COLEGIO DE DAGUPAN

PRELIM EXAMINATION
MICROECONOMIC THEORY

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Write ALL YOUR ANSWERS legibly on your TEST BOOKLET.
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Use BLACK BALL POINT PEN only. Strictly NO ERASURES.
Read and follow the directions carefully!

Name:
Course

and

Year:

SET A

I.

Choose the letter of the correct answer.

1. 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
E. People are greedy
F.
2. The opportunity cost of going to college is
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.
E. None of the above
3. The opportunity cost of an item is
A. What you give up to get that item.
B. The dollar value of the item.
C. Usually less than the dollar value of the item.
D. The number of hours needed to earn money to buy the item
E. None of the above
4. In a market economy, economic activity is guided by
A. The government.
B. Corporations
C. Central planners
D. The president
E. Self-interest and prices.
5. Which of the following is not among the reasons why we need the government?
A. The government provides social welfare services for the poor and the need
B. The government provides public goods and services
C. The government regulates markets when there is a market failure
D. The government provides free food for everyone
E. The government imposes laws and controls to protect competitiveness of the
industry
6. The primary focus of the study of economics is with:
A. expanding the production of goods and services.
B. equalizing the distribution of consumer income and wealth.
C. making the most efficient use of scarce productive resources.
D. reallocating resources from consumption to production in the economy.

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7. The basic economic problem is essentially one of deciding how to make the best use of:
A. limited resources to satisfy limited economic wants.
B. limited resources to satisfy unlimited economic wants.
C. unlimited resources to satisfy unlimited economic wants.
D. unlimited resources to satisfy limited economic wants.

8. What is the economic meaning of the expression that "there is no such thing as a free
lunch"?
A. It refers to "free-riders," who do not pay for the cost of a product, but who receive the
benefit from it.
B. It means that economic freedom is limited by the amount of income available to the
consumer.
C. It means that there is an opportunity cost when resources are used to provide "free"
products.
D. It indicates that products only have value because people are willing to pay for them.

9. Which is an illustration of a microeconomic question?

A. What is the current national rate of unemployment?
B. Is the economy experiencing a decline in the rate of inflation?
C. Will a new type of television set increase the number of buyers?
D. Is the production of goods and services in the economy greater this year than last
year?
10. Which question is an illustration of a microeconomic question?
A. Is the quantity of wine purchased in one year dependent upon the price of wine?
B. Does government spending influence the total level of employment in the economy?
C. Is the purchasing power of the dollar higher or lower today than it was in 2000?
D. Is capitalism superior to socialism?

11. The macroeconomist would most likely study:

A. the effects of changing beer prices on the market for pretzels.
B. the effects of an increased income tax on a typical household's purchase of goods.
C. the effects of a reduction in income tax rates on the nation's total output.
D. how consumers in Dagupan City respond to a reduction in gasoline prices.

12. Which would not be considered as capital (or an economic resource) by an economist?
A. a share of corporate stock issued by ABS-CBN Corporation
B. a delivery van used by Goldilocks Bakeshop
C. an back hoe used by a building contractor
D. a pair of scissors used by a hair stylist

13. Economic resources in the market system are brought together by:
A. government units.
B. entrepreneurs.

C. corporate shareholders.
D. the managerial elite.

E.

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14. Society wants to use its scarce resources efficiently. To achieve this economic goal it
must:
A. have full employment and full production.
B. have a fixed resource base and fixed technology.
C. expand the use of capital goods and reduce the use of labor.
D. increase the rental, interest, wage, and profit payments to the factors of production.

F.
15. The private ownership of property resources and use of prices to direct and coordinate
economic activity is characteristic of:
A. a command system.
B. a market system.
C. communism.

D. socialism.
E.

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4
F.
16. By free enterprise, we mean that:
A. products are provided free to those who can't afford to buy them.
B. individual producers determine how to produce, but government agencies determine
what will be produced.
C. individuals may obtain resources, organize production, and sell the resulting output
in any legal way they choose.
D. individuals are free to produce those products that government agencies determine
can be produced profitably.

G.
17. In a market economy, entrepreneurs are most concerned with:
A. maximizing utility or satisfaction from limited incomes.
B. increasing the wages and salaries of workers.
C. maximizing profits or minimizing losses.
D. the selfish pursuit of money.

H.
18. Economic efficiency would be a primary concern in response to which of the basic
economic questions about a competitive market economy?
A. What goods and services will be produced?
B. How will the goods and services be produced?
C. How much of these goods and services should be produced?
D. Who will get the goods and services?

I.
19. Which is not one of the four basic economic questions?
A. How will goods and services be produced?
B. What goods and services and what quantities should be produced?
C. Who is to receive the output of the system?
D. What goods and services should be produced by government?
J.
20. Which best describes the "invisible hand" concept?
A. Sufficiently detailed central direction of an economy will maximize the public's best
interests.
B. The market system works best when resources are highly substitutable.
C. The problem of scarcity can best be overcome in a system of mixed capitalism.
D. The desires of producers and resource suppliers to further their own self-interest will
automatically promote the social interest.
K.

L.
M.
N. II. (PRINCIPLES) Matching Type. Matching Column A to Column B, and Column
B to C.
O. ____1. Principle 1

A. Incentive

a. Anything that alters persons

decision/behavior
P. ____2. Principle 2

B. Inflation

b. An economy that is

decentralized
Q. ____3. Principle 3

C. Guns. Vs. Butter c. Small incremental adjustments

prepared by:

vadelacruz

It is not the creation of wealth that is wrong, but the

love of money for its own sake.-Margaret Thatcher

R. ____4. Principle 4

D. Philips curve

d. Ineffecient allocation of

resuorces
S. ____5. Principle 5

E. Productivity

e. It shows the short-run tradeoff

bet. Inflation and unemployment.

T. ____6. Principle 6
F. Market economy f. Increase in the overall level
prices
U. ____7. Principle 7

G. Market failure

services and food

V.
H. Specialization
does best
W.
X. .

g. Trade-off between military

h. Development of skills in what one

I. Marginal changes i. Whatever given up to get something

J. Opportunity cost j. Amount of goods & services produced

per hour
Y.

prepared by:

vadelacruz

It is not the creation of wealth that is wrong, but the

love of money for its own sake.-Margaret Thatcher