Final Exam

The crucial problem of economics is

• establishing a fair tax system 
• providing social goods and services
• developing a price mechanism that reflects the relative scarcities of products and resources 
• allocating scarce productive resources to satisfy unlimited wants 

Which of the following is true if the production possibilities curve is a curved line concave to the origin? 

• Resources are perfectly suitable between the production of the two goods 
• It is possible to produce more of both products 
• The prices of the two products are the same
• As more of one good is produced, increasing amounts of the other good must be given up 

To be considered scarce, an economic resource must be 

• limited but not free or desirable 
• limited and free, but not desirable 
• limited and desirable, but not free
• limited, free, and desirable 

Which of the following problems do all economic systems face? 
I. How to allocate scarce resources among unlimited wants
II. How to distribute income equally among all the citizens
III.How to decentralize markets 
IV. How to decide what to produce, how to produce, and for whom to produce

• I and IV only
• I only
• II and III only 
• I, II, and IV only 

A downward sloping demand curve can be explained by 
I. diminishing marginal utility
II. diminishing marginal returns
III. the substitution effect 
IV. the income effect 

• I only 
• II only 
• I and III only 
• I, III, and IV only 

If hot dogs are an inferior good, an increase in income will result in 

• an increase in the quantity demanded for hot dogs
• an increase in the demand for hot dogs 
• a decrease in the demand for hot dogs
• no change in the demand for hot dogs 

Which of the following statements about price controls is true? 

• A price ceiling causes a shortage if the ceiling price is above the equilibrium 
• A price floor causes a surplus if the price floor is below the equilibrium price 
• A price ceiling causes a decrease in demand if the price floor is set above the equilibrium price 
• Price ceilings and price floors result in a misallocation of resources 

In the circular flow diagram, which of the following is true in the product market?

• Households sell goods and services to business firms 
• Households sell resources to business firms 
• Business firms sell resources to households 
• Business firms sell goods and services to households 

Which of the following is the best measure of the production (output) of an economy? 

• Consumer price index
• Unemployment rate 
• Gross domestic product 
• Prime rate 

The labor force includes those who are 

• Less than 16 years of age
• in mental institutions 
• not seeing work 
• employed