Choose the best answer for each of the following:
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 human material wants.
C) issue of equality in the distribution of income among households.
D) budget deficits in the domestic economy and trade deficits in the international economy.
2. Henry wants to buy a book. The economic perspective suggests that Henry will buy the book if:
A) positive economics is more important than normative economics in the decision making.
B) normative economics is more important than positive economics in the decision making.
C) the marginal cost of the book is greater than its marginal benefit.
D) the marginal benefit of the book is greater than its marginal cost.
3. The concept of "rational behavior" suggests that:
A) positive economics is more important then normative economics.
B) normative economics is more iiuportant than positive economics.
C) people make different choices because their circumstances and information differ.
D) there is a logical fallacy of composition that affects macroeconomic thinking but not macroeconomic
thinking.
4. From an economic perspective, when a student decides to attend another year of college, the student has concluded
that the marginal:
A) costs of attending college has decreased that year.
B) benefits of attending college has increased that year.
C) benefits of attending college are greater than the marginal costs.
D) costs of attending college will be subsidized by someone else such as parents or the government.
5. When producers maximize their profits from the production of a good or service, they are:
A) testing a hypothesis.
B) exhibiting rational behavior.
C) assuming that all other things are equal.
D) making a trade-off between economic efficiency and economic freedom.
6. The idea in economics that "there is no free lunch" means that:
A) businesses would go bankrupt if they offered free lunches.
B) the thought of a free lunch is often better than the reality of consuming it.
C) there are opportunity costs when scarce resources are used for free lunches.
D) businesses use free lunches to attract customers but this advertising practice is inefficient.
7. 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.
8. 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 automobiles and trucks in the United States?
D) Will the introduction of a new computer chip change the demand for computers?
9. 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.
10. Macroeconomics is the branch of economics that studies:
A) economic goals.
B) marginal analysis.
C) the economy as a whole.
D) normative economics.
11. Which economic goal is associated with the idea of making provision for those who are chronically ill, disabled,
handicapped, unemployed or unable to earn a minimal level of income?
A) full employment
B) economic security
C) economic freedom
D) an equitable distribution of income
12. Assume that a trade-off 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.
13. A trade-off 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.
14. (Last Word) How is the economic perspective reflected in lines for fast food?
A) Customers select the shortest line because they have perfect information.
B) Customers select the shortest line because they believe it will reduce their time cost of obtaining food.
C) Lines will typically be of unequal length because of the inefficiencies in counter service.
D) The set of food choices is often too complex for most customers and thus creates long lines.
15. Rational behavior implies that people will make different choices because their circumstances and available
information differ.
A) True
B) False
16. The fundamental problem of economics is:
A) to achieve a more equitable distribution of income in societv.
B) that productive resources are scarce relative to material wants.
C) to establish prices which are fair for both producers and consumers.
D) that product prices rise more rapidly than incomes of consumers.
17. The term scarcity in economics refers to the fact that:
A) human wants are limited.
B) even in the richest country some people go hungry.
C) no country can produce enough to satisfy everybody's wants.
D) it is impossible to produce too much of any particular good.
18. In every economic system, choices must be made because resources are:
A) infinite, but human desires and wants are limited.
B) finite, but human desires and wants are insatiable.
C) unlimited, but human desires and wants are limited.
D) limited, and so are human wants.
19. Which is not a factor of production?
A) money
B) land
C) labor
D) capital
20. Money is not considered to be an economic resource because:
A) as such it is not productive.
B) money is not a free gift of nature.
C) the terms of trade can be determined in nonmonetary terms.
D) idle money balances do not earn interest income.
21. Society wants to use its scarce resources efficiently. To achieve this economic goal it must:
A) have full employment and full production.
B) have a fixed resource base and fixed technology.
C) expand the use of capital goods and reduce the use of labor.
D) increase the rental, interest, wage, and profit payments to the factors of production.
22. The production possibilities curve represents:
A)
the maximum amount of labor and capital available for production.
B)
combinations of goods and services among which consumers are indifferent.
C)
maximum combinations of products available with fixed resources and technology.
D)
the maximum rate of growth of capital and labor in an economy.
23. On a production possibilities curve, the single optimal or best combination of output for any society:
A)
is at a point near the top of the curve.
B)
is at the precise midpoint of the curve.
C)
is at a point near the bottom of the curve.
D)
depends upon the preferences of society.
Use the following to answer questions 24-27:
The following economy produces two products.
Product
Steel
Wheat
A
0
100
Production Possibilities
B
C
1
2
90
75
D
3
55
E
4
30
F
5
0
24. Refer to the above table. A change from possibility C to B means that:
A) 1 unit of steel is given up to get 75 units of wheat.
B) 2 units of steel are given up to get 75 units of wheat.
C) 1 unit of steel is given up to get 15 more units of wheat.
D) 2 units of steel are given up to get 15 more units of wheat.
25. Refer to the above table. In moving from possibility C to D, the cost of a unit of steel in terms of a unit of
wheat is:
A) 10.
B) 20.
C) 25.
D) 30.
26. Refer to the above table. A change from possibility B to C means that:
A) 10 units of wheat are given up to get one more unit of steel.
B) 15 units of wheat are given up to get one more unit of steel.
C) 15 units of wheat are equal to one unit of steel.
D) 75 units of wheat are equal to one unit of steel.
27. Refer to the above table. In moving from possibility A to F, the cost of a unit of steel in terms of a unit of
wheat:
A) increases.
B) decreases.
C) remains constant.
D) increases from A to B, and decreases from B to F.
28. A point inside the production possibilities curve is:
A) attainable and the economy is efficient.
B) attainable, but the economy is inefficient.
C) unattainable, but the economy is inefficient.
D) unattainable and the economy is efficient.
29. A point on the frontier of the production possibilities curve is:
A) attainable and the economy is efficient.
B) attainable, but the economy is inefficient.
C) unattainable, but the economy is inefficient.
D) unattainable and the economy is efficient.
30. A point outside the production possibilities curve is:
A) attainable, but there is not full employment.
B) attainable, but there is not productive efficiency.
C) unattainable because the economy is inefficient.
D) unattainable because of limited resources.
31. The law of increasing opportunity costs indicates that:
A) resources are perfectly mobile except for transportation costs.
B) the sum of all costs cannot rise above the market price of a product.
C) to produce more of one good, society must sacrifice larger and larger amounts of alternative goods.
D) if the prices of all the resources involved in the production of goods increases, the cost of producing those
goods will increase at the same rate.
32. If opportunity costs were constant, then the production possibilities curve would be:
A) vertical.
B) horizontal.
C) a straight line.
D) bowed outward.
33. 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 flxed.
D) point outside (to the right) of the production possibilities curve.
34. Cuba is a command economy that suffered a decline in economic growth because of a cut in support from the
former Soviet Union when it collapsed. As a consequence, Cuba:
A) experienced a shift outward in its production possibilities curve.
B) experienced a shift inward in its production possibilities curve.
C) moved along its existing production possibilities curve.
D) went to a point inside its production possibilities curve.
35. 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.
36. 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.
37. When economists describe "a market," they mean:
A) a place where stocks and bonds are traded.
B) information networks that allow individuals to keep in touch with each other.
C) a hypothetical place where the production of goods and services takes place.
D) a mechanism which coordinates actions of consumers and producers to establish equilibrium prices and
quantities.
38. A market demand schedule for a product indicates that:
A) as the product's price falls, consumers buy less of the good.
B) there is a direct relationship between price and quantity demanded.
C) as a product's price rises, consumers buy less of other goods.
D) there is an inverse relationship between price and quantity demanded.
39. The law of demand is illustrated by a demand curve that is:
A) vertical.
B) horizontal
C) upward sloping.
D) downward sloping.
40. A lower price increases the quantity demanded because:
A) the purchasing power of individuals decreases.
B) the fmancial assets of individuals decrease.
C) individuals buy more of the product and less of a substitute.
D) individuals buy less of the product and more of a substitute.
41. Which is consistent with the law of demand?
A) A decrease in the price of turkey sandwiches causes a decrease in the quantity of turkey sandwiches
demanded.
B) A decrease in the price of tacos causes no change in the quantity of tacos demanded.
C) An increase in the price of pizza causes an increase in the quantity of pizza demanded.
D) An increase in the price of hamburgers causes a decrease in the quantity of hamburgers demanded.
42. The demand curve is a representation of the relationship between quantity of a product demanded and:
A) supply.
B) wealth.
C) price.
D) income.
43. As a result of a decrease in the price of hamburger, consumers buy more hamburger and more T-bone steak.
This is an illustration of:
A) irrational consumer behavior.
B) changing tastes and preferences.
C) the substitution effect.
D) the income effect.
44. When the price of one fruit increases, consumers buy more of another fruit. This situation is an illustration of:
A) the income effect.
B) the substitution effect.
C) diminishing marginal utility.
D) the rationing function of prices.
45. A point on a demand curve indicates:
A) a particular price and the corresponding quantity demanded by consumers.
B) a combination of two consumer goods which buyers will choose at given prices.
C) a situation where the buying and selling decisions of consumers and producers are consistent.
D) the ratio of the selling price to the buying price.
46. Which will not cause a change in the demand for product A?
A) a change in consumer preferences.
B) a change in the price of A.
C) a decline in consumer incomes.
D) a decrease in the price of close-substitute product B.
47. An inferior good is one:
A) that doesn't work.
B) that costs too much.
C) that won't be purchased at any price.
D) for which demand increases as income decreases.
48. If product Y is an inferior good, an increase in consumer incomes will:
A) result in a surplus of product Y.
B) not affect the sales of product Y.
C) shift the demand curve for product Y to the left.
D) shift the demand curve for product Y to the right.
49. If two goods are close substitutes:
A) consumers will always buy the one that has the lower price.
B) a fall in the price of one will decrease the demand for the other.
C) an increase in the price of one causes the demand for the other to decrease.
D) a decrease in the price of one causes an increase in the demand for the other.
50. If service stations raise the price of gasoline and experience a decrease in demand for automobile tires, then
gasoline and tires are:
A) substitute goods.
B) economic goods.
C) inferior goods.
D) complementary goods.
51. If the price of beef rose and the demand for chicken increased, then beef and chicken are:
A) complementary goods,
B) consumer goods.
C) inferior goods.
D) substitute goods.
52. Which would cause a movement along the demand curve, ceteris paribus?
A) a change in tastes in favor of the good.
B) a shift of the supply curve to the left.
C) an increase in the size of the population.
D) an unexpected rise in the income of the household.
53. An increase in the price of product G will result in a(n):
A) increase in the demand for G.
B) decrease in the demand for G.
C) larger quantity of G demanded.
D) smaller quantity of G demanded.
54. An increase in demand is shown graphically by a:
A) shift of the demand curve to the left.
B) movement up along the existing curve.
C) shift of the demand curve to the right.
D) movement down the existing curve.
55. The law of supply is illustrated by a supply curve that is:
A) horizontal.
B) downward sloping.
C) vertical.
D) upward sloping.
56. An "increase in the quantity supplied" suggests a:
A) rightward shift of the supply curve.
B) movement up along the supply curve.
C) movement down along the supply curve.
D) leftward shift of the supply curve.
57. Suppose that a more efficient way to produce a good is discovered, thus lowering production costs for the
good. This will cause a(n):
A) increase in supply, or a rightward shift of the supply curve.
B) decrease in supply, or a leftward shift of the supply curve.
C) increase in quantity supplied, or movement down the supply curve.
D) decrease in quantity supplied, or movement up the supply curve.
58. A shift left in the supply curve for oil in the United States is most likely to result from:
A) a decrease in the price which oil companies must pay for drilling licenses.
B) an increase in the costs of exploration and drilling for oil.
C) opening of new areas for oil exploration in the United States.
D) a decrease in the world price of oil.
59. A plastics manufacturer can make either toys or containers. If the demand for toys increases, then the:
A) demand for containers will decrease.
B) supply of containers will increase.
C) demand for containers will increase.
D) supply of containers will decrease.
60. There is a shortage in a market for a product when:
A) the increase in supply is greater than the increase in demand.
B) the increase in demand is greater than the increase in supply.
C) quantity demanded is less than quantity supplied.
D) quantity demanded is greater than quantity supplied.
61. There is a surplus in a market for a product when:
A) the decrease in supply is greater than the increase in demand.
B) the increase in demand is greater than the decrease in supply.
C) quantity supplied is less than quantity demanded.
D) quantity demanded is less than quantity supplied.
62. The market system automatically corrects a surplus condition in a competitive market by:
A) raising the price of the commodity in question while increasing the quantity demanded.
B) raising the price of the commodity in question while decreasing the quantity demanded.
C) reducing the price of the commodity in question while increasing the quantity demanded.
D) reducing the price of the commodity in question while decreasing the quantity demanded.
Use the following to answer questions 63-64:
Price
$10
11
12
13
14
15
Quantity supplied
100
150
190
220
245
265
Quantftv demanded
295
275
250
220
180
135
63. The equilibrium price in the above market is:
A) $11.
B) $12.
C) $13.
D) $14.
64. Refer to the above table. If a technological advance lowers production costs such that the quantity supplied
increases by 60 units of this product at each price, the new equilibrium price would be:
A) $11.
B) $12.
C) $13.
D) $14.
65. A decrease in supply, holding demand constant, will cause:
A) higher prices and a larger quantity sold.
B) higher prices and a smaller quantity sold.
C) lower prices and a smaller quantity sold.
D) lower prices and a larger quantity sold.
66. An increase in demand, holding supply constant, will tend to cause:
A) higher prices and a larger quantity sold.
B) higher prices and a smaller quantity sold.
C) lower prices and a smaller quantity sold
.D) lower prices and a larger quantity sold.
67. A headline reads "Storms Destroys Half of the Lettuce Crop." This situation would lead to a(n):
A) increase in the price of lettuce and quantity purchased.
B) decrease in the price of lettuce and quantity purchased.
C) increase in the price of lettuce and decrease in quantity purchased.
D) decrease in the price of lettuce and increase in quantity purchased.
68. A headline reads "Gasoline Prices Are Higher." A likely explanation for this event would be a(n):
A) increase in the demand for and the supply of gasoline.
B) decrease in the demand for and the supply of gasoline.
C) increase in the supply of gasoline and a decrease in the demand for gasoline.
D) decrease in the supply of gasoline and an increase in the demand for gasoline.
69. Along a given supply curve, a rise in the demand for a commodity causes a(n):
A) shortage of other goods.
B) fall in total receipts.
C) increase in both the equilibrium price and the equilibrium quantity bought and sold.
D) decrease in the equilibrium price and an increase in the equilibrium quantity bought and sold.
70. (Last Word) The scalping of tickets for an event is a sign that at the stated price on the ticket, the:
A) supply of tickets has increased.
B) quantity demanded equals the quantity supplied.
C) quantity demanded is greater than quantity supplied.
D) quantity supplied is greater than quantity demanded.
71.
A)
B)
C)
D)
goods.
Capitalism is an economic system that:
produces more consumer goods than capital goods.
produces more capital goods than consumer goods.
gives private individuals and institutions the right to own resources used in production.
gives the government the right to tax individuals and corporations for activity that results in the production of capital
72.
A)
B)
C)
D)
@ch is a.major feature of pure capitalism?
price floors and price ceilings in markets
reallocation of resources from private to public uses
the right to own private property and control resource use
central planning by government to provide goods and services
73.
A)
B)
.C)
D)
A purely competitive economy assumes the existence in each industry of a:
large number of small firms facing a large number of small buyers.
few large firms facing a large number of small buyers
large number of small firms. facing a few large buyers.
few small f@ facing a few small buyers.
74.
A)
B)
C)
D)
By:firee enterprise, we mean that:
products, are provided ftee to those who can't afford to buy them.
individual producers determine how to produce, but government agencies determine what will be produced.
individuals may obtain resources, organize production, and sell the resulting output in any legal way they choose.
individuals are free to produce those products that government agencies determine can be produced profitably.
75.
A)
B)
C)
D)
Consumers express self-interest when they:
reduce business losses.
corect economic profits.
seek the lowest price for a product.
search forjobs with the highest wages
76.
:A)
B)
C)
D)
Speciahzafion and trade are beneficial to society because
the output of economic goods may be increased with no increase in resources.
scarce resources are utilized more efficiently.
a division of labor lowers prices for products.
all of the above are correct.
77.
Consumer sovereignty and "dollar votes" are most related to which fundamental questions about a competitive
market system?
A)
What is to be produced?
B)
How is the output to be produced?
C)
Can the system adapt to change?
D)
How much of society's resources should be used?
78.
Economic efficiency would be primarily discussed in response to which of the fimdamenw questions
about a competitive market egonomy?
A)
What is to be produced?
B)
How is the output to be produced?
C)
Can the system adapt to change?
D)
Who is to receive the output?
79.
A)
B)
C)
D)
Whirh is not one of the Five Fundamental Questions?
How are products to be produced?
How should the economic system be adapted to change?
Who is to receive the output of the system?
What goods and services should be produced by government?
80.
A)
B)
.C)
D)
Firms will tend to enter an industry when:
profits are high.
demand is decreasing
costs of production increase.
the prices of substitutes fall.
81.
A)
B)
C)
D)
Economic profit exists when:
total revenues exceed payments to labor plus interest and rental payments for capital and land.
total revenues exceed the payment of all economic costs.
a firm is being operated efficiently.
a firm is a monopolist.
82.
Normal profits are:
A)
a cost because they represent payments to the entrepreneur for the functions performed in organizing
resources in production.
B)
not a cost because they cannot be accurately calculated.
C)
not a cost because they accrue to the entrepreneur.
D)
not an economic cost because they need not be realized in order for a firm to acquire and retain
entrepreneurial ability.
83.
Which best describes the "invisible hand" concept?
A)
Sufriciently detailed central dn=tion of an economy will maximize the public's best interests.
B)
The market system works best when resources are highly substitutable.
C)
The problem of scarcity can best be overcome in a system of mixed capitalism.
D)
The desires of producers and resource suppliers to @er their own self-interest will automatically promote
the social interest.
84.
that
A)
B)
C)
D)
(Last Word) The fact that plastic "pink flamingos" continue to sell in the market for over forty years demonstrates
85.
A)
In the long run, economic profits will be zero in a competitive industry.
TrueB) False
technology is the most important factor amcting market supply.
the assumption of the rational consumer is sometimes violated.
"dollar votes" determine what is produced in a market system.
"normal profit" can be more critical to a business than economic profit.
86.
B)
C)
D)
Clothing is an example of a:A)
durable good.
nondurable good.
substitute good.
service.
87.
A)
B)
C)
D)
If a company owns plants at various stages of the production process, this is called a:
monopoly.
conglomerate.
vertical combination.
horizontal combination.
88.
A)
B)
C)
D)
The legal concept of limited liability is iunportant in which of the following types of business organizations?
monopolies
corporations
partnerships
sole proprictorships
89.
A)
B)
C)
D)
The term double taxation refers to the fact that:
taxes are paid on corporate profits and stockholders pay taxes on dividends received.
if a husband and wife have jobs, they both have to pay social security taxes.
American citizens must pay both income taxes and sales taxes
American citizens have to pay Federal taxes and state taxes.
90.
A)
B)
C)
D)
The type of business that is most common is the:
partnership.
corporation.
conglomerate.
sole proprietorship.
91.
A)
B)
C)
D)
One principal advantage of the corporations is that owners:
are not taxed for income received.
always control the company.
are sole proprietors.
have limited liability.
92.
A)
B)
C)
D)
The major source of production in the economy comes from:
conglomerates.
corporations.
partnerships.
sole proprietorships.
93.
The United States has a mixed economy because:
A)
answers to the questions of wha@ how, and for whom to produce are determined by consumers,
businesses, and government.
B)
government supplies most capital used by private businesses.
C)
consumers and businesses use all resources in the economy.
D)
most businesses are owned by government,
94.
With respect to public goods, it is difficult to coffect information on individuals' true preferences for such
goods and services, since:
A)
they know it is economically efficient to have private companies produce all goods and services.
B)
someone must horizontally sum mdlviduals'demand curves for these goods to fmd the overall demand
schedule.
C)
when it is time to pay for public goods, they have incentives to understate the benefits they receive from
these goods.
D)
while people do indicate their true preferences for public goods, there are too many people to consider
and count their preferences accurately.
95.
A)
B)
C)
D)
Private goods differ from public goods in which of the following respects?
Only private goods can be used by an increasing number of people at no additional cost.
Only private goods are- indivisible.
Private goods are subject to the exclusion principle.
Private goods are more expensive than public goods.
96.
A)
B)
C)
D)
An income tax may be called progressive when:
die average tax rate on low-income groups exceeds the tax rate of high-income groups.
high-inrome groups pay more taxes absolutely than do low-income groups.
the average tax rate increases as income increases.
the average tax rate is constant, but the absolute amount of taxes paid increases as income increases.
97.
A)
B)
Pollution is an example of a spillover cost or negative exteimality.
True
False
98.
A)
B)
C)
D)
@ch nation has the largest volume of exports of goods and services as a percentage of its GDP?
Italy
Japan
the Netherlands
the United States
99.
A)
B)
C)
.D)
The United States has a trade deficit when U.S.:
imports are greater than U.S. exports.
exports are greater than U.S. imports.
exports and U.S. imports are greater than IO percent of GDP
exports and U.S. imports are less than 10 percent of GDP.
100.
A)
B)
C)
D)
Firms with sizable foreign production and distribution activities:
are Asian tigers
are multinational corporations
formed the EuropÜ¥h_cà