Economic Analysis
Midterm Exam
Course Introduction
Economic Analysis examines the foundations and applications of economic theory to real-world problems. The course covers key concepts such as supply and demand, market equilibrium, elasticity, consumer and producer behavior, and the functioning of competitive and non-competitive markets. Students learn how to use analytical tools to evaluate decision-making by individuals and firms, analyze the impact of government interventions, and assess economic efficiency and welfare. Through case studies and practical exercises, the course emphasizes quantitative reasoning and the interpretation of economic data to inform policy and business decisions.
Recommended Textbook Economics for Today 4th Asia Pacific Edition by Allan Layton
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Page 2
Chapter 1: Thinking like an economist
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Sample Questions
Q1) The creative ability of individuals to combine and direct resources to produce new products is known as:
A)economising.
B)entrepreneurship.
C)value judgement.
D)product sensitivity.
Answer: B
Q2) A positive economic statement is:
A)an opinion of an action that should be taken.
B)an action that will have a positive effect on the economy.
C)a statement testable by facts.
D)a claim that the speaker is positive will occur.
E)always a microeconomic position.
Answer: C
Q3) The most fundamental concepts underlying the discipline of economics are:
A)scarcity and choice.
B)supply and demand.
C)money, stocks and bonds.
D)inflation and unemployment.
Answer: A
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Chapter 2: Production possibilities and opportunity cost
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Sample Questions
Q1) In Exhibit 2-2,the opportunity cost of coffee when moving from A to B is:
A)2 million bushels of corn.
B)6 million bushels of corn.
C)8 million bushels of corn.
D)14 million bushels of corn.
E)not possible to determine.
Answer: A
Q2) As shown in Exhibit 2-6,a total output of zero units of capital goods and 10 units of consumer goods is:
A)the maximum rate of output for this economy.
B)an inefficient way of using the economy's scarce resources.
C)the result of maximum use of the economy's labour force.
D)unobtainable in this economy.
Answer: C
Q3) Unattainable combination Z shown in Exhibit 2-7:
A)may be achieved by investing in research and development.
B)can be achieved with using more of existing resources.
C)will never be achieved.
D)can easily be achieved by having full employment .
Answer: A
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Chapter 3: Market demand and supply
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Sample Questions
Q1) If apple growers expect the price of apples to increase,they would:
A)increase the current supply.
B)supply regardless of future prices.
C)restrict the current supply.
D)start growing tomatoes.
Answer: C
Q2) The introduction of the carbon trading scheme which requires polluters to purchase permits will:
A)shift the supply curve to the left.
B)shift the supply curve to the right.
C)increase the quantity supplied.
D)decrease the quantity supplied.
E)decrease the demand.
Answer: A
Q3) Anything that changes the amount a firm can produce with a given amount of resources will result in a shift of supply curve.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Markets in action
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Sample Questions
Q1) When there are positive externalities associated with the consumption of a good,we can expect:
A)the private demand curve to lie above the social demand curve.
B)the private supply curve to lie below the social supply curve.
C)the private supply curve to lie above the social supply curve.
D)the private demand curve to lie below the social demand curve.
E)the private demand curve to lie below the social supply curve.
Q2) Which of the following is not an example of an externality?
A)Drunk drivers raise everyone's auto insurance premiums.
B)The price of lumber increases as lumberjacks' wages increase.
C)The neighbour's beautiful front yard increases your home value.
D)Someone drives a car that emits thick black smoke.
E)People who live near a bakery enjoy the smell of baked bread.
Q3) The reason individual homeowners usually do not hire a private contractor to fill the potholes on their street is because:
A)it costs too much.
B)the value to the neighbourhood exceeds the cost of repair.
C)others who use the street will be free riders.
D)they do not trust the government.
E)there are negative externalities associated with the repair.
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Chapter 5: Elasticity of demand and supply
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Q1) When a 2 per cent increase in price generates a greater than 2 per cent decrease in quantity demanded,then:
A)demand is price inelastic.
B)total revenue increases.
C)demand is positively sloped.
D)demand is unit elastic.
E)total revenue decreases.
Q2) Price elasticity of demand measures:
A)the responsiveness of the quantity demanded of a good to a change in income.
B)the responsiveness of the quantity demanded of a good to a change in consumers' preferences.
C)the responsiveness of the quantity demanded of a good to a change in the price of that good.
D)the reduction in the quantity demanded of a good when the price of that good is reduced.
Q3) If bus travel is an inferior good,then its income elasticity of demand will be:
A)strictly greater than one.
B)positive.
C)equal to zero.
D)negative.
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Chapter 6: Production costs
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Sample Questions
Q1) The law of diminishing marginal returns causes a firm's short-run marginal cost curve to be U-shaped.
A)True
B)False
Q2) As shown in Exhibit 6-6,the marginal cost of producing the fourth unit is:
A)$0.
B)$19.
C)$27.
D)$100.
Q3) The long-run average cost curve traces the lowest points of the AVC and ATC for all firms.
A)True
B)False
Q4) Which of the following is true if the total variable cost curve is rising?
A)Average fixed cost is increasing.
B)Marginal cost is decreasing.
C)Marginal cost is increasing.
D)Average fixed cost is constant.
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Chapter 7: Perfect competition
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Sample Questions
Q1) In Exhibit 7-1,the firm will produce at which level of output:
A)zero.
B)150.
C)350.
D)250.
Q2) Which of the following is true of a perfectly competitive market?
A)If economic profits are earned then the price will fall over time.
B)In long-run equilibrium P > MR = SRMC < SRATC = LRAC.
C)A constant-cost industry exists when the entry of new firms has a significant effect on their cost curves.
D)If the input prices rise the long-run supply curve is downward sloping.
Q3) According to Exhibit 7-5,if the price of the good is $17,then the result for the perfectly competitive firm will be:
A)making a long-run profit.
B)making a long-run loss and so it will shut down.
C)making a short-run loss but it will continue to produce.
D)making a normal profit.
E)indeterminate.
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9
Chapter 8: Monopoly
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Sample Questions
Q1) Refer to Exhibit 8-2.Using the rule that focuses on the marginal approach to maximising profits,the monopolist maximises profit by choosing price equal to:
A)$0.
B)$10.
C)$20.
D)$30.
E)$40.
Q2) Another way to say that marginal revenue is less than the price at a given level of output is that:
A)the marginal output curve lies below the demand curve.
B)the marginal revenue curve lies above the demand curve.
C)the marginal revenue curve is the same as the demand curve.
D)the marginal revenue curve lies below the demand curve.
Q3) A monopolist earns an economic profit only when:
A)average total cost equals price.
B)marginal cost equals price.
C)marginal revenue equals price.
D)average total cost is less than price.
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Chapter 9: Monopolistic competition and oligopoly
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Sample Questions
Q1) Suppose that a firm raises the price of its product by 10 per cent.Although they have no requirement or agreement to do so,the other firms decide to raise their prices accordingly.This situation is best described as:
A)price leadership.
B)a cartel.
C)monopolistic competition.
D)a market with kinked demand.
Q2) Oligopolies are mutually interdependent because an action by one firm may cause a reaction on the part of other firms.
A)True
B)False
Q3) Which of the following statements is true:
A)The analysis of monopolistic competition in the short run is the same as monopoly.
B)The analysis of monopolistic competition in the short run is like monopoly but with entry and exit in the long run.
C)Monopolistically competitive firms produce more than competitive firms.
D)Monopolistically competitive firms charge prices lower than competitive firms.
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Chapter 10: Policy issues: resource taxes and climate change
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Sample Questions
Q1) Under the emissions trading scheme,if lots of firms introduce emissions curbing technologies,the demand for permits:
A)might decrease and the firms' costs fall, while industry will expand, but the emissions will stay under the allowed cap.
B)might increase and their price fall increasing the costs to firms.
C)might decrease and their price rise leading to reduced output by the industry.
D)might increase and their price rise, resulting in lower costs to the firms and increased output by the industry.
Q2) In Australia today,all minerals in the ground are owned by mining companies.
A)True
B)False
Q3) An alternative approach to carbon tax is:
A)resource super profits tax.
B)income tax.
C)exchange.
D)regulation.
Q4) Regulation is the best solution to climate change issues.
A)True
B)False
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Chapter 11: Measuring the size of the economy
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Sample Questions
Q1) To finance a current account deficit,a country must:
A)borrow money from overseas.
B)buy overseas assets.
C)lend money overseas.
D)do nothing.
Q2) If the underground economy were included in GDP,GDP would:
A)grow.
B)decline.
C)stay the same.
D)Not possible to determine.
Q3) All final goods and services that make up GDP can be expressed in the form:
A)GDP = C + I - G + (X + M).
B)GDP = C + I + G + (X + M).
C)GDP = C + I + G + (X - M).
D)GDP = C + I + (X - M).
E)GDP = C + I +
Q4) Intermediate goods are included in calculating gross domestic product but final goods are not.
A)True
B)False
Page 13
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Chapter 12: Business cycles and economic growth
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Sample Questions
Q1) The Solow growth model explains:
A)how consumption, saving, capital, labour and technological change combine in the short term to determine economic growth.
B)how consumption, saving, capital, labour and technological change combine in the longer term to determine economic growth.
C)how history changes economic growth.
D)how net exports determine economic growth.
Q2) If patent protection were not offered by governments,the result would be:
A)a solution to the problem of positive externalities.
B)more private research would be undertaken.
C)less public research would be undertaken.
D)less opportunities for the technological progress.
Q3) The trough is good news because:
A)it is the middle of the expansion phase of the business cycle.
B)production is at the highest level.
C)unemployment is low.
D)it is the starting point to improve economic conditions.
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14
Chapter 13: Inflation and unemployment
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Sample Questions
Q1) The source of demand-pull inflation is a:
A)lack of expectations.
B)shortage of demand.
C)excess of demand.
D)high cost of production.
Q2) Assume that the real rate of interest is 5 per cent and a lender charges a nominal interest rate of 15 per cent.If a borrower expects that the rate of inflation next year will be 10 per cent and the actual rate of inflation next year is 12 per cent:
A)neither the borrower nor the lender benefits from inflation.
B)both the borrower and the lender lose from inflation.
C)the borrower benefits from inflation, while the lender loses from inflation.
D)the lender benefits from inflation, while the borrower loses from inflation.
E)it is not possible to determine who gains or loses.
Q3) Which one of the following people is not a member of the labour force?
A)Relief teacher who works 2 hours a week.
B)A person who works 30 hours a week at McDonalds and goes to school at night.
C)The man who was fired last week and is searching for a new job.
D)A full-time student who devotes all her time to her classes.
E)A professional athlete.
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Page 15
Chapter 14: A simple model of the macro economy
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Sample Questions
Q1) Which of the following are the components of the aggregate demand curve?
A)Government spending (G) and Investment (I).
B)Saving.
C)Consumption excluding exports.
D)Only total imports.
Q2) Along the intermediate range of the aggregate supply curve the price level and the level of GDP changes as an economy approaches full employment.
A)True
B)False
Q3) If the terms of trade increase then,ceteris paribus:
A)imports will fall.
B)imports will rise.
C)exports will rise.
D)exports will fall.
Q4) A leftward shift in the aggregate demand curve can be caused by:
A)a decrease in the price level.
B)an increase in business investment spending.
C)a decrease in business investment spending
D)an increase in consumer optimism about the future.
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Chapter 15: The monetary and financial system
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Sample Questions
Q1) Options markets are designed to:
A)give people choice about where to invest their money.
B)give greater flexibility to people in managing their financial risk.
C)lock in a return on a financial instrument to avoid interest rate movements.
D)increase risks, and hence returns, on financial instruments.
Q2) The only institutions allowed to trade in the foreign exchange market are:
A)banks.
B)the RBA.
C)publicly listed companies.
D)those authorised by the RBA to do so.
Q3) The statement that Computech's profits totalled $500 million last year represents the use of money as a:
A)medium of exchange.
B)store of value.
C)unit of account.
D)means of coincidence.
Q4) Fiat money has no redeemability or intrinsic value.
A)True
B)False
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Chapter 16: Macroeconomic policy I: monetary policy
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Sample Questions
Q1) Since classical economists believe that both V and Q are constants for an economy in short-run equilibrium,the equation of exchange becomes a theory in which:
A)the quantity of money explains prices.
B)the quantity of money explains velocity.
C)the quantity of money explains real GDP.
D)changes in M cause changes in V.
E)prices are never flexible.
Q2) The average number of times per year each dollar is used to transact an exchange is known as the:
A)liquidity of money.
B)velocity of money.
C)quantity theory of money.
D)equation of exchange.
E)rapidity index.
Q3) Australia has experimented with policy based on the monetarist policy prescription of monetary targeting.
A)True
B)False
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18
Chapter 17: Macroeconomic policy II: fiscal policy
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Sample Questions
Q1) A country's national debt is:
A)not held by the central bank.
B)partially held by the central bank.
C)fully held by the central bank.
D)fully held by the foreign banks.
Q2) The Keynesian approach to fiscal policy advocates:
A)continual budget deficits.
B)manipulation of aggregate demand.
C)budget deficits when economic growth is high.
D)budget surpluses when economic growth is low or negative.
Q3) The introduction of the GST in Australia is an example of:
A)a restructuring.
B)a microeconomic reform.
C)a monetary policy.
D)a fiscal policy.
Q4) Money financing is financing a deficit by selling securities:
A)to the public.
B)to the central bank.
C)overseas.
D)to the banks and to the public.
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Chapter 18: International trade and finance
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Sample Questions
Q1) If a Japanese stereo priced at 1 000 000 yen can be purchased for A$1000,the exchange rate is:
A)1000 yen per Australian dollar.
B)1000 Australian dollars per yen.
C)0.001 Australian dollars per yen.
D)100 Australian dollars per yen.
Q2) Assume A$1.05 is exchangeable for one US dollar.The exchange rate is:
A)US$1=A$0.95.
B)A$1=US$1.05.
C)A$1=US$0.95.
D)US$1=A$1.05.
E)both A$1=US$0.95 and US$1=A$1.05.
Q3) By continually running current account deficits,Australia:
A)has been experiencing a lower standard of living than it otherwise might have.
B)has encouraged continual capital account deficits.
C)is accumulating more assets overseas than foreign interests accumulate here.
D)is effectively spending more than it is earning.
Q4) If the yen price of dollars falls,then the dollar price of yen rises.
A)True
B)False
Page 20
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Chapter 19: Applying graphs to economics
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Sample Questions
Q1) In Exhibit 1A-5,the slope of the straight line A-D is:
A)zero.
B)1.
C)1/2.
D)-1.
Q2) In a graphic relationship,shifts in a curve are caused by a change in:
A)the slope of the curve.
B)a factor not measured on the axes of the graph.
C)one of the factors measured on either axes of the graph.
D)any factor, whether measured on the axes of the graph or not.
Q3) In Exhibit 1A-5,as X increases along the horizontal axis,corresponding to points A-D on the line,the Y values remain unchanged at 20 units.The relationship between the X and Y variables is:
A)direct.
B)inverse.
C)independent.
D)undefined.
Q4) A horizontal line indicates an independent relationship between two variables
A)True
B)False
Page 21
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