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Economics Chapter 1

True/False
Indicate whether the sentence or statement is true or false.
 

1. 

If everyone in the world were rich, scarcity would not exist.
 

2. 

Capital, combined with land and labor, increases the value of all three factors of production.
 

3. 

Doctors, hairdressers, and Web page designers all perform services.
 

4. 

Shortages are always temporary.
 

5. 

Entrepreneurship does not involve risk.
 

6. 

Personal opinions and beliefs may influence how an economist views facts and applies them to theories.
 

7. 

All economists generally agree on the best solution to a problem.
 

8. 

Much of the work of economists involves predicting human behavior.
 

9. 

The theories that economists use are called economic models.
 

10. 

When applying models to real life, economists must take into account all factors that may influence people's behavior.
 

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

11. 

The need to make choices arises because
a.
some things are not limited.
c.
everything that exists is limited.
b.
shortages are a constant situation.
d.
people need to share their resources.
 

12. 

The basic problem of economics is
a.
scarcity.
c.
lack of choice.
b.
shortages.
d.
overabundance of resources.
 

13. 

To an economist, a want is
a.
something you do not have.
b.
something you must have to survive.
c.
something other than a basic survival need.
d.
something most people have.
 

14. 

The four factors of production are the resources of land, labor, capital, and
a.
productivity.
c.
technology.
b.
entrepreneurship.
d.
services.
 

15. 

As an economic term, land includes
a.
work people do.
c.
natural resources.
b.
machinery.
d.
knowledge.
 

16. 

All economic choices involve
a.
trade-offs.
c.
destruction of resources.
b.
shortages.
d.
tax dollars.
 

17. 

What trade-off is involved when you buy a CD?
a.
exchanging time for money
c.
exchanging one service for another
b.
exchanging money for goods
d.
exchanging goods for services
 

18. 

In a trade-off, opportunity cost is the value of the
a.
factors of production.
c.
action that was chosen.
b.
scarce resources.
d.
next best alternative.
 

19. 

Which of the following is a visual aid that helps a business determine how best to use its resources?
a.
opportunity cost
c.
trade-off
b.
production possibilities curve
d.
scarcity
 

20. 

The amount of military goods given up in a year is the opportunity cost for producing
a.
more weapons.
c.
more civilian goods.
b.
a balanced budget.
d.
a production possibilities curve.
 

21. 

The first step in creating an economic model is to
a.
evaluate the data.
c.
define the problem.
b.
form a generalization.
d.
state a hypothesis.
 

22. 

Economic models are useful because they
a.
show the way people react to changes in the economy.
b.
provide every detail about a problem to be studied.
c.
judge the value of economic events.
d.
make testing hypotheses unnecessary.
 

23. 

Why can't economic models judge whether policies are good or bad?
a.
Models are not good enough.
b.
Judgments depend on values.
c.
Models are not based on fact.
d.
Economists do not test their hypotheses.
 

24. 

Different schools of economic thought exist because
a.
economics deals with values.
b.
political leaders determine economic theories.
c.
personal beliefs influence how economists apply facts to theories.
d.
economists evaluate different kinds of data.
 

25. 

Which of the following describes what economists do?
a.
predict which policies will be good or bad
b.
offer solutions to economic problems
c.
consider every detail of a problem
d.
rely on public opinion
 

Completion
Complete each sentence or statement.
 

26. 

Individuals, families, businesses, and nations make ____________________ when they use their resources in one way and not another.
 

 

27. 

Economists describe trade-offs in terms of the ____________________ of what a person gives up in order to get something else.
 

 

28. 

The ____________________ is the value of the next best alternative that had to be given up to do the action that was chosen.
 

 

29. 

If you choose to buy a CD instead of a shirt, the shirt is the ____________________.
 

 

30. 

A business might use a _________________________ to determine the maximal combinations of goods it can produce from a fixed amount of resources in a given time period.
 

 

Matching
 
 
Match each item with the correct statement below.
a.
economics
b.
labor
c.
goods
d.
capital
e.
technology
 

31. 

human effort directed toward producing goods and services
 

32. 

previously manufactured goods used to make other goods and services
 

33. 

the study of how individuals and societies make choices about ways to use scarce resources to fulfill their needs and wants
 

34. 

advance in knowledge leading to new and improved goods and services and better ways of producing them
 

35. 

tangible objects that can satisfy people's wants
 
 
Match each item with the correct statement below.
a.
trade-off
b.
opportunity cost
c.
production possibilities curve
d.
guns versus butter
e.
time
 

36. 

a scarce resource
 

37. 

graph showing the maximal combinations of goods and services that can be produced from a fixed amount of resources in a given period of time
 

38. 

sacrificing one good or service to purchase or produce another
 

39. 

value of the next best alternative given up for the alternative that was chosen
 

40. 

production possibilities involving choices between military defense and civilian goods
 
 
Match each item with the correct statement below.
a.
economy
b.
economic model
c.
hypothesis
d.
constant factors
e.
values
 

41. 

an assumption involving two or more variables that must be tested for validity
 

42. 

the production and distribution of goods and services in a society
 

43. 

the beliefs or characteristics that a person or group considers important
 

44. 

a theory or simplified representation that helps explain and predict economic behavior in the real world
 

45. 

everything in an economic model except the variables being analyzed
 



 
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