ECON 140: CHAPTER 1
REVIEW QUESTIONS & ANSWERS
MCQs
1- All economic questions are about
A) how to make money.
B) what to produce.
C) how to cope with scarcity.
D) how to satisfy all our wants.
2- The most fundamental economic problem is
A) security.
B) scarcity.
C) health.
D) the fact the United States buys more goods from foreigners than we sell to foreigners.
3- Scarcity requires that people must
A) cooperate.
B) compete.
C) trade.
D) make choices
4-In every economic system, choices must be made because resources are ________ and our
wants are ________
A) unlimited; limited
B) limited; unlimited
C) unlimited; unlimited
D) limited; limited
5-Economics is the study of
A) the distribution of surplus goods to those in need.
B) affluence in a morally bankrupt world.
C) the choices we make because of scarcity.
D) ways to reduce wants to eliminate the problem of scarcity.
6- The study of the choices made by individuals is part of the definition of
A) Microeconomics.
B) positive economics.
C) macroeconomics.
D) normative economics.
7- The branch of economics that deals with the analysis of the whole economy is called
A) macroeconomics.
B) marginal analysis.
C) microeconomics.
D) metroanalysis.
8- Macroeconomics differs from microeconomics in that:
A) macroeconomics studies the decisions of individuals.
B) microeconomics looks at the economy as a whole.
C) macroeconomics studies the behavior of government while microeconomics looks at private
corporations.
D) macroeconomics focuses on the national economy and the global economy
9- When an economy produces more houses and fewer typewriters, it is answering the
________ question.
A) "what"
B) "how"
C) "where"
D) "for whom"
10- When a firm decides to produce more electric cars and fewer gas guzzlers, it is most
directly answering the ________ question.
A) "how"
B) "scarcity"
C) "what"
D) "for whom"
11-When a textile company keeps track of its inventory using a computer and its competitor
uses a spreadsheet and pencil, they are both answering the ________ question.
A) "what"
B) "how"
C) "for whom"
D) "where"
12- The fact that people with higher incomes get to consume more goods and services
addresses the ________ question.
A) "for whom"
B) "when"
C) "where"
D) "how"
13-What are the four categories into which factors of production are grouped?
A) profit, wages, rent, and interest
B) land, labor, capital, and entrepreneurship
C) capital, human capital, land, and labor
D) entrepreneurship, profit, labor, and wages
14- Entrepreneurs do all of the following EXCEPT
A) organize labor, land, and capital.
B) come up with new ideas about what and how to produce.
C) bear risk from business decisions.
D) own all the other resources used in the production process.
15- Which of the following is NOT an investment in human capital?
A) a medical student's internship
B) a student's purchase of a personal computer
C) a mechanic attends a training workshop on a new type of engine
D) Johnny learns how to read
16- A person goes to college to become an engineer. This is an example of an
A) investment in physical capital.
B) investment in human capital.
C) increase in entrepreneurship.
D) increase in labor
17- Opportunity cost is best defined as
A) how much money is paid for something.
B) how much money is paid for something, taking inflation into account.
C) the highest-valued alternative that is given up to get something.
D) all the alternatives that are given up to get something.
18-The benefit that arises from an increase in an activity is called
A) the marginal benefit.
B) the marginal cost.
C) opportunity cost.
D) an incentive
19- A cost due to an increase in activity is called
A) an incentive loss.
B) a marginal cost.
C) a negative marginal benefit.
D) the total cost
20 -If the marginal cost of an activity falls or the marginal benefit rises, then you would
A) undertake less of the activity.
B) undertake more of the activity.
C) not change your participation.
D) cease participation in the activity.
MCQ Answers:
1 C 2 B 3 D 4 B 5 C
6 A 7 A 8 D 9 A 10 C
11 B 12 A 13 B 14 D 15 B
16 B 17 C 18 A 19 B 20 B
PROBLEMS
1- From the following table below, Y is measured along the y-axis and X along the x-
axis. Calculate the slope between each two points. What is the relation between X
and Y? show the relation graphically
Point X Y Slope =change Y/change X
A 100 50
B 200 75 (75-50)/(200-100)=25/100=0.25
C 300 100 (100-75)/(300-200)=25/100=0.25
D 400 100 (100-100)/(400-300)=0/100=0
E 500 75 (75-100)/(500-400)=-25/100=-0.25
F 600 50 (50-75)/(600-500)=-25/100=-0.25
2- Mohamed can produce hot dogs and hamburgers. The table gives Mohamed's
production possibilities. Find the opportunity cost of each extra hamburger.
Hot dogs Hamburgers Opportunity Cost
(number per hour) (number per hour)
100 and 0
95 and 10 10H=5 D 1H=0.5D
80 and 20 10H=15D 1H=1.5D
50 and 30 10H=30D 1H=3D
0 and 40 10H=50D 1H=5D
3- In the PPC depicted in the figure, find the Opportunity cost of 1st , 2nd and 3rd
banana
1st B = 6 - 5.6 = 0.4 H
2nd B = 5.6 – 5 = 0.6 H
3rd B = 5 – 4 = 1 H
4- From above table, determine if the following choices, attainable, unattainable,
efficient, inefficient, and why?
attainable unattainable efficient inefficient Reason
(2 B , 4 H) Yes Yes Inside PPC
(4 B , 4 H) Yes Outside
PPC
( 2 B , 5 H) Yes Yes On PPC
( 1B ,3 H) Yes Yes Inside PPC
5- The following table represents the marginal cost and marginal benefit associated
with pizza (in terms of movies). What amount of pizza should be produced if
resources are to be used efficiently?
Quantity of Marginal
Marginal cost
pizza benefit
5 25 11
6 20 13
7 15 15
8 10 17
6- The Graph below represents the marginal cost and marginal benefit associated
with gasoline.
A- What is the marginal benefit (MB) of consuming the 3 millionth gallon of gasoline
per month? [ 1]
B- What is the marginal cost (MC) of producing the 3 millionth gallon of gasoline
per month? [5]
C- What amount of gasoline should be produced if resources are to be used
efficiently? [ 2 units]
END OF QUESTION REVIEW FOR CHAPTER ONE
