Econ Unit 1 (Macro)
10. Tommy has two free hours to do whatever he would like. He thinks of the many activities he might engage in and settles on a choice between tutoring his younger brother in AP Economics or sitting and watching television. His parents pay him $10 per hour when he helps his brother study. He chooses to sit and watch television for two hours. What is the opportunity cost of this decision? (A) $20, because opportunity cost is the next best alternative given up when a decision is made (B) $0, because the marginal benefit is greater than the marginal cost of watching television (C) $10, because the marginal benefit is greater than the marginal cost of watching television (D) $0, because the opportunity cost is the next best alternative given up when a decision is made (E) none of the above
(A) $20, because opportunity cost is the next best alternative given up when a decision is made
2. According to the preceding diagram, the relationship between price and quantity supplied is illustrated by which line? (A) A (B) B (C) C (D) D (E) A and B
(A) A
27. Suppose a very dry and hot season contributes to a poor yield of tobacco for the year. As a result, the low supply of tobacco increases the price of cigarettes. Few substitutes are available for cigarettes. What could be said regarding the price elasticity of cigarettes? (A) Cigarettes are price inelastic, and demand will remain the same. (B) Cigarettes are price inelastic, and demand will decrease. (C) Cigarettes are price elastic, as there are other alternatives to smoking. (D) Cigarettes are price elastic, and the demand will decrease. (E) none of the above
(A) Cigarettes are price inelastic, and demand will remain the same.
4. A country is said to have a comparative advantage over another country when which of the following occurs? (A) It can produce a good at a lower opportunity cost than another country. (B). It can produce a good utilizing fewer resources per unit of output than another country. (C) There is a higher degree of specialization and division of labor compared to another country. (D) When comparing each country's production possibilities frontiers, one country is operating at maximum efficiency and output. (E) One country's production possibilities frontier is shifted farther to the right compared to another country's production possibilities frontier.
(A) It can produce a good at a lower opportunity cost than another country.
19. What is the significant difference between quantity supplied and aggregate supply? (A) Quantity supplied is the total amount of a good that is available to consumers; aggregate supply is the total supply of goods in an economy. (B) Quantity supplied is the total supply of goods available in an economy; aggregate supply is the total amount of a good available to consumers. (C) Quantity supplied is the total amount of a good that is available to consumers; aggregate supply is the total amount of goods demanded and supplied in an economy. (D) Quantity supplied is the total amount of a good demanded by consumers; aggregate supply is the total amount of goods demanded and supplied by producers. (E) none of the above
(A) Quantity supplied is the total amount of a good that is available to consumers; aggregate supply is the total supply of goods in an economy.
12. Both of the economies of the fictional nations Reilly and Tanen have the same production possibilities curve. They both are operating at the same point on the curve. If Tanen discovers a new resource for production, the most likely result of the production possibilities curves would be (A) Tanen's curve would shift to the right, whereas Reilly's would stay the same (B) both Tanen's and Reilly's curves would shift to the right (C) Tanen's curve would shift to the right, whereas Reilly's would shift to the left (D) Tanen's curve would stay the same, whereas Reillys would shift to the left (E) none of the above
(A) Tanen's curve would shift to the right, whereas Reilly's would stay the same
24. The production possibilities curve will show a straight line if which of the following is TRUE? (A) The opportunity cost is constant. (B) Vital resources for the good are limitless. (C) The economy is operating below maximum efficiency and output. (D) The law of decreasing marginal utility does not apply. (E) Marginal benefit is less than marginal cost.
(A) The opportunity cost is constant.
38. A recession is represented by which of the following? (A) a leftward shift of the production possibilities curve (B) a rightward shift of the production possibilities curve (C) a rightward shift in demand (D) a rightward shift in supply (E) a point to the right of the production possibilities curve
(A) a leftward shift of the production possibilities curve
8. What does economic growth refer to? (A) a rightward shift of the production possibilities curve (B) movement along the demand curve (C) movement along the supply curve (D) the point where the supply and demand curves intersect (E) the allocation of private property into public sectors
(A) a rightward shift of the production possibilities curve
7 Any point along the production possibilities curve is (A) attainable and efficient (B) attainable yet inefficient. (C) unattainable and inefficient (D) showing that resources are not being utilized to their full potential (E) none of the above
(A) attainable and efficient
52. If two nations begin trading goods with one another (A) consumption will increase for both nations (B) only the nation with an absolute advantage will benefit from trade (C) consumption will decrease for both nations (D) consumption will not change in either nation (E) production possibilities curves for both countries will shift to the right
(A) consumption will increase for both nations
20. Mineral deposits, human capital, entrepreneurship, use of technology, and machinery are all examples of which of the following? (A) factors of production (B) superior and inferior goods (C) elements sometimes needed to move an existing company overseas (D) public goods (E) material wants and needs
(A) factors of production
64. An increase in consumer incomes allows consumers to purchase larger quantities of all goods. What is this known as? (A) income effect (B) substitution effect (C) law of increasing cost (D) law of demand (E) law of supply
(A) income effect
60. If a country has an absolute advantage over another country (A) it can produce more of one good than the other country can (B) it gives up less of one good to produce the other good (C) it gives up more of one good to produce the other good (D) it should not engage in international trade with the other country (E) it can produce less of one good than the other country can
(A) it can produce more of one good than the other country can
33. A supply curve differs from a demand curve in that (A) it slopes upward while a demand curve slopes downward (B) it slopes downward while a demand curve slopes upward (C) it is longer than a demand curve (D) it is always vertical (E) it is always horizontal
(A) it slopes upward while a demand curve slopes downward
49. As a consequence of scarcity (A) producing more of one good means producing less of another good (B) producing more of one good can be accomplished without any sacrifices (C) a society's wants and needs are limited (D) a society's wants and needs can all be satisfied (E) material resources are not limited
(A) producing more of one good means producing less of another good
43. If resources are underallocated in a market, then (A) quantity supplied would be less than the allocatively efficient quantity (B) quantity supplied would be greater than the allocatively efficient quantity (C) quantity supplied would be equal to the allocatively efficient quantity (D) the supply curve would have a negative slope (E) consumption would occur at a point on the production possibilities curve
(A) quantity supplied would be less than the allocatively efficient quantity
26. Within the market system, prices are determined by which of the following? (A) supply and demand (B) a central planning committee (C) opportunity cost (D) aggregate demand (E) the Federal Reserve
(A) supply and demand
1. The study of macroeconomics refers to (A) the part of economics that deals with large-scale economic concepts, like interest rates and gross national product (B) the part of economics that deals with how individuals and business firms allocate scarce resources (C) economic theory that stresses costs of production and small-business scale decisions (D) the difference between normative and positive economics (E) all of the above
(A) the part of economics that deals with large-scale economic concepts, like interest rates and gross national product
30. All of the following are examples of macroeconomic variables EXCEPT (A) the price of skateboards sold in the United States between 1995 and 2005 (B) the percentage change in income levels in Kenya between 1980 and 2000 (C) the gross exports of goods out of the United Kingdom in 2010 (D) the average price level of goods in the United States in 2011 (E) the unemployment rate in Germany after World War I
(A) the price of skateboards sold in the United States between 1995 and 2005
48. If immigration increases the supply of labor in a country (A) the production possibilities curve will shift to the right (B) the production possibilities curve will shift to the left (C) the production possibilities curve will remain in the same place (D) output will move along the production possibilities curve (E) human capital will decrease
(A) the production possibilities curve will shift to the right
28. Both bowling balls and bowling shoes are necessary for bowling. If the demand for bowling balls increases, what could be said regarding bowling shoes? (A) The demand for bowling shoes will decrease. (B) The demand for bowling shoes will increase. (C) The price of bowling shoes will decrease. (D) The quantity supplied will decrease. (E) none of the above
(B) The demand for bowling shoes will increase.
59. Which statement does NOT apply to macroeconomics? (A) The price level in Canada has increased. (B) The supply of iron at a manufacturing firm has fallen. (C) Purchasing power decreased because the U.S. dollar lost exchange value. (D) The unemployment rate for Poland has increased. (E) Gross exports for Chile have increased.
(B) The supply of iron at a manufacturing firm has fallen.
56. In a command economy, prices may be determined by (A) supply and demand (B) a central planning committee (C) opportunity cost (D) aggregate demand (E) the Federal Reserve
(B) a central planning committee
51. What would cause the production possibilities curve to shift to the left? (A) government investment in public education (B) a hurricane that damaged several major cities (C) an increase in the birth rate (D) an increase in immigration (E) government investment in highways, airports, and other infrastructure
(B) a hurricane that damaged several major cities
37. A point inside the production possibilities curve is (A) attainable and efficient (B) attainable yet inefficient (C) unattainable and efficient (D) unattainable and inefficient (E) only achievable through international trade
(B) attainable yet inefficient
63. The determinants of supply do NOT include (A) price levels for production inputs (B) consumer tastes (C) the number of suppliers in the market (D) tax rates (E) technology
(B) consumer tastes
54. A nation produces bread and cake with unspecialized resources. Increasing the production of bread will cause cake production to (A) fall at a decreasing rate (B) fall at a constant rate (C) fall at an increasing rate (D) rise at a decreasing rate (E) rise at a constant rate
(B) fall at a constant rate
61. In a mixed economy (A) markets are not present (B) firms can enter and exit markets for most, but not all, goods (C) there is unrestricted consumer choice for all goods (D) the government owns all factors of production (E) firms do not compete with one another
(B) firms can enter and exit markets for most, but not all, goods
14. All of the following are examples of a market economy EXCEPT (A) competition among sellers of products (B) government ownership of the factors of production (C) freedom of sellers to enter and exit the market (D) unrestricted consumer choice (E) the existence of markets
(B) government ownership of the factors of production
40. When a nation has specialized resources, its production possibilities curve will reflect (A) unchanging opportunity costs (B) increasing opportunity costs (C) decreasing opportunity costs (D) a shortage of labor (E) inefficient production
(B) increasing opportunity costs
34. Greece wants to buy a fighter jet from Russia. Greece should buy the jet if (A) marginal cost exceeds marginal benefit (B) marginal cost is equal to marginal benefit (C) opportunity cost equals marginal cost (D) the purchase price equals marginal cost (E) marginal benefit is less than marginal cost
(B) marginal cost is equal to marginal benefit
23. How is it possible for a country to consume more than its production possibilities curve dictates? (A) not possible without greater quantities of the factors of production already obtained (B) specialization and trade (C) increase in education and job training (D) obtainment of a greater quantity of affordable substitutes (E) increase in the division of labor
(B) specialization and trade
55. Quantity demanded and the price of a good have an inverse relationship. This is known as (A) the law of supply (B) the law of demand (C) the law of increasing opportunity costs (D) ceteris paribus (E) central planning
(B) the law of demand
3. Ronald wants to buy an Xbox. According to the laws of economics, Ronald will buy the Xbox if (A) the opportunity cost is less than the purchase costs (B) the marginal benefit is greater than the marginal cost (C) the marginal cost is greater than the marginal benefit (D) the opportunity cost is equal to the marginal cost (E) none of the above
(B) the marginal benefit is greater than the marginal cost
65. A motivational speaker increases the popularity of entrepreneurship in a country, and more people open up small businesses. As a result, (A) the production possibilities curve will shift to the left (B) the production possibilities curve will shift to the right (C) output will move along the production possibilities curve (D) the price index will increase (E) aggregate supply will decrease
(B) the production possibilities curve will shift to the right
29. Without government regulations, the equilibrium price is established (A) at the next price above where the demand and supply curves intersect (B) when the quantity supplied equals the quantity demanded (C) at the next price below where the demand and supply curves intersect (D) when you take the difference between the two lowest points plotted on the demand and supply curves (E) at the price where either the demand or supply curve becomes horizontal
(B) when the quantity supplied equals the quantity demanded
50. A production possibilities curve is based on which assumption? (A) Resources are unlimited. (B) Technology is not used to its full potential. (C) A nation's economy only produces two different goods. (D) A nation's economy can produce hundreds of different goods. (E) Some unemployment is present.
(C) A nation's economy only produces two different goods.
57. Quantity supplied will be equal to quantity demanded if which of the following occurs? (A) An effective price ceiling is present. (B) An effective price floor is present. (C) Goods are exchanged in a market economy. (D) Goods are exchanged in a command economy. (E) A central planning board makes output decisions.
(C) Goods are exchanged in a market economy.
18. Joe is in training, hoping he will make the varsity football team next season. He will usually train for five hours a day, four days a week. On the last day of training before tryouts, Joe decides to train one extra hour. Joe's decision is worth it if which of the following is TRUE? (A) Joe should continue training for an extra hour if he thinks the extra practice will help him get on the team, (B) Joe should continue training an extra hour if the marginal cost is greater than the marginal benefit. (C) Joe should continue training an extra hour if the marginal benefit is greater than the marginal cost. (D) Joe should not continue training an extra hour because the opportunity cost is too great. (E) Joe should not continue training an extra hour because the opportunity cost is equal to the decision to train.
(C) Joe should continue training an extra hour if the marginal benefit is greater than the marginal cost.
17. Both Luca and Sarah can weed the garden and walk their dog on Sunday morning. For every half hour of walking the dog, Luca can weed twice the amount of garden Sarah can. According to this information, (A) Sarah walks the dog because she has absolute advantage in weeding the garden (B) Luca walks the dog because he has comparative advantage in weeding the garden (C) Luca weeds the garden because he has comparative advantage in weeding the garden (D) Sarah weeds the garden because she has comparative advantage in weeding the garden (E) Sarah walks the dog because she has comparative advantage in walking the dog
(C) Luca weeds the garden because he has comparative advantage in weeding the garden
67. Which statement is normative? (A) The Singapore dollar lost 10 percent of its value against the Saudi Arabian riyal. (B) The Chinese government has fixed the value of the yuan. (C) The Korean government set the value of the won too low. (D) The Australian dollar gained value after the price of gold increased. (E) The British pound lost value after Britain left the European Union.
(C) The Korean government set the value of the won too low.
47. France decides to use tax revenue to purchase a destroyer. Because of this decision, France cannot purchase a fighter jet. Which statement is true? (A) The marginal benefit of the fighter jet is more than the marginal benefit of the destroyer. (B) The marginal benefit of the fighter jet is equal to the marginal benefit of the destroyer. (C) The marginal benefit of the fighter jet is less than the marginal benefit of the destroyer. (D) The opportunity cost of purchasing the destroyer cannot be determined. (E) The decision was a mistake because the cost of the destroyer is too high.
(C) The marginal benefit of the fighter jet is less than the marginal benefit of the destroyer.
66. Norway decides to spend oil revenue on a new university instead of a superhighway. What does this decision indicate? (A) The marginal benefit of the superhighway is more than the marginal benefit of the university. (B) The marginal benefit of the superhighway is equal to the marginal benefit of the university. (C) The marginal benefit of the superhighway is less than the marginal benefit of the university. (D) The opportunity cost of purchasing the university cannot be determined. (E) The decision was a mistake because the cost of the university is too high.
(C) The marginal benefit of the superhighway is less than the marginal benefit of the university.
32. Which statement is positive? (A) Rent is too high in comparison to the average wage. (B) Workers should contribute a higher percentage of income to pension plans. (C) The unemployment rate is 5 percent. (D) Quantitative easing has been implemented for too long. (E) Companies should pay for workers' health care costs.
(C) The unemployment rate is 5 percent.
70. Topics in a macroeconomics course would include (A) output choices for a small business (B) supply and demand for one product (C) aggregate supply and demand (D) marginal benefit calculations for an individual consumer (E) production costs for a medium-sized business
(C) aggregate supply and demand
11. Your school decides to build a new performing arts center. What is the opportunity cost of constructing the new performing arts center? (A) the money used for the construction of the performing arts center (B) the cost of building the performing arts center now, rather than waiting until next year (C) any other good or service that now cannot be provided due to the resources used for the new performing arts center (D) without the knowledge of the next best option for using the resources that went to the performing arts center, the answer cannot be known (E) none of the above
(C) any other good or service that now cannot be provided due to the resources used for the new performing arts center
9. The production possibilities curve is concave because (A) as production of goods and services increases, the opportunity costs decrease (B) taxes increase as the production of a good increases (C) as production of goods and services increases, the opportunity costs increase (D) both B and C (E) both A and C
(C) as production of goods and services increases, the opportunity costs increase
53. A nation produces sugar and cars with specialized resources. Increasing the production of sugar will cause car production to do which of the following? (A) fall at a decreasing rate (B) fall at a constant rate (C) fall at an increasing rate (D) rise at a decreasing rate (E) rise at an increasing rate
(C) fall at an increasing rate
36. When a country has a comparative advantage over another country (A) it can produce more of one good than the other country can (B) it can produce more of two goods than the other country can (C) international trade will benefit both countries (D) international trade will not benefit both countries (E) the other country should implement a trade embargo to protect its market
(C) international trade will benefit both countries
46. When a nation's output is located at a point on the production possibilities curve (A) it has high unemployment (B) it has moderate unemployment (C) it has full employment (D) it has low unemployment (E) it has underemployment
(C) it has full employment
22. The term ceteris paribus means (A) if event A precedes event B, A caused B (B) economics deals with facts, not values (C) other things equal (D) prosperity inevitably follows recession (E) out of many, one
(C) other things equal
42. A major oilfield in Saudi Arabia runs out of oil, a production resource. Meanwhile, oil production remains steady in Russia. What would the production possibilities curves for Saudi Arabia and Russia do, respectively? (A) shift to the right, shift to the left (B) shift to the right, remain the same (C) shift to the left, remain the same (D) shift to the left, shift to the right (E) remain the same, shift to the left
(C) shift to the left, remain the same
58. Which choice is an example of a macroeconomic variable? (A) the price of tomatoes in the United States between 1991 and 2000 (B) the price of automobiles in France between 1950 and 1960 (C) the average price level of goods in Brazil in 2016 (D) the supply of sugar in Canada in 2011 (E) the supply of beef in Britain between 2000 and 2005
(C) the average price level of goods in Brazil in 2016
45. In a command economy (A) consumer choice is not restricted (B) firms can compete in the market (C) the government owns all factors of production (D) firms can freely enter or exit the market (E) the government does not own any factors of production
(C) the government owns all factors of production
25. According to the law of demand, (A) as the price of a good or service increases, the demand will shift to the right (B) as the price of a good or service increases, the demand will shift to the left (C) there is an inverse relationship between quantity demanded of a good or service and the price of that good or service (D) as prices for a good or service increase, consumers will begin to use complementary goods (E) as the price of a good or service increases, the quantity demanded will increase
(C) there is an inverse relationship between quantity demanded of a good or service and the price of that good or service
39. What does a flat production possibilities curve represent? (A) increasing opportunity costs (B) decreasing opportunity costs (C) unspecialized resources (D) specialized resources (E) a shortage of resources
(C) unspecialized resources
5. Which of the following statements applies only to macroeconomics? (A) Minimum wage should be increased to give more people disposable income. (B) New technology will cause a shift in the demand curve. (C) The demand for cell phones is elastic. (D) Foreign imports and increasing wage demands are contributing to price inflation. (E) The demand for gasoline is inelastic.
(D) Foreign imports and increasing wage demands are contributing to price inflation.
69. A hurricane damages offshore oil rigs in the Gulf of Mexico. As a result, the supply of gasoline decreases. Few substitutes are available for gasoline. What is the price elasticity of gasoline, and what will happen to the price of gasoline? (A) Gasoline is price clastic, and the price of gasoline will rise. (B) Gasoline is price elastic, and the price of gasoline will fall. (C) Gasoline is price inelastic, and the price of gasoline will fall. (D) Gasoline is price inelastic, and the price of gasoline will rise. (E) Gasoline is price inelastic, and the price of gasoline will not change.
(D) Gasoline is price inelastic, and the price of gasoline will rise.
68. Which statement is positive? (A) The price of imported automobiles in Brazil is too high. (B) The Japanese government should not subsidize rice farms. (C) The Mexican government should increase the tax on sugary soft drinks. (D) If the French government introduces a tariff, consumer surplus will decrease. (E) The government of India should devalue the rupee.
(D) If the French government introduces a tariff, consumer surplus will decrease.
35. Which statement only applies to macroeconomics? (A) Demand for natural gas is inelastic. (B) Demand for TV sets is elastic. (C) Computers have shifted the demand curve to the right. (D) Purchasing power increased because of low-cost imported goods. (E) The sugar supply has increased.
(D) Purchasing power increased because of low-cost imported goods.
31. Which statement is normative? (A) The French unemployment rate was 5 percent last year. (B) The Indonesian GDP is growing at a 4 percent annual rate. (C) The Danish central bank implemented a zero interest rate policy. (D) The minimum wage should be $15 per hour. (E) The Japanese economy has entered a recession.
(D) The minimum wage should be $15 per hour.
21. Which of the following will cause an outward shift of the production possibilities curve? (A) cuts in funding in educational training for employees (B) a decrease in a nation's birthrate, thus decreasing the labor force (C) a natural disaster creating extreme limitations of a vital natural resource (D) an increase in skilled workers (E) none of the above
(D) an increase in skilled workers
41. China decides to build an aircraft carrier. What is the opportunity cost of the aircraft carrier? (A) cash used to build the aircraft carrier (B) the cost of issuing bonds to pay for the aircraft carrier instead of paying cash (C) cannot be answered because an alternative use of resources was not provided (D) any other good or service that China cannot provide because of resources used to build the aircraft carrier (E) the annual cost of operating the aircraft carrier when construction is complete
(D) any other good or service that China cannot provide because of resources used to build the aircraft carrier
13. If resources are overallocated in a market, then (A) consumer spending would increase due to an increase in demand (B) quantity supplied would be less than the allocatively efficient quantity (C) the opportunity cost of producing one more unit would increase exponentially (D) quantity supplied would be more than the allocatively efficient quantity (E) quantity supplied would be equal to the allocatively efficient quantity.
(D) quantity supplied would be more than the allocatively efficient quantity
44. In a mixed economy (A) the government owns all factors of production (B) the government does not regulate the market (C) the government does not own any factors of production (D) the government owns some of the factors of production (E) firms do not compete with one another
(D) the government owns some of the factors of production
6. It is beneficial for two countries to trade only when there is/are (A) a mutually beneficial trade agreement (B) increasing returns to scale (C) decreasing returns to scale (D) an absolute advantage in production between the two countries (E) a comparative advantage in production between the two countries
(E) a comparative advantage in production between the two countries
62. The determinants of demand do NOT include (A) consumer tastes and preferences (B) income levels (C) price levels for substitute goods (D) consumer price expectations (E) production capacity
(E) production capacity
16. Scarcity is best defined as (A) material resources that are limited (B) an idea used by industrializing nations to satisfy unlimited wants and desires with limited natural resources (C) limited vital material resources compared with limited wants and needs (D) all points lying outside the production possibilities curve (E) the idea that a society's wants and needs are unlimited, and material resources are limited
(E) the idea that a society's wants and needs are unlimited, and material resources are limited
15. The boundary between attainable and unattainable outputs is represented by which of the following? (A) the Laffer curve (B) the Phillips curve (C) the equilibrium point between supply and demand (D) the point of diminishing returns (E) the production possibilities curve
(E) the production possibilities curve