Economic Analysis
Question Bank
Course Introduction
Economic Analysis is a foundational course that explores the principles and methods used to understand how individuals, firms, and governments make decisions about the allocation of limited resources. The course examines core concepts such as supply and demand, market equilibrium, consumer behavior, production and cost analysis, and the role of government intervention in markets. By applying both theoretical models and real-world case studies, students learn to critically assess economic problems, predict outcomes, and propose solutions grounded in economic reasoning. The skills and analytical tools gained in this course provide a basis for more advanced study in economics and offer valuable insights for decision-making in business, policy, and everyday life.
Recommended Textbook
Microeconomics Principles and Applications 6th Edition by Robert E. Hall
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18 Chapters
2377 Verified Questions
2377 Flashcards
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Chapter 1: What Is Economics
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178 Verified Questions
178 Flashcards
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Sample Questions
Q1) Which of the following explains why economists may disagree over normative issues?
A)They have different beliefs and values.
B)They examine the same data to draw their conclusions.
C)They need to disagree in order to publish their research findings.
D)They often employ different statistical techniques when examining data.
E)Some work only on microeconomic issues,while others focus exclusively on macroeconomic issues.
Answer: A
Q2) Macroeconomics focuses on the behavior of economic agents such as the consumer,a business firm,or a specific market.
A)True
B)False
Answer: False
Q3) Microeconomics analyzes individual parts of the economy rather than broad economic aggregates.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Scarcity, choice, and Economic Systems
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Sample Questions
Q1) Which point in Figure 2-3 is not possible for this society to produce?
A)A
D)D
E)E
Answer: E
Q2) Under a market system of resource allocation,the most important limitations on individual freedom of action are imposed by
A)tradition
B)the government
C)the scarcity of resources
D)the stagnation of the economy
E)the rigidity of the economy's rules
Answer: C
Q3) An economy's production possibilities frontier is fixed in the long run.
A)True
B)False
Answer: False
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Page 4
Chapter 3: Supply and Demand
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184 Flashcards
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Sample Questions
Q1) The market for General Motors' bonds
A)exists only within the geographical boundaries of the United States
B)is not defined by its geographic location
C)is at the New York Stock Exchange
D)is at the U.S.Treasury
E)is in London,England
Answer: B
Q2) The law of supply says that
A)supply and income are inversely related
B)supply follows demand
C)quantity supplied equals quantity demanded
D)price and quantity supplied are inversely related
E)price and quantity supplied are directly related
Answer: E
Q3) If both the demand and supply curves for computers shift to the right,the price of computers may rise,fall,or remain unchanged.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Working With Supply and Demand
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Sample Questions
Q1) Figure 4-1 shows the supply and demand for socks.If a price ceiling of $4 per pair is imposed by the government
A)there will be a shortage of 14 pairs of socks
B)there will be a shortage of 10 pairs of socks
C)there will be neither a shortage nor a surplus of socks
D)there will be a surplus of 10 pairs of socks
E)there will be a surplus of 14 pairs of socks
Q2) A government-imposed price ceiling set below the market's equilibrium price for a good will produce an excess supply of the good.
A)True
B)False
Q3) Suppose that a market is initially in equilibrium.Then the government imposes a price floor above the equilibrium price.Which of the following will occur in the absence of a black market?
A)The market will remain in equilibrium.
B)The quantity sold will drop.
C)The quantity demanded will increase.
D)The quantity supplied will decrease.
E)An excess demand will develop.
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Page 6
Chapter 5: Elasticity
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Sample Questions
Q1) If the income elasticity of demand is negative,this means that the good is
A)an inferior good
B)sold at a lower than equilibrium price
C)provided by a monopoly producer
D)provided by competitive producers
E)a normal good
Q2) If the cross-price elasticity of demand is positive,then the
A)two goods are complements
B)two goods are substitutes
C)two goods have no relationship to each other
D)price is below the equilibrium
E)price is above the equilibrium
Q3) If demand is price elastic,a decrease in price results in a(n)
A)decrease in total expenditure on the good
B)unfavorable shift in tastes and preferences
C)decrease in total cost for the seller
D)increase in supply of the good
E)increase in total revenue to the seller
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Chapter 6: Consumer Choice
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Sample Questions
Q1) Steve buys Pepsi at $.60 per can and orange juice at $1.20 per can.In consumer equilibrium,
A)orange juice would yield a higher marginal utility per dollar spent than Pepsi would
B)he will consume twice as much Pepsi as orange juice
C)he will consume more orange juice than Pepsi
D)total utility from orange juice is twice that from Pepsi
E)his last can of orange juice would generate a higher marginal utility than his last can of Pepsi
Q2) The income effect
A)of a price increase works to increase the quantity of the good demanded
B)of a price increase works to decrease the quantity of the good demanded
C)of a price decrease works to increase the quantity of the good demanded
D)of a price decrease works to decrease the quantity of the good demanded
E)of a price decrease could work to increase or decrease the quantity of the good demanded
Q3) If income decreases,there will be a parallel inward shift of the budget line.
A)True
B)False
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Chapter 7: Production and Cost
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Sample Questions
Q1) Average variable cost is
A)total cost minus fixed cost
B)total variable cost divided by the quantity of output
C)total cost plus marginal cost
D)total cost per unit of output
E)output divided by the quantity of inputs used
Q2) Variable inputs are those whose
A)quantity changes as the level of output changes
B)costs are irreversible
C)quantity remains constant regardless of the level of output
D)costs are considered sunk costs
E)price is continuously changing
Q3) A firm's explicit costs are
A)the opportunity costs of the owners
B)its depreciation costs
C)the money paid for use of inputs
D)the foregone rents on owner occupied office space
E)irrelevant to the determination of economic profit
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Chapter 8: How Firms Make Decisions: Profit Maximization
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Sample Questions
Q1) If the demand curve facing a firm shifts outward,then
A)there is a decline in the maximum price the firm can charge at each quantity it may want to sell
B)there is an increase in the maximum price the firm can charge at each quantity it may want to sell
C)the firm would need to increase the quantity it wants to sell in order to generate a rise in the price
D)the firm would need to decrease the quantity it wants to sell in order to generate a rise in the price
E)there is a decrease in the maximum quantity the firm can sell at each price it may want to charge
Q2) In order to maximize profits,a firm should decrease output whenever total cost exceeds total revenue.
A)True
B)False
Q3) A profit-maximizing firm will never increase production if doing so causes total revenue to decrease.
A)True
B)False
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10
Chapter 9: Perfect Competition
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Sample Questions
Q1) As long as price is greater than average variable cost,a firm maximizes its profit by producing that quantity of output for which
A)average revenue equals average total cost
B)the price is the highest
C)marginal revenue equals marginal cost
D)average total cost is minimized
E)average variable cost is minimized
Q2) If a firm is a price taker,then the demand curve it faces is perfectly
A)elastic and above its marginal revenue curve
B)elastic and lies on top of its marginal revenue curve
C)elastic and below its marginal revenue curve
D)inelastic and above its marginal revenue curve
E)inelastic and the same as its marginal revenue curve
Q3) In order to maximize profit,a perfectly competitive firm should select the level of output where
A)marginal revenue equals price
B)marginal cost equals marginal revenue
C)price exceeds marginal cost
D)price exceeds marginal revenue
E)total revenue equals total cost
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Chapter 10: B:Perfect Competition
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Sample Questions
Q1) Which of the following is not a characteristic of a perfectly competitive market
A)buyers and sellers are well informed about the market
B)standardized product
C)many buyers and few sellers
D)easy exit out of the industry
E)easy entry into the industry
Q2) One of the defining characteristics of a perfectly competitive market is
A)both buyers and sellers are well informed about the market
B)a small number of buyers
C)high barriers to entry
D)a small number of buyers but a large number of sellers
E)buyers are better informed about the market than sellers
Q3) Diminishing marginal returns are the reason why some industries have positively-sloped long-run average cost curves.
A)True
B)False
Q4) In a perfectly competitive market,a technological advance allows all firms to earn higher economic profits in the long run.
A)True
B)False
Page 12
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Chapter 11: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) Cecilia's Cafe is a monopolistic competitor.If Cecilia's is currently producing at the output level at which her average total cost is minimized and the cafe is earning an economic profit,then,in the long run,output will
A)decline and average total cost will increase
B)decline and average total cost will decrease
C)remain unchanged as Cecilia's strives to minimize costs
D)increase and average total cost will be greater
E)increase and average total cost will be smaller
Q2) Globalization of markets can reduce oligopoly power by
A)increasing the number of competitors
B)increasing market prices
C)bypassing antitrust legislation in a particular country
D)identifying new markets for goods and services
E)reducing the economies of scale
Q3) Technological changes that decrease minimum efficient scale
A)reduce concentration
B)increase concentration
C)increase product diversification
D)increase the value of existing assets
E)decrease the exchange rate
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Chapter 11: Monopoly
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Sample Questions
Q1) Assuming no price discrimination,the firm depicted in Figure 10-16 will
A)both d and e
B)break even in the short run
C)earn an economic profit in the short run
D)suffer an economic loss if it produces
E)shut down to minimize short-run losses
Q2) A network externality exists
A)in the television industry
B)outside the television industry
C)whenever an increase in the size of a network increases its value to current and potential members
D)whenever an increase in the size of a network increases its average total cost of production
E)whenever an increase in the size of a network increases its total cost of production
Q3) Monopolies are sometimes more technologically efficient than perfectly competitive markets.
A)True
B)False
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Chapter 12: Labor Markets
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Sample Questions
Q1) A labor market differs from a product market because
A)in a labor market,firms are suppliers and households are demanders
B)the usual laws of economics do not apply to labor markets
C)supply and demand are only relevant for labor markets
D)supply and demand are only relevant for product markets
E)in a labor market,firms are demanders and households are suppliers
Q2) Tova is trying to get a bakery to hire her.She said that if she helped out,the shop could sell an additional 5 cakes per day.If each cake sells for $10 and the owner hires her,then
A)the wage rate must be at least $51 per day.
B)Tova's marginal revenue product must be less than the wage rate.
C)Tova's marginal revenue product must be positive.
D)the wage rate must be at most $50 per day.
E)the wage rate must be equal to $40 per day.
Q3) A firm's labor demand curve is derived from the supply of the goods and services it produces.
A)True
B)False
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Chapter 13: B: Labor Markets
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Sample Questions
Q1) A labor market is divided into two segments.All workers have the same qualifications and find jobs in either segment equally attractive.Initially,both segments are in competitive equilibrium.Then the development of employer prejudice reduces employment of minorities in one segment.In the long run,there will likely be a change in
A)wage rates and the composition of the work force in both segments
B)neither wage rates nor the composition of the work force in either segments
C)wage rates,but not the composition of the work force,in both segments
D)the composition of the work force,but not wage rates,in both segments
E)the wage rate,but not the composition of work force,in the discriminating segment only
Q2) The EITC tends to
A)increase employment just like the minimum wage does.
B)decrease employment just like the minimum wage does.
C)increase employment whereas the minimum wage decreases employment.
D)decrease employment whereas the minimum wage increase employment.
Q3) Wage differentials are due exclusively to differences in market structure.
A)True
B)False
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Page 16
Chapter 14: Capital and Financial Markets
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Sample Questions
Q1) A newly issued bond with a face value of $8,000 and no coupon payments is priced at $7,000.The bond will mature in one year.What is the yield on this bond?
A)$1,000
B)12.5 percent
C)14.3 percent
D)$272.73
E)It depends on the interest rate
Q2) The supply curve for a particular bond is horizontal.
A)True
B)False
Q3) You are thinking of purchasing a 5-year bond,with a face value of $8,000,on the secondary bond market.The bond was issued three years ago,so it will mature two years from today.If the interest rate is 10 percent (0.10)per year,what is the value of the bond?
A)$6,611.57
B)$8,000.00
C)$4,967.37
D)$6,010.52
E)$7,272.73
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Chapter 15: Economic Efficiency and the Competitive Ideal
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Sample Questions
Q1) Taking money from a wealthy individual in order to feed a destitute family would be a Pareto improvement.
A)True
B)False
Q2) In an efficient economy,
A)no one could be made better off by a change in the way goods are allocated
B)revenue for all firms is maximized
C)a change in the way goods are allocated could make someone worse off
D)goods are allocated fairly among individuals
E)no one would be made worse off if there is a change in the way goods are allocated
Q3) In real-world markets
A)economic efficiency is rare because making voluntary transactions is difficult
B)economic efficiency is rare because Pareto improvements are difficult to make
C)economic efficiency is best thought of as a continuum
D)perfect competition is an impediment to economic efficiency
E)every possible Pareto improvement is exploited
Q4) A mutually advantageous trade leads a Pareto improvement.
A)True
B)False
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Chapter 16: Governments Role in Economic Efficiency
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Sample Questions
Q1) A pure private good is one
A)that is nonrival and nonexcludable
B)that is rival but excludable
C)that is rival and excludable
D)that is nonrival but excludable
E)one whose production imposes a cost on third parties
Q2) Many saltwater fish species are currently being overexploited.This is an example of A)efficiency
B)the tragedy of the commons
C)Pareto optimality
D)a negative externality
E)a positive externality
Q3) Highway traffic is a mixed good because
A)some people like it and others do not
B)drivers creates costs that are borne by other drivers
C)it is not free of charge
D)because highways are rivalrous,but not easily excludable
E)because highways are excludable,but not easily rival
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Chapter 17: Comparative Advantage and the Gains From International Trade
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Sample Questions
Q1) A low-productivity country will tend to avoid free trade with a high-productivity country.The low-productivity country will be exploited and lose industries in which it has a comparative advantage.
A)True
B)False
Q2) Which of the following factors does not help explain incomplete specialization by countries that trade in accordance with comparative advantage?
A)There may be high transportation costs for perishable products or human services. B)The economies of trading partners may be of vastly different sizes.
C)Opportunity costs of production may not be constant,but may vary with the volume of production.
D)Governments may impose all kinds of barriers to free international trade,such as tariffs and quotas.
E)The cost of making trade deals may have become extremely low because of the existence of the World Trade Organization.
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