Microeconomics / Macroeconomics (Parkin,
Mankiw) – Economics Review Guide
2025/2026
Microeconomics (Questions 1-50)
1. What is the fundamental economic problem that every society faces?
a) High unemployment
b) The unequal distribution of income
c) Scarcity
d) Inflation
Answer: c) Scarcity ✓
2. The opportunity cost of going to a movie is:
a) The price of the movie ticket.
b) The price of the movie ticket plus the cost of any snacks you buy.
c) The total cash expenditure needed to go to the movie.
d) The value of the next best alternative you give up to see the movie.
Answer: d) The value of the next best alternative you give up to see the movie. ✓
3. A point inside a country's Production Possibilities Frontier (PPF) indicates:
a) Efficient use of resources
b) Economic growth
c) Unemployment or inefficiency ✓
d) An unattainable combination of goods
Answer: c) Unemployment or inefficiency ✓
4. The law of demand states that, other things being equal:
a) As price increases, quantity demanded increases.
b) As price decreases, quantity demanded decreases.
c) As price increases, quantity demanded decreases. ✓
d) As price decreases, demand decreases.
Answer: c) As price increases, quantity demanded decreases. ✓
5. Which of the following would cause the demand curve for smartphones to shift to the
right?
a) A decrease in the price of smartphones.
,b) An increase in the price of landline phone services (a substitute). ✓
c) A decrease in consumer income.
d) An increase in the cost of producing smartphones.
Answer: b) An increase in the price of landline phone services (a substitute). ✓
6. If an increase in the price of good A causes a decrease in the demand for good B, then
goods A and B are:
a) Substitutes
b) Complements ✓
c) Inferior goods
d) Normal goods
Answer: b) Complements ✓
7. The price elasticity of demand measures the responsiveness of:
a) Quantity demanded to a change in price. ✓
b) Price to a change in demand.
c) Quantity demanded to a change in income.
d) Demand to a change in supply.
Answer: a) Quantity demanded to a change in price. ✓
8. Demand is said to be inelastic if:
a) The percentage change in quantity demanded is greater than the percentage change in price.
b) The percentage change in quantity demanded is less than the percentage change in price. ✓
c) The good is a luxury.
d) There are many close substitutes.
Answer: b) The percentage change in quantity demanded is less than the percentage change
in price. ✓
9. The law of supply states that, other things being equal:
a) As price increases, quantity supplied increases. ✓
b) As price increases, supply decreases.
c) As price decreases, quantity supplied increases.
d) As price decreases, supply increases.
Answer: a) As price increases, quantity supplied increases. ✓
10. A surplus in a market exists when:
a) The quantity demanded exceeds the quantity supplied.
b) The current price is below the equilibrium price.
c) The quantity supplied exceeds the quantity demanded. ✓
,d) The market is in equilibrium.
Answer: c) The quantity supplied exceeds the quantity demanded. ✓
11. Consumer surplus is defined as:
a) The difference between the price paid and the cost of production.
b) The difference between the willingness to pay and the price paid. ✓
c) The total revenue received by sellers.
d) The area above the supply curve and below the price.
Answer: b) The difference between the willingness to pay and the price paid. ✓
12. A price ceiling set below the equilibrium price will lead to:
a) A surplus.
b) A shortage. ✓
c) No change in the market outcome.
d) An increase in quality.
Answer: b) A shortage. ✓
13. The "invisible hand" concept refers to the idea that:
a) Government intervention is necessary for efficiency.
b) Monopolies always serve the public interest.
c) Market prices guide self-interested individuals into activities that promote the social good. ✓
d) Externalities are efficiently handled by markets.
Answer: c) Market prices guide self-interested individuals into activities that promote the
social good. ✓
14. The cross-price elasticity of demand between two substitutes is:
a) Negative
b) Zero
c) Positive ✓
d) Undefined
Answer: c) Positive ✓
15. The income elasticity of demand for an inferior good is:
a) Positive
b) Greater than 1
c) Negative ✓
d) Zero
Answer: c) Negative ✓
, 16. The utility-maximizing rule for a consumer is to choose the basket of goods where:
a) The marginal utility of all goods is equal.
b) The marginal utility per dollar spent is equal for all goods. ✓
c) The total utility from all goods is equal.
d) The price of all goods is equal.
Answer: b) The marginal utility per dollar spent is equal for all goods. ✓
17. In the short run, at least one input is:
a) Variable
b) Fixed ✓
c) Zero
d) Negative
Answer: b) Fixed ✓
18. The law of diminishing marginal returns states that as more of a variable input is added to
a fixed input:
a) Total output will eventually decrease.
b) Marginal product will eventually diminish. ✓
c) Average fixed cost will rise.
d) The firm should shut down.
Answer: b) Marginal product will eventually diminish. ✓
19. Which cost curve is U-shaped?
a) Average Fixed Cost (AFC)
b) Marginal Cost (MC) and Average Total Cost (ATC) ✓
c) Total Fixed Cost (TFC)
d) Total Variable Cost (TVC)
Answer: b) Marginal Cost (MC) and Average Total Cost (ATC) ✓
20. Economies of scale occur when:
a) Short-run average total cost falls as output increases.
b) Long-run average total cost falls as output increases. ✓
c) Marginal cost is below average total cost.
d) The firm is too large.
Answer: b) Long-run average total cost falls as output increases. ✓
21. A perfectly competitive firm is a "price taker" because:
a) It can influence the market price through its advertising.
b) Its demand curve is perfectly elastic at the market price. ✓
Mankiw) – Economics Review Guide
2025/2026
Microeconomics (Questions 1-50)
1. What is the fundamental economic problem that every society faces?
a) High unemployment
b) The unequal distribution of income
c) Scarcity
d) Inflation
Answer: c) Scarcity ✓
2. The opportunity cost of going to a movie is:
a) The price of the movie ticket.
b) The price of the movie ticket plus the cost of any snacks you buy.
c) The total cash expenditure needed to go to the movie.
d) The value of the next best alternative you give up to see the movie.
Answer: d) The value of the next best alternative you give up to see the movie. ✓
3. A point inside a country's Production Possibilities Frontier (PPF) indicates:
a) Efficient use of resources
b) Economic growth
c) Unemployment or inefficiency ✓
d) An unattainable combination of goods
Answer: c) Unemployment or inefficiency ✓
4. The law of demand states that, other things being equal:
a) As price increases, quantity demanded increases.
b) As price decreases, quantity demanded decreases.
c) As price increases, quantity demanded decreases. ✓
d) As price decreases, demand decreases.
Answer: c) As price increases, quantity demanded decreases. ✓
5. Which of the following would cause the demand curve for smartphones to shift to the
right?
a) A decrease in the price of smartphones.
,b) An increase in the price of landline phone services (a substitute). ✓
c) A decrease in consumer income.
d) An increase in the cost of producing smartphones.
Answer: b) An increase in the price of landline phone services (a substitute). ✓
6. If an increase in the price of good A causes a decrease in the demand for good B, then
goods A and B are:
a) Substitutes
b) Complements ✓
c) Inferior goods
d) Normal goods
Answer: b) Complements ✓
7. The price elasticity of demand measures the responsiveness of:
a) Quantity demanded to a change in price. ✓
b) Price to a change in demand.
c) Quantity demanded to a change in income.
d) Demand to a change in supply.
Answer: a) Quantity demanded to a change in price. ✓
8. Demand is said to be inelastic if:
a) The percentage change in quantity demanded is greater than the percentage change in price.
b) The percentage change in quantity demanded is less than the percentage change in price. ✓
c) The good is a luxury.
d) There are many close substitutes.
Answer: b) The percentage change in quantity demanded is less than the percentage change
in price. ✓
9. The law of supply states that, other things being equal:
a) As price increases, quantity supplied increases. ✓
b) As price increases, supply decreases.
c) As price decreases, quantity supplied increases.
d) As price decreases, supply increases.
Answer: a) As price increases, quantity supplied increases. ✓
10. A surplus in a market exists when:
a) The quantity demanded exceeds the quantity supplied.
b) The current price is below the equilibrium price.
c) The quantity supplied exceeds the quantity demanded. ✓
,d) The market is in equilibrium.
Answer: c) The quantity supplied exceeds the quantity demanded. ✓
11. Consumer surplus is defined as:
a) The difference between the price paid and the cost of production.
b) The difference between the willingness to pay and the price paid. ✓
c) The total revenue received by sellers.
d) The area above the supply curve and below the price.
Answer: b) The difference between the willingness to pay and the price paid. ✓
12. A price ceiling set below the equilibrium price will lead to:
a) A surplus.
b) A shortage. ✓
c) No change in the market outcome.
d) An increase in quality.
Answer: b) A shortage. ✓
13. The "invisible hand" concept refers to the idea that:
a) Government intervention is necessary for efficiency.
b) Monopolies always serve the public interest.
c) Market prices guide self-interested individuals into activities that promote the social good. ✓
d) Externalities are efficiently handled by markets.
Answer: c) Market prices guide self-interested individuals into activities that promote the
social good. ✓
14. The cross-price elasticity of demand between two substitutes is:
a) Negative
b) Zero
c) Positive ✓
d) Undefined
Answer: c) Positive ✓
15. The income elasticity of demand for an inferior good is:
a) Positive
b) Greater than 1
c) Negative ✓
d) Zero
Answer: c) Negative ✓
, 16. The utility-maximizing rule for a consumer is to choose the basket of goods where:
a) The marginal utility of all goods is equal.
b) The marginal utility per dollar spent is equal for all goods. ✓
c) The total utility from all goods is equal.
d) The price of all goods is equal.
Answer: b) The marginal utility per dollar spent is equal for all goods. ✓
17. In the short run, at least one input is:
a) Variable
b) Fixed ✓
c) Zero
d) Negative
Answer: b) Fixed ✓
18. The law of diminishing marginal returns states that as more of a variable input is added to
a fixed input:
a) Total output will eventually decrease.
b) Marginal product will eventually diminish. ✓
c) Average fixed cost will rise.
d) The firm should shut down.
Answer: b) Marginal product will eventually diminish. ✓
19. Which cost curve is U-shaped?
a) Average Fixed Cost (AFC)
b) Marginal Cost (MC) and Average Total Cost (ATC) ✓
c) Total Fixed Cost (TFC)
d) Total Variable Cost (TVC)
Answer: b) Marginal Cost (MC) and Average Total Cost (ATC) ✓
20. Economies of scale occur when:
a) Short-run average total cost falls as output increases.
b) Long-run average total cost falls as output increases. ✓
c) Marginal cost is below average total cost.
d) The firm is too large.
Answer: b) Long-run average total cost falls as output increases. ✓
21. A perfectly competitive firm is a "price taker" because:
a) It can influence the market price through its advertising.
b) Its demand curve is perfectly elastic at the market price. ✓
