Points inside a consumer's budget constraint are affordable but leave part of the budget unspent.
Correct Answer
True
True. Any combination on or inside the budget constraint can be bought. A point inside the line costs less than the full budget, so some money is left over.
Category: Budget Constraint
Question 2
A budget constraint slopes upward, because buying more of one good lets a person buy more of the other.
Correct Answer
False
False. A budget constraint slopes downward. With a fixed budget and fixed prices, buying more of one good means buying less of the other.
Category: Budget Constraint
Question 3
The steepness of a budget constraint equals the price of the good on the horizontal axis divided by the price of the good on the vertical axis.
Correct Answer
True
True. The ratio of the two prices tells how many units of the vertical-axis good must be given up for one more unit of the horizontal-axis good. That ratio is the size of the line's slope and the opportunity cost of the horizontal-axis good.
Category: Budget Constraint
Question 4
Economists advise giving sunk costs heavy weight when deciding what to do next.
Correct Answer
False
False. Sunk costs have already been paid and cannot be recovered, so they should not affect future decisions. Only the future benefits and costs of each option matter.
Category: Sunk Costs and Marginal Choices
Question 5
Utility is the satisfaction or usefulness a person gets from consuming goods and services.
Correct Answer
True
True. Utility measures the benefit a person receives from consumption. It is subjective, since different people value the same good differently, but it guides the choices people make.
Category: Utility
Question 6
Diminishing marginal utility helps explain why people usually prefer to spend their entire budget on a single good.
Correct Answer
False
False. Diminishing marginal utility explains why people usually avoid all-or-nothing choices. Because each extra unit of one good adds less satisfaction, spreading spending across several goods usually brings more total satisfaction.
Category: Utility
Question 7
A budget constraint is drawn as a straight line because the consumer faces fixed prices for the two goods.
Correct Answer
True
True. With fixed prices, the rate at which one good trades off against the other stays the same everywhere along the line. That constant rate gives the budget constraint its straight shape.
Category: Budget Constraint
Question 8
Under the law of increasing opportunity cost, the cost of producing more of a good falls as a society produces more of it.
Correct Answer
False
False. The law of increasing opportunity cost says that the opportunity cost of producing more of a good rises as more of it is produced. Resources less suited to that good must be shifted into it, so each extra unit costs more of the other good.
Category: Production Possibilities
Question 9
A point outside a society's production possibilities frontier cannot be reached with its current resources and technology.
Correct Answer
True
True. The frontier marks the limit of what the society can produce. Points beyond it become attainable only if resources grow or technology improves.
Category: Production Possibilities
Question 10
A society producing at a point on its production possibilities frontier can increase output of both goods without new resources or better technology.
Correct Answer
False
False. Every point on the frontier is productively efficient, so producing more of one good requires producing less of the other. Output of both goods can rise only through more resources or better technology.
Category: Efficiency
Question 11
Deciding which point on a production possibilities frontier is allocatively efficient depends on what the members of a society value.
Correct Answer
True
True. Allocative efficiency means producing the mix of goods society most wants. Choosing that mix involves value judgments, which is why it is often debated.
Category: Efficiency
Question 12
A country has a comparative advantage in a good whenever it can produce more of that good than another country with the same resources.
Correct Answer
False
False. Producing more of a good with the same resources is an absolute advantage. A comparative advantage means producing the good at a lower opportunity cost than another country.
Category: Comparative Advantage
Question 13
When countries specialize according to comparative advantage and then trade, their combined production can rise.
Correct Answer
True
True. Each country focuses on the goods it makes at a lower opportunity cost, so the same resources produce more in total. Trade then lets both countries consume beyond what they could produce alone.
Category: Comparative Advantage
Question 14
A normative statement is a factual claim that can, in principle, be tested with evidence.
Correct Answer
False
False. A normative statement expresses a value judgment about what should be and cannot be proven true or false. A testable claim about what is or will be is a positive statement.
Category: Positive and Normative
Question 15
The claim that people ought to give more of their income to charity is a normative statement.
Correct Answer
True
True. The word ought signals a judgment about what should happen, based on values. No evidence could prove such a claim true or false.
Category: Positive and Normative
Question 16
In the economic approach, the assumption of self-interest is meant as a complete description of human motivation.
Correct Answer
False
False. Self-interest is a simplifying starting point for analyzing economic decisions. Economists recognize that people also act out of concern for others, as Adam Smith himself observed.
Category: Positive and Normative
Question 17
Adam Smith's invisible hand describes how people pursuing their own interests can end up benefiting society as a whole.
Correct Answer
True
True. Smith argued that individuals seeking their own gain often promote the broader good without intending to. For example, consumers hunting for good deals push businesses to serve what customers want.
Category: Positive and Normative
Question 18
The opportunity cost of an activity includes only the money spent on it.
Correct Answer
False
False. Opportunity cost includes everything given up, such as time and forgone earnings, not only money. The opportunity cost of college, for instance, includes the income a student gives up by not working.
Category: Opportunity Cost
Question 19
Both a budget constraint and a production possibilities frontier show that getting more of one good requires giving up some of another.
Correct Answer
True
True. Both diagrams illustrate scarcity and trade-offs. Along either one, moving toward more of one good means moving away from the other.
Category: Production Possibilities
Question 20
A budget constraint shows the combinations of goods that an entire society can produce with its resources.
Correct Answer
False
False. A budget constraint shows the combinations of goods an individual can afford with a given budget and prices. The combinations a society can produce are shown by a production possibilities frontier.
Category: Budget Constraint