Chapter 2 The Key Principles of Economics

7) The principle of voluntary exchange is the concept that a voluntary exchange between two people makes both people better off.

8) A "market" is an arrangement that allows people to exchange things.

2.4 The Principle of Diminishing Returns

1) The principle of diminishing returns implies that as one input increases while the other inputs are held fixed, output

A) increases at an increasing rate.

B) increases at a decreasing rate.

C) decreases at a decreasing rate.

D) decreases at an increasing rate.

2) The principle that "as one input increases while the other inputs are held fixed, output increases at a decreasing rate" is known as the

A) marginal principle.

B) principle of opportunity cost.

C) principle of diminishing returns.

D) spillover principle.

3) According to the principle of diminishing returns, if all factors of production but one are held constant and if that one factor is doubled, then eventually output will most likely

A) double too.

B) less than double.

C) more than double.

D) remain unchanged.

4) A firm produces its product using both capital and labor. When it does not change its capital usage, but doubles its labor input, its output increases by less than 50%. Which of the following is the most likely explanation of this finding?

A) the principle of opportunity cost

B) the principle of diminishing returns

C) the marginal principle

D) the spillover principle

5) According to the principle of diminishing returns, if the number of workers is increased beyond the point of diminishing returns, then the additional worker

A) increases total output by the same amount as previous workers.

B) increases total output by more than the amount of previous workers.

C) increases total output by less than the amount of previous workers.

D) decreases total output.

Units of Capital	Number of Workers	Output/Day
5	0	0
5	1	40
5	2	90
5	3	150
5	4	200
5	5	235

Table 2.3

6) Refer to Table 2.3. What can be observed about the given resources?

A) Capital and labor are both fixed.

B) Capital is variable.

C) Capital is fixed.

D) Labor is fixed.

7) Refer to Table 2.3. Increasing the number of workers from 2 to 3 will increase output per day by

A) 60 units.

B) 90 units.

C) 150 units.

D) 240 units.

8) Refer to Table 2.3. The principle of diminishing returns first occurs when how many workers are hired?

A) 2

B) 3

C) 4

D) 5