Economics I Test Questions
Course Introduction
Economics I introduces students to the fundamental principles of microeconomics and macroeconomics, providing a solid foundation for understanding how individuals, households, firms, and governments make choices regarding scarce resources. Topics covered include supply and demand, market equilibrium, consumer and producer behavior, elasticity, market structures, and the role of government in the economy. In addition, students will explore basic concepts such as national income, inflation, unemployment, and fiscal and monetary policy. The course emphasizes analytical thinking and real-world application of economic theories to current events and policy issues.
Recommended Textbook
Microeconomics Principles and Applications 6th Edition by Robert E. Hall
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18 Chapters
2377 Verified Questions
2377 Flashcards
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Page 2
Chapter 1: What Is Economics
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Sample Questions
Q1) Macroeconomics focuses on the behavior of economic agents such as the consumer,a business firm,or a specific market.
A)True
B)False
Answer: False
Q2) Macroeconomics is the study of
A)how the price of gasoline is determined
B)large objects
C)the economic behavior of individual decision makers
D)the behavior of the economy as a whole
E)the economic behavior of individual firms
Answer: D
Q3) Microeconomics is the branch of economics that concerns
A)the overall health of the economy
B)the behavior of individual households,firms,and governments
C)the overall level of trade between nations
D)local governments only
E)the general level of output
Answer: B
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Page 3
Chapter 2: Scarcity, choice, and Economic Systems
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Sample Questions
Q1) An economy's production possibilities frontier is fixed in the long run.
A)True
B)False
Answer: False
Q2) Figure 2-3 shows the production possibilities frontier for a music processing plant that can produce both compact disks and cassettes.The opportunity cost of moving from point B to C is
A)20 cassettes
B)120 compact disks
C)100 cassettes
D)60 compact disks
E)180 compact disks
Answer: D
Q3) In a command system,the decision about what should be produced is made by A)a central authority
B)the market
C)repeating what was done in the past
D)business firms
E)consumers
Answer: A
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Chapter 3: Supply and Demand
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Sample Questions
Q1) Figure 3-1 shows the market demand schedule for compact disks.If the price per disk rises from $10 to $12,the
A)demand will decrease by 2.2 million disks
B)quantity demanded will decrease by 2.2 million disks
C)supply will rise by 2.8 million disks
D)quantity demanded will decrease by 3.5 million disks
E)demand curve will shift to the left
Answer: B
Q2) When households and businesses interact in product markets money
A)is not exchanged
B)is flowing toward businesses
C)is flowing toward households
D)is not used at all
E)is flowing to both businesses and households
Answer: B
Q3) The law of demand says that as the price of a good rises,the quantity demanded of the good tends to fall.
A)True
B)False
Answer: True
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Chapter 4: Working With Supply and Demand
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Sample Questions
Q1) Which of the following is not true about the housing market?
A)The price of housing will increase or decrease in order to achieve an equilibrium
B)An increase in the demand for housing will cause an increase in the quantity supplied of housing
C)When the demand for housing increases,the price of housing will increase but the quantity supplied will not increase in the short run
D)The housing market is a unique market because most people had to borrow money to buy their homes
E)The only way to increase the supply of housing is to build more houses
Q2) If an excise tax is imposed on shoes,
A)government tax revenue will fall
B)the market price of shoes will decrease
C)the supply curve will shift downward
D)the equilibrium quantity demanded will decrease
E)the equilibrium quantity supplied will increase
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Chapter 5: Elasticity
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Sample Questions
Q1) A perfectly elastic supply curve
A)has an elasticity of 1
B)has an elasticity less than 1
C)has an elasticity of 0
D)is horizontal
E)is upward sloping
Q2) Demand for a good is likely to be less elastic
A)the more narrowly defined the good is
B)the larger the good's share of the buyer's budget
C)in the long run than in the short run
D)the smaller the number of substitute goods available
E)at high prices
Q3) If demand is perfectly inelastic,
A)the percent change in quantity demanded divided by the percent change in price is zero
B)the demand curve is a vertical line
C)supply is perfectly inelastic too
D)consumers have power over prices
E)the percentage change in price divided by the percentage change in quantity demanded is zero
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Chapter 6: Consumer Choice
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Sample Questions
Q1) Figure 6-7 shows the marginal utilities Kate receives from buying hamburgers and frozen pizzas,assuming she buys only these two goods.Each hamburger sells for $5 and each pizza sells for $4.What is her marginal utility per dollar spent on the fourth hamburger?
A)15
B)4
C)3
D)20
E)12
Q2) Alice has spent all of her income on ten different goods,and knows that the marginal utilities per dollar spent on the ten goods are equal.Which of the following statements is correct?
A)She could possibly increase her total utility by redistributing her income among the ten items.
B)She has violated the assumption of rationality.
C)The law of diminishing marginal utility does not apply to her.
D)Any reallocation of income among the ten items will reduce her total utility.
E)She must be at a point inside of her budget line.
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8
Chapter 7: Production and Cost
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Sample Questions
Q1) Figure 7-8 shows three different cost curves,labeled A,B,and C for a firm.What does curve C most likely represent?
A)average total cost
B)marginal cost
C)total cost
D)average fixed cost
E)total fixed cost
Q2) A firm's minimum efficient scale is defined as
A)the output level at which LRATC first reaches its minimum level
B)any output level at which LRATC is minimized
C)the highest output level at which LRATC takes on its minimum value
D)the output level at which the firm charges its highest price
E)the lowest output level at which the firm can charge a positive price
Q3) Consider the total product curve depicted in Figure 7-5.The firm experiences the greatest marginal returns to labor
A)when employing more than 200 workers
B)when employing between 80 and 200 workers
C)when employing 80 workers
D)when employing between zero and 80 workers
E)at all levels of employment
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Chapter 8: How Firms Make Decisions: Profit Maximization
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Sample Questions
Q1) Marginal revenue is defined as the
A)total revenue minus total cost
B)change in total revenue divided by the change in the quantity of output
C)price minus average total cost
D)total revenue over the quantity of output
E)quantity times price
Q2) The behavior of firms is best understood by focusing on
A)money profit
B)economic profit
C)accounting profit
D)economic profit minus implicit costs
E)money profit minus explicit costs
Q3) Figure 8-9 shows the demand schedule faced by an artist for reproductions of his paintings.What is the marginal revenue from expanding from selling reproductions to 400?
A)$3,000
B)$1
C)$0
D)-$1,000
E)-$3,000
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Chapter 9: Perfect Competition
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Sample Questions
Q1) A firm that operates in a perfectly competitive market
A)controls its own price,but accepts its output level as given
B)controls both its own price and its own output level
C)controls its own output level,but accepts its price as given
D)accepts both its output level and its price as given
E)controls its own price,its own output level,and its own costs
Q2) The long-run supply curve is horizontal in a(n)
A)increasing-cost industry
B)constant-cost industry
C)decreasing-cost industry
D)labor-intensive industry
E)capital-intensive industry
Q3) Figure 9-2 shows the total revenue and total cost data for a perfectly competitive firm.At what output level will the firm break even? A)1
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Page 11
Chapter 10: B:Perfect Competition
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Sample Questions
Q1) One of the defining characteristics of a perfectly competitive market is
A)both buyers and sellers are well informed about the market
B)a small number of buyers
C)high barriers to entry
D)a small number of buyers but a large number of sellers
E)buyers are better informed about the market than sellers
Q2) In a perfectly competitive market,a technological advance allows all firms to earn higher economic profits in the long run.
A)True
B)False
Q3) In perfect competition,technological advances will allow economic profits for A)all firms.
B)only the firm developing the new technology.
C)early adopters.
D)none of the firms,as the advance will be immediately adopted by all of them.
Q4) Diminishing marginal returns are the reason why some industries have positively-sloped long-run average cost curves.
A)True
B)False
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Chapter 11: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) By keeping new firms from entering the market,oligopolies are more likely to have
A)long-run economic profit
B)low prices
C)great efficiency
D)decreasing marginal costs
E)economies of scale
Q2) Excess capacity arises when firms cannot sell all of their output at the current market price.
A)True
B)False
Q3) Which of the following would make cheating on a collusive agreement more likely?
A)greater ease of observing other firms' prices
B)a reduction in the number of sellers in the market
C)close monitoring by the Department of Justice
D)more frequent shifts in market demand
E)an increase in the number of customers in the market
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13
Chapter 11: Monopoly
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Sample Questions
Q1) The monopoly represented in Figure 10-26 has constant marginal cost and no fixed costs.If the firm is a perfect price discriminator,economic profit will equal
A)the area PABP'
B)the area PACP'
C)the area TCQ**0
D)the area TCP'
E)zero
Q2) Even if better programs become available,Microsoft's Windows software may retain market dominance because of
A)network externalities.
B)its user-friendliness.
C)switching costs.
D)both a & c.
Q3) A market that will naturally end up with just one seller is a(n)
A)evolutionary monopoly.
B)natural monopoly.
C)competitive monopoly.
D)entry barrier monopoly.
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14
Chapter 12: Labor Markets
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Sample Questions
Q1) Figure 12-3 illustrates the marginal revenue product of labor and three possible labor supply curves facing a firm that hires industrial design engineers.The firm initially is in equilibrium at point e.Then,the cost of training rises for new industrial design engineers.Assume that the full impact of the change in training costs is indicated by one of the curves in the figure.After all long-run adjustments are made,this firm pays a wage
A)of $18 per hour and employs 29 industrial design engineers
B)of $26 per hour and employs 20 industrial design engineers
C)between $22 and $26 per hour,while employing less than 20 industrial design engineers
D)between $18 and $22 per hour,while employing more than 29 industrial design engineers
E)between $18 and $22 per hour,while employing between 25 and 29 industrial design engineers
Q2) A change in the wage rate causes a firm's labor demand curve to shift.
A)True
B)False
Q3) The wage rate is constant along a firm's labor demand curve.
A)True
B)False
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Page 15
Chapter 13: B: Labor Markets
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Sample Questions
Q1) Two jobs have different training requirements,and the job that requires more extensive training currently pays $20 more per hour.The jobs are equivalent in all other respects.If labor is migrating from the job with lower training requirements to the job with greater training requirements,then
A)the equilibrium compensating wage differential is more than $20 per hour
B)the equilibrium compensating wage differential equals $20 per hour
C)the wage rate will drop for the job with lower training requirements
D)the wage rate will drop for the job with greater training requirements
E)labor supply will increase for the job with lower training requirements
Q2) Suppose that the cost of living is 25 percent higher in Chicago than in Indianapolis.If wages in Chicago are 10 percent higher on average than wages in Indianapolis,then eventually the labor supply will
A)fall in Indianapolis,increasing the average wage there
B)fall in Chicago,increasing the average wage there
C)rise in Indianapolis,increasing the average wage there
D)rise in Chicago,decreasing the average wage there
E)fall in Indianapolis,decreasing the average wage there
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Page 16
Chapter 14: Capital and Financial Markets
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Sample Questions
Q1) A firm's choice about how much physical capital to employ differs from its choice of how much labor to employ because
A)the firm has to pay for its capital
B)the productivity of labor depends on the firm's production function
C)firm must compare the marginal costs and benefits of acquiring more capital
D)firms do not own the labor they employ,but they frequently purchase capital outright
E)labor is productive but capital is not
Q2) What is the value of a newly issued 10-year bond with face value of $10,000 and no coupon payments? Assume the interest rate is 7 percent (0.07)per year.
A)$0
B)$5,083.49
C)$10,000
D)$95,632.41
E)$100,000.00
Q3) The supply curve for a particular bond is horizontal.
A)True
B)False
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17
Chapter 15: Economic Efficiency and the Competitive Ideal
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Sample Questions
Q1) Market producer surplus is the area above the market price and below the market supply curve.
A)True
B)False
Q2) Economic efficiency requires all Pareto improvements to be made.
A)True
B)False
Q3) Total net benefits gained in a market
A)minus any side payments equals total revenue from producing the good (or,equivalently,total expenditure on the good)
B)is the sum of producer and consumer surplus in that market
C)is the difference between consumer surplus and producer surplus in that market
D)are maximized when the market price equals zero
E)always exceeds the sum of total expenditure on the good and the total cost of providing it
Q4) Market consumer surplus at any quantity -- measured in dollars -- is the area above the market demand curve and below the market price.
A)True
B)False
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Chapter 16: Governments Role in Economic Efficiency
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Sample Questions
Q1) Which of the following helps encourage specialization?
A)property law
B)criminal law
C)contract law
D)tort law
E)constitutional law
Q2) When regulating a natural monopoly,government officials
A)can set an efficient price,but the firm will suffer a loss
B)can arrange a Pareto improvement by leaving the firm alone
C)should force the firm to set a price equal to minimum marginal cost
D)should force the firm to set a price equal to minimum long-run average total cost
E)will increase efficiency if they force the firm to produce where MR = MC.
Q3) An externality is defined as
A)the revenue generated by a firm in the external market
B)a byproduct of a good or activity that affects someone not immediately involved in the transaction
C)an additional cost of consumption that is borne by a third party
D)a cost or benefit arising from price changes
E)the value of a good or service to a consumer
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Page 19
Chapter 17: Comparative Advantage and the Gains From International Trade
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Sample Questions
Q1) Strategic trade policy
A)argues for protecting certain industries that benefit society but that may not thrive in a free trade environment
B)advocates quotas on imports of high-tech products
C)defends the use of tariffs to protect monopolistically competitive industries
D)has been used to justification protection of infant industries
E)explains why less developed countries export more raw materials than services
Q2) In Figure 16-4,which of the following is true?
A)Gains from trade are possible if Korea produces radios and Colombia produces calculators.
B)No gains from trade are possible since neither country has an absolute advantage in producing both radios and calculators.
C)Gains from trade are not possible if Korea produces calculators and Colombia produces radios.
D)No trade will occur because neither country has a comparative advantage in producing either good.
E)No trade will occur because neither country has a comparative advantage in producing both radios and calculators.
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Page 20