PRACTICE TEST 1 - ECONOMICS 2301/2302
1. 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.
2. Another description for ceteris paribus is:
A) other things equal.
B) loaded terminology.
C) the fallacy of composition.
D) post hoc, ergo propter hoc.
3. Macroeconomics is best defined by which statement?
A) Macroeconomics is the study of the entire economy.
B) Macroeconomics is the study of how firms maximize their profits.
C) Macroeconomics is the study of how individual prices are determined.
D) Macroeconomics is the study of the consumption patterns of low-income
households.
4. Which would be a normative economic statement?
A) The poverty rate hit a new high last year.
B) Prices are increasing at a rate of 3 percent a year.
C) This administration should raise taxes to pay for childcare programs.
D) Retail sales were flat last month and continue on their downward trend.
5. If two sets of data are inversely related they will always graph as:
A) a straight line.
B) a downsloping line.
C) an upsloping line.
D) parallel lines.
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Use the following to answer questions 6-7:
The question(s) below are based on the following four data sets: (1), (2), (3), and (4). In each set,
the independent variable is in the left column and the dependent variable is in the right column.
(1) (2) (3) (4)
A B C D E F G H
0 6 2 10 0 12 0 3
7 5 3 20 1 10 2 5
14 4 4 30 2 8 4 7
21 3 5 40 3 6 6 9
6. There is an inverse relationship between the independent and dependent variable in the
above data sets:
A) 1 and 3.
B) 2 and 3.
C) 3 and 4.
D) 2 and 4.
7. The slope of the line for data set 2 above is:
A) .10.
B) .20.
C) 5.
D) 10.
8. Which is not a factor of production?
A) money
B) land
C) labor
D) capital
9. Which is one of the four simplifying assumptions made in the chapter about the
construction of the production possibilities model?
A) The state of technology is constantly changing.
B) The number of products produced is more than two.
C) The economy is fully employed and is using least-cost methods of production.
D) The quantities of all resources available to the economy are not fixed, but are
variable.
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Use the following to answer question 10:
(The following economy produces two products.)
Production Possibilities
Product A B C D E F
Tanks 0 1 2 3 4 5
Autos 1000 950 850 650 350 0
10. Refer to the above table. The marginal opportunity cost of the fourth unit of tanks is:
A) 200.
B) 300.
C) 350.
D) 650.
Use the following to answer questions 11-12:
D
C
G
Food
F E
0 Clothing H
11. Points C, D, E, and H on the above graph show:
A) an inefficient allocation of society's scarce resources.
B) a constant tradeoff between food and clothing.
C) possible combinations of food and clothing.
D) unattainable combinations of food and clothing.
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12. The combination of food and clothing shown by point F on the above graph:
A) is an efficient use of society's resources because it is below the production
possibilities curve.
B) would be a desirable combination of outputs only if there was no international
trade.
C) is attainable but involves the unemployment and inefficient use of some of society's
resources.
D) is not attainable with current resources and technology.
Use the following to answer question 13:
13. Refer to the above production possibilities curves. Curve (a) is the current curve for the
economy. Other things being equal, society's current choice of point P on curve (a) will:
A) allow it to achieve more rapid economic growth than would the choice of point N.
B) entail a slower rate of economic growth than would the choice of point N.
C) entail the same rate of growth as would the choice of point N.
D) be unobtainable because it exceeds the productive capacity of the economy.
14. Which is consistent with the law of demand?
A) A decrease in the price of tacos causes no change in the quantity of tacos
demanded.
B) An increase in the price of pizza causes an increase in the quantity of pizza
demanded.
C) An increase in the price of hamburgers causes a decrease in the quantity of
hamburgers demanded.
D) A decrease in the price of turkey sandwiches causes a decrease in the quantity of
turkey sandwiches demanded.
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15. As a result of the decrease in the price of hamburger, consumers buy more hamburger
and fewer frankfurters. This is an illustration of:
A) consumer sovereignty.
B) the income effect.
C) the substitution effect.
D) changing tastes and preferences.
16. An inferior good is one:
A) that doesn't work.
B) that costs too much.
C) that won't be purchased at any price.
D) for which demand increases as income decreases.
Use the following to answer question 17:
P
$5
Price (per pound)
4
a
3
b
2 D2
1 D1
D3
2 4 6 8 10 12 14 16 18 20 Q
Quantity demanded
(thousands of bushels per week)
17. Refer to the above diagram, which shows three demand curves for coffee. Which would
cause the change in the demand for coffee illustrated by the shift from D1 to D3?
A) a decrease in the price of tea
B) an increase in consumer incomes
C) a decrease in the price of sugar
D) a technological improvement in the production of coffee
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Use the following to answer question 18:
S3
P
S1
S2
$5
Price (per pound)
b
4
a
3
2
1
0 2 4 6 8 10 12 14 16 18 20 Q
Quantity supplied
(thousands of bushels per week)
18. Refer to the above diagram, which shows three supply curves for corn. Which of the
following would cause the change in the supply of corn illustrated by the shift from S1to
S2?
A) an increase in the price of fertilizer
B) a change in consumer tastes away from cornbread
C) a decrease in consumer incomes
D) the development of a more effective insecticide for corn rootworm
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Use the following to answer question 19:
P P S
D1
S D2
D2
D1
0 Q 0 Q
(A) (B)
P P
D S1 D S2
S2 S1
0 Q 0 Q
(C) (D)
19. If peanut butter and grape jelly are complementary products, which diagram above
illustrates the effect in the peanut butter market of a decrease in the price of grape jelly?
A) A
B) B
C) C
D) D
Use the following to answer question 20:
Quantity demanded Quantity supplied
Price per unit each year each year
$ 50 13,200 0
100 12,800 6,000
150 12,400 9,000
200 12,000 12,000
250 11,600 13,200
300 11,200 14,500
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20. Refer to the above table. If the government established a legal price of $300 per unit,
which would result?
A) a shortage of 600 units
B) a shortage of 1,700 units
C) a surplus of 3,300 units
D) a surplus of 14,500 units
21. If the legal price floor is set below the equilibrium price in a market, then a surplus will
develop in the market.
A) True
B) False
Use the following to answer question 22:
Quantity Quantity
Demanded Price Supplied
1 $7 7
2 6 6
3 5 5
4 4 4
5 3 3
6 2 2
7 1 1
22. Refer to the above table. If demand increased by 4 units at each price, what would the
new equilibrium price and quantity be?
A) $3 and 4 units
B) $4 and 4 units
C) $5 and 5 units
D) $6 and 6 units
23. The difference between the maximum price a consumer is willing to pay for a product
and the actual price the consumer pays is the consumer:
A) utility.
B) surplus.
C) supply.
D) efficiency.
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Answer Key
1. C
2. A
3. A
4. C
5. B
6. A
7. D
8. A
9. C
10. B
11. C
12. C
13. A
14. C
15. C
16. D
17. A
18. D
19. A
20. C
21. B
22. D
23. B
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