Microeconomics Exam Test Bank – Mankiw 9th Edition
Verified Questions and Answers | Updated 2025–2026
Economics Student Bundle
1. Economics is best defined as the study of:
A) How to make money in the stock market
B) How society manages its scarce resources
C) How governments tax citizens
D) How businesses maximize profits
Correct Answer: B
Rationale: Economics is the study of how society manages its scarce resources. It examines how
individuals, firms, and governments make decisions about allocating limited resources to satisfy
unlimited wants.
2. Scarcity means that:
A) Society has limited resources and therefore cannot produce all the goods and services people wish to
have
B) People are greedy
C) Resources are unlimited
D) Goods are free
Correct Answer: A
Rationale: Scarcity means that society has limited resources and therefore cannot produce all the goods
and services people wish to have. Scarcity is a fundamental concept in economics because it necessitates
choice.
3. The principle that "people face trade-offs" means:
A) To get one thing, we usually have to give up another thing
B) People can have everything they want
C) Resources are unlimited
D) Trade is unnecessary
Correct Answer: A
Rationale: People face trade-offs because to get one thing, we usually have to give up another thing. A
classic example is the trade-off between "guns and butter"—national defense versus consumer goods.
,4. Efficiency means:
A) Society is getting the maximum benefits from its scarce resources
B) Society is distributing resources equally
C) Resources are unlimited
D) Everyone has the same income
Correct Answer: A
Rationale: Efficiency means that society is getting the maximum benefits from its scarce resources. It
refers to the size of the economic pie, whereas equality refers to how the pie is divided.
5. Equality means:
A) The benefits of those resources are distributed uniformly among society's members
B) Society is getting the maximum benefits from its resources
C) Resources are unlimited
D) Everyone has the same job
Correct Answer: A
Rationale: Equality means that the benefits of those resources are distributed uniformly among society's
members. There is often a trade-off between efficiency and equality—redistributing income can reduce
incentives to work and produce.
6. The opportunity cost of an item is:
A) The monetary cost of the item
B) What you give up to get that item
C) The price of the item
D) The tax on the item
Correct Answer: B
Rationale: The opportunity cost of an item is what you give up to get that item. It is the value of the best
alternative forgone when making a decision.
7. "Rational people think at the margin" means:
A) People make decisions by comparing marginal benefits and marginal costs
B) People always make irrational decisions
C) People ignore costs
D) People only consider total costs
,Correct Answer: A
Rationale: Rational people think at the margin, meaning they make decisions by evaluating the marginal
(additional) benefits and marginal costs of an action. A rational decision-maker takes an action if and
only if the marginal benefit exceeds the marginal cost.
8. Marginal change is:
A) A small incremental adjustment to a plan of action
B) A large change
C) A permanent change
D) A random change
Correct Answer: A
Rationale: Marginal change is a small incremental adjustment to a plan of action. Rational people make
decisions by comparing marginal benefits and marginal costs.
9. "People respond to incentives" means:
A) People change their behavior when the costs or benefits change
B) People ignore costs and benefits
C) People are irrational
D) People never change their behavior
Correct Answer: A
Rationale: People respond to incentives because they compare costs and benefits when making
decisions. When costs or benefits change, people's behavior changes. For example, when the price of
apples rises, people buy fewer apples.
10. Trade can make everyone better off because:
A) It allows each person to specialize in the activities they do best
B) It benefits only one party
C) It reduces total production
D) It eliminates competition
Correct Answer: A
Rationale: Trade allows each person to specialize in the activities they do best, whether it is farming,
sewing, or home building. By trading with others, people can buy a greater variety of goods and services
at lower cost.
, 11. Markets are usually a good way to organize economic activity because:
A) They allocate resources through the decentralized decisions of many firms and households
B) They are controlled by the government
C) They eliminate competition
D) They ignore prices
Correct Answer: A
Rationale: Markets allocate resources through the decentralized decisions of many firms and households
as they interact in markets for goods and services. This is the idea behind the "invisible hand" concept
introduced by Adam Smith.
12. The "invisible hand" refers to:
A) The ability of free markets to allocate resources efficiently through prices
B) Government intervention
C) A physical hand
D) A marketing strategy
Correct Answer: A
Rationale: The "invisible hand" is Adam Smith's concept that free markets, through the interaction of
buyers and sellers, allocate resources efficiently. Prices guide the invisible hand, leading self-interested
individuals to promote the social interest.
13. A market failure occurs when:
A) The market fails to allocate resources efficiently on its own
B) The market allocates resources efficiently
C) The government intervenes
D) There is no scarcity
Correct Answer: A
Rationale: A market failure occurs when the market fails to allocate resources efficiently on its own.
Causes include externalities, market power, and asymmetric information. Government intervention may
be justified to correct market failures.
14. An externality is:
A) The impact of one person's actions on the well-being of a bystander
B) A market transaction
C) A government policy
D) A price change
Verified Questions and Answers | Updated 2025–2026
Economics Student Bundle
1. Economics is best defined as the study of:
A) How to make money in the stock market
B) How society manages its scarce resources
C) How governments tax citizens
D) How businesses maximize profits
Correct Answer: B
Rationale: Economics is the study of how society manages its scarce resources. It examines how
individuals, firms, and governments make decisions about allocating limited resources to satisfy
unlimited wants.
2. Scarcity means that:
A) Society has limited resources and therefore cannot produce all the goods and services people wish to
have
B) People are greedy
C) Resources are unlimited
D) Goods are free
Correct Answer: A
Rationale: Scarcity means that society has limited resources and therefore cannot produce all the goods
and services people wish to have. Scarcity is a fundamental concept in economics because it necessitates
choice.
3. The principle that "people face trade-offs" means:
A) To get one thing, we usually have to give up another thing
B) People can have everything they want
C) Resources are unlimited
D) Trade is unnecessary
Correct Answer: A
Rationale: People face trade-offs because to get one thing, we usually have to give up another thing. A
classic example is the trade-off between "guns and butter"—national defense versus consumer goods.
,4. Efficiency means:
A) Society is getting the maximum benefits from its scarce resources
B) Society is distributing resources equally
C) Resources are unlimited
D) Everyone has the same income
Correct Answer: A
Rationale: Efficiency means that society is getting the maximum benefits from its scarce resources. It
refers to the size of the economic pie, whereas equality refers to how the pie is divided.
5. Equality means:
A) The benefits of those resources are distributed uniformly among society's members
B) Society is getting the maximum benefits from its resources
C) Resources are unlimited
D) Everyone has the same job
Correct Answer: A
Rationale: Equality means that the benefits of those resources are distributed uniformly among society's
members. There is often a trade-off between efficiency and equality—redistributing income can reduce
incentives to work and produce.
6. The opportunity cost of an item is:
A) The monetary cost of the item
B) What you give up to get that item
C) The price of the item
D) The tax on the item
Correct Answer: B
Rationale: The opportunity cost of an item is what you give up to get that item. It is the value of the best
alternative forgone when making a decision.
7. "Rational people think at the margin" means:
A) People make decisions by comparing marginal benefits and marginal costs
B) People always make irrational decisions
C) People ignore costs
D) People only consider total costs
,Correct Answer: A
Rationale: Rational people think at the margin, meaning they make decisions by evaluating the marginal
(additional) benefits and marginal costs of an action. A rational decision-maker takes an action if and
only if the marginal benefit exceeds the marginal cost.
8. Marginal change is:
A) A small incremental adjustment to a plan of action
B) A large change
C) A permanent change
D) A random change
Correct Answer: A
Rationale: Marginal change is a small incremental adjustment to a plan of action. Rational people make
decisions by comparing marginal benefits and marginal costs.
9. "People respond to incentives" means:
A) People change their behavior when the costs or benefits change
B) People ignore costs and benefits
C) People are irrational
D) People never change their behavior
Correct Answer: A
Rationale: People respond to incentives because they compare costs and benefits when making
decisions. When costs or benefits change, people's behavior changes. For example, when the price of
apples rises, people buy fewer apples.
10. Trade can make everyone better off because:
A) It allows each person to specialize in the activities they do best
B) It benefits only one party
C) It reduces total production
D) It eliminates competition
Correct Answer: A
Rationale: Trade allows each person to specialize in the activities they do best, whether it is farming,
sewing, or home building. By trading with others, people can buy a greater variety of goods and services
at lower cost.
, 11. Markets are usually a good way to organize economic activity because:
A) They allocate resources through the decentralized decisions of many firms and households
B) They are controlled by the government
C) They eliminate competition
D) They ignore prices
Correct Answer: A
Rationale: Markets allocate resources through the decentralized decisions of many firms and households
as they interact in markets for goods and services. This is the idea behind the "invisible hand" concept
introduced by Adam Smith.
12. The "invisible hand" refers to:
A) The ability of free markets to allocate resources efficiently through prices
B) Government intervention
C) A physical hand
D) A marketing strategy
Correct Answer: A
Rationale: The "invisible hand" is Adam Smith's concept that free markets, through the interaction of
buyers and sellers, allocate resources efficiently. Prices guide the invisible hand, leading self-interested
individuals to promote the social interest.
13. A market failure occurs when:
A) The market fails to allocate resources efficiently on its own
B) The market allocates resources efficiently
C) The government intervenes
D) There is no scarcity
Correct Answer: A
Rationale: A market failure occurs when the market fails to allocate resources efficiently on its own.
Causes include externalities, market power, and asymmetric information. Government intervention may
be justified to correct market failures.
14. An externality is:
A) The impact of one person's actions on the well-being of a bystander
B) A market transaction
C) A government policy
D) A price change
