Economics – Sample 1

1. Economics is primarily the study of

a. why people like to make money.

b. the management of a business.

c. the choices people make as the result of scarcity.

d. how to make money in the stock market.

Answer – c

2. The statement “Violent crime has decreased in the last five years”

a. is obviously wrong and, therefore, cannot be a positive statement.

b. is normative since it can be answered by simply looking at the facts.

c. is positive because it is testable.

d. is not very interesting because all normative issues are of little importance.

Answer – c

3. Ms. Liebowitz has a choice of driving or flying from Tallahassee, Florida to Atlanta for a one-day business trip. If she travels by air, she will be able to work five more hours while in Atlanta. Her expected income from each hour of work in Atlanta is $20. Ms. Liebowitz also expects to gain $10 worth of non-monetary benefits if she travels by air. If Ms. Liebowitz is a rational decision maker, she will drive if the price differential (air cost minus driving cost) exceeds

a. $20

b. $70

c. $90

d. $110

Answer – d

4. Which of the following will be most likely to cause an inward shift in the production possibilities curve?

a. an increase in the labor force

b. an increase in unemployment

c. development of an improved technological method of production

d. a decrease in the stock of physical capital

Answer – b

5. Suppose you can type a paper in two hours or mow the lawn in four hours, while it takes your friend

Ann eight hours to type a paper or two hours to mow the lawn. Which of the following is true?

a. You have a comparative advantage in typing.

b. You have a comparative advantage in mowing the lawn.

c. You and Aim could save time if you mowed her lawn while she typed your paper.

d. You and Ann cannot gain from specialization and trade.

Answer – a

6. Other things constant, an increase in the real income of households will

a. shift the demand curve for automobiles to the left.

b. shift the demand curve for automobiles to the right.

c. cause a movement along the demand curve for automobiles.

d. lead to a reduction in the supply of automobiles.

Answer – b

7. If an increase in the price of good X causes the demand for good Y to decrease, this indicates that

a. X and Y are complements.

b. X and Y are substitutes.

c. X and Y are inferior goods.

d. the demand for X is elastic, but the demand for Y is inelastic.

Answer – a

8. A technological improvement in producing good A will shift

a. the supply curve for A to the right.

b. the supply curve for A to the left.

c. the demand curve for A to the right.

d. the demand curve for A to the left.

Answer – b

9. In a competitive price-searcher market, the marginal revenue of the firm will always be

a. a horizontal line.

b. greater than price.

c. less than price. (Short run)

d. equal to price

Answer – c

10. An excise tax of $.50 per gallon is levied on gasoline. Which of the following is most likely to occur?

a. Consumers of gasoline will pay a higher price and buy a larger quantity.

b. Consumers of gasoline will pay a higher price, which will increase the profits of gasoline sellers,

inducing them to sell a larger quantity.

c. Consumers of gasoline will buy a smaller quantity and pay a higher price.

d. Suppliers of gasoline will increase their quantity supplied to offset the taxes paid to the government.

Answer – c

11. An income tax is progressive if the

a. tax rate decreases as income increases.

b. percentage of income paid in taxes increases as income increases.

c. percentage of income paid in taxes stays the same regardless of the size of income.

d. absolute amount paid in taxes varies directly with income.

Answer – b

12. (I) The political process will reject unproductive projects when a program provides substantial benefits to a small proportion of voters and the costs are widespread among voters.

(II) The political process will accept productive projects when both the benefits and costs are widespread among voters.

a. I is true; II is false.

b. I is false; II is true.

c. Both I and II are true.

d. Both I and II are false.

Answer – c

13. Government decisions tend to be biased against actions that have

a. costs and future benefits that are readily observable.

b. future costs that are difficult to identify and benefits that are readily observable.

c. future costs and future benefits that are difficult to identify.

d. costs that are readily observable and benefits that are difficult to identify.

Answer – d

14. A recent increase in the supply of oranges caused the price to drop from $5 to $3.00 per bushel and quantity demanded to rise from 10,000 bushels to 25,000 bushels. This indicates that the price elasticity of demand for oranges in this price range is

a. -0.33.

b. -0.58.

c. -1.

d. -1.71. ? This is the correct answer J.

Answer – d

15. If the board of regents of the State of Florida university system plans to raise tuition in order to

increase revenues, the regents must believe student demand is

a. elastic.

b. inelastic.

c. of unitary elasticity.

d. perfectly elastic.

Answer – b

16. Which of the following is most likely to be true of economic and accounting profits?

a. Economic profits are less than accounting profits.

b. Accounting profits are less than economic profits.

c. Economic profits plus accounting profits equal zero.

d. Accounting profits minus economic profits equal zero.

Answer – a

17. Which of the following must be true if average total costs are declining?

a. Marginal cost is less than average total cost.

b. Marginal cost is less than average variable cost.

c. Marginal cost is greater than average total cost.

d. Marginal cost equals average total cost.

Answer – a

18. If marginal revenue exceeds marginal cost, a price-taker firm should

a. expand output.

b. reduce output.

c. lower its price.

d. do both a and c.

Answer – a

19. Use the table below to answer the following question.

Units of Total Fixed Total Variable

Output Cost (dollars) Cost (dollars)

1 1,000 1,200

2 1,000 2,400

3 1,000 3,600

4 1,000 5,000

5 1,000 6,600

 

What is the average total cost at an output level of four units?

a. $1,200

b. $1,400

c. $1,500

d. $2,000

Answer – c

20. Suppose sharply lower coffee prices lead to a decrease in demand for tea. As tea prices decrease, tea producers experience short-run economic losses. If the tea industry is a price-taker industry and if sufficient time is allowed for the market to adjust fully to the decrease in demand for tea, one would expect the tea industry’s output to

a. increase and economic losses to increase as well.

b. increase and economic losses to disappear.

c. decline and economic losses to increase.

d. decline and economic losses to disappear.

Answer – d