ECONOMICS Spring 2015 – Exam 1

Part A: Matching – Write the correct letter for the statement on the line provided. 30 Points
____b__1. The study of how people use their scarce resources to satisfy their unlimited wants
a. Private Property
___d___2. Limited productive resources to satisfy people’s unlimited wants b. Economics

A business that is chartered by a state and legally operates apart from the owner or owners who organize or run it c. Entrepreneur

2 or more people agree to contribute resources to the business in return for a share of the profit

A firm owned and run by one person. May hire workers.

Free Enterprise
___c___6. A profit seeker who develops a new product or process and assumes the risk of profit or loss. f. Opportunity Cost

The value of the best alternative passed up for the chosen item or activity

____e__8. Freedom of a private business to organize and operate for a profit, in a competitive system, without interference by the government beyond regulation necessary to protect public interest and keep the national economy in balance.

h. Competition

The rivalry for customers among those companies or individuals who produce the same kinds of goods and services.

The fact that any person in the U.S. has right to own land, other means of production, or even ideas.
Sole Proprietorship

Part B: Multiple Choice 42 pts
__a___1. Of the 3 Basic Economic questions, in question 1, they determine what gets produced:
A. Buyers and producers C. Government
B. Buyers D. Individuals

__c___2. The value of the next best alternative that has to be given up when choices are made is called
A. scarcity C. opportunity cost
B. trade-off D. competition

_b____3. Which is true of the free enterprise system?
A. People have the freedom to take risks and earn profits. C. Competition is limited in most industries.
B. There are few laws regulating how businesses should operate. D. State governments strictly regulate how much property a business may own.

_a____4. In the circular flow of economic activity, the public
A. receives money income like wages from governments C. Gives sales dollars to governments
B. receives tax income from both the government and business D. sell more goods to foreign countries than to the public.

__a___5. The chart shown above represents the free enterprise system as it is practiced in the United States. Based on the chart and your knowledge of economics, select the choice that best completes this statement: In the circular flow of economic activity, business firms
A. receive money from both governments and public households. C. receive no money from governments.
B. receive money but no productive services from public households. D. receive no money from public households.

__b___6. In the circular flow of economic activity, Governments receive
A. Money payments of wages from business C. Money payments of sales dollars from public
B. Money payments of taxes from business D. Money payments of interest from public

_b____7. A major disadvantage of a corporation, a type of business organization, frequently has is difficulty
A. raising large sums of money. C. paying for talented managers.
B. making major decisions quickly. D. establishing business centers in other countries.

__c___8. Burger King and McDonald’s are an example of
A. A Monopoly C. Competition
B. Scarcity D. Private Property

__d___9. In our economy, which service is generally provided only by the government and not the private sector?
A. operating universities C. running hospitals
B. building houses D. building highways

_c___10. These are provided to citizens by federal, state, and local governments
A. Private goods and services C. Public Goods and Services
B. Private Goods D. Private Transportation

b____11. Which of the following is NOT a function of government in our society?
A. Government uses tax revenue to provide public goods to its citizens. C. Government uses tax revenue to redistribute income to those in need.
B. Government regulates supply and demand. D. Government uses fiscal policy to attempt to ensure economic stability.

_b___12. Each day after school, Caroline practices soccer for 90 minutes to prepare for the upcoming team tryouts. She could spend this time watching movies with friends, but she's decided that practicing is more important. Watching movies with her friends is Caroline's
A. income. C. favorite pastime.
B. opportunity cost. D. investment in human capital.

_d___13. One characteristic common to most entrepreneurs is a(n)
A. advanced education. C. substantial inheritance.
B. desire to work in a large established company. D. willingness to take risks.

__a__14. Owning your own business by yourself and having unlimited liability likely illustrates what type of business organization?
A. Sole Proprietorship C. Corporation
B. Partnership D. Conglomerate

Part C: Short Answers - Choose 2 of the following statements and answer them in at least 4 sentences for each. Be sure to label your choices. 8 pts each
1. Explain what we mean by Scarcity. What is Unlimited? What is Scarce?
2. Who is Adam Smith and what is the Invisible Hand Theory?
3. Explain Basic Question #3, Who gets what is produced?

1) Scarcity is the basic economic problem that arises because people have unlimited wants but resources are limited or scarce. Because of scarcity, various economic decisions must be made to allocate resources efficiently.