Economic Analysis
Final Test Solutions
Course Introduction
Economic Analysis provides students with a comprehensive understanding of the fundamental principles and tools used to evaluate economic issues and inform decision-making processes. The course covers both microeconomic and macroeconomic perspectives, exploring topics such as supply and demand, market structures, consumer behavior, production costs, and the role of government intervention in the economy. Students learn to apply quantitative and qualitative techniques to analyze real-world economic data, assess the efficiency of markets, evaluate the impact of policy decisions, and interpret economic indicators. By developing analytical and critical thinking skills, students are equipped to make informed judgments about economic problems facing individuals, businesses, and societies.
Recommended Textbook
Economics 20th Edition Volume I and Volume II by Campbell R. McConnell
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21 Chapters
2785 Verified Questions
2785 Flashcards
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Chapter 1: Limits, Alternatives, and Choices
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210 Verified Questions
210 Flashcards
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Sample Questions
Q1) Macroeconomics approaches the study of economics from the viewpoint of:
A) the entire economy.
B) governmental units.
C) the operation of specific product and resource markets.
D) individual firms.
Answer: A
Q2) Alex sees that his neighbors' lawns all need mowing.He offers to provide the service in exchange for a wage of $20 per hour.Some neighbors accept Alex's offer and others refuse.Economists would describe Alex's behavior as:
A) rational self-interest because he is attempting to increase his own income by identifying and satisfying someone else's wants.
B) greedy because he is asking for a high wage that some of his neighbors can't afford to pay.
C) selfish because he is asking for a wage that is higher than others might charge.
D) irrational because some neighbors refused his offer.
Answer: A
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3
Chapter 2: The Market System and the Circular Flow
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109 Flashcards
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Sample Questions
Q1) Continued losses in an industry will cause some firms to reduce output or eventually leave the industry.
A)True
B)False
Answer: True
Q2) Examples of command economies are:
A) the United States and Japan.
B) Sweden and Norway.
C) Mexico and Brazil.
D) Cuba and North Korea.
Answer: D
Q3) The advent of DVDs has virtually demolished the market for videocassettes.This is an example of:
A) creative destruction.
B) derived demand.
C) capital accumulation.
D) the difference between normal and economic profits.
Answer: A
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Chapter 3: Demand, Supply, and Market Equilibrium
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180 Verified Questions
180 Flashcards
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Sample Questions
Q1) A government tax per unit of output reduces supply.
A)True
B)False
Answer: True
Q2) When the price of a product rises,consumers with a given money income shift their purchases to other products whose prices are now relatively lower.This statement describes:
A) an inferior good.
B) the rationing function of prices.
C) the substitution effect.
D) the income effect.
Answer: C
Q3) In moving along a demand curve,which of the following is not held constant?
A) The price of the product for which the demand curve is relevant.
B) Price expectations.
C) Consumer incomes.
D) Prices of complementary goods.
Answer: A
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Chapter 4: Market Failures: Public Goods and Externalities
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Sample Questions
Q1) In response to the financial crisis that began in 2007,the government began to bail out banks deemed "too big to fail." Critics of this action argued that this would create the prospect of future bailouts and encourage banks to be fiscally irresponsible in the future.This illustrates:
A) the adverse selection problem.
B) the moral hazard problem.
C) the principal-agent problem.
D) logrolling.
Q2) Because the federal government typically provides disaster relief to farmers,many farmers do not buy crop insurance even through it is federally subsidized.This illustrates: A) the adverse selection problem.
B) the moral hazard problem.
C) the special interest effect.
D) logrolling.
Q3) Along a supply curve,product price and producer surplus are inversely related.
A)True B)False
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6
Chapter 5: Governments Role and Government Failure
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126 Flashcards
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Sample Questions
Q1) The problem of limited and bundled choices explains why many voters cannot fully express their political preferences.
A)True
B)False
Q2) The many layers of the federal government in the United States:
A) lead to economic inefficiencies because of difficulty aggregating and conveying information.
B) enhance government's ability make effective decisions quickly.
C) better allow the invisible hand to direct government resources to their best uses.
D) improve accountability of government officials,thus leading to more efficient policies.
Q3) Which of the following is an activity of government that is not an activity of private firms?
A) Enforcing involuntary transactions.
B) Paying equitable wages.
C) Creating positive externalities.
D) Pursuing economic efficiency.
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Chapter 6: Elasticity
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134 Flashcards
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Sample Questions
Q1) Answer the question on the basis of the following demand schedule:
\(\begin{array}{l}
\begin{array}{ccc}
&\text { Quantity }\\
\underline{\text { Price} } & \underline{\text { Demanded}} \\
\$6 & 1 \\
5 & 2 \\
4 & 3 \\
3 & 4 \\
2 & 5 \\
1 & 6
\end{array}
\end{array}\) Refer to the data.If this demand schedule were graphed,we would find that:
A) its slope diminishes as we move southeast down the curve.
B) its slope diminishes as we move northwest up the curve.
C) its slope is constant throughout.
D) the data are inconsistent with the law of demand.
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Page 8
Chapter 7: Utility Maximization
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106 Flashcards
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Sample Questions
Q1) According to economists,gift registries,returning gifts for cash refunds,and "recycling gifts":
A) are inefficient because the time spent in these activities is never worth the benefit recipients receive from doing them.
B) are equally efficient because the recipient gets exactly what he wants.
C) are more efficient than if givers simply gave cash gifts.
D) increase the efficiency of gift-giving because they allow the recipient to consume goods that provide greater utility and transfer away those goods that are less satisfying.
Q2) An indifference curve:
A) may be either upsloping or downsloping,depending on whether the two products are complements or substitutes.
B) is downsloping and convex to the origin.
C) is upsloping and has a constant slope.
D) is downsloping and concave to the origin.
Q3) It is possible for a consumer's indifference curves to intersect.
A)True
B)False
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Chapter 8: Behavioral Economics
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153 Verified Questions
153 Flashcards
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Sample Questions
Q1) Results of the dictator and ultimatum games reveal that people act in equally self-interested ways,regardless of the context or rules of the game.
A)True
B)False
Q2) Behavioral economists believe that people:
A) assess current and future options equally well.
B) do not care about fairness,especially if it impairs their ability to get what they want.
C) make errors in decision making because of problems such as bad information,but such errors are random and generally not repeated by the same individual.
D) often succumb to temptation.
Q3) Prospect theory and the work of behavioral economists confirm that consumers are economically rational.
A)True
B)False
Q4) Heuristics generally operate in brain System 2.
A)True
B)False
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Page 10
Chapter 9: Businesses and the Cost of Production
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159 Verified Questions
159 Flashcards
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Sample Questions
Q1) In the short run:
A) TVC will increase for a time at a diminishing rate,but then beyond some point will increase at an increasing rate.
B) TVC will increase for a time at an increasing rate,but then beyond some point will increase at a diminishing rate.
C) TVC will increase by the same absolute amount for each additional unit of output produced.
D) one cannot generalize concerning the behavior of TVC as output increases.
Q2) Marginal product:
A) diminishes at all levels of production.
B) may initially increase,then diminish,but never become negative.
C) may initially increase,then diminish,and ultimately become negative.
D) is always less than average product.
Q3) The short-run average total cost curve is U-shaped because:
A) average fixed costs decline continuously as output increases.
B) of increasing and diminishing returns.
C) of economies and diseconomies of scale.
D) minimum efficient scale is encountered.
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11
Chapter 10: Pure Competition in the Short Run
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115 Verified Questions
115 Flashcards
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Sample Questions
Q1) For a purely competitive seller,price equals:
A) average revenue.
B) marginal revenue.
C) total revenue divided by output.
D) all of these.
Q2) The demand curve in a purely competitive industry is ______,while the demand curve to a single firm in that industry is ______.
A) perfectly inelastic;perfectly elastic
B) downsloping;perfectly elastic
C) downsloping;perfectly inelastic
D) perfectly elastic;downsloping
Q3) In maximizing profit,a firm will always produce that output where total revenues are at a maximum.
A)True
B)False
Q4) On a per unit basis,economic profit can be determined as the difference between:
A) marginal revenue and product price.
B) product price and average total cost.
C) marginal revenue and marginal cost.
D) average fixed cost and product price.
12
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Chapter 11: Pure Competition in the Long Run
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69 Verified Questions
69 Flashcards
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Sample Questions
Q1) When a purely competitive firm is in long-run equilibrium:
A) marginal revenue exceeds marginal cost.
B) price equals marginal cost.
C) total revenue exceeds total cost.
D) minimum average total cost is less than the product price.
Q2) Long-run competitive equilibrium:
A) is realized only in constant-cost industries.
B) will never change once it is realized.
C) is not economically efficient.
D) results in zero economic profits.
Q3) (Last Word)Patents are most likely to infringe on innovation:
A) for products that incorporate many different technologies into a single product.
B) of simple,easy-to-copy products.
C) in the pharmaceutical industry.
D) when they cause creative destruction.
Q4) The process by which new firms and new products destroy existing dominant firms and their products is called creative destruction.
A)True
B)False
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Chapter 12: Pure Monopoly
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Sample Questions
Q1) A purely monopolistic firm:
A) has no entry barriers.
B) faces a downsloping demand curve.
C) produces a product or service for which there are many close substitutes.
D) earns only a normal profit in the long run.
Q2) Successful price discrimination requires that buyers charged the different prices be physically separated.
A)True
B)False
Q3) If a monopolist engages in price discrimination,it will:
A) realize a smaller profit.
B) charge a higher price where individual demand is inelastic and a lower price where individual demand is elastic.
C) produce a smaller output than when it did not discriminate.
D) charge a competitive price to all its customers.
Q4) Barriers to entering an industry:
A) encourage allocative efficiency.
B) encourage productive efficiency.
C) are the basis for monopoly.
D) apply only to purely monopolistic industries.
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Chapter 13: Monopolistic Competition and Oligopoly
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192 Verified Questions
192 Flashcards
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Sample Questions
Q1) Economic analysis of a monopolistically competitive industry is more complicated than that of pure competition because:
A) of product differentiation and consequent product promotion activities.
B) monopolistically competitive firms cannot realize an economic profit in the long run.
C) the number of firms in the industry is larger.
D) monopolistically competitive producers use strategic pricing strategies to combat rivals.
Q2) Which of the following is not a basic characteristic of monopolistic competition?
A) The use of trademarks and brand names.
B) Recognized mutual interdependence.
C) Product differentiation.
D) A relatively large number of sellers.
Q3) A simultaneous game is said to exist when:
A) firms are playing pricing games in different markets at the same time.
B) firms choose their strategies at the same time as their rivals.
C) firms can set multiple prices for the same good at the same time.
D) strategies are set without regard to possible interactions in future time periods.
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Chapter 14: Technology RD and Efficiency
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106 Verified Questions
106 Flashcards
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Sample Questions
Q1) Suppose that a firm successfully introduces a highly profitable new product.If this new product offers less marginal utility per unit to consumers than existing substitute products,then the:
A) laws of economics have been violated.
B) new product must have increasing,not diminishing,marginal utility.
C) existing products were being produced at a loss.
D) new product has a lower price than the existing substitute products.
Q2) The wide imitation and spread of an innovation is called:
A) innovation.
B) invention.
C) creative destruction.
D) diffusion.
Q3) Innovation:
A) is the first discovery of a product or process,rather than its first successful commercial introduction.
B) includes new products but not new production methods.
C) is also known as diffusion.
D) can either increase or decrease the market share of a large firm,depending on whether it is introduced by the large firm or one of its competitors.
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Page 16
Chapter 15: The Demand for Resources
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137 Flashcards
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Sample Questions
Q1) The marginal productivity theory of income distribution has been criticized because: A) the resulting distribution of income is likely to be too equal to maintain production incentives.
B) income from inherited property is inconsistent with the theory.
C) purely competitive conditions characterize most resource markets.
D) it fails to recognize that resource demand is derived from product demand.
Q2) The relationship between the elasticity of product demand and the elasticity of demand for labor employed in its production is such that,other things being equal:
A) the more elastic the demand for the product,the less elastic the demand for labor.
B) the more elastic the demand for the product,the more elastic the demand for labor.
C) the elasticity of product demand only affects the elasticity of labor demand when the product market is purely competitive.
D) if product demand is perfectly elastic,labor demand will be perfectly inelastic.
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Chapter 16: Wage Determination
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189 Flashcards
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Sample Questions
Q1) A monopsonistic employer may sell its product in a competitive market.
A)True
B)False
Q2) In which of the following U.S.industries is the rate of unionization the lowest?
A) Transportation.
B) Mining.
C) Manufacturing.
D) Finance.
Q3) Which of the following is a market imperfection that might explain persistent wage differentials within an occupation?
A) Geographical immobility of workers.
B) Readily available information about job opportunities and pay.
C) Principal-agent problems.
D) Compensating wage differentials.
Q4) Marginal resource (labor)cost will always exceed the wage rate when the employer is selling its product in an imperfectly competitive market.
A)True
B)False
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Chapter 17: Rent Interest and Profit
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Sample Questions
Q1) Demand is the active and supply the passive determinant of land rent.
A)True
B)False
Q2) Effective usury laws cause:
A) a surplus in the market for loanable funds.
B) the quantity of loanable funds demanded to be brought into balance with the quantity supplied.
C) the quantity of loanable funds demanded to exceed the quantity supplied.
D) the quantity of loanable funds supplied to exceed the quantity demanded.
Q3) The demand for land is:
A) perfectly elastic.
B) perfectly inelastic.
C) upsloping.
D) downsloping.
Q4) (Consider This)The story about economist Irving Fisher's conversation with his masseuse illustrates that interest payments arise because of:
A) the possibility of inflation.
B) the reality of credit risk.
C) imperfect information about the future.
D) the time-value of money.
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Chapter 18: Natural Resource and Energy Economics
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Sample Questions
Q1) Global resource demand has:
A) remained relatively constant because increases in population have been offset by declining consumption per person.
B) declined because of technological progress.
C) remained constant because population growth and increased consumption per person have been offset by technological progress.
D) increased because population growth and increased consumption per person have more than offset reduced demand due to technological progress.
Q2) Renewable resources:
A) can never be exhausted permanently.
B) can be exhausted if harvest rates exceed replenishment rates for an extended period. C) can be exhausted if replenishment rates exceed harvest rates for an extended period.
D) will tend to be overharvested when they are private property.
Q3) ITQs both limit catches and encourage fishing in the least costly way.
A)True
B)False
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Chapter 19: Public Finance: Expenditures and Taxes
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128 Verified Questions
128 Flashcards
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Sample Questions
Q1) Government lotteries are:
A) used by a large number of states to supplement their tax revenues.
B) illegal in the United States but are a common source of revenue in other countries.
C) used by local governments,but not by state governments.
D) a form of progressive taxation.
Q2) Currently (2013)the marginal tax rates of the federal personal income tax:
A) are less than corresponding average tax rates.
B) rise from 5 to 35 percent.
C) fall from 20 to 10 percent.
D) rise from 10 to 39.6 percent.
Q3) Suppose that government imposes a specific excise tax on product X of $2 per unit and that the price elasticity of supply of X is unitary (coefficient = 1).If the incidence of the tax is such that the consumers of X pay $1.85 of the tax and the producers pay $0.15,we can conclude that the:
A) supply of X is highly inelastic.
B) supply of X is highly elastic.
C) demand for X is highly inelastic.
D) demand for X is highly elastic.
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Chapter 20: Antitrust Policy and Regulation
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113 Flashcards
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Sample Questions
Q1) The government was successful in gaining an antitrust conviction in the:
A) U.S.Steel case.
B) IBM case.
C) Alcoa case.
D) DuPont cellophane case.
Q2) (Last Word)In 2001,Microsoft was found guilty of:
A) using anticompetitive means to maintain and broaden its "Windows" monopoly.
B) monopolizing the market for word processing software.
C) conspiring with Netscape and Sun to monopolize the market for Internet browsers.
D) deliberately pricing Windows 95 and 98 below marginal cost to monopolize the market for operating systems for personal computers.
Q3) A merger between a maker of household detergents and a fast-food chain would be an example of:
A) a horizontal merger.
B) an interlocking directorate.
C) a conglomerate merger.
D) a tying contract.
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Chapter 21: Agriculture: Economics and Policy
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Sample Questions
Q1) U.S.exports of farm products have generally declined as a percentage of U.S.farm output over the past half-century.
A)True
B)False
Q2) Which of the following is correct?
A) The rapid expansion of foreign incomes will reduce U.S.agricultural exports.
B) A decrease in the international value of the dollar will reduce U.S.agricultural exports.
C) An increase in the international value of the dollar will reduce U.S.agricultural exports.
D) Changes in the international value of the dollar have no effect on U.S.agricultural exports.
Q3) Which of the following would,other things equal,increase the demand for U.S.farm products?
A) Poorer crops abroad.
B) Appreciation of the U.S.dollar.
C) Deteriorating trade relations with China and Russia.
D) Increases in foreign tariffs on imported farm products.
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Page 23