Page 1 1. Because resources are limited: a. only the very wealthy can get everything they want. b. firms will be forced out of business. c. the availability of goods will be limited but the availability of services will not. d. people must make choices. 2. The difference between points inside the production possibilities curve and those on the curve is that: a. for any point inside the curve we can find a point on the curve that generates more of both goods. b. for any point inside the curve we can find a point on the curve that generates less of both goods. c. if an economy is producing at a point inside the curve resources are fully employed. d. if an economy is producing at a point on the curve some resources might be underused. 3. A production possibilities curve is bowed out because: a. society has fixed amounts of productive resources. b. the curve is negatively sloped. c. resources are not perfectly adaptable to the production of different goods. d. it becomes less and less costly to produce each additional unit of output. 4. Which of the following would not shift the production possibilities curve? a. a technological innovation that allowed more work to be done by robots b. a war that destroyed roads and bridges c. the government giving every citizen $100 d. an increase in the literacy rate
Page 2 5. Sotoland is a small country that produces two types of products, air conditioners and snowmobiles. Its production possibilities curve is illustrated in Figure 1.2. Which combination of air conditioners and snowmobiles is attainable and efficient? a. 200 air conditioners and 800 snowmobiles b. 600 air conditioners and 0 snowmobiles c. 600 air conditioners and 300 snowmobiles d. 200 air conditioners and 500 snowmobiles 6. Jessica, age 3, decides to dress up like Sleeping Beauty for Halloween. What is her opportunity cost of this decision? a. The cost of the costume. b. She can't dress up like Barbie, her second choice. c. Zero, because 3 year olds don't have opportunity costs. d. Impossible to say, because Jessica doesn't understand what an opportunity cost is. 7. 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.
Page 3 8. The principle that for some goods, costs or benefits associated with the good are experienced by people external to the decision about how much to produce or consume, is known as the: a. principle of opportunity cost. b. principle of diminishing returns. c. spillover principle. d. reality principle. 9. A person might cause a spillover cost if he or she: a. noisily walks into an exam late. b. points out an error in the textbook's answer key. c. asks the professor a question the whole class wants answered. d. gets a hidden body part pierced. 10. If real salaries decrease but nominal salaries do not, this means that: a. the purchasing power of money has not changed. b. prices have not changed. c. prices have risen. d. prices have fallen. 11. Joe runs a business in which his marginal benefits of staying open for the incremental hour are illustrated in figure 2.2. Suppose that Joe's marginal cost of staying open per hour is $24. How many hours should Joe stay open? a. 3 hours b. 4 hours c. 5 hours d. 6 hours
Page 4 ÚÄÄÄÄÄÄÄÄÄÄÂÄÄÄÄÄÄÄÄÄÄ ³ Houses ³ Yards ³ ³ 0 ³ 21 ³ ³ 1 ³ 20 ³ ³ 2 ³ 18 ³ ³ 3 ³ 15 ³ ³ 4 ³ 11 ³ ³ 5 ³ 6 ³ ³ 6 ³ 0 ³ ÀÄÄÄÄÄÄÄÄÄÄÁÄÄÄÄÄÄÄÄÄÄÙ Table 2.1 12. A group of people have decided to get together to form a house cleaning and yard maintenance business. The number of houses or yards that they can clean or maintain in any given day is depicted in Table 2.1. (Note that this table contains the same information that a production possibilities curve contains. That is, this group can clean zero houses and maintain 21 yards -- or they can clean one house and maintain 20 yards -- or they can clean 5 houses and maintain 6 yards, etc.) As the group cleans more houses the opportunity cost of cleaning houses: a. falls. b. rises. c. stays the same. d. increases because the opportunity cost of each new house cleaned is the sum of the opportunity costs of cleaning all the houses prior to that one. 13. Households input markets and output markets. a. supply to; supply to b. supply to; demand from c. demand from; supply to d. demand from; demand from 14. Factor markets include: a. capital markets. b. natural resource markets. c. labor markets. d. All of the above.
Page 5 15. An economy in which the interaction of individual buyers and sellers determines what to produce, how to produce, and who gets the products is a: a. socialist economy. b. market economy. c. public goods economy. d. command and control economy. 16. Arrow A on the circular flow diagram Figure 3.1 reflects: a. products produced. b. inputs supplied for production. c. payment for inputs. d. revenue from selling products.
Page 6 ÚÄÄÄÄÄÄÄÂÄÄÄÄÄÄÄÄÄÄÄÄÄÄÂÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ ³ ³ Peaches/hour ³ Cream/hour ³ ³ÄÄÄÄÄÄÄâÄÄÄÄÄÄÄÄÄÄÄÄÄÄâÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄij ³ John ³ 4 ³ 2 ³ ³ÄÄÄÄÄÄÄâÄÄÄÄÄÄÄÄÄÄÄÄÄÄâÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄij ³ Yoko ³ 12 ³ 8 ³ ÀÄÄÄÄÄÄÄÁÄÄÄÄÄÄÄÄÄÄÄÄÄÄÁÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ Table 3.4 17. Consider two individuals, John and Yoko, who produce cream and peaches. John and Yoko's hourly productivity are shown in Table 3.4. Which of the following is true? a. John has a comparative advantage in producing peaches but not cream. b. John has a comparative advantage in producing cream but not peaches. c. John has a comparative advantage in producing both goods. d. John has a comparative advantage in producing neither good. 18. Consider two individuals, John and Yoko, who produce cream and peaches. John and Yoko's hourly productivity are shown in Table 3.4. John's opportunity cost of producing one peach is: a. 1/4 unit of cream. b. 1/2 unit of cream. c. 2 units of cream. d. 4 units of cream. 19. Consider two individuals, John and Yoko, who produce cream and peaches. John and Yoko's hourly productivity are shown in Table 3.4. Yoko's opportunity cost of producing one unit of cream is: a. 2/3 peach. b. 3/2 peaches. c. 8 peaches. d. 12 peaches. 20. The law of demand states that quantity demanded of a product increases as a. consumer income rises b. the prices of other products fall c. the price of the product rises d. the price of the product falls 21. Assume that butter and margarine are substitutes. When the price of butter increases, a. The demand for margarine increases b. The demand for margarine decreases c. The supply of margarine increases d. The supply of margarine decreases
Page 7 22. Hops are used to produce beer. If the price of hops decreases a. The demand for beer increases b. The demand for beer decreases c. The supply of beer increases d. The supply of beer decreases 23. Peaches and cream are complements. When the price of peaches falls the equilibrium quantity of cream will and the equilibrium price of cream will. a. rise; rise b. rise; fall c. fall; rise d. fall; fall 24. Suppose that a technological advancement substantially reduces the cost of producing cheese. We would predict that the equilibrium quantity of cheese will and the equilibrium price of cheese will. a. rise; rise b. rise; fall c. fall; rise d. fall; fall 25. Suppose that in 1996,12 million cars were purchased at $15,000 each, while in 1997, 10 million cars were purchased at $12,000 each. What might have caused this change? a. The price of airplane tickets (a substitute for cars) fell b. The price of airplane tickets (a substitute for cars) rose c. Automobile manufacturing technology increased d. Automobile manufacturing technology decreased 26. Suppose that ramen noodles are an inferior good. When income increases, and at the same time the price of pasta, an input in the production of ramen noodles, falls, a. The equilibrium price of ramen noodles rises and the equilibrium quantity of ramen noodles might rise or fall b. The equilibrium price of ramen noodles falls and the equilibrium quantity of ramen noodles might rise or fall c. The equilibrium price of ramen noodles falls and the equilibrium quantity of ramen noodles falls d. The equilibrium price of ramen noodles might rise or fall and the equilibrium quantity of ramen noodles rises
Page 8 27. Suppose that a new advertising campaign extolling the virtues of apple juice is successful, and a major freeze destroys half of the country's apple crop. What happens to the price and quantity of apple juice? a. The equilibrium price of apple juice might rise or fall and the equilibrium quantity of apple juice falls b. The equilibrium price of apple juice might rise or fall and the equilibrium quantity of apple juice rises c. The equilibrium price of apple juice falls and the equilibrium quantity of apple juice might rise or fall d. The equilibrium price of apple juice rises and the equilibrium quantity of apple juice might rise or fall 28. Figure 4.1 illustrates the supply and demand for blue jeans. If the actual price of blue jeans is $50, there is a. excess demand of 40 pairs of blue jeans b. excess supply of 40 pairs of blue jeans c. excess demand of 50 pairs of blue jeans d. excess supply of 50 pairs of blue jeans
Page 9 29. Figure 4.1 illustrates the supply and demand for blue jeans. If the actual price of blue jeans is $30, we would expect the price of blue jeans to, the quantity demanded of blue jeans to and the quantity supplied of blue jeans to. a. increase; increase; increase b. increase; decrease; increase c. decrease; increase; decrease d. decrease; decrease; increase
Page 10 30. Figure 4.2 illustrates the demand for guitars. An increase in the demand for guitars is represented by the movement from a. Point B to point C b. Point B to point A c. D1 to D0 d. D1 to D2
Page 1 1. d What is Economics? 2. a Scarcity and Production Possibilities 3. c Scarcity and Production Possibilities 4. c Scarcity and Production Possibilities 5. c Scarcity and Production Possibilities 6. b The Principle of Opportunity Cost 7. b The Principle of Diminishing Returns 8. c The Spillover Principle 9. a The Spillover Principle 10. c The Reality Principle 11. d The Marginal Principle 12. b The Principle of Opportunity Cost 13. b How Do Markets Operate? The Circular Flow 14. d How Do Markets Operate? The Circular Flow 15. b Alternative Economic Systems 16. d How Do Markets Operate? The Circular Flow 17. a Opportunity Cost and Comparative Advantage 18. b Opportunity Cost and Comparative Advantage 19. b Opportunity Cost and Comparative Advantage 20. d The Demand Curve 21. a Market Effects of Changes in Demand 22. c Market Effects of Changes in Supply 23. a Applications
Page 2 24. b Applications 25. a Applications 26. b Extensions 27. d Extensions 28. d Market Equilibrium 29. b Market Equilibrium 30. d Market Effects of Changes in Demand