Economics II Practice Questions
Course Introduction
Economics II builds upon foundational economic principles by exploring advanced topics in both microeconomics and macroeconomics. The course delves into market structures, factor markets, general equilibrium, and welfare economics, while also introducing students to concepts such as economic growth, monetary and fiscal policy, inflation, unemployment, and international trade. Through real-world case studies and applied problem-solving, students develop a deeper understanding of how economic theory informs public policy and business decision-making in a complex global environment.
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Microeconomics 2nd Edition by Daron Acemoglu
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Page 2
Chapter 1: The Principles and Practice of Economics
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Sample Questions
Q1) Which of the following statements is true?
A) Testing with data is essential to developing a good theory.
B) The knowledge of economics complicates decision making.
C) Cost-benefit analysis can be applied only to limited economic decisions.
D) Economics is more of a theoretical subject with limited applications in the real world.
Answer: A
Q2) A budget constraint represents the ________.
A) total money income that an agent earns in different time periods
B) goods and services an economic agent can choose given her limited income
C) inequality in the incomes earned by various economic agents
D) aggregate income earned by all firms in an economy
Answer: B
Q3) Who among the following is an example of a free rider?
A) An individual who sneaks into a music concert
B) A consumer who buys her groceries from a nearby store
C) A taxpayer who exercises in the public park near his house
D) A club member who makes voluntary contributions to the club
Answer: A
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Chapter 2: Economic Methods and Economic Questions
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Sample Questions
Q1) To test the effectiveness of a newly developed medicine,300 patients suffering from a heart ailment were divided into two groups of 150 people each.One group was treated with the new medicine,while the other was treated with an already existing,widely used medicine.In this scenario,identify the treatment group and the control group.What is the rationale behind dividing patients into two groups?
Answer: The treatment group refers to the group of patients who received the new medicine.The control group refers to the group of people who were not given the new medicine but were instead given the medicine that was already in widespread use.The rationale behind this division is to compare the health changes of the two groups over time.This experiment tests whether the new drug is better than the old drug.
Q2) Which of the following statements is true about data?
A) Empiricism does not necessarily involve data.
B) Consistency of models can be checked using data.
C) Facts that describe the world are not considered data.
D) Convincing data analysis in economics relies on using a small sample.
Answer: B
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Chapter 3: Optimization: Doing the Best You Can
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Sample Questions
Q1) What is the Principle of Optimization at the Margin? Explain with an example.
Answer: The Principle of Optimization at the Margin states that an optimal alternative has the property that moving to it makes the decision maker better off,and moving away from it makes the decision maker worse off.For example,if an individual has to choose between alternative apartments,she will choose moving toward the apartment that lowers her total cost,and moving away from the apartment that increases her total cost.Such an apartment will be an optimal choice according to the Principle of Optimization at the Margin.
Q2) The analysis of how a customer's taste for cars will change when her wealth triples falls under the scope of ________.
A) normative analysis
B) marginal research
C) cost-benefit analysis
D) before and after comparisons
Answer: D
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Chapter 4: Demand, supply, and Equilibrium
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Sample Questions
Q1) How does the study reported in the Evidence-Based Economics element in this chapter demonstrate the law of demand?
A) It relies on theoretical graphs of the demand curve for gasoline.
B) It uses different tax and subsidy policies across Latin American countries as a natural experiment.
C) It compares the quantity demanded before and after the Venezuelan government ended gasoline subsidies.
D) It compares the quantity demanded between Latin American countries and Middle East countries.
Q2) Refer to the figure above.When the supply curve of flash drives is S and the demand curve of flash drives is D,what is the surplus in the market when the price is $7?
A) 0 units
B) 10 units
C) 20 units
D) 40 units
Q3) What are the key features of a perfectly competitive market?
Q4) Should an economist consider a Web-based job search portal like Monster.com as a market?
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Chapter 5: Consumers and Incentives
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Sample Questions
Q1) Which of the following statements is true of the price elasticity of demand?
A) As the number of substitutes for a good increases, the price elasticity of demand for that good decreases.
B) If a consumer's budget share of a good increases, the price elasticity of demand for that good is likely to decrease.
C) The price elasticity of demand for a good is generally higher in the long run than in the short run.
D) If the price elasticity of demand for a good equals zero, the demand for the good is likely to be highly responsive to price changes.
Q2) The demand for a good that is a necessity is likely to be ________.
A) unit elastic
B) perfectly elastic
C) relatively elastic, but not perfectly elastic
D) inelastic
Q3) Using an example of a bundle of two goods,graphically illustrate the substitution effect and the income effect if the price of any one good falls.
Q4) What are the determinants of the price elasticity of demand?
Q5) Joey's budget constraint is given by $ ________ PR + $ ________ RS = $________.
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Chapter 6: Sellers and Incentives
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Sample Questions
Q1) In a competitive industry,some firms earn positive economic profits,while some earn zero economic profit in the long run because ________.
A) of the free entry and exit of firms
B) the firms have different cost structures
C) the firms sell their output at different prices
D) the industry supply curve is perfectly elastic
Q2) Refer to the figure above.What is the producer surplus when the price is $50?
A) $100
B) $200
C) $400
D) $1,000
Q3) Refer to the figure above.What is the producer surplus when the price is $70?
A) $800
B) $1,600
C) $2,000
D) $2,800
Q4) A bakery that produces 100 loaves of bread has a variable cost of $50 and a fixed cost of $200.Calculate the total cost,average total cost,average variable cost,and average fixed cost of the bakery.
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Chapter 7: Perfect Competition and the Invisible Hand
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Sample Questions
Q1) Take a deck of playing cards and remove the aces,jacks,queens,and kings.Imagine that any remaining card in the deck is a single individual,either a seller or a consumer,and all are gathered at a single perfectly competitive market.Red cards are sellers,and black cards are consumers.The number on a card indicates the individual's reservation price.Each seller owns a single unit of an indivisible good.Each consumer can buy at most one unit of the good from a seller.The invisible hand predicts that the market outcome will be ________.
A) equilibrium price = 6, and units sold = 5
B) equilibrium price = 6, and units sold = 10
C) equilibrium price = 3, and units sold = 5
D) equilibrium price = 5, and units sold = 6
Q2) Efficiency is achieved in competitive markets because ________.
A) producer surplus is maximized
B) consumer surplus is maximized
C) social surplus is maximized (the economic pie is made as large as possible)
D) deadweight loss is maximized
Q3) What does the concept of the invisible hand imply?
Q4) What role does the invisible hand play when two firms are producing in the same competitive industry?
Q5) Differentiate between the coordination problem and the incentive problem.
Page 9
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Chapter 8: Trade
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Sample Questions
Q1) Points inside a production possibilities curve are ________ and ________.
A) efficient; unattainable
B) inefficient; unattainable
C) efficient; attainable
D) inefficient; attainable
Q2) Refer to the figure above.Which of the following combinations is attainable as well as efficient?
A) B
B) C
C) D
D) E
Q3) A curve that shows the various combinations of goods and services that are possible for an economy to produce with a given amount of resources is referred to as a(n)________.
A) supply curve
B) indifference curve
C) budget constraint
D) production possibilities curve
Q4) What are the effects of a tariff on a good on various groups and on the total surplus in the country that imposes the tariff?
Page 10
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Chapter 9: Externalities and Public Goods
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Sample Questions
Q1) Deadweight loss refers to the loss in ________.
A) producer surplus due to a fall in the market price of a good
B) consumer surplus due to an increase in the market price of a good
C) total surplus due to a market distortion, such as an externality
D) total surplus due to a change in consumers' preferences
Q2) Which of the following is the best description of the Coase Theorem?
A) Tariffs can improve economic efficiency.
B) Public goods are over-provided by the private market.
C) Bargaining between private parties to an economic exchange results in an efficient allocation of resources.
D) Only the government can force private parties to internalize externalities.
Q3) Refer to the figure above.Social welfare will be maximized if ________ units of Good Y are produced.
A) 9 million
B) 20 million
C) 13 million
D) 16 million
Q4) What is the difference between club goods and common pool resource goods? Give one example of each type of good.
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Chapter 10: The Government in the Economy: Taxation and Regulation
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Q1) Which of the following accounts for the largest portion of federal government spending?
A) Education
B) Policing
C) Infrastructure
D) National defense
Q2) Which of the following taxes does NOT lead to a deadweight loss?
A) A proportional income tax
B) A lump-sum tax
C) A progressive income tax
D) A proportional tax on property
Q3) What is the type of relationship between social inequality and social surplus?
A) Social inequality increases as social surplus increases.
B) Social inequality decreases as social surplus increases.
C) At first, social inequality increase as social surplus increases. But later the relationship reverses.
D) At first, social inequality decrease as social surplus increases. But later the relationship reverses.
Q4) When does the burden of a tax imposed on a good fall more heavily on consumers?
Q5) When is a price ceiling ineffective?
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Chapter 11: Markets for Factors of Production
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Sample Questions
Q1) Refer to Goldin and Rouse's study of auditions at national orchestras reported in the Evidence-Based Economics segment in the textbook.What is the evidence for discrimination in national orchestras presented in the study of audition data?
Q2) Refer to the scenario above.In the table above,the marginal product of labor for the tenth worker is ________.
A) 910
B) 91
C) 50
D) 4.64
Q3) Refer to the scenario above.If the hourly wage is $1.60,what is the maximum possible number of buttons Paul can afford?
A) 16 buttons
B) 12 buttons
C) 8 buttons
D) 4 buttons
Q4) What is the difference between labor-saving technology and labor-complementary technology?
Q5) What are the factors that affect the supply curve of labor?
Q6) Differentiate between taste-based discrimination and statistical discrimination.
Page 13
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Chapter 12: Monopoly
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Sample Questions
Q1) Which of the following statements is true?
A) Network effects act as barriers to entry in a market.
B) Economies of scale act as incentives for new firms to enter a market.
C) If a firm is enjoying economies of scale, then its product must have network effects.
D) If a firm's product has network effects, then the firm must be enjoying economies of scale.
Q2) Refer to the figure above.What is the price that a perfectly competitive firm would charge?
A) $0
B) $3
C) $6
D) $9
Q3) The investment by firms in the creation of products not yet available on the market is referred to as ________.
A) working capital
B) creative capital
C) innovation funds
D) research and development
Q4) What are the problems associated with price regulation?
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Chapter 13: Game Theory and Strategic Play
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Sample Questions
Q1) A game is called a simultaneous-move game if ________.
A) players choose their actions at the same time
B) one player chooses her action after the other player makes a move
C) players choose mixed strategies to play the game
D) players choose their dominant strategies to play the game
Q2) Refer to the scenario above.If Vlad bid ($2,$2,$2),then he can win at least ________,no matter what Alph does.
A) one and a half figurines
B) two figurines
C) one figurine
D) zero figurines
Q3) Refer to the figure above.Which of these simultaneous-move games best represent the following scenario: a coordination game.Ann and Bob have the opportunity to either go to the same party (X)or stay at their respective homes (Y).They would be much happier if they both went to the party,but staying at home is better than going to the party alone.
A) (1)
B) (2)
C) (3)
D) (4)
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Chapter 14: Oligopoly and Monopolistic Competition
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Q1) Refer to the figure above.In the long run,________.
A) the D and MR curves shift right, but MC and ATC curves will remain the same
B) the D curve shifts right, but MR, MC and ATC curves will remain the same
C) the D and MR curves shift right, but MC and ATC curves shift up
D) the MC and ATC curves shift down, but D and MR remain the same
Q2) Markets in which the Herfindahl-Hirschman Index ________ are considered moderately concentrated.
A) is less than 1,000
B) is zero
C) is between 1,000 and 1,800
D) is above 1,800
Q3) A monopolistically competitive firm ________.
A) can increase price without losing all of its business
B) loses all of its business if it increases price slightly
C) faces a perfectly elastic demand curve
D) faces a perfectly inelastic demand curve
Q4) How is a duopoly model with homogeneous products similar to the prisoners' dilemma game?
Q5) What does the term "undercutting" refer to?
Q6) Under what situations will a colluding firm cheat?
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Chapter 15: Trade-Offs Involving Time and Risk
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Sample Questions
Q1) Refer to the scenario above.The future value of the initial deposit after 1 year is
A) $300
B) $1,000
C) $1,300
D) $2,300
Q2) Refer to the scenario above.What is the probability of getting tails?
A) 25 percent
B) 50 percent
C) 75 percent
D) 100 percent
Q3) George is offered an investment option by his friend.He asks George for $6,900 and offers to repay $12,990 to him after a period of 10 years.George considers investing his money in his friend's project; however,the bank in his community offers an annual rate of interest of 9 percent on every deposit.Which do you think is the better investment option for George?
Q4) How does the idea of independent events help explain the gambler's fallacy in a roulette game?
Q5) Define utility.What are individual units of utility called?
Q6) Why do preference reversals occur?
Page 17
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Chapter 16: The Economics of Information
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Sample Questions
Q1) A textile manufacturing unit faces low productivity due to the workers shirking responsibilities.Which of the following is a possible solution that would increase the productivity of the workers?
A) The provision of a low real wage
B) The provision of a low nominal wage
C) The provision of minimum wages
D) The provision of efficiency wages
Q2) The Harvard experiment in the mid-1990s found that private health insurance was expensive because ________.
A) healthier people opted out of expensive healthcare coverage
B) poorer people wanted more free healthcare
C) healthier people demanded more extensive healthcare coverage
D) unhealthy people demanded less extensive healthcare coverage
Q3) Why do workers exert more effort when they are paid higher salaries?
Q4) Which of the following is a problem that arises in a health insurance market?
A) There are a large number of buyers of various insurance programs.
B) A fierce competition exists between insurance providers.
C) A disproportionate number of high-risk individuals tend to buy insurance.
D) Only risk-averse individuals buy insurance.
Q5) How can a buyer of car insurance help reduce the effects of adverse selection?
Page 18
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Chapter 17: Auctions and Bargaining
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Q1) Refer to the scenario above.What is the optimal strategy of each bidder?
A) Each bidder should bid up to his or her maximum willingness to pay for the necklace.
B) Each bidder should bid above his or her maximum willingness to pay for the necklace.
C) Each bidder should bid up to 9/10 of his or her valuation of the necklace.
D) Each bidder should bid up to 4/5 of his or her valuation of the necklace.
Q2) Refer to the scenario above.Alice will earn an expected surplus of ________ if she uses her optimal strategy to win the game.
A) $5,000
B) $6,000
C) $30,000
D) $16,000
Q3) Bidding in a Dutch auction continues until ________.
A) no bidder is willing to bid any higher
B) a bidder accepts the price announced by the auctioneer
C) a bidder bids above the market price of the good
D) a bidder bids below the starting bid
Q4) What are the different types of auctions based on how people place their bids?
Q5) What is the reason for the popularity of auctions among consumers?
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Chapter 18: Social Economics
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Sample Questions
Q1) William was asked to contribute money for a retirement home.He agreed to contribute only if his name appeared on the list of donors in the newsletter published by the home every year.This is an example of ________.
A) rationalism
B) liberalism
C) impure altruism
D) pure altruism
Q2) Economists call the influences of the decisions of others on our decisions
________.
A) peer effects
B) herd effects
C) externalities
D) cluster effects
Q3) Gary usually does not donate to charity.However,he donated money for an environmental awareness campaign launched by his friend.This is an example of
A) rationalism
B) pure altruism
C) impure altruism
D) liberalism
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