a. Only good government can make the right investment decisions.
b. It protects workers' rights and prevents unfair firings.
c. It gives the incentive to save, invest, expand human capital and discover and apply new technology.
d. It upholds democracy, which is essential if an economy is to grow.
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According to estimates presented in the textbook, which of the following factors made the smallest contribution to U.S. growth between 1928 and 1997?
A) Technology. B) Human capital. C) Physical capital. D) Labor.
According to economist Hernando DeSoto, the lack of formal property rights in many poor countries limits economic growth because informal property rights:
A) lead to excessive investment in physical, social, and human capital. B) limit the amount that businesses and households can borrow. C) result in excessive government regulation. D) decrease the labor force participation rate.
The theory of convergence depends on the assumption that:
A) population growth falls to replacement levels in all nations. B) factors of production are mobile across borders. C) technological advancement slows. D) production functions have constant returns to scale.
The surge in foreign direct investment experienced by China and India in the early 2000s can best be explained by:
A) their higher marginal productivity of capital, which leads to lower production costs. B) their lower marginal productivity of capital, which leads to lower production costs. C) the limits they impose on factor mobility. D) technological agglomeration.
The idea behind Say's Law is that people work because:
A) they like to work. B) they want to buy things. C) they want to accumulate wealth. D) work gives them social status.
People's knowledge is a type of capital, called human capital.
A) True B) False
The law of diminishing marginal productivity applies whenever:
A) output is increased. B) all inputs are increased. C) only one input is increased. D) decreasing returns to scale are present.
13.
The theory of convergence argues that poor nations should, if they pursue the right policies,
A) grow at the same rate as rich nations. B) grow faster than rich nations. C) develop the same social-welfare structures as rich nations. D) stop their exploitation by the rich nations.
14.
If increasing returns to scale exist, then an increase in output of exactly 3 percent is most likely to be produced by:
A) a decrease in all inputs of 3 percent. B) an increase in all inputs of less than 3 percent. C) an increase in all inputs of 3 percent. D) an increase in all inputs of more than 3 percent.
15.
The production function is best represented in the following form:
A) Output = A. B) Output = f(Labor, Capital, Land). C) Output = A%u2022f(Labor, Capital, Land). D) Output = [A%u2022f(Labor, Capital, Land)]b.
16.
The effect of economic growth generally has been to make:
A) the poor poorer and the rich richer. B) the poor richer and the rich poorer. C) all income levels richer. D) the rich richer but not affect the poor.
Scale economies describe what happens to output when:
A) one input changes. B) all inputs change by the same percentage. C) technology changes. D) institutions change.
1. The high economic growth from the Industrial Revolution was characterized by
a. new opportunities to settle empty areas, particularly North America.
b. rapid technological and scientific innovation.
c. the expansion of national governments in Europe and North America.
d. a rapid increase in the accumulation of human and physical capital.
e. none of the above.
2. Periods of economic growth and prosperity can often be explained by
a. political paradigm shifts.
b. technological innovation
c. movement of capital
d. both a and b
e. both b and c
3. Prior to the onset of economic reform in the late 1980s, the Soviet Union and
most Eastern European countries allocated resources primarily by means of
a. markets.
b. national economic plans.
c. neither a nor b.
d. both a and b.
4. A major theme in the 1980s in the governments of England and the U.S.was
a. the appropriate role of government in the economy.
b. the pressure for expanding trade with former socialist block countries.
c. repressing inflation.
d. increasing employment opportunities.
5. One example of the expansion of internationalism in the 1990s was the development of a trade agreement between Canada, Mexico, and the United States. This agreement is known as
a. the GATT (General Agreement on Tariffs and Trade).
b. the IMF (International Monetary Fund).
c. the NAFTA (North American Free Trade Agreement).
d. the CMEA (Council for Mutual Economic Assistance).
6. The contemporary Chinese economy is of interest because
a. it combines central planning with a multiparty democratic political system.
b. it combines the market with a multiparty democratic political system.
c. it combines the market with a single-party political system.
d. none of the above.
7. In the analysis of the planned socialist economic systems, the concept of economic reform is usually referred to as
a. the replacement of the plan by the market after the collapse of the planning system.
b. the attempt to improve the operation of the planned economy without a significant shift toward market arrangements.
c. the frequent attempt, in the planned socialist economic systems, to introduce the industrial policy.
8. The modern approach to defining economic systems
a. is based on the ยยismsยย of capitalism and socialism.
b. emphasizes resource allocation arrangements over incentive systems.
c. defines economic systems according to a number of characteristics.
d. recognizes that defining economic systems is impossible.
9. Which of the following is not a major attribute of an economic system (Based on the textbook)?
a. Organization of decision-making arrangements.
b. Mechanisms for providing information and coordination.
c. Economic policies.
d. The system's physical and human capital.
e. Both c and d are correct.
10. A planned economy is one in which
a. subunits are coordinated by directives formulated by a superior agency.
b. subunits are not induced by appropriate incentives to carry out plan directives.
c. market allocation is combined with planned allocation.
d. a ministerial system prevails.
11. Property ownership rights include
a. disposition and utilization.
b. disposition, utilization, and the right to use the products and services generated.
c. disposition, utilization, and team production.
d. disposition, utilization, and economic incentives.
12. Consumer sovereignty means that
a. central planning is absent.
b. consumers elect public officials.
c. consumers make the basic decisions on what is to be produced.
d. consumers are not affected by advertising.
13. Which of the following is not a characteristic of market socialism?
a. Centralized decision-making.
b. Market allocation.
c. State or collective ownership.
d. Combination of moral and economic incentives.
e. All are characteristic of market socialism.
14. Two factors generally believed to be important in the analysis of levels of decision-making are
a. incentives and ownership.
b. authority and information.
c. level of economic development and ideological focus.
d. all of the above.
e. none of the above
15. Moral incentives generally refer to
a. direct money payments made to participants.
b. supplements to direct money payments, such as bonuses.
c. rewards that do not give the recipient greater command over goods and services but rather serve to reward desirable behavior.
16. Principals and agents are different people. An agent is a party
a. who has controlling authority in an organization.
b. who acts on behalf of a principal.
c. with equity rights in the organization.
d. a and b are correct.
17. According to the text, opportunistic behavior occurs when a lower-level unit of an organization can use its information advantage against the interests of its superiors. This form of behavior, it is argued, can take two forms:
a. indicative planning and directive planning.
b. planners' preferences and consumer sovereignty.
c. moral hazard and adverse selection.
18. According to the text, there are two extremes of organizational structure. These extremes are termed
a. planned or market
b. corporate or individual proprietorship.
c. association based or hierarchy based.
d. a and c are correct.
19. It is often assumed that individuals who participate in the organized activity do so within the constraints of bounded rationality. The concept of bounded rationality
means that
a. individuals may not in fact pursue self-interest.
b. individuals face a variety of limitations, for example, in the ability to process information.
c. agents will never pursue goals or objectives set by principals.
d. b and c are correct
20. Modern comparative economists would object to the definition of economic systems only in terms of property ownership arrangements, because
a. they recognize that ownership arrangements are not important.
b. there is some private ownership of property in every economic system.
c. ownership arrangements are only one aspect of the economic system.
d. resource allocation procedures are much more important than property ownership.
e. all of the above.
Q3. The assumption of rational self-interest implies that people will choose to enrich themselves even if doing so violates the rights or property of others.
a. true
b. false
Q4. If you can earn $10 an hour as a retail clerk, $12 an hour as an office assistant, $16 an hour as a house painter, and $20 an hour repairing bicycles, what is your opportunity cost of working to repair bicycles?
a. $12 an hour
b. $10 an hour
c. $20 an hour
d. $16 an hour
Q5. In the graph of a production possibilities curve, both the horizontal and vertical axes measure the annual quantities of goods produced.
Q6. Scarcity arises because
a. international companies are slow to explore for new resources.
b. resources are finite and unable to meet all human wants and needs.
c. many countries waste goods because of inefficient political systems.
d. import taxes retard production.
Q7. A production possibilities curve with clothing and food on the axes shows which of the following?
I. A society cannot have an unlimited amount of each good.
II. For an efficient society, an increase in clothing production will necessitate a decrease in food production.
III. A society will always produce the maximum amount of both clothing and food.
a. II only
b. I only
c. III only
d. both I and II
Q8. All points on the production possibilities curve are efficient.
Q9. Economic growth can be pictured in a production possibilities curve diagram by
a. shifting the production possibilities curve out.
b. moving from right to left along the curve.
c. moving from left to right along the curve.
d. shifting the production possibilities curve in.
Q10. Suppose the current unemployment rate is 15 percent. If it rises to 20 percent,
a. the production possibilities curve will shift inward.
b. the economy will move closer to the production possibilities curve.
c. the economy will operate further inside the production possibilities curve.
d. the economy will move up along the production possibilities curve.
Q11. Clean air is a scarce resource.
Q12. Which of the following statements is FALSE?
a. A good is anything that gives satisfaction or happiness to individuals.
b. Wants may include humanitarian and altruistic goals.
c. Wants are unlimited and include all material and nonmaterial desires.
d. Economic goods are available in desired quantities at a zero price.
Q13. The current size of the U.S. labor force is less than 100 million workers.
Q14. The factors of production are
a. never as useful as people expect them to be.
b. valuable only because they are owned by corporations seeking to make a profit from them.
c. scarce resources.
d. abundant without limit on the planet.
Q15. Why do firms seek to use the least-cost combination of inputs?
a. because they won't be able to stay in business if they don't
b. because that is the combination that their employees prefer
c. because managers and supervisors find their jobs are easiest when the least-cost combination is used
d. because they want to keep costs low in order to appear to the media as a well-run business
Q16. Which one of the following best describes how economists view prices?
a. Low prices are good; high prices are bad.
b. High prices are good; low prices are bad.
c. The best price is a fair price.
d. Prices are signals of relative scarcity.
Q17. The person who creates a product innovation and brings it to market is providing the resource of
a. labor.
b. land.
c. entrepreneurship.
d. capital.
Q18. Gifts of nature used in the production process are considered
a. entrepreneurship.
b. labor.
c. land.
Q19. In a free market economy,
a. government decides what is produced, and producers decide who gets to consume it.
b. as a good becomes relatively more scarce, its price declines.
c. firms choose only to produce the most fashionable goods, regardless of the cost of production.
d. goods and services are allocated by a price system.
Q20. Resources are also known as
a. stocks, bonds, and other financial instruments.
b. minerals.
c. factors of production.
d. factories.
Q21. The size of the U.S. labor force has declined over the past 20 years as many jobs have been outsourced from the United States to other countries.
Q22. Which one of the following is TRUE?
a. The growth of the U.S. population over the next several decades will come from immigration.
b. Population growth makes a country poorer, because there are more mouths to feed.
c. Real per capita GDP can increase only if there is inflation.
d. Real per capita GDP can increase only if there is no inflation.
Q23. Which one of the following is FALSE?
a. The U.S. labor force will continue to grow through immigration.
b. Inflation stops economic growth.
c. Increased availability of reliable communication channels at lower and lower costs have led to companies relocating their manufacturing operations offshore.
d. The size of the U.S. labor force continues to grow despite many jobs being moved off-shore.
Q24. What is the purpose of a market system?
a. to facilitate efficient exchange
b. to encourage consumers to buy goods on credit
c. to ensure an equal distribution of income
d. to ensure that everyone is treated fairly
Q25. The market system is also called the price system because
a. people pay money in markets.
b. everything has a price tag.
c. rising prices are the signal to producers to make more of a particular good.
d. inflation is a disturbing problem.
Q26. Production refers to
a. any activity that causes a material conversion of an object.
b. any activity that results in the conversion of resources into goods and services that can be consumed.
c. any activity carried on by a firm, whether a corporation, partnership, or sole proprietorship.
d. physically producing material goods only.
Q27. An increase in the price of coffee, holding other things constant, will
a. decrease the demand for coffee.
b. increase the demand for coffee.
c. decrease the quantity of coffee demanded.
d. decrease the supply of coffee.
Q28. The supply curve shifts when the firm experiences a change in its production technology.
Q29. A surplus results when the quantity supplied exceeds the quantity demanded.
Q30. Table 3.1
Price per Constant-Quality Unit Quantity Demanded of Constant-Quality Units per Year Quantity Supplied of Constant-Quality Units per Year
$1.00 1,000 200
2.00 800 400
3.00 600 600
4.00 400 800
5.00 200 1,000
What condition characterizes a surplus?
a. Quantity supplied exceeds quantity demanded.
b. Quantity demanded exceeds quantity supplied.
c. Consumers are unhappy with the price.
d. Producers are unhappy with the price.
Q31. An increase in quantity demanded is caused by
a. an increase in income.
b. a decrease in the price of a complement.
c. a change in expectations about price in the future.
d. a decrease in the price of the good.
Q32. The demand curve is downward sloping because
a. price and quantity have a direct relationship.
b. price is always constant.
c. demand is based on supply.
d. price and quantity have an inverse relationship.
Q33. An increase in the price of one good will decrease the demand for a substitute good.
Q34. The market demand curve is the vertical summation of the demand curves of all the individuals in the market.
Q35. The equilibrium price of a good is a price that everyone is happy with.
Q36. Which one of the following would cause a rightward shift of the supply curve?
a. A new tax is imposed on production of the good.
b. Some firms that have been producing the good go out of business.
c. Firms producing the good find ways of lowering their production costs.
d. There is an increase in demand for the good.
Q37. Which of the following is a determinant of demand?
a. cost of production
b. number of suppliers
c. technology of production
d. income
Q38. The market demand curve for a particular good
a. will not be affected by any of the determinants of individual demand.
b. is the horizontal sum of each individual demand curve for the good.
c. will show a direct relationship between price and quantity demanded.
d. may be less than an individual demand curve for the good.
Q39. Table 4.4
Quantity of CDs Purchased Total Utility Marginal Utility
1 75
2 135
3 185
4 35
5 25
6 15
According to Table 4.4, what is the total utility when six CDs are purchased?
a. 65
b. 260
c. 120
d. 220
Q40. A rational consumer will never purchase a product when its
a. marginal utility is decreasing.
b. total utility is decreasing.
c. marginal utility is slightly positive.
d. marginal utility is negative.
Q41. The price elasticity of demand becomes relatively greater as more substitutes are easily available.
Q42. Which of the following statements is true with respect to total utility and marginal utility?
a. Marginal utility is always equal to total utility.
b. Total utility will always be negative when marginal utility is positive.
c. Total utility is minimized when marginal utility is zero.
d. Marginal utility can decline as total utility rises.
Q43. Table 4.3
Quantityof Soda Marginal Utility of Soda Quantityof Pizza Marginal Utility of Pizza
1 50 1 100
2 25 2 80
3 0 3 60
4 -25 4 40
After consuming what quantity of soda does the consumer in Table 4.3 experience diminishing marginal utility?
a. 2
b. 3
c. 1
d. 4
Q44. If the price elasticity of demand is 0.5, a 10 percent increase in the price will cause
a. the quantity demanded to decrease by 20 percent.
b. the quantity demanded to decrease by 50 percent.
c. the quantity demanded to increase by 50 percent.
d. the quantity demanded to decrease by 5 percent.
Q45. Which one of the following would make the demand for satellite subscription TV relatively less elastic?
a. The cost of administering the satellite service is lowered.
b. Cable TV service becomes less widely available.
c. Other networks of wireless entertainment become more widely available.
d. The cost of transmitting satellite signals is lowered.
Q46. A price increase will cause a relatively large drop in quantity demanded when
a. demand is perfectly inelastic.
b. the price elasticity of demand is 0.
c. there is very little time allowed for consumers to react.
d. the consumer has easy access to a number of substitute goods.
Q47. Table 4.6
Price Quantity Demanded
$20 90
$16 110
$12 130
$ 8 150
According to the data in Table 4.6, what is the elasticity of demand between a price of $20 and a price of $16?
a. 0.60
b. 0.75
c. 0.90
d. 1.25
Q48. Price elasticity of demand is the responsiveness
a. of the quantity demanded to changes in supply.
b. of the quantity demanded to changes in income.
c. of the quantity demanded to changes in price.
d. of the quantity demanded to changes in quantity.
Q49. Everyone who views the latest adventure movie in theaters will derive the same utility from seeing it.
Q50. The law of diminishing marginal utility asserts that total utility becomes negative when marginal utility begins to diminish.
