Economic Principles and Problems
Final Exam
Course Introduction
Economic Principles and Problems introduces students to the foundational concepts and analytical tools used in economics, focusing on both microeconomic and macroeconomic perspectives. The course explores essential topics such as scarcity, opportunity cost, market structures, supply and demand, consumer behavior, and the role of government in the economy. Through examination of real-world economic issues including unemployment, inflation, economic growth, and international trade students gain a deeper understanding of how economic principles apply to everyday life and decision-making. The course also encourages critical thinking about current economic challenges, policy responses, and the impact of economic activity on society.
Recommended Textbook
Principles of Microeconomics 2nd Edition by Lee Coppock
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Page 2
Chapter 1: Five Foundations of Economics
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Sample Questions
Q1) William can create 30 meals in one hour,or wash 90 dishes in the same time.Jeremy can create 25 meals in one hour,or wash 50 dishes in one hour.Using opportunity cost,who should specialize in what task?
A) William is more productive and therefore should make meals and wash dishes.
B) Since creating meals is harder,William should create meals and wash dishes.
C) Since washing dishes is easier,Jeremy should wash dishes and create meals.
D) Jeremy can wash twice as many dishes per meal,so Jeremy should wash dishes.
E) Jeremy gives up fewer dish washings per meal creation,so Jeremy should create meals.
Answer: E
Q2) Economics is the study of
A) how to make money.
B) how to allocate resources to satisfy wants and needs.
C) capitalism.
D) how to make workers more productive and firms more profitable.
E) markets.
Answer: B
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3
Chapter 2: Model Building and Gains From Trade
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Sample Questions
Q1) What is Chandler's opportunity cost of baking 1 pie?
A) 4 pies
B) 2 pies
C) 1 pie
D) 1 loaf of bread
E) 1/2 loaf of bread
Answer: D
Q2) If Lola can produce more output from a set amount of resources than Kevin,________ has a(n)________ advantage.
A) Lola; comparative
B) Kevin; comparative
C) Lola; absolute
D) Kevin; absolute
E) Lola; normative
Answer: C
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Page 4
Chapter 3: The Market at Work: Supply and Demand
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Sample Questions
Q1) After a new technology is introduced,the price typically falls.What is a possible explanation for this?
A) More people purchase the product and more firms produce the product.
B) Fewer people purchase the product and fewer firms produce the product.
C) More firms produce the product.
D) More people purchase the product.
E) Fewer people purchase the product.
Answer: C
Q2) Which of the following is both a shift in supply and a shift in demand?
A) the number of firms in an industry
B) tastes and preferences
C) income changes
D) expectations of future prices
E) the number of buyers
Answer: D
Q3) Macroeconomists often say,"The reason we have inflation is that everyone expects inflation." Using the supply and demand model,show what happens to price when both consumers and producers expect the price of a particular good to increase in the future.
Answer: 11ea78d5_7016_53de_8379_7fd223396a04_TB4871_00
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Page 5
Chapter 4: Elasticity
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Sample Questions
Q1) What would you expect the cross-price elasticity of demand to be for chips and salsa? Explain your answer.
Q2) A local merchant raises the price of his good and finds that his total revenues increase.The demand for this good is
A) inelastic.
B) elastic.
C) relatively price sensitive.
D) perfectly elastic.
E) unitary elastic.
Q3) Which graph most likely shows the price elasticity of demand for the following situation: Lin's Boots can sell out its entire stock of shoe polish at $2.50 but can sell none if it raises the price to $2.55?
A) A
B) B
C) C
D) D
E) E
Q4) Explain why you agree or disagree with the following statement: "Higher prices always yield higher revenues."
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Chapter 5: Market Outcomes and Tax Incidence
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Sample Questions
Q1) The benefit to society from the imposition of a tax is the
A) lost consumer surplus.
B) deadweight loss.
C) tax revenue.
D) lost producer surplus.
E) the reduction in social welfare.
Q2) The incidence of a tax is not determined by who pays the tax out of pocket.Explain why this is so.
Q3) Social welfare (i.e. ,the sum of producer and consumer surplus)is maximized when A) the government taxes most goods and services.
B) very few consumers and producers exist within a market.
C) the market reaches its equilibrium price and quantity.
D) supply and demand are perfectly inelastic.
E) the government imposes price controls.
Q4) Explain the concept of a producer's willingness to sell and the two factors that go into it.
Q5) Explain why the elasticities of supply and demand determine who bears more of the burden of a tax,consumers or producers.
Q6) Explain the difference between the burden of a tax and who pays the tax out of pocket.
Page 7
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Chapter 6: Price Controls
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Sample Questions
Q1) Why do government leaders impose price controls?
A) They are trying to promote the formation of black markets.
B) They are trying to ensure that the market reaches equilibrium.
C) They are trying to ensure that all consumers are able to purchase a specific product.
D) They are trying to ensure that a social goal is satisfied.
E) They are trying to increase the demand curve.
Q2) Distinguish between a shortage and scarcity.
Q3) If a store sells a good at the market price,even though the government authorities have set the maximum price that can be charged for it,the store is selling the good in a(n)
A) black market for a market price that is higher.
B) black market for a market price that is lower.
C) effort to eliminate a surplus of the good.
D) legal market for a market price that is higher.
E) legal market for a market price that is lower.
Q4) Why would most economists (and all free-market economists)not favor price controls?
Q5) Compare the actions of buyers and sellers in price-controlled (price ceilings and floors)markets in the long run.
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Chapter 7: Market Inefficiencies: Externalities and Public Goods
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Sample Questions
Q1) Which good is excludable?
A) apples on a tree in a public park
B) a fireworks display
C) swimming in the ocean
D) a walk in a public park
E) education at a community college
Q2) The cost of an activity paid for by the individual and the third party is defined as a(n)________ cost.
A) internal
B) social
C) external
D) third-party
E) public-good
Q3) The ability to download music and movies from the Internet without paying is
A) an example of a negative externality.
B) an example of a club good.
C) an illegal form of free-riding.
D) an illustration of the tragedy of the commons.
E) something that anyone who pays taxes should be allowed to do.
Q4) Explain why satellite TV service is a club good.
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Chapter 8: Business Costs and Production
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Sample Questions
Q1) Should a firm always produce the level of output where marginal cost is lowest?
A) Yes.That is the level of output where costs are lowest.
B) No.That is the level of output where employees are most efficient.
C) No.Firms should produce where marginal cost equals average variable cost.
D) No.That might be the best choice,but it depends on the firm's profits.
E) Yes.Any other level of output will have higher marginal cost.
Q2) Explain what the marginal product curve for a labor input typically looks like.
Q3) Jamal owns a coffee roasting company.He buys raw coffee beans,roasts them,grinds them,and sells them to stores.He recently moved into a larger factory so that he can sell coffee to more stores.How would Jamal know if he is experiencing constant returns to scale from increasing the size of his factory?
A) His long-run average cost per pound of coffee remains the same.
B) His long-run total cost of roasting coffee remains the same.
C) His long-run total cost of roasting coffee decreases.
D) His long-run average cost per pound of coffee increases.
E) His long-run average cost per pound of coffee decreases.
Q4) How are long-run costs different from short-run costs?
Q5) How will a firm know when it has reached its minimum efficient scale of production?
Q6) Why is the long-run average cost curve important to a firm?
Page 10
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Chapter 9: Firms in a Competitive Market
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Sample Questions
Q1) A company produces at an output level where marginal revenue is equal to marginal cost and has the following revenue and cost levels:
Marginal cost curve intersects the average variable cost curve at $140.
Marginal cost curve intersects the average total cost curve at $150.
Marginal cost curve intersects the marginal revenue curve at $200. What would you suggest this firm should do in the short run?
A) The firm should shut down.
B) The firm should continue to produce at a loss.
C) The firm should continue to produce at a profit level of $10 per unit.
D) The firm should continue to produce at a profit level of $50 per unit.
E) The firm should continue to produce at a profit level of $60 per unit.
Q2) Real-life examples of competitive markets
A) are more common than any other market structure.
B) are usually far short of perfection.
C) include the fast-food industry and soda industry.
D) are difficult to break into as an entrepreneur.
E) do not benefit society.
Q3) Explain how a market with no barriers to entry or exit results in long-run economic profits equaling zero.
Q4) Give two reasons why the long-run market supply curve may slope upward.
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Chapter 10: Understanding Monopoly
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Sample Questions
Q1) Draw graphs of a normal monopoly and a natural monopoly and discuss their differences.
Q2) The output effect refers to how
A) lower prices affect the quantity sold.
B) firms can set their prices.
C) firms choose their quantities.
D) lower prices affect revenue.
E) lower output affects the price.
Q3) The ________ cost pricing rule means that the government can regulate a natural monopoly to minimize deadweight loss without forcing the private firm out of the market. A) marginal B) average C) total D) fixed E) variable
Q4) Explain why it is unrealistic to regulate a natural monopoly for a price and quantity that maximizes total economic surplus in society.
Q5) Why are barriers to entry so important to obtaining monopoly power in a market?
Q6) Using a graph,explain the concepts of the price effect and output effect.
Page 12
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Chapter 11: Price Discrimination
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Sample Questions
Q1) The federal government often gives out tax credits for individuals who purchase fuel-efficient or electric vehicles.A car dealership,which attempts perfect price discrimination,would respond to this knowledge by
A) targeting the same price since the individual must like the car,with or without the tax credit.
B) targeting a lower price.The buyer needed an incentive in order to purchase the vehicle,so it can be assumed that the individual is more demand-elastic.
C) targeting a higher price.The tax credit increases the buyer's maximum willingness to pay.
D) targeting the same price because there's no way for the dealership to know who has the tax credit and who doesn't.
E) increasing the sticker price on all of its vehicles by the amount of the tax credit.
Q2) Publishing novels is another example of price discrimination.A hardback version of a novel precedes a less-expensive paperback version.Explain how price discrimination can occur in these markets.
Q3) List and explain the conditions for price discrimination.
Q4) Explain the welfare effects of price discrimination.
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Chapter 12: Monopolistic Competition and Advertising
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Sample Questions
Q1) In the long run,surviving firms in monopolistic competition earn
A) higher than normal economic profit.
B) zero economic profit.
C) less than normal profits.
D) significant economic losses.
E) praise from the government for achieving allocative efficiency.
Q2) When would advertising be least effective for an individual firm?
A) in a perfectly competitive industry
B) in a monopolistically competitive industry
C) in an oligopolistic industry
D) in a monopoly industry
E) Never; advertising is equally effective in all industries.
Q3) If a monopoly firm suddenly lost its barriers to entry and faced new competition,yet consumers thought that the former monopoly's products were somewhat different than its new competitors,then
A) the industry has probably become perfectly competitive.
B) long-run profit for this firm will likely exist.
C) the industry has probably become a monopolistically competitive industry.
D) the industry is probably cooperating to maximize joint profits.
E) the industry has probably become a monopoly.
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Chapter 13: Oligopoly and Strategic Behavior
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Sample Questions
Q1) According to the kinked demand curve theory,if Kit-N-Sit cuts prices,Kittysitters will ________; if Kit-N-Sit raises prices,Kittysitters will ________.
A) do nothing and leave prices unchanged; do nothing and leave prices unchanged
B) do nothing and leave prices unchanged; cut prices
C) do nothing and leave prices unchanged; raise prices
D) cut prices; do nothing and leave prices unchanged
E) raise prices; do nothing and leave prices unchanged
Q2) The ________ Act was the first antitrust bill created in response to the increase in concentration ratios in many leading U.S.industries,including steel,railroads,mining,textiles,and oil.
A) Sherman Antitrust
B) Fair Trade
C) Steel Industry
D) Citigroup Relief
E) Sarbanes-Oxley
Q3) Why are decision trees useful for making business decisions?
Q4) Why have most cartels failed despite the fact that firms in a cartel are able to achieve higher profits?
Q5) Are duopolies always socially efficient? Why or why not?
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Chapter 14: The Demand and Supply of Resources
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Sample Questions
Q1) If the price of output is $5,the value of the marginal product of labor of the third worker is
A) $8.
B) $30.
C) $40.
D) $38.
E) $190.
Q2) Labor supply is the relationship between
A) wages and willingness to hire workers.
B) price of output and amount of output for sale.
C) price of capital and amount of capital for sale.
D) wages and willingness to work.
E) wages and amount of output for sale.
Q3) Which of the following would increase the demand for labor?
A) a decrease in the product price
B) a decrease in the product price and a labor-saving machine acquisition
C) an increase in the product price
D) an increase in the product price and a labor-enhancing machine acquisition
E) a decrease in the product price,an increase in the product price,and a labor-saving machine acquisition
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Chapter 15: Income,inequality,and Poverty
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Sample Questions
Q1) Which of the following best explains why younger individuals have a high level of spending fueled by borrowing?
A) The future seems uncertain,and younger people decide to spend in the present in case later opportunities are limited.
B) Many are college graduates who took out loans to attend school,so younger people are more comfortable with the idea of borrowing for consumption.
C) The life-cycle wage pattern predicts income mobility for younger individuals and makes borrowing feasible for large purchases associated with living independently for the first time.
D) Most younger individuals are irresponsible with money,so the high levels of spending and borrowing are the product of irrational decision making.
E) Since younger individuals have the longest time until retirement,they are the least sensitive to increases in interest rates.
Q2) Using the theory of compensating differentials,explain why many internships offered to college students are often unpaid.
Q3) What is the motivation behind a negative income tax?
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Chapter 16: Consumer Choice
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Sample Questions
Q1) Why are indifference curves typically bowed inward?
Q2) When a consumer buys more of a good as a result of a relative price change,economists call it
A) diminishing marginal utility.
B) the substitution effect.
C) marginal utility.
D) the real-income effect.
E) the consumer optimum.
Q3) Indifference curves for ________ are drawn as straight lines,while indifference curves for ________ are drawn as right angles.
A) perfect substitutes; perfect complements
B) perfect complements; perfect substitutes
C) economic "goods"; economic "bads"
D) economic "bads"; economic "goods"
E) imperfect substitutes; imperfect complements
Q4) Draw the indifference curves for two goods that are perfect substitutes.
Q5) Explain the similarities and differences between maximizing your utility over two goods and maximizing your utility over more than two goods.
Q6) Why is it necessary to engage in marginal thinking with more than two goods?
Page 18
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Chapter 17: Behavioral Economics and Risk Taking
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Sample Questions
Q1) How much money would a risk-neutral student be willing to pay to play this game?
A) $85
B) $75
C) $150
D) $500
E) $225
Q2) A person from a moderately humble background works hard to make a successful life.Another person from a moderately humble background barely works at all,seeking state welfare compensation,maintaining: "There are more important things in life than work." Bethany,an economist voted in as a potential policy maker,must make a decision on "fairness." How would she evaluate this situation?
Q3) Explain how temptation affects intertemporal decision-making.Incorporate risk aversion in your answer.
Q4) Two friends,Thelma and Dorian,decide to eat lunch together.Both of them eat until they are satisfied,but both have food remaining on their plates.Thelma continues,finishing her plate,while Dorian leaves his unfinished plate to be taken by the wait staff.Explain if and how Thelma and Dorian individually acted rationally.Assume that the food has no further value,that is,no "doggie bag."
Q5) Describe three characteristics of status quo bias.
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Chapter 18: Health Insurance and Health Care
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Sample Questions
Q1) Which graph best describes the demand for an elective surgery that is so price sensitive that doctors have to issue coupons to get more patients?
A) Graph A
B) Graph B
C) Graph C
D) Graph D
E) Graph E
Q2) What would be the arguments for and against the following statement: "Insurance companies should be abolished because they are the cause of high healthcare expenses"?
Q3) The legal supply of organs in the United States is ________,producing a ________ of those available.
A) increasing; surplus
B) decreasing; shortage
C) fixed; surplus
D) fixed; shortage
E) upward-sloping; constant quantity
Q4) How do HMOs act as an intermediary in the healthcare market?
Q5) Why is the demand for health care very inelastic?
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Chapter 19: International Trade
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Sample Questions
Q1) Based on the scenario,Rosa has
A) an absolute advantage in producing basketballs,but not footballs.
B) an absolute advantage in producing footballs,but not basketballs.
C) an absolute advantage in producing both goods.
D) an absolute advantage in producing neither good.
E) no comparative advantage.
Q2) Since 2000,world goods trade has
A) doubled.
B) tripled.
C) remained the same.
D) decreased by 10 percent.
E) decreased by 25 percent.
Q3) Based on the scenario,Karl has
A) a comparative advantage in producing cars,but not trucks.
B) a comparative advantage in producing trucks,but not cars.
C) a comparative advantage in producing both goods.
D) a comparative advantage in producing neither good.
E) no absolute advantage.
Q4) What are some of the gains from trade?
Q5) What exactly is the advantage of the principle of comparative advantage?
Page 21
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