Below is a sample revision test with multiple‐choice questions along with detailed rationales.
These questions are designed to review key concepts from the Principles of Economics Arab
World, 4th Edition by Gregory Mankiw (with adaptations for regional context where
appropriate). You can use these to test your understanding and to revisit the major themes of
the text.
Revision Test: Sample Questions
Question 1.
The concept of scarcity implies that:
A. Resources are unlimited, so choices are unnecessary.
B. Resources are limited, making trade-offs unavoidable.
C. Resources are distributed equally in every economy.
D. There is always enough to satisfy all wants.
Correct Answer: B
Rationale: Scarcity is the fundamental economic problem that arises because resources (land, labor,
capital, etc.) are limited relative to human wants. This forces individuals and societies to make choices
and trade-offs.
Question 2.
Opportunity cost is best defined as:
A. The monetary price of a good or service.
B. The total cost of all alternatives.
C. The value of the next best alternative that is forgone.
D. The difference between fixed and variable costs.
Correct Answer: C
Rationale: Opportunity cost measures what you give up when you choose one option over another; it is
the benefit of the next best alternative that is not selected.
Question 3.
Marginal analysis in decision making involves:
A. Evaluating the overall cost of a decision.
B. Comparing the additional benefits and additional costs of one more unit.
C. Assessing the total resources available.
D. Deciding based solely on average outcomes.
Correct Answer: B
Rationale: Marginal analysis is a key principle in economics that involves comparing the incremental
benefits and costs of a decision, which helps in determining the optimal level of an activity.
, Question 4.
In a market economy, prices are primarily determined by:
A. Government regulations and price controls.
B. Historical cost patterns.
C. The interaction of supply and demand.
D. Fixed contracts between buyers and sellers.
Correct Answer: C
Rationale: Market economies rely on the forces of supply and demand to set prices. When supply and
demand interact, they establish an equilibrium price that balances what producers wish to sell with
what consumers wish to buy.
Question 5.
Which factor tends to make the demand for a product more elastic?
A. The product is a necessity with few substitutes.
B. The product represents a small share of the consumer's income.
C. Many close substitutes are available.
D. The product has a highly inelastic supply.
Correct Answer: C
Rationale: When many close substitutes are available, consumers can easily switch to an alternative if
the price rises, making the demand more sensitive (elastic) to changes in price.
Question 6.
A binding price ceiling set below the market equilibrium is most likely to result in:
A. A surplus of the product.
B. A shortage of the product.
C. An increase in producer surplus.
D. No change in market conditions.
Correct Answer: B
Rationale: A binding price ceiling (set below the equilibrium price) prevents the market from reaching
equilibrium, leading to a shortage because the quantity demanded exceeds the quantity supplied at that
artificially low price.
Question 7.
An externality refers to:
A. A tax imposed by the government on producers.
B. A cost or benefit that affects third parties not directly involved in a market transaction.
C. The profit made by a firm after all expenses.
D. The effect of market competition on prices.
These questions are designed to review key concepts from the Principles of Economics Arab
World, 4th Edition by Gregory Mankiw (with adaptations for regional context where
appropriate). You can use these to test your understanding and to revisit the major themes of
the text.
Revision Test: Sample Questions
Question 1.
The concept of scarcity implies that:
A. Resources are unlimited, so choices are unnecessary.
B. Resources are limited, making trade-offs unavoidable.
C. Resources are distributed equally in every economy.
D. There is always enough to satisfy all wants.
Correct Answer: B
Rationale: Scarcity is the fundamental economic problem that arises because resources (land, labor,
capital, etc.) are limited relative to human wants. This forces individuals and societies to make choices
and trade-offs.
Question 2.
Opportunity cost is best defined as:
A. The monetary price of a good or service.
B. The total cost of all alternatives.
C. The value of the next best alternative that is forgone.
D. The difference between fixed and variable costs.
Correct Answer: C
Rationale: Opportunity cost measures what you give up when you choose one option over another; it is
the benefit of the next best alternative that is not selected.
Question 3.
Marginal analysis in decision making involves:
A. Evaluating the overall cost of a decision.
B. Comparing the additional benefits and additional costs of one more unit.
C. Assessing the total resources available.
D. Deciding based solely on average outcomes.
Correct Answer: B
Rationale: Marginal analysis is a key principle in economics that involves comparing the incremental
benefits and costs of a decision, which helps in determining the optimal level of an activity.
, Question 4.
In a market economy, prices are primarily determined by:
A. Government regulations and price controls.
B. Historical cost patterns.
C. The interaction of supply and demand.
D. Fixed contracts between buyers and sellers.
Correct Answer: C
Rationale: Market economies rely on the forces of supply and demand to set prices. When supply and
demand interact, they establish an equilibrium price that balances what producers wish to sell with
what consumers wish to buy.
Question 5.
Which factor tends to make the demand for a product more elastic?
A. The product is a necessity with few substitutes.
B. The product represents a small share of the consumer's income.
C. Many close substitutes are available.
D. The product has a highly inelastic supply.
Correct Answer: C
Rationale: When many close substitutes are available, consumers can easily switch to an alternative if
the price rises, making the demand more sensitive (elastic) to changes in price.
Question 6.
A binding price ceiling set below the market equilibrium is most likely to result in:
A. A surplus of the product.
B. A shortage of the product.
C. An increase in producer surplus.
D. No change in market conditions.
Correct Answer: B
Rationale: A binding price ceiling (set below the equilibrium price) prevents the market from reaching
equilibrium, leading to a shortage because the quantity demanded exceeds the quantity supplied at that
artificially low price.
Question 7.
An externality refers to:
A. A tax imposed by the government on producers.
B. A cost or benefit that affects third parties not directly involved in a market transaction.
C. The profit made by a firm after all expenses.
D. The effect of market competition on prices.
