionally produce at a point beyond its production possibilities frontier if there is an economic crisis.
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62. The opportunity cost of a college education does not include any income that is foregone while enrolled in school, since this is not measured using monetary costs.
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63. An economy that is producing inside its production possibilities frontier can be efficient.
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64. Free markets promote all of society’s goals.
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65. A market system is not considered an effective way of controlling self-interest.
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66. Voluntary exchange results in mutual gains.
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67. Scarcity is the fundamental problem of the economy.
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68. If society produces at a point inside the production possibilities frontier, it is characterized by full employment of resources.
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69. The principle of comparative advantage explains specialization and trade among countries but not among individuals.
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70. The political party that is in power determines the position and shape of the production possibilities frontier that constrains the choices of the economy.
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71. If two persons trade, one must gain at the expense of the other.
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72. The definition of efficiency implies that production is carried out on the production possibilities frontier.
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73. Adam Smith’s discussion of the production in a pin factory illustrates the law of comparative advantage.
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74. In the Wealth of Nations, Adam Smith wrote about how countries could increase their consumption of goods and services through specialization and trade with other countries.
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75. According to the principle of increasing costs, as the production of one good expands, the opportunity cost of producing another unit of the good tends to increase.
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76. The opportunity cost of a college education includes wages lost while enrolled in school.
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77. Efficient production can be carried out anywhere on or beyond the production possibilities frontier.
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78. Although all points on the production possibilities frontier are efficient, that alone does not determine which point is “best” for the society.
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79. An optimal decision is one that chooses the most desirable from among all possibilities that are available.
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80. The negative slope of a production possibilities frontier is a graphic representation of opportunity cost.
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81. Adam Smith believed that markets coordinated the self-interests of consumers.
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82. If the budget deficit was eliminated, the federal government would have more money than it could spend.
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83. Inputs in production processes are called resources.
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84. High opportunity costs go hand in hand with high money costs in a properly functioning economy.
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85. In a well-functioning market, high opportunity costs will be reflected in high monetary costs.
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86. Being on the production possibilities frontier implies that increasing the production of one good or service can only be accomplished by decreasing the quantity produced of another good or service.
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87. The principle of comparative advantage helps explain trade between nations.
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88. The scarcity of physical resources is far more fundamental to the study of economics than the scarcity of funds.
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89. If the production possibilities frontier for guns and butter is bowed outward from the origin, this indicates constant opportunity cost between the two goods.
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90. In a market economy, opportunity costs are always synonymous with explicit monetary costs.
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91. All actions and purchases, even those of wealthy people, involve a sacrifice.
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92. Efficiency is defined as minimizing waste.
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93. The concept of opportunity cost only applies to societies that operate in a market-based economy.
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94. A large government encounters a production possibilities frontier essentially the same as one faced by a business firm.
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95. Economics examines the options open to households and business firms, but ignores the options of governments and entire societies.
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96. Society can produce at a point outside the production possibilities frontier, but only if it is using all of its resources efficiently.
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97. A society that relies on a market-based economy will always protect the natural environment.
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98. A government, based upon its policy decisions, can determine the position and shape of the production possibilities frontier that the economy faces.
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99. The production possibilities frontier has a tendency to bow outward from the origin.
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100. Scarcity can be measured only through the use of monetary costs.
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101. Some economies have production possibilities frontiers that are bowed inward toward the origin.
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102. Any point on or outside the production possibilities frontier is attainable.
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103. In a market economy, government decides the answers to the three economic decisions.
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104. Opportunity cost is the value of the next best alternative that is given up.
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105. In a properly functioning economy, money costs approximate opportunity costs.
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106. Economists use the term capital to describe that factor of production that includes human-made resources such as factories, buildings, machinery, and tools.
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Indicate the answer choice that best completes the statement or answers the question. |
107. Economists define efficiency as
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108. If the economy of Gwondanaland is growing more rapidly than the economy of Japan, most likely
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Table 3-2
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109. The concept of opportunity cost can be represented graphically by the
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110. As the term “opportunity cost” is defined in the text, the opportunity cost of going to college includes
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111. Ted got a ticket to this year’s Super Bowl and paid the face value of $1,000. His cousin offered him $3,000 for the ticket. Given this information, Ted’s opportunity cost of this ticket is
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112. In his concept of “the invisible hand,” Adam Smith explains that
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113. Do all valuable items have price tags?
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114. Opportunity cost can best be defined as the
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115. Economics is the study of the logic of
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116. Economics is generally concerned with
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117. In a market system, the major coordination tasks are carried out
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Figure 3-1  |
118. The production possibilities frontier in Figure 3-1, using a move from point B to point D as an example, shows
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119. Which of the following ideas of Adam Smith has religious overtones?
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120. The first economist to point out the importance of specialization of labor was
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121. List the three coordination decisions made by every economy.
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122. A production possibilities curve always slopes downward to the right because resources
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123. If production involves constant opportunity cost, the production possibilities frontier
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124. Those from across the spectrum of political views tend to approve of markets because
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125. Scarcity is a concept that applies to all of the following except
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126. The divergence between money costs and opportunity costs is the smallest in which of the following situations?
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127. As a strategy to boost enrollment, in January 1996, a private college in Iowa offered free tuition for graduating high school seniors from the county where it is located. For students who accepted the offer, how did this offer affect the opportunity cost of attending college?
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128. What mechanism assures that producers use inputs efficiently?
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129. The fact that resources tend to be specialized is one reason the production possibilities frontier is drawn
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130. For a given production possibilities frontier, which points are attainable?
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131. The money cost of a particular good will approximate its opportunity cost if
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132. If an economy is operating inefficiently, then
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133. According to Baumol, Blinder, and Solow, recognition of the usefulness of markets
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134. Which of the following events create an outward shift of the production possibilities curve?
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135. The statement “Resources employed in producing X are better suited to making Y” is another way of saying
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136. The division of labor generally refers to splitting
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Figure 3-2  |
137. In Figure 3-2, at point B
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138. In order to make an optimal choice, we must use
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139. Adam Smith noted that people are adept at pursuing their own self-interests, and that ____ harnesses this self-interest remarkably well.
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140. Some environmentalists argue that the scarcity of physical resources such as fuel means that
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141. A recent study found that it was cheaper to buy a chicken dinner from Kentucky Fried Chicken than it was to prepare it at home. The researcher included all costs including the imputed value of time involved to prepare the meal at home. This study illustrates the
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142. Rational production decisions require an understanding of
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143. Hutch Technology makes computer monitors, which sell for $100 each. What is the opportunity cost of 10 monitors?
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144. Money costs and opportunity costs are concepts that are
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145. If the production possibilities curve is a straight line,
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146. Voluntary exchange
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147. Every economic decision involves a trade-off because of
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148. A market system (market economy) depends on the market to
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149. Inefficiency in an economy can be caused by
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150. Adam Smith noted that people are adept at which of the following?
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Table 3-2
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151. In Table 3-2, from combination C, the opportunity cost of 2 more units of cotton would be
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Figure 3-7  |
152. In Figure 3-7, if we compare a move from point B to C with a move from point A to point B, we can see that
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Figure 3-6  |
153. In Figure 3-6, assume this economy is currently operating at point D. What is the opportunity cost of moving to B?
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154. Which of the following is a listing of the types or categories of resources?
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155. The tendency of opportunity cost to increase as production increases
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156. The law of comparative advantage explains why
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157. Which of the following must cope with scarcity?
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158. If production involves increasing opportunity cost, then on the production possibilities frontier, moving to a point closer to the horizontal axis will increase the opportunity cost of
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Figure 3-4  |
159. In Figure 3-4, for which of the following would this statement be true: “To get more apples we have to give up wheat.” A movement from
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160. Scarcity is a concept that does not apply to
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161. Adam Smith’s book, one of the first systematic treatments of economics, was entitled
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162. The major coordination tasks can be summarized with the questions
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163. If a market system is functioning well, we can conclude that goods with
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164. If you discover that the opportunity cost of raising your economics grade is zero, you
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Figure 3-2 |
165. In Figure 3-2, a point such as A
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166. Which of the following does not determine the position and shape of a society’s production possibilities frontier?
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167. The production possibilities frontier for a country is usually drawn
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168. If production involves decreasing opportunity cost, the production possibilities frontier
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Figure 3-2 |
169. In Figure 3-2, a move from a point like B to a point such as D
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170. Mick Jagger, a former student at the London School of Economics, once 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
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171. A normal production possibilities frontier has a
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172. One common definition of economics is the study of
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Figure 3-5  |
173. At present, faculty in the Economics Department teach introductory and upper-level courses. Which graph in Figure 3-5 represents the change in the production possibilities of the Economics Department after a policy of using graduate students in addition to faculty to teach introductory sections was implemented?
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174. If an economy is producing inefficiently, it is
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Figure 3-3  |
175. In Figure 3-3, a shift from A to B seems most consistent with which of the following scenarios?
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176. One role that markets play is
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177. What is the opportunity cost of economic growth?
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178. The opportunity cost and the money cost of a good
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179. The problem of scarcity
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180. Increasing opportunity cost tends to occur if
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181. Which principle states that as the production of one good expands, the opportunity cost of producing another unit of this good generally increases?
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182. How does scarcity affect the range of possible choices that decision makers face?
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183. Because resources tend to be specialized, if a society chooses to increase production of military goods, this tends to
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184. An economist claims that any point not on a production possibilities frontier cannot be best. What is his reasoning to support this?
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185. The idea of opportunity cost is relevant
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Table 3-2
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186. From the data given in Table 3-2, the opportunity cost of increased cotton in moving from A to B is
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187. How are the slope of a production possibilities frontier and the opportunity cost of the goods related?
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Figure 3-2 |
188. In Figure 3-2, a point such as E
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189. Probably the most important source of efficiency in production is
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190. Which of the following is considered by economists to be the most fundamentally scarce?
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191. The economic problem of scarcity
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192. Which type of economy must answer the questions of what goods to produce, how to produce them, and for whom to produce them?
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193. Which of these options best reflects Jim’s opportunity cost of operating his own business?
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194. Employment discrimination is a source of
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195. Optimal decisions take into account
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196. The problem of scarcity
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197. Suppose a farmer is currently producing 50 bushels of corn and 10 bushels of peanuts. According to Table 3-1, the opportunity cost of 10 additional bushels of peanuts is
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198. Although specialization of labor increases efficiency of production, another step is necessary
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199. Which of the following is not an example of a type of factor of production?
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200. The market system provides a way
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201. Which of the following observations is true?
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202. The main reason that finished goods are scarce is that
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203. The divergence between money costs and opportunity costs will be greatest in which of the following situations?
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204. If the production possibilities frontier for two goods is shown as a straight line, this implies that
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205. If good “A” is represented on the horizontal axis and good “B” on the vertical axis, then the steeper the production possibilities frontier at a given level of production of good “A,” the
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206. A ticket to an Eric Clapton concert costs $45. If you have a ticket, you can “scalp” it (sell it illegally) for $75. To a ticket holder, the opportunity cost of actually attending the concert is
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207. An optimal decision is one that chooses
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208. The concavity or bowed-out shape of the production possibilities frontier is the result of
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209. A rational decision is one that
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210. Which of the following quotations best captures the idea of opportunity cost?
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211. As a general rule, an increase in the capital available to a society
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Figure 3-4 |
212. Which of the following would make point Q in Figure 3-4 attainable?
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213. What is the basic task that economists expect the market to carry out?
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214. What determines the position and shape of a society’s production possibilities frontier?
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215. What would be the opportunity cost of a child using a coupon for a free ice cream cone?
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216. The fundamental goal of economics is to
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217. A principle that economists emphasize is that the ____ of decision makers are always limited.
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Figure 3-2 |
218. In Figure 3-2, the production possibilities frontier has a bowed-out shape because of the law of
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219. Which of the following is an example of opportunity cost not measured by money cost?
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220. The statement “Resources employed in producing X are better suited to making Y” is another way of saying resources
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221. Because of scarcity, every economic decision involves
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222. Rob took the afternoon off from his job as a tire salesman to mow his lawn. Rob told his wife that this made sense because he would be saving the $50 he would have to pay a lawn service, noting that this would be the opportunity cost to the family. Rob’s wife disagreed. What did Rob’s wife say?
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223. A point lying inside (under) a production possibilities frontier indicates that
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224. What mechanism assures that firms produce outputs that consumers actually desire?
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225. Which of the following is a good example of efficient specialization and voluntary exchange?
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226. If it is not possible to increase the output of one good without decreasing the output of the other, when there are only two goods, then
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227. How are money cost and opportunity cost related to each other?
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228. A typical economy produces thousands of different goods. Is it accurate to say that society faces a production possibilities frontier?
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229. Which of the following is likely to affect the position and shape of society’s production possibilities frontier?
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230. When a firm or economy is operating efficiently, it is operating
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231. Opportunity cost is best defined as the value of
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232. The opportunity cost of increased production of some good can be measured with
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233. The production possibilities curve illustrates the basic principle that
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234. An optimal decision is one that is selected based on an analysis of
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235. Goods are distributed among people by means of
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236. In a market economy, the decision regarding allocation of resources is made by
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Figure 3-1 |
237. According to Figure 3-1, the opportunity cost of one more bushel of wheat is
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Figure 3-7 |
238. What is the opportunity cost of moving from point B to point A in Figure 3-7?
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Figure 3-1 |
239. The shape of the production possibilities frontier in Figure 3-1 implies that
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Figure 3-2 |
240. In Figure 3-2, a point such as D
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241. Suppose the U.S. government has an annual budget of about $4 trillion. Does the U.S. government face the problem of scarcity?
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242. Specialization in production
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243. The central question in economics is how to
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244. Is faster economic growth unambiguously better?
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245. Do markets solve all of society’s problems?
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246. The total amount of consumption of a society can be increased if
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247. Ted got a ticket to this year’s Super Bowl and paid the face value of $1,000. His cousin offered him $3,000 for the ticket. Ted chose to attend the game. From this, we can infer that Ted’s value for this ticket was
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248. Free markets can
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249. Which of the following characteristics of a production possibilities frontier indicates that trade-offs must be made?
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250. All of the points inside a production possibilities frontier are ____; all of the points on the production possibilities frontier are ____.
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251. Economics only applies to
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252. In early 1996, the upper Midwest suffered record cold, with wind chills of 50° below zero or worse. Yet, grocery stores stocked fresh citrus fruit (which was clearly not grown locally). Why did grocers stock the fruit?
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253. Why would it be a mistake to treat opportunity costs and explicit monetary costs as identical?
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254. A market system solves the
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255. The most important way in which inefficiency occurs is
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256. The workers in Adam Smith’s famous pin factory, who were proficient in pin production, faced the problem of
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257. A production possibilities frontier has a downward slope because
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258. The law of comparative advantage implies that a doctor who is also a talented auto mechanic should
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259. Is increased capital spending the only way for an economy to expand its production possibilities frontier?
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260. The division of labor can benefit society only if
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261. The concept of opportunity cost in a fully employed economy with technology and resources held constant tells us that
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262. Opportunity costs exist for
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Table 3-2
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263. If the producer is at combination B as shown in Table 3-2, the opportunity cost of increasing corn production by 1 unit is
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264. A student has a chance to see Katy Perry in concert. The student also has a major economics exam the next day. If the student goes to the concert,
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265. In terms of the production possibilities diagram, the principle of increasing cost simply asserts that the frontier is
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266. All of the points inside a production possibilities frontier are ____; all of the points outside the production possibilities frontier are ____.
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267. In a market system, ____ distributes goods among consumers in accord with their tastes and preferences, using voluntary exchange to determine who gets what.
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268. “OPEC is exploiting the United States by selling us oil at inflated prices.” Agree or disagree. |
269. Why might the money price for something be higher than the opportunity cost? Why might it be lower? Give an example of each to illustrate your answer. |
270. In the 1960s, the lyrics of a rock song asked, “Did you ever have to make up your mind to say yes to one and leave the others behind?” What economic principle was demonstrated in the song? Explain. |
271. You have invested $1,000 in a stock whose price is increasing at 10 percent a year. Your stock broker, who is never wrong, recommends a stock rising at 20 percent a year. Assuming the broker earns 4 percent of the stock’s value on any purchase or sale of the stock, should you take his or her recommendation? |
272. Explain the relationship between opportunity costs and money costs. Can they be treated as identical? |
273. A country can gain by importing a good from abroad even if that good can be produced more efficiently at home. Is this statement true? |
274. Why is it inefficient for an economy to be inside the production possibilities frontier? |
275. A market system works very well in solving some basic problems of the economy but it fails in some cases. Provide examples. |
276. What are the three coordination tasks that markets resolve? |
277. Few bother to think about what makes Florida oranges show up daily in South Dakota supermarkets, but the people of South Dakota are likely to think a great deal about this. Why does someone take the time and energy to assure that oranges that are grown in Florida move more than 1,000 miles before they appear on grocery shelves? |
278. Economics is often described as a science of constrained choice. How do you justify this argument? |
279. What is the division of labor? How does it raise efficiency and productivity? |
280. President Barack Obama pushed forward a national health care plan to increase the availability of medical care for all Americans. How would one determine the opportunity cost of the proposal? |
281. Draw a production possibilities frontier for an economy, with the axes labeled “military goods” and “peace goods.” Indicate the region that is attainable and the region that is not. Explain the shape of the curve. What assumptions did you make in drawing it? |
282. At various times, the United States has undergone the painful process of reducing military spending. Military bases from the Carolinas to California pleaded to be spared, citing huge job losses if they close. How can one rationally decide which bases to shut down, given the necessity of jobs? |
283. How do economists define efficiency? Elaborate. |
284. If Japan and the United States engage in trade, and Japan gains as a result of the trade, does that mean the United States has lost in some manner? |
285. See table below. Does production exhibit increasing costs? Which ring and machine combination will achieve the highest growth in the production of mood rings?
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286. Suppose a presidential candidate campaigns on the need to improve U.S. infrastructure, a term for capital goods like bridges, highways, and technology (much of it publicly owned). Which would lead to faster growth: government expenditure on capital goods or expenditure on consumption goods such as sports stadiums? Illustrate your answer, drawing appropriate production possibilities frontiers accompanied by an explanation. |
287. If an economy wants to experience economic growth, what decision must it make and carry out? Explain. |
288. Some college students have claimed that because their incomes will be higher as a result of attending college, there is no opportunity cost of attending college. Do you agree? Explain. |
289. During World War II, Hitler would often order his army to hold a particular town or river “at all costs.” Was this rational? If so, explain. If not, indicate which economic idea it violated. |
290. Carefully define the following terms and explain their importance to the study of economics. a. Resources b. Rational decision c. Scarcity d. Opportunity cost |
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Microeconomics Principles and Policy 14e | Test Bank by Baumol
By William J. Baumol