Economic Analysis
Final Test Solutions
Course Introduction
Economic Analysis provides students with a systematic approach to understanding how individuals, firms, and governments make choices under conditions of scarcity. The course covers fundamental microeconomic and macroeconomic concepts, such as demand and supply, market structures, consumer behavior, production and costs, and the role of government in the economy. Students learn to apply quantitative and qualitative analytical tools to assess economic issues, evaluate outcomes, and inform decision-making in real-world contexts. Throughout the course, emphasis is placed on using economic models and data to interpret trends and inform policy recommendations.
Recommended Textbook
ECON MICRO 5th Edition by
William A. McEachern
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21 Chapters
3187 Verified Questions
3187 Flashcards
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Page 2
Chapter 1: The Art and Science of Economic Analysis
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150 Verified Questions
150 Flashcards
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Sample Questions
Q1) Profit is the payment received by resource owners for the use of their capital.
A)True
B)False Answer: False
Q2) Economics studies how decision makers use scarce resources to satisfy unlimited wants.
A)True
B)False Answer: True
Q3) Secondary effects are consequences of economic actions that develop slowly over time as people react to events.
A)True
B)False Answer: True
Q4) The behavior of the entertainment industry in a city is a microeconomics topic.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Economic Tools and Economic Systems
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159 Verified Questions
159 Flashcards
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Sample Questions
Q1) Opportunity cost is objective; therefore, its value does not change as circumstances change.
A)True
B)False
Answer: False
Q2) Absolute advantage is based on opportunity cost.
A)True
B)False
Answer: False
Q3) Barter is:
A)illegal in the United States.
B)an efficient system of exchange.
C)most useful when there is much specialization and international trade.
D)only possible if money is used as a medium of exchange.
E)the direct exchange of goods without the use of money.
Answer: E
Q4) Specialization often leads to gains in productivity for society as a whole.
A)True
B)False
Answer: True
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Chapter 3: Economic Decision Makers
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174 Flashcards
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Sample Questions
Q1) Households act as suppliers when they provide:
A)goods and services to firms and governments.
B)resources to firms and governments.
C)tax payments to governments.
D)the demand for only what firms supply or make available.
E)money to firms in exchange for goods and services.
Answer: B
Q2) Imposing a tax on an activity that generates an external benefit will cause participants in the activity to increase the amount of the activity undertaken.
A)True
B)False
Answer: False
Q3) Sole proprietorships produce more goods and services than does any other form of business organization.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Demand, Supply, and Markets
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152 Verified Questions
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Sample Questions
Q1) A price ceiling set above the equilibrium price of a good will result in a shortage.
A)True
B)False
Q2) A supply curve typically slopes upward because:
A)opportunity cost of production increases as quantity supplied increases.
B)price and quantity supplied are inversely related.
C)quantity supplied is positively related to consumer income.
D)the substitution effect of a price change on quantity supplied is generally positive.
E)the income effect of a price change on quantity supplied is generally negative.
Q3) The income effect of an increase in the price of backpacks, a normal good, is a(n):
A)decrease in the demand for backpacks.
B)decrease in the quantity of backpacks demanded.
C)decrease in the supply of backpacks.
D)increase in the quantity of backpacks demanded.
E)increase in the quantity supplied of backpacks.
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Chapter 5: Elasticity of Demand and Supply
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Sample Questions
Q1) If an increase in the price of a product from $100 to $200 per unit leads to a decrease in the quantity demanded from 10 to 8 units, then demand is:
A)elastic.
B)inelastic.
C)unit elastic.
D)zero.
E)perfectly elastic.
Q2) If income rises and the demand for a product remains unchanged, the income elasticity of demand for that product is unit elastic.
A)True
B)False
Q3) In order to prove that macaroni is an inferior good, we could test the _____ of macaroni and get a _____.
A)cross-price elasticity; negative number.
B)income elasticity; number less than 1.
C)income elasticity; positive number.
D)price elasticity of demand; number greater than negative 1.
E)income elasticity; negative number.
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Chapter 6: Consumer Choice and Demand
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Sample Questions
Q1) If a consumer buys a good, the expected:
A)marginal utility of the good is zero
B)opportunity cost of buying the good is more than its price
C)marginal utility of per dollar spent on the good equals its price
D)total utility derived from the consumption of the good is less than its price
E)marginal value of the good is greater than or equal to its price
Q2) Which of the following statements is true?
A)The money price of a good is usually the same as the time price for most consumers.
B)The money price is always more than the time price.
C)The money price is usually more for high-wage workers than for low-wage workers.
D)The time price is usually less for low-wage workers than for high-wage workers.
E)The time price of a good is directly proportional to the money price.
Q3) If marginal utility is negative, total utility declines, but is not necessarily negative.
A)True
B)False
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8
Chapter 7: Production and Cost in the Firm
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151 Flashcards
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Sample Questions
Q1) Cash payments for steel to be used in the production process would be an example of _____.
A)sunk costs
B)fixed costs
C)explicit costs
D)implicit costs
E)entrepreneurial costs
Q2) Suppose Ben buys out Jerry's ownership in a firm but retains him as a salaried employee. Jerry gets a salary equal to the value of the share that he held in the firm. In this case, which of the following statements is true?
A)The firm's economic profit increases.
B)The firm's economic profit decreases.
C)There is no change in the economic profit of the firm.
D)There is no change in the accounting profit of the firm.
E)The firm's accounting profit increases.
Q3) If a firm is experiencing diminishing marginal returns, its marginal product is negative.
A)True
B)False
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Page 9
Chapter 8: Perfect Competition
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Sample Questions
Q1) Individual firms in a perfectly competitive market can:
A)sell more only by lowering their prices.
B)sell all they produce at the market price.
C)earn more profit if they charge a price above the market price.
D)earn more profit if they charge a price below the market price.
E)exit the market only if the existing firms allow it.
Q2) When marginal revenue equals marginal cost, the firm just breaks even.
A)True
B)False
Q3) Mary Ann and Donna provide lawn mowing services in a perfectly competitive market. When they began their operations, the market rate for mowing lawns was $50 per lawn. After the price increased to $60, they were willing to work on Saturdays as well. Their response to the price change will be shown by:
A)a rightward shift of the market supply curve.
B)a leftward shift of the market supply curve.
C)an upward movement along their firm's marginal cost curve.
D)a downward movement along their firm's marginal cost curve.
E)a rightward shift in the market demand curve for mowing lawns.
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Chapter 9: Monopoly
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Sample Questions
Q1) Suppose the marginal revenue for a particular level of a monopolist's output is $40. This implies that:
A)total revenue is increasing for this output range.
B)total revenue is decreasing, but positive, for this output range.
C)total revenue is zero for this output range.
D)total revenue remains constant for this output range.
E)total revenue is negative for this output range.
Q2) If a perfectly competitive industry is monopolized, consumer surplus: A)can be expected to decrease.
B)usually remains constant.
C)becomes equal to producer surplus.
D)becomes double of producer surplus.
E)increases from zero to a high value.
Q3) Price discrimination will occur whenever a firm faces an upward-sloping demand curve.
A)True B)False
Q4) Total deadweight loss in society is reduced through rent seeking by monopolists. A)True B)False
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Chapter 10: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) Game theory provides us with a general approach to understanding the behavior of firms when their choices are interdependent.
A)True
B)False
Q2) In which of the following ways do oligopolies compete with existing rivals and block new entries?
A)By offering a variety of products
B)By increasing the price of their products
C)By reducing the quantity of output produced
D)By increasing the wages paid to workers
E)By producing homogeneous products
Q3) Consensus becomes easier to achieve as the number of firms in a cartel grows.
A)True
B)False
Q4) In an oligopoly, a firm's minimum efficient scale is large relative to the market. A)True
B)False
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12
Chapter 11: Resource Markets
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150 Flashcards
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Sample Questions
Q1) A firm hires labor in a perfectly competitive labor market. If the wage rate is $44, the firm should hire:
A)44 workers.
B)all units of labor whose marginal product is 44.
C)all units of labor whose marginal revenue product is $44.
D)all units of labor whose marginal revenue product is greater than or equal to $44.
E)all units of labor whose marginal revenue product is less than or equal to $44.
Q2) Which of the following can lead to temporary differentials in resource prices?
A)An increase in demand for a product produced by the resource
B)Differences in the inherent qualities of resources
C)Differences in the time and money involved in developing necessary skills
D)Differences in the nonmonetary rewards of a job
E)Differences in the prices of similar resources
Q3) For a firm operating in a perfectly competitive product market, marginal revenue product is measured in dollars per unit of output.
A)True
B)False
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Page 13
Chapter 12: Labor Markets and Labor Unions
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150 Flashcards
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Sample Questions
Q1) Because leisure is a normal good, an increase in income:
A)decreases the demand for leisure time and reduces the amount of time allocated to market work.
B)decreases the demand for leisure time and increases the amount of time allocated to market work and nonmarket work.
C)increases the demand for leisure time and reduces the amount of time allocated to market work and nonmarket work.
D)increases the demand for leisure time and increases the amount of time allocated to market work and nonmarket work.
E)has no impact on the demand for leisure time.
Q2) Union wages in the United States are almost:
A)equal to nonunion wages.
B)twice as high as nonunion wages.
C)half of nonunion wages.
D)15 percent higher than nonunion wages.
E)50 percent higher than nonunion wages.
Q3) An increase in the wage rate will decrease the demand for labor.
A)True
B)False
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Page 14
Chapter 13: Capital, Interest, Entrepreneurship, and Corporate Finance
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150 Verified Questions
150 Flashcards
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Sample Questions
Q1) A firm's expected rate of return on investment curve shows the amount:
A)saved by the firm at each interest rate.
B)invested by the firm at each interest rate.
C)saved by the firm at each alternative rate of time preference.
D)invested by the firm at each alternative marginal resource cost.
E)saved by the firm at each alternative marginal revenue product of investment.
Q2) If the interest rate is 10 percent, the present value of an annual payment of $100,000 to be received indefinitely is:
A)$1,000,000.
B)$1,246,296.
C)$2,000,000.
D)$976,463.
E)infinite.
Q3) _____ is an asset pledged by a borrower to a bank when he or she takes a loan.
A)A bond
B)Owner's equity
C)Collateral
D)A mutual fund
E)A hedge fund
Page 15
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Chapter 14: Transaction Costs, Asymmetric Information, and Behavioral Economics
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152 Verified Questions
152 Flashcards
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Sample Questions
Q1) According to Stigler's search model, an increase in the earnings of individuals in a growing economy is likely to result in:
A)a decrease in quality dispersion.
B)a decrease in the opportunity cost of time.
C)an increase in the marginal benefit of search.
D)an increase in the amount of search.
E)an increase in price dispersion.
Q2) Which of these is true of behavioral economics?
A)It borrows insights from sociology to explain certain economic decisions.
B)It questions the basic assumptions in traditional economics, particularly utility and ability.
C)It borrows insights from psychology to explain certain economic decisions.
D)It questions the basic assumptions in traditional economics, particularly rationality and will power.
E)It assumes that people act rationally to maximize their well-being.
Q3) When a seller knows more about the condition of a used car than the buyer does, the information is said to be asymmetric.
A)True
B)False
Page 16
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Chapter 15: Economic Regulation and Antitrust Policy
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Sample Questions
Q1) Which of the following is not prohibited by the Clayton Act?
A)Merger through the acquisition of assets, which substantially lessens competition
B)Price discrimination that substantially lessens competition
C)Tying contracts that substantially lessen competition
D)Exclusive dealing that substantially lessens competition
E)Interlocking directorates that substantially lessen competition
Q2) The government of a state wants Gigantic Software Corp., a natural monopoly, to stay in business yet still produce where price equals marginal cost. In order to encourage Gigantic Software Corp. to stay in business, the government might choose to:
A)set a price ceiling 10 percent lower than its previous level.
B)impose a tax on the company for each dollar of sales.
C)establish regulations that raise the company's cost of doing business.
D)provide a subsidy to the company to cover the loss and ensure a normal profit.
E)replace the company's top management.
Q3) Technological change is decreasing competition in the market for media.
A)True
B)False
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Page 17
Chapter 16: Public Goods and Public Choice
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Sample Questions
Q1) Resources employed to persuade government to redistribute income and wealth to special interests are unproductive.
A)True
B)False
Q2) Many eligible voters who do vote do not keep track of the performance records of candidates for public office. This is because:
A)they try to evade taxes by shifting to the underground economy.
B)they try to reap the benefits from consuming public goods without paying for them.
C)they adopt a stance of rational ignorance.
D)political candidates try to get elected by appealing to the median voter.
E)voters elect representatives, who make public choices that reflect constituents' views.
Q3) Special-interest legislation in a representative democracy benefits lawyers because their annual incomes increase more than their annual costs.
A)True
B)False
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Chapter 17: Externalities and the Environment
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Sample Questions
Q1) The Clean Air Act of 1970:
A)set up a depletion tax system.
B)reduced air pollution standards.
C)recognized air as an economic resource.
D)established a system of transferable pollution rights.
E)forbade producers to emit any pollutants into the air.
Q2) Nearly half of the Superfund has been spent on:
A)education of the public on environmental issues.
B)research.
C)court costs and legal fees.
D)cleaning rivers that have been polluted.
E)the development and installation of antipollution devices.
Q3) If education creates positive externalities, then:
A)private markets provide less than the socially optimal quantity of education.
B)private markets provide more than the socially optimal quantity of education.
C)the marginal private benefit curve is higher than the marginal social benefit curve.
D)the marginal private cost curve is higher than the marginal social cost curve.
E)the government should impose a depletion tax.
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Chapter 18: Poverty and Redistribution
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Sample Questions
Q1) Families primarily receive income from:
A)resource earnings and transfers payments.
B)transfers and subsidies.
C)wages and rents.
D)transfers and gifts.
E)interests and dividends.
Q2) Mary can qualify for benefits under a means-tested transfer payment program if _____.
A)she has worked and contributed to the program
B)she is able to repay the cash transfer at a later date
C)she is the head of her household and holds a job
D)she is totally disabled
E)her household income is below a certain level
Q3) In some cases, welfare benefits can exceed the income earned by workers from full-time employment.
A)True
B)False
Q4) Poor welfare recipients often face very high marginal tax rates.
A)True
B)False
Page 20
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Chapter 19: International Trade
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Sample Questions
Q1) In the United States, dumping:
A)is encouraged because it lowers prices for consumers.
B)is prohibited by the Trade Agreements Act of 1979.
C)is encouraged by domestic consumers who benefit from lower prices.
D)is encouraged by the government because it encourages competition.
E)was prohibited in 1947 by the provisions of General Agreement on Tariffs and Trade (GATT).
Q2) Domestic producers of goods who compete with cheaper imports benefit from protectionism in the short run.
A)True
B)False
Q3) Tariffs and quotas are the only two devices used to restrict foreign trade.
A)True
B)False
Q4) U.S. consumers would be better off if they bought only U.S.-produced goods.
A)True
B)False
Q5) Japan is generally considered a closed economy.
A)True
B)False
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Chapter 20: International Finance
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Sample Questions
Q1) If on Monday of a week $1 = 146 Japanese yen and on Friday of the same week $1 = 147 yen, the dollar is said to have appreciated and the yen is said to have depreciated.
A)True
B)False
Q2) The balance of payments summarizes the transactions that occur during a given time period between:
A)the local governments of a country and the federal government of the country.
B)the producers and consumers of all goods and services within a country.
C)individuals, firms, and government of one country and individuals, firms, and governments of the other countries.
D)two firms that operate in two different states in a country.
E)the firms in a country and the government of the country.
Q3) In 2014, the United States had the largest merchandise trade deficit with:
A)the European Union.
B)Canada.
C)China.
D)Mexico.
E)Brazil.
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Chapter 21: Economic Development
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Sample Questions
Q1) Which of the following is true of the poorest countries of the world?
A)Children make up less than one-fifth of the population.
B)There are more people over the age of 65 than under the age of 15.
C)Children under the age of 15 make up nearly half the population.
D)Fertility rates are very low compared to industrial countries.
E)The growth rate in total production generally exceeds the population growth rate.
Q2) Which of the following is true about foreign aid provided by the United States?
A)During the last four decades, U.S. has provided less than $400 million in aid.
B)Most U.S. aid has been coordinated by the Department of Defense.
C)The U.S. Agency for International Development emphasizes on short-range plans.
D)The U.S. Agency for International Development focuses on health, education, and agriculture.
E)Foreign aid is a large part of the U.S. federal budget.
Q3) Labor productivity depends on:
A)the effectiveness of government.
B)the size of the economy.
C)the proportion of the labor force that is unionized.
D)the amount of natural resources.
E)the risks taken by an entrepreneur.
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Page 23