College of Business Administration
Econ 111 Workbook
An Introduction to
Economics & The Economy
True or False :
(1) Economics is the social science concerned with the efficient use of scarce resources to
achieve maximum satisfaction of economic wants.
(2) The scientific method involves developing hypotheses from factual observations, and
then testing the hypotheses.
(3) Macroeconomics is concerned with the whole economy or its major sectors.
(4) Normative economics is the concern with using the scientific method to establish well-
tested explanations for economic behavior.
(5) The four factors of production are land, labor, capital, and government services.
(6) Economic growth is shown by a shift of the production possibilities curve outward and
to the right.
(7) A market system is characterized by the private ownership of resources and the use of
markets and prices to coordinate and direct economic activity.
(8) In the circular flow model, households function on the selling side of the resource
market and the buying side of product markets.
(9) In the circular flow model, there is a money flow of economic resources and finished
goods and services and a real flow of income and consumption expenditures.
Essay Questions :
* What is the basic difference between theoretical economics and policy economics?
* Explain the importance of the ceteris paribus or “other-things-equal” assumption.
* What is policy economics? What are the three basic steps in policymaking?
* List the four resource categories and give a brief description of each.
Multiple Choice :
(1) The general concern of economics is with the study of the :
A) degree of competition in stock and bond markets in the economy .
B) efficient use of limited productive resources to satisfy economic wants .
C) issue of equality in the distribution of income among households .
D) budget deficits in the domestic economy and trade deficits in the
(2) Which is a primary reason for the study of economics?
A) It makes people more selfish in their discussion of economic issues.
B) It promotes a greater justification for the profit-making concerns of business.
C) It improves the decision-making of businesses, consumers, and government
D) It guarantees that people will get the best-paying jobs when they graduate
from a university.
(3) Developing economic principles or explanations about how individuals behave or
institutions act is referred to as:
A) policy economics.
C) normative economics.
D) theoretical economics.
(4) An economic model is :
A) a value judgment .
B) a fact .
C) built using theory .
D) built on policies.
(5) The role of an assumption in an economic theory is to:
A) add realism.
B) prove the theory.
C) cover special cases.
D) simplify the theory.
(6) The ceteris paribus assumption is employed in economic analysis to:
A) state economic goals.
B) simplify the complex world.
C) evaluate an economic system.
D) approximate real-world conditions.
(7) The production of more goods and services to increase a nation's standard of living
would be associated with what economic goal?
A) economic efficiency
B) economic security
C) economic growth
D) balance of trade
(8) Which economic goal is associated with the idea of achieving maximum fulfillment of
economic wants using the available productive resources?
A) full employment
B) economic growth
C) economic efficiency
D) economic security
(9) A tradeoff exists between two economic goals, X and Y. This tradeoff means that :
A) X causes Y .
B) X and Y are equal .
C) getting more of X requires getting more of Y .
D) getting more of X requires getting less of Y.
(10) Assume that a tradeoff exists in the short run between inflation and unemployment.
This relationship means that:
A) a low rate of unemployment causes a low rate of inflation.
B) a high rate of inflation causes a low rate of unemployment.
C) less unemployment can be achieved with more inflation.
D) less unemployment can be achieved with less inflation.
(11) Which is an illustration of a macroeconomic question?
A) Should the minimum wage be increased for low-income workers?
B) Are increasing wage demands by workers contributing to price inflation?
C) What is the least costly way to produce oil in Kuwait?
D) Will the introduction of a new computer chip change the demand for
(12) Macroeconomics focuses on :
A) the individual units that make up the whole of the economy .
B) studies of how individual markets and industries are organized .
C) total output and the general level of prices in the economy .
D) how a business determines how much of a product to produce.
(13) In every economic system, choices must be made because resources are :
A) infinite, but economic wants are finite .
B) finite, but economic wants are insatiable .
C) unlimited, but economic wants are limited .
D) limited, and so are economic wants.
(14) Economists would classify all of the following as land except:
A) two thousand acres of virgin forest.
B) a hydroelectric dam.
C) crude oil reserves.
D) iron ore deposits.
(15) The individual who brings together economic resources and assumes the risk in a
capitalist economy is called the :
A) manager .
B) entrepreneur .
C) stockbroker .
(16) Which would not be considered as capital (or an economic resource) by an
A) a share of corporate stock issued by General Motors
B) an automobile used by General Electric
C) a crane used by a building contractor
D) a razor used by a barber
(17) Which is the correct match of an economic resource and payment for that resource ?
A) land and profit
B) labor and rental income
C) capital and interest income
D) entrepreneurial ability and wages
(18) Which is not considered to be an economic resource ?
A) land (or natural resources)
D) tools and machinery
(19) Economic growth may be represented by a :
A) rightward shift of the production possibilities curve .
B) leftward shift of the production possibilities curve .
C) production possibilities curve which remains fixed .
D) point outside (to the right) of the production possibilities curve.
(20) Suppose there are two economies, Alpha and Beta, which have the same production
possibilities curves and are on the same point on each curve. If Beta then devotes
more resources to investment goods than consumer goods when compared to Alpha,
then in the future:
A) Alpha will experience greater economic growth than Beta.
B) Beta will experience greater economic growth than Alpha.
C) Alpha will not be able to achieve full employment or productive efficiency.
D) Beta will not be able to achieve full employment or productive efficiency
(21) In the circular flow model, households:
A) buy products and resources.
B) sell products and resources.
C) buy products and sell resources.
D) sell products and buy resources.
(22) The simple circular flow model shows that workers, entrepreneurs, and the owners of
land and capital offer their services through :
A) product markets .
B) resource markets .
C) employment agencies .
D) business firms.
(23) The circular flow model shows that the goods and services produced by business firms
are sold through :
A) product markets .
B) stock markets .
C) money markets .
D) resource markets.
(24) In product markets :
A) households sell products to business firms .
B) households sell resources to business firms .
C) businesses sell resources to households .
D) businesses sell goods and services to households.
(25) The money income of households consists of the sum of :
A) wages plus salaries.
B) consumption expenditures plus profits .
C) wages plus rents plus interest plus profits .
D) consumption expenditures plus costs of resources.
(26) The fact that expenditures on products and payments to owners of resources used to
produce those products flow in opposite directions is known as :
A) roundabout production .
B) a barter economy .
C) a pure economy .
D) the circular flow of income.
(27) In the circular economic flow diagram, households :
A) make consumption expenditures and pay for land, labor, and capital .
B) make consumption expenditures and receive goods and services .
C) buy resources and receive goods and services.
D) receive revenue and supply resources.
)1( )2( )4( )3(
)8( )7( )5( )6(
(28) Refer to the above figure. If box B represents the resource market and flow (3)
represents money income, then :
A) box A is the product market and box C is households .
B) box C is the product market and box A is households .
C) box D is the product market and box C is households .
D) box C is the product market and box D is households.
(29) Refer to the above figure. If box A represents businesses and flow (7) represents goods
and services, then:
A) box D is the product market and box B is the resource market.
B) box D is the product market and box B is households.
C) box B is the product market and box C is households.
D) box C is the product market and box B is the resource market.
(30) Refer to the above figure. If flow (1) is the cost businesses pay to the resource market,
A) (2) is the flow of productive resources.
B) (4) is the flow of goods and services.
C) (6) is the flow of money income.
D) (7) is the flow of revenue.
(31) Refer to the above figure. If box D represents the product market and flow (6)
represents consumption expenditures, then box C is:
A) households, flow (7) is revenue, and flow (8) is goods and services.
B) businesses, flow (7) is revenue, and flow (8) is goods and services.
C) households, flow (7) is goods and services, and flow (8) is revenue.
D) businesses, flow (7) is goods and services, and flow (8) is revenue.
(32) Refer to the above figure. If box A represents businesses and box B represents the
resource market in this circular flow model, then the real flow of goods, services,
and economic resources would be represented by flows:
A) (1), (3), (6), and (8).
B) (7), (5), (4), and (2).
C) (1), (2), (3), and (4).
D) (5), (6), (7), and (8).