Question

"Efficiency" refers to a) producing output using the least amount of labor b) producing output using the least amount of capital c) producing as far inside the production possibilities frontier as possible d) producing only one out of many possible commodities e) getting the maximum possible output from available resources

2) A normative economic statement a) is a hypothesis used to test economic theory b) is a statement of fact c) is a statement of what ought to be, not what is d) indicates what will occur if certain assumptions are true e) enables economists to test hypotheses

3) Firms a) are where entrepreneurs combine resources b) are economic units formed by profit-seeking entrepreneurs c) are assumed to try to maximize profit d) reward entrepreneurs with profits, which are sales revenue minus the cost of production e) All of the answers are correct.

4) Which of the following is an example of a positive statement? a) Workers with families should be paid at least the minimum wage. b) If crime rates were reduced, the world would be a better place in which to live. c) Marginal tax rates should be reduced for individuals in the highest tax brackets. d) An increase in the price of gasoline will cause a reduction in the amount purchased. e) Corrupt politicians ought to be voted out of office.

5) Points outside the production possibilities frontier represent a) unemployment of resources b) inefficient use of resources c) combinations that are attainable only if all resources are used fully and efficiently d) currently unattainable combinations of outputs e) the only currently attainable combinations from which society must choose

6) Which of the following is an example of division of labor? a) an author writing a book one chapter at a time b) a firm trying to get rid of a labor union c) separating resources into four categories: land, labor, capital, and entrepreneurial ability d) allocating revenue among a firm's resource suppliers e) dividing an assembly process into separate steps

7) The assumption that individuals act rationally implies that a) people think only of themselves and disregard the well-being of others b) people undertake all those activities that yield benefits to themselves c) people only consider the costs of an activity to decide whether it is worthwhile d) the greater the cost of a charitable deed to a benefactor, the more likely he or she is to perform that deed e) people implicitly calculate the costs and benefits of an activity to decide if it is worthwhile

8) A mixed capitalist economy is one in which a) decisions are based primarily on religion or custom b) all resources are publicly owned and economic planning is centralized c) all resources are privately owned and prices are used to coordinate economic activity d) resources are both publicly and privately owned and some markets are regulated e) all resources are publicly owned and prices are used to coordinate economic activity

9) A resource is something that a) is used to produce goods and services b) is provided by nature, not made by society c) exists in unlimited quantities d) must be produced by a firm e) consumes goods and services

Answer 1

1. D. Efficiency refers to optimization of resources, getting the most from available resources.

2. C. Normative statement is an opinion, value-based and cannot be tested.

A positive statement is based on facts so choice b is wrong.

3. E. All of the above. Firms are economic units formed by combining the factors of production like land, labor, capital and entrepreneurship to maximize profits.

4. D is the positive statment since it is based on facts and can be tested.

The other choices are wrong as they are normative statement which are based on opinions and have the words, "ought", "should" and cannot be tested.