MICROECONOMICS’ PROBLEM SET 1

Chapter 1: Overview of Microeconomics

1. Suppose that country A produce only 2 products: Clothes and Food. The possibilities of
producing these two good is as follow:

Possibility Food Clothes

A 300 0
B 200 50
C 100 100
D 0 150
a. Plot the PPF curve of country A.
b. Determine the opportunity cost of producing food and clothes at different quantity given in
the table.
c. How does the opportunity cost change in the table?

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 Multiple Choices
1. What does economics study
A) finance
B) how society manages its scarce resources
C) central planning
D) government regulation
2. What does the saying "There is no such thing as a free lunch" mean
A) Even people on welfare have to pay for food.
B) The cost of living is always increasing.
C) To get something we like, we usually have to give up another thing we like. (tradeoff)
D) All costs are included in the price of a product.
3. Henry decides to spend two hours playing golf rather than working at his job, which pays $8
per hour. What is Henry's tradeoff
A) the $16 he could have earned working for two hours
B) nothing, because he enjoys playing golf more than working
C) the increase in skill he obtains from playing golf for those two hours
D) nothing, because he spent $16 for green fees to play golf
4. What does efficiency mean
A) Society is conserving resources in order to save them for the future.
B) Society's goods and services are distributed fairly among society's members.
C) Society has lessened its dependence on non-renewable energy sources.
D) Society is getting the most it can from its scarce resources.
5. What is the term for what you give up to obtain an item
A) opportunity cost
B) explicit cost
C) true cost
D) direct cost
6. What does the word "margin" mean
A) edge
B) distance
C) inside
D) measure
7. In the simple circular-flow diagram, in which market are households sellers
A) the factors of production market
B) the goods and services market
C) both the factors of production market and the goods and services market
D) neither the factors of production market nor the goods and services market

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8. In a market economy, what guides economic activity
A) the government
B) businesses
C) central planners
D) prices
9. How does the invisible hand primarily work to promote general well-being in the economy
A) through government intervention
B) through the political process
C) through self-interest
D) through altruism
10. What term refers to a situation in which markets fail to allocate resources efficiently
A) economic depression
B) market failure (externalities and market power)
C) corporate bankruptcy
D) disequilibrium
11. Which concept is NOT illustrated by the production possibilities frontier
A) efficiency
B) opportunity cost
C) equity
D) tradeoffs
12. What would NOT be considered a factor of production
A) labour
B) land
C) capital
D) bonds
13. What markets are depicted in the simple circular-flow diagram
A) the market for goods and services, the financial market, and the market for the factors of
production
B) the market for the factors of production and the financial market
C) the market for goods and services and the financial market
D) the market for goods and services (input) and the market for factors of production
14. What are the four sectors in a more complex circular-flow diagram
A) households, government, financial markets, and international trade
B) households, firms, government, and financial markets

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 C) households, firms, financial markets, and international trade
D) households, firms, government, and international trade (foreigner)
15. The country of Econoland produces two goods: textbooks and widgets. Last year, it
produced 300 textbooks and 600 widgets. This year, it produced 350 textbooks and 700
widgets. Given no other information, which of the following could NOT explain the change
A) Econoland experienced a reduction in unemployment.
B) Econoland experienced an improvement in widget-making technology.
C) Econoland acquired more resources.
D) Econoland experienced a high level of emigration out of the country.
16. How do economists view normative statements
A) descriptive, making a claim about how the world is
B) as false statements about the normal condition of the world
C) prescriptive, making a claim about how the world ought to be
D) as statements that establish production goals for the economy
17. Refer to Table 1-1.What is the opportunity cost to Toyland of increasing the production of
dolls from 200 to 300
A) 50 fire trucks
Dolls Fire trucks
B) 100 fire trucks
400 0
C) 150 fire trucks 300 200
D) 200 fire trucks 200 350
100 450
0 500

18. Refer to Figure 1-1.What is the opportunity cost of moving from point A to point B
A) 8 bathtubs
B) 20 barrels
C) the difference between the 8 bathtubs you get and the 20 barrels you give up
D) the difference between the 20 barrels you get and the 8 bathtubs you give up

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19. What might a microeconomist NOT study
A) the effects of rent control on housing in Toronto
B) how a college student makes financial decisions
C) how tariffs on shoes affects the shoe industry
D) the effect on the economy when interest rates change
20. What would a macroeconomist NOT study
A) the impact of changes in beef prices on the consumption of chicken
B) the effect of changes in tax rates on GDP
C) the impact of monetary policy on the rate of inflation
D) the effect of interest rate policy on the rate of economic growth