Part I.Multiple Choice Questions

(40 points, 20 questions, 2 points each)

1.Which of the following is the best definition of economics?

A. The study of how individuals and societies choose to use the scarce resources that nature and previous generations have provided.

B. The study of how consumers spend their income.

C.The study of how business firms decide what inputs to hire and what outputs to produce.

D. The study of how the federal government allocates tax dollars.

2. In attempting to answer the WHAT question, a society seeks to:

A. Produce the optimal mix of output.

B. Exploit its workers in order to produce more output.

C. Produce more military goods so that the citizens will be safe.

D. Distribute an equal amount of goods to all citizens.

3. When society searches for the optimal method of producing goods and services, it is responding to the:

A. "WHAT" question.

B. "HOW" question.

C. "FOR WHOM" question.

D. "WHY" question.

4. Land, labor, capital and entrepreneurship are called:

A. Factors of production.

B. Factors of demand.

C. Fixed costs.

D. Variable costs.

5. A price at which the amount people wish to buy exceeds the amount that people wish to produce (given upward-sloping supply curves):

A.lies above the equilibrium market price.

B. lies below the equilibrium market price.

C. will induce a shift in the demand schedule to achieve equilibrium.

D. is impossible.

Figure 1 - Supply and demand