Addis Ababa University Econ 101 – Introduction to Economics

Faculty of Technology Worksheet I

Multiple Choices

1. In the goods market, the role of a household is:……C

A. to supply goods and services
B. to buy resources
C. to purchase goods and services
D. to sell goods and services
2. Households are on the______________ side of the resource market……..C
A. expenditure
B. demand
C. supply
D. purchasing
3. Utilization of previously existing but unemployed resources will lead to economic growth.
A. True B. False
4. Which one of the following is correct?
A. Disagreement on a normative statement is solved by voting
B. Individual markets are among the concerns of macroeconomics
C. Normative statements are objective explanations
D. All of the above
5. Which of the following statement is incorrect?
A. An efficient economy can produce more of one good with out producing less of another
B. Deductive method makes inferences base on a general statement to a particular situation
C. Economic theory provides the basis for economic analysis
D. All of the above
6. Which of the following is not among the basic economic problems…….B
A. What to produce
B. Uncontrolled level of inflation
C. Choice of technology of production
D. For whom to produce
7. What will happen to the PPF/PPC when there is an improvement in the quality of the available
resources?..........A
A. Will shift to the right
B. Will shift to the left
C. There will be no change
D. None
8. Assume that point P, with 100 units of good A and 150 units of good B, is an efficient point on a
certain PPF. What is the opportunity cost of increasing production of good B by 100%, by
sacrificing 50% of good A?
A. The opportunity cost of 3 units of good B is one unit of good A
B. The opportunity cost of 3 units of good A is one unit of good B
C. The opportunity cost of one units of good B is 1/3 unit of good A
D. a and c are correct
9. Which of the following is not correct about free market economic system?
In such a system;……..B
A. the government provides basic legal system
B. the central bank answers the basic economic problems
C. price reflects the true value of goods and services
D. factors of production are mainly owned by the private sector
E. None of the above
10. A website that facilitates online transaction of a commodity can be considered as a market
A. True B. False

1
Addis Ababa University Econ 101 – Introduction to Economics
Faculty of Technology Worksheet I

11. What is/are the things that should be satisfied to make wants into demand?
A. Willingness to pay
B. Ability to pay
C. Specific time frame
D. All
12. Which one of the following is a concern of macroeconomics?.......E
A. Determination of the price of teff in Addis Ababa
B. Unemployment level of Canada
C. Hyper inflation in Zimbabwe
D. Global economic slowdown
E. All except a
13. “The inflation rate of Ethiopia will return to single digit in September 2009.” Under which
category does this statement fall?
A. Normative economics
B. Applied (policy) economics
C. Descriptive economics
D. Positive economics
E. None
14. A decrease in the price of a normal good X will result in;
A. an increase in the demand of good X
B. a decrease in the demand of good X
C. an increase in quantity demanded of a substitute good Y
D. None of the above are answers
15. Cross price elasticity of demand between ipod and iphone is negative. According to this
statement:
A. The two goods are substitutes
B. The two goods are complements
C. The two goods are unrelated
D. None
16. An increase in income will result in
A. Increase in demand
B. Decrease in demand
C. Bothe increase or decrease are possible outcomes
D. None
17. The price of oil declined from about 140 USD to less than 40 USD between mid 2008 and early
2009. On the other hand the demand for US car manufacturers declined significantly, even
putting them in bankruptcy. Based on this we can conclude that;
A. The two goods (oil and car) are complements
B. The two goods are substitutes
C. The decline in demand is may be due to the decline in income of buyers due to the
economic slowdown
D. The two goods are unrelated goods

Give Short Answer

1. What is opportunity cost? What is the basic reason behind the law of increasing opportunity cost?
2. What does the production possibility frontier (PPF) show? How do we interpret the points inside
and outside the PPF? Discuss the factors that could shift the PPF.
3. Distinguish between scarcity, shortage and poverty
4. What is the difference between quantity demanded and demand?
5. What are the determinants of price elasticity of demand? Discuss.

2
Addis Ababa University Econ 101 – Introduction to Economics
Faculty of Technology Worksheet I

6. The demand for purchasing videos might be presented as a function of the video’s purchase price.
a. Does this mean that income and the cost of renting a video are unimportant?
b. What is the meaning of and the economist’s use of the term ceteris paribus?
7. Suppose an economy has the production-possibility frontier depicted in Figure 1 below?
a. What implication does the selection of point A or C have regarding the economy’s current
and future production of consumer goods and services?
b. What linkage is there between saving and economic growth?

Figure 1

8. Figure 2 presents a production-possibility frontier for food and clothing.

a. What is the opportunity cost of increasing food production from 0 to 2 million units, from
2 million to 4 million units, and from 4 million to 6 million units?
b. What is happening to the opportunity cost of increasing food production from 0 to 6
million units?
c. Explain how the shape of the production-possibility frontier implies increasing costs for
the production of clothing.

3
Addis Ababa University Econ 101 – Introduction to Economics
Faculty of Technology Worksheet I

Figure 2

9. What is laissez-faire?
10. How different is a market economy from centrally planned economy?
a. What are advantages and disadvantages of market economy?
b. Explain with the help of example from Ethiopia?
11. Why do some people believe that a mixed economic system solves basic economic problems?
12. Define Economics.
a. What are the basic problems raised in economics?
b. How these basic questions get solved in the free market and command economy?

Work-out

1. Assume that you own and run a construction company. Further assume that you have calculated
and found that the price elasticity of demand for the construction services of your company is 2.2.
If you decide to lower your prices from 6 to 5 dollars per hour, your total revenue will increase to
15 dollars per hour. What is your quantity of service soled per hour at the original price of 6
dollars per hour?

2. In a market for a certain good, there are 100 identical individual consumers with inverse demand
function of P  5  5Qd . The good is supplied by 10 suppliers with each having a supply
function of Qs  1 4 P .
a. What is the market clearing quantity and price?
b. What is the elasticity of supply at the equilibrium point?
c. Interpret your finding on (b) – the value of the price elasticity of supply at the equilibrium
point.