| 1 | The main incentive for business activity is: |
| A. | government subsidies. |
| B. | technological advancement. |
| C. | profit. |
| D. | employment. |
| 2 | Economists argue that for most activities, the most powerful motivator is: |
| A. | altruism |
| B. | faith |
| C. | incentives |
| D. | survival |
| 3 | When it comes to the safety of pharmaceutical drugs: |
| A. | the government should spare no expense in determining whether drugs are safe. |
| B. | the government's lengthy testing to ensure the safety of new drugs may cost lives. |
| C. | economic cost benefit analysis informs us that more safety is always better. |
| D. | profit-driven pharmaceutical companies have no incentive to produce safe drugs. |
| 4 | The opportunity cost of a choice is: |
| A. | the value of the opportunities lost. |
| B. | the net value of the opportunities gained. |
| C. | the difference between the benefits and costs of the choice. |
| D. | sometimes positive or negative. |
| 5 | The invisible hand concept is: |
| A. | always present as a force in market outcomes. |
| B. | never present as a force in market outcomes. |
| C. | frequently present as a force in market outcomes. |
| D. | not well understood as it relates to market outcomes. |
| 6 | A person has a comparative advantage in activity X when that person's: |
| A. | opportunity cost of performing that activity is very high. |
| B. | ability to perform that activity exceeds that of all other people. |
| C. | government negotiates a favorable trade agreement. |
| D. | opportunity cost is lower than other trading partners. |
| 7 | Why is it less costly to attend college during a recession? |
| A. | Tuition is much lower during a recession. |
| B. | The opportunity cost is higher during a recession because there are more labor market opportunities. |
| C. | The opportunity cost is lower during a recession because there are fewer labor market opportunities. |
| D. | Colleges give out better grades during recessions, so the opportunity cost is lower. |
| 8 | When the unemployment rate rises, college enrollment tends to: |
| A. | rise. |
| B. | remain the same. |
| C. | fall. |
| D. | defy prediction. |
| 9 | Booms and busts refer to the: |
| A. | fluctuations in economic activity over time. |
| B. | theory of the second best. |
| C. | decreases in a nation's output growth over time. |
| D. | monetary inflation and deflation caused by the central bank. |
| 10 | The central bank of the United States is: |
| A. | the Senate. |
| B. | the Department of Treasury. |
| C. | the Federal Reserve. |
| D. | Wall Street. |
| 11 | What is thinking on the margin? |
| A. | Making decisions that are of noneconomic importance. |
| B. | Making choices that are based on historical precedence. |
| C. | Making choices that ignore the marginal benefits, but not the marginal costs, of some activity. |
| D. | Making choices by comparing the additional benefits and additional costs from doing a little bit more of some activity. |
| 12 | The Central Bank of the United States can: |
| A. | minimize a recession. |
| B. | regulate the money supply in the United States. |
| C. | cause inflation if it increases the money supply too much and too fast. |
| D. | All of the answers are correct. |
| 13 | What is one cause of inflation? |
| A. | the persistent rise in prices in the economy |
| B. | production's inability to keep up with spending in the economy |
| C. | increased spending by people and the government. |
| D. | economic growth without money growth |
| 14 | GDP per capita in South Korea is ______ than in North Korea. |
| A. | 10 times less |
| B. | two times less |
| C. | two times greater |
| D. | 10 times greater |
| 15 | Most developed countries: |
| A. | have stopped growing. |
| B. | grow at an unsteady rate. |
| C. | grow at a steady rate. |
| D. | grow at an increasing rate. |
| 16 | What does specialization do to productivity? |
| A. | Specialization decreases productivity. |
| B. | Specialization has nothing to do with productivity. |
| C. | Specialization increases productivity. |
| D. | There is not enough information to answer this question. |
| 17 | Which of the following is NOT a reason trade increases wealth? |
| A. | to take advantage of differences in productivity |
| B. | to take advantage of differences in preferences |
| C. | to take advantage of differences in knowledge |
| D. | to take advantage of differences in security |
| 18 | Knowledge increases ____________ and specialization __________ total output. |
| A. | education; increases |
| B. | productivity; increases |
| C. | perception; increases |
| D. | economies of scale; decreases |
| 19 | Specialization and trade: |
| A. | increase the costs of production because of decreased output. |
| B. | decrease the per-unit costs of production because of economies of scale associated with large-scale production. |
| C. | create diseconomies of scale, raising the per-unit costs of production. |
| D. | only work within countries, not across countries. |
| 20 | A country has an absolute advantage in production if: |
| A. | it can produce the same good using fewer inputs than another country. |
| B. | it can produce a good using fewer inputs than it takes another country to produce a different good. |
| C. | other countries can produce the same good using fewer inputs. |
| D. | it has the lowest opportunity cost of producing a good. |
| 21 | The ability of one producer to produce one good or service using fewer inputs than another producer is: |
| A. | comparative advantage. |
| B. | absolute advantage. |
| C. | opportunity cost. |
| D. | competition. |
| 22 | According to the theory of comparative advantage: |
| A. | every country can produce some good with a lower opportunity cost. |
| B. | every country should produce goods that involve high opportunity costs. |
| C. | some countries have a comparative advantage in producing every good. |
| D. | some countries should import every good from other countries. |
| 23 | Gains from international trade are best characterized as potential gains from: |
| A. | importation. |
| B. | exportation. |
| C. | neither importation nor exportation. |
| D. | both importation and exportation. |
| 24 | eBay creates value by: |
| A. | helping sellers trick buyers into purchasing broken items. |
| B. | moving goods like broken laser pointers from people who don't want them to people who do. |
| C. | helping people with the same preferences find one another. |
| D. | moving toys from children who want them to children who don't. |
| 25 | The production possibility frontier shows: |
| A. | how society can produce more of one good without giving up the production of another good. |
| B. | what people can consume given different combinations of goods produced. |
| C. | the combinations of output that an economy can produce given its productivity and inputs. |
| D. | the types of goods and services that society should produce to satisfy social interest. |
| 26 | The better a person is at producing one good: |
| A. | the worse he is at producing other goods. |
| B. | the higher the opportunity cost to him of producing other goods. |
| C. | the lower the incentive he has to trade with other people. |
| D. | the better he is at producing other goods. |
| 28 | As income rises for Indian workers, the demand for automobiles |
| A. | decreases. |
| B. | increases. |
| C. | remains the same. |
| D. | decreases because automobiles are an inferior good for which demand decreases when income increases. |
| 30 | The demand curve: |
| A. | shows how much buyers are willing and able to buy at different prices. |
| B. | is the amount that buyers are willing and able to buy at a particular price. |
| C. | shows how much sellers are willing and able to sell at different prices. |
| D. | is the amount that sellers are willing and able to sell at a particular price. |
| 32 | The law of demand suggests a ______ relationship between price and ______. |
| A. | positive, quantity demanded |
| B. | positive, quantity supplied |
| C. | negative, quantity demanded |
| D. | negative, quantity supplied |
| 33 | The quantity supplied is the: |
| A. | amount of inputs that a firm earns profit on. |
| B. | change in the sellers' output multiplied by the change in price. |
| C. | incremental cost of producing one more unit of output, holding all other things constant. |
| D. | amount of a good that firms are willing and able to sell at a particular price during a given period of time. |
| 34 | What does the law of supply state? |
| A. | There is a positive relationship between price and quantity supplied. |
| B. | There is a negative relationship between price and quantity supplied. |
| C. | When prices rise, suppliers sell more. |
| D. | When prices rise, buyers buy less of the product. |
| 36 | In the week before Hurricane Katrina, the price of flashlights rose in New Orleans because of: |
| A. | an increase in supply. |
| B. | an increase in demand. |
| C. | a decrease in supply. |
| D. | a decrease in demand. |
| 37 | When demand increases, what happens to price and quantity in equilibrium? |
| A. | Price increases and quantity increases. |
| B. | Price increases and quantity decreases. |
| C. | Price decreases and quantity increases. |
| D. | Price decreases and quantity decreases. |
| 41 | In a free market equilibrium, prices and quantities are uniquely: |
| A. | stable. |
| B. | unstable. |
| C. | moving in the “right” direction. |
| D. | moving in the “wrong” direction. |
| 42 | Imagine a free market in which quantity supplied is 50 units and quantity demanded is 50 units at the current price. The market is experiencing a(n): |
| A. | equilibrium. |
| B. | surplus. |
| C. | shortage. |
| D. | shift. |
| 43 | Imagine a free market in which quantity supplied is 40 units and quantity demanded is 50 units at the current price. The market is experiencing a(n): |
| A. | equilibrium. |
| B. | surplus. |
| C. | shortage. |
| D. | shift. |
| 44 | Imagine a free market in which quantity supplied is 50 units and quantity demanded is 40 units at the current price. The market is experiencing a(n): |
| A. | equilibrium. |
| B. | surplus. |
| C. | shortage. |
| D. | shift. |
| 45 | If demand decreases, ceteris paribus, market price will be ______ at the new equilibrium point. |
| A. | higher |
| B. | lower |
| C. | the same |
| D. | either higher or lower |
| 46 | What is the difference between a shift in the demand curve and a movement along the demand curve? |
| A. | A shift is a reaction to a movement along the demand curve. |
| B. | A shift implies a change in the whole demand curve; a movement does not. |
| C. | A shift conveys a change in the opportunity cost; a movement does not. |
| D. | A shift creates a new equilibrium price; a movement creates a new equilibrium quantity. |
| 49 | Which of the following would result from an increase in the price of granite? |
| I. a decrease in the demand for granite countertops |
| II. a decrease in the supply of granite countertops |
| III. an increase in the price of granite countertops |
| IV. a decrease in the quantity demanded of granite countertops |
| A. | I, II, and III only |
| B. | II and III only |
| C. | II, III, and IV only |
| D. | I, II, III, and IV |
| 50 | An increase in the demand for organic foods will lead to: |
| A. | an increase in the price, and hence an increase in the supply of organic foods. |
| B. | an increase in the price, and hence an increase in the quantity supplied of organic foods. |
| C. | a decrease in the price, and hence a decrease in the supply of organic foods. |
| D. | a decrease in the price, and hence a decrease in the quantity supplied of organic foods. |
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