Economics USA: 21st Century Edition

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1. Economics is probably BEST defined as the study of how...

   	resources are apportioned to satisfy human wants.
   	modern businesses have grown and prospered.
   	capitalism has survived in today’s world.
   	various societies have dealt with unemployment and inflation.

   resources are apportioned to satisfy human wants.

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2. Adam Smith, author of The Wealth of Nations, is often called the father of modern economics. Over the past 200 years Smith’s influence on current economic thinking is indisputable. Basically, Smith held that specialization...

   	would lead to severe economic problems by promoting self-interest.
   	was desirable but unworkable in a capitalistic society.
   	could function only given proper regulation by government.
   	was essential to efficient use of resources.

   was essential to efficient use of resources.

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3. Economic models are sometimes harder to validate than scientific models MAINLY because...

   	so much more is known about science than about economics.
   	science is totally objective, whereas much of economics is subjective.
   	the public is far more skeptical about economic theory than about scientific theory.
   	the variables in economics are often beyond the economists’ control.

   the variables in economics are often beyond the economists’ control.

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4. Which of the following statements is MOST accurate? Government regulation of industry in the American economy today is...

   	the subject of much debate and controversy.
   	generally accepted as the only means of decentralizing economic power.
   	largely a thing of the past, thanks to the theories of Adam Smith.
   	just beginning to gain acceptance under the Reagan administration.

   the subject of much debate and controversy.

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5. In order to achieve point M, the economy would need to...

   

   	produce more tractors.
   	be willing to cut down on food production.
   	distribute resources differently.
   	increase resources or expand technology.

   increase resources or expand technology.

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6. Suppose that point J represents precisely the amount of food consumed by the economy, but 5% more tractors than the economy presently uses in producing its food. If the demand for food rises, and the society begins using the additional 5% of its tractors to produce this extra food, the output will...

   

   	remain at point J.
   	move to point L.
   	move to point M.
   	move to an undetermined point on a new production possibilities curve.

   Move to an undetermined point on a new production possibilities curve. The tractors are an example of a capital resource that can be used to produce other goods—in this case, food. In other words, output sometimes creates its own resources. The most efficient use of resources in this case probably demands that all the tractors be used in producing food. This will put the new output combination at a point somewhere directly to the right of J on the graph—i.e., more food, same number of tractors. The point M represents a decrease in tractor production from J, so M cannot be the right answer. This new production point is not reflected on the current production possibilities curve.

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