Name: ________________________ Class: ___________________ Date: __________

ID: A

Practice test
Multiple Choice Identify the choice that best completes the statement or answers the question. ____ 1. Market economies are distinguished from other types of economies largely on the basis of a. the political affiliations of government officials. b. the process by which government officials are elected or appointed. c. the ways in which scarce resources are allocated. d. the number of retail outlets available to consumers. 2. Which of the following statements about markets is most accurate? a. Markets are usually a good way to organize economic activity. b. Markets are usually inferior to central planning as a way to organize economic activity. c. Markets fail and are therefore not an acceptable way to organize economic activity. d. Markets are a good way to organize economic activity in developed nations, but not in less developed nations. 3. What is the most important factor that explains differences in living standards across countries? a. the quantity of money b. the level of unemployment c. productivity d. equality 4. In the circular-flow diagram, a. factors of production flow from government to firms. b. goods and services flow from households to firms. c. income paid to the factors of production flows from firms to households. d. spending on goods and services flows from firms to households. 5. It is possible for an economy to increase its production of both goods if the economy a. moves downward and to the right along its production possibilities frontier and the frontier is bowed outward. b. moves upward and to the left along its production possibilities frontier and the frontier is bowed outward. c. moves in either direction along its production possibilities frontier and the frontier is a straight line. d. moves from a situation of inefficient production to a situation of efficient production. 6. When a production possibilities frontier is bowed outward, the opportunity cost of producing an additional unit of a good a. increases as more of the good is produced. b. decreases as more of the good is produced. c. does not change as more of the good is produced. d. may increase, decrease, or not change as more of the good is produced.

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Name: ________________________ ____ 7. When economists make positive statements, they are a. speaking as scientists. b. speaking as policy advisers. c. making claims about how the world should be. d. revealing that they are very conservative in their views of how the world works. 8. Which of the following is an example of a normative, as opposed to positive, statement? a. If the price of a product decreases, peoples willingness to buy that product will increase. b. Reducing tax rates on the wealthy would benefit the nation. c. If the national saving rate were to increase, so would the rate of economic growth. d. The elimination of trade restrictions would increase an economys standard of living.

ID: A

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9. Mike and Sandy are two woodworkers who both make tables and chairs. In one month, Mike can make 4 tables or 20 chairs, where Sandy can make 6 tables or 18 chairs. Given this, we know that the opportunity cost of 1 chair is a. 1/5 table for Mike and 1/3 table for Sandy. b. 1/5 table for Mike and 3 tables for Sandy. c. 5 tables for Mike and 1/3 table for Sandy. d. 5 tables for Mike and 3 tables for Sandy.

Name: ________________________ Table 3-2

ID: A

Assume that Aruba and Iceland can switch between producing coolers and producing radios at a constant rate. Labor Hours Needed to Make 1 Cooler Radio 2 5 1 4

Aruba Iceland

____ 10. Refer to Table 3-2. Which of the following represents Iceland's production possibilities frontier when 100 labor hours are available?

Name: ________________________ a.

ID: A

b.

c.

d.

____ 11. Refer to Table 3-2. Aruba should specialize in the production of a. coolers and Iceland should specialize in the production of radios. b. radios and Iceland should specialize in the production of coolers. c. both goods and Iceland should specialize in the production of neither good. d. neither good and Iceland should specialize in the production of both goods.

Name: ________________________ Figure 3-3 Bobs Production Possibilities Frontier Enids Production Possibilities Frontier

ID: A

____ 12. Refer to Figure 3-3. If the production possibilities frontiers shown are each for one day of production, then which of the following combinations of tacos and burritos could Bob and Enid together not produce in a given day? a. 200 tacos and 400 burritos b. 300 tacos and 350 burritos c. 400 tacos and 300 burritos d. 600 tacos and 250 burritos ____ 13. When the price of a good or service changes, a. the demand curve shifts in the opposite direction. b. the supply curve shifts in the opposite direction. c. the supply curve shifts in the same direction. d. there is a movement along a given supply curve. ____ 14. A surplus exists in a market if a. there is an excess demand for the good. b. the situation is such that the law of supply and demand would predict an increase in the price of the good from its current level. c. the current price is above its equilibrium price. d. quantity demanded exceeds quantity supplied.

Name: ________________________ Table 4-6

ID: A

A country club usually only allows members to purchase tickets for its celebrity golf tournament, but the club is considering allowing non-members to purchase tickets this year. The demand and supply schedules are as follows: Price $10 $15 $20 $25 $30 Quantity Demanded by Members 1000 800 600 400 200 Quantity Demanded by Non-members 500 400 300 200 100 Quantity Supplied 600 600 600 600 600

____ 15. Refer to Table 4-6. If both members and non-members are allowed to purchase tickets to this year's celebrity golf tournament and the country club sets the ticket price at $30, then there will be a. a shortage of 300 tickets. b. a surplus of 300 tickets. c. 600 tickets sold. d. 600 tickets unsold. Figure 4-11

____ 16. Refer to Figure 4-11. At a price of $12, which of the following is correct? a. there is a surplus of 1 unit b. there is a surplus of 2 units c. there is a shortage of 1 unit d. there is a shortage of 2 units

Name: ________________________ ____ 17. The greater the price elasticity of demand, the a. more likely the product is a necessity. b. smaller the responsiveness of quantity demanded to a change in price. c. greater the percentage change in price over the percentage change in quantity demanded. d. greater the responsiveness of quantity demanded to a change in price. ____ 18. Demand is said to be inelastic if the a. quantity demanded changes proportionately more than price. b. price changes proportionately more than income. c. quantity demanded changes proportionately less than price. d. quantity demanded changes proportionately the same as price. Figure 5-5

ID: A

____ 19. Refer to Figure 5-5. Using the midpoint method, between prices of $48 and $54, price elasticity of demand is about a. 0.92. b. 3.89. c. 4.33. d. 5.67.

Name: ________________________ Figure 5-6

ID: A

____ 20. Refer to Figure 5-6. Sellers total revenue would increase if the price a. increased from $4 to $6. b. increased from $16 to $18. c. decreased from $8 to $6. d. All of the above are correct. ____ 21. If the government removes a binding price ceiling from a market, then the price received by sellers will a. decrease and the quantity sold in the market will decrease. b. decrease and the quantity sold in the market will increase. c. increase and the quantity sold in the market will decrease. d. increase and the quantity sold in the market will increase. ____ 22. A surplus results when a. a nonbinding price floor is imposed on a market. b. a nonbinding price floor is removed from a market. c. a binding price floor is imposed on a market. d. a binding price floor is removed from a market.

Name: ________________________ Table 6-1 Price $0 $1 $2 $3 $4 $5 $6 Quantity Demanded 12 10 8 6 4 2 0 Quantity Supplied 0 2 4 6 8 10 12

ID: A

____ 23. Refer to Table 6-1. Suppose the government imposes a price ceiling of $1 on this market. What will be the size of the shortage in this market? a. 0 units b. 2 units c. 8 units d. 10 units Table 6-2 Price $0 $5 $10 $15 $20 $25 Quantity Demanded 250 200 150 100 50 0 Quantity Supplied 0 75 150 225 300 375

____ 24. Refer to Table 6-2. Which of the following statements is correct? a. A price floor set at $5 will be binding and will result in a surplus of 50 units. b. A price floor set at $5 will be binding and will result in a surplus of 75 units. c. A price floor set at $5 will be binding and will result in a surplus of 125 units. d. A price floor set at $5 will not be binding. ____ 25. When a tax is imposed on the sellers of a good, the supply curve shifts a. upward by the amount of the tax. b. downward by the amount of the tax. c. upward by less than the amount of the tax. d. downward by less than the amount of the tax.

Name: ________________________

ID: A

____ 26. If the government removes a tax on sellers of a good and imposes the same tax on buyers of the good, then the price paid by buyers will a. increase and the price received by sellers will increase. b. increase and the price received by sellers will not change. c. not change and the price received by sellers will increase. d. not change and the price received by sellers will not change. Figure 6-11

____ 27. Refer to Figure 6-11. Sellers pay how much of the tax per unit? a. $1.00. b. $1.50. c. $2.50. d. $3.50.

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