Economics I Test Bank
Course Introduction
Economics I introduces students to the foundational principles of microeconomics, focusing on how individuals, households, and firms make choices regarding the allocation of limited resources. The course examines concepts such as supply and demand, market equilibrium, consumer behavior, production costs, and various market structures. Emphasis is placed on understanding how economic models explain real-world phenomena and inform public policy decisions. Through theoretical analysis and practical examples, students develop critical thinking skills to analyze everyday economic issues and gain a foundation for further study in the field of economics.
Recommended Textbook
Principles of Microeconomics 2nd Edition by Lee Coppock
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19 Chapters
3303 Verified Questions
3303 Flashcards
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Page 2
Chapter 1: Five Foundations of Economics
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Sample Questions
Q1) Low prices for water in the developed world may lead individuals to believe it is NOT a ________ resource.
A) desired
B) scarce
C) plentiful
D) controlled
E) economic
Answer: B
Q2) The trade-offs that are made because of scarcity
A) are important in developing economies,but they do not apply to developed economies.
B) are important in developed economies,but they do not apply to developing economies.
C) are different when they involve the wants of people,but they are similar when they involve the needs of people.
D) can be accurately made to the extent that they can be quantified.
E) depend on the decision maker's value judgments about the relative importance of the alternatives.
Answer: E
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Chapter 2: Model Building and Gains From Trade
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Sample Questions
Q1) Which allocation point in the short-run production possibilities frontier (PPF)will lead to the most significant growth in the long-run PPF?
A) point A
B) point B
C) point C
D) point D
E) point E
Answer: E
Q2) Suppose the plow is invented and agricultural productivity greatly increases.Which of the following graphs best depicts how this would affect the PPF?
A) Graph A
B) Graph B
C) Graph C
D) Graph D
E) Graph E
Answer: C
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Chapter 3: The Market at Work: Supply and Demand
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Sample Questions
Q1) Which of the following is both a shift in supply and a shift in demand?
A) the number of firms in an industry
B) tastes and preferences
C) income changes
D) expectations of future prices
E) the number of buyers
Answer: D
Q2) Using a supply and demand graph,show what happens to the equilibrium price and quantity for the following goods if,holding all else constant,income increases.
a.a normal good
b.an inferior good
Answer: a.
11ea78d5_7013_1f7f_8379_3d56f233a172_TB4871_00 b.
11ea78d5_7013_1f80_8379_233356df579f_TB4871_00
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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Page 5
Chapter 4: Elasticity
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Sample Questions
Q1) Income elasticity of demand is defined as
A) the change in price divided by change in income.
B) the change in demand divided by the change in income.
C) the change in demand divided by change in income.
D) the percentage change in demand divided by percentage change in income.
E) the percentage change in demand divided by percentage change in price.
Q2) Suppose that the price elasticity of demand is -0.80 for aspirin.We could then say that the demand for aspirin is
A) elastic.
B) inelastic.
C) unitary elastic.
D) infinitely elastic.
E) unable to be determined with the provided information.
Q3) How can a firm increase total revenue?
A) when demand is elastic and price decreases
B) when demand is elastic and price increases
C) when demand is unitary elastic and price increases
D) when demand is unitary elastic and price decreases
E) when demand is inelastic and price decreases
Q4) What is the price elasticity of demand? How is it calculated?
Page 6
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Chapter 5: Market Outcomes and Tax Incidence
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Sample Questions
Q1) Explain the concept of a producer's willingness to sell and the two factors that go into it.
Q2) All else held constant,a decrease in the price of a good would necessarily A) increase social welfare.
B) decrease producer surplus.
C) decrease consumer surplus.
D) increase demand for the good.
E) increase producer surplus.
Q3) Draw a set of supply and demand curves and explain,with reference to the graph,why the consumer surplus could be described as the "total consumer gain."
Q4) The price-quantity combination found where the supply and demand curves intersect is a unique combination that is efficient because A) producers can sell as much as they want. B) total surplus is maximized.
C) tax revenue is sufficient to pay for government services.
D) consumers can buy as much as they want.
E) new products are being introduced.
Q5) Explain why goods that are necessities are often attractive targets for taxation by governments.
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Chapter 6: Price Controls
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Sample Questions
Q1) What is the equilibrium price in the market for public transportation?
A) $0.75
B) $1.00
C) $1.25
D) $1.50
E) $1.75
Q2) If there is a $60 price ceiling imposed on a textbook,what will be the disequilibrium amount?
A) There will be a shortage of 800,000 textbooks.
B) There will be a surplus of 800,000 textbooks.
C) There will be neither a shortage nor a surplus.
D) There will be a shortage of 2,600,000 textbooks.
E) There will be a shortage of 400,000 textbooks.
Q3) In the U.S.sugar market
A) subsidies costs taxpayers $10 billion per year.
B) California grows the most sugarcane in the country.
C) sugar subsidies cause sugar to be cheaper than high-fructose corn syrup.
D) sugar price ceilings cause regular shortages of sugar.
E) U.S.sugarcane is more expensive than in Canada.
Q4) How would a free market be characterized?
Page 8
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Chapter 7: Market Inefficiencies: Externalities and Public Goods
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Sample Questions
Q1) Which rule would NOT protect fish populations?
A) limiting the length of the fishing season
B) limiting the number of fish that can be caught
C) not allowing female fish to be caught
D) not allowing young fish to be caught
E) catching any fish except males
Q2) Which of the following characteristics best defines a private good?
A) rival and excludable
B) rival and nonexcludable
C) nonrival and nonexcludable
D) nonrival and excludable
E) a good that is never produced by the government
Q3) If property rights over the river are assigned to Jones,then
A) Jones will force Smith to close his resort.
B) Smith will pay Jones up to $75 per day to install the filter.
C) Smith will pay Jones up to $125 to install the filter.
D) Jones will install a filter and pay Smith at least $75 per day.
E) Jones will not install a filter.
Q4) Explain why cap and trade is an efficient policy approach to reducing emissions.
Q5) Explain why the actual social benefit of a public good is hard to measure.
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Chapter 8: Business Costs and Production
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Sample Questions
Q1) Which of the following statements is true?
A) The production function shows the trade-off in inputs that produce the same amount of output.
B) The production function shows the trade-off between producing different kinds of outputs.
C) An inefficient firm is unable to achieve as much output as the production function shows.
D) The short-run production function includes both fixed and variable inputs.
E) The short-run production function includes both fixed and variable costs.
Q2) How are long-run costs different from short-run costs?
Q3) Implicit costs can be difficult to measure because
A) business owners cannot always observe them directly.
B) they are not measured in dollars.
C) they are always very expensive.
D) they are always greater than explicit costs.
E) they include expenses like taxes.
Q4) What is an implicit cost?
Q5) Explain the relationship between the marginal cost curve and the marginal product curve.
Q6) Quinn owns a DVD store.Give some examples of Quinn's fixed costs for the store.
Page 10
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Chapter 9: Firms in a Competitive Market
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Sample Questions
Q1) An example of an implicit cost is
A) a payment on the loan for a piece of equipment not in use.
B) a payment on an electricity bill.
C) wages paid to employees.
D) gasoline costs.
E) forgone wages.
Q2) Profits are maximized when producing _______ unit(s).
A) 0 (zero)
B) 1
C) 2
D) 3
E) 4
Q3) Profit per unit is the difference between
A) revenue per unit and average total cost.
B) total revenue and average total cost.
C) marginal revenue and marginal cost.
D) total revenue and total cost.
E) revenue per unit and marginal cost.
Q4) What does it mean to be a price taker? Why does price taking occur among perfectly competitive firms?
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Chapter 10: Understanding Monopoly
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Sample Questions
Q1) Market failure occurs
A) when the output level of the firm is efficient.
B) when the output level of the firm is inefficient.
C) when firms do not maximize profits.
D) only in the presence of a monopoly.
E) only in the presence of externalities.
Q2) A monopolist's marginal revenue
A) is constant with respect to the quantity produced.
B) increases with the quantity produced.
C) decreases with the quantity produced.
D) is unrelated to the quantity produced.
E) is inversely proportional to the quantity produced.
Q3) The output effect refers to how
A) lower prices affect the quantity sold.
B) firms can set their prices.
C) firms choose their quantities.
D) lower prices affect revenue.
E) lower output affects the price.
Q4) How did AT&T's position in the market for telephone service evolve from 1980 to the present?
12
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Chapter 11: Price Discrimination
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Sample Questions
Q1) Second degree discrimination,represented by the $5 foot-long sandwich available from Subway,occurs when the price per unit
A) is consistent over time.
B) varies from month to month.
C) varies with the quantity sold.
D) varies from producer to producer.
E) is determined by the consumer's willingness to pay.
Q2) When a market model moves from that of a monopoly to one in which perfect price discrimination is practiced,the deadweight loss
A) increases.
B) remains unchanged.
C) can increase or decrease depending on the type of loss.
D) decreases.
E) fluctuates.
Q3) How do grocery stores practice price discrimination?
Q4) How do we know if the market for a product or service is vulnerable to price discrimination?
Q5) List and explain the conditions for price discrimination.
Q6) List three examples of retail price discrimination.
Page 13
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Chapter 12: Monopolistic Competition and Advertising
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Sample Questions
Q1) Would a perfectly competitive firm want to advertise? Why or why not?
Q2) If all monopolistically competitive firms had identical cost curves,then A) the industry would remain monopolistically competitive because of product differentiation.
B) long-run profit for each firm would be positive.
C) short-run profit for each firm would be negative.
D) excessive brand proliferation would result.
E) the industry would become perfectly competitive.
Q3) The primary purpose of advertising for a monopolist is to increase A) demand.
B) differentiation.
C) elasticity.
D) price.
E) variety.
Q4) One drawback to advertising might be that it could easily
A) raise costs but not increase demand.
B) raise revenue but not increase demand.
C) decrease revenue and raise demand.
D) decrease costs and decrease demand.
E) cause a monopolistically competitive firm to become a monopoly.
14
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Chapter 13: Oligopoly and Strategic Behavior
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Sample Questions
Q1) An example of a tying arrangement is
A) a restaurant offering both Pepsi and Coca-Cola products.
B) a car manufacturer installing expensive onboard GPS/navigation systems in all the cars it sells.
C) a landlord offering free rent for the first month when a tenant signs a one-year lease.
D) two companies competing on price.
E) a coffee shop offering customers the option of having cream with their coffee for an extra 25 cents.
Q2) Sequential games best understand a situation where
A) one firm acts and the other firm responds later.
B) one firm acts and the other firm responds at the same time.
C) the firms are in a cartel.
D) the firm is a monopoly.
E) there is a prisoner's dilemma.
Q3) Why must a tit-for-tat strategy be a long-run strategy?
Q4) In what way does e-mail exhibit a network externality? In your answer,be sure to define network externality.
Q5) Explain the activities that the Clayton Act of 1914 deems socially detrimental.
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Chapter 14: The Demand and Supply of Resources
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Sample Questions
Q1) Choose the graph that represents the following situation: Out of fear of losing their jobs in a depressed economic climate,workers increase their rate of production.
A) Graph A
B) Graph B
C) Graph C
D) Graph D
E) Graph E
Q2) If the price of output is $5,the value of the marginal product of labor of the third worker is
A) $8.
B) $30.
C) $40.
D) $38.
E) $190.
Q3) Your friend Sue tells you that if she gets a raise,she is going to start working less.Your other friend Emma says that the plan is crazy and that Sue should work more so she can earn more money.Which friend is right?
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Chapter 15: Income,inequality,and Poverty
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Sample Questions
Q1) Between two unionized firms,one would expect workers to receive higher wages in a firm
A) where the threat of a strike is low.
B) where the threat of a strike is high.
C) that can substitute labor with capital easily.
D) that can relocate the production process easily.
E) that has workers with low education levels.
Q2) Why does a high inequality ratio often indicate the presence of poverty?
Q3) In recent decades,more women than men have received undergraduate degrees.Consequently,women's wages will ________ according to ________ theory.
A) decrease; compensating differential
B) increase; compensating differential
C) decrease; human capital
D) increase; human capital
E) decrease; efficiency wage
Q4) Wages are determined by a variety of factors.Describe the nonmonetary determinants of wages and specifically how these determinants could reduce wages.
Q5) What are some of the causes of income inequality in the United States?
Q6) Briefly describe microcredit and the role it plays in a developing economy.
Page 17
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Chapter 16: Consumer Choice
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Sample Questions
Q1) ________ exist(s)when a consumer is completely indifferent between two goods.
A) Perfect complements
B) Perfect substitutes
C) Perfect indifference
D) Imperfect selection
E) Improper preference
Q2) The substitution effect and the real-income effect are two effects that happen when
A) marginal utility increases.
B) marginal utility decreases.
C) total utility decreases.
D) a price changes.
E) total utility increases.
Q3) The change in utils for each change in units consumed is known as the A) total utility.
B) slope.
C) diminishing marginal utility.
D) unity of utility.
E) marginal utility.
Q4) Draw the indifference curves for two goods that are perfect complements.
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Chapter 17: Behavioral Economics and Risk Taking
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Sample Questions
Q1) Marcus gets a new cell phone for graduation.He abandons his old phone in a drawer forever,even though he could sell it on Craigslist for $50.Marcus's behavior is
A) irrational,because he wouldn't pay $50 for his old phone today,and still gives it up.
B) rational,because he wouldn't pay $50 for his old phone today,and still gives it up.
C) irrational,because the value of his new phone is $300 and should be compared to the $50 value of the old phone.
D) rational,because the value of his new phone is $300 and should be compared to the $50 value of the old phone.
E) neither rational nor irrational,since Marcus didn't buy the new phone.
Q2) Whenever consumers make decisions without perfect information,the decision reflects
A) perfect rationality.
B) perfect irrationality.
C) bounded rationality.
D) unbounded rationality.
E) confounded rationality.
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Chapter 18: Health Insurance and Health Care
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Sample Questions
Q1) In a single-payer system,which of the following is true?
A) The single payer is able to act as a monopsonist.
B) Medical care tends to be rationed through pricing.
C) Physicians' wages are generally higher than in a multipayer system.
D) The single payer is able to act as a monopolist.
E) Medical care is available promptly to all who want it.
Q2) What is one cited reason why healthcare expenditures are so high in the United States?
A) Medicare and Medicaid reduce the supply of medical care.
B) Doctors know patients are likely covered by insurance,which reduces the demand for medical care.
C) Government-sponsored forms of health insurance increase the demand for medical care by the elderly and the poor.
D) Insurance companies attempt to control medical care costs by capping expenditures.
E) Patients covered by insurance consume too little health care.
Q3) As an employer,why might Vivian be reluctant to offer her employees a health insurance plan with a very low annual deductible?
Q4) How do HMOs act as an intermediary in the healthcare market?
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Chapter 19: International Trade
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Sample Questions
Q1) The argument that calls for the trade protection of only newly developing industries is known as the ________ argument.
A) autarky
B) infant industry
C) developing nation
D) predatory dumping
E) learning by doing
Q2) The combination of goods and services that Mexico's citizens might feasibly consume is called Mexico's
A) total consumption.
B) total production.
C) consumption possibilities.
D) production possibilities.
E) national output.
Q3) Graphically illustrate the lost consumer surplus associated with imposing a quota on imports.What happens to this lost surplus?
Q4) Would consumers benefit more from a tariff or a quota on imports?
Q5) What exactly is the advantage of the principle of comparative advantage?
Q6) List three trade-restrictive policies.
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