Introduction to Economics
Final Test Solutions
Course Introduction
Introduction to Economics provides students with a foundational understanding of economic principles and concepts, exploring how individuals, businesses, and governments make choices in the face of scarcity. The course covers both microeconomics and macroeconomics, examining topics such as supply and demand, market structures, resource allocation, economic systems, and the role of government in the economy. Students will analyze real-world economic issues, develop critical thinking skills, and gain insights into how economic forces affect daily life and shape public policy.
Recommended Textbook
Exploring Economics 6th Edition by Robert L. Sexton
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Page 2
Chapter 1: The Role and Method of Economics
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Sample Questions
Q1) Economics is different from a "hard" science like physics because:
A) economists abstract from reality in creating their theories.
B) economics is easier to study than physics.
C) economists must explain their theories to policy makers who lack formal mathematical training.
D) economists cannot easily control all the variables that might influence human behavior.
Answer: D
Q2) If individuals who sit in the back of the classroom receive lower grades on average than the rest of the class,does that mean that sitting in the back of a classroom causes one to perform poorly on exams?
A) Not necessarily. The reoccurrence of a certain relationship between two variables does not necessarily imply causation.
B) It is not possible for an economist to determine causation between variables.
C) The reoccurrence of such a relationship is sufficient evidence that sitting in the back of a classroom will lead to lower grades.
D) none of the above
Answer: A
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3
Chapter 2: Economics: Eight Powerful Ideas
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Sample Questions
Q1) Marginal cost is the additional cost incurred as a result of an economic decision.
A)True
B)False
Answer: True
Q2) Individuals:
A) respond to incentives in predictable ways.
B) decrease the level of an activity in response to negative incentives.
C) respond to positive incentives by increasing the level of activity.
D) do all of the above.
Answer: D
Q3) Inflation is an increase in the overall price level in the economy.
A)True
B)False
Answer: True
Q4) Small,developing countries must first become self-sufficient before they can benefit from international trade.
A)True
B)False
Answer: False
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Chapter 3: Scarcity, Trade-Offs, and Production Possibilities
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Sample Questions
Q1) When collective decision making is utilized to resolve economic questions regarding the allocation of resources,then:
A) everyone will receive an equal share of the output produced.
B) the preferences of individuals are of no importance.
C) economic efficiency will be assured.
D) the role of markets will be replaced by political decision making.
Answer: D
Q2) A market economy answers the question "what" goods will be produced by focusing on
A) dollar votes.
B) least-cost method of production.
C) who can afford these goods.
D) none of the above
Answer: A
Q3) A market economy depends on market mechanisms to:
A) determine the most efficient way of using resources.
B) determine how large the government's budget deficit should be.
C) decide how much government regulation there should be.
D) provide everyone with a minimum level of income.
Answer: A
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Chapter 4: Demand, Supply, and Market Equilibrium
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Sample Questions
Q1) A university's basketball gymnasium is never more than half-full during basketball games.This implies
A) the ticket price is above the equilibrium price.
B) the ticket price is below the equilibrium price.
C) the ticket price is at the equilibrium price.
D) nothing about the equilibrium price.
Q2) Which of the following will not cause a change in the demand for a product?
A) a change in consumer income
B) a change in consumer preferences
C) a change in the price of the product
D) a change in the price of a substitute product
Q3) Which of the following would cause the quantity of wheat bread demanded to increase,but not the demand for wheat?
A) a reduction in the price of rye, used to produce rye bread
B) a new scientific study demonstrating that wheat bread reduces the risk of colon cancer
C) a decrease in the price of rye bread
D) an increase in the number of farmers growing wheat
Q4) Differentiate between a change in quantity demanded and a change in demand.
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Chapter 5: Markets in Motion and Price Controls
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Sample Questions
Q1) Which of the following is likely to result in a larger equilibrium quantity exchanged?
A) An increase in both demand and supply.
B) A decrease in both demand and supply.
C) An increase in demand and a decrease in supply.
D) A decrease in demand and an increase in supply.
Q2) Nick is delighted to see that the price of his favorite food,black olives,has fallen.Which of the following could be responsible?
A) an increase in the demand for black olives
B) a decrease in the supply of black olives
C) a simultaneous increase in demand and decrease in supply of black olives
D) a simultaneous decrease in demand and increase in supply of black olives
Q3) An increase in both the equilibrium price and the equilibrium quantity of a good could not have been caused by a shift in supply alone.
A)True
B)False
Q4) Beach resorts raise their prices during the summer months and yet more people book rooms at those times.Is this a violation of the law of demand?
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Chapter 6: Elasticities
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Sample Questions
Q1) Calculate the income elasticity of demand for DVDs,where a 10 percent increase in income results in a 20 percent increase in the demand for DVDs.Decide from your answer,whether DVDs are normal or inferior goods.
Q2) If two goods both had negative cross elasticities and negative income elasticities, A) they are both normal and substitutes for one another. B) they are both normal and complements for one another.
C) they are both inferior and substitutes for one another.
D) they are both inferior and complements for one another.
Q3) If the demand for apples is highly elastic and the supply is highly inelastic,then if a tax is imposed on apples it will be paid:
A) largely by the sellers of apples.
B) largely by the buyers of apples.
C) equally by the sellers and buyers of apples.
D) by the government.
Q4) When a 9% increase in price leads to a 6% increase in quantity supplied,supply is relatively inelastic.
A)True
B)False
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Page 8
Chapter 7: Market Efficiency and Welfare
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Sample Questions
Q1) How does the deadweight loss occur in a deficiency payment program?
Q2) A price ceiling imposed below equilibrium price causes a deadweight loss for society because:
A) buyers benefit at the expense of sellers.
B) as a result of the ceiling, units of output are not produced despite the fact that the value to consumers exceeds the production cost.
C) sellers benefit at the expense of buyers.
D) the poor gain at the expense of the rich.
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 the government provides a subsidy in one industry and raises the tax revenue by taxing another industry,would,other things equal,cause welfare costs in both industries.
A)True
B)False
Q5) Could a price ceiling decrease consumer surplus?
Q6) How do taxes distort the incentives of buyers and sellers in a market?
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Chapter 8: Market Failure
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Sample Questions
Q1) If the production of a particular good involves significant external costs,to force the externality to be internalized the government might:
A) impose a tax on production of the good in order to increase production.
B) impose a tax on production of the good in order to decrease production.
C) offer a subsidy for production of the good in order to increase production.
D) offer a subsidy for production of the good in order to decrease production.
Q2) Under a system of transferable pollution rights,which of the following firms is most likely to purchase a $500 permit to emit a ton of pollutants in to the atmosphere?
A) a non-polluting firm
B) a polluting firm that can reduce emissions at a cost of $500 per ton
C) a polluting firm that can reduce emissions at a cost of $200 per ton
D) a polluting firm that can reduce emissions at a cost of $600 per ton
Q3) A public good is nonrivalrous and excludable.
A)True
B)False
Q4) Differentiate between a public good and common resources.
Q5) Why do decision makers tend to ignore external costs? How can internalizing external costs move us closer to efficient levels of output?
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Chapter 9: Public Finance and Public Choice
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Sample Questions
Q1) The view that those whose preferences represent the middle position on an issue will tend to determine the outcome of an election is called:
A) rent seeking.
B) the median voter model.
C) the special interest effect.
D) the cyclical majority problem.
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) Public choice theory assumes that each voter will tend to favor the political candidate who offers:
A) programs with the largest social benefits.
B) equality of government-provided benefits across all citizens.
C) programs that will yield the greatest personal benefits net of personal cost.
D) a plan requiring the least amount of tax dollars, regardless of the level of benefits provided.
Q4) Why might voters tend to be relatively uninformed about political issues?
Q5) Does the benefits received principle work well for all public goods?
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Chapter 10: Consumer Choice Theory
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Sample Questions
Q1) The line joining the old and new optimum points following a pivotal rotation of the budget line is:
A) the price-consumption curve.
B) the income-consumption curve.
C) the Engels curve.
D) the hypothetical budget line
Q2) Moving down along an indifference curve:
A) total utility remains constant.
B) total utility decreases.
C) total utility increases.
D) total utility first decreases and then increases.
Q3) An individual's level of utility is based on fulfillment of needs as opposed to wants.
A)True
B)False
Q4) Indifference curves typically
A) cross each other.
B) have a positive slope.
C) are convex from the origin.
D) are concave from the origin.
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Chapter 11: The Firm: Production and Costs
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Sample Questions
Q1) Which of the following is not an explicit cost for the owner of a local pizza parlor?
A) flour
B) cleaning products
C) other uses for the land that the parlor sits on
D) pizza ovens
Q2) Diminishing marginal product first sets in at the minimum point of the
A) ATC curve.
B) AVC curve.
C) AFC curve.
D) MC curve.
Q3) A firm is producing 1,000 units of output for which the average variable cost of production equals 50 cents.The firm's total fixed costs equal $700.The total cost of producing 1,000 units of output equals:
A) $700.
B) $500.
C) $1,000.
D) $1,200.
Q4) Explain why some costs are considered to be variable and some fixed.How does time enter into the definition?
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Chapter 12: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) Constant cost industries:
A) use large portions of the total supply of specialized resources.
B) significantly increase the demand for inputs when expanding output, and as a result, input prices rise.
C) do not use inputs in sufficient quantities that a change in industry output would affect the prices of the inputs.
D) are those in which the cost curves of individual firms shift upwards as industry output expands.
Q2) Which of the following is a characteristic of perfect competition?
A) homogeneous products
B) many sellers
C) many buyers
D) all of the above
Q3) In a perfectly competitive market,marginal revenue is the same as the market price.
A)True
B)False
Q4) Why do short-run profits in a perfectly competitive industry tend to disappear over time?
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Chapter 13: Monopoly and Antitrust
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Sample Questions
Q1) In the short run,a monopolist:
A) always earns an economic profit.
B) never earns an economic profit.
C) never earns an accounting profit.
D) None of the above are correct.
Q2) When a monopolist is able to price-discriminate:
A) its profits tend to increase and consumer surplus tends to fall.
B) both its profits and consumer surplus tend to increase.
C) both its profits and consumer surplus tend to decrease.
D) its profits tend to fall and consumer surplus tends to increase.
Q3) The aim of antitrust policy is to:
A) provide adequate incentives for inventors and entrepreneurs.
B) prevent firms from acquiring or exercising undue market power.
C) protect established firms by deterring new entry into industries.
D) regulate the prices charged by perfectly competitive firms.
Q4) Which of these contributes to the existence of monopoly power?
A) the control of critical resources
B) legal barriers
C) patents
D) All of the above contribute to the existence of monopoly power.
Page 15
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Chapter 14: Monopolistic Competition and Product
Differentiation
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Sample Questions
Q1) In a monopolistically competitive scenario,the demand curve for an existing firm ____ when firms exit the industry.
A) becomes more inelastic
B) becomes vertical
C) becomes horizontal
D) becomes more elastic
Q2) Which of the following is uncharacteristic of monopolistic competition in the long run?
A) a large number of sellers in the industry
B) zero economic profits
C) price in excess of marginal cost
D) firms have no excess capacity
Q3) A monopolistic competitor's demand curve tends to be more inelastic than a monopolist's demand curve.
A)True
B)False
Q4) Monopolistically competitive sellers have some ability to influence the price of their products.
A)True B)False
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Chapter 15: Oligopoly and Strategic Behavior
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Sample Questions
Q1) What impact would easy entry have on the profitability of oligopolies?
Q2) Which of the following is characteristic of firms operating in an oligopoly market?
A) either homogeneous or differentiated products
B) mutual interdependence among firms
C) significant barriers to entry
D) All of the above characterize oligopoly firms.
Q3) Why is it difficult for an oligopolist to determine its profit-maximizing price and output?
Q4) A cartel is a group of firms that attempt to collude by coordinating price and output decisions.
A)True
B)False
Q5) Predatory pricing:
A) occurs when a firm increases price in order to exploit inelastic demand by consumers.
B) occurs when a firm prices below average variable cost in order to drive competitors out of the market.
C) is difficult to distinguish from vigorous competition in practice.
D) is characterized by both (b) and (c).
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Chapter 16: The Markets for Labor, Capital, and Land
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Sample Questions
Q1) Which of the following is most likely to incorporate a great deal of economic rent?
A) sale of a bag of potato chips
B) salary paid to an employee at the local Home Depot
C) a soft drink sold by a vending machine
D) sale of a rare stamp
Q2) As more workers are hired to harvest grapes in a vineyard,the fields become overcrowded.As a result,the marginal product of labor is likely to diminish.
A)True
B)False
Q3) In Japan,the market value of the land is approximately four times that of all the land in the United States,even though Japan is only about the size of California.The most likely explanation for this fact is?
Q4) If there is both a decrease in immigration and an increase in workers' non-wage incomes,
A) the supply of labor will increase.
B) the supply of labor will decrease.
C) the supply of labor will remain unchanged.
D) the effect on the supply of labor will be indeterminate.
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Page 18
Chapter 17: Income, Poverty, and Health Care
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Sample Questions
Q1) The fact that Jackie received a higher raise than did Jamie,while processing 12 percent more customers at her bank teller line,is evidence of wage discrimination.
A)True
B)False
Q2) Dramatically redistributing income from the rich to the poor could make society worse off.
A)True
B)False
Q3) Differences in income can be accounted for by differences in:
A) age.
B) education.
C) preferences toward leisure.
D) all of the above.
Q4) Adverse selection problems in health insurance are reduced by all of the following except:
A) requiring physical exams.
B) requiring patients to pay higher deductibles.
C) insuring entire groups.
D) by limiting the period of open enrollment in health insurance plans.
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Chapter 18: Introduction to Macroeconomics:
Unemployment, Inflation, and Economic Fluctuations
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Sample Questions
Q1) Suppose that everyone who has looked for a job for more than six months gave up in despair and stopped looking.What would happen to the unemployment rate?
A) It would increase.
B) It would fall.
C) It would change, but the effect cannot be predicted.
D) It would not change.
Q2) How do high rates of inflation lead to an increased frequency of cash withdrawals from an ATM or a bank?
Q3) When unemployment rises above the natural rate it reflects the existence of ____ unemployment.
A) frictional
B) structural
C) seasonal
D) cyclical
Q4) The most significant real economic cost of high unemployment is:
A) the money cost of unemployment insurance payments to the unemployed.
B) the lost tax revenue that might have been paid by persons if they had worked.
C) the difference in income between a person's lost job and new job.
D) the potential goods and services that might have been produced but weren't.
Page 20
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Chapter 19: Measuring Economic Performance
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Sample Questions
Q1) Nominal GDP has risen faster than real GDP in the last decade because:
A) the price level has increased.
B) the price level has decreased.
C) the growth rate of productivity has accelerated.
D) the volume of foreign trade has expanded sharply.
Q2) The investment component of GDP includes:
A) funds in individual retirement accounts.
B) construction of a new steel mill.
C) the sale of shares of Coca-Cola stock.
D) the purchase of a refrigerator by a household.
Q3) If nominal GDP rises from $5 billion to $6 billion,when the GDP deflator goes from 100 to 110,real GDP
A) rises.
B) falls.
C) stays the same.
D) could either be rising or falling.
Q4) The expenditure method dictates that GDP is equal to C + I + G + (X - M).
A)True
B)False
Q5) How do pollution and crime affect GDP?
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Chapter 20: Economic Growth in the Global Economy
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Sample Questions
Q1) If the educational attainment of a nation's population increases,the economy's production possibilities curve shifts inward.
A)True
B)False
Q2) If a country's annual growth rate is 2%,then its output will double in approximately ____ years.
A) 2
B) 10
C) 25
D) 35
Q3) To achieve a high standard of living,a nation should:
A) increase welfare payments to the poor.
B) use less capital and more labor in the production process.
C) promote economic growth.
D) increase the tax deduction for child dependents.
Q4) In a fully employed economy,invention and discovery: A) are automatic.
B) are achieved through sacrifices in current consumption. C) have negative opportunity costs.
D) All of the above are correct.
Page 22
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Chapter 21: Financial Markets, Saving, and Investment
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Sample Questions
Q1) Crowding out will lead to a decrease in supply of loanable funds,a decrease in real interest rates,and subsequently a decrease in spending by households and firms.
A)True
B)False
Q2) A bond can be:
A) partial ownership in a corporation.
B) a debt obligation of a company.
C) a debt obligation of a government or government agency.
D) both B and C above
Q3) The crowding-out effect indicates that increased government borrowing will lead to:
A) an increase in consumption by households and an increase in investment spending by firms.
B) an increase in consumption by households and a decrease in investment spending by firms.
C) a decrease in consumption by households and an increase in investment spending by firms.
D) a decrease in consumption by households and a decrease in investment spending by firms.
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23
Chapter 22: Aggregate Demand and Aggregate Supply
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Q1) What would happen to the short-run and long-run aggregate supply curves if the capital stock grew and available supplies of natural resources expanded over the same period of time?
Q2) If input prices adjusted just as quickly as output prices,the profit effect leading to an increase in RGDP supplied would disappear.
A)True
B)False
Q3) An increase in the price level will:
A) increase the quantity of RGDP supplied, but not increase short-run aggregate supply.
B) decrease the quantity of RGDP supplied, but not decrease short-run aggregate supply.
C) increase short-run aggregate supply.
D) decrease short-run aggregate supply.
Q4) If both imports and exports fell,
A) AD would decrease.
B) AD would increase.
C) AD would decrease if exports fell more than imports.
D) AD would increase if exports fell more than imports.
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24
Chapter 23: The Aggregate Expenditure Model
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Sample Questions
Q1) 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
Q2) When all the factors of aggregate expenditure are influenced by income,the multiplier becomes a function of the:
A) marginal propensity of government purchases.
B) marginal propensity to consume out of disposable income.
C) marginal propensity of aggregate expenditure.
D) marginal propensity to import.
Q3) The value of the expenditure multiplier depends on the marginal propensity to consume.
A)True
B)False
Q4) The Keynesian-cross model suggests that increased saving increases the economy's output.
A)True
B)False
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Chapter 25: Monetary Institutions
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Q1) If the reserve requirement is 15 percent and a customer makes a new cash deposit of $50,000,how much new excess reserves are created?
A) $7,500
B) $33,000
C) $67,500
D) $42,500
Q2) How is money destroyed in the banking system?
Q3) Exhibit 25-1 A bank's assets consist of $500,000 in total reserves,$1,600,000 in loans,and a building worth $1,200,000.Its liabilities and capital consist of $2,000,000 in demand deposits and $1,300,000 in capital.
Refer to Exhibit 25-1.If the required reserve ratio is 20 percent,what is the level of the bank's excess reserves? How much could it loan out as a result?
A) $100,000; $100,000
B) $100,000; $400,000
C) $400,000; $500,000
D) $400,000; $2,000,000
Q4) Explain Gresham's Law.
Q5) What limits a bank's ability to extend loans?
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Chapter 26: The Federal Reserve System and Monetary Policy
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Q1) Suppose the banking system as a whole has $600 billion in deposits and $66 billion in reserves,with a reserve ratio of 11 percent.What happens to the stock of money if the Fed lowers reserve requirements by changing the reserve ratio to 10 percent?
Q2) Which of the following would constitute contractionary monetary policy by the Fed?
A) An increase in income tax rates, a cut in government spending, and an elimination of the investment tax credit
B) Open market sales of government securities, an increase in the discount rate, and an increase in reserve requirements
C) An increase in tariffs on imported goods and a decrease in foreign aid
D) Open market purchases of government securities, a cut in the discount rate, and an increase in reserve requirements
Q3) The major objective of the Federal Reserve System is to:
A) make substantial profits for its member banks.
B) help in generating stabilization policies for the economy.
C) distribute paper money and coins to banks and retail stores.
D) prevent closure (failure) of individual member banks.
Q4) To what extent should monetary policy be used to fine-tune the economy?
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Chapter 27: Issues in Macroeconomic Theory and Policy
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Q1) The short-run Phillips curve could shift to the left as a result of either ____ or ____.
A) rising oil prices; increasing inflation expectations
B) rising wages; falling prices
C) declining oil prices; falling inflation expectations
D) falling wages; rising prices
Q2) If the public has correct rational expectations and the Fed reduces both reserve requirements and the discount rate,it would be expected to result in:
A) a higher level of real output and a lower price level.
B) a lower price level but no change in real output.
C) a higher price level and a reduced level of real output.
D) a higher price level but no change in real output.
Q3) Using Taylor rule,the federal funds rate is increased or decreased according to what is happening to both real GDP and inflation.
A)True
B)False
Q4) At one time,policy makers interpreted the Phillips curve as offering a menu of inflation-unemployment choices.Today,the curve is no longer viewed this way.Why has the interpretation changed?
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Page 28
Chapter 28: International Trade
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Q1) Iceland can produce 32 units of food per person per year or 16 units of clothing per person per year,but Lavaland can produce 24 units of food per year or 12 units of clothing.Which of the following is true?
A) Iceland has both a comparative and absolute advantage in producing food.
B) Iceland has a comparative advantage, but not an absolute advantage in producing food.
C) Lavaland has both a comparative and absolute advantage in producing clothing.
D) None of the above are true.
Q2) If a nation has "cheap" labor,
A) it can still benefit from trade.
B) it is unlikely to have a comparative advantage in the production of goods that are highly capital intensive.
C) it cannot have a comparative advantage in everything.
D) all of the above are true.
Q3) The idea behind comparative advantage reflects the possibility that one party
A) may be able to produce something relatively more efficiently than another.
B) may be able to produce something at a lower opportunity cost than another.
C) may be able to produce something more cheaply than another.
D) all of the above
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Chapter 29: International Finance
Available Study Resources on Quizplus for this Chatper
138 Verified Questions
138 Flashcards
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Sample Questions
Q1) Which of the following would cause an increase in the exchange value of the U.S.dollar?
A) A decrease in the amount of foreign debt purchased by U.S. citizens
B) An increase in U.S. exports
C) Increased demand by foreigners to buy U.S. government securities
D) all of the above
Q2) What are the three categories of transactions in the balance of payments? Give an example of each.
Q3) If the dollar price of euros is lower than the equilibrium price,there will be an excess quantity of euros ____ at that price,and competition among euro ____ will push the price of Euros toward equilibrium.
A) supplied, sellers.
B) supplied; buyers.
C) demanded; sellers.
D) demanded; buyers.
Q4) Whenever there is a surplus in the current account,the capital account:
A) will be negative.
B) will be positive.
C) will be zero.
D) could be negative, positive, or zero.
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