Trắc nghiệm kinh tế vi mô: 10 principles of economics

Junjie Liu – Econ 105

Practice Multiple Choice

Chapter 1—Ten Principles of Economics
1. With what concept does economics deal primarily with?
a. scarcity
b. poverty
c. change
d. power
2. Which of the following is NOT included in the decisions that every society must make?
a. what goods will be produced
b. who will produce the goods
c. what determines consumer preferences
d. who will consume the goods
3. For what reason do both households and societies face many decisions?
a. because resources are scarce
b. because populations may increase or decrease over time
c. because wages for households and therefore society fluctuate with business cycles
d. because people, by nature, tend to disagree
4. When is a good considered scarce in a society?
a. when more output of the good is possible
b. when everyone in that society cannot have all they want of the good
c. when the government restricts production of the good
d. when only the richest people in the economy can buy all they want of the good
5. When does scarcity exist?
a. when there is less than an infinite amount of a resource or good
b. when society can meet the wants of every individual
c. when there is less of a good or resource available than people wish to have
d. when the government fails to produce goods
6. Which of the following would NOT be true in a world without scarcity?

a. There would be no need for the science of economics.
b. Everyone would have all the goods and services they wanted.
c. There would have to be an infinite supply of every resource.
d. There would be opportunity costs.
7. What is the economy experiencing when a society cannot produce all the goods and services
people wish to have?
a. scarcity
b. communism
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c. externalities
d. market failure
8. For society, when is a good NOT scarce?
a. if at least one individual in society can obtain all he or she wants of the good
b. if firms are producing at full capacity
c. if all members of society can have all they want of it
d. if those who have enough income can buy all they want of the good
9. What does economics study?
a. how society manages its scarce resources
b. the government's role in society
c. how to increase production
d. How firms make profits
10. Which of the following is NOT a major area of study for economists?
a. how people make decisions
b. how countries choose national leaders

c. how people interact with each other
d. how forces and trends affect the overall economy
11. What concept is illustrated by the adage, "There is no such thing as a free lunch"?
a. tradeoffs
b. scarcity
c. productivity
d. efficiency
12. What does the adage, "There is no such thing as a free lunch," mean?
a. Even people on welfare have to pay for food.
b. The cost of living is always increasing.
c. To get something we like, we usually have to give up another thing we like.
d. All costs are included in the price of a product.
13. What do economists illustrate when they use the phrase "There is no such thing as a free
lunch"?
a. how inflation increases prices
b. that to get one thing, we must give up something else
c. that nothing is free in a market economy
d. that if something looks too good to be true, it probably is
14. Henry decides to spend 2 hours playing golf rather than working at his job which pays $8 per
hour. What is Henry's tradeoff?
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Junjie Liu – Econ 105
a.
b.
c.
d.

Practice Multiple Choice

the $16 he could have earned working for 2 hours
nothing, because he enjoys playing golf more than working
the increase in skill he obtains from playing golf for those 2 hours
nothing, because he spent $16 for green fees to play golf

15. When society requires that firms reduce pollution, what happens?
a. There is a tradeoff because of reduced incomes to the firms' owners, workers, and
customers.
b. There is no tradeoff, since everyone benefits from reduced pollution.
c. There is no tradeoff for society as a whole, since the cost of reducing pollution falls only
on the firms affected by the requirements.
d. There is a tradeoff only if some firms are forced to close.
16. Daniel decides to spend the last two hours of the night before his economics exam studying
instead of sleeping. For Daniel, what would his tradeoff be?
a. nothing, since no dollar value can be put on sleep
b. nothing, since studying would be more beneficial than sleep
c. the six hours of sleep he could have had if he had gone to bed before midnight
d. the two hours of rest he would have gotten
17. How does a tradeoff exist between a clean environment and a higher level of income?
a. Studies show that individuals with higher levels of income actually pollute less than lowincome individuals.
b. To pay for pollution clean-up, the government must increase taxes which lowers income.
c. Laws that reduce pollution raise costs of production and reduce incomes.
d. By employing individuals to clean up pollution, employment and income both rise.
18. What does efficiency mean?
a. Society is conserving resources in order to save them for the future.
b. Society’s goods and services are distributed fairly among society's members.
c. Society has lessened its dependence on foreign energy sources.
d. Society is getting the most it can from its scarce resources.
19. In which of the following situations would economists use the word equity?

a. Each member of society has the same income.
b. Society is getting the most it can from its scarce resources.
c. Those in society who have the least will receive the most.
d. The benefits of society's resources are distributed fairly among society's members.
20. What happens when government policies are being designed?
a. There is usually a tradeoff between equity and efficiency.
b. Equity and efficiency goals are usually independent of each other.
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c. Equity can usually be achieved without an efficiency loss.
d. Increasing efficiency usually results in more equity.
21. When government policies such as the welfare system try to help the neediest members of
society, what happens?
a. It increases equity and reduces efficiency.
b. It reduces charitable contributions in an economy.
c. It increases the productivity of the needy in the society.
d. It causes market failure to occur.
22. When the government attempts to cut the economic pie into more equal slices, what
happens?
a. It is easier to cut the pie, and therefore the economy can produce a larger pie.
b. The government can more easily allocate the pie to those most in need.
c. The pie gets smaller, and there will be less pie for everyone.
d. The economy will spend too much time cutting and loses the ability to produce enough
pie for everyone.
23. When the government attempts to improve equity in an economy, what is often the result?

a. an increase in overall output in the economy
b. additional government revenue since overall income will increase
c. an actual reduction in equity
d. reduced efficiency in the economy
24. What is the opportunity cost of going to college?
a. the total spent on food, clothing, books, transportation, tuition, lodging, and other
expenses
b. the value of the best opportunity a student gives up to attend college
c. zero for students who are fortunate enough to have all of their college expenses paid by
someone else
d. zero, since a college education will allow a student to earn a larger income after
graduation
25. For most students, what is the largest single cost of a university education?
a. the wages given up to attend school
b. tuition, fees, and books
c. room and board
d. transportation, parking, and entertainment
26. What is the opportunity cost of an item?
a. the number of hours needed to earn money to buy it
b. what you give up to get that item
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c. usually more than the dollar value of the item
d. usually less than the dollar value of the item
27. Russell spends an hour studying instead of playing tennis. What is the opportunity cost to

him of studying?
a. the improvement in his grades from studying for the hour
b. the difference between the improvement in his grades from studying minus the
enjoyment of playing tennis
c. the enjoyment and exercise he would have received had he played tennis
d. Zero, Since Russell chose to study rather than to play tennis, the value of studying must
have been greater than the value of playing tennis
28. What do we know about college-age athletes who drop out of college to play professional
sports?
a. They are not rational decision makers.
b. They are well aware that their opportunity cost of attending college is very high.
c. They are concerned more about present circumstances than their future.
d. They underestimate the value of a college education.
29. How do people make decisions at the margin?
a. by following tradition
b. by experience
c. by calculating dollar costs
d. by comparing costs and benefits
30. What does making decisions "at the margin" mean?
a. that people make those decisions that do not impose a marginal cost
b. that people evaluate how easily a decision can be reversed if problems arise
c. that people compare the marginal costs and marginal benefits of each decision
d. that people always calculate the marginal dollar costs for each decision
31. After much consideration, you have chosen Cancun over Ft. Lauderdale for your Spring Break
trip this year. For this decision to change, which of the following must occur?
a. The marginal benefit of Cancun must increase.
b. The marginal cost of Cancun must decrease.
c. The marginal benefit of Ft. Lauderdale must increase.
d. The marginal cost of Ft. Lauderdale must increase.
32. The average cost per seat on a bus trip from Montreal to Toronto is $140. Suppose no

refreshments are served and 3 seats are empty. How could the bus company increase its
profit?
a. if it charged no less than $140 for the 3 remaining seats
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Junjie Liu – Econ 105

Practice Multiple Choice

b. if it charged more than $140 for the 3 remaining seats
c. if it charged any ticket price above $0 for the remaining seats
d. if it left the seats empty
33. When does a rational decision maker take an action?
a. only if the marginal benefit is less than the marginal cost
b. only if the marginal benefit is greater than the marginal cost
c. only if the average benefit is greater than the average cost
d. only if the marginal benefit is greater than both the average cost and the marginal cost
34. Mike has spent $500 purchasing and repairing an old fishing boat, which he expects to sell for
$800 once the repairs are complete. He discovers that he needs an additional repair, which
will cost $400, in order to complete the repairs. He can sell the boat as it is now for $300.
What should he do?
a. He should cut his losses and take the $300.
b. He should never sell something for less than it cost.
c. He should complete the repairs and sell the boat.
d. It doesn't matter which action he takes; the outcome is the same either way.
35. Stan buys a 1966 Mustang, which he plans to restore and sell. He anticipates that the cost of
the car and the repairs will be $8,000 and that he can sell it for $10,000. When he has spent
$7,000, he discovers he needs to replace the engine, which will cost $4,000. He can sell the
car without the new engine for $9,000. What should Stan do?

a. complete the repairs and sell the car for $10,000
b. cut his losses and sell the car now for $9,000
c. never try such an expensive project again
d. be totally indifferent between finishing the project and selling the car now
36. A furniture maker currently produces 100 tables per week and sells them for a profit. She is
considering expanding her operation in order to make more tables. Should she expand?
a. Yes, because making tables is profitable.
b. No, because she may not be able to sell the additional tables.
c. It depends on the marginal cost of producing more tables and the marginal revenue she
will earn from selling more tables.
d. It depends on the average cost of producing more tables and the average revenue she
will earn from selling more tables.
37. Suppose your management professor has been offered a corporate job with a 30% pay
increase. He has decided to take the job. What happened for him?
a. The marginal cost of leaving was greater than the marginal benefit.
b. The marginal benefit of leaving was greater than the marginal cost.
c. The marginal benefit of teaching was greater than the marginal cost.
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Junjie Liu – Econ 105

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d. The marginal cost of teaching was greater than the marginal benefit.
38. What has been one effect of a government-imposed seat belt law?
a. fewer pedestrian deaths
b. safer driving
c. an increase in the number of accidents
d. everyone now wears seat belts

39. A friend of yours asks you why market prices are better than government-determined prices.
What do you say?
a. because they generally reflect the value of a good to society, but not the cost of making it
b. because they generally reflect the cost of making a good to society, but not its value
c. because they generally reflect both the value of a good to society and the cost of making
it
d. because they generally reflect neither the value of a good to society nor the cost of
making it
40. Which is the most correct statement about the invisible hand?
a. The invisible hand always ensures both equity and efficiency.
b. The invisible hand cannot ensure either equity or efficiency.
c. The invisible hand is more effective at ensuring efficiency than it is at ensuring equity.
d. The invisible hand is more effective at ensuring equity than it is at ensuring efficiency.
41. According to Adam Smith, what is the success of decentralized market economies primarily
due to?
a. the basic benevolence of society
b. society's justice (legal) system
c. individuals' self-interest
d. basic human survival instincts
42. How does the "invisible hand" direct economic activity?
a. through advertising
b. through prices
c. through central planning
d. through government regulations
43. What is one necessary role of government in a market economy?
a. to tax goods and services that are most desired by consumers
b. to maintain welfare programs for the poor
c. to provide services such as pensions
d. to enforce property rights
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Junjie Liu – Econ 105

Practice Multiple Choice

44. How does the government enforce property rights?
a. by requiring property owners to pay property taxes
b. by providing police and courts
c. by allowing people to decide whether or not they wish to own property
d. by providing a system of recording property deeds
45. What does the term market failure refer to?
a. a situation in which the market on its own fails to allocate resources efficiently
b. an unsuccessful advertising campaign that reduces buyer demand
c. a situation in which competition among firms becomes ruthless
d. a firm that is forced out of business because of losses
46. Which of the following is NOT a reason for the government to intervene in the market?
a. to promote efficiency
b. to enforce property rights
c. to promote equity
d. to protect an industry
47. What are two causes of market failure?
a. externalities and market power
b. market power and incorrect forecasts of consumer demand
c. externalities and foreign competition
d. incorrect forecasts of consumer demand and foreign competition
48. What is the primary determinant of a country's standard of living?
a. the ability to reduce foreign competition
b. the ability to produce goods and services
c. the total supply of money in the economy

d. the average age of the country's labour force
49. What is an increase in the overall level of prices in an economy called?
a. economic growth
b. inflation
c. monetary policy
d. supply shocks

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Junjie Liu – Econ 105

Practice Multiple Choice

Chapter 2—Thinking Like an Economist
1. What is meant by scientific method?
a. the use of modern electronic testing equipment to understand the world
b. the dispassionate development and testing of theories about how the world works
c. the use of controlled experiments in understanding the way the world works
d. finding evidence to support preconceived theories about how the world works
2. Who said, "The whole of science is nothing more than the refinement of everyday thinking."?
a. Isaac Newton
b. Albert Einstein
c. Sigmund Freud
d. Stephen Hawking.
3. If Sir Isaac Newton's development of the theory of gravity after observing an apple fall from a
tree, what is this an example of?
a. controlled experiments used to develop scientific theories
b. being in the right place at the right time
c. an idea whose time had come

d. the interplay between observation and theory in science
4. Why is the use of theory and observation more difficult in economics than in sciences such as
physics?
a. due to the difficulty in evaluating an economic experiment
b. due to the difficulty in devising an economic experiment
c. due to the difficulty in actually performing an experiment in an economic system
d. due to the difficulty in collecting sufficient data
5. Because it is difficult for economists to use experiments to generate data, what must they
generally do?
a. do without data
b. use whatever data the world gives them
c. select a committee of economists to make up data for all economists to use
d. use hypothetical, computer-generated data
6. For economists, what are often used as substitutes for laboratory experiments?
a. natural experiments offered by history
b. computer-generated experiments
c. studies conducted by other disciplines such as sociologists
d. well-constructed simulations
7. Why do economists make assumptions?
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Junjie Liu – Econ 105
a.
b.
c.
d.

Practice Multiple Choice

to diminish the chance of wrong answers
to make the world easier to understand
because all scientists make assumptions
to make certain that all necessary variables are included

8. What does the art of scientific thinking include?
a. knowledge of human behaviour
b. understanding every scientific field–physics, biology, and economics
c. deciding which assumptions to make
d. being able to mathematically express natural forces
9. If an economist develops a theory about international trade based on the assumption that
there are only two countries and two goods, what is most likely?
a. The theory can be useful only in situations involving two countries and two goods.
b. It is a total waste of time, since the actual world has many countries trading many goods.
c. The theory can be useful in helping economists understand the complex world of
international trade involving many countries and many goods.
d. The theory can be useful in the classroom, but has no use in the real world.
10. What would be the best statement about a theory based on assumptions that are NOT true?
a. If the assumptions underlying the theory are not true, the theory must be false.
b. The ideas may be good in theory, but not in practice.
c. The theory is a good one if it helps us to understand how the world works.
d. The theory is a good one if no logical mistakes were made in developing it.
11. What is the goal of theories?
a. to provide an interesting, but not useful, framework of analysis
b. to provoke stimulating debate in scientific journals
c. to demonstrate that the developer of the theory is capable of logical thinking
d. to help scientists understand how the world works
12. When economists attempt to simplify the real world and make it easier to understand, what
do they do?
a. They make assumptions.

b. They make mistakes in judgment.
c. They make predictions.
d. They make evaluations.
13. What is a model?
a. a theoretical abstraction with very little value
b. a useful tool to only the ones who constructed it
c. a realistic and carefully constructed theory
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d. a simplification of real life
14. Which of the following is NOT true concerning models?
a. Models simplify reality.
b. Models can explain how the economy is organized.
c. Models assume away irrelevant details.
d. Models cannot be used to make predictions.
15. What is a circular-flow diagram?
a. a visual model of how the economy is organized
b. a mathematical model of how the economy works
c. a model that shows the effects of government on the economy
d. a visual model of the relationship among money, prices, and businesses
16. What does a circular-flow diagram do?
a. It illustrates cost-benefit analysis.
b. It explains how the economy is organized.
c. It shows the flow of traffic in an economic region.
d. It explains how banks circulate money in the economy.

17. What does a point on a country's production possibilities frontier represent?
a. a combination of two goods that an economy will never be able to produce.
b. a combination of two goods that an economy can produce using all available resources
and technology.
c. a combination of two goods that an economy can produce using some of its resources
and technology.
d. a combination of two goods that an economy may be able to produce sometime in the
future with additional resources and technology.
18. For what reason are production possibilities frontiers usually bowed outward?
a. The more resources a society uses to produce one good, the fewer resources it has
available to produce another good.
b. It reflects the fact that the opportunity cost of producing a good falls as one produces
more and more of it.
c. It is because of the effects of technological change.
d. Resources are specialized, that is, some are better at producing particular goods rather
than other goods.
19. For what reason are production possibilities frontiers usually bowed outward?
a. constant opportunity cost
b. increasing opportunity cost
c. decreasing opportunity cost
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Junjie Liu – Econ 105

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d. increasing productivity
20. What does it mean if an economy is producing efficiently?
a. there is no way to produce more of one good without producing less of the other.

b. it is possible to produce more of both goods.
c. it is possible to produce more of one good without producing less of the other.
d. it is not possible to produce more of one good at any cost.
21. Suppose a nation is currently producing at a point inside its production possibilities frontier.
What do we know?
a. The nation is producing beyond its capacity, and inflation will occur.
b. The nation is not using all available resources or has inefficiencies.
c. The nation is producing an efficient combination of goods.
d. There will be a large opportunity cost if the nation tries to increase production.
Figure 2-1

22. Refer to Figure 2-1. At which point or points can the economy produce?
a. point B, D, E
b. point A, B, D, E
c. point D, C
d. point D
23. Refer to Figure 2-1. Which point represents the maximum possible production of tubas?
a. point A
b. point B
c. point C
d. point E
24. Refer to Figure 2-1. At which point or points can the economy NOT produce?
a. point A
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Junjie Liu – Econ 105

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b. point C
c. point A, C
d. point A, C, D
25. Refer to Figure 2-1. Which point or points are efficient?
a. point B, E
b. point A, B, E
c. point D
d. point C
26. Refer to Figure 2-1. Which point or points are inefficient?
a. point A, C
b. point D, C
c. point C
d. point D
Figure 2-2

27. Refer to Figure 2-2. What is the opportunity cost to the economy of getting 30 additional
toothbrushes by moving from point A to point D?
a. 10 toasters
b. 15 toasters
c. 20 toasters
d. 25 toasters
28. Refer to Figure 2-2. What is the opportunity cost of getting 15 additional toasters by moving
from point D to point C?
a. 10 toothbrushes
b. 20 toothbrushes
c. 30 toothbrushes
d. It is impossible for the economy to move from point D to point C.
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Junjie Liu – Econ 105

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29. Refer to Figure 2-2. What is the opportunity cost in terms of toothbrushes of getting 10
additional toasters by moving from point B to point A?
a. 20 toothbrushes
b. 10 toothbrushes
c. 5 toothbrushes
d. zero, since the economy has the additional resources to produce 10 additional toasters
30. How can the production possibilities frontiers shift outward?
a. if government increases the amount of money in the economy
b. if there is an increase in technology
c. if resources can be moved from the production of one good to another
d. if opportunity costs are reduced
31. When a production possibilities frontier shifts outward, what concept is being
demonstrated?
a. tradeoffs
b. efficiency
c. economic growth
d. opportunity cost
32. What would unemployment cause an economy to do?
a. produce inside its production possibilities frontier
b. produce on its production possibilities frontier
c. produce outside its production possibilities frontier
d. unemployment could actually cause a, b, or c, depending on how severe it is
33. For economists, what are the two types of statements about the world?
a. assumptions and theories
b. true statements and false statements
c. specific statements and general statements

d. positive statements and normative statements
34. How do economists view positive statements?
a. affirmative, justifying existing economic policy
b. optimistic, putting the best possible interpretation on things
c. descriptive, making a claim about how the world is
d. prescriptive, making a claim about how the world ought to be
35. How do economists consider normative statements?
a. descriptive, making a claim about how the world is
b. statements about the normal condition of the world
c. prescriptive, making a claim about how the world ought to be
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d. statements that establish production goals for the economy
36. Which of the following is an example of a positive statement?
a. Prices rise when the government prints too much money.
b. If welfare payments increase, the world will be a better place.
c. Inflation is more harmful to the economy than unemployment.
d. The benefits to the economy of improved equity are greater than the costs of reduced
efficiency.
37. Which of the following is an example of a normative statement?
a. If the price of a product decreases, quantity demanded increases.
b. Reducing tax rates on the wealthy would be good for the country.
c. If the national saving rate were to increase, so would the rate of economic growth.
d. An increase in minimum wages will increase unemployment.
38. When economists are speaking as policy advisors, which statements are they more likely to

use?
a. normative statements
b. positive statements
c. objective statements
d. descriptive statements
39. What does evaluating a positive statement involve?
a. evaluating values as well as facts
b. examining evidence
c. our views on ethics and religion
d. consideration of the government’s policy goals
40. Which of the following is NOT a positive statement?
a. Higher gasoline prices will reduce gasoline consumption.
b. Equity is more important than efficiency.
c. Trade restrictions lower our standard of living.
d. If a nation wants to avoid inflation, it should not print too much money.
41. What are the two basic reasons why economists often appear to give conflicting advice to
policymakers?
a. differences in opinions and education
b. differences in scientific judgments and values
c. differences in scientific judgments and education
d. differences in opinions and values

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Junjie Liu – Econ 105

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Chapter 3—Interdependence and the Gains from Trade

1. Which of the following is NOT correct?
a. Trade allows for specialization.
b. Trade is good for nations.
c. Trade is based on absolute advantage.
d. Trade allows individuals to consume outside of their individual production possibilities
curve.
2. If labour in Mexico is less productive than labour in the United States in all areas of
production, which of the following is correct?
a. Neither nation can benefit from trade.
b. Mexico can benefit from trade but the United States cannot.
c. Mexico will not have a comparative advantage in any good.
d. Both nations can benefit from trade.
Table 3-1

Farmer
Rancher

Labour Hours Needed to Make
1 Kg of:
Meat
Potatoes
8
2
4
5

Kilograms produced in 40 hours:
Meat
Potatoes
5

20
10
8

3. Refer to Table 3-1. What is the opportunity cost of 1 pound of meat for the Farmer?
a. 1/4 hour of labour.
b. 4 hours of labour.
c. 4 kg of potatoes.
d. 1/4 kg of potatoes.
4. Refer to Table 3-1. What is the opportunity cost of 1 kg of meat for the Rancher?
a. 4 hours of labour.
b. 5 hours of labour.
c. 5/4 kg of potatoes.
d. 4/5 kg of potatoes.
5. Refer to Table 3-1. What is the opportunity cost of 1 kg of potatoes for the Farmer?
a. 8 hours of labour.
b. 2 hours of labour.
c. 4 kg of meat.
d. 1/4 kg of meat.
6. Refer to Table 3-1. What is the opportunity cost of 1 kg of potatoes for the Rancher?
a. 4 hours of labour.
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b. 5 hours of labour.
c. 5/4 kg of meat.

d. 4/5 kg of meat.
7. Refer to Table 3-1. Which of the following is correct?
a. The Farmer has an absolute advantage in meat, and the Rancher has an absolute
advantage in potatoes.
b. The Farmer has an absolute advantage in potatoes, and the Rancher has an absolute
advantage in meat.
c. The Farmer has an absolute advantage in meat, and the Rancher has an absolute
advantage in meat.
d. The Farmer has an absolute advantage in neither good, and the Rancher has an absolute
advantage in both goods.
8. Refer to Table 3-1. Which of the following is correct?
a. The Rancher has an absolute advantage in both goods, and the Rancher has a
comparative advantage in meat.
b. The Rancher has an absolute advantage in meat, and the Rancher has a comparative
advantage in meat.
c. The Rancher has an absolute advantage in meat, and the Rancher has a comparative
advantage in neither good.
d. The Rancher has an absolute advantage in both goods, and the Rancher has a
comparative advantage in potatoes.
9. Refer to Table 3-1. Which of the following is correct?
a. The Farmer has an absolute advantage in potatoes, and the Rancher has a comparative
advantage in meat.
b. The Farmer has an absolute advantage in meat, and the Rancher has a comparative
advantage in potatoes.
c. The Farmer has an absolute advantage in neither good, and the Rancher has a
comparative advantage in potatoes.
d. The Farmer has an absolute advantage in neither good, and the Rancher has a
comparative advantage in meat.
10. Refer to Table 3-1. Which of the following is correct?
a. The Rancher has a comparative advantage in neither good, and the Farmer has a

comparative advantage in both goods.
b. The Rancher has a comparative advantage in both goods, and the Farmer has a
comparative advantage in neither good.
c. The Rancher has a comparative advantage in meat, and the Farmer has a comparative
advantage in potatoes.
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d. The Rancher has a comparative advantage in potatoes, and the Farmer has a
comparative advantage in meat.
11. Refer to Table 3-1. How could the Farmer and Rancher both benefit?
a. By the Farmer specializing in meat and the Rancher specializing in potatoes.
b. By the Farmer specializing in potatoes and the Rancher specializing in meat.
c. By the Farmer specializing in neither good and the Rancher specializing in both goods.
d. They cannot benefit by specialization and trade.
These graphs illustrate the production possibilities available for dancing shoes to Fred and Ginger
with 40 hours of labour.
Figure 3-1

12. Refer to Figure 3-1. What is the opportunity cost of 1 pair of tap shoes for Fred?
a. 1/3 pair of ballet slippers.
b. 1/5 pair of ballet slippers.
c. 3/5 pair of ballet slippers.
d. 5/3 pairs of ballet slippers.
13. Refer to Figure 3-1. What is the opportunity cost of 1 pair of tap shoes for Ginger?
a. 1/4 pair of ballet slippers.

b. 1/3 pair of ballet slippers.
c. 3/4 pair of ballet slippers.
d. 4/3 pairs of ballet slippers.
14. Refer to Figure 3-1. What is the opportunity cost of 1 pair of ballet slippers for Ginger?
a. 1/4 pair of tap shoes.
b. 1/3 pair of tap shoes.
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Junjie Liu – Econ 105

Practice Multiple Choice

c. 3/4 pair of tap shoes.
d. 4/3 pairs of tap shoes.
15. Refer to Figure 3-1. What is the opportunity cost of 1 pair of ballet slippers for Fred?
a. 1/3 pair of tap shoes.
b. 1/5 pair of tap shoes.
c. 3/5 pair of tap shoes.
d. 5/3 pairs of tap shoes.
16. Refer to Figure 3-1. Which of the following is correct?
a. Ginger has an absolute advantage in ballet slippers and Fred has an absolute advantage
in tap shoes.
b. Ginger has an absolute advantage in tap shoes and Fred has an absolute advantage in
ballet slippers.
c. Ginger has an absolute advantage in neither good and Fred has an absolute advantage in
both goods.
d. Ginger has an absolute advantage in both goods and Fred has an absolute advantage in
neither good.
17. Refer to Figure 3-1. Ginger has a comparative advantage in

a. Ginger has a comparative advantage in tap shoes and Fred has a comparative advantage
in ballet slippers.
b. Ginger has a comparative advantage in both goods and Fred has a comparative
advantage in neither good.
c. Ginger has a comparative advantage in ballet slippers and Fred has a comparative
advantage in tap shoes.
d. Ginger has a comparative advantage in neither good and Fred has a comparative
advantage in both goods.
18. Refer to Figure 3-1. What should Fred produce?
a. Only tap shoes.
b. Only ballet slippers.
c. Both ballet slippers and tap shoes.
d. Neither ballet slippers nor tap shoes.
19. Refer to Figure 3-1. Ginger has an absolute advantage in
a. Ginger has an absolute advantage in tap shoes and Fred has a comparative advantage in
ballet slippers.
b. Ginger has an absolute advantage in both goods and Fred has a comparative advantage
in neither good.
c. Ginger has an absolute advantage in ballet slippers and Fred has a comparative
advantage in tap shoes.
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d. Ginger has an absolute advantage in neither good and Fred has a comparative advantage
in both goods.
20. Refer to Figure 3-1. Ginger should specialize in

a. Ginger should specialize in tap shoes and Fred should specialize in ballet slippers.
b. Ginger should specialize in both goods and Fred should specialize in neither good.
c. Ginger should specialize in ballet slippers and Fred should specialize in tap shoes.
d. Ginger should specialize in neither good and Fred should specialize in both goods.
21. Refer to Figure 3-1. If Fred and Ginger devote 1/2 of their time (20 hours) to the production
of each good, what would the total production be?
a. 7 ballet slippers and 8 tap shoes.
b. 8 ballet slippers and 8 tap shoes.
c. 9 ballet slippers and 6 tap shoes.
d. 10 ballet slippers and 8 tap shoes.
22. Refer to Figure 3-1. If Fred and Ginger both specialize in the good in which they have a
comparative advantage, what would the total production be?
a. 6 ballet slippers and 6 tap shoes.
b. 8 ballet slippers and 6 tap shoes.
c. 8 ballet slippers and 8 tap shoes.
d. 8 ballet slippers and 10 tap shoes.
23. Refer to Figure 3-1. If Fred and Ginger both specialize in the good in which they have a
comparative advantage, what would the total consumption be?
a. 4 ballet slippers and 6 tap shoes.
b. 6 ballet slippers and 6 tap shoes.
c. 8 ballet slippers and 8 tap shoes.
d. 8 ballet slippers and 10 tap shoes.
24. Suppose a gardener produces both green beans and corn in her garden. If the opportunity
cost of one bushel of corn is 3/5 bushel of green beans, what is the opportunity cost of 1
bushel of green beans?
a. 5/3 bushels of corn.
b. 2/5 bushel of corn.
c. 5/2 bushels of corn.
d. 8/5 bushels of corn.
25. If Shawn can produce donuts at a lower opportunity cost than Sue, which of the following is

correct?
a. Shawn has a comparative advantage in the production of donuts.
b. Sue has a comparative advantage in the production of donuts.
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c. Shawn should be retrained and produce a different product.
d. It is obvious that Shawn is capable of producing more donuts than Sue.
26. For two people who are planning to trade, it is impossible to:
a. have a comparative advantage in both goods.
b. have an absolute advantage in both goods.
c. specialize in the production of one good.
d. trade so that both people will be better off.
27. For two people who are planning to trade two different goods, each will have a comparative
advantage in a different good unless,
a. they have exactly the same opportunity cost.
b. they have agreed in advance on who will produce what and how much each will produce.
c. the terms of trade are such that neither can gain from trade.
d. one person has an absolute advantage in both products.
28. Which of the following is NOT true concerning comparative advantage?
a. The comparative advantage is determined by which person can produce a good using
fewer inputs.
b. The principle of comparative advantage applies to countries as well as people.
c. Economists use the principle of comparative advantage to advocate free trade.
d. Gains from trade are based on the principle of comparative advantage.
29. Suppose a producer requires a smaller quantity of inputs to produce a good. Which of the

following is correct?
a. The producer should import that good.
b. The producer has a comparative advantage in the production of that good.
c. The producer has an absolute advantage in the production of that good.
d. The producer has both an absolute and comparative advantage in the production of that
good.
30. Suppose a producer can produce a product with lower opportunity cost. Which of the
following is correct?
a. The producer has a comparative advantage in the production of that good.
b. The producer has an absolute advantage in the production of that good.
c. The producer has both an absolute and comparative advantage in the production of that
good.
d. The producer should import that product.
31. Suppose that a worker in Freedonia can produce either 6 units of corn or 2 units of wheat per
year, and a worker in Sylvania can produce either 2 units of corn or 6 units of wheat per year.
Each nation has 10 workers. Without trade, Freedonia produces and consumes 30 units of
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Junjie Liu – Econ 105

Practice Multiple Choice

corn and 10 units of wheat per year. Sylvania produces and consumes 10 units of corn and 30
units of wheat. Then suppose that trade is initiated between the two countries, and
Freedonia sends 30 units of corn to Sylvania in exchange for 30 units of wheat. What
maximum amounts will Freedonia now be able to consume?
a. 30 units of corn and 30 units of wheat.
b. no corn and 30 units of wheat.
c. 60 units of corn and 30 units of wheat.

d. no corn and 60 units of wheat.
32. Suppose that a worker in Radioland can produce either 4 radios or 1 television per year, and
a worker in Teeveeland can produce either 2 radios or 4 televisions per year. Each nation has
100 workers. Also suppose that each country completely specializes in producing the good
for which it has a comparative advantage. If Radioland trades 100 radios to Teeveeland in
exchange for 100 televisions each year, what is each country's maximum consumption of
new radios and televisions per year?
a. 300 televisions and 100 radios in Radioland and 300 radios and 100 televisions in
Teeveeland.
b. 300 televisions and 100 radios in Teeveeland and 300 radios and 100 televisions in
Radioland.
c. 100 televisions and 200 radios in Radioland and 100 radios and 200 televisions in
Teeveeland.
d. 400 televisions and 100 radios in Teeveeland and 400 radios and 100 televisions in
Radioland.

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Practice Multiple Choice

Chapter 4—The Market Forces of Supply and Demand
1. If a decrease in income increases the demand for a good, what is the good called?
a. a substitute good
b. a complementary good
c. a normal good
d. an inferior good
2. If the price of a substitute to good X increases, what will happen?

a. Demand for good X will decrease.
b. Market price of good X will decrease.
c. Demand for good X will increase.
d. Quantity demanded for good X will increase.
3. Suppose that a decrease in the price of X results in less of good Y sold. What are X and Y
called?
a. complementary goods
b. normal goods
c. inferior goods
d. substitute goods
4. If goods A and B are complements, what will result from an increase in the price of A?
a. more of good A sold
b. more of good B sold
c. less of good B sold
d. no difference in the quantity sold of either good
5. You have decided to purchase a new Mustang convertible. A friend tells you that Ford will be
offering a $3000 rebate on Mustangs starting next month. As a result of this information,
what will happen to your demand curve for Mustangs?
a. could shift either right or left
b. shifts right today
c. curve will be unaffected
d. shifts left today
6. Which of the following would NOT shift the demand curve for a good or service?
a. a change in income
b. a change in the price of the good or service
c. a change in expectations about the price of the good or service
d. a change in the price of a related good

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7. Morgan tells you that the price of DVDs at the video store will be going up next week. How
will you probably respond?
a. by decreasing your current demand for DVDs
b. by increasing your current demand for DVDs.
c. by not changing your current demand for DVDs
d. by refusing to ever buy any more DVDs at that store
8. Other things equal, what happens when the price of a good rises?
a. The quantity demanded of the good increases.
b. The supply increases.
c. The quantity supplied of the good rises.
d. The demand curve shifts to the left.
9. What might cause a movement along the supply curve?
a. a change in technology
b. a change in input prices
c. a change in expectations about future prices
d. a change in the price of the good or service
10. A dress manufacturer is expecting higher prices for dresses in the near future. What would
we expect?
a. the dress manufacturer to supply more dresses now
b. the dress manufacturer to supply fewer dresses now
c. the demand for this manufacturer's dresses to fall
d. no change in the dress manufacturer's current supply
11. When evaluating differences or similarities between an increase in supply and an increase in
quantity supplied, what do we know?
a. The former is a shift of the curve and the latter is a movement along the curve.

b. The former is a movement along the curve and the latter is a shift of the curve.
c. Both are shifts of the supply curve.
d. Both are movements along the curve.
12. If a car manufacturer purchases new labour-saving technology for its assembly line, what
would we NOT expect?
a. less labour to be used
b. the supply of cars produced to increase
c. costs to the firm to fall
d. the price of cars to be increased by the firm
13. Recent forest fires in the western provinces are expected to cause the price of lumber to rise
in the next 6 months. As a result, what can we expect to happen to the supply of lumber?
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Junjie Liu – Econ 105
a.
b.
c.
d.

Practice Multiple Choice

fall in 6 months, but not now
increase in 6 months when the price goes up
fall now
increase now to meet as much demand as possible

14. If suppliers expect the price of their product to fall in the future, what will they do?
a. decrease supply now
b. increase supply now

c. increase supply in the future but not now
d. nothing, since there is nothing they can do to affect the price in the future
15. Funsters Inc., the largest toy company in Canada, sells its most popular doll for $35. It has
just learned that its leading competitor Toysorama is mass producing an excellent copy and
plans to flood the market with their $10 doll in 6 weeks. What should Funsters do?
a. increase the supply of their doll now before the other doll hits the market
b. fight fire with fire and decrease supply for 6 weeks, then increase the supply of its doll
too
c. continue business as usual, since consumers will not buy the cheaper imitation
d. discontinue this doll
16. Wheat is the main input in the production of flour. If the price of wheat increases, all else
equal, what would we expect?
a. the supply of flour to be unaffected
b. the supply of flour to decrease
c. the supply of flour to increase
d. the demand for flour to decrease
17. What happens if there is a shortage of a good at the current price?
a. Sellers are producing more than buyers wish to buy.
b. The market must be in equilibrium.
c. The price is below the equilibrium price.
d. Quantity demanded equals quantity supplied.
18. Which chain of events occurs in the correct order?
a. quantity supplied increases, price increases, demand increases
b. price increases, demand increases, quantity supplied increases
c. demand increases, price increases, quantity supplied increases
d. demand increases, quantity supplied increases, price increases.
19. Suppose there is an earthquake that destroys several corn canneries. Which of the following
would NOT occur as a direct result of this event?
a. Sellers would not be willing to produce and sell as much as before at each relevant price.
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