Introduction to Economics
Exam Materials
Course Introduction
Introduction to Economics provides students with a foundational understanding of the principles governing the production, distribution, and consumption of goods and services within societies. The course explores key concepts such as supply and demand, market equilibrium, opportunity cost, and the role of government in economic systems. Students will analyze how individuals and organizations make economic decisions, how markets function, and the impact of economic policies on both microeconomic and macroeconomic levels. Through real-world examples and interactive activities, learners will develop critical thinking skills necessary to understand and evaluate economic issues in contemporary society.
Recommended Textbook Economics for Today 5th Edition by Allan Layton
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19 Chapters
2164 Verified Questions
2164 Flashcards
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Page 2
Chapter 1: Thinking Like an Economist
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Sample Questions
Q1) Ceteris paribus means:
A) allowing everything else changing.
B) one-to-one cause-and-effect relationships.
C) holding one variable constant.
D) in the absence of other influences.
Answer: D
Q2) The study of microeconomics and macroeconomics differs in that:
A) microeconomics is concerned with the domestic economy and macroeconomics is concerned only with the international economy.
B) microeconomics examines the individual markets of the economy while macroeconomics studies the whole economy.
C) microeconomics studies the actions of households and macroeconomics studies the actions of business firms.
D) microeconomics studies the economy in terms of private individuals and firms while macroeconomics includes the effect of an industry.
E) microeconomics examines the whole economy while macroeconomics studies the individual units of the economy.
Answer: B
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3
Chapter 2: Applying Graphs to Economics
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Sample Questions
Q1) A horizontal line indicates an independent relationship between two variables.
A)True
B)False
Answer: True
Q2) As shown in Exhibit A1.3, the slope of straight line AB: A) decreases with increases in X. B) increases with increases in X. C) increases with decreases in X. D) remains constant with changes in X.
Answer: D
Q3) In Exhibit A1.3, the slope of straight line AB is:
A)1.
B)5.
C) 1/2.
D) -1.
E) not determinable from the information provided.
Answer: C
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Page 4
Chapter 3: Production Possibilities and Opportunity Cost
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Sample Questions
Q1) Suppose an economy is faced with the production possibilities table shown in Exhibit 2.8. The second unit of capital goods production will cost _____ units of consumption goods and the third unit of capital goods production will cost _____ units of consumption goods.
A) 4; 6
B) 25; 23
C) 23; 19
D) 1; 23
Answer: A
Q2) Marginal analysis:
A) compares some benefits of a change with all the costs of the change.
B) compares total benefits of a change with total costs of the change.
C) examines the impact of changes from a current situation.
D) examines only the non-important issues.
Answer: C
Q3) An increase in current consumption is necessary for economic growth.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Market Demand and Supply
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Sample Questions
Q1) A surplus means that the quantity supplied is greater than the quantity demanded at the prevailing price.
A)True
B)False
Q2) An improvement in technology will:
A) increase the demand.
B) lower the cost of production.
C) decrease the demand.
D) increase the cost of production.
Q3) Which of the following will cause a movement along the supply curve?
A) An increase or decrease in the cost of raw materials.
B) An increase in labour costs.
C) Changes in the cost of the machinery used to make a good.
D) Changes in the market price of a good, other things being constant.
Q4) Which of the following will not cause a movement along the supply curve?
A) Changes in consumers' expectations.
B) Increases in consumers' income.
C) Changes in consumers' preferences.
D) Changes in input prices.
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Chapter 5: Markets in Action
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Sample Questions
Q1) Price ceiling is:
A) any price above market equilibrium.
B) a price above market equilibrium set by the government.
C) a price below market equilibrium set by the government.
D) any price below market equilibrium.
Q2) What are the effects of shifts in demand on market equilibrium?
A) Increase in demand will result in higher equilibrium price and lower equilibrium Quantity.
B) Increase in demand will result in lower equilibrium price and lower equilibrium quantity.
C) Increase in demand will result, in general, in higher equilibrium price and higher equilibrium quantity.
D) Increase in demand will result in the same equilibrium price and equilibrium quantity.
Q3) If the government imposes a price ceiling, then:
A) producers must charge the ceiling price.
B) the price offered by producers must be at or above the ceiling price.
C) the price offered by producers must be at or below the ceiling price.
D) producers would be inclined to increase the quantity supplied.
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Chapter 6: Elasticity of Demand and Supply
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Sample Questions
Q1) Price elasticity of demand measures:
A) the responsiveness of the quantity demanded of a good to a change in income.
B) the responsiveness of the quantity demanded of a good to a change in consumers' Preferences.
C) the responsiveness of the quantity demanded of a good to a change in the price of that good.
D) the reduction in the quantity demanded of a good when the price of that good is reduced.
Q2) In Exhibit 5.1, between points a and b, the price elasticity of demand measures:
A) 0.67.
B) 1.5.
C)2.
D) 1.
Q3) When a 2 per cent increase in price generates a greater than 2 per cent decrease in quantity demanded, then:
A) demand is price inelastic.
B) total revenue increases.
C) demand is positively sloped.
D) total revenue decreases.
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8
Chapter 7: Production Costs
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Sample Questions
Q1) In Exhibit 6.5, by filling in the blanks it can be determined that the marginal cost of the first unit of output is:
A) $200.
B) $700.
C) $900.
D) $1000.
Q2) As shown in Exhibit 6.6, the total cost of producing four units is:
A) $0.
B) $227.
C) $250.
D) $100.
Q3) Which of the following statements is true?
A) The law of diminishing returns states that beyond some point the marginal product of a variable resource continues to rise.
B) The marginal product is the change in total output by adding one additional unit of a fixed input.
C) Fixed costs are costs which vary with the output level.
D) When marginal productivity of a variable input is falling, then marginal costs of production must be rising.
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Page 9
Chapter 8: Perfect Competition
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Sample Questions
Q1) Suppose that in a perfectly competitive market, firms are making economic profits. In the long run, we can expect to see:
A) some firms leave.
B) the market price rise.
C) market supply shift to the left.
D) economic profits become zero.
Q2) Refer to Exhibit 7.7. The short-run results for this firm are:
A) a positive economic profit.
B) a normal profit.
C) a quasi-loss.
D) such a large loss it should shut down.
Q3) If the market price is equal to the average variable cost, the firm should:
A) keep operating or shut down.
B) increase the output.
C) change fixed inputs.
D) increase the price.
Q4) The firm maximises profit by producing the output where the marginal revenue is higher than marginal cost.
A)True
B)False
Page 10
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Chapter 9: Monopoly
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Sample Questions
Q1) Monopolies can charge any price they like and sell as much as they want.
A)True
B)False
Q2) A monopolist that lowers its price and increases output, even at the expense of short-run profits, is engaging in:
A) predatory pricing.
B) price discrimination.
C) predatory discrimination.
D) multi-purpose pricing.
Q3) Research on the role of monopolies in an economy shows:
A) that monopolies have only negative effects on the economy.
B) that monopolies have only positive effects on the economy.
C) mixed results.
D) that monopolies do not ultimately contribute to technological change.
Q4) Economies of scale means that competition is unsustainable because:
A) competition results in lower quantity and lower price.
B) as firms become larger, the inefficiency grows.
C) one large scale firm can produce at lower cost than several firms.
D) it is easier to control one firm than many firms.
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Chapter 10: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) Which of the following is true about advertising by a firm?
A) It is always successful in increasing demand for a firm's product.
B) It attempts to increase demand and to make demand more elastic.
C) It can attract severe penalties if firms are engaged in false or misleading advertising.
D) It allows large firms to become monopolists.
Q2) One of the differences between perfect competition and oligopoly is:
A) that an oligopolist rarely earns economic profit, whereas a perfectly competitive firm will always earn economic profit.
B) that perfectly competitive firms often engage in non-price competition, whereas oligopolists don't.
C) that while a perfectly competitive firm earns zero economic profit in the long run, the oligopolist can earn positive economic profit in the long run.
D) that a perfectly competitive firm will advertise while an oligopolist will not advertise.
Q3) Firms in monopolistic competition are price takers.
A)True
B)False
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Page 12
Chapter 11: Policy Issues: Housing Affordability and Climate Change
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Sample Questions
Q1) The revenue from the carbon tax:
A) could be used to fund more hospitals.
B) could be used to fully compensate those damaged by the pollution.
C) could be used to fully compensate those who are paying the carbon tax.
D) could be used to make industries more competitive internationally.
Q2) Firms wanting to emit carbon dioxide have to:
A) buy emissions permits.
B) sell emissions permits.
C) stop production.
D) exit the industry.
Q3) Assume that the private supply is 'Supply 1' and the supply including tax is 'Supply 2' (Exhibit 10.2). What is the reduction in the output after the carbon tax was imposed?
A) zero units.
B) 30 units.
C) 20 units.
D) 10 units.
Q4) Regulation is the best solution to climate change issues.
A)True
B)False
13
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Chapter 12: Measuring the Size of the Economy
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Sample Questions
Q1) Which one of the following statements is true?
A) Resources flow from the government to firms.
B) Taxes flow from foreign economies to the government.
C) Goods and services flow from households to foreign economies.
D) Resources flow from households to firms.
Q2) Gross domestic product (GDP) is officially measured by adding together:
A) the quantity of each good and service produced by Australian residents.
B) gross national product and depreciation of resources.
C) incomes received by all of a nation's households.
D) the market value of all final goods and services produced within the borders of a nation.
Q3) As shown in Exhibit 11.1, total expenditures by businesses for fixed investment and inventories are:
A) $15 billion.
B) $50 billion.
C) $65 billion.
D) $200 billion.
Q4) In an open economy, domestic savings must always equal investment.
A)True
B)False
Page 14
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Chapter 13: Business Cycles and Economic Growth
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Sample Questions
Q1) The trough is good news because:
A) it is the middle of the expansion phase of the business cycle.
B) production is at the highest level.
C) unemployment is low.
D) it is the starting point to improve economic conditions.
Q2) According to Exhibit 12.2, the 'golden rule' steady-state occurs when the level of capital per worker is:
A) 100.
B) 120.
C) between 144 and 172.8.
D) 172.8.
Q3) The level of GDP that could be produced at full employment is:
A) aggregated GDP.
B) desirable nominal GDP.
C) potential real GDP.
D) unattainable.
Q4) The term 'trough' refers to the maximum point of the business cycle.
A)True
B)False
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Chapter 14: Inflation and Unemployment
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Sample Questions
Q1) The source of demand-pull inflation is a:
A) lack of expectations.
B) shortage of demand.
C) excess of demand.
D) high cost of production.
Q2) The consumer price index is also called:
A) the price of living index.
B) the cost of surviving index.
C) the cost of living index.
D) the price of underemployment.
Q3) According to the Australian Bureau of Statistics (ABS), any person who claims on an ABS survey that she/he is performing only unpaid household duties is:
A) retired.
B) unemployed.
C) re-employable.
D) not a member of the labour force.
Q4) People with fixed incomes fare best in an inflationary period.
A)True
B)False
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Chapter 15: A Simple Model of the Macro Economy
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Sample Questions
Q1) The full employment level of real GDP can be represented on an aggregate supply and demand diagram as a/an:
A) vertical line.
B) upward-sloping line.
C) horizontal line.
D) downward-sloping line.
Q2) The horizontal axis used in the aggregate demand curve measures:
A) the amount of all final goods and services included in real GDP.
B) the value of all final goods and services included in nominal GDP.
C) the value of all intermediate goods and services.
D) the value of all final goods and services included in real GDP.
Q3) Net exports will rise if:
A) the currency depreciates.
B) foreign income falls.
C) domestic income increases.
D) the terms of trade remain constant.
Q4) The spending multiplier implies that any change in government spending will have a proportionally smaller impact on real GDP.
A)True
B)False
Page 17
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Chapter 16: The Monetary and Financial System
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Sample Questions
Q1) A decrease in the money supply:
A) lowers the interest rate, causing a decrease in investment and a decrease in GDP.
B) lowers the interest rate, causing a decrease in investment and an increase in GDP.
C) raises the interest rate, causing an increase in investment and a decrease in GDP.
D) raises the interest rate, causing an increase in investment and an increase in GDP.
Q2) The RBA currently sets a medium-term inflation target of:
A) zero per cent
B) 1-3 per cent
C) 2-3 per cent
D) 0-5 per cent
Q3) The role of the Reserve Bank of Australia in the economy is to:
A) control prices.
B) look into research and development portfolios.
C) manage the government's investments.
D) control interest rates.
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18
Chapter 17: Macroeconomic Policy I: Monetary Policy
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Sample Questions
Q1) A rules-based approach to monetary policy is likely to be more effective when the velocity of money is:
A) volatile.
B) zero.
C) stable.
D) equal to the inflation rate.
Q2) The primary goal of the RBA is to:
A) keep inflation low in order to generate sustainable growth.
B) maintain full employment.
C) ensure the economic prosperity of Australian people.
D) keep interest rates low.
Q3) With a fixed exchange rate, the RBA:
A) had to buy Australian dollars when the currency threatened to depreciate.
B) had to sell Australian dollars when the currency threatened to appreciate.
C) would alter the domestic money supply when they intervened to keep the Australian dollar at its fixed rate.
D) had strong control over domestic interest rates.
Q4) The velocity of money is equal to nominal GDP divided by the money supply.
A)True
B)False
Page 19
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Chapter 18: Macroeconomic Policy II: Fiscal Policy
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Sample Questions
Q1) The RBA purchase of securities issued by the government is known as:
A) debt financing.
B) money financing.
C) national debt.
D) private debt.
Q2) Countercyclical fiscal policy advocates running a balanced budget over the course of the business cycle.
A)True
B)False
Q3) Domestic deficit is the difference between:
A) domestically derived revenue and international governments' expenditure.
B) domestically derived revenue and exports.
C) domestically derived revenue and imports.
D) domestically derived revenue and domestic government expenditure.
Q4) According to supply-side economists, substantial tax cuts will result in:
A) a decrease in the supply of labour.
B) a decrease in the after-tax wage.
C) an increase in the AS curve.
D) a decrease in productive investment.
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Chapter 19: International Trade and Finance
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Sample Questions
Q1) If a hotel room in India, priced at 4000 rupees per night, can be purchased for 80 Australian dollars, the exchange rate is:
A) 200 rupees per dollar.
B) 50 dollars per rupee.
C) 50 rupees per dollar.
D) 0.5 rupees per dollar.
Q2) In Exhibit 18.4, the equilibrium exchange rate is:
A)5.
B)4.
C)3.
D) 2.
Q3) Suppose a German bank purchases an Australian Treasury bond. This transaction would be recorded in the:
A) capital account.
B) current account.
C) goods trade balance.
D) unilateral transfers.
Q4) If the yen price of dollars falls, then the dollar price of yen rises.
A)True
B)False
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