Applied Economics
Mock Exam
Course Introduction
Applied Economics explores the practical use of economic theories and quantitative methods to analyze real-world issues and inform decision-making in both public and private sectors. The course covers a range of topics including market dynamics, policy evaluation, labor markets, resource allocation, and the economic impact of government interventions. Emphasis is placed on empirical analysis, case studies, and applications in areas such as finance, health, environment, and industry, equipping students with the skills to interpret data, assess economic outcomes, and advise on policy or business strategies.
Recommended Textbook
Foundations of Economics 6th Edition by Robin Bade
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Page 2
Chapter 1: Getting Started
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Sample Questions
Q1) Which of the following is NOT a normative economic statement?
A) States should reduce the tax on heating fuel oil during the winter.
B) People over the age of 75 should not be allowed to drive cars.
C) Teenagers are responsible for most driving fatalities.
D) We don't spend enough money on anti-smoking campaigns.
E) The price of gasoline is too high.
Answer: C
Q2) If the quantity of the variable on the y-axis increases by 10 when the quantity of the variable on the x-axis decreases by 2,then the slope of the curve equals A) 2.
B) -10.
C) 10.
D) -5.
E) None of the above answers are correct.
Answer: D
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Chapter 2: The Usand Global Economies
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Sample Questions
Q1) Most countries in the world are classified as A) advanced.
B) in transition.
C) developing.
D) industrialized.
E) emerging market.
Answer: C
Q2) Poland is classified as
A) an advanced economy.
B) a developing economy.
C) a transition economy.
D) an emerging market economy.
E) private economy.
Answer: D
Q3) What are the payments each factor of production receives?
Answer: Rent is paid for the use of land.Wages are paid for the services of labor.Interest is paid for the use of productive capital.Entrepreneurs earn a profit.
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Page 4
Chapter 3: The Economic Problem
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Sample Questions
Q1) In the table above,Jack's opportunity cost for 1 pound of food is ________ and his opportunity cost for 1 pound of clothing is ________.
A) 1 pound of clothing; 4 pounds of food
B) 1/2 of a pound of clothing; 2 pounds of food
C) 1/3 of a pound of clothing; 3 pounds of food
D) 2 pounds of clothing; 2 pounds of food
E) 1 pound of food; 1 pound of clothing
Answer: B
Q2) As an economy increasingly specializes in producing one good,the opportunity cost of that good increases.The opportunity cost increases because
A) resources are not equally productive in all activities.
B) what must be paid to resources increases.
C) human wants are virtually unlimited.
D) not all goods are equally valuable.
E) as more of a good is produced, the profit from its production must rise.
Answer: A
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Chapter 4: Demand and Supply
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Sample Questions
Q1) At prices above the equilibrium price,what occurs?
Q2) The figure above shows the market for iPods.Which of the following creates a movement from point A to point B?
A) a requirement that all students at universities have an iPod
B) a decrease in the price of iPods
C) a decrease in the price of Zunes, a substitute for iPods
D) an increase in the price of iPods
E) an increase in people's incomes
Q3) Suppose a medical study reveals new benefits to consuming beef and at the same time a bumper corn crop reduces the cost of feeding steers.The equilibrium quantity of beef will
A) decrease.
B) perhaps increase, decrease, or stay the same, but more information is needed to determine which it does.
C) stay the same.
D) increase.
E) definitely either stay the same or decrease.
Q4) Suppose that the productivity used to produce computers advances.How does this change affect the supply of computers and the supply curve of computers?
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Chapter 5: Elasticities of Demand and Supply
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Sample Questions
Q1) If the price elasticity of supply for a good is 0.75,then
A) the percentage change in the quantity supplied is less than the percentage change in price.
B) the supply is elastic.
C) an increase in the price boosts the quantity supplied by a larger percentage.
D) the supply is inelastic so the demand must also be inelastic.
E) None of the above answers is correct.
Q2) If Pepsi goes on sale and decreases its price by 10 percent,and as a result,the quantity demanded of Coca Cola decreases by 5 percent,then Pepsi and Coke are ________ goods.
A) inferior
B) normal
C) substitute
D) complementary
E) unrelated
Q3) List factors that increase the price elasticity of supply.
Q4) The price elasticity of demand is always positive,as is the price elasticity of supply.Is the cross elasticity of demand always positive? Explain your answer.
Q5) What effect does a price hike have on the total revenue of the producers?
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Chapter 6: Efficiency and Fairness of Markets
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Sample Questions
Q1) Suppose the nation is producing at a point on its PPF.If the marginal cost of producing one more computer is greater than the marginal benefit,the nation is producing
A) too few computers to be allocatively efficient.
B) too many computers to be allocatively efficient.
C) the correct number of computers to be allocatively efficient.
D) at the point of allocative efficiency.
E) More information is needed to determine if the nation is or is not producing at the allocatively efficient point.
Q2) If you are willing to pay no more than $4 for a slice of pizza and the price of a slice of pizza is $4,then
A) if you buy it, you would be cheated because you would realize no total benefit from the purchase.
B) you buy it but you get no marginal benefit from the purchase.
C) you will not buy it.
D) you buy it but you get no consumer surplus from the purchase.
E) you might buy it depending on how the slice's marginal benefit compares to its price.
Q3) Why is the demand curve the same as the marginal benefit curve?
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Chapter 7: Government Actions in Markets
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Sample Questions
Q1) The deadweight loss in a housing market with a rent ceiling set below the equilibrium rent is the
A) loss to those who cannot find apartments and the gain to landlords who charge black market rents.
B) loss to those who cannot find apartments and the loss to landlords who cannot offer housing at the lower rent ceiling.
C) loss to landlords and the gain to tenants who pay a fairer rent.
D) loss to tenants and the gain to landlords who have the incentive to offer more apartments for rent.
E) gain to landlords and to tenants because now a fairer rent is charged.
Q2) Rent ceilings
A) eliminate the problem of scarcity.
B) allocate resources efficiently.
C) ensure that housing goes to the poorer people.
D) benefit renters living in rent-controlled apartments.
E) benefit all landlords because the landlords know what rent to charge their renters.
Q3) What are the effects of a rent ceiling set below the equilibrium rent?
Q4) Explain why a price floor set below the equilibrium price is ineffective.
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Page 9
Chapter 8: Taxes
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Sample Questions
Q1) When a tax is imposed on a good,the resulting rise in the equilibrium price is usually less than the amount of the tax itself.Why doesn't the equilibrium price rise by the full amount of the tax?
Q2) The figure above shows the market for tires.According to the figure,the price elasticity of demand is ________ the price elasticity of supply.
A) greater than B) equal to C) less than D) not comparable to
E) More information is needed to determine if the price elasticity of demand is greater than, equal to, less than, or comparable to the price elasticity of supply.
Q3) To levy a tax based on the benefits principle to pay for a bridge,the government
A) would impose an income tax instead of a social security tax on workers.
B) would impose a social security tax on workers instead of an income tax.
C) needs to know each person's benefit from the bridge.
D) needs to be able to calculate the deadweight loss of a tax.
E) cannot impose the tax on anyone who uses the bridge.
Q4) "The only fair tax is a progressive tax." Comment on this assertion.
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Page 10
Chapter 9: Global Markets in Action
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Sample Questions
Q1) When a nation exports a good,its total surplus ________,and when it imports a good,its total surplus ________.
A) increases; increases
B) decreases; decreases C) increases; decreases D) decreases; increases
E) does not change; does not change
Q2) What is the infant-industry argument for protection from international trade?
A) Domestic firms must be protected until they gain a comparative advantage.
B) Any firm necessary in wartime must be protected.
C) Foreign producers selling below cost to drive domestic firms bankrupt must be stopped.
D) Domestic jobs must be protected from competition from low-paid foreign workers.
E) Foreigners selling products in the economy limit the nation's diversity and stability.
Q3) "Tariffs today in the United States are much higher than in the past." Is the previous statement correct or incorrect?
Q4) How do imports affect sellers' producer surplus?
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Chapter 10: Externalities
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Sample Questions
Q1) The figure above shows the marginal social cost curve of generating electricity and the marginal private cost curve.The marginal cost paid by the producers and everyone else in society when 100 billion kilowatt hours are produced is
A) 0¢ per kilowatt.
B) 5¢ per kilowatt.
C) 10¢ per kilowatt.
D) 20¢ per kilowatt.
E) 15¢ per kilowatt.
Q2) A payment made by the government to private producers of roads and libraries would be an example of
A) a subsidy.
B) a copyright.
C) a voucher.
D) public provision.
E) a Coase payment.
Q3) Which of the following is true?
A) MSB = MB + Marginal external benefit.
B) MB = Marginal external benefit - MSB.
C) MB = Marginal external benefit +
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Page 12
Chapter 11: Public Goods and Common Resources
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Sample Questions
Q1) A library is a public good.The marginal cost curve for libraries in Lafayette,California
A) has a negative slope.
B) is definitely a horizontal line.
C) has a positive slope.
D) is a vertical line.
E) is identical to the marginal benefit curve because libraries are nonrival.
Q2) The above figure shows the marginal private cost curve,marginal social cost curve,and marginal social benefit curve for cod,a common resource.A quota to prevent the overuse of the cod sets the catch equal to ________.
A) 0 tons per week
B) 200 tons per week
C) 400 tons per week
D) 300 tons per week
E) 500 tons per week
Q3) What is the tragedy of the commons?
Q4) What is the free-rider problem and with what is it associated?
Q5) Is a sailboat purchased in Victoria,British Columbia,a private good or a public good?
Q6) What is rational ignorance?
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Chapter 12: Markets With Private Information
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Sample Questions
Q1) Adverse selection is created by
A) incentives to change behavior after two parties have reached an agreement.
B) risk.
C) signaling.
D) taxes.
E) private information.
Q2) Private information
A) can create adverse selection but plays no role in creating moral hazard.
B) explains why drivers screen auto insurance companies.
C) means that unless it is overcome, the equilibrium in the market will be a separating equilibrium.
D) plays a role in the markets for health-care insurance and auto insurance.
E) cannot explain why the U.S. expenditures on health care per person exceed those in other major nations.
Q3) The lemons problem in the used car market is that
A) the price of a lemon is too high.
B) the price of a lemon is too low.
C) no lemons are bought and sold.
D) only lemons are bought and sold.
E) Both answers A and D are correct.
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Chapter 13: Consumer Choice and Demand
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Sample Questions
Q1) Give the data in the above table,what is the marginal utility of the second quart of ice cream?
A) 80
B) 70
C) 60
D) 75
E) 150
Q2) "Because the price of a diamond is much greater than the price of a gallon of water,the consumer surplus from diamonds is greater than the consumer surplus from water." Is the previous analysis correct? Explain your answer.
Q3) In an indifference curve/budget line diagram,a consumer's equilibrium consumption combination will occur
A) always inside the budget line.
B) always outside the budget line.
C) always on the budget line.
D) sometimes on and sometimes inside the budget line depending on the indifference curves.
E) at the origin.
Q4) What does the slope of the budget line equal?
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Chapter 14: Production and Cost
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Sample Questions
Q1) Darryl runs a ranch in Jackson,Wyoming.The interest on the debt he incurred to buy his ranch totals $3,000 per year.For Darryl,the interest is
A) an implicit cost.
B) an explicit cost.
C) his normal cost.
D) his normal profit.
E) part of his economic profit.
Q2) Dr.Khan starts his own dental practice after quitting his $150,000 job at The Mall Dental Clinic.His revenues for the first year are $500,000.He paid $90,000 in rent for the dental office,$60,000 for his office manager's salary,$24,000 for the dental hygienist,$150,000 for insurance,and $6,000 for other miscellaneous costs.The normal profit from running his business is $20,000.
A) His explicit costs are $330,000.
B) His implicit costs are $170,000.
C) His economic profit is zero.
D) Only answers A and C are correct.
E) Answers A, B, and C are correct.
Q3) What is the difference between decreasing marginal returns and negative marginal returns?
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Page 16
Chapter 15: Perfect Competition
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Sample Questions
Q1) The firm in the figure above has a total revenue equal to ________.
A) $5.10 × 10
B) $8.00 × 10
C) ($5.10 - $8.00) × 10
D) ($8.00 - $5.10) × 10
E) None of the above answers are correct because more information is needed.
Q2) In a perfectly competitive market,one farmer's barley is
A) completely different from another farmer's barley.
B) a perfect substitute for another farmer's barley.
C) a monopolized product in that farmer's local market.
D) a monopolized product in the national market.
E) slightly different from another farmer's barley.
Q3) Cynthia is an Oklahoma wheat farmer.The demand for her wheat is
A) perfectly inelastic.
B) inelastic but not perfectly inelastic.
C) elastic but not perfectly elastic.
D) perfectly elastic.
E) unit elastic.
Q4) The above diagram shows the cost curves for a perfectly competitive wheat farmer.At what price does the wheat farmer shut down?
Page 17
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Chapter 16: Monopoly
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Sample Questions
Q1) The above figure represents the cost,market demand,and marginal revenue curves for a monopoly.
a.Indicate the price and quantity a single-price monopoly selects by labeling the price Pm and the quantity Qm.
b.In the figure,lightly shade in the area that represents the single-price monopoly's economic profit.
c.Indicate the quantity a perfectly price-discriminating monopoly selects by labeling it Qppd.
d.In the figure,more darkly shade in the area that represents the additional economic profit the monopoly earns as a result of the perfect price discrimination.
Q2) The makers of the movie Titanic have some monopoly power over this film because the
A) movie is patented.
B) name Titanic is trademarked.
C) movie is protected by copyright law.
D) government has issued the maker of this movie a public franchise.
E) owner never price discriminated in marketing the movie.
Q3) Why do some utilities have an incentive to exaggerate their costs of production?
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Chapter 17: Monopolistic Competition
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Sample Questions
Q1) In the long run,a firm in monopolistic competition ________ excess capacity and a firm in perfect competition ________ excess capacity.
A) has; has
B) has; does not have C) does not have; has D) does not have; does not have E) might have; might have
Q2) If firms in monopolistic competition are making economic profits,then A) they can expect to earn the profits indefinitely.
B) new rivals enter the industry and the demand for any seller's good decreases. C) the market demand becomes more inelastic.
D) the industry is in long-run equilibrium.
E) new rivals enter the industry and the demand for any seller's good increases.
Q3) How would a merger between Coca-Cola and Pepsi Cola affect the four-firm concentration ratio for the soft drink market? How would it affect the Herfindahl-Hirschman Index for the soft drink market?
Q4) List four characteristics of monopolistic competition.
Q5) For a firm in monopolistic competition,define efficient scale and excess capacity.Briefly explain each.
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Chapter 18: Oligopoly
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Sample Questions
Q1) A collusive agreement to form a cartel is difficult to maintain because
A) each member firm can increase its own profits by cutting its price and selling more.
B) forming a cartel is legal but frowned upon throughout the world.
C) supply will decrease because of the high cartel price.
D) demanders will rebel once they realize a cartel has been formed.
E) each firm can increase its profit if it decreases its production even more than the decrease set by the cartel.
Q2) As a result of a wave of mergers in the early part of the twentieth century,which act was passed?
A) the Anti-Merger Act of 1900
B) the Sherman Act of 1909
C) the Clayton Act of 1914
D) the Horizontal Merger Act of 1919
E) the Pro-Competition Act of 1912
Q3) If price fixing is necessary because without it a firm will go bankrupt,is the price fixing legal?
Q4) What is the dilemma faced by firms in oligopoly?
Q5) Explain what a cartel is and the difficulties faced in maintaining a cartel.
Q6) What is game theory and what light does it shed on the duopolists' dilemma?
Page 20
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Chapter 19: Markets for Factors of Production
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Sample Questions
Q1) As the price of land rises,the quantity supplied
A) increases.
B) decreases.
C) at first increases and then decreases.
D) stays the same.
E) at first decreases and then increases.
Q2) If the supply of labor increases,then the equilibrium wage rate ________ and the equilibrium quantity of labor ________.
A) rises; increases
B) might rise, fall, or not change; increases
C) rises; might increase, decrease, or not change
D) falls; increases
E) falls; does not change
Q3) Which of the following is a method used by unions to increase the demand for their members' labor?
A) Support import restrictions.
B) Decrease the marginal product of union members.
C) Increase imported goods and services
D) Oppose immigration restrictions.
E) Oppose minimum wage laws.
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Chapter 20: Economic Inequality
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Sample Questions
Q1) What economic effect works to eliminate sex and race discrimination?
A) Firms hire only the preferred races and sex.
B) Lower paid races and sexes give up working and drop out of the labor supply.
C) Customers who discriminate pay higher prices to buy from preferred races and sex.
D) The value of marginal product of the less preferred races and sexes eventually increases.
E) Lower paid races and sexes decrease their demand for goods and services.
Q2) The demand curve for high-skilled workers lies ________ the demand curve for low-skilled workers and the supply curve of high-skilled workers lies ________ the supply curve of low-skilled workers.
A) above; above
B) above; below
C) below; above
D) below; below
E) above; on
Q3) Describe how a negative income tax works.
Q4) At any wage rate,the quantity of welders willing to work is less than the quantity of tomato pickers.Why?
Q5) Describe the effect education and training have on outcomes in the labor market.
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