Quiz 1

Question 1

All of the following statements, except one, are valid examples of the way economists use the term scarcity. Which one is the exception?

Select one:

a. Households face a scarcity of income.
b. Individuals face a scarcity of time.
c. Economies face a scarcity of resources.
d. The world faces a scarcity of ideas.
e. Firms face a scarcity of qualified workers.

Answer 1

d. The world faces a scarcity of ideas.

Question 2

All of the following topics, except one, are valid macroeconomic topics. Which one is the exception?

Select one:

a. the effect of the government budget deficit on inflation
b. the reasons the labour force in a country decreases
c. the reasons the average price level in a country falls
d. the cause of increasing unemployment
e. the reasons the price of coffee fluctuates

Answer 2

e. the reasons the price of coffee fluctuates

Question 3

The fact that human wants cannot be fully satisfied with available resources is called the problem of

Select one:

a. normative economics.
b. marginal cost.
c. the big tradeoff.
d. scarcity.
e. opportunity cost.

Answer 3

d. scarcity.

Question 4

The two big economic questions

Select one:

a. involve self-interest only.
b. involve both self-interest and social interest.
c. do not arise from scarcity.
d. involve only social interest.
e. involve neither self-interest nor social interest.

Answer 4

b. involve both self-interest and social interest.

Question 5

To earn income, people sell the services of the factors of production they own. Land earns ________ ; labour earns ________; capital earns ________; and entrepreneurship earns ________.

Select one:

a. profit / wages / rent / interest
b. wages / interest / profit / rent
c. profit / interest / wages / rent
d. interest / profit / rent / wages
e. rent / wages / interest / profit

Answer 5

e. rent / wages / interest / profit

Question 6

Factors of production is a term that can be used interchangeably with

Select one:

a. models.
b. consumer goods.
c. either resources or inputs.
d. opportunity cost.
e. technologies.

Answer 6

c. either resources or inputs.

Question 7

The creation of a successful movie illustrates choices made in self-interest that also achieve the social interest if

Select one:

a. the movie has a higher attendance than any other movie produced that year.
b. the movie is produced in a country where workers typically earn less than workers in North America.
c. the movie is an Academy Award winner because an Academy Award winning movie is most popular with the movie-going public.
d. the movie is produced at the lowest possible cost, and the movie gives the greatest possible benefit.
e. the movie addresses a social issue.

Answer 7

d. the movie is produced at the lowest possible cost, and the movie gives the greatest possible benefit.

Question 8

Opportunity cost is

Select one:

a. the highest-valued alternative that we give up to get something.
b. your value of leisure.
c. the marginal benefit from an activity.
d. the value of your favourite activity.
e. the money you spend on food, shelter, and clothing.

Answer 8

a. the highest-valued alternative that we give up to get something.

Question 9

A university decides to change its late night bus service between the campus and student housing from a fare-based service to a free service. This statement means that the incentive to ride the bus ________ and the opportunity cost of a bus ride ________. The university’s decision is a ________ decision.

Select one:

a. remains the same / remains the same / microeconomic
b. changes / decreases / microeconomic
c. changes / increases / microeconomic
d. changes / decreases / macroeconomic
e. remains the same / remains the same / macroeconomic

Answer 9

b. changes / decreases / microeconomic

Question 10

“The rich should face higher income tax rates than the poor.” This is an example of

Select one:

a. a negative statement.
b. a normative statement.
c. neither a normative nor a positive statement.
d. a positive statement.
e. economic reasoning.

Answer 10

b. a normative statement.

Question 11

A relative price is

Select one:

a. a quantity of a “basket” of goods and services forgone.
b. determined by demand and supply.
c. the ratio of one price to another.
d. an opportunity cost.
e. all of the above.

Answer 11

e. all of the above.

Question 12

When a textile firm decides to produce more silk fabric and less cotton fabric, it is answering the question of ________ .

Select one:

a. “how”
b. “what”
c. “where”
d. “who”
e. “when”

Answer 12

b. “what”

Question 13

Suppose we observe a rise in the price of good A and an increase in the quantity of good A bought and sold. Which of the following is a likely explanation?

Select one:

a. The demand for A increased.
b. The law of demand is violated.
c. The supply of A decreased.
d. The demand for A decreased.
e. The supply of A increased.

Answer 13

a. The demand for A increased.

Question 14

With allocative efficiency, for each good produced,

Select one:

a. marginal cost exceeds marginal benefit by as much as possible.
b. marginal benefit is at its maximum.
c. marginal benefit equals marginal cost.
d. marginal cost is at its minimum.
e. marginal benefit exceeds marginal cost by as much as possible.

Answer 14

c. marginal benefit equals marginal cost.

Question 15

In one hour, Sue can produce 50 caps or 10 jackets and Tessa can produce 70 caps or 7 jackets. Sue’s opportunity cost of producing a cap is ________ jackets and Tessa’s opportunity cost of producing a cap is ________ jackets.

________ has a comparative advantage in producing caps.

If Sue and Tessa each specialize in producing the good in which they have a comparative advantage and trade 1 jacket for 7 caps, then ________.

Select one:

a. 5.0 / 10.0 / Tessa / Sue loses but Tessa gains
b. 0.2 / 0.10 / Sue / both Sue and Tessa gain
c. 0.2 / 0.10 / Tessa / both Sue and Tessa gain
d. 0.2 / 0.10 / Sue / Tessa gains but Sue loses
e. 5.0 / 10.0 / Sue / both Sue and Tessa gain

Answer 15

c. 0.2 / 0.10 / Tessa / both Sue and Tessa gain

Question 16

Good A is a normal good if

Select one:

a. income and the demand for A are negatively related.
b. a rise in the price of a substitute causes the demand for A to increase.
c. a rise in the price of a complement causes the demand for A to decrease.
d. good A satisfies the law of demand.
e. the demand for A increases when income rises.

Answer 16

e. the demand for A increases when income rises.

Question 17

In Portugal, the opportunity cost of a bale of wool is 3 bottles of wine. In England, the opportunity cost of 1 bottle of wine is 3 bales of wool. Given this information,

Select one:

a. England has an absolute advantage in wool production.
b. England has an absolute advantage in wine production.
c. Portugal has a comparative advantage in wool production.
d. Portugal has a comparative advantage in wine production.
e. no trade will occur.

Answer 17

d. Portugal has a comparative advantage in wine production.

Question 18

The demand and supply model determines

Select one:

a. relative prices.
b. demand prices.
c. money prices.
d. absolute prices.
e. supply prices.

Answer 18

a. relative prices.

Question 19

The demand curve slopes downward to the right because

Select one:

a. of the law of supply.
b. as income rises, the quantity demanded increases.
c. of the law of demand.
d. of comparative advantage.
e. an increase in income leads to increased consumption.

Answer 19

c. of the law of demand.

Question 20

Good A is a normal good if

Select one:

a. good A satisfies the law of demand.
b. income and the demand for A are negatively related.
c. a rise in the price of a substitute causes the demand for A to increase.
d. the demand for A increases when income rises.
e. a rise in the price of a complement causes the demand for A to decrease.

Answer 20

d. the demand for A increases when income rises.

Question 21

Model A is superior to model B if

Select one:

a. it is preferred by a majority of researchers in a public opinion poll.
b. it contains more real world detail than model B.
c. it is scientifically “elegant.”
d. it contains fewer unrealistic assumptions than model B.
e. its predictions correspond more closely to the facts than the predictions of model B.

Answer 21

e. its predictions correspond more closely to the facts than the predictions of model B.

Question 22

If Hamburger Helper is an inferior good, then, ceteris paribus, a decrease in income will lead to

Select one:

a. a rightward shift of the demand curve for Hamburger Helper.
b. an initial movement up and then down along the demand curve for Hamburger Helper.
c. a movement up along the demand curve for Hamburger Helper.
d. a leftward shift of the demand curve for Hamburger Helper.
e. a movement down along the demand curve for Hamburger Helper.

Answer 22

a. a rightward shift of the demand curve for Hamburger Helper.

Question 23

The quantity of shoes produced is measured along the horizontal axis of a bowed outward production possibilities frontier and the quantity of shirts produced is measured along the vertical axis. As you move down toward the right along the production possibilities frontier, the opportunity cost of

Select one:

a. a pair of shoes increases.
b. a shirt increases.
c. a pair of shoes and a shirt is equal at the midpoint between the horizontal axis and the vertical axis.
d. a pair of shoes decreases.
e. a shirt stays constant.

Answer 23

a. a pair of shoes increases.

Question 24

A shortage will exist if

Select one:

a. there are not enough consumers.
b. the price is below the equilibrium price.
c. the price is above the equilibrium price.
d. there are not enough producers.
e. demand decreases.

Answer 24

b. the price is below the equilibrium price.