Introduction to Economics Practice Exam
Course Introduction
Introduction to Economics provides an overview of fundamental economic principles, including the concepts of scarcity, supply and demand, market equilibrium, and the role of government in the economy. The course explores both microeconomic and macroeconomic perspectives, examining how individuals and firms make decisions, how markets function, and how economic performance is measured at the national level. Students are introduced to key topics such as production, consumption, inflation, unemployment, and economic growth, equipping them with a solid foundation to understand economic issues and policies affecting society.
Recommended Textbook
Essentials of Economics 1st Edition by Dirk Mateer
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2713 Verified Questions
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Page 2
Chapter 1: Thinking Like an Economist
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97 Verified Questions
97 Flashcards
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Sample Questions
Q1) Using any of the four key principles of thinking like an economist,explain why farms are not located in major metropolitan areas.
Answer: In terms of incentives,major metropolitan areas often restrict the types of activities one can do,and farmers would face a negative incentive to locate in a congested area because their neighbors would heavily scrutinize the smells,runoff,and machinery.In a congested area,space is scarce and city planners would likely prefer to have retail and housing rather than farming.City planners would know that there is a trade-off between these activities but would realize that the opportunity cost to farming in the city is too high.Thus,for each acre of land in the city,city planners consider the marginal benefit to having food grown closer to where it is consumed versus the marginal cost to having less housing and fewer retail establishments.In almost all cases,the marginal benefit to having farms closer to the population is less than the marginal cost of having less housing.
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3
Chapter 2: Economic Models and Gains From Trade
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137 Flashcards
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Sample Questions
Q1) Which of the following is NOT an assumption that economists make when developing a production possibilities frontier (PPF)?
A) We live in a world with only two goods.
B) There are no increases in technology.
C) There is no change in available resources.
D) Society will always be producing somewhere on the PPF.
E) There are no decreases in technology.
Answer: D
Q2) What is DiNozzo's opportunity cost of making a wooden boat?
A) 20 solved crimes
B) 30 solved crimes
C) 10 solved crimes
D) 1/20 of a boat
E) 1/10 of a boat
Answer: A
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Chapter 3: The Market at Work: Supply and Demand
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160 Verified Questions
160 Flashcards
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Sample Questions
Q1) When supply shifts right and demand shifts left,the equilibrium:
A) price always rises.
B) price always falls.
C) quantity always falls.
D) quantity always rises.
E) price is indeterminate.
Answer: B
Q2) Susie decided to start selling lemonade on her street.The other kids in the neighborhood noticed that Susie was making a lot of money selling lemonade.These kids decided to open their own lemonade stand.When they opened their own lemonade stand,the equilibrium price ________ and the equilibrium quantity ________.
A) increased; decreased
B) decreased; increased
C) increased; increased
D) decreased; decreased
E) stayed the same; stayed the same
Answer: B
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5
Chapter 4: Market Efficiency
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Sample Questions
Q1) Which of the following is an accurate statement about the consequence of a binding price ceiling?
A) Binding price ceilings do not allow consumers to pay a lower price for the product in the legal market.
B) Binding price ceilings encourage the formation of a black market.
C) Binding price ceilings discourage the formation of a black market.
D) Binding price ceilings create a surplus of the product.
E) Binding price ceilings cause consumers to purchase more of the product in the legal market.
Q2) Which of the following is a correct statement about a minimum wage law?
A) It reduces costs for employers.
B) It ensures that all who want a job can get a job with a high enough wage.
C) It causes prices to rise as producers pay more for labor.
D) It is a price ceiling law that makes wages higher than the market equilibrium price.
E) It is a price floor law that forces wages to be lower than the market equilibrium price.
Q3) Explain why a shortage occurs in a market where a binding price ceiling exists.Does a price ceiling improve the operation of the market?
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6
Chapter 5: Costs and Production: How Do Businesses Work?
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Sample Questions
Q1) If the marginal product of labor for a firm decreases as more workers are hired,we know that:
A) all workers are paid the same wage.
B) the marginal cost of producing output is decreasing.
C) the gains from specialization are exhausted.
D) the marginal cost of producing output is constant.
E) there are still gains from specialization left to be exploited.
Q2) Explicit costs are:
A) the opportunity cost of the means of production.
B) always paid out of pocket.
C) always greater than implicit costs.
D) never greater than implicit costs.
E) what a business sacrifices in order to produce a good.
Q3) If the firm is maximizing profits,profit is represented by the area:
A) B × C.
B) A × C.
C) (A - B) × C.
D) A × B.
E) (A + B ) × C.
Q4) What is an implicit cost?
Page 7
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Chapter 6: Market Structures
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Sample Questions
Q1) Holding all else constant,a decrease in the market demand for a product in a competitive market would cause:
A) the average total cost (ATC) curve of the firms to decrease.
B) an increase in the price a firm could charge for the product.
C) the marginal cost (MC) curve of the firms to decrease.
D) the marginal revenue (MR) curve of the firms to shift downward/leftward.
E) an increase in profits for the firm.
Q2) Which of the following market structures describes an industry in which all firms produce differentiated output and there are few barriers to entry?
A) perfect competition
B) monopoly
C) oligopoly
D) a cartel
E) monopolistic competition
Q3) Explain how a market with no barriers to entry or exit results in long-run economic profits equaling zero.
Q4) Using a graph,show a situation in which a monopoly is incurring short-run losses.Explain how this is possible.
Q5) Why are barriers to entry so important to obtaining monopoly power in a market?
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Chapter 7: Behavioral Economics and Game Theory
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144 Flashcards
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Sample Questions
Q1) Suppose that 34% of customers hearing the sales pitch from the first group purchased the warranty and that 34% of the customers hearing the sales pitch from the second group purchased the warranty.The managers concluded that ________ were not present,so it did not matter how the question about purchasing the warranty was asked.
A) rational effects
B) electronic aptitude effects
C) concerns about fairness
D) framing effects
E) fairness effects
Q2) In January,Walmart offered a 10% off coupon and Target did not.In February,Target offered a 10% off coupon and Walmart did not.In March,Walmart offered a 10% off coupon and Target did not.It is likely that Walmart and Target are both playing the ________ strategy.
A) dominated
B) tit-for-two-tats
C) retail retaliation
D) tit-for-tat
E) mutually assured destruction
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9
Chapter 8: Labor Markets and Earnings
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116 Flashcards
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Sample Questions
Q1) Suppose that workers from northern Minnesota,North Dakota,and Montana decide to emigrate to southern Canada.In the labor market in southern Canada,the equilibrium wage:
A) and the equilibrium quantity of labor will fall.
B) will rise, and the equilibrium quantity of labor will fall.
C) will not change, since Canada's labor market is large.
D) will fall, and the equilibrium quantity of labor will rise.
E) and the equilibrium quantity of labor will rise.
Q2) Factor markets for baked goods are NOT influenced by the:
A) marginal productivities of labor.
B) marginal productivities of land.
C) demand for baked goods.
D) market prices for final goods and services.
E) number of manufacturers of baking ovens.
Q3) The marginal product of the first worker is:
A) 4.
B) 6.
C) 10.
D) 20.
E) 2.
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Chapter 9: Government in the Economy
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136 Flashcards
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Sample Questions
Q1) You share a house with two other people.You are a concert pianist and often practice at home.One roommate enjoys listening to you practice,but the other does not.For the roommate who enjoys listening to you play,this is an example of ________; for the other roommate,it is an example of ________.
A) the tragedy of the commons; the third-party problem
B) a positive externality; a negative externality
C) a positive externality; the free-rider problem
D) the free-rider problem; the tragedy of the commons
E) a negative externality; the tragedy of the commons
Q2) Explain how the following two activities could create both a negative externality and a positive externality:
1.A bee farm
2.A fireworks display
Q3) The tragedy of the commons occurs for goods that are:
A) rival and excludable.
B) rival and non-excludable.
C) non-rival and non-excludable.
D) non-rival and excludable.
E) never produced by the government.
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Page 11
Chapter 10: What Is Macroeconomics?
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112 Verified Questions
112 Flashcards
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Sample Questions
Q1) Economic growth is best measured by changes in:
A) non-adjusted GDP.
B) real GDP.
C) the inflation rate.
D) the unemployment rate.
E) the number of jobs.
Q2) In a given year,if real GDP equals non-adjusted GDP,then:
A) output did not grow.
B) there was no inflation.
C) output was over-adjusted for inflation.
D) the growth in output was equal to the growth in the price level.
E) the growth in output was greater than the growth in the price level.
Q3) Between two given years,if real GDP and non-adjusted GDP grow at the same rate,then:
A) the price level increased.
B) prices must have remained constant between the two years.
C) quantities must have remained constant between the two years.
D) prices and quantities must have remained constant between the two years.
E) prices and quantities must have grown at the same rate between the two years.
Q4) Define "inflation." List and discuss two views of inflation.
Page 12
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Chapter 11: Measuring the Macroeconomy, Inflation, and Unemployment
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202 Flashcards
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Sample Questions
Q1) In Bovania,cattle compose 48% of the consumer price index (CPI),housing composes 32%,and entertainment accounts for the remaining 20%.If,in a certain year,the price of cattle rises by 30% and the price of housing rises by 25%,then:
A) the value of the CPI must rise, no matter what happens to the price of entertainment, because two-thirds of the CPI is more expensive.
B) the CPI has increased as long as the price of entertainment does not fall by more than 55%.
C) the CPI has increased, even if the entertainment in the next year is free.
D) the CPI has decreased if the price of entertainment falls by more than 27.5%.
E) it is not possible to tell what would happen to the CPI because it is certain that the goods included in the CPI must change.
Q2) In some nations the only currency is gold.Someone proposes the argument that if gold were the only currency,there could not be inflation.Would you agree or disagree with this statement? Explain.
Q3) Describe the methodology of finding the consumer price index (CPI).
Q4) Explain two shortcomings of using the official unemployment rate as an economic indicator.
Q5) What is the underlying concept behind future price level uncertainty?
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Chapter 12: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) Which of the following would cause a downward movement along the aggregate demand curve?
A) A rise in the price level makes U.S.goods relatively more expensive than foreign goods.
B) The value of real wealth rises.
C) There is a decline in the expected price level.
D) A fall in the price level increases savings and lowers interest rates, increasing stock market value.
E) The value of the dollar decreases.
Q2) The Great Recession began in:
A) December 2009.
B) June 2009.
C) August 1929.
D) December 2007.
E) January 1930.
Q3) Explain the difference between the short-run and long-run aggregate supply curves.
Q4) What is the difference between a movement along the aggregate demand curve and a shift of the aggregate demand curve? Explain in terms of what causes a movement and what causes a shift.
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14
Chapter 13: Economic Growth and the Wealth of Nations
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138 Flashcards
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Sample Questions
Q1) Explain how a technological advance can contribute to economic growth.
Q2) Which of the following are the three major categories of resources?
A) physical capital, technology, and institutions
B) land, labor, and technology
C) institutions, human capital, and land
D) natural resources, physical capital, and human capital
E) labor, physical capital, and technology
Q3) In 1950,Nicaragua and Brazil had roughly the same sized economies.Now,Brazil's economy is almost five times as large as Nicaragua's.This is likely because:
A) Brazil had almost no trade with other countries.
B) Nicaragua had higher taxes and government spending.
C) Brazil had better resources and technology.
D) Nicaragua had many more government regulations.
E) Brazil had no public school system and used private schools instead.
Q4) An increase in ________ would lead to an increase in long-run economic growth.
A) consumer spending and borrowing
B) government taxes and fees
C) resources and technology
D) imports and exports
E) prices and interest rates
Page 15
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Chapter 14: Savings, Investment, and the Market for Loanable Funds
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Sample Questions
Q1) Every ________ requires a ________.
A) savings dollar; foreign investment dollar
B) investment dollar; savings dollar
C) dollar of loanable funds; dollar of wages earned
D) dollar of government borrowing; dollar of foreign borrowing
E) dollar of exports; dollar of imports
Q2) List the factors of supply for loanable funds,and explain what would cause each of them to shift the supply curve rightward.
Q3) The real interest rate in 2012 was:
A) about 9%.
B) about 7%.
C) about 5%.
D) about 3%.
E) a negative number.
Q4) Borrowers in the loanable funds market consist of:
A) governments and firms.
B) banks, foreign governments, and bonds.
C) mutual fund firms, stock exchanges, and banks.
D) households and foreign entities.
E) arbitrage companies, banks, and firms.
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Chapter 15: Money and the Federal Reserve
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Sample Questions
Q1) Using the table,what is the value of M2 that is NOT part of M1?
A) $1,150,500,000
B) $1,495,500,000
C) $93,000,000
D) $345,000,000
E) $78,000,000
Q2) Tom Goldman deposits $1,000 in newly printed birthday cash into his checking account at the bank.How would this be recorded on the bank's balance sheet?
A) The money supply will fall by $1,000 because the amount of currency would fall by $1,000.
B) The money supply will rise by $1,000 because the money is now in the banking system.
C) The money supply will fall by $1,000 when the birthday gift is given but will increase once the deposit is made.
D) The money supply will rise by $1,000 when the birthday gift is given but then fall once the deposit is made.
E) There will be no initial change to the money supply.
Q3) Why are credit cards excluded from the equation for money supply?
Q4) How does the FDIC create a riskier fractional reserve banking system?
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Chapter 16: Monetary Policy
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Sample Questions
Q1) What is quantitative easing? What are the benefits of this new monetary tool?
Q2) According to the figure,if the economy started at full employment output,expansionary monetary policy would cause real gross domestic product (GDP)to ________ in the short run.
A) increase from Y1 to Y2
B) increase from Y1 to Y3
C) decrease from Y2 to Y1
D) decrease from Y3 to Y2
E) increase from Y2 to Y3
Q3) Holding all else constant,in the short run,an increase in the money supply can cause a(n):
A) increase in unemployment.
B) lower rate of inflation.
C) decrease in the price level.
D) decrease in real gross domestic product (GDP).
E) increase in real GDP.
Q4) If the required reserve ratio is 100%,could the Federal Reserve still change the money supply with open market operations? Explain whether it could or could not.
Q5) Explain why workers have an incentive to expect a certain level of inflation.
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Chapter 17: Fiscal Policy and Budget Deficits
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Sample Questions
Q1) It is difficult to determine when the economy is turning up or down.This is because there is a(n)________ lag that delays the effects of changes in fiscal policy.
A) recognition
B) implementation
C) impact
D) countercyclical
E) automatic
Q2) A U.S.federal government budget deficit occurs when:
A) government revenue exceeds outlays.
B) government outlays exceed revenue.
C) government outlays equal revenue.
D) the United States borrows money from foreign countries.
E) the United States lends money to foreign countries.
Q3) During recessionary periods,outlays:
A) increase and tax revenue falls.
B) increase and tax revenue increases.
C) decrease and tax revenue increases.
D) decrease and tax revenue falls.
E) and tax revenue stay the same.
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Page 19
Chapter 18: International Economics
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148 Flashcards
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Sample Questions
Q1) If this is a trading (open)economy,quantity demanded of cars (in thousands)will be:
A) 20.
B) 40.
C) 60.
D) 80.
E) 100.
Q2) On April 1,2013,the price of a 16-ounce can of mixed nuts was 135 Mexican pesos at a supermarket in Juarez,Mexico.Based on the exchange rates quoted in the table,the price of the 16-ounce can of mixed nuts was approximately ________ U.S.dollars.
A) 0.18
B) 10.59
C) 10.92
D) 1,669.14
E) 1,722.38
Q3) Define and describe a tariff.
Q4) Spencer and Trevor produce cars and trucks.Spencer can produce 10 cars per hour and 5 trucks per hour.Trevor can produce 12 cars per hour and 4 trucks per hour.Who has the comparative advantage in the production of cars and trucks?
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Page 20
Chapter 19: Personal Finance
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Sample Questions
Q1) Ted Washington is single and 25.He recently graduated from college and has a job making $40,000 a year.Which one of the following investments would you recommend for his investment program?
A) corporate bonds
B) government bonds
C) growth stocks
D) commodities, such as oil
E) certificates of deposit (CDs)
Q2) ________ is/are an example of an ownership investment.
A) T-bills
B) Mortgage-backed bonds
C) Stock
D) Corporate bonds
E) Mutual funds
Q3) What is most likely to be an individual's single biggest asset?
A) automobile
B) jewelry
C) bank account
D) home
E) furniture
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