Question Booklet

Final Exam November 2005
Section I: Multiple Choice - 20 marks
Select the best answer for the following multiple choice questions below. Then write the
answer clearly on the line next to the answer. Make sure you mark it very clearly. Select
the best answer.
_____ 1. What statement below is the best definition of opportunity cost?
a. The resources that are used to produce a particular good to satisfy one want
instead of another.
b. The cost of one good compared to that of another.
c. The satisfaction we gain from choosing one good instead of another.
d. The cost of all that is lost from choosing one good or action instead of another.
_____ 2. Which of the following is the best example of a positive or analytical
statement?
a. The unemployment rate declined for two months in Indonesia by more than 0.5%.
b. An unemployment rate of more than 7% should be acceptable to the government.
c. A change in government will surely cause the unemployment rate to fall.
d. A high unemployment rate is unacceptable to most people.
_____ 3. In a command economy, who or what decides what will be produced?
a. The people decide through their elected representatives.
b. The managers of state enterprises and factories decide.
c. The needs and wants of people “decide” what will be produced.
d. The central planners decide based upon the priorities of the nation.
_____ 4. What does Adam Smith’s theory of the “invisible hand” mean?
a. In a competitive environment, business prosperity in the economy by pursuing
profits for themselves.
b. Government is the invisible hand, promoting economic welfare.
c. Consumers are the invisible hand, directing production within the market
economy.
d. Monopolies impose and invisible hand, reducing competition between producers.