Test Bank For The Exploration of Economics International Edition 5th Edition by Robert L. Sexton

Chapter 3—Scarcity, Trade-Offs and Production Possibilities

TRUE/FALSE

1.In a market economy, government officials make most production decisions in a centralized manner.

ANS: F PTS: 1

2.Consumer sovereignty means that consumers vote with their dollars in a market economy, which helps determine what is produced.

ANS: T PTS: 1

3.In a market economy, prices help determine the distribution of goods and services but not the allocation of resources.

ANS: F PTS: 1

4.An increase in production of one good will have zero opportunity cost only if the economy initially existed at a point inside the production possibilities curve.

ANS: T PTS: 1

5.Capital-intensive production techniques tend to be utilized most commonly in countries where labor is relatively cheap.

ANS: F PTS: 1

6.High wage countries like the United States tend to use less labor-intensive production methods than low wage countries like Mexico.

ANS: T PTS: 1

7.An economy that has many unemployed workers and idle factories is not operating efficiently.

ANS: T PTS: 1

8.The production possibilities curve marks the boundary between attainable and unattainable combinations of output.

ANS: T PTS: 1

9.Any output combination outside the production possibilities curve is attainable in the current period only if prices decrease.

ANS: F PTS: 1

10.A decrease in the unemployment rate will shift an economy’s production possibilities curve outward.

ANS: F PTS: 1

11.An increase in available resources will tend to cause a society’s production possibilities curve to shift inward.

ANS: F PTS: 1

12.An improvement in technology will tend to cause a society’s production possibilities curve to shift outward.

ANS: T PTS: 1

13.The opportunity cost of a particular good tends to increase with its rate of output because some resources cannot be easily adapted from the production of one good or service to another.

ANS: T PTS: 1

14.The production possibilities curve for an economy that experiences a constant opportunity cost of production is linear (a straight line).

ANS: T PTS: 1

15.The law of increasing opportunity costs implies that a society’s production possibilities curve will be a straight line.

ANS: F PTS: 1

16.Movement from one point on the production possibilities curve to another leads to more of both goods being produced.

ANS: F PTS: 1

17.An increase in an economy’s capital stock increases its future productive capacity.

ANS: T PTS: 1

18.Other things being constant, an economy must give up some consumer goods and services today to produce more capital goods in order to grow.

ANS: T PTS: 1

19.Capital accumulation causes the production possibilities curve to shift inward over time.

ANS: F PTS: 1

20.A straight line production possibilities curve implies increasing opportunity costs.

ANS: F PTS: 1

MULTIPLE CHOICE

1.A market economy answers the question “what” goods will be produced by focusing on

a.	dollar votes.
b.	consumer sovereignty.
c.	least-cost method of production.
d.	who can afford these goods.
e.	both a. and b. above

ANS: E PTS: 1

2.A market economy answers the question “how” will goods be produced by focusing on

a.	dollar votes.
b.	consumer sovereignty.
c.	least-cost method of production.
d.	who can afford these goods.
e.	both a. and b. above

ANS: C PTS: 1

3.Which of the following is not a question that scarcity forces all societies to answer?

a.	Which goods and services are to be produced?
b.	How are goods and services to be produced?
c.	Who will get the goods and services produced?
d.	How can scarcity be eliminated?

ANS: D PTS: 1

4.Three economic questions must be determined in all societies. What are they?

a.	How much will be produced? When will it be produced? How much will it cost?
b.	What will the price of each good be? Who will produce each good? Who will consume each good?
c.	What is the opportunity cost of production? Does the society have a comparative advantage in production? Will consumers desire the goods being produced?
d.	What goods will be produced? How will goods be produced? Who will get the goods produced?

ANS: D PTS: 1

5.A market system:

a.	produces answers to a society’s “what” and “who” questions, but not the “for whom” question.
b.	produces answers to a society’s “what” and “for whom” questions, but not the “how” question.
c.	produces answers to a society’s “how” and “for whom” questions, but not the “what” question.
d.	produces answers to a society’s “what,” “how,” and “for whom” questions.
e.	does none of the above.

ANS: D PTS: 1

6.Which concept explains how individual consumers in market economies determine what is to be produced?

a.	competition
b.	consumer sovereignty
c.	decentralized decision-making
d.	free enterprise

ANS: B PTS: 1

7.A market economy depends on market mechanisms to:

a.	determine the most efficient way of using resources.
b.	determine how large the government’s budget deficit should be.
c.	decide how much government regulation there should be.
d.	provide everyone with a minimum level of income.
e.	do all of the above.

ANS: A PTS: 1

8.In a market economy, the goods produced go to those who(m):

a.	have sufficient income and are willing to pay the price asked for those goods.
b.	the government views as best suited for consumption.
c.	business firms choose to favor.
d.	desire the goods the least.
e.	need them the most.

ANS: A PTS: 1

9.When collective decision making is utilized to resolve economic questions regarding the allocation of resources, then:

a.	everyone will receive an equal share of the output produced.
b.	the preferences of individuals are of no importance.
c.	economic efficiency will be assured.
d.	the role of markets will be replaced by political decision making.

ANS: D PTS: 1

10.A system of economic organization in which the ownership and control of productive capital assets rests with the state and resources are allocated through central planning and political decision making is called:

a.	a market economy.
b.	a command economy.
c.	a corporate economy.
d.	capitalism.
e.	a unified economy.

ANS: B PTS: 1

11.In a command economy, decisions about how to allocate resources are made:

a.	based upon tradition.
b.	by a central planning board.
c.	by individuals and firms interacting in markets coordinated by a price system.
d.	by a lottery system.

ANS: B PTS: 1

12.The economic system of which of the following countries can be treated as an example of a command economy?

a.	United States
b.	Canada
c.	United Kingdom
d.	Cuba

ANS: D PTS: 1

13.Which of the following best distinguishes a “command economy” from a “market economy?”

a.	A command economy is more efficient than a market economy because decision making is centralized.
b.	There is scarcity in command economies, but not in market economies.
c.	Command economies are less prone to inflation than are market economies.
d.	Production and distribution decisions are made by central planners in a command economy, but not in a market economy.
e.	In a command economy, decisions are made using normative economic analysis, whereas in a market economy decisions are made using positive economic analysis.

ANS: D PTS: 1

14.In a market economy, resources are allocated:

a.	by central planners using a price system.
b.	by decentralized planners at the local level.
c.	by individual decision makers responding to market prices.
d.	by government bureaucracies because of the absence of a price system.

ANS: C PTS: 1

15.Which of the following is an example of a pure market economy?

a.	Russia
b.	United States
c.	Switzerland
d.	Singapore
e.	No nation has a pure market economy

ANS: E PTS: 1

16.The use of large amounts of labor relative to capital in an economy indicates:

a.	labor-intensive production.
b.	capital-intensive production.
c.	that wage rates will be relatively high.
d.	that hand-made goods are of better quality than machine-made goods.

ANS: A PTS: 1

17.Countries with high labor costs tend to:

a.	rely on only one method for the production of goods.
b.	use more labor rather than capital in the production process.
c.	use more capital rather than labor in the production process.
d.	be relatively poor countries.

ANS: C PTS: 1

18.Which of the following is considered to be the best method of production?

a.	Capital-intensive method
b.	Least-cost method
c.	Labor-intensive method
d.	Scarce resource method

ANS: B PTS: 1

19.The circular flow of economic activity is a model of the:

a.	flow of goods, services, and payments between households and firms.
b.	influence of government on business behavior.
c.	role of unions and government in the economy.
d.	interaction among taxes, prices, and profits.
e.	economy’s banking system.

ANS: A PTS: 1

20.In the graph of the circular flow model below, area B represents

a.	product markets.
b.	firms.
c.	factor markets.
d.	households.

ANS: D PTS: 1

21.In the circular flow model:

a.	households receive income from businesses in exchange for providing inputs and use that income to buy goods and services from businesses.
b.	businesses receive revenues from households in exchange for providing goods and services and use those revenues to buy inputs from households.
c.	households receive revenue for selling goods and services to businesses, and use that revenue to buy inputs from businesses.
d.	Both a. and b. are correct.

ANS: D PTS: 1

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Test Bank For The Exploration of Economics International Edition 5th Edition by Robert L. Sexton