U1 MCQ
Answer E When a resource has an alternative use, there are multiple needs for the resource and so it is scarce.
Which of the following contributes to the economic problem of scarcity? A. Human wants are insufficient. B. Resources are limited. C. Resources are efficient. D. Resources are expensive. E. Resources have alternative uses.
Answer A According to the law of supply, price and quantity supplied have a positive relationship, illustrated by an upward-sloping supply curve. With all else being constant, as the price increases, the quantity supplied increases, which leads to an upward-sloping supply curve.
Which of the following describes the relationship between price and quantity supplied according to the law of supply? A. Positive relationship, illustrated by an upward-sloping supply curve B. Positive relationship, illustrated by a downward-sloping supply curve C. Positive relationship, illustrated by a horizontal supply curve D. Negative relationship, illustrated by an upward-sloping supply curve E. Negative relationship, illustrated by a downward-sloping supply curve
Answer A The PPC will shift inward and to the left to indicate a reduction in capacity as a result of the decrease in resources.
Which of the following illustrates the effect of a decrease in an economy's resources using a production possibilities curve (PPC)? A. The economy's PPC will shift inward and to the left. B. The economy's PPC will shift outward and to the right. C. The economy's PPC will become steeper. D. The economy's PPC will become flatter. E. The economy's PPC will remain the same.
Answer E Stocks are not a factor of reproduction and therefore are not a scarce resource. All factors of production-land, labor, capital, and entrepreneurship-are scarce resources.
Which of the following is not a scarce resource? A. Land B. Labor C. Capital D. Entrepreneurship E. Stocks
Answer B Scarcity is a condition in which wants exceed resources. In this case, the value of Allie's wants (price of the pair of running shoes) exceeds her resources (her bank account balance).
Allie is shopping when she finds a pair of running shoes priced at $90. When Allie uses her debit card to pay, it is declined because her balance is insufficient to cover the cost of the running shoes. Allie's situation best illustrates which economic concept? A. Opportunity cost B. Scarcity C. Unlimited Resources D. Trade-offs E. Trade
Answer E Absolute advantage describes a situation in which an individual can produce more of one good than any other person using the same amount of resources. Michael has an absolute advantage over Martha in changing oil because Michael can perform 8 oil changes in one hour while Martha can only perform 7 oil changes in one hour. Comparative advantage describes a situation in which an individual can produce a good or provide a service at a lower opportunity cost than another individual. Martha's opportunity cost of performing 1 oil change is 2 tire changes, while Michael's opportunity cost of performing 1 oil change is 1.25 tire changes. Therefore, Michael has a comparative advantage in oil changes.
Michael and Martha run a mechanic shop. In one hour Michael can perform eight oil changes or change ten tires. In one hour Martha can perform seven oil changes or change fourteen tires. Given this information which of the following is true? A. Martha has a comparative advantage in changing oil. B. Martha has an absolute advantage in changing oil. C. Michael has a comparative advantage in changing tires. D. Michael has an absolute advantage in changing tires. E. Michael has an absolute and a comparative advantage in changing oil.
Answer E According to the law of demand, price and quantity demanded move in opposite directions (an inverse, or negative, relationship), leading to a downward-sloping demand curve. As price increases, the quantity demanded decreases, which leads to a downward-sloping demand curve. A positive, upward-sloping curve would be the result of a relationship between price and quantity where an increase in price leads to an increase in quantity, which is not supported by the law of demand.
Which of the following describes the relationship between price and quantity demanded according to the law of demand? A. Positive relationship, illustrated by an upward-sloping demand curve B. Positive relationship, illustrated by a downward-sloping demand curve C. Negative relationship, illustrated by a horizontal demand curve D. Negative relationship, illustrated by an upward-sloping demand curve E. Negative relationship, illustrated by a downward-sloping demand curve
Answer C Subsidies are a determinant of the market supply. An increase in subsidies encourages manufacturers to produce more automobiles at the same prices. Therefore, there will be an increase in the quantity supplied at all prices, which results in an increase in the supply or a rightward shift in the supply curve.
Which of the following will increase the market supply for new automobiles? A. An increase in the price of steel, an input in the production of automobiles B. An increase in taxes on automobile manufacturers C. An increase in subsidies to automobile manufacturers D. An increase in consumers' income E. An increase in the price of gasoline, a complementary good
Answer E Consumer income is a determinant of demand. A fall in consumer income decreases consumer demand at all prices. This results in a leftward shift in the demand curve, reflecting a decrease in equilibrium price and quantity. Cost of production is a determinant of supply. An increase in the cost of production decreases the supply at all prices. This results in a leftward shift in the supply curve, reflecting an increase in equilibrium price and a decrease in equilibrium quantity. The decrease in both demand and supply will therefore result in a decrease in the equilibrium quantity but will have an indeterminate effect on the equilibrium price.
Assume household income has fallen dramatically in Country X and the cost of construction materials for building new houses has increased. How will these changes affect the equilibrium price and equilibrium quantity for new houses? A. The equilibrium price will increase, and the equilibrium quantity will decrease. B. The equilibrium price will decrease, and the equilibrium quantity will decrease. C. The equilibrium price will decrease, and the equilibrium quantity will increase. D. The equilibrium price will decrease, and the equilibrium quantity will be indeterminate. E. The equilibrium price will be indeterminate, and the equilibrium quantity will decrease.
Answer A A change in price expectations about the future price of a product is a determinant of demand. When Country X's consumers expect the future price of grains to increase because of the tax on imported grains, they are better off buying more grains now at a lower price than later in the future at a higher price. Therefore, Country X's consumers' demand for grains will increase now because of the increase in price expectations.
Country X is a major buyer of Country Y's grains. Assume Country X's government announced an increase in taxes on its imports of Country Y's grains effective next month. How will this news likely affect consumers' demand for grains in Country X? A. It will increase now because the tax on imported grains will increase the future price of grains. B. It will decrease now because the tax on imported grains will increase the future price of grains. C. It will not change now because the tax on imported grains will increase the future price of grains. D. It will increase now because the tax on imported grains will increase the current price of grains. E. It will decrease now because the tax on imported grains will increase the current price of grains.
Answer B An increase in the price of scooters (a substitute good) increases the demand for bicycles and shifts the demand curve to the right.
Which of the following changes will increase the demand for bicycles? A. An increase in the price of bicycle helmets, a complementary good B. An increase in the price of scooters, a substitute good C. A decrease in the price of bicycles D. A decrease in consumers' income E. A decrease in the number of buyers
Answer D Absolute advantage describes a situation in which an individual can produce more of a good or service than any other person using the same amount of resources. Simone has an absolute advantage in both mowing lawns and trimming trees because she can mow more lawns and trim more trees in eight hours than Irina.
The table below shows the landscaping productivity of Simone and Irina during an eight-hour workday. Simone can mow twelve lawns or trim twenty-four trees in eight hours. Irina can mow nine lawns or trim twelve trees in eight hours. Based on the information in the table, which of the following is true? A. Irina has an absolute advantage in mowing lawns. B. Irina has an absolute advantage in trimming trees. C. Irina has a comparative advantage in trimming trees. D. Simone has an absolute advantage in trimming trees and mowing lawns. E. Simone has a comparative advantage in trimming trees and mowing lawns
Answer D The trade agreement will increase competition in domestic markets by increasing the number of potential suppliers, which is a determinant of supply. The supply curve will shift to the right, which indicates an increase in quantity at every price along the supply curve in both nations.
Two nations sign a trade agreement expecting to enjoy mutual gains from the trade of a certain good. How will this event likely affect the supply of the good in the two nations? A. This event will likely cause a decrease in the quantity supplied of the good in both nations. B. This event will likely cause an increase in the quantity supplied of the good in both nations. C. This event will likely cause a decrease in the supply of the good in both nations. D. This event will likely cause an increase in the supply of the good in both nations. E. This event will likely have no effect on the good in either nation.
Answer C The opportunity cost of building one swimming pool is two skating rinks. The opportunity cost is the slope of the PPC (=2/1=2) the number of skating rinks that will be forgone to build one swimming pool The opportunity cost is constant throughout the PPC because it is a straight line. ANy point on the curve involves giving up 2 skating rinks for each additional swimming pool.
Use the given production possibilities curve (PPC) to answer the following question. A city government received a $1 million grant to build swimming pools and skating rinks for the youth. Based on the data provided in the graph, what is the opportunity cost of building one swimming pool? A. 0.50 skating rink B. 0.50 swimming pool C. 2 skating rinks D. 2 swimming pools E. 5 skating rinks
Answer C Demand for Matcha green tea will increase as a result of the change in consumer tastes and preferences, and the supply of Matcha green tea will increase as a result of the reduction in taxes. When both the supply and the demand curves shift to the right, price is indeterminate (because the increase in demand increases the price and the increase in supply decreases the price) and quantity increases.
Use the graph to answer the question below. Matcha green tea is primarily cultivated by Japanese farmers. Suppose that Matcha green tea grows in popularity as its health benefits, namely its lower caffeine content, become known, and at the same time, the government reduces taxes imposed on Japanese tea farmers. What is the likely effect on the equilibrium price and quantity in the Japanese Matcha tea market? A. Price increases, and quantity increases. B. Price decreases, and quantity decreases. C. Price is indeterminate, and quantity increases. D. Price is indeterminate, and quantity decreases. E. Price decreases, and quantity is indeterminate.
Answer D PPC1 reflects increasing opportunity costs because it is a downward-sloping curve that is concave, or bowed out to the origin. PPC2 reflects constant opportunity costs because it is a linear down-ward shopping straight line and the slope is constant.
Use the graphs to answer the question below. The shape of a PPC illustrates the type of opportunity costs involved in the production. What type of costs do PPC1 and PPC2 illustrate? A. PPC1 illustrates constant opportunity costs and PPC2 illustrates increasing opportunity costs. B. PPC1 illustrates constant opportunity costs and PPC2 illustrates decreasing opportunity costs. C. PPC1 illustrates increasing opportunity costs and PPC2 illustrates decreasing opportunity costs. D. PPC1 illustrates increasing opportunity costs and PPC2 illustrates constant opportunity costs. E. PPC1 illustrates decreasing opportunity costs and PPC2 illustrates constant opportunity costs.
Answer B Mutually beneficial terms of trade depend on identifying which country has a comparative advantage, which involves the calculation of opportunity costs. China's opportunity cost of producing 1 ton of coffee is 5 trucks, and Malaysia's opportunity cost of producing 1 ton of coffee is 3 trucks. Therefore, China has a comparative advantage in producing trucks while Malaysia has a comparative advantage in producing coffee. Mutually beneficial terms of trade should fall between the two opportunity costs. With terms of trade of 1 ton of coffee for 4 trucks, both countries will gain. Malaysia will trade 1 ton of coffee for 4 trucks (instead of 3 trucks with no trade), and China will trade 1 truck for one-fourth of a ton of coffee (instead of one-fifth of a ton of coffee with no trade). Therefore, these terms are mutually beneficial.
Use the table to answer the question below. The table above shows the daily production possibilities for China and Malaysia in producing trucks and coffee using the same amount of resources. Based on the data provided, which of the following terms of trade are mutually beneficial for the two countries? A. 1 ton of coffee for 3 trucks B. 1 ton of coffee for 4 trucks C. 1 ton of coffee for 5 trucks D. 1 truck for 1 ton of coffee E. 1 truck for 5 tons of coffee
Answer D At a price of $6.00, the price is higher than the equilibrium price ($5.00) and the quantity demanded is less than the quantity supplied, creating a surplus in the market. There is a surplus of 325 candy bars, and the market will not clear until the price drops to $5.00, where the quantity demanded equals quantity supplied.
Use the table to answer the question below. When the price of a candy bar is $6.00, which of the following is true? A. The market does not clear because the price is lower than the equilibrium price and there will be a surplus in the market. B. The market does not clear because the price is lower than the equilibrium price and there will be a shortage in the market. C. The market clears because buyers and sellers are in agreement on the price. D. The market does not clear because the price is higher than the equilibrium price and there will be a surplus in the market. E. The market does not clear because the price is higher than the equilibrium price and there will be a shortage in the market.