Introduction to Economics Exam Bank
Course Introduction
Introduction to Economics provides students with a foundational understanding of core economic principles, including the concepts of supply and demand, market structures, and the roles of consumers and producers. The course explores both microeconomics and macroeconomics, introducing topics such as opportunity cost, economic efficiency, government intervention, and the functioning of markets and economies on regional, national, and global scales. Through real-world examples and analytical tools, students gain insight into how economic policies and decisions impact individuals, businesses, and society as a whole.
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Survey of Economics Principles Applications and Tools 7th Edition by Arthur OSullivan
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Page 2
Chapter 1: Introduction: What Is Economics
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Q1) Deciding if a power company will generate electricity from wind power or coal answers the economic question of
A) who consumes the products produced.
B) what products will be produced.
C) where will the products be consumed.
D) how will the products be produced.
Answer: D
Q2) A small, one-unit change in value is called a marginal change.
A)True
B)False
Answer: True
Q3) In the 1980s and 1990s, average per capita income increased by a greater percentage in sub-Saharan Africa than it did in the rest of the world.
A)True
B)False
Answer: False
Q4) What is meant by the term "marginal change"?
Answer: A marginal change is a small, one unit change in value.
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Chapter 2: The Key Principles of Economics
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Q1) Refer to Table 2.4. Increasing the tanks of fertilizer from 3 to 4 will increase the truckloads of potatoes by
A) 152.
B) 35.
C) 17.
D) 11.
Answer: C
Q2) The extra benefit resulting from a small increase in an activity is called the A) opportunity cost.
B) marginal benefit.
C) marginal cost.
D) diminishing returns of the activity.
Answer: B
Q3) What matters to people is the face value of money or income.
A)True
B)False
Answer: False
Q4) What is an opportunity cost?
Answer: An opportunity cost is what you sacrifice to get something.
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Chapter 3: Demand, Supply, and Market Equilibrium
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Q1) When the price of almonds falls
A) the demand for almonds decreases, ceteris paribus.
B) the demand for almonds increases, ceteris paribus.
C) the quantity of almonds demanded decreases, ceteris paribus.
D) the quantity of almonds demanded increases, ceteris paribus.
Answer: D
Q2) People will buy more of a normal good when their income decreases.
A)True
B)False
Answer: False
Q3) Figure 3.3 illustrates the demand for tacos. A successful advertising campaign to sell tacos would bring about a movement from
A) point a to point b.
B) point c to point b.
C) D to D .
D) D to D .
Answer: D
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Chapter 4: Elasticity: A Measure of Responsiveness
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Q1) The Department of Justice could use the cross-price elasticity between products sold at Staples and Office Max to show that the firms are very similar.
A)True
B)False
Q2) Can you think of an example of a good whose demand could be perfectly inelastic?
Q3) Suppose that the percentage change in supply is 20%, the price elasticity of demand is 3, and the price elasticity of supply is 2. What is the percentage change in the equilibrium price?
A) 4%
B) 5%
C) 15%
D) 20%
Q4) A firm facing a linear demand curve maximizes its total revenue where demand is A) perfectly inelastic.
B) inelastic.
C) elastic.
D) unit elastic.
Q5) What is total revenue for a firm?
Q6) How do you interpret the value of cross-price elasticity?
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Chapter 5: Production Technology and Cost
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Q1) The marginal cost curve intersects the short-run average total cost curve where
A) marginal cost is minimized in the short run.
B) average variable costs are minimized in the short run.
C) average total costs are minimized in the short run.
D) average variable costs are maximized in the short run.
Q2) Average variable cost is defined as
A) total variable cost divided by quantity.
B) quantity divided by total variable cost.
C) the change in total variable cost divided by the change in quantity.
D) the change in quantity divided by the change in total variable cost.
Q3) Other things being equal, if a firm's marginal cost curve shifts upward at all output levels
A) the average total cost curve remains unchanged at all output levels.
B) the average variable cost curve remains unchanged at all output levels.
C) the average fixed cost curve remains unchanged at all output levels.
D) all of the above
Q4) The marginal cost curve always intersects the average total cost curve at the minimum of average total cost.
A)True
B)False
Page 7
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Chapter 6: Perfect Competition
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Sample Questions
Q1) Costs increase with output in an increasing-cost industry because
A) input prices increase as the industry competes for scarce resources.
B) firms may be forced to use less productive inputs.
C) the firms become monopolies.
D) Both A and B are correct.
Q2) How does the firm-specific demand curve in a perfectly competitive market compare to that in a monopoly?
A) The firm-specific demand curve in a perfectly competitive market is horizontal. The demand curve in a monopoly is downward sloping.
B) They are the same.
C) The firm-specific demand curve in a perfectly competitive market is horizontal. The demand curve in a monopoly is upward sloping.
D) The firm-specific demand curve in a perfectly competitive market is vertical. The demand curve in a monopoly is horizontal.
Q3) The long-run supply curve is upward sloping in a constant cost industry.
A)True
B)False
Q4) What are the characteristics of perfect competition?
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Chapter 7: Monopoly and Price Discrimination
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Sample Questions
Q1) Price discrimination is based on differences in ________ among groups of consumers and the differences in ________ that will result.
A) cross elasticities of demand; revenues
B) price elasticities of demand; profits
C) quantities supplied; marginal revenues
D) income elasticities of demand; marginal costs
Q2) A monopolist will never produce a level of output where MR < 0.
A)True
B)False
Q3) Society gains from a patent if the product would not otherwise be developed.
A)True
B)False
Q4) In which of the following situations can a firm or individual apply for a patent?
A) A firm develops a new tool that makes cutting grass much easier.
B) An author publishes a new novel.
C) Nicki Minaj, a recording artist, releases a new CD in the market.
D) All of the above are activities that can be patented.
Q5) Why do some markets have more firms than others?
Q6) Why does the government grant patents to companies that research new drugs?
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Chapter 8:
Market Entry, Monopolistic Competition, and Oligopoly
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Sample Questions
Q1) The government allowed the merger between Interstate Bakeries and Continental Bakery.
A)True
B)False
Q2) Where it wants to produce, the firm in Figure 8.14 would be
A) making a zero economic profit.
B) losing money.
C) making a positive economic profit.
D) breaking even.
Q3) The higher the Herfindahl-Hirschman Index, the more firms there are in a market.
A)True
B)False
Q4) When a firm has decreasing average costs over the entire range of market demand it is
A) a natural monopoly.
B) an oligopoly.
C) rent seeking.
D) in a contestable market.
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Q5) Describe how if a price-fixing game is repeated over and over, the cooperative outcome might be attained.
Chapter 9: Imperfect Information, External Benefits, and External Costs
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Sample Questions
Q1) A private good is a good that A) is consumed by a single person or household.
B) cannot be used by private citizens.
C) cannot result in external benefits or costs to those who don't consume.
D) is available for everyone to consume, regardless of who pays.
Q2) In Table 9.2, Market 2 would be in equilibrium if buyers believed lemons account for A) 55% of the market.
B) 65% of the market.
C) 70% of the market.
D) 80% of the market.
Q3) If a private good generates external benefits
A) the social benefit will be greater than the private benefit.
B) the social benefit will equal the private benefit.
C) the social benefit will equal the private benefit minus the external benefit.
D) the external benefit will equal the private benefit plus the social benefit.
Q4) Some states have laws that require that used car dealers give buyers a 30-day period during which they can return cars that are discovered to be lemons (low-quality).
Who do laws like this help? Who do they hurt?
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Q5) What are some of the ways a private group can overcome a free rider problem?
Chapter 10: The Labor Market and the Distribution of Income
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Q1) What does Temporary Aid to Needy Families (TANF) provide to recipients?
Q2) An increase in the market supply of clerks leads to an increase in the market wage rate for clerks.
A)True
B)False
Q3) Explain why the marginal revenue product of labor curve is the firm's short-run demand curve for labor.
Q4) Refer to Table 10.1. If the price of output is $2 per unit and we observe the firm hiring six workers, if the firm is maximizing profit, the wage rate must be between ________ and ________.
A) $20; $40
B) $30; $50
C) $40; $60
D) $500; $600
Q5) When a firm hires a worker for one hour, the marginal benefit to that firm equals the A) dollar value of the goods produced by that worker in one hour.
B) hourly wage of that worker.
C) number of items the worker produces in that hour.
D) price of each item that the worker produces in that hour.
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Chapter 11: Measuring a Nations Production and Income
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Sample Questions
Q1) Net exports are total imports minus total exports.
A)True
B)False
Q2) Gross domestic product calculations count only final goods and services because
A) these are the only goods and services that are purchased in an economy.
B) counting all goods and services would lead to double-counting of many activities.
C) it is difficult to measure the prices of intermediate goods produced.
D) one cannot calculate the quantities of intermediate goods produced.
Q3) What is the fastest growing component of consumption in the United States?
A) new home construction
B) nondurable goods
C) durable goods
D) services
Q4) Explain why only final goods are included in GDP.
Q5) The amount of income that households keep after paying taxes is
A) national income.
B) personal income.
C) personal disposable income.
D) value added income.
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Chapter 12: Unemployment and Inflation
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Q1) The index most widely used by the government and the private sector to measure changes in the cost of living is the
A) Producer Price Index.
B) Consumer Price Index.
C) the GDP deflator.
D) the chain-weighted price index.
Q2) According to this Application, one explanation for the decline in the U.S. labor force participation rate since 1999 is
A) higher college enrollment.
B) the increase in foreign ownership of U.S.-based companies.
C) sluggish economic growth that resulted in more discouraged workers.
D) the growing number of workers who have postponed retirement.
Q3) Unemployment insurance tends to lead to the unemployed worker spending less time unemployed.
A)True
B)False
Q4) Inflation must be high in Moscow because it is very expensive to live there.
A)True
B)False
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Chapter 13: Why Do Economies Grow
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Q1) Draw a graph showing the effect of an increase in the saving rate on the production function.
Q2) Assuming full employment, if the private sector saves 8 percent of its income and the government raises taxes by $500 to finance public investments, total investment will increase by $460.
A)True
B)False
Q3) In the short run, if the stock of capital ________ there will be more depreciation.
A) grows
B) declines
C) remains stable
D) grows, declines, or remains stable
Q4) Which of the following is NOT an example of technological progress?
A) builders constructing a new office building that uses less energy
B) an increase in Florida's orange crop resulting from a mild winter
C) the invention of wireless internet access
D) the development of blue tooth headsets
Q5) Explain the impact of capital deepening on workers.
Q6) In what two ways can education contribute to economic growth?
15
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Chapter 14: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) Any change in demand from ________ will also change aggregate demand.
A) households
B) firms
C) the foreign sector
D) all of the above
Q2) What three effects can alter the aggregate demand curve?
Q3) Stickiness of wages
A) is unrelated to stickiness of prices.
B) lessens the stickiness of prices.
C) reinforces stickiness of prices.
D) may or may not reinforce stickiness of prices.
Q4) The aggregate demand curve is
A) downward sloping.
B) upward sloping.
C) a vertical line at potential output.
D) a horizontal line at the current price level.
Q5) If potential output exceeds actual output, the aggregate demand curve shifts downward over time.
A)True
B)False
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Chapter 15: Fiscal Policy
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Sample Questions
Q1) Taxation and government spending are examples of fiscal policy tools used to stabilize an economy.
A)True
B)False
Q2) Briefly explain how a change in the personal income tax rate affects aggregate demand.
Q3) Consumers often base their spending on their estimated permanent income.
A)True
B)False
Q4) Even when the Obama administration succeeds with its effort to gain Congressional approval for its stimulus proposals, it will still take time for these policies to actually work. The time it takes for these policies to work is known as
A) inside lags.
B) outside lags.
C) automatic stabilization.
D) crowding out.
Q5) Unlike social insurance taxes, income taxes are paid on wages only. A)True
B)False
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Chapter 16: Money and the Banking System
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Q1) Suppose Ariana deposits $75,000 in her bank. If the reserve ratio is 20 percent, this will lead to a maximum increase of ________ in checking account balances throughout all banks.
A) $15,000
B) $375,000
C) $750,000
D) $1,500,000
Q2) According to this Application, the Fed increased its lending by hundreds of billions of dollars to financial institutions as a response to the ongoing financial crisis. This increase in loans to financial institutions increased the supply of money in the economy. When the supply of money increases, the money supply curve will
A) shift to the right, increasing the interest rate.
B) shift to the right, decreasing the interest rate.
C) shift to the left, increasing the interest rate.
D) shift to the left, decreasing the interest rate.
Q3) Money is the standard of exchange by which any type of goods can be purchased.
A)True
B)False
Q4) List four of the Federal Reserve's key functions.
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Chapter 17: Monetary Policy and Inflation
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Q1) We use interest rates to measure the opportunity cost of holding money.
A)True
B)False
Q2) What is the "good news" and the "bad news" about a lower value of the U.S. dollar?
Q3) To decrease the money supply using the reserve requirements, what would the Fed typically do?
A) raise the reserve requirement for banks
B) reduce the reserve requirement for banks
C) make each bank voluntarily set its own reserve levels
D) let each bank get less currency from the Treasury
Q4) The rate of interest charged to commercial banks by the Fed for loans is called the ________ rate.
A) federal funds
B) discount
C) prime
D) commercial paper
Q5) What three factors affect the demand for money?
Q6) How would the Fed's reduction of the reserve ratio requirement affect the money supply?
Page 19
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Chapter 18: International Trade and Finance
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Q1) Consider two individuals, Jesse and April, who hand paint kites and snowboards. Table 18.1 shows how much of each good Jesse and April can paint in one hour. April's opportunity cost of painting one snowboard is painting
A) 1.5 kites.
B) 3 kites.
C) 4 kites.
D) 12 kites.
Q2) Trade is only beneficial if a nation has an absolute advantage in producing all products.
A)True
B)False
Q3) Exporting nations often agree to voluntary export restraints in an attempt to A) employ more workers in the importing nation. B) avoid more restrictive trade policies.
C) increase global welfare.
D) decrease inflation.
Q4) Imagine two countries, Zorba and Anduluvia. Zorba is producing everything at a lower resource cost than Anduluvia. If the two countries trade what is the reason?
Q5) What is a tariff?
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