EXERCISES

Introduction

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Exercises 1
Multiple Choice: Write only the letter of the best answer.
______ 1. Production decisions are made according to customs and traditions:
a. traditional system b. command system
c. market system d. mixed system
______ 2. The system work under the principle that the interest of society should prevail over that of the
individual:
a. traditional system b. command system
c. market system d. mixed system
______ 3. Market prices serve as signals to the producers about what goods to produce and how much of
these goods should be produced?
a. traditional system b. command system
c. market system d. mixed system
______ 4. The economic problems are answered predominantly through the price mechanism and modified
through government intervention:
a. traditional system b. command system
c. market system d. mixed system
_______ 5. An economy where individuals exercise free enterprise:
a. traditional system b. command system
c. market system d. mixed system
_______ 6. Basic consuming unit:
a. Firms b. household
c. Resource d. mixed system
_______ 7. It includes water, forest minerals, and animals:
a. Land b. labor
c. resource owner d. none of the above
_______ 8. Man’s mental and physical efforts exerted in production:
a. land b. labor
c. entrepreneur d. capital
_______ 9. Machines, tools, equipment use in production:
a. land b. labor
c. entrepreneur c. capital
_______ 10. Brain behind the business:
a. land b. labor
c. entrepreneur d. capital
_______ 11. Inputs used in production:
a. land b. labor
c. capital d. all of the above
_______ 12. Price of capital:
a. rent b. wages
c. profits d. interest
_______ 13. Payment made to labor:
a. wage b. rent
c. profits d. interest
_______ 14. Payment for the use of land:
a. rent b. wages
c. profits d. interest
_______ 15. National income analysis:
a. macroeconomics b. microeconomics
c. normative economics d. positive economics
______ 16. Study of what is:
a. macroeconomics b. microeconomics
c. normative economics d. positive economics
______ 17. Known as price theory:
a. macroeconomics b. microeconomics
c. normative economics d. positive economics
_______ 18. Deals with what should be:
a. macroeconomics b. microeconomics
c. normative economics d. positive economics
_______ 19. Desires and needs of consumer that have to be satisfied:
a. basic needs b. luxury goods
c. wants d. all of eh above
______ 20. Man’s needs required for survival:
 a. basic needs b. luxury goods
c. wants d. all of the above
Exercise 2
Plot the following combinations of Good X and Good Y in single graph and construct the
consumption possibilities line:

Combinations Good X Good Y

A 21 0
B 18 1
C 15 2
D 12 3
E 9 4
F 6 5
G 3 6
H 0 7

Q of Good X

Q of Good Y

A. What is the rate of exchange between Good X and Good Y?

B. Supposing your original choice is combination D but you changed your mind. Show in the above
graph an example of an opportunity cost where you give up combination D in favor of a new
combination.
Exercise 3
Match Column A and Column B. Write the letter of the correct answer on the blank

a. Essentials
1. Macroeconomics
b. Man-made resources
2. Microeconomics
c. Choice of market to sell
3. Logic
d. Planned and dictated decisions
4. Statistics
e. Choice of goods and services
5. Economic Resources
f. Non-essentials
6. Created wants
g. National Income and Employment
7. Luxury goods
h. Price theory
8. Entrepreneur
i. Organizer in production
9. Land
j. Factors in production
10. Traditional Economy
k. Choice of production method
11. Market Economy
l. Natural resources
12. Command Economy
m. Past decisions
13. What to produce
n. Competition
14. For whom to produce
o. Rational deductions
15. How to produce
p. Scarcity
q. Value judgement
r. Hypothesis-testing
s. Demonstration effect
t. Geometry

Exercise 4
Solve.
1. Supposing the extreme combinations of Good X and Good Y which can be consumed on a given budget
are given as follows
Good X Good Y
Combination 1 20 0
Combination 2 0 50
Construct a graph showing the consumption possibilities line. Explain the relationship depicted by this line.
 No. of units
of Good X

No. of units of Good Y

2. Supposing the extreme combinations of which can be produced of Good A and Good B with a given
resources are given as follows:
Good A Good B
Combination 200 0
Combination 0 50
Construct a graph showing the production possibilities curve. Explain the relationship depicted by the
curve.

No. of units
of Good A

No. of units of Good B

3. Give the difference between the two graphs illustrated in number 1 and 2.