1. Economics is the study of

1. the distribution of surplus goods to those in need.
2. affluence in a morally bankrupt world.
3. the use of scarce resources to satisfy unlimited wants.
4. ways to reduce wants to eliminate the problem of scarcity.

2. The law of demand states that, ceteris paribus, the lower the price of a good, the

1. smaller will be the demand for the good
2. larger will be the demand for the good.
3. smaller will be the quantity of the good demanded.
4. larger will be the quantity of the good demanded.

3. For inferior goods, an increase in income will cause the

1. quantity demanded to fall.
2. demand to decrease.
3. demand to increase.
4. quantity demanded to increase.

4. Suppose the demand for newspapers goes up when the price of coffee goes down. We can say that these two goods are

a. complements.

b. substitutes.

c. normal goods.

d. not related

5. A price elasticity of demand of 0.5 implies

a.a price rise of 10% leads to an increase in demand of 5% b.a price rise of 1% leads to a fall in demand of 5% c.a price rise of 10% leads to a fall in demand of 5% d.a price rise of 1% leads to an increase in demand of 50%

6.An increase in third party insurance charges on motor vehicle licences is imposed by the government in order to raise revenue. This decision indicates a belief that demand is likely to be

a.price elastic

b.price inelastic

c. Income elastic

d.income inelastic

7. If supply is perfectly inelastic and demand decreases then

a.Price will fall and quantity remain the same

b.Price will rise and quantity will decrease

c. Price will fall and quantity will increase

d. Price will rise and quantity remain the same

8. 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.

9. Given the demand curve Q_D = 150 - 2p and supply curve Q_S = 120 + 8p

a.the equilibrium is q = 140 b.the equilibrium is q = 146 c.the equilibrium is q = 144 d.the equilibrium is q = 160

10. If the resources in the country are not fully utilized, then putting currently unemployed resources to work can be illustrated by:

a. shifting the production possibility curve outward. b. movements up and to the left along a given production possibility curve. c. movements down and to the right along a given production possibility curve. d. moving from a point inside the production possibilities curve to a point on it.

11.Suppose someone believes that if a per-unit tax is placed on the producers of good Y that the consumers of good Y will end up paying the full tax. This person assumes that the demand curve for good Y is

1. elastic.
2. perfectly inelastic.
3. inelastic.
4. perfectly elastic.

12. The three fundamental questions that any economy must address are:

1. What will be the prices of goods and services; how will these goods and services be produced; and who will receive them?
2. Who gets jobs; what wages do workers earn; and who owns what property?
3. How much will be saved; what will be produced; and how can these goods and services be fairly distributed?
4. What goods and services to produce; how will these goods and services be produced; and who receives them?

13. The statement "An increase in the price of gasoline will cause a reduction in the amount purchased" is a

1. political statement.
2. positive statement.
3. normative statement.
4. scientific statement

14. All of the following are normative economic statements EXCEPT

1. When the price of gasoline rises, the quantity of gasoline purchased falls.
2. The best wayto reduce our energy cost is for the government to mandate the use of electric automobiles
3. The price of gasoline is too high.
4. People should not buy SUVs.

15. According to the theory of ________, specialization and free trade will benefit all trade partners, even when some are absolutely more efficient producers than others.

1. comparative advantage
2. absolute advantage
3. social equity
4. laissez-faire

16. The table below shows how many Articles or poetry can be produced in an hour for each producer.

	Mary	Tom
Poetry	8 units	12 units
Articles	2 units	4 units

Which of the following statements in TRUE

1. Mary has comparative advantage in both writing Articles and writing poems
2. Tom has a comparative advantage in both writing Articles and writing poems
3. Mary has a comparative advantage in writing Articles and Tom has comparative advantage in writing poems
4. Tom has a comparative advantage in writing Articles and Mary has comparative advantage in writing poems

17. The marginal rate of transformation is obtained from which of the following?

1. demand curve,
2. indifference curve,
3. production possibility frontier,
4. budget line

18. The price of fertilizer used on sugar cane rises. As a result, the equilibrium relative price of sugar ____ and the equilibrium quantity ____.

a. rises; increases b. rises; decreases c. falls; decreases d. falls; increases

19. The coefficient for price elasticity will

a. Be the same along a linear demand curve

b.Vary at each point along a demand curve

c.be infinitely elastic for any vertical demand curve

d.Equal zero when changes in quantity demanded exactly offset changes in price

20. The price elasticity of demand for Utech's student permit parking is 1.2. If Utech is only interested in maximizing its revenue from these student parking permits, they should:

a. raise the price of the student permits b. lower the price of the student permits c. don't change the price of the student permits d. raise the elasticity of the student permits

Table 1 lists six points on the production possibilities frontier for grain and cars.

D1 D2 $5 D3 Price (per pound) 3 D2 D1 D3 2 6 8 10 12 14 16 18 20 Quantity Demanded (thousands of pounds per week)