Department of Economics
University of Lethbridge
Econ 1010A
Practice Questions – Chapter 2
1. Market economies are based upon
A) private property and individual good will towards others.
B) government planning and individual good will towards others.
C) government planning and individual self-interest.
D) private property and individual planning.
2. Historically, the distinction between socialism and capitalism has become
A) more pronounced as capitalist countries have eliminated reliance on government
planning.
B) more pronounced as socialist countries have eliminated reliance on markets.
C) less pronounced as both capitalist and socialist countries have both eliminated
reliance on government planning.
D) less pronounced as government's economic role in capitalist countries has increased
and socialist countries have integrated some capitalist institutions.
A
B
Pre-K toys
Children's toys
Children's toys
Use the following to answer question 3:
C
D
Pre-K toys
3. Which of the following would be most likely to shift Iraq's production possibility curve
in?
A) Damage done to its human and capital resources during the U.S.-led invasion.
B) Attacks by insurgents opposed to the U.S. presence.
C) Aid given by foreign countries.
D) All of the above.
E) A and B.
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Use the following to answer question 4:
Good Y
A
B
C
D
Good X
4. Refer to the graph above. If the production possibility curve shifts along its y-axis, point
__ will remain an efficient point of production:
A) A
B) B
C) C
D) D
5. Which two systems require the least amount of government intervention?
A) Mercantilism and capitalism.
B) Feudalism and socialism.
C) Capitalism and feudalism.
D) Mercantilism and socialism.
6. Which of the following is NOT one of the three principal components of a command
economy compared to a market economy?
A) Government ownership of means of production, rather than private ownership as in
capitalism.
B) Workers directed by a government planning board as to where they will work and
how much they will be paid.
C) Entrepreneurs are encouraged by the profit motive, rather than government
directive, to satisfy consumer wants in the most efficient manner possible.
D) Distribution is according to need, as determined by central planners, rather than by
ability.
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7. A mixed economy is
A) a blend of a market economy and a command economy.
B) the government makes all the economic decisions.
C) the government has no role to play in the economy.
D) another name for communism.
E) an economy based on altruism.
8. Soviet-style socialism is an economic system
A) that tries to organize society the way that most families are organized and strives to
see that individuals get what they need.
B) based on central planning and government ownership of the means of production.
C) based on private property rights.
D) based on markets.
9. The production possibility curve is least useful when
A) choices are sequential and institutions are changing.
B) choices are sequential and institutions are not changing.
C) choices are not sequential and institutions are not changing.
D) choices are not sequential and institutions are changing.
10. The principle of increasing marginal opportunity holds in which of the following cases?
A) All inputs are equally adaptable to the production of all goods.
B) The production possibility curve is a downward sloping straight line.
C) All inputs are not equally adaptable to the production of all goods.
D) Each input can be used to produce more than one good.
11. The two economic groups competing for power during the transition from mercantilism
to capitalism were
A) craft guilds and industrialists.
B) serfs and craft guilds.
C) craft guilds and the lords of the manor.
D) merchants and the lords of the manor.
12. The invisible hand explains how
A) self-interested individuals can undermine the public interest.
B) self-interested individuals can promote the public interest.
C) altruistic individuals can promote the public interest.
D) altruistic individuals can undermine the public interest.
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13. Which of the following is the best example of a command economy?
A) Canada.
B) The United States of America.
C) North Korea.
D) All of the above are good examples of command economies.
E) None of the above are good examples of command economies
14. Capitalism and socialism have not existed forever. Capitalism came into existence in the
________________ and socialism came into existence in the __________________.
A) mid 1800s; early 1900s
B) early 1900s; mid 1800s
C) mid 1700s; early 1900s
D) early 1900s; mid 1700s
15. The principle of increasing marginal opportunity costs states that the
A) initial opportunity costs are high, but they decrease the more you concentrate on the
activity.
B) initial opportunity costs are low, but they increase the more you concentrate on the
activity.
C) initial opportunity costs are high, but they increase the more you concentrate on the
activity.
D) initial opportunity costs are low, but they decrease the more you concentrate on the
activity.
16. Which of the following was not one of Marx's predictions?
A) Capitalism would evolve into feudalism.
B) Competition among capitalists would fall.
C) Firms would become larger and larger.
D) Capitalism in its pure form had to change.
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Use the following to answer question 17:
C
Guns
Guns
C
A
Butter
(a)
B
B
D
Butter
A
(b)
17. Refer to the graphs above. The discovery of a new supply of resources used only in the
production of guns can be shown by which movement?
A) From A-B to C-D in Graph A.
B) From C-D to A-B in Graph A.
C) From A-B to A-C in Graph B.
D) From A-C to A-B in Graph B.
18. The Soviet socialist economy fell apart primarily because
A) it was based on barter rather than monetary exchange.
B) individuals are not motivated by self interest.
C) workers lacked incentives to work and production was inefficient.
D) markets failed to develop.
19. The production possibility curve of a particular decision
A) depends on existing institutions.
B) depends on purely technical phenomenon.
C) depends on purely economic phenomenon.
D) does not depend on the economic system.
20. Which of the following is NOT a characteristic of a market economy?
A) Government ownership of capital.
B) Private ownership of land.
C) Freedom of enterprise.
D) Workers are free to seek the jobs of their choice.
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21. The difference between capitalism and mercantilism is that under capitalism,
A) craft guilds rather than merchants own capital.
B) the "invisible hand" is more important than the government.
C) industrialists' views are represented by craft guild organizations.
D) the state plays a more active role in coordinating economic activity.
Use the following to answer question 22:
Mary
Economics
Math
5
0
4
1
3
2
2
3
1
4
0
5
Paul
Economics
15
12
9
6
3
0
Math
0
1
2
3
4
5
22. Given Mary and Paul's production possibility tables for answering economics and math
problems in a day, if they work together, what is the least number of days they would
need to solve 45 economics problems and 15 math problems?
A) 3.
B) 4.
C) 5.
D) 6.
Use the following to answer question 23:
First Bakery
Cookies
Pies
0
15
10
12
20
9
30
6
40
3
50
0
Second Bakery
Cookies
Pies
0
20
20
16
40
12
60
8
80
4
100
0
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23. Given the production possibility tables for First and Second Bakeries presented above,
the opportunity cost of producing cookies
A) is higher at First Bakery.
B) is higher at Second Bakery.
C) is the same at both bakeries.
D) cannot be computed without further information.
24. If a country takes advantage of the comparative advantage of some resources over
others its production possibility curve is likely to be
A) flat.
B) straight.
C) bowed outward.
D) bowed inward.
25. Treating efficiency as identical to productive efficiency
A) assumes that consumption above some minimum is immoral.
B) makes sense only if society wants what is produced to be fairly distributed.
C) would be wrong under any assumption.
D) assumes society prefers more to less and that the distributional effects of the chosen
production method are not undesirable.
26. If no resources had a comparative advantage in the production of any good, the
production possibility curve would be
A) bowed outward.
B) bowed inward.
C) a horizontal line.
D) a downward sloping straight line.
Initial cost
Use the following to answer question 27:
Repair cost
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27. Refer to the graph above. The production possibility curve demonstrates the tradeoff
between initial cost of a car relative to repair costs. It tells us that as initial costs increase
A) repair costs increase at an increasing rate.
B) repair costs decrease at an increasing rate.
C) repair costs increase at a decreasing rate.
D) none of the above.
28. "Welfare capitalism" is meant to describe an economic system in which
A) market forces are modified by government intervention.
B) capitalists rather than managers make the primary decisions affecting society's
welfare.
C) capitalists rather than political pressure groups set welfare policies.
D) market forces rather than governments make the fundamental welfare decisions for
society.
29. A resource is said to have a comparative advantage if
A) it is better suited to the production of one good than to the production of an
alternative good.
B) it is equally suited to the production of all goods.
C) its suitability to the production of one good changes as it produces more of that
good.
D) its suitability to the production of one good does not change as it produces more of
that good.
Good Y
Use the following to answer question 30:
A
B
Good X
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30. Refer to the graph above. Recent proposals by U.S. lawmakers to cut down the size of
government programs and expand the private sector through major changes in existing
institutions will, if enacted, have what effect on the production possibility curve in the
short run?
A) Shift from A to B.
B) Shift from B to A.
C) Remain at A.
D) Remain at B.
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