Multiple Choice Questions 1

Chapter 1.
1. A furniture maker currently produces 100 tables per week and sells them for a profit. She is
considering expanding her operation in order to make more tables. Should she expand?
a. Yes, because making tables is profitable.
b. No, because she may not be able to sell the additional tables.
c. It depends on the marginal cost of producing more tables and the marginal revenue she will
earn from selling more tables.
d. It depends on the average cost of producing more tables and the average revenue she will
earn from selling more tables.
2. The opportunity cost of an item is
a. the number of hours needed to earn money to buy the item.
b. what you give up to get that item.
c. usually less than the dollar value of the item.
d. the dollar value of the item.
3. Russell spends an hour studying instead of playing tennis. The opportunity cost to him of studying is
a. the improvement in his grades from studying for the hour.
b. the improvement in his grades from studying minus the enjoyment of playing tennis.
c. the enjoyment and exercise he would have received had he played tennis.
d. zero. Since Russell chose to study rather than to play tennis, the value of studying must have
been greater than the value of playing tennis.
4. A rational decisionmaker
a. ignores marginal changes and focuses instead on “the big picture.”
b. ignores the likely effects of government policies when he or she makes choices.
c. takes an action only if the marginal benefit of that action exceeds the marginal cost of that
action.
d. takes an action only if the combined benefits of that action and previous actions exceed the
combined costs of that action and previous actions.
5. Teresa eats three oranges during a particular day. The marginal benefit she enjoys from eating the
third orange
a. can be thought of as the total benefit Teresa enjoys by eating three oranges minus the total
benefit she would have enjoyed by eating just the first two oranges.
b. determines Teresa’s willingness to pay for the first, second, and third oranges.
c. does not depend on how many oranges Teresa has already eaten.
d. All of the above are correct.
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6. People are willing to pay more for a diamond than for a bottle of water because
a. the marginal cost of producing an extra diamond far exceeds the marginal cost of producing
an extra bottle of water.
b. the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle
of water.
c. producers of diamonds have a much greater ability to manipulate diamond prices than
producers of water have to manipulate water prices.
d. water prices are held artificially low by governments, since water is necessary for life.
7. The principle that "trade can make everyone better off" applies to interactions and trade between
a. families.
b. states within the United States.
c. nations.
d. All of the above are correct.
8. Which of the following statements does not apply to a market economy?
a. Firms decide whom to hire and what to produce.
b. No one is looking out for the economic well-being of society as a whole.
c. Households decide which firms to work for and what to buy with their incomes.
d. Government policies are the primary forces that guide the decisions of firms and households.
9. The "invisible hand" directs economic activity through
a. advertising.
b. prices.
c. central planning.
d. government regulations.
10. The basic principles of economics suggest that
a. markets are seldom, if ever, a good way to organize economic activity.
b. government should become involved in markets when trade between countries is involved.
c. government should become involved in markets when those markets fail to produce efficient
or equitable outcomes.
d. All of the above are correct.
ANSWERS: CBCCA BDDBC
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Chapter 2.
1. An economic theory about international trade that is based on the assumption that there are only two
countries and two goods
a. can be useful in helping economists understand the complex world of international trade
involving many countries and many goods.
b. is useless, since the real world has many countries trading many goods.
c. can be useful only in situations involving two countries and two goods.
d. can be useful in the classroom, but is useless in the real world.
2. A model can be accurately described as a
a. theoretical abstraction with very little value.
b. device that is useful only to the persons who created it.
c. realistic and carefully constructed theory.
d. simplification of reality.
3. The two loops in the circular-flow diagram represent
a. (i) the flow of goods and (ii) the flow of services.
b. (i) the flow of dollars and (ii) other financial flows.
c. (i) inputs into production processes and (ii) outputs from production processes.
d. (i) the flows of inputs and outputs and (ii) the flow of dollars.
4. In the circular-flow diagram,
a. factors of production flow from government to firms.
b. goods and services flow from households to firms.
c. income paid to the factors of production flows from firms to households.
d. spending on goods and services flows from firms to households.
5. If an economy is producing efficiently, then
a. there is no way to produce more of one good without producing less of another good.
b. it is possible to produce more of both goods without increasing the quantities of inputs that
are being used.
c. it is possible to produce more of one good without producing less of the other.
d. it is not possible to produce more of any good at any cost.
6. The bowed-out shape of the production possibilities frontier can be explained by the fact that
a. scarcity is a fact of life.
b. economic growth is always occurring.
c. the opportunity cost of one good in terms of the other depends on how much of each good
the economy is producing.
d. an assumption that is made in constructing a production possibilities frontier is that tradeoffs
are unimportant.
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7.
1 ) If the economy moves from point A to point D, the opportunity cost is
a. 10 toasters.
b. 20 toasters.
c. 30 toasters.
d. 30 toothbrushes.
2) The opportunity cost of obtaining 15 additional toasters by moving from point D to point C is
a. 10 toothbrushes.
b. 20 toothbrushes.
c. 30 toothbrushes.
d. none of the above; the economy cannot move from point D to point C.
8. Which of the following would be considered a topic of study in macroeconomics?
a. the effect of agricultural price support programs on the cotton industry
b. the effect on U.S. steel producers of an import quota imposed on foreign steel
c. the effect of an increasing inflation rate on national living standards
d. the effect of an increase in the price of imported coffee beans on the U.S. coffee industry
9. Which of the following is an example of a positive statement?
a. Prices rise when the government prints too much money.
b. If welfare payments increase, the world will be a better place.
c. Inflation is more harmful to the economy than is unemployment.
d. When public policies are evaluated, the benefits to the economy of improved equity should
be considered more important than the costs of reduced efficiency.
ANSWERS: ADDCA C(BD)CA
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Chapter 4.
1. The negative relationship between price and quantity demanded
a. applies to most goods in the economy.
b. is represented by a downward-sloping demand curve.
c. is referred to as the law of demand.
d. All of the above are correct.
2. Which of the following would not be a determinant of the demand for a particular good?
a. prices of related goods
b. income
c. tastes
d. the prices of the inputs used to produce the good
3. If a good is normal, then an increase in income will result in
a. an increase in the demand for the good.
b. a decrease in the demand for the good.
c. a movement down and to the right along the demand curve for the good.
d. a movement up and to the left along the demand curve for the good.
4. Currently you purchase 6 packages of hot dogs a month. You will graduate from college in
December and you will start a new job in January. You have no plans to purchase hot dogs in
January. For you, hot dogs are
a. a substitute good.
b. a normal good.
c. an inferior good.
d. a law-of-demand good.
5. Suppose you like to make, from scratch, pies filled with banana cream and vanilla pudding. You
notice that the price of bananas has increased. How would this price increase affect your demand
for vanilla pudding?
a. It would decrease.
b. It would increase.
c. It would be unaffected.
d. There is insufficient information given to answer the question.
6. What will happen in the rice market if buyers are expecting higher rice prices in the near future?
a. The demand for rice will increase.
b. The demand for rice will decrease.
c. The demand for rice will be unaffected.
d. The supply of rice will increase.
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7. Which of the following events would cause a movement upward and to the right along the supply
curve for tomatoes?
a. The number of sellers of tomatoes increases.
b. There is an advance in technology that reduces the cost of producing tomatoes.
c. The price of fertilizer decreases, and fertilizer is an input in the production of tomatoes.
d. The price of tomatoes rises.
8. Suppose there is an increase in steel prices. We would expect the supply curve for steel barrels
a. to shift rightward.
b. to shift leftward.
c. to become flatter.
d. to remain unchanged.
9. When the price of a good is higher than the equilibrium price,
a. a shortage will exist.
b. buyers desire to purchase more than is produced.
c. sellers desire to produce and sell more than buyers wish to purchase.
d. quantity demanded exceeds quantity supplied.
10. Good X and good Y are substitutes. If the price of good Y increases, then the
a. demand for good X will decrease.
b. market price of good X will decrease.
c. demand for good X will increase.
d. quantity demanded of good X will increase.
11. Beef is a normal good. You observe that both the equilibrium price and quantity of beef have fallen
over time. Which of the following explanations would be most consistent with this observation?
a. Consumers have experienced an increase in income and beef-production technology has
improved.
b. The price of chicken has risen and the price of steak sauce has fallen.
c. New medical evidence has been released that indicates a negative correlation between a
person’s beef consumption and his or her longevity.
d. The demand curve for beef must be positively sloped.
12. Which of the following events would cause the price of oranges to fall?
a. There is a shortage of oranges.
b. An article is published in which it is claimed that tangerines cause a serious disease, and
oranges and tangerines are substitutes.
c. The price of land throughout Florida decreases, and Florida produces a significant proportion
of the nation’s oranges.
d. All of the above are correct.
ANSWERS: DDACA ADBCC CC
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Chapter 5
1. For a good that is a necessity,
a. quantity demanded tends to respond substantially to a change in price.
b. demand tends to be inelastic.
c. the law of demand often does not apply.
d. All of the above are correct.
2. If the price elasticity of demand for a good is 1.65, then a 3 percent decrease in price results in a
a. 0.55 percent increase in the quantity demanded.
b. 1.82 percent increase in the quantity demanded.
c. 4.95 percent increase in the quantity demanded.
d. 5.55 percent increase in the quantity demanded.
3. When the price of a good is $5, the quantity demanded is 100 units per month; when the price is $7,
the quantity demanded is 80 units per month. Using the midpoint method, the price elasticity of
demand is about
a. 0.22.
b. 0.67.
c. 1.33.
d. 1.50.
4. Demand is inelastic if elasticity is
a. less than 1.
b. equal to 1.
c. greater than 1.
d. equal to 0.
5. The flatter the demand curve through a given point, the
a. greater the price elasticity of demand at that point.
b. smaller the price elasticity of demand at that point.
c. closer the price elasticity of demand will be to the slope of the curve.
d. greater the absolute value of the change in total revenue when there is a movement from that
point upward and to the left along the demand curve.
6. In the case of perfectly inelastic demand,
a. the change in quantity demanded equals the change in price.
b. the percentage change in quantity demanded equals the percentage change in price.
c. infinitely-large changes in quantity demanded result from very small changes in the price.
d. quantity demanded stays the same whenever price changes.
7. Suppose the point (Q = 2,000, P = $60) is the midpoint on a certain downward-sloping, linear
demand curve. Then
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a. an increase in price from $40 to $42 will increase total revenue.
b. a decrease in price from $61 to $59 will leave total revenue unchanged.
c. the maximum value of total revenue is $120,000.
d. All of the above are correct.
8. If the price elasticity of demand for tuna is 0.7, then a 1.5% increase in the price of tuna will
decrease the quantity demanded of tuna by
a. 1.05% and tuna sellers' total revenue will increase as a result.
b. 1.05% and tuna sellers' total revenue will decrease as a result.
c. 2.14% and tuna sellers' total revenue will increase as a result.
d. 2.14% and tuna sellers' total revenue will decrease as a result.
9. If a 6 percent increase in income results in a 10 percent increase in the quantity demanded of pizza,
then the income elasticity of demand for pizza is
a. negative and therefore pizza is an normal good.
b. negative and therefore pizza is a inferior good.
c. positive and therefore pizza is an inferior good.
d. positive and therefore pizza is a normal good.
10. Which of the following expressions represents a cross-price elasticity of demand?
a. percentage change in quantity demanded of apples divided by percentage change in quantity
supplied of apples
b. percentage change in quantity demanded of apples divided by percentage change in price of
pears
c. percentage change in price of apples divided by percentage change in quantity demanded of
apples
d. percentage change in quantity demanded of apples divided by percentage change in income
ANSWERS: BCBAA DDADB
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