MULTIPLE CHOICE 1. During one winter quarter at Frozen U., snow falls every Friday night. Students assume that, on their campus, Fridays cause snow. This hypothesis a. should more properly be considered a theory. b. assumes that correlation implies causation. c. assumes that causation implies correlation. d. reflects the fallacy of composition. 2. Before he retired, the opportunity cost to basketball star Michael Jordan for the income from a year of playing with the Chicago Bulls was probably a. equal to the income he could make from a year playing with a rival team. b. equal to the income from a year with the football Chicago Bears. c. zero, since he was doing the job for which he was best suited. d. equal by definition to the income from the last job he had before he started playing for the Bulls. 3. Economists make assumptions because a. they need to incorporate value judgments into their models. b. analysis without assumptions would be impossibly complex. c. they always have imperfect information about reality. d. assumptions are the final product of careful economic analysis. 4. Which of the following questions is least likely to be studied by economists? a. How would a crisis in the Middle East affect the price of oil? b. Why do consumers prefer one type of car to another c. Does the size of the budget deficit affect society's rate of investment? d. Will consumers buy more bananas if the price of pears rises? 5. The economic problem of scarcity a. is unique to a capitalist economy. b. requires that choices be made among alternatives. c. disappears as technology advances. d. affects only less developed countries. 6. Opportunity cost is the a. cost incurred when one fails to take advantage of an opportunity. b. cost incurred in order to increase the availability of attractive opportunities. c. cost of the best option forgone as a result of choosing an alternative. d. drudgery of the undesirable aspects of an option. 7. Voluntary exchange occurs when a. both parties expect to gain something. b. at least one party expects to gain something. c. no government intervention is involved. d. one party gains and the other party loses. 8. Purchasing power of money a. refers to the amount of a good or service consumers can purchase with their income. b. diminishes over time due to inflation. c. is affected by the interest rate and inflation rate. d. All of the above are correct. 9. In Figure 2-1, a. at all points, the slope of S1 > the slope of S2. b. at all points, the slope of S1 < the slope of S2. c. at points to the left of A, the slope of S1 > the slope of S2; at points to the right of A, the slope of S1 < the slope of S2. d. at points to the left of A, the slope of S1 < the slope of S2; at points to the right of A, the slope of S1 > the slope of S2. 10. The line in Figure 2-3 has a slope equal to ______. a. 1/2 b. -2 c. -1/2 d. 2 11. A partnership is characterized by a. large annual revenues. b. ownership by a fixed number of partners. c. the majority of U.S. output. d. the largest number of businesses. 12. Economic fluctuations are defined as a. alternating periods of good and bad times. b. virtually nonexistent in developed countries. c. a major concern for government. d. a and c 13. A closed economy is one in which a. immigration is limited or prohibited. b. its exports and imports are a relatively small percentage of GDP. c. its exports and imports are a relatively large percentage of GDP. d. no foreign trade is allowed. 14. A circular flow diagram explains a. the interaction between different businesses. b. the interaction between businesses and households. c. the interaction between different households. d. None of the above is correct. 15. The shape of the production possibilities frontier in Figure 3-1 implies that a. some resources are better suited for producing wheat than for producing barley. b. the opportunity cost of producing more wheat falls as wheat production rises. c. the farmer's technology is not subject to the principle of increasing costs. d. the financial cost of producing wheat is higher than the financial cost of producing barley. 16. Which of the following pairs of outputs seems most likely to have a straight-line production possibilities frontier? a. oil and electricity b. football playing and baseball playing c. blue cars and red cars d. cars and boats 17. If you discover that the opportunity cost of raising your economics grade is zero, you a. are studying too hard and receiving a higher grade than is optimal for you. b. must be on the production possibilities frontier that describes your trade-offs between producing high grades and producing other goods. c. must be inside the production possibilities frontier that describes your trade-offs between producing high grades and producing other goods. d. must be producing more of other goods than is optimal for you. 18. List the three coordination decisions made by every economy. a. Where? When? How? b. How? What? To whom? c. Why? Where? What? d. When? To Whom? Where? 19. The division of labor usually refers to a. splitting the three coordination decisions among different sets of planners. b. splitting the parts of a complex task among different workers. c. splitting the production of consumption goods and capital goods among different workers. d. splitting Soviet leaders into radical and conservative camps in recent years. 20. In Figure 3-3, the production possibilities frontier has a bowed out shape because of a. the law of decreasing costs. b. the law of increasing costs. c. the law of demand. d. the law of comparative advantage. 21. In Figure 3-3, a point such as A a. is preferable over B. b. is an efficient use of resources. c. represents a misallocation of resources. d. is not obtainable. 22. The production possibilities curve illustrates the basic principle that a. an economy's capacity to produce increases in proportion to its population. b. if all resources of an economy are in use, more of one good can be produced only if less of another is produced. c. an economy will automatically seek that output at which all of its resources are employed. d. no opportunity cost exists in production. 23. Inefficiency in an economy can be caused by a. misallocating resources. b. underemploying resources. c. discrimination. d. All of the above are correct. 24. A demand curve is a. a graphical depiction of a demand schedule. b. another name for a demand schedule. c. always steeper than its corresponding demand schedule. d. always flatter than its corresponding demand schedule. 25. Along a given demand curve for a good, which of the following do we not consider to be held constant? a. the prices of other goods b. consumer incomes c. the price of the good d. population TRUE-FALSE QUESTIONS 26. Productivity has sped up in the past 20 years. 27. Economics is more "scientific" than "social" in its interpretation of the world. 28. Economic theory simplifies relationships to explain how the relationships interact. 29. Economic models are small-scale versions of the economy. They represent the economy accurately. 30. Economists disagree on most economic issues facing an economy. 31. The economy is a social mechanism that transposes inputs into outputs. 32. Corporations own a very small percentage of business assets. 33. The federal government receives most of its revenue from personal income taxes and payroll taxes. 34. A well-functioning market will have high monetary costs applied to high opportunity costs. 35. Given its size, the United States does not have to worry about limitations on resources. 36. Efficiency is defined as the absence of waste. 37. Division of labor allows individual workers more ability to perform a job. 38. Demand shifts due to a change in price. 39. Consumer income changes can shift market demand. 40. Supply will shift for any reason other than a change in the price of the good.