Introduction to Economics
Chapter Exam Questions
Course Introduction
Introduction to Economics provides students with a foundational understanding of how economies function on both micro and macro levels. The course explores fundamental concepts such as supply and demand, market equilibrium, the roles of consumers and producers, and the impact of government intervention in markets. Students learn about different economic systems, the allocation of scarce resources, production and consumption choices, and how economic agents respond to incentives. Real-world examples and case studies help illustrate how economic principles apply to everyday decisions and broader societal issues, preparing students for more advanced study in economics and informed participation in economic debates.
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Microeconomics Today The Macro View 17th Edition by Roger LeRoy Miller
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Chapter 1: The Nature of Economics
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Q1) A poll conducted by a national firm finds that most Americans say they care more about safety when buying a car than about fuel efficiency.As a result,a car maker produces a car with many safety features,but it doesn't sell well.This behavior
A)contradicts economic theory because the people didn't do what they said they would do.
B)contradicts economic theory because it is irrational not to purchase safer cars.
C)does not contradict economic theory because economists focus on what people do rather than on what they say.
D)does not contradict economic theory because economic theory only relates to prices and not to features such as safety.
Answer: C
Q2) Normative economic statements
A)violate the law of ceteris paribus.
B)contain value judgments.
C)are usually irrational.
D)are easily testable.
Answer: B
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Chapter 2: Scarcity and the World of Trade-Offs
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Q1) In the above figure,the opportunity cost of moving from producing 75 guitars and 25 ukuleles to producing 50 guitars and 50 ukuleles is
A)25 ukuleles.
B)50 guitars.
C)100 guitars.
D)25 guitars.
Answer: D
Q2) Refer to the above figure.How do you describe what is happening as the economy moves from point A to point C?
A)The economy has acquired new resources that are well suited for producing bread. B)Land that was once used to graze sheep is now being used to grow wheat.
C)Resources are becoming unemployed.
D)The technology for growing wheat has improved.
Answer: C
Q3) Are all goods economic goods? Are all economic goods also goods? Explain.
Answer: Not all goods are economic goods.Economic goods are a subset of all goods,and are produced from scarce resources.Sunlight is an example of a good that is not an economic good.Hence,the answer to the second question is "yes."
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Chapter 3: Demand and Supply
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Q1) We observe that people buy less steak and more potatoes when the price of steak relative to potatoes increases.This indicates that steak and potatoes are A)substitutes.
B)complements.
C)inferior goods.
D)unrelated goods.
Answer: A
Q2) The law of demand states that A)consumers will exhaust their incomes as they purchase goods and services at given absolute prices.
B)the quantity demanded of a good is higher at a lower relative price than at a higher relative price.
C)there is a direct positive relationship between relative price and quantity demanded. D)if the price of a good increases both relatively and absolutely,there will be no change in quantity demanded.
Answer: B
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Chapter 3: Extensions of Demand and Supply Analysis
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Q1) When the government restricts the quantity of a good to zero
A)an underground market develops.
B)there is none of the good available anywhere.
C)people's demand for the product evaporates.
D)producers stop all production.
Q2) Price controls may be thought of as
A)a restraint on the rationing function of prices.
B)useful tools that promote production.
C)necessary in market economies.
D)the freeing-up of free market forces.
Q3) In the labor market,adjustments to changes in supply and demand
A)usually occur instantly.
B)usually take time to occur.
C)do not apply,since the labor market does not respond to supply and demand forces.
D)do not apply,since wages in the labor market always go up.
Q4) Suppose that the current equilibrium price of gasoline is $5.50 per gallon and that the government passes a law that requires the price to be no more than $5 per gallon.What will be the effects?
Q5) What are the terms of exchange and how are these terms related to the price?
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Chapter 4: Public Spending and Public Choice
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Q1) Refer to above figure in which negative externality existed.The government imposes a $1.00 pollution tax on the producer.Supply shifts leftward.
A)This tax will be shifted entirely to the consumer.
B)This tax will be borne entirely by the producer.
C)The amount of the tax shifted to the consumer depends on the consumer's reaction.
D)The tax will be divided into equal amounts between consumer and producer.
Q2) If public subsidies for education were eliminated,what would you expect as an outcome in the market for educational services?
A)More students would enroll in school.
B)The price students pay to attend school would equal the value of an additional unit of education consumed.
C)There would be no correlation between the price students pay and the cost of providing the educational services.
D)The quality of education would deteriorate.
Q3) Explain why an external benefit leads to an under-allocation of resources to the production of a good.
Q4) How does a government-sponsored good differ from a public good?
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Chapter 5: Funding the Public Sector
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Q1) A "flat tax" on personal income,in which the same tax rate is applied to every dollar of income earned by each taxpayer,is an example of
A)a regressive tax.
B)a proportional tax.
C)a progressive tax.
D)a value-added tax.
Q2) Social Security taxes are regressive because
A)they apply only to rich people.
B)they are not applied to income beyond a certain amount.
C)they are applied to welfare recipients.
D)they are applied to retired people only.
Q3) Local government expenditures depend on which taxes?
A)Revenues from licenses and permits
B)Local property,sales,and excise taxes
C)Capital gains taxes
D)Social Security taxes
Q4) What are the three sources of funding for the public sector? Can the government rely on all of these sources in the long run? Explain.
Q5) Explain why an increase in the tax rate can result in lower tax revenues.
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Chapter 6: Demand and Supply Elasticity
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Q1) A demand relationship in which the quantity demanded changes exactly in proportion to the change in price is
A)elastic.
B)unit-elastic.
C)inelastic.
D)consistent with zero elasticity.
Q2) Tickets for the Super Bowl are an example of supply that is
A)perfectly elastic.
B)unit elastic.
C)slightly inelastic.
D)perfectly inelastic.
Q3) "Unit elasticity of demand can be found everywhere along a straight-line demand curve with a slope of -1." Do you agree or disagree? Explain.
Q4) If the absolute price elasticity of demand for good Y is 0.75,when there is a 30 percent increase in price,we can conclude that quantity demanded
A)has fallen by 35.0 percent.
B)has fallen by 10.4 percent.
C)has fallen by 22.5 percent.
D)has fallen by 40.0 percent.
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Chapter 7: Consumer Choice
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Q1) If you and a group of friends have been consuming large quantities of liquid beverages on a hot summer afternoon and you decide to refrain from any additional consumption,it can be concluded that
A)total utility has reached a minimum and the marginal utility of an additional drink would be large.
B)total utility has reached a maximum and the marginal utility of an additional drink would be small.
C)total utility has reached a maximum and the marginal utility of an additional drink would be zero.
D)total utility has reached a minimum and the marginal utility of an additional drink would be negative.
Q2) "As an individual consumes more units of a good,her total utility falls because of the law of diminishing marginal utility." Do you agree or disagree? Explain.
Q3) The information on a demand curve is also on a(n)
A)indifference curve.
B)budget constraint.
C)income-consumption curve.
D)price-consumption curve.
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Chapter 8: Rents, profits, and the Financial Environment of Business
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Q1) Implicit costs are measured by
A)the value of the next-best alternative uses of inputs.
B)actual expenses paid by a firm.
C)total revenues minus total costs.
D)the lowest value of all alternative uses of inputs.
Q2) Given a discount rate of 10 percent,the present value of receiving $10,000 two years in the future is
A)$12,000.
B)$8,000.
C)$8,264.46.
D)$12,100.
Q3) Businesses go to credit markets in order to
A)obtain capital.
B)obtain financial assets that can be used to buy capital.
C)obtain capital so they can earn rents.
D)channel their savings into investments.
Q4) What is the difference between accounting profits and economic profits? Which of the two concepts is more appropriate for explaining decisions made by entrepreneurs? Explain.
Q5) What are the two meanings of interest in economics?
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Chapter 9: The Firm: Cost and Output Determination
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Q1) In the above table,the marginal product of the sixth worker is A)10.
B)25.
C)20.
D)15.
Q2) Refer to the above table.At an output of 3 units,average variable costs are
A)$42.
B)$30.
C)$44.
D)$14.
Q3) If the price of labor is constant and a firm experiences diminishing marginal product,then its A)marginal costs decrease.
B)fixed costs increase.
C)average variable cost increases.
D)total costs decrease.
Q4) What is the difference between average variable costs and average total costs?
Q5) What is the law of diminishing marginal product? Is it a realistic concept for describing the real world? Explain.
Q6) What is minimum efficient scale? Why is it important?
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Chapter 10: Perfect Competition
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Q1) Refer to the above table.If the price is $5,the perfectly competitive firm should produce
A)104 units.
B)105 units.
C)106 units.
D)107 units.
Q2) When a firm is earning zero economic profits,
A)accounting profit is zero.
B)total revenue is greater than total cost.
C)P = ATC.
D)P is greater than ATC.
Q3) In the short run,in a perfectly competitive market,a firm will shut down if
A)P < AVC for all levels of output.
B)P < ATC for all levels of output.
C)ATC > P > AVC for all levels of output.
D)P > AFC for all levels of output.
Q4) What are the main characteristics of a perfectly competitive market?
Q5) Describe and explain how a perfectly competitive firm's demand curve is found.
Q6) What is marginal cost pricing? Why is marginal cost pricing important?
Q7) How do we determine whether a firm has maximized profits?
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Chapter 11: Monopoly
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Q1) Price discrimination is the
A)refusal by a firm to sell to all customers.
B)selling of a given product at more than one price when the price differences reflect cost differences.
C)pricing of a product so that not everyone can afford it.
D)selling of a given product at more than one price when the price difference is unrelated to cost differences.
Q2) Monopolies that price discriminate do so because
A)they are able to do so and no one else can.
B)they can increase their profits.
C)it keeps them out of trouble with the government.
D)it is more efficient.
Q3) Economic inefficiency of a monopoly is indicated by A)P = \(\mathrm { ATC } _ { \text {min } }\) .
B)P > MR.
C)P > MC.
D)MR = MC.
Q4) "A monopolist can charge whatever price it wants." Do you agree or disagree? Why?
Q5) What does the demand curve facing a monopoly look like? Why?
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Chapter 12: Monopolistic Competition
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Q1) Refer to the above figure.Which of the following statements about panel D in the figure is TRUE?
A)The figure represents a long-run equilibrium for a monopolistic competitor.
B)The figure represents an industry long-run equilibrium for monopolistic competition.
C)The figure is in error since it doesn't show the monopolistic competitor making profits in the long run.
D)The figure is in error since it has marginal cost intersecting the ATC curve at a point other than the minimum of ATC.
Q2) The first unit of an information product is produced at a high fixed cost.Producing additional units entails relatively low
A)total costs.
B)marginal and average variable cost.
C)external cost.
D)social cost.
Q3) Why would Sunkist incur substantial costs to advertise and establish a brand name when the quality of its oranges can easily be evaluated by consumers?
Q4) Why can't a monopolistic competitor earn economic profits in the long run?
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Chapter 13: Oligopoly and Strategic Behavior
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Q1) Vertical merger occurs when
A)two firms merge where one had sold its output to the other as an input.
B)the merger moves the combined firm onto the horizontal portion of its long-run average cost curve.
C)two firms merge where each is about the same size.
D)two firms producing a similar product merge.
Q2) Refer to the above figure.Ajax and Greenco are oligopolists.Above you are given the payoff matrix for the two firms giving the payoff associated with different pricing strategies.What is the best strategy for Greenco if Ajax decides on charging a low price?
A)High price.
B)Low price.
C)There is no best strategy.
D)Not enough information is given to determine the best strategy.
Q3) A tendency for a good to come into favor with consumers because other consumers have chosen to buy the item is
A)price-leadership.
B)negative-sum game.
C)positive market feedback.
D)negative market feedback.
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Chapter 14: Regulation and Antitrust Policy in a Globalized Economy
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Q1) Which of the following statements about natural monopoly is correct?
A)Governments regulate natural monopolies in order to ensure that costs of production are minimized.
B)Governments regulate natural monopolies in order to ensure that the firm earns a normal profit.
C)Governments regulate natural monopolies in order to prevent them from making profits.
D)Governments regulate natural monopolies in order to keep their workers from earning wages that are too high.
Q2) The Sherman Antitrust Act of 1890 prohibited
A)export tariffs.
B)attempts to restrain trade.
C)all existing monopolies.
D)interstate commerce.
Q3) The type of mergers that the Federal Trade Commission will most likely challenge are
A)mergers of firms within a relevant market.
B)mergers of firms in different markets.
C)mergers of firms that will generate economies of scale.
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D)mergers of firms in different geographical locations.
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Chapter 15: The Labor Market: Demand, supply and Outsourcing
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Q1) If the supply of labor to a firm is perfectly elastic at the going wage rate established by the forces of supply and demand then
A)the firm is price taker.
B)the firm can only hire additional units of labor by driving the wage rate up.
C)the wage rate has been decreasing.
D)full employment exists in the labor market.
Q2) Refer to the above table.What does the marginal revenue product equal when 28 workers are hired a week?
A)$1040
B)$900
C)$210
D)$7.50
Q3) Suppose the market for pizza makers is initially in equilibrium,but then the equilibrium wage rate and the equilibrium quantity of labor both increased.What happened in the market for pizza makers?
A)The demand for pizza makers increased.
B)The demand for pizza makers decreased.
C)The supply for pizza makers increased.
D)The supply for pizza makers decreased.
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Chapter 16: Unions and Labor Market Monopoly Power
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Q1) In the above figure,what is the quantity of workers that would be hired in a perfectly competitive market?
A) \(\mathrm { Q } _ { 1 }\)
B) \(\mathrm { Q } _ { 2 }\)
C) \(\mathrm { Q } _ { 3 }\)
D) \(\mathrm { Q } _ { 4 }\)
Q2) The ultimate bargaining tool for unions is
A)the strike.
B)"labor's Magna Carta."
C)the Taft-Hartley Act.
D)the sympathy strike.
Q3) If the goal of the union is to maximize member income,then
A)a wage rate will be set in the inelastic portion of the demand curve.
B)a wage rate will be set at the point at which the elasticity of demand equals 1 and marginal revenue is positive.
C)a wage rate will be set at the point at which marginal revenue equal zero.
D)the supply of labor must be inelastic.
Q4) Discuss the significant laws passed since the Great Depression that affect labor-management relations.
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Chapter 17: Income, poverty, and Health Care
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Q1) Use the above figure.Refer to the above diagram where curves (a)through (d)are for four different countries.Income is most unequally distributed in
A)Country A.
B)Country B.
C)Country C.
D)Country D.
Q2) The age-earnings cycle is an earnings profile of an individual throughout the person's lifetime.The profile shows that
A)earnings usually peak at age 25 and then decline.
B)earnings gradually rise until they peak around age 50.
C)earnings and age have no particular correlation.
D)younger workers have the most productivity.
Q3) When poverty is defined by an relative real income level,what will happen to the poverty rate if the distribution of income is not perfectly equal?
A)The poverty rate will increase forever.
B)The poverty rate will eventually be zero.
C)The poverty rate will always remain constant.
D)The poverty rate will change,but always exist.
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Chapter 18: Environmental Economics
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Q1) Common property is
A)property that has mineral or oil deposits.
B)a resource that everyone is free to use as much as they want.
C)property owned by a group such as a club.
D)property that has little economic value.
Q2) Which of the following is most likely to be private property?
A)bees
B)house flies
C)farm raised chickens
D)winds
Q3) Another name for internal cost is
A)private cost.
B)social cost.
C)psychological cost.
D)marginal cost.
Q4) What is an externality?
Q5) Why are most endangered species belong to common property?
Q6) What are the private costs of driving an automobile? What are the external costs?
Q7) What are social costs? How do they differ from private costs?
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Chapter 19: Comparative Advantage and the Open Economy
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Q1) The effect of an import quota is
A)to shift the supply curve up by the amount of the quota.
B)to lead to a decrease in demand.
C)to make the supply curve vertical at the amount of the quota.
D)to make the supply curve horizontal at the amount of the quota.
Q2) Suppose that opportunity costs are constant and that Fred can either bake a maximum of six pies or three cakes in a day.Ethel can produce a maximum of eight pies or two cakes in a day.Ethel has an comparative advantage in the production of A)cakes.
B)pies.
C)both cakes and pies.
D)neither cakes nor pies.
Q3) Since 1950,the volume of world trade and the volume of world real GDP
A)have both increased at roughly the same rate.
B)have both decreased at roughly the same rate.
C)have both increased,but the volume of world trade has increased more slowly than the volume of world real GDP.
D)have both increased,but the volume of world trade has increased faster than the volume of world real GDP.
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Chapter 20: Exchange Rates and the Balance of Payments
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Q1) The balance of payments is
A)a summary record of the financial transactions of a country's government with foreign governments.
B)a summary record of a country's imports and exports of goods with foreign residents and governments.
C)a summary record of a country's economic transactions with foreign residents and governments.
D)a summary record of a country's purchases and sales of goods and services in the world market.
Q2) A surplus item is
A)the import of goods or services that is not needed by residents of a country.
B)the import or export of products that are by-products of the manufacturing of export goods.
C)any transaction that leads to a receipt by a resident of a country or its government.
D)any transaction that leads to a payment by a resident of a country or its government.
Q3) Why does the demand curve for Japanese yen slope down?
Q4) Why does the supply curve of Japanese yen slope up?
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