Essentials of Economics
Exam Questions
Course Introduction
Essentials of Economics introduces students to the fundamental principles and concepts that drive economic decision-making at individual, business, and government levels. The course covers topics such as supply and demand, market structures, the role of incentives, resource allocation, and the impact of government policies on the economy. Students will also explore macroeconomic indicators like GDP, inflation, and unemployment, gaining an understanding of how economies grow and fluctuate. Through real-world examples and analytical tools, this course equips learners with the foundational knowledge needed to interpret economic events and make informed decisions in both personal and professional contexts.
Recommended Textbook
Survey of Economics Principles Applications and Tools 7th Edition by Arthur OSullivan
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18 Chapters
3640 Verified Questions
3640 Flashcards
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Chapter 1: Introduction: What Is Economics
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Sample Questions
Q1) In the final two decades of the twentieth century, average per capita global income
A) increased by approximately 35 percent.
B) remained relatively unchanged.
C) decreased by approximately 6 percent.
D) increased by more than 75 percent.
Answer: A
Q2) One example of a microeconomic question is, "How will prices in the clothing industry change if the government bans imports from China?"
A)True
B)False
Answer: True
Q3) Refer to Figure 1A.1. The slope of the line between the points where income equals 50 and income equals 200 is
A) 0.2.
B) 5.
C) 10.
D) 50.
Answer: B
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Chapter 2: The Key Principles of Economics
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Sample Questions
Q1) If an economy is fully utilizing its resources, it can produce more of one product only if it
A) doubles manufacturing of the product.
B) produces less of another product.
C) adds more people to the labor force.
D) reduces the prices of the most expensive products.
Answer: B
Q2) Explain the real-nominal principle.
Answer: The real-nominal principle explains that what matters to people is the real value of money or income-its purchasing power-and not the face value of money or income.
Q3) If real salaries decrease but nominal salaries do not, this means that A) the purchasing power of money has increased.
B) prices have not changed.
C) prices have risen.
D) prices have fallen.
Answer: C
Q4) What is a marginal benefit?
Answer: A marginal benefit is the additional benefit resulting from a small increase in the production of a good.
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Chapter 3: Demand, Supply, and Market Equilibrium
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Sample Questions
Q1) Olives are used to produce olive oil. If the price of olives increases
A) the demand for olive oil increases.
B) the demand for olive oil decreases.
C) the supply of olive oil increases.
D) the supply of olive oil decreases.
Answer: D
Q2) Explain what will happen to the equilibrium price and quantity of satellite TV service if the wages of the workers who provide the satellite TV service increase while at the same time the price of cable television service (a substitute for satellite TV service) also increases.
Answer: The wage increases will cause supply to decrease and increases in the price of cable television service will cause demand for satellite TV service to increase. Equilibrium price will definitely increase. Equilibrium quantity will depend on whether the decrease in supply or the increase in demand is larger. If the supply decrease is larger than the demand increase, equilibrium quantity will decrease. If the demand increase is larger than the supply decrease, equilibrium quantity will increase.
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Chapter 4: Elasticity: A Measure of Responsiveness
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Sample Questions
Q1) Suppose that in a month the price of pizza increases from $4 to $5. At the same time, the quantity of pizzas demanded decreases from 200 to 190. The price elasticity of demand for pizza (calculated using the midpoint formula) is
A) zero.
B) inelastic.
C) unit elastic.
D) elastic.
Q2) Suppose that there is only one seller in the computer industry. If the demand curve that the only seller in the industry faces is a straight-line, downward sloping curve, at which point would the seller's total revenue be maximized?
A) at the highest point on the demand curve, where price is the highest
B) at a point high on the demand curve, where elasticity is elastic
C) at the midpoint of the demand curve, where elasticity is unitary
D) at a point low on the demand curve, but not at the very bottom
Q3) Why do you think that the demand for coffee is less elastic than the demand for restaurant meals?
Q4) If total revenue is unrelated to price, then demand is unitary elastic.
A)True
B)False
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Chapter 5: Production Technology and Cost
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Sample Questions
Q1) Which of the following statements is INCORRECT?
A) A firm's total economic cost is at least as large as the firm's total accounting cost.
B) A firm's total economic cost includes both explicit cost and implicit cost of the firm.
C) A firm's implicit cost is the opportunity cost of non-purchased inputs.
D) A firm's total accounting cost is at least as large as the firm's implicit cost.
Q2) If the marginal cost of producing the next unit of output is less than the average total cost, then
A) the average total cost curve is increasing.
B) the marginal cost curve is at its minimum.
C) the average total cost curve is decreasing.
D) the average total cost curve is at its minimum.
Q3) What is the explicit and implicit cost?
Q4) Refer to Table 5.5. The total fixed cost of producing two units is
A) $0.
B) $8.
C) $11.
D) $15.
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Chapter 6: Perfect Competition
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Sample Questions
Q1) According to the Application, as the quantity of blueberries demanded increases, prices ________ in the short run and ________ as supply catches up with demand.
A) rise; stabilize
B) fall; stabilize
C) rise; fall
D) fall; rise
Q2) If firms make a profit in the short run, firms will exit the market in the long run.
A)True
B)False
Q3) You sell your good in a perfectly competitive market where the market price is $7.00. When you sell 100 units your total revenue is $700. When you sell 101 units
A) total revenue increases by less than $7.
B) total revenue increases by exactly $7.
C) total revenue increases by more than $7.
D) total revenue may increase or decrease.
Q4) What is an increasing cost industry?
Q5) What are the characteristics of monopolistic competition?
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Chapter 7: Monopoly and Price Discrimination
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Sample Questions
Q1) Figure 7.2 shows a monopolist's demand curve. The marginal revenue from selling the fourth unit is
A) $8.
B) $6.
C) $4.
D) $2.
Q2) A market served by only one firm is called a(n) A) perfectly competitive market.
B) monopoly.
C) oligopoly.
D) Any of the above could be correct.
Q3) Recall the Application. When a patent ends and generic drugs are introduced there is downward pressure on price. Therefore, the makers of the brand name drug will A) raise their price.
B) abandon the product.
C) claim the generic is not as good as the patent version of the drug.
D) price discriminate.
Q4) Why do some markets have more firms than others?
Q5) What is a network externality?
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Chapter 8: Market Entry, Monopolistic Competition, and Oligopoly
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Sample Questions
Q1) The monopolistically competitive firm in Figure 8.5 will produce where
A) MC = MR.
B) MC = D.
C) MR = D.
D) all of the above.
Q2) Under the conditions of monopolistic competition, if a firm is earning economic profits in the short run
A) prices are higher in the long run than in the short run.
B) firm profits are higher in the long run than in the short run.
C) average costs of production are higher in the long run than in the short run.
D) long-run economic profits are positive.
Q3) Which of the following is an example of a tie-in sale?
A) In order to buy Microsoft Windows, you must also purchase Internet Explorer.
B) Bus rides are cheaper for senior citizens than for other people.
C) Two companies merge to form one company.
D) Prices are set just low enough to prevent other firms from entering the market.
Q4) What are the effects on a market when there is entry?
Q5) Explain the new guidelines used by the Department of Justice and the Federal Trade Commission for evaluating proposed mergers.
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Chapter 9: Imperfect Information, External Benefits, and External Costs
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Sample Questions
Q1) The free-rider problem is larger for private goods than it is for public goods. A)True
B)False
Q2) Suppose buyers in the used car market are willing to pay $4,000 for a plum (high-quality) used car and $2,000 for a lemon (low-quality) used car. If buyers believe that 50% of the used cars on the market are lemons (low quality), what would they be willing to pay for a used car?
A) $2000
B) $3000
C) $3500
D) $4000
Q3) Command-and-control policies lead to higher prices for consumers than pollution taxes do.
A)True B)False
Q4) Who is more likely to offer a money-back guarantee: a seller of a lemon or a seller of a plum? Why?
Q5) Warranties reduce information asymmetry. A)True B)False
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Chapter 10: The Labor Market and the Distribution of Income
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Sample Questions
Q1) Figure 10.2 depicts a firm's marginal revenue product curve. If the wage rate is $15, how many workers will the firm demand?
A) four workers
B) five workers
C) six workers
D) seven workers
Q2) Given their skills and education, those who work the night shift earn more than those who work in the daytime. This is partly because
A) working the night shift is relatively more desirable.
B) a relatively small number of people are willing to work the night shift.
C) working the night shift is safer.
D) few people have the required skills for the night shift.
Q3) The unionization rate of private sector workers is about A) 8.2%.
B) 12.5%.
C) 35.5%.
D) 37.7%.
Q4) Explain why featherbedding may or may not increase the demand for labor.
Q5) Why do college graduates earn higher wages than non-graduates?
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Chapter 11: Measuring a Nations Production and Income
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Sample Questions
Q1) GDP is supposed to measure the goods ________ the United States.
A) purchased in
B) produced in C) imported to D) exported to
Q2) If in the third quarter of 2016 total investment spending was $4,768 billion and depreciation was $3,292 billion, then net investment was equal to
A) $1,476 billion.
B) $3,292 billion.
C) $4,768 billion.
D) $8,060 billion.
Q3) The majority of spending in the category of government purchases comes from A) the federal government.
B) state and local governments.
C) transfer payments.
D) military spending.
Q4) Nominal GDP measures the value of goods and services using current-year prices.
A)True
B)False
Q5) List and describe the four components of GDP.
Page 13
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Chapter 12: Unemployment and Inflation
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Sample Questions
Q1) The natural rate of unemployment
A) can vary over time and will differ across countries.
B) can vary over time but tends to be the same across countries.
C) tends to remain constant over time but at different levels for different countries. D) tends to remain constant over time and is the same across countries.
Q2) In June 2012, the U.S. labor force consisted of 142,415,000 employed and 12,749,000 unemployed. The U.S. unemployment rate for June 2012 was about
A) 7.4 percent.
B) 8.2 percent.
C) 9.0 percent.
D) 11.2 percent.
Q3) Unemployment insurance tends to lead to the unemployed worker spending less time unemployed.
A)True
B)False
Q4) What is structural unemployment?
Q5) Why do both the chain-weighted index for GDP and the CPI overstate actual price increases?
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Chapter 13: Why Do Economies Grow
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Sample Questions
Q1) According to this Application, the incentives described were ________ because they ________ the rate of immunizations.
A) effective; increased
B) effective; decreased
C) not effective; increased
D) not effective; decreased
Q2) In making accurate comparisons of GDP across countries, it is important to take differences in ________ into account.
A) population size
B) the average age of the population
C) family size
D) all of the above
Q3) In a simple economy without government or foreign trade, any income not consumed is called
A) investment.
B) net investment.
C) saving.
D) depreciation.
Q4) Explain the economic concept of convergence.
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Chapter 14: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) Name a supply shock that has affected the U.S. economy on more than one occasion.
Q2) Output in the long run is determined by which of the two following factors when an economy operates at full employment?
A) capital and supply
B) imports and exports
C) capital and labor
D) the "real" GDP and purchases
Q3) According to this Application, the prices which were tracked in the retail catalogs exemplified the macroeconomic concept of the short run, a period of time in which
A) price changes are significant because the aggregate supply curve is vertical.
B) prices never change because the aggregate demand curve is vertical.
C) prices change frequently because of changes in aggregate supply.
D) prices don't change very much, implying that the aggregate supply curve is relatively flat.
Q4) What three effects can alter the aggregate demand curve?
Q5) What are the four components of aggregate demand?
Q6) Explain why the short-run aggregate supply curve is a relatively flat, horizontal line.
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Chapter 15: Fiscal Policy
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Sample Questions
Q1) Recall the Application. The idea regarding the relationship between tax rates and tax revenues proposed by Yu Juo is very similar to the idea proposed by economist
A) Adam Smith.
B) Arthur Laffer.
C) David Ricardo.
D) Ben Bernanke.
Q2) Stabilization policies are policies designed to
A) keep output constant.
B) keep prices constant.
C) move the economy closer to potential output.
D) increase trade.
Q3) Even when the Obama administration succeeds with its effort to gain Congressional approval for its stimulus proposals, it will still take time for these policies to actually work. The time it takes for these policies to work is known as
A) inside lags.
B) outside lags.
C) automatic stabilization.
D) crowding out.
Q4) What are the two basic reasons inside lags occur?
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Chapter 16: Money and the Banking System
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Sample Questions
Q1) Which of the following is NOT a subgroup of the Federal Reserve System?
A) the Federal Reserve Banks
B) the Federal Funds Market
C) the Board of Governors
D) the Federal Open Market Committee
Q2) Fiat money refers to a monetary system in which gold backs up paper money.
A)True
B)False
Q3) Logan finds $10 in his jacket pocket and deposits it into a bank. As a result of this single transaction, M1 has
A) increased by $10.
B) increased by more than $10.
C) increased by less than $10.
D) not changed.
Q4) Credit cards are regularly used in economic exchanges, so credit card balances are included in the definition of money.
A)True
B)False
Q5) What is a commodity money system?
Q6) What are the three properties of money?
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Chapter 17: Monetary Policy and Inflation
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Sample Questions
Q1) A decrease in the discount rate
A) reduces the cost of borrowing from the Fed.
B) signals the Fed's desire to decrease the money supply.
C) signals the Fed's desire to reduce lending to commercial banks.
D) increases the cost of reserves borrowed from the Fed.
Q2) A decrease in the price level in the economy leads to A) a leftward shift in the demand for money curve.
B) a rightward shift in the demand for money curve.
C) a leftward movement along the demand for money curve.
D) a rightward movement along the demand for money curve.
Q3) Recall the Application. The rise in commodity prices corresponded with ________ in interest rates, and this change in interest rates would result in bond prices ________. A) an increase; falling B) an increase; rising C) a decrease; falling D) a decrease; rising
Q4) Describe the channels through which open market purchases by the Fed affects output in an open economy.
Q5) What three factors affect the demand for money?
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Chapter 18: International Trade and Finance
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Sample Questions
Q1) Based on the data in Table 18.1
A) Jesse should specialize in painting kites and trade for snowboards.
B) Jesse should specialize in painting snowboards and trade for kites.
C) April should specialize in both goods.
D) Jesse should specialize in both goods.
Q2) Refer to Figure 18.1. With an import ban, what is the equilibrium price of gloves in Duckland?
A) $0
B) $8
C) $9
D) $12
Q3) Under the Bretton Woods system
A) all nations fixed the value of their currencies against the dollar.
B) the United States was the only nation with a fixed exchange rate.
C) the United States was the only nation with floating exchange rates.
D) all nations allowed the value of their currencies to be determined by the free market.
Q4) What are GATT and the WTO?
Q5) What is an import quota?
Q6) Distinguish between fixed and flexible exchange rate systems.
Page 20
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