MICROECONOMICS _ THE FIRST TEST

1. Imagine your college implements a new policy that requires you to

purchase a permit in order to park your car in the campus parking lot
A. Only 50% of the parking permit's cost is considered part of the opportunity
cost of attending college.
B. The expense of the parking permit is part of the opportunity cost of
attending college if you would not have to pay for parking otherwise.
C. The cost of the parking permit is never included in the opportunity cost of
attending college, regardless of the situation.
D. The expense of the parking permit does not contribute to the opportunity
cost of attending college if you wouldn't have incurred parking fees
otherwise.
 The cost of the parking permit becomes part of the opportunity cost of
attending college because it represents an additional expense that you incur
solely because you are attending college. If you wouldn't have incurred any
parking fees otherwise, then this expense is a relevant cost in your overall
assessment of the opportunity cost of your college education.

2. Trade
A. Reduces specialization, which increases costs.
B. Allows specialization, which increases costs.
C. Reduces specialization, which reduces costs.
D. Allows specialization, which reduces costs.
 Trade enables individuals and countries to specialize in the production of
goods and services in which they have a comparative advantage. This
specialization leads to increased efficiency and lower costs, as resources are
allocated more effectively, allowing for greater overall output and variety of
goods available for trade.

3. Suppose your management professor has been offered a corporate job

with a 30 percent pay increase. He has decided to take the job. For him, the
marginal
A. benefit of leaving was greater than the marginal cost.
B. benefit of teaching was greater than the marginal cost.
C. cost of leaving was greater than the marginal benefit.
D. All of the above are correct.
If your management professor has decided to take the corporate job with a
30 percent pay increase, it indicates that he perceives the additional benefits
(the increased salary and possibly other advantages) of leaving his teaching
position as outweighing the costs (such as the value of teaching, job
satisfaction, or any other factors related to his current job).

 Therefore, the statement that aligns with his decision is that the benefit
of leaving was greater than the marginal cost.

4. Economics is the study of

A. the interaction of business and government.
B. how households decide who performs which tasks.
C. how society manages its scarce resources.
D. production methods.

5. Rational people make decisions “at the margin” by comparing __

 marginal benefits and marginal costs

6. The invisible hand's ability to coordinate the decisions of the firms and
households in the economy can be hindered by
A. Too much attention paid to efficiency
B. Increased competition in markets.
C. Enforcement of property rights.
D. Government actions that alter prices.
 The "invisible hand" refers to the self-regulating nature of the marketplace,
where individuals' pursuit of their own interests leads to positive outcomes
for society. However, when the government intervenes and alters prices (for
example, through price controls or subsidies), it can disrupt the signals that
prices provide to both firms and households. This can lead to inefficiencies
and misallocation of resources, thereby hindering the invisible hand's ability
to coordinate economic decisions effectively .

7. In a market economy, economic activity is guided by

A. Prices and self-interest
B. Large businesses.
C. The government.
D. Central planners.
 In a market economy, economic activity is primarily guided by the interaction of prices and the self-interested
actions of individuals and businesses. Prices act as signals for both consumers and producers, guiding them in
their decisions about what to buy, sell, and produce. This system allows for efficient allocation of resources based
on supply and demand, without the need for government intervention or central planning.

8. A typical society aims to maximize the use of its limited resources while
also trying to fairly distribute the benefits of those resources among its
members. In other words, the society encounters a tradeoff between
A. Inflation and unemployment.
B. Work and leisure.
C. Guns and butter.
D. Efficiency and equality.
 Societies often face a tradeoff between maximizing efficiency (making the best use of limited resources) and
promoting equality (fair distribution of benefits among its members). Efforts to improve equality might reduce
efficiency, and vice versa.

9. Producers were compensated for meeting output targets rather than for
selling their products. In this context, what economic incentives did producers
have?
A. To produce those products that society desires most
B. To conserve on costs, so as to maintain efficiency in the economy
C. To produce good quality products so that society would benefit from the
resources used
D. To produce enough to meet the output target, without regard for quality or
cost
 When producers are compensated based on meeting output targets rather than for the actual sale of their
products, their primary incentive becomes simply meeting those targets. This can lead to a focus on quantity over
quality, as producers may prioritize producing enough to fulfill the requirements for compensation rather than
ensuring that the products are of good quality or managing costs effectively.

10. The government can potentially improve market outcomes if market

inequalities or market failure exists
A. Flase
B. True

 The government can potentially improve market outcomes in situations where market inequalities
(such as income inequality) or market failures (such as monopolies, externalities, or public goods) exist.
In these cases, government intervention can help to correct inefficiencies, redistribute resources more
equitably, and promote overall economic well-being.

11. Which of the following statements about trade is false?

A. Trade increases competition.
B. Trade allows people to buy a greater variety of goods and services at lower
cost
C. With trade, one country wins and one country loses.
D. Bulgaria can benefit, potentially, from trade with any other country.
 Trade can make everyone better off. In reality, trade can benefit both countries involved.

12. Which of the following statements about markets is most accurate?

A. Markets are a good way to organize economic activity in developed
nations, but not in less developed nations.
B. Markets are usually a good way to organize economic activity.
C. Markets fail and are therefore not an acceptable way to organize economic
activity.
D. Markets are usually inferior to central planning as a way to organize
economic activity.
13. Government policies that improve equality usually increase efficiency at
the same time
A. True
B. False
 The trade-off society faces is between efficiency and equality. When
government policies are designed, these two goals often conflict.

14. When the "invisible hand" guides economic activity, prices of products
reflect
A. Only the values that society places on those products.
B. Both the values that society places on those products and the costs to
society of producing those products.
C. None of the above; when the "invisible hand" guides economic activity,
prices of products are set by the government in a manner that is thought to
be "fair."
D. Only the costs to society of producing those products.
 When the "invisible hand" guides economic activity in a free market, prices reflect both the value that
consumers place on a product (demand) and the cost of producing it (supply). This balance ensures that resources
are allocated efficiently, matching the needs and wants of society with the costs of providing those goods or
services.

15. Your opportunity cost of going to a movie is

A. The price of the ticket plus the cost of any soda and popcorn you buy at
the theater
B. The total cash expenditure needed to go to the movie plus the value of
your time
C. The price of the ticket
D. Zero, as long as you enjoy the movie and consider it a worthwhile use of
time and money

16. Which of the following does not represente an opportunity cost for Nghia
in attending school
A. The money he spends on his food while attending school
B. The nap he could have enjoyed if he had not attended class
C. The party he could have enjoyed if he had not stayed in to study for his
exam
D. The money he could have earned by working if he had not gone to college
* Explain
- The money Nghĩa spends on food is not considered an opportunity cost of
attending school because he would need to eat regardless of whether he
attends school or not. Opportunity costs are associated with the choices he
makes specifically because he is attending school, such as lost income from
not working or missed social activities. Therefore, food expenses are a
necessary cost of living and do not change based on his decision to attend
school.

17. Although pollution regulations lead to a cleaner environment and

enhanced health benefits, they also result in decreased incomes for the
owners, workers, and customers of the regulated firms. This statement
demonstrates the principle that
A. People respond to incentives
B. Trade can make everyone better off
C. Rational people think at the margin
D. People face tradeoffs

This statement illustrates the principle that, while pollution regulations can lead to positive outcomes
such as a cleaner environment and better health, they also come with costs, such as decreased incomes for
the owners, workers, and customers of regulated firms. This highlights the tradeoff between
environmental benefits and economic costs, demonstrating that achieving one goal may require sacrificing
another.

18. The self-interest of the participants in an economy is guided into

promoting general economic self-interest by
A. Government intervention.
B. Oikonomos
C. The invisible hand.
D. Market power
 The concept of the "invisible hand," introduced by economist Adam Smith, refers to the idea that individuals'
self-interested actions in a free market can lead to positive outcomes for society as a whole. As people pursue
their own interests, they inadvertently contribute to the overall economic well-being, effectively guiding
resources to their most efficient uses without the need for central planning or government intervention.

19. Phong has spent $600 purchasing and repairing an old fishing boat, which
he expects to sell for $900 once the repairs are complete. DeShawn discovers
that, in addition to the $600 he has already spent, he needs to make an
additional repair, which will cost another $400, in order to make the boat
worth $900 to potential buyers. He can sell the boat as it is now for $400.
What should he do?
A. He should complete the repairs and sell the boat for $900.
B. He should sell the boat as it is now for $400
C. It does not matter which action he takes; the outcome is the same either
way.
D. He should keep the boat since it would not be rational to spend $1,000 on
repairs and then sell the boat for $900.

 This is an example of sunk costs. The $600 already spent is irrelevant to the decision because it
cannot be recovered (sunk cost). The rational decision now is to compare the costs of the next step: if he
spends another $400 on repairs, he will be able to sell the boat for $900, but the total cost would then be
$1,000 ($600 already spent + $400 for further repairs), resulting in a net loss of $100.

Selling the boat as it is for $400 avoids this additional loss, as he would at least recover some of his costs
without losing more money. Therefore, it makes sense for him to sell the boat now for $400.

20. Imagine that after graduating from college, Thảo secure a job at a bank
with an annual salary of $30,000. After two years in that position, you have
the chance to enroll in a one-year graduate program, which would mean
leaving your job. Which of the following factors should not be considered
when calculating your opportunity cost?
A. The $30,000 salary that you could have earned if you retained your job at
the bank
B. he cost of tuition and books to attend the graduate program
C. The value of insurance coverage and other employee benefits you would
have received if you retained your job at the bank
D. The $45,000 salary that you will be able to earn after having completed
your graduate program

 When calculating opportunity cost, you should consider the costs and benefits associated with the
immediate decision you are making. The opportunity cost includes what you are giving up now (the
$30,000 salary from your job, tuition and books, and benefits you would lose) but does not include future
potential earnings that would only occur after you have completed the graduate program.

Thus, the future salary of $45,000 is not relevant to the calculation of opportunity cost for the current
decision regarding whether to leave your job for graduate school.

21. A marginal change is a

A. Change for the worse, and so it is usually a short-term change.
B. Change that involves little, if anything, that is important.
C. Large, significant adjustment.
D. Small, incremental adjustment
 Principle 3: Rational people think at the margin. Economists use the term
marginal change to describe a small incremental adjustment to an existing
plan of actio

22. The “invisible hand” directs economic activity through

A. Government regulations
B. Advertising
C. Central planning
D. Prices
 The "invisible hand" directs economic activity primarily through prices in a
free market system. Prices reflect the supply and demand for goods and
services, guiding both producers and consumers in their decision-making
processes (Principle 6: Markets are usually a good way to organize economic
activity)
23. Equality refers to the size of the economic pie, and efficiency refers to
how the pie is divided
A. True
B. Flase
 Principle 1: people face trade-offs. Efficiency refers to the size of the
econimic pie, equality refers to how the pie is divided into individuals slices.

24. Mr Hải loves his work, teaching economics. He has been offered other
positions in the corporate world that would increase his income by 25
percent, but he has decided to continue working as a professor. His decision
would not change unless the marginal

A. Benefit of a corporate job decreased

B. Cost of teaching increased.
C. Cost of a corporate job increased.
D. Benefit of teaching increased.
 Mr. Hải continues teaching despite the opportunity to earn more in a corporate job because the current
benefits of teaching outweigh the additional income he would make elsewhere. However, if the costs of teaching
(like workload, stress, or reduced job satisfaction) were to increase, this might reduce the relative benefit he
perceives from teaching. An increase in the cost of teaching could eventually make the corporate job more
attractive by comparison, leading him to consider switching.

25. People are willing to pay more for a diamond than for a bottle of water
because
A. The marginal cost of producing an extra diamond far exceeds the marginal
cost of producing an extra bottle of water.
B. Producers of diamonds have a much greater ability to manipulate diamond
prices than producers of water have to manipulate water prices.
C. Water prices are held artificially low by governments, since water is
necessary for life.
D. The marginal benefit of an extra diamond far exceeds the marginal benefit
of an extra bottle of water.
 Principle 3: Rational people think at the margin
26. Uyên is a successful actress and owns a home, but she hires a landscaper
to take care of her lawn instead of doing it herself. She knows that she can
make more money in the time it would take to do the lawn work than the cost
of paying the landscaper. This is an example of which economic principle?
A. Governments can sometimes improve market outcomes.
B. Trade can make everyone better off.
C. Markets are usually a good way to organize economic activity.
D. Prices rise when the government prints too much money.
 Uyên hires a landscaper because she values her time more highly in her own profession as an actress. By
"trading" her money for the landscaper’s services, she benefits by freeing up her time for more lucrative work,
and the landscaper benefits by earning money. This is an example of the economic principle that trade can make
everyone better off, as each person can specialize in the activity where they have a comparative advantage—in
this case, Uyên in acting and the landscaper in lawn care.

27. Resources are

A. scarce for households and scarce for economies.
B. scarce for households but plentiful for economies.
C. plentiful for households and plentiful for economies.
D. plentiful for households but scarce for economies.

28. Linh goes to the CGV cinema, where tickets usually cost $9. She intends
to see a movie for which she has a $3 discount coupon that is only applicable
to that film and is set to expire that day. However, when she arrives, she
meets a friend who suggests watching a new release instead. There is only
one screening time remaining for both movies, and they are scheduled to
start and end at the same time. If Linh decides to watch the new release with
her friend, what would her opportunity cost be?
A. The amount she values the first movie + $3
B. The amount she values the first movie + $9
C. $3
D. $9

 When Linh decides to watch the new release instead of the first movie, her opportunity cost includes
both the value she places on watching the first movie (which reflects her personal preference) and the $3
discount coupon that she loses by not using it.
So, the opportunity cost consists of:

1. The value she places on the first movie.

2. The monetary value of the discount coupon she could have used for that movie ($3).

Thus, the total opportunity cost is the amount she values the first movie plus the $3.

29. Hà is planning her activities for a hot summer day. She would like to go to
the local swimming pool and see the latest blockbuster movie, but because
she can only get tickets to the movie for the same time that the pool is open.
In other words, she can only choose one activity. This illustrates the basic
principle that
A. Rational people think at the margin.
B. People respond to incentives.
C. Improvements in efficiency sometimes come at the expense of equality.
D. People face tradeoffs.

30. To say people respond to incentives means that people may alter their
decisions when the costs and benefits of an action change.
A. True
B. False

31. Which is the most accurate statement about trade?

A. Trade makes some nations better off and others worse off.
B. Trade can make every nation better off.
C. Trade helps rich nations and hurts poor nations.
D. Trading for a good can make a nation better off only if the nation cannot
produce that good itself.

32. Trung is in the process of restoring a car and has already invested $4,000
into it. He anticipates being able to sell the car for $5,800. However, he
learns that he needs to do an extra $2,400 worth of work to achieve that
selling price. Alternatively, he could sell the car now, in its current condition,
for $3,800. What should he decide to do?
A. He should sell the car now for $3,800.
B. He should keep the car since it wouldn’t be rational to spend $6,400
restoring a car and then sell it for only $5,800.
C. He should complete the additional work and sell the car for $5,800.
D. It does not matter which action he takes since the outcome will be the
same either way

33. One reason we need government, even in a market economy, is that

A. There is insufficient market power in the absence of government.
B. Property rights are too strong in the absence of government.
C. The invisible hand is not perfect.

34. Previously, producers were paid for how much they produced, not for
selling their products. Under those circumstances, what were the economic
incentives for producers?
A. To produce good quality products so that society would benefit from the
resources used
B. To produce those products that society desires most
C. To produce enough to meet the output target, without regard for quality or
cost
D. To conserve on costs, so as to maintain efficiency in the economy

35. Consider Phong’s decision to go to college. If he goes to college, he will

spend $90,000 on tuition, $15,000 on room and board, and $7,000 on books.
If he does not go to college, he will earn $22,000 working at a construction
job and he will spend $11,000 on room and board. Paul’s cost of going to
college is
A. $96,000
B. $123,000
C. $114,000
D. $110,000

36. Economists use the word equality to describe a situation in which

A. Each member of society has access to abundant quantities of goods and
services, regardless of his or her income.
B. Society's resources are used in an equal manner
C. Each member of society has the same income.
D. Society is getting the maximum benefits from its scarce resources.

37. Đức is an execellent baker and Phong has a plentiful farm. If Phong trades
eggs and butter to Đức for some of Đức’s bread and pastries.
A. both Phong and Duc are made better off by trade
B. only Duc is made better off by trade
C. neither Phong nor Duc are made better off by trade
D. only Phong is made better off by trade
* Explain
- Trade allows both parties to specialize in what they do best and exchange
goods they have inabundance for goods they need or want. In this case, Duc
specializes in baking, and Phong specializes in farming. By trading eggs and
butter for bread and pastries, both benefit from each other’s experise and
resources, leading to mutal gains from trade.

38. What you give up to obtain an item is called your

A. Monetary cost
B. Direct cost
C. Opportunity cost
D. Explicit cost

39. The “invisible hand” works to promote general wellbeing in the economy
primarily through
A. Altruism
B. Government intervention.
C. The political process.
D. People’s pursuit of selfinterest.

40. Which of the following is not an example of a group responding to an

incentive?
A. Consumers buy more of a product when it is on sale at a reduced price.
B. Universities offer fewer online classes when they generate more revenue
than traditional classes.
C. Students attend class because of an attendance policy that reduces their
grade for absences.
D. Employees work harder to earn higher commissions.

41. Market failure is the ability of a single person to have a substantial

influence on market prices.
A. True
B. False

42. One effect of the government-imposed seat belt law in the U.S. has been
A. An increase in the number of accidents.
B. A dramatic decrease in the number of driver deaths
C. Safer driving.
D. A dramatic decrease in the number of pedestrian deaths.

43. A rational decision maker takes an action if and only if

a. The marginal cost of the action exceeds the marginal benefit
b. The average benefit of the action exceeds the average cost
c. The marginal benefit of the action exceeds the marginal cost
d. The average cost of the action exceeds the average benefit
* Explain:
- Principle 3 – Rational people think at the margin

44. Following the implementation of laws requiring automobiles to have seat

belts, which of the following occurred?
A. All of the answers are correct.
B. An individual’s probability of surviving an auto accident rose.
C. There was an increase in pedestrian deaths.
D. There was an increase in automobile accidents.

45. Suppose the government of Vietnam passes a law that increases the tax
on cigarettes. As a result, smokers in Vietnam stop purchasing their
cigarettes. Which of the following principles does this scenario best illustrate?
A. Trade can make everyone better off.
B. People respond to incentives.
C. Rational people think at the margin.
D. Markets are usually a good way to organize economic activity

46. The “invisible hand” refers to

A. The control that large firms have over the economy.
B. How the decisions of households and firms lead to desirable market
outcomes.
C. Government regulations without which the economy would be less
efficient.
D. How central planners made economic decisions.

47. Something that induces a person to act is called

A. A trade-off.
B. A policy.
C. An incentive.
D. An opportunity cost
48. When determining the actual costs of attending college, which part of
your room and board expenses should be factored in?
a. Your full room-and-board expenses should always be included
b. None of your room-and-board expenses should ever be included
c. You should include only the amount by which your room-and-board
expenses exceed the income you earn while attending college
d. You should include only the amount by which your room-and-board
expenses exceed the expenses for rent and food if you were not in college
* Explain
- When calculating the actual costs of attending college, only the additional
expenses incurred because of attending college should be considered. If you
would have to pay for room and board (rent and food) whether or not you are
attending college, then only the difference between your college-related
room-and-board expenses and your normal living expenses should be
factored in as part of the opportunity cost of attending college.
49. For most students, the earnings they give up to attend college are
A. The single largest cost of their education.
B. Not considered true costs by an economist.
C. About equal to the costs of room and board at college.
D. A minor cost when compared to the costs of tuition, room and board, and
the like.

50. Efficiency means that

A. Society's goods and services are distributed fairly, though not necessarily
equally, among society's members.
B. Society's goods and services are distributed equally among society's
members.
C. Society is conserving resources in order to save them for the future.
D. Society is getting the maximum benefits from its scarce resources.