Unit I Practice Test

1. The study of economics is primarily concerned with:
A.keeping private businesses from losing money.
B.demonstrating that capitalistic economies are superior to socialistic economies.
C.choices which are made in seeking to use scarce resources efficiently.
D.determining the most equitable distribution of society's output.


2. The "economic perspective" entails:
A.rational behavior by individuals and institutions.
B.a comparison of marginal benefits and marginal costs in decision making.
C.the altering of behavior when marginal benefits and marginal costs change.
D.all of the above.


3. Marginal costs exist because:
A.the decision to produce more of some product means the sacrifice of other products.
B.wants are scarce relative to resources.
C.households and businesses make rational decisions.
D.most decisions do not involve sacrifices or tradeoffs.


4. "Consumers spend their incomes to get the maximum benefit or satisfaction from the goods and services they purchase." This is a reflection of:
A.resource scarcity and the necessity of choice.
B.rational behavior.
C.marginal costs which exceed marginal benefits.
D.the tradeoff problem which exists between competing goals.


5. The study of economics:
A.is similar to management, marketing, and finance since it emphasizes how to make money.
B.is helpful to businesses, but not particularly helpful in making personal buying decisions.
C.is mainly an academic, not a vocational subject.
D.looks at the economy from the viewpoint of one's own pocketbook, not from the standpoint of society's interest.


6. Generally speaking, the inductive method:
A.begins with hypotheses which are then tested against real-world facts.
B.confuses correlation with cause and effect.
C.moves from facts to generalizations or theory.
D.cannot be applied in economic analysis.


7. In constructing models, economists:
A.make simplifying assumptions.
B.include all available information.
C.must use mathematical equations.
D.attempt to duplicate the real world.


8. Suppose an economist says that "Other things equal, the lower the price of bananas, the greater the amount of bananas purchased." This statement indicates that:
A.the quantity of bananas purchased determines the price of bananas.
B.all factors other than the price of bananas (for example, consumer tastes and incomes) are assumed to be constant.
C.economists can conduct controlled laboratory experiments.
D.one cannot generalize about the relationship between the price of bananas and the quantity purchased.


9. The term "other things equal" means that:
A.the associated statement is normative.
B.many variables affect the variable under consideration.
C.a number of relevant variables are assumed to be constant.
D.when variable X increases so does related variable Y.


10. Most of the disagreement among economists involves:
A.the use of statistics.
B.the gathering of facts.
C.generalizing upon facts.
D.policy economics.


11. Which of the following is associated with macroeconomics?
A.an examination of the incomes of Harvard Business School graduates
B.an empirical investigation of the general price level and unemployment rates in the 1990s
C.a study of the trend of pecan prices since World War II
D.a case study of pricing and production in the textbook industry


12. Microeconomics:
A.is the basis for the "after this, therefore because of this" fallacy.
B.is not concerned with details, but only with the overall "big picture" of the economy.
C.is concerned with individual economic units and specific markets.
D.describes the aggregate flows of output and income.


13. Which of the following is a macroeconomic statement?
A.The gross profits of all U.S. businesses were $182 billion last year.
B.The price of beef declined by 3 percent last year.
C.General Motors' profits increased in 1998.
D.The productivity of steelworkers increased by 1 percent in 1998.


14. A normative statement is one which:
A.is based on the law of averages.
B.pertains only to microeconomics.
C.pertains only to macroeconomics.
D.is based upon value judgments.


15. Which of the following is a positive statement?
A.The humidity is too high today.
B.It is too hot to jog today.
C.The temperature is 92 degrees today.
D.I enjoy summer evenings when it cools off.


16. A positive statement is concerned with:
A.some goal which is desirable to society.
B.what should be.
C.what is.
D.the formulation of economic policy.


17. Ben says that "An increase in the tax on beer will raise its price." Holly argues that "Taxes should be increased on beer because college students drink too much." We can conclude that:
A.Ben's statement is normative, but Holly's is positive.
B.Holly's statement is normative, but Ben's is positive.
C.Both statements are normative.
D.Both statements are positive.


18. The safest way for an individual to leave a burning theater is to run for the nearest exit; it is therefore also the best means of escape for a large audience. This illustrates the:
A."after this, therefore because of this" fallacy.
B.correlation fallacy.
C.fallacy of composition.
D.fallacy of limited decisions.


19. The "after this, because of this" fallacy states that:
A.positive statements are always followed by normative judgments.
B.positive statements can never be proven true or false.
C.if one acts on one's expectations, those expectations will always be fulfilled.
D.cause and effect can be determined merely by observing the sequence of events.


20. "If you leave a football game at the end of the third quarter, you will avoid traffic and get home more quickly. Therefore, everyone should leave the game early." This illustrates the:
A.moral hazard problem.
B.adverse selection problem.
C.fallacy of limited decisions.
D.fallacy of composition.


21. The concept of economic efficiency is primarily concerned with:
A.the limited wants-unlimited resources dilemma.
B.considerations of equity in the distribution of wealth.
C.obtaining the maximum output from available resources.
D.the conservation of irreplaceable natural resources.


22. The fundamental problem of economics is:
A.to establish a democratic political framework for the provision of social goods and services.
B.the establishment of prices which accurately reflect the relative scarcities of products and resources.
C.the scarcity of productive resources relative to material wants.
D.to achieve a more equitable distribution of money income in order to mitigate poverty.


23. The money payments made to owners of land, labor, capital, and entrepreneurial ability are:
A.interest, wages, rent, and profits respectively.
B.rent, wages, dividends, and interest respectively.
C.rent, profits, wages, and interest respectively.
D.rent, wages, interest, and profits respectively.
E.rent, wages, profit, and interest respectively.


24. The main function of the entrepreneur is to:
A.make routine pricing decisions.
B.innovate.
C.purchase capital.
D.create market demand.


25. Assuming an economy has fixed quantities of resources, that economy:
A.is more efficient, the larger the amount of goods and services it produces.
B.is able to satisfy all consumer wants.
C.will produce the same output whether or not resources are used efficiently.
D.is able to produce the same amount of output regardless of the production technologies it chooses.


26. If an economy produces its most wanted goods but uses outdated production methods, it is:
A.achieving productive efficiency, but not allocative efficiency.
B.not acheiving productive efficiency.
C.achieving both productive and allocative efficiency.
D.engaged in "roundabout" production.


27. To realize "full production" a society must achieve:
A.income inequality.
B.productive efficiency only.
C.both allocative and productive efficiency.
D.any output lying inside of its production possibilities curve.


28. A production possibilities curve shows:
A.that resources are unlimited.
B.that people prefer one of the goods more than the other.
C.the maximum amounts of two goods which can be produced assuming the full and efficient use of available resources.
D.combinations of capital and labor necessary to produce specific levels of output.


29.
R-1 F02050

Refer to the above diagram. This production possibilities curve is constructed such that:
A.resources are presumed to be perfectly shiftable as between bread and tractors.
B.the opportunity cost of bread diminishes as more bread is produced.
C.the opportunity cost of tractors diminishes as more bread is produced.
D.the opportunity cost of both bread and tractors increases as more of each is produced.



30.
R-1 F02050

Refer to the above diagram. Which of the following is a normative statement?
A.Point C is superior to point B because it is important to look to the future of society.
B.If society is initially at point C, it must sacrifice 6 units of bread to obtain one more unit of tractors.
C.If society produces 2 units of tractors and 12 units of bread, it is not using its available resources with maximum efficiency.
D.Other things equal, the combination of outputs represented by point D will result in more rapid economic growth than will the combination represented by point C.



31.
R-1 F02050

Refer to the above diagram. Which of the following is a positive statement?
A.A point inside the production possibilities curve is superior to a point on the curve because the former requires less work effort.
B.Because any society should stress economic growth as its major goal, point D is superior to point C.
C.Point B is preferable to point C because the ultimate goal of economic activity is to maximize consumption.
D.Given its resources and technology, this society is incapable of simultaneously producing 3 units of tractors and 15 units of bread.



32.
R-1 F02050

Refer to the above diagram. Starting at point A, the opportunity cost of producing each successive unit of tractors is:
A.a constant 2 units of bread.
B.2, 4, 6, and 8 units of bread.
C.8, 6, 4, and 2 units of bread.
D.the reciprocal of the output of tractors.



33. In drawing a production possibilities curve we hold constant:
A.the money supply.
B.the consumer price index.
C.both technology and resource supplies.
D.resource supplies only.


34.

Answer the next question(s) on the basis of the following production possibilities tables for two countries, North Cantina and South Cantina:

North Cantina

Production possibilities (alternatives)

A

B

C

D

E

F

Capital goods

5

4

3

2

1

0

Consumer goods

0

10

18

24

28

30


South Cantina

Production possibilities (alternatives)

A

B

C

D

E

F

Capital goods

5

4

3

2

1

0

Consumer goods

0

8

15

21

25

27


R-2 REF02066

Refer to the above tables. If South Cantina is producing at production alternative D, the opportunity cost of the third unit of capital goods will be:
A.3 units of consumer goods.
B.4 units of consumer goods.
C.5 units of consumer goods.
D.6 units of consumer goods.



35.

Answer the next question(s) on the basis of the following production possibilities tables for two countries, North Cantina and South Cantina:

North Cantina

Production possibilities (alternatives)

A

B

C

D

E

F

Capital goods

5

4

3

2

1

0

Consumer goods

0

10

18

24

28

30


South Cantina

Production possibilities (alternatives)

A

B

C

D

E

F

Capital goods

5

4

3

2

1

0

Consumer goods

0

8

15

21

25

27


R-2 REF02066

Refer to the above tables. If North Cantina is producing at production alternative B, the opportunity cost of the eleventh unit of consumer goods will be:
A.10 units of capital goods.
B.1/4 of a unit of capital goods.
C.8 units of capital goods.
D.1/8 of a unit of capital goods.



36.

Answer the next question(s) on the basis of the following production possibilities tables for two countries, North Cantina and South Cantina:

North Cantina

Production possibilities (alternatives)

A

B

C

D

E

F

Capital goods

5

4

3

2

1

0

Consumer goods

0

10

18

24

28

30


South Cantina

Production possibilities (alternatives)

A

B

C

D

E

F

Capital goods

5

4

3

2

1

0

Consumer goods

0

8

15

21

25

27


R-2 REF02066

Refer to the above tables. Suppose that North Cantina is producing 2 units of capital goods and 17 units of consumer goods while South Cantina is producing 2 units of capital goods and 21 units of consumer goods. We can conclude that:
A.North Cantina is fully and efficiently using its resources, but South Cantina is not.
B.South Cantina is fully and efficiently using its resources, but North Cantina is not.
C.neither South Cantina nor North Cantina are fully and efficiently using their resources.
D.both South Cantina and North Cantina are fully and efficiently using their resources.



37.

Answer the next question(s) on the basis of the following production possibilities tables for two countries, North Cantina and South Cantina:

North Cantina

Production possibilities (alternatives)

A

B

C

D

E

F

Capital goods

5

4

3

2

1

0

Consumer goods

0

10

18

24

28

30


South Cantina

Production possibilities (alternatives)

A

B

C

D

E

F

Capital goods

5

4

3

2

1

0

Consumer goods

0

8

15

21

25

27


R-2 REF02066

Refer to the above tables. Suppose that resources in North Cantina and South Cantina are identical in quantity and quality. We can conclude that:
A.South Cantina has better technology than North Cantina in producing both capital and consumer goods.
B.North Cantina has better technology than South Cantina in producing both capital and consumer goods.
C.North Cantina is growing more rapidly than South Cantina.
D.North Cantina has better technology than South Cantina in producing consumer goods, but not capital goods.



38.

Answer the next question(s) on the basis of the following production possibilities tables for two countries, North Cantina and South Cantina:

North Cantina

Production possibilities (alternatives)

A

B

C

D

E

F

Capital goods

5

4

3

2

1

0

Consumer goods

0

10

18

24

28

30


South Cantina

Production possibilities (alternatives)

A

B

C

D

E

F

Capital goods

5

4

3

2

1

0

Consumer goods

0

8

15

21

25

27


R-2 REF02066

Refer to the above tables. The opportunity cost of the fifth unit of capital goods:
A.is higher in North Cantina than in South Cantina.
B.is the same in North Cantina and South Cantina.
C.is lower in North Cantina than in South Cantina.
D.cannot be determined from the information provided.



39. The term "laissez faire" suggests that:
A.land and other natural resources should be privately owned, but capital should be publicly owned.
B.land and other natural resources should be publicly owned, but capital equipment should be privately owned.
C.government should not interfere with the operation of the economy.
D.government action is necessary if the economy is to achieve full employment and full production.


40. The simple circular flow model shows that:
A.households are on the demand side of both product and resource markets.
B.businesses are on the supply side of both product and resource markets.
C.households are on the supply side of the resource market and on the demand side of the product market.
D.businesses are on the demand side of the product market and on the supply side of the resource market.


41. Which country has the largest share of world exports.
A.Japan
B.Germany
C.United States
D.Saudi Arabia


42. Which of the following is an example of a capital-intensive commodity?
A.clothing
B.wool
C.sunflower seeds
D.chemicals


43. Countries engaged in international trade specialize in production based on:
A.relative levels of GDP.
B.comparative advantage.
C.relative exchange rates.
D.relative inflation rates.


44.

Answer the next question(s) on the basis of the following production possibilities tables for two countries, Latalia and Trombonia:


Latalia's production possibilities

A

B

C

D

E

Pork (tons)

4

3

2

1

0

Beans (tons)

0

5

10

15

20


Trombonia's production possibilities

A

B

C

D

E

Pork (tons)

8

6

4

2

0

Beans (tons)

0

6

12

18

24


R-3 REF37017

The above data indicate that production in:
A.both Latalia and Trombonia is subject to constant opportunity costs.
B.Trombonia is subject to decreasing costs, but production in Latalia occurs under increasing opportunity costs.
C.Latalia is subject to increasing costs, but production in Trombonia occurs under constant opportunity costs.
D.both Latalia and Trombonia are subject to the law of increasing opportunity costs.



45.

Answer the next question(s) on the basis of the following production possibilities tables for two countries, Latalia and Trombonia:


Latalia's production possibilities

A

B

C

D

E

Pork (tons)

4

3

2

1

0

Beans (tons)

0

5

10

15

20


Trombonia's production possibilities

A

B

C

D

E

Pork (tons)

8

6

4

2

0

Beans (tons)

0

6

12

18

24


R-3 REF37017

Refer to the above tables. In Latalia the domestic real cost of 1 ton of pork:
A.is 3 tons of beans.
B.diminishes with the level of pork production.
C.is 5 tons of beans.
D.is 1/5 of a ton of beans.
E.increases with the level of pork production.



46.

Answer the next question(s) on the basis of the following production possibilities tables for two countries, Latalia and Trombonia:


Latalia's production possibilities

A

B

C

D

E

Pork (tons)

4

3

2

1

0

Beans (tons)

0

5

10

15

20


Trombonia's production possibilities

A

B

C

D

E

Pork (tons)

8

6

4

2

0

Beans (tons)

0

6

12

18

24


R-3 REF37017

Refer to the above tables. If these two nations specialize on the basis of comparative advantage:
A.Trombonia will produce beans and Latalia will produce pork.
B.Trombonia will produce both beans and pork.
C.Latalia will produce both beans and pork and Trombonia will produce neither.
D.Latalia will produce beans and Trombonia will produce pork.



47.

Answer the next question(s) on the basis of the following production possibilities tables for two countries, Latalia and Trombonia:


Latalia's production possibilities

A

B

C

D

E

Pork (tons)

4

3

2

1

0

Beans (tons)

0

5

10

15

20


Trombonia's production possibilities

A

B

C

D

E

Pork (tons)

8

6

4

2

0

Beans (tons)

0

6

12

18

24


R-3 REF37017

Refer to the above tables. Assume that before specialization and trade, Latalia produced combination C and Trombonia produced combination B. If these two nations now specialize completely in accordance with comparative advantage, the total gains from specialization and trade will be:
A.4 tons of beans.
B.1 ton of pork and 2 tons of beans.
C.4 tons of pork.
D.2 tons of pork and 4 tons of beans.



48.

Answer the next question(s) on the basis of the following production possibilities data for two countries, Alpha and Beta, which have populations of equal size.


Alpha's production possibilities:

A

B

C

D

E

Fish (tons)

80

60

40

20

0

Chips (tons)

0

5

10

15

20


Beta's production possibilities:

A

B

B

C

E

Fish (tons)

240

180

120

60

0

Chips (tons)

0

10

20

30

40


R-4 REF37038

The above data show that:
A.Beta has a comparative advantage in producing chips.
B.Alpha has a comparative advantage in catching fish.
C.Alpha is subject to constant costs and Beta is subject to increasing costs.
D.Beta is more efficient than Alpha both in catching fish and in producing chips.



49.

Answer the next question(s) on the basis of the following production possibilities data for two countries, Alpha and Beta, which have populations of equal size.


Alpha's production possibilities:

A

B

C

D

E

Fish (tons)

80

60

40

20

0

Chips (tons)

0

5

10

15

20


Beta's production possibilities:

A

B

B

C

E

Fish (tons)

240

180

120

60

0

Chips (tons)

0

10

20

30

40


R-4 REF37038

Refer to the above data. The domestic opportunity cost of:
A.producing a ton of chips in Alpha is 1/5 of a ton of fish.
B.producing a ton of chips in Beta is 6 tons of fish.
C.catching a ton of fish in Alpha is 5 tons of chips.
D.catching a ton of fish in Beta is 6 tons of chips.



50.

Answer the next question(s) on the basis of the following production possibilities data for two countries, Alpha and Beta, which have populations of equal size.


Alpha's production possibilities:

A

B

C

D

E

Fish (tons)

80

60

40

20

0

Chips (tons)

0

5

10

15

20


Beta's production possibilities:

A

B

B

C

E

Fish (tons)

240

180

120

60

0

Chips (tons)

0

10

20

30

40


R-4 REF37038

Refer to the above data. Beta:
A.should specialize in catching fish and trade with Alpha for chips.
B.should specialize in producing chips and trade with Alpha for fish.
C.will not realize gains from specialization and trade.
D.will export both fish and chips to Alpha.



51.

Answer the next question(s) on the basis of the following data for the hypothetical nations of Alpha and Beta. Qs is domestic quantity supplied and Qd is domestic quantity demanded.


Domestic market

Domestic market

for steel, Alpha

for steel, Beta

Qs

P

Qd

Qs

P

Qd

60

$5

10

80

$5

20

40

4

20

70

4

30

30

3

30

60

3

40

20

2

40

50

2

50

10

1

50

40

1

60


R-5 REF37063

Refer to the above data. The equilibrium prices of steel in Alpha and Beta are:
A.$5 and $4, respectively.
B.$2 and $4, respectively.
C.$3 and $2, respectively.
D.$1 and $2, respectively.



52.

Answer the next question(s) on the basis of the following data for the hypothetical nations of Alpha and Beta. Qs is domestic quantity supplied and Qd is domestic quantity demanded.


Domestic market

Domestic market

for steel, Alpha

for steel, Beta

Qs

P

Qd

Qs

P

Qd

60

$5

10

80

$5

20

40

4

20

70

4

30

30

3

30

60

3

40

20

2

40

50

2

50

10

1

50

40

1

60


R-5 REF37063

Refer to the above data. At a world price of $5:
A.Alpha will want to import 50 units of steel.
B.Beta will want to import 60 units of steel.
C.Alpha will want to export 50 units of steel.
D.neither country will want to export steel.



53.

Answer the next question(s) on the basis of the following data for the hypothetical nations of Alpha and Beta. Qs is domestic quantity supplied and Qd is domestic quantity demanded.


Domestic market

Domestic market

for steel, Alpha

for steel, Beta

Qs

P

Qd

Qs

P

Qd

60

$5

10

80

$5

20

40

4

20

70

4

30

30

3

30

60

3

40

20

2

40

50

2

50

10

1

50

40

1

60


R-5 REF37063

Refer to the above data. At a world price of $2:
A.Alpha will want to import 20 units of steel.
B.Beta will want to export 20 units of steel.
C.Alpha will want to export 20 units of steel.
D.neither country will want to import steel.



54.

Answer the next question(s) on the basis of the following data for the hypothetical nations of Alpha and Beta. Qs is domestic quantity supplied and Qd is domestic quantity demanded.


Domestic market

Domestic market

for steel, Alpha

for steel, Beta

Qs

P

Qd

Qs

P

Qd

60

$5

10

80

$5

20

40

4

20

70

4

30

30

3

30

60

3

40

20

2

40

50

2

50

10

1

50

40

1

60


R-5 REF37063

Refer to the above data. Alpha's export supply is represented by:
A.


P

Q


$5

40


4

20


3

0


B.


P

Q


$5

50


4

20


3

0


C.


P

Q


$5

60


4

30


3

0


D.


P

Q


$5

40


4

30


3

15




55. The economy of the former Soviet Union is best described as:
A.authoritarian capitalism.
B.mixed capitalism.
C.a command economy.
D.market socialism.



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