A.P. Microeconomics – Vesper
Unit 1 Exam
Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
____ 1. The overriding reason as to why households and societies face many decisions is that
a. resources are scarce.
b. goods and services are not scarce.
c. incomes fluctuate with business cycles.
d. people, by nature, tend to disagree.
____ 2. Economics is the study of
a. how society manages its scarce resources.
b. the government’s role in society.
c. how a market system functions.
d. how to increase production.
____ 3. In most societies, resources are allocated by
a. a single central planner.
b. a small number of central planners.
c. those firms that use resources to provide goods and services.
d. the combined actions of millions of households and firms.
____ 4. A typical society strives to get the most it can from its scarce resources. At the same time, the society attempts
to distribute the benefits of those resources to the members of the society in a fair manner. In other words, the
society faces a tradeoff between
a. guns and butter.
b. efficiency and equity.
c. inflation and unemployment.
d. work and leisure.
____ 5. A furniture maker currently produces 100 tables per week and sells them for a profit. She is considering
expanding her operation in order to make more tables. Should she expand?
a. Yes, because making tables is profitable.
b. No, because she may not be able to sell the additional tables.
c. It depends on the marginal cost of producing more tables and the marginal revenue she
will earn from selling more tables.
d. It depends on the average cost of producing more tables and the average revenue she will
earn from selling more tables.
____ 6. Russell spends an hour studying instead of playing tennis. The opportunity cost to him of studying is
a. the improvement in his grades from studying for the hour.
b. the improvement in his grades from studying minus the enjoyment of playing tennis.
c. the enjoyment and exercise he would have received had he played tennis.
d. zero. Since Russell chose to study rather than to play tennis, the value of studying must
have been greater than the value of playing tennis.
A.P. Microeconomics – Vesper
____ 7. A marginal change is a
a. change that involves little, if anything, that is important.
b. large, significant adjustment.
c. change for the worse, and so it is usually a short-term change.
d. small, incremental adjustment.
____ 8. Mike has spent $500 purchasing and repairing an old fishing boat, which he expects to sell for $800 once the
repairs are complete. Mike discovers that, in addition to the $500 he has already spent, he needs to make an
additional repair, which will cost another $400, in order to make the boat worth $800 to potential buyers. He
can sell the boat as it is now for $300. What should he do?
a. He should sell the boat as it is now for $300.
b. He should keep the boat since it would not be rational to spend $900 on repairs and then
sell the boat for $800.
c. He should complete the repairs and sell the boat for $800.
d. It does not matter which action he takes; the outcome is the same either way.
____ 9. Trade between the United States and India
a. benefits both the United States and India.
b. is a losing proposition for the United States because India has cheaper labor.
c. is a losing proposition for India because capital is much more abundant in the U.S. than in
India.
d. is a losing proposition for India because U.S. workers are more productive.
____ 10. Which of the following statements does not apply to a market economy?
a. Firms decide whom to hire and what to produce.
b. No one is looking out for the economic well-being of society as a whole.
c. Households decide which firms to work for and what to buy with their incomes.
d. Government policies are the primary forces that guide the decisions of firms and
households.
____ 11. In a market economy, economic activity is guided by
a. the government.
b. corporations.
c. central planners.
d. self-interest and prices.
____ 12. The “invisible hand” directs economic activity through
a. advertising.
b. prices.
c. central planning.
d. government regulations.
____ 13. A company that formerly produced software went out of business because too many potential customers
bought illegally-produced copies of the software instead of buying the product directly from the company.
This instance serves as an example of
a. market power.
b. market failure.
c. inadequate enforcement of property rights.
d. the invisible hand at work.
A.P. Microeconomics – Vesper
____ 14. Which of the following is not generally regarded as a legitimate reason for the government to intervene in a
market?
a. to promote efficiency
b. to promote equity
c. to enforce property rights
d. to protect an industry from foreign competition
____ 15. Laws that restrict the smoking of cigarettes in public places are examples of government intervention that is
intended to reduce
a. the influence of the invisible hand.
b. trade.
c. externalities.
d. market power.
____ 16. A market economy rewards people according to their
a. need for goods and services.
b. willingness to work.
c. ability to produce things that other people are willing to pay for.
d. ability to produce things of cultural importance.
____ 17. When a single person (or small group) has the ability to influence market prices, there is
a. competition.
b. market power.
c. an externality.
d. a lack of property rights.
____ 18. The primary determinant of a country’s standard of living is
a. the country’s ability to prevail over foreign competition.
b. the country’s ability to produce goods and services.
c. the total supply of money in the economy.
d. the average age of the country’s labor force.
