Economic Principles
Exam Solutions
Course Introduction
Economic Principles introduces the fundamental concepts and analytical tools of microeconomics and macroeconomics. The course explores how individuals, firms, and governments make choices regarding resource allocation in the face of scarcity, examines market mechanisms and price determination, and discusses the role of supply and demand. Additional topics include consumer behavior, production and costs, market structures, national income, inflation, unemployment, and the impact of fiscal and monetary policies. By building a foundation in economic reasoning, students gain a framework to understand real-world issues and make informed decisions as consumers, workers, and citizens.
Recommended Textbook
Principles of Microeconomics 6th Edition by
Robert H. Frank
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14 Chapters
1931 Verified Questions
1931 Flashcards
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Page 2
Chapter 1: Thinking Like an Economist
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143 Verified Questions
143 Flashcards
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Sample Questions
Q1) The average benefit of n units of an activity is the:
A)total benefit of n units divided by n.
B)n divided by the total benefit of n units.
C)n times the total benefit of n units.
D)extra benefit from carrying out one additional unit of the activity.
Answer: A
Q2) One thing that distinguishes normative economic principles from positive economic principles is that:
A)normative principles are pessimistic and positive principles are optimistic.
B)normative principles reflect social norms, and positive principles reflect universal truths.
C)normative principles tell us how people should behave, and positive principles tell us how people will behave.
D)normative principles tell us how people will behave, and positive principles tell us how people should behave.
Answer: C
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Chapter 2: Comparative Advantage
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157 Verified Questions
157 Flashcards
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Sample Questions
Q1) Suppose that Nepal invests less in new factories and equipment than does the United States. This will likely cause:
A)Nepal's production possibilities curve to shift outward faster than the U.S.'s.
B)The U.S.'s production possibilities curve to shift inward faster than Nepal's.
C)The U.S.'s production possibilities curve to shift outward faster than Nepal's.
D)Nepal's production possibilities curve to shift inward faster than the U.S.'s.
Answer: C
Q2) A graph that illustrates the maximum amount of one good that can be produced for every possible level of production of the other good is called a(n):
A)production possibilities curve.
B)consumption possibilities curve.
C)production function.
D)supply curve.
Answer: A
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4
Chapter 3: Supply and Demand
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120 Verified Questions
120 Flashcards
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Sample Questions
Q1) Suppose that the price of doughnuts decreases and that doughnut-holes are a by-product of producing doughnuts. One would expect:
A)the supply of doughnuts to decrease.
B)the quantity supplied of doughnuts to decrease.
C)the supply of doughnut-holes to increase.
D)the quantity supplied of doughnut-holes to increase.
Answer: B
Q2) Suppose that the market price for hot dogs sold by street vendors has just risen from $4.50 to $5, and that Curly has now begun operating a hot dog cart. We can assume that:
A)Curly's reservation price is $5.00 or more.
B)Curly's reservation price is exactly $4.50.
C)Curly's reservation price is greater than $4.50 but no more than $5.
D)Curly's reservation price is exactly $5.
Answer: C
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Chapter 4: Elasticity
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148 Verified Questions
148 Flashcards
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Sample Questions
Q1) Economists have found that the price elasticity of demand for water is higher in the summer than in the winter. Why is this likely to be so?
A)Winter is longer than summer, and price elasticity is lower over longer time horizons.
B)Summer is longer than winter, and price elasticity is higher over longer time horizons.
C)Winter water use tends to be for necessities such as cleaning and cooking, and summer water use tends to be for both necessities and non-necessities such as gardening and recreation.
D)People take more vacations in the summer and so use less water at home.
Q2) If a demand curve is horizontal at P = $5, then the price elasticity of demand is:
A)5.
B)0.2.
C)0.
D)infinite.
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6
Chapter 5: Demand
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134 Verified Questions
134 Flashcards
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Sample Questions
Q1) Shelter for homeless people is an example of A)a want.
B)a need.
C)something they can live without.
D)something hard to find.
Q2) The absolute price of a good in dollar terms is the good's:
A)market price
B)equilibrium price
C)nominal price
D)marginal price
Q3) When the price of a good rises, marginal utility per dollar spent on that good ______, leading consumers to purchase ______ of that good.
A)rises; more B)falls; more C)rises; less
D)falls; less
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Chapter 6: Perfectly Competitive Supply
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152 Verified Questions
152 Flashcards
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Sample Questions
Q1) If a perfectly competitive firm produces an output level at which price is less than marginal costs, then the firm should:
A)raise its price.
B)reduce output to earn greater profits or smaller losses.
C)expand output to earn greater profits or smaller losses.
D)leave its output level unchanged provided it is covering its variable cost.
Q2) Last year, Casey grew fresh vegetables, which she sold at her local farmers market, but this year, Casey did not plant any vegetables and went to work at a bank instead. If Casey's decision to change careers did not affect the price of vegetables at the farmers market, then this suggests that:
A)the demand for vegetables did not change.
B)the market for vegetables is perfectly competitive.
C)the demand for vegetables increased this year.
D)the market demand for vegetables is perfectly inelastic.
Q3) If a firm shuts down in the short run, then its:
A)total revenue and total cost will fall to zero.
B)profit will equal zero.
C)economic loss will equal its fixed costs.
D)economic loss will equal its variable costs.
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Page 8
Chapter 7: Efficiency, Exchange, and the Invisible Hand in Action
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151 Verified Questions
151 Flashcards
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Sample Questions
Q1) An example of an implicit cost is:
A)interest paid on a bank loan used to purchase equipment.
B)wages paid to a family member who works at the firm.
C)the value of a spare bedroom turned into a home office.
D)operating costs of a company-owned car.
Q2) Consumer surplus is the cumulative difference between:
A)consumers' incomes and consumers' expenditures.
B)the amount consumers are willing to pay and the price they actually pay.
C)the suggested retail price and the price consumers actually pay.
D)consumers' savings and consumers' expenditures.
Q3) The cumulative difference between the price producers actually receive for a good and the lowest price for which they would have been willing to sell it is called:
A)producer surplus.
B)lost surplus.
C)total economics surplus.
D)consumer surplus.
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Chapter 8: Monopoly, Oligopoly,
and Monopolistic Competition
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141 Flashcards
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Sample Questions
Q1) Suppose the table below describes the demand for a good produced by monopolist.
\[\begin{array} { | c | c | }
\hline \text { Price } & \text { Quantity } \\
\hline \$ 10 & 1 \\
\hline \$ 9 & 2 \\
\hline \$ 8 & 3 \\
\hline \$ 7 & 4 \\
\hline \$ 6 & 5 \\
\hline \$ 5 & 6 \\
\hline \$ 4 & 7 \\
\hline
\end{array}\] Based on the data in the table, we know the firm should:
A)be able earn an economic profit.
B)produce more than 7 units.
C)not produce the seventh unit.
D)not produce the fifth unit.
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Chapter 9: Games and Strategic Behavior
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144 Verified Questions
144 Flashcards
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Sample Questions
Q1) According to the textbook, the owners of restaurants encourage tipping in order to:
A)insure that their waiters earn enough money.
B)solve a commitment problem with their wait staff.
C)sustain cooperation in a repeated prisoner's dilemma.
D)avoid playing a dominated strategy.
Q2) A ______ describes the possible moves in a game in sequence and lists the payoffs to each possible combination of moves.
A)decision tree
B)payoff matrix
C)game graph
D)multi-period game
Q3) The three elements of a game are:
A)the firm, the consumers, and the profit.
B)the players, the strategies, and the payoffs.
C)the model, the graph, and the costs.
D)the costs, the revenue, and the profit.
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Chapter 10: Externalities and Property Rights
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130 Flashcards
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Sample Questions
Q1) Curly and Moe are considering living alone or being roommates and splitting the rent for the next twelve months. If they live alone, they each rent a one bedroom, one bath apartment for $500 per month, while if they are roommates, they can split a two bedroom, one bath apartment for $800 per month. The one difficulty they have is that Moe snores very loudly. Curly estimates the cost of poor sleep due to Moe's snoring at $150 per month. Moe could obtain a snore-eliminating device for $50 per month. The least costly solution to the externality present in this situation is for:
A)Curly to endure Moe's snoring.
B)both to live alone.
C)Moe to eliminate his snoring.
D)Moe to pay Curly for his discomfort.
Q2) If either the production or consumption of a good generates an external benefit, then the:
A)social demand curve will lie to the right of the private demand curve.
B)social demand curve will lie to the left of the private demand curve.
C)social marginal cost curve will lie to the left of the private marginal cost curve.
D)social marginal cost of the good will equal zero.
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Page 12
Chapter 11: The Economics of Information
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123 Verified Questions
123 Flashcards
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Sample Questions
Q1) The difference between the price of electronic equipment in a retail store and on the Internet partly reflects:
A)the extent to which middlemen drive the price up for extra profit.
B)the lack of competition between brick and mortar stores and online stores.
C)the value of personal attention and support at a retail store.
D)excessive markup.
Q2) Insurance companies practice statistical discrimination because:
A)young males are willing to pay more for insurance than other groups.
B)the demand for insurance is very inelastic.
C)young males are more likely than other groups to generate insurance claims.
D)insurance markets aren't perfectly competitive.
Q3) Because of ______, the market will provide ______ the socially optimal level of information.
A)the credibility problem; more
B)the problem of adverse selection; less
C)moral hazard; more
D)the free-rider problem; less
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13
Chapter 12: Labor Markets, Poverty, and Income Distribution
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127 Verified Questions
127 Flashcards
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Sample Questions
Q1) In the market for labor, the demand function describes
A)the number of workers who are willing to work at each wage.
B)the output of workers who are paid a given wage.
C)the number of workers a firm is willing to hire at each wage.
D)the demand for the firm's output.
Q2) Leo is a welfare recipient who qualifies for two means-tested cash benefit programs.
If he does not earn any income, he receives $225 from each program. For each dollar he earns (which his employer is required to report to the welfare agency), his benefit from each program is reduced by 75 cents until the benefit equals zero.If Leo earns $150, then he will receive ______ in total benefits from the two programs.
A)$75.
B)$325.
C)$225.
D)0.
Q3) Those whofavor programs aimed at reducing inequality argue that these programs:
A)provide a financial incentive to work harder.
B)provide a financial incentive to invest in human capital.
C)help reduce poverty.
D)discourage firms from discriminating in their hiring.
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Page 14
Chapter 13: The Environment, Health, and Safety
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125 Verified Questions
125 Flashcards
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Sample Questions
Q1) If all firms were to pay the same premium per worker into the workers' compensation system, then firms with high injury rates would pay premiums that:
A)exactly cover the claims generated by their workers
B)are too large to cover the claims generated by their workers.
C)are too small to cover the claims generated by their workers.
D)lead to the socially optimal level of workplace injuries.
Q2) If the cost to firms of reducing workplace injuries by 1 percent is $1,000 a year for each worker, then it is efficient for firms to reduce workplace injuries by 1 percent if:
A)the value workers place on the reduction in workplace injuries is less than $1,000 per year.
B)the value workers place on the reduction in workplace injuries is at least $1,000 per year.
C)firms are earning an economic profit of at least $1,000 per year. D)firms are earning an economic profit of less than $1,000 per year.
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Chapter 14: Public Goods and Tax Policy
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136 Verified Questions
136 Flashcards
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Sample Questions
Q1) For many pure public goods like fireworks displays, weather forecasts, and television broadcasts the marginal cost of serving one more consumer is ______, and the optimal quantity of the public good occurs when ______.
A)zero; provision is infinite.
B)determined by average cost rather than marginal cost; price equals average cost.
C)greater than the average cost; the government provides the good.
D)zero; the marginal benefit of the public good equals zero.
Q2) Citizens of Tinytown are considering building a new park. If each voter in Tinytown has a reservation price that is less than the total cost of the park, then:
A)the benefit of the park is less than the cost of the park, so the park should not be built.
B)some sort of collective action by voters will be necessary to fund the park.
C)a private firm will have an incentive to build the park.
D)the park will never be built.
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