Chapter 1 and 2 study questions

As a factor of production, the instruction provided by a teacher is considered—

• labor

• capital

• land

• resources

Answer explanation

The instruction provided by a teacher is considered as labor, which is one of the factors of production.

Based on an examination of the graph, what conclusions can you draw about the production possibilities of shoes and watermelons if the output of each is at point “b”?

• Resources for both watermelons and shoes are being ideally utilized, resulting in maximum economic growth.

• Resources for watermelons are being underutilized and resources for shoes are being ideally utilized, resulting in less economic growth than is possible.

• Resources for both watermelons and shoes are being underutilized, resulting in less economic growth than is possible.

• Resources for watermelons are being ideally utilized and resources for shoes are being underutilized, resulting in maximum economic growth.

Answer explanation

Resources for both watermelons and shoes are being underutilized, resulting in less economic growth than is possible.

Julie struggles to decide whether to attend Harvard University or Rutgers University. She finds the prestige and networking possibilities associated with Harvard exciting, but Rutgers has offered her an exceptional financial package. She is using a grid to determine which school to attend. What economic concept is Julie illustrating in her decision making?

• Julie must determine the profitable alternative of choosing Harvard or Rutgers and decide which is most desirable for her.

• Julie must determine the efficiency of choosing Harvard or Rutgers and decide which is most desirable for her.

• Julie must determine the marginal cost of choosing Harvard or Rutgers and decide which is most desirable for her.

• Julie must determine the opportunity cost of choosing Harvard or Rutgers and decide which is most desirable for her.

Answer explanation

Julie must consider the opportunity cost of choosing Harvard or Rutgers to decide which is more desirable for her.

Purchasing a new piece of equipment for one's factory is affecting which factor of production?

• physical capital

• human capital

• natural resources

• entrepreneurship

Answer explanation

Purchasing new equipment affects physical capital, which is a factor of production that includes machinery and tools used in production processes.

Police protection and national defense are examples of what government role in the circular flow model?

• making purchases of land, labor, and capital in the product market

• producing goods and services from factors purchased in the factor market

• contributing to the monetary flow between households and firms in the factor market

• hindering the physical flow of factors between households and firms in the product market

Answer explanation

Police protection and national defense are examples of the government role in the circular flow model that involves producing goods and services from factors purchased in the factor market.

Which economic goal is best achieved as a result of the innovation encouraged by competition in a free market?

• Specialization

• Freedom

• Equity

• Growth

Answer explanation

Competition in a free market encourages innovation, leading to economic growth.

Which of the following is an example of the profit motive as an incentive?

• A shopper chooses a product because of its low price.

• A producer starts a benefits program for workers.

• A consumer engages in a voluntary exchange.

• A business owner expands a factory to make more goods.

Answer explanation

The profit motive is exemplified when a business owner expands a factory to increase production and generate more goods.

What did Karl Marx believe about capitalism?

• that it was the inevitable product of socialism

• that it led to exploitation of workers

• that it was the source of all value

• that it distributed wealth fairly in society

Answer explanation

Karl Marx believed that capitalism led to the exploitation of workers.

Which of the following accurately fills in the missing entry in the chart?

• opportunity cost

• human capital

• physical capital

• Natural resources

Answer explanation

The missing entry in the chart is 'opportunity cost'. It represents the cost of choosing one option over another and is a key concept in economics.

The high-fashion clothing in the photograph best represents the idea of—

• wants

• needs

• opportunity cost

• Human capital

Answer explanation

The high-fashion clothing in the photograph represents wants, as it is a luxury item that satisfies desires rather than needs.