Economics I
Chapter Exam Questions
Course Introduction
Economics I provides an introduction to the fundamental principles of microeconomics and their applications in real-world decision-making. The course explores the concepts of supply and demand, market equilibrium, elasticity, consumer and producer behavior, and the functioning of various market structures. Students will also examine the roles of government intervention, resource allocation, and the impact of externalities on economic welfare. Through theoretical models and practical examples, the course equips students with the analytical tools necessary to understand and interpret economic activity at the individual, business, and societal levels.
Recommended Textbook
Principles of Microeconomics 7th Edition by N.
Gregory Mankiw
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Page 2
Chapter 1: Ten Principles of Economics
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Q1) Prior to the collapse of communism, communist countries worked on the premise that economic well-being could be best attained by
A) a market economy.
B) a strong reliance on prices and individuals' selfÂinterests.
C) a system of large privately-owned firms.
D) the actions of government central planners.
Answer: D
Q2) Evidence indicates that seat belt laws have led to
A) fewer pedestrian deaths.
B) fewer automobile accidents.
C) fewer deaths per automobile accident.
D) All of the above are correct.
Answer: C
Q3) Tuition is the single-largest cost of attending college for most students.
A)True
B)False
Answer: False
Q4) Refer to Scenario 1-3. What is the company's average cost?
Answer: $50
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Chapter 2: Thinking Like an Economist
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Q1) The art in scientific thinking -- whether in chemistry, economics, or biology -- is A) the design and implementation of laboratory experiments.
B) knowing when to stop collecting data and when to start analyzing the datb.
C) deciding which assumptions to make.
D) being able to mathematically model natural phenomena.
Answer: C
Q2) An economy's production of two goods is efficient if A) all members of society consume equal portions of the goods.
B) the goods are produced using only some of society's available resources.
C) it is impossible to produce more of one good without producing less of the other.
D) the opportunity cost of producing more of one good is zero.
Answer: C
Q3) The circular flow model is not used anymore because it fails to perfectly replicate real world situations.
A)True
B)False
Answer: False
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Chapter 3: Interdependence and the Gains From Trade
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Q1) Fred trades 2 tomatoes to Barney in exchange for 1 pumpkin. Fred and Barney both gain from the exchange. We can conclude that, for Barney, the opportunity cost of producing 1 pumpkin is greater than 2 tomatoes.
A)True
B)False
Answer: False
Q2) Refer to Figure 3-19. Colombia would incur an opportunity cost of 24 pounds of coffee if it increased its production of soybeans by A) 12 pounds.
B) 18 pounds.
C) 36 pounds.
D) 48 pounds.
Answer: A
Q3) For both parties to gain from trade, the price at which they trade must lie exactly in the middle of the two opportunity costs.
A)True
B)False
Answer: False
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Chapter 4: The Market Forces of Supply and Demand
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Q1) If corn is an input into the production of ethanol, will a decrease in the price of corn increase the supply of ethanol or decrease the supply of ethanol?
Q2) Refer to Figure 4-6. Suppose that the federal government is concerned about obesity in the United States. Congress is considering two plans. One would require "junk food" producers to include warning labels on all junk food. The other would impose a tax on all products considered to be junk food. We could illustrate the tax as producing a movement from
A) Point A to Point B in Panel 1.
B) Point B to Point A in Panel 1.
C) Point A to Point C in Panel 2.
D) Point C to Point A in Panel 2.
Q3) Refer to Table 4-8. Suppose Firm X and Firm Y are the only two sellers in the market. If the market price increases from $12 to $15, quantity supplied will
A) decrease by 6 units.
B) decrease by 12 units.
C) increase by 6 units.
D) increase by 12 units.
Q4) Refer to Scenario 4-1. What is the equilibrium price in this market?
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Chapter 5: Elasticity and Its Application
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Q1) If the price elasticity of demand is 1.5, regardless of which two points on the demand curve are used to compute the elasticity, then demand is
A) perfectly inelastic, and the demand curve is vertical.
B) elastic, and the demand curve is a straight, downward-sloping line.
C) perfectly elastic, and the demand curve is horizontal.
D) elastic, and the demand curve is something other than a straight, downward-sloping line.
Q2) Which of the following is likely to have the most price inelastic demand?
A) athletic shoes
B) running shoes
C) Nike running shoes
D) Nike Shox running shoes
Q3) On a downward-sloping linear demand curve, total revenue reaches its maximum value at the
A) midpoint of the demand curve.
B) lower end of the demand curve.
C) upper end of the demand curve.
D) It is impossible to tell without knowing prices and quantities demanded.
Q4) If the quantity supplied is exactly the same regardless of the price, supply is
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Chapter 6: Supply, Demand, and Government Policies
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Q1) In the housing market, supply and demand are
A) more elastic in the short run than in the long run, and so rent control leads to a larger shortage of apartments in the short run than in the long run.
B) more elastic in the short run than in the long run, and so rent control leads to a larger shortage of apartments in the long run than in the short run.
C) more elastic in the long run than in the short run, and so rent control leads to a larger shortage of apartments in the short run than in the long run.
D) more elastic in the long run than in the short run, and so rent control leads to a larger shortage of apartments in the long run than in the short run.
Q2) If a price ceiling is a binding constraint on a market, then
A) the equilibrium price must be below the price ceiling.
B) the quantity supplied must exceed the quantity demanded.
C) sellers cannot sell all they want to sell at the price ceiling.
D) buyers cannot buy all they want to buy at the price ceiling.
Q3) Refer to Figure 6-34. If the government imposes a tax of $6 per unit in this market, what price will buyers pay per unit after the tax is imposed?
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Chapter 7: Consumers, Producers, and the Efficiency of Markets
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Q1) Refer to Table 7-6. If the market price of an apple is $1.40, then consumer surplus amounts to
A) $0.60.
B) $1.20.
C)$1.40.
D) $3.40
Q2) A consumer's willingness to pay directly measures
A) the extent to which advertising and other external forces have influenced the consumer's preferences.
B) the cost of a good to the buyer.
C) how much a buyer values a good.
D) consumer surplus.
Q3) The lower the price, the lower the consumer surplus, all else equal.
A)True
B)False
Q4) If the United States legally allowed for a market in transplant organs, it is estimated that one kidney would sell for at least $100,000.
A)True
B)False
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Chapter 8: Application: The Costs of Taxation
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Q1) Refer to Figure 8-8. One effect of the tax is to
A) reduce consumer surplus by $108.
B) reduce producer surplus by $72.
C) create a deadweight loss of $60.
D) All of the above are correct.
Q2) A tax
A) lowers the price buyers pay and raises the price sellers receive.
B) raises the price buyers pay and lowers the price sellers receive.
C) places a wedge between the price buyers pay and the price sellers receive.
D) Both b) and c) are correct.
Q3) Refer to Figure 8-6. Without a tax, consumer surplus in this market is
A) $1,500.
B) $2,400.
C) $3,000.
D) $3,600.
Q4) Taxes on labor tend to increase the number of hours that people choose to work.
A)True
B)False
Q5) Refer to Figure 8-26. How much is producer surplus at the market equilibrium?
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Q6) Refer to Figure 8-26. How much is consumer surplus at the market equilibrium?
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Chapter 9: Application: International Trade
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Q1) Refer to Figure 9-17. When comparing no trade to free trade, the gains from trade amount to
A) $400.
B) $600.
C) $750.
D) $1,000.
Q2) Refer to Figure 9-14. The country for which the figure is drawn
A) has a comparative advantage relative to other countries in the production of crude oil and it will export crude oil.
B) has a comparative advantage relative to other countries in the production of crude oil and it will import crude oil.
C) has a comparative disadvantage relative to other countries in the production of crude oil and it will export crude oil.
D) has a comparative disadvantage relative to other countries in the production of crude oil and it will import crude oil.
Q3) Refer to Figure 9-27. Suppose the country imposes a $5 per unit tariff. If the country allows trade with a tariff, how much are consumer surplus, producer surplus, tariff revenue, and total surplus?
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Chapter 10: Externalities
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Q1) Suppose that Charles wants to dine at a fancy restaurant, but the only available table is in the smoking section. Charles dislikes the smell of cigarette smoke. He notices that only one person, Sam, is smoking in the smoking section. Charles values the absence of smoke at $40. Sam values the ability to smoke in the restaurant at $15. Which of the following represents an efficient solution in the absence of transaction costs?
A) Sam continues to smoke because he has a right to smoke in the smoking section.
B) Charles offers Sam between $15 and $40 not to smoke. Sam accepts, and both parties are better off.
C) Charles offers Sam between $15 and $40 not to smoke. Sam declines because he has a right to smoke in the smoking section.
D) Only a government policy banning smoking in restaurants will solve this problem.
Q2) Transaction costs
A) can keep private parties from solving externality problems.
B) are incurred in the production process due to externalities.
C) increase when taxes are imposed to correct negative externalities.
D) are eliminated when the government intervenes in a market with externalities.
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Page 12
Chapter 11: Public Goods and Common Resources
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Q1) Variable tolls on roads
A) are politically unpopular because people do not like the idea of paying for a good that they used to consume without paying for it directly.
B) rise when traffic volume increases to ensure the speed on the road is kept high.
C) are an effective way of correcting the common resource problem on roads.
D) All of the above are correct.
Q2) Which of the following is a disadvantage of government provision of a public good such as national defense? (i) The government does not know the exact willingness of consumers to pay for the public good.
(ii) The free-rider problem is more likely to occur when the government provides a public good than when the private sector provides a public good.
(iii) Taxpayers do not agree on the optimal quantity of the public good that the government should provide.
A) (i) only
B) (i) and (ii) only
C) (i) and (iii) only
D) (i), (ii), and (iii)
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Chapter 12: The Design of the Tax System
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Q1) Corporate profits distributed as dividends are
A) tax free.
B) taxed once.
C) taxed twice.
D) taxed three times.
Q2) Refer to Table 12-12. If the government imposes a $3,000 lump-sum tax, the marginal tax rate for Charles would be
A) 0 percent.
B) 5 percent.
C) 6.7 percent.
D) 10 percent.
Q3) A person's tax obligation divided by her income is called her
A) marginal social tax rate.
B) marginal private tax rate.
C) marginal tax rate.
D) average tax rate.
Q4) Resources devoted to complying with the tax laws are a type of deadweight loss.
A)True
B)False
Q5) Refer to Table 12-25. Which plan illustrates a progressive tax?
Page 14
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Chapter 13: The Costs of Production
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Q1) Refer to Scenario 13-11. The explicit cost for one birdhouse is
A) $4.
B) $5.
C) $8.
D) $9.
Q2) On a 100-acre farm, a farmer is able to produce 3,000 bushels of wheat when he hires 2 workers. He is able to produce 4,400 bushels of wheat when he hires 3 workers. Which of the following possibilities is consistent with the property of diminishing marginal product?
A) The farmer is able to produce 5,600 bushels of wheat when he hires 4 workers.
B) The farmer is able to produce 5,400 bushels of wheat when he hires 4 workers.
C) The farmer is able to produce 5,200 bushels of wheat when he hires 4 workers.
D) Any of the above could be correct.
Q3) Refer to Table 13-1. What is total output when 1 worker is hired?
A) 10
B) 30
C) 45
D) 75
Q4) Refer to Scenario 13-22. What is the accounting profit for the hair styling salon?
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Chapter 14: Firms in Competitive Markets
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Q1) The short-run supply curve for a firm in a perfectly competitive market is A) horizontal.
B) likely to slope downward.
C) determined by forces external to the firm.
D) the portion of its marginal cost curve that lies above its average variable cost.
Q2) In the short-run, a firm's supply curve is equal to the
A) marginal cost curve above its average variable cost curve.
B) marginal cost curve above its average total cost curve.
C) average variable cost curve above its marginal cost curve.
D) average total cost curve above its marginal cost curve.
Q3) Suppose that a firm operating in perfectly competitive market sells 300 units of output at a price of $3 each. Which of the following statements is correct? (i) Marginal revenue equals $3.
(ii) Average revenue equals $3.
(iii) Total revenue equals $900.
A) (i) only
B) (iii) only
C) (i) and (ii) only
D) (i), (ii), and (iii)
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Chapter 15: Monopoly
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Q1) If the government deems a newly-invented drug to be truly original, the pharmaceutical company is given the exclusive right to manufacture and sell the drug for 50 years.
A)True
B)False
Q2) Because monopoly firms do not have to compete with other firms, the outcome in a market with a monopoly
A) is often not in the best interest of society.
B) maximizes total economic well-being.
C) is efficient.
D) benefits consumers more so than the producer.
Q3) Which of the following would be most likely to have monopoly power?
A) an online bookstore
B) a municipal water company
C) a local restaurant
D) a grocery store
Q4) University financial aid can be viewed as a type of price discrimination.
A)True
B)False
Q5) Refer to Figure 15-23. If the firm profit-maximizes, what price will it charge?
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Chapter 16: Monopolistic Competition
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Q1) Refer to Figure 16-10. In order to maximize its profit, the firm will choose to produce
A) 100 units of output.
B) between 100 and 133.33 units of output.
C) 133.33 units of output.
D) 154.92 units of output.
Q2) When the loss from a business-stealing externality exceeds the gain from a product-variety externality,
A) firms are more likely to operate at efficient scale.
B) there are likely to be too many firms in a monopolistically competitive market.
C) market efficiency is likely to be enhanced by the entry of new firms.
D) all firms are earning zero economic profit.
Q3) Refer to Scenario 16-4. As a result of the new restaurant, existing restauranteurs in Boston are likely to experience a
A) product-variety externality, which is a negative externality.
B) product-variety externality, which is a positive externality.
C) business-stealing externality, which is a negative externality.
D) business-stealing externality, which is a positive externality.
Q4) Which market structure(s) is(are) imperfectly competitive?
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Chapter 17: Oligopoly
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Q1) Refer to Table 17-5. Assume there are two digital cable TV companies operating in this market. If they are able to collude on the quantity of subscriptions that will be sold and on the price that will be charged for subscriptions, then their agreement will stipulate that
A) each firm will charge a price of $90 and each firm will sell 4,500 subscriptions.
B) each firm will charge a price of $90 and each firm will sell 9,000 subscriptions.
C) each firm will charge a price of $120 and each firm will sell 3,000 subscriptions.
D) each firm will charge a price of $150 and each firm will sell 1,500 subscriptions.
Q2) Refer to Table 17-15. If player B chooses Right, player A should choose
A) Up and earn a payoff of 1.
B) Middle and earn a payoff of 5.
C) Middle and earn a payoff of 7.
D) Down and earn a payoff of 4.
Q3) How did the Clayton Act of 1914 differ from the Sherman Antitrust Act of 1890?
Q4) Briefly describe the practice of predatory pricing.
Q5) Refer to Table 17-35. Does Barclay have a dominant strategy? If so, describe it.
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Chapter 18: The Markets for the Factors of Production
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Q1) Sally runs a hair styling salon. Sally is a profit-maximizing owner whose firm operates in a competitive market. The marginal cost of a haircut is $15. What is the maximum wage that Sally will pay her stylists?
A) less than $15 per haircut
B) $15 per haircut
C) more than $15 haircut
D) There is insufficient information to answer this question.
Q2) When a competitive firm maximizes profit, it will hire workers up to the point where the
A) marginal product of labor is equal to the product price.
B) marginal product of labor is equal to the wage.
C) value of the marginal product of labor is equal to the product price.
D) value of the marginal product of labor is equal to the wage.
Q3) The effect of the Black Death in 14th-century Europe was to A) decrease wages.
B) increase land rents.
C) reduce income inequality between peasants and the landed classes.
D) Both a) and b) are correct.
Q4) A competitive, profit-maximizing firm hires labor up to the point at which the wage is equal to the .
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Chapter 19: Earnings and Discrimination
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Q1) Refer to Figure 19-6. Given demand, D1, and supply, S1, how many workers are unemployed if a minimum wage of $8 per hour is imposed on this market?
Q2) List three reasons why wages could be set above the equilibrium wage.
Q3) The signaling theory of education is most similar to the
A) human capital theory of education.
B) discrimination theory of advertising.
C) signaling theory of advertising.
D) efficiency wage theory of labor economics.
Q4) The fact that wage differentials continue to exist across different groups of workers leads economists to believe that
A) discrimination by customers is the most common type of economic discrimination.
B) differences in human capital and job characteristics must be important in explaining the differences in wages.
C) firms apparently are not profit maximizers.
D) the market has failed to properly allocate wages to different workers.
Q5) Among male workers over age 25, about what percent has a college degree? What is this percentage for black male workers over age 25?
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Chapter 20: Income Inequality and Poverty
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Q1) Which political philosophy focuses on the process of determining the distribution of income rather than on the outcome?
A) utilitarianism
B) liberalism
C) libertarianism
D) welfarism
Q2) The poverty rate for female households with no spouse present is approximately
A) 10 percent.
B) 20 percent.
C) 30 percent.
D) 40 percent.
Q3) Robert Nozick criticizes Rawls's concept of justice by using an example of A) minimum wage laws.
B) the grade distribution in a class.
C) a leaky bucket.
D) the price of tea in China.
Q4) Explain what is meant by "in-kind transfer" programs. Briefly outline the advantages and disadvantages of an in-kind transfer program.
Q5) With a minimum wage law, the workers who remain employed benefit from a .
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Chapter 21: The Theory of Consumer Choice
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Q1) If goods A and B are perfect substitutes, then the marginal rate of substitution of good A for good B is constant.
A)True
B)False
Q2) Irrespective of whether she is at her optimum, Jenna's valuation of coffee relative to orange juice can be measured by
A) her marginal rate of substitution between coffee and orange juice.
B) the price of coffee relative to the price of orange juice.
C) the ratio of the quantity of coffee that she buys relative to the quantity of orange juice that she buys.
D) the ratio of the quantity of coffee supplied in the market to the quantity of orange juice supplied in the market.
Q3) Refer to Figure 21-24. About what percentage of his income is Steve spending on apples when he is at his optimum?
A) 33.3 percent
B) 38.2 percent
C) 44.4 percent
D) 56.7 percent
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Chapter 22: Frontiers of Microeconomics
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Q1) In his 1951 book, Social Choice and Individual Values, Kenneth Arrow used the term "transitivity" to mean
A) A beats B only if everyone prefers A to B.
B) if everyone prefers A to B, then A beats B.
C) if A beats B and B beats C, then A must beat C.
D) everyone who is eligible to vote must vote; otherwise, the outcome is invalid.
Q2) The Condorcet paradox shows that there is no scheme for aggregating individual preferences into a valid set of social preferences.
A)True
B)False
Q3) Brandon is considering buying a used car but he first downloads a report from the internet that shows the history of accidents and major repairs conducted on the car. This action is called
Q4) Refer to Scenario 22-3. The median voter is one who prefers to spend
A) $500.
B) $600.
C) $800.
D) None of the above are correct.
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