# Sample Questions for Test I, Microeconomics, Fall, 2008

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```					Sample Questions for Test I, Microeconomics, Fall, 2008

1.When economists speak of scarcity, they are referring to the
a. condition in which society is not employing all its resources in an efficient way.
b. condition in which people's wants outstrip the limited resources available to satisfy those
wants.
c. economic condition that exists in only very poor countries of the world.
d. condition in which society produces too many frivolous goods and not enough socially
desirable goods.

2. The opportunity cost of attending college is
a. the money one spends on college tuition, books, and so forth.
b. the highest valued alternative one forfeits to attend college.
c. the least valued alternative one forfeits to attend college.
d. equal to the salary one will earn when one graduates from college.

3. Here are three things you could do if you do not attend your next-door neighbor's barbecue: watch television
with some friends (you value this at \$8), read a good novel (you value this at \$4), or go in to work (you
could earn \$6 during the barbecue). The opportunity cost of going to your neighbor's barbecue is
a. \$6, because this is the only alternative of the three where you actually receive a monetary
payment.
b. \$4, because this is the lowest valued alternative forfeited.
c. \$8, because this is the highest valued alternative forfeited.
d. \$18, because this is the total dollar sum of the alternatives forfeited.

4. Refer to above graph The PPF illustrates
a. constant opportunity costs between guns and butter.
b. that guns are more important than butter.
c. increasing opportunity costs between guns and butter.
d. the opportunity cost of one unit of guns is four units of butter.
e. none of the above
5. In the production possibilities framework, economic growth is depicted by
a. a shift inward of the frontier or to the left.
b. a shift outward of the frontier or to the right.
c. the frontier becoming a straight line.
d. the frontier becoming bowed outward.

Using the ppc below, answer the following questions: 6,7,8

6. If PPF2 is the relevant production possibilities frontier, then point __________ illustrates productive
inefficiency.
a. B
b. D
c. E
d. I

7. If PPF2 is the relevant production possibilities frontier, then point __________ is unattainable.
a. B
b. G
c. E
d. I

8. If PPF2 is the relevant production possibilities frontier, then point __________ illustrates productive efficiency.
a. B
b. E
c. I
d. both b and c

9. The PPF is bowed outward as a result of
a. constant opportunity costs.
b. increasing opportunity costs.
c. decreasing opportunity costs.
d. scarcity.
e. choice.

10.A person has a comparative advantage in the production of a good when they can produce the product at
a(n) ________ opportunity cost compared to another person.
a. higher
b. increasing
c. lower
d. Equal
11. According to Adam Smith, there is a(n) ____________ relationship between the degree of specialization and
the size of the market.
a. inverse
b. null
c. inconsistent
d. Direct

12. What do economists mean when they state that a good is scarce?
a. There is a shortage or insufficient supply of the good at the existing price
b. It is impossible to expand the availability of the good
c. People will want to buy more of the good regardless of price
d. The amount of the good that people would like to have exceeds the supply that is freely available
from nature.

a. a strong government as a help to business
b. the strict control of labor to avoid the failure of the marginal producer
c. government assistance to weaker economic groups
d. government protection of freedom and property, but with limited interference in the market

14. Which of the following statements would fall under the concern of Microeconomics?
a. The GDP of the U.S. was 4 trillion dollars
b. Inflation this year will increase by 5 percent
c. Exxon’s profits increased by 25 percent as a result of the War in Iraq.
d. National income is up 5 percent over last year
e. Disposable income for Americans has kept up with inflation since World War II

15. The fallacy of composition is
a. the erroneous view that an economic activity can sometimes exceed the sum of its components
b. the erroneous view that what is true for the individual will also be true for the group
c. the view that the aggregation of economic activity will necessarily lead to an outcome different
than the outcome generated by each individual in the group
d. the idea that association does not necessarily indicate causation

16. Karl Marx’s famous Theory of Labor Value stated that
a. the value of a good was reflected by the amount of labor it took to make it
b. the value of a good was reflected by the central planning committee
c. the value of the good was reflected by the availability of the resource
d. none of the above apply to the Theory of Labor Value

17. A system of economic organization in which the ownership and control of productive capital assets
rests with the state and resources are allocated through central planning and political decision making is
called
a. socialism
b. a market economy
c. a corporate economy
d. capitalism

18 .Which of the following are characteristics of capitalism?
a. allocation of resources via central planning and high marginal tax rates
b. price controls and a system of taxes and subsidies for business enterprises
c. private property and allocation of goods and resources via market-determined prices
d. central allocation of investment funds and substantial income redistribution
19. A trade off
a. is money paid to the government
b. is giving up one thing to gain another
c. is declaring a perfect import-export balance
d. is the thing given up in a market economy

20. Which of the following is most essential for the efficient operation of a market economy?
a. well-defined property rights
b. external benefits
c. high tariffs to keep out cheap foreign goods
d. significant economies of scale

Major Topics for study include:

Basic concepts of 3 economics
Positive and normative economics
Complimentary, substitute goods, normal and inferior goods
Supply/Demand, change in both and quantity of both
Ceilings and floors
What drives the economy? Why
Circular Flow
Elasticity, Inelasticity, revenue for each
Total utility and marginal utility
Production Possibilities curve