The Study Of Economics
Here is the 25 mcq with 1 written question: 1) The study of economics arises due to a. greed. b. scarcity. c. resources. d. money. 2) Economists assume that individuals a. are rational and respond to incentives. b. prefer to live in a society that values fairness above all else. c. will never take actions to help others. d. behave in unpredictable ways. 3) Your roommate, Serafina, a psychology major, said, “The problem with economics is that it assumes that consumers and firms always make the correct decision. But we know that everyone’s human, and we all make mistakes.” Is Serafina’s criticism accurate? a. No. If we cannot assume that decisions are correct, then we will not be able to examine the moral implications of these decisions. b. Yes. One cannot make predictions about economic behavior because in reality people make incorrect choices in many situations. c. No. Economics assumes that economic agents behave rationally, meaning they make the best decisions given their knowledge of the costs and benefits of these decisions. d. Yes. Economic theory should allow for irrational behavior so that we can have more reliable predictions. 4) In Austria, a woman can get up to 48 months of pension benefits and is guaranteed a maternity allowance two months before and after she gives birth. Further, the Austrian government gives monthly payouts ranging from $132 to $547, depending on the age of offspring and offers tax benefits for families with children. How will these benefits affect a woman’s decision to have children? a. These incentives will encourage women to have children and increase the birth rate. b. These incentives will encourage only less educated women to have more children. c. These incentives will encourage only women with high opportunity costs to have more children. d. These incentives will have no effect on having children; the decision to have children is social and psychological, not an economic decision. 5) Making “marginal” decisions involves a. calculating the total benefits of an activity and determining if you are satisfied with that amount. b. calculating the total costs of an activity and determining if you can afford to incur that expenditure. c. comparing the additional benefits and the additional costs of an activity. d. calculating the average benefit and the average cost of an activity to determine if it is worthwhile to undertake that activity.
Scenario 1-1
Suppose a cell-phone manufacturer currently sells 20,000 cell-phones per week and makes a profit of $5,000 per week. A manager at the plant observes, “Although the last 3,000 cell phones we produced and sold increased our revenue by $6,000 and our costs by $6,700, we are still making an overall profit of $5,000 per week so I think we’re on the right track. We are producing the optimal number of cell phones.” 6) Refer to Scenario 1-1. Using marginal analysis terminology, what is another economic term
for the incremental revenue received from the sale of the last 3,000 cell phones? a. gross profit b. marginal revenue c. gross earnings d. sales revenue
7) Automobile manufacturers produce a range of automobiles such as sports utility vehicles, luxury sedans, pickup trucks, and compact cars. What fundamental economic question are they addressing by making this range of products? a. How to produce goods that consumers want? b. What goods and services will be produced? c. Who to produce automobiles for? d. Why produce a variety of automobiles? 8) Which of the following contributes to the efficiency of markets? a. Markets promote equal standards of living. b. Markets promote competition and voluntary exchange. c. Governments play an active role in the day-to-day operations of markets. d. Markets are able to bring about an equitable distribution of goods and services.
Figure 1-4. Refer to Figure 1-4. Which of the following statements is true? a. The slope of the tangent at E is positive and the slope of the tangent at F is negative. b. The slope of the tangent at E and the slope of the tangent at F are negative. c. The slope of the tangent at E is negative and the slope of the tangent at F is positive. d. The slope of the tangent at E and the slope of the tangent at F are positive.
10) The production possibilities frontier model assumes all of the following except a. the economy produces only two products. b. the level of technology is fixed and unchanging. c. labor, capital, land, and natural resources are fixed in quantity. d. production of goods requires full employment of all resources.
Figure 2-2. Figure 2-2 above shows the production possibilities frontier for Mendonca, an agrarian nation that produces two goods, meat and vegetables. 11) Refer to Figure 2-2. The linear production possibilities frontier in the figure indicates that a. the tradeoff between meat and vegetables is constant. b. Mendonca has a comparative advantage in the production of vegetables. c. it is progressively more expensive to produce meat. d. Mendonca has a comparative disadvantage in the production of meat.
Table 2-3. Table 2-3 shows the number of labor hours required to produce a digital camera and a pound of wheat in China and South Korea. 12) Refer to Table 2-3. What is South Korea’s opportunity cost of producing one pound of wheat? a. 20 digital cameras b. 0.05 units of a digital camera c. 60 digital cameras d. 5 digital cameras
13) Which of the following are flows in the circular flow model? a. the flow of income earned by factors of production and the flow of expenditures on goods and services b. the flow of goods and the flow of services c. the flow of costs and the flow of revenue d. the flow of income received by households and the
14) Which of the following statements about a simple circular flow model is true? a. Producers are neither buyers nor sellers in the product market. b. Households are sellers in the product market. c. Producers are buyers in the factor market. d. Households are neither buyers nor sellers in the factor market. One Digital Camera Wheat (per pound) China 100 hours 4 hours South Korea 60 hours 3 hours 15) The term “property rights” refers to a. the ability to exercise control over one’s own resources within the confines of the law. b. the government’s right to appropriate land from wealthy individuals to redistribute to low income families. c. the physical possession of a house or any other property which the owner legally purchased. d. the right of a business not to have its assets confiscated by the government in the event that the business is accused of committing fraud. Table 3-1 16) Refer to Table 3-1. The table above shows the demand schedules for loose-leaf tea of two individuals (Sunil and Mia) and the rest of the market. If the price of loose-leaf tea rises from $3 to $4, the market quantity demanded would a. decrease by 32 pounds. b. decrease by 64 pounds. c. increase by 64 pounds. d. increase by 32 pounds. 17) If a firm expects that the price of its product to be higher in the future than it is today, a. the firm has an incentive to decrease supply now and increase supply in the future. b. the firm has an incentive to decrease quantity supplied now and increase quantity supplied in the future. c. the firm will go out of business. d. the firm has an incentive to increase supply now and decrease supply in the future.
18) Which of the following is the correct way to describe equilibrium in a market? a. At equilibrium, demand equals supply. b. At equilibrium, quantity demanded equals quantity supplied. c. At equilibrium, scarcity is eliminated. d. At equilibrium, market forces no longer apply. 19) Figure 3-4. The figure represents the market for canvas tote bags. Assume that the price of tote bags is $15. At this price: a. the quantity demanded exceeds the quantity supplied of tote bags by 75. The price will eventually rise to $25 where quantity demanded will equal quantity supplied. b. there is a shortage, equal to 55 tote bags; the price of tote bags will rise until demand is equal to supply. c. the demand exceeds the supply of tote bags by 55. Some consumers will have an incentive to offer to buy tote bags at a higher price. d. there is a shortage, equal to 55 tote bags, that will be eliminated when the price rises to $25.
20) Which of the following would cause the equilibrium price of white bread to decrease and the equilibrium quantity of white bread to increase? a. a decrease in the price of flour b. an increase in the price of butter, a complement for white bread c. an increase in the price of rye bread, a substitute for white bread d. an increase in the price of flour
Figure 4-6. Figure 4-6 shows the market for apartments in Bay City. Recently, the government imposed a rent ceiling at R0. 21) Refer to Figure 4-6. What is the area that represents the producer surplus after the imposition of the ceiling? a. F + G b. F c. A + B + D + F + G d. D + F + G
22) Which term refers to a legally determined minimum price that sellers may receive? a. A subsidy. b. A tariff. c. A price floor. d. A price ceiling.
23) A positive externality causes a. the marginal social benefit to be equal to the marginal private cost of the last unit produced. b. the marginal social benefit to exceed the marginal private cost of the last unit produced. c. the marginal social benefit to be less than the marginal private cost of the last unit produced. d. the marginal private benefit to exceed the marginal social cost of the last unit produced.
Figure 4-15. Companies producing toilet paper bleach the paper to make it white. The bleach is discharged into rivers and lakes and causes substantial environmental damage. Figure 4-15 illustrates this situation in the toilet paper market. 24) Refer to Figure 4-15. An efficient way to get the firm to produce the socially optimal output level is a. to assign property rights to the firms in the industry. b. to impose a tax to make the industry bear the external costs it creates. c. to grant a subsidy to enable the industry to internalize the external costs of production. d. for government to set a quota on the quantity of toilet paper that the toilet paper industry can produce. 25) What is the rationale behind a tradable emissions allowance scheme? a. to create a market for externalities: the scheme brings together buyers and sellers of marketable permits b. to raise revenue for the government through the sale of emission permits and at the same time set an emissions target c. to provide firms with the incentive to consider less costly alternatives to pollution reduction by making firms pay for the right to pollute beyond their specified allowance d. to discipline polluting firms by specifying the maximum amount of emissions allowed and giving them permits to pollute up to their allowance
Paper For Above instruction
The study of economics is fundamentally driven by scarcity, which necessitates decision-making regarding the allocation of limited resources to meet unlimited wants. Economics explores how individuals, firms, and governments respond to incentives and make choices to maximize their benefits while managing constraints. The foundational assumptions of economics include rational behavior and response to incentives; economists generally presuppose that economic agents aim to make optimal decisions given their knowledge, although real-world deviations can occur.
Our understanding of economic decision-making extends into various fields such as microeconomics and macroeconomics. Microeconomics focuses on individual units—such as households and firms—and their interactions in markets. For example, microeconomics examines how a consumer chooses between different brands of cereal based on price and preferences. Conversely, macroeconomics deals with aggregate economic variables like inflation, unemployment, and economic growth. An example of macroeconomic analysis would be assessing the impact of government fiscal policy on national unemployment rates.
Economic models such as the production possibilities frontier (PPF) illustrate the trade-offs inherent in resource allocation. The PPF assumes full employment, fixed technology, and resource constraints, demonstrating the maximum attainable output combinations of two goods. The shape of the PPF—whether linear or bowed outward—reflects the opportunity costs and efficiency of resource use. For instance, a linear PPF indicates constant opportunity costs, suggesting resources are equally efficient in producing either good.
Market efficiency hinges on competition and voluntary exchange, which promote optimal resource allocation and innovation. Competitive markets tend to produce goods and services at the lowest cost, providing consumers with choices and facilitating economic growth. However, markets can fail when externalities, property rights issues, or market power distort outcomes. Externalities—both positive and negative—are costs or benefits not reflected in market prices, necessitating government intervention to achieve socially optimal levels of production and consumption.
Externalities are explained through examples such as pollution. When firms discharge bleach into rivers, environmental damage occurs, representing a negative externality. Addressing externalities often involves policies like taxes, subsidies, property rights assignments, or cap-and-trade schemes. For example, imposing a tax proportional to pollution internalizes external costs, aligning private incentives with social welfare. Emission trading schemes further enhance efficiency by creating markets for pollution permits, incentivizing firms to reduce emissions cost-effectively.
The circular flow model depicts the continuous movement of goods, services, income, and expenditure between households and firms. This model highlights flows of income earned by factors of production and expenditure on goods and services, emphasizing the interconnectedness of economic actors. Market equilibrium occurs when quantity demanded equals quantity supplied, preventing shortages or surpluses
and ensuring resource allocation is efficient.
Property rights are critical for economic efficiency, enabling individuals and firms to exercise control over resources within the legal framework. Well-defined property rights provide incentives for resource stewardship and facilitate market transactions. Without secure property rights, resources may be underutilized or exploited inefficiently, leading to market failure.
Government interventions include setting price floors or ceilings to regulate markets. A price floor, such as minimum wages, ensures a minimum price for labor, while a price ceiling, such as rent control, prevents prices from rising too high. Both tools aim to correct market failures but can lead to unintended consequences like surpluses or shortages if not carefully implemented.
Externalities are also managed through policies like taxes or subsidies to internalize social costs or benefits. When positive externalities exist, such as education or vaccination, subsidies correct market failures by encouraging production or consumption. Conversely, taxes on negative externalities, such as pollution, aim to reduce harmful activities to socially optimal levels.
In conclusion, economics seeks to understand how scarce resources are allocated among competing uses, balancing individual incentives with social welfare. Efficient markets depend on competition, clear property rights, and appropriate policy interventions to address externalities. Understanding these principles allows policymakers and individuals to make informed decisions that promote sustainable economic growth and social well-being.
References
Perloff, J. M. (2012). Microeconomics (7th ed.). Pearson.
Mankiw, N. G. (2020). Principles of Economics (9th ed.). Cengage Learning.
Samuelson, P. A., & Nordhaus, W. D. (2010). Economics (19th ed.). McGraw-Hill Education.
Pigou, A. C. (2013). The Economics of Welfare. Routledge.
Baumol, W. J., & Oates, W. E. (1975). The Theory of Externalities, Public Goods, and Club Goods. Elsevier.
Krugman, P., & Wells, R. (2018). Economics (5th ed.). Worth Publishers.
Friedman, M. (2002). Capitalism and Freedom. University of Chicago Press.
Coase, R. H. (1960). The Problem of Social Cost. Journal of Law and Economics, 3, 1-44.
Stiglitz, J. E. (1989). Economics of Information: Market Failures and Government Failures. Nobel Lecture. Hahn, R. W., & Hester, G. (1989). ■■■■■■■■■■■■ (Environmental Policy: Principles and Frameworks). Journal of Economic Perspectives, 3(2), 27-39.