1.

The households and societies face many decisions because ……

a. resources are scarce.
b. goods and services are not scarce.
c. incomes fluctuate with business cycles.
d. people, by nature, tend to disagree.

2. The study of how society manages its scarce resources is known as:
a. production methods.
b. Economics.
c. how households decide who performs which tasks.
d. the interaction of business and government.

3. The word “equality” is used to describe a situation in which

a. each member of society has the same income.
b. each member of society has access to abundant quantities of goods and services,
regardless of his or her income.
c. society is getting the maximum benefits from its scarce resources.
d. society's resources are used efficiently.
4. The property of society getting the most it can from its scarce resources is called
a. equity.
b. efficiency.
c. equality.
d. efficacy.
5. People say that "There is no such thing as a free lunch," means
a. even people on welfare have to pay for food.
b. the cost of living is always increasing.
c. people face tradeoffs.
d. all costs are included in the price of a product.
6. The term opportunity cost is known as:
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.
7. A rational decision maker takes an action only if the
a. marginal benefit is less than the marginal cost.
b. marginal benefit is greater than the marginal cost.
c. average benefit is greater than the average cost.
d. marginal benefit is greater than both the average cost and the marginal cost.

8. “When the price of an apple rises, people decide to eat fewer apples” mean people
respond to
a. laws.
b. incentives.
c. punishments more than rewards.
d. rewards more than punishments.

9. Which of the following statements about trade is true EXCEPT?

a. Trade increases competition.
b. With trade, one country wins and one country loses.
c. Bulgaria can benefit, potentially, from trade with any other country.
d. Trade allows people to buy a greater variety of goods and services at lower cost.

10. The invisible hand is found by

a. Isaac Newton.
b. Adam Smith.
c. Philip Kotler.
d. Karl Marx.
11. Market failure causes
a. externalities and market power.
b. market power and incorrect forecasts of consumer demand.
c. externalities and foreign competition.
d. incorrect forecasts of consumer demand and foreign competition.
12. Increasing the amount of money in the economy results in:
a. the income effect.
b. inflation.
c. deflation.
d. the substitution effect.

13. Which following factor explains differences in living standards across countries?
a. the quantity of money
b. the level of unemployment
c. productivity
d. equality
14. What is the most correct statement about the relationship between inflation and
unemployment?
a. In the short run, falling inflation is associated with falling unemployment.
b. In the short run, falling inflation is associated with rising unemployment.
c. In the long run, falling inflation is associated with falling unemployment.
d. In the long run, falling inflation is associated with rising unemployment.
15. Economists like mathematicians, physicists, and biologists because they
a. make use of the scientific method.
b. try to address their subject with a scientist’s objectivity.
c. devise theories, collect data, and then analyze these data in an attempt to verify or
refute their theories.
d. All of the above are correct.

16. Economists make assumptions to

a. study the earth’s gravity.
b. simplify a complex world easier to understand.
c. make it easier to teach economic concepts and analysis.
d. illustrate and evaluate economic theories.
[Link] plastic manikins, economic models
a. are not useful because they omit many real-world details.
b. consists of diagrams and equations.
c. are useful because they do not omit any real-world details.
d. are plastic representations of the economy.

18. The circular-flow diagram

a. is a visual model.
b. includes two types of decision makers: households and firms.
c. shows the flows of inputs, outputs, and dollars.
d. All of the above are correct.

19. Which of the following is not correct statement about production possibilities
frontiers?
a. An economy can produce any point on the production possibilities frontier.
b. An economy can produce at any point outside a production possibilities frontier.
c. An economy can produce at any point inside the production possibilities frontier.
d. An economy can not produce at any point outside the production possibilities frontier.

20. Which of the following statements is not correct about the roles of economists
EXCEPT ?
a. Economists are best viewed as policy advisers.
b. Economists are best viewed as scientists.
c. In trying to explain the world, economists are policy advisers; in trying to improve the
world, they are scientists.
d. In trying to explain the world, economists are scientists; in trying to improve the
world, they are policy advisers.

21. Microeconomics is the study of

a. how money affects the economy.
b. how households and firms make decisions.
c. how households and firms interact in markets.
d. c & b are correct.

22. Macroeconomics is the study of

a. decisions of household.
b. trade off.
c. economy-wide phenomena.
d. opportunity cost.

[Link] statements are

a. prescriptive about how the world ought to be.
b. made by scientists.
c. backward-looking.
d. forward-looking.

24. Positive statements are

a. prescriptive.
b. descriptive.
c. claims about how the world is.
d. b & c are correct.

25. Economists sometimes give conflicting advice because

a. they are encouraged to argue with each other.
b. they have different scientific judgment and values.
c. they act as policy advisers.
d. they have belief systems more than scientists.

[Link] of the following is a reason people choose to depend on others for goods and
services EXCEPT ?
a. to improve their lives
b. to allow them to enjoy a greater variety of goods and services
c. to consume more of each good without working any more hours
d. to allow people to produce outside their production possibilities frontiers

27. Absolute advantage is found by comparing different producers’

a. marginal cost.
b. output requirements per unit of input.
c. input requirements per unit of output.
d. production outputs.

28. Alex and Mark are two woodworkers who both make tables and chairs. In one
month, Alex can make 4 tables or 20 chairs, while Mark can make 6 tables or 18 chairs.
Given this, we know that
a. Alex has an absolute advantage in chairs
b. Alex has a comparative advantage in tables
c. Mark has an absolute advantage in chairs
d. Mark has a comparative advantage in chairs

29. Specialization and trade related to

a. absolute advantage
b. comparative advantage
c. trade off
d. division of the economic pie

30. Which of the following factor is related to comparative advantage ?

a. output per hour
b. opportunity cost
c. efficiency
d. bargaining strength in international trade
31. Assume that Linda and Tom can switch between producing wheat and producing beef
at a constant rate. In 20 minutes, Linda can make 1 Bushel of Wheat and 1 Pound of Beef
in 12 minutes. Tom can make 1 Bushel of Wheat in 15 minutes and 1 Pound of Beef in
10 minutes.
What is Linda’s opportunity cost of producing one pound of beef?
a. 3/5 bushel of wheat
b. 6/5 bushel of wheat
c. 4/3 bushel of wheat
d. 5/3 bushel of wheat

32. Assume that Linda and Tom can switch between producing wheat and producing beef
at a constant rate. In 20 minutes, Linda can make 1 Bushel of Wheat and 1 Pound of Beef
in 12 minutes. Tom can make 1 Bushel of Wheat in 15 minutes and 1 Pound of Beef in
10 minutes.
What is Linda’s opportunity cost of producing one bushel of wheat?
a. 3/5 pound of beef
b. 6/5 pound of beef
c. 4/3 pound of beef
d. 5/3 pound of beef

33. Assume that Linda and Tom can switch between producing wheat and producing beef
at a constant rate. In 20 minutes, Linda can make 1 Bushel of Wheat and 1 Pound of Beef
in 12 minutes. Tom can make 1 Bushel of Wheat in 15 minutes and 1 Pound of Beef in
10 minutes.
What is Tom’s opportunity cost of producing one bushel of wheat?
a. 2/3 pound of beef
b. 3/4 pound of beef
c. 5/6 pound of beef
d. 3/2 pound of beef

34. Assume that Linda and Tom can switch between producing wheat and producing beef
at a constant rate. In 20 minutes, Linda can make 1 Bushel of Wheat and 1 Pound of Beef
in 12 minutes. Tom can make 1 Bushel of Wheat in 15 minutes and 1 Pound of Beef in
10 minutes.
What is Tom’s opportunity cost of producing one pound of beef ?
a. 2/3 bushel of wheat
b. 3/4 bushel of wheat
c. 5/6 bushel of wheat
d. 3/2 bushel of wheat

1035. The opportunity cost of an item is

a. the number of hours that one must work in order to buy one unit of the item
b. what you give up to get that item
c. always less than the dollar value of the item
d. always greater than the cost of producing the item
1036. Suppose a gardener produces both green beans and corn in her garden. If she must
give up 14 bushels of corn to get 5 bushels of green beans, then her opportunity cost of 1
bushel of green beans is
a. 0.36 bushel of corn
b. 2.8 bushels of corn
c. 14 bushels of corn
d. 70 bushels of corn
1037. Mike and Sandy are two woodworkers who both make tables and chairs. In one
month, Mike can make 4 tables or 20 chairs, while Sandy can make 6 tables or 18 chairs.
Given this, we know that
a. Mike has an absolute advantage in chairs
b. Mike has a comparative advantage in tables
c. Sandy has an absolute advantage in chairs
d. Sandy has a comparative advantage in chairs
1038. If Shawn can produce donuts at a lower opportunity cost than Sue, then
a. Shawn has a comparative advantage in the production of donuts
b. Sue has a comparative advantage in the production of donuts
c. Shawn should not produce donuts
d. Shawn is capable of producing more donuts than Sue in a given amount of time
1039. Comparative advantage is related most closely to which of the following?
a. output per hour
b. opportunity cost
c. efficiency
d. bargaining strength in international trade
1040. Specialization and trade are closely linked to
a. absolute advantage
b. comparative advantage
c. gains to some traders that exactly offset losses to other traders
d. shrinkage of the economic pie