TUTORIAL 1
CHAPTER 1
PRINCIPLES OF ECONOMICS & THINKING LIKE AN ECONOMIST
PART A: MULTIPLE CHOICE QUESTIONS (15 QUESTIONS)
1. Economics is best defined as the study of:
a) How to run a business profitably
b) How society manages its scarce resources
c) Supply and demand in specific markets
d) Government laws and regulations affecting trade
2. The concept that "society faces a short-run trade-off between inflation and unemployment" is
known as:
a) The production possibilities frontier
b) Market failure
c) The Phillips Curve concept
d) The circular flow of income
3. When a student chooses to spend an evening watching a movie, the opportunity cost is:
a) The price of the movie ticket only
b) The value of the time spent watching the movie
c) The total cost of the movie ticket and popcorn
d) The money that could have been saved
4. A rational decision-maker takes an action if and only if:
a) The marginal benefit is greater than the marginal cost
b) The total benefit is greater than the total cost
c) The action has no associated costs
d) The action benefits everyone in society
5. Which of the following is an example of responding to an incentive?
a) A farmer planting crops in the spring
b) A consumer buying more hybrid cars when gasoline prices rise
c) A student attending a required class
d) The sun rising in the morning
6. The famous concept of the "invisible hand," which explains how self-interested actions can
promote general economic well-being, was introduced by:
a) John Maynard Keynes
b) Karl Marx
c) Adam Smith
d) Milton Friedman
7. A situation where a single power plant's pollution affects the health of the entire community is
an example of:
a) Market power
b) An externality
c) Inflation
d) High productivity
8. The most important determinant of a country's standard of living in the long run is its:
a) Natural resources
b) Population size
c) Inflation rate
d) Productivity
9. In the long run, inflation is primarily caused by:
a) High levels of unemployment
b) Excessive growth in the quantity of money
c) Increases in corporate taxes
d) A country importing more than it exports
10. The study of how households and firms make decisions and interact in specific markets is
called:
a) Macroeconomics
b) Microeconomics
c) Normative economics
d) Fiscal policy
11. Which of the following is a Macroeconomic question?
a) Why has the price of smartphones fallen?
b) What determines the salary offered to a software engineer?
c) Why is the national unemployment rate high?
d) How does a quota on sugar imports affect the confectionery industry?
12. In the Circular-Flow Diagram, households are:
a) Sellers in both the goods and services market and the factors of production market.
b) Buyers in the goods and services market and sellers in the factors of production market.
c) Sellers in the goods and services market and buyers in the factors of production market.
d) Buyers in both the goods and services market and the factors of production market.
13. The "gifts of nature" used in production, such as forests and mineral deposits, are categorized
as which factor of production?
a) Labor
b) Capital
c) Land
d) Entrepreneurship
14. The Production Possibilities Frontier (PPF) model illustrates which of the following core
concepts?
a) The circular flow of money
b) The trade-off between efficiency and equality
c) Scarcity, trade-offs, and opportunity cost
d) The effect of inflation on unemployment
15. Economists use models and assumptions primarily to:
a) Perfectly replicate the complex real world.
b) Simplify reality to improve understanding and provide useful insights.
c) Confuse students who are new to the subject.
d) Support pre-existing political viewpoints.
PART B: STRUCTURED QUESTIONS (5 QUESTIONS)
1. Principles of Decision-Making:
Explain the first four principles of how people make decisions, providing a clear example for
each principle.
2. Benefits of Trade and Markets:
a) Explain the principle: "Trade can make everyone better off." Why is this true even if one
trading partner is more efficient at producing everything?
b) What is the "invisible hand" and how does it work through the price system in a market
economy to organize economic activity?
3. The Role of Government:
a) Define "market failure." List and briefly explain its two primary causes.
b) Besides addressing market failures, what is another reason a government might choose to
intervene in a market economy?
4. The Economy as a Whole:
a) What is the most important factor that determines a country's standard of living? Explain
why this factor is so crucial.
b) Describe the short-run trade-off that society faces between inflation and unemployment,
according to Principle 10.
5. Economic Models and Systems:
a) Describe the two flows represented in the Circular-Flow Diagram. What is the purpose of
this model?
b) Explain how the Production Possibilities Frontier (PPF) model can be used to illustrate the
economic concepts of scarcity, trade-offs, and opportunity cost.