Maria has one free evening. She can work a 4-hour shift at $15 per hour, use a free concert ticket that she values at $50, or study for an exam, which she values at $40. She chooses the concert. What is the opportunity cost of her choice?

The $60 she could have earned working

The $40 value she places on studying

The $100 combined value of working and studying

Nothing, because the concert ticket was free

A widely reported medical study finds that eating blueberries lowers the risk of heart disease. Assuming nothing else changes in the blueberry market, what happens to the equilibrium price and quantity of blueberries?

Price rises and quantity rises.

Price falls and quantity rises.

Price rises and quantity falls.

Price falls and quantity falls.

A paper mill dumps waste into a river, imposing a cost of $4 on downstream residents for each ton of paper produced. The mill ignores this cost. Which policy would move output to the socially efficient level?

A per-unit tax on the mill equal to $4 per ton of paper

A price ceiling set $4 below the current market price

A one-time lump-sum tax that does not depend on output

A per-unit subsidy to the mill equal to $4 per ton of paper

Assets Amount Liabilities Amount Reserves $50,000 Checkable deposits $200,000 Loans $150,000 The table shows the balance sheet of First Bank. Assume a hypothetical required reserve ratio of 20%, banks lend all excess reserves, and borrowers hold no cash. What is the maximum amount First Bank can lend, and the maximum increase in the money supply for the whole banking system?

$10,000 by the bank; up to $50,000 for the system

$50,000 by the bank; up to $250,000 for the system

$40,000 by the bank; up to $200,000 for the system

$10,000 by the bank; up to $100,000 for the system

The price of gasoline rises sharply and stays high. Assuming nothing else changes, what happens in the market for large, fuel-hungry SUVs?

Price falls and quantity falls.

Price rises and quantity falls.

Price rises and quantity rises.

Price falls and quantity rises.

A software upgrade lets each worker at a perfectly competitive call-center firm handle more calls per hour, while wages, rent, and the market price per call are unchanged. In the short run, what happens to the firm's marginal cost and its profit-maximizing output?

Marginal cost shifts down, so profit-maximizing output rises

Only average fixed cost falls, so output stays the same and profit rises

Marginal cost shifts down, so the firm cuts output to keep the price high

Marginal cost is unchanged because wages are unchanged, so output stays the same

In the market for home solar panels, the unregulated equilibrium is 600 installations per month. Each installation gives a constant $10 benefit to people other than the buyer, and at the socially efficient quantity of 800 installations, marginal social benefit equals marginal cost. Assuming linear curves, what is the deadweight loss, and what policy would remove it?

$1,000; a subsidy of $10 per installation

$2,000; a subsidy of $10 per installation

$1,000; a tax of $10 per installation

$500; a subsidy of $20 per installation

Praxis Economics (5911)

Free Praxis Economics (5911) Practice Questions

10 sample questions for the Praxis Economics (5911), with the correct answer and an explanation for each. No account needed. Try each one before you open the answer.

Sections covered on the exam: Fundamental Economic Concepts, Macroeconomics.

Question 1 · Fundamental Economic Concepts
Maria has one free evening. She can work a 4-hour shift at $15 per hour, use a free concert ticket that she values at $50, or study for an exam, which she values at $40. She chooses the concert. What is the opportunity cost of her choice?
- A.The $60 she could have earned working
- B.The $40 value she places on studying
- C.The $100 combined value of working and studying
- D.Nothing, because the concert ticket was free
Show answer and explanation
Answer: A. The $60 she could have earned working
Opportunity cost is the value of the single next-best alternative given up; the best alternative to the concert is working, worth 4 × $15 = $60. Adding working and studying together is wrong because Maria could only have chosen one of them, and a free ticket still costs her the evening.
Question 2 · Macroeconomics
A widely reported medical study finds that eating blueberries lowers the risk of heart disease. Assuming nothing else changes in the blueberry market, what happens to the equilibrium price and quantity of blueberries?
- A.Price falls and quantity rises.
- B.Price rises and quantity falls.
- C.Price falls and quantity falls.
- D.Price rises and quantity rises.
Show answer and explanation
Answer: D. Price rises and quantity rises.
The study changes tastes, shifting demand to the right along an unchanged supply curve, so both price and quantity rise. Price rising with quantity falling would be the result of a decrease in supply, but nothing affected sellers' costs.
Question 3 · Macroeconomics
Output Total cost ($)
0 50
1 80
2 100
3 130
4 180
5 250
A perfectly competitive firm has the costs shown in the table and can sell any quantity at a market price of $60. What output maximizes profit, and what is that profit?
- A.4 units, with a profit of $60
- B.5 units, with a profit of $50
- C.4 units, with a profit of $240
- D.3 units, with a profit of $50
Show answer and explanation
Answer: A. 4 units, with a profit of $60
Marginal cost is $30, $20, $30, $50, and $70 for units 1–5, so the firm produces every unit with MC at or below the $60 price, stopping at 4 units; profit = $240 − $180 = $60. The figure $240 is total revenue, not profit.
Question 4 · Macroeconomics
A paper mill dumps waste into a river, imposing a cost of $4 on downstream residents for each ton of paper produced. The mill ignores this cost. Which policy would move output to the socially efficient level?
- A.A per-unit tax on the mill equal to $4 per ton of paper
- B.A price ceiling set $4 below the current market price
- C.A one-time lump-sum tax that does not depend on output
- D.A per-unit subsidy to the mill equal to $4 per ton of paper
Show answer and explanation
Answer: A. A per-unit tax on the mill equal to $4 per ton of paper
A Pigouvian tax equal to the marginal external cost raises the mill's marginal private cost up to marginal social cost, so the market produces the efficient, smaller quantity. A lump-sum tax does not change the cost of producing an additional ton, so it leaves the mill's output decision, and the overproduction, unchanged.
Question 5 · Macroeconomics
Assets Amount Liabilities Amount
Reserves $50,000 Checkable deposits $200,000
Loans $150,000
The table shows the balance sheet of First Bank. Assume a hypothetical required reserve ratio of 20%, banks lend all excess reserves, and borrowers hold no cash. What is the maximum amount First Bank can lend, and the maximum increase in the money supply for the whole banking system?
- A.$50,000 by the bank; up to $250,000 for the system
- B.$40,000 by the bank; up to $200,000 for the system
- C.$10,000 by the bank; up to $50,000 for the system
- D.$10,000 by the bank; up to $100,000 for the system
Show answer and explanation
Answer: C. $10,000 by the bank; up to $50,000 for the system
Required reserves are 20% × $200,000 = $40,000, so excess reserves are $50,000 − $40,000 = $10,000, which the bank can lend; the money multiplier is 1 ÷ 0.20 = 5, so the system can create up to $10,000 × 5 = $50,000. The $40,000 answer treats required reserves as if they could be lent, but required reserves must stay on hand. (In practice, the actual U.S. reserve requirement has been 0% since March 2020; the 20% ratio is a textbook assumption.)
Question 6 · Fundamental Economic Concepts
Jordan is deciding whether to spend one year in a graduate program. Tuition is $12,000 and books cost $3,000. Rent and food would cost $10,000 whether or not Jordan enrolls. If Jordan does not enroll, Jordan will work at a job paying $35,000 for the year. What is the opportunity cost of the year in school?
- A.$60,000
- B.$50,000
- C.$35,000
- D.$15,000
Show answer and explanation
Answer: B. $50,000
The opportunity cost includes the explicit costs that schooling causes ($12,000 + $3,000) plus the forgone $35,000 salary, for a total of $50,000. The $60,000 figure wrongly adds rent and food, which Jordan pays either way, so they are not a cost of the choice.
Question 7 · Macroeconomics
The price of gasoline rises sharply and stays high. Assuming nothing else changes, what happens in the market for large, fuel-hungry SUVs?
- A.Price rises and quantity falls.
- B.Price rises and quantity rises.
- C.Price falls and quantity falls.
- D.Price falls and quantity rises.
Show answer and explanation
Answer: C. Price falls and quantity falls.
Gasoline is a complement to SUVs, so a higher gasoline price decreases the demand for SUVs, shifting demand left and lowering both equilibrium price and quantity. "Price rises and quantity falls" describes a decrease in supply, but nothing has changed the cost of making SUVs.
Question 8 · Macroeconomics
A software upgrade lets each worker at a perfectly competitive call-center firm handle more calls per hour, while wages, rent, and the market price per call are unchanged. In the short run, what happens to the firm's marginal cost and its profit-maximizing output?
- A.Marginal cost shifts down, so profit-maximizing output rises
- B.Only average fixed cost falls, so output stays the same and profit rises
- C.Marginal cost shifts down, so the firm cuts output to keep the price high
- D.Marginal cost is unchanged because wages are unchanged, so output stays the same
Show answer and explanation
Answer: A. Marginal cost shifts down, so profit-maximizing output rises
Marginal cost equals the wage divided by the marginal product of labor, so when each worker handles more calls, the cost of an extra call falls even though the wage is unchanged. With a lower MC curve and the same price, P = MC now occurs at a larger output. Fixed costs and AFC are unaffected, and a price-taking firm cannot raise the market price by cutting its own output.
Question 9 · Macroeconomics
In the market for home solar panels, the unregulated equilibrium is 600 installations per month. Each installation gives a constant $10 benefit to people other than the buyer, and at the socially efficient quantity of 800 installations, marginal social benefit equals marginal cost. Assuming linear curves, what is the deadweight loss, and what policy would remove it?
- A.$2,000; a subsidy of $10 per installation
- B.$1,000; a tax of $10 per installation
- C.$1,000; a subsidy of $10 per installation
- D.$500; a subsidy of $20 per installation
Show answer and explanation
Answer: C. $1,000; a subsidy of $10 per installation
The deadweight loss is the triangle between marginal social benefit and marginal cost from 600 to 800 units: ½ × $10 × 200 = $1,000. A per-unit subsidy equal to the $10 external benefit makes buyers act as if they received the full social benefit, raising output to 800. A tax would push output even further below the efficient level, and $2,000 forgets the ½ in the triangle area.
Question 10 · Macroeconomics
A person finds $2,000 in cash at home and deposits it in a checking account. Assume a hypothetical required reserve ratio of 10%, banks lend all excess reserves, and borrowers redeposit all loans. What is the maximum possible increase in the money supply?
- A.$18,000
- B.$2,000
- C.$20,000
- D.$1,800
Show answer and explanation
Answer: A. $18,000
The deposit creates $1,800 of excess reserves, which can support up to $1,800 × 10 = $18,000 of new loans and deposits. Total checking deposits can rise by $20,000, but $2,000 of that simply replaces currency already counted in the money supply, so the money supply rises by $18,000, not $20,000.

Output	Total cost ($)
0	50
1	80
2	100
3	130
4	180
5	250

Assets	Amount	Liabilities	Amount
Reserves	$50,000	Checkable deposits	$200,000
Loans	$150,000

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