Principles of Microeconomics

Questions:
1. Give three examples of important trade-offs that you face in your life.
2. What items would you include to figure out the opportunity cost of a vacation to Disney
World?
3. Water is necessary for life. Is the marginal benefit of a glass of water large or small?
4. Why should policymakers think about incentives?
5. Why isn’t trade among countries like a game with some winners and some losers?
6. What does the “invisible hand” of the marketplace do?
7. What are the two main causes of market failure? Give an example of each.
8. Why is productivity important?
9. What is inflation and what causes it?
10. How are inflation and unemployment related in the short run?
11. Explain how absolute advantage and comparative advantage differ.
12. Give an example in which one person has an absolute advantage in doing something but
another person has a comparative advantage.
13. Is absolute advantage or comparative advantage more important for trade? Explain your
reasoning using the example in your answer to question 12.
14. What is a competitive market? Briefly describe a type of market that is not perfectly
competitive.
15. What are the demand schedule and the demand curve, and how are they related? Why does
the demand curve slope downward?
16. Does a change in consumers’ tastes lead to a movement along the demand curve or to a
shift in the demand curve? Does a change in price lead to a movement along the demand curve
or to a shift in the demand curve? Explain your answers.
17. Harry’s income declines, and as a result, he buys more pumpkin juice. Is pumpkin juice an
inferior or a normal good? What happens to Harry’s demand curve for pumpkin juice?
18. What are the supply schedule and the supply curve, and how are they related? Why does
the supply curve slope upward?
19. Does a change in producers’ technology lead to a movement along the supply curve or to a
shift in the supply curve? Does a change in price lead to a movement along the supply curve
or to a shift in the supply curve?
20. Define the equilibrium of a market. Describe the forces that move a market toward its
equilibrium.
21. Beer and pizza are complements because they are often enjoyed together. When the price
of beer rises, what happens to the supply, demand, quantity supplied, quantity demanded, and
price in the market for pizza?
22. Define the price elasticity of demand and the income elasticity of demand.
23. List and explain the four determinants of the price elasticity of demand.
24. If the elasticity is greater than 1, is demand elastic or inelastic? If the elasticity equals zero,
is demand perfectly elastic or perfectly inelastic?
25. On a supply-and-demand diagram, show equilibrium price, equilibrium quantity, and the
total revenue received by producers.
26. If demand is elastic, how will an increase in price change total revenue? Explain.
27. What do we call a good with an income elasticity less than zero?
28. How is the price elasticity of supply calculated? Explain what it measures.
29. If a fixed quantity of a good is available, and no more can be made, what is the price
elasticity of supply?
30. A storm destroys half the fava bean crop. Is this event more likely to hurt fava bean farmers
if the demand for fava beans is very elastic or very inelastic? Explain.
31. “An increase in the demand for notebooks raises the quantity of notebooks demanded but
not the quantity supplied.” Is this statement true or false? Explain.
32. Consider the markets for film streaming services, TV screens, and tickets at movie theaters.
a. a. For each pair, identify whether they are complements or substitutes:
• Film streaming and TV screens
• Film streaming and movie tickets
• TV screens and movie tickets

33. Over the past 40 years, technological advances have reduced the cost of computer chips.
How do you think this has affected the market for computers? For computer software? For
typewriters?

34. Ketchup is a complement for hot dogs. If the price of hot dogs rises, what happens in the
market for ketchup? For tomatoes? For tomato juice? For orange juice?

35. For each of the following pairs of goods, which good would you expect to have more elastic
demand and why?
a. required textbooks or mystery novels
b. Beethoven recordings or classical music recordings in general
c. subway rides during the next 6 months or subway rides during the next 5 years
d. root beer or water

36. The price of coffee rose sharply last month, while the quantity sold remained the same. Five
people suggest various explanations:
Leonard: Demand increased, but supply was perfectly inelastic.
Sheldon: Demand increased, but it was perfectly inelastic.
Penny: Demand increased, but supply decreased at the same time.
Howard: Supply decreased, but demand was unit elastic.
Raj: Supply decreased, but demand was perfectly inelastic.
Who could possibly be right? Justify your answer.
37. You are the curator of a museum. The museum is running short of funds, so you decide to
increase revenue. Should you increase or decrease the price of admission? Explain.
38. Explain why the following might be true: A drought around the world raises the total
revenue that farmers receive from the sale of grain, but a drought only in Kansas reduces the
total revenue that Kansas farmers receive.
MCQs
Question 1:
What does the term "absolute advantage" refer to?
A) The ability to produce a good at a lower opportunity cost.
B) The ability to produce more of a good in a given period of time.
C) The ability to produce a good using fewer inputs.
D) The ability to trade goods for a higher profit.
Answer: C) The ability to produce a good using fewer inputs.

Question 2:
What does the opportunity cost of producing an item refer to?
A) The amount of inputs required to produce the item.
B) The amount of money spent to produce the item.
C) What is given up to get that item.
D) The number of units produced in a given time.
Answer: C) What is given up to get that item.

Question 3:
Economics is best defined as the study of
a. how society manages its scarce resources.
b. how to run a business most profitably.
c. how to predict inflation, unemployment, and stock prices.
d. how the government can stop the harm from unchecked self-interest
Answer: a) how society manages its scarce resources.

Question 4:
Your opportunity cost of going to a movie is
a. the price of the ticket.
b. the price of the ticket plus the cost of any soda and popcorn you buy at the theater.
c. the total cash expenditure needed to go to the movie plus the value of your time.
d. zero, as long as you enjoy the movie and consider it a worthwhile use of time and money.
Answer: c) the total cash expenditure needed to go to the movie plus the value of your time.

Question 5:
Adam Smith’s “invisible hand” refers to
a. the subtle and often hidden methods that businesses use to profit at consumers’ expense.
b. the ability of free markets to reach desirable outcomes, despite the self-interest of market
participants.
c. the ability of government regulation to benefit consumers, even if the consumers are
unaware of the regulations.
d. the way in which producers or consumers in unregulated markets impose costs on innocent
bystanders
Answer: b) the ability of free markets to reach desirable outcomes, despite the self-interest of
market participants.

Question 6:
Governments may intervene in a market economy in order to
a. protect property rights.
b. correct a market failure due to externalities.
c. achieve a more equal distribution of income.
d. All of the above.
Answer: d) All of the above.

Question 7:
Why is it impossible for one person to have a comparative advantage in both goods?
A) Because absolute advantage can only be held by one producer.
B) Because opportunity costs are the same for both producers.
C) Because the opportunity cost of one good is the inverse of the opportunity cost of the
other.
D) Because both producers have the same productivity.
Answer: C) Because the opportunity cost of one good is the inverse of the opportunity cost
of the other.

Question 8:
What is the main basis for the gains from specialization and trade?
A) Absolute advantage
B) Comparative advantage
C) The total amount of resources available
D) The quality of the goods produced
Answer: B) Comparative advantage

Question 9:
If a nation has high and persistent inflation, the most likely explanation is
a. the central bank creating excessive amounts of money.
b. unions bargaining for excessively high wages.
c. the government imposing excessive levels of taxation.
d. firms using their monopoly power to enforce excessive price hikes.
Answer: a) the central bank creating excessive amounts of money.

Question 10:
What is the main characteristic of a competitive market?
A) There are a few large buyers and sellers who can influence the market price.
B) There are many buyers and sellers, each with a negligible impact on the market price.
C) All goods offered for sale are differentiated and unique.
D) Prices are set by an auctioneer at a specific time and place.
Answer: B) There are many buyers and sellers, each with a negligible impact on the market
price.

Question 11:
Which of the following is a necessary characteristic of a perfectly competitive market?
A) Goods offered for sale are all exactly the same.
B) There is only one seller who sets the price.
C) Buyers and sellers meet at a specific time and place.
D) Sellers have significant control over the price of their goods.
Answer: A) Goods offered for sale are all exactly the same.

Question 12:
Why are buyers and sellers in perfectly competitive markets referred to as "price takers"?
A) They have significant influence over the market price.
B) They must accept the market price as given by market conditions.
C) They negotiate prices with each other directly.
D) They set the prices for goods and services themselves.
Answer: B) They must accept the market price as given by market conditions.

Question 13:
What does the law of demand state?
A) When the price of a good rises, the quantity demanded of the good also rises.
B) When the price of a good falls, the quantity demanded of the good falls.
C) When the price of a good rises, the quantity demanded of the good falls.
D) When the price of a good falls, the quantity demanded remains constant.
Answer: C) When the price of a good rises, the quantity demanded of the good falls.

Question 14:
What is a demand schedule?
A) A graph that shows the relationship between price and quantity supplied.
B) A table that shows the relationship between the price of a good and the quantity
demanded.
C) A schedule that lists the times at which goods are demanded.
D) A table that shows the relationship between the price of a good and the quantity supplied.
Answer: B) A table that shows the relationship between the price of a good and the quantity
demanded.

Question 15:
How is the market demand curve for a product determined?
A) By summing the individual demand curves vertically.
B) By averaging the prices at which each individual buys the product.
C) By summing the individual demand curves horizontally.
D) By finding the highest quantity demanded by any individual at each price.
Answer: C) By summing the individual demand curves horizontally.

Question 16:
What happens to the demand curve when a change increases the quantity demanded at every
price?
A) The demand curve shifts to the left.
B) The demand curve shifts to the right.
C) The demand curve becomes steeper.
D) The demand curve becomes flatter.
Answer: B) The demand curve shifts to the right.

Question 17:
Which of the following is an example of complementary goods?
A) Hot dogs and hamburgers
B) Sweaters and sweatshirts
C) Ice cream and frozen yogurt
D) Peanut butter and jelly
Answer: D) Peanut butter and jelly
Question 18:
How does an increase in the number of buyers affect the market demand?
A) Market demand decreases at every price.
B) Market demand remains unchanged at every price.
C) Market demand increases at every price.
D) Market demand becomes more elastic.
Answer: C) Market demand increases at every price.

Question 19:
What does the law of supply state?
A) When the price of a good rises, the quantity supplied of the good falls.
B) When the price of a good falls, the quantity supplied of the good rises.
C) When the price of a good rises, the quantity supplied of the good also rises.
D) When the price of a good remains constant, the quantity supplied of the good falls.
Answer: C) When the price of a good rises, the quantity supplied of the good also rises.

Question 20:
How is the market supply curve obtained from individual supply curves?
A) By summing the individual supply curves vertically.
B) By averaging the individual supply curves.
C) By summing the individual supply curves horizontally.
D) By multiplying the individual supply curves.
Answer: C) By summing the individual supply curves horizontally.

Question 21:
What happens to the supply curve when there is a decrease in the price of sugar, an input in
the production of ice cream?
A) It shifts to the right.
B) It shifts to the left.
C) It shifts vertically.
D) It remains unchanged.
Answer: A) It shifts to the right.

Question 22:
What defines equilibrium in a market?
A) When quantity supplied exceeds quantity demanded.
B) When quantity demanded exceeds quantity supplied.
C) When the market price balances quantity supplied and quantity demanded.
D) When there is no market activity.
Answer: C) When the market price balances quantity supplied and quantity demanded.

Question 23:
What characterizes a situation of surplus in a market?
A) Quantity supplied is greater than quantity demanded.
B) Quantity demanded is greater than quantity supplied.
C) Equilibrium price is reached.
D) Market demand shifts to the right.
Answer: A) Quantity supplied is greater than quantity demanded.
Question 24:
When two individuals produce efficiently and then make a mutually beneficial trade based on
comparative advantage,
a. they both obtain consumption outside their production possibilities frontier.
b. they both obtain consumption inside their production possibilities frontier.
c. one individual consumes inside her production possibilities frontier, while the other
consumes outside hers.
d. each individual consumes a point on her own production possibilities frontier.
Answer: a) they both obtain consumption outside their production possibilities frontier.

Question 25:
Which goods will a nation typically import?
a. those goods in which the nation has an absolute advantage
b. those goods in which the nation has a comparative advantage
c. those goods in which other nations have an absolute advantage
d. those goods in which other nations have a comparative advantage
Answer: d) those goods in which other nations have a comparative advantage.

Question 26:
Suppose that in the United States, producing an aircraft takes 10,000 hours of labor and
producing a shirt takes 2 hours of labor. In China, producing an aircraft takes 40,000 hours of
labor and producing a shirt takes 4 hours of labor. What will these nations trade?
a. China will export aircraft, and the United States will export shirts.
b. China will export shirts, and the United States will export aircraft.
c. Both nations will export shirts.
d. There are no gains from trade in this situation.
Answer: b) China will export shirts, and the United States will export aircraft.

Question 27:
Kayla can cook dinner in 30 minutes and wash the laundry in 20 minutes. Her roommate
takes half as long to do each task. How should the roommates allocate the work?
a. Kayla should do more of the cooking based on her comparative advantage.
b. Kayla should do more of the washing based on her comparative advantage.
c. Kayla should do more of the washing based on her absolute advantage.
d. There are no gains from trade in this situation.
Answer: d. There are no gains from trade in this situation.

Question 28:
A change in which of the following will NOT shift the demand curve for hamburgers?
a. the price of hot dogs
b. the price of hamburgers
c. the price of hamburger buns
d. the income of hamburger consumers
Answer: b. the price of hamburgers

Question 29:
An increase in ________ will cause a movement along a given demand curve, which is called
a change in ________.
a. supply, demand
b. supply, quantity demanded
c. demand, supply
d. demand, quantity supplied
Answer: b. supply, quantity demanded

Question 30:
Movie tickets and film streaming services are substitutes. If the price of film streaming
increases, what happens in the market for movie tickets?
a. The supply curve shifts to the left.
b. The supply curve shifts to the right.
c. The demand curve shifts to the left.
d. The demand curve shifts to the right.
Answer: d. The demand curve shifts to the right.

Question 31:
The discovery of a large new reserve of crude oil will shift the ________ curve for gasoline,
leading to a ________ equilibrium price.
a. supply, higher
b. supply, lower
c. demand, higher
d. demand, lower
Answer: b. supply, lower

Question 32:
If the economy goes into a recession and incomes fall, what happens in the markets for
inferior goods?
a. Prices and quantities both rise.
b. Prices and quantities both fall.
c. Prices rise and quantities fall.
d. Prices fall and quantities rise.
Answer: a. Prices and quantities both rise.

Question 33:
Which of the following might lead to an increase in the equilibrium price of jelly and a
decrease in the equilibrium quantity of jelly sold?
a. an increase in the price of peanut better, a complement to jelly
b. an increase in the price of Marshmallow Fluff, a substitute for jelly
c. an increase in the price of grapes, an input into jelly
d. an increase in consumers’ incomes, as long as jelly is a normal good
Answer: c. an increase in the price of grapes, an input into jelly

Question 34:
A life-saving medicine without any close substitutes will tend to have
a. a small elasticity of demand.
b. a large elasticity of demand.
c. a small elasticity of supply.
d. a large elasticity of supply.
Answer: a. a small elasticity of demand.
Question 35:
The price of a good rises from $8 to $12, and the quantity demanded falls from 110 to 90
units. Calculated with the midpoint method, the price elasticity of demand is
a. 1/5.
b. 1/2.
c. 2.
d. 5
Answer: b. 1/2.

Question 36:
A linear, downward-sloping demand curve is
a. inelastic
b. unit elastic.
c. elastic.
d. inelastic at some points, and elastic at others.
Answer: d. inelastic at some points, and elastic at others.

Question 37:
The ability of firms to enter and exit a market over time means that, in the long run,
a. the demand curve is more elastic.
b. the demand curve is less elastic.
c. the supply curve is more elastic.
d. the supply curve is less elastic.
Answer: c. the supply curve is more elastic.

Question 38:
An increase in the supply of a good will decrease the total revenue producers receive if
a. the demand curve is inelastic.
b. the demand curve is elastic.
c. the supply curve is inelastic.
d. the supply curve is elastic.
Answer: a. the demand curve is inelastic.

Question 39:
Over time, technological advance increases consumers’ incomes and reduces the price of
smartphones. Each of these forces increases the amount consumers spend on smartphones if
the income elasticity of demand is greater than ________ and if the price elasticity of demand
is greater than ________.
a. zero, zero
b. zero, one
c. one, zero
d. one, one
Answer: d. one, one.

Question 40:
Which of the following best illustrates the concept of trade-offs?
A) A student who spends all her time studying one subject.
B) A family that decides to save all their income for retirement.
C) A government policy that prioritizes efficiency over equality.
D) Choosing to spend more on national defense, resulting in less spending on consumer
goods.
Answer: D) Choosing to spend more on national defense, resulting in less spending on
consumer goods.

Question 41:
What is one potential consequence of government policies that aim to equalize the
distribution of economic well-being?
A) Increased efficiency in the economy.
B) Decreased incentive for people to work hard.
C) Higher profits for firms.
D) Improved material standard of living.
Answer: B) Decreased incentive for people to work hard.

Question 42:
When should a rational decision maker take an action?
A) When the total benefit exceeds the total cost
B) When the average benefit exceeds the average cost
C) When the marginal benefit exceeds the marginal cost
D) When the marginal cost exceeds the marginal benefit
Answer: C) When the marginal benefit exceeds the marginal cost

Question 43:
Why can trade between countries, such as the United States and China, make both countries
better off?
A) Trade always results in one country winning and the other losing.
B) Trade allows countries to specialize in what they do best and enjoy a greater variety of
goods and services.
C) Trade leads to a reduction in competition between firms from different countries.
D) Trade forces countries to produce all goods domestically, increasing self-sufficiency.
Answer: B) Trade allows countries to specialize in what they do best and enjoy a greater
variety of goods and services.

Question 44:
What is one key reason why market economies are successful in organizing economic activity
according to the principle of the "invisible hand"?
A) Central planners make decisions based on societal needs and preferences.
B) Market economies use prices to guide the decisions of buyers and sellers.
C) Government intervention ensures prices remain stable and predictable.
D) Households and firms work together to set uniform prices for all goods and services.
Answer: B) Market economies use prices to guide the decisions of buyers and sellers.

Question 45:
Why might government intervention be necessary in a market economy?
A) To guarantee that all individuals have equal wealth and income.
B) To eliminate the need for property rights and contracts.
C) To address market failures and promote economic efficiency or equality.
D) To manage all production and distribution of goods and services directly.
Answer: C) To address market failures and promote economic efficiency or equality.
Question 46:
What is the primary factor that explains differences in living standards among countries and
over time?
A) The presence of labor unions and minimum-wage laws
B) The level of competition from other countries
C) Differences in countries’ productivity
D) Government regulations and policies
Answer: C) Differences in countries’ productivity

Question 47:
What is the primary cause of inflation?
A) Decrease in the supply of goods and services
B) High levels of competition in the market
C) Growth in the quantity of money
D) Increase in government regulations
Answer: C) Growth in the quantity of money

Question 48:
What is the short-run trade-off that society faces when increasing the quantity of money in
the economy?
A) A trade-off between inflation and interest rates
B) A trade-off between inflation and economic growth
C) A trade-off between inflation and unemployment
D) A trade-off between government spending and taxation
Answer: C) A trade-off between inflation and unemployment

Question 49:
Which of the following factors makes the demand for a good more elastic?
A) The good is a necessity rather than a luxury.
B) The market for the good is broadly defined.
C) The good has few close substitutes.
D) The demand for the good is measured over a longer time horizon.
Answer: D) The demand for the good is measured over a longer time horizon.

Question 50:
Why is the price elasticity of supply generally higher in the long run compared to the short
run?
A) Firms can more easily change the size of their factories in the short run.
B) The supply of beachfront land becomes more elastic over time.
C) In the long run, firms can build new factories, close old ones, and new firms can enter or
exit the market.
D) Manufactured goods become less elastic over extended periods.
Answer: C) In the long run, firms can build new factories, close old ones, and new firms can
enter or exit the market.

Question 51:
Which of the following is an example of a service rather than a good?
A) Mobile phone
B) Car wash
C) Laptop
D) Refrigerator
Answer: B) Car wash

Question 52:
Which of the following statements accurately describes the focus of microeconomics?
A) Examines the role of government in achieving price stability and low unemployment
B) Analyzes the interaction of the economy with the rest of the world through international
trade
C) Studies the influence of government policies on overall economic growth and
development
D) Investigates individual markets and the choices of individuals, households, and firms
Answer: D) Investigates individual markets and the choices of individuals, households, and
firms

Question 53:
Which economic system is characterized by financial decisions made according to
government plans?
A) Market Economy
B) Mixed Economy
C) Planned Economy
D) Free Market System
Answer: C) Planned Economy
Question 54:
In a mixed economy, which of the following statements is true?
A) All resources and businesses are privately owned with no government intervention.
B) Financial decisions are made exclusively by the government.
C) Both free markets and government intervention play a role in economic decision-making.
D) Market competition is completely eliminated in favor of government control.
Answer: C) Both free markets and government intervention play a role in economic decision-
making.

Question 55:
In a perfectly competitive market, which of the following statements is true?
A) There are few buyers and sellers, and each has significant control over the market price.
B) Goods offered for sale are different, and buyers and sellers have a significant impact on
the market price.
C) The goods offered for sale are all exactly the same, and buyers and sellers are numerous
enough that no single participant can influence the market price.
D) Only one seller controls the market price, with buyers having limited options.
Answer: C) The goods offered for sale are all exactly the same, and buyers and sellers are
numerous enough that no single participant can influence the market price.

Question 56:
Which market characteristic describes a situation where a single seller has control over the
price and there are no close substitutes available?
A) Perfect Competition
B) Competitive Market
C) Monopoly
D) Oligopoly
Answer: C) Monopoly

Question 57:
What does the demand curve illustrate according to the law of demand?
A) As the price of a good rises, the quantity demanded increases.
B) As the price of a good falls, the quantity demanded decreases.
C) As the price of a good rises, the quantity demanded decreases.
D) The demand curve shows the relationship between the quantity of a good supplied and its
price.
Answer: C) As the price of a good rises, the quantity demanded decreases.

Question 58:
What happens to the demand for a good if the price of a complementary good falls?
A) The demand for the good decreases.
B) The demand for the good increases.
C) The quantity demanded of the good decreases.
D) The demand for the good remains unchanged.
Answer: B) The demand for the good increases.

Question 59:
What happens to the supply curve for ice cream if the price of sugar, an input in ice cream
production, falls?
A) The supply curve shifts to the left.
B) The supply curve shifts to the right.
C) The quantity supplied decreases at every price.
D) The supply curve remains unchanged.
Answer: B) The supply curve shifts to the right.

Question 60:
What occurs when the market price is above the equilibrium price?
A) There is a shortage of the good, leading to higher prices.
B) There is a surplus of the good, leading to lower prices.
C) The quantity demanded exceeds the quantity supplied.
D) The equilibrium price is achieved immediately.
Answer: B) There is a surplus of the good, leading to lower prices.

Question 61:
Which of the following factors makes the demand for a good more elastic?
a) The good is a necessity.
b) The market for the good is broadly defined.
c) There are no close substitutes available.
d) Buyers have substantial time to react to a price change.
Answer: d) Buyers have substantial time to react to a price change.

Question 62:
If the price of a good increases by 10% and the quantity demanded decreases by 5%, what is
the price elasticity of demand?
a) 0.5 (Inelastic)
b) 1.0 (Unit elastic)
c) 2.0 (Elastic)
d) 5.0 (Elastic)
Answer: a) 0.5 (Inelastic)

Question 63:
For which of the following goods would you expect the total revenue to increase as the price
increases?
a) A good with elastic demand.
b) A good with unit elastic demand.
c) A good with inelastic demand.
d) A good with perfectly elastic demand.
Answer: c) A good with inelastic demand.

Question 64:
The cross-price elasticity of demand between two goods is 1.5. What does this imply about
the relationship between the two goods?
a) They are substitutes.
b) They are complements.
c) They are unrelated.
d) They are inferior goods.
Answer: a) They are substitutes.

Question 65:
If the price elasticity of supply for a good is greater than 1, what does this indicate?
a) The supply is perfectly inelastic.
b) The supply is inelastic.
c) The supply is elastic.
d) The supply is unit elastic.
Answer: c) The supply is elastic.

Question 66:
What happens to the quantity demanded of a good when its price decreases, according to the
law of demand?
a) The quantity demanded decreases.
b) The quantity demanded remains the same.
c) The quantity demanded increases.
d) The demand curve shifts to the right.
Answer: c) The quantity demanded increases.

Question 67:
Which of the following would cause a rightward shift in the demand curve for a good?
a) An increase in the price of the good.
b) A decrease in consumers' income for a normal good.
c) A decrease in the number of buyers.
d) An increase in the price of a substitute good.
Answer: d) An increase in the price of a substitute good.

Question 68:
If the market price of a good is above the equilibrium price, what is the result?
a) There is a shortage of the good.
b) There is a surplus of the good.
c) The supply curve shifts to the left.
d) The demand curve shifts to the right.
Answer: b) There is a surplus of the good.

Question 69:
What does the intersection of the supply and demand curves represent in a competitive
market?
a) The quantity demanded exceeds the quantity supplied.
b) The quantity supplied exceeds the quantity demanded.
c) The market equilibrium where quantity demanded equals quantity supplied.
d) The maximum price that consumers are willing to pay.
Answer: c) The market equilibrium where quantity demanded equals quantity supplied.

Question 70:
Which of the following would cause a leftward shift in the supply curve for a good?
a) A decrease in the price of inputs used to produce the good.
b) An improvement in production technology.
c) An increase in the number of sellers.
d) An increase in the price of inputs used to produce the good.
Answer: d) An increase in the price of inputs used to produce the good.

Question 71:
What is the main reason trade and interdependence are considered beneficial?
a) They allow individuals to work less.
b) They enable everyone to enjoy a greater quantity and variety of goods and services.
c) They eliminate the need for international relations.
d) They reduce the number of producers in the market.
Answer: b) They enable everyone to enjoy a greater quantity and variety of goods and
services.

Question 72:
What is the difference between absolute advantage and comparative advantage?
a) Absolute advantage is about producing goods with fewer inputs, while comparative
advantage is about producing goods with a lower opportunity cost.
b) Absolute advantage is about the overall quality of goods produced, while comparative
advantage is about the quantity of goods produced.
c) Absolute advantage refers to economic size, while comparative advantage refers to trade
policies.
d) Absolute advantage only applies to countries, while comparative advantage applies to
individuals.
Answer: a) Absolute advantage is about producing goods with fewer inputs, while
comparative advantage is about producing goods with a lower opportunity cost.

Question 73:
Which of the following best explains why trade can make everyone better off?
a) It allows people to work in multiple industries at once.
b) It enables specialization in activities where individuals or countries have a comparative
advantage.
c) It ensures that every country has the same amount of resources.
d) It eliminates the need for any competition in the market.
Answer: b) It enables specialization in activities where individuals or countries have a
comparative advantage.

Question 74:
According to economists, what is the primary benefit of markets in coordinating economic
activity?
a) Markets always achieve perfect equality.
b) Markets reduce the need for government intervention.
c) Markets allow individuals to make decisions based on marginal costs and benefits.
d) Markets can usually coordinate economic activity among people efficiently.
Answer: d) Markets can usually coordinate economic activity among people efficiently.

Question 75:
What is the ultimate source of living standards in an economy, according to economic
principles?
a) The quantity of money in circulation.
b) The level of government intervention.
c) The overall productivity of the economy.
d) The balance between inflation and unemployment.
Answer: c) The overall productivity of the economy.