First : Define the following
1. Law of demand: Other things equal, when the price of a good rises, the quantity demanded of the
good falls.
2. Opportunity Cost: the cost of something is what you give up to get it.
3. The circular-flow diagram: is a visual model of the economy that shows how dollars flow through
markets among households and firms
4. A competitive market : is a market in which there are many buyers and many sellers so that each
has a negligible impact on the market price. ( ice cream market)
5. Tradeoffs : Once we have reached the efficient points on the frontier, the only way of getting more
of one good is to get less of the other
6. Microeconomics is the study of how households and firms make decisions and how they interact in
specific markets.
7. price takers no single buyer or seller can influence the price, in perfectly competitive markets each
takes the price as given buyers and sellers must accept the price the market determines
8. Demand Schedule The demand schedule is a table that shows the relationship between the price of
the good and the quantity demanded
9. Quantity demanded is the amount of a good that buyers are willing and able to purchase
10. Demand Curve: The demand curve is a graph of the relationship between the price of a good and
the quantity demanded.
11. Market demand refers to the sum of all individual demands for a particular good or service.
12. Equilibrium refers to a situation in which the price has reached the level where quantity supplied
equals quantity demanded.
13. Quantity supplied is the amount of a good that sellers are willing and able to sell
14. Efficiency The economy can produce at any point on or inside the production possibilities frontier,
an outcome is said to be efficient if the economy is getting all it can from the scarce resources
available
15. Economic Growth: The tradeoff can be changed over time.. As a result, the production possibilities
frontier shifts outward
16. comparative advantage the comparison among producers of a good according to their opportunity
cost
17. absolute advantage the comparison among producers of a good according to their productivity
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Chose the right answer
1A)
B)
C)
D)
The term “Economics" was popularized by such neoclassical economists
Thomas Robert Malthus
David Ricardo
Alfered Marshall Alfered
Adem Smith,
2A)
B)
C)
D)
Modern economic analysis begun with
Adem Smith,
Thomas Robert Malthus
David Ricardo
Alfered Marshall
3- Human population, tended to increase geometrically, while the production of food, increased
arithmetically
A) Adem Smith,
B) Thomas Robert Malthus
C) David Ricardo
D) Alfered Marshall
4A)
B)
C)
D)
E)
belived that a nation's wealth depended on its accumulation of gold and silver
Adem Smith,
Thomas Robert Malthus
David Ricardo
Mercantilism
Alfered Marshall
5- believed that only agricultural production generated a clear surplus over cost, so that agriculture was
the basis of all wealth
A) Adem Smith,
B) Thomas Robert Malthus
C) David Ricardo
D) Mercantilism
E) Alfered Marshall
F) Physiocrats
6A)
B)
C)
D)
E)
F)
science which enquires into the nature and cause of wealth of nation”
Adem Smith,
Thomas Robert Malthus
David Ricardo
Mercantilism
Alfered Marshall
Physiocrats
7- mankind in the ordinary business of life; it is on one side a study of wealth; and on other; side, a part
of the study of man.
A) Marshall
B) Adem Smith,
C) Thomas Robert Malthus
D) David Ricardo
E) Mercantilism
F) Alfered Marshall
G) Physiocrats
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8- science which studies human behavior as a relationship between ends and scarce means which have
alternate uses
A) Adem Smith,
B) Thomas Robert Malthus
C) David Ricardo
D) Marshall
E) Robbins
F) Mercantilism
9- The birth of economics as an intellectual discipline can be dated fairly precisely in theeighteenth century
with
A) the publication of the book, The Wealth of Nations.
B) the opening of the London stock exchange.
C) the development of the factory system.
D) the introduction of paper currency.
10- Who wrote The Wealth of Nations?
A) Adam Smith
B) Michael Parkin
C) Thomas Jefferson
D) Karl Marx
1) When an economy produces more houses and fewer typewriters, it is answering the ________
question.
A) "what"
B) "how"
C) "where"
D) "for whom"
Answer: A
2) When firms in an economy start producing more computers and fewer televisions, they are
answering the ________ question.
A) "when"
B) "for whom"
C) "what"
D) "where"
Answer: C
3) When a farmer decides to raise hogs instead of cattle, the farmer is answering the ________
question.
A) "what"
B) "for whom"
C) "how"
D) "why"
Answer: A
4) When a farmer decides to grow sugar cane instead of radishes, the farmer is answering the
________ question.
A) "what"
B) "when"
C) "for whom"
D) "why"
Answer: A
5) Whether a company produces fishing rods mostly by hand or using high-tech machinery is a
question of
A) for whom will goods be produced.
B) why will the goods be produced.
C) where will the goods be produced.
D) how will the goods be produced.
Answer: D
6) When a farmer decides to harvest oranges by huge machines instead of by migrant workers,
the farmer is answering the ________ question.
A) "how"
B) "scarcity"
C) "why"
D) "what"
Answer: A
8) When an economy produces more houses and fewer typewriters, it is answering the question.
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A) "where"
B) "for whom"
C) "how"
D) "what"
9) When firms in an economy start producing more computers and fewer televisions, they are
answering the question.
A) "where" B)
"when"
C) "what"
D) "for whom"
11) When China builds a dam using few machines and a great deal of labor, it is answering the
________ question.
A) "how"
B) "what"
C) "where"
D) "for whom"
12) When an economy produces more houses and fewer typewriters, it is answering the ________
question.
A) "what"
B) "how"
C) "where"
D) "for whom"
Answer: A
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the
question
1) Economics is best defined as the study of how people, businesses, governments, and societies
A) make choices to cope with scarcity.
B) attain wealth.
C) choose abundance over scarcity.
D) use their infinite resources.
2) Economics is best defined as
A) how people make money and profits in the stock market.
B) making choices from an unlimited supply of goods and services.
C) making choices with unlimited wants but facing a scarcity of resources.
D) controlling a budget for a household.
Answer: C
3) The study of economics
A) focuses mainly on individual consumers.
B) arises from the fact that our wants exceed available resources.
C) recognizes that scarcity does not affect rich nations.
D) deals mainly with microeconomics.
Answer: B
4) Which of the following best defines the subject of economics?
A) the science that studies unemployment, inflation, and economic stability
B) the art of making money
C) the study of choices that businesses make to maximize profit
D) the study of choices made to cope with scarcity
Answer: D
5) Economics is the study of
A) the distribution of surplus goods to those in need.
B) affluence in a morally bankrupt world.
C) the choices we make because of scarcity.
D) ways to ways to reduce wants to eliminate the problem of scarcity. Answer: C
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6) All economic questions arise because
A) people are greedy.
B) production possibilities are unlimited.
C) we want more than we can get.
D) people are irrational.
Answer: C
1- The study of the choices made by individuals is part of the definition of
A) microeconomics.
B) positive economics.
C) macroeconomics.
D) normative economics.
Answer: A
2- Microeconomics focuses on all of the following EXCEPT
A) the effect of increasing the money supply on inflation.
B) the purchasing decisions that an individual consumer makes.
C) the effect of an increase in the tax on cigarettes on cigarette sales.
D) the hiring decisions that a business makes.
3- Studying the determination of prices in individual markets is primarily a concern of
A) negative economics.
B) microeconomics.
C) positive economics.
D) macroeconomics
4- The analysis of the behavior of individual decision-making units is the definition of
A) microeconomics.
B) macroeconomics.
C) positive economics.
D) normative economics.
1- Macroeconomics is the branch of economics that studies
A) prices of individual goods.
B) important, as opposed to trivial, issues.
C) the economy as a whole
D) the way individual markets work.
2- Which of the following is a macroeconomic issue?
A) how federal government budget deficits affect interest rates
B) the cause of a decline in the price of peanut butter
C) what determines the amount a firm will produce
D) how a rise in the price of sugar affects the market for sodas
3- Which of the following is an issue in macroeconomics?
A) the purchasing decisions that an individual consumer makes
B) the effect of an increase in the tax on cigarettes on cigarette sales
C) the hiring decisions that a business makes
D) the effect of increasing the money supply on inflation
4- Which of the following is a macroeconomic topic?
A) why plumbers earn more than janitors
B) the reasons for the rise in average prices
C) whether the army should buy more tanks or more rockets
D) the reasons for a rise in the price of orange juice
5- Which of the following is a macroeconomic issue?
A) how federal government budget deficits affect interest rates
B) the cause of a decline in the price of peanut butter
C) what determines the amount a firm will produce
D) how a rise in the price of sugar affects the market for sodas
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Normative or positive
1- "Government should act to reduce poverty levels."
A) This statement is an example of the fallacy of composition.
B) This statement is an example of the post hoc fallacy.
C) This statement is a normative statement.
D) This statement is a positive statement.
2- When Susan makes the statement, "The government should spend less money to take care of
national parks," she is
A) facing the standard of living tradeoff.
B) testing an economic model.
C) making a positive statement.
D) making a normative statement.
3- "All children should have health insurance" is a
A) post hoc fallacy.
B) normative statement.
C) fallacy of composition.
D) positive statement.
4- "The rich should pay higher income tax rates than the poor" is an example of a
A) normative statement.
B) theoretical statement.
C) positive statement.
D) descriptive statement.
5- Which of the following is an example of a normative statement?
A) Government spending rose in the 1990s.
B) Household consumption is the largest component of spending.
C) Households should save more.
D) The business sector is the primary source of jobs.
6- "Government should act to reduce poverty levels."
A) This statement is an example of the fallacy of composition.
B) This statement is an example of the post hoc fallacy.
C) This statement is a normative statement.
D) This statement is a positive statement.
7- In economics, positive statements are about
A) macroeconomics, not microeconomics.
C) the way things ought to be.
B) the way things are.
D) microeconomics, not macroeconomics
2- A positive statement is
A) valid only in the context of a model with simple assumptions.
B) the result of a model's normative assumptions.
C) about what ought to be.
D) about what is.
3- When Susan makes the statement, "The government should spend less money to take care of
national parks," she is
A) facing the standard of living tradeoff.
B) testing an economic model.
C) making a positive statement.
D) making a normative statement.
4- A positive statement is
A) always true.
C) about what is.
B) one that does not use the ceteris paribus clause.
D) about what ought to be.
5- A positive statement
A) is an affirming statement that is strongly worded.
B) cannot be tested by checking it against the facts.
C) is a statement of what is.
D) is a statement of what ought to be.
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1- The term used to emphasize that making choices in the face of scarcity involves a cost is
A) utility cost.
B) opportunity cost.
C) accounting cost.
D) substitution cost.
6- Economic models
A) are essentially different from those used in other sciences.
C) always use graphs.
B) include all relevant facts.
D) simplify reality.
7) Economic models
A) are better if they include most of the detail of the real economy.
B) rely on simplification.
C) do not address questions about the economy.
D) make no assumptions that have not been proved.
True or foals
1- When you hear economists making positive statements, you know they have crossed the line from
scientist to policy adviser. (Foals) x
2- When economists are trying to explain the world, they are policy maker (Foals) x
3- When economists are trying to change the world, they are policy advisor ( True)
4- Scientists describe what is believed about how the world appears. ( True)
Complete the following
1- -THE CIRCULAR FLOW is a representing the organization of the economy decisions made by
households and firms., interact in the markets for goods and services, where households are
buyers and firms are sellers, and in the markets for the factors of production ,where firms are
buyers and households are sellers.
2- Economy is concerned with the production, consumption, distribution and investment of goods and
services.
3- Economics is the social science that analyzes the production, distribution, and consumption of
goods and services
4- The terms supply and demand refer to the behavior of people. as they interact with one another
in markets. Buyers determine demand. And Sellers determine supply
5- A competitive market is a market in which there are many buyers and many sellers so that each has
a negligible impact on the market price
6- quantity demanded the amount of a good that buyers are willing and able to purchase
7- when one good reduces the demand for another good, the two goods are called Substitutes and
Complements are often pairs of goods that are used together
8- In every economic system, choices must be made because resources are limited and our wants are
unlimited
9- A shift in the supply curve is called a “change in supply, a movement along a fixed demand
curve is called a “change in the quantity demanded.”
10- a shift in the demand curve is called a “change in demand, a movement along a fixed supply
curve is called a “change in the quantity supplied.
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11- A change in the price represents a movement along the demand curve, whereas a change in income
shifts the demand curve.
12- A change in the price represents a movement along the demand curve, whereas a change in Prices of
related goods shifts the demand curve.
13- A change in the price represents a movement along the demand curve, whereas a change in
expectation shifts the demand curve.
14-A change in the price represents a movement along the demand curve, whereas a change in number of
buyers shifts the demand curve.
1-
Draw and explain a production possibilities frontier for an economy that produces milk and
cookies. What happens to this frontier if disease kills half of the economy’s cow population?
Quantity produced
A
SHIFT
IN
THE
PRODUCTION
POSSIBILITIES FRONTIER.
Milk
4000
The effects of a drought shifts
the production possibilities
frontier inward, decreasing the
quantity of cookies economy
can produce
3000
2000
0
cookis (Quantity )
055
750
1000
2- Draw a production possibilities frontier for a society that produces food and clothing. Show an
efficient point, an inefficient point, and an infeasible point. Show the effects of a drought
clothes
*efficient
3000
2000

Inefficient
effect of drought
0
Food
100
8
A
SHIFT
IN
THE
PRODUCTION
POSSIBILITIES FRONTIER.
*inevasible
4000
200
300
The effects of a drought shifts
the production possibilities
frontier inward, decreasing the
quantity of food economy can
produce
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3- Maria can read 20 pages of economics in an hour. She can also read 50 pages of sociology in an
hour. She spends 5 hours per day studying.
a. Draw Maria’s production possibilities frontier for reading economics and sociology.
b. What is Maria’s opportunity cost of reading 100 pages of sociology?
Economic
Sociology
20pages /h
50pages /h
Economic
100 pages / 5 hours
250 pages /5hours
Maria opportunity coast of 100 pages of sociology = 40 pages
(100p)
of economics
(80p)
(60p)
(40p)
(20p)
0
sociology (250pages)
0
50
100
150
200
250
1- Use a production possibilities frontier to describe the idea of “efficiency.” and " growth"
Computers
A SHIFT IN THE PRODUCTION
POSSIBILITIES FRONTIER. An
economic advance in the computer
industry shifts the production
possibilities
frontier
outward,
increasing the number of cars and
computers the economy can produce
4000
B
3000
A
2000
Cars
250
500
720 750
0100
0550
5
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2- Calculate and graph the market demand curve
Price
10
9
8
7
6
5
Demand 1
2
6
10
14
18
22
Demand 2
5
9
13
17
21
25
Market demand
15
27
39
51
63
57
Demand 3
8
12
16
20
24
28
price
0
5
Market demand
9
8
7
quantity
6
0
0 15
60
20
25
30
35
40
45
50
55
3- Define and graph the5 the equilibrium price and quantity of wheat?
PRICE of wheat
QUANTITY
QUANTITY
DEMANDED
SUPPLIED
$110
1 million
15 million
100
2
12
90
4
9
80
6
6
70
8
3
6
10
1
4- Explain the difference between the two diagrams
Price of ice cream
Demand
Supply
Supply
Surplus
Demand
2.5
2.0
2.0
1.5
shortage
4
7
Quantity demanded
(a)
10
10
Quantity supplied
quantity
4
7
Quantity supplied
10 quantity
Quantity demanded
(b)
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In (a), there is a surplus, Because the market price of $2.50 is above the equilibrium price, the quantity
supplied (10 )
exceeds the quantity demanded (4). Suppliers try to increase sales by cutting the price, and this moves the
price toward its equilibrium level.
In (b), there is a shortage. Because the market price of $1.50 is below the equilibrium price, the quantity
demanded (10 cones) exceeds the quantity supplied (4). With too many buyers chasing too few goods,
suppliers can take advantage of the shortage by raising the price.
What does the “invisible hand” of the marketplace do?
Every individual by pursuing his own interest he frequently promotes that of the society more effectually
than when he really intends to promote it. Participants in the economy are motivated by self-interest and that
the “invisible hand” of the marketplace guides this self-interest into promoting general economic well-being.
1What is a market? _ What does it mean for a market to be competitive?
A market is a group of buyers and sellers of a particular good or service. A competitive market a market in
which there are many buyers and many sellers so that each has a negligible impact on the market price
2-
3-
WHAT DETERMINES THE QUANTITY AN INDIVIDUAL DEMANDS?
1- Price when the price of a good rises, the quantity demanded of the good falls.
2- Income : an increase in income leads to an increase in demand of normal good
an increase in income leads to a decrease in demand of inferior good
3- Price of related goods
increase in the price of one leads to an increase in the demand for the other are called
substitutes.
- an increase in the price of one leads to an decrease in the demand for the other are called
complement
4- tastes people’s tastes because tastes are based on historical and psychological forces that are
beyond the realm of economics
5- Expectations expectations about the future may affect the demand for a good or service today. For
example, if you expect to earn a higher income next month, you may be more willing to spend some
of your current savings
E explain " economics is a since and art
Science is a theoretical aspect: Study of cause and effect of inflation or deflation falls within the purview
of Science
Art is a practical aspect : In economics we study consumption, production, public finance etc, which
provide practical solutions to our daily economic problems. Framing appropriate and suitable monetary and
fiscal policies to control inflation and deflation is an Art
4- What are the two subfields into which economics is divided? Explain what each subfield
studies.
Microeconomic
Micro comes from Greek word mikros, meaning
“small”
focuses on the individual parts
 How households and firms make decisions and
 how they interact in specific markets
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Macroeconomic
Macro: comes from Greek word, makros, meaning
“large”
analyzes the entire economy and issues affecting
The study of the national economy and the global
economy as a whole.
Focuses on big picture and ignores fine details
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5-
Mention the main theoretical and applied Advantages of Economics
Theoretical Advantages: - Increase in Knowledge, - Developing Analytical Attitude
Practical Advantages : Significance for the consumers, Significance for producers, Significance for
workers, Significance for politicians, Significance for academicians, Significance for administrators,
Effective man-power planning, Helpful in fixing price, Solving distribution problems
WHAT DETERMINES THE QUANTITYAN INDIVIDUAL SUPPLIES?
a) Price : Other things equal, when the price of a good rises, the quantity supplied of the
good also rises.
b) Input Prices If input prices rise substantially, the supply of good fall down."
c) Technology: the advance in technology raised the supply.
d) Expectations: supply today may depend on your expectations of the future. if you expect the price of a good
to rise in the future, you will supply less to the market today
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