Economic Theory I Test Preparation
Course Introduction
Economic Theory I introduces students to the foundational principles and analytical tools of microeconomics. The course explores the behavior of individual consumers and firms, the determination of prices and output in various market structures, and the concepts of efficiency and welfare. Students will engage with theories of demand and supply, utility maximization, production and cost analysis, competitive and non-competitive markets, and the role of government intervention. Through a combination of mathematical modeling, graphical analysis, and real-world applications, this course provides a rigorous framework for understanding how economic agents make decisions and interact within markets.
Recommended Textbook
Microeconomics 10th Edition by William Boyes
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22 Chapters
2295 Verified Questions
2295 Flashcards
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Page 2
Chapter 1: The Wealth of Nations: Ownership and Economic Freedom
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87 Verified Questions
87 Flashcards
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Sample Questions
Q1) Which of the following is an example of capital?
A)Education
B)Natural resources
C)Machinery
D)Training
E)Money
Answer: C
Q2) Economics is the study of:
A)the allocation of scarce resources and the ways in which human decision makers utilize those resources.
B)the methods that human decision makers use to transform a scarce good into a non-economic good.
C)how to operate a business successfully.
D)a utopian society.
E)how to make money in the stock market.
Answer: A
Q3) The opportunity cost of going to the movies is always the same for everyone.
A)True
B)False
Answer: False
Page 3
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Chapter 2: Scarcity and Opportunity Costs
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87 Flashcards
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Sample Questions
Q1) If you have a choice of consuming either two apples, three oranges, or one candy bar, the opportunity cost of the candy bar is:
A)two apples.
B)three oranges.
C)two apples and three oranges.
D)two apples or three oranges, whichever you value more.
E)the difference in the prices of the three options.
Answer: D
Q2) Which of the following conditions is true for a nation operating at a point lying inside its production possibilities curve?
A)The nation is experiencing a technological breakthrough in one of its key industries.
B)The nation is clearly utilizing its resources efficiently.
C)The nation is producing the maximum output that can be produced with a limited quantity of resources.
D)The nation is not utilizing its resources efficiently.
E)The nation is producing the maximum output that can be produced with its unlimited quantity of resources.
Answer: D
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4
Chapter 3: Markets and the Price System
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96 Flashcards
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Sample Questions
Q1) Refer to Table 3.5. If government imposes a price floor of $2:
A)the price floor will not have an effect.
B)the price will fall to $1 because producers will be forced to incur losses.
C)demand will increase.
D)a surplus will result equal to 20 units.
E)a shortage will result equal to 20 units.
Answer: A
Q2) The change in the quantity demanded of any good is always caused by:
A)a change in consumers' preferences for that good.
B)a change in the general income levels of the consumers who buy that good.
C)an increase or decrease in the population.
D)a change in the price of that good.
E)a change in the price of substitute goods.
Answer: D
Q3) The development of a low-cost synthetic fuel is expected to cause a decrease in the price of oil.
A)True
B)False
Answer: True
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Page 5
Chapter 4: The Aggregate Economy
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61 Flashcards
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Sample Questions
Q1) According to Scenario 4-1, country C has net exports of:
A)zero.
B)$13 million.
C)$6 million.
D) $13 million.
E) $6 million.
Q2) The term net exports refers to:
A)the situation in which a country's exports exceed its imports.
B)the situation in which a country's imports exceed its exports.
C)the shortages that result when a country imposes a price ceiling.
D)the shortages that result when a country imposes a price floor.
E)the difference between the value of exports and the value of imports.
Q3) Which of the following is considered a financial intermediary?
A)The Federal Reserve
B)A bankruptcy court
C)The U.S. Department of Commerce
D)A credit union
E)A foreign exchange
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6
Chapter 5: Using Economics to Understand the World
Around You
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68 Verified Questions
68 Flashcards
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Sample Questions
Q1) Which of the following is a possible outcome of a minimum wage imposed by a government?
A)It leads to an increase in consumer surplus.
B)It favors women and children and helps improve their standard of living.
C)It eradicates the problem of unemployment from the market.
D)It creates a labor surplus or unemployment.
E)It creates a labor deficit.
Q2) Refer to figure 5.3. Which of the following is a possible outcome of a fall in the wage rate from $6 to $4?
A)There will be an increase in both, the supply of and the demand for labor.
B)There will be a fall in the supply of labor and an increase in the demand for labor.
C)There will be a fall in the demand for labor and an increase in the supply of labor.
D)There will be a shift in the equilibrium point.
E)There will be a fall in both the supply of and the demand for labor.
Q3) The imposition of a minimum wage in the unskilled labor market creates labor surplus or unemployment.
A)True
B)False
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Chapter 6: Elasticity: Demand and Supply
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133 Flashcards
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Sample Questions
Q1) The price elasticity of demand is the ratio of the change in quantity demanded to the change in price.
A)True
B)False
Q2) Economists have said that deregulation of the electric utility industry might lead to increased prices in the short run, but prices will fall in the long run. In this context:
A)the short run means the middle of next year.
B)the short run means the period after all adjustments have been made, and the quantities of all resources have been varied as necessary.
C)the long run means after all adjustments have been made, the quantities of all resources have been varied as necessary, and new market entrants begin producing electricity.
D)the short run means the period after new firms begin producing electricity.
E)the long run means approximately ten years.
Q3) Price elasticity of demand measures the responsiveness of quantity demanded in a market to a change in price.
A)True
B)False
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Chapter 7: Demand: Consumer Choice
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142 Flashcards
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Sample Questions
Q1) Marginal utility diminishes more quickly:
A)the less durable the good is.
B)the greater the number of consumers consuming the good.
C)the shorter the time period between two successive consumptions.
D)the greater the number of firms producing the good.
E)the cheaper the good is.
Q2) Refer to Figure 7.3. The consumer prefers _____ to _____.
A)A; C
B)B; A
C)B; D
D)D; E
E)I<sub>1</sub>; I<sub>2</sub>
Q3) As the price of a good increases:
A)that good will yield less satisfaction per dollar than before.
B)consumers will have more real income to spend on other goods.
C)the quantity demanded of that good will also increase.
D)the utility-maximizing quantity of that good willl not change.
E)consumers will buy the good and substitute away from other goods.
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Chapter 8: Supply: the Costs of Doing Business
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105 Verified Questions
105 Flashcards
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Sample Questions
Q1) According to Table 8.3, the firm's marginal cost is equal to its average total cost at _____ unit(s) of output. A)1 B)3
C)4
D)5
E)8
Q2) The long-run average total cost curve represents:
A)the maximum cost of producing any level of output when all the factors are fixed.
B)the lowest cost of producing any level of output when all the factors are variable.
C)the maximum cost of producing any level of output when all the factors are variable.
D)the lowest cost of producing any level of output when all the factors are fixed.
E)the lowest cost of producing any level of output when at least one factor is fixed.
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Chapter 9: Profit Maximization
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121 Verified Questions
121 Flashcards
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Sample Questions
Q1) Suppose that at a given level of output, a perfectly competitive firm charges a price of $12 and has average total costs of $10. If its economic profit is $20,000, then it must be producing:
A)40,000 units of output.
B)20,000 units of output.
C)30,000 units of output.
D)10,000 units of output.
E)50,000 units of output.
Q2) In general, the number of firms is lesser in monopolistic competition compared to oligopoly.
A)True
B)False
Q3) A firm's accounting profit is called a normal profit when its:
A)accounting profit is equal to zero.
B)economic profit is equal to zero.
C)opportunity cost is equal to zero.
D)average cost is minimum.
E)economic profit is equal to accounting profit.
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11
Chapter 10: Perfect Competition
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135 Verified Questions
135 Flashcards
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Sample Questions
Q1) Under perfect competition, entry of new firms into the market in the long run tends to:
A)raise the aggregate supply.
B)raise the level of profit of the existing firms.
C)raise the aggregate demand for goods.
D)reduce the degree of competitiveness in the market.
E)reduce the market power of the existing firms.
Q2) If at the profit-maximizing level of output, a typical perfectly competitive firm's price is greater than its average total cost, the firm should increase output.
A)True
B)False
Q3) Consider the perfectly competitive firm described in Table 10.2. How many units of the good should the firm produce to maximize profit?
A)16 units
B)17 units
C)18 units
D)19 units
E)20 units
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Chapter 11: Monopoly
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118 Flashcards
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Sample Questions
Q1) If at the profit-maximizing level of output, a monopolist's average-total-cost curve lies above its demand curve, then:
A)the firm should shut down in the short run.
B)the firm would earn economic losses.
C)the firm would earn economic profits.
D)the firm should increase its output.
E)the firm should decrease its output.
Q2) If a monopolist is producing at a point at which marginal revenue is greater than marginal cost, it should decrease the level of production.
A)True
B)False
Q3) Refer to Figure 11.2. If the output at E is 600 units, then the output at B is _____ units. (We know that the slope of the marginal revenue curve is twice the slope of the average revenue curve.)
A)900 units.
B)200 units.
C)300 units.
D)1200 units.
E)800 units.
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Page 13
Chapter 12: Monopolistic Competition and Oligopoly
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114 Verified Questions
114 Flashcards
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Sample Questions
Q1) A consumer becomes loyal to a product when:
A)the good is available at a very low price.
B)the product is as good as its substitutes.
C)the product comes with a gift occasionally.
D)he/she has had a positive experience with that good.
E)discounts are offered periodically.
Q2) If all firms in a monopolistically competitive market are incurring losses, then eventually:
A)the demand for the products in the market will increase.
B)the supply of the products in the market will increase.
C)the price of the products in general will decline.
D)the cost of production will increase.
E)the firms will exit until the existing ones just break even.
Q3) Which of the following statements about collusion is true?
A)Collusion is legal in the United States.
B)Its overriding goal is to enhance competition and thereby increase profits.
C)The greater the number of firms, the less difficult it is to maintain a collusion.
D)Collusion never results in benefits for the participants.
E)Collusion may help to increase the profits of the participating firms.
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Page 14
Chapter 13: Markets and Government
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113 Verified Questions
113 Flashcards
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Sample Questions
Q1) According to Figure 13.2:
A)both points a and b are socially efficient.
B)both points a and b are inefficient, from the society's point of view.
C)point a represents the social equilibrium, whereas point b represents the private equilibrium.
D)point a represents the private equilibrium, whereas point b represents the social equilibrium.
E)when external costs are zero, the socially efficient output level is equal to 0Q<sub>s</sub> units.
Q2) Both the principles of rivalry and mutual excludability apply for club goods.
A)True
B)False
Q3) Which of the following is an example of the command approach to regulation?
A)The sale of tradable permits to emit sulfur dioxide in the Chicago Mercantile Exchange
B)Enforcing private property rights and private ownership of elephants in Africa
C)Zoning in many areas that restricts the types of buildings that can be built
D)The government providing subsidies for public education
E)A Pigouvian tax
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Chapter 14: Antitrust and Regulation
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88 Flashcards
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Sample Questions
Q1) Consider a market consisting of seven firms with market shares of 40, 20, 10, 10, 8, 7, and 5 percent, respectively. Which of the following statements is true?
A)The four-firm concentration ratio would be 0.03.
B)The Herfindahl index would be 1,000.
C)The Herfindahl index would be 2,228.
D)The Herfindahl index would be 1,500.
E)The Herfindahl index would be 2,338.
Q2) Which of the following calculations is necessary to determine whether a regulation should be implemented?
A)Marginal cost-marginal revenue calculations
B)Cost effectiveness calculations
C)Total cost-total revenue calculations
D)Cost minimization calculations
E)Cost-benefit calculations
Q3) International regulation occurs at two levels, one in which a specific government regulates the activities of individual firms operating within the country, and another in which several nations are involved.
A)True
B)False
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Page 16
Chapter 15: Resource Markets
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110 Verified Questions
110 Flashcards
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Sample Questions
Q1) Other things being equal, the marginal revenue product for labor hired by a firm that is a monopolist in the output market:
A)is represented by an upward sloping curve.
B)is equal to the marginal revenue product for labor hired by a perfectly competitive firm.
C)is less than the marginal revenue product for labor hired by a perfectly competitive firm.
D)is greater than the marginal revenue product for labor hired by a perfectly competitive firm.
E)is equal to the value of marginal product of labor.
Q2) The negative slope of the demand curve of a resource indicates an inverse relationship between the price of the resource and the quantity demanded.
A)True
B)False
Q3) Economic rent is the sum of actual earning and transfer earning.
A)True
B)False
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Page 17
Chapter 16: The Labor Market
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116 Flashcards
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Sample Questions
Q1) People leave their home country and go to another country to live primarily because they seek a higher quality of life.
A)True
B)False
Q2) Which of the following is not a cost of illegal immigration in the U.S.?
A)The adverse impact on unskilled workers
B)The damage to national property caused during the process of immigration
C)Additional expenditure on healthcare at emergency clinics and hospitals
D)Expenditure on public education on the children of immigrants.
E)Expenditure on employment insurance programs for the illegal immigrants.
Q3) Which of the following refers to human capital?
A)Money spent by business to acquire labor
B)The acquired skill and productivity of workers
C)The plant and equipment used with labor
D)Money spent on purchasing the latest machinery
E)Money that workers save
Q4) Since we all like to get richer, so when wage rate increases we always like to work longer hours to make more income.
A)True
B)False
Page 18
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Chapter 17: The Capital Market
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Sample Questions
Q1) The possible returns to a shareholder are:
A)rent and wages.
B)fixed interest and dividend.
C)fixed interest and a depreciation in the price of the stock.
D)rent and fixed interest.
E)dividend and an appreciation in the price of the stock.
Q2) The unique alphabetic name that identifies a listed stock is known as the:
A)stock's nickname.
B)stock's alpha sign.
C)ticker symbol.
D)alternative name.
E)fixed call number.
Q3) Which of the following names is given to the corporate bonds that carry the maximum risk?
A)Risky-time bonds
B)Failure bonds
C)Revelation bonds
D)Blue-chip bonds
E)Junk bonds
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Page 19
Chapter 18: The Land Market and Natural Resources
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Sample Questions
Q1) If the owner of a nonrenewable resource expects his profits to be high in future, he will abstain from resource extraction in the present period.
A)True
B)False
Q2) For any particular period of time, say a year, the supply of exhaustible resources:
A)decreases infinitely with an increase in price.
B)remains unaffected by any change in price.
C)increases infinitely with an increase in price.
D)increases to a certain extent with an increase in price.
E)decreases to a certain extent with an increase in price.
Q3) The supply curve of land, in the market for uses of land, is:
A)perfectly inelastic.
B)nonexistent.
C)perfectly elastic.
D)positively sloped.
E)negatively sloped.
Q4) Privatization of common property leads to overexploitation of natural resources.
A)True
B)False
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Chapter 19: Current Issues: Income, Income Distribution,
Poverty, and Government Policy
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85 Verified Questions
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Sample Questions
Q1) The welfare programs undertaken by the U.S. government have been universally successful in reducing poverty and fostering economic growth.
A)True
B)False
Q2) The Gini co-efficient is the:
A)area between the Lorenz curve and the vertical axis divided by the area under the Lorenz curve.
B)area between the Lorenz curve and the horizontal axis divided by the area above the Lorenz curve.
C)area between the Lorenz curve and the line of perfect equality divided by the total area under the line of income equality.
D)area between the Lorenz curve and the line of perfect equality divided by the total area above the line of perfect equality.
E)area between the line of perfect equality and the horizontal axis divided by the area between the Lorenz curve and the horizontal axis.
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Chapter 20: World Trade Equilibrium
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Sample Questions
Q1) What is known as the Dutch disease?
A)The problem that arises when a government cannot meet its foreign debts
B)The phenomenon of a boom in one industry causing declines in the rest of the economy
C)A sudden and unexpected devaluation of a currency as a consequence of policy controls
D)The problem that arises when high imports force an economy to borrow from external sources
E)A deficit in the balance of payments of the economy that arises due to a sudden appreciation of the domestic currency
Q2) According to Table 20.5, the international equilibrium price of computers is:
A)$2,000.
B)$1,600.
C)$1,800.
D)$1,400.
E)$1,200.
Q3) Countries should specialize and import goods in which they have a comparative disadvantage.
A)True
B)False
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Chapter 21: International Trade Restrictions
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Sample Questions
Q1) If international trade is restricted by the government of a country:
A)the domestic consumers are benefited.
B)the domestic producers are adversely affected.
C)the domestic consumers pay higher prices for imported goods.
D)the resources are equally distributed among domestic and foreign producers.
E)the resources are allocated to their highest paid uses.
Q2) Domestic firms often claim that foreign firms have an unfair advantage because foreign workers are willing to work for very low wages.
A)True
B)False
Q3) Which of the following tools of commercial policy yields a revenue to the government?
A)Quota
B)Tariff
C)Export subsidy
D)Government procurement policy
E)Health and safety standards
Q4) Every country imposes tariffs on at least some imports.
A)True
B)False
Page 23
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Chapter 22: Exchange Rates and Financial Links Between Countries
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Sample Questions
Q1) Countries that maintain a constant gold value for their currencies are said to be on a gold standard.
A)True
B)False
Q2) The World Bank was created to help finance economic development in poor countries.
A)True
B)False
Q3) Refer to Figure 22.1. Assume that the initial equilibrium exchange rate is 8 Mexican pesos per Brazilian real and 150 brazilian reals are traded in the market. Suppose, there is an increase in the Brazilian demand for Mexican exports. Other things remaining equal, which of the following can be concluded?
A)The demand curve for Brazilian reals will shift to the the right.
B)The supply curve of Brazilian reals will shift to the the right.
C)The Mexican pesos will depreciate in value.
D)The Brazilian reals will appreciate in value.
E)Around 100 Brazilian reals will be traded in the forex market.
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Page 24