Economics I Question Bank
Course Introduction
Economics I provides an introduction to the fundamental principles of microeconomics, exploring how individuals, firms, and governments make decisions regarding the allocation of scarce resources. The course covers topics such as supply and demand, market equilibrium, consumer and producer behavior, elasticity, and the impact of government intervention in competitive markets. Students will gain insights into the functioning of various market structures and the factors that influence pricing and production decisions. Through practical examples and applications, this course lays the groundwork for understanding the vital role economics plays in shaping real-world outcomes and policy decisions.
Recommended Textbook Microeconomics 12th Edition by Michael
Parkin
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Page 2
Chapter 1: What Is Economics
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Sample Questions
Q1) If there is an inverse relationship between two variables, the graph of this relationship
A) will be a horizontal line.
B) will be downward-sloping.
C) might be horizontal.
D) will be upward-sloping.
Answer: B
Q2) Macroeconomics is the study of aggregate variables such as national production and unemployment.
A)True
B)False
Answer: True
Q3) Which of the following is NOT an investment in human capital?
A) A business student takes a seminar in using a laptop computer.
B) A student purchases a laptop computer.
C) A computer science student learns how to repair a laptop computer.
D) A computer science student takes a course on programming a laptop computer.
Answer: B
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Chapter 2: The Economic Problem
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Sample Questions
Q1) Comparative advantage is
A) the ability to perform an activity at a lower opportunity cost than anyone else.
B) the ability to perform an activity at a higher opportunity cost than anyone else.
C) the ability to perform an activity at a zero opportunity cost.
D) another name for absolute advantage.
Answer: A
Q2) In one week Alice can produce 5 pairs of shoes or 4 bookshelves while Roger can produce 10 pairs of shoes or 6 bookshelves. Alice should specialize in the production of A) shoes.
B) bookshelves.
C) either shoes or bookshelves.
D) neither shoes nor bookshelves.
Answer: B
Q3) Explain the difference between marginal cost and marginal benefit.
Answer: Marginal benefit is the benefit someone in society obtains when another unit of a good or service is produced. Marginal cost is the cost to someone in society of producing another unit of a good or service.
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4
Chapter 3: Demand and Supply
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Sample Questions
Q1) If a decrease in the price of gasoline increases the demand for large cars, then
A) gasoline and large cars are substitutes in consumption.
B) gasoline and large cars are complements in consumption.
C) gasoline is an inferior good.
D) large cars are an inferior good.
Answer: B
Q2) Which of the following is the best way to describe equilibrium in a market? At equilibrium, the
A) price is the lowest possible.
B) price is usually affordable to most people.
C) supply and demand curves can never shift again.
D) quantity supplied equals the quantity demanded.
Answer: D
Q3) Producers of DVDs are able to lower the wage rate that they pay to their workers. You predict that the A) price will rise.
B) quantity supplied will decrease.
C) supply curve will shift leftward.
D) supply curve will shift rightward.
Answer: D
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Chapter 4: Elasticity
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Sample Questions
Q1) Fantastic growing conditions that produce a bumper crop of oranges on each tree this year will definitely make the short run supply of oranges more price elastic.
A)True
B)False
Q2) The increase in the demand for widgets, shown in the figure above, is the result of an increase in the price of McBoover devices from $9 to $11. Therefore, the cross-price elasticity for these two products is
A) -2.0.
B) -0.5.
C) 0.5.
D) 2.0.
Q3) According to one study, the price elasticity of demand for cigarettes is 0.25. To decrease the consumption of cigarettes by 8 percent, a tax on cigarettes must raise the price of cigarettes by A) 32 percent.
B) 25 percent.
C) 2 percent.
D) 3.1 percent.
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Chapter 5: Efficiency and Equity
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Sample Questions
Q1) Utilitarianism is a principle whose goal is ________.
A) the greatest happiness for the greatest number
B) the greatest pay for the greatest number
C) equal pay for equal work
D) equal happiness for all workers
Q2) In the above figure, the total consumer surplus at the efficient level of output is ________.
A) $4.5 million
B) $9.0 million
C) $2.5 million
D) $8.5 million
Q3) The figure above shows the market for umbrellas in Sunville. When the market for umbrellas in Sunville is in equilibrium, what is the producer surplus?
A) $3,000
B) $1,000
C) $10
D) $600
Q4) Is the marginal benefit someone receives from a good or service the same as the price the person pays? Explain your answer.
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Chapter 6: Government Actions in Markets
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Sample Questions
Q1) The above table gives the demand schedule and the supply schedule for housing in Anytown, U.S.A. If a rent ceiling of $300 is imposed in the housing market, then
A) there would be a surplus of apartments.
B) there would be a shortage of apartments.
C) the market would reach equilibrium at the quantity of 60 housing units.
D) the supply of housing would increase.
Q2) What is a minimum wage? What are the effects of a minimum wage set below the equilibrium wage rate?
Q3) A production quota on tobacco lowers the price of tobacco and the marginal cost of producing it.
A)True
B)False
Q4) A price floor is a price
A) below which a seller cannot legally sell.
B) above which a seller cannot legally sell.
C) that creates a surplus of the good if it is set above the equilibrium price.
D) Both answers A and C are correct.
Q5) Is the minimum wage an example of a price floor or a price ceiling? Why?
Q6) Why do rent ceilings lead to shortages and black markets?
Page 8
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Chapter 7: Global Markets in Action
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Sample Questions
Q1) A tariff is a
A) tax on an exported good or service.
B) tax on an imported good or service.
C) subsidy on an exported good.
D) subsidy on an imported good.
Q2) In the figure above, with international trade American consumers buy ________ million shirts per year.
A) 48
B) 32
C) 16
D) 24
Q3) Two arguments used to promote trade barriers are the infant-industry argument, and the dumping argument. Explain each of these arguments and evaluate whether each one has any flaws.
Q4) How does a tariff affect the government's revenue? How does an import quota affect the government's revenue?
Q5) Give a brief description of the history of tariffs in the United States.
Q6) Import quotas are less damaging to an economy than are tariffs.
A)True
B)False
Page 9
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Chapter 8: Utility and Demand
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Sample Questions
Q1) The diamond-water paradox of value can be explained by A) distinguishing between total utility and marginal utility.
B) water's high level of utility relative to diamonds.
C) water's low price relative to diamonds.
D) the fact that utility cannot be measured.
Q2) Sue consumes only sub sandwiches and Mountain Dew. Subs and Mountain Dew are complements. If the price of a Mountain Dew increases
A) Sue's demand curve for sub sandwiches will shift rightward.
B) Sue will move downward along her demand curve for Mountain Dews.
C) Sue will move upward along her demand curve for Mountain Dews.
D) Both answers A and C are correct.
Q3) The fact that the fourth plate from the "All You Can Eat Country Buffet" generated more satisfaction than the fifth plate is an example of A) increasing marginal utility.
B) diminishing marginal utility.
C) diminishing total utility.
D) the "paradox of value."
Q4) "Water is very inexpensive. Thus the marginal and total utility of water is small." Analyze the previous statements.
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Chapter 9: Possibilities, Preferences, and Choices
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Sample Questions
Q1) Consider the budget line in the above figure. If the consumer's income is $120, then the price of a book is
A) $10 per book.
B) $12 per book.
C) $6 per book.
D) More information is needed to determine the price of a book.
Q2) The figure above shows Ronald's budget line. He has a weekly income of $20, which he spends on hotdogs and hamburgers. Ronald's real income in terms of hamburgers
A) depends on the quantity of hamburgers consumed
B) depends on the quantity of hotdogs consumed
C) is $20
D) is 10 hamburgers
Q3) If the price of the good measured on the horizontal axis falls, a consumer's budget line
A) becomes flatter.
B) becomes steeper.
C) shifts rightward and its slope does not change.
D) shifts leftward and its slope does not change.
Q4) What is the substitution effect?
Page 11
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Chapter 10: Organizing Production
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Sample Questions
Q1) The principal-agent problem refers to the fact that firms must
A) choose between economic efficiency and technological efficiency.
B) choose between a managerial and an incentive system.
C) devise incentives to get employees to work in the best interest of the firm's owners.
D) choose between operating as a partnership or corporation.
Q2) Which of the following may yield economies of team production for Jitters Coffee Company, Inc.?
A) dividing the process of packaging and shipping coffee into several specialized tasks, each performed by different people
B) expanding into a larger coffee packaging plant
C) expanding into the packaging and sale of tea and powdered chocolate
D) all of the above
Q3) Firms that survive in the long run are usually those that
A) become as large as possible.
B) remain small.
C) use more capital rather than more labor.
D) earn the largest possible profit.
Q4) What is a firm?
Q5) What is the Herfindahl-Hirschman Index and what does it measure?
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Chapter 11: Output and Costs
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Q1) One reason for diseconomies of scale is that, at very large scales, management systems can become
A) more efficient because they can effectively manage more workers.
B) increasingly complex and inefficient.
C) more numerous than the workers they manage.
D) none of the above.
Q2) Which of the following statements is TRUE for any marginal and average?
A) When the marginal is greater than the average, the average increases.
B) When the marginal is less than the average, the average increases.
C) When the marginal is rising, the average is increasing.
D) When the marginal is equal to the average, the average decreases.
Q3) The table shows some data that describes Tom's T-Shirts' total product when Tom's has 1 sewing machine. When 4 workers are employed, ________.
A) average product of labor is a maximum
B) marginal product of labor is less than average product of labor
C) marginal product of labor exceeds average product of labor
D) marginal product of labor equals average product of labor
Q4) Explain how new technologies, which increase productivity, affect the average variable cost, average total cost, and marginal cost curves.
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Chapter 12: Perfect Competition
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Q1) In the long run, perfectly competitive firms make zero economic profit (their owners earn a normal profit) because
A) any economic profit would attract newcomers to the industry.
B) the firms are incompetent.
C) any economic loss would increase the demand for the good, thereby raising its price.
D) there are many buyers and sellers.
Q2) Martha's Cleaning Services is a perfectly competitive firm that currently cleans 30 offices a week and charges $20 per office, which is the going market price. Martha's marginal cost is $15. What should Martha do to increase her economic profit? Clean more offices? Raise her price? Explain your answer.
Q3) In the above figure, at what price does a perfectly competitive firm make zero economic profit?
A) $4 per unit
B) $8 per unit
C) $12 per unit
D) $16 per unit
Q4) Does a perfectly competitive producer have any incentive to undercut the current market price? Explain your answer
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Page 14
Chapter 13: Monopoly
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Sample Questions
Q1) For a single-price monopolist, price is ________ marginal revenue.
A) less than
B) greater than
C) equal to
D) less than or equal to but never more than
Q2) The WaveHouse on Mission Beach in San Diego features the Bruticus Maximus, a ten foot wave, which tests the skills of even the most talented surf and wake board riders on the planet. WaveHouse is the only place in San Diego where this service is offered. You can ride B. Max for $40 for the first hour, $33 for the second hour, and $26 for the third hour. Why would WaveHouse charge different prices for each subsequent hour of riding?
A) to capture consumer surplus among groups of buyers
B) to capture consumer surplus among units of a good
C) to create customer loyalty
D) to encourage skill development
Q3) For a single-price monopolist to sell one more unit of a good, it must
A) lower the price on just the last unit sold.
B) lower the price on all units sold.
C) raise the price on just the last unit sold.
D) raise the price on all units sold.
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Chapter 14: Monopolistic Competition
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Q1) In the above figure, the firm is a monopolistically competitive firm. In the long run, its economic profit will be
A) zero.
B) between zero and $50 per day.
C) greater than $50 per day.
D) some amount that cannot be determined without more information.
Q2) The figure above shows the situation facing Smart Digit, Inc., a firm in monopolistic competition that produces calculators. What is the firm's profit-maximizing price?
A) $12
B) $10
C) $8
D) $4
Q3) Which of the following is NOT true of firms in monopolistic competition?
A) They are price takers.
B) They practice product differentiation.
C) They have excess capacity in the long run.
D) They earn a normal profit in the long run.
Q4) What is product differentiation? What market structure is characterized by product differentiation?
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Chapter 15: Oligopoly
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Sample Questions
Q1) Which of the following is a distinguishing characteristic of oligopoly?
A) A small number of firms compete.
B) No one firm's actions directly affect the actions of the other firms.
C) Firms are free to enter and exit the industry.
D) Natural barriers cannot prevent the entry of new firms.
Q2) As the Federal Trade Commission currently interprets the Herfindahl-Hirschman index (HHI), an industry is considered to be moderately concentrated if the HHI value is
A) between 100 and 1,500.
B) between 1,500 and 2,500.
C) between 1,000 and 3,500.
D) between 3,000 and 6,000.
Q3) Price wars can be the result of
A) a cooperative equilibrium.
B) a firm playing a tit-for-tat strategy in which last period the competitors complied with a collusive agreement.
C) new firms entering the industry and immediately agreeing to abide by a collusive agreement.
D) new firms entering an industry and all firms then finding themselves in a prisoners' dilemma.
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Chapter 16: Public Choices, Public Goods, and Healthcare
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Q1) Every year as the clock nears midnight on December 31st, the eyes of the world turn to Times Square in New York City to watch the famous ball drop at midnight. The event is open to everyone, but it is advised you arrive early to participate because the square quickly becomes crowded with no space left for latecomers. This celebration can be classified as
A) rival and excludable.
B) non-rival and non-excludable.
C) non-rival and excludable.
D) rival and non-excludable.
Q2) In an unregulated market for healthcare, the quantity produced ________ the efficient quantity.
A) is less than
B) is greater than C) is equal to D) cannot be compared to
Q3) If people can benefit from a good even if they do not pay for it, the good is nonrival.
A)True
B)False
Q4) What is the principle of minimum differentiation?
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Chapter 17: Externalities
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Q1) Individuals making decisions about how much to purchase of a product with an external benefit base their decisions on which of the following?
A) the price and marginal private benefit
B) the economically efficient output
C) the price and the marginal social benefit
D) the size of the deadweight loss
Q2) The marginal social cost, MSC, of producing a good or service equals
A) MC + MB.
B) MB + marginal external cost.
C) MB + marginal external benefit.
D) MC + marginal external cost.
Q3) If a good has zero external costs, then
A) marginal social cost equal marginal private cost.
B) marginal social cost is greater than marginal private cost.
C) marginal social cost is less than marginal private cost.
D) we need more information to determine the relationship between private and social costs.
Q4) "The problem with a common resource is that no one gets to use the resource." Comment on the preceding assertion.
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Chapter 18: Markets for Factors of Production
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Q1) The marginal cost of labor, MCL, is defined as the
A) total cost of producing a certain amount of output.
B) total cost of hiring an additional worker.
C) additional cost of hiring an additional worker.
D) additional fixed cost of producing an additional unit of output.
Q2) If the price of hair styling increases, then
A) hair styling salons hire fewer workers but makes more profit.
B) hair stylists demand an increase in wages and the salons hire fewer workers.
C) the value of marginal product of each hair stylist increases and the demand curve for hair stylists shifts leftward.
D) the value of marginal product of each hair stylist increases and the demand curve for hair stylists shifts rightward.
Q3) If a firm finds that, at its current level of employment, VMP > W, it will
A) be maximizing profits.
B) be minimizing profits.
C) increase the amount of labor it hires.
D) decrease the amount of labor it hires.
Q4) Why does a profit-maximizing firm hire labor up to the point where the value of marginal product equals the wage rate?
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Chapter 19: Economic Inequality
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Q1) In the United States, the poorest 50 percent of households own about ________ of total wealth.
A) 1 percent
B) 10 percent
C) 20 percent
D) 30 percent
Q2) According to the 2007/2008 United Nations Human Development Report, the Gini ratio for Portugal is 38.5, Norway is 25.8, the United States is 40.8, and Russia is 39.9. Which of these four countries has the lowest level of income equality?
A) Portugal
B) United States
C) Norway
D) Russia
Q3) Income is distributed very unequally in ________ and very equally in ________.
A) Finland and South Africa; Brazil and Sweden
B) Brazil and South Africa; Finland and Sweden
C) Finland and Sweden; Brazil and South Africa
D) Brazil and Sweden; Finland and South Africa
Q4) Explain how redistributing income creates a deadweight loss.
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Chapter 20: Uncertainty and Information
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Q1) If Ben becomes less likely to buy smoke detectors after he has fire insurance, he is illustrating
A) moral hazard.
B) adverse selection.
C) the lemon problem.
D) the free rider problem.
Q2) Because Don has health insurance, he is more likely to see the doctor when he has a cold. This is an example of
A) adverse selection.
B) moral hazard.
C) both moral hazard and adverse selection.
D) private information.
Q3) The use of incentive payments for salespeople combats
A) both adverse selection and moral hazard.
B) neither adverse selection nor moral hazard.
C) adverse selection but not moral hazard.
D) moral hazard but not adverse selection.
Q4) Expected utility is the utility that arises from expected wealth.
A)True
B)False
Page 22
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