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Period
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Midterm Review Test
1. Economics may best be defined as the:
A. interaction between macro and micro considerations.
B. social science concerned with how individuals, institutions, and society make optimal choices
under conditions of scarcity.
C. empirical testing of value judgments through the use of logic.
D. use of policy to refute facts and hypotheses.
2. Which of the following most closely relates to the idea of opportunity costs?
A. tradeoffs.
B. economic growth.
C. technological change.
D. capitalism.
3. Which of the following is associated with macroeconomics?
A. an examination of the incomes of Harvard Business School graduates
B. an empirical investigation of the general price level and unemployment rates since 1990
C. a study of the trend of pecan prices since the Second World War
D. a case study of pricing and production in the textbook industry
4. The economizing problem is one of deciding how to make the best use of:
A. virtually unlimited resources to satisfy virtually unlimited wants.
B. limited resources to satisfy virtually unlimited wants.
C. unlimited resources to satisfy limited wants.
D. limited resources to satisfy limited wants.
5. The production possibilities curve illustrates the basic principle that:
A. the production of more of any one good will in time require smaller and smaller sacrifices of
other goods.
B. an economy will automatically obtain full employment of its resources.
C. if all the resources of an economy are in use, more of one good can be produced only if less of
another good is produced.
D. an economy's capacity to produce increases in proportion to its population size.
6. Unemployment:
A. causes the production possibilities curve to shift outward.
B. can exist at any point on a production possibilities curve.
C. is illustrated by a point outside the production possibilities curve.
D. is illustrated by a point inside the production possibilities curve.
7. A production possibilities curve shows:
A. that resources are unlimited.
B. that people prefer one of the goods more than the other.
C. the maximum amounts of two goods that can be produced assuming the full use of available
resources.
D. combinations of capital and labor necessary to produce specific levels of output.
8. The law of increasing opportunity costs states that:
A. if society wants to produce more of a particular good, it must sacrifice larger and larger
amounts of other goods to do so.
B. the sum of the costs of producing a particular good cannot rise above the current market price
of that good.
C. if the sum of the costs of producing a particular good rises by a specified percent, the price of
that good must rise by a greater relative amount.
D. if the prices of all the resources used to produce goods increase, the cost of producing any
particular good will increase at the same rate.
9. Which of the following is a distinguishing feature of a command system?
A. private ownership of all capital.
B. central planning.
C. heavy reliance on markets.
D. wide-spread dispersion of economic power.
10. Which of the following is a distinguishing feature of a market system?
A. public ownership of all capital.
B. central planning.
C. wide-spread private ownership of capital.
D. a circular flow of goods, resources, and money.
11. Which of the following is one of the Five Fundamental Questions?
A. Which products will be in scarce supply and which in excess supply?
B. Who should appoint the head of the central bank?
C. How much should the society save?
D. What goods and services will be produced?
12. The law of demand states that:
A. price and quantity demanded are inversely related.
B. the larger the number of buyers in a market, the lower will be product price.
C. price and quantity demanded are directly related.
D. consumers will buy more of a product at high prices than at low prices.
13. When the price of a product increases, a consumer is able to buy less of it with a given
money income. This describes:
A. the cost effect.
B. the inflationary effect.
C. the income effect.
D. the substitution effect.
14. When the price of a product rises, consumers shift their purchases to other products whose
prices are now relatively lower. This statement describes:
A. an inferior good.
B. the rationing function of prices.
C. the substitution effect.
D. the income effect.
15. The construction of demand and supply curves assumes that the primary variable influencing
decisions to produce and purchase goods is:
A. price.
B. expectations.
C. preferences.
D. incomes.
16. An economist for a bicycle company predicts that, other things equal, a rise in consumer
incomes will increase the demand for bicycles. This prediction is based on the assumption that:
A. there are many goods that are substitutes for bicycles.
B. there are many goods that are complementary to bicycles.
C. there are few goods that are substitutes for bicycles.
D. bicycles are normal goods.
17. If two goods are complements:
A. they are consumed independently.
B. an increase in the price of one will increase the demand for the other.
C. a decrease in the price of one will increase the demand for the other.
D. they are necessarily inferior goods.
18. The demand curve for a product might shift as the result of a change in:
A. consumer tastes.
B. consumer incomes.
C. the prices of related goods.
D. all of these.
19. A decrease in quantity demanded (as distinct from a decrease in demand) is depicted by a:
A. move from point x to point y.
B. shift from D1 to D2.
C. shift from D2 to D1.
D. move from point y to point x.
20. Refer to the above diagram. An increase in quantity supplied (as distinct from an increase in
supply) is depicted by a:
A. move from point y to point x.
B. shift from S1 to S2.
C. shift from S2 to S1.
D. move from point x to point y.
21. The law of supply indicates that:
A. producers will offer more of a product at high prices than they will at low prices.
B. the product supply curve is downsloping.
C. consumers will purchase less of a good at high prices than they will at low prices.
D. producers will offer more of a product at low prices than they will at high prices.
22. The location of the supply curve of a product depends on:
A. the technology used to produce it.
B. the prices of resources used in its production.
C. the number of sellers in the market.
D. all of these.
Answer the next question(s) on the basis of the given supply and demand data for wheat:
23. Refer to the above data. If price was initially $4 and free to fluctuate, we would expect:
A. quantity supplied to continue to exceed quantity demanded.
B. the quantity of wheat supplied to decline as a result of the subsequent price change.
C. the quantity of wheat demanded to fall as a result of the subsequent price change.
D. the price of wheat to rise.
24. Productive efficiency refers to:
A. the use of the least-cost method of production.
B. the production of the product-mix most wanted by society.
C. the full employment of all available resources.
D. production at some point inside of the production possibilities curve.
25. Allocative efficiency is concerned with:
A. producing the combination of goods most desired by society.
B. achieving the full employment of all available resources.
C. producing every good with the least-cost combination of inputs.
D. reducing the concavity of the production possibilities curve.
26. Which of the following will cause a decrease in market equilibrium price and an increase in
equilibrium quantity?
A. an increase in supply.
B. an increase in demand.
C. a decrease in supply.
D. a decrease in demand.
27. An external cost or external benefit is also known as a(n):
A. marginal benefit.
B. principal-agent problem.
C. transfer payment.
D. externality.
28. A nation's gross domestic product (GDP):
A. can be found by summing C + Ig + G + Xn.
B. is the dollar value of the total output produced by its citizens, regardless of where they are
living.
C. can be found by summing C + S + G + Xn.
D. is always some amount less than its NDP.
29. Net exports are:
A. that portion of consumption and investment goods sent to other countries.
B. exports plus imports.
C. exports less imports.
D. imports less exports.
30. In calculating GDP, governmental transfer payments, such as social security or
unemployment compensation, are:
A. not counted.
B. counted as investment spending.
C. counted as government spending.
D. counted as consumption spending.