Question 1

Which of the following best describes the ceteris paribus assumption in economic modeling?

Accepted Answer

It assumes that only one variable changes while all others are held constant.

Question 2

Suppose the marginal benefit (MB) of eating a third handful of Skittles is $$2, and the marginal cost (MC) is 1.50. $$According to marginal analysis, what should you do?

Accepted Answer

Eat the third handful, because $$MB \u003e MC$$

Question 3

A rational decision maker will undertake an action if:

Accepted Answer

$$MB \geq MC$$

Question 4

If the price of gasoline rises to $6 per gallon, what is the most likely effect on consumer behavior according to the law of demand?

Accepted Answer

Consumers will buy less gasoline.

Question 5

Which of the following scenarios best illustrates a positive incentive?

Accepted Answer

A company offers a bonus for employees who meet sales targets.

Question 6

Refer to the graph where the demand curve shifts right from $$D_1 to$$ $$D_2. $$What happens to equilibrium price and quantity?

Accepted Answer

Price increases, quantity increases.

Question 7

If the supply curve shifts left from $$S_1 to$$ $$S_2 (as in $$the supply decrease graph), what is the effect on equilibrium price and quantity?

Accepted Answer

Price increases, quantity decreases.

Question 8

Given the following production possibilities: Portugal can produce 100 sheets of cloth or 150 kegs of wine per year; England can produce 90 sheets of cloth or 60 kegs of wine per year. Which country has the comparative advantage in wine?

Accepted Answer

Portugal

Question 9

If a price ceiling is set below the equilibrium price in the bread market, what is the most likely outcome?

Accepted Answer

A shortage of bread.

Question 10

Which of the following best describes the opportunity cost of attending college full-time?

Accepted Answer

The value of the next best alternative use of your time, such as working full-time.

Question 11

Suppose the government imposes a binding price floor above the equilibrium price in the milk market. What is the likely result?

Accepted Answer

A surplus of milk.

Question 12

Which of the following is NOT a reason why countries gain from international trade?

Accepted Answer

Identical opportunity costs for all goods.

Question 13

If the U.S. imposes a tariff on imported ethanol, what is the most likely effect on domestic consumer surplus?

Accepted Answer

Consumer surplus decreases.

Question 14

Which of the following statements is an example of a normative economic statement?

Accepted Answer

The minimum wage should be increased.

Question 15

If the marginal cost (MC) of producing the 5th apple is $$1.25 and the market price is 1.00$$, what should a rational producer do?

Accepted Answer

Not produce the 5th apple.

Question 16

Which of the following best describes the law of increasing opportunity cost?

Accepted Answer

As more of a good is produced, the opportunity cost of producing an additional unit increases.

Question 17

A country is operating inside its production possibilities frontier (PPF). What does this indicate?

Accepted Answer

The country is experiencing unemployment or inefficiency.

Question 18

Which of the following is a direct effect of a binding rent control (price ceiling) in a city?

Accepted Answer

A shortage of rental housing.

Question 19

If a market is in equilibrium and both the demand and supply curves shift to the right, what can be said about the new equilibrium?

Accepted Answer

Equilibrium quantity will definitely increase.

Question 20

Which of the following best explains why not all countries completely specialize in the production of one good, even if they have a comparative advantage?

Accepted Answer

Increasing opportunity costs and differences in tastes and preferences.

Core Principles and Models in Macroeconomics: Foundations, Market Dynamics, and Government Intervention

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