Unit 1: Basic Economic Concepts: practice

Question 1

Which statement best describes the economic problem of scarcity?

Question 2

Economists group economic resources into land, labor, capital and entrepreneurship. Which of the following is an example of capital?

Question 3

A country discovers large new oil deposits, and its total output rises sharply. Which statement about scarcity in that country is correct?

Question 4

Which of the following would shift a country's production possibilities curve outward?

Question 5

An economy produces only wheat, measured on the horizontal axis, and cars, measured on the vertical axis. A new seed variety raises the wheat each acre yields but has no effect on making cars. How does the PPC change?

Question 6

Countries X and Y have identical production possibilities curves for capital goods and consumer goods. This year Country X chooses a point with more capital goods than Country Y does. Other things equal, what is the most likely result in later years?

Question 7

Lena needs 3 hours to build a table and 1 hour to build a chair. Omar needs 4 hours to build a table and 2 hours to build a chair. Which statement is correct?

Question 8

Two countries each specialize according to comparative advantage and trade at mutually beneficial terms. Why can both countries gain?

Question 9

Which of the following causes a decrease in the quantity of coffee demanded but not a decrease in the demand for coffee?

Question 10

Printers and ink cartridges are complements. The price of printers falls sharply. What happens in the market for ink cartridges?

Question 11

Consumers' incomes rise, and with all else unchanged the demand for used cars falls. Which conclusion follows?

Question 12

The price of flour, an input in making bread, rises. With demand unchanged, what happens in the market for bread?

Question 13

Which statement expresses the law of supply?

Question 14

Which event would shift the supply curve for solar panels to the right?

Question 15

Demand and supply schedules. Price 2: quantity demanded 80, quantity supplied 20. Price 4: 60 and 40. Price 6: 50 and 50. Price 8: 40 and 60. Price 10: 30 and 70.
Price	Quantity demanded	Quantity supplied
2	80	20
4	60	40
6	50	50
8	40	60
10	30	70

The table shows the demand and supply schedules for a good, with the price in dollars. At a price of 4, which describes the market and what happens next?

Question 16

In the market for apples, demand and supply both increase at the same time. What must happen to the equilibrium price and quantity?

Question 17

The graph shows the market for orange juice before and after a change. Which event best explains the change shown?

Question 18

In the graph, the price of the good is P₂. Which describes the market at that price and what will happen next?

A straight-line PPC

The graph shows the production possibilities curve of an economy that produces only capital goods and consumer goods. Four points, W, X, Y and Z, are labeled.

Question 19

Which point represents an economy with unemployed or underused resources?

Question 20

What is the opportunity cost of producing one more unit of capital goods at any point on this PPC?

Robots and wheat

An economy uses all of its resources to produce only robots and wheat. The table shows five combinations on its production possibilities curve.

Production possibilities for robots and wheat. Combination A: 0 robots and 100 tons of wheat. B: 10 robots and 90 tons. C: 20 robots and 70 tons. D: 30 robots and 40 tons. E: 40 robots and 0 tons of wheat.
Combination	Robots	Wheat (tons)
A	0	100
B	10	90
C	20	70
D	30	40
E	40	0

Question 21

According to the table, what is the opportunity cost of each additional robot when the economy moves from combination C to combination D?

Question 22

What does the table show about opportunity cost in this economy?

Shirts and radios

Alpha and Beta each produce shirts and radios. The table shows how much one worker in each country can produce in a day if the worker makes only that good. Opportunity costs are constant in both countries.

Output per worker per day. Alpha: 12 shirts or 4 radios. Beta: 6 shirts or 3 radios.
Country	Shirts	Radios
Alpha	12	4
Beta	6	3

Question 23

Which country has an absolute advantage in producing radios?

Question 24

Which country has a comparative advantage in producing radios, and what is its opportunity cost of one radio?

Question 25

Alpha specializes in shirts and Beta in radios. Which terms of trade would benefit both countries?