Advanced Essentials of Economics (10th
Edition) Multiple Choice Questions (MCQs)
with Answers and Explanations for Chapters
1–24
Questions 1–30
1. A government is considering implementing a policy that reduces income taxes
but simultaneously cuts funding for public infrastructure projects. Which
economic concept is most directly illustrated by this decision?
A. Marginal productivity
B. Trade-offs resulting from scarcity
C. Absolute advantage
D. Consumer surplus
Explanation: Scarcity forces societies to make choices. Increasing resources available for one
objective (lower taxes) requires sacrificing resources devoted to another (public infrastructure),
illustrating the fundamental concept of trade-offs.
2. A manufacturer continues producing an additional batch of goods because the
expected additional revenue exceeds the additional variable cost, even though
total accounting profit remains negative. Which principle best explains this
decision?
A. Opportunity cost
B. Average cost pricing
C. Marginal analysis
D. Comparative advantage
Explanation: Rational decision-makers compare marginal benefits with marginal costs. As long
as marginal revenue exceeds marginal cost, producing additional output may be economically
rational in the short run.
, 3. A software engineer leaves a salaried position paying $120,000 annually to
establish a startup. The startup earns an accounting profit of $90,000 during its
first year. Economically, the venture has:
A. An economic profit of $90,000
B. No opportunity cost
C. An economic loss of $30,000
D. A sunk cost of $120,000
Explanation: Economic profit equals accounting profit minus opportunity costs. Forgone salary
represents an opportunity cost, resulting in an economic loss of $30,000.
4. Two countries can each produce both wheat and steel, but one country
sacrifices fewer units of steel when producing additional wheat. According to
international trade theory, that country has:
A. An absolute advantage in wheat
B. A comparative advantage in wheat
C. A production possibility frontier outside the other country's
D. A lower marginal propensity to consume
Explanation: Comparative advantage depends on lower opportunity cost rather than absolute
productivity.
5. A production possibilities frontier bows outward because:
A. Resources are unemployed.
B. Technology is declining.
C. Resources are not equally adaptable to producing all goods.
D. Marginal costs remain constant.
Explanation: Increasing opportunity costs arise because resources are specialized, producing
the characteristic bowed-out shape of the PPF.
6. Which event would most likely shift an economy's production possibilities
frontier outward?
Edition) Multiple Choice Questions (MCQs)
with Answers and Explanations for Chapters
1–24
Questions 1–30
1. A government is considering implementing a policy that reduces income taxes
but simultaneously cuts funding for public infrastructure projects. Which
economic concept is most directly illustrated by this decision?
A. Marginal productivity
B. Trade-offs resulting from scarcity
C. Absolute advantage
D. Consumer surplus
Explanation: Scarcity forces societies to make choices. Increasing resources available for one
objective (lower taxes) requires sacrificing resources devoted to another (public infrastructure),
illustrating the fundamental concept of trade-offs.
2. A manufacturer continues producing an additional batch of goods because the
expected additional revenue exceeds the additional variable cost, even though
total accounting profit remains negative. Which principle best explains this
decision?
A. Opportunity cost
B. Average cost pricing
C. Marginal analysis
D. Comparative advantage
Explanation: Rational decision-makers compare marginal benefits with marginal costs. As long
as marginal revenue exceeds marginal cost, producing additional output may be economically
rational in the short run.
, 3. A software engineer leaves a salaried position paying $120,000 annually to
establish a startup. The startup earns an accounting profit of $90,000 during its
first year. Economically, the venture has:
A. An economic profit of $90,000
B. No opportunity cost
C. An economic loss of $30,000
D. A sunk cost of $120,000
Explanation: Economic profit equals accounting profit minus opportunity costs. Forgone salary
represents an opportunity cost, resulting in an economic loss of $30,000.
4. Two countries can each produce both wheat and steel, but one country
sacrifices fewer units of steel when producing additional wheat. According to
international trade theory, that country has:
A. An absolute advantage in wheat
B. A comparative advantage in wheat
C. A production possibility frontier outside the other country's
D. A lower marginal propensity to consume
Explanation: Comparative advantage depends on lower opportunity cost rather than absolute
productivity.
5. A production possibilities frontier bows outward because:
A. Resources are unemployed.
B. Technology is declining.
C. Resources are not equally adaptable to producing all goods.
D. Marginal costs remain constant.
Explanation: Increasing opportunity costs arise because resources are specialized, producing
the characteristic bowed-out shape of the PPF.
6. Which event would most likely shift an economy's production possibilities
frontier outward?
