Economic Analysis
Midterm Exam
Course Introduction
Economic Analysis introduces students to the fundamental principles and tools used to evaluate economic problems and make sound decisions in both private and public sectors. The course covers key concepts such as supply and demand, market equilibrium, consumer behavior, production costs, market structures, and the impact of government interventions. Through real-world case studies and quantitative methods, students will learn how to assess economic efficiency, predict market outcomes, and analyze policy implications, fostering a practical understanding of how economic forces shape societies and organizations.
Recommended Textbook
Microeconomics 19th Edition by Paul A. Samuelson
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20 Chapters
1486 Verified Questions
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Page 2
Chapter 1: The Central Concepts of Economics
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Sample Questions
Q1) Which of the following statements relates to the concept of efficiency?
A)The absence of waste.
B)Using resources as effectively as possible.
C)Being able to produce more of one good only by producing less of something else.
D)B and C only.
E)All of the above.
Answer: E
Q2) Economists like to think of themselves as scientists because they glean most of their insight from controlled experiments.
A)True
B)False
Answer: False
Q3) Mass unemployment of resources means society operates inside its production-possibility frontier.
A)True
B)False
Answer: True
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Chapter 2: The Modern Mixed Economy
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Sample Questions
Q1) A system of barter would make an elaborate division of labor with a good deal of labor specialization an extremely difficult process to manage.
A)True
B)False
Answer: True
Q2) An economic good is valued in part by its scarcity.
A)True
B)False
Answer: True
Q3) Capital goods differ from other factors in that they are produced-they are outputs of the economic system.
A)True
B)False
Answer: True
Q4) Taxation can be used to redistribute more "equitably" the dollar votes that would otherwise prevail under laissez-faire.
A)True
B)False Answer: True
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Chapter 3: Basic Elements of Supply and Demand Part
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Sample Questions
Q1) When we say that a price in a competitive market is "too high to clear the market" we usually mean that (given upward-sloping supply curves):
A)no producer can cover his costs of production at that price.
B)the quantity supplied exceeds the quantity demanded at that price.
C)producers are leaving the industry.
D)consumers are willing to buy all the units produced at that price.
E)quantity demanded exceeds quantity supplied at that price.
Answer: B
Q2) Any change in the price of an input can be expected to move equilibrium price up or down in the same direction along the market demand curve.(Everything else held fixed.)
A)True
B)False
Answer: True
Q3) A shift in supply to the right means that people will produce more at each price indicated.
A)True
B)False
Answer: True
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Chapter 4: Supply and Demand: Elasticity and Applications
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Sample Questions
Q1) In general, supply curves become less elastic the longer the time period under consideration.
A)True
B)False
Q2) Consider some price range in which a slight change in either direction will have practically no effect on total revenue.This part of the demand curve is said to have unitary elasticity.
A)True
B)False
Q3) A change in the supply of a given good could be caused by
A)a change in demand for the good.
B)a change in consumer preferences.
C)a change in technology that affects of production costs.
D)introduction of new consumers into the market.
E)none of the above.
Q4) When demand displays unitary price elasticity at all parts, total revenue is the same at all prices.
A)True
B)False
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Chapter 5: Demand and Consumer Behavior
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Q1) If a merchant could charge a price for a good which reflected the marginal utilities of each unit sold, then consumer surplus for that good would not be enjoyed by the consumers.
A)True
B)False
Q2) To be in equilibrium (i.e., to maximize satisfaction), the consumer must:
A)purchase no inferior goods.
B)equalize the marginal utilities of the last unit purchased of every commodity.
C)be sure that the prices of all commodities purchased are proportional to their total utilities.
D)be sure that the price of each good is equal to the marginal utility of money.
E)allocate income so that the last penny spent on any good generates the same increment of utility as the last penny spent on any other good.
Q3) It is possible to sum individual demand curves to get the market demand curve only when all consumers are exactly alike in their demands.
A)True
B)False
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Chapter 6: Production and Business Organization
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Questions
Q1) Suppose that production were represented by the production function displayed in Table 6-1 above.You would conclude that:
A)land displayed diminishing returns.
B)labor displayed diminishing returns.
C)production displayed constant returns to scale.
D)all of the above were true.
E)none of the above were true.
Q2) Limited liability means that a purchaser of a $10 share must contribute an additional $10 in the event of bankruptcy of the company.
A)True
B)False
Q3) As businesses grow, their need for capital typically tends to:
A)increase.
B)decrease.
C)grow at the same rate as the business.
D)remain unchanged.
E)be accommodated automatically by the marketplace.
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Chapter 7: Analysis of Costs
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Sample Questions
Q1) Which of the following is not found in a balance sheet?
A)Net earnings after taxes.
B)Inventories.
C)Accounts payable.
D)Net worth.
E)Depreciation allowances.
Q2) Which of the following is typically not U-shaped?
A)Average cost
B)Average variable cost
C)Average fixed cost
D)Marginal cost
E)All of the above are usually U-shaped.
Q3) The incorporation of capital and labor saving technological advance will cause the average cost curve of a firm to:
A)shift to the left.
B)shift upward.
C)shift downward.
D)turn more sharply in the neighborhood of its minimum.
E)none of the above.
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Page 9
Chapter 8: Analysis of Perfectly Competitive Markets
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Q1) If prices rise in a perfectly competitive industry, then in the short run the firms in that industry will:
A)bid for more resources.
B)reduce marginal costs.
C)decrease production.
D)increase plant capacity.
E)none of the above.
Q2) When there are only perfectly competitive producers in a market economy, there will be an efficient allocation of resources (ignoring externalities)because:
A)even though excess profits are earned in some industries, capital is prevented from moving into those industries.
B)even though excess profits are earned in some industries, there will be excess losses earned in other industries.
C)some firms will produce too little output and other firms will produce too much output.
D)the prices of goods will tend to reflect their marginal costs of production.
E)none of the above.
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Chapter 9: Imperfect Competition and Monopoly
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Sample Questions
Q1) A natural monopoly is:
A)a market in which the industry's output can be efficiently produced only by a single firm.
B)a market in which the industry's output is produced by a single firm.
C)a market where many sellers can produce the output.
D)not a real option.
E)none of the above.
Q2) Perfect competition differs from imperfect competition in that:
A)it does not maximize profits at the point where marginal revenue equals marginal cost.
B)perfect competition's industry demand curve never slopes down.
C)perfect competition lacks any externalities.
D)perfectly competitive firms cannot affect prices.
E)none of the above accurately describe a difference.
Q3) At a profit maximizing point:
A)profits are always positive.
B)marginal revenue is 0.
C)marginal cost is 0.
D)total revenue is maximized.
E)none of the above.
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Chapter 10: Competition Among the Few
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Q1) Which of the following is not true about a collusive oligopoly?
A)It is illegal.
B)It tends to be unstable.
C)It is economically efficient.
D)It faces a downward sloping demand curve.
E)None of the above.
Q2) Collusive oligopoly produces prices and quantities very similar to those produced by:
A)perfect monopoly.
B)monopolistic competition.
C)perfect competition.
D)noncollusive oligopoly.
E)none of the above.
Q3) The term "strategic interaction" refers to:
A)the link between consumer welfare and industry cost curves.
B)tacit agreements between the producers and the consumers of inputs.
C)the fact that each firm's business strategy depends upon its rival's business behavior.
D)the realization by oligopolists that higher selling prices imply lower sales.
E)all of the above.
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Page 12
Chapter 11: Economics of Uncertainty
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Sample Questions
Q1) Speculation across states of nature will be profitable if one:
A)buys low and sells lower.
B)buys high and sells low.
C)sells high after buying higher.
D)buys low and sells high.
E)avoids risk by selling short.
Q2) Social insurance is:
A)consists mandatory programs with broad or universal coverage, funded by taxes or fees.
B)insurance for high risk people.
C)insurance for social clubs.
D)insurance for students.
E)none of the above.
Q3) Why would the government actually encourage monopolies?
A)Higher profits mean more taxes.
B)helps out rich people.
C)to allow inventors to have exclusive use of their intellectual property, encouraging people to invent new products.
D)governments want to control business.
E)None of the above.
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Chapter 12: The Labor Market
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Sample Questions
Q1) The amount of labor hired by a producer depends not only on the price of labor, but also on the price of machinery and other outputs.
A)True
B)False
Q2) Other things being equal, when we spend relatively little on a commodity or a factor, we will do without it relatively easily when its price rises.
A)True
B)False
Q3) Suppose the firm in the table above hires a fifth worker whose MP is 625 bushels.If output is priced at $5 per bushel what would the firm pay each of its five workers?
A)$50,000
B)$25,000
C)$19,375
D)$87,500
E)$3,125
Q4) In most cases, the supply of input factors responds positively to price.
A)True
B)False
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Page 14
Chapter 13: Land, Natural Resources, and the Environment
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Sample Questions
Q1) Wage incomes sometimes contain rent elements.
A)True
B)False
Q2) A tax on wages always increases employment because people are forced to work more to achieve the same after-tax, take-home pay.
A)True
B)False
Q3) The theory of "noncompeting groups in the labor market" ignores the partial substitutability of workers of different skills.
A)True
B)False
Q4) One key to wage disparities lies in the qualitative differences among people.
A)True
B)False
Q5) Nominal wages determine how much labor is supplied to the economy.
A)True
B)False
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Page 15
Chapter 14: Capital, Interest, and Profits Part Four:
Applications of Economic Principles
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Q1) Low-quality Belgian farmland can earn a higher rent than high-quality Argentine farmland.
A)True
B)False
Q2) Which of the following are renewable resources?
A)agricultural land
B)forests
C)solar energy
D)all of the above
E)none of the above.
Q3) Pure economic rent is the payment to factors of production which:
A)have relatively inelastic supplies and have positive marginal products.
B)are depleted over time and have no external economies.
C)have no substitutes and are produced under perfectly competitive conditions.
D)have fixed supplies and no alternative uses.
E)have fixed supplies with many alternative uses.
Q4) Actions to slow global warming would be considered global public goods.
A)True
B)False
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Chapter 15: Government Taxation and Expenditure
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Sample Questions
Q1) The rate of return that an investment project can earn determines its place in the line for projects to be done.
A)True
B)False
Q2) Why would asset prices tend to move inversely with interest rates?
A)their present value decreases as interest rates increase.
B)their present value increases as interest rates increase.
C)their past value decreases as interest rates increase.
D)prices tend to move the same as interest rates.
E)none of the above.
Q3) In risky but competitive industries, long-run costs of production do not include a positive profit premium to compensate for risk aversion.
A)True
B)False
Q4) When interest rates rise, many asset prices fall.
A)True
B)False
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Chapter 16: Efficiency Vsequality: The Big Trade-Off
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Sample Questions
Q1) When we speak of the incidence of a tax, we are:
A)referring to the group upon whom it is directly levied.
B)asking whether that tax is progressive or regressive in nature.
C)measuring the extent to which the tax tends to reduce incentives in the group that pays it.
D)referring to the group that receives the burden of the tax bill, regardless of whether or not it actually makes the money payment to the government.
E)measuring the extent to which the tax brings in a steady amount of money to the government in both prosperity and depression.
Q2) It always pays to get more income, even it this shifts you to a higher tax bracket, in the sense that you will definitely have more after-tax income than before.
A)True
B)False
Q3) Government intervention is necessary to control breakdowns in the market mechanism.
A)True
B)False
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Chapter 17: International Trade
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Sample Questions
Q1) Which countries have the least inequality?
A)Japan and Sweden.
B)Canada and Italy.
C)France and Spain.
D)U.S and Brazil.
E)all are about the same inequality.
Q2) President William Clinton ran on the platform of "reforming welfare as we know it".
A)True
B)False
Q3) In the United States in 2001, the:
A)lowest 20 percent of the families received more than 12 percent of the income.
B)highest 20 percent of the families received 24 percent of the income.
C)highest 5 percent of the families received 10 percent of the income.
D)lowest 20 percent of the families received less than 5 percent of the income.
E)statements above are all incorrect.
Q4) An efficient market economy can support an equitable distribution of income if resources are equitably distributed.
A)True
B)False
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Chapter 18: Overview of Macroeconomics
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Q1) Note that in Figure 18-1, the production possibilities frontier is closer to the origin for Europe than for the U.S.This is because:
A)it is assumed that there are more people in the United States.
B)it is assumed that Europe has lower output in both industries.
C)it is assumed that the citizens of the United States are generally much better off than their European counterparts.
D)it is assumed that there is more inefficiency in Europe.
E)it is assumed that American labor is less productive than European labor.
Q2) If we are to demonstrate gains from trade in the theory of comparative advantage, it is necessary to assume that:
A)one country must have an absolute advantage in the production of both goods.
B)one country cannot have an absolute advantage in the production of both goods.
C)one country must be considerably larger than the other.
D)a country must be relatively more efficient in the production of one of the goods.
E)factors of production have to be free to move between countries.
Q3) Outsourcing refers to locating services or production processes abroad.
A)True
B)False
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Chapter 19: Geometrical Analysis of Consumer Equilibrium
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Q1) The elasticity of the budget line equals the price ratio of the two goods.
A)True
B)False
Q2) In Figure 5A-2, U(3)is unattainable if the household's budget constraint is BD.
A)True
B)False
Q3) The scarcer the good, the greater its relative substitution value.
A)True
B)False
Q4) The slope of the budget line equals the price ratio of the two goods.
A)True
B)False
Q5) In consumer equilibrium, the consumer's substitution ratio for two goods equals the price ratio of the two goods.
A)True
B)False
Q6) In Figure 5A-2, the shift from the budget line AB to the new budget line DB was caused by an increase in the price of Y.
A)True
B)False
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Chapter 20: Production Cost Theory and Decisions of the Firm
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Sample Questions
Q1) If the price of one factor increases, then the firm will find a new least-cost factor combination by shifting its lowest equal-cost line along its same equal-product curve.
A)True
B)False
Q2) At Q = 100 in Figure 7A-2, to be producing at least cost, the ratio of (marginal productivity of land)/(marginal productivity of labor)must be:
A)1.
B)1.5.
C)1.67.
D)2.
E)It cannot be determined from the information given.
Q3) In Table 7A-1, what is the least cost input combination when the price of land = $4 and the price of labor = $2? A)A B)B C)C D)D E)E
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