Unit 1 and 2 Review
Multiple Choice
Identify the choice that best completes the statement or answers the question.
____
1. You can either spend $100 on a new economics textbook or a new CD player. If you choose to buy the new
economics textbook, the opportunity cost is:
A. $100.
B. the new economics textbook.
C. both the $100 and the new CD player.
D. impossible to determine.
E. the new CD player.
____
2. A new fast-food restaurant offered a free meal (valued at $5) a week for a year to its first 100 customers.
Ramona camped out for 48 hours before the opening to be one of the first 100 customers. The cost of the free
meal a week for a year for Ramona was:
A. zero.
B. $260.
C. whatever she would have done with those 48 hours.
D. the cost is impossible to determine.
E. $500
____
3. The best measure of the opportunity cost of any choice is:
A. the monetary cost of that choice.
B. whatever you have given up to make that choice, even if no monetary costs are involved.
C. the cost associated with not taking full advantage of the opportunity offered by that choice.
D. your hourly wage.
E. the cost associated with producing the item you choose to buy.
____
4. Which of the following principles underlie the economics of individual choices?
A. There are gains from trade.
B. Markets move toward equilibrium.
C. People usually exploit opportunities to make themselves better off.
D. Resources should be used as efficiently as possible to achieve society's goals.
E. One person’s spending is another person’s income.
____
5. Of the following statements, which reflect(s) a normative view?
I. The U.S. needs to increase the minimum wage to $10 per hour.
II. An effective minimum wage results in unemployment.
III. An effective minimum wage is a form of a price floor.
A. I only
B. I and II only
C. II only
D. II and III only
E. I and III only
____
6. “During the Great Depression, consumers and producers in the United States dramatically reduced their
spending relative to the quantity of goods and services available at the time.” This statement best represents
the economic concept of:
A. resources are scarce.
B. when markets don't achieve efficiency, government intervention can improve society's
welfare.
C. overall spending sometimes gets out of line with the economy's productive capacity.
D. government policies can change spending.
E. people usually exploit opportunities to make themselves better off.
____
7. When overall price levels rise over time, this is referred to as:
A. deflation.
B. inflation.
C. purchasing power parity.
D. the consumer price index.
E. the foreign exchange index.
____
8. Technological improvements will:
A. leave the production possibility curve unchanged.
B. shift the production possibility curve inward.
C. shift the production possibility curve outward.
D. necessarily lead to increased unemployment.
E. increase the slope of the production possibility curve.
____
9. The production possibility curve for producing goods X and Y is bowed out from the origin because:
A. resources are not equally suited for the production of both goods.
B. resources are scarce.
C. economic growth leads to inefficiency.
D. resources are inefficiently used.
E. consumers don’t view goods X and Y as equally substitutable.
____ 10. Suppose that Indiana produces only steel and corn with fixed amounts of land, labor, and capital resources.
Which of the following best reflects the potential for economic growth of the Indiana economy?
A. The unemployment rate in Indiana falls from 6% to 5%.
B. The U.S. experiences a devastating drought.
C. The percentage of Indiana residents with a college degree rises from 25% to 30%.
D. The U.S. imports more and more low-cost steel from Asian countries.
E. The unemployment rate in Indiana rises from 8% to 10%.
Figure 3-8: Sugar and Freight Trains
____ 11. Use the “Sugar and Freight Trains” Figure 3-8. Suppose the economy is operating at point C. The
opportunity cost of producing the fourth freight train would be:
A. 19 tons of sugar.
B. 45 tons of sugar.
C. 80 tons of sugar.
D. 3 freight trains.
E. 100 tons of sugar.
____ 12. At the point at which it is currently producing, the United States must give up the production of 500 bicycles to
produce 20 additional tractors. The opportunity cost of producing 100 bicycles is ________ tractor(s).
A. 1
B. 4
C. 25
D. 100
E. 5
____ 13. At the point at which it is currently producing, the United States must give up the production of 500 bicycles to
produce 20 additional tractors. The opportunity cost of producing 5 tractors is ________ bicycles.
A. 5
B. 20
C. 100
D. 125
E. 150
____ 14. If the opportunity costs of production are constant, then the production possibility curve is:
A. bowed out from the origin.
B. bowed in toward the origin.
C. a straight line.
D. circular.
E. a U-shaped curve.
____ 15. Specialization and trade usually lead to:
A. lower economic growth.
B. the exchange of goods and services in markets.
C. lower living standards.
D. higher prices.
E. less efficiency.
____ 16. Which book illustrates the advantages of specialization using an eighteenth-century pin factory?
A. Free to Choose by Milton Friedman.
B. The Wealth of Nations by Adam Smith.
C. Das Kapital by Karl Marx.
D. The General Theory by John Maynard Keynes.
E. The Audacity of Hope by Barack Obama.
____ 17. Beth and Alice decide to trade services. Beth promises to do Alice's taxes, and in exchange, Alice will create
several spreadsheets for Beth's household budget. This mutual agreement of trade will most likely:
A. be beneficial to both individuals.
B. hurt both individuals.
C. help Beth, but hurt Alice.
D. help Alice, but hurt Beth.
E. neither help nor hurt these individuals as they are not exchanging money for these services.
____ 18. Trade can be beneficial to an economy because:
A. it results in a more efficient use of the combined resources of some of the trading countries,
even though it reduces efficiency in others.
B. more goods and services can be obtained at a lower opportunity cost.
C. it prevents specialization in those activities in which countries have a comparative
advantage.
D. it prevents unemployment.
E. it allows wealthy nations to exploit the natural resources of poorer nations.
Sweden and Finland produce only two goods, herring and cell phones, and this table shows the
maximum amount that each nation can produce of the two goods.
Sweden
Finland
Herring
100,000
50,000
Cell phones
10,000
10,000
Table 4-3: Comparative Advantage I
____ 19. Use Table 4-3. The opportunity cost of producing 1 unit of cell phones for Sweden is:
A. 10 units of herring.
B. 1/5 unit of herring.
C. 5 units of herring.
D. 1/10 unit of herring.
E. 10 units of cell phones.
____ 20. Use Table 4-3. The opportunity cost of producing 1 unit of herring for Sweden is:
A. 10 units of cell phones.
B. 1/5 unit of cell phones.
C. 5 units of cell phones.
D. 1/10 unit of cell phones.
E. 10 units of herring.
Figure 4-2: Comparative Advantage
Eastland and Westland produce only two goods, peaches and oranges, and this figure shows each nation's
production possibility curve for the two goods.
____ 21. Use the “Comparative Advantage” Figure 4-2. Eastland has a comparative advantage in producing:
A. oranges only.
B. peaches only.
C. both oranges and peaches.
D. neither oranges nor peaches.
E. a combination of oranges and peaches.
____ 22. If the opportunity cost of manufacturing automobiles is higher in the United States than in Britain and the
opportunity cost of manufacturing airplanes is lower in the United States than in Britain, then the United States
will:
A. export both airplanes and automobiles to Britain.
B. import both airplanes and automobiles from Britain.
C. export airplanes to Britain and import automobiles from Britain.
D. import airplanes from Britain and export automobiles to Britain.
E. neither import nor export goods to Britain.
Figure 4-3: Production Possibility Curve for Jackson and Tahoe
____ 23. Use “Production Possibility Curve for Jackson and Tahoe” Figure 4-3. The figure shows the production
possibility curves for two countries, Jackson and Tahoe. Without trade, Jackson produces and consumes 30
units of cattle and 80 units of wheat, while Tahoe produces and consumes 80 units of cattle and 60 units of
wheat. If both nations specialize completely in the good of their comparative advantage and Jackson exports
120 units of wheat to Tahoe for 60 units of cattle, then the new consumption point for Jackson after trade is
________ units of wheat and ________ units of cattle.
A. 120; 30
B. 120; 60
C. 80; 60
D. 200; 100
E. 60; 80
The table shows the maximum amounts of machinery and petroleum that the United States and Mexico can
produce if they only produce one good. Both nations face constant costs of production.
Countries
Machinery (units)
Petroleum (units)
United States
80
40
Mexico
60
180
Table 4-5: Production Possibilities for Machinery and Petroleum
____ 24. Use Table 4-5. Which of the following is true?
A. The opportunity cost of petroleum is less in the United States than in Mexico.
B. The opportunity cost of petroleum is more in the United States than in Mexico.
C. Petroleum costs are the same in the United States and in Mexico.
D. Machinery costs are the same in the United States and in Mexico.
E. The opportunity cost of machinery is less in Mexico than in the United States.
____ 25. Use Table 4-5. The opportunity cost in Mexico of producing 150 units of petroleum is ________ units of
machinery.
A. 50
B. 70
C. 90
D. 160
E. 10
____ 26. Use Table 4-5. Both the United States and Mexico will gain from trade if one unit of machinery trades for
________ of petroleum.
A. 2 units
B. 4 units
C. 6 units
D. 8 units
E. 5 units.
Figure 4-4: Alphaland and Omegaland
____ 27. Use the “Alphaland and Omegaland” Figure 4-4. The opportunity cost of producing 1 radio in Omegaland is:
A. 1/2 tire.
B. 1 tire.
C. 2 tires.
D. 6 tires.
E. 3 tires.
____ 28. Use the “Alphaland and Omegaland” Figure 4-4. Trade will not take place if 1 radio trades for:
A. 1/2 tire.
B. 1 tire.
C. 1 1/2 tires.
D. 1.75 tires.
E. 3 tires.
____ 29. If Japan levies tariffs on U.S. goods entering Japan, this will tend in the short run to:
A. benefit both Japanese and U.S. producers.
B. damage U.S. producers and benefit Japanese producers.
C. benefit U.S producers and damage Japanese producers.
D. damage both Japanese and U.S. producers.
E. benefit U.S. consumers and penalize Japanese producers.
____ 30. If a country imposes a tariff on imported shoes, we expect the domestic price of shoes to ________ and the total
quantity of shoes consumed in the domestic market to ________ .
A. rise; be unaffected
B. fall; rise
C. rise; fall
D. rise; rise
E. fall; fall
____ 31. In the importing country, the most likely effects of tariffs and/or import quotas is to ________ prices and
________ consumption of the protected goods.
A. raise; reduce
B. raise; raise
C. raise; not affect
D. reduce; reduce
E. reduce; raise
Scenario 4-2: Production of Wheat and Toys
Below is information regarding Countries A and B's production of two goods, wheat and toys.
Wheat
Toys
Country A
50
100
Country B
25
75
Each country has a linear production possibility curve with respect to their production of the two goods. The
totals in each column represent the total number of units each country could produce if it used all of its resources
to produce the good.
____ 32. Use Scenario 4-2. If each country specializes in the good for which it has the comparative advantage, which
combination represents a maximum possible amount of total production of the two goods given the
specialization?
A. 50 wheat and 100 toys
B. 50 wheat and 75 toys
C. 25 wheat and 75 toys
D. 100 toys and 25 wheat
E. 75 wheat and 50 toys.
____ 33. Which of the following factors cause a movement along the demand curve?
A. change in the prices of related goods
B. change in the price of the good
C. change in the population
D. both a change in the price of the good and a change in the population
E. change in the popularity of the good
____ 34. When the economy suffers a downturn, vacationers are more likely to take car trips than to fly. Which of the
following provides the most reasonable explanation for this phenomenon?
A. Air travel and vacation travel by car are complementary goods.
B. Air travel and vacation travel by car are both normal goods.
C. Air travel is a normal good and vacation travel by car is an inferior good.
D. Air travel is an inferior good and vacation travel by car is a normal good.
E. Air travel and vacation travel by car are both inferior goods.
Price per Bag
$0.90
0.80
0.70
0.60
0.50
0.40
0.30
Quantity Demanded (bags per month)
George
Barbara
10
0
15
10
20
20
25
30
30
40
35
50
40
60
Table 5-1: The Demand for Chocolate-Covered Peanuts
Dan
60
80
100
120
140
160
180
____ 35. Use Table 5-1. If George, Barbara, and Dan are the only three buyers in the market, and the price of a bag of
chocolate-covered peanuts is $0.50, the total market demand is ________ bags per month.
A. 80
B. 105
C. 140
D. 280
E. 210
____ 36. A decrease in the price of a good will result in:
A. an increase in demand.
B. an increase in supply.
C. an increase in the quantity demanded.
D. more being supplied.
E. a rightward shift of the demand curve.
____ 37. Given that chicken and beef are substitute goods, if the price of chicken decreases substantially, there would be:
A. an increase in the demand for beef.
B. an increase in the supply of chicken.
C. an increase in the quantity demanded of beef.
D. no change in the demand for beef.
E. a decrease in the demand for beef.
Price (per bag)
$0.90
0.80
0.70
0.60
0.50
0.40
0.30
Quantity Demanded (bags per
month)
Quantity Supplied (bags per
month)
Table 6-2: The Market for Chocolate-Covered Peanuts
____ 38. Use Table 6-2. If the price of chocolate-covered peanuts is $0.80, there is:
A. a surplus of 140 bags per month.
B. a shortage of 140 bags per month.
C. a surplus of 70 bags per month.
D. a shortage of 70 bags per month.
E. a surplus of 40 bags per month.
____ 39. A shift of a demand curve to the right, all other things unchanged, will:
A. increase equilibrium price and quantity.
B. decrease equilibrium price and quantity.
C. decrease equilibrium quantity and increase equilibrium price.
D. increase equilibrium quantity and decrease equilibrium price.
E. increase equilibrium price while leaving equilibrium quantity unchanged.
____ 40. If the economy booms and peoples' incomes rise, then the demand curve for a normal good like new houses will
________ and the equilibrium quantity of new houses produced will ________.
A. shift to the right; decrease
B. not shift; not change
C. not shift; increase
D. shift to the left; decrease
E. shift to the right; increase
____ 41. The price of microchips used to produce computers falls. As a result, the equilibrium price of computers
________ and the equilibrium quantity ________.
A. rises; increases
B. rises; decreases
C. falls; decreases
D. falls; increases
E. stays the same; decreases
____ 42. An increase in supply, with no change in demand, will lead to ________ in equilibrium quantity and ________
in equilibrium price.
A. an increase; an increase
B. an increase; a decrease
C. a decrease; an increase
D. a decrease; a decrease
E. no change; no change
____ 43. The government decides to impose a price ceiling on a good because it thinks the market-determined price is
“too high.” If it imposes the price ceiling above the equilibrium price:
A. consumers will respond to the higher price and wish to purchase less of the good than at the
equilibrium price, but will find a surplus of units for sale.
B. producers will respond to the higher price and therefore offer fewer units for sale.
C. consumers will purchase less of the good after the price ceiling is imposed.
D. consumers will purchase more of the good after the price ceiling is imposed.
E. there will be no change to either the price or quantity in the market.
Figure 8-2: Price Control
____ 44. Use the “Price Control” Figure 8-2. In the graph, an effective price ceiling would be the price indicated at
________ and a ________ would exist as the difference between ________.
A. point b; surplus; points f and e
B. point b; shortage; points f and e
C. point d; shortage; points i and h
D. point d; surplus; points e and h
E. point d; shortage; points g and h
____ 45. West African cotton farmers are very upset about the subsidies the U.S. government pays to American cotton
farmers. One reason for this could be that subsidized cotton from the United States:
A. leads to global cotton surpluses and lower prices for West African farmers.
B. raises the world price of cotton.
C. has led to a global shortage of cotton.
D. has led to an increase in the demand for West African cotton.
E. has led to improved efficiency in the global cotton market.
____ 46. A price that the government guarantees farmers will receive for a particular crop is a(n):
A. price ceiling.
B. price floor (price support).
C. deficiency price.
D. export price (export subsidy).
E. price floor.
____ 47. A market price support policy establishes a price floor, which:
A. decreases the price paid by consumers.
B. does not change the price paid by consumers.
C. increases the price received by farmers.
D. decreases the price received by farmers.
E. reduces government spending in agricultural markets.
____ 48. Inefficient allocations of goods to consumers often result from:
A. price ceilings.
B. producer surplus.
C. equilibrium prices.
D. consumer surplus.
E. equilibrium quantities.
Figure 8-16: Market I
____ 49. Use the “Market I” Figure 8-16. If a price floor of $15 was imposed on this market, government would need to
buy ________ units of the good, and spend a total amount of ________ on its purchase.
A. 5; $75
B. 10; $150
C. 9; $135
D. 9; $81
E. 5; $15
Figure 9-2: Shrimp Market
____ 50. Use the “Shrimp Market” Figure 9-2. If the government imposes a quota limiting sales of shrimp to 250
pounds, it would have the same effect as a price ________ of ________.
A. floor; $17.50
B. floor; $10
C. floor; $7.50
D. ceiling; $15
E. ceiling; $5
Unit 1 and 2 Review
Answer Section
MULTIPLE CHOICE
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E
PTS:
Critical Thinking
C
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Critical Thinking
B
PTS:
Critical Thinking
C
PTS:
Definitional
A
PTS:
Critical Thinking
C
PTS:
Critical Thinking
B
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Definitional
C
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Fact-Based
A
PTS:
Critical Thinking
C
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Analytical Thinking
C
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Analytical Thinking
B
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Critical Thinking
D
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Critical Thinking
C
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Concept-Based
B
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Concept-Based
B
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Fact-Based
A
PTS:
Critical Thinking
B
PTS:
Fact-Based
A
PTS:
Critical Thinking
D
PTS:
Critical Thinking
A
PTS:
Critical Thinking
C
PTS:
1
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Critical Thinking
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Critical Thinking
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Analytical Thinking
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Critical Thinking
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Analytical Thinking
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Critical Thinking
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Critical Thinking
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Critical Thinking
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C
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Concept-Based
A
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