The correct answer for each question is indicated by a

INCORRECT Economics is the study of

A)

production technology

B)

consumption decisions

C) how society decides what, how, and for whom to produce

D)

CORRECT

the best way to run society

A resource is scarce if supply exceeds demand at zero price

A)
B)

TRUE
FALSE

INCORRECT The opportunity cost of a good is

A)

the time lost in finding it

B)the quantity of other goods sacrificed to get another unit of that good
C)
D)

the expenditure on the good

the loss of interest in using savings

INCORRECT A market can accurately be described as

A)

a place to buy things

B)

a place to sell things

C)the process by which prices adjust to reconcile the allocation of resources

D)

a place where buyers and sellers meet

INCORRECT A command economy decides resource allocation by government planning

A)
B)

TRUE
FALSE

INCORRECT In a free market __________ ___________

A)
B)

governments intervene
governments plan production

C)

governments interfere

D) prices adjust to reconcile scarcity and desires

INCORRECT In the mixed economy

A) economic problems are solved by the government and market
B) economic decisions are made by the private sector and free market
C) economic allocation is achieved by the invisible hand
D) economic questions are solved by government departments

INCORRECT Positive economics studies objective explanations of the workings of the economy
A)
B)

FALSE

INCORRECT Normative economics forms ___________ based on _____________

A)

positive statements, facts

B)

opinions, personal values

C)

positive statements, values

D)

1
0

TRUE

opinions, facts

Microeconomics is concerned with

CORRECT

A)

the economy as a whole

B)

the electronics industry

C) the study of individual economic behaviour

D) the interactions within the entire economy

1
1

Macroeconomics is the study of ___________________

CORRECT

A) individual building blocks in the economy

B) the relationship between different sectors of the economy

C)
D)

1
2

household purchase decisions

the economy as a whole

An economic model is a physical representation of an economy

CORRECT

A)
B)

1
3

TRUE
FALSE

Data are important in economics because __________ and __________

INCORRECT

A)they suggest relationships for explanation, allow testing of hypotheses

B) they can be used for tables, they can be graphed
C) they can be used in computers, governments use them
D) they provide interesting information, can be summarised

1
4

Time series data show information

CORRECT

A) about the same point in time over different places

B) about different points in time over the same variable
C) about different variables over different places

D) about different points in time over different places

1
5

Index numbers express base data in relation to some relative value

CORRECT

A)
B)

1
6

FALSE

The retail price index is used to ______________

CORRECT

A)

construct price lists

B)

compare shop prices

C)

measure changes in the cost of living

D)

1
7

TRUE

none of the above

A real value can be derived from a nominal value by

INCORRECT

A)

adjusting for changes over time

B)

adjusting for data collection errors

C)

adjusting for population changes

D)

adjusting for changes in prices

1
8

To find the percentage change in a number, divide the absolute change by the original
INCORRECT number and multiply by 100

A)

TRUE

B)

1
9

FALSE

If your income during one year is 10,000 and the following year it is 12,000, then it
INCORRECT has grown by

A)

20%
B)

C)
D)

2
0

12%
16%

A straight-line diagram can be drawn knowing the ______ and _________

INCORRECT

A)

vertical axis and horizontal axis

B)
C)
D)

2%

CORRECT

intercept and slope

scale and slope
intercept and scale

On a graph, a positive linear relationship

1
A)

2
2

moves down to the right

B)

moves up to the left

C)

moves up to the right

D)

moves down to the left

If the diagram of a line shows that lower values on the vertical scale are associated
INCORRECT with higher values on the horizontal scale, this is an example of _____________

A)

a nonlinear relationship

B)

a positive linear relationship

C)

D)

2
3

a scatter diagram
a negative linear relationship

When we know the quantity of a product that buyers wish to purchase at each
INCORRECT possible price, we know

A)

Demand

B)
C)
D)

CORRECT

Supply

Excess demand
Excess supply

Supply is the quantity of a good sellers wish to sell each time the market opens

4
A)

TRUE

B)

2
5

FALSE

The equilibrium price clears the market; it is the price at which ________ _________
INCORRECT

A)
B)

Everything is sold

Buyers spend all their money

C) Quantity demanded equals quantity supplied

D)

Excess demand is zero

E)

2
6

c and d

When a market is in equilibrium

INCORRECT

A) Quantity demanded equals quantity supplied

B) Excess demand and excess supply are zero
C) The market is cleared by the equilibrium price
D)

2
7

All of the above

________ and ________ do not directly affect the demand curve

CORRECT

A) the price of related goods, consumer incomes

B)

consumer incomes, tastes

C) the costs of production, bank opening hours

D)

2
8

the price of related goods, preferences

A change in price can cause a shift of a demand curve

CORRECT

A)

TRUE

B)

2
9

FALSE

A demand curve can shift because of changing

CORRECT

A)
B)

incomes

prices of related goods

C)
D)

3
0

tastes

all of the above

A supply curve is directly affected by

INCORRECT

A)

technology

B)

input costs

C)

government regulation
D)

3
1

all of the above

An increase in price will cause a supply curve to shift to the left

CORRECT

A)

TRUE

B)

3
2

If a price increase of good A increases the quantity demanded of good B, then good B
INCORRECT is a

A)
B)

substitute good
complementary good
C)

D)

3
3

FALSE

bargain
inferior good

An increase in consumer income will increase demand for a _______ but decrease
INCORRECT demand for a _________

A)

substitute good, inferior good

B)

normal good, inferior good

C)

inferior good, normal good

D)

normal good, complementary good

3
4

Price ceilings are imposed increase price above the free market equilibrium price
CORRECT

A)

TRUE

B)

The correct answer for each question is indicated by a

CORRECT

FALSE

The price elasticity of demand measures ________________

A) the responsiveness of quantity demanded to a change in price

B)

how far a demand curve shifts

C)

D)

a change in quantity demanded

INCORRECT If demand is ___________ then price cuts will __________ spending

A)

INCORRECT

inelastic, increase

B)

elastic, increase

C)

elastic, decrease

D)

a change in price

none of the above

The cross-price elasticity of demand measures how the quantity demanded of one
good is related to consumer income
A)

TRUE

B)

INCORRECT

Positive cross-elasticities suggest that goods are _________ and negative crosselasticities that goods are __________
A)

substitutes, inferior

B)

normal, complements

C)

substitutes, complements
D)

normal, inferior

INCORRECT A measurement showing how quantity demanded varies with income is the
A)
B)

FALSE

CORRECT

price elasticity of demand

cross-price elasticity of demand

C)

budget elasticity of demand

D)

income elasticity of demand

Inferior goods have ___________ and luxury goods have ____________

A) negative income elasticities, income elasticities greater than 1

B) income elasticities greater than 1, negative income elasticities
C) positive income elasticities, negative income elasticities
D)

none of the above

CORRECT

If your income doubles and the prices of the goods you buy double, then your demand
for these goods will likely ________
A)

increase

B)

not change

C)

decrease
D)

CORRECT

Any price change can be decomposed into an income effect and a complementary
effect
A)
B)

CORRECT

shift

TRUE
FALSE

The income effect of a price increase of a normal good is to __________ of that good
and the substitution effect is to _______ of that good
A) increase quantity demanded, reduce quantity demanded
B) increase quantity demanded, increase quantity demanded
C) reduce quantity demanded, reduce quantity demanded
D) reduce quantity demanded, increase quantity demanded

1
0

The opportunity cost of a student is

INCORRECT

A)

Course fees and rent

B)

A loan from the bank

C)What the student could have earned in the best job available by not
studying
D) What the student will earn after graduation

1
1

Economics assumes that people consume goods and services to achieve

CORRECT

A)
B)

Status
Prestige

C)
D)

1
2

Self-esteem

The extra utility from consuming one more unit of a good is called
INCORRECT

A)
B)
C)
D)

1
3

Utility

Marginal utility
Additional utility
Surplus utility
Bonus utility

Adding up the quantities demanded of a good by different people facing the same
INCORRECT price gives us the

A)

Supply curve

B)

Market demand curve

C)

Demand curve

D)

1
4

Market supply curve

Firms are assumed to _________ costs and to _________ profits

CORRECT

A)
B)
C)
D)

1
5

pay, make
charge, earn
minimize, maximize

The increase in total cost when one more unit is produced is known as
INCORRECT

A)
B)

marginal cost
opportunity cost

C)
D)

1
6

incur, desire

limited cost
average cost

Marginal revenue is the _________ when output is ____________

INCORRECT

A)

change in average revenue, increased

B) change in total revenue, increased by one unit

C) change in average revenue, increased by one unit
D)

1
7

change in total revenue, increased

Profits are maximized when _________________

CORRECT

A)
B)

costs are minimized

revenue is maximized

C) average cost is less than average revenue

D)

1
8

CORRECT

marginal cost equals marginal revenue

If a firm is producing a level of output where marginal cost is greater than marginal
revenue, it should increase output to maximise profits

A)
B)

1
9

TRUE
FALSE

If a firm's wage costs increase this will cause __________ and ________
INCORRECT

A)

marginal cost to increase, output to fall

B) marginal revenue to increase, output to fall

C) opportunity cost to increase, the firm will close

D) average cost will rise, output will increase

2
0

An upward shift in marginal cost ________output and an upward shift in marginal

INCORRECT revenue ________ output

A)
B)

reduces, increases

C)

increases, increases

D)

2
1

reduces, reduces

increases, reduces

A firm should close down if profits are zero

CORRECT

A)
B)

2
2

TRUE
FALSE

A firm that breaks even after all economic costs are paid is earning
CORRECT

A)
B)
C)
D)

Economic profit
Accounting profit
Normal profit
Supernormal profit

2
3

A firm that makes profit in addition to normal profit is making

INCORRECT

A)

Economic profit

B)

Accounting profit

C)
D)

2
4

Normal profit
Supernormal profit

If both marginal cost and marginal revenue increase, a firm __________

INCORRECT

A)

should increase output

B)

should reduce output

C) will require further information on how to respond

D)

should not change output

Your Results:
The correct answer for each question is indicated by a

INCORRECT A production technique is technically efficient if

A)

output is maximized

B)

inputs are minimized

C)there is no way to make a given output using less of one input and no more
of the other inputs
D)

costs are minimized

INCORRECT

A period of time long enough for the firm to adjust all production inputs is described
as the long run
A)
B)

TRUE
FALSE

INCORRECT Decreasing returns to scale means that ___________ as ______________

A) short run marginal costs rises, output rises
B) long run marginal cost rises, output rises
C) short run average cost rises, output rises
D)

long run average cost rises, output rises

INCORRECT If a long run average cost curve is falling from left to right this is an example of
A)

increasing returns to scale

B)

decreasing returns to scale

C)

constant returns to scale

D)

INCORRECT

the minimum efficient scale

If a firm is not operating at the output necessary to achieve all scale economies, it has
not achieved its
A)

Efficient scale

INCORRECT

B)

Average efficient scale

C)

Maximum efficient scale

D)

Minimum efficient scale

When average cost is falling marginal cost is __________ and when average cost is
rising marginal cost is __________
A) greater than average cost, greater than average cost
B) less than average cost, greater than average cost
C) less than average cost, less than average cost
D) greater than average cost, less than average cost

INCORRECT The firms long run output decision will be where

A)

long run average cost is lowest

B)

marginal revenue equals output

C) marginal revenue equals long run marginal cost

D)

marginal cost equals output

INCORRECT Short run average total costs are equal to the sum of _________ and __________
A)
B)
C)

short run opportunity costs, profit

short run variable costs, profit
short run average variable costs, profit

D) short run average variable costs, short run average fixed costs

INCORRECT

The short run marginal cost curve cuts the short run total cost curve and short run
average variable cost curve ______________
A)
B)

When they are declining

C)

When they are increasing

D)

1
0

CORRECT

At their lowest points

When marginal revenue is zero

Given a long run average cost curve, every point represents a tangency with the
lowest point of a short run average cost curve for a fixed plant size

A)
B)

1
1

TRUE
FALSE

Holding all factors constant except one and increasing a variable factor is expected to
INCORRECT lead to steadily decreasing marginal product of that factor. This is an example of

A)
B)
C)
D)

decreasing returns to scale

the law of diminishing returns
constant returns to scale
an inefficient production technique

1
2

In the short run a firm will produce zero output if __________

CORRECT

A) price is greater than short run average total cost

B)price is between short run average total cost and short run average
variable cost
C) price is less than short run average variable cost
D)

1
3

In a competitive industry each buyer and seller _____________

INCORRECT

A)
B)

1
4

profit is zero

CORRECT

Is a price taker

Produce different products

C)

Believes that can influence price

D)

Prevents the entry of competitors

For a competitive firm, its short run supply curve is ________ and its long run supply
curve is __________

A)

SMC, LMC

B)

SMC above SAVC, LMC above LAC

C)

SMC below SAVC, LMC above LAC

D)

SMC below SAVC, LMC below LAC

1
5

For perfect competition to work there must be

INCORRECT

A)

many buyers and sellers

B)

a standard product

C)

free entry and exit

D)

perfect information

E)

1
6

CORRECT

all of the above

If there are short run excess profits in a competitive industry, in the long run they will
disappear because of new entrants

A)

TRUE

B)

1
7

A competitive firms demand curve is

CORRECT

A)

horizontal
B)

C)

vertical

downward sloping
D)

1
8

FALSE

fairly elastic

A competitive firm produces a level of output at which _________

INCORRECT

A)

price is greater than marginal cost

B)
C)

price equals marginal cost

price is less than marginal cost
D)

none of the above

Your Results:
The correct answer for each question is indicated by a

CORRECT

The supply rule of the profit maximising monopolist is different from that of a
competitive firm
A)
B)

CORRECT

CORRECT

TRUE
FALSE

Comparing a monopoly and a competitive firm, the monopolist will _______________

A)

produce less at a lower price

B)

produce more at a lower price

C)

produce less at a higher price

D)

produce less at a lower price

A discriminating monopolist will charge a higher price to groups with elastic demand

A)

TRUE

B)

INCORRECT Perfect price discrimination means that every customer ____________

A)

buys the same amount

B)
C)
D)

pays the same price

contributes the same revenue

pays what she thinks the product is worth

INCORRECT A monopoly may be self-perpetuating because profits may be used for

A)
B)

research
cost-saving

C)

technical advance

D)

FALSE

all of the above

INCORRECT All of the following are types of imperfect competition except

A)

monopolistic competition
B)
C)

D)

oligopoly
monopoly

unfair competition

INCORRECT A natural monopoly has a declining ________ over a large range of output

INCORRECT

A)

long run marginal cost

B)

short run marginal cost

C)

long run average cost

D)

long run marginal cost

When a market is contestable, incumbent firms must _____________ to avoid the

entry of new competitors
A)
B)

CORRECT

behave like competitive firms

agree to act together

C)

differentiate their products

D)

practise price discrimination

The long run equilibrium in monopolistic competition involves competitors making

excess profits
A)
B)

1
0

TRUE
FALSE

The reason for the kinked demand curve is that

INCORRECT

A)The oligopolist believes that competitors will match output increases but not
output reductions

B)The oligopolist believes that competitors will match price increases but not
output reductions
C)The oligopolist believes that competitors will match price cuts but not price
rises
D)The oligopolist believes that competitors will match price increases but not
output increases

1
1

Game theory studies interdependent decision-making

INCORRECT

A)
B)

1
2

TRUE
FALSE

The Prisoners' Dilemma Game demonstrates that

INCORRECT

A) players are better off to act independently

B)

monopoly is better than competition

C)
D)

1
3

people will always cheat

players are better off if they co-operate

In Nash equilibrium each player chooses the best strategy __________

CORRECT

A)

assuming other players move first

B)

dominated by the other players

C)

given the strategies of other players

D)

1
4

that is a credible threat

A dominant strategy is ____________

INCORRECT

A)

a winning strategy

B)

a losing strategy

C) a players best strategy when moving first

D) a player's best strategy whatever the strategies adopted by rivals

1
5

Strategic entry barriers are made by nature

CORRECT

A)

TRUE

B)

FALSE

Your Results:
The correct answer for each question is indicated by a

CORRECT

The substitution effect of a rise in the price of labour will ___________ the
quantity of labour and the output effect will __________ it
A)
B)
C)
D)

increase, increase
increase, reduce
reduce, reduce
reduce, increase

CORRECT

As more labour is used the marginal physical product of labour increases

A)
B)

INCORRECT

TRUE
FALSE

A profit-maximizing firm will hire labour until __________ equals the

____________
A)

marginal revenue, marginal cost

B) long run marginal revenue, long run marginal cost

C) labour output ratio, capital output ratio
D) marginal cost of labour, marginal revenue product

INCORRECT

The downward sloping marginal physical product of labour is the firm's

___________
A)
B)
C)
D)

CORRECT

supply of labour

short-run demand curve for labour

marginal cost of labour
marginal revenue product of labour

When we say that labour demand is a derived demand, we are referring to

government initiatives to increase employment
A)

TRUE

B)

INCORRECT

FALSE

The participation rate in the labour force is affected by

A)
B)

higher real wages

lower fixed costs of working

C)

lower non-labour income

D) changes in tastes between leisure and work

E)

INCORRECT

all of the above

Top footballers tend to earn more than lecturers because

A)

footballers give more entertainment

B)

C)

lecturers are lazy

the labour markets are imperfect

D) top footballers are relatively scarce in relation to lecturers

INCORRECT

Human capital can be described as

A) the tools used by workers to enhance productivity

B)

a persons inherited abilities

C) the stock of expertise accumulated by a worker

D)

education

INCORRECT

The supply of highly educated workers is fixed in long run

A)

TRUE

B)

1
0

FALSE

The most important source of wage differentials are

INCORRECT

A)

regional variation
B)

C)

unionization
relative danger
D)

1
1

skills

Skilled labour is relatively scarce because

INCORRECT

A)

there are too few teachers

B) too few student places in higher education

C)
D)

it is costly to acquire human capital

teachers' salaries are too low

UNANSWERED The opportunity cost of acquiring education is ____________

2
A)
B)

course fees

course fees and living expenses

C)

the earnings foregone

D) course fees, living expenses and textbooks

1
3

By restricting labour supply a trade union can ____________ and ___________

CORRECT

A) increase the wage, increase employment

B) maintain the wage, increase employment

1
4

C)

increase the wage, lower employment

D)

maintain the wage, lower employment

In the UK under a _________ of the labour force belong to a trade union

INCORRECT

A)

quarter
B)

third
C)

D)

1
5

INCORRECT

half

three-quarters

Unions achieve a higher wage differential the more _______________ and the
more ___________

A)inelastic the demand for labour, they can restrict the supply of labour
B) members they have, aggressive they behave
C) the economy is growing, people prefer leisure
D) the productivity s growing, vacancies exist

1
6

A closed shop is a union that has no room for additional members.

INCORRECT

A)
B)

1
7

TRUE
FALSE

Women and non-whites on average receive lower incomes than white men because
INCORRECT

A) they tend to work in relatively unskilled jobs

B)

educational disadvantage

C) firms are reluctant to invest in training

D)

1
8

CORRECT

all of the above

In the UK, in recent years, union membership has _________ and days of work
lost because of strikes has __________

A)
B)

grown, declined
declined, declined

C)

declined, grown

D)

1
9

grown, grown

Involuntary unemployment exists if workers

INCORRECT

A)

will not work at the offered wage

B) Would work at the going wage but cant find jobs

C) Will not work because the hours are anti-social
D) Are not prepared to move house to get the job

2
0

2
1

Efficiency wages are _________ that raise ___________

INCORRECT

A)

low wages, employment

B)

high wages, labour supply

C)

high wages, productivity

D)

high wages, employment

The difference between gross investment and net investment is

INCORRECT

A) depreciation of the existing capital stock

B)

productive investment

C)
D)

2
2

inventories

The cost of using capital services is the ___________________

INCORRECT

A)
B)

2
3

dwellings

wage rate of capital

interest charges

C)

marginal capital cost

D)

rental rate for capital

The value of an asset depends upon

INCORRECT

A)

its scrap value

B)

its depreciation

C) the present value of the future stream of income it can earn

D)

2
4

the cost of loans

The marginal revenue product of capital is the __________________

INCORRECT

A) change in a company's balance sheet when it acquires new plant

B) additional value of output from using more capital

2
5

C)

change in a company's share price

D)

changing value of the capital stock

The demand for capital services is derived from a falling MRPK schedule
CORRECT

A)
B)

2
6

INCORRECT

A)

variable, technology

B)

fixed, expectations

D)

INCORRECT

FALSE

In the short run, the supply of capital is ____________ and in the long run will
depend on ____________

C)

2
7

TRUE

fixed, rental rate of capital

variable, interest rates

If workers get a real wage increase this will likely _______________ and
____________

A)encourage the use of more capital in the long run, reduce demand for all
inputs
B) encourage the use of more capital, increase demand for all inputs
C) encourage the use of less capital, reduce demand for all inputs
D) encourage the use of less capital, reduce demand for all inputs

2
8

The supply of land is normally greater in the long run than in the short run
CORRECT

A)
B)

2
9

TRUE
FALSE

Land will be allocated between competing uses so that _______________

CORRECT

A)

housing gets priority

B)

industry gets priority

C)

farming gets priority

D) the equilibrium rental rate equilibrates total demand with supply

3
0

INCORRECT

Different capital intensity in different industries is mainly explained by _________

and _________

A)

wage differentials, skill levels

B) technology, the ease of factor substitution

C) government grants, international competition
D)

patents, skill shortages

3
1

INCORRECT

The functional distribution of income shows how national income is divided

between

A)
B)

3
2

employees
the population

C)

the factors of production

D)

the working population

A major cause of income inequality in the UK is trade union power

INCORRECT

A)
B)

3
3

INCORRECT

TRUE
FALSE

The transfer earnings of a factor are the payments received in excess of its
opportunity cost.

A)
B)

TRUE
FALSE