Economics for Non-Majors Test Preparation
Course Introduction
Economics for Non-Majors introduces fundamental economic concepts and principles in a way that is accessible to students from diverse academic backgrounds. The course explores both microeconomic and macroeconomic topics, including supply and demand, market structures, consumer and producer behavior, national income, inflation, unemployment, and fiscal and monetary policy. Through real-world case studies, engaging discussions, and applied problem-solving, students gain a practical understanding of how economic forces shape individual decisions, business strategies, and public policies, preparing them to think critically about issues affecting today's world.
Recommended Textbook
Essentials of Economics 4th Edition by R.
Glenn Hubbard
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Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) Which of the following generates allocative efficiency in a market economy?
A)national government intervention
B)voluntary exchange between buyers and sellers
C)United Nations rules for competition
D)equity
Answer: B
Q2) Refer to Figure 1-2.Calculate the area of the triangle A.
A)$1.3 million
B)$2.6 million
C)$3.4 million
D)$5.2 million
Answer: B
Q3) Which of the following is a macroeconomics question?
A)What determines the inflation rate?
B)What determines the production of DVDs?
C)What factors determine the price of carrots?
D)What determines the wage of auto workers?
Answer: A
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3
Chapter 2: Trade-Offs, comparative Advantage, and the Market System
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Sample Questions
Q1) Refer to Table 2-10.What is Fred's opportunity cost of making a pogo stick?
A)1/3 unicycle
B)3 unicycles
C)6/7 pogo stick
D)1/2 unicycle
Answer: A
Q2) If a commercial dairy farm wants to raise funds to purchase feeding troughs,it does so in the
A)output market.
B)product market.
C)factor market.
D)dairy products market.
Answer: C
Q3) If a country produces only two goods,then it is not possible to have a comparative advantage in the production of both those goods.
A)True
B)False
Answer: True
Q4) List the four broad categories of factors of production.
Answer: labor,capital,natural resources,and entrepreneurship
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Sample Questions
Q1) If,in response to a decrease in the price of grapes,the quantity of grapes demanded increases,economists would describe this as
A)an increase in demand.
B)an increase in quantity demanded.
C)a change in consumer income.
D)an increase in consumers' taste for coffee.
Answer: B
Q2) By drawing a demand curve with ________ on the vertical axis and ________ on the horizontal axis,economists assume that the most important determinant of the demand for a good is the ________ of the good.
A)quantity; price; quantity
B)price; quantity; quantity
C)price; quantity; price
D)quantity; price; price
Answer: C
Q3) All else equal,as the price of a product falls,the quantity supplied decreases.
A)True
B)False
Answer: True
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Chapter 4: Market Efficiency and Market Failure
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Sample Questions
Q1) If you burn your trash in the back yard in spite of regulations against it,then you are
A)acting economically irrationally and creating a social cost.
B)avoiding the private costs associated with disposing your trash some other way and creating a social cost.
C)acting rationally and creating a positive externality.
D)saving landfill space and creating a social benefit.
Q2) Consumers are willing to purchase a product up to the point where
A)the marginal benefit of consuming the product is equal to the marginal cost of consuming it.
B)the consumer surplus is equal to the producer surplus.
C)the marginal benefit of consuming the product equals the area below the supply curve and above the market price.
D)the marginal benefit of consuming a product is equal to its price.
Q3) Refer to Figure 4-16.The efficient output level is
A)Qd.
B)Qb.
C)Q .
D)Qb - Qd.
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Chapter 5: The Economics of Health Care
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Sample Questions
Q1) Briefly describe the most important differences between the market for health care and the market for other goods and services.
Q2) Under the Patient Protection and Affordable Care Act (ACA),residents who do not have health insurance will not be allowed to seek employment.
A)True
B)False
Q3) Which of the following is not part of the "individual mandate" provision of the Patient Protection and Affordable Care Act (ACA)?
A)Individuals are allowed to opt out of the insurance program if they can prove they have no serious health issues and do so before the act fully takes effect in the year 2014.
B)By 2016, fines for not having health insurance will be the greater of $695 per person or 2.5 percent of income.
C)Beginning in 2014, individuals who do not acquire health insurance will be subject to a fine.
D)With limited exceptions, every resident of the United States will be required to have health insurance that meets certain basic requirements.
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Chapter 6: Firms, the Stock Market,
and Corporate Governance
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Sample Questions
Q1) A decrease in liabilities will reduce a firm's net worth.
A)True
B)False
Q2) Laura's Pizza Place incurs $800,000 per year in explicit costs and $100,000 in implicit costs.The restaurant earns $1.3 million in revenues.Based on this information,what is accounting profit for Laura's Pizza Place?
A)$200,000
B)$400,000
C)$500,000
D)$900,000
Q3) Who controls a sole proprietorship?
A)owner
B)stockholders
C)bondholders
D)employees
Q4) Sole proprietorships are ________ type of business.
A)the most profitable
B)the least common
C)the most common
D)the least risky
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Chapter 7: Consumer Choice and Elasticity
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Sample Questions
Q1) Molly received an autographed poster of David Hasselhoff for her 21st birthday.Her friend Helga offered her $50 for the poster,but Molly refused to sell the poster even though she knows she would never pay that much to replace it if it was ever damaged or destroyed.Explain this inconsistency in Molly's behavior.
Q2) If a consumer always buys goods rationally,then
A)the total utilities of the different goods consumed will be equal.
B)the average utilities of the different goods consumed will be equal.
C)the marginal utility per dollar spent on all goods will be equal.
D)the marginal utility of the different goods consumed will be equal.
Q3) Which of the following statements is true?
A)If the price of a good is lowered and total revenue decreases, demand is elastic.
B)If the price of a good is raised and total revenue does not change, demand is perfectly elastic.
C)If the price of a good is raised and total revenue increases, demand is inelastic.
D)If the price of a good is lowered and total revenue increases, demand is inelastic.
Q4) What is marginal utility and what is the law of diminishing marginal utility?
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Chapter 8: Technology, production, and Costs
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Sample Questions
Q1) The long-run average cost curve shows
A)the lowest average cost of producing every level of output in the long run.
B)where the most profitable level of output occurs.
C)the average cost of producing where diminishing returns are not present.
D)the plant size or scale that the firm should build.
Q2) If a firm produces 20 units of output and incurs a total cost of $1,000 and a variable cost is $700,calculate the firm's average fixed cost of production if it expands output to 25 units.
A)$300
B)$15
C)$12
D)It is impossible to determine without additional information.
Q3) Refer to Figure 8-1.In a diagram that shows the marginal product of labor on the vertical axis and labor on the horizontal axis,the marginal product curve
A)never intersects the horizontal axis.
B)intersects the horizontal axis at a point corresponding to the 5th worker.
C)intersects the horizontal axis at a point corresponding to the 6th worker.
D)intersects the horizontal axis at a point corresponding to the 8th worker.
Q4) State the law of diminishing marginal returns.
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Chapter 9: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) How are market price,average revenue,and marginal revenue related for a perfectly competitive firm and why?
Q2) Ethan Nicholas,who developed the iShoot application for the iPhone 3G,found that to maintain sales in a profitable competitive market,the price of a product
A)will usually rise.
B)will usually fall.
C)will usually remain stable.
D)will eventually fall to zero.
Q3) Some markets have many buyers and sellers but fall into the category of monopolistic competition rather than perfect competition.The most common reason for this is
A)there are high barriers to entering these markets.
B)firms in these markets sell identical products.
C)firms in these markets make high profits.
D)firms in these markets do not sell identical products.
Q4) A perfectly competitive firm in long-run equilibrium produces output at the lowest possible average total cost.
A)True
B)False
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Chapter 10: Monopoly and Antitrust Policy
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Sample Questions
Q1) Which two factors make regulating mergers complicated?
A)First, firms may lobby government officials to influence their decision to approve the merger.Second, by the time the government officials reach a decision regarding the merger, the firms often decide not to merge.
B)First, the time it takes to reach a decision to approve a merger is so long that the firms often have new owners and mangers.Second, by law, government officials are not allowed to consider the impact of foreign trade (exports and imports)on the degree of competition in the markets of the merged firms.
C)First, the Federal Trade Commission and the Antitrust Division of the U.S.Department of Justice must both approve mergers.Second, the concentration ratios that are used to evaluate the degree of competition the merged firms face are flawed.
D)First, it is not always clear what market firms are in.Second, the newly merged firm might be more efficient than the merging firms were individually.
Q2) How do the price and quantity of a monopoly compare to that of a perfectly competitive industry?
Q3) If you own the only bookstore in a small town,do you have a monopoly?
Q4) Explain why the monopolist has no supply curve?
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Chapter 11: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) The study of how people make decisions in situations where attaining their goals depends on their interactions with others is called
A)Nash equilibrium.
B)the prisoner's dilemma.
C)game theory.
D)dominant strategy equilibrium.
Q2) Explain the similarities and differences between the long-run equilibrium for a perfectly competitive firm and a monopolistically competitive firm.Illustrate your answer with a graph demonstrating the long run equilibrium for the two types of firms.
Q3) A dominant strategy is
A)an equilibrium where each firm chooses the best strategy, given the strategies of other firms.
B)a strategy chosen by two firms that decide to charge the same price or otherwise not to compete.
C)a strategy that is obviously the best for each firm that is a party to a business decision.
D)a strategy that is the best for a firm no matter what strategies other firms use.
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13
Chapter 12: Gdp: Measuring Total Production and Income
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Sample Questions
Q1) Home Depot sells new and used doors to contractors who build new homes.Home Depot also sells new and used doors to homeowners.Which of the following would be counted in GDP?
A)the sale of a used door to a homeowner
B)the sale of a new door to homeowner
C)the sale of a used door to TapKon construction for installation into a new home
D)the sale of a new door to TapKon construction for installation into a new home
Q2) To calculate GDP by the expenditure method,one must add A)wages, rents, interest, and profits.
B)consumption spending, investment spending, government spending and net exports.
C)consumption spending, investment spending, government spending and exports. D)labor, natural resources, entrepreneurship, and capital.
Q3) Disposable personal income is equal to personal income minus personal tax payments.
A)True
B)False
Q4) What are the differences between national income,personal income,and disposable personal income?
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Chapter 13: Unemployment and Inflation
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Sample Questions
Q1) Which of the following policies would reduce frictional unemployment?
A)a decrease in the minimum wage
B)a job retraining program
C)implementing an unemployment insurance policy
D)building an on-line job database that helps workers find jobs
Q2) To understand why someone cannot get a job,it helps to know the three types of unemployment.List the three types of unemployment and explain what causes each type.What advice for finding a job would be appropriate for someone in each type of unemployment?
Q3) Mike has been unemployed for over a year.He hasn't looked for a job in the last three months,but he's just started looking for work again.Because Mike started looking for a new job,
A)the unemployment rate increased.
B)the labor force participation rate decreased.
C)the unemployment rate decreased.
D)the working-age population increased.
Q4) What is the difference between the nominal interest rate and the real interest rate?
Q5) Real interest rates at times have been negative.Why would anyone lending money agree to a negative real interest rate?
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Chapter 14: Economic Growth, the Financial System, and Business Cycles
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Sample Questions
Q1) The response of investment spending to an increase in the government budget deficit is called
A)expansionary investment.
B)private dissaving.
C)crowding out.
D)income minus net taxes.
Q2) If technological change increases the profitability of new investments for firms,then the ________ curve for loanable funds will shift to the ________.
A)supply: right
B)supply; left
C)demand; right
D)demand; left
Q3) Retained earnings are sufficient to finance a firm's rapid expansion in a high-growth economy.
A)True
B)False
Q4) Outline the various actions the government sector could take to promote growth.
Q5) How are unemployment,inflation,and the business cycle related?
Q6) Explain why the demand curve for loanable funds has a negative slope.
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Chapter 15: Aggregate Demand and Aggregate Supply Analysis
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Sample Questions
Q1) Refer to Figure 15-1.Ceteris paribus,an increase in the price level would be represented by a movement from
A)AD to AD .
B)AD to AD .
C)point A to point B.
D)point B to point A.
Q2) A decrease in disposable income will shift the aggregate demand curve to the left.
A)True
B)False
Q3) Suppose the economy is at full employment and firms become more pessimistic about the future profitability of new investment.Which of the following will happen in the short run?
A)Output will rise.
B)Prices will rise.
C)Unemployment will rise.
D)The aggregate demand curve will shift to the right.
Q4) Explain how the aggregate demand and aggregate supply model can be made more dynamic.
Q5) What are sticky prices,and how can contracts make them "sticky"?
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Chapter 16: Money, banks, and the Federal Reserve System
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Sample Questions
Q1) Refer to the Article Summary.In 2013,the European Union agreed to essentially bail out the banks in the nation of Cyprus.In doing this,the EU was,in effect,acting as a
A)shadow bank.
B)conductor of open market operations.
C)private equity firm.
D)lender of last resort.
Q2) The quantity theory of money seeks to explain the connection between money and A)interest rates.
B)unemployment.
C)output.
D)prices.
Q3) A bank's liabilities are
A)things owned by or owed to the bank.
B)things the bank owes to someone else.
C)a measure of the bank's net losses.
D)included as part of the bank's reserves.
Q4) Suppose you withdraw $1,000 from your savings account and put it in your checking account.Briefly explain how this will affect M1 and M2.
Q5) How do open market operations work?
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Chapter 17: Monetary Policy
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Sample Questions
Q1) Refer to Table 17-2.Consider the hypothetical information in the table above for potential real GDP,real GDP and the price level in 2014 and in 2015 if the Federal Reserve does not use monetary policy.If the Fed wants to keep real GDP at its potential level in 2015,it should
A)buy Treasury securities.
B)sell Treasury securities.
C)increase the required reserve ratio.
D)increase income taxes.
Q2) By the 2000s,an important change in the mortgage market had occurred when ________ became significant participants in the secondary market for mortgages.
A)investment banks
B)Federal Reserve Banks
C)commercial banks
D)savings banks
Q3) By the 2000s,investment banks had become significant participants in the secondary market for mortgages.
A)True
B)False
Q4) What problems can high inflation rates cause for the economy?
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Chapter 18: Fiscal Policy
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Sample Questions
Q1) If the economy is slipping into a recession,which of the following would be an appropriate fiscal policy?
A)an increase in the money supply and a decrease in interest rates
B)a decrease in government purchases
C)a decrease in taxes
D)a decrease in oil prices
Q2) Economists who believe the supply-side effects of tax cuts are small essentially believe that
A)tax cuts mainly affect aggregate demand.
B)tax cuts mainly affect aggregate supply.
C)tax cuts will increase the quantity of labor supplied.
D)tax cuts will result in relatively small changes in the price level.
Q3) The federal budget was in deficit from 1931 to 1939,except in the year 1937.Given this fact,how do you explain E.Cary Brown's statement,"Fiscal policy,then,seems to have been an unsuccessful recovery device in the 'thirties-not because it did not work,but because it was not tried."
Q4) The cyclically adjusted budget is calculated at potential GDP.
A)True
B)False
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Chapter 19: Comparative Advantage, international Trade, and Exchange Rates
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Sample Questions
Q1) Trade that is within a country or between countries is based on the principle of A)absolute advantage.
B)scarcity.
C)competition.
D)comparative advantage.
Q2) What is dumping? Who benefits and who loses from dumping?
Q3) Refer to Figure 19-10.The French fall in love with California wines and triple their purchases of this beverage.Assuming all else remains constant,this would be represented as a movement from ________.
A)B to A
B)C to D
C)B to C
D)A to D
E)A to B
Q4) Refer to Figure 19-3.What is the value of the deadweight loss as a result of the quota?
A)$5.25 million
B)$8 million
C)$17.25 million
D)$20 million
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