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Set 1

Question 1: Macroeconomics approaches the study of economics from the viewpoint of:

A. the entire economy.
B. governmental units.
C. the operation of specific product and resource markets.
D. individual firms.

Answer;  A. the entire economy.

Question 2: Which of the following is associated with macroeconomics?

A. an examination of the incomes of Harvard Business School graduates
B. an empirical investigation of the general price level and unemployment rates since 1990
C. a study of the trend of pecan prices since the Second World War
D. a case study of pricing and production in the textbook industry

Answer; B. an empirical investigation of the general price level and unemployment rates since 1990

Question 3: The problems of aggregate inflation and unemployment are:

A. major topics of macroeconomics.
B. not relevant to the U.S. economy.
C. major topics of microeconomics.
D. peculiar to command economies.

Answer; A. major topics of macroeconomics.

Question 4: Which of the following statements pertains to macroeconomics?

1A. Because the minimum wage was raised, Mrs. Olsen decided to enter the labor force.

B. A decline in the price of soybeans caused farmer Wanek to plant more land in wheat.

C. National income grew by 2.7 percent last year.

D. The Pumpkin Center State Bank increased its interest rate on consumer loans by 1 percentage point.

Answer; C. National income grew by 2.7 percent last year.

Question 5: Macroeconomics can best be described as the:

A. analysis of how a consumer tries to spend income.

B. study of the large aggregates of the economy or the economy as a whole.

C. analysis of how firms attempt to maximize their profits.

D. study of how supply and demand determine prices in individual markets.

Answer; B. study of the large aggregates of the economy or the economy as a whole.

Question 6: Microeconomics is concerned with:

A).  the economy as a whole

B). the electronics industry

C). the study of individual economic behaviour

D). the interactions within the entire economy

Answer; C). the study of individual economic behaviour

Question 7: Microeconomics:

A. is the basis for the “after this, therefore because of this” fallacy.

B. is not concerned with details, but only with the overall big picture of the economy.

C. is concerned with individual economic units and specific markets.

D. describes the aggregate flows of output and income.

Answer; C. is concerned with individual economic units and specific markets.

Question 8: Which of the following is a microeconomic statement?

A. The real domestic output increased by 2.5 percent last year.

B. Unemployment was 6.8 percent of the labor force last year.

C. The price of personal computers declined last year.

D. The general price level increased by 4 percent last year.

Answer; C. The price of personal computers declined last year.

Question 9: Which of the following statements is true?

A. Microeconomics focuses on specific decision-making units of the economy; macroeconomics examines the economy as a whole.

B. Macroeconomics focuses on specific decision-making units of the economy; microeconomics examines the economy as a whole.

C. Every topic in economics is either a microeconomic or a macroeconomic issue; a topic cannot be both.

D. Topics in microeconomics have public policy implications; topics in macroeconomics do not.

Answer: A. Microeconomics focuses on specific decision-making units of the economy; macroeconomics examines the economy as a whole.

Question 10: A normative statement is one that:

A. is based on the law of averages.

B. applies only to microeconomics.

C. applies only to macroeconomics.

D. is based on value judgments.

Answer; D. is based on value judgments.

Question 11: A positive statement is one which is:

A. derived by induction.

B. derived by deduction.

C. subjective and is based on a value judgment.

D. objective and is based on facts.

Answer; D. objective and is based on facts.

Question 12: Which of the following is a positive statement?

A. The humidity is too high today.

B. It is too hot to jog today.

C. The temperature is 92 degrees today.

D. Summer evenings are nice when it cools off.

Answer; C. The temperature is 92 degrees today.

Question 13: Normative statements are concerned primarily with:

A. facts and theories.

B. what ought to be.

C. what is.

D. rational choice involving costs and benefits.

Answer; B. what ought to be.

Question 14: A positive statement is concerned primarily with:

A. some goal that is desirable to society.

B. what should be.

C. what is.

D. the formulation of economic policy.

Answer; C. what is.

Question 15: “Economics is concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity.” This statement is:

A. positive, but incorrect.

B. positive and correct.

C. normative, but incorrect.

D. normative and correct.

Answer; B. positive and correct.

Question 16: Ben says that “An increase in the tax on beer will raise its price.” Holly argues that “Taxes should be increased on beer because college students drink too much.” We can conclude that:

A. Ben’s statement is normative, but Holly’s is positive.

B. Holly’s statement is normative, but Ben’s is positive.

C. Both statements are normative.

D. Both statements are positive.

Answer; B. Holly’s statement is normative, but Ben’s is positive.

Question 17: “Macroeconomics is the part of economics concerned with individual units such as a person, a household, a firm, or an industry.” This statement is:

A. positive, but incorrect.

B. positive and correct.

C. normative, but incorrect.

D. normative and correct.

Answer; A. positive, but incorrect.

Question 18: Brinley says that “Gas prices are rising because there aren’t enough oil refineries.” Katie argues that “Gas prices are rising because of the growing demand for gasoline from China and India.” We can conclude that:

A. Brinley’s statement is positive; Katie’s statement is normative.

B. Brinley’s statement is normative; Katie’s statement is positive.

C. Both statements are positive.

D. Both statements are normative.

Answer; B. Brinley’s statement is normative; Katie’s statement is positive.

Question 19: The economizing problem is:

A. the need to make choices because economic wants exceed economic means.

B. how to distribute resources equally amongst all members of society.

C. that people’s means often exceed their wants.

D. that people do not know how to rationally allocate resources.

Answer; A. the need to make choices because economic wants exceed economic means.

Question 20: The economizing problem is one of deciding how to make the best use of:

A. virtually unlimited resources to satisfy virtually unlimited wants.

B. limited resources to satisfy virtually unlimited wants.

C. unlimited resources to satisfy limited wants.

D. limited resources to satisfy limited wants.

Answer; B. limited resources to satisfy virtually unlimited wants.

Question 21: The scarcity problem:

A. persists only because countries have failed to achieve continuous full employment.

B. persists because economic wants exceed available productive resources.

C. has been solved in all industrialized nations.

D. has been eliminated in affluent societies such as the United States and Canada.

Answer; B. persists because economic wants exceed available productive resources.

Question 22: The alternative combinations of two goods which a consumer can purchase with a given money income is shown by:

A. a production possibilities curve.

B. a demand curve.

C. consumer expenditure line.

D. a budget line.

Answer; D. a budget line.

Question 23: The budget line shows:

A. the amount of product A that a consumer is willing to give up to obtain one more unit of product B.

B. all possible combinations of two goods that can be purchased, given money income and the prices of the goods.

C. the minimum amount of two goods that a consumer can purchase with a given money income.

D. all possible combinations of two goods that yield the same level of utility to the consumer.

Answer; B. all possible combinations of two goods that can be purchased, given money income and the prices of the goods.

Question 24: Refer to the budget line shown in the diagram above. If the consumer’s money income is $20, the:

A. prices of C and D cannot be determined.

B. price of C is $2 and the price of D is $4.

C. consumer can obtain a combination of 5 units of both C and D.

D. price of C is $4 and the price of D is $2.

Answer; D. price of C is $4 and the price of D is $2.

Question 25: Refer to the budget line shown in the diagram above(in question 24). If the consumer’s money income is $20, which of the following combinations of goods is unattainable?

A. 4 units of C, and 6 units of D.

B. 5 units of C, and no units of D.

C. 1 unit of C, and 8 units of D.

D. 2 units of C, and 6 units of D.

Answer; A. 4 units of C, and 6 units of D.

Question 26: Refer to the budget line shown in the diagram above. The absolute value of the slope of the budget line is:

A. MUC/MUD.

B. one-half.

C. PD/PC.

D. PC/PD.

Answer; D. PC/PD.

 Question 27: In moving along a given budget line:

A. the prices of both products and money income are assumed to be constant.

B. each point on the line will be equally satisfactory to consumers.

C. money income varies, but the prices of the two goods are constant.

D. the prices of both products are assumed to vary, but money income is constant.

Answer; A. the prices of both products and money income are assumed to be constant.

Question 28: An increase in money income:

A. shifts the consumer’s budget line to the right.

B. shifts the consumer’s budget line to the left.

C. increases the slope of the budget line.

D. has no effect on the budget line.

Answer; A. shifts the consumer’s budget line to the right.

Question 29: The shift of the budget line from cd to ab in the above figure is consistent with:

A. decreases in the prices of both M and N.

B. an increase in the price of M and a decrease in the price of N.

C. a decrease in money income.

D. an increase in money income.

Answer; C. a decrease in money income.

Question 30: Any combination of goods lying outside of the budget line:

A. implies that the consumer is not spending all his income.

B. yields less utility than any point on the budget line.

C. yields less utility than any point inside the budget line.

D. is unattainable, given the consumer’s income.Answer; D. is unattainable, given the consumer’s income.

Question 31: Suppose you have a money income of $10, all of which you spend on Coke and popcorn. In the above diagram, the prices of Coke and popcorn respectively are:

A. $.50 and $1.00.

B. $1.00 and $.50.

C. $1.00 and $2.00.

D. $.40 and $.50.

Answer; A. $.50 and $1.00.

Question 32: Other things equal, an increase in a consumer’s money income:

A. increases the amount of utility a consumer receives from a given quantity of a good.

B. shifts her budget line rightward because she can now purchase more of both products.

C. eliminates the individual’s economizing problem.

D. causes the consumer to choose a different combination of goods along a given budget line.

Answer; B. shifts her budget line rightward because she can now purchase more of both products.

Question 33: The slope of a budget line reflects the:

A. desirability of the two products.

B. price ratio of the two products.

C. amount of the consumer’s income.

D. utility ratio of the two products.

Answer; B. price ratio of the two products.

Question 34; Suppose Elroy’s budget line is as shown on the above diagram. If his tastes change in favor of Coke and against popcorn, the budget line will:

A. become steeper.

B. become flatter.

C. shift rightward.

D. be unaffected.

Answer; D. be unaffected.

Question 35: Assume the price of product Y (the quantity of which is on the vertical axis) is $15 and the price of product X (the quantity of which is on the horizontal axis) is $3.Also assume that money income is $60.The absolute value of the slope of the resulting budget line:

A. is 5.

B. is 1/5.

C. is 4.

D. is 20.

Answer; B. is 1/5.

Question 36: Refer to the above graphs. Assume that pizza is measured in slices and beer in pints. In which of the graphs is the opportunity cost of a pint of beer equal to one slice of pizza?

A. graph A

B. graph B

C. graph C

D. graph D

Answer; D. graph D

Question 37: Refer to the above graphs. Assume that pizza is measured in slices and beer in pints. In which of the graphs is the opportunity cost of a pint of beer the lowest?

A. graph A

B. graph B

C. graph C

D. graph D

Answer; B. graph B

Question 38: Suppose that Julia receives a $20 gift card for the local coffee shop, where she only buys lattes and muffins. If the price of a latte is $4 and the price of a muffin is $2, then we can conclude that Julia:

A. should only buy muffins.

B. should only buy lattes.

C. can buy 5 lattes or 10 muffins if she chooses to buy only one of the two goods.

D. can buy 5 lattes and 10 muffins with her $20 gift card.

Answer; C. can buy 5 lattes or 10 muffins if she chooses to buy only one of the two goods.

Question 39: Camille is at the candy store with her grandmother, who offers to buy her $6 worth of candy. If lollipops are $1 each, and candy bars are $2 each, what combination of candy can Camille’s grandmother buy for her?

A. Six lollipops and three candy bars

B. Two lollipops and two candy bars

C. Three lollipops and two candy bars

D. One lollipop and three candy bars

Answer; B. Two lollipops and two candy bars

Question 40: Which of the following is a labor resource?

A. a computer programmer

B. a computer

C. silicon (sand) used to make computer chips

D. a piece of software used by a firm

Answer; A. a computer programmer

Set 2

Question 1: For economists, the word “utility” means:

A. versatility and flexibility.

B. rationality.

C. pleasure or satisfaction.

D. purposefulness.

Answer; C. pleasure or satisfaction.

Question 2: In economics, the pleasure, happiness, or satisfaction received from a product is called:

A. marginal cost.

B. rational outcome.

C. status fulfillment.

D. utility.

Answer; D. utility.

Question 3: When economists say that people act rationally in their self interest, they mean that individuals:

A. look for and pursue opportunities to increase their utility.

B. generally disregard the interests of others.

C. are mainly creatures of habit.

D. are usually impulsive and unpredictable.

Answer; A. look for and pursue opportunities to increase their utility.

Question 4: According to Emerson: “Want is a growing giant whom the coat of Have was never large enough to cover.” According to economists, “Want” exceeds “Have” because:

A. people are greedy.

B. productive resources are limited.

C. human beings are inherently insecure.

D. people are irrational.

Answer; B. productive resources are limited.

Question 5: According to economists, economic self-interest:

A. is a reality that underlies economic behavior.

B. has the same meaning as selfishness.

C. is more characteristic of men than of women.

D. is usually self-defeating.

Question 6: Joe sold gold coins for $1000 that he bought a year ago for $1000.He says, “At least I didn’t lose any money on my financial investment.” His economist friend points out that in effect he did lose money, because he could have received a 3 percent return on the $1000 if he had bought a bank certificate of deposit instead of the coins. The economist’s analysis in this case incorporates the idea of:

A. opportunity costs.

B. marginal benefits that exceed marginal costs.

C. imperfect information.

D. normative economics.

Answer; A. opportunity costs.

Question 7: A person should consume more of something when its marginal:

A. benefit exceeds its marginal cost.

B. cost exceeds its marginal benefit.

C. cost equals its marginal benefit.

D. benefit is still positive.

Answer; A. benefit exceeds its marginal cost.

Question 8: Economics may best be defined as the:

A. interaction between macro and micro considerations.

B. social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity.

 C. empirical testing of value judgments through the use of logic.

D. use of policy to refute facts and hypotheses.

Answer; B. social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity.

Question 9: The study of economics is primarily concerned with:

A. keeping private businesses from losing money.

B. demonstrating that capitalistic economies are superior to socialistic economies.

C. choices that are made in seeking the best use of resources.

D. determining the most equitable distribution of society’s output.

Answer; C. choices that are made in seeking the best use of resources.

Question 10: The economic perspective entails:

A. irrational behavior by individuals and institutions.

B. a comparison of marginal benefits and marginal costs in decision making.

C. short-term but not long-term thinking.

D. rejection of the scientific method.

Answer; B. a comparison of marginal benefits and marginal costs in decision making.

Question 11: Purposeful behavior suggests that:

A. everyone will make identical choices.

B. resource availability exceeds economic wants.

C. individuals may make different choices because of different desired outcomes.

D. an individual’s economic goals cannot involve tradeoffs.

Answer; C. individuals may make different choices because of different desired outcomes.

Question 12: Purposeful behavior means that:

A. people are selfish in their decision-making.

B. people weigh costs and benefits to make decisions.

C. people are immune from emotions affecting their decisions.

D. decision-makers do not make mistakes when weighing costs and benefits.

Answer; B. people weigh costs and benefits to make decisions.

Question 13: Economics involves marginal analysis because:

A. most decisions involve changes from the present situation.

B. marginal benefits always exceed marginal costs.

C. marginal costs always exceed marginal benefits.

D. much economic behavior is irrational.

Answer; A. most decisions involve changes from the present situation.

Question 14: You should decide to go to a movie:

A. if the marginal cost of the movie exceeds its marginal benefit.

B. if the marginal benefit of the movie exceeds its marginal cost.

C. if your income will allow you to buy a ticket.

D. because movies are enjoyable.

Answer; B. if the marginal benefit of the movie exceeds its marginal cost.

Question 15: Marginal costs exist because:

A. the decision to engage in one activity means forgoing some other activity.

B. wants are scarce relative to resources.

C. households and businesses make rational decisions.

D. most decisions do not involve sacrifices or tradeoffs.

Answer; A. the decision to engage in one activity means forgoing some other activity.

Question 16: The assertion that “There is no free lunch” means that:

A. there are always tradeoffs between economic goals.

B. all production involves the use of scarce resources and thus the sacrifice of alternative goods.

C. marginal analysis is not used in economic reasoning.

D. choices need not be made if behavior is rational.

Answer; B. all production involves the use of scarce resources and thus the sacrifice of alternative goods.

Question 17: Consumers spend their incomes to get the maximum benefit or satisfaction from the goods and services they purchase. This is a reflection of:

A. resource scarcity and the necessity of choice.

B. purposeful behavior.

C. marginal costs that exceed marginal benefits.

D. the tradeoff problem that exists between competing goals.

Answer; B. purposeful behavior.

Question 18: If someone produced too much of a good, this would suggest that:

A. rational choice cannot be applied to many economic decisions.

B. the good was produced to the point where its marginal cost exceeded its marginal benefit.

C. certain goods and services such as education and health care are inherently desirable and should be produced regardless of costs and benefits.

D. the good was produced to the point where its marginal benefit exceeded its marginal cost.

Answer; B. the good was produced to the point where its marginal cost exceeded its marginal benefit.

Question 19: Even though local newspapers are very inexpensive, people rarely buy more than one of them each day. This fact:

A. is an example of irrational behavior.

B. implies that reading should be taught through phonics rather than the whole language method.

C. contradicts the economic perspective.

D. implies that, for most people, the marginal benefit of reading a second newspaper is less than the marginal cost.

Answer; D. implies that, for most people, the marginal benefit of reading a second newspaper is less than the marginal cost.

Question 20: In deciding whether to study for an economics quiz or go to a movie, one is confronted by the idea(s) of:

 A. scarcity and opportunity costs.

B. money and real capital.

C. complementary economic goals.

D. full production.

Answer;  A. scarcity and opportunity costs.

Question 21: Which one of the following expressions best states the idea of opportunity cost?

A. “A penny saved is a penny earned.”

B. “He who hesitates is lost.”

C. “There is no such thing as a free lunch.”

D. “All that glitters is not gold.”

Answer; C. “There is no such thing as a free lunch.”

Question 22: Suppose that a university decides to spend $1 million to upgrade personal computers and scientific equipment for faculty rather than spend $1 million to expand parking for students. This example illustrates:

A. distorted priorities.

B. opportunity costs.

C. increasing opportunity costs.

D. productive efficiency.

Answer; B. opportunity costs.

Question 23: Which of the following most closely relates to the idea of opportunity costs?

A. tradeoffs.

B. economic growth.

C. technological change.

D. capitalism.

Answer; A. tradeoffs.

Question 24: Economists contend that most economic decisions are:

A. random

B. chaotic

C. spontaneous

D. purposeful

Answer; D. purposeful

Question 25; Alex sees that his neighbors’ lawns all need mowing. He offers to provide the service in exchange for a wage of $20 per hour. Some neighbors accept Alex’s offer and others refuse. Economists would describe Alex’s behavior as:

A. rational self-interest, because he attempting to increase his own income by identifying and satisfying someone else’s wants.

B. greedy, because he is asking for a high wage.

C. selfish, because he is asking for a wage that is higher than others might charge.

D. irrational, because some neighbors refused his offer.

Answer; A. rational self-interest, because he attempting to increase his own income by identifying and satisfying someone else’s wants.

Question 26: Kara was out jogging and despite being tired, decided to run one more mile. Based on her actions, economists would conclude that Kara:

A. must be an avid runner.

B. decided that the marginal benefit of running one more mile would outweigh the cost of the additional mile.

C. decided that the marginal cost of running one more mile would outweigh the benefit of the additional mile.

D. was not very tired, so the marginal cost of the extra mile was very low.

Answer; B. decided that the marginal benefit of running one more mile would outweigh the cost of the additional mile.

Question 27: An economic hypothesis:

A. has the same meaning as an economic principle or economic law.

B. is usually a normative statement.

C. is a possible explanation of cause and effect.

D. is a stronger generalization than an economic law.

Answer; C. is a possible explanation of cause and effect.

Question 28: Which of the following terms implies the least degree of confidence in an economic generalization?

A. a hypothesis.

B. a theory.

C. a principle.

D. a law.

Answer; A. a hypothesis.

Question 29: Which of the following terms implies the greatest degree of confidence in an economic generalization?

A. a hypothesis.

B. a comparison.

C. a principle.

D. an anomaly.

Answer; C. a principle.

Question 30: A well-tested economic theory is often called:

A. an hypothesis.

B. a prototype.

C. a principle.

D. an anomaly.

Answer; C. a principle.

Question 31: The scientific method is:

A. not applicable to economics, because economics deals with human beings.

B. also known as the economic perspective.

C. analysis that moves from broad generalizations called laws to theories and then to hypotheses.

D. used by economists and other social scientists, as well as by physical scientists and life scientists.

Answer; D. used by economists and other social scientists, as well as by physical scientists and life scientists.

Question 32: The process by which economists test hypotheses against facts to develop theories, principles, and models is called:

A. the economic perspective.

B. the scientific method.

C. policy economics.

D. microeconomics.

Answer; B. the scientific method.

Question 33: Economic theories:

A. are useless because they are not based on laboratory experimentation.

B. that are true for individual economic units are never true for the economy as a whole.

C. are generalizations based on a careful observation of facts.

D. are abstractions and therefore of no application to real situations.

Answer; C. are generalizations based on a careful observation of facts.

Question 34: Which of the following is a correct statement?

A. Economic concepts or laws that are valid during depression are necessarily valid during prosperity.

B. Although they are generalizations, economic laws are useful because they allow us to predict and therefore control or adjust to events.

C. Economics is as scientific as are physics and chemistry because economic laws are as quantitatively precise as the laws of physics or chemistry.

D. Because economics is concerned with questions of “ought,” it is a branch of applied ethics and not scientific.

Question 35: In constructing models, economists:

A. make simplifying assumptions.

B. include all available information.

C. must use mathematical equations.

D. attempt to duplicate the real world.

Answer; A. make simplifying assumptions.

Question 36: The Latin term “ceteris paribus” means:

A. that if event A precedes event B, A has caused B.

B. that economics deals with facts, not values.

C. other things equal.

D. prosperity inevitably follows recession.

Answer; C. other things equal.

Question 37: The basic purpose of the other-things-equal assumption is to:

A. allow one to reason about the relationship between variables X and Y without the intrusion of variable Z.

B. allow one to focus upon micro variables by ignoring macro variables.

C. allow one to focus upon macro variables by ignoring micro variables.

D. determine whether X causes Y or vice versa.

Answer; A. allow one to reason about the relationship between variables X and Y without the intrusion of variable Z.

Question: 38: Suppose an economist says that “Other things equal, the lower the price of bananas, the greater the amount of bananas purchased.” This statement indicates that:

A. the quantity of bananas purchased determines the price of bananas.

B. all factors other than the price of bananas (for example, consumer tastes and incomes) are assumed to be constant.

C. economists can conduct controlled laboratory experiments.

D. one cannot generalize about the relationship between the price of bananas and the quantity purchased.

Answer; B. all factors other than the price of bananas (for example, consumer tastes and incomes) are assumed to be constant.

Question 39: The term “other things equal” means that:

A. the associated statement is normative.

B. many variables affect the variable under consideration.

C. a number of relevant variables are assumed to be constant.

D. when variable X increases so does related variable Y.

Answer; C. a number of relevant variables are assumed to be constant.

Question 40: Kelly works at an ice cream shop and observes that the number of people buying ice cream varies greatly from day to day. For a couple of weeks she has recorded the number of people at the shop each day, as well as the daily temperature. If Kelly is using the scientific method to better understand ice cream buying habits, her next step is to:

A. conclude definitively that people buy more ice cream when the temperature rises.

B. state her findings as a well-tested economic principle.

C. use the observed data to form an hypothesis about ice cream buying behavior.

D. throw out the data if it does not show a perfect relationship between buying habits and the other information she has collected.

Answer; C. use the observed data to form an hypothesis about ice cream buying behavior.

Macroeconomics related sample questions with answers.

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