Name: 
 

Unit 1 Review



Matching
 
 
Identifying Key Terms
Match each term with the correct statement below.
a.
standard of living
f.
communism
b.
privatize
g.
laissez faire
c.
economic system
h.
collective
d.
self-interest
i.
product market
e.
safety net
j.
factor payments
 

1. 

level of economic prosperity
 

2. 

the income people receive for supplying such things as land, labor, or capital
 

3. 

a situation in which households purchase the goods and services that firms produce
 

4. 

one’s own personal gain
 

5. 

the doctrine that government generally should not intervene in the marketplace
 

6. 

to sell a state-run firm to individuals
 
 
Identifying Key Terms
Match each term with the correct statement below.
a.
efficiency
g.
shortage
b.
goods
h.
opportunity cost
c.
trade-off
i.
underutilization
d.
production possibilities graph
j.
labor
e.
scarcity
k.
factors of production
f.
services
 

7. 

physical objects that can be exchanged
 

8. 

use of fewer resources than the economy is capable of using
 

9. 

actions or activities that one person performs for another
 

10. 

paid effort that people devote to a task
 

11. 

limited quantities of resources to meet unlimited needs or desires
 
 
a.
opportunity cost
d.
scarce goods
b.
scarcity
e.
utility maximization
c.
free goods
 

12. 

That condition in which there is not enough of a good for everyone to have all that is wanted for a price of $0 is ______.
 

13. 

What one must give up to get that which one wants is _____.
 

14. 

This is what economists call it when a person compares two or more alternatives and chooses that alternative with the lowest opportunity cost.  Getting the most usefulness from a scarce resource.
 

15. 

As in economics class are ____.
 

16. 

Tumbleweeds in the field in West Texas are ________.
 

Short Answer
 

17. 

According to Figure 2.1, what does the lower line of monetary flow, marked “2,” show?
 
 
Interpreting a Circular Flow Diagram

Circular Flow Diagram of a Market Economy
unit1_review_files/i0230000.jpg
Figure 2.1
 

18. 

What does the upper half of Figure 2.1, marked “1,” represent?
 

Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
 

19. 

If the Department of Defense hires only volunteers, the armed forces will be staffed predominantly by people who
a.
are incompetent.
d.
have no better opportunities available.
b.
want to serve more than they want to make money.
e.
care principally about money.
c.
are patriotic.
 

20. 

The purpose of a production possibilities graph is to
a.
make it possible to increase an economy’s output.
b.
keep an economy from having nonproductive workers.
c.
show alternative ways to use an economy’s resources.
d.
enable a country to mobilize to win a war.
 

21. 

Wealthy people are more likely than poor people to use airplanes rather than busses for interurban travel because
a.
they can better afford to use a higher-cost mode of transportation.
c.
they are more likely to ignore the relative costs of busses and airplanes.
b.
traveling by airplane usually costs them less than traveling by bus.
d.
their demand for transportation is more elastic.
 

22. 

What is the opportunity cost of a decision?
a.
the series of alternative decisions that could have been made
b.
the most desirable alternative given up for the decision
c.
the best possible way the question could have been decided
d.
the different ways that a different person might have made the decision
 

23. 

What is the product market?
a.
the market in which firms purchase the factors of production from households
b.
the market in which income is received for supplying land, labor, or capital
c.
the market in which households purchase the goods and services that firms produce
d.
the market in which payments are received for selling products to consumers
 

24. 

Imagine you decide to purchase a soccer ball for $35.00. Which of the following is an opportunity cost of your decision?
a.
the time spent making the purchase and the tax paid on the ball
c.
something else you wanted that could have been bought for $35.00
b.
$35.00 in cash
d.
the time spent deciding to spend your money on a soccer ball
 

25. 

Blaming the scarcity of Corvettes in the student parking lot on their price is like blaming the heat outside on the thermometer.  This is true because ____________.
a.
It’s silly to think that high prices discourage consumption.
c.
Corvettes are naturally scarce
b.
Prices reflect scarcity rather than cause it.
d.
GM doesn’t make enough Corvettes or thermometers.
 
 
unit1_review_files/i0330000.jpg
 

26. 

What is the opportunity cost of buying one Big Mac?
a.
four french fries
c.
two french fries
b.
one french fries
d.
three french fries
 

27. 

What is the fundamental error in the suggestion that prices be based on costs rather than on supply and demand?
a.
Supply and demand determine costs.
d.
This would be less efficient than basing prices on supply and demand.
b.
People cannot be compelled to base prices on costs.
e.
Costs, unlike supply and demand, are based on subjective factors.
c.
People should be free to set whatever prices they prefer.
 

28. 

A country’s production possibilities increase because the available workers become more skilled at using a computer. This is an example of growth caused by
a.
global resources
c.
production opportunity
b.
technology
d.
physical capital
 

29. 

Karen loves butter and thinks that margarine tastes like soap.  Jay can’t tell the difference.  The opportunity cost of buying margarine is higher for ____________.
a.
Karen
c.
Jay, unless he pays more for butter
b.
Neither. They’ll both pay the same price.
d.
Jay
 

30. 

What is the struggle among various producers for the consumer’s business called?
a.
incentive
c.
socialism
b.
self-regulation
d.
competition
 

31. 

The opportunity cost of attending college might best be described as _____________.
a.
the minimum wage rate
c.
the highest-valued alternative use of a student’s time
b.
the lowest-valued alternative use of a student’s time
d.
the value that the student attaches to not working
 

32. 

Which of the following was a free market philosopher?
a.
Vladimir Lenin
c.
Friedrich Engles
b.
Karl Marx
d.
Adam Smith
 

33. 

Which of the following is NOT a key economic question?
a.
How should it be ensured that goods and services are paid for?
b.
What goods and services should be produced?
c.
Who consumes these goods and services?
d.
How should these goods and services be produced?
 

34. 

The cost to a cab driver of taking the day off increases when
a.
there are lots of other cabs out on the streets.
d.
the weather is so pleasant everyone prefers to walk.
b.
more cabs enter the business.
e.
the price of gasoline rises.
c.
it rains.
 

35. 

An efficient economy is one that
a.
has very few people who do not work for a living.
b.
uses its resources to make the most goods and services.
c.
makes the best use of all its goods and services.
d.
makes the least costly use of its resources.
 

36. 

In what kind of an economy does the government make all the decisions?
a.
centrally planned
c.
socialist
b.
free enterprise
d.
laissez faire
 

37. 

Which of the following is characteristic of a traditional economy?
a.
They have a high standard of living.
b.
Children tend to have the same jobs as their parents did.
c.
Communities tend to be fast-growing.
d.
They are usually based on light industrial production.
 

38. 

Why is the graph of a production possibilities frontier a curved line?
a.
Utopia is better at butter than guns
c.
Opportunity costs are constant.
b.
Utopia is better at guns than butter.
d.
Opportunity costs vary.
 

39. 

Why does even a free market economy need some government intervention?
a.
so that the government has some control over factor resources
b.
to provide for things that the marketplace does not address
c.
to ensure that the government has the freedom to tax as necessary
d.
to make sure that the government can fulfill its needs for military personnel
 

40. 

Why do multinational corporations typically pay vastly different wage rates for the same work in different countries?
a.
Supply and demand determine wage rates in some countries but not in others.
c.
Unions exist in some countries but not in others. 
b.
The cost of living is much lower in some countries than in others.
d.
Prospective employees have much better alternative opportunities in some countries than in others.
 

41. 

The law of increasing costs means that when an economy increases the production of one item
a.
the production costs will increase also.
b.
the opportunity cost goes up.
c.
the actual cost of making the item goes down.
d.
the actual cost goes up but the opportunity cost goes down.
 

42. 

What is a factory building an example of?
a.
human capital
c.
an economic trade-off
b.
physical capital
d.
technology
 

43. 

The opportunity-cost theory suggests that the cost to an airline of letting its employees fly at no charge
a.
is zero.
c.
is greater around the Christmas holidays.
b.
depends upon the alternatives available to the employees.
d.
will depend upon the value employees place upon travel.
 

44. 

What is an important advantage of a free market?
a.
It protects the less fortunate.
b.
It does not change unless the government directs it.
c.
It offers a wide variety of goods and services.
d.
It is easy to regulate.
 

45. 

Soybeans and field corn can be grown in the same field.  If the price which farmers get for field corn goes up, then one would expect there to be ________ soybeans grown.
a.
less
b.
more
 

46. 

The resources used to make all goods and services are the
a.
production possibilities.
c.
production trade-offs.
b.
factors of production.
d.
opportunity costs.
 

47. 

Any resources that are made by humans and used to create other goods and services are called
a.
production.
c.
services.
b.
capital.
d.
labor.
 
 
unit1_review_files/i0560000.jpg
 

48. 

At which point on the frontier is the production of extra guns “cheapest?”
a.
e
d.
a
b.
c
e.
b
c.
d
 



 
Check Your Work     Reset Help