Basic Economics
Exam Bank
Course Introduction
Basic Economics introduces students to the fundamental principles and concepts of economics, including supply and demand, market structures, resource allocation, and the roles of consumers and producers. The course explores how economic decisions are made at both the individual and societal levels, covering topics such as opportunity cost, comparative advantage, and the functioning of markets. Students will also examine the impact of government policies, international trade, and economic indicators, gaining essential skills for understanding real-world economic issues and making informed financial decisions.
Recommended Textbook
Economics Today 17th Edition by Roger LeRoy Miller
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Page 2
Chapter 1: The Nature of Economics
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Q1) It has been noted that when the price of a good increases, people purchase less of the good. This is an example of
A) macroeconomic analysis.
B) irrational behavior.
C) normative economic analysis.
D) positive economic analysis.
Answer: D
Q2) Which of the following statements is a normative as opposed to a positive economic statement?
A) Consumer spending generates more jobs.
B) If the price of gasoline goes up, people buy less.
C) Labor unions should be allowed to organize in every industry.
D) Government intervention in markets is common in many countries.
Answer: C
Q3) Whenever statements embodying values are made, we enter the realm of A) positive economics.
B) normative economics.
C) microeconomics.
D) macroeconomics.
Answer: B
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Chapter 2: Scarcity and the World of Trade-Offs
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Q1) A straight-line production possibilities curve has
A) an increasing opportunity cost between the two goods.
B) a decreasing opportunity cost between the two goods.
C) a constant opportunity cost between the two goods.
D) no opportunity cost between the two goods.
Answer: C
Q2) In order for an economy to increase its production possibilities, the economy must
A) be very efficient.
B) increase inputs.
C) increase its wants.
D) reduce output.
Answer: B
Q3) It is correct to state that a society which is on its production possibilities curve is A) underutilizing is resources.
B) technologically inefficient.
C) consuming too much output.
D) fully utilizing its productive resources.
Answer: D
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4
Chapter 3: Demand and Supply
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Q1) An increase in the relative price of a good cannot be caused by
A) an increase in the nominal price of the good that is greater than the increase in the nominal price of the other good.
B) a decrease in the nominal price of the good that is less than the decrease in the nominal price of the other good.
C) a decrease in the nominal price of the other good while the price of the good itself remains constant.
D) an increase in the nominal price of the other good while the price of the good itself remains constant.
Answer: D
Q2) Demand is a schedule that shows
A) a set of possible prices for a good and the quantities of the good that will be purchased at each of those prices.
B) how much income it takes to afford various quantities of a good.
C) the relationship between the cost of producing a good and the price that sellers will charge.
D) how population changes will affect the amount of a good that is needed.
Answer: A
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Chapter 4: Extensions of Demand and Supply Analysis
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Q1) Consider the above table. Assuming the government imposes a price ceiling on garbanzo beans of $4, what would be the likely result?
A) a surplus of 2,000 garbanzo beans
B) a shortage of 2,000 garbanzo beans
C) no change, equilibrium would prevail
D) The quantity demanded of garbanzo beans would fall to zero.
Q2) When a market clearing price is determined,
A) the exchange between buyers and sellers is voluntary.
B) the exchange between buyers and sellers is directed by outside factors such as the government.
C) the exchange between buyers and sellers benefits only the buyers.
D) the exchange between buyers and sellers benefits only the sellers.
Q3) If the government sets a minimum price at which a good or service can be sold, it thereby creates
A) a price ceiling.
B) a black market price.
C) a price floor.
D) an illegal price control.
Q4) Who gains and who loses from rent controls?
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Chapter 5: Public Spending and Public Choice
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Q1) Suppose that the XYZ industry produces a product that results in negative external costs to society. This information suggests that
A) resources are under-allocated to the industry.
B) the equilibrium market price of the product includes the external costs borne by society.
C) resources are over-allocated to the industry.
D) at the market price, quantity demanded is less than quantity supplied.
Q2) Which of the following is NOT a transfer payment?
A) Medicare
B) Social Security retirement payments
C) Social Security disability payments
D) spending on national defense
Q3) An example of a public good is
A) software produced by Microsoft.
B) housing subsidies.
C) the car I own.
D) the fire department.
Q4) What is the purpose of antitrust legislation?
Q5) Explain why ensuring economic stability is an economics function of government?
Page 7
Q6) What is the free-rider problem, and how is it related to public goods?
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Chapter 6: Funding the Public Sector
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Q1) Suppose the tax rate on the first $10,000 income is 0 percent; 10 percent on the next $20,000; 20 percent on the next $20,000; 30 percent on the next $30,000; and 40 percent on any income over $80,000. Family A has income of $40,000 and Family B has income of $100,000. What is the marginal and average tax rate for each family?
A) Family A: marginal-10 percent; average-10 percent; Family B: marginal-30 percent; average-30 percent.
B) Family A: marginal-20 percent; average-10 percent; Family B: marginal-40 percent; average-23 percent.
C) Family A: marginal-20 percent; average-20 percent; Family B: marginal-40 percent; average-40 percent.
D) Family A: marginal-20 percent; average-15 percent; Family B: marginal-40 percent; average-20 percent.
Q2) Which of the following is NOT an important source of revenue for the federal government?
A) individual income taxes
B) property taxes
C) social insurance taxes and contributions
D) corporate income taxes
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Chapter 7: The Macroeconomy: Unemployment, Inflation, and Deflation
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Q1) Which of the following measures gives the earliest warning of increasing inflation?
A) The Consumer Price Index
B) The Producer Price Index
C) The Personal Consumption Expenditure Index
D) All of these should signal the same short-run inflation
Q2) To prevent frictional unemployment, we would have to
A) make sure that market demand for goods is stable over time.
B) eliminate the business cycle.
C) prevent people from leaving their jobs before finding another job.
D) make sure everyone went to college.
Q3) Frictional unemployment is
A) related to job search difficulties for potential workers.
B) a result of a poor match of worker's abilities and skills with current requirements of employers.
C) a result of business recessions that occur when aggregate demand is insufficient to create full employment.
D) a result of the seasonal pattern of work in specific industries.
Q4) How are inflation and the purchasing power of money related?
Q5) In what ways is the consumer price index flawed?
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Chapter 8: Measuring the Economys Performance
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Q1) Assume that the nominal GDP for a given year is equal to $12,400 billion and the GDP deflator equals 112. Real GDP for that year is approximately
A) $13,888.0 billion.
B) $12,512.0 billion.
C) $11,071.4 billion.
D) $12,228.1 billion.
Q2) Examples of nondurable consumer goods include all of the following EXCEPT A) a pizza delivered to your home.
B) a cup of coffee.
C) a stereo system.
D) a ticket to the movies.
Q3) If consumption expenditures are $500, spending on fixed investment is $100, imports are $40, exports are $75, the capital consumption allowance is $25, government spending is $50, and inventories have fallen by $5, then Gross Domestic Product (GDP) is
A) $25 greater than NDP.
B) $20 greater than NDP.
C) $50 greater than NDP.
D) the same as NDP.
Q4) Explain the two main methods used to measure GDP.
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Chapter 9: Global Economic Growth and Development
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Sample Questions
Q1) Human capital is
A) the saving done by human beings.
B) the knowledge and skills that people in the work force acquire through education and training.
C) a measure of the labor productivity of workers.
D) the investment people make in industries that make capital goods.
Q2) Which of the following variables is used to measure economic growth?
A) nominal GDP
B) nominal GDP per capita
C) real GDP
D) real GDP per capita
Q3) Economic growth can be depicted as
A) a movement up on the production possibilities curve.
B) a movement down on the production possibilities curve.
C) an outward shift on the production possibilities curve.
D) an inward shift on the production possibilities curve.
Q4) Explain the relationship between economic growth and labor productivity.
Q5) "There is a direct relationship between economic growth rates and the wealth of a nation." Do you agree or disagree? Why?
Page 11
Q6) Why might population growth and immigration stimulate economic growth?
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Chapter 10: Real GDP and the Price Level in the Long Run
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Q1) The real-balance effect refers to
A) the real interest rate.
B) the production of real goods and services as opposed to financial instruments.
C) the prices of goods and services.
D) the real value of cash balances that a person is holding.
Q2) Supply side inflation can be caused by
A) a continual increase in aggregate supply while aggregate demand remains unchanged.
B) a continual decrease in aggregate supply while aggregate demand remains unchanged.
C) a continual decrease in aggregate supply while aggregate demand has significant decreases.
D) a continual increase in aggregate demand while aggregate supply remains unchanged.
Q3) When interest rates rise,
A) borrowing costs increase, and total planned real expenditures decline.
B) borrowing costs increase and total planned real expenditures increase.
C) borrowing costs decline, and total planned real expenditures increase.
D) borrowing costs decline, and total planned real expenditures decline.
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Page 12
Chapter 11: Classical and Keynesian Macro Analyses
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Q1) According to classical theory, a shift in aggregate demand will affect
A) the price level only.
B) real Gross Domestic Product (GDP) only.
C) the level of employment only.
D) both real Gross Domestic Product (GDP) and the level of employment.
Q2) The implication of Say's law is that
A) Gross Domestic Product is the same whether we use the expenditure approach or the income approach.
B) a barter economy is the most efficient economy.
C) increased consumption today leads to increased production tomorrow.
D) overproduction in a market economy is not possible.
Q3) The short-run aggregate supply curve is horizontal if
A) resources were fully utilized.
B) there are unutilized resources in the economy.
C) resources are perfectly adaptable between production processes.
D) there are high inflation rates.
Q4) What effect does a stronger dollar have on aggregate supply? Why?
Q5) What is the shape of the modern short-run aggregate supply (SRAS) curve? Why?
Q6) Using a graph, show the effects of a weaker dollar on the economy. Explain.
Q7) What is Say's Law and what does it mean?
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Chapter 12: Consumption, Real GDP, and the Multiplier
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Q1) Refer to the above figure. Line BCD is called
A) the saving function.
B) the savings function.
C) the 45-degree line.
D) the consumption function.
Q2) The marginal propensity to consume is calculated by
A) dividing consumption by income.
B) dividing income by consumption.
C) dividing the change in income by the change in consumption.
D) dividing the change in consumption by the change in income.
Q3) Suppose marginal propensity to consume (MPC) is 0.7 and there is a $1,000 increase in autonomous consumption. Given this information, real GDP will increase by A) $3,333.
B) $1,429.
C) $1,000.
D) $700.
Q4) Suppose autonomous consumption is $1 trillion, investment spending is $1.5 trillion, and the marginal propensity to consume is 0.75. Show the graph for the C + I curve. What is the equilibrium level of real GDP? Explain its meaning.
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Chapter 13: Fiscal Policy
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Q1) Refer to the above figure. If the economy is currently operating at point C, then there is
A) a stable long-run equilibrium situation.
B) a recessionary gap.
C) an inflationary gap.
D) unemployment.
Q2) If an increase in government spending causes an increase in government borrowing, this could induce
A) an increase in interest rates, which would cause private domestic investment to fall.
B) an increase in interest rates, which would cause private domestic investment to rise.
C) an increase in interest rates but no effect on private domestic investment.
D) a decrease in interest rates, which would cause private domestic investment to rise.
Q3) All of the following are automatic stabilizers EXCEPT
A) discretionary increases in government spending.
B) income transfer payments.
C) progressive income tax system.
D) unemployment compensation.
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Chapter 14: Deficit Spending and the Public Debt
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Q1) Gross public debt is the amount of funds that
A) U.S. residents owe to foreign residents.
B) states owe to the federal government.
C) the federal government owes to taxpayers.
D) the federal government owes to all holders of U.S. securities.
Q2) Net public debt is the
A) difference between tax revenues and government expenditures each year.
B) sum of accumulated government deficits and surpluses held by individuals and businesses and foreign institutions.
C) sum of accumulated government deficits and surpluses held by U.S. government agencies.
D) sum of accumulated government deficits and surpluses held by large money center banks.
Q3) The difference between net public debt and gross public debt is
A) all government interagency borrowing.
B) the interest paid annually on the public debt.
C) the amount owed to individuals and firms outside the United States.
D) the current year's budget deficit from the amount of public debt at the start of the year.
Q4) Explain how deficit spending can benefit future generations.
Page 16
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Chapter 15: Money, Banking, and Central Banking
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Q1) The money supply that consists of currency, transaction deposits, and traveler's checks is
A) M1.
B) M2.
C) the fiduciary monetary system.
D) the liquidity approach.
Q2) Given the list of assets below, which is the most liquid?
A) $500 worth of General Motors common stock
B) $500 worth of General Motors bonds
C) A $500 travelers check
D) A one-ounce gold coin
Q3) When money provides a yardstick that allows individuals to compare the relative values of goods and services, it is functioning as a
A) medium of exchange.
B) unit of accounting.
C) store of value.
D) standard of deferred payment.
Q4) Why does the money supply increase when the Fed buys a bond but does not change when a business buys a bond?
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Chapter 16: Domestic and International Dimensions of Monetary Policy
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Q1) The equation of exchange is a formula indicating that the number of monetary units times
A) the number of times each monetary unit is spent on final goods and services is identical to the price level times real GDP.
B) the price level is identical to the number of times each monetary unit is spent on final goods and services times real GDP.
C) real GDP is identical to the price level times the number of times each monetary unit is spent on final goods and services.
D) nominal GDP is identical to the price level times the number of times each monetary unit is spent on final goods and services.
Q2) The asset demand for money is related to the function of money called A) medium of exchange.
B) unit of account.
C) store of value.
D) standard of deferred payment.
Q3) What is the equation of exchange? How can the equation of exchange be converted into the quantity theory of money?
Q4) What does the demand curve for money look like? Why?
Page 18
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Chapter 17: Stabilization in an Integrated World Economy
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Q1) The idea that policy actions have no real effects in the short run if they are anticipated and no real effects in the long run is called the
A) Keynesian proposition.
B) policy irrelevance proposition.
C) adaptive proposition.
D) activism proposition.
Q2) The inflation rate has been constant for several years at 4 percent, and the unemployment rate has been stable at 6 percent over the same time period. Changes in government policy that cause the inflation rate to rise to 6 percent will
A) have no effect on the unemployment rate.
B) cause the unemployment rate to fall in the short run.
C) cause the unemployment rate to rise to 9 percent in the short run.
D) cause the unemployment rate to rise in the short run, but we cannot tell by how much.
Q3) The real business cycle theory
A) indicates that supply side shocks cause most business cycles.
B) indicates that demand side shocks cause most business cycles.
C) indicates that rapid changes in the money supply cause most business cycles.
D) indicates that faulty fiscal policy creates most business cycles.
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Page 19
Chapter 18: Policies and Prospects for Global Economic Growth
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Q1) The World Bank
A) determines the price level in each of its member nations.
B) determines the labor force participation rate in each of its member nations.
C) mediates contracts regarding minimum prices for various globally-traded commodities.
D) extends long-term loans for capital investment projects to developing nations.
Q2) Any capital resource that lacks clear title ownership is
A) the result of foreign direct investment.
B) dead capital.
C) capital destruction.
D) free capital.
Q3) Country X has experienced GDP growth of 6 percent and a population growth of 4 percent. What is this country's growth of per capita real GDP?
A) 2 percent
B) 10 percent
C) 6 percent
D) -2 percent
Q4) What is the mission of the International Monetary Fund (IMF)?
Q5) What are the sources of private investments in foreign nations?
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Chapter 19: Demand and Supply Elasticity
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Q1) When demand is perfectly inelastic, an increase in price will A) leave total revenue unchanged.
B) increase total revenue.
C) decrease total revenue.
D) either increase total revenue or decrease total revenue, but it is impossible to tell which.
Q2) Refer to the above table. The price of Y decreases from $18 to $15. What is the cross price elasticity of demand between Y and X?
A) -0.73
B) -1.0
C) +1.38
D) +1.83
Q3) When the absolute price elasticity of demand equals 0.67, demand is A) elastic.
B) unit-elastic.
C) inelastic.
D) undetermined without more information.
Q4) How does the cross elasticity of demand differ from the price elasticity of demand? How are they related?
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Chapter 20: Consumer Choice
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Q1) The quantity of good A is measured along the vertical axis, and the quantity of good B is measures along the horizontal axis. If the price of Good A falls
A) the vertical intercept of the budget line moves along the vertical axis away from the origin.
B) of the budget line will increase.
B) the vertical intercept of the budget line moves along the vertical axis toward the origin.
C) the horizontal intercept (along Good D) none of the above
Q2) A consumer optimum is characterized by
A) the marginal rate of substitution of one good divided by its price equal to the marginal rate of substitution of the other good divided by its price.
B) the marginal rate of substitution equal to unity.
C) the marginal rate of substitution equal to the ratio of the prices of the two goods.
D) the marginal rate of substitution divided by the price ratio of the two goods equal to the income of the consumer.
Q3) What is the principle of diminishing marginal utility?
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Chapter 21: Rents, Profits, and the Financial Environment of Business
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Q1) Suppose that the implicit cost for a business was $1,000 and the explicit cost was $5,000 and that the firm sold 1,000 units of its products at $6 per item. We can conclude that the firm's
A) accounting profit was $6,000, and its economic profit was $0.
B) accounting and economic profits were both $0.
C) accounting profit was $1,000, and economic profit cannot be determined.
D) accounting profit was $1,000, and economic profit was $0.
Q2) Economic rent directs resources to
A) the people who can use them most efficiently.
B) people only.
C) large corporations.
D) labor-intensive industries only.
Q3) What is the relationship between accounting and economic profits?
A) Accounting profits are always larger than economic profits.
B) Economic profits are always larger than accounting profits.
C) There is no relationship between economic and accounting profits.
D) Economic profits are always negative.
Q4) What are the two meanings of interest in economics?
Q6) What would happen if a corporation goes out of business? Page 23
Q5) Which method of corporate finance is used the most? Why?
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Chapter 22: The Firm: Cost and Output Determination
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Q1) When long-run average costs decline as output increases, the firm is experiencing
A) negative returns to scale.
B) diseconomies of scale.
C) constant returns to scale.
D) economies of scale.
Q2) Which of the following is a long-run adjustment?
A) A restaurant hires a new chef.
B) A company builds a new manufacturing plant.
C) A bank hires a new CEO.
D) A company hires ten new management trainees.
Q3) If average total cost is decreasing as more and more units are produced, then marginal cost must be
A) rising.
B) constant.
C) below average total cost.
D) negative.
Q4) What is the difference between average variable costs and average total costs?
Q5) Why might firms experience diseconomies of scale?
Q6) What is the relationship between marginal cost and marginal physical product?
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Chapter 23: Perfect Competition
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Q1) Which of the following could generate economic profits for perfectly competitive firms in the short run, if they initially earn zero economic profits?
A) A fall in demand
B) A unit tax on output
C) An increase in total fixed costs
D) A decrease in input prices
Q2) The equation TR/Q is used to compute
A) total cost.
B) average revenue.
C) demand.
D) marginal revenue.
Q3) In a perfectly competitive market structure any firm can enter or leave the industry without serious impediments. This implies
A) the products sold will be alike.
B) firms will move labor and capital in pursuit of profit-making opportunities to whatever business venture gives them the highest return on their investment.
C) no one buyer or seller has any influence on price.
D) consumers are able to find out about lower prices charged by other firms.
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Chapter 24: Monopoly
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Q1) A firm that can determine the price-output combination in order to maximize profit is known as a
A) price searcher.
B) price taker.
C) demand searcher.
D) cost taker.
Q2) In a perfectly competitive market, consumer surplus typically is A) positive.
B) negative.
C) zero.
D) undefined.
Q3) A monopolist is producing at an output level at which ATC = $5, P = $6, MC = $4, and MR = $3. We can conclude that
A) economic profit could be increased by producing more.
B) economic profit could be increased by producing less.
C) economic profit cannot be increased.
D) the firm is earning $10 in economic profits.
Q4) Why is a monopoly inefficient?
Q5) Why is price less than marginal revenue for a monopolist?
Q6) Why would economies of scale be a barrier to entry?
Page 27
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Chapter 25: Monopolistic Competition
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Q1) Refer to the above figure. The above figure shows the cost structure of a firm producing an information product. Which curve represents average fixed cost?
A) Curve 1
B) Curve 2
C) Curve 3
D) Any of the 3 could be AFC.
Q2) Why can't a monopolistic competitor earn economic profits in the long run?
Q3) In a monopolistically competitive market, a firm should advertise to the point at which
A) it is selling the most units it can possibly sell.
B) the extra revenue from an additional dollar spent on advertising just equals the marginal cost of producing one more unit of the good.
C) the additional revenue generated by one more dollar of advertising just equals the extra dollar cost of advertising.
D) it can raise price to the highest level possible.
Q4) Why do firms in a monopolistically competitive industry advertise?
Q5) How does an information product differ from a product such as a desk?
Q6) Explain how information products are "special."
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Chapter 26: Oligopoly and Strategic Behavior
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Q1) The most common reason for the existence of oligopolies is
A) ease of entry.
B) economies of scale.
C) diseconomies of scale.
D) advertising.
Q2) Refer to the above figure. The figure gives the payoff matrix for two individuals who are being accused of robbing a bank together. What is dominant strategy for Bob?
A) Confess.
B) Don't confess.
C) Flip a coin to decide what to do.
D) There is no dominant strategy.
Q3) Which of the following is most likely to be sold in an oligopoly market?
A) Pizza
B) Cell phone service
C) Electricity
D) Computer software
Q4) What is meant by the concentration of an industry? How is concentration measured? What are likely causes of high concentration?
Q5) Explain the basic operations of an economic game.
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Chapter 27: Regulation and Antitrust Policy in a Globalized Economy
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Q1) A theory of regulatory behavior, which states that regulators must take into account the preferences of legislators, producers, and consumers, is the A) capture theory.
B) share-the-gains, share-the-pains theory.
C) public interest theory.
D) general interests theory.
Q2) What is the problem with marginal cost pricing in the natural monopoly situation? How do regulatory agencies in the United States usually handle the problem?
Q3) The primary purpose of economic regulation of an industry is to
A) control the prices charged by the regulated industry.
B) increase taxes across the board.
C) reduce output.
D) control hiring and firing within the industry.
Q4) Which of the following is the outcome of the lemons problem in the used-car market?
A) Only low-quality cars will be traded in the market.
B) Only high-quality cars will be traded in the market.
C) Both low-quality and high-quality cars will be traded in the market.
D) No cars will be traded in the market.
Page 30
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Chapter 28: The Labor Market: Demand, Supply and Outsourcing
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Q1) A decrease in the marginal factor cost of labor will
A) lead to an decrease in the quantity demanded of labor.
B) induce a firm to hire fewer workers.
C) induce a firm to hire more workers.
D) cause the value of the marginal product of labor to decrease.
Q2) "Other things being equal, the monopolist hires fewer workers than would be hired than a perfectly competitive industry." Do you agree or disagree? Why?
Q3) If a firm wants to maximize profits, it should hire workers up to the point at which
A) total factor cost = total revenue.
B) marginal factor cost = marginal revenue product.
C) marginal utility = marginal cost.
D) total social benefit = total social costs.
Q4) The more inelastic the consumer demand for the final product, the
A) greater will be the economic profit in a competitive market.
B) greater the impact on employment from a change in the wage rate.
C) more inelastic the demand for labor producing the product.
D) more responsive the output demand to a change in the price of labor.
Q5) Explain the efficiency wage theory.
Q6) What would make the demand for labor more elastic?
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Chapter 29: Unions and Labor Market Monopoly Power
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Q1) The type of labor agreement that requires workers to be union members prior to being considered for employment is a
A) right-to-work agreement.
B) closed-shop agreement.
C) union shop agreement.
D) open-shop agreement.
Q2) The U.S. labor movement started with
A) aerospace workers unions.
B) industrial unions.
C) craft unions.
D) depression unions.
Q3) Which of the following is legal under the Taft-Hartley Act?
A) Closed shops
B) Collective bargaining
C) Secondary boycotts
D) Sympathy strikes
Q4) Discuss the benefits of unions.
Q5) Can unions increase productivity? Explain.
Q6) What was the overall trend of U.S. union membership beginning the 1960s? What was the main reason behind that trend?
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Chapter 30: Income, Poverty, and Health Care
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Q1) The age-earnings profile predicts that earnings will peak at
A) the 35-40 age level.
B) the 45-50 age level.
C) the 60-65 age level.
D) retirement.
Q2) Which of the following statements is an accurate statement about the Social Security (OASDI) program?
A) The program is financed by voluntary contributions.
B) Only 50 percent of workers are covered by OASDI.
C) Benefits are based on financial need.
D) The program transfers income from those who work to those who do not work.
Q3) Since the 1930s, out-of-pocket payments for health care have
A) declined from about 50 to 30 percent of total payments.
B) declined from about 95 to 20 percent of total payments.
C) declined from about 70 to 30 percent of total payments.
D) not changed and remain at 70 percent of total payments.
Q4) Explain the two theories of desired income distribution: the egalitarian principle and the productivity standard.
Q5) Why have health care costs risen so much in recent years?
Q6) Why doesn't the age-earning cycle continuously increase until retirement age?
Page 33
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Chapter 31: Environmental Economics
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Q1) What is common property? What does common property have to do with externalities?
Q2) Social costs are
A) costs borne by society whenever a resource-using action takes place.
B) costs incurred by government and borne by all taxpayers.
C) costs incurred in governmental welfare programs.
D) external costs minus internal costs.
Q3) A social cost that is not fully paid by the individual using an automobile is A) traffic congestion.
B) gasoline and oil.
C) insurance.
D) depreciation of the vehicle.
Q4) Private property rights are A) an externality.
B) a social cost.
C) property that is owned by everyone and therefore by no one.
D) exclusive rights of ownership.
Q5) "The optimal level of pollution is zero." Do you agree or disagree? Why?
Q6) What is an externality?
Q7) Explain how the optimal quantity of air pollution is determined.
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Chapter 32: Comparative Advantage and the Open Economy
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Q1) If protective import-restricting quota are imposed by a country, in the majority of cases that nation's consumers end up
A) paying a lower price for the good than they otherwise would.
B) consuming more of the good than they otherwise would.
C) having more consumption choices than they otherwise would.
D) consuming less of the good than they otherwise would.
Q2) The net effect of regional trade agreements has been
A) an increase in the total amount of trade in the world.
B) a decrease in the total amount of trade in the world.
C) no change in the total amount of trade in the world.
D) either an increase or decrease in the amount of trade in the world, depending on where trade takes place.
Q3) Using the data in the above table, and assuming constant opportunity costs, it is likely that
A) the United States will import food.
B) Mexico will export cloth.
C) the United States will export both cloth and food.
D) Mexico will export both cloth and food.
Q4) Why is trade based on comparative advantage?
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Chapter 33: Exchange Rates and the Balance of Payments
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Q1) When the dollar price of a British pound is $0.20, it is correct to state that an American traveling in England will receive ________ pounds per dollar.
A) 2
B) 4
C) 5
D) 20
Q2) Using the above figure. A rightward shift of the supply curve, ceteris paribus, would result in
A) dollar appreciation.
B) euro appreciation.
C) dollar depreciation.
D) decreasing the equilibrium quantity of euros.
Q3) The largest portion of any nation's current account is typically
A) imports and exports.
B) gold sales.
C) the sale of U.S. assets.
D) SDRs.
Q4) What does it mean when the dollar appreciates? What does it mean when the dollar depreciates?
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