Economic Analysis
Practice Exam
Course Introduction
Economic Analysis examines the fundamental principles of microeconomics and macroeconomics to understand how individuals, firms, and governments allocate resources and make decisions. The course covers essential topics such as supply and demand, market structures, consumer and producer behavior, cost analysis, and the measurement of economic performance. Students will learn to apply quantitative and qualitative tools to analyze real-world economic issues, evaluate policies, and interpret economic data. Emphasis is placed on developing analytical skills and critical thinking to assess the impact of economic decisions at both the micro and macro levels.
Recommended Textbook
Microeconomics Student Value 4th Edition by R.
Glenn Hubbard
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Page 2
Chapter 1: Economics: Foundations and Models
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Q1) Competition forces firms to produce and sell products as long as the ________ to consumers exceeds the ________ of production.
A)marginal benefit; marginal cost
B)marginal benefit; marginal benefit
C)marginal cost; marginal cost
D)marginal cost; marginal benefit
Answer: A
Q2) The U.S.Bureau of Labor Statistics predicts that four of the six fastest growing occupations over the next ten years will be in
A)the medical field.
B)the travel and leisure industry.
C)education.
D)construction.
Answer: A
Q3) What is an economic market?
Answer: An economic ic market refers to a group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade.
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Chapter
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Q1) Which of the following countries does not come close to the free market benchmark?
A)the United States
B)Japan
C)Cuba
D)France
Answer: C
Q2) Refer to Table 2-4.If the two countries specialize and trade,who should export cell phones?
A)There is no basis for trade between the two countries.
B)Estonia
C)Finland
D)They should both be importing cell phones.
Answer: C
Q3) An example of a factor of production is
A)a car produced by an auto manufacturer.
B)a worker hired by an auto manufacturer.
C)a loan granted to an auto manufacturer.
D)the automobiles exported by an auto manufacturer.
Answer: B
Page 4
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Q1) Assume that the hourly price for the services of personal trainers has risen and sales of these services have also risen.One can conclude that A)the law of demand has been violated.
B)the number of personal trainers has increased. C)the demand for personal trainers has increased. D)personal trainers are deliberately charging high prices because they provide services for wealthy clients.
Answer: C
Q2) Refer to Figure 3-7.Assume that the graphs in this figure represent the demand and supply curves for mustard and that bratwurst and mustard are complements.What panel describes what happens in this market when the price of bratwurst falls?
A)Panel (a)
B)Panel (b)
C)Panel (c)
D)Panel (d)
Answer: C
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Chapter 4: Economic Efficiency, government Price Setting, and Taxes
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Q1) Refer to Table 4-1.The table above lists the highest prices three consumers,Curly,Moe,and Larry,are willing to pay for a bottle of champagne.If the price of one of the bottles is $24 dollars
A)Curly will buy two bottles,Moe will buy one bottle and Larry will buy no bottles.
B)Curly will receive $26 of consumer surplus from buying one bottle.
C)Curly and Moe receive a total of $80 of consumer surplus from buying one bottle each.Larry will buy no bottles.
D)Larry will receive $15 of consumer surplus since he will buy no bottles.
Q2) Refer to Table 4-5.The equations above describe the demand and supply for Aunt Maud's Premium Hand Lotion.What are the equilibrium price and quantity (in thousands)for Aunt Maud's Lotion?
A)$20 and 30 thousand
B)$30 and 20 thousand
C)$60 and 30 thousand
D)$20 and 60 thousand
Q3) What is deadweight loss? When is deadweight loss equal to zero?
Q4) Is there a difference between the "true burden" of a tax and who is legally required to pay a tax? Briefly explain.
Page 6
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Chapter 5: Externalities, environmental Policy, and Public Goods
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Q1) If the United States and other developed nations pay the cost of reducing public emissions,developing nations such as China could benefit from the reduction while not contributing to it.In this sense,one can think of reducing carbon emissions as being like a A)public good.
B)private good.
C)quasi-private good.
D)quasi-public good.
Q2) Refer to Figure 5-3.What is the market equilibrium output level?
A)Q<sub>1</sub>
B)Q<sub>2</sub>
C)Q<sub>1</sub> + Q<sub>2</sub>
D)Q<sub>2</sub> - Q<sub>1</sub>
Q3) A good that is rival but not excludable is a A)common resource.
B)public good.
C)quasi-public good.
D)quasi-private good.
Q4) What are transactions costs? Why do transactions costs create difficulties in finding a private solution to the problem of pollution?
Page 7
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Chapter 6: Elasticity: the Responsiveness of Demand and Supply
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Q1) Opera Estate Girls' School is considering increasing its tuition to raise revenue.If the school believes that raising tuition will increase revenue
A)it is assuming that the demand for attending the school is inelastic.
B)it is assuming that the demand for attending the school is elastic.
C)it is assuming that the demand for attending the school is unit-elastic.
D)it is assuming that the demand for attending the school is perfectly elastic.
Q2) Which of the following items is likely to have the highest income elasticity of demand?
A)a luxury cruise to several European countries
B)water
C)breakfast cereal
D)a hamburger
Q3) The demand for The Federalist Papers is likely to be more elastic than the demand for a best-selling mystery novel.
A)True
B)False
Q4) Briefly explain the economic concept of elasticity.
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Chapter 7: The Economics of Health Care
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Q1) Economists who support market-based reforms for health care believe that increased competition among providers of health care would
A)decrease costs but decrease economic efficiency.
B)decrease costs and increase economic efficiency.
C)increase costs but increase economic efficiency.
D)increase costs and decrease economic efficiency.
Q2) Which of the following is not part of the "taxes" provision of the Patient Protection and Affordable Care Act (PPACA)?
A)Pharmaceutical firms and health insurance firms will pay a new taxes.
B)Investors earning more than $200,000 will pay a new tax on their investment income.
C)Beginning in 2018,all taxes on employer-provided health insurance plans will be reduced or eliminated.
D)Workers earning more than $200,000 will have their share of the Medicare payroll tax increase.
Q3) In what ways do economists and policymakers who believe that market-based reforms are the key to improving the health care system criticize the Patient Protection and Affordable Care Act (PPACA)?
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Chapter 8: Firms, the Stock Market, and Corporate Governance
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Q1) All of the following represent differences between stocks and bonds except A)a stock can possibly pay dividends forever,but bonds have a fixed number of payments.
B)differences of opinion about a stock's future may vary considerably but there is less difference about a bond's future.
C)the future growth of a stock is more uncertain than the payments of a bond.
D)bonds represent partial ownership in a firm but stocks do not.
Q2) What type of business is the easiest to set up?
A)sole proprietorship
B)partnership
C)corporation
D)There is no difference in the ease of establishment.
Q3) Facebook is an example of a private firm.As a private firm,Facebook is
A)not subject to government regulations and taxation.
B)run by stockholders and a board of directors.
C)run by its founder,Mark Zuckerberg.
D)not legally allowed to raise funds through venture capital firms.
Q4) Who is the seller in a primary market and who is the seller in a secondary market?
Q5) Define a corporation.
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Chapter 9: Comparative Advantage and the Gains From International Trade
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Q1) Domestically produced goods and services sold to other countries are referred to as A)exports.
B)imports.
C)transfer payments.
D)capital outflow.
Q2) The first example of comparative advantage appeared in a book that was published in 1817.This example showed that mutually beneficial trade between two countries (England and Portugal)was possible.The example assumed that two goods (wine and cloth)could be produced by both countries.Which of the following describes the conclusion of this example?
A)Portugal had a comparative advantage in wine and England had a comparative advantage in cloth.
B)Portugal had a comparative advantage in both wine and cloth,but its advantage in cloth was greater.
C)England had a comparative advantage in both wine and cloth,but its advantage in cloth was greater.
D)England had an absolute advantage in both wine and cloth,but a comparative advantage in wine.
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Page 11
Chapter 10: Consumer Choice and Behavioral Economics
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Q1) Refer to Table 10-6.What is Antonio's marginal utility from consuming the fifth beer?
A)4 utils
B)13.6 utils
C)69 utils
D)134 utils
Q2) The amount of income a consumer has to spend on goods and services is known as
A)purchasing power.
B)effective demand.
C)a budget constraint.
D)wealth.
Q3) Goods with upward sloping demand curves are referred to as
A)Marshall goods.
B)Giffen goods.
C)substitute goods.
D)luxury goods.
Q4) Studies on consumer behavior have found that most people value fairness enough that they will refuse to participate in transactions they consider unfair,even if they are worse off as a result.How does this affect a firm's decision to raise prices in the event of a temporary increase in demand?
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Chapter 11: Technology, production, and Costs
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Q1) The slope of a typical isoquant is negative because to produce a given output,a producer
A)will use more of one input only if it uses more of another.
B)can use less of one input only if the productivity of that input increases
C)can use less of one input only if it uses more of another.
D)will use more of one input only if the price of that input falls.
Q2) Refer to Figure 11-1.For what quantity of labor does production display diminishing returns?
A)for more than 1 units of labor
B)for more than 4 unit of labor
C)for more than 5 units of labor
D)for more than 8 units of labor
Q3) Which of the following statements is true?
A)An explicit cost is an actual cost; an implicit cost is a theoretical cost.
B)Economic costs include both explicit costs and implicit costs.
C)An explicit cost is more important,dollar for dollar,than an implicit cost.
D)Explicit costs are accounting costs,not economic costs; implicit costs are economic costs,not accounting costs.
Q4) What is the marginal product of labor and what is the average product of labor.
Q5) Describe the difference between technology and positive technological change.
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Chapter 12: Firms in Perfectly Competitive Markets
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Q1) ________ in demand for organic food products in the United Kingdom will decrease a firm's economic profit,and the ________ in cost to grow organic food products in the United Kingdom will decrease a firm's economic profit.
A)An increase; increase
B)An increase; decrease
C)A decrease; increase
D)A decrease; decrease
Q2) Which of the following does not hold true for a perfectly competitive firm in long-run equilibrium?
A)Its economic profit will be zero.
B)It will minimize average total cost.
C)It will charge a price equal to marginal cost.
D)Marginal cost will be minimized.
Q3) What is the difference between "shutting down temporarily" and "exiting the industry"?
Q4) In long-run competitive equilibrium,the perfectly competitive firm produces where price equals minimum average total cost.
a.What is this efficiency criterion called?
b.How does it benefit consumers?
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Chapter 13: Monopolistic Competition: the Competitive
Model in a More Realistic Setting
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Q1) Refer to Figure 13-5.Which of the graphs in the figure depicts a monopolistically competitive firm that is minimizing its losses?
A)Panel A
B)Panel B
C)Panel C
D)Panel A and Panel C
Q2) As customers switch from renting DVDs to downloading or streaming movies from the Internet,Netflix will likely find it
A)harder to remain profitable as they face more competition with streaming movies than with mail order DVD rental.
B)harder to remain profitable as they face less competition with streaming movies than with mail order DVD rental.
C)easier to remain profitable as they face more competition with streaming movies than with mail order DVD rental.
D)easier to remain profitable as they face less competition with streaming movies than with mail order DVD rental.
Q3) What is meant by "excess capacity"? How does it relate to consumer utility?
Q4) Why are many companies concerned about brand management?
Page 15
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Chapter 14: Oligopoly: Firms in Less Competitive Markets
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Q1) What is the difference between explicit collusion and implicit collusion?
Q2) Which of the following explains why two firms,Apex and Bongo,would engage in implicit collusion,rather than explicit collusion?
A)Implicit collusion allows Apex to increase its profits at the expense of Bongo without Bongo knowing that collusion has occurred; if Apex engages in explicit collusion,Bongo will realize collusion has taken place and retaliate against Apex.
B)Implicit collusion is less costly to both firms than explicit collusion; therefore,profits will be greater for both firms if they engage in implicit collusion.
C)explicit collusion is illegal; if the managers of Apex and Bongo engage in implicit collusion they may be within the law.
D)Implicit collusion always has an enforcement mechanism that forces both firms to collude; explicit collusion does not have an enforcement mechanism.
Q3) Firms are more likely to find themselves in a prisoner's dilemma in sequential games as opposed to simultaneous games.
A)True
B)False
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Chapter 15: Monopoly and Antitrust Policy
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Q1) A monopoly is a firm that is the only seller of a good or service that does not have
A)a patent.
B)a close complement.
C)a barrier to entry.
D)a close substitute.
Q2) A natural monopoly is most likely to occur in which of the following industries?
A)the pharmaceutical industry because the development and approval of new drugs through the Food and Drug Administration can take more than 10 years
B)the diamond mining and marketing industry because one firm can control a key resource
C)the software industry because of the importance of network externalities
D)an industry where fixed costs are very large relative to variable costs
Q3) Refer to Figure 15-5.Assume the firm maximizes its profits.What is the amount of consumer surplus?
A)$21
B)$124
C)$186
D)$332
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Chapter 16: Pricing Strategy
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Q1) Refer to Table 16-1.Suppose Julie's marginal cost of providing this service is constant at $7 and she charges each customer according to his or her willingness to pay instead of a uniform price of $7.Which of the following statements is true?
A)Julie is worse off because the demand for her services is reduced.
B)Julie has converted the consumer surplus (from a uniform price)into economic profit.
C)Julie's customers are better off because their consumer surplus has increased.
D)Julie's has converted the producer surplus (from a uniform price)into consumer surplus.
Q2) Which of the following firms is most likely to use cost-plus pricing?
A)A firm that makes one product.
B)A firm that sells one product and has a sizable research and development budget.
C)A firm that makes several products and has a sizable research and development budget,the cost of which cannot be easily assigned to each product.
D)A firm that makes many products but has a small research and development budget,the cost of which can be easily assigned to the different product lines.
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Chapter 17: The Markets for Labor and Other Factors of Production
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Q1) All else equal,if job turnover has people leaving jobs and finding new jobs in the same industry,this will
A)increase the demand for labor and the supply of labor.
B)increase the demand for labor and decrease the supply of labor.
C)decrease the supply of labor,but not change the demand for labor.
D)not change demand or supply in the labor market.
Q2) The equilibrium level of employee compensation is determined by
A)the supply of labor and the supply of goods and services.
B)the demand for labor and the demand for goods and services.
C)the supply of goods and services and the demand for goods and services.
D)the supply of labor and the demand for labor.
Q3) Suppose the labor market is in equilibrium.Which of the following statements is false?
A)The equilibrium wage rate is equal to the marginal revenue product of labor.
B)At the equilibrium wage,the quantity of labor demanded equals the quantity of labor supplied.
C)Some workers will earn more than the equilibrium wage.
D)At the equilibrium wage,the demand for labor is equal to the supply of labor.
Q4) What are the three most important variables that cause the market supply curve of labor to shift?
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Chapter 18: Public Choice, taxes, and the Distribution of Income
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Q1) A change from an income tax to a consumption tax system would cause the greatest increase in taxes owed by those who currently put part of their savings into 401(k)retirement plans and Individual Retirement Accounts.
A)True
B)False
Q2) Many economists believe that when the federal government establishes an agency to regulate a particular industry,the regulated firms try to influence the agency even if these actions do not benefit the public.Economists refer to this result of government regulation by which of the following terms?
A)regulatory capture
B)logrolling
C)special interest regulation
D)the regulatory paradox
Q3) The complexity of the U.S.federal income tax system results in significant annual deadweight losses.The opportunity cost of the hours taxpayers spend on record keeping and completing their tax returns amounts to billions of dollars.
a.If the tax system was simplified,how would this benefit the economy?
b.Why hasn't the tax system been simplified?
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