Eastern Mediterranean University
Faculty of Business and Economics
Department of Economics
2016-17 Fall Semester
ECON101 - Introduction to Economics I
Quiz 1
Answer Key
28 October 2016
Duration: 50 minutes
Name: _________________________
Student ID: _____________________
Group No: ______________________
Part A: Multiple Choice Questions (3.75 points each, total 112.5 points)
Please mark your answers on both the exam paper and the optic sheet.
1. Economics is the study of
a. production methods.
​b. how society manages its scarce resources.
c. how households decide who performs which tasks.
d. the interaction of business and government.
2. Lawrence is a photographer. He has $230 to spend and wants to buy either a flash for his camera or a new bag. Both the
flash and bag cost $230, so he can only buy one. This illustrates the principle that
a. trade can make everyone better off.
​b. people face trade-offs.
c. rational people think at the margin.
d. people respond to incentives.
3. Ramona decides to spend two hours sleeping rather than attending her classes. Her opportunity cost of sleeping is
a. the value of the knowledge she would have received had she attended class.
b. the $24 she could have earned if she had worked at her job for those two hours.
c. the value of her sleeping minus the value of attending class.
d. nothing, since she valued sleep more than attendance at class.
4. Which of the following statements about trade is FALSE?
a. Trade increases competition.
b. With trade, one country wins and one country loses.
c. Bulgaria can benefit, potentially, from trade with any other country.
d. Trade allows people to buy a greater variety of goods and services at lower cost.
5. The “invisible hand” refers to
a. how central planners made economic decisions.
b. how the decisions of households and firms lead to desirable market outcomes.
c. the control that large firms have over the economy.
d. government regulations without which the economy would be less efficient.
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6. Refer to Figure 1. Which arrow represents the flow of
goods and services?
a. A
​b. B
c. C
d. D
Figure 1
7. Refer to Figure 1. Which arrow represents the flow of
spending by households?
a. A
b. B
c. C
d. D
8. Refer to Figure 1. Raymond buys a refrigerator for his
new home. To which of the arrows does this transaction
directly contribute?
a. A only
​b. A and B
c. C only
d. C and D
9. Refer to Figure 2. It is possible for this economy to produce
a. 60 dryers and 50 washers. b. 60 dryers and 60
washers.
c. 80 dryers and 50 washers.
d. All of the above.
Figure 2
10. Refer to Figure 2. This economy cannot currently produce
70 washers and 70 dryers because
a. it is not using all of its resources.
b. it is not using the most efficient production process.
c. it does not have the resources and technology to
produce that level of output.
d. All of the above are correct.
11. Refer to Figure 2. Efficient production is represented by
which point(s)?
a. A, B
b. A, B, D
c. A, B, C
d. C
12. Refer to Figure 2. The opportunity cost of this economy moving from point A to point B is
a. 20 dryers.
b. 20 washers.
c. 20 dryers and 20 washers.
d. 60 dryers.
13. Refer to Figure 2. The opportunity cost one additional unit of dryer moving from point B to point A is
a. 20 dryers.
​b. 1 washer.
c. 20 dryers and 20 washers.
d. 20 washers.
Consider the following scenario for the Questions 14-18:
Tom and Joy are two woodworkers who both make tables and chairs. In one month,
Tom can make 3 tables or 18 chairs, whereas Joy can make 8 tables or 24 chairs.
14. Given the above information, we know that
a. Tom has an absolute advantage in tables, Joy in chairs. b. Tom has an absolute advantage in chairs, Joy in tables.
c. Joy has an absolute advantage in both tables and chairs.​ d. Tom has an absolute advantage in both tables and
chairs.
15. Given the above information, we know that the opportunity cost of 1 table is
a. 1/6 chair for Tom and 1/3 chair for Joy. b. 1/6 chair for Tom and 3 chairs for Joy.
c. 6 chairs for Tom and 1/3 chair for Joy.
​d. 6 chairs for Tom and 3 chairs for Joy.
16. Given the above information, we know that the opportunity cost of 1 chair is
a. 1/6 table for Tom and 1/3 table for Joy.
​b. 1/6 table for Tom and 3 tables for Joy.
c. 6 tables for Tom and 1/3 table for Joy.
d. 6 tables for Tom and 3 tables for Joy.
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17. Given the above information, we know that
a. Tom has a comparative advantage in tables, Joy in chairs.
b. Tom has a comparative advantage in chairs, Joy in tables.
c. Joy has a comparative advantage in both tables and chairs.
d. Tom has a comparative advantage in both tables and chairs.
18. Tom should specialize in the production of
a. table and Joy should specialize in the production of chair.
b. chair and Joy should specialize in the production of table.
c. both goods and Joy should specialize in the production of neither good.
d. neither good and Joy should specialize in the production of both goods.
19. The Production Possibility Frontier of a Nation shows
a. The various output mix it can obtain through trade.
b. The various output mix it will consume from what it produce.
c. The various output mix it can produce given its resource endowment and technology if fully and efficiently
utilized.
d. The various output produce domestically in the Nation and exported abroad.
20. If an individual consume exactly as much as he produces in the absence of trade
a. His/her Production Possibility Frontier is greater than His/her consumption Possibility Frontier.
b. His/her Production Possibility Frontier is exactly His/her consumption Possibility Frontier.
c. His/her consumption Possibility Frontier is less than He/her Production Possibility Frontier.
d. Both Production Possibility Frontier and consumption Possibility Frontier are not given.
21. Through trade and specialization
a. Total productivity in an economy is negative.
c. Total productivity in an economy is rising.
b. Total productivity in an economy is constant.
​d. Total productivity is not obtainable.
22. A Nation is said to have absolute advantage if
a. It uses larger and better input than other Nation in production.
b. It uses economically efficient production technique than others.
c. It uses fewer resources in production than others.
d. It produces more outputs or goods than others.
23. According to the principle of comparative advantage
a. A Nation should specialize in the production area with maximum output.
b. A Nation should specialize according to its absolute advantage
c. A Nation should specialize according to its tradeoff.
d. A Nation should specialize in the production area it has the smallest opportunity cost.
24. Consider Noah’s decision to go to college. If he goes to college, he will spend $80,000 on tuition, $15,000 on room and
board, and $4,000 on books. If he does not go to college, he will earn $22,000 working in a store and he will spend $13,000
on room and board. Noah’s cost of going to college is
a. $99,000.
b. $103,000.
​c. $108,000.
d. $121,000.
25. If the marginal cost of operating a hotel room for one night is $30 and a customer is willing to pay $60 for the night, the
hotel manager should
a. rent the room because the marginal benefit exceeds the marginal cost.
b. rent the room because the marginal benefit exceeds the average cost.
c. not rent the room because the marginal benefit is less than the marginal cost.
d. not rent the room because the marginal benefit is less than the average cost.
Table 1
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26. Refer to Table 1. What is the opportunity cost to Footville of increasing the production of shoes from 400 to 600?
a. 400 socks
​b. 300 socks
c. 200 socks
d. 100 socks
27. Refer to Table 1. Which of the following statements is correct?
a. The opportunity cost of an additional 200 shoes is constant at 200 socks.
b. The opportunity cost of an additional 200 shoes is constant at 300 socks.
c. Footville’s production possibilities frontier is a straight, downward-sloping line.
d. The opportunity cost of an additional 200 shoes increases as more socks are produced.
28. A production possibilities frontier is a straight line when
a. the more resources the economy uses to produce one good, the fewer resources it has
available to produce the other good.
b. an economy is interdependent and engaged in trade instead of self-sufficient.
c. the rate of tradeoff between the two goods being produced is constant.
d. the rate of tradeoff between the two goods being produced depends on how much of each good is being produced.
29. In conducting their research, economists often substitute historical events and historical episodes for
a. theories and observations.
​b. laboratory experiments.
c. models.
d. assumptions.
30. Economists make assumptions to
a. provide issues for political discussion.
b. make a complex world easier to understand.
c. make it easier to teach economic concepts and analysis.
d. create policy alternatives that are incomplete or subject to criticism.
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