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Multiple Choice QuestionsSource: G. Mankiw,

Principles of Economics

Multiple Choice Questions p.1/51


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Question 1

1. The word economy comes from the Greek word

for(a) "environment."

(b) "one who participates in a market."(c) "one who manages a household."

(d) "conservation."



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Question 2

2. Economics deals primarily with the concept of

(a) poverty.

(b) scarcity.

(c) change.(d) power.



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Question 5

5. Sir Isaac Newtons development of the theory of

gravity after observing an apple fall from a tree isan example of:

(a) controlled experiments used to develop

scientific theories.

(b) being in the right place at the right time.

(c) an idea whose time had come.(d) the interplay between observation and theory

in science.



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Question 6

6. The use of theory and observation is more

difficult in economics than in sciences such asphysics due to

(a) the difficulty in actually performing an

experiment in an economic system.

(b) the difficulty in devising an economic

experiment.(c) the difficulty in evaluating an economic

experiment.

(d) all of the above.Multiple Choice Questions p.7/51


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Question 7

7. Because it is difficult for economists to use

experiments to generate economic data,(a) they do without.

(b) they use whatever data the world gives them.(c) they make up the data.

(d) they ask policymakers to conductexperiments for them.



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Question 8

8. Efficiency means that

(a) society is getting the most it can from itsscarce resources.

(b) society is conserving resources in order tosave them for the future.

(c) societys goods and services are distributed

fairly among societys members.(d) society has lessened its dependence on

foreign energy sources.



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Question 9

9. A good definition of equity would be

(a) everyone receiving the same income.

(b) fairness.

(c) efficiency.(d) eliminating extreme affluence.



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Question 10

10. An incentive is . . .

(a) a common market failure.

(b) something that encourages you to work

harder, start a new activity etc.(c) the start of an organization or institution.

(d) the trade off between equity and efficiency.



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Question 11

11. The opportunity cost of an item is

(a) the number of hours needed to earn money tobuy it.

(b) what you give up to get that item.(c) always less than the dollar value of the item.

(d) always equal to the dollar value of the item.



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Question 12

12. A marginal change is

(a) a long-term trend.

(b) a large, significant adjustment.

(c) a change for the worse.(d) a small incremental adjustment.



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Question 13

13. A rational decisionmaker takes an action only if

(a) the marginal benefit is greater than themarginal cost.

(b) the marginal benefit is less than the marginalcost.

(c) the average benefit is greater than the

average cost.(d) the marginal benefit is greater than both the

average cost and the marginal cost.



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Question 14

14. Trade between the United States and Thailand

(a) is a losing proposition for Thailand becauseU.S. workers are more productive.

(b) is a losing proposition for the U.S. becauseThailand has cheaper labor.

(c) is like a sports contest: one side wins and the

other side loses.(d) benefits both the United States and Thailand.



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Question 15

15. Economists make assumptions

(a) to diminish the chance of wrong answers.

(b) to make certain that all necessary variables

are included.(c) because all scientists make assumptions.

(d) to make the world easier to understand.



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Question 16

16. Which of the following is the most accurate

statement about economic models?(a) Economic models attempt to mirror reality

exactly.

(b) Economic models are useful, but should notbe used for policy-making.

(c) Economic models cannot be used in the realworld because they omit details.

(d) Economic models omit many details to allow

us to see what is truly important.Multiple Choice Questions p.17/51


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Question 17

17. The foundation stones from which economic

models are built are(a) economic policies.

(b) the legal system.(c) assumptions.

(d) statistical forecasts.



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Question 19

19. What is the goal of theories?

(a) to provide an interesting, but not useful,framework of analysis

(b) to help scientists understand how the worldworks

(c) to demonstrate that the developer of the

theory is capable of logical thinking(d) to provoke stimulating debate in scientific

journals



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Question 20

20. Factors of production are

(a) inputs into the production process.

(b) weather, social, and political conditions that

affect production.(c) the physical relationships between economic

inputs and outputs.

(d) the mathematical calculations firms make todetermine production.



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Question 22

22. In the circular-flow diagram,

(a) firms are sellers in the resource market andthe product market.

(b) households are sellers in the resourcemarket.

(c) firms are buyers in the product market.

(d) spending on goods and services flow fromfirms to households.



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Question 24

24. In the circular-flow diagram shown, which arrow

shows the flow of spending by households?

(a) A

(b) B

(c) C

(d) D



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Question 25

25. An economy is said to be efficient if

(a) it is possible to produce more of all goods.

(b) it is possible to produce more of one good

without producing less of another.(c) it is not possible to produce more of one good

without producing less of another.

(d) it is not possible to produce more of one goodat any cost.



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Question 26

26. On the production possibilities frontier shown,

which point or points are NOT possible for thiseconomy to produce?

(a) D

(b) E, F

(c) A, B, C

(d) D, E, F



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Question 27

27. The opportunity cost of obtaining more of one

good is shown on the production possibilitiesfrontier as

(a) the amount of the other good which must be

given up.

(b) the price of an additional unit produced.

(c) the amount of resources which must bedevoted to its production.

(d) the money which must be spent for it.



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Question 29

29. In the table showing the production possibilities,

what is the opportunity cost of increasing theproduction of toys from 450 to 600?

Cars Toys

50 040 250

30 45020 600

10 700

0 750

(a) 30 cars

(b) 20 cars

(c) 10 cars

(d) 0 cars



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Question 30

30. For economists, positive statements are

(a) descriptive, making a claim about how theworld is.

(b) optimistic, putting the best possibleinterpretation on things.

(c) affirmative, justifying existing economic policy.

(d) prescriptive, making a claim about how theworld ought to be.



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Question 31

31. Normative statements are

(a) descriptive, making a claim about how theworld is.

(b) statements about the normal condition of theworld.

(c) prescriptive, making a claim about how the

world ought to be.(d) statements which establish production goals

for the economy.



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Question 32

32. Which of the following is an example of a positive

statement?(a) If welfare payments increase, the world will be

a better place.

(b) Prices rise when the government prints toomuch money.

(c) Inflation is more harmful to the economy thanunemployment.

(d) Improved equity is more important than the

reduced efficiency.Multiple Choice Questions p.33/51


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Question 33

33. Which of the following is an example of a

normative statement?(a) If the price of a product decreases, quantity

demanded increases.

(b) Reducing tax rates on the wealthy would begood for the country.

(c) If the national saving rate were to increase, sowould the rate of economic growth.

(d) All of the above are normative statements.



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Question 34

34. Which of the following is NOT correct?

(a) Trade allows for specialization.

(b) Trade is good for nations.

(c) Trade is based on absolute advantage.(d) Trade allows individuals to consume outside

of their individual production possibilities

curve.



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Question 35

35. If the equation of a production possibility frontier

isMeat = 20 4 Potatoes

the opportunity cost of 1 kg of Potatoes are

(a) 20 kg of Meat

(b) 20 kg of Potatoes

(c) 4 kg of Meat

(d) 4 kg of Potatoes



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Question 36

36. Refer to the table shown.

Hours needed kg producedto make 1 kg of: in 20 hours:

Meat Potatoes Meat Potatoes

Farmer 10 5 2 4Rancher 4 1 5 20

For the Farmer, the opportunity cost of 1 kg ofmeat is

(a) 8 hours of labor.

(b) 4 hours of labor.

(c) 2 kg of potatoes.

(d) 1/2 kg of potatoes.Multiple Choice Questions p.37/51


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Question 37

37. Refer to the table shown.

Hours needed kg producedto make 1 kg of: in 20 hours:

Meat Potatoes Meat Potatoes

Farmer 10 5 2 4Rancher 4 1 5 20

The Farmer has an absolute advantage in(a) only meat.

(b) only potatoes.

(c) both goods.

(d) neither good.



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Question 38

38. A countrys consumption possibilities frontier can

be outside its production possibilities frontier . . .(a) with trade.

(b) by allocating resources differently.

(c) by producing a greater variety of goods andservices.

(d) by lowering unemployment in the country.



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Question 39

39. Trade can make everybody better off because it

. . .(a) leads to interdependence.

(b) increases labor costs.

(c) allows people to specialize according tocomparative advantage.

(d) reduces absolute costs of production.



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Question 40

40. If this is the production possibility frontier of

country Blue, what is the opportunity cost of onekg fish?

0 1 2 3 4

0

1

2

3

Blue

Fish

Meat

(a) 1/2 kg meat

(b) 1 kg meat

(c) 2 kg meat

(d) 4 kg meat



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Question 41

41. Who has an absolute advantage in the

production of fish?

0 1 2 3 4

0

1

2

3

4

Red

Blue

Fish

Meat

(a) Red

(b) Blue

(c) both, Red and

Blue(d) neither Red nor

Blue



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Question 42

42. Who has an comparative advantage in the

production of fish?

0 1 2 3 4

0

1

2

3

4

Red

Blue

Fish

Meat

(a) Red

(b) Blue

(c) both, Red and


Blue



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Question 43

43. Who has an comparative advantage in the

production of fish?

0 1 2 3 4

0

1

2

3

4

Red

Blue

Fish

Meat

(a) Red

(b) Blue

(c) both, Red and


Blue



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Question 44

44. Refer to the tables shown.

Hours needed to Amount producedmake one unit of: in 2400 hours:

Cars Airplanes Cars Airplanes

U.S. 40 160 60 15

Japan 50 150 48 16

The opportunity cost of 1 car for Japan is(a) 4 airplanes.

(b) 3 airplanes.

(c) 1/3 airplane.

(d) 1/4 airplane.Multiple Choice Questions p.45/51


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Question 45




U.S. 40 160 60 15

Japan 50 150 48 16

The opportunity cost of 1 airplane for Japan is(a) 4 cars.

(b) 3 cars.

(c) 1/3 car.

(d) 1/4 car.Multiple Choice Questions p.46/51


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Question 46




U.S. 40 160 60 15

Japan 50 150 48 16

The opportunity cost of 1 airplane for the U.S. is(a) 4 cars.

(b) 3 cars.

(c) 1/3 car.

(d) 1/4 car.Multiple Choice Questions p.47/51


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Question 47




U.S. 40 160 60 15

Japan 50 150 48 16

The U.S. has a comparative advantage in . . . , and Japan

has a comparative advantage in . . .

(a) airplanes, airplanes

(b) cars, airplanes

(c) airplanes, cars

(d) neither good, cars



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Question 49

49. A production possibilities frontier will be linear

and not bowed out if(a) no tradeoffs exist.

(b) the tradeoff between the two goods is alwaysat a constant rate.

(c) unemployment is zero.

(d) resources are allocated efficiently.



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Question 50

50. Trade is based on

(a) absolute advantage.

(b) comparative advantage.

(c) production costs.(d) relative dollar prices.

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