Principles of Economics - Macroeconomics
Quiz 1               Due by noon February 24, 2003
Mr. Vice

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_____ 1. Because scarcity exists,

a. we must make choices
b. there will be competition for the scarce goods
c. there will be discrimination in the sense that some people will get the scarce goods and some people will not
d. all of the above are true

_____ 2. Economics is best defined as the

a.  study of how people make choices to satisfy their wants
b.  study of individual self-interests
c.  study of how government can most efficiently raise funds by taxation
d.  process by which goods are sold in free markets

_____ 3. The macroeconomist would most likely study

a.  the effects of changing apple prices on the market for oranges
b.  the effects of an increase in wage rates on a woman's decision to enter the labor force
c.  the effects of a reduction in income tax rates on the nation's output
d.  the effect of increased union wages on the cost of producing automobiles

_____ 4. In economics, the concept that individuals are motivated by self-interest and respond predictably to opportunities for gain is known as

a.  rational self-interest
b.  altruism
c.  sufficiency
d.  empiricism

_____ 5. The term "ceteris paribus" means

a.  the greatest good for all
b.  the study of scarcity and choice
c.  all other things remaining constant or equal
d.  value-free and testable

_____ 6. The usefulness of a model is determined by

a.  whether it yields usable predictions for the real world
b.  whether it possesses realistic assumptions
c.  how well it uses the ceteris paribus assumption
d.  how many of the possible relationships that exist are included in the model

_____ 7. The problem of economic scarcity applies

a.  only in industrially developed countries because resources are scarce
b.  only in the less developed countries because there are no productive resources
c.  only in economic systems that are just beginning to develop because specialized resources are scarce
d.  to all economic systems, regardless of their level of development

_____ 8. The production possibilities curve represents

a.  the maximum amount of labor and capital available to society
b.  the combinations of goods and services among which consumers are indifferent
c.  the maximum combination of goods and services that can be produced with fixed resources and technology, given efficient use of the resources
d.  the maximum rate of growth of capital and labor in a country

_____ 9. In order for an economy to produce outside its current production possibilities curve the economy must

a.  be very efficient
b.  increase inputs
c.  decrease inefficiency
d.  reduce output

_____ 10. Economics is

a. a natural science
b. a social science
c. not a science, but is a part of business
d. none of the above

_____ 11. If we lived in a world without scarcity, then the production possibilities curve would

a.  be a negatively sloped straight line
b.  be bowed in toward the origin
c.  be a positively sloped line coming out of the origin
d.  not exist

_____ 12. An economic model 

a. is an exact replica of the real world
b. is a simplification of the real world
c. is always presented using mathematical equations
d. can never be used to predict human behavior, because it is only a model

_____ 13.  If opportunity costs are constant, then

a.  the production possibilities curve does not exist
b.  the production possibilities curve bows outward
c.  the production possibilities curve is a negatively sloped straight line
d.  factors of production must not be fully employed

_____ 14. When economists are discussing the factors of production and use the term land, they are

a. referring only to the dirt
b. referring to all real property which would include both the land and the structures on the land
c. referring to all natural resources
d. referring to everything that is NOT capital 

_____ 15. The production possibility curve will usually be bowed outward (concave to the origin) because

a. some goods are more valuable than others
b. some resources cannot be easily adapted from the production of one good to the production of another
c. demand is greatest along the middle of the curve
d. of inflation, which causes the curve to bow out

_____ 16. A country that must reduce current consumption to increase future consumption possibilities must

a.  be allocating resources inefficiently
b.  be producing along the production possibilities curve
c.  be producing outside the production possibilities curve
d.  must not have private ownership of property

_____ 17.  A production possibilities curve for a country shows the quantity of capital goods on the vertical axis and the quantity of consumer goods on the horizontal axis.  The effect of a major natural disaster, such as an earthquake, in the country would be to cause

a.  the production possibilities curve to bow in toward the origin
b.  the production possibilities curve to shift out away from the origin
c.  a movement down along the production toward fewer capital goods and more consumer goods
d.  the entire production possibilities curve to shift in toward the origin

_____ 18. Scarcity implies that people must

a.  be miserable
b.  be selfish
c.  make choices
d.  not be selfish

_____ 19. A production point outside the production possibilities curve is

a.  inefficient
b. very efficient
c.  impossible
d.  possible, but not desirable

_____ 20. The highest valued alternative or opportunity given up in order to have a particular good or to do a particular thing (e.g., go to a movie), economists call the

a. opportunity cost of the good or action
b. incentive
c. benefit
d. intrinsic value

Economics 2 Quiz 1 Answers

1.  D.     The existence of scarcity means that we cannot have all of everything we want; therefore, we are forced to make choices.  You cannot attend class and at the same time go to a movie.  Time is scarce, so you must chose which activity you will do.  Since we are not able to have all of every good that we want, there is competition for the scarce goods.  We compete for bread with our money bids to acquire the bread.  The who are willing and able to pay the asking price get the bread and those who are either unwilling or unable to pay do not get the bread.  The seller (baker or grocer) has limited amounts of bread, so the baker must discriminate by "giving" (selling) the bread to some people and not to others.  The baker discriminates.

2.  A

3.  C.  See the text for the definition.

4.  A

5.  C.  See the text.

6.  A

7.  D

8.  C

9.  B

10.  B. 

11.  D.  

12.  B.  We build economic models (like the supply and demand analysis) because the real world is so complex that we have to simplify in order to understand and analyze.

13.  C

14.  C. 

15.  B.  If all resources were equally well adapted to making all kinds of goods (capital goods vs. consumer goods or war goods vs. consumer goods), then the production possibility curve (PPC) would be a negatively sloped straight line.  However, specific land, labor, and capital are NOT equally well adapted to making all kinds of goods, so we face of law of increasing relative costs and the PPC is bowed out.

16.  B 

17.  D

18.  C.  

19.  C.  Producing at a point inside the PPC is inefficient, outside the PPC is impossible, and any point along the PPC is efficient.

20.  A.  This is the definition of opportunity cost.

If you have any questions about these answers, post your questions for the class on the "Discussion  Q & A" discussion page that is linked from the course homepage.