Foundations of Economics Pre-Test Questions
Course Introduction
Foundations of Economics introduces students to the basic principles and concepts that underpin economic theory and practice. Covering both microeconomics and macroeconomics, this course explores topics such as supply and demand, market structures, consumer behavior, production, and the role of government in the economy. Students will learn how economic agents make decisions, how markets function in allocating resources, and how economic outcomes are measured and evaluated. The course emphasizes real-world applications and provides a strong analytical framework for understanding economic issues and problem-solving in a global context.
Recommended Textbook Fundamentals of Economics 6th Edition by William Boyes
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18 Chapters
2262 Verified Questions
2262 Flashcards
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Chapter 1: Economics and the World Around You
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110 Flashcards
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Sample Questions
Q1) Scarcity is a result of an unfair distribution of income.
A)True
B)False
Answer: False
Q2) Point D in Figure 1.3 represents
A) economic growth.
B) an inefficient use of resources.
C) full employment.
D) a combination of consumer and capital products that may be obtainable sometime in the future but is impossible to produce now.
E) a combination of products that can be produced only if resources are fully and efficiently employed.
Answer: D
Q3) A positive (nonzero) price for a good means there is a surplus of that good.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Markets and the Market Process
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174 Flashcards
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Sample Questions
Q1) When economists say that the supply of a product has decreased, they mean that
A) a smaller quantity will be produced at any price.
B) the price is too high for equilibrium.
C) a greater quantity will be produced at any price.
D) the price is too low for equilibrium.
E) demand is too high for producers to make a profit.
Answer: A
Q2) The quantity supplied is
A) the amount sellers are willing and able to offer at a given price during a particular time period, everything else held constant.
B) the amount sellers are willing and able to offer for sale at all possible prices.
C) a set of price and quantity-supplied combinations, everything else held constant.
D) a list of prices and the corresponding quantities supplied.
E) a downward-sloping line that relates expenditures to different levels of output.
Answer: A
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4
Chapter 3: Applications of Demand and Supply
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Sample Questions
Q1) A change in consumer tastes is typically followed by a change in the willingness of consumers to buy a good or service.
A)True
B)False
Answer: True
Q2) Specialization according to comparative advantage can
A) generate more output than being self-sufficient
B) make economies be less dependent on others
C) is very costly and hard to implement
D) cause too much of one type of good to be produced
E) All of these
Answer: A
Q3) According to Figure 3.1, as represented by the shift from D<sub>1</sub> to D<sub>2</sub>,
A) the demand for low-fat food has risen.
B) the quantity of low-fat food supplied has declined.
C) eating low-fat food may have become popular.
D) consumer tastes for low-fat food may have risen.
E) consumer tastes for high-fat food may have fallen.
Answer: B
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Chapter 4: The Firm and the Consumer
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Sample Questions
Q1) Which of the following is true with respect to the price elasticity of demand?
A) The coefficient will change with changes in the units of measurement (for instance, going from pounds to ounces).
B) Elasticity of demand can be measured by the slope of the demand curve.
C) Elasticity measures the sensitivity of total expenditure to a change in price.
D) Elasticity will tend to be greater for a relatively expensive product than for a less expensive one.
E) A coefficient of -1 means that the percentage change in total expenditure is equivalent to the percentage change in price.
Q2) The demand for drugs by an addict is more elastic than demand for a potential addict.
A)True
B)False
Q3) If a manager is assessing how much more money a business will generate if the business is open additional hours, he or she is assessing marginal revenue.
A)True
B)False
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6
Chapter 5: Costs and Profit Maximization
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Sample Questions
Q1) When diminishing marginal returns occurs, the
A) total variable cost starts to rise.
B) total cost starts to rise.
C) average total cost starts to rise.
D) average variable cost starts to rise.
E) marginal cost starts to rise.
Q2) Refer to Table 5.2. Following which unit of output does the law of diminishing marginal returns cause per-unit costs to increase?
A) 1
B) 4
C) 6
D) 7
E) None; the law of diminishing marginal returns does not apply.
Q3) The opportunity cost of going to the movies is the price of entry into the movies.
A)True
B)False
Q4) Profit maximization always implies that total revenue must exceed total costs.
A)True
B)False
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Chapter 6: Competition
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Sample Questions
Q1) Under monopolistic competition, firms always earn positive economic profits.
A)True
B)False
Q2) Product differentiation
A) separates monopolistically competitive firms from perfectly competitive firms.
B) means the firm has an elastic demand curve.
C) allows the firm to raise its price without losing all of its customers.
D) is often accomplished through advertising or trivial product changes.
E) All of these choices
Q3) Free entry into a market will result in
A) profits in the long run.
B) zero economic profits in the long run.
C) uncontrolled competition requiring government intervention.
D) economic profits from interdependence.
E) none of these.
Q4) When increasing size leads to lower per unit costs, we say there are diseconomies of scale.
A)True
B)False
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Chapter 7: Business, Society, and the Government
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157 Verified Questions
157 Flashcards
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Sample Questions
Q1) One reason government intervenes in the market process is to enhance competition, often referred to as
A) "sticking to your guns."
B) "let it be."
C) "all is fair in love and war."
D) "don't shoot until you see the whites of their eyes."
E) "creating a level playing field."
Q2) Costs to society will equal costs to the individual when
A) there are harmful externalities in a market.
B) there is a misallocation of resources in a market.
C) some of the costs of producing a product are borne by third parties.
D) there are no externalities.
E) the firm faces an upward-sloping marginal-cost curve.
Q3) When it comes to life and death issues, most people like the outcome of the market allocation mechanism.
A)True
B)False
Q4) A result of competition is creative destruction.
A)True
B)False
Page 9
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Chapter 8: Government Intervention Versus Free Markets
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Sample Questions
Q1) At equilibrium, the yearly rate of increase in the price of a nonrenewable natural resource will equal the rate of return on investments of equivalent risk.
A)True
B)False
Q2) According to the text, changes to eliminate most of the problems the United States is experiencing in the market for health insurance would include all of the following except:
A) eliminating the third-party payer system.
B) replacing the employer-based system
C) eliminating the state health insurance regulations that prevent people from purchasing health plans available in other states
D) eliminating restrictions on doctors competing across state lines
E) instituting a centrally-planned system.
Q3) The highest-paid physician is likely to practice in the area of A) psychiatry.
B) cardiac surgery.
C) obstetrics and gynecology.
D) family medicine.
E) pediatrics.
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10
Chapter 9: An Overview of the National and International Economies
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Sample Questions
Q1) Assume that a company allocates $5,000 toward the purchase of new office furniture and computer equipment. In addition, $600 in idle cash is put in a savings account. The firm's total investment expenditures amount to $5,600.
A)True
B)False
Q2) Which of the following best characterizes a household?
A) A married couple holding joint title to their house
B) A child living with her parents
C) A college student leasing an apartment in her father's name
D) A worker living in his employer's home
E) A retired man living in his daughter's home
Q3) The complete circular flow model does not include
A) barter exchanges among consumers.
B) international trade.
C) government spending and taxes.
D) payments for net exports.
E) household spending.
Q4) Fiscal policy is best defined as the manipulation of the balance of payments.
A)True
B)False
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Chapter 10: Macroeconomic Measures
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Sample Questions
Q1) National income accounting generates useful and accurate measures of economic activity in most countries.
A)True
B)False
Q2) The demand for foreign currency in the United States is based on the demand for A) domestic goods and services.
B) domestic exports.
C) gold.
D) foreign goods and services.
E) U.S. dollars.
Q3) GDP is both a measure of total expenditures on final goods and services and a measure of the total income earned in the production of those goods and services.
A)True
B)False
Q4) When the price of each final product is simply multiplied by the quantity of that product produced and added over all final products, we obtain a measure of nominal GDP.
A)True B)False
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Chapter 11: Unemployment, Inflation, and Business Cycles
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134 Verified Questions
134 Flashcards
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Sample Questions
Q1) Potential real GDP minus actual real GDP
A) is the difference between the peak and the trough of a business cycle.
B) is the difference between real and nominal GDP.
C) measures the GDP gap.
D) measures the inflation rate.
E) measures the difference between the full employment rate and the natural rate of unemployment.
Q2) Which of the following people is cyclically unemployed?
A) "I quit my job last week and will start a new one next week."
B) "I lost my job because I was replaced by a robot."
C) "I was laid off at the Ford plant because car sales are down in the recession."
D) "I quit looking for work after unsuccessfully trying to find a job for two years."
E) "I quit my work at the farm after the harvest was over."
Q3) The effect of the underground economy is an unemployment rate that understates actual unemployment.
A)True
B)False
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13
Chapter 12: Macroeconomic Equilibrium: Aggregate
Demand and Supply
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Sample Questions
Q1) The long-run aggregate supply curve at the potential level of real GDP is a(n)
A) horizontal line.
B) upward-sloping curve.
C) downward-sloping curve.
D) vertical line.
E) combination of a horizontal line, an upward-sloping curve, and a vertical line.
Q2) The short-run aggregate supply curve shows that increases in production are accompanied by higher prices.
A)True
B)False
Q3) Consider the economy described in Figure 12.2. Assume that equilibrium is at point A. Given AD<sub>1</sub>, a rightward shift of the aggregate supply curve would cause
A) unemployment to rise.
B) the price level to rise.
C) the equilibrium income level to fall.
D) business production to fall.
E) real GDP to rise.
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Page 14
Chapter 13: Fiscal Policy
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Sample Questions
Q1) Which of the following is not a means to finance government spending?
A) Government subsidies
B) Personal income taxes
C) Money creation
D) Government debt
E) Capital gains taxes
Q2) Refer to Figure 13.1. If the economy is in equilibrium at point C, then, other things being equal, an increase in government spending will
A) decrease the price level.
B) lower real GDP and leave the price level unchanged.
C) lower real GDP and increase the price level.
D) increase the price level and leave real GDP unchanged.
E) have no effect on real GDP or the price level.
Q3) Value-added taxes and excise taxes constitute a direct tax.
A)True
B)False
Q4) The United States is a world leader in the creation of a value-added tax.
A)True
B)False
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Chapter 14: Money and Banking
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Sample Questions
Q1) Refer to Table 14.2. How many new loans can Arizona Savings Bank make?
A) $10,000,000
B) $3,000,000
C) $7,000,000
D) $1,000,000
E) $0
Q2) Sales contracts between developed countries usually are written (invoiced) in
A) the national currency of the exporter.
B) the national currency of the importer.
C) international reserve currency.
D) U.S. dollars
E) Euro.
Q3) If the reserve requirement is 25 percent, what is the deposit expansion multiplier?
A) 100
B) 25
C) 10
D) 4
E) 2
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Chapter 15: Monetary Policy
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Sample Questions
Q1) Federal Reserve policy changes the A) money demand curve.
B) transactions demand for money.
C) precautionary demand for money.
D) money supply curve.
E) aggregate demand curve.
Q2) Small banks hold a greater percentage of deposits in reserve than large banks do.
A)True
B)False
Q3) During the Christmas holiday season, the Fed increases the supply of currency to
A) ensure that checks are cleared quickly.
B) meet the demand for cash withdrawals from banks.
C) stabilize the value of the dollar against other currencies.
D) decrease the value of bonds.
E) control inflation.
Q4) The Fed is much less centralized than its creators intended. A)True
B)False
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Page 17
Chapter 16: Macroeconomic Policy, Business Cycles, and Growth
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Sample Questions
Q1) Adaptive expectations and rational expectations differ only in the fact that adaptive expectations suggest agents are irrational.
A)True
B)False
Q2) A reduction in inflation constitutes disinflation.
A)True
B)False
Q3) According to the theory of rational expectations, an expected increase in government spending would cause the aggregate supply curve
A) to shift to the left at the same time that the aggregate demand curve shifts to the right.
B) to shift to the left some time after the aggregate demand curve has shifted to the right.
C) to shift to the right before the aggregate demand curve shifts to the right.
D) not to shift at all.
E) to shift to the right after the aggregate demand curve shifts.
Q4) When economic conditions change, all firms can adjust wages to those conditions.
A)True
B)False
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Chapter 17: Issues in International Trade and Finance
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Sample Questions
Q1) With regard to those goods that can be produced most efficiently with modern technology, the countries with a comparative advantage will be those with the
A) largest stock of natural resources.
B) most favorable trade policies.
C) largest labor force.
D) most advanced technology.
E) strictest adherence to "tried and true" manufacturing processes.
Q2) Many developing countries impose trade tariffs because that is their best way to collect taxes.
A)True
B)False
Q3) A decreasing-cost industry is an industry in which the costs of producing
A) total output fall as more output is produced.
B) total output rise as more output is produced.
C) a unit of output rise as more output is produced.
D) for export markets decrease as imports offset shipping costs.
E) a unit of output falls as more output is produced.
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Chapter 18: Globalization
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Sample Questions
Q1) Massive demonstrations against globalization have occurred at WTO, IMF, and World Bank meetings.
A)True
B)False
Q2) Countries not engaged in globalization tend to be mired in low-growth poverty.
A)True
B)False
Q3) Today, world trade as a fraction of world GDP is about the same as it was
A) at the end of the 19<sup>th</sup> century
B) at the beginning of World War I
C) at the end of World War I
D) at the beginning of World War II
E) at the end of World War II
Q4) For countries with large domestic markets, international trade is usually
A) not important.
B) more important than ever.
C) a relatively small fraction of GDP.
D) limited to technical goods.
E) controlled by domestic market policies.
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