Introduction to Economics Exam Questions
Course Introduction
Introduction to Economics provides students with a foundational understanding of economic principles and their application in real-world scenarios. The course explores the fundamental concepts of microeconomics and macroeconomics, including supply and demand, market structures, consumer behavior, production decisions, national income, and government policy. Through case studies and practical examples, students gain insight into how individuals, businesses, and governments make economic decisions and the impact of those decisions on markets and society. This course equips students with essential analytical tools to interpret economic issues and prepares them for further study in the field.
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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) The term or phrase most likely to indicate a normative statement is
A)"ceteris paribus."
B)"factual." or "what is" statement.
C)"holding other things constant."
D)"should" or "ought to."
Answer: D
Q2) Which of the following is a macroeconomic concern?
A)the unemployment rate in a specific industry
B)the national output of the United States
C)wage levels in specific industries
D)the operation of an individual firm
Answer: B
Q3) In a market system,________ provide signals about whether resources are relatively scarce or abundant.
A)prices
B)economists
C)government officials
D)scientists and engineers
Answer: A
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Chapter 2: Scarcity and the World of Trade-Offs
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Q1) Economic goods are defined as
A)tangible items only.
B)services only.
C)anything from which an individual derives satisfaction.
D)any item which is available in sufficient quantity at zero price.
Answer: C
Q2) If all resources were perfectly adaptable for alternative uses,the production possibilities curve would
A)be bowed out.
B)be bowed in.
C)be a straight line.
D)not exist.
Answer: C
Q3) Briefly explain why people make choices.
Answer: People make choices because of scarcity.Scarcity exists because resources are insufficient to satisfy people's every desire.
Q4) Why do most people specialize in their work?
Answer: Most people specialize because specializing in what they have a comparative advantage increases their productivity.
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Chapter 3: Demand and Supply
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Sample Questions
Q1) Suppose Good A is a normal good.Which of the following will increase the demand for Good A?
A)An increase in the price of its substitutes
B)A lower expected future relative price of A
C)An increase in the price of its complements
D)A decrease in income
Answer: A
Q2) Which of the following is a likely result of the dramatic decrease in the price of microprocessor chips to computer manufacturers in the last two decades?
A)An increase in the demand for computers.
B)A decrease in the supply of diskettes.
C)An increase in the supply of computers.
D)An increase in the quantity supplied of computers.
Answer: C
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Chapter 3: Extensions of Demand and Supply Analysis
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Q1) Specialists who try to lower transaction costs are
A)consumers.
B)producers.
C)bureaucrats.
D)middlemen.
Q2) If the government sets a minimum price at which a good or service can be sold,it thereby creates
A)a price ceiling.
B)a black market price.
C)a price floor.
D)an illegal price control.
Q3) Refer to the above figure.Suppose that the supply curve shifts from S<sub>A</sub> to S<sub>B</sub> while the demand curve remains at D<sub>A</sub>.Which of the following is true?
A)Only quantity supplied has increased.
B)Only quantity demanded has decreased.
C)Supply has increased.
D)Supply has decreased.
Q4) Would it take longer for a labor market to move to a new equilibrium for house painters or architects? Why?
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Chapter 4: Public Spending and Public Choice
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Q1) A paint firm has just announced that it will be building a new plant in a small town that is currently experiencing a high level of unemployment.The new plant will create 500 new jobs in the area and will occupy unused land at the edge of town.The plant will also dump some harmful chemicals into the town's river.From an economic standpoint this dumping of chemicals
A)is unimportant since the firm is reducing the unemployment in the region.
B)creates a negative externality.
C)is the production of a public good.
D)creates a positive externality.
Q2) All of the following are assumptions of both market and public-sector decision making EXCEPT:
A)Decisions are based on majority rule.
B)Decisions are motivated by individuals' self-interest.
C)Opportunity costs exist in decisions.
D)Choices reflect incentives faced by decision makers.
Q3) An economic activity in which benefits or costs affect third parties is called
A)a public good.
B)a third-party good.
C)the exclusion principle.
D)an externality.
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Chapter 5: Funding the Public Sector
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Sample Questions
Q1) The average tax rate is defined as
A)total tax due/change in taxable income.
B)total tax due/total taxable income.
C)change in taxes due/change in taxable income.
D)change in taxes due/total taxable income.
Q2) Jamal earns $160,000 per year and Josephina earns $80,000 per year.If Jamal pays $16,000 in income taxes and Josephina pays $8,000 in income taxes,the income tax system would be
A)regressive.
B)progressive.
C)proportional.
D)marginal.
Q3) How would the market for smartphones be affected if the government charged an excise tax of $5.00 on each smartphone sold?
A)The supply of smartphones would decrease.
B)The demand for smartphones would increase.
C)The demand for smartphones would decrease.
D)The price of smartphones would rise by $5.00.
Q4) Explain how corporate profits are taxed twice.
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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Sample Questions
Q1) Supply will become more elastic when
A)a time period lengthens.
B)the time period shortens.
C)the good is important to consumers.
D)there are good substitutes for the goods.
Q2) The result of the calculation of the price elasticity of demand is
A)always positive.
B)always negative.
C)sometimes positive,sometimes negative.
D)always greater than one.
Q3) Use the above figure.Which graph depicts a normal good?
A)A
B)B
C)C
D)D
Q4) A perfectly elastic supply curve is
A)a straight line that crosses the horizontal axis.
B)a straight line coming out of the origin.
C)a horizontal straight line.
D)a vertical straight line.
Page 9
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Chapter 7: Consumer Choice
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Sample Questions
Q1) Given the above figure,if Joey was a rational consumer he would NOT eat more than ________ piece(s)of pizza.
A)1
B)5
C)4
D)6
Q2) If marginal utility is negative,
A)total utility increases at a decreasing rate.
B)the consumer considers extra units of the commodity to be a "bad."
C)the consumer will want to consume the unit only if it is free.
D)the consumer likes the commodity,but not as much as he or she once did.
Q3) What is the relationship between marginal utility and total utility? What happens to total utility as marginal utility declines?
Q4) If the marginal utility of each good is constant as consumption increases,the indifference curves are
A)horizontal.
B)vertical.
C)straight lines.
D)positively sloped.
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Chapter 8: Rents, profits, and the Financial Environment of Business
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Sample Questions
Q1) The most common form of business organization in the United States is the A)proprietorship.
B)partnership.
C)corporation.
D)cooperative.
Q2) A star basketball player signs a contract that newspaper reports say is worth $20 million.The player receives $5 million on signing,and $5 million a year for three years.The contract is worth
A)$20 million as reported in the papers.
B)less than $20 million since the present value of $5 million received one or more years from now is less than $5 million.
C)more than $20 million because the present value of $5 million received one or more years from now is more than $5 million.
D)either more or less than $20 million,depending on the value of the discount rate.
Q3) Describe and explain the three principle methods of financing used by corporations.
Q4) If the random walk theory is correct,then is there any way to "beat the market"?
Q5) How is inflation related to interest rates?
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Chapter 9: The Firm: Cost and Output Determination
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Sample Questions
Q1) In economics,the planning horizon is defined as A)10 years for every firm.
B)the longest time period over which the firm can make decisions.
C)the period of time for which technology is fixed.
D)the long run,during which all inputs are variable.
Q2) Suppose the total output curve increases at an increasing rate for workers 1-50,increases at a decreasing rate from workers 51-101,and decreases beyond 101 workers.We would know that
A)marginal product is increasing from workers 1-50 and then becomes negative after worker 51.
B)marginal product is increasing from workers 1-50,decreasing after 51 workers,and becomes negative after the 101st worker.
C)marginal product is decreasing from workers 1-101,becoming negative at the 102nd worker.
D)marginal product is increasing from workers 1-50,constant from workers 51 to 101,and is decreasing after that.
Q3) "The short-run average total cost curve and the long-run average cost curve are both U-shaped for the same reasons." Do you agree or disagree? Why?
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Chapter 10: Perfect Competition
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Q1) The short-run industry supply curve is found by
A)taking the inverse of the industry demand curve.
B)horizontally summing the average total cost curve of all firms in the industry.
C)adding up the quantities supplied at each price by each firm in the industry.
D)adding up the quantities supplied at each price by each of the firms in the industry that are making a profit.
Q2) Firms in a perfectly competitive industry are producing goods efficiently in the long run if each is producing at the minimum point of the A)AVC curve.
B)MC curve.
C)LAC curve.
D)AFC curve.
Q3) If marginal revenue is greater than marginal cost,the firm should A)raise price.
B)raise marginal revenue.
C)increase its rate of output.
D)decrease its rate of output.
Q4) When should a firm shut down? When should a firm go out of business?
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Chapter 11: Monopoly
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Q1) Suppose that the profit maximizing level of output for the monopolist is 10 units,and price = $50,ATC = $35,and AVC = $25.What is the monopoly's profit?
A)$50
B)$150
C)$250
D)$500
Q2) The owner of a patented invention
A)may or may not have a legal monopoly.
B)is guaranteed a profit since her idea cannot be copied.
C)will always have demand high enough and costs low enough to ensure a profit.
D)will only earn a profit if average total cost is less than price.
Q3) For a perfectly competitive market in which firms face an identical constant marginal costs,the amount of consumer surplus increases if
A)market demand decreases.
B)market demand increases.
C)marginal cost increases.
D)none of the above: insufficient information to answer.
Q4) What is the social cost of a monopoly? Explain.
Q5) Why is a monopoly inefficient?
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Chapter 12: Monopolistic Competition
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Q1) If firms in a monopolistically competitive industry experience short-run losses,
A)some firms would like to exit the industry but find they cannot.
B)firms increase prices further,until they make at least a normal return.
C)firms increase advertising spending to increase demand,until they make at least a normal return.
D)some firms exit the industry,causing the demand curves for the remaining firms to shift to the right until they earn a normal profit.
Q2) A product with qualities that consumers lack the expertise to assess without assistance is called a(n)
A)search good.
B)experience good.
C)credence good.
D)inferior good.
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) Is monopolistic competition efficient? Explain.What is Edward Chamberlin's view about the efficiency of monopolistic competition?
Q5) Explain how information products are "special."
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Chapter 13: Oligopoly and Strategic Behavior
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Sample Questions
Q1) Your teacher decides to play a game where every student must contribute a dollar.All money collected is distributed at the end of the game among the students.This is an example of a
A)positive-sum game.
B)zero-sum game.
C)strategy.
D)negative-sum game.
Q2) In which market structures do firms earn long-term profits of zero?
A)Perfect competition and monopolistic competition
B)Monopolistic competition and oligopoly
C)Oligopoly and monopoly
D)Perfect competition and monopoly
Q3) Cheating in a cartel is more likely to occur if the industry
A)has a large number of firms.
B)has homogeneous products.
C)has easily observable prices
D)has little variation in prices.
Q4) What are the main characteristics that make it more likely for a cartel to enforce agreements among participating members?
Q5) Why do firms form a cartel? How do cartels achieve their goals?
Page 16
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Chapter 14: Regulation and Antitrust Policy in a Globalized Economy
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Q1) Which of the following mergers would most likely be challenged by the Federal Trade Commission?
A)Two restaurants in a large metro area
B)Two largest wireless service providers in the U.S.wireless communication industry
C)An automaker and an insurance company
D)One oil refinery in the U.S.and another oil refinery in Canada
Q2) Suppose that a regulatory agency has imposed marginal cost pricing on a natural monopolist.We expect that
A)the firm will earn only a normal profit.
B)the firm's average total cost of production is rising over the relevant range of production.
C)the firm will earn economic profits.
D)the firm will eventually go out of business.
Q3) If a regulator forced a natural monopolist to set P = MC,
A)the monopolist would earn economic profits.
B)the monopolist would suffer economic losses.
C)the monopolist would break even.
D)the monopolist would earn monopolistic profits.
Q4) Discuss the important provisions of the Sherman Antitrust Act of 1890.
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Chapter 15: The Labor Market: Demand, supply and Outsourcing
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Q1) A change in a price of a substitute input for labor will cause
A)a change in the demand for labor in the opposite direction of the price change.
B)no change in the demand for labor.
C)a change in the supply of labor in the opposite direction of the price change.
D)a change in the demand for labor in the same direction of the price change.
Q2) If workers in an industry become less productive,we would expect the A)supply of workers to increase.
B)supply of workers to decrease.
C)demand for workers to decrease.
D)demand for workers to increase.
Q3) If the marginal factor cost of hiring an additional worker is $10 while the marginal revenue product is $15,then the firm should A)hire more workers.
B)stop hiring more workers.
C)fire some workers.
D)none of the above: insufficient information to answer the question
Q4) Suppose the price elasticity of demand for iPods is inelastic.What would you expect about the demand elasticity for workers producing iPods? Explain.
Page 18
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Chapter 16: Unions and Labor Market Monopoly Power
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Q1) Use the above table.If the marginal revenue product is $10,how many workers will the profit maximizing monopsonist hire?
A)1
B)2
C)3
D)4
Q2) When a group of workers forms a union,they introduce an element of
A)pure competition into the labor market.
B)monopoly into the labor market.
C)monopoly into the product market.
D)monopsony into the product market.
Q3) A closed shop is one in which
A)a union is prohibited.
B)some members belong to the union while others do not.
C)belonging to a union is a condition of employment.
D)the union is a co-manager of the day-to-day operations of the firm.
Q4) A union can be viewed as a monopoly seller of a service.What are the three wage and employment strategies the union might use?
Q5) Distinguish between craft unions and industrial unions.
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Chapter 17: Income, poverty, and Health Care
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Q1) In the year 2010,the United States spent about
A)16 percent of GDP on health care.
B)100 percent of GDP on health care.
C)6 percent of GDP on health care.
D)2 percent of GDP on health care.
Q2) Which factor listed below does NOT help account for the age-earning cycle?
A)productivity
B)number of hours worked each week
C)effects of aging
D)racial discrimination
Q3) The federal government and insurance companies are examples of third party
A)payers for health care.
B)users of health care.
C)providers of health care.
D)observers of health care.
Q4) The effects of the national health care program on labor markets will
A)lower the effective wage rate that they must pay for each unit of labor.
B)decrease the marginal revenue product of labor.
C)increase the marginal revenue product of labor.
D)move upward along their downward-sloping marginal-product-of-labor curve.
Page 20
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Chapter 18: Environmental Economics
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Q1) It is assumed that the marginal benefit of air cleanliness falls with the degree of cleanliness since
A)the marginal cost of air cleanliness increases.
B)air cleanliness is a public good and not a private good.
C)the marginal utility of air cleanliness falls with the degree of cleanliness.
D)the generation of pollution should be considered an externality.
Q2) Why are most endangered species belong to common property?
Q3) The government imposes a tax on an industry that produces goods creating a negative externality.Yet the industry produces more than the optimum quantity of output.This means
A)the tax is more than the external cost associated with the product.
B)the tax is less than the external cost associated with the product.
C)the company should advertise the product more.
D)the company should increase the production of the product.
Q4) Is a uniform per-unit tax on firms that cause an externality an optimal policy for correcting the externality? Explain.
Q5) What are social costs? How do they differ from private costs?
Q6) What is common property? What does common property have to do with externalities?
Q7) "The optimal level of pollution is zero." Do you agree or disagree? Why?
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Chapter 19: Comparative Advantage and the Open Economy
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Q1) Given two economic systems,A and B,if economy A has a absolute advantage in the production of widgets,then
A)fewer inputs are necessary to produce widgets in economy A than in economy B.
B)economy A must give up less of all other goods to produce widgets than economy B.
C)economy A is less efficient in the production of widgets than economy B.
D)economy A would not benefit from the specialization of production.
Q2) "The United States has fallen behind Japan and most of Europe in terms of competitiveness." Do you agree or disagree? Why?
Q3) Comparative advantage is
A)the ability to produce more output from given inputs than another producer can.
B)the ability to produce a good at a lower opportunity cost than other producers.
C)the ability to produce more output of all goods than anyone else can.
D)the ability to produce all goods at lower costs than anyone else can.
Q4) What are the effects of a tariff on a good?
Q5) "International trade bestows benefits on countries through the international transmission of ideas." Do you agree or disagree? Explain.
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Chapter 20: Exchange Rates and the Balance of Payments
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Q1) Every transaction concerning the importation of goods into the United States constitutes a
A)supply of foreign currency with no effect on the market for the dollar.
B)demand for dollars with no effect on markets for foreign currencies.
C)supply of foreign currencies and a demand for dollars.
D)demand for foreign currencies and a supply of dollars.
Q2) Under a flexible exchange rate system,an increase in the value of the U.S.dollar in terms of other currencies is referred to as
A)a depreciation of the U.S.dollar.
B)an appreciation of the U.S.dollar.
C)a monetizing of the U.S.dollar.
D)a devaluation of the U.S.dollar.
Q3) The agency which functions as a "lender of last resort" for national governments is the
A)International Trade Organization.
B)International Monetary Fund.
C)World Trade Organization.
D)World Trade Fund.
Q4) Distinguish between the balance of payments and the balance of trade.
Q5) Explain how the gold standard operated.
Page 23
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