Skelton
Economics
Unit 1 Practice Test Questions
The diagram below is for questions 1-3. It shows the production possibilities curve for the
country with full employment of a given labor force.
Agricultural Goods
E
A
C
D
B
Industrial Goods
1.
Ceteris paribus, if the country is currently producing at point A, it can produce more
industrial goods by moving to point
a. E
b. B
c. C
d. D
2.
Which of the following statements about the production possibilities curve is true?
a. Point D is not attainable given society’s resources.
b. Point C lies outside the production possibilities boundaries because it represents a
combination of resources that is not desired by the citizens of the country.
c. Elimination of unemployment will move the production possibilities curve to the right,
closer to point C.
d. The positions of point A and B reflect production possibilities if all resources are used
full and efficiently.
e. Point B is not attainable in this economy as it is a command economy.
3.
How might point C be attained?
a. If the country’s resources were more fully employed.
b. If the country’s resources were shifted to encourage more efficient use of scarce
resources.
c. If improvements in technology occurred in either the industrial goods or the
agricultural goods sector.
d. If firms decreased their output of industrial goods.
e. If the nation used more of its scarce resources to produce agricultural goods.
4.
All of the following are example of the concept of opportunity cost EXCEPT
a. A growing economy can produce more consumer goods and capital goods at the same
time.
b. If I buy a pizza, I will not be able to afford a movie.
c. Resources devoted to consumer goods production are not available for capital goods
production.
d. The land a Kansas farmer plants in wheat is not available for corn production.
e. The production of more military goods means fewer resources are available for corn
production.
5. Which one of the following would cause an outward or rightward shift in the PPC?
a. An increase in unemployment
b. An increase in inflation
c. An increase in capital equipment
d. A decrease in natural resources
e. A decrease in the number of workers
6. In socialist nations, the government plays a strong role in deciding what is going to be
produced, how the goods are going to be produced, and, once produced, how they will be
distributed among he people. Therefore, the basic type of economic system upon which
socialist economies are based is:
a. traditional
b. market
c. command
d. mixed
7. The basic economic problem is the combined existence of
a. Inflation and unemployment
b. Economic freedom
c. Scarce economic resources and unlimited material wants
d. Growing populations and the depletion of natural resources
8. Refer to the adjacent production possibilities curve (PPCs) for questions 8-11. Curve A is
the current curve for the economy. Given production possibilities curve A, point n
suggest the economy is
a. Attaining full employment
Consumer
but not full production
Goods
L
b. attaining full production but
N
not full employment
c. using its available resources
P
inefficiently
d. attaining both full employment
Q
and full production
Capital Goods
A
B
9. If curve A is the current curve, the movement from curve A to curve B suggest
a. A movement from unemployment to full employment
b. An improvement in capital goods technology but not in consumer goods technology
c. An improvement in consumer goods technology but not in capital goods technology
d. A decline in the total output of this society
10. A point such as Q in the above PPC represents
a. Unemployment and/or inefficient use of resources in the economy given it potential
to produce
b. A combination of consumer goods and capital goods that is impossible to produce
given the economy’s productive resources
c. A maximum production possibilities given the economy’s available productive
resources
d. A decrease in the economy’s ability to produce goods of any kind
11. Ceteris paribus, a choice of point P on the curve A, assuming curve A is the current curve
will
a. Entail a slower growth than would the choice of N
b. Allowing the economy to grow more rapidly than a point such as N
c. Entail the same rate of growth as would the choice N
d. Be unobtainable because I exceeds the production capacity of the economy
12. Along a production possibilities curve, an increase in the production of one type of goods
can be accomplished only by
a. Decreasing the production of the other type of good
b. Increasing the production of the other type of good
c. Holding constant the production of the other type of good
d. Decreasing the price of the other type of good
13. The law of increasing cost indicates that
a. Resources are perfectly mobile for transportation costs
b. The sum of all costs cannot rise above the market price of a product
c. To produce more of one good, society must sacrifice larger and larger amounts of
alternative goods
d. If the prices of all the resources involved in the production of goods increase, the
cost of purchasing those goods will increase at the same rate
14. If opportunity cost were constant, then the production possibilities curve would be
a. Vertical
b. Horizontal
c. A straight line
d. Bowed out
15. After graduating from high school, Ron Willis plans to go to college. The college tuition is
$8,000 a year. But, instead of going to college, Ron could take a full-time job paying
$15,000. If Ron decides to go to college, what is his opportunity cost for attending one
year (ceteris paribus)?
a. $7,000
b. $8,000
c. $15,000
d. $23,000
16. The question is based on the following table, which represents a factory’s production
outputs:
Combination
A
B
C
D
MP3 players
12
15
18
20
CD players
10
9
7
4
The opportunity cost of moving from combination C to D is
a. 2 MP3 players
b. 20 MP3 players
c. 3 CD players
d. 4 CD players
e. 5 CD players
17. Land : Labor as :: ____ : _____ (Land is to Labor as ____ is to _____.)
a. soil : tractor
b. tractor : farmer
c. forest : lumberjack
d. factory : machinery
e. oil field worker : oil rig
18. Which one of the following is a normative statement concerning the economy’s factors of
production?
a. 96% of the labor force is employed.
b. Output of capital goods increased last year.
c. The nation’s coal reserves decreased by 10% during the last three years.
d. The government should lower corporate taxes to encourage more entrepreneurs to
start businesses
e. The use of new computer technology increased productivity (output per worker per
hour) for three consecutive years.