INTRODUCTION TO ECONOMICS – I
SAMPLE QUESTIONS
1. Markets exist because
a.
b.
c.
d.
People can produce everything they need
People are not self-sufficient
People enjoy shopping in the market
People enjoy meeting each others in the market
2. Refer to Table 1. Faisal's opportunity cost of producing a gallon of milk is __________
Jude's opportunity cost.
TABLE 1
Production of Milk and Wheat per Day
Milk (gallons)
Wheat (bushels)
a.
b.
c.
d.
Faisal
Jude
2
2
10
5
Twice as much as.
Half as much as
5 times as much as.
Equal to
3. Refer to Table 1. Which of the following is incorrect regarding the information in the table?
a. Both Jude and Faisal can be self-sufficient.
b. Jude can specialize in milk and Faisal in wheat
c. If Jude and Faisal specialize, produce, and trade one product each, both can
consume more wheat and the same amount of milk as before specialization.
d. With specialization and trade, the production and consumption of milk and wheat
increase.
4. Refer to Table 2. __________ has an absolute advantage in producing __________.
TABLE 2
Oil and Timber Production in Saudi Arabia and the U.S.
Saudi Arabia The U.S.
Oil (barrels per day) 100,000
200,000
Timber (tons per day) 200
1,000
a.
b.
c.
d.
Saudi Arabia; oil
Saudi Arabia; oil and timber.
The U.S.; Timber only.
None of the above.
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5. Refer to Table 2. __________ has a comparative advantage in oil production and
__________ in timber production.
TABLE 2
Oil and Timber Production in Saudi Arabia and the U.S.
Saudi Arabia The U.S.
Oil (barrels per day) 100,000
200,000
Timber (tons per day) 200
1,000
a.
b.
c.
d.
The U.S.; the U.S.
The U.S.; Saudi Arabia.
Saudi Arabia; the U.S.
Saudi Arabia; Saudi Arabia.
6. Which of the following is traded in the product market.
a.
b.
c.
d.
Labor.
Capital.
Natural resources.
Goods and services.
7. Households receive payments from firms:
a.
b.
c.
d.
For their inputs in the product market.
For their product in the product market.
For their product in the factor market.
For their inputs in the factor market.
8. In the circular flow diagram, firms demand __________ and households supply __________.
a.
b.
c.
d.
Inputs; output.
Inputs; inputs.
Output; inputs.
Output; output.
9. Funds can be supplied and demanded in the
a.
b.
c.
d.
Natural resources market.
Financial market.
Labor market.
Product market.
10. International trade results from:
a. Comparative advantage.
b. Differences in opportunity costs.
c. Differences in production efficiencies.
d. All of the above.
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11. A mixed economy is:
a.
b.
c.
d.
An economy that produces a variety of goods and services.
An economy plays no role in regulating economic activities.
An economy totally controlled by the government.
None of the above.
12. Economies in transition is a term used to describe economies that shift from a:
a.
b.
c.
d.
Mixed to a centrally planned economy.
Mixed to a private economy.
Centrally planned to a mixed economy.
Private to a centrally planned economy.
13. The law of demand states that:
a.
b.
c.
d.
Price and demand of a good are inversely related.
Price and demand of a good are positively related.
Price and quantity demanded of a good are positively related.
Price and quantity demanded of a good are inversely related.
14. Which of the following is not a determinant of demand?
a. The price of a good.
b. Taste.
c. The price of a substitute.
d. The cost of production.
15. Refer to Table 1. The market demand for a soft drink at a price of $0.6/can is __________
cans, which is __________ cans greater than when the price is $0.8/can.
TABLE 1
Price per
Can
Demand for Soft Drink By:
Joe
Bob
$0.5
$0.6
$0.7
$0.8
8 cans per week
7 cans per week
6 cans per week
4 cans per week
a. 18; 5.
b. 15; 10.
Jamie
10 cans per week
9 cans per week
8 cans per week
7 cans per week
5 cans per week
5 cans per week
5 cans per week
5 cans per week
c. 21; 5.
d. 16; 11.
16. Which of the following does not explain why the demand curve has a negative slope?
a. The substitution effect.
b. The income effect.
c. The multiplier effect.
d. A and B are correct.
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17. The law of supply implies that an increase in the price of a good, holding everything else
constant:
a.
b.
c.
d.
Shifts the supply curve to the right.
Shifts the supply curve to the left.
Causes a movement to the right along the supply curve.
Causes a movement to the left along the supply curve.
18. Which of the following is not a determinant of supply?
a. The cost of factors of production.
b. The price of a good.
c. Technology.
d. All of the above.
19. Refer to Figure 2., Suppose Figure 2 shows the market for gas, which panel illustrates an
increase in the price of cars?
FIGURE 2
a. Panel A.
b. Panel C.
c. Panel B.
d. Panel D.
20. Refer to Figure 2. Suppose Figure 2 shows the market for red wine. If a new published
medical report indicates that moderate amounts of red wine lower the cholesterol level,
which panel shows the changes in the market for wine?
FIGURE 2
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a. Panel A.
b. Panel C.
c. Panel B.
d. Panel D.
21. Refer to Figure 2. Suppose Figure 2 shows the airline market. A general strike by
American Airline pilots will probably cause changes in the market. Which panel shows these
changes?
FIGURE 2
a.
b.
Panel A.
Panel C.
c. Panel B.
d. Panel D.
22. Refer to Figure 3. At a price of $10 a movie, there is a __________ of __________ movies,
and at a price of $5 a movie, there is a __________ of __________ movies.
FIGURE 3
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a. Shortage; 14; surplus; 4.
b. Surplus; 14; shortage; 4.
c. Surplus; 4; shortage; 14.
d. Shortage; 4; surplus; 14.
23. An increase in the demand for a good creates a __________ and causes the price to
__________.
a.
b.
Surplus; drop.
Shortage; drop.
c. Shortage; rise.
d. Surplus; rise.
24. A technological breakthrough in the production of computers creates a __________ and
causes the price of computers to __________.
a. Surplus; drop.
b. Shortage; rise.
c. Surplus; rise.
d. Shortage; drop.
25. Refer to Figure 4. Suppose income increased and the market demand and supply changed
the way shown in the figure, which of the following is true?
FIGURE 4
a.
b.
c.
d.
The are no substitutes for those shirts.
Those shirts are inferior goods.
Those shirts are normal goods.
People's taste regarding those shirts changed.
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26. Suppose that car producers expect the price of raw material they use to increase in the
future, and car buyers expect the price of cars to increase in the future. Which of the
following will happen in the current period?
a.
b.
c.
d.
The equilibrium quantity increases and the price decreases.
The equilibrium quantity decreases and the price increases.
The price increases.
The equilibrium quantity increases.
27. Suppose a new tax on oil producers changed the supply of oil, and at the same time, the
demand for oil changed due to a harsh winter. If the change in demand exceeds the change
in the supply for oil, we know for certainty that:
a.
b.
c.
d.
Both the quantity and the price of oil increase.
Only the quantity increases.
Only the price increases.
Both the quantity and the price of oil decrease.
28. Why is the price of calculators now a lot less than the price of calculators 30 years ago?
a. Because the demand of calculators did not change in the past 30 years.
b. Because the production of calculators grew at a faster rate than the demand for
calculators in the past 30 years.
c. Because the demand for calculator grew at a faster rate than the supply of calculators in
the past 30 years.
d. Because, although the technology lowered the cost of producing calculators, the
demand did not change in the past 30 years.
29. When an increase in income results in a decrease in the quantity demanded of a good, the
good in question is:
a. A necessity.
b. A normal good.
c. A luxury.
d. An inferior good.
30. As income rises, consumers buy more steak and fewer hamburgers. Accordingly, we say
that:
a.
b.
c.
d.
e.
Steak and hamburger are normal goods.
Steak and hamburger are inferior goods.
Hamburger is an inferior good.
Steak is a superior good.
Steak and hamburger are necessities.
31. The "invisible hand" is a term Adam Smith used to describe:
a.
b.
c.
d.
the benefits of government intervention in the economy.
private market equilibrium.
how governments promote the social interest.
how individuals, each pursuing their own self interest, frequently promote the social
interest.
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e. the adverse consequences of allowing individuals to run the economy.
32. Economics is the study that:
a) Educates investors how to build their portfolios.
b) Shows businesses how to construct a balance sheet
c) Teaches businesses many efficient management techniques
d) Examines the allocation of resources among many competing users
33. Which of the following is not considered as physical capital?
a) Microsoft stocks
b) Machinery
c) Factory
d) Computers
34. A market requires:
a) Buyers and sellers
b) Sellers only
c) Buyers only
d) A physical location
35. The opportunity cost of a master's degree in economics is the cost of tuition, fees, and books.
This statement is:
a) True
b) False because the opportunity cost of the time spent in college is not included
c) False because normally master's degree students get scholarships
d) False because the inflation rate is not taken into consideration
36. The production possibilities curve does not address which of the following questions?
a) What to produce?
c) How to produce?
b) Where to produce?
d) For whom to produce?
37. Which of the following questions arise from economic scarcity?
a) What to produce?
c) How to produce?
b)
d)
Where to produce?
All of the above
38. Human capital is:
a) Labor
c) Made by physical capital
b) What an individual acquires through investing in
education
d) The skill required to be a manager
39. Which of the following is an assumption frequently used in the study of economics?
a)
b)
c)
d)
Firms always try to maximize profit.
Firms and consumers are fully informed about market conditions
Consumers always try to maximize utility.
All of the above.
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40. Refer to Figure 4. Point D can be attained by:
a)
b)
c)
d)
Technological innovations in both industries
Reallocation of resources from the car industry to the computer industry.
More efficient use of resources.
Reallocation of resources from the computer industry to the car industry.
FIGURE 4
41. Which of the following are non-price rationing devices for dividing up available supply?
a. Ration coupons.
b. Queuing.
c. Favored customers.
d. All of the above
42. Queuing refers to:
a. Obtaining coupons that entitle individuals to a certain amount of a given product per
month.
b. Receiving preferential treatment from dealers during situations of excess demand.
c. Waiting in line as a means of distributing goods and services.
d. All of above
43. Which of the following is the closest definition of the term investment?
a.
b.
c.
d.
e.
Investment is the purchase of financial assets, such as stocks and bonds.
Investment refers to the purchase of public goods.
Investment is the purchase of goods for present consumption.
Investment is the process of using resources to produce new capital.
Investment is the accumulation of previous capital.
44. Which of the following concepts is best described by the negative slope of a production
possibility frontier curve?
a.
b.
c.
d.
e.
Technological change.
Scarcity.
Full employment.
Economic growth.
All of the above.
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45. The market system, also called the price system, performs the following functions:
a.
b.
c.
d.
It determines the final mix of outputs.
It serves as a rationing device for allocating goods and services to consumers.
It ultimately determines the allocation of resources among producers.
All of the above.
46. Refer to the figure below. When market price is $1.75, which of the following is correct?
a.
b.
c.
d.
There is a surplus.
There is excess supply.
Quantity demanded is greater than quantity supplied.
All of the above.
47. Which of the following is a source of economic scarcity?
a)
b)
c)
d)
Unlimited wants and limited resources
Limited wants and limited resources
Unlimited wants and unlimited resources
Innovations
48. A production possibilities curve shows:
a) The minimum amount of factors of production required to produce a good
b) The maximum amount of two goods that can be produced using all factors of
production efficiently
c) The maximum amount of factors of production required to produce two goods
d) The maximum amount of two factors of production required to produce a good
49. When a wheat farmer decides to use more tractors than workers in his/her farm, he/she is
answering which question?
a) What to produce?
c) How to produce?
b)
d)
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Where to produce?
Why to produce?
50. Which of the following is not a factor of production?
a) Money
c) Human capital.
b) Natural resources
d) Entrepreneurship.
51. Refer to the figure below. Start at point A. To reach point D, there must be:
a.
b.
c.
d.
An increase in supply and an increase in demand.
An increase in supply and an increase in quantity demanded.
A decrease in supply and no change in demand.
An increase in supply and a decrease in demand.
52. Refer to Figure 3. A movement from Point A to Point C requires:
a)
b)
c)
d)
More factors of production
Reallocation of resources from the car industry to the computer industry.
More efficient uses of factors of production.
Reallocation of resources from the computer industry to the car industry.
FIGURE 3
53. Refer to Figure 2. Which of the following is true regarding Point B?
a) Resources are employed efficiently
b) More cars and more computers can be produced with the same amount of
resources.
c) It can be reached with more resources.
d) More cars can be produced only if the production of computers declines.
FIGURE 2
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54. Refer to the figure below. Which of the following moves best describes a change in
supply?
a.
b.
c.
d.
Either move from A to B or A to C.
Move from A to B.
Move from A to C.
Move from B to C.
TRUE (T) or FALSE (F) QUESTIONS
55. ( F / T ) An increase in market price shifts the supply curve to the right.
56. ( F / T ) An increase in supply, accompanied by an increase in demand, always leads to an
increase in equilibrium quantity.
57. ( F / T ) A road, a house, a telephone line. They all have the same name in economics
called capital.
58. ( F / T ) The ceteris paribus assumption is a device used to compare the relationship
between many variables simultaneously.
59. ( F / T ) The slope of the production possibility frontier curve shows how, in spite of
having limited resources, it is possible to produce more of one good without
decreasing the production of another.
60. ( F / T ) Economics is concerned with the functioning of the entire economy, not the
behavior of individual units.
64. ( F / T ) Even a society was richly endowed (owned) with natural resources, it would face
the economic problem.
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