Economic Analysis Exam Bank
Course Introduction
Economic Analysis is a foundational course that introduces students to the core principles and methodologies used to evaluate economic decision-making at both the individual and societal levels. The course covers key topics such as supply and demand, market equilibrium, consumer and producer behavior, production and cost analysis, market structures, and the impact of government interventions. Students will develop analytical tools to assess real-world economic issues, interpret data, and apply economic reasoning to inform business and policy decisions, preparing them for advanced studies in economics and related fields.
Recommended Textbook
Microeconomics 3rd Australian Edition by Glenn Hubbard
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Page 2
Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) When voluntary exchange takes place,neither party gains from the exchange.
A)True
B)False
Answer: False
Q2) How are the fundamental economic questions answered in a market economy?
A)The government alone decides the answers.
B)Individuals,firms,and the government interact in markets to decide the answers to these questions.
C)Households and firms interact in markets to decide the answers to these questions.
D)Large corporations alone decide the answers.
Answer: C
Q3) Trina's Tropical Fish Store sells goldfish for $2 each and angelfish for $10 each.What is the opportunity cost of buying a goldfish?
A)5 angelfish
B)1/5 of an angelfish
C)$10
D)$2
Answer: A
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3
Chapter 2: Choices and Trade-Offs in the Market
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Sample Questions
Q1) If a country is producing efficiently and is on the production possibility frontier,the country can produce more of one good without producing less of the other good.
A)True
B)False
Answer: False
Q2) Refer to Table 2-6.If the two countries specialise and trade,who should export digital cameras?
A)There is no basis for trade between the two countries.
B)China
C)South Korea
D)They should both be importing digital cameras.
Answer: C
Q3) Refer to Figure 2-7.What is the opportunity cost of producing 1 pound of cashews in Pakistan?
A)3/8 of a bolt of cotton
B)5/8 of a bolt of cotton
C)1 3/5 bolts of cotton
D)240 bolts of cotton
Answer: C
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Page 4
Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Sample Questions
Q1) Let D = demand,S = supply,P = equilibrium price,Q = equilibrium quantity.What happens in the market for walnuts if the Centers for Disease Control and Prevention announces that consuming a half cup of walnuts each week helps to lower bad levels of cholesterol?
A)D increases,S no change,P and Q increase
B)S increases,D no change,P decreases,Q increases
C)D and S increase,P and Q decrease
D)D no change,S increases,P decreases,Q decreases
Answer: A
Q2) A change in supply is represented by a shift of the supply curve.
A)True
B)False
Answer: True
Q3) If the price of petrol decreases,what will be the impact in the market for public transportation?
A)The demand curve for public transportation shifts to the right.
B)The quantity of public transportation demanded increases.
C)The demand curve for public transportation shifts to the left.
D)The quantity of public transportation demanded decreases.
Answer: C
Page 5
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Chapter 4: Elasticity: the Responsiveness of Demand and Supply
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Sample Questions
Q1) The price elasticity of demand for canned soup is estimated at -1.62.What happens to sales revenue if the price of canned soup rises?
A)It falls by 162 per cent.
B)It rises by 1.62 per cent.
C)It falls.
D)It rises.
Q2) If 50 units are sold at a price of $20 and 80 units are sold at a price of $15,what is the absolute value of the price elasticity of demand? Use the midpoint formula.
A)0.17
B)0.62
C)1.62
D)5
Q3) Demand for staples such as dairy products and bread is likely to be both income and price inelastic.
A)True
B)False
Q4) What factors would make you more sensitive or less sensitive to price when purchasing petrol?
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Chapter 5: Economic Efficiency, Government Price Setting and Taxes
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Sample Questions
Q1) The sum of consumer surplus and producer surplus is called economic surplus.
A)True
B)False
Q2) If the market price is at equilibrium,the deadweight loss is maximised.
A)True
B)False
Q3) The area ________ the market supply curve and ________ the market price is equal to the total amount of producer surplus in a market.
A)above;above
B)above;below
C)below;above
D)below;below
Q4) If the demand curve for a product is vertical,any tax increase on the product is paid for entirely by the consumer.
A)True
B)False
Q5) If marginal benefit is greater than marginal cost,output is inefficiently high.
A)True
B)False
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Chapter 6: Consumer Choice and Behavioural Economics
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Sample Questions
Q1) Some economists have argued that path dependency and switching costs can lead to market failure.Which of the following is an example of this argument?
A)Costly celebrity endorsements lead many consumers to buy a product even though it is more expensive or less effective than a product that is not endorsed by a celebrity.
B)A consumer who won a lottery for a Super Bowl ticket refuses to sell it for $3000 even though he would not have paid $3000 for a ticket if he had not won the lottery.
C)While playing the ultimate game,an allocator decides to share $20 equally with a recipient rather than keep the $20 for herself.
D)VHS video recorders became more popular with consumers than Sony Betamax recorders even though the Betamax recorders embodied a superior technology.
Q2) The only Giffen goods that have been identified so far in the real world are luxury goods.
A)True
B)False
Q3) Why might network externalities result in products that contain inferior technologies?
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Chapter 7: Technology, Production and Costs
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Sample Questions
Q1) Refer to Figure 7-2.Short run output is maximised at
A)L<sub>1</sub>.
B)L<sub>2</sub>.
C)L<sub>3</sub>.
D)insufficient information to determine
Q2) The division of labour and specialisation explain
A)why,when the marginal product of labour increases,so does the average product of labour.
B)why the average product of labour falls when firms use more capital or change the layout of their businesses.
C)why the marginal product of labour rises as a firm hires its first units of labour.
D)why firms may find it profitable to use more workers when the marginal product of labour is negative.
Q3) Refer to Table 7-1.What is the marginal product of the 4th worker?
A)137 pounds
B)50 pounds
C)12.5 pounds
D)5 pounds
Q4) Describe the difference between technology and positive technological change.
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Chapter 8: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) Perfect competition is characterised by all of the following except
A)heavy advertising by individual sellers.
B)homogeneous products.
C)sellers are price takers.
D)a horizontal demand curve for individual sellers.
Q2) If,for a given output level,a perfectly competitive firm's price is less than its average variable cost,the firm
A)is earning a profit.
B)should shut down.
C)should increase output.
D)should increase price.
Q3) A perfectly competitive firm's short-run supply curve is
A)upward sloping and is the portion of the marginal cost curve that lies above the average total cost curve.
B)upward sloping and is the portion of the marginal cost curve that lies above the average variable cost curve.
C)perfectly elastic at the market price.
D)horizontal at the minimum average total cost.
Q4) Under what conditions should a competitive firm shut down in the short run?
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Chapter 9: Monopoly Markets
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Sample Questions
Q1) Identify four reasons for high entry barriers.Briefly explain each reason.
Q2) How do the price and quantity of a monopoly compare to that of a perfectly competitive industry?
Q3) Refer to Figure 9-4.What is the price charged for the profit-maximising output level?
A)$13
B)$21
C)$27
D)$34
Q4) Which of the following undermines a firm's ability to engage in price discrimination?
A)the seller's market power
B)the inability to prevent resale of the product from one market segment to another C)buyers having different elasticities of demand for the product
D)the seller's ability to segment the total market
Q5) The market demand curve facing a monopolist is more elastic than the market demand curve facing a monopolistic competitor.
A)True
B)False
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Chapter 10: Monopolistic Competition
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Sample Questions
Q1) Suppose a monopolistically competitive firm sells 25 units at a price of $10.Calculate its marginal revenue per unit of output if it sells 5 more units of output when it reduced its price to $9.
A)$270
B)$20
C)$4
D)$2.50
Q2) Refer to Figure 10-5.The chocolate store represented in the diagram is currently selling Q<sub>a</sub> units of candy at a price of P<sub>a</sub>.Is this candy store maximising its profit and if it is not,what would you recommend to the firm?
A)Yes,it is maximising its profit by charging the highest price possible.
B)No,it is not;since its marginal cost is constant,it should produce and sell as much chocolate as it can.It should sell Q<sub>d</sub> units at a price of P<sub>d</sub>.
C)No,it is not;it should lower its price to P<sub>c</sub> and sell Q<sub>c</sub> units.
D)No,it is not;it should lower its price to P<sub>b</sub> and sell Q<sub>b</sub> units.
Q3) What is the difference between the terms 'marketing' and 'advertising'?
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Page 12
Chapter 11: Oligopoly: Firms in Less Competitive Markets
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Sample Questions
Q1) Which of the following is important in determining the extent of competition in an industry?
A)the minimum level of short-run average total costs of production
B)the minimum efficient scale of production relative to market demand
C)whether or not the industry product is differentiated or standardised
D)the level of market demand for the industry's product
Q2) Airlines often engage in last-minute price cutting to fill remaining empty seats on a flight because this practice will generally
A)prevent rival airlines from competing in that market.
B)increase marginal revenue more than marginal cost.
C)maximise marginal revenue.
D)discourage rivals from matching price cuts.
Q3) The barrier to entry that allowed Alcoa to make persistent economic profits was ownership of an essential input.
A)True
B)False
Q4) Explain why member firms of a cartel like OPEC have incentives to agree to a low cartel production level and then produce more than its quota.
Q5) Explain why OPEC is caught in a prisoner's dilemma?
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Chapter 12: The Markets for Labour and Other Factors of Production
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Sample Questions
Q1) The income effect of a wage increase will cause a worker to devote
A)more time to labour and more time to leisure.
B)more time to labour and less time to leisure.
C)less time to labour and more time to leisure.
D)less time to labour and less time to leisure.
Q2) Refer to Table 12-4.What are the price and quantity of workers that result in the maximum amount of profit Apple would earn from selling iPods?
A)$140;2
B)$160;2
C)$140;3
D)$180;1
Q3) If the labour supply is unchanged,an increase in the demand for labour will
A)increase the equilibrium wage and decrease the number of workers employed.
B)increase the equilibrium wage and increase the quantity of jobs demanded.
C)decrease the equilibrium wage and increase the number of workers employed.
D)increase the equilibrium wage and increase the number of workers employed.
Q4) What is the marginal productivity theory of income distribution?
Q5) What are the five most important variables that cause the market demand curve for labour to shift?
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Chapter 13: International Trade
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Sample Questions
Q1) Many people assume that if child workers in developing countries weren't working in factories,they would be in school.In fact,children in developing countries
A)split their time evenly between work and school.
B)usually have few good alternatives to work.
C)are only allowed to work if they have attended school up to age 15.
D)who work are relatively rare,as most do attend school full time.
Q2) Refer to Table 13-6.If the actual terms of trade are 1 hat for 1.8 clocks and 150 hats are traded,how many clocks will Denmark consume?
A)270
B)900
C)930
D)1200
Q3) Firms offshore
A)to obtain a higher quality product regardless of the cost.
B)because domestic resources cannot do the job.
C)to escape tariffs.
D)because costs of production are lower if the firm uses resources in another country.
Q4) Why do domestic firms offshore production processes?
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Page 15
Chapter 14: Government Intervention in the Market
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Q1) Economists often analyse the interaction of individuals and firms in markets.Economists also examine the actions of individuals and firms as they attempt to use government to make themselves better off at the expense of others,a process that is referred to as
A)rent seeking.
B)logrolling.
C)government failure.
D)the public choice initiative.
Q2) A trademark is
A)a legal instrument which grants a firm the right to differentiate its product.
B)a legal right to position a firm's product in high-traffic public areas such as airports and post offices.
C)a patent on a firm's product.
D)a distinguishing attribute such as a sign or logo that allows a firm to uniquely identify its product.
Q3) 'When it comes to public goods,individuals do not reveal their true preferences because it is not in their self-interest to do so.' Evaluate this statement.
Q4) What is the principle-agent problem?
Q5) What is moral hazard?
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Chapter 15: Externalities, Environmental Policy and Public Goods
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Sample Questions
Q1) A tragedy of the commons occurs when a resource is
A)rival and excludable.
B)rival and non-excludable.
C)non-rival and non-excludable.
D)non-rival and excludable.
Q2) When there is a positive externality,
A)the private benefit received by consumers is greater than the external benefit.
B)the social benefit received by consumers is greater than the private benefit.
C)the private benefit received by consumers is greater than the private cost.
D)the private benefit received by consumers is greater than the social benefit.
Q3) Some environmentalists have criticised tradable emissions allowances on the grounds that they give permit holders a license to pollute.Furthermore,environmentalists argue that those who sell their permits receive a monetary benefit from their contribution to polluting the environment.Use economic reasoning to evaluate this criticism.
Q4) What is a private benefit from consumption? What is a social benefit from consumption? When is the private benefit from consumption equal to the social benefit from consumption?
Q5) State the Coase theorem.
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Chapter 16: The Distribution of Income and Social Policy
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Sample Questions
Q1) Refer to Figure 16-2.If the government imposes an excise tax of $1.00 on every unit sold,the consumer's burden of the tax
A)is P<sub>a</sub><sub> </sub>- P<sub>c</sub><sub> </sub>under either supply curve. B)is P<sub>b</sub><sub> </sub>- P<sub>c</sub><sub> </sub>under either supply curve.
C)is P<sub>a</sub><sub> </sub>- P<sub>c</sub> if the supply curve is S<sub>0</sub> and P<sub>b</sub><sub> </sub>- P<sub>c</sub><sub> </sub>if the supply curve is S<sub>1</sub>.
D)is P<sub>a</sub><sub> </sub>- P<sub>d</sub> if the supply curve is S<sub>0</sub> and P<sub>b</sub><sub> </sub>- P<sub>e</sub><sub> </sub>if the supply curve is S<sub>1</sub>.
Q2) A Gini coefficient of ________ means that an income distribution is perfectly equal and a Gini coefficient of ________ means the income distribution is perfectly unequal.
A)0;1
B)1;0
C)0;100
D)100;0
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