Exercises for Students

(Chapter 1-4 ECO120 Principles of Economics, Semester 2020/2021 (1 st semester))

1) The production possibilities frontier

A) refers to the technology used in such goods as computers and military aircraft.

B) marks the boundary between attainable combinations of goods and services and

unattainable combinations.

C) once applied to U.S. technology but now refers to Japanese technology.

D) is also called the supply curve.

2) The production possibilities frontier is the boundary between

A) those combinations of goods and services that can be produced and those that can be

consumed.

B) those combinations of goods and services that can be produced and those that cannot.

C) those resources that are limited and those that are unlimited.

D) those wants that are limited and those that are unlimited.

3) A production possibilities frontier does NOT illustrate

A) attainable and unattainable points.

B) the exchange of one good or service for another.

C) the limits on production imposed by our limited resources and technology.

D) opportunity cost.

4) Any production point outside the production possibilities frontier

A) is attainable only if prices fall.

B) is associated with unused resources.

C) is attainable only if prices rise.

D) is unattainable.
5) Scarcity is represented on the production possibilities frontier by

A) the fact that there are only two goods in the diagram.

B) technological progress.

C) the amount of the good on the horizontal axis forgone.

D) the fact there are attainable and unattainable points.

6) Economics is best defined as the study of how people, businesses, governments, and societies

A) make choices to cope with scarcity.

B) attain wealth.

C) choose abundance over scarcity.

D) use their infinite resources.

7) Economists point out that scarcity confronts

A) the rich but not the poor.

B) the poor but not the rich.

C) both the poor and the rich.

D) neither the poor nor the rich.

8) Scarcity requires that people must

A) trade.

B) compete.

C) cooperate.

D) make choices.
9) When an economy produces more houses and fewer typewriters, it is answering the ________

question.

A) "where"

B) "for whom"

C) "how"

D) "what"

10) When firms in an economy start producing more computers and fewer televisions, they are

answering the ________ question.

A) "where"

B) "when"

C) "what"

D) "for whom"

11) U.S. producers decide to produce more compact cars and fewer SUVs as the price of gasoline

rises. Producers are answering the ________ question.

A) "what"

B) "when"

C) "how"

D) "how many"

12) Which of the following is NOT a factor of production?

A) the water used to cool a nuclear power plant.

B) the wages paid to workers.

C) the effort of farmers raising cattle.

D) the management skill of a small business owner.

A) a share of stock issued by a firm.

B) a new computer used by a small business owner.

C) a tractor used by a wheat farmer.

D) the time worked by elementary school teachers.

14) An autoworker is considered ________ and earns ________.

A) labor; wages

B) labor; rent

C) capital; rent

D) entrepreneurship; wages

15) Opportunity cost means

A) the accounting cost minus the marginal benefit.

B) the highest-valued alternative forgone.

C) the monetary costs of an activity.

D) the accounting cost minus the marginal cost.

16) The opportunity cost of any action is

A) the time required but not the monetary cost.

B) all the possible alternatives forgone.

C) the highest-valued alternative forgone.

D) the monetary cost but not the time required.

17) The law of demand states that, other things remaining the same, the higher the price of a good, the

A) smaller is the demand for the good.

B) smaller is the quantity of the good demanded.

C) larger is the quantity of the good demanded.

D) larger is the demand for the good.

A) A decrease in the price of a gallon of milk causes a decrease in the quantity of milk demanded.

B) An increase in the price of a soda causes a decrease in the quantity of soda demanded.

C) An increase in the price of a tape causes an increase in the quantity of tapes demanded.

D) A decrease in the price of juice causes no change in the quantity of juice demanded.

19) A drop in the price of a compact disc shifts the demand curve for prerecorded tapes leftward. From

that you know compact discs and prerecorded tapes are

A) normal goods.

B) substitutes.

C) inferior goods.

D) complements.

20) People buy more of good 1 when the price of good 2 rises. These goods are

A) normal goods.

B) complements.

C) substitutes.

D) inferior goods.

21) Which of the following pairs of goods are most likely substitutes?

A) compact discs and compact disc players

B) lettuce and salad dressing

C) cola and lemon lime soda

D) peanut butter and gasoline

A) the supply curve of a normal good shifts leftward.

B) the supply curve of a normal good shifts rightward.

C) the demand curve for a normal good shifts rightward.

D) the demand curve for a normal good shifts leftward.

23) If income decreases or the price of a complement rises,

A) there is an upward movement along the demand curve for the good.

B) there is a downward movement along the demand curve for the good.

C) the demand curve for a normal good shifts leftward.

D) the demand curve for a normal good shifts rightward

24) A decrease in quantity demanded caused by an increase in price is represented by a

A) movement up and to the left along the demand curve.

B) movement down and to the right along the demand curve.

C) leftward shift of the demand curve.

D) rightward shift of the demand curve.

25) A change in which of the following alters buying plans for cars but does NOT shift the demand

curve for cars?

A) a 10 percent decrease in the price of car insurance

B) a 20 percent increase in the price of a car

C) a 5 percent increase in people's income

D) an increased preference for walking rather than driving

A) a change in tastes for turkey

B) a decrease in the price of ham

C) an increase in income

D) a change in the price of a turkey

27) Which of the following will shift the supply curve for good X leftward?

A) a situation in which quantity demanded exceeds quantity supplied

B) an increase in the cost of the machinery used to produce X

C) a decrease in the wages of workers employed to produce X

D) a technological improvement in the production of X

28) Which of the following does NOT shift the supply curve?

A) an increase in the price of the good

B) a fall in the price of a substitute in production

C) a decrease in the wages of labor used in production of the good

D) a technological advance

29) If the price of a good changes but everything else influencing suppliers' planned sales remains

constant, there is a

A) rotation of the initial supply curve around the initial price.

B) new supply curve that is to the right of the initial supply curve.

C) new supply curve that is to the left of the initial supply curve.

D) movement along the supply curve.

production of A decreases. As a result,

A) the equilibrium price of B will fall and the equilibrium price of A will rise.

B) the equilibrium prices of both A and B will rise.

C) the equilibrium price of B will rise and the equilibrium price of A will fall.

D) the equilibrium prices of both A and B will fall.

31) When demand decreases and supply does not change, the equilibrium price

A) rises and the equilibrium quantity decreases.

B) rises and the equilibrium quantity increases.

C) falls and the equilibrium quantity increases.

D) falls and the equilibrium quantity decreases.

32) When supply decreases and demand does not change, the equilibrium quantity

A) decreases and the price rises

B) increases and the price falls.

C) decreases and the price falls.

D) increases and the price rises

33) Leather belts and leather shoes are substitutes in production. If style changes increase the demand

for leather belts, the supply curve of leather shoes will shift

A) rightward and the equilibrium price of leather shoes will fall.

B) leftward and the equilibrium price of leather shoes will rise.

C) leftward and the equilibrium price of leather shoes will fall.

D) rightward and the equilibrium price of leather shoes will rise.

A) the units used to measure price but not the units used to measure quantity.

B) the units used to measure price and the units used to measure quantity.

C) the units used to measure quantity but not the units used to measure price.

D) neither the units used to measure price nor the units used to measure quantity.

35) The price elasticity of demand measures

A) the slope of a budget curve.

B) how often the price of a good changes.

C) the responsiveness of the quantity demanded to changes in price.

D) how sensitive the quantity demanded is to changes in demand.

36) The price elasticity of demand equals

A) the percentage change in the quantity demanded divided by the percentage change in the

price.

B) the change in the quantity demanded divided by the change in price.

C) the percentage change in the price divided by the percentage change in the quantity

demanded.

D) the change in the price divided by the change in quantity demanded.

37) If a rightward shift of the supply curve leads to a 6 percent decrease in the price and a 5 percent

increase in the quantity demanded, the price elasticity of demand is

A) 0.83.

B) 0.30.

C) 0.60.

D) 1.20.
38) A 10 percent increase in the quantity of spinach demanded results from a 20 percent decline in its

price. The price elasticity of demand for spinach is

A) 0.5.

B) 20.0.

C) 2.0.

D) 10.0.

39) Suppose a rise in the price of peaches from $5.50 to $6.50 per bushel decreases the quantity

demanded from 12,500 to 11,500 bushels. The price elasticity of demand is

A) 0.5.

B) 1000.

C) 2.0.

D) 1.0.

40) A fall in the price of lemons from $10.50 to $9.50 per bushel increases the quantity demanded from

19,200 to 20,800 bushels. The price elasticity of demand is

A) 1.25.

B) 1.20.

C) 8.00.

D) 0.80.

41) The cross elasticity of demand measures the responsiveness of the quantity demanded of a

particular good to changes in the prices of

A) its complements but not its substitutes.

B) its substitutes but not its complements.

C) its substitutes and its complements.

D) neither its substitutes nor its complements.

A) income elasticities are negative.

B) income elasticities are positive.

C) cross elasticities are positive.

D) cross elasticities are negative.

43) If a rise in the price of good 1 decreases the quantity of good 2 demanded,

A) the cross elasticity of demand is negative.

B) good 1 is an inferior good.

C) good 2 is an inferior good.

D) the cross elasticity of demand is positive.

44) Demand is income elastic if

A) an increase in income will not affect the quantity demanded.

B) a small percentage increase in income will result in a large percentage increase in quantity

demanded.

C) the good in question has close substitutes.

D) a large percentage increase in income will result in a small percentage increase in quantity

45) The income elasticity of demand is high for

A) shelter.

B) luxuries.

C) clothing.

D) food.
46) To say that turnips are inferior goods means that the income elasticity

A) is definitely greater than 1.

B) is negative.

C) is positive but could be greater than or less then (or equal to) 1.

D) is definitely between 0 and 1

47) Fred's income has just risen from $940 per week to $1,060 per week. As a result, he decides to

purchase 9 percent more steak per week. The income elasticity of Fred's demand for steak is

A) 0.75.

B) 1.33.

C) 0.90.

D) 1.00.

48) Joan's income has just risen from $940 per week to $1,060 per week. As a result, she decides to

purchase 12 percent more lettuce per week. The income elasticity of Joan's demand for lettuce is

A) 1.33.

B) 0.90.

C) 1.00.

D) 0.75.

49) The elasticity of supply measures the sensitivity of

A) supply to changes in costs.

B) quantity supplied to a change in price.

C) price to changes in supply.

D) quantity supplied to quantity demanded.

the quantity supplied,

A) supply is inelastic.

B) demand is inelastic.

C) demand is elastic.

D) supply is elastic.

51) If a 1 percent decrease in the price of a pound of squash results in a larger percentage decrease in

the quantity supplied,

A) demand is inelastic.

B) demand is elastic.

C) supply is inelastic.

D) supply is elastic.

52) If a 5 percent increase in the price results in a 9 percent increase in quantity supplied, the elasticity

of supply is

A) 0.30. B) 0.55. C) 1.80. D) 1.20.

53) If a 5 percent increase in price results in a 3 percent increase in the quantity supplied, the elasticity

of supply is

A) 1.20.

B) 0.60.

C) 1.66.

D) 0.30.
Answers:

1. B
2. B
3. B
4. D
5. D
6. A
7. C
8. D
9. D
10. C
11. A
12. B
13. A
14. A
15. B
16. C
17. B
18. B
19. B
20. C
21. C
22. C
23. C
24. A
25. B
26. D
27. B
28. A
29. D
30. C
31. D
32. A
33. B
34. D
35. C
36. A
37. A
38. A
39. A
40. D
41. C
42. D
43. A
44. B
45. B
46. B
47. A
48. C
49. B
50. A
51. D
52. C
53. B