Chapter 1

Question 1. In considering how to allocate its scarce resources among its

various members, a household considers
A. each member’s abilities.
B. each member’s efforts.
C. each member’s desires.
D. All of the above are correct.
Question 2. Economics deals primarily with the concept of
A. scarcity.
B. money.
C. poverty.
D. banking.
Question 3. The phenomenon of scarcity stems from the fact that
A. most economies’ production methods are not very good.
B. in most economies, wealthy people consume disproportionate quantities of goods
and services.
C. governments restrict production of too many goods and services.
D. resources are limited.
Question 4. The principle that "people face tradeoffs" applies to
A. individuals.
B. families.
C. societies.
D. All of the above are correct.
Question 5. Candice is planning her activities for a hot summer day. She
would like to go to the local swimming pool and see the latest blockbuster movie,
but because she can only get tickets to the movie for the same time that the pool is
open she can only choose one activity. This illustrates the basic principle that
A. people respond to incentives.
B. rational people think at the margin.
C. people face tradeoffs.
D. improvements in efficiency sometimes come at the expense of equality.
Question 6. Billie Jean has $120 to spend and wants to buy either a new
amplifier for her guitar or a new mp3 player to listen to music while working out.
Both the amplifier and the mp3 player cost $120, so she can only buy one. This
illustrates the basic concept that
A. trade can make everyone better off.
B. people face trade-offs.
C. rational people think at the margin.
D. decisions made at the margin are not particularly important.
Question 7. Efficiency
 A. and equality both refer to how much a society can produce with its resources.
B. and equality both refer to how fairly the benefits from using resources are
distributed between members of a society.
C. refers to how much a society can produce with its resources. Equality refers to
how evenly the benefits from using resources are distributed among members of society.
D. refers to how evenly the benefits from using resources are distributed between
members of society. Equality refers to how much a society can produce with its
resources.
Question 8. A typical society strives to get the most it can from its scarce
resources. At the same time, the society attempts to distribute the benefits of those
resources to the members of the society in a fair manner. In other words, the society
faces a tradeoff between
A. guns and butter.
B. efficiency and equality.
C. inflation and unemployment.
D. work and leisure.
Question 9. The government has just passed a law requiring that all residents
earn the same annual income regardless of work effort. This law is likely to
A. increase efficiency and increase equality.
B. increase efficiency but decrease equality.
C. decrease efficiency but increase equality.
D. decrease efficiency and decrease equality.
Question 10. Ashley eats two bananas during a particular day. The marginal
benefit she enjoys from eating the second banana
A. can be thought of as the total benefit Ashley enjoys by eating two bananas minus
the total benefit she would have enjoyed by eating just the first banana.
B. determines Ashley’s marginal cost of the first and second bananas.
C. does not depend on how many bananas Ashley has already eaten.
D. cannot be determined unless we know how much she paid for the bananas.
Question 11. After much consideration, you have chosen Ireland over Spain
for your Study Abroad program next year. However, the deadline for your final
decision is still months away and you may reverse this decision. Which of the
following events would prompt you to reverse this decision?
A. The marginal benefit of going to Spain increases.
B. The marginal cost of going to Spain increases.
C. The marginal benefit of going to Ireland increases.
D. The marginal cost of going to Ireland decreases.
Question 12. Suppose the cost of flying a 200-seat plane for an airline is
$100,000 and there are 10 empty seats on a flight. If the marginal cost of flying a
passenger is $200 and a standby passenger is willing to pay $300, the airline should
 A. sell the ticket because the marginal benefit exceeds the marginal cost.
B. sell the ticket because the marginal benefit exceeds the average cost.
C. not sell the ticket because the marginal benefit is less than the marginal cost.
D. not sell the ticket because the marginal benefit is less than the average cost.
Question 13. Yvette buys and sells real estate. Two weeks ago, she paid
$300,000 for a house on Pine Street, intending to spend $50,000 on repairs and then
sell the house for $400,000. Last week, the city government announced a plan to build
a new landfill on Pine Street just down the street from the house Yvette purchased.
As a result of the city’s announced plan, Yvette is weighing two alternatives: She can
go ahead with the $50,000 in repairs and then sell the house for $290,000, or she can
forgo the repairs and sell the house as it is for $250,000. She should
A. keep the house and live in it.
B. go ahead with the $50,000 in repairs and sell the house for $290,000.
C. forgo the repairs and sell the house as it is for $250,000.
D. move the house from Pine Street to a more desirable location, regardless of the
cost of doing so.
Question 14. The decisions of firms and households are guided by prices and
self-interest in a
A. command economy.
B. centrally-planned economy.
C. market economy.
D. All of the above are correct.
Question 15. The income of a typical worker in a country is most closely linked
to which of the following?
A. population
B. productivity
C. market power
D. government policies
Question 16. In a particular country in 1999, the average worker had to work
20 hours to produce 55 units of output. In that same country in 2009, the average
worker needed to work 28 hours to produce 77 units of output. In that country, the
productivity of the average worker
A. increased by 2 percent between 1999 and 2009.
B. increased by 5 percent between 1999 and 2009.
C. remained unchanged between 1999 and 2009.
D. decreased by 3 percent between 1999 and 2009.
Question 17. To increase living standards, public policy should
A. ensure that workers are well educated and have the necessary tools and
technology.
B. make unemployment benefits more generous.
 C. move workers into jobs directly from high school.
D. ensure a greater degree of equality, taking all income-earners into account.
Chapter 2
Question 1.Which of the following is not correct?
A. Economists use some familiar words in specialized ways.
B. Economics has its own language and its own way of thinking, but few other
fields of study do.
C. Supply, demand, elasticity, comparative advantage, consumer surplus, and
deadweight loss are all terms that are part of the economist’s language.
D. The value of the economist’s language lies in its ability to provide you with a
new and useful way of thinking about the world in which you live.
Question 2. Which of the following is not an example of a natural experiment
an economist might use to evaluate a theory?
A. Transit ridership increased in Atlanta following an increase in gas prices.
B. Federal tax revenue increased following a decrease in the tax rate.
C. Students in a principles of microeconomics course are asked to play a game
with classmates to determine what decisions they make under certain circumstances.
D. Following the imposition of austerity measures, the growth rate of the economy
in Greece slowed.
Question 3. When studying the effects of changes in public policy, economists
believe that
A. it is important to distinguish between the short run and the long run.
B. the assumptions used in studying those effects should be the same for the short
run as for the long run.
C. the short-run effects of those changes are always more beneficial to society than
are the long-run effects.
D. the long-run effects of those changes are always more beneficial to society than
are the short-run effects.
Question 4. In the circular-flow diagram, which of the following items flows
from firms to households through the markets for goods and services?
A. goods and services
B. dollars paid to land, labor, and capital
C. dollars spent on goods and services
D. wages, rent, and profit
Question 5. Duties of the Council of Economic Advisers include
A. advising the president and writing the annual Economic Report of the President.
B. implementing the president’s tax policies.
C. tracking the behavior of the nation’s money supply.
D. All of the above are correct.
Question 6. Suppose an economist advises a city’s mayor to begin charging
drivers a fee to drive on a busy highway during congested times. The mayor does
not implement the policy because it would not be popular with voters. Which of
the following statements best describes the scenario?
A. This is a common occurrence. The policymaker knows the best policy but
chooses not to institute it for other reasons.
B. This is a common occurrence. The policymaker usually disregards an
economist’s advice because they do not believe it is the most efficient policy.
C. This is an unlikely occurrence. Most of the time, policymakers follow the
advice of economists and institute the most efficient policies.
D. This would never happen. Policymakers always follow the advice of
economists.
Question 7. Economists sometimes give conflicting advice because
A. graduate students in economics are encouraged to argue with each other.
B. economists have different values and scientific judgment.
C. economists acting as scientists do not like to agree with economists acting as
policy advisers.
D. economics is more of a belief system than a science.
Question 8. When two variables have a negative correlation,
A. when the x-variable decreases, the y-variable decreases.
B. when the x-variable decreases, the y-variable increases.
C. when the x-variable increases, the y-variable increases.
D. More than one of the above is correct.
Question 9. Identify each of the following topics as being part of
microeconomics or macroeconomics:
A. the impact of a change in consumer income on the purchase of luxury
automobiles
B. the effect of a change in the price of Coke on the purchase of Pepsi
C. the impact of a war in the Middle East on the rate of inflation in the United
States
D. factors influencing the rate of economic growth
E. factors influencing the demand for tractors
F. the impact of tax policy on national saving
G. the effect of pollution taxes on the U.S. copper industry
H. the degree of competition in the cable television industry
I. the effect of a balanced-budget amendment on economic stability
J. the impact of deregulation on the savings and loan industry
Question 9. Use the following graph to answer the following questions.
A. How would point J be represented as an ordered pair?
B. What type of curve is this?
C. Does this curve show a positive or negative correlation between price and
quantity?
D. Compute the slope of D1 between points J and L.
E. What is the slope of D1 between points L and N? Why would you not have to
calculate this answer?
F. What is it called if we move from D1 to D2?
G. How do you know that the slope of D2 is the same as the slope of D1?
Chapter 3
Question 1. A professor spends 10 hours per day giving lectures and writing
papers. For the professor, a graph that shows his various possible mixes of output
(lectures given per day and papers written per day) is called his
A. line of tastes.
B. trade-off curve.
C. production possibilities frontier.
D. consumption possibilities frontier.
Question 2. As a student, Anne spends 40 hours per week writing term papers
and completing homework assignments. On one axis of her production possibilities
frontier is measured the number of term papers written per week. On the other
axis is measured the number of homework assignments completed per week.
Anne’s production possibilities frontier is a straight line if
A. she faces no trade-off between writing term papers and completing homework
assignments.
B. she can switch between writing term papers and completing homework
assignments at a constant rate.
C. the rate at which she can switch between homework assignments and term
papers depends on the number of homework assignments she is completing and on the
number of term papers she is writing.
D. she is required by her professors to spend half of her time on term papers and
the other half of her time on homework assignments.

Table 3-3
Production Opportunities

Hours Needed to Make 1 Number of Units Produced in 40

Cheese Wine Cheese Wine
England 1 4 40 10
France 5 2 8 20

Question 3. Refer to Table 3-3. Assume that England and France each has 40
labor hours available. If each country divides its time equally between the
production of cheese and wine, then total production is
A. 8 units of cheese and 10 units of wine
B. 24 units of cheese and 15 units of wine
C. 40 units of cheese and 20 units of wine
D. 48 units of cheese and 30 units of wine
Question 4. Refer to Table 3-3. Which of the following combinations of cheese
and wine could France produce in 40 hours?
A. 2 units of cheese and 20 units of wine
B. 4 units of cheese and 15 units of wine
C. 6 units of cheese and 5 units of wine
D. 8 units of cheese and 20 units of wine
Question 5. Refer to Table 3-3. Which of the following combinations of cheese
and wine could England not produce in 40 hours?
A. 12 units of cheese and 7 units of wine
B. 16 units of cheese and 6 units of wine
C. 20 units of cheese and 5 units of wine
D. 26 units of cheese and 4 units of wine
Question 6. Refer to Table 3-3. We could use the information in the table to
draw a production possibilities frontier for England and a second production
possibilities frontier for France. If we were to do this, measuring cheese along the
horizontal axis, then
A. the slope of England’s production possibilities frontier would be ­4 and the slope
of France’s production possibilities frontier would be -0.4.
B. the slope of England’s production possibilities frontier would be ­0.25 and the
slope of France’s production possibilities frontier would be -2.5.
C. the slope of England’s production possibilities frontier would be 0.25 and the
slope of France’s production possibilities frontier would be 2.5.
D. the slope of England’s production possibilities frontier would be 4 and the slope
of France’s production possibilities frontier would be 0.4.
Question 7. Refer to Table 3-3. We could use the information in the table to
draw a production possibilities frontier for England and a second production
possibilities frontier for France. If we were to do this, measuring wine along the
horizontal axis, then
A. the slope of England’s production possibilities frontier would be ­4 and the slope
of France’s production possibilities frontier would be -0.4.
B. the slope of England’s production possibilities frontier would be ­0.25 and the
slope of France’s production possibilities frontier would be -2.5.
C. the slope of England’s production possibilities frontier would be 0.25 and the
slope of France’s production possibilities frontier would be 2.5.
D. the slope of England’s production possibilities frontier would be 4 and the slope
of France’s production possibilities frontier would be 0.4.
Question 8. Refer to Table 3-6. Which of the following represents Zimbabwe’s
and Portugal’s production possibilities frontiers when each country has 60 minutes
of machine time available?
A. Zimbabwe Portugal

B. Zimbabwe Portugal

C. Zimbabwe Portugal

D. Zimbabwe Portugal

Question 9. Refer to Table 3-6. Assume that Zimbabwe and Portugal each
has 180 machine minutes available. If each country divides its time equally
between the production of toothbrushes and hairbrushes, then total production is
A. 24 toothbrushes and 12 hairbrushes.
B. 48 toothbrushes and 24 hairbrushes.
C. 96 toothbrushes and 48 hairbrushes.
D. 720 toothbrushes and 1440 hairbrushes.
Question 10. Refer to Table 3-6. Which of the following combinations of
toothbrushes and hairbrushes could Portugal produce in 30 minutes?
A. 1 toothbrush and 4 hairbrushes
B. 4 toothbrushes and 2 hairbrushes
C. 5 toothbrushes and 6 hairbrushes
D. 6 toothbrushes and 5 hairbrushes
Question 11. Refer to Table 3-6. Which of the following combinations of
toothbrushes and hairbrushes could Zimbabwe not produce in 120 minutes?
A. 5 toothbrushes and 11 hairbrushes
B. 10 toothbrushes and 9 hairbrushes
C. 20 toothbrushes and 6 hairbrushes
D. 30 toothbrushes and 3 hairbrushes
Figure 3-20
Canada’s Production Possibilities Frontier Mexico’s Production Possibilities
Frontier

Question 12. Refer to Figure 3-20. Canada’s opportunity cost of one unit of
Good X is
A. 1/2 unit of Good Y and Mexico’s opportunity cost of one unit of Good X is 1/2
unit of Good Y.
B. 1/2 unit of Good Y and Mexico’s opportunity cost of one unit of Good X is 2
units of Good Y.
C. 2 units of Good Y and Mexico’s opportunity cost of one unit of Good X is 1/2
unit of Good Y.
D. 2 units of Good Y and Mexico’s opportunity cost of one unit of Good X is 2
units of Good Y.
Question 13. Refer to Figure 3-20. Canada’s opportunity cost of one unit of
Good Y is
A. 1/2 unit of Good X and Mexico’s opportunity cost of one unit of Good Y is 1/2
unit of Good X.
B. 1/2 unit of Good X and Mexico’s opportunity cost of one unit of Good Y is 2
units of Good X.
C. 2 units of Good X and Mexico’s opportunity cost of one unit of Good Y is 1/2
unit of Good X.
D. 2 units of Good X and Mexico’s opportunity cost of one unit of Good Y is 2
units of Good X.
Question 14. Refer to Figure 3-20. Canada would incur an opportunity cost
of 6 units of Good X if it increased its production of Good Y by
A. 3 units.
B. 6 units.
C. 9 units.
D. 12 units.
Question 15. Refer to Figure 3-20. Mexico would incur an opportunity cost
of 8 units of Good X if it increased its production of Good Y by
A. 2 units.
B. 4 units.
C. 6 units.
D. 8 units.
Question 16. Refer to Figure 3-20. Canada has an absolute advantage in the
production of
A. Good X and Mexico has an absolute advantage in the production of Good Y.
B. Good Y and Mexico has an absolute advantage in the production of Good X.
C. both goods and Mexico has an absolute advantage in the production of neither
good.
D. neither good and Mexico has an absolute advantage in the production of both
goods.
Question 17. Refer to Figure 3-20. Canada has a comparative advantage in
the production of
A. Good X and Mexico has a comparative advantage in the production of Good Y.
B. Good Y and Mexico has a comparative advantage in the production of Good X.
C. both goods and Mexico has a comparative advantage in the production of neither
good.
D. neither good and Mexico has a comparative advantage in the production of both
goods.
Question 18. Refer to Figure 3-20. If Canada and Mexico switch from each
country dividing its time equally between the production of Good X and Good Y to
each country spending all of its time producing the good in which it has a
comparative advantage, then total production of Good X will increase by
A. 3 units.
B. 6 units.
C. 9 units.
D. 12 units.
Question 19. Refer to Figure 3-20. If Canada and Mexico switch from each
country dividing its time equally between the production of Good X and Good Y to
each country spending all of its time producing the good in which it has a
comparative advantage, then total production of Good Y will increase by
A. 3 units.
B. 6 units.
C. 9 units.
D. 12 units.
Question 20. Refer to Figure 3-20. At which of the following prices would
both Canada and Mexico gain from trade with each other?
A. 9 units of Good Y for 6 units of Good X
B. 8 units of Good Y for 20 units of Good X
C. 70 units of Good Y for 30 units of Good X
D. Canada and Mexico could not both gain from trade with each other at any price.