Name______________________________________
PreComp Practice – Group Test
Answer key on last page!
1. A point inside a nation’s production possibilities curve can represent:
A)
B)
C)
D)
E)
An increase in population size
Economic growth
A technological advancement
A recession (an economic downturn in which many people are not working)
An improvement in living standards
2. Which of the following will result in an outward shift of the production possibilities
curve?
A)
B)
C)
D)
E)
A decrease in the quantity of resources
Advances in technology
A unsustainable growth in population
An increase in unemployment rate
A decline in the quality of resources
3. In economics, the concept of opportunity cost _________.
A) is mostly irrelevant
B) is the same as accounting cost
C) can be calculated only if you know the real dollar prices of the goods and
services you are paying out of your pocket to consume something
D) is the way that government economists determine the total amount of the
national debt
E) is defined as the next best alternative that must be forgone (given up) when a
choice is made
4. Which of the following is the best example of opportunity cost?
A)
B)
C)
D)
E)
The money paid for a ticket to Kansas City Chiefs playoff game
The pleasure that a student derives from learning economics
Candy given up by a person who would never eat them even if he or she could
The salary from a job that a person gave up to attend college instead
The cash paid for a ticket when you decide to go to the movies
5. Bill makes $45,000 a year as a sales representative. He then decides to quit his job to go
to law school full-time (assume Bill doesn’t work in the summer or hold any part-time
jobs). His tuition, books, and fees total $15,000 a year. Given this information, the
annual total economic cost of Bill’s law school studies is:
A)
B)
C)
D)
E)
$45,000
$30,000
$15,000
$25,000
$60,000
6. When attempting to explain why a consumer buys a Volvo instead of a Toyota or an
Apple computer instead of an HP computer, an economist would assert:
A) That the consumer is making a decision based on what gives them most utility
per dollar spent
B) That everyone knows Toyotas are superior to Volvos; the consumer cannot
possibly be maximizing his utility
C) That everyone knows HP computers are superior to Apple computers; the
consumer may be maximizing his utility at the margin, but is not maximizing total
utility
D) That there is no standard explanation for consumer choices because consumers
have varied tastes and preferences
E) Since a consumer has imperfect information, she purchases goods based on
convenience rather than on utility maximization
7. The additional satisfaction that a consumer receives from one more unit of a good or
service is known as _____.
A)
B)
C)
D)
E)
Disutility
Profit
The law of diminishing marginal utility
Marginal utility
Total utility
8. A change in the quantity demanded (but not a change in demand) of any good is always
caused by:
a)
b)
c)
d)
e)
A change in the price of that good
A change in consumers’ preferences for that good
A change in the general income levels of the consumers who buy that good
An increase or decrease in the population
A change in the price of substitute goods
9. Suppose you and a friend go out for coffee and donuts at the local Krispy Kreme. The
first donut you eat tastes incredibly good. The second one also tastes pretty good. The
third donut seems just okay. The fourth donut makes you sick. Your friend, an
economist, describes your experience as the principle of:
A)
B)
C)
D)
E)
Utility maximization
Irrationality in consumer behavior
Instant gratification
Differing tastes and preferences
Diminishing marginal utility
10. An unattainable point on a production possibilities graph can be illustrated by
A)
B)
C)
D)
E)
A shift in the production possibilities curve inward
Any point on the left side of the graph
Any point on the production possibilities curve
A point on the outside of the production possibility curve
A point inside the production possibility curve
11. Which type of economic system would Adam Smith and Milton Friedman be most likely
to support?
A)
B)
C)
D)
E)
Command
Mixed
Traditional
Totalitarian
Market
12. Which of the following statements about a price ceiling is accurate?
A)
B)
C)
D)
E)
An effective price ceiling must be placed above the equilibrium price
An effective price ceiling must be placed below the equilibrium price
A price ceiling will increase the quantity of the good supplied
A price ceiling will cause a shift in the demand curve for the good
A price ceiling will have no effect on the quantity of the good supplied
13. Which of the following would be considered human capital in the production of
computers?
A)
B)
C)
D)
Knowledge to build and assemble computers
The computers themselves
Workers that put together the materials
Trucks that drive the computers to the store
E) The metal which comes from the earth used to produce the computers
14. What are the two assumptions that economists make regarding consumers?
A)
B)
C)
D)
E)
People are irrational and love money
People love giving money but hate receiving it
People are mostly rational and use money to maximize their total satisfaction
People are irrational and use money to maximize their total satisfaction
People use their money in the least costly way and act irrationally
15. If the average household income rises and the demand for luxury cars increases as a
result, a luxury car must be
A)
B)
C)
D)
E)
An inferior good
A superior good
A normal good
A complementary good
A substitute good
16. Everything else being equal, a decrease in the price of melons will cause
A)
B)
C)
D)
E)
The quantity demanded of melons to increase
The supply of melons to increase
The demand for melons to increase
The quantity supplied of melons to increase
The supply of melons to decrease
17. An oven used in a pizza restaurant is an example of
A)
B)
C)
D)
E)
Productivity
Human Capital
Entrepreneurship
Physical capital
Land
18. Consumer surplus refers to
A) The surplus products that a business cannot sell to consumers due to lack of
demand
B) The difference between the highest price a consumer would pay for a product
minus the price she actually has to pay
C) Amount the seller is paid less the cost of production
D) Difference between what a producer would be willing to sell a good for and the
market price
E) Area above the demand curve and to the left of the marginal cost curve
19. What is the invisible hand theory?
A) It is the theory that free people pursuing their own self-interest will benefit
society as a whole.
B) When the stock market goes up or down suddenly it is known as the invisible
hand.
C) It can be described as the fear from living under a command economic system.
D) When resources are organized by the government and it leads to efficiency.
E) It is the theory that everyone’s money is somehow lost to the force known as the
invisible hand.
20. Which of the following would cause a rightward shift in the demand curve for golf balls?
a)
b)
c)
d)
e)
An increase in the price of golf clubs
A decrease in the popularity of golf
An increase in the number of people who play golf
A decrease in the price of golf balls
An increase in the golf club membership fee
21. Coke and Pepsi are both types of sweetened carbonated sodas. Consumers typically
purchase one or the other but not both. Coke and Pepsi can be said to be ________.
a)
b)
c)
d)
e)
Independent goods
Complements in consumption
Substitutes in consumption
Giffen goods
Inferior goods
22. If the price elasticity of demand is equal to 10, a 1 percent increase in price will cause
the quantity demanded to _____ by _____ percent.
a)
b)
c)
d)
e)
Increase; 0.1
Decrease; 0.1
Increase; 10
Decrease; 1,000
Decrease; 10
Use the graph below to answer the next 3 questions
Submarine Market
Price
Supply
700,000
500,000
300,000
Demand
0
50
100
150
Quantity
23. If a price floor was set in the submarine market at $700,000 what would be the quantity
supplied and quantity demanded?
a) Qs = 150
Qd = 50
b) Qs = 100
Qd = 100
c) Qs = 50
Qd = 150
d) Qs = 100
Qd = 50
e) Not enough Information to determine
24. Which of the following would we expect in the submarine market if a price ceiling was
set at $300,000?
a)
b)
c)
d)
e)
Producers would be building too many submarines
Consumers of submarines are much better off than before
There would be a persistent shortage of submarines available
The submarines would be of an inefficiently high quality
The price floor will cause an increase in demand for submarines
25. If the submarine market was left to market forces and there was no price restriction,
then what would the quantity supplied and demanded be?
a)
b)
c)
d)
Qs = 100
Qs = 0
Qs = 50
Qs = 150
Qd = 0
Qd = 100
Qd = 150
Qd = 50
e) Qs = 100
Qd = 100
26. Suppose 500 loaves of bread are demanded at a particular price. If that price rises by 5
percent, the quantity demanded decreases to 100 loaves of bread. This implies that:
a)
b)
c)
d)
e)
Demand is elastic
Demand is unit-elastic
The price elasticity of demand is equal to 0.4
Demand is inelastic
Consumers are not very responsive to a price change
27. Which of the following would lead to a decrease in the equilibrium price of product X?
a)
b)
c)
d)
e)
An increase in consumer incomes if product X is a normal good
A decrease in the price of the raw materials used to produce product X
A decrease in the price of good Z, a consumer complement to good X
An increase in the price of good Y, a consumer substitute for good X
An expectation by both consumers and producers that the price of good X is
going to decrease next month
28. Last year a firm was willing to sell 1,000 units of its product at a price of $15 per unit.
This year the firm is willing to make 1,000 units available, even if the price is only $12.
What is most likely to have happened?
a)
b)
c)
d)
e)
Demand has decreased
Demand has increased
Supply has increased
Supply has decreased
Quantity supplied has increased
29. A rightward shift of a market supply curve might be caused by:
a)
b)
c)
d)
e)
An increase in the wages of labor employed in the industry
An increase in the price of the final product
New firms entering the industry
A decrease in the income of consumers
An increase in the price of a substitute good
30. If the demand for kiwis increases and the supply decreases:
a) Equilibrium price will decrease, but equilibrium quantity will be unknown
b) Equilibrium price will increase and equilibrium quantity will increase
c) Demand will decrease and supply will increase
d) Equilibrium price will increase, and equilibrium quantity will be unknown
e) Both equilibrium price and equilibrium quantity will decrease
31. When a product’s elasticity of demand coefficient is 2, a ________ percent decrease in
price will _____ the quantity demanded of the product by 10 percent.
a)
b)
c)
d)
e)
5; increase
5; decrease
20; increase
20; decrease
0.2; decrease
32. If the supply of a good increases at the same time demand decreases, which of the
following will definitely happen?
a)
b)
c)
d)
e)
Equilibrium price will remain the same
Equilibrium price will increase
Equilibrium price will decrease
Equilibrium quantity will increase
Equilibrium quantity will decrease
33. When will a shortage occur in a market?
a)
b)
c)
d)
e)
When the actual price is currently lower than the true equilibrium price
When quantity supplied is exactly equal to quantity demanded
When demand decreases unexpectedly
When the quantity supplied exceeds quantity demanded
When an effective price floor is set in the market
34. Assume that at the current market price of $4 per unit of a good, consumers are willing
and able to buy 20 million units. Last year at a price of $4 per unit, consumers were
willing and able to buy 15 million units. What is most likely to have happened over the
last year?
a)
b)
c)
d)
e)
Demand has increased
Demand has decreased
Supply has increased
Supply has decreased
Quantity supplied has decreased
35. Based on Figure 1, which refers to the market for coffee (a normal good), which of the
following conditions would most likely move the point of equilibrium from B to E?
a) A decrease in the incomes of coffee buyers
b) A decrease in the price of coffee
c) An increase in the price of non-dairy creamers that are consumed along with
coffee
d) An increase in the price of tea, a substitute for coffee
e) A drought in Colombia, a major coffee grower
36. The law of diminishing marginal returns applies:
a)
b)
c)
d)
e)
In the long run because all inputs are variable
In the short run because some inputs remain fixed
In both the short run and the long run
To fixed inputs in the long run
To fixed inputs in the short run
37. Suppose that the total fixed cost of producing five golf carts is $5,000, the total variable
cost is $4,000, and the total cost of producing six golf carts is $10,000. The marginal cost
of the sixth golf cart is:
a)
b)
c)
d)
e)
$4,000
$5,000
$1,000
$9,000
$10,000
Quantity
Demanded
10
20
30
40
50
Price per Unit ($)
Quantity Supplied
5
4
3
2
1
50
40
30
20
10
38. Refer to Table 1. If government imposes a price ceiling of $2:
a) The price will be above equilibrium
b) The price will fall to $1 because producers will be forced to incur losses
c) Demand will increase
d) A surplus will result equal to 20 units
e) A shortage will result equal to 20 units
39. Refer to Table 1. If government imposes a price floor of $2:
a) The price floor will not have an effect
b) The price will fall to $1 because producers will be forced to incur losses
c) Demand will increase
d) A surplus will result equal to 20 units
e) A shortage will result equal to 20 units
40. When average total cost is at its minimum, it is:
a)
b)
c)
d)
e)
equal to average variable cost
greater than marginal cost
equal to average fixed cost
equal to marginal cost
less than marginal cost
41. The short run refers to a period of time during which:
a)
b)
c)
d)
e)
all the factors are constant
all the factors are variable
the producer can shift from one plant size to another
some factors are fixed while others are variable
the producer cannot change the level of output
42. If a firm doubles all of its resources and generates an output level which is less than
double, it is said to be experiencing:
a)
b)
c)
d)
e)
Diminishing marginal returns
constant returns to scale
diseconomies of scale
increasing marginal returns
economies of scale
43. A bakery can sell two pies for $2 each or three pies for $1.50 each. The marginal
revenue from selling a third pie is _____.
a)
b)
c)
d)
e)
$1.50
$2
$0.50
$3.50
$4.50
44. Suppose that Gorilla Glue Company (GGC), thanks to a patent, currently has a monopoly
on the market for duct tape. If GGC’s patent expires and it is replaced by a perfectly
competitive market, the new market price of duct tape would be __________ and the
quantity sold would be ____________.
A)
B)
C)
D)
E)
higher; higher
higher; lower
higher; the same
lower; lower
lower; higher
45. Which of the following statements about a monopolistically competitive market is false?
A) Firms in the market use non-price competition.
B) Firms in the market attempt to differentiate their products from their rivals with
unique product attributes.
C) Firms in the market gain nothing from advertising.
D) There are low barriers to entry into the market.
E) There are many small firms in the market
For the next 3 questions, use the table below showing the costs and revenue of a firm that
produces laptops to answer the questions.
Quantity of Laptops
Total Cost
Total Revenue
0
150
0
1
200
250
2
250
500
3
350
750
4
600
1000
5
900
1250
46. What is the average variable cost of producing five laptops?
a)
b)
c)
d)
e)
$200
$150
$350
$400
$100
47. What is the marginal cost of producing the first laptop?
a)
b)
c)
d)
e)
$50
$100
$150
$200
$250
48. When five laptops are produced how much profit is the firm earning?
a)
b)
c)
d)
e)
$100
$200
$350
$400
$1250
Answer Key
1: D
2: B
3: E
4: D
5: E
6: A
7: D
8: A
9: E
10: D
11: E
12: B
13: A
14: C
15: C
16: A
17: D
18: B
19: A
20: C
21: C
22: E
23: A
24: C
25: E
31: A
26: A
32: C
27: B/E* 33: A
28: C
34: A
29: C
35: D
30: D
36: B
*Both answer choices are correct. Mea culpa!
37: C
38: E
39: A
40: D
41: D
42: C
44: E
45: C
46: B
47: A
48: C