Economics Exam Prep – Original Question Set
ECONOMICS EXAMINATION
Comprehensive Exam Prep
Based on McEachern's Economics: A Contemporary Introduction, 11th Edition
150 Multiple-Choice Questions and Answers
Economics Exam Prep – Original Question Set
, Economics Exam Prep – Original Question Set
MICROECONOMICS
Question 1 [Scarcity & Choice]
Which of the following best defines scarcity in economics?
A. The shortage of money in an economy
B. The unlimited wants and limited resources available to satisfy those wants
C. The inability of poor countries to develop
D. The temporary lack of goods during recession
Correct Answer: B. The unlimited wants and limited resources available to satisfy those wants
Rationale: Scarcity is the fundamental economic problem that resources are finite while human wants are
unlimited.
Question 2 [Opportunity Cost]
If a student chooses to attend college rather than work, the opportunity cost includes:
A. Only the tuition paid to the college
B. The income that could have been earned from working plus the tuition paid
C. Only the forgone wages from not working
D. Nothing, since education is an investment
Correct Answer: C. Only the forgone wages from not working
Rationale: Opportunity cost is the value of the best alternative foregone; here, the next-best option is
employment income.
Question 3 [Production Possibilities Frontier]
If an economy produces 10 units of capital goods, it can produce 50 units of consumer goods. If it
produces 6 units of capital goods, it can produce 70 units of consumer goods. What is the opportunity cost
of one unit of capital goods?
A. 2.5 units of consumer goods
B. 5 units of consumer goods
C. 8 units of consumer goods
D. 10 units of consumer goods
Correct Answer: B. 5 units of consumer goods
Rationale: Moving from 10 to 6 capital goods (a decrease of 4) allows production of 70 - 50 = 20 additional
consumer goods; 20 ÷ 4 = 5 units per capital good.
Question 4 [Economic Efficiency]
A point inside the production possibilities frontier indicates:
A. Maximum productive efficiency is being achieved
B. Resources are being used inefficiently or not fully employed
C. The economy has solved the scarcity problem
D. Technological progress has occurred
Economics Exam Prep – Original Question Set
, Economics Exam Prep – Original Question Set
Correct Answer: B. Resources are being used inefficiently or not fully employed
Rationale: Points inside the PPF represent underutilization of resources; points on the PPF represent maximum
efficiency.
Question 5 [Comparative Advantage]
Country A can produce 100 computers or 200 shirts. Country B can produce 80 computers or 240 shirts.
Which country has a comparative advantage in computer production?
A. Country A, because it can produce more computers absolutely
B. Country B, because it requires fewer resources
C. Country A, because it gives up fewer shirts per computer
D. Country B, because it specializes in computers
Correct Answer: C. Country A, because it gives up fewer shirts per computer
Rationale: Country A's opportunity cost is 2 shirts per computer (200÷100); Country B's is 3 shirts per computer
(240÷80); lower opportunity cost means comparative advantage.
Question 6 [Ceteris Paribus]
The Latin phrase ceteris paribus, frequently used in economics, means:
A. All things are equal and comparable
B. All other things held constant
C. The economy is in perfect equilibrium
D. Everything is relative and subjective
Correct Answer: B. All other things held constant
Rationale: Ceteris paribus is a fundamental analytical tool allowing economists to isolate the effect of one
variable by assuming all others remain unchanged.
Question 7 [Positive vs Normative Economics]
Which statement is an example of normative economics?
A. The unemployment rate increased by 0.5% last month
B. If the minimum wage rises, employment will decrease for unskilled workers
C. The government should increase spending on education to promote growth
D. The inflation rate was 3% in the previous year
Correct Answer: C. The government should increase spending on education to promote growth
Rationale: Normative statements involve value judgments and 'should' statements; the others are positive
(factual) economic statements.
Question 8 [Economic Systems]
In a command economy, the primary mechanism for allocating resources is:
A. Market prices and consumer preferences
B. Government planning and central direction
C. Individual profit maximization
D. Consumer cooperatives and communes
Correct Answer: B. Government planning and central direction
Economics Exam Prep – Original Question Set
, Economics Exam Prep – Original Question Set
Rationale: Command economies rely on central government planning rather than market mechanisms to
determine resource allocation.
Question 9 [Law of Demand]
The law of demand states that, other things being equal:
A. Higher prices always lead to higher revenues
B. As the price of a good increases, the quantity demanded decreases
C. Consumer income and demand move in the same direction
D. Demand curves always slope upward
Correct Answer: B. As the price of a good increases, the quantity demanded decreases
Rationale: The law of demand is a fundamental principle showing the inverse relationship between price and
quantity demanded.
Question 10 [Law of Supply]
Which scenario best illustrates the law of supply?
A. As gasoline prices decrease, consumers buy more cars
B. As wheat prices increase, farmers plant more wheat acreage
C. As interest rates increase, consumer borrowing decreases
D. As technology improves, product prices increase
Correct Answer: B. As wheat prices increase, farmers plant more wheat acreage
Rationale: The law of supply shows the positive relationship between price and quantity supplied; higher prices
incentivize producers to supply more.
Question 11 [Market Equilibrium]
At the market equilibrium price for coffee, quantity demanded equals quantity supplied. What would
happen if the price fell below equilibrium?
A. A surplus would develop and prices would tend to rise
B. A shortage would develop and prices would tend to rise
C. Supply would increase to match the lower price
D. Demand would decrease until equilibrium is restored
Correct Answer: B. A shortage would develop and prices would tend to rise
Rationale: Below equilibrium price, quantity demanded exceeds quantity supplied, creating a shortage that puts
upward pressure on price.
Question 12 [Shifts in Demand]
A major health report announces that coffee consumption reduces the risk of heart disease. How would
this affect the coffee market?
A. Supply increases and the price falls
B. The demand curve shifts right, increasing equilibrium price and quantity
C. The supply curve shifts left, creating a shortage
D. Demand moves along the demand curve to a new equilibrium
Correct Answer: B. The demand curve shifts right, increasing equilibrium price and quantity
Economics Exam Prep – Original Question Set
ECONOMICS EXAMINATION
Comprehensive Exam Prep
Based on McEachern's Economics: A Contemporary Introduction, 11th Edition
150 Multiple-Choice Questions and Answers
Economics Exam Prep – Original Question Set
, Economics Exam Prep – Original Question Set
MICROECONOMICS
Question 1 [Scarcity & Choice]
Which of the following best defines scarcity in economics?
A. The shortage of money in an economy
B. The unlimited wants and limited resources available to satisfy those wants
C. The inability of poor countries to develop
D. The temporary lack of goods during recession
Correct Answer: B. The unlimited wants and limited resources available to satisfy those wants
Rationale: Scarcity is the fundamental economic problem that resources are finite while human wants are
unlimited.
Question 2 [Opportunity Cost]
If a student chooses to attend college rather than work, the opportunity cost includes:
A. Only the tuition paid to the college
B. The income that could have been earned from working plus the tuition paid
C. Only the forgone wages from not working
D. Nothing, since education is an investment
Correct Answer: C. Only the forgone wages from not working
Rationale: Opportunity cost is the value of the best alternative foregone; here, the next-best option is
employment income.
Question 3 [Production Possibilities Frontier]
If an economy produces 10 units of capital goods, it can produce 50 units of consumer goods. If it
produces 6 units of capital goods, it can produce 70 units of consumer goods. What is the opportunity cost
of one unit of capital goods?
A. 2.5 units of consumer goods
B. 5 units of consumer goods
C. 8 units of consumer goods
D. 10 units of consumer goods
Correct Answer: B. 5 units of consumer goods
Rationale: Moving from 10 to 6 capital goods (a decrease of 4) allows production of 70 - 50 = 20 additional
consumer goods; 20 ÷ 4 = 5 units per capital good.
Question 4 [Economic Efficiency]
A point inside the production possibilities frontier indicates:
A. Maximum productive efficiency is being achieved
B. Resources are being used inefficiently or not fully employed
C. The economy has solved the scarcity problem
D. Technological progress has occurred
Economics Exam Prep – Original Question Set
, Economics Exam Prep – Original Question Set
Correct Answer: B. Resources are being used inefficiently or not fully employed
Rationale: Points inside the PPF represent underutilization of resources; points on the PPF represent maximum
efficiency.
Question 5 [Comparative Advantage]
Country A can produce 100 computers or 200 shirts. Country B can produce 80 computers or 240 shirts.
Which country has a comparative advantage in computer production?
A. Country A, because it can produce more computers absolutely
B. Country B, because it requires fewer resources
C. Country A, because it gives up fewer shirts per computer
D. Country B, because it specializes in computers
Correct Answer: C. Country A, because it gives up fewer shirts per computer
Rationale: Country A's opportunity cost is 2 shirts per computer (200÷100); Country B's is 3 shirts per computer
(240÷80); lower opportunity cost means comparative advantage.
Question 6 [Ceteris Paribus]
The Latin phrase ceteris paribus, frequently used in economics, means:
A. All things are equal and comparable
B. All other things held constant
C. The economy is in perfect equilibrium
D. Everything is relative and subjective
Correct Answer: B. All other things held constant
Rationale: Ceteris paribus is a fundamental analytical tool allowing economists to isolate the effect of one
variable by assuming all others remain unchanged.
Question 7 [Positive vs Normative Economics]
Which statement is an example of normative economics?
A. The unemployment rate increased by 0.5% last month
B. If the minimum wage rises, employment will decrease for unskilled workers
C. The government should increase spending on education to promote growth
D. The inflation rate was 3% in the previous year
Correct Answer: C. The government should increase spending on education to promote growth
Rationale: Normative statements involve value judgments and 'should' statements; the others are positive
(factual) economic statements.
Question 8 [Economic Systems]
In a command economy, the primary mechanism for allocating resources is:
A. Market prices and consumer preferences
B. Government planning and central direction
C. Individual profit maximization
D. Consumer cooperatives and communes
Correct Answer: B. Government planning and central direction
Economics Exam Prep – Original Question Set
, Economics Exam Prep – Original Question Set
Rationale: Command economies rely on central government planning rather than market mechanisms to
determine resource allocation.
Question 9 [Law of Demand]
The law of demand states that, other things being equal:
A. Higher prices always lead to higher revenues
B. As the price of a good increases, the quantity demanded decreases
C. Consumer income and demand move in the same direction
D. Demand curves always slope upward
Correct Answer: B. As the price of a good increases, the quantity demanded decreases
Rationale: The law of demand is a fundamental principle showing the inverse relationship between price and
quantity demanded.
Question 10 [Law of Supply]
Which scenario best illustrates the law of supply?
A. As gasoline prices decrease, consumers buy more cars
B. As wheat prices increase, farmers plant more wheat acreage
C. As interest rates increase, consumer borrowing decreases
D. As technology improves, product prices increase
Correct Answer: B. As wheat prices increase, farmers plant more wheat acreage
Rationale: The law of supply shows the positive relationship between price and quantity supplied; higher prices
incentivize producers to supply more.
Question 11 [Market Equilibrium]
At the market equilibrium price for coffee, quantity demanded equals quantity supplied. What would
happen if the price fell below equilibrium?
A. A surplus would develop and prices would tend to rise
B. A shortage would develop and prices would tend to rise
C. Supply would increase to match the lower price
D. Demand would decrease until equilibrium is restored
Correct Answer: B. A shortage would develop and prices would tend to rise
Rationale: Below equilibrium price, quantity demanded exceeds quantity supplied, creating a shortage that puts
upward pressure on price.
Question 12 [Shifts in Demand]
A major health report announces that coffee consumption reduces the risk of heart disease. How would
this affect the coffee market?
A. Supply increases and the price falls
B. The demand curve shifts right, increasing equilibrium price and quantity
C. The supply curve shifts left, creating a shortage
D. Demand moves along the demand curve to a new equilibrium
Correct Answer: B. The demand curve shifts right, increasing equilibrium price and quantity
Economics Exam Prep – Original Question Set
