Fundamentals of Economics Final Test Solutions
Course Introduction
Fundamentals of Economics introduces students to the basic principles underpinning the study of economics, including concepts such as scarcity, opportunity cost, supply and demand, and the roles of markets and governments. The course covers both microeconomics, which examines the behavior of individuals and firms, and macroeconomics, which explores broader issues like national income, unemployment, inflation, and economic growth. Through real-world examples and foundational theories, students will develop critical thinking skills and an understanding of how economic decisions impact society at both the individual and collective levels.
Recommended Textbook
ECON Micro 2 2nd Edition by William A.
McEachern
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3947 Verified Questions
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Chapter 1: The Art and Science of Economic Analysis
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148 Flashcards
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Sample Questions
Q1) Profit is the payment received by resource owners for the use of their capital.
A)True
B)False
Answer: False
Q2) The assumption that individuals act rationally implies that A) people think only of themselves and disregard the well-being of others B) people undertake all those activities that yield benefits to themselves C) people only consider the costs of an activity to decide whether it is worthwhile
D) the greater the cost of a charitable deed to a benefactor,the more likely he or she is to perform that deed
E) people implicitly calculate the costs and benefits of an activity to decide if it is worthwhile
Answer: E
Q3) As a scientist,an economist's main professional objective is to become wealthy.
A)True
B)False
Answer: False
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Chapter 2: Economic Tools and Economics Systems
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185 Flashcards
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Sample Questions
Q1) If the production possibilities frontier is a straight line, A) its slope will equal -1
B) resources must not be used efficiently
C) resources must be unemployed
D) society must not be using the latest technology
E) resources must be equally adaptable at producing either product
Answer: E
Q2) The "invisible hand" described by Adam Smith refers to the A) allocative role of markets and market forces
B) importance of government intervention and central planning
C) actions of successful entrepreneurs in directing the economy
D) role of monopolized industries in leading the nation
E) value of religious belief in creating an ideal economy
Answer: A
Q3) It is impossible for one person to have a comparative advantage in all tasks.
A)True
B)False
Answer: True
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Chapter 3: Economic Decision Makers
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Sample Questions
Q1) A large number of businesses are organized as sole proprietorships because it is easy for them to acquire large sums of financing.
A)True
B)False
Answer: False
Q2) In terms of total sales,the dominant form of business firm in the U.S.economy is the
A) corporation
B) sole proprietorship
C) partnership
D) nonprofit organization
E) limited partnership corporation
Answer: A
Q3) In the United States,all levels of government together spend about
A) one out of every three dollars paid for finished goods and services
B) half of the dollars paid for defense spending
C) the same amount as private citizens and corporations
D) one out of every three dollars paid for education
E) 80 percent of their budgets on transfer payments
Answer: A
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Page 5
Chapter 4: Demand, supply, and Markets
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Sample Questions
Q1) The explanation for the law of demand begins with
A) a small number of wants satisfied by scarce resources
B) finite wants satisfied by infinite resources
C) unlimited wants confronting scarce resources
D) unlimited wants matching up with unlimited resources
E) prices acting as signals to existing and potential suppliers
Q2) Suppose demand decreases and supply decreases.Which of the following will happen?
A) equilibrium price will increase
B) equilibrium price will decrease
C) equilibrium quantity will increase
D) equilibrium quantity will decrease
E) neither the equilibrium price nor the quantity will change
Q3) In Exhibit 4-15,when the price is $15,an increase in the quantity supplied from 17 to 24 units can result from all of the following,except:
A) Increase in the number of producers
B) Technological advances
C) An increase in the price of a relevant resource
D) A decrease in the price of an alternative good
E) A decrease in the price of a relevant resource
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Chapter 5: Elasticity of Demand and Supply
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Sample Questions
Q1) A new tax on beer will increase the price of beer by 35%,As a result,the quantity demanded of beer will decrease by 25%.Then,the demand for beer is:
A) Elastic
B) Inelastic
C) Unit elastic
D) Perfectly elastic
E) Perfectly inelastic
Q2) A government-imposed price floor above the market price of milk would increase consumers' expenditures on milk only if
A) demand is elastic
B) supply is inelastic
C) demand falls
D) demand is inelastic
E) supply is unit elastic
Q3) If its value of cross-price elasticity is negative,a good must be a necessity.
A)True
B)False
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Chapter 6: Consumer Choice and Demand
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Sample Questions
Q1) Carvel advertises a football-shaped ice cream cake for $7;you can buy a second one for only $4.What do they know about consumer preferences?
A) Consumers would never buy a second ice cream cake.
B) Two cakes are worth less to the consumer than one.
C) Marginal utility of ice cream cakes diminishes.
D) Consumers only value the first cake at $4.
E) Consumers value all cakes they eat at $4.
Q2) In exhibit 6-1,what is the total utility of four pretzels?
A) 30
B) 55
C) -15
D) 40
E) 5
Q3) Total utility can be calculated as the
A) sum of all marginal utilities
B) price paid for one unit of a good
C) product of all marginal utilities
D) total expenditure on all units of a good the consumer buys
E) difference between the marginal utilities of the first and last units of a good
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Page 8
Chapter 7: Production and Cost in the Firm
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Sample Questions
Q1) Suppose Ben buys out Jerry's ownership in the firm but retains him as a salaried employee.If so,
A) economic profit increases
B) economic profit decreases
C) there is no change in economic profit
D) there is no change in accounting profit
E) accounting profit increases
Q2) Cash payments for steel to be used in production would be an example of
A) sunk costs
B) fixed costs
C) explicit costs
D) implicit costs
E) entrepreneurial costs
Q3) Total cost is calculated as
A) average fixed cost plus average variable cost
B) fixed cost plus variable cost
C) the additional cost of the last unit produced
D) marginal cost plus variable cost
E) marginal cost plus fixed cost
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Page 9
Chapter 8: Perfect Competition
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Sample Questions
Q1) The short-run industry supply curve in a perfectly competitive market is the horizontal sum of each firm's short-run supply curve.
A)True
B)False
Q2) Suppose that an increase in population increases demand in New Haven County's perfectly competitive market for auto repair.Which of the following is true in the short run?
A) Auto repair centers may be able to earn economic profit.
B) Normal profits increase.
C) The market supply curve of auto repair services shifts to the left.
D) Either price or output is likely to increase,but it's impossible to say which.
E) After firms have had time to adjust to the new equilibrium,the price of auto repair services will exceed the marginal cost.
Q3) For a perfectly competitive firm,marginal revenue is identical to marginal cost at every quantity.
A)True
B)False
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Chapter 9: Amonopoly
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Sample
Questions
Q1) Which of the following is true in both perfect competition and monopoly?
A) Firms produce a differentiated product.
B) Firms cannot earn economic profit in the long run.
C) Individual firms have no ability to control the price of their output but must accept the market price.
D) Firms go out of business in the long run if total revenue cannot cover total cost.
E) Firms can earn economic profit in the long run.
Q2) Gilligan runs the only dry-cleaning business on a desert isle.If the cost of cleaning fluid falls,he can increase profit by
A) raising price
B) charging the highest price he can
C) using less cleaning fluid
D) lowering price
E) charging a price equal to marginal cost
Q3) In order to sell an additional unit of its product,a monopolist must decrease price on all units.
A)True
B)False
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11
Chapter 10: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) Collusion occurs when
A) a firm chooses a level of output to maximize its own profit
B) firms get together to maximize joint profits
C) firms refuse to follow their price leaders
D) firms petition their U.S.senators for favors
E) two firms' price and output decisions come into conflict
Q2) The demand curve facing Imelda's Shoe Boutique,a monopolistically competitive firm,
A) is horizontal because Imelda's is small relative to the market as a whole
B) is horizontal because Imelda's is large relative to the market as a whole
C) slopes downward because Imelda's is small relative to the market as a whole
D) slopes downward because Imelda's sells a differentiated product
E) slopes downward because Imelda's firm is the entire industry
Q3) There are multiple models of pricing behavior in oligopolistic markets because
A) it is difficult to predict how rival firms will react to any pricing decision
B) the demand curve slopes upward for these firms
C) firms could earn profit in the long run unlike other markets
D) price has a direct impact on profit for a firm in oligopoly
E) the products are not identical in terms of quality,image,location
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Page 12
Chapter 11: Resource Markets
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210 Flashcards
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Sample Questions
Q1) In the resource market,firms demand resources in order to
A) maximize profit
B) maximize total revenue
C) maximize marginal revenue
D) maximize utility
E) minimize cost
Q2) Exhibit 11-10 shows data on watch production.If the marginal resource cost is constant at $18 per unit of labor,how many workers should the firm hire to maximize its profit?
A) one
B) two
C) three
D) four
E) five
Q3) We see permanent price differentials in land because
A) the demand for land is high
B) land has few uses
C) location is the inherent quality that often determines its value
D) real estate brokers are inefficient
E) land is not traded in free markets
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Chapter 12: Labor Markets and Labor Unions
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Sample Questions
Q1) If the substitution effect dominates the income effect,then an increase in the wage rate will increase the quantity of labor supplied by an individual.
A)True
B)False
Q2) Unions can affect the demand for,but not the supply of,labor.
A)True
B)False
Q3) The relationship between income and education is clear.At every age,those with more education earn more.
A)True
B)False
Q4) Other things equal,the supply of labor will be lower to a job that
A) offers less strenuous physical activity
B) requires a supervisor to closely monitor employee performance
C) allows for flexible work schedules
D) offers free room and board
E) is exciting due to slightly elevated risk
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Chapter 13: Capital, interest, and Corporate Finance
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183 Verified Questions
183 Flashcards
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Sample Questions
Q1) If you will receive $3,000 three years from today and the discount rate is 7 percent,the present value of the $3,000 is
A) $2,779
B) $3,770
C) $1,658
D) $1,962
E) $2,449
Q2) The present value of a promise to pay $5,000 every year forever when the prevailing interest rate is 10 percent equals
A) $5,000
B) $50,000
C) $100,000
D) $250,000
E) $500,000
Q3) A perpetuity is an annuity with a fixed term.
A)True
B)False
Q4) The interest rate charged on a risk-free loan exceeds the rate on a risky loan. A)True
B)False
Page 15
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Chapter 14: Transaction Costs, imperfect Information, and Market Behavior
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178 Flashcards
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Sample Questions
Q1) Suppose there is only one producer of frames,a necessary component in manufacturing computer monitors.Because of the threat of entry,this firm charges its customers a price equal to average cost.One reason that a producer of computer monitors may make rather than buy frames is
A) the frame supplier may be unreliable
B) the total cost of the components of frames is the same as the price of frames purchased in the market
C) the frame manufacturer has no incentive to make high-quality frames
D) managers at the computer monitor firm place a high value on their time
E) the frame manufacturer will soon go out of business because firms do not produce goods for the market that can be made in-house
Q2) If we assume perfect information,perfect mobility of resources,and no transactions costs,then there is little need for firms.
A)True
B)False
Q3) The winner's curse is more likely when the value of a good at auction is uncertain.
A)True
B)False
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Chapter 15: Economic Regulation and Antitrust Policy
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170 Flashcards
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Sample Questions
Q1) A monopoly is likely to charge a higher price than an otherwise similar competitive industry would be.
A)True
B)False
Q2) Which of the following is not a criticism of monopolies?
A) They restrict output.
B) They set price above the perfectly competitive level.
C) They tend to be less innovative than firms in a competitive market.
D) They exert a disproportionate amount of political influence.
E) They reduce allocative efficiency through perfect price discrimination.
Q3) Most local phone companies
A) face a horizontal demand curve
B) are regulated
C) are called public utilities
D) have tremendous economies of scale
E) are natural monopolies
Q4) Price fixing is illegal in the United States.
A)True
B)False
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Chapter 16: Public Goods and Public Choice
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Sample Questions
Q1) Budget maximization by bureaus leads to
A) efficient budgets
B) budgets greater than those desired by median voters
C) budgets less than those desired by median voters
D) budgets equal to those desired by median voters
E) budgets less than those desired by the majority of voters
Q2) A good that is both rival and exclusive is called
A) a private good
B) a public good
C) a quasi-private good
D) an external good
E) an open access good
Q3) Which of the following activities would be considered tax avoidance?
A) increasing your level of charitable contributions in December
B) selling illegal drugs on the street
C) underestimating your income that is subject to taxation
D) failure of a waitress to report all tips earned on the job
E) buying a house and neglecting to deduct interest payments
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Chapter 17: Externalities and the Environment
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Sample Questions
Q1) If the marginal social benefit of consuming a product exceeds the marginal social cost of producing it,social welfare is
A) increased by reducing output
B) decreased by expanding output
C) unchanged by expanding or reducing output
D) increased by expanding output
E) maximized
Q2) To solve the common pool problem in fishing,governments can _____,or _____.
A) impose a depletion tax;prohibit resource use entirely
B) impose a depletion tax;restrict output
C) introduce an offsetting positive externality;prohibit resource use entirely
D) use a variable technology;impose a depletion tax
E) restrict output;prohibit resource use entirely
Q3) When a system of pollution rights is in effect,polluters have no economic incentive to reduce the amount of pollution they generate.
A)True
B)False
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Chapter 18: Income Distribution and Poverty
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Sample Questions
Q1) Poor welfare recipients face higher marginal tax rates than do the richest families.
A)True
B)False
Q2) The Equal Employment Opportunity Commission was established by
A) the Social Security Act
B) the Reagan administration
C) the Civil Rights Act
D) the Equal Rights Amendment
E) the Wagner Act
Q3) In order for Mary to qualify for benefits under a means-tested transfer payment program,
A) she must have worked and contributed to the program
B) she must be able to repay the cash transfer at a later date
C) the head of her household must be able to hold a job
D) she must be totally disabled
E) her household's income and/or assets must fall below a certain level
Q4) In every age group,average income in the United States increases with education.
A)True
B)False
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Chapter 19: International Trade
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Sample Questions
Q1) Japan is generally considered an economy closed to foreign trade.
A)True
B)False
Q2) In Exhibit 19-4,if the world price of a baseball is $3 and a tariff of $1 per baseball is imposed in the United States,how much tariff revenue will the United States government collect?
A) $4,000
B) $16,000
C) $20,000
D) $24,000
E) $48,000
Q3) To maximize worldwide gains from trade,the country that should produce a good is the country that
A) has the lowest opportunity cost of producing it
B) can produce that good using the fewest resources
C) will produce that good using the most expensive resources
D) has the most desire for that good
E) has produced that good in the past
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Chapter 20: International Finance
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Sample Questions
Q1) A drop in dollar price of British pounds means that
A) fewer dollars are needed to buy British pounds
B) more dollars are needed to buy British pounds
C) the mark has appreciated
D) the dollar has depreciated
E) British goods are now more expensive to Americans
Q2) The fact that exchange rates are nearly identical in different markets around the world is due to
A) the actions of speculators
B) official action by central banks around the world
C) the actions of arbitrageurs
D) agreement by policy makers of the major industrial countries
E) the actions of currency converters
Q3) If the U.S.dollar appreciates,it means that
A) the value of the U.S.dollar has decreased
B) the value of foreign exchange has increased
C) fewer U.S.dollars are required to purchase foreign exchange
D) more U.S.dollars are required to purchase foreign exchange
E) exports will fall immediately
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Page 22
Chapter 21: Developing and Transitional Economies
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Sample Questions
Q1) Differences in stages of development among countries are reflected in a number of ways besides per capita income.
A)True
B)False
Q2) At the end of the production chain that a typical economy moves up along is
A) raw material
B) agriculture
C) hunting and gathering
D) services
E) manufacturing
Q3) Which of the following is true about GNP?
A) includes profits earned by a Mercedes factory in Alabama
B) excludes profits earned by General Electric in India
C) measures the market value of all goods and services produced by resources supplied the home country's residents and firms,regardless of the location of the resource
D) stands for Generally Nice Products
E) used by countries to classify the World Bank
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