SAMPLE EXAM QUESTIONS (EXAMS 1-2)
1. In a command economy, as opposed to a market economy, the basic economic questions are answered
by:
a) the government.
b) the markets.
c) consumer sovereignty.
d) None of the above.
2. The concept of opportunity cost is illustrated by:
a) a movement from the interior of the production possibilities curve to the frontier.
b) a movement from the production possibilities curve to its interior.
c) a movement from a point on the production possibilities curve to the northeast.
d) a movement along the production possibilities curve, as production of one good falls in order to increase
production of another.
e) an inward shift of the production possibilities curve.
3. A decrease in the equilibrium price of a good could be the result of
a) an increase in the price of a substitute good.
b) an increase in income if it is a normal good.
c) an increase in worker productivity in that market, which lowers production costs.
d) a growing population.
4. Which of the following is a normative statement?
a) Health care costs too much.
b) Hospital bills are greater in Canada than the United States.
c) Pharmaceutical companies earn profits from selling prescription drugs.
d) An effective price ceiling on drug prices will cause excess demand.
5.
a)
b)
c)
d)
e)
If an economy is operating inside its production possibilities curve for tanks and bread:
scarcity does not exist.
all resources are being used efficiently.
production of bread can only increase by sacrificing the production of tanks.
production of bread and tanks can both increase.
the economy is operating at full employment.
6. Jenny gives a nonrefundable $100 fee to a bus company to reserve a bus for her sorority sisters to
travel to San Francisco for the weekend. If she sells 20 tickets at $4 each for a total of $80,
should Jenny cancel the trip?
a) Yes, because she will lose $20 on the venture.
b) No, because losing $20 is better than losing the full $100 nonrefundable bus fee.
c) Yes, because the $100 is lost no matter what.
d) No, because she is making $80.
7. During an economic downturn when consumer income falls, the demand for ice cream increases
and the demand for chocolate cake decreases. This implies that
a) ice cream and chocolate cake are complements.
b) ice cream is a normal good and chocolate cake is an inferior good.
c) ice cream is an inferior good and chocolate cake is a normal good.
d) ice cream is an economic bad and chocolate cake is an economic good.
8. Which of the following is NOT likely an opportunity cost of attending college?
a) The tuition you pay.
b) The cost of the food that you consume while you are attending college.
c) The alternative uses of the time you spend studying.
d) The income you could have earned if you didn’t attend college.
9. If there is a shortage in a free market, then:
a) consumers competing for a limited quantity supplied will force up the price of a good above equilibrium.
b) consumers competing for a limited quantity supplied will drive up the price of the good to equilibrium.
c) suppliers will decrease their output to match demand.
d) suppliers will accept any price below equilibrium.
10. Prices in a market economy perform a rationing function because they reflect:
a) the demand of all buyers in the market.
b) the extent to which the goods are necessities.
c) the strength of the supply curve.
d) the relative scarcity of the goods.
11. If bagels and croissants are substitute goods, which of the following is likely to occur if the price of
bagels has decreased?
a) the demand curve for bagels shifts to the right
b) a leftward movement along the bagel demand curve
c) the demand curve for croissants shifts to the right
d) the demand curve for croissants shifts to the left
12. If the demand for tea decreases when income falls, tea is:
a) an inferior good.
b) a substitute good.
c) a normal good.
d) both complimentary and inferior.
13. Which of the following pairs of goods would NOT be complements?
a) gasoline and motor oil
b) hot dog buns and hot dogs
c) beer and wine
d) razors and razor blades
14. Which of the following does NOT cause a shift in demand?
a) change in income
b) change in tastes
c) change in the price of the good
d) change in the price of a related good
15. Which of the following statements about scarcity is TRUE?
a) Scarcity is no longer a problem for industrialized countries.
b) Scarcity exists in all societies.
c) Scarcity is a problem only for greedy people.
d) Scarcity is a problem only in countries that do not use markets to organize economic activity.
16. A country operates inside its production possibilities curve; this may be caused by:
a) unemployment.
b) total efficiency in industry.
c) a new resource being discovered.
d) a lack of modern products being produced.
17. Which of the following would result in a movement along the production possibilities curve?
a) a fall in the unemployment rate
b) growth in the capital stock
c) population growth
d) a change in the composition of two goods that a society chooses to produce
18. Which of the following is NOT a determinant of consumer demand?
a) income
b) tastes and preferences
c) prices of related goods
d) the number of producers in the market
19. An increase in quantity demanded is caused by
a) an increase in income.
b) a decrease in the price of the good.
c) a decrease in the price of a complement.
d) a change in expectations about price in the future.
20. Which rationing mechanism is most efficient at getting goods and services to the
people to value them the most?
a) first come, first served
b) price
c) lotteries
d) last come, first served
21. In his book An Inquiry into the Nature and Causes of the Wealth of Nations, economist Adam Smith
argued that individuals:
a) tend to act in an altruistic manner.
b) always consider the impact of their actions on the welfare of others.
c) are motivated by self-interest.
d) are generally not concerned with economic questions.
22. The ceteris paribus assumption is important in economics since:
a) all empirical data is equal.
b) it would be impossible to relate the effects of changes in one variable on another without holding some
variables constant.
c) data is rarely used for predictions.
d) models are always complex and require as many variables as possible
23. A person is considering traveling round-trip from State College to Boston. A plane trip takes two hours
each way and costs $200 round trip. A bus trip takes 12 hours each way and costs $100 round trip. If this
person values their time at $10/hr, what form of transportation should they take?
a) the bus
b) the plane
c) neither, a car trip would cost less.
d) We can’t tell given the information in the question.
24. Which is the best example of Adam Smith’s “invisible hand” principle of self-interest?
a) A customer switches lanes at the checkout when it becomes obvious to them that the other lane is
moving quicker.
b) A video store charges twice as much for DVDs as VHS tapes.
c) Ice cream from the Creamery is made from all natural ingredients.
d.) Businesses charge the highest price possible.
25. A virulent disease spreads throughout the population of an economy, causing death and disability.
This can be portrayed as:
a) a movement from a point on the production possibilities curve to a point inside the production
possibilities curve.
b) a movement from a point on the production possibilities curve to the northeast.
c) a movement along the production possibilities curve to the southeast.
d) an outward shift of the production possibilities curve.
e) an inward shift of the production possibilities curve.
26. Which of the following will not shift the production possibilities curve in an inward direction?
a) a sharp increase in the unemployment rate
b) a decrease in the capital stock
c) land is contaminated due to a nuclear meltdown
d) a devastating war destroys both property and people
e) an outbreak of a new and deadly strain of tuberculosis
27. As a result of an increase in a product's price:
a) product supply increases.
b) product supply decreases.
c) product supply does not change, but quantity supplied increases.
d) the impact on product supply is uncertain. Economic theory has no answer to this question.
28. All of the following factors will affect the supply of shoes except one. Which will not affect the supply
of shoes?
a) higher wages for shoe factory workers
b) higher prices for leather
c) a technological improvement that reduces waste of leather and other raw materials in shoe production
d) an increase in consumer income.
29. Which of the following would cause the quantity of wheat bread demanded to increase, but not the
demand for wheat?
a) a reduction in the price of rye, used to produce rye bread
b) a new scientific study demonstrating that wheat bread reduces the risk of colon cancer
c) a decrease in the price of rye bread
d) an increase in the number of farmers growing wheat
e) an increase in the price of wheat flour
30. The production possibilities model:
a) is a graph showing the limits to what a society can produce.
b) assumes that resources can produce all outputs with equal ability.
c) is drawn assuming a fluctuating level of technology.
d) identifies which combinations of output is "best" for society.
31. The opportunity cost of an action includes:
a) the monetary expenses incurred as a result of the action.
b) the highest valued alternative use of the time spent on the action.
c) the benefits received as a result of the action.
d) all of the above.
e) only a) and b).
32. Economics is best defined as the study of how societies:
a) satisfy everybody's wants and needs.
b) allocate scarce resources among competing uses.
c) eliminate the problems associated with scarcity.
d) maximize profits for the majority of firms.
33. When there is an excess quantity supplied of a product at the current price, then:
a) the market price must be below equilibrium price.
b) the market price will tend to rise.
c) the market price must be above equilibrium price.
d) the market price will tend to fall.
e) both c) and d) will occur.
34. A decrease in supply, ceteris paribus:
a) causes both equilibrium price and quantity to increase.
b) causes both equilibrium price and quantity to decrease.
c) causes equilibrium price to increase and equilibrium quantity to decrease.
d) causes equilibrium price to decrease and equilibrium quantity to increase.
35. Which of the following represents a capital resource, as economists use the term?
a) A factory
b) Iron ore deposits
c) Stocks and bonds
d) An unskilled worker
True (A) or False (B)
36. If the market for peaches is in equilibrium at $2.99 per pound, a decrease in the supply of peaches will
cause a surplus of peaches at that price.
37. A technological advance which reduces the cost of producing computers will shift the supply curve of
computers to the left.
38. One commits the fallacy of composition when one assumes that what is true for the whole is true for the
individual.
39. In a market economy, prices help determine the distribution of goods and services but not the
allocation of resources.
40. There are four factors of production: land, labor, capital and entrepreneurship.
Answers: 1A 2D 3C 4A 5D 6B 7C 8B 9B 10D 11D 12C 13C 14C 15B 16A 17D 18D 19B 20B
21C 22B 23B 24A 25E 26A 27C 28D 29D 30A 31E 32B 33E 34C 35A 36B 37B 38B 39B 40A