Q u e s t i o n s

True/False and Explain

Definition of Economics

1. Scarcity is a problem only for the poor.

2. Macroeconomics studies the factors that change national employment and income.

Three Big Microeconomic Questions

3. Answering the question “What goods and services are produced?” automatically answers the question, “How are goods and services produced?”

4. An example of the “how” question is: “How does the nation decide who gets the goods and services that are produced?”

Three Big Macroeconomic Questions

5. “For whom are goods and services produced?” is one of the big macroeconomic questions.

6. A rising cost of living is called inflation.

7. In a business cycle, an expansion follows the peak.

The Economic Way of Thinking

8. Tradeoffs mean that you give up one thing to get something else.

9. There is no such thing as a “how” tradeoff because a business uses only way to produce its products.

10. The output-inflation tradeoff refers to the point that lowering inflation increases output.

11. The opportunity cost of buying a slice of pizza for $3 rather than a burrito for $3 is the burrito.

12. By comparing the cost and benefit of a small change you are making your choice at the margin.

Production Possibilities and Opportunity Cost

13. In Figure 2.4 point a is NOT attainable.

14. In Figure 2.4 the opportunity cost of moving from point b to point c is 10 computers.

15. From a point on the PPF , rearranging production and producing more of all goods is possible.

16. From a point within the PPF , rearranging production and producing more of all goods is possible.

17. Production efficiency requires producing at a point on the PPF .

18. Along a bowed-out PPF , as more of a good is produced, the opportunity cost of producing the good diminishes.

Using Resources Efficiently

19. The marginal cost of the 20th ton of cement equals the cost of producing all 20 tons of cement.

20. As people have more of a product, the product's marginal benefit decreases.

21. Efficiency is achieved by producing the amount of a good such that the marginal benefit of the last unit produced exceeds its marginal cost by as much as possible.

Economic Growth

22. Economic growth is illustrated by outward shifts in the PPF .

23. Increasing a nation's economic growth rate has an opportunity cost.