Multiple Choice Questions

1. The Arbezani economy is operating at a point inside its production possibility frontier. This
may be because
A) the economy has very poor technological know-how.
B) Arbez is a very small nation and can’t produce much.
C) Arbez has specialized in producing a good in which it has a comparative disadvantage.
D) Arbez has some unemployment.

2. Movements along the production possibility frontier illustrate

A) the concept of opportunity cost.
B) the operation of market forces.
C) improvements in technology.
D) changes in the resource mix.

3. The Arbezani economy can produce consumer goods and capital goods. There is a
technological improvement in the production of consumer goods. Along the production
possibility frontier, the opportunity cost of consumer goods will
A) increase.
B) decrease.
C) remain unchanged.
D) be indeterminate.

Use the diagram for the next five questions. It illustrates the production possibility frontier for
Arbez.

4. Which point implies the existence of unemployment?

A) U
B) V
C) Y
D) Z

5. Of those shown, with which combination of goods would the Arbezani economy grow most
rapidly?
 A) U
B) V
C) Y
D) Z

6. Which statement is true? Along the production possibility frontier

A) the opportunity cost of capital goods is decreasing.
B) the opportunity cost of consumer goods is constant.
C) producing at Point V can never be economically efficient.
D) the opportunity cost of consumer goods is increasing.

7. Arbez is at Point W. The opportunity cost of increasing capital goods production by 10 is

A) 24 consumer goods given up.
B) 20 consumer goods given up.
C) 14 consumer goods given up.
D) 4 consumer goods given up.

8. Arbez is at Point Z. The opportunity cost of increasing capital goods production by 20 is

A) 24 consumer goods given up.
B) 14 consumer goods given up.
C) 6 consumer goods given up.
D) 0 consumer goods given up.

9. Coke and Pepsi are consumption substitutes. The supply of Pepsi increases. This will cause
A) an increase in the demand for Pepsi.
B) an increase in the demand for Coke.
C) a decrease in the demand for Pepsi.
D) a decrease in the demand for Coke.

Each week, Jack and Jill can each produce vinegar and brown paper in the quantities shown in the
following table. Constant costs apply for each individual.

10. According to the table,

A) Jack has a comparative advantage in the production of both goods.
B) Jack has a comparative advantage in the production of vinegar, and Jill
has a comparative advantage in the production of brown paper.
C) Jack has a comparative advantage in the production of brown paper, and Jill has a
comparative advantage in the production of vinegar.
D) Jill has a comparative advantage in the production of both goods.
11. If producers must obtain a higher price than they did previously in order to produce the same
level of output as before, we can say that there has been
A) an increase in quantity supplied.
B) an increase in supply.
C) a decrease in supply.
D) a decrease in quantity supplied.

12. The widget market is in equilibrium at a price where

A) there is no shortage of the good.
B) the demand curve is downward sloping and the supply curve is upward sloping.
C) the quantity demanded and the quantity supplied are equal.
D) there is no surplus of the good.

13. The market for peas is experiencing a shortage. You should predict that
A) quantity demanded will decrease and quantity supplied will increase.
B) demand will increase and supply will decrease.
C) quantity demanded will increase and quantity supplied will decrease.
D) demand will decrease and supply will increase.

14. Californian wine and Italian wine are consumption substitutes. The Italian wine industry
decreases wine production following a drought. The equilibrium price will ______ and
quantity traded will ______ for Californian wine.
A) increase; increase
B) decrease; increase
C) decrease; decrease
D) increase; decrease

15. Initially, the market for peas is in equilibrium. Suddenly, at the same price level, there is a
surplus. This might have been caused by an increase in
A) quantity demanded.
B) quantity supplied.
C) demand.
D) supply.

16. Greaseboro’s local coffeehouse, The Daily Grind, cut the price of coffee and doughnuts by 6
percent and boosted the number of servings sold. The Daily Grind’s total revenue on coffee
and doughnuts has risen by 3 percent. This information shows that
A) the demand curve for coffee and doughnuts at The Daily Grind is horizontal.
B) at present, prices are in the elastic section of the demand schedule.
C) coffee and doughnuts are a normal good.
D) the price elasticity of demand for coffee and doughnuts is –2.0.

17. The income elasticity of Good A is –0.7, and the cross-price elasticity between Good A and
Good B is –0.7. Good A is a(n)
A) normal good and a substitute for Good B.
B) inferior good and a substitute for Good B.
 C) normal good and a complement for Good B.
D) inferior good and a complement for Good B.

18. Costs of production decrease for Debi’s Dip. At the same time a government health report
alleges that dip consumption causes bone cancer. For Debi’s Dip, the equilibrium price will
______ and the equilibrium quantity will ______ .
A) increase; be indeterminate
B) decrease; be indeterminate
C) be indeterminate; increase
D) be indeterminate; decrease

19. The Board of Aldermen of Polka, West Virginia, implement rent control—a ceiling on the
maximum rent that can be charged for an apartment. As a result we would expect to see
A) an increase in the number of apartments supplied in order to meet the increased demand.
B) higher prices for single-family homes, which will become more popular.
C) renters renting more expensive or poorer quality apartments outside Polka.
D) renters now able to find an adequate number of low-rent apartments.

20. An oil spill reduces lobster fishing off the Maine coast and a recession simultaneously
reduces consumers’ incomes. Compared to the equilibrium price and quantity in the market
for lobsters (a normal good) before these events, in the new equilibrium, the
A) price will be lower and the quantity will be lower.
B) price will be higher and the quantity will be lower.
C) price will be lower; the effect of the events on quantity cannot be determined without
further information.
D) effect of the events on price cannot be determined without further information; the
quantity will be lower.

21. The law of demand is best illustrated by

A) the fact that as the price of Pepsi rises consumers buy more Coke.
B) increased purchases of Coke as the price of Coke decreases.
C) an increase in income that results in reduced purchases of store-brand soft drinks.
D) an increase in income that results in increased purchases of Coke.

22. Each of the following will cause an increase in the demand for tennis racquets (a normal good)
EXCEPT
A) a decrease in the price of tennis racquets.
B) an increase in income.
C) a decrease in the price of tennis balls.
D) an increase in the number of persons playing tennis.

23. In the lettuce industry, an increase in the wage of lettuce harvesters will
A) increase the supply of lettuce, as workers will work harder than before.
B) increase the supply of lettuce, as more workers will be employed.
C) decrease the supply of lettuce, as workers will not need to work as hard as before.
 D) decrease the supply of lettuce, as fewer workers will be employed.

24. The demand for Good A has been decreasing over the past year. Having examined the
following facts, you conclude that Good A is a normal good. Which fact led you to that
conclusion?
A) The price of Good A has been decreasing over the past year.
B) An economic slowdown has reduced the income of the traditional buyers of Good A.
C) Good B, a substitute for Good A, has increased its price over the last twelve months.
D) Household wealth has decreased among the traditional buyers of Good A.

Use the following diagram to answer the next five questions. The diagram refers to the market
for Vito’s Vitamins (a good with a positive income elasticity of demand). Vito’s Vitamins has a
positive cross-price elasticity of demand with Vinnie’s Vitamins. On demand curve D1, at a
price of $5.00, price elasticity of demand is –2.0.

25. Given demand curve D1, if supply moves from S1 to S2,

A) supply has increased.
B) demand has decreased.
C) price has decreased.
D) quantity demanded has decreased.

26. Given demand curve D1, if supply moves from S1 to S2, we would expect Vito’s total revenue
to
A) increase because demand is elastic.
B) increase because demand is inelastic.
C) decrease because demand is elastic.
D) decrease because demand is inelastic.

27. A change in supply from S1 to S2 might have been caused by an

A) increase in the price of Vinnie’s Vitamins.
B) increase in the demand for Vito’s Vitamins.
C) improvement in the technology of manufacturing Vito’s Vitamins.
D) increase in the production costs of Vito’s Vitamins.

28. A change in demand from D2 to D1 might have been caused by

 A) an increase in the price of Vito’s Vitamins.
B) an increase in the consumption of Vito’s Vitamins.
C) a decrease in the price of Vinnie’s Vitamins.
D) an increase in the income of Vito’s customers.

29. Demand moves from D1 to D2 whereas supply moves from S1 to S2. At the initial price level
of $5.00 a ______ exists. Price will ______ .
A) shortage; increase
B) shortage; decrease
C) surplus; increase
D) surplus; decrease

1. D

2. A

3. B

4. D

5. A

6. D

7. D

8. C

9. D

10. B

11. C

12. C

13. A

14. A

15. D

16. B

17. D

18. B

19. C
20. D

21. B

22. C

23. D

24. B

25. D

26. C

27. D

28. C

29. A