Practice Set 1 Principles of MicroeconomicsAnswer each of the following questions:

1. Economics is:a. The science that studies how consumers maximize their profits.b. The social science that analyses how businesses make money.c. The social science that studies how individuals, businesses and the government allocate their scare resources among their unlimited needs and wants, in order to achieve their respective objectives.d. The art of making policies.

2. The main economic problem, and the cause of the existence of economics is:a. Scarcity.b. Profits.c. Utility.d. Trade.

3. Which of the following is not a factor of production:a. Labor.b. Money.c. Land.d. Capital.

4. If country or firm decides to produce more food items and less weapons, this is a question of:a. How to produce?b. How much to produce?c. For whom to produce?d. What to produce?

5. The fact that the Argentinian football player Leo Messi receives a greater income, hence goods and services than the Argentinian president Cristina F. de Kirchner is a matter of:a. How to produce?b. How much to produce?c. For whom to produce?d. What to produce?

6. Models are important tools because:a. They simplify reality and make it possible to analyze important real-life phenomena.b. They carry all the detail of reality and without any simplifications.c. Are always based on realistic assumptions to explain the world.d. None of the above.

7. If your friend tells you that his objective is to become a petroleum engineer, and you see that he works hard at school and reads books in geology and the mechanics of oil pumping.a. This behavior is an example of irrationality.b. This behavior is an example of rationality.c. This behavior is an example of an opportunity cost.d. This behavior is an example of people thinking at the margin.

8. Opportunity cost is:a. The fact that we always need to give up something in order to get something else.b. The value of all other things that we give up in order to get something.c. The value that we assign to the choice we made.d. The value of the next best alternative to the choice we made or opportunity we took.Consider the information provided by the graph below in answering questions 9-15 that follow:

9. The curve above is called:a. The consumption probabilities frontier.b. The production possibilities frontier.c. The utility possibilities frontier.d. The profit possibilities frontier.

10. The curve above reflects the concept of:a. Decreasing opportunity cost.b. Constant opportunity cost.c. Increasing opportunity cost.d. No opportunity cost.

11. The opportunity cost of moving from point C, where 2 units of oil and 6 units of dates are produced, to point D, where 5 units of oil and 6 units of dates are produced is:a. There is no opportunity cost incurred by moving from point C to point D.b. The opportunity cost is 3 units of oil.c. The opportunity cost is 3 units of dates.d. The opportunity cost is 3 units of oil or 3 units of dates.

12. At point C above:a. All resources are fully and efficiently employed.b. Some resources are left idle.c. All resources are working extra hours.d. None of the above.

13. Point B above is:a. Attainable but inefficient.b. Unattainable and efficient.c. Attainable and efficient.d. Unattainable and nothing could be said about efficiency.

14. The opportunity cost of producing 3 more units of oil by moving from point A to point D is:a. 12 units of dates.b. 18 units of dates.c. 6 units of dates.d. There is no opportunity cost involved.

15. Which of the points A and D is a better point to produce?a. A, because we are producing more food and less air-polluting energy.b. D, because we are producing more oil, which is faces more demand in the international market.c. Points A and D are equally good.d. We cannot answer this question because we do not have information about the societys preferences.

16. The famous economist Sir Adam Smith, introduced the world to the concept of:a. Absolute Advantage.b. Comparative Advantage.c. Relative Advantage.d. Production Advantage.

17. The famous economist David Ricardo, introduced the world to the concept of:a. Absolute Advantage.b. Comparative Advantage.c. Relative Advantage.d. Production Advantage.

18. Which of the following statements is true:a. In a two-countries, two-commodities, world. A country possesses an absolute advantage in a certain commodity if it is the able to produce that commodity at a lower opportunity cost than the other country, given the amount of resources available in both countries.b. In a two-countries, two-commodities, world. A country possesses a relative advantage in a certain commodity if it is the able to produce more of that commodity than the other country, given the amount of resources available in both countries.c. In a two-countries, two-commodities, world. A country possesses a comparative advantage in a certain commodity if it is the able to produce that commodity at a lower opportunity cost than the other country, given the amount of resources available in both countries.d. In a two-countries, two-commodities, world. A country possesses an absolute advantage in a certain commodity if it is the able to produce a better quality of that commodity at than the other country, given the amount of resources available in both countries.

19. Production combinations that are outside the production possibilities frontier are ones that:a. Can never be attainable, not matter the circumstances.b. Are efficient but unattainable in the short run.c. Could be attained in the long run by growth or free trade with other countries, according to ones comparative advantage.d. None of the above.

Consider following graphs of the PPFs of Saudi Arabia and Jordan in answering questions (20 to 25):Note that the x-axis represents the quantities of juice and the y-axis represents the quantities of cheese in each country.

20. If each of Jordan and KSA use all their resources in the production of juice:a. Jordan will be able to produce 200 units and KSA will be able to produce 300.b. Jordan will be able to produce 400 units and KSA will be able to produce 1200.c. Jordan will be able to produce 900 units and KSA will be able to produce 200.d. Jordan will be able to produce 200 units and KSA will be able to produce 900.

21. Which of the following statements is false:a. Jordan has absolute advantage in cheese production and KSA has absolute advantage in juice production.b. KSA has absolute advantage in both juice and cheese production.c. Jordan has comparative advantage in cheese production and KSA has absolute advantage in juice production.d. KSA has comparative advantage in juice production and has absolute advantage in cheese production.

22. The opportunity costs of producing juice in Jordan and KSA are:a. 1 unit and 3 units of cheese, respectively.b. 1/3 unit and 1 unit of cheese, respectively.c. 1 unit and 1/3 unit of cheese, respectively.d. 3 units and 1 unit of cheese, respectively.

23. The opportunity costs of producing cheese in Jordan and KSA are:a. 1 unit and 3 units of cheese, respectively.b. 1/3 unit and 1 unit of cheese, respectively.c. 1 unit and 1/3 unit of cheese, respectively.d. 3 units and 1 unit of cheese, respectively.

24. Which of the following statements is correct:a. Jordan partially specializes in and exports cheese, while KSA fully specializes in and juice juice.b. Jordan fully specializes in and exports cheese, while KSA fully specializes in exports juice.c. Jordan partially specializes in and exports juice, while KSA fully specializes in and exports cheese.d. Jordan fully specializes in and imports cheese, while KSA fully specializes in and imports juice.

25. The trading price (terms of trade) that KSA and Jordan agreed upon is:a. 1 unit of juice for 1 unit of cheese.b. 2 units of juice for 3 units of cheese.c. 4 units of juice for 2 units of cheese.d. 1 unit of juice for 2 units of cheese.