Part 1 Introduction

1. (B) The central concern of economics is:

(A) poverty.
(B) scarcity.
(C) wealth accumulation.
(D) overconsumption.

2. (C) When a person decides to pursue an activity as long as the extra benefits are at least equal to the
extra costs, that person is:
(A) violating the cost-benefit principle.
(B) following the scarcity principle.
(C) following the cost-benefit principle.
(D) pursuing the activity too long.

3. (D) In general, rational decision making requires one to choose the actions that yield the:
(A) largest total benefits.
(B) smallest total costs.
(C) smallest net benefits.
(D) largest economic surpluses.

4. (D) Economic questions always deal with:

(A) financial matters.
(B) political matters.
(C) insufficient resources.
(D) choice in the face of limited resources.

5. (A) ______________ is the study of choice and its implications for price and quantity in individual
markets.
(A) Microeconomics
(B) Macroeconomics
(C) Normative economics
(D) Positive economics

6. (B) ______________ is the study of the national economy and the global economy as a whole.
(A) Microeconomics
(B) Macroeconomics
(C) Normative economics
(D) Positive economics
7. (D) Dividing the total cost of n units of an activity by n reveals the:
(A) average benefit.
(B) marginal cost.
(C) units per cost.
(D) average cost.

8. (B) ______________ is the value of what must be foregone in order to undertake an activity.
(A) average benefit.
(B) opportunity cost.
(C) units per cost.
(D) average cost.

9. (A) You had to pay $600 (non-refundable) for your meal plan which gives you up to 150 meals. If you
eat only 100 meals, your average cost for a meal equals:
(A) $6.
(B) $5.
(C) $4.
(D) $0.25.

10. (D) You had to pay $600 (non-refundable) for your meal which gives you up to 150 meals. If you eat
only 100 meals, your marginal cost for the 100th meal is:
(A) $6
(B) $4
(C) $0.25
(D) $0

11. (C) You save $10 on gas every week since you live close to the bus stop. You have class five days a
week. What is your average benefit per day for living close to the bus stop?
(A) $10
(B) $5
(C) $2
(D) $1.43
 Table 1
Units of Activity Total Cost Total Benefit
1 $30 $100
2 $40 $160
3 $60 $180
4 $100 $200
5 $150 $205
6 $175 $210

12. (B) Refer to the Table 1 above. The average cost of 4 units of this activity is:
(A) $20
(B) $25
(C) $30
(D) $40

13. (C) Refer to the Table 1 above. The marginal cost of the 3rd unit of this activity is:
(A) $30
(B) $25
(C) $20
(D) $10

14. (B) Refer to the Table 1 above. The average benefit of 3 units of activity is:
(A) $80
(B) $60
(C) $40
(D) $20

15. (C) Refer to the Table 1 above. The marginal benefit of the 5th unit of activity is:
(A) $60
(B) $50
(C) $5
(D) $0

16. (B) Refer to the Table 1 above. According to the cost-benefit principle, the level of activity that
provides the largest net benefit is:
(A) 1
(B) 3
(C) 4
(D) 6
17. (A) A graph that illustrates the maximum amount of one good that can be produced for every possible
level of production of the other good is called a(n):
(A) production possibilities curve.
(B) consumption possibilities curve.
(C) production function.
(D) supply curve.

18. (D) The slope of the production possibilities curve must be:
(A) positive.
(B) decreasing.
(C) increasing.
(D) negative.

19. (D) Figure 1 describes the production possibilities on the island of Genova:
The opportunity cost of producing one car in Genova is:
(A) 5,000 tons of agricultural products.
(B) 500 tons of agricultural products.
(C) 5 tons of agricultural products.
(D) 50 tons of agricultural products.

Figure 1

Figure 2

20. (C) Refer to the Figure 2 above. Becky's maximum production of sandals per hour is represented by
point:
(A) u.
(B) t.
(C) v.
(D) z.

21. (C) Refer to the Figure2. Of the labeled points, ______________ are efficient.
(A) only t and u
(B) only x, y, and z
(C) only w, x, y, z, and v
 (D) only w, x, y, z, v, and t

Figure 3

22. (D) Refer to the Figure 3 above. If this restaurant makes 75 salads in one hour, how many pizzas can it
also make in that same hour, assuming efficient production?
(A) 0
(B) 10
(C) 20
(D) 30

23. (B) Refer to the Figure 3 above. Moving from Point B to Point C, this restaurant would be:
(A) making more pizzas and more salads.
(B) making more pizzas and fewer salads.
(C) making fewer pizzas and more salads.
(D) operating more efficiently.

24. (A) Refer to the Figure 3 above. Moving from Point C to Point B, the opportunity cost of 25 more
salads is:
(A) 5 fewer pizzas.
(B) 10 fewer pizzas.
(C) 15 fewer pizzas.
(D) 30 fewer pizzas.

25. (B) Refer to the Figure 3 above. Moving from Point B to Point A, the opportunity cost of 25 more
salads is:
(A) 5 fewer pizzas.
(B) 10 fewer pizzas.
(C) 15 fewer pizzas.
(D) 20 fewer pizzas.

26. (B) Refer to the Figure 3 above. The opportunity cost of making an additional salad:
(A) remains constant regardless of how many salads are made.
(B) increases as the number of salads increases.
(C) decreases as the number of pizzas decreases.
 (D) decreases as the number of salads increases.
27. (D) Refer to the Figure 3 above. Compare the degree of efficiency at each point. Which is true?
(A) Point A is less efficient than Point B.
(B) Points A, B, and C are more efficient than Point D.
(C) Points B and C are more efficient than either Point A or Point D.
(D) Points A, B, C and D are equally efficient.

28. (B) means being able to do something in less time.

(A) comparative advantage.
(B) absolute advantage.
(C) relative advantage.
(D) specialization advantage.

29. (A) means having a lower opportunity cost.

(A) comparative advantage.
(B) absolute advantage.
(C) relative advantage.
(D) specialization advantage.

Table 2
Pizzas made per hour Pizzas delivered per hour
Corey 12 6
Pat 10 15

30. (A) Refer to the table 2 above. Corey has an absolute advantage in:
(A) the production of pizza.
(B) neither the production of pizza nor the delivery of pizza.
(C) delivering pizza.
(D) both the production of pizza and the delivery of pizza.

31. (D) Refer to the table 2 above. Corey's opportunity cost of the production of an extra pizza is the
delivery of _____ _ pizza(s).
(A) 2
(B) 3/2
(C) 2/3
(D) 1/2

32. (D) Refer to the table 2 above. The comparative advantage for pizza production belongs to __________
and the comparative advantage for pizza delivery belongs to __________.
(A) Corey; Corey
(B) Pat; Pat
 (C) Pat; Corey
(D) Corey; Pat
33. (A) In March 1999, a factory used new technology to produce its output. Then in August 1999, a fire
destroys half the factory. The new technology shifted the factory's PPF _________ and the fire shifted
it __________.
(A) outward; inward
(B) outward; outward
(C) inward; outward
(D) inward; inward

34. (A) In one day, Sue can change the oil on 15 cars or the tires on 10 cars. In one day, Fred can change
the oil on 12 cars or the tires on 10 cars. Sue's opportunity cost of changing oil is _______ than Fred's
and her opportunity cost for changing tires is _______ than Fred's.
(A) less; greater
(B) less; less
(C) greater; less
(D) greater; greater

35. (A) A country that has an absolute advantage in producing all goods will usually ______________.
(A) have a comparative advantage in some goods but not all
(B) have a comparative advantage in all goods
(C) produce all goods at lowest opportunity cost
(D) not gain from specialization and trade

36. (E) The production-possibilities frontier

(A) illustrates scarcity
(B) illustrates why choice is necessary
(C) gives the maximum output of one good given the production of another good
(D) illustrates the concept of opportunity costs
(E) All of the above.

37. (A) Economics may be defined as the science that explains _____ ________.
(A) the choices that we make as we cope with scarcity
(B) the decisions made by politicians
(C) the decisions made by households
(D) all human behavior

38. (A) Scarcity is a situation in which _________________.

(A) wants exceed the resources available to satisfy them
(B) something is being wasted
(C) people are poor
(D) there is a shortage of something
39. (B) By remaining in school, you are paying an opportunity cost that includes ___________________.
(A) the money you spend on CDs
(B) the wages you could earn if you took a job
(C) the money you spend on clothes
(D) the money you spend on food and drink

40. (B) Making a decision at the margin means ____________________.

(A) letting someone else choose for you
(B) deciding to do a little bit more or a little bit less of an activity
(C) making an all-or-nothing choice
(D) waiting until the last minute to make a choice

41. (B) When productivity increases _____________________.

(A) prices rise
(B) living standards improve
(C) there are fewer good jobs
(D) living standards deteriorate

42. (B) Macroeconomics is the study of ________________________.

(A) all aspects of scarcity
(B) the national economy and the global economy as a whole
(C) big businesses
(D) the decisions of individual businesses and people

43. (C) Scarcity arises when our ____________________________.

(A) resources exceed our wants
(B) resources are limited
(C) wants exceed our resources
(D) wants are unlimited

44. (C) Our productive resources include all the following except the __________________.
(A) land, skill of people, and machines owned by firms
(B) land, entrepreneurship, and human capital
(C) the money people own and the consumption goods that they buy
(D) skill of entrepreneurs and people, the land they own, and their capital

45. (C) The production possibility frontier separates _____________________________.

(A) the types of goods that can be attained from those that can't be unattained
(B) the goods and services that people want from those that they do not want
(C) the quantities of goods and services that can be produced from those that cannot be produced
(D) the combinations of goods that people value and those that they don't