Introduction to Economics Exam Solutions
Course Introduction
Introduction to Economics provides students with a foundational understanding of key economic principles and concepts. The course explores the basic ideas of supply and demand, market structures, consumer behavior, and the role of government in the economy. Students will analyze real-world examples to understand how individuals, firms, and societies make choices in the face of scarcity. Additionally, the course covers topics such as economic systems, national income, inflation, and unemployment, equipping students with the analytical tools needed to interpret contemporary economic issues and policies.
Recommended Textbook
Exploring Economics 6th Edition by Robert L. Sexton
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28 Chapters
4557 Verified Questions
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Page 2
Chapter 1: The Role and Method of Economics
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198 Verified Questions
198 Flashcards
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Sample Questions
Q1) Macroeconomic topics do not generally include:
A) inflation.
B) aggregate demand.
C) government spending and taxation.
D) the production decisions of individual firms.
Answer: D
Q2) Which of the following is an example of a relationship with a negative slope?
A) spending increases as incomes rise
B) more items purchased when prices drop
C) more items sold when quality improves
D) less items purchased when quality decreases
Answer: B
Q3) Economists use the term "ceteris paribus" to indicate that:
A) the analysis is true for the individual but not for the economy as a whole.
B) supply and demand are in balance.
C) their conclusions are based on normative rather than positive economic analysis.
D) other things are assumed to remain constant.
Answer: D
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3
Chapter 2: Economics: Eight Powerful Ideas
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Sample Questions
Q1) The marginal benefit to you of drinking bottled iced tea is $1.50.The price of a bottle of iced tea is $1.25.
A) If you purchase iced tea you will suffer a net loss of 25 cents per bottle.
B) If you purchase a bottle of iced tea, the net gain to you from doing so is 25 cents.
C) You will not purchase iced tea if you are acting rationally.
D) If you are acting rationally, you will purchase iced tea until the marginal benefit falls to 25 cents.
Answer: B
Q2) Individuals will only pursue an activity if:
A) E(MB) £ E(MC).
B) E(MB) = E(MC).
C) E(MB) > E(MC).
D) E(MB) < E(MC).
Answer: C
Q3) An entrepreneur organizes the other factors of production and bears the business risk.
A)True
B)False
Answer: True
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Page 4
Chapter 3: Scarcity, Trade-Offs, and Production Possibilities
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Sample Questions
Q1) An increase in available resources will tend to cause a society's production possibilities curve to shift inward.
A)True
B)False
Answer: False
Q2) Which one of the following will not cause the production possibilities curve to shift outward?
A) increased education
B) the construction of a new factory
C) more tractors becoming available to farmers
D) All of the above cause the production possibilities curve to shift outward.
Answer: D
Q3) An improvement in technology will tend to cause a society's production possibilities curve to shift outward.
A)True
B)False
Answer: True
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Chapter 4: Demand, Supply, and Market Equilibrium
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240 Verified Questions
240 Flashcards
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Sample Questions
Q1) According to the law of supply,when the price of a good increases we would predict that:
A) less will be produced.
B) less will be consumed.
C) more will be produced.
D) more will be consumed.
Q2) A downward-sloping demand curve illustrates
A) that demand increases.
B) that prices fall.
C) the relationship between income and demand.
D) the law of demand.
Q3) According to the law of supply,other things equal,when the price of a good or service rises,the quantity supplied increases,but supply does not.
A)True
B)False
Q4) Other things constant,an increase in the price of beef will:
A) encourage consumers to buy more beef.
B) discourage consumers from buying as much beef.
C) shift the demand curve for beef to the right.
D) shift the demand curve for beef to the left.
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Chapter 5: Markets in Motion and Price Controls
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Sample Questions
Q1) When both supply and demand shift in the same direction,the change in the equilibrium quantity traded will be in the same direction as the shifting curves.
A)True
B)False
Q2) The imposition of a price ceiling on a market often results in:
A) an increase in investment in the industry.
B) a surplus.
C) a shortage.
D) a decrease in discrimination on the part of sellers.
Q3) Which of the following would most likely increase the price of chicken,a normal good?
A) a reduction in the price of grains used to produce chicken feed
B) a reduction in the price of beef, a substitute for chicken
C) unusually hot weather that kills millions of chickens before they are ready for market
D) a decrease in consumer income
Q4) If a price ceiling is not binding,then it will have no effect on the market.
A)True
B)False
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Chapter 6: Elasticities
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Sample Questions
Q1) If a university charged a lower price for tuition during summer school than during the regular session,in search of added total revenue,
A) administrators likely believe that demand is more elastic during summer school than during the regular session.
B) administrators likely believe that demand is less elastic during summer school than during the regular session.
C) it indicates nothing about likely differences in the elasticity of demand during summer school than during the regular session.
D) administrators likely believe that demand is both lower and less elastic during summer school than during the regular session.
Q2) A price cut will increase the total revenue a firm receives if the demand for its product is:
A) elastic.
B) inelastic.
C) unit elastic.
D) unit inelastic.
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8
Chapter 7: Market Efficiency and Welfare
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Sample Questions
Q1) A tax would not impose a welfare cost only if:
A) the quantity exchanged did not change as a result.
B) supply was perfectly elastic.
C) supply was unit elastic.
D) the demand curve was perfectly elastic.
Q2) Total welfare gains from trade to the economy can be measured by the sum of consumer and producer surplus.
A)True
B)False
Q3) Producer surplus from a unit of output is the difference between the market price and the seller's cost of producing that unit.
A)True
B)False
Q4) If a customer had to pay a $5 entry charge to get into a roller coaster theme park,and then pay $2 per ride,she would get less consumer surplus than if she was able to pay $2 per ride with no entry charge.
A)True
B)False
Q5) How does the deadweight loss occur in a deficiency payment program?
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Chapter 8: Market Failure
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Sample Questions
Q1) A cap and trade program is efficient because the cap protects the environment while:
A) generating substantial revenues for the government.
B) keeping compliance and administration costs relatively low.
C) while requiring the same response by each polluter.
D) none of above
Q2) Assume that production of a good generates external benefits for others.The equilibrium price of the good will be ____ and the equilibrium quantity ____ for efficient resource allocation.
A) too high; too high.
B) too high; too low.
C) too low; too high.
D) too low; too low.
Q3) Assume that production of a good imposes external costs on others.The equilibrium price will be ____ and the equilibrium quantity ____ for efficient resource allocation.
A) too high; too high.
B) too high; too low.
C) too low; too high.
D) too low, too low.
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Chapter 9: Public Finance and Public Choice
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Sample Questions
Q1) The median voter model predicts a strong tendency for both candidates to choose a position away from the middle of distribution.
A)True
B)False
Q2) The benefits received principle means those with the least ability to pay should be the ones to receive the benefits.
A)True
B)False
Q3) Tax collected based on a taxpayer's spending is known as:
A) excise tax.
B) consumption tax.
C) gift tax.
D) income tax.
Q4) In recent years,more than one quarter of federal government spending went to Social Security and income security programs.
A)True
B)False
Q5) Why might voters tend to be relatively uninformed about political issues?
Q6) What are the advantages of a flat tax system?
Page 11
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Chapter 10: Consumer Choice Theory
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Sample Questions
Q1) Which of the following individuals was known for as an early contributor to behavioral economics?
A) Jeremy Bentham
B) Herbert Simon
C) Milton Friedman
D) Ben Bernanke
Q2) Ben consumes soda and cheeseburgers.If his marginal utility from sodas is currently 20,and his marginal utility from cheeseburgers is 10,and the price of cheeseburgers is twice the price of sodas,
A) Ben is in equilibrium.
B) Ben should increase his soda consumption and decrease his cheeseburger consumption.
C) Ben should decrease his soda consumption and increase his cheeseburger consumption.
D) we cannot conclude that any of the above are correct.
Q3) The law of diminishing marginal utility is the reason for upward sloping supply curves.
A)True
B)False
Q4) How does the law of demand reflect the law of diminishing marginal utility?
Page 12
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Chapter 11: The Firm: Production and Costs
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Sample Questions
Q1) Diminishing marginal product first sets in at the minimum point of the
A) ATC curve.
B) AVC curve.
C) AFC curve.
D) MC curve.
Q2) An example of an implicit cost of production is:
A) the cost of leather used in manufacturing furniture.
B) the opportunity cost of space in your home that is used for a home office.
C) the wages paid to high school students that work in a fast-food restaurant.
D) none of the above.
Q3) In the long-run,the firm can only expand output by adding more variable inputs (workers and raw materials).
A)True
B)False
Q4) Economic profits are:
A) less than accounting profits if implicit costs are greater than zero.
B) less than accounting profits even if implicit costs are zero.
C) greater than accounting profits if implicit costs are greater than zero.
D) greater than accounting profits even if implicit costs are zero.
Q5) Explain the cost advantage of a firm operating at constant returns to scale.
Page 13
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Chapter 12: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) A firm sells grapefruit in a perfectly competitive market at a price of $1.50 per pound.The firm's marginal revenue:
A) equals $1.50.
B) is less than $1.50.
C) is greater than $1.50.
D) cannot be determined from the information provided.
Q2) Perfect competition is the term used to describe:
A) an industry in which a few price-taking firms produce identical products.
B) an industry in which numerous price-taking firms produce identical products.
C) an industry in which firms are price takers and compete for market share by varying the qualitative characteristics of products.
D) an industry in which numerous firms are price makers and produce identical products.
Q3) As a result of firms leaving an industry,we would expect that:
A) economic profits are positive.
B) as a result, economic losses are falling.
C) as a result, economic losses are rising.
D) both (a) and (b) are true.
Q4) What are the characteristics of a perfectly competitive industry?
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Chapter 13: Monopoly and Antitrust
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Sample Questions
Q1) At his current level of output,a monopolist has a MR of $10,a MC of $6,and an economic profit of zero.If the market demand curve is downward sloping and his marginal cost curve is upward sloping,the monopolist:
A) is producing at the profit-maximizing level of output.
B) could increase profit by increasing output.
C) could increase profit by increasing his price.
D) should exit the market if significant fixed costs have been incurred.
Q2) Which of the following need not be true of a monopoly?
A) The firm must be the only producer of the product.
B) The product must have no close substitutes.
C) There must be high barriers to entry.
D) The firm must earn an economic profit in the short run..
Q3) Which of the following can serve as a barrier to entry?
A) legal restrictions
B) patents
C) control of scarce inputs or resources
D) all of the above
Q4) Patents are currently granted for a period of 20 years in the United States.Do you think that time period is too long or too short? Explain your reasoning.
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Chapter 14: Monopolistic Competition and Product
Differentiation
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Sample Questions
Q1) Explain how losses of existing firms are reduced as some firms exit a monopolistically competitive industry due to economic losses.
Q2) Monopolistic competition is characterized by:
A) one firm selling several products.
B) many firms selling the same product.
C) many firms selling slightly different products.
D) one firm selling one product.
Q3) If a profit-maximizing monopolistic competitor earns positive economic profits in the short run:
A) demand will become increasingly inelastic as new firms enter.
B) the firm should increase its output as new firms enter.
C) there must be barriers to entry into the industry.
D) new firms will be attracted to the industry.
E) both b. and d. are correct.
Q4) Which of the following industries would most likely represent monopolistic competition?
A) clothing
B) wheat
C) water utilities
D) soft drinks
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Chapter 15: Oligopoly and Strategic Behavior
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Sample Questions
Q1) Which of the following characterizes an oligopolistic industry?
A) mutual interdependence
B) low barriers to entry
C) small output of individual firms relative to the total market
D) a large number of competing firms
Q2) ____ occurs when a consumer's quantity demanded for a good increases because a ____ number of consumers purchase the same good.
A) A negative network externality; greater
B) A positive network externality; greater
C) Bandwagon effect; fewer
D) A positive network externality; fewer
Q3) Collusive behavior guarantees economic profits in the long run for oligopolists.
A)True
B)False
Q4) Cartels usually succumb to divisive forces caused by:
A) stringent enforcement of a cartel agreement.
B) the similarity of production costs across member firms.
C) members cheating by giving secret discounts.
D) insufficient profits compared to independent operations.
Q5) What impact would easy entry have on the profitability of oligopolies?
Page 17
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Chapter 16: The Markets for Labor, Capital, and Land
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Sample Questions
Q1) The profit-maximizing firm should lay off workers when:
A) MRC < MRP.
B) MRC > MRP.
C) MRC = MRP.
D) the MP of labor begins to diminish.
Q2) If the private-sector wage of biologists was significantly greater than that of music professors,what might happen if a university tried to pay its entire faculty the same salary?
Q3) The income effect of a wage increase:
A) results in an increase in the quantity of labor supplied.
B) results in a decrease in the quantity of labor supplied.
C) has no impact on the quantity of labor supplied.
D) results in a decrease in the quantity of leisure enjoyed.
Q4) Which of the following could be considered an example of a monopsony?
A) a professional sports league
B) the only auto repair shop in a small town
C) a single mining firm that was the only employer in the area
D) all of the above
Q5) Explain what is meant by "derived demand" as it relates to factors of production.
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Chapter 17: Income, Poverty, and Health Care
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Sample Questions
Q1) In the United States,the supply curve for human organs currently is:
A) vertical.
B) horizontal.
C) downward sloping.
D) upward sloping.
Q2) Which of the following observations concerning health care service providers is true?
A) Health care providers possess very little market power.
B) Price discrimination and collusive behavior are likely to occur.
C) Price discrimination is uncommon in the pharmaceutical industry.
D) "Natural health care monopolies" are a rarity.
Q3) Currently,there are fewer male than female nurses.This is proof that there is sex discrimination in the nursing profession.
A)True
B)False
Q4) The health services market differs from many others in that,because of insurance,the consumer often pays only a fraction of the direct cost of care.
A)True
B)False
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19
Chapter 18: Introduction to Macroeconomics:
Unemployment, Inflation, and Economic Fluctuations
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Sample Questions
Q1) A discouraged worker is:
A) one who opts to quit work to attend college.
B) one who opts to quit searching for work after unsuccessfully seeking employment.
C) a part-time worker who would like to work more hours.
D) none of the above.
Q2) Since 1950,there has been ____ in the labor force participation rate.
A) no change
B) an increase
C) a decrease
D) first an increase and then a significant decrease
Q3) Discuss the costs associated with high inflation.
Q4) Underemployment occurs when:
A) a firm hires fewer than the required number of workers, to save costs.
B) a firm hires workers who do not possess the required skills that the job demands.
C) a worker is over qualified and possesses more skills than what his job demands.
D) a firm hires more than the required number of workers.
Q5) What are the three major types of unemployment? What are their causes?
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Chapter 19: Measuring Economic Performance
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Sample Questions
Q1) Consumption is the purchase of goods and services by:
A) households.
B) government.
C) business firms.
D) foreign buyers.
Q2) If nominal GDP rises:
A) we can be sure the price level has risen.
B) real GDP may rise or fall.
C) real GDP must rise.
D) real GDP must fall.
Q3) Which of the following is not included in GDP calculations?
A) the value of an accountant's services
B) the value of 500 shares of Microsoft stock sold to an investor
C) the value of high-definition television sets produced, but not sold, during the year
D) the value of a haircut
Q4) What is the importance of measuring per capita GDP?
Q5) The formula for calculating real GDP = (price index/nominal GDP)´ 100.
A)True
B)False
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Chapter 20: Economic Growth in the Global Economy
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Sample Questions
Q1) Increases in the quality and quantity of an economy's resources have little effect on its potential output in the long run.
A)True
B)False
Q2) In the long run,the most important source of increase in a nation's standard of living is a:
A) zero rate of population growth.
B) high rate of economic growth.
C) high rate of consumption.
D) high rate of labor force growth.
Q3) Thomas Malthus's predictions did not come to pass because he implicitly assumed that there would be no technological advances and did not foresee that agricultural land was not completely fixed in quantity or quality.
A)True
B)False
Q4) Free trade can promote greater output because of the principle of comparative advantage.
A)True
B)False
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Chapter 21: Financial Markets, Saving, and Investment
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Sample Questions
Q1) The PE ratio is determined by dividing the earnings per share by the current market price of the stock.
A)True
B)False
Q2) A government budget deficit will have a:
A) positive effect on public saving causing a rightward shift in the supply of loanable funds.
B) positive effect on public saving causing a leftward shift in the supply of loanable funds.
C) negative effect on public saving causing a rightward shift in the supply of loanable funds.
D) negative effect on public saving causing a leftward shift in the supply of loanable funds.
Q3) Because of fixed interest rates,there is no risk involved with holding corporate bonds. A)True
B)False
Q4) Why are real interest rates more important than nominal interest rates with regard to analyzing the supply and demand of loanable funds?
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Chapter 22: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) The real wealth effect is one reason for the negative slope of the aggregate demand curve.
A)True
B)False
Q2) The quantity of RGDP supplied will decrease in both the short run and long run when the price level falls.
A)True
B)False
Q3) Which of the following is the most unstable category of GDP?
A) consumption
B) investment
C) government purchases
D) net exports
Q4) If the price of oil increased by 15 percent when oil producers believed that other prices were rising 10 percent over the same period,what would happen to the quantity of real output supplied by the oil industry?
Q5) Explain how changes in the stock of capital affect aggregate supply.
Q6) Discuss some of the reasons behind downward stickiness of wages and prices.
Q7) Discuss the impact of efficiency wages on unemployment and wage inflexibility.
Page 24
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Chapter 23: The Aggregate Expenditure Model
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Q1) In the simplest Keynesian expenditure model,which of the following is fixed to allow for easy evaluation of changes in demand due to real income?
A) the price level
B) interest rates
C) tastes and preferences
D) future expectations
Q2) If George's MPS is 0.75 and he earns an additional $1,000,how much would he spend?
A) $250
B) $750
C) $1,333
D) $4,000
Q3) The slope of the consumption function is equal to:
A) the MPC.
B) the MPS.
C) 1/(1 - MPC).
D) MPC - MPS.
Q4) The Keynesian-cross model is a complete macroeconomic model.
A)True
B)False
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Chapter 25: Monetary Institutions
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Sample Questions
Q1) Checkable deposits are:
A) included in both M1 and M2.
B) included in M1 but not M2.
C) included in M2 but not M1.
D) not included in either M1 or M2.
Q2) Which of the following is true?
A) Actual reserves equal required reserves minus excess reserves.
B) The predominant liability of virtually all banks is loans.
C) The lower the required reserve ratio, the larger the money multiplier.
D) If some banks choose not to lend all of their excess reserves, the total amount of money created by an initial cash deposit will be larger.
Q3) Which of the following observations concerning money market mutual funds is not true?
A) They are interest-earning accounts provided by brokers.
B) They are considered to be near money.
C) Depositors are allowed to write checks against their accounts.
D) These funds are invested in long-term securities.
Q4) What are the inherent disadvantages of a barter system?
Q5) What limits a bank's ability to extend loans?
Q6) What are money market mutual funds?
Page 26
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Chapter 26: The Federal Reserve System and Monetary Policy
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Sample Questions
Q1) Velocity can be defined as:
A) the turnover rate of money
B) the speed at which economic activity takes place.
C) the speed at which multiplier effect takes place.
D) the speed at which tax cuts are spent.
Q2) In order to determine the velocity of money,we need to know:
A) the money supply and the price level.
B) nominal GDP and real GDP.
C) the money supply and nominal GDP.
D) the interest rate and nominal GDP.
Q3) The Open Market Committee oversees the money supply through the Fed's sale and purchase of government securities.
A)True
B)False
Q4) Which of the following is most frequently used when the Fed is attempting to adjust the money supply?
A) Changing reserve requirements
B) Open market operations
C) Changing the discount rate
D) Moral suasion
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Chapter 27: Issues in Macroeconomic Theory and Policy
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Sample Questions
Q1) Some economists believe that inflation could actually help reduce unemployment in the short-run.
A)True
B)False
Q2) The short-run Phillips curve suggests that ____ rates of unemployment can be traded off for ____ rates of inflation.
A) lower; higher
B) greater; relatively high
C) less; relatively low
D) less; relatively high
Q3) If employees and employers always accurately forecast inflation,what is the shape of the Phillips curve?
A) It is vertical in the short run, and upward sloping in the long run.
B) It is downward sloping in the short run, and vertical in the long run.
C) It is upward sloping in the short run, and horizontal in the long run.
D) It is vertical in the short run and long run.
Q4) Why is indexing not commonly adopted in spite of the fact that it eliminates most of the wealth transfers associated with unexpected inflation?
Q5) What is the short-run Phillips curve and what observations does it make?
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Chapter 28: International Trade
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Sample Questions
Q1) Trade restrictions will stop foreign imports,which will increase American employment and protect American jobs.Most economists realize this argument is wrong.Can you explain why?
Q2) If the United States could produce 4 tons of potatoes or 2 tons of wheat per worker per year,while Ireland could produce 3 tons of potatoes or 2 tons of wheat per worker per year,the country with the comparative advantage in producing potatoes is ____ and the country with the absolute advantage in producing potatoes is ____.
A) the United States; the United States
B) the United States; Ireland
C) Ireland; the United States
D) Ireland; Ireland
Q3) The quantity supplied by domestic producers in an importing country must be less than the quantity demanded by its population.
A)True
B)False
Q4) What are the effects of a tariff,and who benefits and who loses when tariffs are imposed? What are the effects of a quota,and who benefits and who loses when quotas are imposed?
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Chapter 29: International Finance
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Sample Questions
Q1) If more French tourists visit the Grand Canyon,what is the effect in the exchange market?
A) It will increase the supply of U.S. dollars.
B) It will decrease the supply of U.S. dollars.
C) It will increase the demand for U.S. dollars.
D) It will decrease the demand for U.S. dollars.
Q2) A change in the euro-dollar exchange rate from $1 per euro to $2 per euro would ____ the U.S.price of German goods,____ the number of German goods that would be demanded in the U.S.
A) decrease; reducing.
B) decrease; increasing.
C) increase; reducing.
D) increase; increasing.
Q3) If the United States purchases oil from Kuwait,what is the effect in the exchange market?
A) It will increase the supply of U.S. dollars.
B) It will decrease the supply of U.S. dollars.
C) It will increase the demand for U.S. dollars.
D) It will decrease the demand for U.S. dollars.
Q4) What are the main arguments presented against flexible exchange rates?
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