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Chapter 1 test study guide
1. The situation in which some necessities have little value while some non-necessities have a much
higher value is known as?
2. Manufactured goods needed to produce other goods and services are called?
3. To arrive at an economic decision, a decision-making grid may be used to evaluate what?
4. Division of labor is a characteristic of what?
5. The study of economics is important because it enables us to?
6. “It is the maxim of every prudent master of a family, never to attempt to make at home what it will
cost him more to make than to buy. The ta[i]lor does not attempt to make his own shoes, but buys
them of the shoemaker. The shoemaker does not attempt to make his own clothes, but employs a
ta[i]lor.... All of them find it [in their best interests] to employ their whole industry in a way in
which they have some advantage over their neighbours, and to purchase...whatever else they have
occasion for.”Source: Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, 1776
* What economic concept is Adam Smith describing in this passage?
7. In this production possibilities frontier, what could cause production to move from point a to point
e?
8. The dollar value of all final goods, services, and structures produced within a country’s borders in a
single year is called what?
9. A popular model used to illustrate the concept of opportunity cost is?
10. Entrepreneurs are considered the driving force in an economy because they do what?
11. Actions in one part of the country or world that have an economic impact on what happens
elsewhere are examples of what?
12. Which of the following choices best describes what this production possibilities frontier is
depicting?
13. In the production possibilities frontier shown in this graph, what could cause production to move
from point b to point d?
Chinese Standard of Living
Year
1989
1997
2003
Annual per capita
disposable income
(urban, in US$)
146
503
785
Color TV sets
per 100 urban
households
51.5
100.5
130.5
Mobile
telephones
1.0
9.1
44.2
14.
Source: China Statistical Yearbook, 2004
14. What does this table show about China’s standard of living?
Percentage entering
secondary school
from middle school
38.3
51.5
60.2
15. What factor of production do these images illustrate?
16. In the time period covered by the production possibilities curve, the company decides to make 4
gallons of red paint. How many gallons of blue paint can the company make with the available time
and resources?
17.
What factor of production do these images illustrate?
18. Research has long demonstrated the educational value of early intervention for America’s at-risk
children, but a new study also shows the federal programs are a wise public investment.
[A] cost-benefit analysis of the federally funded Chicago Child-Parent Center program, which
serves children from low-income families in Chicago’s inner city [shows that] an average annual
cost of $6,730 per child...generated a total return to society at large of $47,759 per participant.
a.
Source: “Cost Benefit Analysis,” AScribe Newswire, June 26, 2001
* In the cost-benefit analysis described in the passage, who are the investors?
19. Too much marketing today focuses on awareness rather than reasons to buy. In the old days,
awareness advertising was more effective. There was less competition. All you had to worry about was
whether or not people remembered your product. As technology and more kinds of media have come
about, it’s no longer enough to be remembered. The consumer has too many choices. Your marketing has
to send the message that you are relevant. You need to be sending reasons to buy.
Source: Business Week, June 7, 1999
* This passage advises advertisers to focus on the economic concept of What?
19.
In the diagram, what should appear in place of the question mark?
20. How is it possible for a good to be both a capital good and a consumer good?
21. The Ferrets professional baseball team has only enough money to sign either one superstar or three
young players. The superstar could help the team win the championship this year but would not be
with the team long. The young players are talented but not yet ready for the major leagues.
*If the Ferrets decide to sign the young players, what trade-off would they be making?
22. What trade-off is the king making in this cartoon?
23. Why is cost, measured in dollars alone, an insufficient measure of value? What concept do
economists use to better evaluate a decision? Why is it important?
24.
*According to the graph, could this country produce $6 billion worth of military
goods and $5 billion worth of civilian goods? Explain.