Exam
Name___________________________________

MULTIPLE CHOICE.  Choose the one alternative that best completes the statement or answers the question. 

1) 

Consider the following three factors
a. A study conducted by Statistical Bulletin of the GCC General Secretariat found that 435,000 graduates are currently unemployed in the GCC countries.
b. In the next 10 years, 100,000 Emiratis will be seeking employment (including 70,000 in Abu Dhabi) according to estimates from the Abu Dhabi Tawteen Council.
c. Jobseekers in Oman increased to 88,000 at the end of 2008, from 24,000 at the end of 2007.
These statements suggest that 

1) 

_______ 

A) 

the GCC needs to improve education, and match graduates' skills, with current and future job market needs. 

B) 

the GCC is not currently creating jobs fast enough to absorb all graduates because of slow economic growth. 

C) 

the likelihood that a graduate would find a job in the GCC countries in the coming years is very low. 

D) 

the likelihood of finding a job in the future depends on the size of the foreign labor force. 

2) 

The study of economics arises due to 

2) 

_______ 

A) 

money. 

B) 

scarcity. 

C) 

resources. 

D) 

greed. 

3) 

Which of the following statements are true about scarcity? 

3) 

_______ 

A) 

Scarcity arises when there is a wide disparity in income distribution. 

B) 

Scarcity is only a problem when a country has too large a population. 

C) 

Scarcity refers to the situation in which unlimited wants exceed limited resources. 

D) 

Scarcity is not a problem for the wealthy. 

4) 

The basic economic problem of scarcity 

4) 

_______ 

A) 

has always existed and will continue to exist. 

B) 

does not apply to the wealthy in society. 

C) 

is a problem only in developing economies. 

D) 

will eventually disappear as technology continues to advance. 

5) 

By definition, economics is the study of 

5) 

_______ 

A) 

how to make money in the stock market. 

B) 

the choices people make to attain their goals, given their scarce resources. 

C) 

supply and demand. 

D) 

how to make money in a market economy. 

6) 

What is an economic model?  

6) 

_______ 

A) 

It is a simplified version of some aspect of economic life used to analyze an economic issue. 

B) 

It is a description of an economic issue based on official government information. 

C) 

It is a description of an economic issue that includes all possible related information. 

D) 

It is a detailed version of some aspect of economic life used to analyze an economic issue. 

7) 

Where do economic agents such as individuals, firms and nations, interact with each other? 

7) 

_______ 

A) 

in any physical location people where people can physically get together for selling goods, such as shopping malls 

B) 

in public locations monitored by the government 

C) 

in any arena that brings together buyers and sellers 

D) 

in any location where transactions can be monitored by consumer groups and taxed by the government 

8) 

The term "market" in economics refers to  

8) 

_______ 

A) 

an organization that sells goods and services. 

B) 

a place where money changes hands. 

C) 

a legal institution where exchange can take place. 

D) 

a group of buyers and sellers of a product and the arrangement by which they come together to trade. 

9) 

Economists assume that individuals 

9) 

_______ 

A) 

are rational and respond to incentives. 

B) 

will never take actions to help others. 

C) 

behave in unpredictable ways. 

D) 

prefer to live in a society that values fairness above all else. 

10) 

Which of the following best describes an assumption economists make about human behavior? 

10) 

______ 

A) 

They assume that individuals act rationally all the time in all circumstances. 

B) 

They assume that people take into account the question of fairness in all decisions they make.  

C) 

They assume that rational behavior is useful in explaining choices people make even though people may not behave rationally all the time.  

D) 

They assume that individuals act randomly. 

11) 

Economists assume that rational people do all of the following except 

11) 

______ 

A) 

weigh the benefits and costs of all possible alternative actions. 

B) 

respond to economic incentives. 

C) 

use all available information as they act to achieve their goals. 

D) 

undertake activities that benefit others and hurt themselves. 

12) 

Your friend, Iman, a psychology major, said, "The problem with economics is that it assumes that consumers and firms always make the correct decision. But we know that everyone's human, and we all make mistakes." Do you agree with her comment?  

12) 

______ 

A) 

I disagree with her. Economics does not study correct, or incorrect, behaviors but rather it assumes that economic agents behave rationally; meaning they make the best decisions given their knowledge of the costs and benefits. 

B) 

Yes, I agree with her. Economic theory should allow for irrational behavior so that we can have more reliable predictions. 

C) 

I disagree with her. If we cannot assume that decisions are correct, then we will not be able to examine the moral implications of these decisions. 

D) 

Yes, I agree with her. One cannot make predictions about economic behavior because in reality people make incorrect choices in many situations. 

13) 

Consider the following statements
a. Car owners purchase more gasoline from a gas station that sells gasoline at a lower price, than other rival gas stations in the area.
b. Banks do not take steps to increase security since they believe it is less costly to allow some bank robberies rather than install expensive security monitoring equipment.
c. Firms produce more of a particular DVD when its selling price rises.
Which of the above statements demonstrates that economic agents respond to incentives? 

13) 

______ 

A) 

a only 

B) 

b only 

C) 

c only  

D) 

a and b 

E) 

a, b, and c 

14) 

If, per child, a woman can get up to 48 months of pension benefits and is guaranteed a maternity allowance two months before and after she gives birth, how will these benefits affect a woman's decision to have children?  

14) 

______ 

A) 

These incentives will encourage only less educated women to have more children.  

B) 

These incentives will have no effect on having children; the decision to have children is a social and psychological decision, not an economic decision. 

C) 

These incentives will encourage women to have children and increase the birth rate. 

D) 

These incentives will encourage only women with high opportunity costs to have more children. 

15) 

In the Arab world, young populations and high birth rates threaten public finances. As the population becomes younger, there are more workers needing education and jobs relative to the number of schools and jobs available. Which of the following government policies would NOT help reduce the pressure on public finances? 

15) 

______ 

A) 

reduce child benefit payments 

B) 

reduce taxes paid by current workers  

C) 

offer incentives to decrease the birth rate 

D) 

raise the retirement age 

16) 

What does the term "marginal" mean in economics?  

16) 

______ 

A) 

an additional or extra 

B) 

the edge of a market 

C) 

secondary 

D) 

illegal  

E) 

trivial 

17) 

A grocery store sells a bag of potatoes at a fixed price of US$2.30. Which of the following is a term used by economists to describe the money received from the sale of an additional bag of potatoes?  

17) 

______ 

A) 

marginal revenue 

B) 

marginal costs  

C) 

pure profit  

D) 

net benefit 

E) 

gross earnings 

18) 

Economics promotes which of the following as the way to make the best decision?  

18) 

______ 

A) 

Continue an enjoyable activity up to the point where its marginal benefit equals its marginal cost. 

B) 

Continue an enjoyable activity as long as you do not have to pay for it. 

C) 

Continue an enjoyable activity until you cannot afford to pursue it. 

D) 

Continue an enjoyable activity until it is no longer enjoyable. 

19) 

Marginal analysis involves undertaking an activity 

19) 

______ 

A) 

only if its marginal costs are greater than its marginal benefits. 

B) 

until its marginal costs start declining. 

C) 

until its marginal benefits equal marginal costs. 

D) 

only when its marginal benefits are positive. 

20) 

The revenue received from the sale of an additional unit of a product 

20) 

______ 

A) 

is a marginal benefit to the firm. 

B) 

is called profit. 

C) 

is called a net gain. 

D) 

is called gross sales. 

21) 

Making optimal decisions "at the margin" requires 

21) 

______ 

A) 

making decisions according to one's whims and fancies. 

B) 

making consistently irrational decisions. 

C) 

making borderline decisions. 

D) 

weighing up the costs and benefits of a decision before deciding if it should be pursued. 

22) 

If the marginal cost of producing a television is constant at US$200, then a firm should produce this item 

22) 

______ 

A) 

as long as its marginal cost does not rise. 

B) 

until the marginal benefit it receives reaches zero. 

C) 

as long as the marginal benefit it receives is just equal to or greater than US$200. 

D) 

only if the marginal benefit it receives is greater than US$200 plus an acceptable profit margin. 

23) 

Making "how much" decisions involve 

23) 

______ 

A) 

determining the additional benefits and the additional costs of that activity. 

B) 

calculating the total costs of the activity and determining if you can afford to incur that expenditure. 

C) 

calculating the average benefit and the average cost of an activity to determine if it is worthwhile undertaking that activity.  

D) 

calculating the total benefits of the activity and determining if you are satisfied with that amount. 

24) 

Which of the following is an example of a "how much" decision?  

24) 

______ 

A) 

Al-Temimi have demolished their old home and are debating whether to build a ranch-style house or a Craftsman home.  

B) 

The AlBawadi movie theatre is open only in the evenings. The theatre's manager is debating whether to add daily matinee shows. 

C) 

Sheikha has withdrawn from the swim team to take up a full-time job. 

D) 

You're planning to hold a graduation party and must decide between having your party catered or having a pot-luck.  

25) 

The extra cost associated with undertaking an activity is called 

25) 

______ 

A) 

opportunity cost. 

B) 

foregone cost. 

C) 

marginal cost. 

D) 

net loss. 

26) 

Khaled's Furniture alters, reconstructs, and restores an old French chest. Khaled has just spent US$800 purchasing, cleaning and reconstructing the antique chest which he expects to sell for US$1,500. After having spent US$800, Khaled discovers that he would need some special wood that would cost him US$200 to complete the task. Alternatively, he can sell the chest "as is" now for US$900. What is his marginal benefit if he sells the chest "as is" now?  

26) 

______ 

A) 

US$100 

B) 

US$900 

C) 

He makes a marginal loss of US$600, not a marginal benefit  

D) 

The marginal benefit cannot be determined  

27) 

Khaled's Furniture alters, reconstructs, and restores an old French chest. Khaled has just spent US$800 purchasing, cleaning and reconstructing the antique chest which he expects to sell for US$1,500. After having spent US$800, Khaled discovers that he would need some special wood that would cost him US$200 to complete the task. Alternatively, he can sell the chest "as is" now for US$900. What is the marginal cost of completing the task?  

27) 

______ 

A) 

US$1,000 plus the value of his time 

B) 

US$500  

C) 

US$200 

D) 

US$1,000  

28) 

Khaled's Furniture alters, reconstructs, and restores an old French chest. Khaled has just spent US$800 purchasing, cleaning and reconstructing the antique chest which he expects to sell for US$1,500. After having spent US$800, Khaled discovers that he would need some special wood that would cost him US$200 to complete the task. Alternatively, he can sell the chest "as is" now for US$900. What should he do?  

28) 

______ 

A) 

It does not matter what he does; he is going to take a loss on his project.  

B) 

he should purchase the wood, complete the task and then sell the chest 

C) 

he should cut his losses and sell the chest now 

D) 

he should not do anymore work on the chest because he has already spent too much time on it and has not been paid for that time 

Scenario 1-1

Suppose a cell-phone manufacturer currently sells 20,000 cell-phones per week and makes a profit of US$5,000 per week. A manager at the plant observes, "The last 3,000 cell phones we produced and sold increased our revenue by US$6,000 and our costs by US$6,700. We are still making an overall profit of US$5,000 per week so I think we're on the right track. We are producing the optimal number of cell phones."

29) 

Refer to Scenario 1-1. Using marginal analysis terminology, what is another economic term for the incremental revenue received from the sale of the last 3,000 cell phones? 

29) 

______ 

A) 

gross earnings  

B) 

marginal revenue  

C) 

sales revenue 

D) 

gross profit 

30) 

Refer to Scenario 1-1. Using marginal analysis terminology, what is another economic term for the incremental cost of producing the last 3,000 cell phones? 

30) 

______ 

A) 

operating cost 

B) 

explicit cost  

C) 

marginal cost 

D) 

Any of the above terms are correct. 

31) 

Refer to Scenario 1-1. Had the firm not produced and sold the last 3,000 cell phones, would its profit be higher or lower, and if so by how much?  

31) 

______ 

A) 

Its profit will be US$6,000 lower 

B) 

Its profit will be US$6,700 higher 

C) 

Its profit will be US$700 higher 

D) 

Its profit will be US$700 lower 

	Table 1-1

Hours
Open	Total 
Revenue (Dollars)	
1	US$35	
2	60	
3	80	
4	92	
5	100	
6	105	

Huda runs a small bakery in the city of Al-ain. She is debating whether she should extend her hours of operation. Huda figures that her sales revenue will depend on the number of hours the bakery is open as shown in the table above. She would have to hire a worker for those hours at a wage rate of US$12 per hour. 

32) 

Refer to Table 1-1. Using marginal analysis, determine how many hours should Huda extend her bakery's hours of operations?  

32) 

______ 

A) 

6 hours 

B) 

5 hours  

C) 

4 hours  

D) 

2 hours  

E) 

3 hours  

33) 

Refer to Table 1-1. What is Huda's marginal benefit if she decides to stay open for two hours instead of one hour?  

33) 

______ 

A) 

US$95  

B) 

US$60  

C) 

US$36  

D) 

US$25 

34) 

Refer to Table 1-1. What is Huda's marginal cost if she decides to stay open for two hours instead of one hour? 

34) 

______ 

A) 

US$24  

B) 

US$12 

C) 

US$71  

D) 

US$36  

35) 

Mouza shared a one-bedroom apartment with her classmate. Her share of the rent was US$700 per month. She considered moving to a studio apartment so that she wouldn't have to share with anyone. The studio apartment she looked at has a rental value of US$950 per month. She decided to move into the studio apartment. Mouza is as rational as any other person. As an economics major, you can rightly conclude that 

35) 

______ 

A) 

The cost of having one's own space outweighs the benefits. 

B) 

Mouza figures out that the additional benefit of having her own place (as opposed to sharing) is at least US$250. 

C) 

Mouza figures that the benefit of having her own place (as opposed to sharing) is at least US$950. 

D) 

Mouza did not have a choice; she did not like her roommate. 

TRUE/FALSE.  Write 'T' if the statement is true and 'F' if the statement is false. 

36) 

All economic questions arise from the fact that resources are scarce.  

36) 

______ 

37) 

Scarcity is a problem that will eventually disappear as technology advances.  

37) 

______ 

38) 

The term "market" refers only to trading arrangements that have been approved by the government. 

38) 

______ 

39) 

The sales revenue a seller receives from the sale of an additional unit of goods is called the marginal benefit.  

39) 

______ 

40) 

Marginal benefit is the benefit that your activity provides to someone else. 

40) 

______ 

41) 

If it costs Fatima US$300 to produce 3 suede jackets and US$420 to produce 4 suede jackets, then the difference of US$120 is the marginal cost of producing the 4th suede jacket. 

41) 

______ 

42) 

Suppose the extra cost to Apple Computer of producing another iPod is US$270. Then, Apple should not produce this unit if it can only sell it for US$270. 

42) 

______ 

ESSAY.  Write your answer in the space provided or on a separate sheet of paper. 

43) 

Assume that Apple computer can earn an additional US$81 million of revenue from making 300,000 more iPods. What must the additional cost of producing these 300,000 be to make the additional output economically rational? 

44) 

Identify the main difference between the nature of the business cycle in the GCC countries in the past and now. 

MULTIPLE CHOICE.  Choose the one alternative that best completes the statement or answers the question. 

45) 

The three fundamental questions that any economy must address are 

45) 

______ 

A) 

How much will be saved; what will be produced; and how can these goods and services be fairly distributed? 

B) 

Who gets jobs; what wages do workers earn; and who owns what property? 

C) 

What will be the prices of goods and services; how will these goods and services be produced; and who will receive them? 

D) 

What goods and services to produce; how will these goods and services be produced; and who receives them? 

46) 

Every society faces economic tradeoffs. This means 

46) 

______ 

A) 

not everyone can have enough goods to survive. 

B) 

some people live better than others do. 

C) 

producing more of one good means less of another good can be produced. 

D) 

society's output cannot be made available to all. 

47) 

Society faces a tradeoff in all of the following situations except  

47) 

______ 

A) 

when deciding who will receive the goods and services produced.  

B) 

when deciding how goods and services will be produced. 

C) 

when some previously unemployed workers find jobs. 

D) 

when deciding what goods and services will be produced. 

48) 

Which of the following statements is false?  

48) 

______ 

A) 

Every individual, no matter how rich or poor, is faced with making tradeoffs.  

B) 

Economics is a social science that studies the tradeoffs we are forced to make because of scarcity. 

C) 

Anytime you have to decide which action to take you are facing an economic tradeoff.  

D) 

Tradeoffs do not apply when the consumers purchase a product for which there is excess supply, such as a stock clearance sale. 

49) 

Which of the following is not an example of an economic tradeoff that a firm has to make?  

49) 

______ 

A) 

whether it is to outsource the production of a good or service 

B) 

whether or not consumers will buy its products  

C) 

whether it should produce more of its product  

D) 

whether it is cheaper to produce with more machines or with more workers 

50) 

Opportunity cost is defined as 

50) 

______ 

A) 

the monetary expense associated with an activity. 

B) 

the total value of all alternatives that must be given up to engage in an activity. 

C) 

the highest valued alternative that must be given up to engage in an activity. 

D) 

the benefit of an activity. 

51) 

Liali, a small cafe near campus, sells cappuccinos for US$2.50 and tea cakes for US$1.00 each. What is the opportunity cost of buying a cappuccino? 

51) 

______ 

A) 

2 1/2 tea cakes 

B) 

US$1.00  

C) 

2/5 of a tea cake  

D) 

US$2.50 

52) 

Ahmed quits his US$60,000-a-year job to be a stay-at-home dad. What is the opportunity cost of his decision?  

52) 

______ 

A) 

at least US$60,000 

B) 

depends on the "going rate" for stay-at-home dads 

C) 

the value he attributes to the joy of parenting 

D) 

0 since he will no longer be earning a salary 

53) 

The distribution of income primarily determines which of the fundamental economic questions?  

53) 

______ 

A) 

What goods and services are to be produced? 

B) 

Who will receive the goods and services produced?  

C) 

How to plan the economy? 

D) 

How the goods and services are to be produced? 

54) 

The competition is intensifying between the Gulf states to extend their ties with the rising powers in the east through 

54) 

______ 

A) 

foreign direct investment and Trade. 

B) 

education exchange programs. 

C) 

hiring investment experts. 

D) 

building better technologies. 

55) 

Automobile manufacturers produce a range of automobiles such as sports utility vehicles, luxury sedans, pickup trucks and compact cars. What fundamental economics question are they addressing by making this range of products?  

55) 

______ 

A) 

How to produce goods that consumers want? 

B) 

Who to produce automobiles for? 

C) 

Why produce a variety of automobiles? 

D) 

What to produce? 

56) 

Consider the following economic agents 
a. the government
b. consumers
c. producers
Who, in a modern mixed economy, decides what goods and services will be produced with the scarce resources available in that economy?  

56) 

______ 

A) 

consumers and producers 

B) 

producers  

C) 

consumers 

D) 

the government 

E) 

the government, consumers and producers 

57) 

The decision about what goods and services will be produced in a market economy is made by 

57) 

______ 

A) 

producers deciding what society wants most. 

B) 

consumers and firms choosing which goods and services to buy or produce. 

C) 

consumers dictating to firms what they need most. 

D) 

workers deciding to produce only what the boss says must be produced. 

E) 

lawmakers in the government voting on what will be produced. 

58) 

Which of the following is correct about the economic decisions consumers, firms, and the government have to make?  

58) 

______ 

A) 

Only individuals face scarcity; firms and the government do not. 

B) 

Governments may face the problem of shortages but not scarcity in making economic decisions. 

C) 

Each faces the problem of scarcity which necessitates tradeoffs in making economic decisions. 

D) 

Firms and the government face scarcity, individuals only face shortages. 

59) 

Why is it necessary for all economic systems to not only provide people with goods and services, but also restrict them from getting as much of these goods and services as they wish?  

59) 

______ 

A) 

Failure to do this could reduce the efficiency of the system by producing some goods and services that are not as highly valued as others. 

B) 

Failure to do this could lead to an inequitable allocation of goods and services produced. 

C) 

Failure to do this could lead to drastic shortages of goods and services. 

D) 

Failure to do this could reduce efficiency and leads to an inequitable allocation of output. 

60) 

How does a market system prevent people from getting as many goods and services as they wish? 

60) 

______ 

A) 

In a market system, firms can charge any price they want thus, preventing poor people from getting as many goods and services as they wish. 

B) 

The government imposes taxes on those who earn beyond a certain amount of income. 

C) 

The market system allocates goods and services to those who are able to pay for those products and therefore income is a limiting factor. 

D) 

Governments interfere with the market mechanism to influence the allocation of goods and services. 

61) 

Who receives the most of what is produced in a market economy? 

61) 

______ 

A) 

lawmakers and other politically favored groups 

B) 

everyone receives an equal amount 

C) 

people who earn the highest incomes 

D) 

those who are willing and able to buy them 

62) 

How are the fundamental economic decisions determined in a centrally planned economy? 

62) 

______ 

A) 

the government decides 

B) 

these decisions are made by the country's elders who have had much experience in answering these questions 

C) 

the United Nations decides 

D) 

individuals, firms, and the government interact in a market to make these economic decisions 

63) 

How are the fundamental economic questions answered in a market economy? 

63) 

______ 

A) 

households and firms interact in markets to decide the answers to these questions  

B) 

large corporations alone decide the answers 

C) 

the government alone decides the answers 

D) 

individuals, firms, and the government interact in markets to decide the answers to these questions 

64) 

Which of the following is a problem inherent in centrally planned economies?  

64) 

______ 

A) 

there are no problems, and everyone, including consumers, are satisfied 

B) 

unemployment is too high 

C) 

there is too much production of low-cost, high-quality goods and services 

D) 

production managers are more concerned with satisfying government's orders than with satisfying consumer wants  

65) 

All of the following contributed to the downfall of the Soviet Union in 1991 except 

65) 

______ 

A) 

lack of a strong dictator who can coordinate economic activities. 

B) 

lack of high-quality goods and services. 

C) 

public dissatisfaction with low living standards and political repression. 

D) 

an inability to produce low-cost consumer goods that households wanted. 

66) 

When goods and services are produced at the lowest possible cost, ________ occurs. 

66) 

______ 

A) 

efficient central planning 

B) 

equity 

C) 

productive efficiency 

D) 

allocative efficiency 

67) 

Productive efficiency is achieved when 

67) 

______ 

A) 

firms add a low profit margin to the goods and services they produce. 

B) 

firms produce goods and services at the lowest cost. 

C) 

there are no shortages or surpluses in the market. 

D) 

firms produce the goods and services that consumers value most. 

68) 

When production reflects consumer preferences, ________ occurs.  

68) 

______ 

A) 

productive efficiency 

B) 

equity 

C) 

allocative efficiency 

D) 

efficient central planning 

69) 

Allocative efficiency is achieved when 

69) 

______ 

A) 

firms produce goods and services at the lowest cost. 

B) 

firms produce the goods and services that consumers value most. 

C) 

goods and services are fairly distributed among consumers in an economy. 

D) 

there are no shortages or surpluses in the market. 

70) 

Which of the following contributes to the efficiency of markets? 

70) 

______ 

A) 

Governments play an active role in the day-to-day operations of markets. 

B) 

Markets promote equal standards of living. 

C) 

Markets promote competition and voluntary exchange. 

D) 

Markets are able to bring about an equitable distribution of goods and services. 

71) 

Which of the following statements is true about competition in a market? 

71) 

______ 

A) 

Competition forces firms to add only low profit margins to their costs of production.  

B) 

Competition forces firms to produce and sell products as long as the marginal benefit to consumers exceeds the marginal cost of production. 

C) 

Competition forces firms to undercut their selling price, thus benefiting consumers who will be able to purchase products at the lowest price possible. 

D) 

Competition forces firms to outsource the production of their labor-intensive products. 

72) 

Voluntary exchange increases economic efficiency 

72) 

______ 

A) 

because neither the buyer nor the seller would agree to a trade unless they both benefit. 

B) 

because it allows wealthy individuals to act altruistically and give to the poor. 

C) 

because it is free and consequently does not cost anything. 

D) 

because voluntary exchange only takes place with government permission. 

73) 

Which of the following generates productive efficiency? 

73) 

______ 

A) 

government inspectors 

B) 

competition among buyers 

C) 

competition among sellers 

D) 

government production rules and regulations 

74) 

Which of the following generates allocative efficiency in a market economy? 

74) 

______ 

A) 

United Nations rules for competition 

B) 

voluntary exchange between buyers and sellers 

C) 

national government intervention 

D) 

equity 

75) 

Which of the following is a result of a market economy? 

75) 

______ 

A) 

agreement on equity 

B) 

voluntary exchange 

C) 

an equal income distribution  

D) 

environmental protection  

76) 

Selling tickets to graduation ceremonies has long been a tradition among students at institutions that limit the number of guests. Suppose your classmate, Heidi purchased two tickets for US$40 each, from a student who got them for free. Is this transaction economically efficient? 

76) 

______ 

A) 

No, Heidi paid too much for the tickets. 

B) 

No, people should never be allowed to sell items they received for free.  

C) 

Yes, it is efficient only from the perspective of the seller and not from the perspective of the buyer. 

D) 

Yes, it was a voluntary exchange that benefited both parties. 

77) 

In economics, the term "equity" means 

77) 

______ 

A) 

only elected officials have high standards of living. 

B) 

the hardest working individuals consume all they want. 

C) 

economic benefits are distributed fairly. 

D) 

everyone has an equal standard of living. 

78) 

Which of the following correctly describes the relationship between economic efficiency and economic equity? 

78) 

______ 

A) 

They are both automatically achieved in a free market economy. 

B) 

They always call for opposite outcomes. 

C) 

There is no conflict between the two goals. 

D) 

There is often a trade-off between the two. 

TRUE/FALSE.  Write 'T' if the statement is true and 'F' if the statement is false. 

79) 

The government makes all economic decisions in a centrally planned economy. 

79) 

______ 

80) 

When voluntary exchange takes place, both parties gain from the exchange. 

80) 

______ 

81) 

A college must decide if it wants to offer more evening and weekend classes. This decision involves answering the economic question of "for whom to produce." 

81) 

______ 

82) 

One desirable outcome of a market economy is that it leads to a more equitable distribution of income. 

82) 

______ 

ESSAY.  Write your answer in the space provided or on a separate sheet of paper. 

83) 

What is the difference between economic efficiency and equity?  

84) 

Define productive efficiency. Does productive efficiency imply allocative efficiency? Explain.  

85) 

Define allocative efficiency. Explain the significance of this concept in economics? 

MULTIPLE CHOICE.  Choose the one alternative that best completes the statement or answers the question. 

86) 

Economic models do all of the following except 

86) 

______ 

A) 

answer economic questions. 

B) 

portray reality in all its minute details. 

C) 

simplify some aspect of economic life. 

D) 

make economic ideas explicit and concrete for use by decision makers. 

87) 

Which of the following is part of an economic model? 

87) 

______ 

A) 

norms 

B) 

preferences of economic agents  

C) 

opinions  

D) 

assumptions 

88) 

Which of the following statements is false about positive economic analysis? 

88) 

______ 

A) 

Positive economic analysis is concerned with what is. 

B) 

Positive analysis uses an economic model to estimate the costs and benefits of different course of actions. 

C) 

Unlike normative economic analysis, positive economic analysis can be tested. 

D) 

There is much more disagreement among economists over positive economic analysis than over normative economic analysis. 

89) 

Which of the following is a positive economic statement?  

89) 

______ 

A) 

If the price of gasoline rises, a smaller quantity of it will be bought. 

B) 

The government should close income tax loopholes. 

C) 

Arab firms should not be allowed to outsource production of goods and services. 

D) 

Everyone should live at the same standard of living.  

90) 

Which of the following is a positive economic statement?  

90) 

______ 

A) 

Scarcity necessitates that people make trade-offs. 

B) 

The government should mandate electric automobiles. 

C) 

Foreign workers should not be allowed to work for lower wages than the citizens of a country. 

D) 

People should not buy SUVs.  

91) 

Which of the following is a normative economic statement? 

91) 

______ 

A) 

The government is considering raising the gasoline tax to promote the use of public transportation. 

B) 

Rising global demand for diesel and heating oil has led to increases in the price of crude oil. 

C) 

Fashion designers should be allowed to copyright designs to promote innovation. 

D) 

With falling house prices and rising mortgage interest rates, the amount of foreclosures has increased. 

92) 

Which of the following is a normative economic statement? 

92) 

______ 

A) 

The price of gasoline is too high.  

B) 

When the price of gasoline rises, transportation costs rise. 

C) 

The current high price of gasoline is the result of strong worldwide demand. 

D) 

When the price of gasoline rises, the quantity of gasoline purchased falls. 

93) 

The economic system in most Arab countries today is considered  

93) 

______ 

A) 

a mixed economy system. 

B) 

a social economy system. 

C) 

unclear; it is not clear what economic systems most Arab countries belong to. 

D) 

a market economy system. 

94) 

The economic analysis of minimum wage involves both normative and positive analysis. Consider the following consequences of a minimum wage
a. The minimum wage law causes unemployment.
b. A minimum wage law benefits some groups and hurts others.
c. In some cities such as Dubai and Doha, it would be impossible for low-skilled workers to live in the city without minimum wage laws.
d. The gains to winners of a minimum wage law should be valued more highly than the losses to losers because the latter primarily comprises businesses.
Which of the consequences above are positive statements and which are normative statements? 

94) 

______ 

A) 

a, b, and c are positive statements and d is a normative statement. 

B) 

Only a is a positive statement, b, c and d are normative statements. 

C) 

a and b are positive statements, c and d are normative statement. 

D) 

a and c are positive statements, b and d are normative statements. 

TRUE/FALSE.  Write 'T' if the statement is true and 'F' if the statement is false. 

95) 

"A decrease in the price of digital cameras will decrease the demand for camera film." This statement is an example of a positive economic statement. 

95) 

______ 

96) 

"The distribution of income should be left to the market" is an example of a positive economic statement. 

96) 

______ 

97) 

Policies based on normative economic ideas tend to increase economic efficiency and improve equity. 

97) 

______ 

ESSAY.  Write your answer in the space provided or on a separate sheet of paper. 

98) 

What is the difference between positive economic analysis and normative economic analysis? Give one example of a positive and normative economic issue, question or statement. 

MULTIPLE CHOICE.  Choose the one alternative that best completes the statement or answers the question. 

99) 

Which of the following is a microeconomics question? 

99) 

______ 

A) 

What factors determine the price of carrots? 

B) 

How much will be saved and how much will be produced in the entire economy? 

C) 

What will the level of economic growth be in the entire economy? 

D) 

What determines the average price level and inflation? 

100) 

The branch of economics which studies how households and firms make choices, interact in markets and how government attempts to influence their choices is called 

100) 

_____ 

A) 

normative economics. 

B) 

positive economics. 

C) 

macroeconomics. 

D) 

microeconomics. 

101) 

Which of the following is a macroeconomics question? 

101) 

_____ 

A) 

What determines the production of DVDs? 

B) 

What determines the inflation rate? 

C) 

What determines the wage of auto workers? 

D) 

What factors determine the price of carrots? 

102) 

The branch of economics which studies the behavior of entire economies and policies that affect the economy as a whole is called 

102) 

_____ 

A) 

public economics. 

B) 

microeconomics. 

C) 

normative economics. 

D) 

macroeconomics. 

TRUE/FALSE.  Write 'T' if the statement is true and 'F' if the statement is false. 

103) 

Examining the conditions that could lead to a recession in an economy is an example of macroeconomics topic. 

103) 

_____ 

ESSAY.  Write your answer in the space provided or on a separate sheet of paper. 

104) 

How does the study of microeconomics differ from that of macroeconomics? Give one example each of an issue studies in microeconomics and in macroeconomics.  

MULTIPLE CHOICE.  Choose the one alternative that best completes the statement or answers the question. 

105) 

Which of the following statements is true about profit? 

105) 

_____ 

A) 

Profit refers to the revenue received from the sale of a quantity of goods. 

B) 

The terms "accounting profit" and "economic profit" can be used interchangeably. 

C) 

Profit is calculated by multiplying price and quantity sold.  

D) 

Profit is the difference between revenue and cost. 

106) 

Human capital refers to 

106) 

_____ 

A) 

the wealth people have. 

B) 

the machines workers have to work with. 

C) 

the accumulated skills and training workers have. 

D) 

the money people have. 

107) 

Which of the following is an example of an activity undertaken by an entrepreneur? 

107) 

_____ 

A) 

designing your landscaping for your new home 

B) 

holding a position as the president of a liberal arts college 

C) 

starting your own pet sitting business 

D) 

running for the president of Egypt 

108) 

Which of the following is counted as "capital" in economics? 

108) 

_____ 

A) 

the money people have 

B) 

the accumulated skills and training workers have  

C) 

the wealth people have 

D) 

the machines workers have to work with  

109) 

Technology is defined as 

109) 

_____ 

A) 

the processes used to produce goods and services. 

B) 

the process of developing and revising models. 

C) 

the process of recycling products. 

D) 

new innovations and creations. 

110) 

Which of the following statements about economic resources is false?  

110) 

_____ 

A) 

Economic resources are used to produce goods and services. 

B) 

Economic resources are also called factors of production. 

C) 

Economic resources include financial capital and money.  

D) 

Some economic resources are human-made while others are found in nature. 

TRUE/FALSE.  Write 'T' if the statement is true and 'F' if the statement is false. 

111) 

In the market for factors of production, firms earn income by selling goods and services to households. 

111) 

_____ 

112) 

One example of human capital is the amount of savings that you have. 

112) 

_____ 

ESSAY.  Write your answer in the space provided or on a separate sheet of paper. 

113) 

What is the difference between an invention and an innovation? 

MULTIPLE CHOICE.  Choose the one alternative that best completes the statement or answers the question. 

114) 

If a graph has a line that shows the amount of outsourcing in the last ten years, it is known as 

114) 

_____ 

A) 

a supply curve of outsourcing. 

B) 

a time series graph 

C) 

a demand curve for outsourcing 

D) 

a pie chart 

115) 

Two-dimensional graphs have a horizontal and a vertical axis and are used in economics to illustrate 

115) 

_____ 

A) 

one variable. 

B) 

a pie chart. 

C) 

a flow chart. 

D) 

relationships between two economic variables. 

116) 

If a straight line passes through the point x = 14 and y = 3 and also through the point x = 4 and y = 10, the slope of this line is 

116) 

_____ 

A) 

6 divided by 11. 

B) 

negative 11 divided by 6. 

C) 

seven tenths. 

D) 

negative seven tenths. 

117) 

How can the influence of a third variable be shown on a two-dimensional graph? 

117) 

_____ 

A) 

by super-imposing the third variable on the two-dimensional graph  

B) 

by allowing the relationship to be nonlinear 

C) 

by drawing a third axis coming out of the two axes  

D) 

by allowing the position of the relationship line or curve to shift on the graph 

118) 

Which of the following statements is false? 

118) 

_____ 

A) 

An inverse relationship has a negative slope value.  

B) 

A straight line has a slope of zero. 

C) 

A curved line has slope values that change at every point.  

D) 

A direct relationship has a positive slope value. 

119) 

The relationship between sales and revenue is 

119) 

_____ 

A) 

a direct relationship. 

B) 

independent. 

C) 

an inverse relationship. 

D) 

a negative relationship. 

120) 

Suppose when the price of laptops fall, college students buy more laptops. This implies that 

120) 

_____ 

A) 

there is a one-to-one relationship between laptop prices and quantities purchased by college students. 

B) 

there is a positive relationship between laptop prices and quantities purchased by college students. 

C) 

there is a negative relationship between laptop prices and quantities purchased by college students. 

D) 

there is a direct relationship between laptop prices and quantities purchased by college students. 

121) 

If the price of gasoline was US$1.25 a gallon and it is now US$2.25 a gallon, what is the percentage change in price? 

121) 

_____ 

A) 

4.4 percent  

B) 

8 percent 

C) 

80 percent  

D) 

44 percent  

122) 

Suppose that in 2010, Alexandria consumed 205,000 tons of sugar. In 2011, sugar consumption rose to 245,000 tons. Calculate the percentage change in sugar consumption. 

122) 

_____ 

A) 

11.95%  

B) 

26.33%  

C) 

19.51%  

D) 

8.37% 

123) 

At a recent company meeting, the sales manager announced, "We have increased our sales by 8 percent in just six months." Suppose six months ago, its sales amounted to US$452,000, what is the value of its sales today?  

123) 

_____ 

A) 

US$488,160  

B) 

US$36,160  

C) 

US$415,840  

D) 

US$565,000 

	Figure 1-2

 

124) 

Refer to Figure 1-2. Calculate the area of the triangle A.  

124) 

_____ 

A) 

US$6.3 million  

B) 

US$2.1 million  

C) 

US$3.15 million 

D) 

US$8.4 million  

	Figure 1-3

 

125) 

Refer to Figure 1-3. Calculate the area of the trapezoid X. 

125) 

_____ 

A) 

US$2,520  

B) 

US$270  

C) 

US$720 

D) 

US$810  

	Figure 1-4

 

126) 

Refer to Figure 1-4. Which of the following statements is true?  

126) 

_____ 

A) 

The slope of the tangent at X and the slope of the tangent at Y are negative. 

B) 

The slope of the tangent at X is positive and the slope of the tangent at Y is negative. 

C) 

The slope of the tangent at X and the slope of the tangent at Y are positive.  

D) 

The slope of the tangent at X is negative and the slope of the tangent at Y is positive. 

127) 

What is the "omitted variable" problem in determining cause and effect?  

127) 

_____ 

A) 

It is a problem that arises when an insignificant economic variable that should have been omitted is included in an economic experiment leading to false conclusions about cause and effect.  

B) 

It is a problem that arises when a significant variable is not given enough weight in an economic experiment leading to skewed conclusions about cause and effect.  

C) 

It is a problem that arises when an insignificant variable is given too much weight in an economic analysis leading to skewed conclusions about cause and effect.  

D) 

It is a problem that arises when an economic variable, that affects other variables, is omitted from an analysis and its omission leads to false conclusions about cause and effect.  

128) 

What is the "reverse causality" problem in determining cause and effect?  

128) 

_____ 

A) 

It is a problem that arises when two variables are inter-connected so that a change in variable X causes a change in variable Y, and a change in variable Y causes a change in variable X.  

B) 

It is a problem that occurs when one concludes that a change in variable X caused a change in variable Y when in actual fact, it is a change in variable Y that caused a change in variable X.  

C) 

It is a problem that occurs when one concludes that a change in variable X caused a change in variable Y when in actual fact, it is a change in variable Z that caused a change in variable Y. 

D) 

It is a problem that occurs when one observes that a change in variable X caused a change in variable Y which caused a change in variable Z and concludes that a change in variable X caused a change in variable Z. 

129) 

You explain to your friend, Hanaa (who runs a catering service) about an economic theory asserts that consumers will purchase less of a product at higher prices than they will at lower prices. She contends that the theory is incorrect because over the past two years she has raised the price of her catered meals and yet has seen a brisk increase in sales. How would you respond to Hanaa? 

129) 

_____ 

A) 

Hanaa is making the mistake of assuming that correlation implies causation. 

B) 

I will explain to her that she is making the error of reverse causality it is the increase in demand that has enabled her to raise her prices. 

C) 

Hanaa is right; she has evidence to back her claim. The theory must be erroneous. 

D) 

I will explain to her that there are some omitted variables that have contributed to an increase in her sales such as changes in income. 

ESSAY.  Write your answer in the space provided or on a separate sheet of paper. 

	Table 1-2

Year	Flat-panel TV sets (millions)	
2003	1.00	
2004	1.5 	
2005	7.3	
2006	12.7	
2007*	20	

130) 

Refer to Table 1-2. The table above shows the sales and projected sales (*) of flat-panel television sets. Present the information using a bar graph. 

 

1) 

A 

2) 

B 

3) 

C 

4) 

A 

5) 

B 

6) 

A 

7) 

C 

8) 

D 

9) 

A 

10) 

C 

11) 

D 

12) 

A 

13) 

E 

14) 

C 

15) 

B 

16) 

A 

17) 

A 

18) 

A 

19) 

C 

20) 

A 

21) 

D 

22) 

C 

23) 

A 

24) 

B 

25) 

C 

26) 

B 

27) 

C 

28) 

B 

29) 

B 

30) 

C 

31) 

C 

32) 

C 

33) 

D 

34) 

B 

35) 

B 

36) 

TRUE 

37) 

FALSE 

38) 

FALSE 

39) 

TRUE 

40) 

FALSE 

41) 

TRUE 

42) 

FALSE 

43) 

The additional cost of the 300,000 extra iPods must be no more than US$81 million to make the production of these extra units economically rational. 

44) 

The main difference is that in the past the business cycle was driven by the oil price cycle and the response of government spending. During high oil prices times the governments increase public spending and vice versa accentuating the effect of the oil cycle. Today, the cycle is accentuated by the integration in the global economy that makes the private sector more vulnerable to worldwide business cycles and financial crises.  

45) 

D 

46) 

C 

47) 

C 

48) 

D 

49) 

B 

50) 

C 

51) 

A 

52) 

A 

53) 

B 

54) 

A 

55) 

D 

56) 

E 

57) 

B 

58) 

C 

59) 

A 

60) 

C 

61) 

D 

62) 

A 

63) 

A 

64) 

D 

65) 

A 

66) 

C 

67) 

B 

68) 

C 

69) 

B 

70) 

C 

71) 

B 

72) 

A 

73) 

C 

74) 

B 

75) 

B 

76) 

D 

77) 

C 

78) 

D 

79) 

TRUE 

80) 

TRUE 

81) 

FALSE 

82) 

FALSE 

83) 

Economic efficiency is concerned with maximizing the value of output that can be generated by a given resource base. Economic equity deals with the distribution of society's total output among the sectors and individuals of society. 

84) 

Productive efficiency is an efficiency criterion that describes a situation in which goods and services are produced at the lowest possible cost. It does not imply allocative efficiency which is a criterion associated with producing goods and services that consumers value most. For example, a manufacturer may be able to produce typewriters at the lowest possible cost of say, US$200 but this does not necessarily mean that consumers are willing to pay US$200 for a typewriter. 

85) 

Allocative efficiency is an efficiency criterion that describes a situation where the marginal benefit (or marginal valuation) of the last unit purchased is equal to the marginal cost of producing that unit. In other words, allocative efficiency occurs when production reflects consumer preferences. This is a significant concept in that all societies face scarcity which necessitates that societies make choices about what goods and services to produce. To maximize society's wealth, resources must flow to their highest valued use. This value is determined by consumers. 

86) 

B 

87) 

D 

88) 

D 

89) 

A 

90) 

A 

91) 

C 

92) 

A 

93) 

A 

94) 

C 

95) 

TRUE 

96) 

FALSE 

97) 

FALSE 

98) 

Positive economic analysis is concerned with what is. Positive economic analysis reaches conclusions based on verifiable statements. Normative economic analysis, on the other hand, is concerned with what ought to be. Normative analysis reaches conclusions based on opinions. (Students will give many different examples.) 

99) 

A 

100) 

D 

101) 

B 

102) 

D 

103) 

TRUE 

104) 

Microeconomics is the study of how household and businesses make choices, how they interact in markets, and how the government attempts to influence their choices. Macroeconomics is the study of the economy as a whole including topics like unemployment, inflation and economic growth. (Students will give many different examples.) 

105) 

D 

106) 

C 

107) 

C 

108) 

D 

109) 

A 

110) 

C 

111) 

FALSE 

112) 

FALSE 

113) 

An invention is the development of a new good or a new process for making a good. An innovation is the practical application of an invention. Innovation could also refer to any significant improvement in a good or in the means of producing a good. 

114) 

B 

115) 

D 

116) 

D 

117) 

D 

118) 

B 

119) 

A 

120) 

C 

121) 

C 

122) 

C 

123) 

A 

124) 

C 

125) 

D 

126) 

B 

127) 

D 

128) 

B 

129) 

D 

130)