The following sentence is an example of which kind of statement, and why?

"The moon is made of green cheese."

Select one:
a. Normative because it can be proven or disproven
b. Normative because it expresses an opinion
c. Positive because it can be proven or disproven
d. Positive because it expresses an opinion

Which of the following most accurately describes the fundamental economic problem?

Select one:
a. Scarcity because there is a finite supply of everything
b. Scarcity because there are more people than Earth can support
c. Supply and demand because there must be an equilibrium
d. Supply and demand because there is not always an equilibrium

Which of the following best defines and values opportunity cost?

Select one:
a. Opportunity cost is the value of the next best alternative that is given up in making a
choice; it is the same for each person.
b. Opportunity cost is the value of the next best alternative that is given up in making a
choice; it can be different for each person.
c. Opportunity cost is the explicit dollar value of the next best alternative that is given up in
making a choice; it is the same for each person.
d. Opportunity cost is the explicit dollar value of the next best alternative that is given up in
making a choice; it can be different for each person.

In an eight hour day, Company A can produce either 20 computers or 15 printers. In the
same time period, Company B can produce either 10 computers or 10 printers. Company B
has a comparative advantage in the production of which of the following?

Select one:
a. Printers
b. Computers
c. Both computers and printers
d. Neither computers nor printers

Tom owns a bakery and decides to bake a few extra loaves of bread each morning. If he is
making a decision "at the margin," it implies that he is comparing:

Select one:
a. the total revenue to the total cost of producing the bread.
b. the total revenue to the average cost of producing the bread.
c. the total revenue before and after producing the extra loaves.
d. the additional revenue to the additional cost of producing the extra loaves.

When making a decision "at the margin," you will consider undertaking more of an activity if
the marginal benefit from it is __________ the marginal cost.

Select one:
a. greater than
b. less than
c. less than or at least equal to

d. greater than or at least equal to

Country Y produces 77 tons of bananas and 13 tons of coconuts. Country Z produces 50
tons of bananas and 10 tons of coconuts. Based on this information, which of the following
statements is true?

Select one:
a. Country Y has a comparative advantage in bananas, and Country Z has an absolute
advantage in producing coconuts.
b. Country Z has a comparative advantage in bananas, and Country Y has an absolute
advantage in producing coconuts.
c. Country Y has a comparative advantage in coconuts, and Country Z has a comparative
advantage in bananas.

d. Country Y has an absolute advantage in bananas, and country Z has a comparative

advantage in coconuts.
Which of the following statements about factor markets and markets for goods and services
is true?

Select one:
a. In both factor markets and markets for goods and services, firms sell to households.
b. In both factor markets and markets for goods and services, households sell to firms.
c. In factor markets, households sell to firms, and in markets for goods and services, firms
sell to households.

d. In factor markets, firms sell to households, and in markets for goods and services,
households sell to firms.
A price floor that is set above the equilibrium price creates a:

Select one:
a. surplus.
b. shortage.
c. shift in the supply curve.

d. shift in the demand curve.

When the price is below the equilibrium price, which of the following is true?

Select one:
a. Both the quantity demanded and supplied exceed the equilibrium quantity.
b. Both the quantity demanded and supplied are less than equilibrium quantity.
c. The quantity demanded is less than equilibrium quantity, but the quantity supplied is
more than equilibrium quantity.

d. The quantity demanded is more than equilibrium quantity, but the quantity supplied is
less than equilibrium quantity.

Which of the following will cause the supply of walnuts to increase in California?

Select one:
a. A 10% excise tax on California walnuts
b. A decrease in the global price of cashew nuts
c. An increase in the price of walnuts in California

d. A newspaper article promoting the health benefit of California walnuts

If the drop in price of MP3 players shifts the demand curve of CD players leftwards, what
does this signify?

Select one:
a. MP3 players and CD players are substitutes.
b. MP3 players and CD players are complements.
c. MP3 players and CD players are inferior goods.

d. MP3 players and CD players are normal goods.

Using the arc elasticity measure, what is the price elasticity of demand for a Starbucks latte
that increases in price from $3 a cup to $5 a cup with the resulting change in quantity
demanded from 15 cups an hour to 5 cups an hour?

Select one:
a. 1/3
b. 1/2
c. 2

d. 3

Positive income elasticity of a good indicates that the good is a:

Select one:
a. substitutes.
b. complements.
c. inferior goods.

d. normal goods.

The supply of walnuts in California has increased considerably, and the California Walnut
Growers Association convinces the California government to limit the annual quantity of
walnuts produced to 70% of the natural equilibrium quantity. The government does so by
issuing grow permits limiting the quantity that each grower can produce. Which of the
following outcomes is most likely to occur in the marketplace?

Select one:
a. The price will increase, and the quantity sold will increase.
b. The price will increase, and the quantity sold will decrease.
c. The price will decrease, and the quantity sold will increase.

d. The price will decrease, and the quantity sold will decrease.

Because of the free-rider problem, the final output is less than the efficient level of output.
This results in which of the following?

Select one:
a. External cost
b. Deadweight loss
c. Government failure

d. Negative externality

You are faced with a decision to eat another slice of pizza or not. You know your marginal
cost of consuming another slice of pizza and you know the marginal benefit you will gain
from consuming another slice of pizza. You decide to consume another slice of pizza. What
then happens to your marginal cost and marginal benefit of eating the next piece of pizza?

Select one:
a. Marginal cost increases, and marginal benefit increases.
b. Marginal cost increases, and marginal benefit decreases.
c. Marginal cost decreases, and marginal benefit increases.

d. Marginal cost decreases, and marginal benefit decreases.

According to the figure below, what is the consumer surplus in this market?

Select one:
a. $40,000
b. $64,000
c. $80,000

d. $120,000

What is the marginal cost of adding one more consumer to a public good?
Select one:
a. 0
b. 1
c. 2

d. Infinite

Suppose a neighborhood is located next to a pond that breeds mosquitoes. One of the
enterprising residents plans to have the area sprayed and treated to minimize or eliminate
the problem. If he asks all of residents of the neighborhood to contribute funds to have the
area (considered “a public good”) treated, he will most likely run into the problem of:

Select one:
a. free-riders
b. public goods
c. government failure.

d. tragedy of the commons.

In the case of positive externalities, social marginal benefits __________ private marginal
benefits

Select one:
a. are less than
b. equal
c. exceed

d. are not as important as

When we cannot produce more of any good without giving up some other good that we
value more highly, we have achieved which of the following?

Select one:
a. Equity
b. Production
c. Economic growth

d. Allocative efficiency
Which of the following best describes the line of absolute income inequality in a Lorenz
curve?
Select one:
a. It is horizontal because one person has all the wealth.
b. It has a slope of 30 degrees because greater rewards are given to more productive
people.
c. It has a slope of 45 degrees because all income is perfectly uniform.

d. It is vertical because one person has all the wealth.

In the case of an inferior good, the income effect and the substitution effect tend to:

Select one:
a. move in the same direction.
b. cancel one another’s effect.
c. move in the opposite direction.

d. have no impact on the final purchase of a commodity.

In indifference curve analysis, a consumer maximizes utility by choosing the combination of

goods:

Select one:
a. where the budget line crosses an indifference curve.
b. at which the budget line is tangent to the highest indifference curve.
c. that equates indifference to budget maximization to get an optimal utility.

d. at which the consumer’s marginal rate of substitution is equal for each good.

Jane has a weekly budget of $50 to spend on fruit and vegetables. She decides to buy 4
pounds of fruit at a cost of $5/lb. She spends the rest on 5 pounds of vegetables. What is
the price she pays for each pound of vegetable, given her budget constraint?

Select one:
a. $5
b. $6
c. $10

d. $25
Shauna has $10 for the purchase of pens and pencils. The cost of each pen is $2, and the
cost of a pencil is $1. We assume that Shauna will purchase the two goods such that the
 utility maximizing condition is satisfied. Shauna buys 3 pens and 4 pencils. If the price of a
pen falls to $1 each, then the substitution effect would require that Shauna:

Select one:
a. buys more pens.
b. buys more pencils.
c. does not buy pens.

d. buys the same number of pens and pencils as before.

Based on the following table, at price $5, 5 units of the good are demanded. Elasticity at this
point on the demand curve is _________; as such, total revenue (TR) and price tend to move in
the _______ direction.
(INSERT IMAGE 2 HERE)
Select one:
a. elastic; same
b. elastic; opposite
c. inelastic; same
d. inelastic; opposite

If you consume pasta every day of the week, its marginal utility is bound to _________ at the
end of the week, ceteris paribus, and this is guided by the law of _________.

Select one:
a. decrease; total utility
b. decrease; diminishing marginal utility
c. increase; increasing marginal utility

d. increase; diminishing marginal utility

Given the individual demand functions in the following table, what is the market demand at
price P2?
(INSERT IMAGE 3 HERE)
Select one:
a. 10
b. 24
c. 26
 d. 32
Suppose a computer manufacturer is producing in the short run when capital is fixed and the
only variable factor of production is labor. The change in the quantity of production with the
increase in labor is shown in the table below. What does this production function represent?

(INSERT IMAGE 4 HERE)

Select one:
a. Increasing marginal returns to labor
b. Increasing marginal returns to capital
c. Decreasing marginal returns to capital
d. Decreasing marginal returns to labor

The marginal product of labor is important because:

Select one:
a. it determines the wage rate.
b. it determines the selling price.
c. It determines labor productivity.

d. it determines how much is produced.

Assume labor and capital are the only two factors of production for a given firm. If the price
of labor rises, the firm will shift to a factor mix that uses more __________; as a result, we say
that the firm is becoming more __________.

Select one:
a. labor; capital intensive
b. labor; labor intensive
c. capital; capital intensive

d. capital; labor intensive

To minimize the cost of producing a given level of output in the long run, a firm must do
which of the following?

Select one:
a. Take into account the fixed factors of production.
b. Equate the average costs of all factors of production.
c. Equate the marginal products of all factors of production.
 d. Follow the marginal decision rule and equate the ratio of marginal product to price for all
factors of production.
Except for one point, the short run average cost must always be __________ the long run
average cost.

Select one:
a. greater than
b. the same as
c. smaller than

d. intersecting
When MP > AP, production increases. As a result, the MP curve must intersect the AP curve
at:

Select one:
a. any point on the graph.
b. the lowest point of the AP curve.
c. the maximum point of the AP curve.

d. the point where AP and MP are both declining.

If average total cost is declining, then:

Select one:
a. the total cost must also be declining.
b. the marginal cost must be less than average total cost.
c. the marginal cost must be greater than average total cost.

d. the average fixed cost must lie above the average variable cost.
In the short run, a perfectly competitive firm can maximize profits at the level of output
where:

Select one:
a. the total revenue is equal to the total cost.
b. the total revenue exceeds the total cost by the greatest amount.
c. the price is greater than the marginal revenue.

d. the price exceeds average cost by the maximum amount.

For a competitive firm in the long run, which of the following conditions is true?
Select one:
a. MC = MR
b. MC = Total Revenue
c. Price = TC (total cost)

d. Price = FC (fixed cost)

A monopoly firm produces an output that is __________ than the efficient level resulting in
__________ to society.

Select one:
a. less; a cost
b. less; a deadweight loss
c. more; a surplus

d. more; an efficient distribution

Which of the following is a characteristic of monopolistic competition?

Select one:
a. A small number of sellers
b. Relatively difficult entry and exit
c. Product differentiation and brand promotion

d. Production at maximum revenue in the long run

In a purely competitive market, a firm finds that at its MR = MC output level, the total
variable cost (TVC) = $550, total fixed cost (TFC) = $250, and total revenue = $700. What
should a firm in this situation do?

Select one:
a. The firm should produce because it can still cover its TVC.
b. The firm should produce because it can still cover its TFC.
c. The firm should produce because it will realize an economic profit.

d. The firm should shut down in the short run because it will experience too much
economic loss.
A monopolist is producing output at a level at which average total cost = $5, price = $8,
marginal cost = $3, and marginal revenue = $4. This firm is realizing:

Select one:
a. a loss that can be reduced by producing less output.
b. zero economic profits.
c. a profit that can be increased by producing less output.

d. economic profits that can be maximized until MC = MR is reached.

Which of the following is a characteristic of communism?

Select one:
a. Demand determines what is produced.
b. Perfect competition sets all market prices.
c. The government decides the level of goods and services to produce.

d. The government relies on international financial markets to determine domestic interest

rates.
If the marginal revenue product of a firm’s input is $25 and its marginal cost is $15, then we
can say with certainty that the firm:

Select one:
a. is a monopolist.
b. is a monopsonist.
c. will find it profitable to hire more workers.

d. will find it profitable to hire fewer workers.

Which of the following is a valid criticism of the minimum wage?

Select one:
a. It reduces unemployment.
b. It increases unemployment.
c. It forces employers to be more efficient.

d. It forces employers to train their employees.

The demand for construction workers (resources) results from the increased demand for
new homes (final output). This is an example of which of the following?

Select one:
a. Resource sustainability
b. Derived demand for labor
c. Elasticity of resource demand

d. Increasing marginal resource cost

A competitive employer will hire additional labor as long as:

Select one:
a. MC is greater than MR.
b. MRP exceeds the wage rate.
c. wage is less than marginal product.

d. marginal product is less than average product.

Given that the demand for capital declines with a rise in the interest rate while the supply of
capital remains unaffected, what will happen to the new equilibrium quantity of capital if the
interest rate increases?

Select one:
a. The demand curve would shift leftwards, and equilibrium quantity would increase.
b. The demand curve would shift leftwards, and equilibrium quantity would decline.
c. The demand curve would shift rightwards, and equilibrium quantity would decline.

d. The demand curve would shift to the right, and equilibrium quantity would increase.
The supply for salt is said to be perfectly inelastic if the price of salt rises by 5% and the
quantity supplied:

Select one:
a. decreases by 5%.
b. remains the same.
c. increases by 5%.

d. increases by 10%.