Economic Principles and Policy
Textbook Exam Questions
Course Introduction
Economic Principles and Policy explores the foundational concepts of microeconomics and macroeconomics, including supply and demand, market structures, economic efficiency, market failures, and the role of government intervention. The course examines how these principles inform public policy decisions involving taxation, regulation, trade, and monetary and fiscal policy. Students will analyze policy outcomes using real-world examples and data, learning how economic theory applies to contemporary issues such as unemployment, inflation, income distribution, and globalization. By the end of the course, students will be equipped to critically assess economic policies and understand their implications for individuals, businesses, and society.
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ECON MICRO 5th Edition by William A. McEachern
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21 Chapters
3187 Verified Questions
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Chapter 1: The Art and Science of Economic Analysis
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Q1) Which of the following is not a part of the scientific method in economics?
A)Normative statements
B)Comparing predictions to evidence
C)Formulating a hypothesis
D)A hypothesis
E)Behavioral assumptions
Answer: A
Q2) Which of the following is an example of a normative economic statement?
A)If the money supply falls, interest rates will rise.
B)Teenage unemployment would be lower if there were no minimum wage.
C)The quantity of shirts sold increases as the price of shirts decreases.
D)The federal government's total spending should be reduced.
E)If interest rates go up, then construction activity will fall.
Answer: D
Q3) Economics is the only social science and the only business discipline for which the Nobel Prize is awarded.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Economic Tools and Economic Systems
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Q1) If Helen can paint one room in the time it takes her to bake 40 cakes and Josh can paint one room in the time it takes him to bake 60 cakes, which of the following is true?
A)The opportunity cost of painting is higher for Helen.
B)The opportunity cost of baking cakes is lower for Josh.
C)The opportunity cost of painting one room is 1/40 of a cake for Helen.
D)The opportunity cost of baking one cake is 60 rooms painted for Josh.
E) The opportunity cost of cakes cannot be computed.
Answer: B
Q2) Pure capitalism and a pure command system represent:
A)two different ways of answering the basic economic questions.
B)two names describing the same method of answering the basic economic questions.
C)the only two ways of answering the basic economic questions.
D)the most efficient ways to answer the basic economic questions.
E)two market systems of resource distribution.
Answer: A
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Chapter 3: Economic Decision Makers
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Sample Questions
Q1) The incidence of a tax refers to:
A)who receives the benefits from the revenue generated by the tax.
B)the changes in the marginal tax rate as income increases.
C)whether the tax is regressive, proportional, or progressive.
D)who bears the burden of the tax.
E)whether the tax is based on the ability-to-pay principle.
Answer: D
Q2) Which of the following have their profits taxed twice?
A)Sole proprietorship
B)Partnership
C)Corporation
D)Nonprofit institutions
E)S corporations
Answer: C
Q3) Household production consists of households producing goods and services, like meals, cleaning and child care, instead of firms.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Demand, Supply, and Markets
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Sample Questions
Q1) Tickets to the Michigan-Notre Dame football game are usually sold out in advance of game day. This suggests that:
A)the price of the tickets is set by the football teams.
B)the price of the tickets is set below the equilibrium level.
C)the football stadium is relatively small.
D)the demand for the tickets is highly price elastic.
E)the price of the tickets is set above the equilibrium level.
Q2) If demand decreases, then quantity supplied will increase.
A)True
B)False
Q3) A decrease in the price of peanuts will cause a leftward shift in the supply curve of peanut butter.
A)True
B)False
Q4) The market supply curve of a particular product indicates the total quantities:
A)that are actually sold during a given time period.
B)that buyers are willing to purchase at alternative prices.
C)that sellers are willing and able to offer at alternative prices.
D)that sellers are willing to offer for sale at a fixed price.
E)of complements offered for sale.
Page 6
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Chapter 5: Elasticity of Demand and Supply
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Q1) The greater the availability of close substitutes for a product, the greater the price elasticity of demand for that product.
A)True
B)False
Q2) If an increase in price from $1.20 to $2 per unit leads to an increase in quantity supplied from 20 to 100 units, then:
A)supply is perfectly elastic.
B)supply is perfectly inelastic.
C)supply is unit elastic.
D)supply is elastic.
E)supply is inelastic.
Q3) The total revenue curve that corresponds to a downward-sloping linear demand curve:
A)slopes downward.
B)slopes upward.
C)is a horizontal line.
D)first rises, then falls.
E)first falls, then rises.
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Chapter 6: Consumer Choice and Demand
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Sample Questions
Q1) Suppose Enid could increase her total utility by purchasing one more book and one less DVD. Which of the following is true?
A)The marginal utility of an additional DVD exceeds the marginal utility of an additional book.
B)The marginal utility of an additional book exceeds the marginal utility of an additional DVD.
C)The marginal utility of an additional DVD is negative.
D)The marginal utility of per dollar spent on books exceeds that of DVDs.
E)The marginal utility of per dollar spent on books equals that of DVDs.
Q2) The marginal utility of the fifth hot dog is less than the marginal utility of the second hot dog, other things constant.
A)True
B)False
Q3) The market demand curve is the sum of individual quantities demanded at each price.
A)True
B)False
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Chapter 7: Production and Cost in the Firm
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Sample Questions
Q1) Total fixed cost divided by the level of output yields the _____.
A)average variable cost per unit
B)average fixed cost per unit
C)marginal cost per unit
D)average total cost per unit
E)marginal productivity per unit of fixed resource
Q2) Which of the following would be shown on a firm's accounting statement?
A)Revenue, implicit costs, explicit costs, and economic profit
B)Revenue, implicit costs, explicit costs, and accounting profit
C)Revenue, explicit costs, and economic profit
D)Revenue, explicit costs, and accounting profit
E)Revenue, implicit costs, and accounting profit
Q3) Which of the following is true of marginal cost when marginal returns are increasing?
A)It is negative and increasing.
B)It is negative and decreasing.
C)It is positive and increasing.
D)It is positive and decreasing.
E)It is positive and has a constant slope.
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Page 9
Chapter 8: Perfect Competition
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Sample Questions
Q1) Claude's Copper Clappers sells clappers for $65 each in a perfectly competitive market. At its present level of output, Claude's marginal cost is $65, average variable cost is $45, and average total cost is $67. To maximize his profit or minimize his loss, Claude should:
A)increase output.
B)reduce output but not to zero.
C)continue producing the present level of output.
D)shut down.
E)raise the price.
Q2) In the short run, producer surplus equals _____.
A)Total revenue (TR) Variable cost (VC)
B)Total revenue (TR) Average variable cost (AVC)
C)Total revenue (TR) + Variable cost (VC)
D)Total revenue (TR) Average fixed cost (AFC)
E)Total revenue (TR) + Total cost (TC)
Q3) Firms in a perfectly competitive market achieve both allocative and productive efficiency in the short run.
A)True
B)False
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Page 10
Chapter 9: Monopoly
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Sample Questions
Q1) A natural monopoly emerges from legal restrictions imposed by a government.
A)True
B)False
Q2) The demand curve a monopolist uses in making an output decision is:
A)the same as the demand curve facing a perfectly competitive firm.
B)positively sloped as it produces a highly differentiated product.
C)vertical as there are no close substitutes for its product.
D)the same as the market demand curve.
E)perfectly price inelastic.
Q3) Rent-seeking activities are socially wasteful because they use scarce resources but do not add to society's output.
A)True
B)False
Q4) A monopolist maximizes profit at the quantity where the slope of its total revenue curve equals the slope of its total cost curve.
A)True
B)False
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Chapter 10: Monopolistic Competition and Oligopoly
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Q1) The outcome in the prisoner's dilemma is referred to as the profit-maximizing equilibrium.
A)True
B)False
Q2) The use of game theory in studying the behavior of firms in an oligopoly implies that firms:
A)will be successful in colluding to raise prices.
B)follow suit when one firm raises its price.
C)will match other firms' price cuts but will not react to the other firm's price increases.
D)may attempt to avoid the worst outcome but may achieve a less-than-optimal outcome.
E)are usually unable to avoid the worst outcome.
Q3) A cartel is:
A)a group of oligopolistic firms that engage in collusion.
B)a group of monopolistically competitive firms that charge the same price.
C)usually legal in the United States.
D)an agreement among rival firms to set prices independently.
E)illegal throughout the world.
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Chapter 11: Resource Markets
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Sample Questions
Q1) The demand for a resource is derived from the demand for the final product it helps to produce.
A)True
B)False
Q2) Which of the following is not an example of derived demand?
A)As more high school graduates go on to college, more professors are hired.
B)As consumers buy more computers, they demand more powerful computers.
C)As people let their hair grow longer, fewer people become barbers.
D)As people buy more tennis shoes instead of sandals, they buy more shoe laces.
E)Increased demand for overnight delivery speeds up orders for new delivery trucks.
Q3) The resource market is different from the product market because:
A)firms don't maximize profit in the resource market.
B)households don't maximize utility in the resource market.
C)firms are demanders and households are suppliers in the resource market.
D)supply and demand do not apply in the resource market.
E)supply and demand do not apply in the product market.
Q4) An increase in the demand for shoemakers will increase the demand for shoes.
A)True
B)False
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Chapter 12: Labor Markets and Labor Unions
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Sample Questions
Q1) Other things equal, the supply of labor will be higher to a job that:
A)is riskier than other jobs.
B)offers valuable on-the-job training.
C)doesn't allow for flexible work schedules.
D)requires advanced skills or education.
E)is not prestigious and provides low wages.
Q2) Most labor negotiations in the United States end without a strike.
A)True
B)False
Q3) As the wage rate increases, the substitution effect causes workers to supply more time to market work and the income effect causes them to supply less time to market work.
A)True B)False
Q4) Union wages in the United States are almost:
A)equal to nonunion wages.
B)twice as high as nonunion wages.
C)half of nonunion wages.
D)15 percent higher than nonunion wages.
E)50 percent higher than nonunion wages.
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Chapter 13: Capital, Interest, Entrepreneurship, and Corporate Finance
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Sample Questions
Q1) Administration costs make small loans less profitable for banks than large ones, other things equal.
A)True
B)False
Q2) Which of the following is true of entrepreneurs?
A)They usually supply all the financial capital required by a firm to start its operation.
B)They accept the risk of success or failure of a business venture.
C)They supply all the natural resources required to continue production.
D)They get yearly dividends as they are the owners of a company.
E)They provide loans to financial companies at high rates of interest.
Q3) If the interest rate is 10 percent, the present value of an annual payment of $100,000 to be received indefinitely is:
A)$1,000,000.
B)$1,246,296.
C)$2,000,000.
D)$976,463.
E)infinite.
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Page 15
Chapter 14: Transaction Costs, Asymmetric Information, and Behavioral Economics
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Sample Questions
Q1) Wendy's restaurants must decide whether to grow their own potatoes for French fries or buy them. If they buy rather than grow, then they have opted to:
A)integrate horizontally.
B)allow market prices to guide resource allocation.
C)integrate vertically.
D)allow hierarchical control to guide resource allocation.
E)form an authority relation.
Q2) If we assume perfect information, perfect mobility of resources, and no transactions costs, then there is little need for firms.
A)True
B)False
Q3) Adverse selection is more likely when:
A)a job requires specific training.
B)a job requires intangible or immeasurable abilities.
C)the wage offered is above the average wage rate in the market.
D)wage is based on true marginal revenue products.
E)performance can be monitored closely.
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Page 16
Chapter 15: Economic Regulation and Antitrust Policy
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Sample Questions
Q1) Acting under a per se rule, the U.S. courts need only examine:
A)the market structure.
B)the offending firm's behavior.
C)market performance.
D)the offending firm's balance sheet.
E)the offending firm's stock price.
Q2) If the Herfindahl index is the same in two industries, we can conclude that:
A)the number of firms in each industry is the same.
B)the number of firms in the two industries is not the same.
C)the sum of the squared market shares of all firms is the same in the two industries.
D)there must be an identical distribution of market shares among the firms in the two industries.
E)there are only two firms in each industry.
Q3) Economic regulation aims to control the price, output, the entry of new firms, and the quality of service in industries in which monopoly appears inevitable or even desirable.
A)True
B)False
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Chapter 16: Public Goods and Public Choice
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Sample Questions
Q1) Resources employed to persuade government to redistribute income and wealth to special interests are unproductive.
A)True
B)False
Q2) Compared to private firms, we should expect public bureaus to:
A)have smaller budgets.
B)be more cost-efficient.
C)be less cost-efficient.
D)be more concerned with adopting new technologies.
E)be more in tune with consumer preferences.
Q3) The total welfare cost of a monopoly that engages in rent-seeking activities:
A)equals only the portion of lost consumer surplus that is not transferred to the monopolist.
B)includes the use of resources devoted to rent seeking.
C)equals the loss of welfare in the economy due to barriers to entry.
D)equals the total economic profit earned by the monopolist.
E)excludes the use of resources devoted to rent seeking.
Q4) In special-interest legislation, there are both widespread costs and benefits.
A)True
B)False
Page 18
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Chapter 17: Externalities and the Environment
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Q1) The optimal level of air quality will increase if:
A)the cost of polluting increases.
B)price of pollution reducing equipment increases.
C)a new process allows pollution to be removed more cheaply.
D)the marginal social cost of air quality increases.
E)the marginal social benefit of air quality decreases.
Q2) Open-access resources are owned by:
A)every individual in society.
B)large firms.
C)no one.
D)the government.
E)nonprofit agencies.
Q3) Society's total cost of producing a good:
A)includes only the private cost to a firm.
B)includes only the external cost.
C)includes all private and external costs.
D)includes the sunk cost and the total variable cost of a firm.
E)includes only the average variable cost of production.
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Chapter 18: Poverty and Redistribution
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Q1) Which of the following accounts for approximately three-fourths of all welfare spending?
A)Social Security
B)The earned-income tax credit
C)Unemployment compensation
D)In-kind transfer
E)Temporary Assistance for Needy Families (TANF)
Q2) Which of the following is true of Medicaid?
A)Medicaid beneficiaries do not receive Medicare.
B)States do not receive any grants from the federal government to cover their Medicaid budget.
C)The proportion of poor people covered by Medicaid is determined by the federal government.
D)The proportion of poor people covered by Medicaid varies across states.
E)Medicaid has been replaced by Medicare in recent years.
Q3) Poor welfare recipients often face very high marginal tax rates.
A)True
B)False
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Chapter 19: International Trade
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Sample Questions
Q1) The cost of the resources used by domestic producer groups, including lobbying fees, propaganda, and legal restrictions, is collectively referred to as the cost of:
A)enforcement and implementation.
B)rent seeking.
C)retaliation.
D)collective action.
E)import substitution.
Q2) Which of the following is not a type of trade restriction?
A)Low-interest loans to foreign buyers
B)Export subsidies to domestic producers
C)Restrictive health and safety standards
D)Domestic content requirements
E)Economies of scale
Q3) When a country imposes a per-unit tariff on an imported good or service, _____.
A)the price that domestic consumers pay for the import falls
B)the quantity of the good or service imported into the country declines
C)the quantity of the good or service imported into the country increases
D)the price at which any supplier can sell output in the world market decreases
E)the quantity of the good or service demanded by the consumers increases
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Page 21
Chapter 20: International Finance
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Q1) A leftward shift of a country's demand curve for foreign exchange will:
A)decrease the price of foreign exchange in the country.
B)increase the price of foreign exchange in the country.
C)decrease the value of its currency.
D)make foreign goods more expensive in the country.
E)make its goods cheaper in the foreign market.
Q2) Under fixed exchange rates, government officials have limited roles to play in the foreign exchange market.
A)True
B)False
Q3) When the international financial system operated under the gold standard, _____.
A)the currencies of most countries were convertible into gold
B)all international transactions were financed with gold
C)the price of gold was determined by the supply and demand for foreign exchange
D)the quantity of money demanded was always the same
E)there was very little inflation
Q4) Since 1983, U.S. has typically run a financial account surplus.
A)True
B)False
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Chapter 21: Economic Development
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Q1) The growth experiences of oil-rich countries indicate that _____.
A)a large supply of natural resources helps in the industrialization of the countries
B)natural resources are not enough to create a modern industrial economy
C)low productivity is a result of low income
D)unemployment and underemployment reflect inefficiencies of labor
E)education makes people more receptive towards new ideas and methods
Q2) Erbia, a small developing country, needs funds to develop their communication networks. Erbia is likely to approach _____ for assistance.
A)the World Bank
B)the International Monetary Fund (IMF)
C)the United Nations Children's Fund (UNICEF)
D)the World Health Organization (WHO)
E)the World Trade Organization (WTO)
Q3) More than half the labor force in India is engaged in the manufacturing sector.
A)True
B)False
Q4) An aging population poses fiscal problems for any country.
A)True
B)False
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