Fundamentals of Economics Final
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Course Introduction
Fundamentals of Economics provides an introduction to the essential principles and concepts that underpin the study of economics. The course explores the basics of microeconomics and macroeconomics, including topics such as supply and demand, market structures, price determination, consumer behavior, production, and the allocation of resources. Students will also examine national and international economic systems, the role of government in the economy, and the impact of economic policies on growth, employment, and inflation. Emphasis is placed on developing analytical skills and understanding how economic theory applies to real-world situations and decision-making.
Recommended Textbook
Foundations of Microeconomics 6th Edition by Robin Bade Michael Parkin
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Chapter 1: Getting Started
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Sample Questions
Q1) The question "Should we produce LCD televisions or computer monitors?" is an example of a ________ question.
A)what
B)how
C)for whom
D)where
E)why
Answer: A
Q2) Which type of graph is most useful in determining if two variables are correlated?
A)time-series
B)scatter diagram
C)cross-section
D)variable-correlation figure
E)None of the above answers is correct.
Answer: B
Q3) 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 (30 - 60)/(25 - 15)= -3.0.
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Chapter 2: The Usand Global Economies
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Sample Questions
Q1) What are the two largest sources of tax revenues for the U.S.federal government?
Answer: The largest source of tax revenue for the U.S.federal government is personal income taxes, that is, the income taxes that individuals pay.The second largest source of revenue is social security taxes.Personal income taxes account for about 41 percent of the federal government's revenue and social security taxes account for about 40 percent, so together these two sources of revenue are 81 percent of the federal government's total tax revenues.
Q2) In the circular flow model, the factors of production flow in the
A)same direction as do the rents, wages, interest, and profits.
B)opposite direction as do the rents, wages, interest, and profits.
C)opposite direction as does the government.
D)same direction as does the goods market.
E)opposite direction as does the goods market.
Answer: B
Q3) What is meant by the term "human capital"?
Answer: Human capital refers to the skills people possess.These skills help increase the quality of labor.Human capital can be increased through education, on the job training, and experience.The knowledge and skill gained from these improvements are called human capital.
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Chapter 3: The Economic Problem
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Sample Questions
Q1) When a country's production possibilities frontier shifts outward over time, the country is experiencing
A)no opportunity cost.
B)economic growth.
C)higher unemployment of resources.
D)a decrease in unemployment of resources.
E)an end to opportunity cost.
Answer: B
Q2) The figure above shows the production possibilities frontier for a country.In order for it to move from producing at point A to producing at point B, the country would need to
A)decrease SUV production by 1 million.
B)decrease SUV production by 3 million.
C)decrease SUV production by 4 million.
D)decrease compact car production by 3 million.
E)acquire more resources and/or more advanced technology.
Answer: A
Q3) A production point beyond the production possibilities frontier represents what?
Answer: A production point beyond the production possibilities frontier is an unattainable combination of products.
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Page 5
Chapter 4: Demand and Supply
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Sample Questions
Q1) An increase in the number of producers of bird seed ________ the supply of bird seed and shifts the supply curve of bird seed ________.
A)increases; rightward B)increases; leftward C)decreases; rightward D)decreases; leftward E)does not change; rightward
Q2) The above figures show the market for HD televisions.If there are severe earthquakes that destroy a significant number of of HD television manufacturing plants, which figure shows the effect of the earthquake?
A)Figure A
B)Figure B
C)Figure C
D)Figure D
E)None of the figures represent this change.
Q3) The table above shows supply schedules for the two nail salons in town, Nancy's Nails and Fancy Nails.What is the market supply of manicures?
Q4) In the figure above, what is the equilibrium price and quantity?
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Chapter 5: Elasticities of Demand and Supply
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Q1) Water is considered a necessity.So, is the demand for water elastic or inelastic?
Q2) Which of the following is true?
IThe demand for a good is elastic if when its price changes, the percentage change in the quantity demanded exceeds the percentage change in price.
IIPrice elasticity of demand equals the percentage change in price divided by the percentage change in the quantity demanded.
IIIIf demand is price inelastic, a rise in price leads to a decrease in total revenue.
A)Only I
B)Only II
C)Only III
D)I and II
E)II and III
Q3) In the figure above, at which point (a, b, or c)along the linear demand curve illustrated would demand be amost elastic?
bmost inelastic?
Q4) If a good has only a few, poor substitutes, is its demand elastic or inelastic?
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Chapter 6: Efficiency and Fairness of Markets
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Sample Questions
Q1) The figure above shows the market for pants.If the production of the pants results in an external cost from pollution that is the result of the dye used, then
A)6 million pairs is the efficient quantity.
B)fewer than 6 million pairs is the efficient quantity.
C)more than 6 million pairs is the efficient quantity.
D)None of the above answers is necessarily correct because more information is needed about the size of the external cost.
E)None of the above answers are correct because it is impossible to tell whether the external cost results in underproduction or overproduction.
Q2) Which of the following is most closely related to the "fair results" approach to fairness?
A)efficient resource use
B)having an equal income distribution
C)voluntary exchange
D)the command system of allocating resources
E)price hikes in a natural disaster
Q3) Jenn is willing to pay $75 for a purse and the purse's price is $60.What is Jenn's consumer surplus on this purse?
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Chapter 7: Government Actions in Markets
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Sample Questions
Q1) In order to have an impact, a ________ must be set below the equilibrium price and when this occurs, ________.
A)price ceiling; consumer surplus increases
B)price floor; consumer surplus decreases
C)price ceiling; producer surplus decreases
D)price support; total revenue increases
E)price support; consumer surplus increases
Q2) The figure above illustrates the current market for apartments in Washington, D.C.
aIf the local government imposes a price ceiling of $1,500 per month, is there a shortage? If so, how much, if not, why not?
bIf the local government imposes a price ceiling of $900 per month, is there a shortage? If so, how much, if not, why not?
Q3) When the minimum wage is raised, the ________ union labor ________.
A)demand for; increases
B)demand for; decreases
C)supply of; increases
D)supply of; decreases
E)demand for; does not change
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Chapter 8: Taxes
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Sample Questions
Q1) Because the supply of capital is highly elastic, taxing the income from capital results in
Ifirms that demand capital paying the greater share of the tax.
Iia decrease in the equilibrium quantity of capital.
Iiia deadweight loss.
A)i only
B)ii only
C)i and iii
D)ii and iii
E)i, ii, and iii
Q2) At harvest time the supply of wheat is perfectly inelastic.If the government taxes wheat at $1 a bushel, then
A)the seller pays the entire tax.
B)the buyer pays the entire tax.
C)the seller and the buyer split the tax evenly.
D)the seller and the buyer split the tax but the seller pays more.
E)no one pays the tax because the wheat must be harvested or it will go to waste.
Q3) Is the deadweight loss from a sales tax on a product larger the more inelastic the demand for the good?
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Page 10
Chapter 9: Global Markets in Action
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Sample Questions
Q1) When a nation exports a good or service, employment in that industry
A)decreases.
B)stays the same.
C)increases.
D)might change, but more information about what else the country exports is needed to determine if employment increases, decreases, or does not change.
E)might change, but more information about what the country imports is needed to determine if employment increases, decreases, or does not change.
Q2) Based on the figure above, as a result of international trade, consumer surplus
A)increases by $15 billion.
B)decreases by $15 billion.
C)increases by $27.5 billion.
D)decreases by $12.5 billion.
E)remains unchanged.
Q3) Currently, the United States has a quota on the amount of sugar that is allowed to be imported into the United States.What would happen to the price of sugar in the United States if the quota was removed? What would happen to U.S.consumption and U.S.production of sugar?
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Chapter 10: Externalities
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Sample Questions
Q1) The figure above illustrates the gasoline market.There is no external benefit from gasoline.If a pollution tax equal to the marginal external cost is imposed on gasoline, then the quantity of gasoline produced and consumed equals A)0 gallons.
B)5 million gallons.
C)10 million gallons.
D)20 million gallons.
E)None of the above answers is correct.
Q2) "Education in elementary and high schools has external benefits because families who have a lot of children do not pay any more than families without children." Is this statement correct or incorrect? Explain your answer.
Q3) The use of vouchers for education
A)decreases the demand for education and increases the equilibrium quantity.
B)increases the demand for education and increases the equilibrium quantity.
C)increases the deadweight loss for those who can't afford schooling.
D)decreases the quantity provided to the efficient level.
E)decreases the demand for education and decreases the equilibrium quantity.
Q4) Explain why a producer who is causing external costs does not have the incentive to reduce these costs.
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Chapter 11: Public Goods and Common Resources
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Sample Questions
Q1) The table above shows the marginal social benefit of fishing in Mediterranean Sea.The marginal private cost of operating a fishing boat is the same for all producers , $300 per hour.The marginal social cost is twice the marginal private cost.The efficient quantity of fish caught is ________ tons.
A)100
B)200
C)300
D)400
E)500
Q2) An office in the Empire State Building is
A)a private good.
B)nonexcludable, because it is possible to restrict access to it.
C)a common resource.
D)a public good because many people can be in the Empire State Building.
E)excludable and nonrival.
Q3) "The problem with a common resource is that no one gets to use the resource." Comment on the preceding assertion.
Q4) What is rational ignorance?
Q5) What is an individual transferable quota (ITQ)?
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Chapter 12: Markets With Private Information
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Sample Questions
Q1) In the market for auto insurance, in a separating equilibrium,
A)risky and safe drivers pay the same premium for insurance.
B)risky drivers pay a larger premium than do safe drivers for insurance.
C)risky drivers pay a smaller premium than do safe drivers for insurance.
D)risky drivers cannot obtain insurance.
E)safe drivers cannot obtain insurance.
Q2) The figures show the expenditures per person on health care and the efficiency of the health care system in 8 different nations.The United States is bar ________ in expenditures per person and is bar ________ in efficiency index.
A)A; A
B)B; A
C)A; D
D)E; E
E)D; B
Q3) How can a warranty at the seller's expense signal that a product is high quality?
Q4) What role does moral hazard play in the market for health care?
Q5) What is the missing insurance market in health care? Why don't private markets provide this insurance?
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Chapter 13: Consumer Choice and Demand
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Sample Questions
Q1) If Sarah gets 40 units of utility from her first piece of toast for breakfast and a total of 70 units from two pieces of toast, then the marginal utility of the first piece is ________ units and the marginal utility of the second piece is ________ units.
A)40; 70
B)40; 110
C)40; 30
D)40; 35
E)70; 40
Q2) In an indifference curve/budget line diagram, a consumer's equilibrium consumption combination will occur
A)always inside the budget line.
B)always outside the budget line.
C)always on the budget line.
D)sometimes on and sometimes inside the budget line depending on the indifference curves.
E)at the origin.
Q3) Explain how changes in the price of goods and the consumer's budget affect the budget line.
Q4) What is the "principle of diminishing marginal utility"?
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Chapter 14: Production and Cost
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Sample Questions
Q1) A firm's total revenue minus its total opportunity cost is called its
A)accounting profit.
B)normal profit.
C)economic profit.
D)abnormal profit.
E)entrepreneur's profit.
Q2) In the above figure, curve A is the ________ curve and curve B is the ________ curve.
A)total variable cost; total fixed cost
B)total cost; total fixed cost
C)total fixed cost; total variable cost
D)total cost; total variable cost
E)total variable cost; total cost
Q3) How do we calculate average fixed cost and why does average fixed cost fall as output increases?
Q4) Which average cost curves are U-shaped?
Q5) When the Rent-A-Limo Company negotiates its new labor contract it finds that the wages it must pay drivers have increased.How does this wage hike affect the Rent-A-Limo Company's average fixed cost, average variable cost, average total cost, and marginal cost?
Page 16
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Chapter 15: Perfect Competition
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Sample Questions
Q1) In the short run, a perfectly competitive firm
A)can make only zero economic profit.
B)can possibly make an economic profit or possibly incur an economic loss.
C)produces the level of output that sets the average total cost equal to the market price.
D)can vary all its inputs.
E)can change only its fixed inputs.
Q2) If the wheat industry is perfectly competitive with a market price of $4 per bushel and Farmer Brown charged $5 per bushel, how many bushels would Farmer Brown sell?
A)some, but fewer than he would at a price of $4
B)more than he would at a price of $4
C)just as many as he would at a price of $4
D)none
E)More information is needed about the prices charged by the other wheat farmers.
Q3) Pineapple growing is a perfectly competitive industry.How does the market demand curve for pineapples compare to the demand curve for an individual pineapple grower?
Q4) In the long run, perfectly competitive firms cannot make an economic profit.Why?
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Page 17
Chapter 16: Monopoly
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Sample Questions
Q1) Patents
Iencourage the invention of new products and production methods.
Iigenerally discourage innovation
Iiiare exclusive rights granted to the inventor of a product or service.
A)i only
B)ii only
C)ii and iii
D)i and iii
E)i, ii, and iii
Q2) "If a natural monopoly is regulated using a marginal cost pricing rule, the firm makes zero economic profit." Is the previous statement correct or incorrect?
Q3) In the figure above, if the firm is regulated using a marginal cost pricing rule, the consumer surplus created is equal to the area of
A)ABG.
B)ACF.
C)BCFG.
D)BCE.
E)None of the above because there is no consumer surplus created.
Q4) What are the conditions that define a monopoly?
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Chapter 17: Monopolistic Competition
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Sample Questions
Q1) Which of the following is correct?
A)Monopoly has a four-firm concentration ratio of 100.
B)Perfect competition has a four-firm concentration ratio near zero.
C)Monopolistic competition has a four-firm concentration ratio of more than 40.
D)Both answers A and B are correct.
E)Both answers A and C are correct.
Q2) The three largest firms in an industry have market shares of 40 percent, 30 percent, and 2 percent.The remaining 47 firms in the industry each have a market share of 1 percent.The Herfindahl-Hirschman Index (HHI)for this industry is ________.
A)2,551
B)5,184
C)24,061
D)10,000
E)3,013
Q3) "One of the defining features of monopolistic competition is product variety." Is the previous statement correct or incorrect?
Q4) How do product development and marketing affect a firm in monopolistic competition?
Q5) What is the Herfindahl-Hirschman Index and what does it measure?
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Chapter 18: Oligopoly
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Sample Questions
Q1) A cartel is
A)a group of firms selling identical products but at slightly different prices.
B)an agreement among firms to limit output, raise prices, and increase economic profit.
C)the automobile producing industry.
D)the only firm selling a particular product.
E)an illegal agreement among firms which most often arises in monopolistically competitive markets.
Q2) Daryl's Inc.has formed a cartel with the two other firms in its industry.In which of the following market structures does Daryl's operate?
A)monopolistic competition.
B)oligopoly.
C)perfect competition.
D)monopoly.
E)legally protected monopoly.
Q3) In a market with a Herfindahl-Hirschman Index of 2,000, according to their guidelines will the Department of Justice challenge a merger that would increase the index by 50?
Q4) What is the legal status of a cartel among firms in the United States?
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Chapter 19: Markets for Factors of Production
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Sample Questions
Q1) Kevin owns a personal training gym in Laredo, Texas.He charges $41 per session.The above table shows the marginal product of trainers in Kevin's gym.If Kevin hires one trainer, the value of marginal product of this trainer equals A)4 clients.
B)$164.
C)$410.
D)$41.
E)None of the above answers is correct.
Q2) Robotic technology is a substitute for labor in many manufacturing processes.If the price of robotic technology decreases and the scale of the firm's production does not change, there is
A)a decrease in the demand for labor.
B)an increase in the demand for labor.
C)no change in the demand for labor.
D)an increase in the supply of labor.
E)a decrease in the supply of labor.
Q3) As the population of Las Vegas increased, what happened to the supply of labor and the supply curve of labor in Las Vegas?
Q4) What tools can unions use to increase the demand for union labor?
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Chapter 20: Economic Inequality
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Q1) The cost of acquiring a skill accounts for why the
A)demand for high-skilled workers is different from the demand for low-skilled workers.
B)supply of high-skilled workers is different from the supply of low-skilled workers.
C)demand for high-skilled workers is different from the supply of high-skilled workers.
D)demand for high-skilled workers is different from the supply of low-skilled workers.
E)supply curves of high-skilled and low-skilled workers cross.
Q2) High-skilled workers earn more relative to low-skilled workers because the demand for high-skilled workers is ________ that for low-skilled workers and the supply is ________ that for low-skilled workers.
A)greater than; greater than B)greater than; lower than C)lower than; greater than D)lower than; lower than E)greater than; the same as
Q3) Which is distributed more equally: income or wealth?
Q4) How is human capital acquired?
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