ALLIED ECN150 module 1 Check Your Understanding

Question Points
1. If this
economy devotes all of its resources to the production of toothbrushes, then it
will produce:

a. 0 toothbrushes
and 40 toasters.
b. 35 toothbrushes
and 20 toasters.
c. 70 toothbrushes
and 0 toasters.
d. 70 toothbrushes
and 40 toasters.
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2. Which of
these consumption activities will most likely impose an external cost?
a. An athlete works
out at a gym.
b. A secretary
smokes a cigarette in a crowded break room.
c. a young mother
pushes her baby in a stroller.
d. A construction
worker eats a hotdog during his lunch break.
.
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3. Guns and
butter are used to represent the classic societal tradeoff between spending on:
a. durable and
nondurable goods.
b. imports and
exports.
c. national defense
and consumer goods.
d. law enforcement
and agriculture.
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4. Sir Isaac
Newton’s development of the theory of gravity after observing an apple fall
from a tree is an example of:
a. a controlled
experiment that lead to the formulation of a scientific theory.
b. being in the
right place at the right time.
c. an idea whose
time had come.
d. the interplay
between observation and theory in science.
5. In an
economy in which decisions are guided by prices and individual self-interest,
there is:
a. the potential to
achieve efficiency in production.
b. a strong need for
government intervention in the market.
c. less efficiency
than would be observed in a centrally-planned economy.
d. more need for a
strong legal system to control individual greed than would be needed in a
centrally-planned economy.
6. The
decisions of firms and households are guided by prices and self-interest in a:
a. command economy.
b. centrally-planned
economy.
c. market economy.
d. All of the
choices apply.
7. If this
economy devotes all of its resources to the production of bananas, then it will
produce:

a. 0 bananas and 200
baseballs.
b. 180 bananas and
125 baseballs.
c. 300 bananas and 0
baseballs.
d. 300 bananas and
200 baseballs.
8. A typical
society strives to get the most it can from its scarce resources. At the same
time, the society attempts to distribute the benefits of those resources to the
members of the society in a fair manner. In other words, the society faces a
tradeoff between:
a. guns and butter.
b. efficiency and
equality.
c. inflation and
unemployment.
d. work and leisure.
.
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9. U.S. laws
requiring that drivers wear seat belts have resulted in:
a. a reduction in
both driver deaths and pedestrian deaths.
b. fewer accidents
and fewer deaths per accident.
c. fewer driver
deaths, fewer accidents and fewer pedestrian deaths.
d. little change in
the number of driver deaths, but more accidents and more pedestrian deaths.
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10. Which of
the following is a principle concerning how people interact?
a. Markets are
usually a good way to organize economic activity.
b. Rational people
think at the margin.
c. People respond to
incentives.
d. All of the
choices apply.
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11. Which of
the following is an example of a positive, as opposed to normative, statement?
a. Income tax rates
should not have been cut as they were a few years ago.
b. The quantity of
money has grown too slowly in recent years.
c. When the quantity
of money grows rapidly, inflation is a predictable consequence.
d. All of the above
are positive statements.
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12. A shift of
the economy’s production possibilities frontier from Panel (a) to Panel (b)
could be caused by:

a. unemployment.
b. an improvement in
donut production technology.
c. an improvement in
coffee production technology.
d. an improvement in
both donut and coffee production technology.
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13. When the
government prevents prices from adjusting naturally to supply and demand,
a. it equates the
amount buyers want to buy with the amount sellers want to sell.
b. it adversely
affects the allocation of resources.
c. it improves
equality and efficiency.
d. it improves
efficiency but reduces equality.
14. How did
the influential economist John Maynard Keynes explain his remark that although
economics is an easy subject compared with the higher branches of philosophy or
pure science, it is a subject at which few excel?
a. Most people who
study economics are not very bright.
b. Good economists
must possess a rare combination of gifts.
c. Economics is
quite boring; hence, people tend to lose interest in it before mastering it.
d. Good thinkers
become frustrated with economics because it does not make use of the scientific
method.
15. In the
circular-flow diagram, which of the following items represents a payment for a
factor of production?
a. Interest
b. Capital
c. Spending by
households on goods
d. Spending by
households on services
16. In the
circular-flow diagram:
a. firms are buyers
in the markets for goods and services.
b. households are
sellers in the markets for the factors of production.
c. firms are sellers
in the markets for factors of production and in the markets for goods and
services.
d. dollars that are
spent on goods and services flow directly from firms to households.
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17. In the
circular-flow diagram:
a. factors of
production flow from government to firms.
b. goods and
services flow from households to firms.
c. income paid to
the factors of production flows from firms to households.
d. spending on goods
and services flows from firms to households.
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18. Economic
models:
a. are people who
act out the behavior of firms and households so that economists can study this
behavior.
b. are usually
detailed replications of reality.
c. incorporate simplifying
assumptions that often contradict reality, but also help economists better
understand reality.
d. are useful to
researchers but not to teachers because economic models omit many details of
the real-world economy.
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19. A model
can be accurately described as a:
a. theoretical
abstraction with very little value.
b. device that is
useful only to the people who created it.
c. realistic and
carefully constructed theory.
d. simplification of
reality.
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20. Boxes A and
B of this circular-flow diagram represent:

a. firms and
households.
b. households and
government.
c. the markets for
goods and services and the markets for financial assets.
d. the markets for
goods and the markets for services.