Principles of Economics,

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Principles of Economics, 2 nd edition

© John Wiley & Sons Australia, Ltd 2016 Chapter 1 Modern economics 2

Chapter 1 Modern economics and thinking like an economist

Multiple choice questions

1. A key element of the new economy is:

• the entrance of Generation X into the labour force.
• the replacement of over half of the pre-1980 factories.

*c. the presence of new technologies and the growing role of the internet.

• the change from budget deficits to budget surpluses.
• the inclusion of Microsoft and Intel in the Dow Jones Industrial Average.

General Feedback:

Learning Objective 1. Difficulty: Easy. The new economy is linked to technological changes that have transformed what the global economy produces.

2. The 'new economy' might best be said to result from:

• the foundations laid by Adam Smith in The Wealth of Nations.
• a relatively smaller presence of government during the past two decades.
• the diminished importance of old economy giants such as General Motors and Ford.
• the recent understanding of how economic laws have changed with the advent of computers.

*e. the information revolution facilitated by the internet.

General Feedback:

Learning Objective 1. Difficulty: Hard. The internet has led to profound changes in the global economy.

3. The primary focus of economics is on:

• government decisions about which wants have to go unsatisfied.
• implementing a market system.

*c. choices that must be made.

• rising prices.
• providing consumers with perfect information.

General Feedback:

Learning Objective 1. Difficulty: Easy. Economics studies how individuals, firms, governments and other organisations in our society make choices.

• The numbers of cars, televisions, and pizzas that are produced at any point in time represent an

answer to the basic economic question of:

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Principles of Economics, 2 nd edition

© John Wiley & Sons Australia, Ltd 2016 Chapter 1 Modern economics 3

• how items are produced.

*b. how consumers make choices about which goods are produced and in what quantities.

• who these items are produced for.
• who makes economic decisions.
• which processes guide economic decisions.

General Feedback:

Learning Objective 1. Difficulty: Easy. Economics studies how individuals, firms, governments and other organisations in our society make choices.

• Each of the following is an essential element in an economist's study of choice except:

• trade-offs.
• incentives.
• exchange.
• information.

*e. money.

General Feedback:

Learning Objective 1. Difficulty: Hard. All of these involve some type of choice (or trade-off), except money which is only an indication of value.

6. The primary implication of scarcity is that:

• one should never wait until tomorrow to buy something that is available today.
• government planning is required to determine how resources are to be used.

*c. choices must be made.

• the standard of living will decline over time.
• government planning cannot determine how resources are to be used.

General Feedback:

Learning Objective 1. Difficulty: Medium. Choice is based on the presumption of scarcity, where finite resources are needed to satisfy unlimited wants.

7. Time is:

• not a scarce resource because there is always tomorrow.
• irrelevant to resource allocation decisions.
• a scarce resource for producers, but not consumers.
• a scarce resource for consumers, but not producers.

*e. a scarce resource for everyone.

General Feedback:

Learning Objective 1. Difficulty: Easy. Time is a scarce resource which is a fact of life for everyone. 3 / 4

Principles of Economics, 2 nd edition

© John Wiley & Sons Australia, Ltd 2016 Chapter 1 Modern economics 4

8. Economics is about how individuals and countries:

*a. satisfy unlimited wants with limited resources.

• satisfy limited wants with unlimited resources
• learn how to deal with scarcity by becoming less selfish.
• satisfy unlimited wants with unlimited resources.
• satisfy limited wants with limited resources.

General Feedback:

Learning Objective 1. Difficulty: Medium. Scarcity plays a critical role in economics, and means that trade-offs are a basic fact of life.

9. The fundamental issue of economic analysis is:

• to prove that only market systems can allocate resources.
• to choose the most equitable distribution of income.
• to prove that only planned economies can allocate resources.
• the disposal of unlimited resources.

*e. the choices that must be made because resources are scarce.

General Feedback:

Learning Objective 1. Difficulty: Medium. Scarcity plays a critical role in economics, and means that trade-offs are a basic fact of life.

10. When resources are limited, but wants are unlimited, individuals must:

*a. make choices among available alternatives.

• put the public interest before self-interest.
• become less greedy.
• reduce their expectations.
• become more self-sufficient.

General Feedback:

Learning Objective 1. Difficulty: Medium. Scarcity plays a critical role in economics, and means that trade-offs are a basic fact of life.

• Which of the following provides no avenue for incentives to affect consumer behaviour?

• A reduction in the price of a product
• Increased scarcity of a productive resource
• Safer automobiles
• High-definition television
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