Economic Principles and Applications
Question Bank
Course Introduction
Economic Principles and Applications introduces students to the fundamental concepts of microeconomics and macroeconomics, exploring how individuals, businesses, and governments make decisions about resource allocation in a world of scarcity. The course covers topics such as demand and supply, market structures, consumer behavior, production costs, economic efficiency, and the role of government in the economy. Through real-world case studies and practical examples, students will learn to analyze economic issues, interpret data, and understand the impact of economic policies on society. This course provides a solid foundation for further study in economics and related fields and equips students with analytical tools applicable to a wide range of careers.
Recommended Textbook
Survey of Economics Principles Applications and Tools 7th Edition by Arthur
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18 Chapters
3640 Verified Questions
3640 Flashcards
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Page 2
OSullivan
Chapter 1: Introduction: What Is Economics
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118 Verified Questions
118 Flashcards
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Sample Questions
Q1) Prior to the financial crisis and recession which began in 2007, credit for mortgages was ________, creating a ________.
A) virtually unavailable; housing bubble
B) only available to borrowers with high credit scores; shortage of affordable housing
C) easily obtained; housing boom
D) unavailable to low-income borrowers; large demand for rental properties
Answer: C
Q2) When deciding to implement a congestion tax, economists and the government would use the elements of the economic way of thinking to primarily determine A) if the tax would be allocated equitably.
B) what tax amount should be charged.
C) who should be exempt from the tax.
D) how much revenue will the tax generate.
Answer: B
Q3) Ceteris paribus is the same as rise / run.
A)True
B)False
Answer: False
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3
Chapter 2: The Key Principles of Economics
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144 Verified Questions
144 Flashcards
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Sample Questions
Q1) If an economy is fully utilizing its resources, it can produce more of one product only if it
A) doubles manufacturing of the product.
B) produces less of another product.
C) adds more people to the labor force.
D) reduces the prices of the most expensive products.
Answer: B
Q2) The opportunity cost of something is the nominal price paid for the product. A)True
B)False
Answer: False
Q3) Consider a firm that is trying to determine how many hours to remain open in a day. How would the firm make this decision?
Answer: The firm would continue to stay open as long as the incremental, or marginal, benefit of staying open (say, the increased revenues) each extra hour exceeds (or at least equals) the incremental, or marginal, costs (e.g., electricity, wages, etc.) incurred from staying open that hour.
Q4) What is an opportunity cost?
Answer: An opportunity cost is what you sacrifice to get something.
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Chapter 3: Demand, Supply, and Market Equilibrium
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172 Verified Questions
172 Flashcards
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Sample Questions
Q1) Figure 3.2 illustrates the supply and demand for t-shirts. If the actual price of t-shirts is $15, there is an
A) excess demand of 8 t-shirts.
B) excess supply of 8 t-shirts.
C) excess demand of 10 t-shirts.
D) excess supply of 10 t-shirts.
Answer: B
Q2) Refer to Figure 3.1, which shows Molly's and Ryan's individual demand curves for compact discs per month. Assuming Molly and Ryan are the only consumers in the market, what is the market quantity demanded at a price of $9?
A) 2
B) 4
C) 6
D) 10
Answer: D
Q3) People will buy more of an inferior good when their income decreases.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Elasticity: A Measure of Responsiveness
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Sample Questions
Q1) If demand is perfectly elastic, the price elasticity of demand is equal to A) 1.
B) 0.
C) infinity.
D) a positive number between 0 and infinity.
Q2) If the elasticity of demand for cigarettes by teenagers is 1.5, then the price and total revenue from teens buying cigarettes are
A) zero.
B) unrelated.
C) inversely related.
D) directly related.
Q3) Which of the following products has the least elastic demand?
A) Raspberry Mocha Kona coffee blend at Starbuck's
B) Starbuck's coffee
C) coffee
D) all beverages
Q4) If the cross-price elasticity of salt and pepper is positive the goods must be complements.
A)True
B)False
Page 6
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Chapter 5: Production Technology and Cost
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211 Verified Questions
211 Flashcards
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Sample Questions
Q1) When marginal costs are increasing
A) a firm is experiencing diminishing returns.
B) average cost is always increasing.
C) average cost is always decreasing.
D) marginal costs are always greater than average costs.
Q2) Fixed costs do not vary as output changes.
A)True
B)False
Q3) Suppose a firm experiences lower average costs whenever output increases in the long run. Then we would expect the firm to have
A) a U-shaped long-run average cost curve.
B) an L-shaped long-run average cost curve.
C) a long-run average cost curve that always decreases.
D) a minimum efficient scale relatively close to the origin.
Q4) The change in total cost resulting from a one-unit increase in the change in quantity is
A) average variable cost.
B) marginal cost.
C) average total cost.
D) opportunity cost.
Page 7
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Chapter 6: Perfect Competition
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218 Verified Questions
218 Flashcards
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Sample Questions
Q1) According to the Application, farmers in the city of Pu'er, China currently earn more growing ________ than they do growing ________.
A) tea; coffee
B) rice; coffee
C) coffee; tea
D) rice; tea
Q2) Which of the following products is the most likely to have constant costs in the long run?
A) ice
B) wine grapes
C) housing
D) copper
Q3) The supply curve for a perfectly competitive market
A) is the summation of all the average cost curves of each firm in a market.
B) is the summation of all the marginal cost curves, above the minimum of the average variable cost curve, from all the individual firms in the market.
C) is not related to the supply curves of individual firms.
D) is independent of price.
Q4) What is a long-run supply curve?
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Chapter 7: Monopoly and Price Discrimination
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Sample Questions
Q1) The firm in Figure 7.3 will charge
A) P .
B) P .
C) P .
D) P .
Q2) Suppose that a price discriminating monopolist is able to divide its market into two groups. If the firm sells its product for $50 to the group whose customers have the most elastic demand, what price are they likely to charge to the group whose customers have the least elastic demand?
A) $50
B) more than $50
C) less than $50
D) The answer depends on the marginal revenue for that group.
Q3) Will a profit maximizing monopolist who is not subject to government regulation produce a quantity where the MR < 0?
Q4) Suppose that you own a golf course that is part of a Florida resort. You primarily serve two groups of people: local residents and tourists. Devise a price discrimination strategy that will increase your revenues compared to a single-pricing strategy.
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Chapter 8: Market Entry, Monopolistic Competition, and Oligopoly
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Sample Questions
Q1) When there are just a few firms in the industry, the industry structure is most likely to be
A) a perfectly competitive industry.
B) an oligopoly market.
C) a monopoly market.
D) a natural monopoly market.
Q2) Tie-in sales
A) are legal under the Clayton Act.
B) are the same as predatory pricing.
C) were banned under the Hart-Scott-Rodino Act.
D) are contracts that prevent purchasing one good without purchasing another.
Q3) Limit pricing occurs when a firm sets price
A) equal to marginal cost.
B) equal to average cost.
C) at different amounts for different groups of consumers.
D) so low that other firms are prevented from entering the market.
Q4) Describe some of the ways in which firms differentiate their products.
Q5) When was the Clayton Act passed, and what were the main practices that it outlawed?
Page 10
Q6) What are the key characteristics of an oligopoly?
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Chapter 9: Imperfect Information, External Benefits, and External Costs
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416 Verified Questions
416 Flashcards
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Sample Questions
Q1) Market failure is a situation in which
A) production generates costs that are not paid for by the producer.
B) a market is not in equilibrium.
C) purchasers cannot afford the goods that they need.
D) the government intervenes in the market.
Q2) A distinguishing feature of a public good is that it
A) is not possible to exclude people who don't pay for the public good.
B) is possible to exclude people who pay for the public good.
C) may have external costs.
D) is provided by the government.
Q3) When economists say that a good is nonrival in consumption, they mean that
A) no one wants the good.
B) everyone wants the good.
C) the good is widely available.
D) more than one person can enjoy the good at the same time.
Q4) Deposit insurance creates a moral hazard that depositors have less incentive to monitor their bank.
A)True
B)False
Q5) What is moral hazard?
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Chapter 10: The Labor Market and the Distribution of Income
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241 Verified Questions
241 Flashcards
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Sample Questions
Q1) The market supply curve for labor is the relationship between the wage and the quantity of labor that
A) all workers are willing to provide.
B) any given worker is willing to provide.
C) all firms are willing to employ.
D) any given firm is willing to employ.
Q2) According to the output effect, a decrease in the wage will decrease production costs, so the price of final goods will decrease and the demand for labor will decrease.
A)True
B)False
Q3) A decrease in the supply of musicians ________ the number of musicians employed, and ________ the wages paid to musicians.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
Q4) Evaluate the statement: All minimum wage workers will be better off if the minimum wage rises.
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Chapter 11: Measuring a Nations Production and Income
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152 Flashcards
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Sample Questions
Q1) Gross investment is
A) what is left over from total new private investment after depreciation.
B) the total amount of private investment purchases, whether new or previously existing.
C) the total amount of new private investment purchases.
D) the wear and tear on private investment.
Q2) According to this Application, real GDP only grew by ________ percent from the end of the recession in 2009 through 2014.
A) 2.0
B) 5.4
C) 10.8
D) 15.0
Q3) Which of the following is the largest component of national income?
A) net interest
B) corporate profits
C) rental income
D) compensation of employees by firms
Q4) In a business cycle, the date at which a recession starts is called a trough.
A)True
B)False
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Chapter 12: Unemployment and Inflation
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155 Verified Questions
155 Flashcards
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Sample Questions
Q1) What is structural unemployment?
Q2) The value of a dollar
A) is its purchasing power.
B) remains constant over time.
C) is its face value.
D) is set by the government.
Q3) If Sam does not have a job and is not currently looking for work but has looked in the past, he is considered
A) unemployed and in the labor force.
B) unemployed and not in the labor force.
C) not in the labor force.
D) unemployed.
Q4) What is a "cost-of-living" adjustment?
Q5) What is meant by the term "the natural rate of unemployment"?
Q6) What is frictional unemployment?
Q7) Unemployment and recessions are sometimes necessary to curb high inflation. A)True B)False
Page 15
Q8) Explain menu costs and shoe leather costs as they relate to inflation.
Q9) What is cyclical unemployment?
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Page 16
Chapter 13: Why Do Economies Grow
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Sample Questions
Q1) According to this Application, China's growth rate was faster than India's during this 26 year period because
A) China received more contributions from human capital than India received.
B) China invested more in physical capital than India invested.
C) China's growth was based more on human capital and India's growth was based more on physical capital.
D) China's growth was based more on human capital and India's growth was based more on technological progress.
Q2) If the government ________ taxes to pay for spending on infrastructure, the result will most likely be a(n) ________ in capital deepening.
A) increases; increase B) decreases; increase C) increases; decrease
D) eliminates; elimination
Q3) The process by which monopoly profits lead to technological progress in known as A) imperfect competition. B) destructive creation.
C) creative destruction.
D) economies of scale.
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Page 17
Chapter 14: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) Even though the catalogs listed in the Application were reissued every six months, the prices which were tracked in these retail catalogs
A) were typically fixed for a year or more.
B) changed every month.
C) tended to fall during periods of high inflation.
D) were not listed due to low rates of inflation.
Q2) If prices are sticky
A) economic activity will be coordinated efficiently.
B) economic activity will not be coordinated efficiently.
C) prices will quickly adjust to changes in demand.
D) quantity supplied will always equal quantity demand.
Q3) Assuming a long-run aggregate supply curve, a decrease in government spending results in ________ in output and ________ in price level.
A) no change; an increase
B) no change; a decrease
C) a decrease; a decrease
D) an increase; no change
Q4) What three effects can alter the aggregate demand curve?
Q5) Explain how the wealth effect can affect aggregate demand.
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Chapter 15: Fiscal Policy
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Sample Questions
Q1) According to the Application, economist John B. Taylor found that the temporary tax cuts which were a part of the 2009 stimulus package
A) were very successful in stimulating consumption spending.
B) did very little to stimulate consumption spending.
C) were split very evenly between consumption spending and household saving.
D) were primarily used to pay off home mortgage balances.
Q2) When the economy slows down and national income falls, the government will have ________ tax revenue to fund programs.
A) more
B) less
C) about the same
D) a rapid increase in
Q3) What is the largest component of the federal budget?
A) discretionary spending
B) entitlements and mandatory spending
C) net interest
D) defense spending
Q4) What is the federal government's largest source of revenue?
Q5) What is meant by the term "inside lags"?
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Chapter 16: Money and the Banking System
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Sample Questions
Q1) Credits cards are NOT a part of the M1 or M2 money supply.
A)True
B)False
Q2) Suppose Diego deposits $4,000 in his bank. If the reserve ratio is 10 percent, this will lead to a maximum increase of ________ in checking account balances throughout all banks.
A) $0
B) $4,000
C) $10,000
D) $40,000
Q3) According to the information in Table 16.1, M2 is equal to A) $840 billion.
B) $1,062 billion.
C) $1,692 billion.
D) $1,862 billion.
Q4) In the United States today, the government will exchange gold or silver for paper money.
A)True
B)False
Q5) Explain liabilities and assets as they relate to a bank's balance sheet.
Page 20
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Chapter 17: Monetary Policy and Inflation
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Sample Questions
Q1) When people expect inflation, they assume that prices are going to increase at a certain rate and factor this into their decision making.
A)True
B)False
Q2) Recall the Application. If the Federal Reserve was making a decision on changing interest rates
A) the chairman, acting alone, would typically make a better decision than the Board of Governors.
B) the Board of Governors would typically make a better decision than the chairman acting on his own.
C) the Board of Governors would typically make an equally good decision as would the chairman acting on his own.
D) neither the Board of Governors nor the chairman, acting alone, would tend to make accurate predictions.
Q3) The quantity of money demanded will increase as interest rates increase.
A)True
B)False
Q4) What three factors affect the demand for money?
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Page 21
Chapter 18: International Trade and Finance
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Sample Questions
Q1) Under a fixed exchange rate system, if the inflation rate of the United States exceeds the inflation rate of other nations, the
A) dollar will depreciate.
B) dollar will appreciate.
C) United States will develop a trade deficit.
D) United States will develop a trade surplus.
Q2) Referring to Figure 18.3, the effect of a decrease in Japanese prices is represented by a movement from point
A) d to a.
B) c to b.
C) c to d.
D) d to c.
Q3) The ability of one person or nation to produce a good at a lower absolute cost than another is called a(n)
A) market advantage.
B) comparative advantage.
C) absolute advantage.
D) specialization advantage.
Q4) List four protectionist policies.
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