Economics I Exam Review
Course Introduction
Economics I introduces students to the foundational principles of microeconomics and macroeconomics. The course covers key concepts such as supply and demand, market equilibrium, consumer and producer behavior, elasticity, and the role of government in economic systems. Students will also explore national income, inflation, unemployment, and the basics of fiscal and monetary policy. Through theoretical frameworks and real-world examples, the course provides a solid understanding of how individuals, firms, and governments make economic decisions and interact within various market structures.
Recommended Textbook
Principles of Microeconomics 2nd Edition by Lee Coppock
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19 Chapters
3303 Verified Questions
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Page 2
Chapter 1: Five Foundations of Economics
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175 Verified Questions
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Sample Questions
Q1) Rodrigo operates a dry-cleaning service and charges customers $5 per article of clothing.Based on his knowledge of operations,the 1,000 th piece of clothing costs him $4.95 to dry-clean.If he takes additional business,however,the 1,001st piece will cost $5 for the service.Does he take the additional business?
A) No,he has hidden costs that far exceed his estimate of $5,so he loses money.
B) No,taking on additional business doesn't earn him any money.
C) Yes,if he turns away business,his service will be forced to close.
D) Maybe.If a competitor is accepting that many customers,he must at least equal that amount.
E) Yes.At a $5 cost,he breaks even and is indifferent.He necessarily turns away business when the cost of the additional unit exceeds the income.
Answer: E
Q2) Rational decision making under conditions of scarcity requires individuals to
A) place a monetary value on everything.
B) know the prices of all goods they might buy.
C) be alert to price reductions on desired products.
D) understand that trade-offs are necessary.
E) earn as much income as possible.
Answer: D
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Page 3
Chapter 2: Model Building and Gains From Trade
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175 Verified Questions
175 Flashcards
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Sample Questions
Q1) For what kind of society does a shift away from the production of capital goods and toward the production of consumer goods make sense?
A) a society with a scarcity of natural resources
B) a society with a high unemployment rate
C) a society with a low per-capita income
D) a society with a large per-capita stock of capital goods
E) a society with a large population
Answer: D
Q2) Which of the following is a positive statement?
A) Nelly's dog should lose some weight.
B) Legally requiring dogs to have rabies shots will reduce the number of rabid dogs.
C) Nelly should take her dog to the veterinarian once a year for a checkup.
D) Chihuahuas are cuter than bulldogs.
E) All dogs should be required to wear leashes at all times.
Answer: B
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4
Chapter 3: The Market at Work: Supply and Demand
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Sample Questions
Q1) A change in quantity supplied
A) is represented by a shift in the supply curve.
B) is represented by a movement along the supply curve.
C) happens only when the price increases.
D) happens only when the price decreases.
E) is positive if the price of the good decreases.
Answer: B
Q2) On January 30,2012,Starbucks India announced plans to open 50 cafés.What would you expect to happen to the market for coffee in India,assuming all other factors are held constant?
A) The demand for coffee will increase in India.
B) The demand for coffee will decrease in India.
C) Both the supply and demand for coffee will increase in India.
D) The supply for coffee will increase in India.
E) The supply for coffee will decrease in India.
Answer: D
Q3) Using a supply and demand model,show what happens to the equilibrium price and equilibrium quantity in the market for cigarettes when the government imposes a tax on their production.
Answer: 11ea78d5_7013_4691_8379_b71e1e3d124d_TB4871_00
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Chapter 4: Elasticity
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Sample Questions
Q1) When Noelle received a promotion at work,her income rose by 50 percent.The income elasticity of demand for steak was found to be 1.5.For her,steak is a(n)
A) inferior good.
B) necessity.
C) complement to potatoes.
D) substitute for chicken.
E) luxury.
Q2) To keep the percentage change in quantity demanded equally proportional to the percentage change in price when the prices rise by 5 percent,a consumer would need to ________ quantity demanded by ________.
A) increase; 5 percent
B) decrease; 5 percent
C) increase; 10 percent
D) decrease; 10 percent
E) increase; 2 percent
Q3) If we know that the price elasticity of demand is: a.-5,graph the demand curve.
b. -S1U1P11S1S1P0/S1U1B12S1U1B0 ,graph the demand curve.
c.infinite,graph the demand curve.
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Page 6
Chapter 5: Market Outcomes and Tax Incidence
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Sample Questions
Q1) Which areas represent the total lost consumer and producer surplus (i.e. ,social welfare)as a result of the tax?
A) A + B + C + E + F + G
B) A + C
C) A + B + C + E
D) F + G
E) B + C + F + G
Q2) When supply is perfectly elastic,the supply curve is
A) vertical.
B) upward sloping.
C) U-shaped.
D) horizontal.
E) downward sloping.
Q3) Compared to consumers,producers will lose the lesser amount of surplus from a tax if
A) supply and demand are equally elastic.
B) supply is less elastic than demand.
C) supply is more elastic than demand.
D) demand is perfectly inelastic.
E) supply is perfectly elastic.
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Chapter 6: Price Controls
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Sample Questions
Q1) What would be the quantity supplied if a price ceiling is set at $400?
A) 600
B) 240
C) 0
D) 3,000
E) 2,400
Q2) Why are binding price floor laws passed?
A) They make goods less expensive.
B) They make goods available to the largest number of customers.
C) They encourage producers to produce goods in the most cost-efficient fashion.
D) They help producers receive higher prices for products sold in the legal market.
E) They discourage the formation of illegal black markets.
Q3) What would be the equilibrium quantity for hardcover books?
A) 100
B) 45
C) 385
D) 35
E) 11
Q4) What reasons are given by government to enact price controls?
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Chapter 7: Market Inefficiencies: Externalities and Public Goods
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Sample Questions
Q1) The third-party problem
A) occurs when a market activity leads to a negative externality.
B) occurs when a market activity leads to a positive externality.
C) occurs when a market activity leads to a negative or a positive externality.
D) is the same as the free-rider problem.
E) is associated with the production of private goods but not public goods.
Q2) How does the political system provide indirect cost-benefit analysis for public goods?
Q3) Copyright laws exist to
A) eliminate negative externalities.
B) eliminate public goods.
C) limit free-riding.
D) solve the tragedy of the commons.
E) protect consumers.
Q4) Which of the following is true?
A) social benefits = internal benefits - external benefits
B) social benefits = internal benefits + external benefits
C) internal benefits = social benefits + external benefits
D) external benefits = social benefits + internal benefits
E) internal benefits - social benefits = external benefits
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Chapter 8: Business Costs and Production
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Sample Questions
Q1) Selene owns a craft store.Her total costs are $1.2 million per year,and her variable costs are $750,000 per year.This means that her fixed costs are
A) $1.2 million.
B) $750,000.
C) $450,000.
D) $300,000.
E) $1.95 million.
Q2) Ingrid owns a lamp store.Her total costs are $225,000 per year,and her fixed costs are $150,000 per year.This means that her variable costs are
A) $150,000.
B) $225,000.
C) $375,000.
D) $50,000.
E) $75,000.
Q3) How are long-run costs different from short-run costs?
Q4) Explain what a production function is.Is the production function an economic or technological relationship?
Q5) What is an implicit cost?
Q6) What are economies of scale?
Page 10
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Chapter 9: Firms in a Competitive Market
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Sample Questions
Q1) What is true for the perfectly competitive firm's output level at the break-even point?
A) price = marginal revenue = average total cost
B) marginal revenue = price < marginal cost
C) marginal revenue = price> marginal cost
D) marginal revenue < price = marginal cost
E) price > marginal revenue = marginal cost
Q2) Carmela's Churros' accounting profits are
A) $40,000.
B) $15,000.
C) $25,000.
D) $0.
E) $80,000.
Q3) Holding all else constant,the price of churros in this market will
A) increase in the long run.
B) decrease in the long run.
C) increase in the short run.
D) decrease in the short run.
E) stay where it is.
Q4) Give two reasons why the long-run market supply curve may slope upward.
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Chapter 10: Understanding Monopoly
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Sample Questions
Q1) When the government passes antitrust laws in an industry,we see
A) higher prices,lower output,and more choices.
B) lower prices,higher output,and fewer choices.
C) lower prices,higher output,and more choices.
D) higher prices,lower output,and fewer choices.
E) higher prices,higher output,and more choices.
Q2) The equation of a firm's marginal revenue curve is estimated to be P = 50 - Q (quantity),and the equation of its marginal cost curve is estimated to be P = 10 + 3Q.The profit-maximizing price for this firm is
A) $5.
B) $10.
C) $15.
D) $50.
E) $40.
Q3) After a patent on a product expires,
A) other firms must wait to mimic the product.
B) all negative and positive externalities are internalized.
C) rivals can start to mimic the product.
D) no other firms can mimic the product.
E) no further profits are able to be made by the original producer of the good.
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Chapter 11: Price Discrimination
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Sample Questions
Q1) Why might some consumers believe that,when a firm is able to practice perfect price discrimination,the outcome is less than "perfect" for the consumer?
Q2) For a perfectly competitive market,what would the producer surplus be?
A) $160
B) $120
C) $80
D) $40
E) $0
Q3) Using different words as search criteria can produce different prices on the same Web-based market.Explain how this could happen.
Q4) Liza is the only provider of bottled water for three cities.Because she has access to a natural spring,the marginal cost to produce an additional bottle is $0.How many bottles of water would Liza need to produce to maximize her profits and at what price would she sell it?
A) 111 bottles at $11 each
B) 10 bottles at $10 each
C) 115 bottles at $7 each
D) 88 bottles at $12 each
E) 115 bottles at $7 each.
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Chapter 12: Monopolistic Competition and Advertising
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Sample Questions
Q1) To maximize profit,the monopolistically competitive firm shown will charge a price per unit of
A) 0 (zero).
B) $20.17.
C) $18.17.
D) $16.87.
E) $15.87.
Q2) We can represent the entry of new firms into a monopolistically competitive market by shifting the existing firms'
A) demand curves downward.
B) demand curves upward.
C) marginal revenue curves upward.
D) cost curves upward.
E) cost curves downward.
Q3) A monopolistically competitive market is characterized by
A) many small sellers selling a differentiated product.
B) a single seller of a unique product that has few or no substitutes.
C) very high barriers to entry.
D) many small sellers selling an identical product.
E) a few firms producing either differentiated or identical products.
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Chapter 13: Oligopoly and Strategic Behavior
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Sample Questions
Q1) When a third firm enters a market that was previously categorized as a duopoly,the equilibrium price will ________ and the equilibrium quantity will ________.
A) be lower; be lower
B) be higher; be lower
C) be lower; be higher
D) be higher; be higher
E) not change; not change
Q2) A firm that produces a product that is characterized by ________ externalities finds it easier to keep its customers from switching to rivals.
A) negative
B) positive
C) network
D) labor market
E) public good
Q3) Are duopolies always socially efficient? Why or why not?
Q4) Why must a tit-for-tat strategy be a long-run strategy?
Q5) Why are decision trees useful for making business decisions?
Q6) What differentiates predatory pricing from a price war? Be sure to define each in your answer.
15
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Chapter 14: The Demand and Supply of Resources
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Sample Questions
Q1) Of the total income earned in the U.S.economy,about
A) 67 percent is earned by landowners,while 33 percent is earned by capitalists.
B) 50 percent is earned by laborers,25 percent by landowners,and 25 percent by capital lenders.
C) 40 percent is earned by government,50 percent by landowners,and 10 percent by laborers.
D) 67 percent is earned by laborers,and 33 percent is earned by other factors.
E) 51 percent is earned by laborers,and 49 percent is earned by land and capital owners.
Q2) Derived demand is
A) consumer demand for goods and services.
B) based on the prices of factors of production.
C) the demand for factors of production directly by business.
D) the demand for factors of production dependent on consumer demand for output.
E) calculated for firms.
Q3) Outsourcing from a strictly "lower cost of labor" viewpoint may not be successful.Explain how this result could occur.
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Chapter 15: Income,inequality,and Poverty
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Sample Questions
Q1) What are some limitations in the way the U.S.Census Bureau measures the poverty threshold?
Q2) What is the name of the model that best explains why an actor in a nationally broadcast television program earns so much more than an actor who is equally talented and productive but who performs in a local play?
A) occupational crowding
B) winner-take-all
C) income mobility
D) human capital
E) life-cycle wage pattern
Q3) As the owner of a television studio,Kelvin is concerned about the high wages he must pay his employees relative to wages paid by other television studio owners.A consultant has suggested that his location is a contributing factor to these higher wages because he has built his studio in a(n)
A) sunny location in an urban area with a lot of good restaurants.
B) rural location populated by friendly people.
C) urban location that has very little crime and good schools.
D) location that has frequent wildfires and floods.
E) urban location populated by friendly people.
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Page 17
Chapter 16: Consumer Choice
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Sample Questions
Q1) Utility theory seeks to measure
A) supply.
B) costs.
C) ability.
D) profits.
E) satisfaction.
Q2) The substitution effect
A) occurs when utility declines as consumption increases.
B) is the additional satisfaction derived from consuming one more unit of a good or service.
C) is the combination of goods and services that maximizes utility for a given income.
D) occurs when a consumer buys more of a good as a result of a relative price change. E) occurs when there is a change in purchasing power as a result of a change in the price of a good.
Q3) Most newspaper companies allow consumers to purchase copies of the day's paper by putting money into a machine and taking out a paper.Why are newspaper companies typically not worried about consumers putting in 75 cents and taking more than one paper?
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18
Chapter 17: Behavioral Economics and Risk Taking
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Sample Questions
Q1) Suppose 1,000 students were split into two groups of 500.Both groups were first presented with an image of a new high-end pair of jeans produced by Tommy Hilfiger,a clothing company.
The first group was given the following statement and then asked the following question: "The normal retail price of these jeans is $100.Would you be willing to pay $75 for them?"
The second group was given the following statement and then asked the following question: "The normal retail price of these jeans is $250.Would you be willing to pay $75 for them?"
Suppose that 24 percent of the students in the first group answered yes and that 73 percent of the students in the second group answered yes.It is likely that more students in the second group were willing to pay $75 for the pair of jeans because they were told the normal price was much higher.This is an example of a ________ effect in decision-making.
A) clothing
B) marketing
C) utilitarian
D) framing
E) psychosomatic
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Page 19
Chapter 18: Health Insurance and Health Care
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Sample Questions
Q1) One effect that insurance companies have on the overall cost for consumers or patients of health care is that they
A) have no impact on costs.
B) increase costs as hospitals are forced to go out of business.
C) decrease costs as doctors quit and seek other occupations.
D) decrease costs as patients seek less care.
E) tend to increase costs as patients seek more care than they otherwise would.
Q2) ________ would be minimized if hospital policy based a physician's salary on how healthy patients were following treatment by that doctor rather than the number of patients treated per year.
A) Moral hazard
B) Adverse selection
C) Diminishing returns
D) Market failure
E) The principal-agent problem
Q3) The high cost of medical care in the United States can be explained with a demand and supply analysis.What are the factors that complicate such an analysis when it comes to understanding medical care compared to other goods and services?
Q4) How do deductibles and copayments lower the cost of health insurance?
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Chapter 19: International Trade
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Sample Questions
Q1) Based on the table,the value of exports as a percentage of GDP ________,and the value of imports as a percentage of GDP ________.
A) stayed the same; stayed the same
B) increased; decreased
C) decreased; increased
D) decreased; decreased
E) increased; increased
Q2) Which of the following international organizations,founded in 1995,facilitates trade disputes between nations?
A) United Nations (UN)
B) North American Free Trade Agreement (NAFTA)
C) World Trade Organization (WTO)
D) European Union (EU)
E) Asia Pacific Economic Cooperation (APEC)
Q3) A tariff
A) is a strict enforcement of health laws.
B) is a voluntary agreement between two countries to limit exports.
C) is a tax on imports.
D) is a limit on the quantity of a good that can be imported into a country.
E) subsidizes the production of goods leaving the country.
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