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Which of the following is not one of the three core economic issues that must be resolved?

What to produce with unlimited resources

In economics, scarcity means that:

Society's desires exceed the want-satisfying capability of the resources available to satisfy those desires

Given that resources are scarce:

Opportunity costs are experienced whenever choices are made.

Capital, as economists use the term, refers to:

Final goods that are used to produce other goods and services

Economics can be defined as the study of:

How scarce resources are allocated to best meet society's goals

A production-possibilities curve indicates the:

Maximum combinations of goods and services an economy can produce given its available resources and technology.

The production-possibilities curve illustrates:

The limitations that exist because of scarce resources

If an economy experiences increasing opportunity costs with respect to two goods, then the production-possibilities curve between the two goods will be:

Bowed outward.

When an economy is producing efficiently it is:

Getting the most goods and services from the available resources.

The points on a production-possibilities curve show

Potential output.

If an economy is producing inside the production-possibilities curve, then:

It can produce more of one good without giving up some of another good

A technological advance would best be represented by:

A shift outward of the production-possibilities curve.

Economic growth would best be represented by a:

Shift outward of the production-possibilities curve

In a market economy, the people who receive the goods and services that are produced are those who:

Are willing to pay the highest price

The market mechanism may best be defined as:

The use of market prices and sales to signal desired output.

The market mechanism:

Works because prices serve as a means of communication between consumers and producers

Macroeconomics focuses on the performance of:

The overall economy.

Economic models are used by economists to:

Predict economic behavior, develop economic policies, and explain economic behavior.

The measure of new goods and services produced in the United States is the:

GDP of the United States.

Those who are interested in assessing the relative standard of living of different countries over a given time period are most likely to look at:

Per capita GDP.

Economic growth:

Is an increase in output or real GDP.

The four major uses of total output are consumption, investment, government purchases, and:

Net exports.

Over two-thirds of U.S. output consists of:

Consumer goods and services.

Which of the following is part of the U.S. GDP?

U.S. government purchases

In order to attain higher living standards in the long run:

country must devote some of its scarce resources to investment

The term income transfer refers to:

A payment to an individual for which no current goods or services are exchanged.

The U.S. is:

The world's biggest exporter and also the world's biggest importer

Comparative advantage refers to the ability to produce a good at a:

Lower opportunity cost than your trading partner.

IF all the countries in the world decide to prohibit trade, then world output will, ceteris paribus


Human capital is defined as the:

Knowledge and skills workers possess.

How will an increase in the level of human capital, ceteris paribus, affect an economy's production-possibilities curve?

Shift the curve outward

The cost or benefit of a market activity borne by a third party is:

An externality.

When monopolies exist:

Prices tend to be higher.

People benefit by participating in the market because:

Market participation allows individuals to specialize and, ultimately, consume more

Business firms supply goods and services to ____ and purchase factors of production in ____.

Product markets; factor markets

Individual consumers supply ____ and purchase ____.

Factors of production; final goods and services

A buyer is said to have a demand for a good only when:

The buyer is both willing and able to purchase the good at alternative prices.

Ceteris paribus, if the opportunity cost of purchasing a good rises, then the maximum price a particular consumer is willing to pay for that good:


According to the law of demand, a demand curve:

Has a negative slope

A lower quantity demanded of a good reflects, ceteris paribus:

A higher price of the good.

Which of the following is not held constant along a given demand curve for a good?


Ceteris paribus, which of the following would generally cause an increase in the demand for automobiles?

An increase in consumers' income

Peanut butter and jelly are complements. A decrease in the price of one will result in:

An increase in the demand for the other.

Ceteris paribus means:

Holding everything constant except for the variables you are interested in examining

A change in demand means there has been a shift in the demand curve, and a change in quantity demanded:

Means that price has changed and there is movement along the demand curve.

To calculate market demand we:

Add the quantities demanded for each individual demand schedule horizontally.

Which of the following is a determinant of supply?

The prices of the factors of production

A change in the price of a good:

Results in a change in quantity supplied

Ceteris paribus, which of the following is most likely to cause an increase in the quantity supplied of perfume?

An increase in the price of perfume

A shift in supply is defined as a change in:

Supply because of a change in a non-price determinant

Ceteris paribus, if the subsidies given to corn syrup producer decrease, then we can expect:

A decrease in the supply of corn syrup

The equilibrium price in a market is found where:

The market supply curve intersects the market demand curve.

At the equilibrium price there are:

No shortages or surpluses.

If there is a surplus at a given price, then:

That price is greater than the equilibrium price.

When a surplus exists for a product:

Producers reduce the level of output and reduce price.

A ballet performance had many empty seats. This implies that the:

Price of the tickets must have been above the equilibrium price

A rightward shift in a demand curve and a leftward shift in a supply curve both result in a:

Higher equilibrium price

A leftward shift of the market demand curve for HDTVs, ceteris paribus, causes equilibrium price to:

Decrease and quantity to decrease.

Assume peanut butter and jelly are complements. Ceteris paribus, an increase in the price of peanut butter will cause the equilibrium price for jelly to:

Decrease and the equilibrium quantity of jelly to decrease.

When the demand for coffee increases, ceteris paribus, the equilibrium price will also increase because:

A shortage exists at the old equilibrium price.

Assume milk is used to produce ice cream. Ceteris paribus, a decrease in the price of milk will cause the equilibrium price of ice cream to:

Decrease and the equilibrium quantity of ice cream to increase.

Resources are directed from one industry to another by:

Changes in market prices.

Market failure implies that the market mechanism:

Leads the economy to the wrong mix of output.

Government intervention may be appropriate to correct market outcomes because of:


From an economic standpoint, government intervention is justified:

When the market mechanism fails to achieve the optimal mix of output

The market:

On its own may not always provide the optimal mix of goods and services

A private good:

Is consumed by one person and excludes consumption by others.

Which of the following is an example of a public good?

Flood control

In economics, a public good:

Cannot be denied to consumers who have not paid.

The federal government's role as the provider of national defense is justified by considerations of:

Public goods.

Governments usually build highways because it is difficult to exclude individuals who don't pay for the highways from using them. What type of market failure is involved?

Public goods

The free-rider problem:

Reflects the inability to exclude an individual from the benefits of someone else's purchase.

The market tends to under-produce public goods because:

Joint consumption allows those who do not pay for the good to still benefit from the good.

Market power may result from:

Control of resources.

The term market mechanism refers to:

The use of market prices and sales to signal desired output.


May be beneficial to society if they are natural monopolies and are regulated.

The development of market power by a firm is considered to be a market failure because firms with market power will:

Produce less and charge a higher price than what would be socially optimal

Government intervention to alter market structure or prevent abuse of market power is the basic purpose of:

Antitrust policy.

If the economy relies entirely on the market mechanism to answer the WHAT, HOW, and FOR WHOM questions, it tends to:

There are external benefits associated with education

The market will overproduce goods that have external costs because:

Producers experience lower costs than society.

When external costs result from the production of a good:

Both producers and consumers have an incentive to produce and consume too much

Which of the following produces external benefits?

B. The inoculation of college students against the flu

If Good X has social demand that is less than market demand, then Good X must be a:

B. Good with an external cost


B. Are the costs or benefits of market activities that "spill over" onto third parties

DVD players can be added to bicycles to compute the GDP by:

Multiplying output by price and adding the resulting dollar values.

Suppose iPhones cost consumers $200 and USB cables cost consumers $25. What contribution does the production of 2000 iPhones and 1200 USB cables make to GDP?


Which of the following statements is correct concerning GDP and GNP?

GDP measures output within the nation's borders only.

GDP per capita:

Is equal to a nation's GDP divided by its population.

The GDP per capita is the most practical way to:

Make international comparisons of the standard of living.

Which of the following is excluded from calculations of GDP?

The value of lawn mowing provided by a teenager for his own family

When an individual makes repairs to her own home instead of hiring a company to make the repairs, the activity is:

Productive but excluded from GDP because it is a nonmarket activity.

Which of the following is not a final good or service?

Paper purchased by a textbook company

To avoid counting the same output more than once the calculation of GDP includes:

Only the value of final goods.

The value of final output produced in a given period, measured in current prices is:

Nominal GDP.

Real GDP is the:

Value of final output produced in a given period measured in constant prices.

Real GDP is used most effectively to:

Analyze the growth rate of the economy over time.

In periods of rising prices, percentage increases in nominal GDP will:

Exceed percentage increases in real GDP.

Assume nominal GDP is $10,000 billion in period 1 and $15,000 billion in period 2. If prices in period 2 are twice as high as in period 1, real GDP in period 2 is:

$7,500 measured in period 1 prices.

The wearing out of plant and equipment is known as:


An economy's production possibilities are most likely to expand if:

Gross investment is greater than depreciation.

When calculating GDP, consumption makes up approximately:

Two-thirds of total output.

The economic definition of investment includes all of the following except:

A retirement portfolio of stocks and bonds.

Net exports are:

The value of exports minus the value of imports.

The components of GDP are:

C + I + G + (X - M).

People are not part of the labor force when they:

Are old enough to work but choose not to work.

The labor-force participation rate is the number:

In the labor force divided by the total population.

When the labor-force participation rate is declining, the:

Percentage of the population that is willing and able to work is declining.

Jack graduated from college last month, but he has not yet started looking for a job. Jack is:

Not part of the labor force and is not counted in the unemployment rate.

Unemployment is defined as:

The inability of labor force participants to find jobs.

The most widely used measure of the unemployment rate is found by the:

U.S. Census Bureau in monthly surveys that examine whether people are working or are willing to work.

Which of the following groups typically has the highest unemployment rate?

Black teenagers

Which of the following groups generally has the lowest unemployment rate?

College graduates

When an economy enters a recession the:

Duration of unemployment rises.

Underemployment is defined as:

People seeking full-time paid employment that work only part-time or are employed at jobs below their capability.

The phantom unemployed are:

People who report that they are actively seeking a job even when they have little or no intention of finding one.

When migrant workers seek employment after the crops have been picked, the unemployment rate goes up. This situation is an example of:

Seasonal unemployment.

Nancy returns to school to study medicine. After graduating, she spends six months looking for a job. During this period she is considered:

Frictionally unemployed.

Tom worked at NASA for thirteen years. In the fourteenth year, his job was automated, resulting in him losing his job. He looked for a new job for eighteen months before finding a job that paid less. During his eighteen month job search, Tom was considered to be:

Structurally unemployed.

A U.S. worker who loses his or her job in an import industry because aggregate demand decreases would be classified as, ceteris paribus:

Cyclically unemployed.

Which of the following unemployment categories is most clearly related to the rate of growth in real GDP?


Inflation means:

Average prices are rising, but it is not certain what is happening to relative prices.

Which of the following functions are performed by changes in relative prices but not by changes in average prices?

Signaling changes in the desired mix of output

Which of the following is not true about your nominal income?

It is the same as your real income

The amount of money income received in a given time period, measured in current dollars is:

Nominal income.

Real income is:

Nominal income adjusted for inflation.

Your real income is:

The purchasing power of the money you receive.

Inflation ________________ the purchasing power of money.


Inflation affects production decisions because it:

Causes businesses to focus more on the future.

The uncertainty that results from inflation causes changes in:

Consumption, saving, and investment behavior.

The Consumer Price Index is:

A measure of changes in the average price of consumer goods and services.

To construct the Consumer Price Index, the Bureau of Labor Statistics must:

Find out what people buy with their incomes and how the prices of what they buy change.

If the CPI increases from 110 to 125 for one year, the rate of inflation for that year is:

13.6 percent.

At the beginning of 2000 the CPI was 159.3. At the end of 2000 it was 177.6. What was the approximate rate of inflation in 2000?

11.5 percent

or the CPI, the market basket is expressed in terms of what the goods cost in:

The base period.

The GDP deflator:

s the broadest price index, covering all output.

Real GDP is the:

Value of final output produced, adjusted for changing prices.

Merit goods

a good or service society deems everyone is entitled to some minimal quality, examples are food stamps, housing vouchers, medic aid


tax and transfer payments = payments to individuals for which no current goals or services are exchanged, like social security, welfare and unemployment benefits


a postal service, welfare, social reward

Excise taxes

goods like alcohol and gas

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