Economics 12: Chapter 1: Quiz 1 (Principles 5 – 10)
Version 2
Note:
 This Quiz is worth 10 points and will be graded towards your final mark.
 Only answers written on the answer sheet will be graded.
 Cheating will result in a score of 0 for this assessment.
Answer A, B, C or D for Questions 1-10. Indicate the appropriate letter
grade on your answer sheet.
1. Which of the following words economically defines ‘the impact of one person’s
actions on the well-being of a bystander’?
A.) Free-market.
B.) Market Power.
C.) Externality.
D.) Market Failure.
2. The term, ‘Inflation’ is best described as ...
A.
B.
C.
D.
a period of rising productivity in the economy.
a period of rising income in the economy.
an increase in the overall level of output in the economy.
an increase in the overall level of prices in the economy.
3. There exists a positive relationship between a country’s ...
A.) prices for its good and its exports.
B.) productivity and its standard of living.
C.) tax rates and its government income.
total population and its per-capita income.
4. Trade can benefit a family by allowing the family members to ...
i. be free of economic competition with one another.
ii. buy a greater variety of goods at a lower cost.
iii. purchase at the highest available price.
iv. specialize in what they do best.
Which one of the following correctly complete the statement?
A.) i and iv.
B.) i and ii.
C.) ii and iv.
iii and iv 10.
5. Which one of the following is the most accurate statement about markets?
A.) Markets
B.) Markets
activity.
C.) Markets
D.) Markets
activity.
are not a sensible mechanism to organize economic activity.
are inferior to central planning as a way of organizing economic
are usually the best way to organize economic activity.
fail and are therefore not an acceptable way to organize economic
6. The primary reason for a country’s standard of living is ...
A.) the average age of the country’s labor force.
B.) its ability to produce goods and services.
C.) its ability to reduce foreign competition.
D.) the total supply of money in the economy.
7. In the situation where there are no government protections of property rights ...
A.) regulations would result in lower prices for consumers.
B.) owners of resources would pay more in taxes.
C.) consumers would be happy to purchase assets.
D.) businesses would be less willing to provide goods.
8. When the Zimbabwean government massively increased the quantity of money
in the Zimbabwean economy in 2008, ...
A.) many people in Zimbabwe became rich.
B.) the unemployment rate decreased.
C.) Zimbabwe experienced hyper-inflation.
D.) Zimbabwe was able to repay all its foreign debts.
9. Which one of the following is the most accurate statement about trade?
A.) Trade can make every nation better off.
B.) Trade helps rich nations and hurts poor nations.
C.) Trade makes some nations better off and others worse off.
D.) Trade can make nations better off only if the nation cannot produce that
good itself.
10. What do we call the situation when markets are unable to allocate resources
efficiently?
A.) corporate bankruptcy.
B.) inequality.
C.) market failure.
D.) market meltdown.
Economics 12: Chapter 1: Practical Application B
Version 2
(Principles 5 – 10)
Note:
 This practical application is worth 20 points and will be graded towards your
final mark.
 Only answers written on the answer sheet will be graded.
 Cheating will result in a score of 0 for this assessment.
Answer A, B, C or D for Questions 1-20. Indicate the appropriate letter
grade on your answer sheet.
1. Senator Smart is trying to convince workers in her district that trade with other
countries is beneficial. Senator Smart argues that trade can be beneficial
A.) only if it allows us to obtain things that we couldn’t make for ourselves.
B.) because it allows specialization, which increases total output.
C.) to us if we can gain and the others involved in the trade lose.
D.) in only a limited number of circumstances because others are typically selfinterested.
2. Which of the following best explains how an attempt by the government to lower
inflation could cause unemployment to increase in the short-run?
A.) Government prints more money; demand increases faster than goods are
produced so that demand becomes greater than supply; prices rise; workers
are laid off or fired.
B.) Government prints more money; people spend the extra money supply;
businesses try to keep most of the profits by reducing the money spent on
hiring workers.
C.) Government reduces the money supply in the economy; people panic and save
their money supply instead of spending; businesses do not make money and
therefore fire workers.
D.) Government reduces the money supply in the economy. prices do not adjust
immediately. Lower spending combined with prices, which are too high,
reduces sales and causes businesses to fire workers.
3. Peru produces wheat very efficiently, its trading partner Kenya specializes in
harvesting tea. Both countries want to buy what the other country produces.
We know that each country will
A.) be better off by focusing all its resources on producing everything it needs to
be self-sufficient.
B.) achieve economies of scale by producing everything that it needs.
C.) be better off by specializing its productive efforts on producing one good and
buying the other good from the other country.
D.) be better off if it buy all the goods it needs from another country and does not
produce any goods themselves.
4. Government can get involved in a failed market to create higher efficiency by
A.) ensuring that all prices are low.
B.) breaking up monopolies.
C.) choosing which goods and services should be sold.
D.) making laws against profit maximization.
5. In the early 1980s, U.S. economic policy was directed toward reducing inflation.
What would you assume about inflation and unemployment during this period?
A.) Inflation fell and unemployment fell.
B.) Inflation fell and unemployment were both unaffected.
C.) Inflation fell and unemployment was unchanged.
D.) Inflation fell and unemployment increased.
6. Switzerland and Italy only make 2 products – computers and cellphones. The
amount of each product that both countries make an hour is shown in the table
below.
Using the information in the table, identify which country has a higher standard
of living.
Switzerland
Italy
58 250
54 650
A.) Italy
B.) Switzerland
Computers
C.) We cannot use this table to determine which
100 900
100 800
Cellphones
country has a higher standard of living.
D.) Both Italy and Switzerland have the same standard of living.
7. In the diagram, W, X, Y and Z represent different stages of a business cycle.
Which one of the following corresponds with the order of letters in the diagram?
A.) contraction, trough, expansion, peak.
B.) contraction, expansion, peak, trough.
C.) expansion, contraction, trough, peak.
D.) expansion, peak, contraction, trough.
8. The slow growth in the standard of living in the United States during the 1970s
and 1980s can best be explained as ...
A.) a decline in the rate of increase in US productivity.
B.) a strong US dollar abroad, hurting US exports.
C.) increased competition from Canada.
D.) unstable economic conditions in Western Europe.
9. Before its collapse, the Union of Soviet Socialist Republics(USSR) operated on the
premise that economic well-being could be organized only through ...
A.) a market economy.
B.) government central planners.
C.) government-controlled private monopolies.
D.) increased competition.
10. Which one of the following statements is consistent with the Phillips Curve?
A.) If the rate of
short-run.
B.) If the rate of
short-run.
C.) If the rate of
long-run.
D.) If the rate of
long-run.
inflation increases, then the unemployment rate will fall in the
inflation increases, then the unemployment rate will rise in the
inflation increases, then the unemployment rate will fall in the
inflation increases, then the unemployment rate will rise in the
11. If a sawmill(factory) creates too much air pollution, this is an example of a ...
A.) negative producer externality.
B.) positive producer externality.
C.) negative consumer externality.
D.) positive consumer externality.
12. Which one of the following activities will most likely result in a positive
externality?
A.) An elderly woman plants a flower garden on a vacant plot next to her house.
B.) A university student downloads a computer game to play in her room.
C.) A 17-year-old buys a new pair of headphones with the allowance money she
has saved.
D.) An executive purchases a book to read on a business trip.
13. The term that best describes the amount of goods and services produced from
each hour of a worker’s time is...
A.) average output.
B.) marginal benefit.
C.) efficiency.
D.) productivity.
14. Which one of these activities will most likely cause an externality?
A.) A CEO playing a game of golf.
B.) A group of children leaving school after finishing lessons.
C.) A woman performing her daily tai chi exercises.
D.) An employee eating a sandwich during his lunch break.
15. Which one of the following observations was made famous by Adam Smith in his
book, ‘The Wealth of Nations’?
A.) Households and firms are guided by an ‘invisible hand’.
B.) No matter how much workers earn, they will always spend more.
C.) People buy more when prices are low than when prices are high.
D.) There is no such thing as a free lunch.
16. Prices direct economic activity in a market economy by ...
A.) allocating goods and services produced in the most efficient way.
B.) eliminating the need for government intervention.
C.) influencing the actions of buyers and sellers.
D.) reducing scarcity of the goods and services produced.
17. Which one of the following is an example of market power?
A.) a fast food restaurant in a university town.
B.) a clothing store in Wuhan.
C.) citrus farmer in Southern China.
D.) the only petrol station within a radius of 500 kilometers.
18. In a _________ the decisions of firms and households are guided by competition
and self-interest.
A.) command economy
B.) global economy
C.) market economy
D.) traditional economy
19. A worker in Bangladesh can earn $1 per day making cotton cloth by hand. A
worker in the US can earn $100 per day making cotton cloth on a machine. What
accounts for the difference in wages?
A.) Bangladesh has a high-wage policy to make its textile industry more
competitive in world markets.
B.) Labor is more productive when making cotton cloth on a machine than by
hand.
C.) There is little demand for cotton cloth in Bangladesh and great demand in the
US.
D.) US textile workers do not belong to a trade union.
20. A typical worker in Malaysia can produce 25 products in an 8 hour day, whereas
a typical worker in Indonesia produces 25 products in a 10 hour day. We can
conclude that ...
A.) productivity for the Indonesian worker is 3.0 products per hour and 1.5
products per hour for the Malaysian worker.
B.) the standard of living will be higher in Malaysia than in Indonesia.
C.) there will be no difference between the standard of living in Malaysia and
Indonesia.
D.) worker productivity in Indonesia is higher than in Malaysia.
-End of Practical Application-