1) Which of the following is the best definition of economics?

A) the study of how individuals and societies choose to use the scarce resources that nature and previous
generations have provided
B) the study of how consumers spend their income
C) the study of how business firms decide what inputs to hire and what outputs to produce
D) the study of how the federal government allocates tax dollars

2) Suppose that you purchased a ticket to a jazz festival for $100 from an online ticket broker. Once you
arrived at the festival, you discovered that parking costs you an additional $15. In this situation, the
additional $15 you pay for parking is an example of
A) an economic loss.
B) opportunity cost.
C) marginal cost.
D) an inefficient cost.

3) The study of economics

A) is a very narrow endeavor.
B) is a way of analyzing decision-making processes caused by scarcity.
C) is concerned with proving that capitalism is better than socialism.
D) focuses on how a business should function.

4) Marginalism is
A) the best alternative that we forgo when making a decision.
B) the study of how societies choose to use scarce resources.
C) a market situation in which profit opportunities are eliminated almost instantaneously.
D) the process of analyzing the additional costs or benefits arising from a decision.

5) Opportunity cost is
A) that which we forgo, or give up, when we make a choice or a decision.
B) a cost that cannot be avoided, regardless of what is done in the future.
C) the additional cost of producing an additional unit of output.
D) the additional cost of buying an additional unit of a product.

6) Which of the following is not an opportunity cost of attending college?

A) the tuition you pay
B) the income you could have earned if you didn't attend college
C) the alternative uses of the time you spend studying
D) the cost of the food that you consume while you are attending college

7) If you can buy 9 DVDs for $126 or you could buy 10 DVDs for $130, then the marginal cost of the tenth
DVD is
A) $4.
B) $13.
C) $14.
D) $130.
Answer: A

8) If your tuition is $2,000 this semester, your books cost $400, you can only work 10 rather than 40 hours
per week during the 15 weeks you are taking classes and you make $12 per hour, and your room and board is
$4,000 this semester (same as if not attending college), then your opportunity cost of attending college this
semester is
A) $2,400.
B) $2,760.
C) $7,800.
D) $11,800.
9) A market in which profit opportunities are eliminated almost instantaneously is
A) a laissez-faire market.
B) a capitalist market.
C) a socialist market.
D) an efficient market.

10) Economists often refer to "good deals" as

A) profit opportunities.
B) break-even propositions.
C) efficient market outcomes.
D) those with no opportunity cost.

11) An efficient economy is an economy

A) in which output is steady or growing and there is low inflation.
B) that produces what consumers demand and does so at the least possible cost.
C) that distributes output equally among all consumers.
D) in which there is a fair distribution of wealth.

12) A change in economic output is ________ if the value of the resulting gains exceeds the value of the
resulting losses.
A) potentially efficient
B) always efficient
C) always inefficient
D) irrelevant

13) Studying how the management of Hewlett Packard decides how many computers to produce and the
price to charge for its computers would be considered
A) descriptive economics.
B) empirical economics.
C) microeconomics.
D) macroeconomics.

14) The study of how benefits are determined for city employees would be considered
A) microeconomics.
B) macroeconomics.
C) descriptive economics.
D) institutional economics.

15) Inflation and unemployment

A) are the focus of normative economics.
B) are a focus of microeconomics.
C) are a focus of positive economics.
D) are a focus of macroeconomics.

16) Which of the following is a microeconomics question?

A) Is it sensible for a government to subsidize tobacco production?
B) Why do some countries grow faster than others?
C) Should Congress and the president take action to reduce global warming?
D) Should the government attempt to influence the interest rate to lower inflation?

17) Which of the following is a macroeconomics question?

A) Should we have a constitutional amendment to balance the federal budget?
B) Why does a firm decide to enter a particular market?
C) Should the government prevent the merger of two large firms?
D) Should the government put a tax on alcohol in an attempt to reduce highway fatalities?
18) Better insurance benefits increase the incentive of some individuals to work. This statement is best
described as
A) a positive statement.
B) an example of the ceteris paribus assumption.
C) a normative statement.
D) a comparative economics statement.

19) The government should extend the duration of unemployment benefits to those workers who lost their
jobs due to outsourcing. This statement is best described as
A) an example of marginalism.
B) an example of the fallacy of composition.
C) a normative statement.
D) a positive statement.

20) Which of the following is a positive question?

A) Will the level of teenage unemployment increase if the minimum wage is increased?
B) Should the minimum wage be set at one-half the average manufacturing wage to guarantee individuals a
decent standard of living?
C) Wouldn't it be more equitable if the minimum wage increased automatically with the cost of living?
D) Wouldn't it be better to try to increase people's wages through job-training programs rather than by
requiring employers to pay minimum wages?

21) A measure that can change from observation to observation is known as a(n)
A) empirical measure.
B) model.
C) causality.
D) variable.

22) To isolate the impact of one single factor, economists invoke the assumption of
A) inductive reasoning.
B) Ockham's razor.
C) ceteris paribus.
D) post hoc, ergo propter hoc.

23) The principle that irrelevant detail should not be included in a model is known as
A) a fallacy.
B) ceteris paribus.
C) Ockham's razor.
D) normative economics.

24) Whenever the Democrats gain control of the Congress, spending on social programs increases; whenever
Republicans gain control of the Congress, spending on defense increases. Hence, we know what the next
party in control will do. This statement is an example of the
A) fallacy of inductive reasoning.
B) post hoc, ergo propter hoc fallacy.
C) fallacy of stability.
D) ceteris paribus fallacy.

25) The four criteria that are frequently used in judging the outcome of economic policy are
A) efficiency, equity, stability, and economic growth.
B) efficiency, equality, stability, and economic growth.
C) efficiency, equality, profitability, and stability.
D) efficiency, equity, profitability, and stability.

26) A government policy that tries to minimize inflation and unemployment can best be described as trying
to achieve economic
A) efficiency.
B) equity.
C) profitability.
D) stability.

27) Economic stability refers to the condition of steady growth in national output, with ________ inflation
and ________ employment of resources.
A) negative; low
B) low; full
C) high; full
D) no; no

28) Capital, as economists use the term

A) is the money the firm spends to hire resources.
B) is money the firm raises from selling stock.
C) refers to the process by which resources are transformed into useful forms.
D) refers to things that have already been produced that are in turn used to produce other goods and services.

29) In economics, investment always refers to

A) the act of buying stocks or bonds.
B) the creation of capital.
C) increasing the quantity of labor.
D) an increase in per capita output.

30) The concept of trade-offs would become irrelevant if

A) we were dealing with a very simple, one-person economy.
B) poverty were eliminated.
C) scarcity were eliminated.
D) capital were eliminated.

31) If someone has a comparative advantage in growing pineapples

A) she can grow pineapples at a lower opportunity cost than other pineapple growers.
B) she also has an absolute advantage in growing pineapples.
C) she can grow more pineapples using the same resources than other pineapple growers.
D) pineapples are the only product she can grow.

32) An example of forgoing present benefits in order to receive future benefits is

A) production.
B) saving.
C) consumption.
D) growth.

33) Because resources are scarce, the opportunity cost of investment in capital is
A) zero.
B) forgone future consumption.
C) forgone present consumption.
D) infinite.

34) An economy that is producing on the production possibility frontier at some point other than the output
of efficient allocation is
A) efficient, as it is on the production possibility frontier.
B) inefficient, as the combination of goods and services produced is not what people want.
C) efficient, as the economy is producing goods at the lowest possible cost.
D) inefficient, as that combination of goods could be produced at a lower cost if more efficient technology
were employed.

35) The value of the slope of a society's production possibility frontier is called its
A) marginal rate of substitution.
B) inflation rate.
C) unemployment rate.
D) marginal rate of transformation.

36) A society can produce two goods: donuts and beer. The society's production possibility frontier is
negatively sloped and "bowed outward" from the origin. As this society moves up its production possibility
frontier, producing more and more units of donuts, the opportunity cost of producing beer
A) decreases.
B) remains constant.
C) increases.
D) could decrease or increase depending on the technology.

37) Which of the following is an element of a command economy?

A) The market decides distribution.
B) The means of production are privately owned.
C) Production decisions are centralized.
D) The market decides what will be produced.
Answer: C

38) In a laissez-faire economy, ________ what gets produced, how it is produced, and who gets it.
A) the behavior of buyers and sellers determines
B) the central government authority determines
C) firms but not consumers determine

39) Consumer sovereignty

A) is dependent on profits.
B) is the idea that consumers can buy whatever they want to.
C) is the idea that consumers determine what is produced in the economy through their demands.
D) is only possible in a monarchy.

40) The basic coordinating mechanism in a free-market system is

A) quantity.
B) price.
C) a central government authority.
D) the corporation.
Refer to the information provided in Figure 1.1 below to answer the question(s) that follow.

Figure 1.1

1) Refer to Figure 1.1. The slope of the line is

A) positive.
B) negative.
C) increasing at an increasing rate.
D) decreasing at an increasing rate.

2) Refer to Figure 1.1. The slope of the line between Points B and D is
A) -3.
B) -0.33.
C) 0.33.
D) 3.

3) Refer to Figure 1.1. The slope of the line between Points D and C is
A) -3.
B) -0.33.
C) 0.33.
D) 3.

Refer to the information provided in Figure 1.2 below to answer the question(s) that follow.

Figure 1.2
1) Refer to Figure 1.2. Which of the Panels shows a curve or line that has a slope that is first positive and
then negative?
A) A
B) B
C) C
D) D

2) Refer to Figure 1.2. Which of the Panels shows a curve or line that has a zero slope throughout?
A) A
B) B
C) C
D) D

Refer to the information provided in Figure 1.3 below to answer the question(s) that follow.

Figure 1.3

1) Refer to Figure 1.3. Which of the Panels shows a curve or line that has a slope that is positive and
decreasing?
A) A
B) B
C) C
D) D

2) Refer to Figure 1.3. Which of the Panels shows a curve or line that has a slope that is positive and
increasing?
A) A
B) B
C) C
D) D

3) Refer to Figure 1.3. In many industries, as firms produce additional units, average costs of production
decline as the firm produces an additional unit, but average costs declines by a smaller and smaller amount as
production continues to increase. If output is graphed on the horizontal axis and average costs are graphed on
the vertical axis, the relationship between average costs and output would be like which of the following
Panels?
A) A
B) B
C) C
D) D
Refer to the information provided in Table 2.1 below to answer the following question(s).

Table 2.1
Krystal Mark

Writing Poems 8 12

Writing TV Commercials 2 4

1) Refer to Table 2.1. For Krystal, the opportunity cost of writing one TV commercial is
A) 1/4 of a poem.
B) 2 poems.
C) 4 poems.
D) 6 poems.
Answer: C

2) Refer to Table 2.1. For Mark, the opportunity cost of writing one TV commercial is
A) 1/3 of a poem.
B) 2 poems.
C) 3 poems.
D) 8 poems.
Answer: C

3) Refer to Table 2.1. Which of the following statements is true?

A) Krystal has a comparative advantage in both writing TV commercials and writing poems.
B) Mark has a comparative advantage in both writing TV commercials and writing poems.
C) Krystal has a comparative advantage in writing TV commercials, and Mark has a comparative advantage
in writing poems.
D) Mark has a comparative advantage in writing TV commercials, and Krystal has a comparative advantage
in writing poems.

Refer to the information provided in Figure 2.1 below for the economy of Macroland to answer the
question(s) that follow.

Figure 2.1

1) Refer to Figure 2.1. Macroland's production possibility frontier is bowed out from the origin due to
A) decreasing opportunity costs.
B) trade.
C) unemployment.
D) specialized resources.

2) Refer to Figure 2.1. If Macroland's economy is at Point A, it could produce more capital goods
A) without sacrificing any consumer goods.
B) only by sacrificing some consumer goods.
C) only with technological improvements.
D) only with additional resources.
Answer: A
Refer to the information provided in Figure 2.2 below for the economy of Microland to answer the
question(s) that follow.

Figure 2.2

1) Refer to Figure 2.2. Point B represents a situation of

A) full employment but production inefficiency.
B) less than full employment but production efficiency.
C) both full resource employment and production efficiency.
D) less than full employment and production inefficiency.

Refer to the information provided in Figure 2.3 below to answer the question(s) that follow.

Figure 2.3

1) Refer to Figure 2.3. Assume that in this society the marginal rate of transformation of sailboats for
surfboards is constant and equal to -10. A graph of this society's production possibility frontier will be
represented by Panel
A) A.
B) B.
C) C.
D) D.

2) Refer to Figure 2.3. Assume that in this society the opportunity cost of sailboats in terms of surfboards is
increasing. A graph of this society's production possibility frontier will be represented by Panel
A) A.
B) B.
C) C.
D) D.

Refer to the information provided in Figure 2.4 below to answer the question(s) that follow.
 Figure 2.4

1) According to Figure 2.4, the point where only motorcycles are produced is
A) A.
B) B.
C) C.
D) E.

2) According to Figure 2.4, which point cannot be produced with the current state of technology?
A) A
B) B
C) C
D) F

3) According to Figure 2.4, a decrease in unemployment may be represented by the movement from
A) B to A.
B) B to D.
C) C to D.
D) A to C.

Refer to the information provided in Figure 2.5 below to answer the question(s) that follow.

Figure 2.5

1) Refer to Figure 2.5. The economy is currently at Point A. The opportunity cost of moving from Point A to
Point B is the
A) 90 LCD televisions that must be forgone to produce 20 additional plasma televisions.
B) 30 LCD televisions that must be forgone to produce 60 additional plasma televisions.
C) 120 LCD televisions that must be forgone to produce 40 additional plasma televisions.
D) 30 LCD televisions that must be forgone to produce 20 additional plasma televisions.

2) Refer to Figure 2.5. The marginal rate of transformation in moving from Point A to Point B is
A) -2/3.
B) -1.5.
C) -3.
D) -30.
3) Refer to Figure 2.5. The best point for society would be
A) Point C, as at this point there are approximately equal amounts of LCD and plasma televisions being
produced.
B) either Point B or Point C, as the total amount being produced at either of these points is approximately the
same.
C) at any of the labeled points, as all of the points represent an efficient allocation of resources.
D) indeterminate from this information, as we don't have any information about the society's desires.

Refer to the information provided in Figure 2.6 below to answer the question(s) that follow.

Figure 2.6

1) Refer to Figure 2.6. Economic growth is represented by a

A) shift from ppf2 to ppf1.
B) shift from ppf1 to ppf2.
C) movement along ppf1.
D) movement along ppf2.

2) Refer to Figure 2.6. Which of the following will not cause the production possibility frontier to shift from
ppf1 to ppf2?
A) the discovery of previously unknown oil fields
B) an improvement in technology
C) an increase in the stock of capital
D) a decrease in the unemployment rate

3) Refer to Figure 2.6. Which of the following is most likely to shift the production possibility frontier from
ppf1 to ppf2?
A) a change in consumer tastes
B) the purchase of stocks on the New York Stock Exchange
C) moving resources from capital to consumer goods
D) an increase in the general educational level of the population

4) Refer to Figure 2.6. If the economy is at ppf1, a change in consumer preferences would be shown by a
A) shift from ppf2 to ppf1.
B) movement along ppf1.
C) movement along ppf2.
D) shift from ppf1 to ppf2.