1. Economics is best defined as the study of what?
d. Supply and demand
2. Which of the following statements concerning choice theory are correct?
I. Scarcity forces people, including producers, to make choices
II. Producers make choices and, as a result, face trade-offs
III. Opportunity cost is one way to measure the cost of a choice
a. I only
b. I and II only
c. II and III only
d. I, II, and III
e. III only
3. What measures the impact of choosing one option over another?
c. Comparative advantage
d. The Law of Diminishing Marginal Returns
e. Opportunity cost
4. Miguel and Huan both work at a software company. In one hour, Miguel can create one computer graphic or write ten pages of text. In the same hour, Huan can create three computer graphics or write 20 pages of text. Based on this information, it can be said that:
a. Miguel has an absolute advantage in creating computer graphics.
b. Miguel has an absolute advantage in writing pages of text.
c. Miguel has a comparative advantage in creating computer graphics.
d. Miguel has a comparative advantage in writing text.
e. None of the above
5. Ciao Bella Pizza faces this production function when making pizzas:
Which pizza has the lowest marginal cost?
6. Which of the following statements about the production possibilities frontier are correct?
I. Points on the frontier are efficient
II. Points inside the line are efficient
III. Points outside the line are unattainable
IV. The frontier represents all possible production combinations of all goods
a. I and IV
b. II and III
c. I and III
d. II and IV
e. II, III, and IV
7. Which basic questions do all economic systems need to answer?
I. Supply and demand
II. What goods and services will be produced
III. How goods and services will be produced
IV. To which people will goods be distributed
a. I only
b. I, II, and III
c. II and IV
d. II, III, and IV
e. IV only
8. What does the distinctive, outwardly bowed shape of the PPF signify?
a. The law of supply and demand
b. The efficiency of the free market system
c. That the two goods do not have constant opportunity costs when producing in different quantities along the PPF.
d. The unequal distribution of wealth within a society
e. The shift in demand to match a corresponding shift in supply
9. According to Adam Smith, what brings about the maximum levels of production of goods and services when faced with limited resources?
a. Opportunity cost
c. Inelastic demand
d. Monopolistic competition
e. Public subsidies
10. John is considering using $100 dollars to download $100 worth of music, buy $100 worth of video games, or contribute $100 to charity. Which of the following statements correctly defines the opportunity cost of his decision?
a. If John buys music, the opportunity cost is the lost opportunity to buy video games and contribute to charity.
b. If John contributes to charity, there is no opportunity cost.
c. If John contributes to charity, the opportunity cost is the lost opportunity to buy music and video games.
d. If John buys video games, the opportunity cost can be defined as the lost opportunity to buy music or donate to charity.
e. All of the above are correct