Exercise 1

1. Brooke and Sandy both attend the same college and have the same expenses for tuition, books,
and supplies. However, Brooke is a famous actress who could earn $2 million per year if she
were not attending college while Sandy could earn $10,000 a year serving hamburgers if he were
not attending college. It follows that
A)
the opportunity cost of attending college is the same for both Brooke and Sandy.
B)
the opportunity cost of attending college is greater for Brooke than for Sandy.
C)
the opportunity cost of attending college is greater for Sandy than for Brooke.
D)
the opportunity costs of attending college for Brooke and Sandy cannot be
compared.
2. Your opportunity cost of taking econimic course is:
A)
B)
C)
D)

the tuition you paid for the course.

the net benefit of the activity you would have chosen if you had not taken the
course.
the net benefit of taking this course.
the cost of the activity you would have chosen if you had not taken the course

3. The opportunity cost of undertaking an activity is the benefit forgone by undertaking that
activity.
A)
True
B)
False
4. To graphically demonstrate the principle of increasing opportunity cost the production
possibility curve must be
A)
B)
C)
D)

flat
straight
bowed out
bowed in

5. Refer to the graph below. Which of the shifts explains what would happen to the production
possibility curve if a cyclone destroys five major garment factories in the Philippines?

6. Refer to the graph below. If the opportunity cost of good X in terms of good Y is 2Y, so you'll
have to give up 2Y to get one X, the production possibility curve would look like

A) a
B) b
C) c
D) a, b, and c

7. Refer to the graph above. Suppose a society is indifferent between consuming at point A and
consuming at point C. We can infer from this that the society:

A) prefers B to A .
B) prefers A to B.
C) is indifferent between A and B.
D) uses its resources efficiently.
Exercise 2.1 (Demand and Supply)
1. If the price of chicken rises and the price of beef doesn't rise, consumers will respond by:
A)
substituting beef for chicken.
B)
substituting chicken for beef.
C)
reducing purchases of beef and chicken.
D)
increasing purchases of beef and chicken.
2. Which statement is not consistent with the law of supply?
A)
More of a good will be supplied, the higher the price, other things constant.
B)
Less of a good will be supplied, the lower the price, other things constant.
C)
Quantity supplied of a good is directly related to the good's price.
D)
Quantity supplied of a good is inversely related to the good's price.

3. Assume the graph below reflects demand in the automobile market. Which arrow best captures
the impact of increased consumer income on the automobile market?

4. Which of the following would be expected to cause an increase in the supply of fax machines?
A)
An increase in the number of business firms demanding fax machines.
B)
An increase in the price of fax machines.
C)
A decrease in the cost of manufacturing fax machines.
D)
The expectation that the price of fax machines will increase in future.

5. Given the graph below, the quantity that would be associated with the price of $1 in a supply
table would be:

A)
B)
C)
D)

3
2
1
0

6. The law of demand states that, other things constant, there is:
A)
an inverse relation between price and the quantity demanded.
B)
an inverse relation between price and demand.
C)
a direct relation between price and the quantity demanded.
D)
a direct relation between price and demand.
7. According to the law of supply:
A)
supply curves slope upward.
B)
supply curves slope downward.
C)
price and quantity supplied are negatively related.
D)
price and quantity supplied are inversely related.

8. Refer to the graph below. If consumers began purchasing more of this product due to a
decrease in price, this would be shown by arrow:

9. If a major magazine contained a review of your restaurant saying it was the best in the Midwest, which
of the following would most likely happen?
A)
demand would drop.

B)
C)
D)

demand would increase.

quantity demanded would increase.
quantity demanded would drop.

Equilibrium
1. The demand for a particular product is given by Qd = 100 - 10P. The supply for that product
is given by Qs = 20P - 50. Calculate the equilibrium price and quantity of this good.
2. Using the information in question 1, suppose the price were $3. Calculate the excess demand
or excess supply of the product.