A factory can produce 100 units in a day.

Producing one more unit costs $5, and the selling

price is $ 7. Should they produce it
Yes, the factory should produce the additional unit. The marginal cost ($5) is less than the selling
price ($7), resulting in a $2 profit.
⁂

Demand is said to be _____________ when the

quantity demanded is not very responsive to
changes in price.
A. unit elastic
B. elastic
C. independent
D. inelastic

D. inelastic
⁂

Suppose a country operates on its production

possibility frontier when it produces 1000 books
and 1000 tables. The combination of ………………
reflects ……………
A. 500 books and 500 tables; an attainable and efficient point
B. 1000 books and 500 tables; an efficient point
C. 1000 books and 1000 tables; a free lunch
D. 500 books and 1000 tables; an inefficient but attainable point

D. 500 books and 1000 tables; an inefficient but attainable point.

Explanation:
Production Possibility Frontier (PPF): The PPF represents the maximum combinations of
two goods a country can produce when using all its resources efficiently.
 Operating on the PPF: When a country operates on its PPF (like producing 1000 books and
1000 tables), it means it's using all its resources efficiently.
Attainable vs. Unattainable Points: Combinations inside the PPF are attainable but
inefficient because the country could produce more of both goods with its available
resources. Combinations outside the PPF are unattainable with the current resources and
technology.
Efficient vs. Inefficient Points: Points on the PPF are efficient. Points inside the PPF are
inefficient.
Given this, producing 500 books and 1000 tables is attainable (the country has enough
resources to produce this combination) but inefficient (it's not using all its resources to their full
potential, since it could produce 1000 books and 1000 tables).
⁂

Cigarettes are highly addictive and therefore have

a very low elasticity of demand. A $2.00 increase
in the national sales tax on cigarettes would likely
cause the price paid by buyers of cigarettes to
A. increase by less than $1.00
B. increase by more than $1.00 but less than $2.00.
C. increase by $2.00
D. remains unchanged
E. increase by more than $2.00

C. increase by $2.00
Explanation:
Cigarettes have a very low elasticity of demand, meaning that consumers are not very
responsive to changes in price due to their addictive nature. When the government imposes a
tax, the supply curve shifts upward by the amount of the tax.
Because the demand for cigarettes is inelastic, the burden of the tax falls largely on the
consumer. Therefore, a $2.00 increase in the national sales tax on cigarettes would likely cause
the price paid by buyers of cigarettes to increase by $2.00.
⁂
Cigarettes are highly addictive and therefore have
a very low elasticity of demand. A $2.00 increase
in the national sales tax on cigarettes would likely
cause the price paid by buyers of cigarettes to
A. increase by less than $1.00
B. increase by more than $1.00 but less than $2.00.
C. increase by $2.00
D. remains unchanged
E. increase by more than $2.00

C. increase by $2.00
⁂

A decrease in input costs to firms in a market will

result in
A. a decrease in equilibrium price and an increase in equilibrium quantity
B. an increase in equilibrium price and an increase in equilibrium quantity
C. an increase in equilibrium price and no change in equilibrium quantity
D. decrease in equilibrium price and a decrease in equilibrium quantity

A. a decrease in equilibrium price and an increase in equilibrium quantity

⁂

Which of the following is a normative economic

statement?
A. Unemployment was 6.5% last quarter
B. Higher inflation leads to increased cost of living
C. The government should increase the minimum wage
D. A rise in interest rates reduces consumer spending

C. The government should increase the minimum wage

Explanation
Normative economic statements express opinions or value judgments about what should
be. They are subjective and cannot be proven or disproven with facts alone.
Positive economic statements are factual claims about how the world is. They can be
tested and verified (or refuted) with data.
Option C is the only normative statement because it expresses an opinion about what the
government should do. The other options are positive statements that could be tested with data.
⁂

In every economic system, choices must be made

because resources are ____ and our wants are ___
A. unlimited; limited
B. limited; limited
C. limited; unlimited
D. unlimited; unlimited

C. limited; unlimited
Explanation
Resources are scarce, or limited, while human wants are virtually unlimited. This fundamental
concept of scarcity is the basis for all economic activity and decision-making. The attached PDF
file defines scarcity as when your resources are not able to meet your needs and highlights the
fact that all economic questions and problems arise because human wants exceed the resources
available to satisfy them.
⁂

When the decrease in the price of one good cause

the demand for other good to decrease, the goods
are:
A. Substitute
B. complements
C. Normal
D. Inferior

B. complements
⁂
Suppose the demand for good Z goes up when the
price of good Y goes down. We can say that goods
Z and Y are:
A. Unrelated
B. Perfect substitutes
C. Substitutes
D. Complements

D. Complements
Explanation:
Complementary goods are those that are typically consumed together. When the price of one
good (Good Y) decreases, consumers are more likely to purchase it. Because Good Z is a
complement to Good Y, the demand for Good Z increases as consumers increase their
consumption of Good Y due to its lower price.
⁂

Which of the following will Not cause a shift in the

demand curve for compact discs?
A. a change in income
B. a change in wealth
C. change in the price of compact disc
D. a change in the price of pre-recorded cassette tapes

C. change in the price of compact disc

Explanation:
A change in the price of the compact disc itself causes a movement along the demand curve,
not a shift of the curve. The other options (change in income, wealth, or the price of related
goods like cassette tapes) are factors that can cause the entire demand curve to shift.
⁂

Which of the following will Not cause a shift in the

demand curve for compact discs?
A. a change in income
B. a change in wealth
C. change in the price of compact disc
D. a change in the price of pre-recorded cassette tapes
C. change in the price of compact disc
⁂

The total benefit that a person receives from the

consumption of goods and services is called
A. total utility
B. opportunity cost
C. marginal utility
D. marginal cost

A. total utility
Explanation:
Total utility refers to the overall satisfaction or benefit a consumer derives from consuming a
particular quantity of goods or services.
⁂

When excess demand occurs in an unregulated

market, there is a tendency for
A. Price to rise
B. Quantity demanded to increase
C. Quantity supplied to decrease
D. Price to fall

A. Price to rise
Explanation:
When excess demand exists in an unregulated market, it means that the quantity demanded is
greater than the quantity supplied at the current price. This creates a shortage, leading buyers
to compete for the limited available goods. As a result, sellers can raise prices, and consumers
will be willing to pay more to obtain the good. This upward pressure on prices continues until the
market reaches equilibrium, where the quantity demanded equals the quantity supplied.
⁂
A movement along the same demand curve to the
left may be caused by:
A. a rise in the price of inputs
B. a decrease in supply
C. a fall in the number of substitute
D. a rise in income

B. a decrease in supply
Explanation:
A movement along the demand curve implies a change in quantity demanded due to a
change in price.
A decrease in supply leads to a higher equilibrium price. Consumers react to this higher
price by decreasing their quantity demanded, which is reflected as a movement along the
existing demand curve to the left.
The other options would shift the entire demand curve.
⁂

The demand curve will shift to the left for most

consumer good when
A. All of the above
B. The price of complements increase
C. The price of substitute fall
D. Incomes decrease

A. All of the above

Explanation:
A demand curve illustrates how the quantity demanded changes as the price varies, assuming
that all other factors that could affect demand remain constant. Therefore, the demand curve
will shift to the left for most consumer goods when:
Incomes decrease: If consumers have less money, they will generally buy less of most
goods.
The price of complements increase: Complements are goods that are often consumed
together (e.g., coffee and sugar). If the price of sugar increases, people will buy less sugar
and also less coffee, causing the demand curve for coffee to shift left.
The price of substitutes fall: Substitutes are goods that can be used in place of one
another (e.g., tea and coffee). If the price of tea falls, people will buy more tea and less
coffee, causing the demand curve for coffee to shift left.
 ⁂

If the price of a product decreases and total

revenue increases, what can be said about the
price elasticity of demand for the product?
A. Demand is perfectly inelastic
B. Demand is inelastic
C. Demand is elastic
D. Demand is unit elastic

C. Demand is elastic
Explanation:
Elastic Demand: When demand is elastic, a change in price leads to a proportionally larger
change in quantity demanded. This means that consumers are relatively sensitive to price
changes.
Total Revenue: Total revenue is calculated as price multiplied by quantity (TR = P x Q).
If a decrease in price leads to an increase in total revenue, it means that the percentage
increase in quantity demanded was greater than the percentage decrease in price. This is the
defining characteristic of elastic demand.
The attached PDF document refers to several concepts of economics, but does not directly
address price elasticity of demand.
⁂