1) Which of the following statements is true about scarcity?

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

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

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

D) Scarcity is not a problem for the wealthy.

2) A grocery store sells a bag of potatoes at a fixed price of $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?
A) marginal revenue

B) gross earnings

C) pure profit

D) marginal costs

3) Which of the following generates productive efficiency?

A) competition among producers

B) competition among consumers

C) government inspectors

D) government production rules and regulations

4) Which of the following generates allocative efficiency in a market economy?
A) national government intervention

B) voluntary exchange between buyers and sellers

C) United Nations rules for competition

D) equity

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

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

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

C) there is a non-linear relationship between laptop prices and quantities purchased by college students.

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

6) For the question above, think about the graph that would show the relationship between laptop prices and quantities purchased by college students. The line/curve would be

A) downward sloping

B) upward sloping

C) horizontal

D) U-shaped

7) Your roommate, Sandra, a psychology major, said, "We know that everyone's human, and we all make mistakes. But, the problem with economics is that it assumes that consumers and firms always make the correct decision." Is what Sandra says True or False?

8) If the total cost to produce 3 suede jackets is $300 and $420 to produce 4 suede jackets, then the difference of $120 is the marginal cost of producing the 4th suede jacket.

Essay Questions

9) The Coffee Nook, a small cafe near campus, sells cappuccinos for $2.50 and Russian tea cakes for $1.00 each.

a) In terms of Russian tea cakes given up, what is the opportunity cost of buying a cappuccino?

Now the Coffee Nook raises prices for its cappuccinos to $3.00 and Russian tea cakes to $1.50 each.

b) In terms of Russian tea cakes given up, what is the opportunity cost of buying a cappuccino?

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

a) Had the firm not produced and sold the last 3,000 cell phones, would its profit be higher or lower?

b) If so by how much?

11) Eva runs a small bakery in the village of Roggerli. She is considering staying open longer, up to 6 extra hours because she thinks staying open longer should increase her sales revenue. However, she would have to hire a worker for those hours at a wage rate of $12 per hour, which would be her only cost.

a) What is the marginal cost of hiring a worker for the 1^st hour? For the 2^nd hour?

b) What is the marginal revenue for hiring a worker for the 1^st hour? For the 2^nd hour? 

c) Determine how many hours Eva should extend her bakery's hours of operations.

12)  Consider the following movements:

i.   from point Y to point W

ii.  from point W to point Y

iii. from point W to point X

a) Which of the movements listed above represents economic growth for the whole economy? 

b) Which of the movements listed above represents a change in people's tastes and preferences?

13. What is the opportunity cost of one shirt for the US?

14. What is the opportunity cost of one shirt for Canada?

15. Who has the absolute advantage in shirts: US or Canada?

16. Who has the comparative advantage in shirts: US or Canada?

17. If the two countries decide to specialize in a product and trade for the other, who should produce shirts: US or Canada?

18. Given both of the production possibilities frontiers are linear, is the opportunity cost decreasing, increasing or constant as more of either good is produced?