Introduction to Economics
Mock Exam
Course Introduction
Introduction to Economics provides students with a foundational understanding of economic principles and concepts that govern individual, business, and government decision-making. The course covers the basics of microeconomics, including demand and supply analysis, market structures, consumer and producer behavior, and the role of prices in resource allocation. It also introduces key macroeconomic topics such as national income, economic growth, unemployment, inflation, and fiscal and monetary policy. Through real-world examples and interactive activities, students will learn how economics influences everyday life and the broader societal issues facing modern economies.
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) Which of the following is not an example of an economic trade-off that a firm has to make?
A) Whether it is cheaper to produce with more machines or with more workers.
B) Whether it is cheaper to outsource the production of a good or service.
C) Whether or not consumers will buy its products.
D) Whether it should produce more of its product.
Answer: C
Q2) If a straight line passes through the point x = 24 and y = 8 and also through the point x = 8 and y = 16,the slope of this line is
A) negative 8 divided by 4.
B) seven tenths.
C) negative one half.
D) one and one half.
Answer: C
Q3) In a centrally planned economy,the households and firms decide how economic resources will be allocated.
A)True
B)False
Answer: False
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Page 3
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Sample Questions
Q1) Refer to Table 2-1.Assume Tomaso's Trattoria only produces pizzas and calzones.A combination of 36 pizzas and 30 calzones would appear
A) along Tomaso's production possibility frontier.
B) inside Tomaso's production possibility frontier.
C) outside Tomaso's production possibility frontier.
D) at the horizontal intercept of Tomaso's production possibility frontier.
Answer: C
Q2) In a free market there are significant restrictions on how a good or service can be produced or sold.
A)True
B)False
Answer: False
Q3) The basis for trade is comparative advantage,not absolute advantage.
A)True
B)False
Answer: True
Q4) What is economic growth?
Answer: Economic growth refers to the ability of the economy to increase the production of goods and services.
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Sample Questions
Q1) A positive technological change will cause the supply of a good to increase. A)True
B)False
Answer: True
Q2) Assume that the demand curve for MP3 players shifts to the right and the supply curve for MP3 players shifts to the left,but the supply curve shifts more than the demand curve.As a result,
A) both the equilibrium price and quantity of MP3 players will decrease.
B) the equilibrium price of MP3 players will decrease; the equilibrium quantity will increase.
C) the equilibrium price of MP3 players may increase or decrease; the equilibrium quantity will decrease.
D) the equilibrium price of MP3 players will increase; the equilibrium quantity will decrease.
Answer: D
Q3) A sunk cost is a cost that has already been paid and cannot be recovered. A)True
B)False
Answer: True
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Chapter 4: Market Efficiency and Market Failure
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Sample Questions
Q1) Price elasticity of demand measures
A) how responsive suppliers are to price changes.
B) how responsive sales are to changes in the price of a related good.
C) how responsive quantity demanded is to a change in price.
D) how responsive sales are to a change in buyers' incomes.
Q2) Suppose when Nablom's Bakery raised the price of its breads by 10 per cent,the quantity demanded fell by 15 per cent.What was the effect on sales revenue?
A) Sales revenue increased.
B) Sales revenue remained unchanged.
C) Sales revenue decreased.
D) It cannot be determined without information on prices.
Q3) For people who live near a bus route,a metro station,or a commuter rail line,public transportation provides a substitute to driving their own cars.So,for these people,the cross-price elasticity of demand between petrol and public transportation is A) positive.
B) negative.
C) zero.
D) infinity.
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Chapter 5: The Economics of Healthcare
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Sample Questions
Q1) If marginal benefit is greater than marginal cost,output is inefficiently high.
A)True
B)False
Q2) In a competitive market,the demand curve shows the ________ received by consumers,and the supply curve shows the ________.
A) utility; average cost.
B) marginal benefit; marginal cost
C) economic surplus; opportunity cost
D) net benefit; net cost
Q3) What is the difference between a price ceiling and a price floor? Compared to the competitive equilibrium price,where must price ceilings and price floors be set to have an effect on the market?
Q4) The total amount of producer surplus in a market is equal to the area below the supply curve.
A)True
B)False
Q5) What is 'tax incidence'? What determines tax incidence in a competitive market?
Q6) What is marginal benefit? Which curve is also referred to as a marginal benefit curve?
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Chapter 6: Firms,the Stock Market,and Corporate Governance
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Sample Questions
Q1) If a firm experiences positive technological change,it is able to produce more output using the same inputs.
A)True
B)False
Q2) The law of diminishing marginal returns states
A) that at some point, adding more of a fixed input to a given amount of variable inputs will cause the marginal product of the variable input to decline.
B) that at some point, adding more of a variable input to a given amount of a fixed input will cause the marginal product of the variable input to decline.
C) that in the presence of a fixed factor, at some point average product of labour starts to fall as more and more variable inputs are added.
D) that average total costs of production initially fall and after some point start to rise at a decreasing rate as output increases.
Q3) In the short run,if average product is at its maximum,then average variable cost is at its minimum.
A)True
B)False
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Page 8
Chapter 7: Consumer Choice and Elasticity
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Sample Questions
Q1) The short-run supply curve for a perfectly competitive firm is that part of the firm's marginal cost curve that lies above the minimum point of its average variable cost curve.
A)True
B)False
Q2) Refer to Table 7-2.What will Arnie's output be and how much profit will he earn if the market price of basketballs is $5.00?
A) Q = 1; profit = -$10.
B) Q = 3; profit = -$7.50
C) Q = 0; profit = -$10.00
D) Price and profit cannot be determined from the information given.
Q3) Which of the following is not an option for a perfectly competitive firm that suffers short-run losses?
A) Shutting down
B) Reducing production
C) Reducing the use of variable factors
D) Raising price
Q4) What is meant by allocative efficiency? How does a perfectly competitive firm achieve allocative efficiency?
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Chapter 8: Technology, production, and Costs
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Sample Questions
Q1) If Mort's House of Flowers sells one dozen roses to different customers at different prices,economists would consider this an example of
A) price gouging.
B) rational ignorance.
C) arbitrage.
D) price discrimination.
Q2) In the short run,even if a monopoly's total revenue does not cover its variable costs,it should continue to produce because ultimately,in the long run,the monopoly will start earning profits.
A)True
B)False
Q3) A vertical merger is one that takes place between two companies producing different goods or services for one specific finished product.
A)True
B)False
Q4) What happens to a monopoly's revenue when it sells more units of its product?
Q5) What is perfect price discrimination and why do economists believe that no firm is able to practice perfect price discrimination?
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Chapter 9: Firms in Perfectly Competitive Markets
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Q1) Refer to Table 9-1.What portion of the marginal revenue of the 4th unit is due to the output effect and what portion is due to the price effect?
A) Output effect = $24.00; price effect = $19.50
B) Output effect = $6.50; price effect = $2.00
C) Output effect = -$0.50; price effect = $5.00
D) Output effect = $6.00; price effect = -$1.50
Q2) A form of implicit collusion where one firm in an oligopoly announces a price change which is matched by other firms in the same industry is
A) 'follow the leader' pricing.
B) price leadership.
C) retaliation pricing.
D) 'tit-for-tat' pricing.
Q3) In the short run,a profit-maximising firm's decision to produce should be guided by whether
A) it makes a profit.
B) its marginal profit is maximised.
C) its total revenue exceeds its fixed cost.
D) its total revenue covers its variable cost.
Q4) What is the difference between explicit collusion and implicit collusion?
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Chapter 10: Monopoly and Antitrust
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Sample Questions
Q1) When workers are paid on a piece-rate basis,an employer must be able to easily measure each worker's output.
A)True
B)False
Q2) An increase in the demand for orthodontic services leads to
A) an increase in the supply of orthodontists.
B) lower prices for orthodontic care.
C) an increase in the demand for orthodontists.
D) a rise in the rates of dental insurance.
Q3) What is the marginal productivity theory of income distribution?
Q4) The most important factor contributing to wage differences in the labour market is differences in the level of education and training among workers.
A)True
B)False
Q5) Seth's grandmother gave him a $50 savings bond for his birthday.The bond pays $50 at maturity,which is in five years.If the interest rate is 5 per cent,the bond has a present value of $43.19.
A)True
B)False
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Chapter 11: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) The private cost of a good or service is the cost borne by the producer.
A)True
B)False
Q2) Refer to Figure 11-5.In the absence of any government intervention,the private market
A) underproduces by Qo - Qm units.
B) overproduces by Qo - Qm units.
C) overproduces by Qn - Qm units.
D) underproduces by Qn - Qm units.
Q3) Overuse of a common resource may be avoided by all of the following methods except
A) charging for the use of a common resource.
B) issuing tradable permits for the use of a common resource.
C) government taking over ownership of all private common resources.
D) setting quotas or legal limits on the quantity consumed of the common resource.
Q4) A market failure arises when an entire sector of the economy (for example,the airline industry)collapses because of some unforeseen event.
A)True
B)False
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Chapter 12: GDP: Measuring Total Production and Income
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Sample Questions
Q1) To make the calculation of real GDP more accurate,the Australian Bureau of Statistics (ABS)switched to using
A) base year prices.
B) current prices.
C) chained prices.
D) market prices.
Q2) The purchase of shares in a company is not included in the investment component of GDP.
A)True
B)False
Q3) Which of the following combination of points illustrates the changes in the Soviet Union's economy from 1950-1980,as illustrated in Figure 12.1?
A) E to B
B) B to D
C) B to E
D) A to B to C
Q4) Use the rule of 70 to illustrate how small differences in growth rates can have a large impact on how rapidly the standard of living in a country increases.
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Page 14
Chapter 13: Unemployment and Inflation
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Sample Questions
Q1) During the 1990s through to the mid-2000s,the Australian labour market
A) was deregulated by the government.
B) was re-regulated by the government.
C) experienced an increase in union participation rates.
D) abolished enterprise bargaining.
Q2) Which of the following causes 'hyperinflation'?
A) A shortage of credit, similar to that which occurred during the 2007-2009 global financial crisis.
B) A central bank policy of high interest rates.
C) Government budget surpluses leading to an increase in government spending.
D) Central bank activity which increases financial liquidity at a much greater rate than the growth rate of real GDP.
Q3) Unemployment arising from a persistent mismatch between the skills and characteristics of workers and the requirements of jobs is called A) frictional unemployment.
B) structural unemployment.
C) cyclical unemployment.
D) seasonal unemployment.
Q4) What is hyperinflation?
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Chapter 14: Economic Growth, the Financial System and Business Cycles
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Sample Questions
Q1) Because of a supply shock,in the short run
A) the aggregate supply curve shifts to the left.
B) the price level falls.
C) unemployment falls.
D) equilibrium real GDP rises.
Q2) Which of the following will not shift the short-run aggregate supply curve?
A) A change in the price level.
B) Technological change.
C) A reduction in the price of raw materials.
D) A change in the wage rate.
Q3) On the 45° line diagram,for points that lie above the 45° line
A) planned aggregate expenditure is greater than GDP.
B) planned aggregate expenditure is less than GDP.
C) planned aggregate expenditure is equal to GDP.
D) planned aggregate expenditure is less than aggregate income.
Q4) The long-run adjustment to a supply shock results in
A) the short-run aggregate supply curve shifting to the right.
B) the price level rising.
C) unemployment rising.
D) workers being willing to accept higher wages.
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Chapter 15: Aggregate Demand and Aggregate Supply Analysis
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Sample Questions
Q1) Liabilities are
A) something owned by a firm.
B) something the firm owes to someone else.
C) the firm's net worth.
D) the firm's reserves.
Q2) Paper currency
A) is commodity money.
B) is fiat money.
C) is barter money.
D) includes bonds and securities.
Q3) Suppose that your bank's reserve ratio is 0.2 and you deposit $50 000 into the bank.What is the deposit multiplier? What is the total increase in deposits in the banking system? What is the change in the money supply?
Q4) A person's wealth
A) is a measure of how much money the person has.
B) equals the value of the person's assets minus his or her liabilities.
C) is measured independently of his or her current and expected future income.
D) All of these options are correct.
Q5) What are the functions of money?
Q6) What is commodity money? Give an example. Page 17
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Page 18
Chapter 16: Money, banks, and the Federal Reserve System
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Sample Questions
Q1) Buying a house during a recession may be a good idea if your job seems secure because the Reserve Bank of Australia often lowers interest rates during a recession.
A)True
B)False
Q2) If you spend more of your income on consumption goods,which of the following will occur?
A) The production of investment goods will fall.
B) Economic growth will be stimulated.
C) Investments in education will rise.
D) For every dollar you spend on consumption, real GDP will fall by a dollar.
Q3) Which of the following characterises the ability of the Reserve Bank of Australia (RBA)to prevent recessions?
A) The RBA is able to 'fine tune' the economy and entirely eliminate recessions.
B) The RBA is incapable of changing aggregate demand through its monetary policy tools.
C) The RBA may be able to keep a recession shorter and milder than it would otherwise be.
D) The RBA may be able to eliminate the business cycle and achieve absolute price stability.
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Page 19
Chapter 17: Monetary Policy
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Sample Questions
Q1) What is the government purchases multiplier if the tax rate is 0.1 and the marginal propensity to consume is 0.9? Assume the economy is closed.
A) 10
B) 11.1
C) 5.3
D) 100
Q2) The tax multiplier is calculated as 'one minus the government purchases multiplier'. A)True
B)False
Q3) If the economy were in a recession,we would expect government expenditure to be
A) high and tax revenues to be high, probably leading to a budget deficit.
B) high and tax revenues to be low, probably leading to a budget deficit.
C) low and tax revenues to be low, probably leading to a budget surplus.
D) high and tax revenues to be low, probably leading to a budget surplus.
Q4) Explain why crowding out might still occur even if the increase in government spending is funded by borrowing on global financial markets.
Q5) What is the formula for the multiplier? Explain why this formula is considered to be too simple.
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Page 20
Chapter 18: Fiscal Policy
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Sample Questions
Q1) What does it mean for a country to have an absolute advantage in producing a product?
Q2) A tariff is a tax imposed by a government on A) exports.
B) services.
C) imports.
D) luxury items.
Q3) Refer to Table 18-6.Which country has a comparative advantage in producing clocks?
A) Denmark
B) Belize
C) Both countries
D) Neither country
Q4) Refer to Table 18-1.Select the statement that accurately interprets the data in the table.
A) Linda has a comparative advantage in dog bathing.
B) Sandy has an absolute advantage in dog bathing.
C) Sandy has a comparative advantage in dog bathing.
D) Linda has a comparative advantage in dog grooming and dog bathing.
Q5) Distinguish between a voluntary export restraint and a quota.
Page 21
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Chapter 19: Comparative Advantage, international Trade, and Exchange Rates
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Sample Questions
Q1) The real exchange rate is the amount of an overseas currency that can be purchased with the local (domestic)currency.
A)True
B)False
Q2) Refer to Figure 19.2.Assume that Europe experiences an economic boom.Assuming all else remains constant,this would be represented as a movement from
A) D to A.
B) D to C.
C) C to B.
D) B to A.
Q3) Which of the following is a capital inflow into Australia?
A) An Australian investor buys a Japanese bond.
B) An Australian firm buys and builds a factory in Indonesia.
C) A Chinese investor buys an Australian government bond.
D) An Australian firm buys a German bond.
Q4) If Australian demand for purchases of British goods has decreased,how would you expect the equilibrium exchange rate in the market for dollars to respond? Support your answer graphically.
Q5) When can foreign debt become a problem for a country?
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