Introduction to Economics Exam Bank
Course
Introduction
Introduction to Economics provides students with a foundational understanding of economic principles and concepts that shape decision-making by individuals, businesses, and governments. This course explores basic topics such as supply and demand, market structures, consumer behavior, and the role of government in the economy. Students will examine how resources are allocated and the factors that influence economic growth, inflation, and unemployment. Emphasis is placed on applying economic reasoning to real-world problems, enabling students to analyze contemporary issues within both microeconomic and macroeconomic frameworks.
Recommended Textbook
Essential Foundations of Economics 6th Edition by Robin Bade
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Page 2
Chapter 1: Getting Started
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Q1) Why do economists use graphs?
Answer: Graphs help economists, and others, to visualize the relationships between economic variables. Graphs that plot variables together help economists understand if the variables are related and how they are related. Graphs also help provide a visual picture of economic models that link different variables. Indeed, many other disciplines use such visual models. For example, architects work with blueprints (their model)and the blueprints represent every detail of a building. Economists' models do not reflect of every detail of the real world, but the graphs that they use nonetheless are valuable because they help clarify the linkages between the variables.
Q2) When a third string NFL quarterback earns more than a police officer, society answers the ________ question.
A)for whom
B)what
C)how
D)why
E)social interest vs. self-interest
Answer: A
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Page 3
Chapter 2: The Us and Global Economies
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Q1) Approximately ________ people live in the United States and ________ people live in the world.
A)410 million; 8 billion
B)310 million; 7 billion
C)210 million; 5 billion
D)310 million; 3 billion
E)210 million; 6 billion
Answer: B
Q2) The circular flow model shows the flow of
A)expenditure and income throughout the economy.
B)only money throughout the economy.
C)only funds in stock and bond markets.
D)only tax payments and government expenditures.
E)goods market and factor markets as they move through the economy.
Answer: A
Q3) Draw a circular flow diagram with households and firms and without government. Label the markets and the flows in the circular flow diagram.
Answer: 11ea5163_2806_87e7_b971_290d9600316b_TB1455_00 A circular flow diagram with the markets and flows labeled is in the figure above.
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Page 4
Chapter 3: The Economic Problem
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Q1) The opportunity cost of economic growth is
A)0, because it means an expansion of production possibilities.
B)the decrease in the current production of productive factors.
C)a slower accumulation of human capital.
D)the decrease in the current production of consumption goods.
E)the increase in the nation's capital stock and/or its technology.
Answer: D
Q2) A bowed out production possibility frontier shows that the
A)opportunity cost of a good is constant as more of the good is produced.
B)opportunity cost of a good decreases as more of the good is produced.
C)opportunity cost of a good increases as more of the good is produced.
D)opportunity cost relationship is linear.
E)opportunity cost of producing another good is negative.
Answer: C
Q3) Are all points inside the production possibilities frontier unattainable?
Answer: No, all points within the production possibilities frontier are attainable, though there are unemployed resources at these points.
Q4) 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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Chapter 4: Demand and Supply
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Q1) A surplus of cardboard boxes means that
A)at the current price of a cardboard box, the quantity demanded exceeds the quantity supplied.
B)at the current price of a cardboard box, the quantity demanded is less than the quantity supplied.
C)the current price of a cardboard box is less than the equilibrium price.
D)at the current price of a cardboard box, the quantity demanded equals the quantity supplied and the price will fall to restore the equilibrium..
E)More information is needed to determine if the price of cardboard boxes is higher than, lower than, or equal to the equilibrium price.
Q2) Which of the following is correct?
I. A surplus puts downward pressure on the price of a good.
Ii. A shortage puts upward pressure on the price of a good.
Iii. There is no surplus or shortage at equilibrium.
A)i and ii
B)i and iii
C)ii and iii
D)i, ii, and iii
E)only iii
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Chapter 5: Elasticities of Demand and Supply
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Q1) Which of the following statements is correct?
A)The demand for New Balance shoes is more elastic than the demand for shoes in general.
B)The demand for salt is very elastic.
C)The demand for luxuries is less elastic than the demand for necessities.
D)The demand for a narrowly defined good is less elastic than the demand for a more broadly defined good.
E)The larger the proportion of income spent on a good, the smaller the elasticity of demand.
Q2) June makes holiday wreaths and sells them during the holiday season. The figure above shows her supply curve of wreaths per week. Use the midpoint method in this problem.
a. Calculate the percentage change in quantity between points A and B.
b. Calculate the percentage change in price between points A and B.
c. Calculate the price elasticity of supply between points A and B.
Q3) What are the three cases for the price elasticity of demand?
Briefly define each.
Q4) 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?
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Chapter 6: Efficiency and Fairness of Markets
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Q1) When economists use the term "big tradeoff" when discussing efficiency they are referring to the tradeoff between
A)external costs and external benefits.
B)marginal cost and marginal benefits.
C)producer surplus and consumer surplus.
D)efficiency and fairness.
E)deadweight loss and producer/consumer surplus.
Q2) Why do societies face a tradeoff between the size of the economic pie and the degree of equality with which it is shared?
Q3) "A demand curve is the same as a marginal cost curve." Is this statement correct or incorrect?
Explain your answer.
Q4) In the above figure, the market is at its equilibrium. Area A is equal to A)consumer surplus.
B)total revenue.
C)marginal benefit.
D)producer surplus.
E)total surplus.
Q5) Why does the marginal benefit curve have a negative slope?
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Chapter 7: Government Actions in Markets
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Q1) The figure above shows the market for gasoline. The government has imposed a tax on gasoline.
a. What is the amount of the tax per gallon of gasoline?
b. How much tax revenue will government collect from this tax?
c. How much of the tax is paid by consumers?
How much is paid by producers?
Which is more elastic, the supply or demand for gasoline?
Q2) Based on the figure above, the tax ________ the price received (and kept)by the seller by ________ per MP3 player.
A)lowers; $5
B)raises; $5
C)raises; $10
D)lowers; $10
E)lowers; $2.50
Q3) A price ceiling
A)creates market efficiency by making a good cheaper.
B)helps all producers by increasing the price of the good.
C)can create a black market for the good.
D)reduces search activity.
E)benefits all people who want to buy the good.
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Chapter 8: Global Markets in Action
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Q1) If a tariff is imposed on imports of shrimp into the United States, U.S. consumer surplus from shrimp will ________ and U.S. total surplus from shrimp will ________.
A)increase; increase B)increase; decrease C)decrease; increase D)decrease; decrease E)increase; not change
Q2) Based on the figure above, as a result of international trade, U.S. domestic production ________ airplanes per year.
A)decreases by 200
B)increases by 300
C)decreases by 100
D)increases by 500
E)increases by 200
Q3) How does a quota affect the consumer surplus and the producer surplus from the imported good?
Is the overall economy helped or harmed by quotas?
Briefly explain your answers.
Q4) How do imports affect sellers' producer surplus?
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Chapter 9: Externalities: Pollution, Education, and Health Care
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Q1) the figure above shows that the unregulated market equilibrium occurs at a tuition of ________ a year and ________ million students.
A)$15,000; 7.5
B)$25,000; 15
C)$15,000; 15
D)$25,000; 7.5
E)$38,000; 7.5
Q2) The figure above represents the relationship between output and cost in an industry with an external cost. Which line represents the marginal private cost (MC)curve?
A)Curve 1
B)Curve 2
C)the dotted line BC
D)the y-axis
E)the dotted line AB
Q3) If the marginal social cost of a good is $70 and the marginal external cost is $20, what does the marginal private cost equal?
Q4) What is the Coase theorem? What conditions need to be present for this theorem to work?
Page 11
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Chapter 10: Production and Cost
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Q1) 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.
Q2) Increasing marginal returns always occurs when the A)marginal product of an additional worker exceeds the marginal product of the previous worker.
B)average product of an additional worker exceeds the average product of the previous worker.
C)marginal product of an additional worker is less than the marginal product of the previous worker.
D)average product of an additional worker is less than the average product of the previous worker.
E)marginal product of an additional worker exceeds the average product of the previous worker.
Q3) What do economists mean when they say that a firm's plant is fixed?
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Page 12
Chapter 11: Perfect Competition
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Q1) Acme is a perfectly competitive firm. It has the cost schedules given in the above table and has a fixed cost of $12.00. The price of Acme's product is $4.00. What is Acme's most profitable amount of output? What is Acme's total economic profit or loss?
Q2) The price for the shutdown point ________.
A)$5.14
B)between $3.01 and $5.13
C)$3.00
D)between $0 and $2.99
E)greater than $5.15
Q3) Juan's Software Service Company is in a perfectly competitive market. Juan has total fixed cost of $25,000, average variable cost for 1,000 service calls is $45, and marginal revenue is $75. Juan's makes 1,000 service calls a month. What is his economic profit?
A)$5,000
B)$25,000
C)$45,000
D)$75,000
E)$50,000
Q4) Describe how economic losses are eliminated in a perfectly competitive industry.
Page 13
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Chapter 12: Monopoly
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Q1) The long-run average cost curve of a natural monopoly
A)is positively sloped until it crosses the demand curve.
B)intersects the demand curve while it is negative sloped.
C)intersects the demand curve while it is positively sloped.
D)is the natural monopoly's supply curve.
E)is the same as the natural monopoly's demand curve.
Q2) A single-price monopoly has marginal revenue and marginal cost equal to $19 at 15 units of output where the price on the demand curve is $38. At this output, average total cost is $15. What is the total profit earned?
A)$225
B)$285
C)$345
D)$570
E)$19
Q3) The capture theory of regulation is that regulations
A)help producers to maximize economic profits.
B)mean producers suffer losses.
C)result in diseconomies of scale.
D)benefit society, not producers.
E)benefit the regulators, not the producers or the consumers.
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Chapter 13: Monopolistic Competition and Oligopoly
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Q1) In the above figure, the output of an oligopoly will range between
A)0 and Q .
B)Q and Q .
C)Q and Q .
D)Q and Q .
E)0 and Q .
Q2) The above figure shows a motel engaged in monopolistic competition with other motels. The equilibrium quantity at this motel is ________ rooms per day.
A)200
B)300
C)400
D)500
E)100
Q3) When economies of scale limit the number of firms in an industry to 3, there is a A)natural monopoly.
B)natural oligopoly.
C)legal oligopoly.
D)legal cartel.
E)natural monopolistic competition.
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Page 15
Chapter 14: Gdp: a Measure of Total Production and Income
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Q1) The expenditure approach to measuring GDP is done by using data on only
A)consumption expenditure.
B)consumption expenditure and investment.
C)consumption expenditure, investment, government expenditure on goods and services, and net exports of goods and services.
D)consumption expenditure, investment, and government expenditures.
E)wages, rent, interest, and profit.
Q2) U.S. real GDP
A)precisely measures the improving standard of living in the United States.
B)measures the change in the price level over time.
C)excludes the value of underground production and leisure time.
D)is not as accurate as nominal GDP when measuring standard of living changes over time.
E)includes the value of underground production but excludes the value of leisure time.
Q3) When total output, income, employment, and trade decline for 6 to 12 months, the economy is in what part of the business cycle?
Q4) Explain how GDP is measured according to the expenditure and income approaches.
Q5) Investment, as included in GDP, consists of what?
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Chapter 15: Jobs and Unemployment
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Q1) When the unemployment rate is ________ the natural unemployment rate, real GDP is ________ potential GDP.
A)below; above B)above; the same as C)the same as; below D)the same as; above E)above; above
Q2) Using the table above, the unemployment rate is
A)11.2 percent.
B)6.3 percent.
C)4.2 percent.
D)10 percent.
E)5.8 percent.
Q3) From the table above, which gives data about the U.S. labor market in 1933, the labor force is
A)48 million.
B)60 million.
C)65 million.
D)100 million.
E)12 million.
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Chapter 16: The Cpi and the Cost of Living
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Q1) When comparing the annual inflation rate in the United States based on the CPI with the annual inflation rate based on the PCE price index, the data show that the
A)CPI measure tends to exceed the PCE price index measure.
B)PCE price index measure tends to exceed the CPI measure.
C)CPI measure and the PCE price index measure are equal.
D)CPI measure and PCE price index measure move in opposite directions.
E)CPI deflator and PCE price index cannot be compared because they measure prices of different baskets of goods and services.
Q2) The Consumer Price Index market basket contains
A)the minimal dietary requirements of an average urban household.
B)the U.S.-produced goods and services purchased by an average urban household.
C)the ideal calorie intake of each member of an average urban household.
D)the goods and services purchased by an average urban household.
E)the goods and services that the economists working for the BLS believes consumers should buy.
Q3) "The market basket used to calculate the CPI is revised monthly to more accurately depict consumers' choices. The price data for the CPI are collected every month." Are the previous sentences true or false?
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Chapter 17: Potential Gdp and Economic Growth
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Q1) Economic freedom provides the
A)political system that encourages democracy.
B)social system that supports families.
C)production system that discourages property rights.
D)incentive system that encourages growth-producing activities.
E)necessary alternative to free markets.
Q2) A condition necessary for a country to achieve economic growth is
A)high tax rates so the government can purchase a lot of capital equipment.
B)strict environmental regulations.
C)economic freedom.
D)government control of the banking system.
E)democracy.
Q3) A firm hires labor up to the point where the
A)real wage rate equals the nominal wage rate.
B)additional hour of labor produces extra output that equals the real wage rate.
C)additional hour of labor produces extra output that equals the nominal wage rate.
D)firm can sell the extra output.
E)real wage rate exceeds the nominal wage rate.
Q4) What is the Rule of 70?
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Chapter 18: Money and the Monetary System
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Q1) Which of the following is NOT a component of M1?
A)demand deposits
B)traveler's checks
C)savings deposits
D)currency
E)Both answers C and D are correct.
Q2) Barter is
A)the exchange of goods and services for money.
B)the pricing of goods and services with one agreed upon standard.
C)the exchange of goods and services directly for other goods and services.
D)a generally accepted means of payment.
E)storing money for use at a later date.
Q3) The store of value function is defined as the
A)pricing of goods and services in one measure.
B)exchange of goods and services directly for other goods and services.
C)holding of money from one transaction to be used later in another transaction.
D)double coincidence of wants that is used in the debate over barter versus money.
E)use of money as a medium of exchange.
Q4) Explain the process by which the banking system creates money.
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Chapter 19: Aggregate Supply and Aggregate Demand
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Q1) Which of the following does NOT shift the aggregate demand curve?
A)a change in the money wage
B)a change in expectations about the future
C)a change in monetary policy
D)a change in fiscal policy
E)a change in foreign income
Q2) State how each of the following affect the aggregate demand curve.
a. The price level increases.
b. Consumers expect higher inflation in the future.
c. The exchange rate rises.
d. Foreign income decreases.
Q3) The aggregate demand curve illustrates the relationship between
A)the price level and the quantity of goods demanded by households, firms, government, and foreigners.
B)the real wage rate and the hours of labor demanded by firms.
C)the price level and the potential quantity demanded of real GDP.
D)the price level and the quantity of goods supplied by firms.
E)the price level and the potential demand for real GDP.
Q4) How does a recession in Asia affect U.S. aggregate demand and the U.S. aggregate demand curve?
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Chapter 20: Fiscal Policy and Monetary Policy
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Q1) A tax hike ________ aggregate demand and ________ aggregate supply.
A)increases; increases
B)increases; decreases
C)decreases; increases
D)decreases; decreases
E)does not change;increases
Q2) To eliminate a recessionary gap, the government can ________ government expenditures on goods and services or ________ taxes.
A)increase; increase
B)increase; decrease
C)decrease; increase
D)decrease; decrease E)increase; not change
Q3) If government expenditure on goods and services increase by $10 billion, then aggregate demand
A)increases by $10 billion.
B)increases by $10 billion multiplied by the government expenditure multiplier.
C)increases by $10 billion multiplied by the tax multiplier.
D)decreases by $10 billion.
E)decreases by $10 billion multiplied by the government expenditure multiplier.
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