1. Economics is the study of how societies manage scarce resources. (a) True (b) False 2. When a nation produces no widget it can produce 10 gadgets. When it produces no gadget, it can produce 20 widgets. The opportunity cost of producing 2 widgets must be: (a) 2 gadgets (b) 1 widget (c) 1 gadget (d) none of the options. 3. A decrease in the money supply increases interest rate. The foregoing statement is an example of: (a) a positive statement (b) a normative statement (c) both a positive and normative statement (d) a formal statement. 4. A consumption is specified as follows: C=$100+ $0.4(1) It is most likely that the value of autonomous consumption is: (a) 14 cents (b) 4 cents (c) 100 cents (d) 100 dollars 5. Alluding to Question 4, if consumption increases by $20, disposable income (1) is most likely to: (a) increase by $20 (b) $16.67 cents (c) $50 (d) 100 dollars 6. A dollar increase in disposable income is most likely to cause consumption to increase by (a) 6 cents (b) cents (c) 40 cents (d) $2 7. The consumption model of Question 4 shows that a consumer with $100 will be able to consume: (a) $140 worth of goods (b) $126 worth of goods (c) $130 worth of goods (d) $250 worth of goods. 8. Suppose the quantity of widgets demanded increases from 10 to 15 units because of a price reduction from $20 to $10, consumers are most likely to be: (a) sensitive to the price decrease (b) insensitive to the price decrease 9. The elasticity coefficient for the price change in Question 8 is most likely to be: (a) 1.5 (b) 0.4 (c) 2.4 (d) 1.3 10. A decrease in the cost of producing gadgets is most likely to cause: (a) an increase in the price of gadgets and an increase in supply (b) a decrease in demand and an increase in supply (c) an increase in price and a decrease in the quantity of gadgets produced. (d) a decrease in the price of gadgets and an increase in quantity demanded. 11. Suppose a demand function of widget can be specified as follows: Q= 10 - 2p, what is the absolute value of the point elasticity of demand when the price is $2? (a) 1.5 (b) 0.5 (c) 2.3 (d) 1.3 12. Are consumers going to be sensitive to a change in the price for widgets? (a) Yes. (b) No. (c) Sensitivity cannot be determined.13. What is most likely going to be the result of a government subsidy for rice production? (a) A decrease in the price of rice and an increase in production; (b) An increase in the price of rice and an increase in production; (c) A decrease in price and production of rice. (d) None of the options would apply. 14. Suppose the US government imposes a price ceiling on the price of gasoline, what would be the most likely effect of the regulated price? (a) A surplus supply. (b) A shortage. (c) A reduction in consumption. (d) An increase in production. 15. The minimum wage is an example of: (a) a price floor (b) a price ceiling (c) the market rate (a) all of the options 16. Figure 1 Widgets 10 8 7 Gadgets Alluding to Figure 1, the nation can produce: (a) 8 widgets and 17 gadgets if it uses its resources efficiently. (b) 15 widgets and 8 gadgets. (c) 10 widgets and 20 gadgets. (d) none of the options. 17. If the nation produces 15 gadgets and 6 widgets, it is most likely: (a) overutilizing its resources. (b) operating at full employment. (c) underutilizing its resources. (d) doing none of the above. 18 To get to point C, the nation must: (a) use its resources fully. (b) impose tariffs on trade. (c) increase national saving (d) increase its population. 19. The marginal rate of transformation (slope) from A to B must be: (a) 0.5 (b) 1 (c) 2 (d) 3. 20 This nation has a comparative advantage in the production of: (a) widgets and gadgets (b) widgets (c) gadgets (d) none of the above