ECO 162: MICROECONOMICS Introduction to Economics

CHAPTER 1: INTRODUCTION TO ECONOMIC

1) Microeconomics is not concerned with

A. The distribution of goods among households
B. The size of aggregate money flows in the economy
C. The quantities of each product produced
D. The allocative function of change in relative prices.

2) The basic philosophical foundation of Islamic economics that refers to the role of Man as a
trustee of economic resources is
A. Tazkiyah
B. Ukhwah
C. Rububiyah
D. Khalifah

3) Al- Falah refers to

A. The role of men as the vicegerents of Allah swt to whom all economic resources are
entrusted.
B. Purifying and cleansing one’s soul and wealth through waqaf, zakat and sadaqah.
C. The blessing of Allah swt which ensure one’s happiness in this world as well as in the
hereafter.
D. The belief and understanding that Allah is the Creator, the Lord, the Sovereign, the
Sustainer and the Giver.

4) Which of the following will result to an outward movement of the productions possibilities
curve?
A. Economic recession happen.
B. Technological advancement.
C. A decline in population
D. Political instability.

5) Which of the following is not the characteristic of capitalist?

A. Private ownership of resources.
B. Price is determined through price mechanism.
C. High competition among producers.
D. Central planning authority.

4) The main problems of economics arise because

A. resources being scarce in relation to human wants
B. human weakness
C. the absence of economic planning
D. incompetence of government

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ECO 162: MICROECONOMICS Introduction to Economics

5) The great increase in wage levels has led to the use of machinery in a particular
production process". The statement above explains a basic economic problem of
A. what to produce
B. how much to produce
C. how to produce
D. for whom to produce

6) In a mixed economic system, the economic problems are solved by the

A. price mechanism
B. general public
C. government
D. price mechanism and the general public

7) If we build an extra 200,000 houses this year, we shall have to build fewer schools
and hospitals'. This statement illustrates the concept of
A. relative scarcity
B. diminishing returns
C. opportunity costs
D. economies of scale

8) On a production possibilities curve, the opportunity cost concept is best represented by

A. the distance to the curve from the vertical axis.
B. the distance to the curve from the horizontal axis.
C. the movement along the curve.
D. the shift of the curve outwards.

9) A free market economy depends on market mechanism to

A. provide everyone with a minimum level of price.
B. decide how large the government's budget should be.
C. determine the most efficient way of using resources.
D. be perfectly elastic.

10) Which of the following statement is true?

A. Scarcity means that shortages occur at the existing market price.
B. Due to scarcity, individuals need to make choices and face tradeoffs.
C. Scarcity exists because resources are unlimited relative to wants.
D. Scarcity can be eliminated through appropriate government intervention

11) Islamic economics is the study of

A. how man fulfill his as well as society's wants according to syariah principles.
B. how man can achieve al-falah through his control, ownership and uses of
resources based on the concepts of cooperation and partnership.
C. man's activities in line with syariah to obtain, use and manage the economic
resources.
D. all of the above.

12) The basic economic problem is

A. how to redistribute income equally in the society.
B. how to stabilize the prevailing price level in the economy.
C. how to allocate scarce resources given society's unlimited wants.

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ECO 162: MICROECONOMICS Introduction to Economics

D. how to provide jobs for everyone in the labour force.

13) In a free market economic system, the basic economic problem of what to produce
is solved by
A what maximizes the producer's profit.
B. advertising.
C. government directive.
D. the pattern of consumer spending.

14) Which of the following describes the principle of an Islamic economic system?
A. The importance of public and private ownership of resources.
B. The limited role of a government.
C. The importance of profit maximization to ensure efficient allocation of resources.
D. The freedom of enterprise in the production of goods and services.

15) The general concern of economics is with the study of the

A. degree of competition in stock and bond markets in the economy.

B. efficient use of limited productive resources to satisfy economic wants.
C. issue of inequality in the distribution of income and wealth among households.
D. budget deficits and surpluses.

16) As a result of scarcity

A. there is never enough of anything.
B. production has to be centrally planned.
C. things which are plentiful have relatively high prices.
D. individuals and communities have to choose from among alternatives.

17) The basic foundation of Islamic economics that refers to the responsibility of man in
purifying his wealth according to the rules of Islam is
A. Rububiyyah.
B. Khilafah.
C. Tazkiyyah.
D. Ukhwah.

18) The following statements are related to Islamic economics except

A. maximizing consumer utility and social welfare.
B. conservation and sustainable development.
C. social justice and social charity.
D. maximizing producers' profits at all cost.

19) The basic difference between microeconomics and macroeconomics is that

A. microeconomics studies the behavior of individual consumers whilst macroeconomics
studies the behavior of individual firms.
B. microeconomics studies the behavior of individual consumers and firms whilst
macroeconomics focuses more on the performance of the whole economy.
C. microeconomics looks at the aggregate economy whilst macroeconomics is
concerned with the behavior of individual markets.
D. Microeconomics explores the causes of economic growth whilst
macroeconomics studies the causes of unemployment and inflation.

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ECO 162: MICROECONOMICS Introduction to Economics

20) Excessive unemployment of economic resources in a production possibilities curve is

indicated by
A a movement along the curve.
B. an inward shift of the curve.
C. an outward shift of the curve.
D. a point inside the curve.

21) Which of the following is not a feature of Islamic economics?

A. All economic decisions are based on the rules and regulations stated in the
Qur'an and hadiths.
B. It is religiously value loaded.
C. There is separation between Islamic economics and Islamic religion.
D. Islamic economic is man-centered and not wealth-centered.

22) The following statements are related to Islamic economics except

A. maximizing consumer utility and social welfare.
B. conservation and sustainable development.
C. social justice and social charity.
D. maximizing producers' profits at all cost.

23) Opportunity cost is the

A. cost of the best alternative forgone.
B. cost of undesirable alternative.
C. cost of factors of production.
D. cost of buying the best alternative.

24) Pak Tarn owns a shop lot. If he were to open a restaurant, he estimates his revenue to be
RM4 000 per month. However, if he were to let it to others, he would get the rent payment by
the same amount. Assume that he decides to open a restaurant, how much is his opportunity
cost?
A. RM2 000.
B. RM4 000.
C. RM8 000.
D. RM12 000.

25) Resources are limited and human wants are unlimited. This implies that
A. efficiency in production cannot be achieved.
B. no goods and services can be attained freely.
C. choices have to be made and opportunity cost will exist.
D. people will compete with each other to satisfy their unlimited wants.

26) Which of the following is not true of Islamic economics?

A. Riba is not allowed.
B. All economics activities must based on Islamic principles.
C. Individual is not allowed to own property.
D. Priority will be given to the society as a whole.

27) The fundamental problem of economics is

A. achieving the best rate of economic growth.
B. stabilizing the price level in the economy.

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ECO 162: MICROECONOMICS Introduction to Economics

C. allocating scarce resources relative to the society's unlimited material wants.

D. establishing an equitable taxation system.

28) A point inside the production possibility curve may indicate

A. all productive resources are efficiently utilized.
B. inefficient allocation of productive resources.
C. full employment of scarce resources.
D. technological efficiency.

29) Conventional and Islamic economic systems are similar in such a way that
A. both systems are concerned with the welfare of the society.
B. both systems will ensure efficient combination of inputs at minimum costs.
C. both systems are moderate and universal.
D. both systems deny people of their freedom to choose.

30) The following are the essential features of a pure capitalism except
A. free enterprise.
B. price mechanism.
C. public ownership of resources.
D. profit motivated.

31) The best forgone alternative is also known as

A. sunk cost.
B. marginal cost.
C. real cost.
D. opportunity cost.

32) A study on why a farmer chooses to grow dragon fruit instead of star fruit despite
higher production costs would be considered as
A. public finance.
B. econometrics.
C. macroeconomics.
D. microeconomics.

33) Unemployment corresponds to

A. points outside production possibilities curve.
B. points inside production possibilities curve.
C. points on the production possibilities curve.
D. either points inside or outside production possibilities curve.

34) Consumer sovereignty

A. is dependent on profits.
B. means consumers can buy whatever they want to.
C. means consumers determine what is produced in the economy through their demands.
D. is only possible in a monarchy.

35) Microeconomics is concerned with

A. changes in the overall level of economic activities.
B. the entire economic system.
C. specific unit of the economic system.

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ECO 162: MICROECONOMICS Introduction to Economics

D. reducing inflation rate and stimulating economic growth.

36) All these are related to Islamic economics except

A. achieving Al Falah.
B. producing halal goods.
C. strengthening brotherhood.
D. separating economic activities from religion.

37) Which of the following is not considered as resources in conventional economics?

A. Money.
B. Buildings.
C. Workers.
D. Machineries.

38) In Islamic economics, the objectives of a consumer is to maximize all the following except
A. individual utility and income.
B. family welfare and saving.
C. social development and progress.
D. ownership of all types of goods.

39) The problem of scarcity is relevant to

A. third world countries.
B. countries with low income.
C. countries before practising mass production.
D. all countries and individuals.

40) The main difference between a command economy and a mix economy is that in a
command economy
A. the state provides both public and private goods.
B. there are both public and private sectors.
C. government will intervene if she sees necessary.
D. there is freedom of enterprise

41) The study of how wages are set for primary school teachers is considerd as
A. microeconomics.
B. Macroeconomics.
C. Descriptive economics.
D. Institutional economics.

42) In Islamic economics, scarcity of resources is resolved by

A. Planining and price fixing by the government.
B. Hablumminannas and hublumminallah.
C. Price mecahnism with government intervention according to the law of syariah.
D. Price mechanism with efficient allocation of resources.

43) ______________is a study of how individuals and societies choose to use the scarce
resources that nature and previous generations have provided.
A. Macroeconomics
B. Microeconomics

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ECO 162: MICROECONOMICS Introduction to Economics

C. Economics
D. Management

44) Which of the following is incorrect?

A. Wages is the return for labor.
B. Rent is the return for land.
C. Profit is the return for entrepreneur
D. Dividend is the return for capital.

45) Since resources are limited, not all wants and needs can be accomplished. Man has to
choose and this involves making scarification. In economic concept, this scarification is
known as
A. Scarcity.
B. Opportunity cost.
C. How much to produce.
D. What to produce.

46) In a mixed economic system, the basic economic problems are solved by
A. price mechanism only
B. Government directive.
C. Price mechanism and government directive.
D. The forces of aggregate demand and supply.

47) The objective of a Muslim consumer is to maximise all of the following except
A. spiritual needs.
B. family needs.
C. Good deeds.
D. Private wealth ownership.

48)A combination inside the production possibilities curve is

A. attainable and involves an efficient use of society’s resources.
B. attainable but would not be in the best interest since not all resources are utilized.
C. Unattainable because it is not listed as a combination.
D. Unattainable because society does not have sufficient resources to produce this
combination.

49) The basic economic problem is

A. how to distribute income equally in the society.
B. how to allocate scarce resources given society’s unlimited wants.
C. how to stabilize the prevailing price level in the economy.
D. how to provide jobs for everyone in the labor force.

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ECO 162: MICROECONOMICS Introduction to Economics

50) What is the shape of Production Possibilities Curve (PPC) when the firm faced increasing
opportunity cost?
A. Convex from origin
B. Concave from origin.
C. Linear
D. A vertical line.

SAMPLE OF STRUCTURE QUESTION

The table below shows the production possibilities for an economy.

Combinations A B C D E
PALM OIL 1000 900 700 450 0
(TONS)
RUBBER 0 200 400 600 800
(TONS)

i) Sketch the production possibilities curve for the economy.

(2 marks)

Palm oil

0
E Rubber

ii) Is it possible for the economy to produce 900 tons of palm oil and 400 tons of rubber at the
same time? Why? (2 marks)

Not since the combination is beyond the economy capability to produce due to scarcity of
resources

iii) What is the opportunity cost of producing palm oil if the economy decided to move from
combination D to C? (1 mark)

200 tons of rubber

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ECO 162: MICROECONOMICS Introduction to Economics

STRUCTURE QUESTIONS

1) The following table shows efficient combinations of two goods, X and Y that an
economy can produce.

Combination Good X Good Y

A 15 0
B 10 1
C 5 2
D 0 3

a) What is the type of opportunity cost faced by this economy? Give a reason for your answer.
(2 marks)

b) Sketch a production possibility curve for the economy and label the following:
i. Point E to show inefficiency

ii. Point F to show resource scarcity.

(2 marks)

c) On separate diagrams, show the effect of the following on the economy's production
possibility curve:
i. A technological advancement in the production of Good X.

ii. An increase in population.

(2 marks)

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ECO 162: MICROECONOMICS Introduction to Economics

d) Give two assumptions of the production possibility curve.

(2 marks)

2) The following diagram shows the production possibilities curve for

Rayland.
Rubber

Palm Oil

a) Explain the position of W, X and Y in terms of production of rubber and palm oil.
(2 marks)

b) When can Rayland produce at Y?

(2 marks)

c) What are the problems that could surface if Rayland chose to produce at X?
(2 marks)

d) Is Rayland facing an increasing, decreasing or constant opportunity cost? Explain.

(2 marks)

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ECO 162: MICROECONOMICS Introduction to Economics

3) The diagram below shows the production possibility curve (PPG) for rice and cloth.

Rice (kg)

A C

Cloth (m)

a) Identify the points which represent:

(i) scarcity - _______________
(ii) choices - _____________
(iii) inefficiency - ___________
(3 marks)

b) Copy the above diagram and indicate the effects on the PPC when the following situations
occur. (Draw a different diagram for each of the following)

(i) The discovery of a new kind of seedling that can increase the yield of rice.

(ii) The invention of a more efficient cloth-making machine .

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ECO 162: MICROECONOMICS Introduction to Economics

(iii) An improvement in the technology of producing both rice and cloth.

(3 marks)

c) The concavity of the production possibility curve indicates that opportunity cost is
__________________.
(1 mark)

d) Give three (3) assumptions in constructing a production possibility curve.

(3 marks)

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ECO 162: MICROECONOMICS Introduction to Economics

4) The data given in the table below represents the maximum production possibilities for a
country producing only two goods.

Combination Consumer goods Military goods

(unit) (unit)
A 14 0
B 12 2
C 9 4
D 5 6
E 0 8
a) On a graph paper, plot the production possibilities (PP) curve for the country
(3 marks)

b) What is the opportunity cost of producing military goods if the country's production moves
from

i) point A to point B

ii) point C to point D (2 marks)

c) Give two (2) factors that might cause the country to produce less consumer goods and
military goods than the combinations on the PP curve. (2 marks)

d) Suggest three (3) ways how this country could increase the production of both
consumer goods and military goods in the future
(3 marks)

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ECO 162: MICROECONOMICS Introduction to Economics

5) The diagram below depicts the Production Possibilities Curve (PPC) for a nation producing
carrots and tomatoes. The usual assumptions regarding PPC are implied.

a) calculate the opportunity cost of

i. producing 2,500 kg of tomatoes (1 mark)

ii. increasing the production of carrots from 500 kg to 1,000 kg (1 mark)

b) Is the value of opportunity cost increasing or constant? Justify your answer. (2 marks)

c) Illustrate in separate diagrams the effect of the following situations on the PPC

i. A massive flood hit the country

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ECO 162: MICROECONOMICS Introduction to Economics

ii. A introduction of a new fertilizer that increases the yield of crops. (2 marks)

d.) List two (2) assumptions used in the construction of PPC (2 marks)

6) A country Desajaya produces only two goods: cars and food. Assuming that it could produce
any of the following combinations shown in Table 1.

Table 1: The Production Possibility Table for cars ad good of country Desajaya.

Combinations Units of cars Units of food

A 0 24
B 1 23
C 2 21
D 3 18
E 4 14
F 5 8
G 6 0

a) Using a graph paper, plot the production possibility curve for country Desajaya, with cars the
x-axis ad food on the y-axis. (2 marks)

b) Explain briefly two (2) assumptions used in constructing the production possibility curve.
(2 marks)

c) What is the opportunity cost of producing one more unit of car if the current level of
production is:

i) 2 units?

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ECO 162: MICROECONOMICS Introduction to Economics

ii) 3 units

iii) Is the opportunity cost increasing, decreasing or constant? Is the curve

Convex or concave to the origin?
(3 marks)

d) Sketch in separate diagrams the effect of the following situations on the production
possibility curve:

i) Technical innovation in the production of cars

ii) a drought that hits the country

(3 marks)

7) The following is a set of hypothetical production possibilities for a nation.

Combination Automobiles (thousands) Food (thousands of tons)

A 0 10
B 2 9
C 4 7
D 6 4
E 8 0

a) Plot these production possibilities data. (2 marks)

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ECO 162: MICROECONOMICS Introduction to Economics

b) What is the opportunity cost of the first 4000 automobiles produced?

(1mark)

c) Between which points is the opportunity cost per thousand automobiles the highest?
(1 mark)

d) Between which points is the opportunity cost per thousand tons of food the highest?
(1mark)

e) Label a point F inside the curve. Why is this an inefficient point?

(1mark)
f) Label a point G outside the curve. State the significance of this point.
(1mark)
g) State three (3) factors that can shift the production possibilities curve.

(3 marks)

8) The table below illustrates a hypothetical production possibility for firm A at a given period.

Combination Car ('000) Motorcycle Opportunity

unit ('000) unit Cost per unit of
Motorcycle
A 0 200
B 20 150
C 40 100
D 60 50
E 80 0

a) Calculate the opportunity cost per unit of motorcycle.

(2 marks)
b) Sketch the production possibility curve.
(2 marks)

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ECO 162: MICROECONOMICS Introduction to Economics

c) Calculate the opportunity cost of:

i) producing 200 000 units of motorcycle.

ii) producing 80 000 units of car.

(2 marks)

d) Illustrate the effect of the following situations on the production possibility curve.

i) Influx of foreign labour into automobile industry.

ii) Mobilisation of labour from motorcycle industry to car industry.

(4 marks)

9) The following diagram shows the production possibilities curve of a hypothetical country at a
given time period.
Tractors/Million per year

D
A

Food (Million of
tons per year)

a) Define a production possibilities curve.

(2 mark)

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ECO 162: MICROECONOMICS Introduction to Economics

b) Explain what these points indicate.

i) Point A

ii) Point D

iii) Point E
(3marks)

c) Why is the shape of the production possibilities curve concave from the origin (bowed
outwards)? (1 mark)

d) Sketch the effect of the following situations on the production possibilities curve.

i) The movement of resources from producing tractor to food industry

ii) The bird flu disease spreads throughout the population of an economy causing a
sudden surge in the number of death rate.

(4 marks)

10) The following is a set of hypothetical production possibilities for a nation.

Combination Food (units) Clothing (unit)

A 0 50
B 10 45
C 20 35
D 30 20
E 40 0

a) Plot the production possibilities curve and define it.

(2 marks)

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ECO 162: MICROECONOMICS Introduction to Economics

b) What is the opportunity cost of the first 10 units of food produced? Define opportunity cost.
(2 marks)

c) Indicate the following in answer (a):

i) inefficiency - F
ii) scarcity - S
iii) efficient point - P
(3 marks)
d) Is the opportunity cost increasing, decreasing, or constant? Explain.
(2 marks)

e) On the same diagram as in part (a) above, draw a new PPC to show the effect of economic
growth. (1 mark)

11) The table below shows the production possibility table for rice and tanks.

Production Alternatives A B C D E F
Tank (thousands) 0 2 4 6 8 10
Rice (thousands of tons) 44 40 32 20 4 0

a) Define production possibility curve (PPC) and list down three (3) assumptions to construct a
PPC. (3 marks)

b) Sketch the production possibilities curve (tanks on the x-axis and rice on the y-axis).
Determine the type of opportunity cost faced by the economy.
(4 marks)

c) What is the opportunity cost of producing the first two thousands of tanks?
(2 marks)

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ECO 162: MICROECONOMICS Introduction to Economics

d) Sketch the effect on the PPC curve if the economy decides to transfer more of its existing
resources to produce more tanks.
(1 mark)

12) The diagram below shows the production possibilities curve (PPC) for an economy.

Motorcycle
(‘000 units)

A (0,200)
200

150 B (20,150)

C (40,100)
100

D (60,50)
50

E (80,0)
0 Car
10 20 30 40 50 60 70 80 (‘000 units)

a) State three (3) basic assumptions of PPC.

(3 marks)

b) Compute the opportunity cost per unit of car for all combinations.
(2 marks)

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ECO 162: MICROECONOMICS Introduction to Economics

c) State the type of opportunity cost.

(1 mark)

13) The following schedule shows the production possibilities for country Sri Kencana.

Combinations Coconuts (unit) Mangoes (units)

A 0 150
B 40 145
C 80 137
D 120 122
E 160 105
F 220 85
G 260 56
H 300 0

Based on the above table, answer the following questions.

a) Using a graph paper, plot the production possibilities curve for country Sri Kencana.

(3 marks)

b) Based on (a), what is the shape of the curve? Give a reason. (2 marks)

c) What is the opportunity cost of producing 300 units of coconut? (1 mark)

d) What is the opportunity cost of increasing the production of

i. Coconut from combination D to E?

ii. Mangoes from combination H to A?

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ECO 162: MICROECONOMICS Introduction to Economics

(2 marks)

e) In the same diagram drawn in (a), sketch a new production possibilities curve to show the
effect of a decrease in the productivity of works hired. (2 marks)

14) The table below shows the production possibilities for an economy.

Combinations A B C D E
PALM OIL 1000 900 700 450 0
(TONS)
RUBBER 0 200 400 600 800
(TONS)

i) Sketch the production possibilities curve for the economy.

(2 marks)

ii) Is it possible for the economy to produce 900 tons of palm oil and 400 tons of rubber at the
same time? Why?
(2 marks)

iii) What is the opportunity cost of producing palm oil if the economy decided to move from
combination D to E?
(1 mark)

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ECO 162: MICROECONOMICS Introduction to Economics

ESSAY QUESTIONS

1) Using a production possibilities curve, describe the following concepts:

i) Scarcity
ii) Efficiency and full employment
iii) Opportunity cost
iv) Economic growth
(10 marks)

2) Discuss five (4) differences between Islamic and Conventional economics.

(10 marks)

3) Explain the basic economic concepts by using relevant examples.

(10 marks)

4) Explain briefly the basic economic problems faced by every country.

(9 marks)

5) Discuss three (3) features to distinguish between a free market economy and a mixed
economy.
(11 marks)

6) Write short notes of the following:

i) three principles of Islamic economic system
(10 marks)

7) Explain three (3) principles of Islamic economic system.

(12 marks)
8) Explain four (4) differences between Islamic and conventional economics.
(8 marks)

9) Explain the concepts of scarcity, choice and opportunity cost using a production possibilities
frontier.
(10 marks)

10) Explain briefly the following concepts:

i) hablumminallah and habluminannas
(5 marks)

11) Explain the basic economic concepts using a production possibilities curve (PPC).
(8 marks)

12) Discuss three (3) advantages and three (3) disadvantages of a planned economic system.
(12 marks)

13) Explain the following Islamic economic concepts.

i) Hablumminallah.
ii) Hablumminannas.
(5 marks)

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ECO 162: MICROECONOMICS Introduction to Economics

14) Discuss any two (2) features to distinguish between a planned economic system and a free
market economic system.
(10 marks)

15) Discuss any two (2) features to distinguish between a planned economic system and a free
market economic system.
(10 marks)
16) Define production possibilities curve. Using a diagram, discuss any three (3) factors that
influence the outward shift of production possibilities curve.
(10 marks)

17) Using a diagram, explain the concepts of scarcity, choice and opportunity cost.

( 8 marks)

18) Differentiate three (3) characteristics of a capitalist and a centrally planned economic
systems. (12 marks)

19) Describe three (3) basic economic concepts in economics using the production possibilities
curve.
(8 marks)
20) Discuss three (3) advantages and three (3) disadvantages of a capitalist economic system.
(12 marks)
21) Explain how a Capitalist economy solve the basic economic problems

(12 marks)

22) Discuss four (4) factors that wil cause the production possibilities curve to shift outward

(8 marks)

23) Using production possibilities curve, explain the concepts of scarcity, choice and opprtunity
cost.
(10 marks)
24) Discuss four (4) types of goods according to the Islamic perspective.
(10 marks)
25) Explain four (4) factors of production from conventional perspectives.
(8 marks)

26) Explain two (2) advantages and two (2) disadvantages of the Capitalist economic systems.

(10 marks)

27) Explain scarcity, choice and opportunity cost using Production Possibilities Cost (PPC).

(10 marks)

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