TRUE-FALSE QUESTIONS .

1.
2.

Scarcity means that there is less of a good or resource available than people wish to have. T
Efficiency means everyone in the economy should receive an equal share of the goods and
services produced. F
3. There is no difference between a "change in demand" & a "change in quantity demanded".
F
4. Government policies that improve equality usually increase efficiency at the same time. F
5. If something happens to alter the quantity demanded at any given price, then the demand
curve shifts. T
6. When a production possibilities frontier is bowed outward, the opportunity cost of one good
in terms of the other is constant F
7. The invisible hand ensures that economic prosperity is distributed equally. F
8. Points inside the production possibilities frontier represent inefficient levels of production.
T
9. Productivity is defined as the quantity of goods and services produced from each unit of
labor input. T
10. If a person expects the price of socks to increase next month, then that persons current
demand for socks will increase. T
11. In a competitive market, there are so few buyers and so few sellers that each has a
significant impact on the market price, and the goods offered for sale are all exactly the
same. F
12. Monopolists are price takers. F
13. A technological advance in the production of the first good increases the opportunity cost of
the first good in terms of the second good. T

SHORT ANSWER
1-

1- Given the table below, graph the demand and supply curves for flashlights. Make
certain to label the equilibrium price and equilibrium quantity.
Price
$5
$4
$3
$2
$1

b.
c.
d.

Quantity Demanded Per Month

6,000
8,000
10,000
12,000
14,000

Quantity Supplied Per Month

10,000
8,000
6,000
4,000
2,000

What are the equilibrium price and the equilibrium quantity?

Suppose the price is currently $5. What problem would exist in the market? What would you
expect to happen to price? Show this on your graph.
Suppose the price is currently $2. What problem would exist in the market? What would you
expect to happen to price? Show this on your graph.
ANS:

price

a.

Surplus of 4000

5
4.5

Pe

4
3.5
3
2.5
2

Shortage of 8000

1.5

1
0.5

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000 11000 12000

quantity

Qe

b.The equilibrium price (Pe) is $4 and the equilibrium quantity (Qe) is 8,000.
c. A surplus of 4,000 flashlights would be the problem in the market, and we would expect the
price to fall.
d.A shortage of 8,000 flashlights would be the problem in the market, and we would expect
the price to rise.

2.

Draw a production possibilities frontier showing increasing opportunity cost of hammers in

terms of horseshoes.
a. On the graph, identify the area of feasible outcomes and the area of infeasible
outcomes.
b. On the graph, label a point that is efficient and a point that is inefficient.
c. On the graph, illustrate the effect of the discovery of a new vein of iron ore, a resource
needed to make both horseshoes and hammers, on this economy.
d. On a second graph, illustrate the effect of a new computerized assembly line in the
production of hammers on this economy.

ANS:
(a-c)

(d)

hammers

hammers

infeasible

discovery

feasible
efficient
inefficient
horseshoes

3.

horseshoes

Define opportunity cost. What is the opportunity cost to you of attending college? What was
your opportunity cost of coming to class today?

ANS:
Whatever must be given up to obtain some item it its opportunity cost. Basically, this would be a person's second
choice. The opportunity cost of a person attending college is the value of the best alternative use of that person's
time, as well as the additional costs the person incurs by making the choice to attend college. For most students this
would be the income the student gives up by not working plus the cost of tuition and books, and any other costs they
incur by attending college that they would not incur if they chose not to attend college. A student's opportunity cost
of coming to class was the value of the best opportunity the student gave up. (For most students, that seems to be
sleep.)

MULTIPLE-CHOICE QUESTIONS
1.

Resources are
a. scarce for households but plentiful for economies.
b. plentiful for households but scarce for economies.
c. scarce for households and scarce for economies.
d. plentiful for households and plentiful for economies.

2.

The phenomenon of scarcity stems from the fact that

a. most economies production methods are not very good.
b. in most economies, wealthy people consume disproportionate quantities of goods
and services.
c. governments restrict production of too many goods and services.
d. resources are limited.

3.

For a competitive market, which of the following statements is correct?

a. A seller can always increase her profit by raising the price of her product.
b. If a seller charges more than the going price, buyers will go elsewhere to make their
purchases.
c. A seller often charges less than the going price to increase sales and profit.
d. A single buyer can influence the price of the product, but only when purchasing from
several sellers in a short period of time.

4.

Which of the following is not correct about most economic models?

a. They are composed of equations and diagrams.
b. They contribute very little to economists understanding of the real world.
c. They omit many features of the real-world economy.
d. In constructing models, economists make assumptions.

5. Which of the following demonstrates the law of demand?

a. After Jon got a raise at work, he bought more pretzels at $1.50 per pretzel than he did
before his raise.
b. Melissa buys fewer muffins at $0.75 per muffin than at $1 per muffin, other things
equal.
c. Dave buys more donuts at $0.25 per donut than at $0.50 per donut, other things equal.
d. Kendra buys fewer Snickers at $0.60 per Snickers since the price of Milky Ways fell to
$0.50 per Milky Way.

6. Which of the following events would unambiguously cause a decrease in the equilibrium
price of cotton shirts?
a.
an increase in the price of wool shirts and a decrease in the price of raw cotton
b.
a decrease in the price of wool shirts and a decrease in the price of raw cotton
c.
an increase in the price of wool shirts and an increase in the price of raw cotton
d.
a decrease in the price of wool shirts and an increase in the price of raw cotton
7. A decrease in input costs to firms in a market will result in
a.
A decrease in equilibrium price and an increase in equilibrium quantity.
b.
A decrease in equilibrium price and a decrease in equilibrium quantity.
c.
An increase in equilibrium price and a decrease in equilibrium quantity.
d.
An increase in equilibrium price and an increase in equilibrium quantity.

8. Which of the following would not shift the demand curve for mp3 players?
a.
a decrease in the price of mp3 players
b.
a fad that makes mp3 players more popular among 12-25 year olds
c.
an increase in the price of CDs, a complement for mp3 players
d.
a decrease in the price of satellite radio, a substitute for mp3 players

9- If goods A and B are complements, then an increase in the price of good A will result in
a.
More of good A being sold.
b.
More of good B being sold.
c.
Less of good B being sold.
d.
No difference in the quantity sold of either good.

10 - Soup is an inferior good if

a.
The demand for soup falls when the price of a substitute for soup rises.
b.
The demand for soup rises when the price of soup falls.
c.
The demand curve for soup slopes upward.
d.
The demand for soup falls when income rises.