Question 1

A student is deciding whether to take an extra course this semester. The total benefit of taking the course is $$\600$, and the total cost is $$\$$400. $$The marginal benefit of taking the course is $$\200$, and the marginal cost is $$\$$150. $$According to marginal analysis, should the student take the extra course?

Accepted Answer

Yes, because $$MB \geq MC$$ ($$200 \geq 150)$$

Question 2

Suppose a country can produce either 10 units of wheat or 20 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 is a normative statement?

Accepted Answer

"The government should increase the minimum wage to reduce poverty."

Question 4

Country A can produce 4 cars or 8 computers with all its resources. Country B can produce 6 cars or 12 computers. Which country has the absolute advantage in car production, and which has the comparative advantage?

Accepted Answer

Country B has the absolute advantage in cars; both have the same opportunity cost, so neither has a comparative advantage.

Question 5

A university begins charging for parking. As a result, more students take the bus. Which economic concept best explains this behavior?

Accepted Answer

Incentives

Question 6

If the price of coffee increases, what happens to the demand for tea, assuming they are substitutes?

Accepted Answer

The demand for tea increases, causing a rightward shift of the demand curve for tea.

Question 7

Which of the following best describes a point inside the production possibilities frontier (PPF)?

Accepted Answer

It is attainable but not productively efficient.

Question 8

Suppose the marginal benefit (MB) and marginal cost (MC) for producing widgets are given by $$MB = 100 - 2Q$$ and $$MC = 20 + Q$$, where $$Q is $$the quantity of widgets. What is the optimal quantity of widgets to produce?

Accepted Answer

$$Q = 26$$

Question 9

Which of the following is an example of opportunity cost?

Accepted Answer

The salary you give up to attend college instead of working full-time.

Question 10

A mixed economy is best described as:

Accepted Answer

An economy that combines market forces with government intervention.

Question 11

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

Accepted Answer

Both countries involved in trade can consume beyond their individual PPFs.

Question 12

Which of the following is a positive statement?

Accepted Answer

"A decrease in interest rates will increase investment spending."

Question 13

Suppose the total benefit (TB) and total cost (TC) of producing a good are given in the table below. At what quantity is the optimal production level?

Quantity: 1, TB: $$160$$, TC: $$30$$
Quantity: 2, TB: $$290$$, TC: $$70$$
Quantity: 3, TB: $$390$$, TC: $$125$$
Quantity: 4, TB: $$460$$, TC: $$200$$
Quantity: 5, TB: $$500$$, TC: $$300$$

Accepted Answer

3 units

Question 14

Which of the following would cause a movement along the demand curve for pizza?

Accepted Answer

A decrease in the price of pizza.

Question 15

If the government sets the price of bread below the equilibrium price in a market economy, what is the most likely result?

Accepted Answer

A shortage of bread.

Question 16

Which of the following best describes productive efficiency?

Accepted Answer

Producing goods at the lowest possible cost using all available resources.

Question 17

If the price of peanut butter falls, what is likely to happen to the demand for jelly, assuming they are complements?

Accepted Answer

The demand for jelly will increase (shift right).

Question 18

Which of the following is NOT a characteristic of a centrally planned economy?

Accepted Answer

Prices are determined by supply and demand.

Question 19

Suppose Country A gives up 2 units of food to produce one additional unit of clothing, while Country B gives up 5 units of food for the same. Which country has the comparative advantage in clothing?

Accepted Answer

Country A

Question 20

Which of the following best illustrates the concept of marginal analysis?

Accepted Answer

A company decides whether to produce one more unit of output by comparing the additional revenue to the additional cost.

ECON 201 – Core Concepts and Applications: Study Guide for Test 1

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