Economics Unit 1 Exam
Scarcity and Economic Reasoning
Multiple Choice (2 points each)
Identify the choice that best completes the statement or answers the question.
Directions: Use the chart below to answer questions 1 and 2.
Options
Work 1 hour
Work 2 hours
Work 3 hours
Work 4 hours
Work 5 hours
Decision Making at the Margin
Benefits
Opportunity Costs
1 hour’s pay
1 hour of study or recreation time
2 hours’ pay
2 hours of study or recreation time
3 hours’ pay
3 hours of study or recreation time
4 hours’ pay
4 hours of study or recreation time
5 hours’ pay
5 hours of study or recreation time
1. Jed has one hour available after school each weekday. The rest of the afternoon is taken up by other activities. He
is evaluating what to do with those 5 hours. According to the chart, which option has the least benefit?
a. working 1 hour
b. working 2 hours
c. working 4 hours
d. working 5 hours
2. If Jed chooses to work for the most pay, what is his opportunity cost?
a. 4 hours’ pay
c. 5 hours of study or recreation time
b. 1 hour study or recreation time
d. 3 hours’ pay
3. A factory building is an example of which factor of production?
a. labor
b. human capital
c. physical capital
d. land
4. Which of the following lists of factors of production would an economist categorize as land?
a. factories, office buildings, assembly lines, workers
b. farm fields, tractors, pesticides, fertilizers
c. dams, bridges, rock quarries, oil wells
d. iron ore, natural gas, fertile soil, water
5. All goods and services are scarce because
a. greedy people want too many goods.
b. resources are limited.
c. things are either needs or wants.
d. some goods cost more than others.
6. In what kind of an economy does the government make all the decisions?
a. mixed
b. laissez-faire
c. centrally planned
d. free enterprise
7. An economy that is producing below the maximum amount of goods and services possible is considered
a. growing.
b. trading off.
c. inefficient.
d. efficient.
8. Which of the following people is an entrepreneur?
a. a person who starts a cleaning supplies business
b. a highly-paid singer
c. a highly-paid computer programmer
d. a person who teaches courses at a college
9. Who owns the factors of production?
a. households
b. individuals
c. the market
d. firms
10. What does a circular flow model of a market economy show?
a. how households and firms exchange money, resources, and products
b. how households and firms need the same resources at the same time
c. how firms control employee wages and salaries
d. how households choose the goods and services they buy
11. What “invisible hand” regulates the free market economy?
a. specialization
b. competition between firms
c. incentive and efficiency
d. competition and self-interest
12. Which of the following is a summary of the three key economic questions?
a. When, where, and by whom should goods and services be produced?
b. How, when, and from whom should comsumers get what they want?
c. Who will buy which goods and services, and how much will they pay?
d. What goods and services should be produced, how, and for whom?
13. The law of increasing costs means that as production shifts from one item to another,
a. the cost of producing an item stays the same no matter how many are produced.
b. the cost of production gets cheaper and cheaper.
c. more and more resources are needed to produce the second item.
d. the cost of land rises faster than the cost of labor.
14. If you choose between two summer jobs, what is the one you do not choose, or your next best choice, called?
a. trade-off
b. decision at the margin
c. opportunity cost
d. opportunity at the margin
15. The economic concept of guns or butter means that
a. a company must decide whether to manufacture guns or butter.
b. a government can buy unlimited military and civilian goods if it is rich enough.
c. a government must decide to produce more or less military or consumer goods.
d. a person can spend money on either sports equipment or food.
16. What is the product market?
a. the market in which households purchase the goods and services that firms produce
b. the market in which income is received for supplying land, labor, or capital
c. the market in which governments collect taxes from firms and consumers
d. the market in which firms purchase the factors of production from households
17. What line on a production possibilities curve shows the amounts of goods produced?
a. production possibilities frontier
b. opportunity cost line
c. utilization of resources
d. maximum possible production line
18. What is the difference between a shortage and a scarcity?
a. A shortage is a lack of all goods and services; scarcity concerns a single item.
b. A shortage can be temporary or long-term, but scarcity always exists.
c. A shortage results from rising prices; scarcity results from falling prices.
d. There is no real difference between a shortage and a scarcity.
19. Which of the following best describes the economy of the United States?
a. mixed, but more like a free market
b. free market
c. mixed, but more centrally planned
d. centrally planned
20. In the production of paper, trees (in their basic form) are categorized under which factor of production?
a. labor
c. capital
b. entrepreneurship
d. land
21. In the production of the Eiffel Tower, the knowledge that the architect had in creating the blue print is categorized
as which factor of production?
a. human capital
c. labor
b. physical capital
d. land
22.
Which type of economic system is illustrated in the circular flow model above?
a. free market
c. mixed
b. centrally planned
d. None of the answers are correct.
23.
Which of the following best describes the arrow labeled “a.” in the graph?
a. government purchases
c. taxes
b. factors of production
d. entitlements
Short Answer ( 7 points each )
24. List the following countries in order, starting with the most centrally planned and ending with the most free
market: China, North Korea, Singapore, South Africa, United States.
25. What is economics?
Essay ( 10 points each )
Directions: When considering this question, think about what you have learned about what economics is from
your textbook, class work, and other sources.
26. How can we make the best economic choices?
27. How does a society decide who gets what goods and services?
28. Choosing a specific product, explain how an entrepreneur uses all of the factors of production.
29. Production Possibilities Frontier ( 10 points )
This is a two part question. Be sure to complete both parts.
A. Draw a production possibilities curve for automobiles and missiles using the data above.
B. If the economy is at scenario C, what is the cost of one more automobile?
Scenario
Automobiles
Missiles
A
0
30
B
2
27
C
4
21
D
6
12
E
8
0
Economics Unit 1 Exam
Scarcity and Economic Reasoning
Answer Section
MULTIPLE CHOICE
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A
C
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C
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A
A
A
D
D
C
C
C
A
A
B
A
D
A
C
C
SHORT ANSWER
24. North Korea, China, South Africa, United States, Singapore
25. Economics is the study of how individuals, businesses and governments make decisions about resources.
ESSAY
26. A strong answer will mention some of these ideas: the effect of limited resources, trade-offs, costs and benefits,
decision-making grids, and production possibilities. You may wish to refer to the EQ Journal and to your textbook
to guide you in the evaluation of student essays.
27. A strong answer will provide a thesis statement and evidence to support a thesis; in addition, it will use correct
spelling, grammar, and punctuation. It will address some of the following points: the three basic economic
questions, social values, markets, differences among economic systems, and the rise of mixed economies. You may
wish to refer to the Essential Questions Journal and to your textbook to guide you in the evaluation of student
essays.
28. An entrepreneur comes up with the ideas and compiles the factors of production to make the product.
29. A. See chart.
B. 3 missiles