Exam info
- Subject
- Economics
- Exam type
- University
- Questions
- 25
- Duration
- 90 min
- Answers
- ✓ With explanations
Questions (25)
- Q 1.
Which statement correctly distinguishes an economy from economics?
- A.
An economy is the academic study of individual and societal decision-making under scarcity.
- B.
An economy is a system of interrelated production and consumption activities that determines how resources are allocated.
- C.
An economy exists only when the quantity of available resources exceeds society's wants.
- D.
Economics examines market transactions but excludes production and government decisions.
- A.
- Q 2.
A student can spend six hours tutoring at 20 dollars per hour, earning 120 dollars, or use those six hours for an event she values at 90 dollars. If she attends the event, what is her opportunity cost?
- A.
90 dollars
- B.
120 dollars
- C.
210 dollars
- D.
30 dollars
- A.
- Q 3.
A bakery has already paid a nonrefundable deposit of 4,000 dollars for a specialized oven. It is now deciding whether to operate the bakery. Which approach is rational?
- A.
Continue only if total future revenue exceeds 4,000 dollars.
- B.
Compare future revenues with future operating costs, excluding the deposit.
- C.
Continue because the bakery has already spent 4,000 dollars.
- D.
Close immediately because the deposit has already been paid.
- A.
- Q 4.
The marginal benefits of the first, second, and third units of a product are 18, 14, and 9 dollars, while each unit has a marginal cost of 10 dollars. Assuming the budget is sufficient, how many units should a rational buyer purchase?
- A.
One unit
- B.
Two units
- C.
Three units
- D.
Four units
- A.
- Q 5.
An economy's current combination of food and clothing lies inside its production possibilities frontier. Worker training allows the economy to produce more with the same resources. Which interpretation is correct?
- A.
The current combination is unattainable with existing resources.
- B.
The economy is already producing efficiently because the combination is physically possible.
- C.
The current point reflects waste or unused resources, and better training may expand feasible output.
- D.
The current point reflects waste or unused resources, and improved training can move production toward a higher frontier.
- A.
- Q 6.
With the same resources, Norland can produce either 4 computers or 8 tons of wheat, while Celand can produce either 6 computers or 6 tons of wheat. Which country has the comparative advantage in each good?
- A.
Norland has the comparative advantage in computers, and Celand has it in wheat.
- B.
Celand has the comparative advantage in computers, and Norland has it in wheat.
- C.
Both countries have the same comparative advantage in computers.
- D.
Both countries should specialize in wheat.
- A.
- Q 7.
In the simplified circular-flow diagram, a household purchases a meal from a firm. Which pair of flows is represented correctly?
- A.
Dollars flow from the household to the firm, and the meal flows from the firm to the household.
- B.
The meal flows from the household to the firm, and dollars flow from the firm to the household.
- C.
Both the meal and the dollars flow from the household to the firm.
- D.
Labor flows from firms to households, while meals flow from households to firms.
- A.
- Q 8.
Holding all other determinants of demand constant, the price of tea rises. What happens on the existing demand curve for tea?
- A.
Demand decreases, shifting the curve to the right.
- B.
There is an upward and leftward movement along the curve, and quantity demanded falls.
- C.
The demand curve shifts to the right.
- D.
There is a downward movement along the curve, and quantity demanded increases.
- A.
- Q 9.
Coffee and tea are close substitutes. If the price of tea rises while the price of coffee remains unchanged, what happens to coffee demand?
- A.
It decreases because buyers move upward along the coffee demand curve.
- B.
It decreases because consumers expect lower future sales.
- C.
It increases, shifting the coffee demand curve to the right.
- D.
It remains unchanged because substitute prices are unrelated to demand.
- A.
- Q 10.
A producer installs a new machine that lowers its unit production cost. If the good's price and all other demand factors remain constant, what happens to supply?
- A.
Supply increases and shifts to the right.
- B.
Supply decreases and shifts to the left.
- C.
There is an upward movement along an unchanged supply curve.
- D.
The demand curve shifts to the right.
- A.
- Q 11.
At a price of 10 dollars, quantity demanded is 500 and quantity supplied is 300. At 15 dollars, both quantities are 400. At 20 dollars, quantity demanded is 300 and quantity supplied is 500. What is the market equilibrium?
- A.
A price of 10 dollars and a quantity of 300 units
- B.
A price of 15 dollars and a quantity of 400 units
- C.
A price of 20 dollars and a quantity of 500 units
- D.
A price of 25 dollars and a quantity of 600 units
- A.
- Q 12.
A product has an equilibrium price of 10 dollars. A binding price ceiling of 8 dollars creates quantity demanded of 600 units and quantity supplied of 300 units. What is the most accurate result?
- A.
There is a shortage of 300 units, legal sales are limited by supply, and reduced trades create deadweight loss.
- B.
There is a surplus of 300 units.
- C.
The ceiling has no effect because it is legally established.
- D.
The equilibrium quantity rises to 600 units.
- A.
- Q 13.
The equilibrium price of a product is 10 dollars. A price floor of 14 dollars is imposed. At 14 dollars, sellers offer 500 units and buyers demand 300 units. What occurs?
- A.
A shortage of 200 units
- B.
The market automatically returns to a price of 10 dollars and a quantity of 600 units
- C.
A surplus of 200 units
- D.
The price falls below the floor until the market clears
- A.
- Q 14.
A per-unit tax is imposed on a market with highly inelastic demand and relatively elastic supply. Which group will generally bear most of the tax burden?
- A.
Producers, because firms pay taxes to the government.
- B.
Consumers, because they are less able to reduce consumption when price rises.
- C.
Consumers and producers must always split the tax equally.
- D.
Neither group bears the burden because the government imposes it.
- A.
- Q 15.
A linear demand curve has a price intercept of 30 dollars, and a linear supply curve has a price intercept of 6 dollars. Their equilibrium is a price of 18 dollars and a quantity of 100 units. What are consumer surplus and producer surplus?
- A.
Consumer surplus is 300 dollars and producer surplus is 300 dollars.
- B.
Consumer surplus is 600 dollars and producer surplus is 600 dollars.
- C.
Consumer surplus is 1,200 dollars and producer surplus is 1,200 dollars.
- D.
Consumer surplus is 600 dollars and producer surplus is 1,200 dollars.
- A.
- Q 16.
A per-unit tax of 6 dollars reduces equilibrium quantity by 40 units in a market with straight-line supply and demand curves. What is the tax's deadweight loss?
- A.
240 dollars
- B.
120 dollars
- C.
4,000 dollars
- D.
6,000 dollars
- A.
- Q 17.
When a product's price rises from 10 dollars to 12 dollars, quantity demanded falls from 500 units to 400 units. Using the midpoint method, what is the absolute price elasticity of demand?
- A.
0.82, so demand is inelastic
- B.
1.22, so demand is elastic
- C.
2.22, so demand is elastic
- D.
0.45, so demand is inelastic
- A.
- Q 18.
Consumer income rises by 20 percent while the quantity demanded of a product falls by 10 percent. What is the income elasticity of demand, and how is the product classified?
- A.
The elasticity is negative 0.5, and the product is inferior.
- B.
The elasticity is positive 0.5, and the product is normal.
- C.
The elasticity is positive 2, and the product is an income-elastic normal good.
- D.
The elasticity is negative 2, and the product is inferior.
- A.
- Q 19.
The price of good B falls by 20 percent, while the quantity demanded of good A rises by 10 percent. What does the cross-price elasticity reveal?
- A.
The elasticity is positive 0.5, so A and B are substitutes.
- B.
The elasticity is negative 0.5, so A and B are complements.
- C.
The elasticity is positive 2, so A and B are complements.
- D.
The elasticity is negative 2, so A and B are substitutes.
- A.
- Q 20.
A product's price rises by 10 percent. Quantity demanded falls by 4 percent, while quantity supplied rises by 15 percent. Which classification is correct?
- A.
Demand is inelastic, supply is elastic, and total revenue increases.
- B.
Demand is elastic, supply is inelastic, and total revenue decreases.
- C.
Demand and supply are both inelastic, and total revenue is unchanged.
- D.
Demand and supply are both elastic, and total revenue falls.
- A.
- Q 21.
A consumer's total utility from a product is 0 utils at zero units, 20 utils at one unit, 36 utils at two units, and 48 utils at three units. What is the marginal utility of the third unit?
- A.
8 utils, and marginal utility is increasing
- B.
12 utils, illustrating diminishing marginal utility
- C.
16 utils, illustrating diminishing marginal utility
- D.
48 utils, representing total rather than marginal utility
- A.
- Q 22.
A consumer has a 40-dollar budget. Good X costs 10 dollars per unit and offers marginal utilities per dollar of 6, 5, and 4 for its first three units. Good Y costs 20 dollars per unit and offers marginal utilities per dollar of 7, 4, and 3. Assuming whole units, which affordable combination maximizes utility?
- A.
Three units of X and no units of Y
- B.
Two units of X and one unit of Y
- C.
One unit of X and one unit of Y
- D.
No units of X and two units of Y
- A.
- Q 23.
For units 1 through 5, private values are 22, 20, 18, 16, and 14 dollars, while private costs are 14, 16, 18, 20, and 22 dollars. Production creates an external cost of 4 dollars per unit. What are the market quantity, socially optimal quantity, and corrective tax?
- A.
Market quantity 2, optimal quantity 3, and a subsidy of 4 dollars
- B.
Market quantity 3, optimal quantity 2, and a tax of 4 dollars
- C.
Market quantity 3, optimal quantity 2, and a subsidy of 4 dollars
- D.
Market quantity 4, optimal quantity 3, and a tax of 2 dollars
- A.
- Q 24.
Which row correctly classifies street lighting and fish in an unrestricted lake fishery and identifies the resulting collective-action problem?
- A.
Street lighting is a public good associated with free-riding, while lake fish are a common resource associated with overuse.
- B.
Street lighting is rival but excludable, while lake fish are nonrival but excludable.
- C.
Street lighting is a common resource, while lake fish are a public good.
- D.
Street lighting and lake fish are both public goods associated with free-riding.
- A.
- Q 25.
A competitive market with many price takers, complete information, and no externalities produces a Pareto-efficient outcome, but its income distribution is highly unequal. Which policy assessment best reflects efficiency and equity?
- A.
Pareto efficiency guarantees an equal income distribution, so no redistributive policy is needed.
- B.
Progressive taxation must produce perfect equality without reducing economic efficiency.
- C.
Lower-income households should pay higher tax rates because they generally use more government services.
- D.
Progressive taxation can improve vertical equity, although incentive distortions and administrative costs may create an efficiency-equity trade-off.
- A.
Answers and explanations are in mode.