Name

Class

Date

A. Key Terms and Concepts

Directions: Match the terms with the descriptions. Write the letter of the correct answer in the
blank provided. Not all of the choices will be used.
1. the extra cost of adding one unit
2. something essential for survival
3. all natural resources used to make goods
and services
4. the extra benefit of adding one unit
5. the most desirable alternative given up as the
result of a decision
6. use of fewer resources than an economy is
capable of using
7. principle that limited amounts of goods and
services are available to meet unlimited wants

a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.

need
marginal cost
efficiency
services
scarcity
underutilization
opportunity cost
factors of production
land
labor
marginal benefit
trade-off

8. effort people devote to tasks for which they

are paid
9. use of resources in such a way as to maximize
the output of goods and services
10. actions or activities that one person performs for another

B. Main Ideas
Directions: Write the letter of the correct answer in the blank provided.
11. Which of the following is an example of a shortage?
a. Water cannot be used to irrigate one crop because it is used for another.
b. Kumquats are not available because few people want to buy them.
c. A type of doll is not available because a limited number were made.
d. Workers are not available because they are on vacation.
12. The government of a country must make a decision between increasing
military spending and subsidizing wheat farmers. This is an example of
a. a guns or butter issue.
c. underutilization of resources.
b. decision making at the margin.
d. the law of increasing costs.

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Name

Class

Date

Test A (continued)
Directions: Use the graph below to answer questions 13 and 14.

13. The graph shows how many new schools and new roads a city could
build using all of its factor resources. What does the current production
possibilities curve show?
a. As the number of schools increases, so does the number of roads.
b. As the number of schools increases, the number of roads decreases.
c. As the number of schools decreases, so does the number of roads.
d. The number of schools has no effect on the number of roads.
14. The future production possibilities frontier on this graph shows what might
happen if
a. resources were underutilized.
b. there was a shortage of paving equipment.
c. the cost of building materials went down.
d. more resources went to building roads.
15. Which of the following is the kind of decision that can be made at the margin?
a. whether or not to hire new workers
b. whether or not to go on a vacation
c. whether or not to build an extra room on a home
d. whether to have a dog or a cat as a pet
16. You bought two new CDs with the last $30 in your checking account, and
your next payday is on Monday. What is the opportunity cost of these CDs?
a. the difference between the cost to produce the CDs and the price you
paid for them
b. the $30 check that you wrote for the CDs
c. the night out with your friends that you miss because you cant afford it now
d. the satisfaction of knowing you are the first of your friends to have these CDs

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Name

Class

Date

Test A (continued)
17. One example of an entrepreneur is
a. a writer who is hired by a film studio to adapt a novel into a screenplay.
b. a secretary in a law firm that specializes in business law.
c. an ice skater who is part of a professional ice show.
d. an artist who runs a business painting murals in office buildings and
restaurants.
18. Which of the following lists of factors of production would an economist
categorize as land?
a. factories, office buildings, assembly lines, workers
b. farm fields, tractors, pesticides, fertilizers
c. dams, bridges, rock quarries, oil wells
d. iron ore, natural gas, fertile soil, water
19. The community of Desertville traditionally produces a large number of tires
and a small amount of kiwi fruit. Kiwis are becoming increasingly popular,
and Desertville has decided to expand kiwi cultivation and decrease tire
manufacturing. According to the law of increasing costs,
a. the opportunity cost of producing tires will increase.
b. the opportunity cost of producing kiwis will increase.
c. the opportunity cost of producing tires will decrease.
d. the opportunity cost of producing kiwis will decrease.
20. A company that makes baseball caps is underutilizing its resources. What
does this mean?
a. The company is running more efficiently than its competitors.
b. The company is paying its employees less than it should be.
c. The company is making caps when it could be making T-shirts instead.
d. The company is producing fewer caps than it could be.

C. Critical Thinking and Writing

Directions: Use complete sentences to answer the questions below.
21. How does a production possibilities curve illustrate the law of increasing costs?
22. In your own words, describe what entrepreneurs do.

D. Essential Question Essay

Directions: When considering this question, think about what you have learned about what
economics is. You may wish to include information from current events.
23. Essential Question: How can we make the best economic choices?

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