Multiple Choice (Identify the best choice) 1. In the study of economics, the overriding reason as to why households and societies face decisions is that a. resources are scarce. b. goods and services are not scarce. C. incomes fluctuate with business cycles. d. people, by nature, tend to disagree. 2. The adage, "There is no such thing as a free lunch," means a. even people on welfare have to pay for food. b. the cost of living is always increasing. C. to get something you have to give something up. d. all costs are included in the price of a product. 3. What you give up to obtain an item is called your a. opportunity cost. b. explicit cost. true cost. d. direct cost. 4. Rational people make decisions at the margin by a. following marginal traditions. b. behaving in a random fashion. C. thinking in black-and-white terms. d. comparing marginal costs and marginal benefits. 5. A marginal change is a a. change that involves little, if anything, that is important. b. large, significant adjustment. C. change for the worse, and so it is usually a short-term change. d. small, incremental adjustment. 6. Communist countries worked under the premise that a. markets were the best way to organize economic activity. b. central government planners were in the best position to determine the allocation of scarce resources in the economy. C. households and firms, guided by an "invisible hand," could achieve the most efficient allocation of scarce resources. d. allowing the market forces of supply and demand to operate with no government intervention would achieve the most efficient allocation of scarce resources. 7. Which of the following observations was made famous by Adam Smith in his book The Wealth of Nations? a. There is no such thing as a free lunch. People buy more when prices are low than when prices are high. No matter how much people earn, they tend to spend more than they earn. d. Households and firms interacting in markets are guided by an "invisible hand" that leads them to desirable market outcomes.Name: ID: A 8. According to Adam Smith, the success of decentralized market economies is primarily due to a. the basic benevolence of society. b. disallowing trade with foreign countries. c. individuals' pursuit of self-interest. d. partnerships that are forged between business and government. 9. It once took 90 percent of our population to grow our food. It now takes only 3 percent. Which is true? a. This loss of jobs has been detrimental to our economy. b. The government should provide subsidies to encourage more people to become farmers. This reduction in the number of farmers explains the increase in the price of food. d. Economists understand this is progress because the proportion of the population that used to be farmers is now employed in other professions. 10. Economists, like mathematicians, physicists, and biologists, make use of the scientific method. b. try to address their subject with a scientist's objectivity. C. devise theories, collect data, and then analyze the data to verify or refute their theories. d. All of the above are correct. 11. Which two groups of decision makers are included in the simple circular-flow diagram? markets and government b. households and government firms and government d. households and firms 12. The production possibilities frontier is a graph that shows the various combinations of output that an economy can possibly produce given the available factors of production and a. society's preferences, b. the available technology. a fair distribution of the output. d. the available demand for the output. 13. Macroeconomics is the study of a. individual decision makers. b. international trade. C. economy-wide phenomena. d. markets for large products. 14. Which of the following areas of study typifies macroeconomics as opposed to microeconomics? a. the effects of rent control on the availability of housing in New York City b. the economic impact of tornadoes on cities and towns in Oklahoma how tariffs on shoes affects the shoe industry d. the effect on the economy of changes in the nation's unemployment rate 15. The forces that make market economies work are a. work and leisure. b. politics and religion. C. supply and demand. taxes and government spending.20. A competitive market is a market in which an auctioneer helps set prices and arrange sales. b. there are only a few sellers. the forces of supply and demand do not apply. d. no individual buyer or seller has any significant impact on the market price. 21. The law of demand states that, other things equal. an increase in price causes quantity demanded to increase. b. a decrease in price causes quantity demanded to increase. an increase in quantity demanded causes price to increase. d. an increase in quantity demanded causes price to decrease. 22. You lose your job and, as a result, you buy fewer romance novels. This shows that you consider romance novels to be a(n) substitute good. b. inferior good. normal good. d. complementary good. Name: ID: A 23. Suppose that when income rises, the demand curve for cheap beer shifts to the left. In this case, we know cheap beer is an: inferior good. b. normal good. C. perfectly competitive good. durable good 24. Suppose a decrease in the price of good X results in fewer units of good Y being sold. Thus, X and Y are complementary goods, normal goods. inferior goods d. substitute goods. 25. If goods A and B are complements, then an increase in the price of good A will result in more of good A being sold. b. more of good B being sold. less of good B being sold. d. no difference in the quantity sold of either good. 26. Ford Motors announced today that next month it will reduce the selling price by $5,000 on new Mustangs, meaning the cars will cost less next month. As a result of this information, today's demand curve for Mustangs a. shifts to the right. shifts to the left. shifts either to the right or to the left will not shift. Figure 4-2Name: ID: A 28. Which of these statements best represents the law of supply, other things equal? When the selling price of a good decreases, sellers produce more of the good, b. When production technology improves, sellers produce less of the good. When the selling price of a good increases, sellers produce more of the good. When sellers' supplies of a good increase, the price of the good increases. 29. A supply schedule is a table that shows the relationship between price and quantity supplied b. input costs and quantity supplied. C. quantity demanded and quantity supplied. d. profit and quantity supplied. 30. An increase in the selling price in the overall market for a product will increase supply (shift to right). b . decrease supply (shift to left). C. increase quantity supplied (move up along curve). d. decrease quantity supplied (move down along curve). 31. If the government increases the minimum wage by $4.00 per hour for bicycle assembly workers (rise in input costs), and firms have no ability to raise the price that consumers pay for bicycles, then it is likely that the demand for bicycle assembly workers will increase. b. supply of bicycles will shift to the right. supply of bicycles will shift to the left. d. firms will not change the supply of bicycles. 32. An advance in production technology will generally a. increase a firm's costs and increase its supply. b. increase a firm's costs and decrease its supply. C. decrease a firm's costs and increase its supply. d. decrease a firm's costs and decrease its supply. 33. At the equilibrium price, the quantity of the good that buyers are willing and able to buy a. is greater than the quantity that sellers are willing and able to sell. b. exactly equals the quantity that sellers are willing and able to sell. is less than the quantity that sellers are willing and able to sell. (a) and (c) could both be correct