Economics for Non-Majors Exam Materials
Course Introduction
Economics for Non-Majors introduces foundational economic concepts and tools to students from diverse academic backgrounds. The course explores both microeconomic topics such as supply and demand, market structures, and the role of prices and macroeconomic issues including inflation, unemployment, fiscal policy, and economic growth. Through real-world examples, students learn how economic principles influence personal decisions, business strategies, and government policies. The emphasis is on developing critical thinking skills to analyze current events and everyday economic interactions, without requiring advanced mathematical background.
Recommended Textbook
Survey of ECON 3rd Edition by Robert L. Sexton
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Page 2
Chapter 1: The Role and Method of Economics
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Sample Questions
Q1) "Wanting more goods makes us greedy." How would an economist respond to this statement?
Answer: Answers will vary. Economists do not view the unlimited human desire for goods and services to be an indication of "greediness." Economists assume that all individuals want more resources in order to reach greater levels of satisfaction. REJ: Please see the section "Economics: A Brief Introduction" for more information.
Q2) Economists assume that most individuals act as if they are motivated by self-interest and respond in predictable ways to changing circumstances.
A)True
B)False
Answer: True
Q3) It is possible to completely eliminate scarcity.
A)True
B)False
Answer: False
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Chapter 2: The Economic Way of Thinking
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Q1) It can be said that, ultimately, in a market economy, consumers are the driving force behind answers to the three basic economic questions faced by societies. Explain the consumer's role in providing these answers.
Answer: Answers will vary. What will be produced is directly determined by businesses. However, firms are aware that the way to succeed is to offer products that consumers find desirable. What businesses produce is determined by what they believe consumers want. How goods are produced is determined by firms that seek to reduce the costs of production. Since consumers are price conscious, they will buy lower-priced products (ceteris paribus). The consumers who have earned sufficient wealth and are willing to spend their wealth on these products are the individuals who will ultimately receive these products. REJ: Please see the section ''A Society's Three Basic Economic Questions'' for more information.
Q2) Economic choices or tradeoffs are the result of:
A)basic human greed.
B)scarcity.
C)poverty.
D)private ownership of resources.
E)the government's intervention in production.
Answer: B
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Page 4
Chapter 3: Supply and Demand
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Sample Questions
Q1) If a surplus exists in a market, then the actual price is:
A)above the equilibrium price and quantity supplied is greater than quantity demanded.
B)above the equilibrium price and quantity demanded is greater than quantity supplied.
C)below the equilibrium price and quantity demanded is greater than quantity supplied.
D)below the equilibrium price and quantity supplied is greater than quantity demanded.
E)equal to the equilibrium price and quantity supplied is equal to quantity demanded.
Answer: A
Q2) As a result of an increase in a product's price, the:
A)supply of the product increases.
B)supply of the product decreases.
C)quantity supplied of the product increases.
D)quantity supplied of the product decreases.
E)quantity demanded of the product increases.
Answer: C
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Chapter 4: Using Supply and Demand
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Sample Questions
Q1) In a recent fare war, America West reduced the price of its roundtrip airfare from Charlotte, North Carolina, to New York City from $198 to $138 to match the price charged by American Airlines. America West matched the fare reluctantly, saying it would cost the company millions of dollars in revenue for those tickets to be sold at a lesser price. American Airlines, on the other hand, believed the fare cut would increase its revenue even if rival airlines matched the lower fares. What did each airline assume about the underlying price elasticity of demand for airline tickets on that route?
Q2) Which of the following goods is likely to have a more elastic demand curve?
A)A good without close substitutes
B)A nondurable good
C)A necessary good
D)A good with complements
E)A luxury good
Q3) Explain the impact of:
a. A rent ceiling set below the equilibrium price.
b. A price floor set above the equilibrium price.
Q4) In an attempt to reduce poaching of elephants for ivory, officials in Kenya burned the ivory gathered illegally. Will this move by the officials turn out to be helpful or hurtful?
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Page 6
Chapter 5: Market Failure and Public Choice
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Sample Questions
Q1) Which of the following is a rival good that is nonexcludable?
A)A public good
B)A normal good
C)A common resource
D)An inferior good
E)A composite good
Q2) Why do decision makers tend to ignore external costs? How does internalizing external costs move society closer to efficient levels of output?
Q3) Which of the following is most likely to generate positive externalities?
A)Selling hot dogs
B)Public education
C)An automobile
D)A steel mill
E)Selling used cars
Q4) An example of a positive externality is:
A)congestion on a freeway.
B)pollution in a lake.
C)a politician campaigning before an election.
D)the planting of trees on a property along a freeway.
E)the provision of warranties by the sellers of consumer durables.
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Chapter 6: Production and Costs
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Q1) Marginal cost refers to the change in total cost for a one-unit change in output and also to the change in total variable cost for a one-unit change in output
A)True
B)False
Q2) The average fixed cost curve approaches the horizontal axis but never touches it
A)True
B)False
Q3) In the long run, the firm gets to choose which short-run curve it wants to use
A)True
B)False
Q4) Fixed costs are costs:
A)that do not vary with the level of output.
B)that are incurred only in the long run
C)that include only implicit costs.
D)that include only implicit costs
E)that can be avoided in the short run without going out of business.
Q5) How short is the short-run production period?
Q6) Sunk costs are important for current business decisions.
A)True
B)False
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Chapter 7: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) Marginal revenue is:
A)the additional cost incurred from producing one more unit of output.
B)the addition to total profit from selling one more unit of output.
C)the addition to total revenue from selling one more unit of output.
D)the addition to total output from hiring one more unit of labor.
E)the addition to total revenue from selling the entire output to one buyer.
Q2) A firm receives $10 per unit at an equilibrium level of output of 80 units. The average total cost at 80 units of output is $8. The firm makes a total economic profit of:
A)$120.
B)$160.
C)$100.
D)$80.
E)$640.
Q3) A firm that is earning zero economic profits has a strong incentive to exit the industry.
A)True
B)False
Q4) What would be the long-run equilibrium result of output expansion in a decreasing-cost industry?
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Chapter 8: Monopoly
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Sample Questions
Q1) If a profit-maximizing monopolist finds that marginal cost is increasing and that it exceeds marginal revenue, it should:
A)increase output and decrease price.
B)increase price and decrease output.
C)decrease both price and output.
D)increase both price and output.
E)increase price, keeping output unchanged.
Q2) In order for a firm to be able to price discriminate, it must not be a price taker, there must be different demands from different groups of consumers, and there must be an ability to restrict resale.
A)True
B)False
Q3) Which of the following is true about the Sherman Act?
A)It made engaging in predatory activities illegal.
B)It prohibited mergers if it led to weakened competition.
C)It encouraged firms to take advantages of the patent system.
D)It prohibited price discrimination.
E)It prohibited price fixing and collusion.
Q4) Under what conditions can price discrimination be practiced in a market?
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Chapter 9: Monopolistic Competition and Oligopoly
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Q1) Although there are certain inefficiencies associated with monopolistic competition, society receives a benefit from monopolistic competition in the form of product variety.
A)True
B)False
Q2) In the long run, monopolistically competitive firms meet the condition for allocative efficiency.
A)True
B)False
Q3) Suppose Billy sells burgers in Sierra Island and the market for fast-food burgers is monopolistically competitive. Which of the following is most likely to be true of Billy's burger stand at short-run equilibrium?
A)Its demand curve would be horizontal.
B)Its marginal revenue curve would lie below the demand curve.
C)It would be maximizing profits where price equals marginal cost.
D)It would be maximizing profits at the minimum point of the average total cost curve.
E)It would be maximizing profits where price equals average total cost.
Q4) Why does inefficiency exist in monopolistic competition?
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11
Chapter 10: Labor Markets, Income Distribution, and Poverty
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Sample Questions
Q1) Differences in income can be accounted for by differences in: A)age.
B)race.
C)ethnicity.
D)gender.
E)nationality.
Q2) In the labor market, employers hire workers as long as the:
A)wage rate equals the average product of labor.
B)wage rate is below the marginal revenue product of labor.
C)average product of labor is zero.
D)marginal product of labor is zero
E)wage rate exceeds the marginal revenue product of labor.
Q3) If the demand for opera singers increases faster than the supply increases, wages will rise.
A)True
B)False
Q4) The law of diminishing marginal product is a reason why the demand curve for labor is downward sloping
A)True
B)False
Page 12
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Chapter 11: Introduction to Macroeconomics:
Unemployment, Inflation, and Economic Fluctuations
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Q1) If the population aged 16 years and older equals 150 million, the labor force equals 110 million, and the total number of persons employed equals 98 million, then the unemployment rate is:
A)8 percent.
B)38 percent.
C)10.9 percent.
D)28 percent.
E)12.2 percent.
Q2) In the 1970s, savings and loan associations primarily earned their income from extending fixed-rate home loans. They extended many of these loans in the early 1970s when inflation was low. Were the savings and loan associations winners or losers as inflation skyrocketed in the late 1970s?
Q3) Suzie works in her home as a full-time caretaker and homemaker. She is _____.
A)officially employed
B)officially unemployed
C)out of the labor force
D)a discouraged worker
E)underemployed
Q4) What are the three major macroeconomic goals?
Q5) Discuss the costs associated with high inflation.
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Chapter 12: Economic Growth
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Q1) The standard of living in a nation is measured by:
A)its inflation rate
B)the rate of growth of nominal gross domestic product.
C)its unemployment rate
D)the rate of growth of real gross domestic product per capita.
E)its employment rate.
Q2) If a country increases its saving rate, _____.
A)its current consumption decreases
B)its current consumption increases
C)its future interest rate increases
D)its future saving capabilities decreases
E)its future consumption decreases
Q3) Which of the following will lead to greater economic growth?
A)Individuals consuming their entire current income
B)Governments investing more in national defense
C)Governments investing in human capital and technology
D)Governments taxing new capital equipment to offset a budget deficit
E)High taxes on companies that spend a lot on capital formation
Q4) What is the relationship between savings, capital formation, and consumption?
Q5) State the formula for the expenditure approach to GDP accounting.
Page 14
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Chapter 13: Aggregate Demand and Aggregate Supply
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Q1) Which of the following will increase aggregate demand in an economy?
A)A recession forecasted by a group of economists
B)A decrease in the minimum taxable income by the government
C)An increase in consumer debt
D)A decrease in the import quota on a popular consumer good
E)An increase in the population in the economy
Q2) Stagflation is generally caused by:
A)an increase in aggregate demand.
B)a decrease in aggregate demand.
C)an increase in aggregate supply.
D)a decrease in aggregate supply.
E)a low rate of interest.
Q3) The short-run aggregate supply curve:
A)represents a fixed volume of output.
B)reflects how much real GDP suppliers are willing and able to produce at different price levels.
C)shifts only when the long-run aggregate supply shifts.
D)is not affected at all by the price level.
E)reflects the amount of real GDP supplied when all input prices are variable.
Q4) Explain how changes in the stock of capital affect aggregate supply.
Page 15
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Chapter 14: Fiscal Policy
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Sample Questions
Q1) Would a tax on prescriptions drugs be more likely to be progressive or regressive? Why?
Q2) Which of the following is one of the most important automatic stabilizers?
A)Open market operations
B)The reserve requirement ratio
C)The tax system
D)Deficit spending
E)Quantitative easing
Q3) If the marginal propensity to consume is 0.8, the marginal propensity to save is:
A)0.8
B)0.4.
C)0.2.
D)0.3.
E)1.2.
Q4) An investment tax credit, which lowers taxes for firms that invest in new capital equipment, would shift the long-run aggregate supply curve of an economy to the right over time.
A)True
B)False
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Chapter 15: Monetary Institutions
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Sample Questions
Q1) Suppose First Rhode Island Bank of Commerce faces a reserve requirement ratio of 15 percent. If a customer makes a deposit of $500, the initial result would be:
A)a $425 increase in excess reserves.
B)a $75 increase in excess reserves.
C)a $3,333 increase in excess reserves.
D)a $3,333 increase in required reserves.
E)a $100 increase in required reserves.
Q2) Legal tender is fiat money because it is:
A)a means of exchange that has been established by custom and tradition.
B)a means of exchange that has been established by the value of the metal in a coin.
C)the balance in bank accounts that depositors can access on demand.
D)a means of exchange that has been established by government declaration.
E)the balance in bank accounts that can be easily converted into currency.
Q3) Banks create money when they increase demand deposits through the process of creating loans.
A)True
B)False
Q4) What are the inherent disadvantages of a barter system?
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Page 17
Chapter 16: The Federal Reserve and Monetary Policy
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Q1) Assume that the central bank of a country purchases $5,000 worth of government treasury bonds from a firm, which promptly deposits the money in a national Bank. Assuming that the required reserve ratio is 25 percent and banks keep zero excess reserves, the money supply will ultimately:
A)increase by a maximum of $5,000
B)increase by a maximum of $20,000.
C)decrease by a maximum of $5,000.
D)decrease by a maximum of $20,000.
E)increase by a maximum of $25,000.
Q2) Changing reserve requirements is the most important method the Federal Reserve uses to change the supply of money
A)True
B)False
Q3) Velocity represents the average number of times that a dollar is used in purchasing final goods and services in a one-year period
A)True
B)False
Q4) Name the six primary functions of the central bank of a country.
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Chapter 17: Issues in Macroeconomic Theory and Policy
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Q1) Monetary policy is more effective at closing an expansionary gap than a recessionary gap because:
A)banks may be unwilling to lend and seeking more liquidity, thereby offsetting any expansionary policy.
B)households and firms make situations worse by borrowing too much from the excess reserves.
C)the implementation lag for an expansionary policy is longer than that for a contractionary policy.
D)most expansionary monetary policies get delayed due to several governmental regulations.
E)expansionary monetary policies aggravate the crowding-out effect that might render them ineffective.
Q2) A problem associated with targeting inflation at zero is that:
A)it could lead to hyperinflation in the long run.
B)it could lead to deflation.
C)it could lead to a deficit in the government budget.
D)it could reduce aggregate demand.
E)it could reduce net exports.
Q3) Can monetary policy be used to successfully fine-tune the economy?
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Page 19
Chapter 18: International Economics
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Q1) Suppose the U.S. government imposes an ad valorem tariff on the import of vitamins. Which of the following would likely be a result of the tariff on the U.S. market?
A)A decrease in the total quantity of vitamins sold
B)An increase in the quantity of vitamins demanded
C)A lower price of vitamins for domestic consumers
D)An increase in the sales of foreign vitamins
E)An increase in the consumer surplus for domestic consumers
Q2) An increase in the existing tariff on grapes from Chile will:
A)increase U.S. imports of Chilean grapes.
B)increase U.S. consumption of domestically-produced grapes.
C)decrease the tariff revenue received by the U.S. government.
D)decrease the quantity of grapes supplied by U.S. producers.
E)decrease the revenues of U.S. producers.
Q3) The imposition of a tariff on widgets by the U.S. government is likely to:
A)increase the consumer surplus for domestic consumers.
B)result in higher prices and revenues to foreign producers
C)result in higher prices and revenues to foreign producers.
D)increase the quantity of widgets demanded.
E)decrease the total quantity of widgets sold.
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Page 20