Chapter 1—The Art and Science of Economic Analysis
MULTIPLE CHOICE
1. Economics is best defined as the study of how individuals decide to use limited resources in an
attempt to satisfy unlimited wants.
a. True
b. False
ANS: A PTS: 1 DIF: Easy NAT: Analytic
LOC: The study of economics, and definitions of economics
TOP: The Economic Problem: Scarce Resources, Unlimited Wants
2. Economics studies how decision makers use scarce resources to satisfy unlimited wants.
a. True
b. False
ANS: A PTS: 1 DIF: Easy NAT: Analytic
LOC: The study of economics, and definitions of economics
TOP: The Economic Problem: Scarce Resources, Unlimited Wants
3. In economics, money is an example of capital.
a. True
b. False
ANS: B PTS: 1 DIF: Hard NAT: Analytic
LOC: The study of economics, and definitions of economics
TOP: The Economic Problem: Scarce Resources, Unlimited Wants
4. Profit is the payment received by resource owners for the use of their capital.
a. True
b. False
ANS: B PTS: 1 DIF: Moderate NAT: Analytic
LOC: The study of economics, and definitions of economics
TOP: The Economic Problem: Scarce Resources, Unlimited Wants
5. Rent is the payment received by resource owners for the use of their natural resources.
a. True
b. False
ANS: A PTS: 1 DIF: Moderate NAT: Analytic
LOC: The study of economics, and definitions of economics
TOP: The Economic Problem: Scarce Resources, Unlimited Wants
, 6. The fact that people have unlimited wants means that
a. they always want more of at least one good
b. each person has an unlimited desire for every good
c. labor unions demand wage increases
d. selfish people are not concerned about others
e. people buy goods without regard to what they can afford
ANS: A PTS: 1 DIF: Easy NAT: Reflective Thinking
LOC: Scarcity, tradeoffs, and opportunity cost
TOP: The Economic Problem: Scarce Resources, Unlimited Wants
7. The problem of scarce resources
a. means that in some cities there are not enough jobs
b. could be solved if the unemployment rate fell
c. is that there are not enough resources to satisfy people's unlimited wants
d. is that resources are used inefficiently
e. can be solved by lowering taxes
ANS: C PTS: 1 DIF: Easy NAT: Analytic
LOC: Scarcity, tradeoffs, and opportunity cost
TOP: The Economic Problem: Scarce Resources, Unlimited Wants
8. Scarcity is best defined as
a. unlimited resources
b. a shortage -- when buyers cannot obtain the goods they want
c. a surplus -- when sellers cannot sell the goods they produce
d. insufficient resources to satisfy unlimited wants
e. the private ownership of society's resources
ANS: D PTS: 1 DIF: Easy NAT: Analytic
LOC: Scarcity, tradeoffs, and opportunity cost
TOP: The Economic Problem: Scarce Resources, Unlimited Wants
9. Scarcity
a. exists because people have wants that are unlimited relative to the availability of resources
to satisfy those wants
b. applies when a resource is not freely available
c. means that each society and each individual must make choices
d. exists in all societies
e. all of the above are true
ANS: E PTS: 1 DIF: Easy NAT: Analytic
LOC: Scarcity, tradeoffs, and opportunity cost
TOP: The Economic Problem: Scarce Resources, Unlimited Wants
10. Because people's wants are unlimited but resources are scarce,
, a. only the rich get everything they want
b. choices must be made
c. there will be more services produced than goods
d. people search for spiritual fulfillment rather than material fulfillment
e. poor people never get anything they want
ANS: B PTS: 1 DIF: Easy NAT: Analytic
LOC: Scarcity, tradeoffs, and opportunity cost
TOP: The Economic Problem: Scarce Resources, Unlimited Wants
11. Which of the following statements regarding the basic economic problem of scarcity is correct?
a. The problem only exists in countries that are not highly industrialized.
b. The problem is likely to disappear as production increases.
c. The problem is sure to disappear as technology improves.
d. The problem will exist as long as resources are available in limited amounts.
e. The problem will disappear as a person's income falls.
ANS: D PTS: 1 DIF: Easy NAT: Analytic
LOC: Scarcity, tradeoffs, and opportunity cost
TOP: The Economic Problem: Scarce Resources, Unlimited Wants
12. Some individuals or families can become completely saturated with a service such as television.
This suggests that
a. wants are limited
b. desires for a single commodity can be satisfied but then the focus will switch to other
goods and services
c. a highly productive economy may someday be able to satisfy all human desires
d. resources are not truly fixed in supply as we generally assume
e. scarcity does not exist
ANS: B PTS: 1 DIF: Moderate NAT: Reflective Thinking
LOC: Scarcity, tradeoffs, and opportunity cost
TOP: The Economic Problem: Scarce Resources, Unlimited Wants
13. Economics is best defined as the study of how
a. individuals decide to use scarce resources in an attempt to satisfy their unlimited wants
b. to make money
c. the government should deal with unemployment and inflation
d. to eliminate the problem of scarce resources
e. to run a business
ANS: A PTS: 1 DIF: Moderate NAT: Analytic
LOC: The study of economics, and definitions of economics
TOP: The Economic Problem: Scarce Resources, Unlimited Wants
14. Economics is the study of
, a. how to get rich by playing the stock market
b. the best ways to reduce people's wants, given the scarcity of resources
c. how rational government officials determine what goods should be produced
d. money and why it is good
e. how people use limited resources to try to satisfy unlimited wants
ANS: E PTS: 1 DIF: Easy NAT: Analytic
LOC: The study of economics, and definitions of economics
TOP: The Economic Problem: Scarce Resources, Unlimited Wants
15. Which of the following is the best definition of economics?
a. An investigation of the quantities and prices of the various goods produced by the nations
of the world.
b. A study of why inflation and unemployment periodically plague the U.S. economy.
c. An analysis of how individuals and societies deal with the problem of scarcity.
d. An examination of the role that money plays in the economy.
e. A study of how goods and services are distributed throughout the world.
ANS: C PTS: 1 DIF: Easy NAT: Analytic
LOC: The study of economics, and definitions of economics
TOP: The Economic Problem: Scarce Resources, Unlimited Wants
16. Economics is the study of
a. how the human race differs from other species
b. how individuals amass personal fortunes in the stock market
c. how individuals and nations deal with the problem of scarcity
d. role that money plays in the economy
e. how goods and services are distributed throughout the world
ANS: C PTS: 1 DIF: Easy NAT: Analytic
LOC: The study of economics, and definitions of economics
TOP: The Economic Problem: Scarce Resources, Unlimited Wants
17. Economics is best described as the
a. study of choice when scarcity exists
b. study of the production of goods and services
c. theory of consumer behavior
d. science of money
e. art of spending money wisely
ANS: A PTS: 1 DIF: Easy NAT: Analytic
LOC: The study of economics, and definitions of economics
TOP: The Economic Problem: Scarce Resources, Unlimited Wants
18. Michigan has an abundant supply of fresh water. However, an economist would consider it a
scarce resource because
MULTIPLE CHOICE
1. Economics is best defined as the study of how individuals decide to use limited resources in an
attempt to satisfy unlimited wants.
a. True
b. False
ANS: A PTS: 1 DIF: Easy NAT: Analytic
LOC: The study of economics, and definitions of economics
TOP: The Economic Problem: Scarce Resources, Unlimited Wants
2. Economics studies how decision makers use scarce resources to satisfy unlimited wants.
a. True
b. False
ANS: A PTS: 1 DIF: Easy NAT: Analytic
LOC: The study of economics, and definitions of economics
TOP: The Economic Problem: Scarce Resources, Unlimited Wants
3. In economics, money is an example of capital.
a. True
b. False
ANS: B PTS: 1 DIF: Hard NAT: Analytic
LOC: The study of economics, and definitions of economics
TOP: The Economic Problem: Scarce Resources, Unlimited Wants
4. Profit is the payment received by resource owners for the use of their capital.
a. True
b. False
ANS: B PTS: 1 DIF: Moderate NAT: Analytic
LOC: The study of economics, and definitions of economics
TOP: The Economic Problem: Scarce Resources, Unlimited Wants
5. Rent is the payment received by resource owners for the use of their natural resources.
a. True
b. False
ANS: A PTS: 1 DIF: Moderate NAT: Analytic
LOC: The study of economics, and definitions of economics
TOP: The Economic Problem: Scarce Resources, Unlimited Wants
, 6. The fact that people have unlimited wants means that
a. they always want more of at least one good
b. each person has an unlimited desire for every good
c. labor unions demand wage increases
d. selfish people are not concerned about others
e. people buy goods without regard to what they can afford
ANS: A PTS: 1 DIF: Easy NAT: Reflective Thinking
LOC: Scarcity, tradeoffs, and opportunity cost
TOP: The Economic Problem: Scarce Resources, Unlimited Wants
7. The problem of scarce resources
a. means that in some cities there are not enough jobs
b. could be solved if the unemployment rate fell
c. is that there are not enough resources to satisfy people's unlimited wants
d. is that resources are used inefficiently
e. can be solved by lowering taxes
ANS: C PTS: 1 DIF: Easy NAT: Analytic
LOC: Scarcity, tradeoffs, and opportunity cost
TOP: The Economic Problem: Scarce Resources, Unlimited Wants
8. Scarcity is best defined as
a. unlimited resources
b. a shortage -- when buyers cannot obtain the goods they want
c. a surplus -- when sellers cannot sell the goods they produce
d. insufficient resources to satisfy unlimited wants
e. the private ownership of society's resources
ANS: D PTS: 1 DIF: Easy NAT: Analytic
LOC: Scarcity, tradeoffs, and opportunity cost
TOP: The Economic Problem: Scarce Resources, Unlimited Wants
9. Scarcity
a. exists because people have wants that are unlimited relative to the availability of resources
to satisfy those wants
b. applies when a resource is not freely available
c. means that each society and each individual must make choices
d. exists in all societies
e. all of the above are true
ANS: E PTS: 1 DIF: Easy NAT: Analytic
LOC: Scarcity, tradeoffs, and opportunity cost
TOP: The Economic Problem: Scarce Resources, Unlimited Wants
10. Because people's wants are unlimited but resources are scarce,
, a. only the rich get everything they want
b. choices must be made
c. there will be more services produced than goods
d. people search for spiritual fulfillment rather than material fulfillment
e. poor people never get anything they want
ANS: B PTS: 1 DIF: Easy NAT: Analytic
LOC: Scarcity, tradeoffs, and opportunity cost
TOP: The Economic Problem: Scarce Resources, Unlimited Wants
11. Which of the following statements regarding the basic economic problem of scarcity is correct?
a. The problem only exists in countries that are not highly industrialized.
b. The problem is likely to disappear as production increases.
c. The problem is sure to disappear as technology improves.
d. The problem will exist as long as resources are available in limited amounts.
e. The problem will disappear as a person's income falls.
ANS: D PTS: 1 DIF: Easy NAT: Analytic
LOC: Scarcity, tradeoffs, and opportunity cost
TOP: The Economic Problem: Scarce Resources, Unlimited Wants
12. Some individuals or families can become completely saturated with a service such as television.
This suggests that
a. wants are limited
b. desires for a single commodity can be satisfied but then the focus will switch to other
goods and services
c. a highly productive economy may someday be able to satisfy all human desires
d. resources are not truly fixed in supply as we generally assume
e. scarcity does not exist
ANS: B PTS: 1 DIF: Moderate NAT: Reflective Thinking
LOC: Scarcity, tradeoffs, and opportunity cost
TOP: The Economic Problem: Scarce Resources, Unlimited Wants
13. Economics is best defined as the study of how
a. individuals decide to use scarce resources in an attempt to satisfy their unlimited wants
b. to make money
c. the government should deal with unemployment and inflation
d. to eliminate the problem of scarce resources
e. to run a business
ANS: A PTS: 1 DIF: Moderate NAT: Analytic
LOC: The study of economics, and definitions of economics
TOP: The Economic Problem: Scarce Resources, Unlimited Wants
14. Economics is the study of
, a. how to get rich by playing the stock market
b. the best ways to reduce people's wants, given the scarcity of resources
c. how rational government officials determine what goods should be produced
d. money and why it is good
e. how people use limited resources to try to satisfy unlimited wants
ANS: E PTS: 1 DIF: Easy NAT: Analytic
LOC: The study of economics, and definitions of economics
TOP: The Economic Problem: Scarce Resources, Unlimited Wants
15. Which of the following is the best definition of economics?
a. An investigation of the quantities and prices of the various goods produced by the nations
of the world.
b. A study of why inflation and unemployment periodically plague the U.S. economy.
c. An analysis of how individuals and societies deal with the problem of scarcity.
d. An examination of the role that money plays in the economy.
e. A study of how goods and services are distributed throughout the world.
ANS: C PTS: 1 DIF: Easy NAT: Analytic
LOC: The study of economics, and definitions of economics
TOP: The Economic Problem: Scarce Resources, Unlimited Wants
16. Economics is the study of
a. how the human race differs from other species
b. how individuals amass personal fortunes in the stock market
c. how individuals and nations deal with the problem of scarcity
d. role that money plays in the economy
e. how goods and services are distributed throughout the world
ANS: C PTS: 1 DIF: Easy NAT: Analytic
LOC: The study of economics, and definitions of economics
TOP: The Economic Problem: Scarce Resources, Unlimited Wants
17. Economics is best described as the
a. study of choice when scarcity exists
b. study of the production of goods and services
c. theory of consumer behavior
d. science of money
e. art of spending money wisely
ANS: A PTS: 1 DIF: Easy NAT: Analytic
LOC: The study of economics, and definitions of economics
TOP: The Economic Problem: Scarce Resources, Unlimited Wants
18. Michigan has an abundant supply of fresh water. However, an economist would consider it a
scarce resource because
