Which of the following is correct?

Which of the following is correct?

1. Worldwide GDP per head has grown steadily since the year 1000 A.D.
2. Economic growth since 1800 has been higher than at any other time.
3. Europe has always been relatively wealthy compared to Africa.
4. Life expectancy is little different now than what it was in 1500.


Answer: 2. Economic growth since 1800 has been higher than at any other time.

The Mercantilist school of thought held the idea that

The Mercantilist school of thought held the idea that

1. countries should specialise and then trade.
2. the government should own the means of production.
3. the goal of trade was to accumulate gold and silver.
4. the population would be kept in check by famine and war.


Answer: 3. the goal of trade was to accumulate gold and silver.

Many of the New Zealand economic reforms of the 1980's were designed to

Many of the New Zealand economic reforms of the 1980's were designed to

1. centralise decision making in the economy.
2. reduce New Zealand's dependence on imported oil.
3. introduce competition into markets.
4. increase tax revenues.



Answer: 3. introduce competition into markets.

The New Zealand economy of the 1970's could broadly be described as

The New Zealand economy of the 1970's could broadly be described as

1. open and deregulated.
2. regulated and controlled.
3. closed and pre-industrial.
4. democratic.


Answer: 2. regulated and controlled.

During the Great Depression

During the Great Depression

1. the price level and GDP both fell.
2. the price level rose and GDP fell.
3. the price level fell and GDP was unchanged.
4. the price level was unchanged and GDP fell.


Answer: 1. the price level and GDP both fell.

Thomas Malthus is most well-known for his ideas on

Thomas Malthus is most well-known for his ideas on

1. international trade.
2. monetary policy.
3. population and growth.
4. government spending.


Answer: 3. population and growth.

Which of the following statements describes trade in the early middle ages (about 476 - 1000 A.D.)?

Which of the following statements describes trade in the early middle ages (about 476 - 1000 A.D.)?

1. Roman roads and law enabled trade to flourish.
2. The colonisation of America raised European incomes.
3. Trade of any type was non-existent.
4. Trade was mostly confined to local areas.


Answer: 4. Trade was mostly confined to local areas.

Prior to the rise of substantial cities, wealth was mainly based on

Prior to the rise of substantial cities, wealth was mainly based on

1. being able to convert innovative ideas into marketable products.
2. holding gold and allowing it to increase in value.
3. owning land.
4. specialising in the production of a commodity and trading.


Answer: 3. Owning land

Which of the following 20th century events is associated with high unemployment and falling prices?

Which of the following 20th century events is associated with high unemployment and falling prices?

1. World War I.
2. The Great Depression.
3. The 1970s oil price shock.
4. The Vietnam War.


Answer: 2. The Great Depression

Which of the following is correct?

Which of the following is correct?

1. By the year 1000 A.D. Europe was well ahead of the rest of the world in income per capita.
2. Most of the growth in income per capita that has occurred over the last 2000 years is concentrated in the last 200 years.
3. Life expectancy has risen steadily since about the year 500 A.D.
4. China was the first country to experience the Industrial Revolution.


Answer: 2. Most of the growth in income per capita that has occurred over the last 2000 years is concentrated in the last 200 years.

The reform period that occurred in New Zealand from the mid-1980s resulted in

The reform period that occurred in New Zealand from the mid-1980s resulted in

1. a reduction in the role of government in the economy.
2. reduced consumer choice.
3. higher marginal and average tax rates.
4. a substantial fall in the value of the $NZ


Answer: 1. a reduction in the role of government in the economy.

Which of the following economists would be most likely to be called a "monetarist"?

Which of the following economists would be most likely to be called a "monetarist"?

1. Adam Smith.
2. Karl Marx.
3. John Maynard Keynes.
4. Milton Friedman


Answer: 4. Milton Friedman

Applying the M-M Theorem: In the presence of information asymmetry between insider/manager and outside investors, which of the following should produce larger firm value for a pre-IPO startup firm?

Applying the M-M Theorem: In the presence of information asymmetry between insider/manager and outside investors, which of the following should produce larger firm value for a pre-IPO startup firm?

a. Private equity financing from Venture Capital
b. Debt financing from Banks
c. Debt financing from Insurance Companies
d. None of the above financing method will produce larger firm value


Answer: a. Private equity financing from Venture Capital

Applying the M-M Theorem: When there is NO market imperfection, which of the following corporate financing should produce larger firm value?

Applying the M-M Theorem: When there is NO market imperfection, which of the following corporate financing should produce larger firm value?

a. Debt financing from Banks
b. Public equity financing from Initial Public Offering (IPO)
c. Private equity financing from Venture Capital
d. None of the above financing method will produce larger firm value


Answer: d. None of the above financing method will produce larger firm value

Which of the followings are Capital Market Imperfections: I) Agency Costs; II) Corporate Governance and Control; III) Financial Distress; IV) Information Asymmetry; V) Taxes.

Which of the followings are Capital Market Imperfections: I) Agency Costs; II) Corporate Governance and Control; III) Financial Distress; IV) Information Asymmetry; V) Taxes.

a. I, II, and III only
b. I, II, and V only
c. I, II, III, and IV only
d. I, II, III, IV, and V


Answer: d. I, II, III, IV, and V

Informational asymmetry exists when:

Informational asymmetry exists when:

a. Insider/manager has less information than outsider/shareholders
b. Insider/manager has more information than outsider/shareholders
c. Insider/manager and outsider/shareholders share the same set of information
d. There is no outsider in the corporate financial system


Answer: b. Insider/manager has more information than outsider/shareholders

In the principal-agent framework:

In the principal-agent framework:

a. Managers are both the agents and the principals
b. Shareholders are both the principals and the agents
c. Shareholders are the principals; Managers are the agents
d. Managers are the principals; Shareholders are the agents


Answer: c. Shareholders are the principals; Managers are the agents

The corporate financial goal of a firm is to:

The corporate financial goal of a firm is to:

a. Maximize cash holding to managers
b. Maximize firm size and number of investment projects
c. Maximize firm value to shareholders
d. Maximize managers' private jets


Answer: c. Maximize firm value to shareholders

Shareholders of a corporation may include: I) Banks and Insurance Companies; II) Hedge Funds; III) Investment Advisors; IV) Venture Capital; V) Individual Investors.

Shareholders of a corporation may include: I) Banks and Insurance Companies; II) Hedge Funds; III) Investment Advisors; IV) Venture Capital; V) Individual Investors.

a. I, III, and V only
b. I, II, III, and IV only
c. I, II, IV, and V only
d. I, II, III, IV, and V


Answer: D

The Corporate Financial System includes: I) Firm; II) Manager; III) Capital Market Investors.

The Corporate Financial System includes: I) Firm; II) Manager; III) Capital Market Investors.

a. I only
b. I and III only
c. II and III only
d. I, II, and III


Answer: D

Firm value may include: I) Tangible Assets; II) Intangible Assets; III) Cash Flows; IV) Growth Options.

Firm value may include: I) Tangible Assets; II) Intangible Assets; III) Cash Flows; IV) Growth Options.

a. I and II only
b. I and III only
c. I, II, and III only
d. I, II, III, and IV


Answer: D

Which of the following is a definition of the firm: I) Firm is legal entity; II) Firm is a value creation process; III) Firm is a collection of investment and financing opportunities; IV) Firm is a nexus of incomplete contracts.

Which of the following is a definition of the firm: I) Firm is legal entity; II) Firm is a value creation process; III) Firm is a collection of investment and financing opportunities; IV) Firm is a nexus of incomplete contracts.

a. I and II only
b. I and III only
c. I, II, and III only
d. I, II, III, and IV


Answer: D

A country that has a comparative advantage in producing capital goods will ________ a country that has a comparative advantage in consumption goods.

A country that has a comparative advantage in producing capital goods will ________ a country that has a comparative advantage in consumption goods.

A) reap all of the gains from trade with
B) reap fewer of the gains from trade with
C) specialize in producing capital goods and trade with
D) grow slower than


Answer: C

Two countries, Blue Violet and Sweet Pansy, produce only two goods: teapots and coffeepots. The table gives their production possibilities. With specialization and trade, Sweet Pansy produces ________ and Blue Violet produces ________:

Two countries, Blue Violet and Sweet Pansy, produce only two goods: teapots and coffeepots. The table gives their production possibilities. With specialization and trade, Sweet Pansy produces ________ and Blue Violet produces ________:

A) 150 coffeepots, 150 teapots
B) 150 teapots, 75 coffeepots
C) 100 teapots and 25 coffeepots, 100 teapots and 50 coffeepots
D) 150 teapots and 150 coffeepots, nothing


Answer: A

Two countries, Blue Violet and Sweet Pansy, produce only two goods: teapots and coffeepots. The table gives their production possibilities:

Two countries, Blue Violet and Sweet Pansy, produce only two goods: teapots and coffeepots. The table gives their production possibilities:

A) Blue Violet has a comparative advantage in teapots.
B) Both have a comparative advantage in teapots.
C) Sweet Pansy has an absolute advantage in teapots.
D) Sweet Pansy has a comparative advantage in teapots.


Answer: A

Two countries, Blue Violet and Orange Rose, produce only two goods: teapots and coffeepots. The table gives their production possibilities. ________ has a comparative advantage in teapots and ________ has a comparative advantage in coffeepots.

Two countries, Blue Violet and Orange Rose, produce only two goods: teapots and coffeepots. The table gives their production possibilities. ________ has a comparative advantage in teapots and ________ has a comparative advantage in coffeepots.

A) Blue Violet; Orange Rose
B) Orange Rose; Orange Rose
C) Blue Violet; Blue Violet
D) Orange Rose; Blue Violet


Answer: A

As a country that has a bowed-out production possibilities frontier produces more of the good in which it has a comparative advantage, the opportunity cost of a unit of that good ________:

As a country that has a bowed-out production possibilities frontier produces more of the good in which it has a comparative advantage, the opportunity cost of a unit of that good ________:

A) increases
B) remains the same
C) decreases
D) might increase or decrease


Answer: A

Two countries, Alpha and Beta, have identical production possibilities frontiers. If Alpha produces at point a and Beta produces at point b, then ________:

Two countries, Alpha and Beta, have identical production possibilities frontiers. If Alpha produces at point a and Beta produces at point b, then ________:

A) Beta's future consumption will be greater than Alpha's
B) Alpha's and Beta's economic growth rates will be the same
C) Beta's economic growth rate will exceed Alpha's
D) Alpha consumes less than Beta today, but it will grow faster than Beta


Answer: D

Leisure Land produces only sun screen and camel rides. The table shows the marginal benefit and marginal cost schedules for sun screen and camel rides. The efficient number of camel rides is ________:

Leisure Land produces only sun screen and camel rides. The table shows the marginal benefit and marginal cost schedules for sun screen and camel rides. The efficient number of camel rides is ________:

A) 2 rides per day
B) 1 ride per day because the marginal benefit exceeds the marginal cost by as much as possible
C) 4 rides per day
D) 6 rides per day because that is the maximum number of rides


Answer: C

The opportunity cost of producing a unit of consumption at point b in the Graph ________ point a:

The opportunity cost of producing a unit of consumption at point b in the Graph ________ point a:

A) cannot be compared with
B) is greater than at
C) is the same as
D) is less than at


Answer: D

An economy produces at point a on the PPF shown in the Graph. A drought reduces the amount of wheat produced and the economy produces at point b. The opportunity cost of a unit of wheat ________:

An economy produces at point a on the PPF shown in the Graph. A drought reduces the amount of wheat produced and the economy produces at point b. The opportunity cost of a unit of wheat ________:

A) decreases
B) increases
C) is impossible to calculate without numbers on the axes
D) remains the same


Answer: B

The opportunity cost of moving from point a to point b in the Graph is ________:

The opportunity cost of moving from point a to point b in the Graph is ________:

A) 2 sweaters
B) zero
C) 3 pairs of socks
D) 3/2 pairs of socks per sweater


Answer: B

A country that has an absolute advantage in producing all goods will usually ________:

A country that has an absolute advantage in producing all goods will usually ________:

A) have a comparative advantage in all goods
B) have a comparative advantage in some goods but not all
C) produce all goods at lowest opportunity cost
D) not gain from specialization and trade


Answer: B

In one day, Sue can change the oil on 20 cars or the tires on 20 cars. In one day, Fred can change the oil on 20 cars or the tires on 10 cars. Sue and Fred can gain from trade if Sue changes the ________ and Fred changes the ________:

In one day, Sue can change the oil on 20 cars or the tires on 20 cars. In one day, Fred can change the oil on 20 cars or the tires on 10 cars. Sue and Fred can gain from trade if Sue changes the ________ and Fred changes the ________:

A) tires; tires
B) tires; oil
C) oil; oil
D) oil; tires


Answer: B

In one day, Sue can change the oil on 20 cars or the tires on 20 cars. In one day, Fred can change the oil on 20 cars or the tires on 10 cars. Sue's opportunity cost of changing oil is ________ than Fred's and her opportunity cost for changing tires is ________ than Fred's:

In one day, Sue can change the oil on 20 cars or the tires on 20 cars. In one day, Fred can change the oil on 20 cars or the tires on 10 cars. Sue's opportunity cost of changing oil is ________ than Fred's and her opportunity cost for changing tires is ________ than Fred's:

A) greater; greater
B) greater; less
C) less; greater
D) less; less


Answer: B

In March 2002, a factory used new technology to produce its output. Then in August 2002, a fire destroys half the factory. The new technology shifted the factory's PPF ________ and the fire shifted it ________:

In March 2002, a factory used new technology to produce its output. Then in August 2002, a fire destroys half the factory. The new technology shifted the factory's PPF ________ and the fire shifted it ________:

A) inward; inward
B) outward; outward
C) inward; outward
D) outward; inward


Answer: D

An economy that uses new technology ________:

An economy that uses new technology ________:

A) has its PPF shift inward because more unemployment is created
B) moves along its PPF and incurs an opportunity cost
C) does not incur an opportunity cost because everyone can use new technology
D) experiences economic growth but incurs an opportunity cost


Answer: D

The table shows the marginal benefit from pizza and the marginal cost of pizza in cans of soda forgone. If ________ pizzas are produced, the quantity of soda that people are willing to give up to get an additional pizza is more than the quantity of soda that they must give up to get that additional pizza:

The table shows the marginal benefit from pizza and the marginal cost of pizza in cans of soda forgone. If ________ pizzas are produced, the quantity of soda that people are willing to give up to get an additional pizza is more than the quantity of soda that they must give up to get that additional pizza:

A) 40
B) more than 40
C) fewer than 40
D) any quantity other than 40


Answer: C

Victor currently produces nuts and bolts at point a in the Graph. Victor's marginal cost of producing an additional nut is ________:

Victor currently produces nuts and bolts at point a in the Graph. Victor's marginal cost of producing an additional nut is ________:

A) 8/6 bolts
B) 1/2 bolt
C) 1 bolt
D) 8 bolts


Answer: C

As Rainclouds Inc. moves downward along its production possibilities frontier, illustrated in the Graph, the opportunity cost of a raincoat ________:

As Rainclouds Inc. moves downward along its production possibilities frontier, illustrated in the Graph, the opportunity cost of a raincoat ________:

A) increases
B) decreases
C) depends on the initial quantity produced
D) remains the same


Answer: A, B

Joe's hot dog stand can produce hot dogs and hamburgers. The table gives Joe's production possibilities. The opportunity cost of ________:

Joe's hot dog stand can produce hot dogs and hamburgers. The table gives Joe's production possibilities. The opportunity cost of ________:

A) the 40th hamburger is 20 hot dogs
B) 1 hamburger is 10 hot dogs
C) the 20th hot dog is 0 hamburgers
D) the first 20 hot dogs is 20 hamburgers


Answer: D

The Graph shows Freda's PPF. Freda currently produces 10 packets of fudge and no cookies. If Freda decides to produce 1 packet of cookies, her opportunity cost of the packet of cookies is ________ of fudge:

The Graph shows Freda's PPF. Freda currently produces 10 packets of fudge and no cookies. If Freda decides to produce 1 packet of cookies, her opportunity cost of the packet of cookies is ________ of fudge:

A) 2 packets
B) 1 packet
C) 1/2 packet
D) 0 packets


Answer: A

Suppose that the United States and Cuba decide to open up trade. If each country specializes in the good in which it has a comparative advantage, ________ will gain from that trade because ________:

Suppose that the United States and Cuba decide to open up trade. If each country specializes in the good in which it has a comparative advantage, ________ will gain from that trade because ________:

A) both countries; consumption possibilities in both Cuba and the United States will lie outside their PPFs
B) only Cuba; consumption possibilities in Cuba will lie outside its PPF and U.S. consumption possibilities will not change
C) neither country; their consumption possibilities will not change
D) only the United States; consumption possibilities in Cuba will lie outside its PPF and U.S. consumption possibilities will not change


Answer: A

Big Lobster sells lobster and fish, and so too does H Salt. If Big Lobster's opportunity cost of preparing lobster exceeds H Salt's opportunity cost, then all the following are true EXCEPT ________:

Big Lobster sells lobster and fish, and so too does H Salt. If Big Lobster's opportunity cost of preparing lobster exceeds H Salt's opportunity cost, then all the following are true EXCEPT ________:

A) They will both gain if Big Lobster sells fish and H Salt sells lobster
B) H Salt has a comparative advantage in lobster
C) Big Lobster has a comparative advantage in lobster
D) H Salt doesn't have a comparative advantage in cooking fish


Answer: C

Anna and Maria produce shirts and ties. The Graph shows Anna's PPF and Maria's PPF. Anna and Maria can achieve the gains from trade if Anna produces ________ and Maria produces ________:

Anna and Maria produce shirts and ties. The Graph shows Anna's PPF and Maria's PPF. Anna and Maria can achieve the gains from trade if Anna produces ________ and Maria produces ________:

A) ties; shirts
B) shirts; ties
C) shirts and ties; only ties
D) only ties; shirts and ties


Answer: A

In an hour, Andy can make either 5 pizzas or 12 pies and Chris can make either 6 pizzas or 18 pies. ________ advantage in making pizzas:

In an hour, Andy can make either 5 pizzas or 12 pies and Chris can make either 6 pizzas or 18 pies. ________ advantage in making pizzas:

A) Chris has a comparative
B) Andy has a comparative
C) Andy has an absolute
D) None of the above answers is correct.


Answer: B

When economic growth occurs, the:

When economic growth occurs, the:

A) production possibilities frontier shifts outward.
B) the production possibilities frontier becomes steeper.
C) production possibilities frontier shifts outward but no longer limits the amount that can be produced.
D) economy moves along its production possibilities frontier.


Answer: A

A country produces only pencils and erasers. Pencil production is efficient if the marginal ________ of a pencil equals the marginal ________ of ________:

A country produces only pencils and erasers. Pencil production is efficient if the marginal ________ of a pencil equals the marginal ________ of ________:

A) cost; cost; an eraser
B) benefit; benefit; an eraser
C) benefit; cost; a pencil
D) cost; benefit; an eraser


Answer: C

Vicky currently produces at point a in the Graph. If Vicky moves from point a to point b to point c, her opportunity cost of a modem ________:

Vicky currently produces at point a in the Graph. If Vicky moves from point a to point b to point c, her opportunity cost of a modem ________:

A) is zero
B) remains the same
C) decreases
D) increases


Answer: B

The Graph shows Roger's production possibilities frontier. Point a is an ________ point and production is ________:

The Graph shows Roger's production possibilities frontier. Point a is an ________ point and production is ________:

A) attainable; inefficient
B) attainable; efficient
C) unattainable; inefficient
D) unattainable; efficient


Answer: A

Production efficiency occurs when production ________:

Production efficiency occurs when production ________:

A) is on the production possibilities frontier or inside it
B) is on the production possibilities frontier
C) is at any attainable point
D) is at a point beyond the production possibilities frontier


Answer: B

Harry produces 2 balloon rides and 4 boat rides an hour. Harry could produce more balloon rides but to do so he must produce fewer boat rides. Harry is ________ his production possibilities frontier:

Harry produces 2 balloon rides and 4 boat rides an hour. Harry could produce more balloon rides but to do so he must produce fewer boat rides. Harry is ________ his production possibilities frontier:

A) moving along
B) producing outside
C) producing on
D) producing inside


Answer: C

Two social institutions that are essential for trade to be organized are ________:

Two social institutions that are essential for trade to be organized are ________:

A) businesses and banks
B) property rights and laws
C) markets and banks
D) markets and property rights


Answer: D

If Tom and Di specialize in producing the goods in which he and she have a comparative advantage and they exchange goods, then ________:

If Tom and Di specialize in producing the goods in which he and she have a comparative advantage and they exchange goods, then ________:

A) they will lose because they are no longer able to produce and consume both goods.
B) each will gain because each can consume a combination of goods that is outside her/his production possibility frontier
C) one of them will gain and the other will lose
D) each will produce a combination of goods that is within her/his production possibility frontier


Answer: B

Tom and Di grow tomatoes and turnips. Tom has a comparative advantage in growing tomatoes if ________:

Tom and Di grow tomatoes and turnips. Tom has a comparative advantage in growing tomatoes if ________:

A) his marginal benefit from tomatoes is greater than Di's
B) his opportunity cost of tomatoes is less than his opportunity cost of turnips
C) his opportunity cost of tomatoes is less than Di's opportunity cost of tomatoes
D) Tom can grow more tomatoes than Di can


Answer: C

Economic growth comes from ________:

Economic growth comes from ________:

A) producing more goods than people want to consume
B) capital accumulation and the avoidance of opportunity cost
C) people willing to increase their skills in which case, economic growth is free
D) capital accumulation and technological advance


Answer: D

Beth reads two magazines this afternoon. The marginal benefit that Beth gets from the second magazine is the ________:

Beth reads two magazines this afternoon. The marginal benefit that Beth gets from the second magazine is the ________:

A) opportunity cost of producing both magazines
B) opportunity cost of producing the second magazine
C) maximum amount that she is willing to pay for the second magazine
D) maximum amount that she is willing to pay for the first magazine


Answer: C

Microsoft's marginal cost of the 100th copy of Windows 2002 is ________:

Microsoft's marginal cost of the 100th copy of Windows 2002 is ________:

A) the maximum amount that someone is willing to pay for the 100th copy of Windows 2002
B) opportunity cost of producing 100 copies of Windows 2002
C) opportunity cost of producing the 100th copy of Windows 2002
D) maximum amount that she is willing to pay for 100 copies of Windows 2002


Answer: C

Moving from one point on the production possibilities frontier to another ________:

Moving from one point on the production possibilities frontier to another ________:

A) involves a tradeoff but does not incur an opportunity cost
B) involves an opportunity cost but no tradeoff
C) involves no tradeoff but it does incur an opportunity cost
D) involves a tradeoff and incurs an opportunity cost


Answer: D

As we move along a bowed-out production possibility frontier, producing more tacos and less pizza, the opportunity cost of a pizza ________:

As we move along a bowed-out production possibility frontier, producing more tacos and less pizza, the opportunity cost of a pizza ________:

A) decreases
B) remains the same
C) increases
D) increases and then decreases


Answer: A

When production is efficient, ________:

When production is efficient, ________:

A) we face a tradeoff and incur an opportunity cost
B) we can satisfy our all wants
C) our choice of the goods can be either on or within the production possibilities frontier
D) the opportunity cost is as low as possible


Answer: A

The production possibilities frontier separates ________:

The production possibilities frontier separates ________:

A) the types of goods that can be attained from those that can't be unattained
B) the quantities of goods and services that can be produced from those that cannot be produced
C) the combinations of goods that people value and those that they don't
D) the goods and services that people want from those that they do not want


Answer: B

Refer to the Graph. Mario is self-sufficient and so is Mia. Each produces 6 dishes of pasta and 4 pizzas. Mario and Mia decide to specialize and trade. After they have specialized and traded, compared to the initial situation, Mia's opportunity cost of pasta has ________ and Mario's opportunity cost of a pizza has ________:

Refer to the Graph. Mario is self-sufficient and so is Mia. Each produces 6 dishes of pasta and 4 pizzas. Mario and Mia decide to specialize and trade. After they have specialized and traded, compared to the initial situation, Mia's opportunity cost of pasta has ________ and Mario's opportunity cost of a pizza has ________:

A) decreased, decreased
B) increased, increased
C) increased, decreased
D) decreased, increased


Answer: B

Abe can catch 10 pounds of fish an hour or pick 10 pounds of fruit. Zeb can catch 30 pounds of fish an hour or pick 20 pounds of fruit. The opportunity cost of fish is ________ for Abe than for Zeb, and the opportunity cost of fruit is ________ for Abe than for Zeb.

Abe can catch 10 pounds of fish an hour or pick 10 pounds of fruit. Zeb can catch 30 pounds of fish an hour or pick 20 pounds of fruit. The opportunity cost of fish is ________ for Abe than for Zeb, and the opportunity cost of fruit is ________ for Abe than for Zeb.

A) lower, higher
B) lower, lower
C) higher, higher
D) higher, lower


Answer: D

Claire and Dag are farmers who produce beef and corn. In a year, Claire can produce 16 tons of beef or 40 bushels of corn, while Dag can produce 5 tons of beef or 25 bushels of corn. The opportunity cost of producing a ton of beef is:

Claire and Dag are farmers who produce beef and corn. In a year, Claire can produce 16 tons of beef or 40 bushels of corn, while Dag can produce 5 tons of beef or 25 bushels of corn. The opportunity cost of producing a ton of beef is:

A) 5 bushels of corn for Dag and 2.5 bushels of corn for Claire.
B) 20 bushels of corn for Dag and 50 bushels of corn for Claire.
C) 36.5 days for Dag and 45.6 days for Claire.
D) 10 bushels of corn for Dag and 8 bushels of corn for Claire.


Answer: A

In the Graph, if the quantity of yogurt produced increases from 2 gallons an hour to 3 gallons an hour, the opportunity cost of a gallon of yogurt in terms of ice cream is:

In the Graph, if the quantity of yogurt produced increases from 2 gallons an hour to 3 gallons an hour, the opportunity cost of a gallon of yogurt in terms of ice cream is:

A) 1 gallon.
B) 4 gallons.
C) half a gallon.
D) 3 gallons.


Answer: A

Abe can catch 15 pounds of fish an hour or pick 30 pounds of fruit an hour. He works an 8-hour day, spending 5 hours picking fruit and 3 hours catching fish. Calculate Abe's opportunity cost of a pound of fruit.

Abe can catch 15 pounds of fish an hour or pick 30 pounds of fruit an hour. He works an 8-hour day, spending 5 hours picking fruit and 3 hours catching fish. Calculate Abe's opportunity cost of a pound of fruit.

A) 2 pounds of fish
B) 3 hours a day
C) 0.5 pounds of fish
D) 6 minutes


Answer: C

In the Graph, point A is ________, and point B is ________:

In the Graph, point A is ________, and point B is ________:

A) attainable, unattainable
B) unattainable, attainable
C) unattainable, unattainable
D) attainable, attainable


Answer: D

In markets, people's decisions are coordinated by

In markets, people's decisions are coordinated by

A) specialization according to absolute advantage.
B) adjustments in prices.
C) learning-by-doing.
D) changes in property rights.


Answer: B

Which of the following does NOT help organize trade?

Which of the following does NOT help organize trade?

A) markets
B) the production possibilities frontier
C) property rights
D) None of the above because all these answers given help organize trade.


Answer: C

A nation can consume at a point outside its PPF:

A nation can consume at a point outside its PPF:

A) never.
B) when it trades with other nations.
C) when it produces inefficiently.
D) when its PPF is bowed out.


Answer: B

A nation can produce at a point outside its PPF:

A nation can produce at a point outside its PPF:

A) never.
B) when its PPF is bowed out.
C) when it produces inefficiently.
D) when it trades with other nations.


Answer: A

An increase in the nation's capital stock will:

An increase in the nation's capital stock will:

A) shift the PPF outward.
B) cause a movement along the PPF down and to the right.
C) move the nation from producing within the PPF to producing at a point closer to the PPF.
D) cause a movement along the PPF up and to the left.


Answer: A

In one day, Brandon can either plow 10 acres or plant 20 acres. In one day, Christopher can either plow 14 acres or plant 14 acres. Brandon and Christopher can:

In one day, Brandon can either plow 10 acres or plant 20 acres. In one day, Christopher can either plow 14 acres or plant 14 acres. Brandon and Christopher can:

A) exchange, but only Brandon will gain from the exchange.
B) exchange, but only Christopher will gain from the exchange.
C) gain from exchange if Brandon specializes in planting and Christopher in plowing.
D) gain from exchange if Brandon specializes in plowing and Christopher in planting.


Answer: C

In one day, Brandon can either plow 10 acres or plant 20 acres. In one day, Christopher can either plow 14 acres or plant 14 acres. Which of the following statements about comparative advantage is correct?

In one day, Brandon can either plow 10 acres or plant 20 acres. In one day, Christopher can either plow 14 acres or plant 14 acres. Which of the following statements about comparative advantage is correct?

A) Brandon has a comparative advantage only in planting.
B) Brandon has a comparative advantage in both plowing and planting.
C) Brandon has a comparative advantage only in plowing.
D) Christopher has a comparative advantage in both plowing and planting.


Answer: A

In order to achieve the maximum gains from trade, people should specialize according to

In order to achieve the maximum gains from trade, people should specialize according to

A) absolute advantage.
B) PPF.
C) comparative advantage.
D) property rights.


Answer: C

In general, the more resources that are devoted to technological research, the:

In general, the more resources that are devoted to technological research, the:

A) more the PPF will bow outward.
B) higher is the unemployment rate.
C) faster the PPF shifts outward.
D) greater is current consumption.


Answer: C

One of the opportunity costs of economic growth is:

One of the opportunity costs of economic growth is:

A) the gain in future consumption.
B) reduced current consumption.
C) capital accumulation.
D) technological change.


Answer: B

An increase in the nation's capital stock will:

An increase in the nation's capital stock will:

A) cause a movement along the PPF downward and rightward.
B) cause a movement along the PPF upward and leftward.
C) shift the PPF outward.
D) move the nation from producing within the PPF to producing at a point closer to the PPF.


Answer: C

The PPF shifts if:

The PPF shifts if:

A) the unemployment rate falls.
B) people decide they want more of one good and less of another.
C) the resources available to the nation change.
D) the prices of the goods and services produced rise.


Answer: C

Economic growth:

Economic growth:

A) shifts the PPF outward.
B) creates unemployment.
C) has no opportunity cost.
D) makes it more difficult for a nation to produce on its PPF.


Answer: A

If the marginal benefit from another computer exceeds the marginal cost of the computer, then to use resources efficiently:

If the marginal benefit from another computer exceeds the marginal cost of the computer, then to use resources efficiently:

A) If the marginal benefit exceeds the marginal cost by as much as possible, the efficient amount of resources are being used to produce computers.
B) fewer resources should be used to produce computers.
C) more resources should be used to produce computers.
D) None of the above is correct because marginal benefit and marginal cost have nothing to do with using resources efficiently.


Answer: C

The most anyone is willing to pay for another purse is $30. Currently the price of a purse is $40, and the cost of producing another purse is $50. The marginal benefit of a purse is:

The most anyone is willing to pay for another purse is $30. Currently the price of a purse is $40, and the cost of producing another purse is $50. The marginal benefit of a purse is:

A) $40.
B) $30.
C) $50.
D) an amount not given in the answers above.


Answer: B

Moving along a bowed-out PPF between milk and cotton, as more milk is produced the marginal cost of an additional gallon of milk:

Moving along a bowed-out PPF between milk and cotton, as more milk is produced the marginal cost of an additional gallon of milk:

A) does not change.
B) probably changes, but in an ambiguous direction.
C) falls.
D) rises.


Answer: D

The bowed-outward shape of a PPF:

The bowed-outward shape of a PPF:

A) is due to capital accumulation.
B) is due to the existence of increasing opportunity cost.
C) illustrates the fact that no opportunity cost is incurred for increasing the production of the good measured on the horizontal axis but it is incurred to increase production of the good measured along the vertical axis.
D) reflects the unequal application of technology in production.


Answer: B

The existence of the tradeoff along the PPF means that the PPF is:

The existence of the tradeoff along the PPF means that the PPF is:

A) negatively sloped.
B) positively sloped
C) linear.
D) bowed outward.


Answer: A

Production efficiency means that:

Production efficiency means that:

A) producing more of one good is possible only if the production of some other good is decreased.
B) producing another unit of the good has no opportunity cost.
C) scarcity is no longer a problem.
D) as few resources as possible are being used in production.


Answer: A

In the Graph, at point b what is the opportunity cost of producing 2 more audio tapes?

In the Graph, at point b what is the opportunity cost of producing 2 more audio tapes?

A) 12 video tapes
B) 2 video tapes
C) 1 video tape
D) There is no opportunity cost.


Answer: C

In the Graph, at point a what is the opportunity cost of producing one more audio tape?

In the Graph, at point a what is the opportunity cost of producing one more audio tape?

A) 14 video tapes
B) 1 video tape
C) 2 video tapes
D) There is no opportunity cost.


Answer: B

Production points inside the PPF are:

Production points inside the PPF are:

A) efficient but not attainable.
B) inefficient and not attainable.
C) efficient and attainable.
D) inefficient and attainable.


Answer: D

If the United States can increase its production of automobiles without decreasing its production of any other good, the United States must have been producing at a point:

If the United States can increase its production of automobiles without decreasing its production of any other good, the United States must have been producing at a point:

A) beyond its PPF.
B) on its PPF.
C) within its PPF.
D) None of the above are correct because increasing the production of one good without decreasing the production of another good is impossible.


Answer: C

Individual economic decisions are coordinated by:

Individual economic decisions are coordinated by:

A) government through adjustments in sales taxes.
B) markets through adjustments in sales levels.
C) government through adjustments in income taxes.
D) markets through adjustments in prices.


Answer: D

In goods markets:

In goods markets:

A) households sell to firms. In factor markets firms sell to households.
B) and in factor markets households sell to firms.
C) firms sell to households. In factor markets households sell to firms.
D) and in factor markets firms sell to households.


Answer: C

The term "market" refers to:

The term "market" refers to:

A) trading arrangements that have been approved by the government.
B) locations where buyers and sellers physically meet.
C) any arrangement that enables buyers and sellers to get information and trade with one another.
D) physical structures only.


Answer: C

A computer software program is most strongly an example of:

A computer software program is most strongly an example of:

A) real property.
B) fiat property.
C) vicarious property.
D) intellectual property.


Answer: D

In a world lacking property rights, it would be:

In a world lacking property rights, it would be:

A) easier to realize the gains from trade and there would be more specialization.
B) harder to realize the gains from trade and there would be more specialization.
C) harder to realize the gains from trade and there would be less specialization.
D) easier to realize the gains from trade and there would be less specialization.


Answer: C

Intellectual property:

Intellectual property:

A) is protected by common law rather than by written laws.
B) belongs to everyone with the necessary human capital to use it.
C) is protected by people's sense of decency rather than by written laws.
D) is often protected by copyrights and patents.


Answer: D

The social arrangements that govern the ownership, use, and disposal of property are referred to as:

The social arrangements that govern the ownership, use, and disposal of property are referred to as:

A) private enterprise.
B) the double coincidence of wants.
C) capitalism.
D) property rights.


Answer: D

Learning-by-doing is a basis for:

Learning-by-doing is a basis for:

A) reducing the gains from trade over time.
B) eliminating opportunity cost.
C) dynamic comparative advantage.
D) absolute comparative advantage.


Answer: C

Dynamic comparative advantage arises from:

Dynamic comparative advantage arises from:

A) decreasing marginal benefit.
B) learning-by-doing.
C) increasing opportunity cost.
D) absolute advantage.


Answer: B

Agnes can produce either 1 unit of X or 1 unit of Y in an hour, while Brenda can produce either 2 units of X or 4 units of Y in an hour:

Agnes can produce either 1 unit of X or 1 unit of Y in an hour, while Brenda can produce either 2 units of X or 4 units of Y in an hour:

A) Brenda has a comparative advantage in the production of X.
B) Brenda cannot gain from trade.
C) Brenda has an absolute advantage over Agnes.
D) Agnes has a comparative advantage in the production of Y.


Answer: C

Agnes can produce either 1 unit of X or 1 unit of Y in an hour, while Brenda can produce either 2 units of X or 4 units of Y in an hour. There can be gains from exchange

Agnes can produce either 1 unit of X or 1 unit of Y in an hour, while Brenda can produce either 2 units of X or 4 units of Y in an hour. There can be gains from exchange

A) only if Brenda becomes faster at producing X or Y.
B) if Agnes specializes in the production of Y and Brenda in X.
C) only if Agnes becomes faster at producing X.
D) if Agnes specializes in the production of X and Brenda in Y.


Answer: D

Agnes can produce either 1 unit of X or 1 unit of Y in an hour, while Brenda can produce either 2 units of X or 4 units of Y in an hour. The opportunity cost of producing a unit of Y is:

Agnes can produce either 1 unit of X or 1 unit of Y in an hour, while Brenda can produce either 2 units of X or 4 units of Y in an hour. The opportunity cost of producing a unit of Y is:

A) 1 hour for Agnes and 1/2 hour for Brenda.
B) 1 hour for Agnes and 2 hours for Brenda.
C) 1 unit of X for Agnes and 1/2 unit of X for Brenda.
D) 1 unit of X for Agnes and 2 units of X for Brenda.


Answer: C

Agnes can produce either 1 unit of X or 1 unit of Y in an hour, while Brenda can produce either 2 units of X or 4 units of Y in an hour. The opportunity cost of producing a unit of X is:

Agnes can produce either 1 unit of X or 1 unit of Y in an hour, while Brenda can produce either 2 units of X or 4 units of Y in an hour. The opportunity cost of producing a unit of X is:

A) 1 unit of Y for Agnes and 2 units of Y for Brenda.
B) 1 hour for Agnes and 1/2 hour for Brenda.
C) 1 hour for Agnes and 2 hours for Brenda.
D) 1 unit of Y for Agnes and 1/2 unit of Y for Brenda


Answer: A

Homer and Teddy are stranded on a desert island. To feed themselves each day they can either catch fish or pick fruit. In a day, Teddy could pick 60 pieces of fruit or catch 20 fish. Homer could pick 100 pieces of fruit or catch 150 fish. Which of the following statements is correct?

Homer and Teddy are stranded on a desert island. To feed themselves each day they can either catch fish or pick fruit. In a day, Teddy could pick 60 pieces of fruit or catch 20 fish. Homer could pick 100 pieces of fruit or catch 150 fish. Which of the following statements is correct?

A) Homer has an absolute advantage in picking fruit and Teddy has an absolute advantage in catching fish.
B) Homer has an absolute advantage in both catching fish and picking fruit.
C) Teddy has an absolute advantage in both catching fish and picking fruit.
D) Homer has an absolute advantage in catching fish and Teddy has an absolute advantage in picking fruit.


Answer: B

Homer and Teddy are stranded on a desert island. To feed themselves each day they can either catch fish or pick fruit. In a day, Teddy could pick 60 pieces of fruit or catch 20 fish. Homer could pick 100 pieces of fruit or catch 150 fish. Which of the following is correct?

Homer and Teddy are stranded on a desert island. To feed themselves each day they can either catch fish or pick fruit. In a day, Teddy could pick 60 pieces of fruit or catch 20 fish. Homer could pick 100 pieces of fruit or catch 150 fish. Which of the following is correct?

A) Homer has a comparative advantage in both catching fish and picking fruit.
B) Homer has a comparative advantage in catching fish and Teddy has a comparative advantage in picking fruit.
C) Teddy has a comparative advantage in both catching fish and picking fruit.
D) Homer has a comparative advantage in picking fruit and Teddy has a comparative advantage in catching fish.


Answer: B

If a person can produce more of all goods than anyone else, that person:

If a person can produce more of all goods than anyone else, that person:

A) has a comparative advantage in the production of all goods.
B) has an absolute advantage.
C) will be unable to gain from specialization and exchange.
D) is no longer affected by scarcity.


Answer: B

A person who has an absolute advantage will:

A person who has an absolute advantage will:

A) not specialize.
B) have a comparative advantage in everything.
C) not have a comparative advantage in everything.
D) not trade.


Answer: C

Whenever a person can produce more of all goods than anyone else, that person:

Whenever a person can produce more of all goods than anyone else, that person:

A) should be self-sufficient.
B) has a comparative advantage in everything.
C) has an absolute advantage.
D) should specialize in everything.


Answer: C

A person who has an absolute advantage in the production of all goods will:

A person who has an absolute advantage in the production of all goods will:

A) also have a comparative advantage in the production of all goods.
B) have a comparative advantage only in the production of some goods but not for others.
C) not be able to gain from specialization and exchange.
D) have a production possibilities frontier with a constant slope.


Answer: B

In the Graph, suppose that Mac and Izzie specialize and trade to reach point c. Mac sends Izzie:

In the Graph, suppose that Mac and Izzie specialize and trade to reach point c. Mac sends Izzie:

A) 6 computers in exchange for 6 TVs.
B) 12 computers in exchange for 12 TVs.
C) 6 computers in exchange for 12 TVs.
D) 12 computers in exchange for 6 TVs.


Answer: A

In the Graph, if Mac and Izzie both completely specialized and traded with one another, their joint output would be:

In the Graph, if Mac and Izzie both completely specialized and traded with one another, their joint output would be:

A) 3 computers and 3 TV sets per month.
B) 12 computers and 12 TV sets per month.
C) 24 computers and 24 TV sets per month.
D) 6 computers and 6 TV sets per month.


Answer: B

In the Graph, suppose that Mac and Izzie trade and reach point c. Then:

In the Graph, suppose that Mac and Izzie trade and reach point c. Then:

A) Mac and Izzie should both produce at point c.
B) Mac should produce at point b and Izzie should produce at point d.
C) Mac should produce at point d and Izzie should produce at point b.
D) Mac and Izzie should both produce at point a.


Answer: B

In the figure above, suppose that Mac and Izzie trade and reach point c. Then:

In the figure above, suppose that Mac and Izzie trade and reach point c. Then:

A) Izzie produces outside her production possibilities frontier.
B) Mac and Izzie both produce outside their production possibilities frontiers.
C) Mac produces outside his production possibilities frontier.
D) neither Mac nor Izzie produce outside their production possibilities frontiers.


Answer: D

Jane produces only corn and cloth. The land that she allocates to corn:

Jane produces only corn and cloth. The land that she allocates to corn:

A) may have an absolute advantage for cloth, but nonetheless has a comparative advantage for corn.
B) may have neither an absolute nor a comparative advantage for corn.
C) must have both an absolute and a comparative advantage for corn.
D) may have a comparative advantage for cloth, but nonetheless has an absolute advantage for corn.


Answer: A

By specialization and trade, two individuals can:

By specialization and trade, two individuals can:

A) shift their individual production possibilities frontiers outward.
B) consume at a point beyond their individual production possibilities frontiers.
C) increase their absolute advantage.
D) increase their comparative advantage.


Answer: B

To obtain the gains available from comparative advantage, individuals or countries must do more than specialize; they must also:

To obtain the gains available from comparative advantage, individuals or countries must do more than specialize; they must also:

A) trade.
B) invest.
C) engage in research and development.
D) save.


Answer: A

George and Michael can gain from exchange:

George and Michael can gain from exchange:

A) if each specializes in the production of the good for which he has the higher opportunity cost.
B) unless they have different opportunity costs.
C) if each specializes in the production of the good for which he has the lower opportunity cost.
D) unless one has an absolute advantage in all goods.


Answer: C

One of the largest categories of exports from the United States is now pop culture: movies, music, TV programming, and videos. A direct conclusion from this information is that, compared to other countries, the United States has:

One of the largest categories of exports from the United States is now pop culture: movies, music, TV programming, and videos. A direct conclusion from this information is that, compared to other countries, the United States has:

A) a lower opportunity cost of producing pop culture.
B) lower wages for producers of pop culture.
C) higher wages for producers of pop culture.
D) a higher opportunity cost of producing pop culture.


Answer: A

One of the largest categories of exports from the United States is now pop culture: movies, music, TV programming, and videos. A direct conclusion from this information is that, compared to other countries, the United States has:

One of the largest categories of exports from the United States is now pop culture: movies, music, TV programming, and videos. A direct conclusion from this information is that, compared to other countries, the United States has:

A) a comparative advantage in producing pop culture.
B) lower wages for producers of pop culture.
C) an absolute advantage in producing pop culture.
D) higher wages for producers of pop culture.


Answer: A

Both Mergatroid and the Geebocks produce only gizmos and widgets. It is possible for Mergatroid to have:

Both Mergatroid and the Geebocks produce only gizmos and widgets. It is possible for Mergatroid to have:

A) neither a comparative nor an absolute advantage in both products.
B) a comparative but not an absolute advantage in both products.
C) an absolute but not a comparative advantage in both products.
D) an absolute and a comparative advantage in both products.


Answer: C

In the table, country B is producing 4 units of X and 6 units of Y. For country B, the opportunity cost of producing an additional unit of Y is:

In the table, country B is producing 4 units of X and 6 units of Y. For country B, the opportunity cost of producing an additional unit of Y is:

A) 2/3 unit of X.
B) 1/2 unit of X.
C) 3 units of X.
D) 2 units of X.


Answer: A

In the table, country B is producing 4 units of X and 6 units of Y. For country B, the opportunity cost of producing an additional unit of X is:

In the table, country B is producing 4 units of X and 6 units of Y. For country B, the opportunity cost of producing an additional unit of X is:

A) 4 units of Y.
B) 2 units of Y.
C) 1 unit of Y
D) 3/2 units of Y.


Answer: D

In the table, country A is producing 4 units of X and 8 units of Y and country B is producing 4 units of X and 6 units of Y. Regarding the production of good X:

In the table, country A is producing 4 units of X and 8 units of Y and country B is producing 4 units of X and 6 units of Y. Regarding the production of good X:

A) country A has a comparative advantage.
B) country A has an absolute advantage.
C) country B has an absolute advantage.
D) country B has a comparative advantage.


Answer: D

In the table, country A is producing 4 units of X and 8 units of Y and country B is producing 4 units of X and 6 units of Y. The opportunity cost of producing more of:

In the table, country A is producing 4 units of X and 8 units of Y and country B is producing 4 units of X and 6 units of Y. The opportunity cost of producing more of:

A) good Y is the same for both countries.
B) good X is the same for both countries.
C) good Y is lower in country A.
D) good X is lower in country A.


Answer: C

In an eight-hour day, Andy can produce either 24 loaves of bread or 8 pounds of butter. In an eight-hour day, Bob can produce either 8 loaves of bread or 8 pounds of butter. We know that Andy has a comparative advantage in the production of:

In an eight-hour day, Andy can produce either 24 loaves of bread or 8 pounds of butter. In an eight-hour day, Bob can produce either 8 loaves of bread or 8 pounds of butter. We know that Andy has a comparative advantage in the production of:

A) both bread and butter.
B) butter, while Bob has a comparative advantage in the production of bread.
C) bread and neither has a comparative advantage in the production of butter.
D) bread, while Bob has a comparative advantage in the production of butter.


Answer: D

Individuals A and B both produce good X. We say that A has a comparative advantage in the production of good X if A:

Individuals A and B both produce good X. We say that A has a comparative advantage in the production of good X if A:

A) has a lower opportunity cost of producing good X than has B.
B) can produce more units of X in a given time period than can B.
C) has a lower opportunity cost of producing good X than of producing good Y.
D) can produce X using newer technology than can B.


Answer: A

Possessing a comparative advantage in the production of a particular good:

Possessing a comparative advantage in the production of a particular good:

A) permits gains from trade.
B) encourages self-sufficiency.
C) means that its opportunity cost is higher than that of other goods.
D) tends to discourage specialization.


Answer: A

A person has a comparative advantage in producing a particular good if that person:

A person has a comparative advantage in producing a particular good if that person:

A) has higher productivity in producing it than anyone else has.
B) has more human capital related to that good than anyone else has.
C) can produce it at lower opportunity cost than anyone else can.
D) has less desire to consume that good than anyone else has.


Answer: C

Because of the existence of comparative advantage, the total output of goods is higher when each producer:

Because of the existence of comparative advantage, the total output of goods is higher when each producer:

A) specializes in the production of a particular good.
B) produces at the midpoint of its PPF.
C) produces several different goods.
D) makes both intermediate and final goods.


Answer: A

The Graph shows the production possibilities frontiers for four nations that have identical production possibilities frontiers in the present. The one that will grow most rapidly in the future is most likely to be at point:

The Graph shows the production possibilities frontiers for four nations that have identical production possibilities frontiers in the present. The one that will grow most rapidly in the future is most likely to be at point:

A) A.
B) B.
C) C.
D) D.


Answer: C

The production possibilities frontier illustrated in the Graph will shift outward the most rapidly if point:

The production possibilities frontier illustrated in the Graph will shift outward the most rapidly if point:

A) A is selected.
B) B is selected.
C) C is selected.
D) D is selected.


Answer: C

Economic growth:

Economic growth:

A) allows us to increase our consumption in the present and in the future.
B) leads to less consumption in the present but can increase consumption in the future.
C) is free.
D) is the major reason we face scarcity.


Answer: B

The opportunity cost of economic growth is:

The opportunity cost of economic growth is:

A) investment that a nation gives up to increase its economic growth.
B) present consumption that a nation gives up to accumulate capital.
C) future consumption that a nation gives up to consume more today.
D) future consumption that a nation gets if it gives up some present consumption.


Answer: B

The production possibilities frontier shifts as:

The production possibilities frontier shifts as:

A) technology changes.
B) tastes and preferences change.
C) the unemployment rate changes.
D) the money supply grows or shrinks.


Answer: A

Capital accumulation:

Capital accumulation:

A) shifts the production possibilities frontier outward.
B) has no impact on the production possibilities frontier.
C) shifts the production possibilities frontier inward.
D) makes the production possibilities frontier steeper.


Answer: A

Consider a production possibilities frontier with corn on the vertical axis and cars on the horizontal. Unusually good weather for growing corn shifts:

Consider a production possibilities frontier with corn on the vertical axis and cars on the horizontal. Unusually good weather for growing corn shifts:

A) neither the horizontal intercept nor the vertical intercept.
B) the vertical intercept upward but does not shift the horizontal intercept.
C) the horizontal intercept rightward but does not shift the vertical intercept.
D) the horizontal intercept rightward and the vertical intercept upward.


Answer: B

Technological progress makes the production possibilities frontier:

Technological progress makes the production possibilities frontier:

A) shift inward toward the origin.
B) become more linear and less bowed.
C) become less linear and more bowed.
D) shift outward from the origin.


Answer: D

A key factor that leads to economic growth is:

A key factor that leads to economic growth is:

A) avoiding the opportunity cost of investment.
B) human capital accumulation.
C) increasing current consumption.
D) Both answers A and B are correct


Answer: B

Economic growth is the result of all of the following EXCEPT:

Economic growth is the result of all of the following EXCEPT:

A) investment in human capital.
B) technological change.
C) opportunity cost.
D) capital accumulation.


Answer: C

After Hurricane Mitch devastated part of Central America in October 1998, we can be reasonably sure that the production possibilities frontier for that area temporarily:

After Hurricane Mitch devastated part of Central America in October 1998, we can be reasonably sure that the production possibilities frontier for that area temporarily:

A) became steeper.
B) became flatter.
C) shifted outward, away from the origin.
D) shifted inward, toward the origin.


Answer: D

An expansion of the production possibilities frontier is:

An expansion of the production possibilities frontier is:

A) proof that scarcity is not a binding constraint.
B) a free gift of nature.
C) something that has occurred only rarely in history.
D) called economic growth.


Answer: D

In the Graph, at the efficient level of computer production the marginal cost of producing a computer is:

In the Graph, at the efficient level of computer production the marginal cost of producing a computer is:

A) between 0 and 3 televisions per computer.
B) 0 televisions per computer.
C) more than 3 televisions per computer.
D) 3 televisions per computer.


Answer: D

In the Graph, at the efficient level of computer production consumers are willing to give up:

In the Graph, at the efficient level of computer production consumers are willing to give up:

A) 3 televisions per computer.
B) more than 3 televisions per computer.
C) 0 televisions per computer.
D) between 0 and 3 televisions per computer.


Answer: A

In the Graph, the efficient output of computers is:

In the Graph, the efficient output of computers is:

A) the largest amount possible.
B) 2 million per year.
C) 3 million per year.
D) 4 million per year.


Answer: C

In the Graph, if 4 million computers are produced per year then the:

In the Graph, if 4 million computers are produced per year then the:

A) marginal benefit of a computer exceeds the marginal cost of a computer, so more computers should be produced.
B) marginal cost of a computer exceeds the marginal benefit of a computer, so more computers should be produced.
C) marginal cost of a computer exceeds the marginal benefit of a computer, so fewer computers should be produced.
D) marginal benefit of a computer exceeds the marginal cost of a computer, so fewer computers should be produced.


Answer: C

In the Graph, if 2 million computers are produced per year then the:

In the Graph, if 2 million computers are produced per year then the:

A) marginal benefit of a computer exceeds the marginal cost of a computer, so more computers should be produced.
B) marginal cost of a computer exceeds the marginal benefit of a computer, so fewer computers should be produced.
C) marginal cost of a computer exceeds the marginal benefit of a computer, so more computers should be produced.
D) marginal benefit of a computer exceeds the marginal cost of a computer, so fewer computers should be produced.


Answer: A

Suppose the world price for widgets is higher than the domestic price. If the country opens to free world trade, domestic consumer surplus in the widgets market will

Suppose the world price for widgets is higher than the domestic price. If the country opens to free world trade, domestic consumer surplus in the widgets market will

a. decrease, and domestic producer surplus will decrease.
b. increase, and domestic producer surplus will decrease.
c. increase, and domestic producer surplus will increase.
d. decrease, and domestic producer surplus will increase.


Answer: D

Refer to Figure 4.2. The world price equals Pc, and this country trades with the rest of the world. Domestic producer surplus equals

Refer to Figure 4.2. The world price equals Pc, and this country trades with the rest of the world. Domestic producer surplus equals

a. area g, and this country imports the good.
b. area g, and this country exports the good.
c. area c+d+g, and this country exports the good.
d. None of the above.


Answer: a

Refer to Figure 4.1. Suppose the South trades with the rest of the world, and the world price equals Pa. The full implementation of the Anaconda Plan, during the Civil War, causes Southern producer surplus to

Refer to Figure 4.1. Suppose the South trades with the rest of the world, and the world price equals Pa. The full implementation of the Anaconda Plan, during the Civil War, causes Southern producer surplus to

a. decrease by area b+c+d.
b. increase by area a+b.
c. decrease by area b+c.
d. None of the above.


Answer: a

Which of the following temporarily resolved the issue of whether states joined the Union as free or slave?

Which of the following temporarily resolved the issue of whether states joined the Union as free or slave?

a. The Anenxation Act of 1800
b. The Compromise of 1850.
c. The Great Treaty of 1845.
d. The Compromise of 1820


Answer: d

The invention of the steamboat caused the price that plantations received for cotton to

The invention of the steamboat caused the price that plantations received for cotton to

a. increase, causing the demand for slaves to increase.
b. decrease, causing the demand for slaves to decrease.
c. increase, causing the demand for slaves to decrease.
d. None of the above.


Answer: a

Refer to Table 3.6. Suppose a one-wage monopsony may sell its output for $2 each. The profit maximizing quantity of labor that a one-wage monopsony hires equals

Refer to Table 3.6. Suppose a one-wage monopsony may sell its output for $2 each. The profit maximizing quantity of labor that a one-wage monopsony hires equals

a. 5.
b. 8.
c. 6.
d. 7.


Answer: c

In the long run, technological advances that increase worker productivity cause the demand for labor to

In the long run, technological advances that increase worker productivity cause the demand for labor to

a. increase.
b. not change.
c. decrease.
d. change uncertainly.


Answer: d

Refer to Figure 3.4. Suppose the graph depicts a one-wage monopsony after the Civil War, such as a textile mill in the South. The firm pays a wage equal to

Refer to Figure 3.4. Suppose the graph depicts a one-wage monopsony after the Civil War, such as a textile mill in the South. The firm pays a wage equal to

a. Wc, and producer surplus equals zero.
b. Wa, and producer surplus equals area e+f+g+h+i
c. Wb, and producer surplus equals are h+i
d. None of the above.


Answer: None of the above.

Refer to Figure 3.4. Before the Civil War, plantation owners earned what area in economic welfare?

Refer to Figure 3.4. Before the Civil War, plantation owners earned what area in economic welfare?

a. area a+b+c+d
b. area a+b+c+e+f
c. area a+b+c+d+e+f+g+h+i


Answer: C

Refer to Figure 3.3. Plantations' breeding of slaves increased the supply of labor. Given perfect price discrimination by plantations, this increase in supply caused producer surplus to increase by

Refer to Figure 3.3. Plantations' breeding of slaves increased the supply of labor. Given perfect price discrimination by plantations, this increase in supply caused producer surplus to increase by

a. e+f+g
b.$0
c. d+g+e+f
d. b+c+d

Answer: B

Eli Whitney's invention of the cotton gin, in the short run, caused consumer surplus in the market for slave labor to

Eli Whitney's invention of the cotton gin, in the short run, caused consumer surplus in the market for slave labor to

a. decrease.
b. change uncertainly.
c. not change.
d. increase.


Answer: d

Before the Civil War, plantations were perfectly price discriminating monopsonies. After the Civil War, they became one-wage monopsonies. Total surplus in the market for labor

Before the Civil War, plantations were perfectly price discriminating monopsonies. After the Civil War, they became one-wage monopsonies. Total surplus in the market for labor

a. did not change.
b. decreased.
c. increased.
d. changed uncertainly.


Answer: b

In the market for textiles, increased specialization from the Industrial Revolution caused consumer surplus to

In the market for textiles, increased specialization from the Industrial Revolution caused consumer surplus to

a. increase, and producer surplus to increase.
b. increase, and producer surplus to change uncertainly.
c. increase, and producer surplus to decrease.
d. change uncertainly, and producer surplus to increase.


Answer: b

Early during the Industrial Revolution, unskilled and skilled labor were complements of production. All else equal, a decrease in the wages paid to unskilled labor caused the equilibrium wage for skilled labor to

Early during the Industrial Revolution, unskilled and skilled labor were complements of production. All else equal, a decrease in the wages paid to unskilled labor caused the equilibrium wage for skilled labor to

a. decrease.
b. not change.
c. change uncertainly.
d. increase.


Answer: d

During the early 1800s, the construction of canals caused the price that sellers received for goods to

During the early 1800s, the construction of canals caused the price that sellers received for goods to

a. increase, and total surplus in these markets to increase.
b. decrease, and total surplus in these markets to decrease.
c. increase, and total surplus in these markets to not change.
d. decrease, and total surplus in these markets to increase.


Answer: a

The Sugar Act of 1764 placed new excise taxes on wine in the colonies. In the market for wine, this act caused consumer surplus to

The Sugar Act of 1764 placed new excise taxes on wine in the colonies. In the market for wine, this act caused consumer surplus to

a. decrease, and producer surplus to decrease.
b. decrease, and producer surplus to increase.
c. increase, and producer surplus to increase.
d. increase, and producer surplus to decrease.


Answer: a

Suppose that new discoveries of valuable resources in America increased the demand for indentured servants. Holding cost of the voyage and other things the same, newly immigrating indentured servants' labor terms

Suppose that new discoveries of valuable resources in America increased the demand for indentured servants. Holding cost of the voyage and other things the same, newly immigrating indentured servants' labor terms

a. not change.
b. increase.
c. change uncertainly.
d. decrease.


Answer: d

In a competitive labor market, if the wage is lower than the equilibrium wage,

In a competitive labor market, if the wage is lower than the equilibrium wage, 

a. unemployment exists, and the wage must rise.
b. unemployment exists, and the wage must fall.
c. a shortage of workers exists, and the wage must fall.
d. a shortage of workers exists, and the wage must rise.


Answer: D

Given upward sloping supply and downward sloping demand, a $1 excise tax on any good or service causes the price buyers pay to increase by

Given upward sloping supply and downward sloping demand, a $1 excise tax on any good or service causes the price buyers pay to increase by

a. more than $1.
b. less than $1.
c. exactly $1.
d. Any of the above could be true.


Answer: b

Refer to Figure 1.1. Producer surplus in the market above, with a per unit tax of P1 minus P3, equals

Refer to Figure 1.1. Producer surplus in the market above, with a per unit tax of P1 minus P3, equals

a. area a
b. area a+b+c
c. area f
d. None of the above.


Answer: C

Refer to Figure 1.1. Consumer surplus in the market above, with no tax, equals

Refer to Figure 1.1. Consumer surplus in the market above, with no tax, equals

a. area d+e+f
b. area a+b+c
c. area a
d. area f


Answer: B

During the first period of colonization into America, most indentured servants were

During the first period of colonization into America, most indentured servants were

a. male slaves.
b. female slaves.
c. children slaves.
d. None of the above.


Answer: D

During the American Revolutionary War, the British counterfeited large numbers of Continentals. All else equal, this caused the equilibrium price-level for Continentals to

During the American Revolutionary War, the British counterfeited large numbers of Continentals. All else equal, this caused the equilibrium price-level for Continentals to

a. decrease, and the equilibrium quantity of Continentals to increase.
b. increase, and the equilibrium quantity of Continentals to increase.
c. decrease, and the equilibrium quantity of Continentals to decrease.
d. None of the above.


Answer: B

Cotton is a normal good. All else equal, when the economy went into recessionary periods during the early 1800s, the demand for cotton

Cotton is a normal good. All else equal, when the economy went into recessionary periods during the early 1800s, the demand for cotton

a. increased, increasing producer surplus in the market for cotton.
b. decreased, increasing producer surplus in the market for cotton.
c. decreased, decreasing producer surplus in the market for cotton.
d. None of the above.


Answer: C

A demand curve illustrates the

A demand curve illustrates the

a. total cost for producing one more unit.
b. marginal benefit for consuming one more unit.
c. total benefit for consuming one more unit.
d. marginal cost for producing one more unit.


Answer: B

Economic historians classify indentured servants and slaves as substitutes of production, meaning a decrease in the price of indentured servants, all else equal, caused the

Economic historians classify indentured servants and slaves as substitutes of production, meaning a decrease in the price of indentured servants, all else equal, caused the

a.) demand for slaves to increase.
b.) supply of slaves to increase.
c.) demand for slaves to decrease.
d.) None of the above.


Answer: c

Eli Whitney's invention of the cotton gin, in the long run, caused consumer surplus in the market for slave labor to

Eli Whitney's invention of the cotton gin, in the long run, caused consumer surplus in the market for slave labor to

a.) change uncertainly.
b.) not change.
c.) increase.
d.) decrease.


Answer: a

During the early 1800s, wool was an inferior good. Over periods where US incomes rose, producer surplus in the market for wool

During the early 1800s, wool was an inferior good. Over periods where US incomes rose, producer surplus in the market for wool

a.) decreased, and the demand for labor to produce wool decreased.
b.) increased, and the demand for labor to produce wool increased.
c.) increased, and the demand for labor to produce wool decreased.
d.) None of the above.


Answer: a

Refer to Table 3.12. Assume a one-wage monopsony may sell its good for $2 and is a price-taker. Also, it must pay the same wage to all its workers. What is the profit maximizing one-wage monopsony wage?

Refer to Table 3.12. Assume a one-wage monopsony may sell its good for $2 and is a price-taker. Also, it must pay the same wage to all its workers. What is the profit maximizing one-wage monopsony wage?

a.) $1
b.) $4
c.) $2
d.) $3


Answer: d

All else equal, as European incomes increased over the early 1800s, the

All else equal, as European incomes increased over the early 1800s, the

a.) demand for indentured servants increased.
b.) demand for indentured servants decreased.
c.) supply of indentured servants decreased.
d.) None of the above.


Answer: c

An increase in the demand for money immediately causes a

An increase in the demand for money immediately causes a 

a.) surplus of money, and prices must rise.
b.) shortage of money, and prices must rise.
c.) surplus of money, and prices must fall.
d.) None of the above.


Answer: d

During the American Revolutionary War, the Continental Congress printed more continentals. All else equal, this caused the equilibrium price-level for continentals to

During the American Revolutionary War, the Continental Congress printed more continentals. All else equal, this caused the equilibrium price-level for continentals to

a.) increase, and the equilibrium quantity of continentals to increase.
b.) decrease, and the equilibrium quantity of continentals to decrease.
c.) decrease, and the equilibrium quantity of continentals to increase.
d.) None of the above.


Answer: a

During the early 1760s, England began supporting a policy of mercantilism. This policy promoted British

During the early 1760s, England began supporting a policy of mercantilism. This policy promoted British

a.) imports and long-run economic growth.
b.) exports and short-run economic growth.
c.) imports and short-run economic growth.
d.) exports and long-run economic growth.


Answer: b

Refer to Figure 4.2. The world price equals Pc, and the South trades with the rest of the world. If the Anaconda Plan blocks all southern ports, total surplus

Refer to Figure 4.2. The world price equals Pc, and the South trades with the rest of the world. If the Anaconda Plan blocks all southern ports, total surplus

a.) decreases by area "c+d+e+f."
b.) decreases by area "e+f."
c.) decreases by area "c."
d.) None of the above.


Answer: b

Refer to Figure 3.4. Suppose the graph above depicts a plantation after the Civil War. Employment equals

Refer to Figure 3.4. Suppose the graph above depicts a plantation after the Civil War. Employment equals

a.) La, and consumer surplus equals area "a+b+c+e+f."
b.) Lb, and consumer surplus equals area "a+b+c+d+e+f+g+h+i."
c.) La, and consumer surplus equals area "h+i."
d.) None of the above.


Answer: a

During the early 1800s, falling transportation costs from the steam boat caused consumer surplus in the market for labor to

During the early 1800s, falling transportation costs from the steam boat caused consumer surplus in the market for labor to

a.) increase.
b.) not change.
c.) change uncertainly.
d.) decrease.


Answer: a

Which event demonstrated that the Articles of Confederation may be too weak?

Which event demonstrated that the Articles of Confederation may be too weak?

a.) Shay's Rebellion
b.) Treaty of Paris
c.) Hyperinflation of Continentals
d.) Whiskey Rebellion


Answer: a

During the early 1800s, many textile mills adopted the technological advance of the power loom. In the market for textiles, all else equal, this adoption caused producer surplus to

During the early 1800s, many textile mills adopted the technological advance of the power loom. In the market for textiles, all else equal, this adoption caused producer surplus to

a.) not change.
b.) change uncertainly.
c.) increase.
d.) decrease.


Answer: b

Suppose a country is a price taker in the world market and exports widgets. If the government makes exporting illegal, the domestic price for widgets will

Suppose a country is a price taker in the world market and exports widgets. If the government makes exporting illegal, the domestic price for widgets will

a.) fall, and consumer surplus will increase.
b.) fall, and consumer surplus will decrease.
c.) rise, and consumer surplus will decrease.
d.) rise, and consumer surplus will increase.


Answer: A

All else equal, plantations' labor markets before the civil war were _________ as plantations' labor markets after the civil war.

All else equal, plantations' labor markets before the civil war were _________ as plantations' labor markets after the civil war. 

a.) equally as efficient
b.) less efficient than
c.) more efficient than
d.) Any of the above can be true.


Answer: c

During the early 1800s, which form or mean of transportation did the federal government subsidize the most?

During the early 1800s, which form or mean of transportation did the federal government subsidize the most?

a.) rivers
b.) canals
c.) steamboats
d.) trains


Answer: B

Refer to Figure 1.1. The Stamp Act of 1765 imposed an excise tax of P1 minus P3. Compared with no tax, consumer surplus decreased by

Refer to Figure 1.1. The Stamp Act of 1765 imposed an excise tax of P1 minus P3. Compared with no tax, consumer surplus decreased by 

a.) area "f"
b.) area "b+c"
c.) area "e+f"
d.) None of the above.


Answer: b

Refer to Figure 1.1. Government tax revenue in the market above, with a per unit tax of P1 minus P3 equals

Refer to Figure 1.1. Government tax revenue in the market above, with a per unit tax of P1 minus P3 equals

a.) area "b+c+d+e"
b.) area "a+b+d+f"
c.) area "b+d"
d.) None of the above.


Answer: C

Which of the following prohibited colonies from printing new Bills of Credit, leading to trade deficits and recessionary pressure from the colonies?

Which of the following prohibited colonies from printing new Bills of Credit, leading to trade deficits and recessionary pressure from the colonies?

a.) Stamp Act of 1763
b.) Coinage Act of 1792
c.) Currency Act of 1764
d.) Royal Proclamation of 1763


Answer: C

In a competitive labor market, if the wage is higher than the equilibrium wage,

In a competitive labor market, if the wage is higher than the equilibrium wage, 

a.) unemployment exists, and the wage must fall.
b.) a shortage of workers exists, and the wage must fall.
c.) unemployment exists, and the wage must rise.
d.) a shortage of workers exists, and the wage must rise.


Answer: A

The Sugar Act of 1764 increased excise taxes on coffee. All else equal, this act caused the price that consumers paid for coffee to ________ and the equilibrium wage of coffee-producing labor to ________.

The Sugar Act of 1764 increased excise taxes on coffee. All else equal, this act caused the price that consumers paid for coffee to ________ and the equilibrium wage of coffee-producing labor to ________.

a.) increase/increase
b.) increase/not change
c.) increase/decrease
d.) decrease/increase


Answer: C

The Missouri Compromise of 1820 prohibited slavery in the territory of the

The Missouri Compromise of 1820 prohibited slavery in the territory of the

a.) Winn Dixie line.
b.) Mason Dixon Line
c.) 36" x 30' Line.
d.) White Line.


Answer: C

In a competitive labor market, the supply for labor curve illustrates the

In a competitive labor market, the supply for labor curve illustrates the

a.) marginal cost of labor to the worker.
b.) marginal cost of labor to the firm.
c.) All of the above.
d.) None of the above.


Answer: A

Early during the Industrial Revolution, unskilled and skilled labor were complements of production. All else equal, an increase in the wages paid to unskilled labor caused the equilibrium wage for skilled labor to

Early during the Industrial Revolution, unskilled and skilled labor were complements of production. All else equal, an increase in the wages paid to unskilled labor caused the equilibrium wage for skilled labor to

a.) not change.
b.) decrease.
c.) increase.
d.) change uncertainly.


Answer: B