Applied Economics
Question Bank
Course Introduction
Applied Economics focuses on using economic theories, models, and quantitative methods to analyze real-world issues and inform decision-making in both public and private sectors. The course equips students with practical tools to interpret data, assess policy impacts, and solve problems in areas such as labor markets, healthcare, environment, and industry. Through case studies, empirical analysis, and policy evaluations, students gain the skills necessary to connect abstract economic principles to concrete situations, preparing them to address contemporary challenges in business, government, and society.
Recommended Textbook
Economics for Today 5th Edition by Allan Layton
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19 Chapters
2164 Verified Questions
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Page 2
Chapter 1: Thinking Like an Economist
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89 Verified Questions
89 Flashcards
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Sample Questions
Q1) Scarcity means that it is impossible to satisfy every desire.
A)True
B)False
Answer: True
Q2) Inflation is a concern of:
A) macroeconomics.
B) microeconomics.
C) both political science and philosophy.
D) neither macroeconomics or microeconomics.
Answer: A
Q3) Scarcity is a situation:
A) where people's needs exceed their resources.
B) where people's wants exceed their resources.
C) where the quantity of resources is sufficient to meet all wants.
D) where people's needs exceed other people's resources.
E) where the quantity of resources is sufficient to meet all needs.
Answer: B
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Chapter 2: Applying Graphs to Economics
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37 Flashcards
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Sample Questions
Q1) An upward-sloping line or curve is used to illustrate:
A) the ceteris paribus assumption.
B) an inverse relationship.
C) two unrelated variables.
D) a positive relationship.
Answer: D
Q2) In Exhibit A1.4, the slope for straight line CD is: A)5.
B)1.
C) -1.
D) -5.
Answer: C
Q3) When one variable increases, the other variable increases - it is called: A) an inverse relationship. B) causation.
C) horizontal line.
D) a positive relationship.
Answer: D
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Chapter 3: Production Possibilities and Opportunity Cost
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Sample Questions
Q1) If Japan gives up 10 bushels of rice to produce one bicycle, while Australia gives up five bushels of rice to produce one bicycle, then:
A) the opportunity cost of producing bicycles in Australia is higher than in Japan.
B) Japan has a comparative advantage in the production of bicycles.
C) total output will be highest if Japan specialises in rice and Australia specialises In bicycles.
D) total output will be highest if Australia specialises in rice and Japan specialises In bicycles.
Answer: C
Q2) The production possibilities frontier illustrates all of the following concepts except: A) the law of increasing costs.
B) unlimited wants.
C) scarcity.
D) opportunity cost.
Answer: B
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Chapter 4: Market Demand and Supply
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Sample Questions
Q1) A shortage occurs when a good is in great demand.
A)True
B)False
Q2) Which of the following could cause the supply of carrots to decrease?
A) Consumers' incomes decrease.
B) There is a technological advance in carrot production.
C) Fertiliser costs increase.
D) The number of farmers growing carrots increases.
E) The price of carrots decreases.
Q3) A shortage is a market condition existing at any price where the quantity demanded is less than the quantity supplied.
A)True
B)False
Q4) Consider the following statement: 'Due to the drought the quantity of water available for consumption reduced dramatically'. This will cause a/an:
A) downward movement along the supply curve for water.
B) upward movement along the supply curve for water.
C) rightward shift in the supply curve for water.
D) leftward shift in the supply curve for water.
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Chapter 5: Markets in Action
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Sample Questions
Q1) Noise pollution is a problem because:
A) it creates an external cost to others.
B) it is damaging to those who turn the music on too high.
C) it is very enjoyable to those who like it.
D) it cannot be quantified.
Q2) If the equilibrium price of aspirins is $5.50 for 250 tablets and the government imposes a price ceiling at $5.00 for 250 tablets, the eventual result will be:
A) a shift in the demand curve to the right.
B) a shift in the supply curve to the right.
C) an accumulation of inventories of unsold aspirins.
D) a shortage of aspirin.
Q3) Which of the following would be a private cost to a cigarette manufacturer?
A) Price of leaf tobacco.
B) Cost to the government of the hospital expenses of indigent smokers.
C) Increased risk of cancer to the non-smoking passengers in the smoker's carpool.
D) Price of a pack of cigarettes.
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Chapter 6: Elasticity of Demand and Supply
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Sample Questions
Q1) The cross elasticity between two goods, X and Y, is positive. From this, we can conclude that goods X and Y are:
A) substitute goods.
B) complementary goods.
C) unrelated goods.
D) inferior goods.
Q2) The price elasticity of demand for a vertical demand curve is:
A) perfectly elastic.
B) perfectly inelastic.
C) unitary elastic.
D) elastic.
Q3) Other factors held constant, if there are few close substitutes for a good, demand is more elastic for it.
A)True
B)False
Q4) In Exhibit 5.1, the demand curve between points a and b is:
A) price elastic.
B) price inelastic.
C) unit elastic.
D) perfectly elastic.
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Chapter 7: Production Costs
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Sample Questions
Q1) Marginal cost is defined as the increase in total cost resulting from an increase in:
A) one unit of output.
B) output of 100 units.
C) a firm's plant size.
D) one unit of labour.
Q2) The marginal cost is the change in:
A) average variable cost as the quantity changes by two units.
B) total cost as the quantity changes by a number of units.
C) total variable cost as the quantity changes by one unit.
D) total fixed cost as the quantity changes by one unit.
Q3) As output increases:
A) ATC rises at first and then falls.
B) AFC falls at first and then rises.
C) AVC cuts ATC when MC is at its minimum.
D) AFC declines and the gap between ATC and AVC declines.
Q4) The long-run average cost curve traces the lowest points of the AVC and ATC for all firms.
A)True
B)False
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Chapter 8: Perfect Competition
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Sample Questions
Q1) In a perfectly competitive industry - assuming the short-run average total cost increases as the output of the industry expands - the industry supply curve, in the long run, will:
A) first have a positive slope and then a negative slope.
B) have a negative slope.
C) be perfectly horizontal.
D) have a positive slope.
Q2) Suppose that, in the long run, the price of feature films rises as the movie production industry expands. We can conclude that movie production is a/an:
A) increasing-cost industry.
B) constant-cost industry.
C) decreasing-cost industry.
D) marginal-cost industry.
Q3) In Exhibit 7.1, the firm will produce at which level of output:
A) zero.
B)150.
C)350.
D) 250.
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10
Chapter 9: Monopoly
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Sample Questions
Q1) Predatory pricing can occur in a monopoly market because:
A) the firm has no potential competitors to stop it doing so.
B) the firm wishes to create an entry barrier for the potential entrants.
C) the government has a tax incentive to let it happen.
D) the monopolist is trying to maximise short-term profits.
Q2) A monopolist can engage in price discrimination:
A) if it faces a perfectly elastic demand curve.
B) if it is able to buy a good at a low price and resell it at a higher price.
C) if it is a price maker, can segment the market and prevent customers from reselling.
D) if it faces a perfectly inelastic demand curve.
Q3) The condition/s required for a monopolist to engage in price discrimination is/are:
A) that buyers are not able to resell the good.
B) when it cannot identify specific groups of consumers with different elasticities.
C) that the demand curve must be perfectly elastic.
D) for potential competitors to threaten entry into the market.
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11
Chapter 10: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) In monopolistic competition, firms:
A) do not have market power.
B) have a degree of market power.
C) are price takers.
D) do not compete with other firms.
Q2) It is more difficult to evaluate oligopoly than other market structures because:
A) it was not studied long enough.
B) an oligopolist can only set the price but not the quantity of their product.
C) an oligopolist can change the fixed inputs in the short run.
D) an oligopolist can behave like a competitor and like a monopoly.
Q3) It is difficult to talk conclusively about the allocation of resources in an oligopoly because:
A) entry is impossible in oligopolies.
B) both price and output can be higher in oligopolies than in perfect competition.
C) the level of competition varies greatly in oligopolistic markets.
D) non-price competition is rare in an oligopoly.
Q4) The number of sellers is the largest in oligopoly.
A)True
B)False
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Chapter 11: Policy Issues: Housing Affordability and Climate Change
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Sample Questions
Q1) Which of the following is true?
A) Regulation is a superior method of emissions reduction because it can be controlled by the government.
B) Once the property rights are assigned, the carbon tax regime will adjust the private costs to the full social costs and the perfect market equilibrium will be achieved.
C) Once the correct property rights are assigned and the market is competitive, the emissions trading scheme will achieve the socially desirable outcome.
D) The property rights accompanied by regulation are superior policy solutions because the government knows the best solution for emissions reduction.
Q2) Suppose the government imposed a carbon tax to reduce carbon emissions. How is it illustrated in Exhibit 10.2?
A) A shift from 'Supply 2' to 'Supply 1'.
B) A movement along the 'Supply 1' curve.
C) A shift in demand.
D) A shift from 'Supply 1' to 'Supply 2'.
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Page 13
Chapter 12: Measuring the Size of the Economy
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Sample Questions
Q1) Economic values that are measured in units per period of time are referred to as: A) stocks.
B) insignificant.
C) unit values.
D) flows.
Q2) Which of the following purchases would be counted as a final good in the GDP calculation?
A) A family's purchase of a used car.
B) A speculator's purchase of 100 shares of News Corp. stock.
C) A deli's purchase of bread for making its sandwiches.
D) A business's purchase of new office equipment.
Q3) If the underground economy were included in GDP, GDP would:
A) grow.
B) decline.
C) stay the same.
D) Not possible to determine.
Q4) Exports are a domestic spending for foreign products.
A)True
B)False
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Chapter 13: Business Cycles and Economic Growth
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Sample Questions
Q1) The economic cost of unemployment is the loss of potential output which can never be realised.
A)True
B)False
Q2) The rate of saving that produces the maximum level of consumption per capita in the long-run steady state is called the:
A) marvellous rate of saving.
B) golden rule of saving.
C) maximum rate of spending.
D) optimum rate of spending.
Q3) The government's main statistic for forecasting business cycles is the index of coincident indicators.
A)True
B)False
Q4) One of the goals of macroeconomists is to:
A) reduce the severity of business-cycle fluctuations.
B) increase short-term output.
C) keep output at a constant level.
D) keep consumption at a constant level.
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Chapter 14: Inflation and Unemployment
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Sample Questions
Q1) Full employment means:
A) zero percent unemployment.
B) seasonal unemployment is zero.
C) frictional unemployment is zero.
D) cyclical unemployment is zero.
Q2) A ski instructor who is laid off from their job at Mount Hotham over summer would be considered:
A) frictionally unemployed.
B) structurally unemployed.
C) cyclically unemployed.
D) seasonally unemployed.
Q3) Suppose your nominal income this year is 5 per cent higher than last year. If the inflation rate for the period was 3 per cent, then your real income:
A) increased by 1.67 per cent.
B) increased by 2 per cent.
C) increased by 8 per cent.
D) declined by 0.6 per cent.
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Chapter 15: A Simple Model of the Macro Economy
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Sample Questions
Q1) If every household in Australia won a lottery which gave each of them an extra $50 000 to spend, the:
A) aggregate supply curve would shift to the right.
B) aggregate supply curve would shift to the left.
C) general price level would rise, causing a movement up the aggregate demand curve.
D) aggregate demand curve would shift to the right in the short-run.
Q2) The horizontal axis used in the aggregate demand curve measures:
A) the amount of all final goods and services included in real GDP.
B) the value of all final goods and services included in nominal GDP.
C) the value of all intermediate goods and services.
D) the value of all final goods and services included in real GDP.
Q3) If the terms of trade increase then, ceteris paribus:
A) imports will fall.
B) imports will rise.
C) exports will rise.
D) exports will fall.
Q4) The theory that supply creates its own demand is called Say's Law.
A)True
B)False
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Chapter 16: The Monetary and Financial System
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Sample Questions
Q1) T-note is sold by the Treasury on behalf of the federal government and is considered riskless.
A)True
B)False
Q2) Fiat money is paper money:
A) backed dollar for dollar by gold.
B) backed dollar for dollar by silver.
C) produced by an Italian car manufacturer.
D) which is not backed by or convertible into any good.
Q3) If the economy is inflationary, the RBA would most likely:
A) encourage banks to provide loans by lowering the cash rate.
B) encourage banks to provide loans by raising the cash rate.
C) restrict bank lending by lowering the cash rate.
D) restrict bank lending by raising the cash rate.
Q4) Keynes called the money that people hold to make routine day-to-day purchases the:
A) transactions demand for holding money.
B) precautionary demand for spending money.
C) speculative demand for holding money.
D) store of value demand for holding money.
Page 18
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Chapter 17: Macroeconomic Policy I: Monetary Policy
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Sample Questions
Q1) Countercyclical macroeconomic policy is favoured by:
A) Keynesian economists.
B) monetarists.
C) classical economists.
D) microeconomists.
Q2) The equation of exchange (MV = PY) is:
A) a theory, because no one knows what the value of V is.
B) used by Keynesian economists to justify the monetarist transmission mechanism.
C) only held if V is constant.
D) an accounting identity and is by definition true.
Q3) Modern monetary policy in Australia is implemented by the RBA seeking to maintain the overnight cash rate at a pre-announced level.
A)True
B)False
Q4) The policy effectiveness lag refers to the time it takes for:
A) the government to make up its mind about what to do.
B) the government to discover the fluctuation in the economy.
C) the economy to get back to full employment.
D) the policy response to impact on economic activity.
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Chapter 18: Macroeconomic Policy II: Fiscal Policy
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Sample Questions
Q1) 'Crowding out' refers to a side-effect of fiscal rather than monetary policy because:
A) it is based on rising rather than falling interest rates.
B) it is based on falling rather than rising interest rates.
C) under monetary policy, private debt doesn't replace public debt.
D) under monetary policy, the dollar appreciates rather than depreciates.
Q2) Increases in the fraction of national debt held by foreigners will _____ the burden of debt service on future generations _____.
A) decrease; because it is easier for the borrowing nation to default on the debt B) decrease; but may make the country more vulnerable to foreign intervention
C) decrease; because debt servicing accomplished by increases in the money supply is not as inflationary as it would be if all debt were held domestically
D) increase; because taxes to pay the debt are collected within the country but more interest payments on the debt are sent outside
E) increase; because foreign bond-holding pushes up interest rates at date of issue, increasing crowding out
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Chapter 19: International Trade and Finance
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Sample Questions
Q1) Which statement best reflects the political problems associated with free trade?
A) The costs are spread wide to many, but the benefits accrue heavily on a few.
B) The benefits are spread to the rich, but the costs accrue to the poor.
C) The benefits are spread wide to many, but the costs accrue heavily on a few.
D) The costs are spread to the rich, but the benefits accrue to the poor.
Q2) Which of the following are problems with the employment argument for tariff protection?
A) It only protects foreign jobs, not domestic jobs.
B) It raises costs to firms, who in turn have higher output and hence higher employment.
C) Developed countries can't hope to compete with low-wage nations.
D) It reduces demand by consumers, thereby leading to higher unemployment in particular industries.
Q3) If a nation follows a policy of being self-sufficient, its:
A) production possibilities equal its consumption possibilities.
B) consumption possibilities are greater than its production possibilities.
C) production possibilities curve shifts rightward.
D) consumption possibilities are less than its production possibilities.
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