Introduction to Economics
Midterm Exam
Course Introduction
Introduction to Economics offers a comprehensive overview of the fundamental principles and concepts underlying the field of economics. The course explores both microeconomic and macroeconomic perspectives, covering topics such as supply and demand, market structures, consumer behavior, production, the role of government, fiscal and monetary policy, economic growth, and international trade. Students will gain an understanding of how individuals, businesses, and governments allocate resources, make decisions, and interact within various market environments, providing a solid foundation for further study in economics and related disciplines.
Recommended Textbook
Essentials of Economics 3rd Edition by Glenn Hubbard
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Page 2
Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) Trina's Tropical Fish Store sells goldfish for $2 each and angelfish for $10 each.What is the opportunity cost of buying a goldfish?
A) 5 angelfish
B) 1/5 of an angelfish
C) $10
D) $2
Answer: B
Q2) All centrally planned economies
A) have been political dictatorships.
B) started out as market economies.
C) began as mixed economies.
D) have become mixed economies.
Answer: A
Q3) Define microeconomics.
Answer: Microeconomics is the study of how households and firms make choices,how they interact in markets,and how the government attempts to influence their choices.
Q4) What is marginal cost?
Answer: Marginal cost is the additional cost associated with continuing with an activity.
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Sample Questions
Q1) An outward shift of a nation's production possibility frontier represents A) economic growth.
B) rising prices of the two goods on the production possibility frontier model.
C) an impossible situation.
D) a situation in which a country produces more of one good and less of another.
Answer: A
Q2) If additional units of a good could be produced at an increasing opportunity cost,the production possibility frontier would be linear.
A)True
B)False
Answer: False
Q3) Refer to Table 2-7.What is Horace's opportunity cost of grooming a dog?
A) Half a bathed cat
B) Two bathed cats
C) Two-thirds of a bathed cat
D) One and a half bathed cats
Answer: C
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Page 4
Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Q1) A change in which variable will change the market demand for a product?
A) The price of the product
B) Population
C) Technology
D) The prices of substitutes in production
Answer: B
Q2) The supply curve for watches
A) shows the supply of watches consumers are willing and able to buy at any given price.
B) is downward sloping.
C) shows the relationship between the quantity of watches firms are willing and able to supply and the quantity of watches consumers are willing and able to purchase.
D) shows the relationship between the price of watches and the quantity of watches supplied.
Answer: D
Q3) A shortage occurs when the market price is lower than the equilibrium price.
A)True
B)False
Answer: True
Page 5
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Chapter 4: Market Efficiency and Market Failure
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Sample Questions
Q1) Which of the following statements is true?
A) In general, if a product has few substitutes, it will have an elastic demand.
B) The more time that passes, the more inelastic the demand for a product becomes.
C) The demand curve for a necessity is more elastic than the demand curve for a luxury.
D) The more narrowly we define a market, the more elastic the demand for a product will be.
Q2) Cross-price elasticity of demand is calculated as the
A) percentage change in quantity demanded divided by the percentage change in the price of a good.
B) percentage change in quantity demanded of one good divided by the percentage change in the price of a different good.
C) percentage change in quantity sold divided by the percentage change in buyers' incomes.
D) percentage change in quantity supplied divided by the percentage change in the price of a good.
Q3) What factors would make you more sensitive or less sensitive to price when purchasing petrol?
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Chapter 5: The Economics of Healthcare
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Sample Questions
Q1) Deadweight loss refers to the reduction in economic surplus resulting from a market not being in competitive equilibrium.
A)True
B)False
Q2) Refer to Figure 5-3.What is the value of consumer surplus at a price of $18?
A) $60
B) $120
C) $180
D) $240
Q3) Refer to Figure 5-1.If the market price is $1.50,what is the consumer surplus on the first burrito?
A) $0.50
B) $1.00
C) $1.50
D) $7.50
Q4) A minimum wage law dictates
A) the minimum quantity of labour that a firm must employ.
B) the lowest wage that firms may pay for labour.
C) the highest wage that firms must pay for labour.
D) the minimum qualifications for labour.
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Chapter 6: Firms,the Stock Market,and Corporate Governance
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Sample Questions
Q1) The average total cost of production
A) is the extra cost required to produce one more unit.
B) equals the explicit cost of production.
C) equals total cost of production divided by the level of output.
D) equals total cost of production multiplied by the level of output.
Q2) In the long run,the relevant cost is total cost.
A)True
B)False
Q3) Costs that change as output changes are called incremental costs.
A)True
B)False
Q4) An important reason why diseconomies of scale arise is because firms may have to hire lower-skilled workers as firms expand.
A)True
B)False
Q5) What is the marginal product of labour and what is the average product of labour?
Q6) Average total cost is equal to average variable cost minus average fixed cost.
A)True
B)False
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Chapter 7: Consumer Choice and Elasticity
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Sample Questions
Q1) What is allocative efficiency?
A) It refers to a situation in which resources are allocated to their highest-profit use.
B) It refers to a situation in which resources are allocated such that goods can be produced at their lowest possible average cost.
C) It refers to a situation in which resources are allocated such that the last unit of output produced provides a marginal benefit to consumers equal to the marginal cost of producing it.
D) It refers to a situation in which resources are allocated fairly to all consumers in a society.
Q2) What assumptions are necessary for a market to be perfectly competitive? Explain why each of these assumptions is important.
Q3) Refer to Figure 7-7.Identify the short-run shutdown point for the firm.
A) a B) b
C) c D) d
Q4) What is the difference between 'shutting down temporarily' and 'exiting the industry'?
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Chapter 8: Technology, production, and Costs
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Sample Questions
Q1) Which of the following products allows the seller to identify different groups of consumers (segment the market)at virtually no cost?
A) Early bird dinner specials
B) Books sold online
C) A pair of Bose speakers
D) iPhones
Q2) The size of a deadweight loss in a market is reduced by
A) government legislating a price ceiling.
B) government legislating a price floor.
C) market price being close to marginal cost.
D) creative destruction.
Q3) A merger between the Ford Motor Company and General Motors would be an example of a
A) vertical merger.
B) horizontal merger.
C) conglomerate merger.
D) trust.
Q4) What gives rise to a natural monopoly? How do consumers benefit from a natural monopoly?
Q5) What happens to a monopoly's revenue when it sells more units of its product?
Page 10
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Chapter 9: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) Which of the following statements is true about marginal revenue?
A) If marginal revenue is zero, it means that quantity demanded falls to zero when a firm changes its price.
B) If marginal revenue is negative, the additional revenue received from selling 1 more unit of the good is smaller than the revenue lost from receiving a lower price on all the units that could have been sold at the original price.
C) If marginal revenue is positive, the additional revenue received from selling 1 more unit of the good is smaller than the revenue lost from receiving a lower price on all the units that could have been sold at the original price.
D) Marginal revenue increases as price falls and quantity sold increases.
Q2) A monopolistically competitive firm will
A) charge the same price as its competitors do.
B) always produce at the minimum efficient scale of production.
C) have some control over its price because its product is differentiated.
D) produce an output level that is productively and allocatively efficient.
Q3) Explain how collusion makes firms better off.Given the incentives to collude,briefly explain why every industry does not become a cartel.
Q4) Explain why OPEC is caught in a prisoner's dilemma?
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Chapter 10: Monopoly and Antitrust
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Q1) Refer to Figure 10-4.Which of the following is true if the wage rate increases from W<sub>0</sub> to W<sub>1</sub>?
A) The income effect is larger than the substitution effect.
B) The substitution effect is larger than the income effect.
C) The income effect and the substitution effect are equal.
D) The supply curve is unit-elastic.
Q2) Which of the following is operating income?
A) Explicit plus implicit costs
B) Stockholders' equity
C) Revenue minus operating expenses
D) Net profit
Q3) The price of a factor of production that is in fixed supply is called
A) economic rent.
B) economic profit.
C) a compensating differential.
D) opportunity cost.
Q4) The demand for labour is a derived demand.Explain what is meant by the term 'derived demand.'
Q5) What are the five most important variables that cause the market demand curve for labour to shift?
Page 12
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Chapter 11: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) Refer to Figure 11-2.How much is Bree willing to pay to have 4 street lights installed?
A) $1500
B) $1800
C) $2700
D) $7200
Q2) A product is considered to be non-excludable if
A) you can keep those who did not pay for the item from enjoying its benefits.
B) you cannot keep those who did not pay for the item from enjoying its benefits.
C) your consumption of the product reduces the quantity available for others to consume.
D) it is jointly owned by all members of a community.
Q3) A tragedy of the commons occurs when a resource is
A) rival and excludable.
B) rival and non-excludable.
C) non-rival and non-excludable.
D) non-rival and excludable.
Q4) How does a positive externality in consumption reduce economic efficiency?
Q5) What is rent seeking and how is it related to regulatory capture?
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Chapter 12: GDP: Measuring Total Production and Income
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Q1) A company named Home Depot sells new and used doors to contractors who build new homes.Home Depot also sells new and used doors to homeowners.Which of the following would be counted in GDP?
A) The sale of a used door to a homeowner.
B) The sale of a new door to a homeowner.
C) The sale of a used door for installation into a new home.
D) The sale of a new door for installation into a new home.
Q2) Suppose that real GDP for 2012 was $10 000 billion and real GDP for 2013 was $11 000 billion.What is the rate of growth of real GDP?
A) 10 per cent
B) 1 per cent
C) 5 per cent
D) 2 per cent
Q3) Gross domestic product is generally ________ net domestic product.
A) greater than
B) less than
C) equal to D) unrelated to
Q4) Do countries produce more or less pollution as GDP grows?
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Chapter 13: Unemployment and Inflation
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Q1) During an economic boom,many employees are asked to work more overtime hours each week.As a result of this
A) the unemployment rate increases.
B) the unemployment rate decreases.
C) the labour force participation rate increases.
D) neither the unemployment rate nor the labour force participation rate changes.
Q2) A woman who quit her job to search for a job that better utilises her skills represents an example of
A) structural unemployment.
B) frictional unemployment.
C) cyclical unemployment.
D) seasonal unemployment.
Q3) The cost to firms of changing prices is called
A) redistribution costs.
B) menu costs.
C) anticipation costs.
D) money illusion costs.
Q4) Explain how the CPI is constructed,and discuss any weaknesses with this measurement technique.
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Chapter 14: Economic Growth, the Financial System and Business Cycles
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Q1) Which of the following experiences in the Australian economy led to an increase in the unemployment rate and the inflation rate?
A) The world oil shock of 1974.
B) The policy of high interest rates in the late 1980s.
C) The introduction of the Goods and Services Tax (GST) in 2000.
D) The introduction of unemployment benefit payments in 1944.
Q2) If potential GDP is equal to $1500 billion,what does the long-run aggregate supply curve look like?
A) It is a horizontal line at $1500 billion of GDP.
B) It is a vertical line at a level of GDP below $1500 billion.
C) It is a vertical line at $1500 billion of GDP.
D) It is a vertical line at a level of GDP above $1500 billion.
Q3) The 'long boom' in Australia referred to the general period of strong economic growth that occurred between
A) 1928 and 1931.
B) the late 1950s and the late 1980s.
C) the late 1940s and the early 1970s.
D) 1991 and 2007.
Q4) Why is the long-run aggregate supply curve vertical?
Page 16
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Chapter 15: Aggregate Demand and Aggregate Supply Analysis
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Q1) ________ are financial securities that represent promises to repay a fixed amount of funds.
A) Shares
B) Bonds
C) Savings accounts
D) Certificates of deposit
Q2) Your demand-deposit account balance is included in your bank's assets.
A)True
B)False
Q3) A bank's largest liability is its
A) short-term borrowing.
B) long-term debt.
C) deposits.
D) securities.
Q4) A cash withdrawal from the banking system
A) lowers demand deposits to zero.
B) decreases demand deposits.
C) increases the money supply.
D) increases excess reserves.
Q5) How do financial intermediaries affect risk in the financial market?
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Chapter 16: Money, banks, and the Federal Reserve System
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Q1) The Reserve Bank of Australia engages in open market operations only when it wants to change interest rates.
A)True
B)False
Q2) Accounts held with the Reserve Bank of Australia (RBA)which are used by financial institutions to settle payments between each other and with the RBA are called
A) credit accounts.
B) real-time gross settlement accounts.
C) debit accounts.
D) exchange settlement accounts.
Q3) If the overnight cash rate falls then,ceteris paribus,
A) interest rates will fall and share prices will rise.
B) interest rates will rise and share prices will rise.
C) interest rates will fall and share prices fall.
D) interest rates will rise and share prices will fall.
Q4) Explain how monetary policy affects aggregate demand,the price level and real GDP.
Q5) Explain the consequences of expansionary monetary policy if the economy was close to,or at,potential GDP level.
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Chapter 17: Monetary Policy
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Q1) The increase in revenue taxation received by the government during an economic boom is due to discretionary fiscal policy.
A)True
B)False
Q2) Suppose that the government allocates $1 billion for new roads.It also raises taxes by $1 billion to keep the deficit from growing.If the marginal propensity to consume = 0.9,what is the effect on equilibrium GDP?
A) GDP does not change.
B) GDP increases by $10 billion.
C) GDP increases by $900 000.
D) GDP increases by $1 billion.
Q3) An increase in government spending may expedite recovery from a recession in the short run,but in the long run,this policy may
A) reduce investment in new capital.
B) make domestic businesses less competitive in international markets if the dollar appreciates in value.
C) raise interest rates and reduce consumer expenditures on cars and new houses.
D) All of these options are correct.
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Chapter 18: Fiscal Policy
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Q1) A tariff is a tax imposed by a government on its own exports.
A)True
B)False
Q2) Workers in industries protected by tariffs and quotas are likely to support these trade restrictions because
A) they do not want to offend their employers who want them.
B) politicians lobby to convince workers the restrictions will make them better off.
C) they believe the restrictions will protect their jobs.
D) they don't understand that the restrictions will threaten their jobs.
Q3) One of the main sources of comparative advantage is internal economies.
A)True
B)False
Q4) Refer to Table 18-6.Prior to trade,what was the opportunity cost to produce 1 hat in Belize?
A) 1/6 of a clock
B) 2/3 of a clock
C) 1.5 clocks
D) 6 clocks
Q5) What is autarky?
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Chapter 19: Comparative Advantage, international Trade, and Exchange Rates
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Q1) Speculators who anticipate a(n)________ in the future value of the dollar relative to the future value of the yen will ________.
A) increase; increase the demand for yen
B) increase; increase the demand for dollars
C) decrease; decrease the demand for yen
D) decrease; increase the demand for dollars
Q2) Which of the following would cause the change depicted in Figure 19.4? Note that the figure depicts the quantity of euros traded.
A) Australian productivity falls relative to European productivity.
B) Australians decrease their preferences for goods produced in the European Union (EU) relative to Australian goods.
C) The EU increases its quotas on Italian wine.
D) The price level of goods produced in the EU decreases relative to the price level of goods produced in Australia.
Q3) What is the theory of purchasing power parity?
Q4) Explain what the financial account measures.
Q5) What factors occur in the real world that prevent purchasing power parity from occurring fully in the long run?
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