Question 1

Which of the following best describes the difference between positive and normative analysis in economics?

Accepted Answer

Positive analysis is objective and fact-based, while normative analysis involves value judgments about what should be.

Question 2

Suppose a country can produce either 100 units of wheat or 200 units of corn with all its resources. What is the opportunity cost of producing 1 unit of wheat?

Accepted Answer

2 units of corn

Question 3

Which of the following statements about the Production Possibilities Frontier (PPF) is correct?

Accepted Answer

Points outside the PPF are unattainable with current resources and technology.

Question 4

Country A can produce 10 cars or 20 computers in a day. Country B can produce 8 cars or 16 computers in a day. Which country has the absolute advantage in car production, and which has the comparative advantage in computer production?

Accepted Answer

Country A has the absolute advantage in cars; Country A has the comparative advantage in computers.

Question 5

If the price of a substitute good increases, what is the likely effect on the demand curve for the original good?

Accepted Answer

The demand curve for the original good shifts to the right.

Question 6

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

Accepted Answer

The government should increase spending to reduce unemployment.

Question 7

In the circular flow diagram, which of the following best describes the flow of goods and services?

Accepted Answer

From firms to households in the product market.

Question 8

A market is considered perfectly competitive if:

Accepted Answer

There are many buyers and sellers, and no single buyer or seller can influence the price.

Question 9

If the price of a normal good increases, what happens to the quantity demanded, according to the law of demand?

Accepted Answer

Quantity demanded decreases.

Question 10

Suppose the supply of smartphones increases due to technological innovation. What is the likely effect on equilibrium price and quantity, all else equal?

Accepted Answer

Equilibrium price decreases, equilibrium quantity increases.

Question 11

Which of the following would cause a movement along the supply curve for laptops, rather than a shift of the supply curve?

Accepted Answer

A decrease in the price of laptops.

Question 12

If both the demand and supply curves for a product shift to the right, what can we say about the new equilibrium?

Accepted Answer

Equilibrium quantity will definitely increase.

Question 13

Which of the following best illustrates the concept of opportunity cost?

Accepted Answer

A company uses its resources to produce cars instead of trucks, so the trucks not produced are the opportunity cost.

Question 14

If a good is considered inferior, what happens to its demand when consumer incomes rise?

Accepted Answer

Demand decreases.

Question 15

Which of the following is NOT a key economic idea discussed in Chapter 1?

Accepted Answer

Markets always lead to equality.

Question 16

Suppose the government imposes a tax on the production of gasoline. Which of the following is the most likely immediate effect on the supply curve for gasoline?

Accepted Answer

The supply curve shifts to the left.

Question 17

Which of the following best describes the role of economic models?

Accepted Answer

They simplify reality to help us understand complex economic processes.

Question 18

If a country completely specializes in producing the good for which it has a comparative advantage, what is the likely outcome?

Accepted Answer

The country can consume beyond its own PPF through trade.

Question 19

Which of the following is a characteristic of a market system?

Accepted Answer

Private property and voluntary exchange are emphasized.

Question 20

If the price of coffee increases and, as a result, the demand for tea increases, what is the relationship between coffee and tea?

Accepted Answer

They are substitutes.

Exam 1 Review Guide: Foundations of Macroeconomics (Chapters 1-3)

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