Foundations of Economics Pre-Test Questions
Course Introduction
Foundations of Economics introduces students to the fundamental concepts and principles that drive economic decision-making and shape global markets. The course covers key topics such as scarcity, opportunity cost, supply and demand, market equilibrium, and the roles of individuals and institutions in economic systems. By exploring both microeconomic and macroeconomic perspectives, students gain a comprehensive understanding of how resources are allocated, how prices are determined, and how economic policies can impact societies. Through real-world examples and practical applications, this course equips learners with essential analytical tools for interpreting economic issues and making informed decisions.
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Foundations of Microeconomics 7th Edition by Robin Bade
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Chapter 1: Getting Started
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Sample Questions
Q1) What typically happens to benefits as the amount of an activity is increased?
A) Total benefits remain constant.
B) Marginal benefit increases.
C) Marginal benefit remains constant.
D) Marginal benefit decreases.
E) The marginal benefit changes only if the marginal cost changes.
Answer: D
Q2) What does the slope of the line shown in the above figure equal?
Answer: The slope equals the change in variable on the y-axis divided by the change in the variable on the x-axis,or (150 - 300)/(600 - 800)= 0.75.
Q3) In the figure above,what can you deduce about the slope of the curve?
Answer: The slope is positive and increasing in size as we move rightward along the curve.
Q4) What is the slope of the line in the graph?
A) +1/2
B) -1/2
C) + 2
D) -2
E) -3/4
Answer: A
Page 3
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Chapter 2: The USand Global Economies
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Sample Questions
Q1) The percentage of the world's population that lives in the advanced economies is A) more than 71 percent.
B) between 51 percent and 70 percent.
C) between 31 percent and 50 percent.
D) between 20 percent and 30 percent.
E) less than 20 percent.
Answer: E
Q2) The circular flow model shows the
A) distribution of income and consumption goods across income levels.
B) combinations of the factors of production needed to produce goods and services.
C) flow of expenditure and incomes that arise from the households', firms', and governments' decisions.
D) flow of natural resources from firms to the private market to government and back to firms.
E) distribution of income to the different factors of production.
Answer: C
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Chapter 3: The Economic Problem
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Sample Questions
Q1) The above figure shows the production possibility frontier for a country.What is the opportunity cost to move from point D to point E?
A) 6 thousand bottles of wine
B) 15 thousand bottles of wine
C) 6 tons of rice
D) 9 thousand bottles of wine
E) Nothing, it is a free lunch.
Answer: D
Q2) The figure above shows the production possibilities frontiers for the United Kingdom and France.If the United Kingdom and France specialize and engage in trade,the United Kingdom will export ________ and France will export ________.
A) wheat; wheat
B) wheat; fish
C) fish; wheat
D) fish; fish
E) nothing; nothing
Answer: C
Q3) How is economic growth shown in a production possibilities frontier graph?
Answer: Economic growth is illustrated as an outward shift of the PPF.
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Page 5
Chapter 4: Demand and Supply
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Sample Questions
Q1) The above figures show the market for HD televisions.If the price of the LCD screens used to produce these televisions falls,which figure shows the effect of this change in price?
A) Figure A
B) Figure B
C) Figure C
D) Figure D
E) None of the figures represent this change.
Q2) It is expected that the price of a bushel of wheat will increase in one month.This belief will result in
A) an increase in the current supply of wheat.
B) a decrease in the current supply of wheat.
C) a decrease in the future supply of wheat.
D) no change in the current or future supply of wheat.
E) an increase in the current quantity supplied of wheat.
Q3) Suppose Ramen noodles,an inexpensive but a quite tasty dish,are an inferior good.Why do grocery stores in college towns,that is,towns with a large fraction of college students,stock a lot of Ramen noodles?
Q4) What leads to a decrease in the quantity demanded of a good or service?
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Chapter 5: Elasticities of Demand and Supply
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Sample Questions
Q1) Suppose the quantity supplied of computers increases from 2 million to 4 million units as the price of a computer increases from $600 to $700.What does the price elasticity of supply equal?
Q2) The demand curve shown in the figure above is ________ over the price range from $0.90 to $1.10 per pack.
A) perfectly elastic
B) perfectly inelastic
C) unit elastic
D) elastic but not perfectly elastic
E) inelastic but not perfectly inelastic
Q3) If the percentage change in quantity demanded is greater than the percentage change in price,can you determine if the demand is elastic,unit elastic,or inelastic? Explain your answer.
Q4) How are the cross elasticity of demand and income elasticity of demand similar and how are they different from the price elasticity of demand?
Q5) The income elasticity of demand for movies in the United States is 3.41.If people's incomes decrease by 1 percent,what is the decrease in the quantity of movies demanded?
Q6) What effect does a price hike have on the total revenue of the producers?
Page 7
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Chapter 6: Efficiency and Fairness of Markets
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Sample Questions
Q1) In the figure above,how much is the consumer who buys the 5,000th pizza willing to pay for that pizza?
A) $15
B) $10
C) $12
D) $22.50
E) $5
Q2) To achieve allocative efficiency,one must compare the
A) marginal cost of a good to its opportunity cost.
B) opportunity cost to the attainable point on the production possibilities frontier.
C) marginal benefit of a good to its marginal cost.
D) marginal cost to the production efficiency cost.
E) point of production efficiency to the point of allocative efficiency.
Q3) If marginal benefit is equal to marginal cost,then the
A) producer surplus is equal to the consumer surplus.
B) sum of producer surplus and consumer surplus is as large as possible.
C) sum of producer surplus and consumer surplus equals zero.
D) market has squeezed out total surplus so that it equals zero.
E) deadweight loss is more than zero but less than its maximum.
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Page 8
Chapter 7: Government Actions in Markets
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Sample Questions
Q1) Suppose that producers are richer than consumers.Is a price support program fair? Explain your answer.
Q2) The above figure shows a labor market with minimum wage equal to $16.In this figure,what area equals the deadweight loss?
A) area A
B) area B
C) area C
D) area D
E) area E
Q3) In the 1980s,one of the most common sights in the socialist countries,such as the former Soviet Union and North Korea,were long lines for bread,sugar,and other necessities.These countries had price ceilings on these necessities.Some of the socialist nations,such as the former Soviet Union,have moved to a market economy by lifting the price ceilings,while others,such as North Korea,have retained their price ceilings.What prediction do you make about the presence (or absence)of long lines today in the former Soviet Union and North Korea? Explain your answer.
Q4) Explain why in cities such as New York City that have rent ceiling laws,so many people who work in the city commute from outside the city.
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Chapter 8: Taxes
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Sample Questions
Q1) Based on the figure above,after the tax is imposed,the government collects tax revenue of ________ a week.
A) $20,000
B) $10,000
C) $50,000
D) $60,000
E) $40,000
Q2) Which of the following is true?
i.If supply is perfectly inelastic,the tax creates no deadweight loss.
ii.The elasticities of supply and demand,not Congress,determine who pays the income tax.
iii.A tax is progressive if the average tax rate falls with income.
A) only i
B) only ii
C) only iii
D) ii and iii
E) i and ii
Q3) The figure above shows the market for a life-saving drug.Suppose the government imposes a $150 tax per dose on the drug.Show and describe the impact on the market.Who pays this tax?
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Chapter 9: Global Markets in Action
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Sample Questions
Q1) After NAFTA was signed,the United States allowed more tomatoes to be imported from Mexico.What happened to the price of tomatoes in the United States when the United States allowed more tomatoes to be imported?
Q2) The above figure shows the U.S.market for chocolate.With international trade,the gain in total surplus is equal to
A) area B.
B) area A + area B + area C + area D.
C) area B + area C + area D + area E.
D) area C + area D.
E) area B + area C + area D.
Q3) A tariff makes the total economy
A) better off because it increases the domestic production of the good.
B) better off because it decreases the deadweight loss from international trade.
C) worse off because it creates a deadweight loss.
D) worse off because it creates revenue for the government.
E) worse off because it decreases both domestic consumer surplus and domestic producer surplus.
Q4) How do imports affect buyers' consumer surplus?
Q5) What is "rent seeking"? How does it apply to restricting imports?
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Chapter 10: Externalities
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Sample Questions
Q1) If a government action is designed to achieve efficiency,then the action must have the market produce the amount of output so that the
A) marginal private cost equals the marginal private benefit.
B) marginal social cost equals the marginal social benefit.
C) marginal external cost equals the marginal external benefit.
D) marginal private cost equals the tax.
E) marginal social benefit exceeds the marginal social cost by as much as possible.
Q2) The figure above illustrates the marginal private cost and the marginal social cost to the city of Seattle for each rock concert that is offered.Suppose the marginal private cost of the 5th concert is $10,000.Then,for the 5th concert,the
A) marginal external cost equals $30,000.
B) marginal social cost equals $30,000.
C) marginal external cost equals the marginal private cost.
D) marginal external cost equals $40,000.
E) marginal external cost equals $10,000.
Q3) The marginal social cost of burning garbage in Houston is the sum of the marginal private cost and the marginal external cost." Is this assertion correct or incorrect?
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Chapter 11: Public Goods and Common Resources
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Sample Questions
Q1) When Jean makes a decision <u> NOT </u> to obtain information about an issue that doesn't have a perceptible effect on her,Jean's choice is referred to as
A) rational exuberance.
B) irrational exuberance.
C) irrational intelligence.
D) rational ignorance.
E) the principle of minimum ignorance.
Q2) Suppose the government is producing a public good.If the marginal benefit of the last unit of a public good produced is greater than the marginal cost of that unit,to achieve the efficient amount of production,what should be done?
A) The government should produce more units.
B) The government should cease production.
C) Private firms should take over the production and sale of the good.
D) Nothing, because the government is already producing the efficient quantity of the public good.
E) The government should produce fewer units.
Q3) What are the differences between public goods and private goods?
Q4) What is an individual transferable quota (ITQ)?
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Chapter 12: Markets with Private Information
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Sample Questions
Q1) Moral hazard in the market for health-care services leads
A) patients to adopt healthy life styles.
B) to a separating equilibrium.
C) to all people buying health insurance.
D) to healthy people not buying health insurance.
E) to providers overtreating patients..
Q2) Used car buyers believe a car is good quality when the seller signals the car's quality by offering a warranty because
A) car sellers would never lie.
B) car buyers are gullible.
C) signals lead to efficient pooling equilibriums.
D) the signal cannot be false.
E) a false signal can be costly to the seller.
Q3) How can a warranty at the seller's expense signal that a product is high quality?
Q4) What is the private information in the market for health-care insurance? What is the private information in the market for health care?
Q5) What role does moral hazard play in the market for health care?
Q6) Explain the concept of adverse selection.Give an example.
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Chapter 13: Consumer Choice and Demand
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Sample Questions
Q1) The above table shows Homer's total utility from boxes of doughnuts.As Homer's consumption of doughnuts increases,
A) both his total utility and his marginal utility increase.
B) his total utility increases, but his marginal utility decreases.
C) his total utility decreases, but his marginal utility increases.
D) both his total utility and his marginal utility decrease.
E) None of the above answers is correct.
Q2) A budget line will shift outward and not change its slope if
A) there is an increase in the consumer's budget.
B) the consumer's preferences change.
C) the price of one good changes.
D) the price of both goods increase by the same percentage.
E) None of the above shift the budget line outward.
Q3) What does the slope of the budget line equal?
Q4) Explain why total utility is maximized when the marginal utility per dollar from a good is equal across goods.
Q5) Why do consumers prefer higher indifference curves?
Q6) If your budget increases,what is the effect on your budget line?
Q7) How are total utility and marginal utility related?
Q8) Explain the paradox of value.
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Chapter 14: Production and Cost
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Sample Questions
Q1) For a business,opportunity cost measures
A) only the cost of labor and materials.
B) only the implicit costs of the business.
C) the cost of all the factors of production the firm employs.
D) only the explicit costs the firm must pay.
E) all of the firm's costs including its normal profit and its economic profit.
Q2) An insurance agent rents a building and has a three-year lease.An increase in the rent for the building increases the agent's
A) total cost and average variable cost.
B) total variable cost and average variable cost.
C) total fixed cost and total variable cost.
D) total fixed cost and average fixed cost.
E) total variable cost and total cost.
Q3) Explain how new technologies,which increase productivity,affect the average variable cost,average total cost,and marginal cost curves.
Q4) "In the short run,even when output is zero,the firm still has some variable costs it must pay." Is the statement correct or incorrect? Briefly explain your answer.
Q5) Which average cost curves are U-shaped?
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Chapter 15: Perfect Competition
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Sample Questions
Q1) If a firm in a perfectly competitive market faces an equilibrium price of $5,its marginal revenue
A) will be greater than $5.
B) will be less than $5.
C) maybe either greater or less than $5.
D) will also be $5.
E) will be any amount but $5.
Q2) Based on the figure above,what is the price of a can?
A) $0
B) $8.00 per can
C) $5.10 per can
D) None of the above prices is correct.
E) More information is needed to determine the price of a can.
Q3) Based on the figure above,what is the price of a can?
A) $0.
B) $3.00 per can
C) $5.14 per can
D) None of the above prices is correct.
E) More information is needed to determine the price of a can.
Q4) What four conditions define a perfectly competitive market?
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Chapter 16: Monopoly
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Sample Questions
Q1) The U.S.Postal Service's monopoly on first-class mail service is the result of A) a natural monopoly.
B) a patent.
C) a public franchise.
D) a government license.
E) an ownership barrier to entry.
Q2) The figure above shows the demand,marginal revenue,and marginal cost curves for Paul's Parrot pillows,a single-price monopoly producer of pillows stuffed with parrot feathers.When Paul maximizes his profit,his total economic profit is
A) $60.
B) $405.
C) $0.
D) $210,000.
E) unknown because more information is needed to determine Paul's profit.
Q3) Rate of return regulation is designed to allow a natural monopoly to A) make an economic profit.
B) make zero economic profit.
C) underestimate its average cost.
D) compete with any firm entering the market.
E) make zero normal profit.
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Chapter 17: Monopolistic Competition
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Sample Questions
Q1) If a firm is maximizing its profit and producing less than the output at which its average total cost is minimized,then that firm
A) must be suffering an economic loss.
B) must be earning an economic profit.
C) has excess capacity.
D) is producing at its capacity output.
E) must be earning a normal profit.
Q2) Suppose there are 7 firms in the candy industry with the market shares shown above.What is the HHI for the industry?
A) 1850
B) 2000
C) 6400
D) 100
E) 20
Q3) What type of profit can a firm in monopolistic competition make in the long run? Explain your answer.
Q4) List four characteristics of monopolistic competition.
Q5) What is the difference between a four-firm concentration ratio and a Herfindahl-Hirschman Index?
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Chapter 18: Oligopoly
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Sample Questions
Q1) Which of the following is an example of a territorial confinement?
A) preventing a buyer from reselling a product outside a specific area
B) selling one product only if another product is purchased
C) forcing the purchase of all necessities from a single firm
D) prohibiting a seller from selling a competing item
E) selling different units of a good at different prices to the same customer
Q2) The figure above shows the market demand curve and the ATC curve for a firm.If all firms in the market have the same ATC curve,the lowest price at which a firm could stay in business in the long run is ________ per unit and the quantity demanded in the market at that price is ________ units per hour.
A) $20; 4,000
B) $10; 8,000
C) $10; 4,000
D) $20; 2,000
E) $20; 8,000
Q3) "A Nash equilibrium occurs when both parties to a game end up worse off as a result of the decisions that are made." Is the previous definition of a Nash equilibrium correct or incorrect?
Q4) What is the dilemma faced by firms in oligopoly?
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Chapter 19: Markets for Factors of Production
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Sample Questions
Q1) The figure above shows the market supply of labor curve.Which of the following might be the reason the labor supply curve shifted from S to S ?
A) an increase in technology
B) a decrease in technology
C) an increase in the number of women in the work force
D) a decrease in the adult population
E) an increase in the wage rate
Q2) A producer's supply of a nonrenewable natural resource is
A) always decreasing because the resource is always being used.
B) perfectly inelastic.
C) perfectly elastic.
D) not relevant because nonrenewable resources are used only once.
E) determined by the value of the resource's marginal product.
Q3) A firm's demand for labor curve is also
A) its value of marginal product of labor curve.
B) the demand curve for the good it produces.
C) the supply of labor curve.
D) its marginal cost curve.
E) the supply curve for the good it produces.
Q4) Why is the demand for labor a "derived demand"?
Page 21
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Chapter 20: Economic Inequality
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Sample Questions
Q1) As a tool that is used to measure inequality in the distribution of income,the Lorenz curve graphs
A) the cumulative percentage of money income against the cumulative percentage of households.
B) the percentage of total money income received by each given percentage of households.
C) the mean income, median income, and mode income against the percentage of households.
D) the mean money income received by households over time.
E) the cumulative percentage of money income against the mean and median money income.
Q2) What percent of income is earned by the richest 60 percent of the population?
A) 25 percent
B) 30 percent
C) 55 percent
D) 85 percent
E) More information is needed to answer the question.
Q3) What are the three ways that the government redistributes income in the United States? Briefly discuss each.
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