Practice Test-1 on Elasticity and its Application: Solutions

Question 1: Economics deals mainly with the concept of...............
  1. banking
  2. industry
  3. money
  4. politics
  5. energy
Answer: 3

Question 2: The adage, "There is no such thing as a free lunch," is used to illustrate the principle that ................
  1. goods are scarce.
  2. households face many decisions
  3. income must be earned
  4. people face tradeoffs.
Answer: 4

Question 3: The opportunity cost of going to college is ........
  1. zero, since a college education will allow a student to earn a larger income after graduation.
  2. the total spent on food, clothing, books, transportation, tuition, lodging, and other expenses.
  3. the value of the best opportunity a student gives up to attend college.
  4. zero for students who are fortunate enough to have all of their college expenses paid by someone else.
Answer: 3

Question 4: A rational decision maker .................
  1. ignores marginal changes and focuses instead on "the big picture."
  2. takes an action only if the marginal benefit of that action exceeds the marginal cost of that action.
  3. ignores the likely effects of government policies when he or she makes choices.
  4. takes an action only if the combined benefits of that action and previous actions exceed the combined costs of that action and previous actions.
Answer: 2

Question 5: To say that "people respond to incentives" is to say that...............
  1. changes in costs (but not changes in benefits) influence people's decisions and their behavior.
  2. changes in benefits (but not changes in costs) influence people's decisions and their behavior.
  3. changes in benefits or changes in costs influence people's decisions and their behavior.
  4. tradeoffs can be eliminated by rational people who think at the margin.
Answer: 3

Question 6: Which is the most accurate statement about trade?
  1. Trade makes some nations better off and others worse off.
  2. Trade can make every nation better off.
  3. Trading for a good can make a nation better off only if the nation cannot produce that good itself.
  4. Trade helps rich nations and hurts poor nations.
Answer: 2

Question 7: In a market economy, economic activity is guided by ................
  1. self-interest and prices.
  2. firms
  3. corporations.
  4. central planners.
Answer: 1

Question 8: The basic principles of economics suggest that .................
  1. markets are rare, if ever, a good way to organize economic activity.
  2. government should become involved in markets when those markets fail to produce efficient or equitable outcomes.
  3. government should become involved in markets when trade between countries is involved.
  4. All of the above are correct.
Answer: 2

Question 9: The income of a typical worker in a country is most closely linked to which of the following?
  1. market invlovment
  2. population
  3. government policies
  4. productivity
Answer: 4

Question 10: An increase in the overall level of prices in an economy is referred to as .............
  1. sellers and buyers
  2. economic growth.
  3. the price effect.
  4. the demand effect.
  5. inflation.
Answer: 5

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Date of last modification: 2019