Microeconomics

Formative Assessment (Quiz) for Topic 1 Economic Thinking

Test I. Multiple Choice.
1. Which of the following statements is CORRECT?
A. Economics is about money and how it should be allocated to all individuals.
B. Scarcity means that there are enough resources to satisfy all human wants.
C. Economy is the study of trade-offs and choices that we make, given the fact of
scarcity.
D. Opportunity cost is what we give up when we choose one thing over another.

2. In a world of scarcity, it is IMPOSSIBLE to

A. find more resources to satisfy more human wants.
B. satisfy all basic human needs.
C. meet all of society’s wants.
D. all of the choices
A is incorrect. We constantly increase the quantity and quality of our resources and can satisfy
more wants, but we cannot satisfy them all.
B is incorrect. Satisfying all human needs is possible because our needs, unlike our wants, are
finite.
C is correct. Scarcity describes the fact that there will never be enough resources to satisfy all
human wants.
3. Which of the following is NOT a productive resource?
A. technology
B. human capital
C. money
D. land

4. Which of the following can be classified as a free good in the production process?
A. public administration theory
B. natural gas
C. education
D. skills
A is correct. It is considered an input into the production process since it trains government
workers to become efficient, effective, and economic in the use of resources while producing
outputs. Its theories are not owned by any particular entity, anybody can use it for free.
5. Which is NOT an example of economic capital?
A. machinery
B. money
 C. buildings and equipment
D. tools
B is correct. Economic capital is not financial capital. Money is a medium of exchange that is
used to facilitate the production process. Money helps acquire the resources to produce goods
and services.
6. Adam Smith’s theory of the division and specialization of labor implies that a worker
skilled in engineering will
A. yield economic output that is sub-optimal if she were employed in something other
than engineering-type functions.
B. improve economic output.
C. negatively affect economic output if employed in anything but engineering.
D. all of the choices
A is correct. According to Smith, output is optimal when workers specialize in a part of the
production process that they do best.
B is incorrect. There is no reason to suspect that the engineer is better at any task other than
engineering such that output would increase.
C is incorrect. If the engineer works in some part of the production process that is other than
engineering, output will be less than it could be but it will decline only if the engineer’s skills are
so poor in anything but engineering that the production process is interrupted.
7. Land, or natural resources, include(s) the fertility of the land, minerals below it, and
_____?
A. wind and sun
B. human capital resources
C. the humans that live in it
D. gold used as capital resources

8. When the average cost of producing each individual unit declines as total output
increases
A. division of labor
B. economies of scale
C. specialization
D. diminishing marginal returns

9. The way in which the work required to produce a good or service is divided into tasks
performed by different workers.
A. division of labor
B. economies of scale
C. specialization
D. diminishing marginal returns
 10. Suppose two countries, A and B, possess the exact same amount and quality of land,
labor, capital, and entrepreneurship. Can we say that each country therefore produces the
exact same level of output?
A. It cannot be determined with the information given
B. Yes, with certainty
C. No, with certainty
D. Secret
Some countries may have more, less or the same amount and quality of production resources but
it is the way in which those resources are combined as well as the societal objectives that will
more accurately determine the level of each country’s production.

11. When workers or firms focus on particular tasks for which they are well suited within the
overall production process.
A. division of labor
B. economies of scale
C. specialization
D. diminishing marginal returns

12. Canva, a global multi-national graphic design platform company, is more likely to
achieve economies of scale if it is located where?
A. in or close to large cities with large numbers of technology and design workers.
B. in highly populated areas with an abundance of low skill workers.
C. in geographic areas with the highest prevailing wages.
D. in places with high cost workers.
B is incorrect. Low skills imply that these workers are probably not well-matched to graphic
design production type jobs and therefore the software producers would face a labor shortage.
C is incorrect. While high wages may suggest a highly skilled workforce, it does not necessarily
imply that such workers are well-suited to software production or that there are sufficient
numbers of them.
13. An economy is composed entirely of two equally sized farms A and B producing both
eggs and milk. Farm A is better at producing eggs than Farm B which is better at
producing milk. Then in order to maximize output, Farm A should _________________.
A. produce both eggs and milk on its own and sell its excess eggs to B for additional
milk.
B. abandon the production of milk to fully specialize in the production of eggs and then
trade with Farm B for milk.
C. reduce its production of eggs in order to commit resources to learn how to better
produce milk.
D. none of the choices
A is incorrect. Any milk that Farm A produces is an inefficient use of its resources. In addition,
when Farm A produces milk it prevents Farm B from realizing its full cost savings by limiting
trade with A in milk. Recall that if Farm B has economies of scale in the production of eggs, its
average costs will fall as output of milk rises. If these cost savings are unrealized the economy is
worse off.
B is correct. According to Smith’s theory Farm A should fully specialize in the production of
eggs then trade eggs for milk. Since it can produce eggs more cheaply than B and B can produce
milk more cheaply than A all resources are being efficiently utilized to maximize output.
C is incorrect. By reducing its production of eggs, Farm A is undermining output for the entire
economy. Farm B would need to increase its output of eggs but because it is not good at egg
production, such an outcome would imply a proportionally large reduction in the output of milk.
14. Policy that affects bank lending, interest rates, and financial capital markets, and is
conducted by a nation’s central bank.
A. Bangko Sentral ng Pilipinas
B. Federal Reserve
C. Monetary Policy
D. Fiscal Policy

15. Government expenditures on public schools is classified as ________ policy.

A. microeconomic
B. fiscal
C. monetary
D. private

16. Economic policy decisions made by or involving the Philippine state are classified as
_______ decisions.
A. microeconomic
B. macroeconomic
C. both microeconomic or macroeconomic
D. neither microeconomic or macroeconomic

17. It is a simplified version of reality that allows us to observe, understand, and make
predictions about economic behavior.
A. economic model
B. circular flow
C. goods and services market
D. labor market

18. A diagram indicating that the economy consists of households and firms interacting in a
goods-and-services market and a labor market.
A. circular flow diagram model
 B. Venn diagram
C. Frequency curves
D. Bar graphs

19. A THEORY is a more abstract representation of information while a MODEL is a more

___________ representation.
A. theoretical
B. applied or empirical
C. conceptual
D. hypothetical

20. The best way to determine the direction and magnitude of the relationship between the
price of some good and the demand for it is ____________.
A. by creating a model
B. mathematically
C. graphically
D. all of the choices

A is incorrect. Using math, both the direction of the relationship and its magnitude are more
easily determined. However, a graph will only provide a clear view of the direction of the
relationship, not its magnitude.
B is correct. Using math, both the direction of the relationship and its magnitude are more easily
determined.
C is correct. While a graph would provide a view of the direction of the relationship, the
magnitude of the relationship is difficult to capture visually.

21. Economists would say that the decisions we make are influenced by
A. Output costs
B. Trade-offs
C. Societal demands
D. Peer pressure

22. Which assumptions reflect permanent universal conditions?

A. The world has unlimited productive resources
B. There are limited wants
C. More output satisfies more wants
D. None of the items
 23. Because of our limited money, time, and effort, we are best off when we allocate those
things _________________
A. with the objective of minimizing output
B. by constantly assessing the opportunity costs of our choices
C. by choosing what society as a whole would want
D. None of the choices

24. Society gains advantages through trade because of its ability to ____________.
A. divide tasks associated with production
B. specialize all tasks into one person
C. attain absolute advantage in our trade with other nations
D. None of the choices

25. Identify the microeconomics topic among the following.

A. The price that a farmer asks for his watermelons.
B. Inflation rate affecting individual farmers
C. Unemployment rate
D. Fiscal policy

26. Raising public transportation fares

A. increases the opportunity costs of driving one’s car
B. reduces the opportunity cost of driving one’s car
C. increases the opportunity cost of taking public transportation
D. reduces the demand for owning a car
An increase in public transport fares reduces the cost of driving ones car relative to taking public
transportation.
27. If economic goods must be paid to obtain because they are scarce, then free goods can be
obtained for free because they are
A. abundant relative to the demand
B. limited and have value
C. do not have value
D. abundant relative to the income

28. The distinguishing feature of economic capital (as opposed to financial capital, like
money) is being ___________.
A. Profitable
B. Productive
C. Expensive
D. economic
Matching type.
1. The point on a graph where a line crosses the vertical axis or horizontal axis. Intercept
2. The change in the vertical axis divided by the change in the horizontal axis. Slope
3. A quantity that can assume a range of values. Variable
4. The horizontal line on a graph, commonly represents quantity (q) on graphs in
economics. x-axis
5. The vertical line on a graph, commonly represents price (p) on graphs in economics. y-
axis
6. A relationship or expression involving one or more variables. Function
7. Indicates that two variables are negatively related; when one variable increases, the other
decreases, and when one variable decreases, the other increases. Negative slope
8. Indicates that two variables are positively related; when one variable increases, so does
the other and when one variable decreases, the other also decreases. Positive slope
9. Indicates that there is no relationship between two variables; when one variable changes,
the other does not change. Slope of zero

Test II. Enumeration.

a. Examples of economic goods
1. ______________________
2. ______________________
3. ______________________
4. ______________________
5. ______________________

b. Examples of free goods

6. ______________________
7. ______________________
8. ______________________
9. ______________________
10. ______________________

c. Societal trade-offs
11. ______________________
12. ______________________
13. ______________________

d. Individual/personal trade-offs
14. ______________________
15. ______________________
16. ______________________
 e. Examples of land resources
17. ______________________
18. ______________________
19. ______________________
20. ______________________

f. Examples of economic capital

21. ______________________
22. ______________________
23. ______________________
24. ______________________

g. Examples of labor resources

25. ______________________
26. ______________________
27. ______________________
28. ______________________

Essay.
1. How does specialization and division of labor increases production?

Illustration.
1. Draw a slope that shows a positive relationship.
2. Draw a slope that shows a negative (inverse) relationship.
3. Draw a slope of zero (y is constant no matter the value of x).
Assessment No. 2
Multiple Choice.
1. One important use of algebraic modeling of economic behavior is to determine the
direction of the relationship between two economic variables—say the quantity of X that
is purchased and the price paid for X. If, as the price of X rises, the quantity of purchases
fall, the relationship can be said to be ________.
A. negative
B. positive
C. constant
D. zero

2. Suppose you have determined that the quantity demanded of eggs depends on their price
and the income of consumers. Prior to quantifying these relationships using a
mathematical model you want to be sure of their directional relationships. Which
statement is likely to be true?
A. The sale of eggs falls when prices rise and falls when income rises.
B. The sale of eggs rises when the price rises but falls when income falls.
C. The sale of eggs falls when prices rise but increase when consumer income rises.
D. None of the choices

3. Government expenditures on public schools is classified as _________ policy.

A. Monetary
B. Microeconomic
C. Fiscal
D. Sound

4. Policy that involves altering the level of interest rates, the availability of credit in the
economy, and the extent of borrowing
A. Monetary policy
B. Fiscal policy
C. Financial literacy
D. Macroeconomics

5. Economic policies that involve government spending and taxes

A. Monetary policy
B. Fiscal policy
C. Financial literacy
D. Macroeconomics
 6. A key feature of some economic models is linearity, or whether the variable of interest
changes in constant proportion with another associated variable (meaning they exhibit a
linear or constant straight line relationship) or whether the change in the variable is not a
constant proportion but varies more or less depending on the level of the associated
variable (meaning they have a non-linear or curved line relationship).

Which of the following is the most effective way for an economist to support such a
relationship?

A. Plot projected future data points of each variable against each other in a graph to
visualize the potential future form of the relationship.
B. Conduct behavioral experiments and make quantitative observations that indicate the
form of the relationship.
C. Apply knowledge of economic theory to assert the form of the relationship.
D. All of the choices.
A is incorrect. Using existing data, not projected possible future data, is a more cost-effective and
valid means of establishing and testing relationships between economic variables.
B is correct. Behavioral economics is becoming increasingly important in validating common
economic theories and developing new ones.
C is incorrect. Theory is useful for hypothesizing a relationship but if no existing data are
available and experimental data are infeasible economists cannot support their theory.
7. One important use of algebraic modeling of economic behavior is to determine the
direction of the relationship between two economic variables—say the quantity of X that
is purchased, and the price paid for X. If, as the price of X rises, the quantity of purchases
fall, the relationship can be said to be ________.
A. positive
B. negative
C. constant
D. fluctuating
A is incorrect. As the price of X rises, the quantity of X purchased falls and therefore the
relationship cannot be positive.
B is correct. As the price of X rises, the quantity of X purchased falls and therefore the
relationship can be deemed negative or “inverse”.
C is incorrect. As the price of X rises, the quantity of X purchased falls and therefore the
relationship cannot be constant. It would show a straight line.

1. What combination of model characteristics is frequently used in the most effective models?
 useful and simple
linear and inverse
graphical and can be expressed as a mathematical function
informative and complex

2. What can be assumed if a model can accurately predict outcomes?

The assumptions of the model are generally accurate
The model is not based on a theory
The theory behind the model needs to be refined
The model should walk the runway

3. Once a model of reality is constructed around certain assumptions, it can be tested to determine
its value in
graphing equations
predicting outcomes
producing data
none of the choices

4. The circular flow diagram demonstrates

a trade-off that scarcity imposes
mathematical equations
a direct relationship between groups in an economy
circular flow of money

5. What is one way to express economic theory?

Macroeconomic data
Mathematical equations
Data analysis
Inverse relationships

6. If a data line on a graph slopes upward as it goes to the right, it is depicting that
as the value of one variable falls, the value of the other rises (all else constant)
the relationship between the variables on the axes is direct
the relationship between the variables on the axes is inverse
the relationship between the variables on the axes is converse

7. If a data line on a graph has a slope of zero it means there

is a constant relationship between x and y
is no relationship between x and y
are two variables that are negatively related
all of the choices

8. In the case of a positive relationship between two variables, all else remaining constant:
the value of the two variables will move in opposite directions from each other
 graphically, the data line representing the relationship between the variables is a
horizontal line
the values of the two variables will move in the same direction
the two variables will separate, parang relationship ninyo

9. In the case of a negative relationship between two variables, all else remaining constant
Graphically, the data line representing the relationship between the variables has a
positive slope
The value of the two variables will move in opposite directions from each other
The values of the two variables will move in the same direction
The two variables will remain constant, hindi katulad niya

10. From the graph below, one could conclude that, all else remaining constant

there is a trade-off between X and Y

the relationship between X and Y is indirect
the relationship between X and Y is direct
there is no relationship between X and Y, tulad niyo

11. Scarcity is imposed on individual households in the form of income and

utility
sunk costs
the prices of the goods that we may purchase
output

12. A Grab driver faces sunk cost like insurance which contribute to the average cost per mile of
Php25. Yet when a rider offers to pay less than that (Php25) for a ride, the driver agrees because
Sunk cost like auto insurance (in this case) do not increase as driving increases
The driver needs to cover all sunk costs to be better off by accepting the offer
The driver is irrational; this decision will cause a loss
All of the choices

13. The slope of a budget constraint line is influenced by

The tastes and preferences of the decision-maker
How effectively one or more of each of the two competing goods satisfies wants
How much one item costs compared to the cost of the other item
The graph that you draw
14. Because of ________, if Metro Manila decides to spend money on beautifying its metropolitan
and attracting tourism to its city when no money has been devoted to those efforts before, then
gains in tourism may be significant.
the law of diminishing returns
the opportunity cost of the production possibility trade-off
the production possibilities frontier
Mayor Isko Moreno

15. A budget constraint model differs from production possibilities model because
The production possibilities model demonstrates diminishing returns
The budget constraint depicts an inverse relationship, or a trade-off
The budget constraint demonstrated diminishing returns

16. The production possibilities model illustrates an inverse relationship between two goods or
services because
of diminishing returns
the opportunity cost of producing more of something will rise
production of different types will compete for limited resources
of the possibilities

17. In order to satisfy as many wants as possible, it is necessary to achieve ALLOCATIVE efficiency,
since it would be impossible to produce more of one thing without producing less of
another
otherwise output may go to where it is less valued
otherwise resources are idle
all of the choices

18. Suppose that there are only two types of output in a country: nuclear missiles and consumer
goods. All else being constant, as the nation produces more missiles,
every additional missile will increase consumer goods production by more and more
the opportunity cost of consumer wants being satisfied will diminish
the greater the opportunity cost will be of satisfying consumer wants

19. Making an economically rational decision requires

Equal consideration for your own and others’ welfare
Always considering the long-run
Considering the prospective benefits and costs to oneself
Being generous to others

20. It is said that the rational consumer will act according to his or her self-interest, and that self-
interest can include a concern for one’s family and friends, but not often society as a whole.
Which of the following illustrates this type of decision?
 Our time was very valuable at that moment, but we stopped to put out the fire before it
spread
The rental of recreational vehicles for use in national parks is responsive to the price
charged, but not to concerns of noise pollution
The boat rental was worth the additional fish catch, regardless how little fish we left
behind

21. Self-interest can include more than a concern for oneself. To the extent that the happiness of
others contributes significantly to our own happiness, actions taken in our own self-interest may
have benefits for
close friends and family
a stranger
the economy
the Philippines

22. The theory of rational behavior

is an assumption that economists make to have a useful model for how decisions are
made
assumes that people will behave in the best interest of society as a whole
implies that people will always take the time to make perfectly informed decisions
all of the choices

23. A restaurant chain sponsors a charity that provides support to the parents of children being
treated for cancer. How would the use of company funds for this purpose be justified by a
business whose goal is to maximize profit?
The funds dedicated to this purpose represent a very small share of profits
The money spent is worth the boost it gives to corporate image
The money will be spent efficiently to cure cancer
All of the choices

24. To make an economically rational decision, marginal cost should be compared to

Opportunity cost
Total benefit
Marginal benefit
Sunk costs

25. Which of the following statements reflect marginal decision-making?

If we double the order to a dozen donuts, we will pay only 20 percent more
Staying in this rental cottage longer would be nice, but the cottage next door is more
attractive
The total cost of the program is equal to the total benefits

26. The musician was known for multiple encore performances, but had limited stamina and a
rational mind. Even when she would eventually call it a night, by her judgement,
 the additional enjoyment of one more encore (the marginal benefit) is rising
the total enjoyment (benefit) of the concert was maximized
the marginal cost is greater than the marginal benefit of an additional encore

Problem Solving

27.

In the figure, point A shows that the baby boys at 28 inches weight 19 pounds. What is
the slope from point A to the next point showing the baby boys at 30 inches and 21.8
pounds?

1.47
The slope cannot be determined with the information given.
0.71

The slope is constant and calculated as the rise/run or 2/2.8 which is 0.71.
28.
 In the figure, the one that shows the relative progression of the US population in the
“over 65 category” is _______________.

Graph A
Graph B
Graph C
Unknown

The percent of the population of persons in the US over 65 years old is 12.6 in 2000 but is anticipated to
rise to 20 percent in 2030 which is shown in Graph C. Wherein, graphs A and B only shows the
population by age category in absolute terms.

Economic Thinking Problem Set

DIRECTIONS: Use the following graph to answer questions 1 through 3:

1. What is the rise of the line?

ANSWER: 1

2. What is the run of the line?

ANSWER: 2

3. Finally, what is the slope of the line?

ANSWER: ½ or 0.5
rise/run = ½ = 0.5

4. Solve for x in the following equation:

X=3+2x9
X = 21

5. Solve for y in the following equation:

y = (6 + 3) ÷ 10
y = 9 ÷ 10
y = 0.9

6. Given the following two equations, solve for x:

y = 6 + 10x x = ____
y=3
y – 6 = 10x
3 – 6 = 10x
−3=10 x
−3 10 x
=
10 10
−0.3=x
or

−10 x=− y +6
−10 x=−3+6
−10 x=3
−10 x 3
=
−10 −10
3
x=
−10
x = - 0.3
7. Given the following two equations, solve for y:
x = 7y – 3
x=6

x + 3 = 7y
6 + 3 = 7y
9 = 7y
9 7y
=
7 7
1.29 = y