Introduction to Economics Practice Questions
Course Introduction
Introduction to Economics provides students with a foundational understanding of economic principles that shape individual decision-making, business strategies, and public policy. The course explores key concepts such as supply and demand, market structures, resource allocation, opportunity cost, and the role of government in economic systems. By examining both microeconomic and macroeconomic perspectives, students will learn to analyze how economies function at both the individual and national levels, fostering an appreciation for the complexities of economic interactions in a globalized world.
Recommended Textbook
Essentials of Economics 4th Edition by R. 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 statements about positive economic analysis is false?
A)Positive analysis uses an economic model to estimate the costs and benefits of different course of actions.
B)There is much more disagreement among economists over normative economic analysis than over positive economic analysis.
C)There is much more disagreement among economists over positive economic analysis than over normative economic analysis.
D)Unlike normative economic analysis, positive economic analysis can be tested.
Answer: C
Q2) Economics is the study of the ________ people make to attain their goals,given their ________ resources.
A)purchases; unlimited
B)choices; scarce
C)income; available
D)decisions; household
Answer: B
Q3) What is a marginal cost?
Answer: Marginal cost is the additional cost associated with continuing with an activity.
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Chapter 2: Trade-Offs, comparative Advantage, and the Market System
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Q1) Refer to Figure 2-10.If the economy is currently producing at point C,what is the opportunity cost of moving to point B?
A)20 thousand spoons
B)26 thousand forks
C)40 thousand spoons
D)46 thousand forks
Answer: A
Q2) Refer to Figure 2-14.If the two countries have the same amount of resources and the same technological knowledge,which country has an absolute advantage in the production of both pineapples and coconuts?
A)Guatemala
B)neither country
C)Costa Rica
D)cannot be determined
Answer: B
Q3) How do firms and households interact in markets?
Answer: Firms supply goods and services to households,and buy factors of production from households.Households supply factors of production to firms,and buy goods and services from firms.
4
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Sample Questions
Q1) An increase in the price of MP3 players will result in
A)a smaller quantity of MP3 players supplied.
B)a larger quantity of MP3 players supplied.
C)a decrease in the demand for MP3 players.
D)an increase in the supply of MP3 players.
Answer: B
Q2) Refer to Figure 3-8.The graph in this figure illustrates an initial competitive equilibrium in the market for apples at the intersection of D and S (point B) Which of the following changes would cause the equilibrium to change to point C?
A)A positive change in the technology used to produce apples and decrease in the price of oranges, a substitute for apples.
B)An increase in the wages of apple workers and an increase in the price of oranges, a substitute for apples.
C)An increase in the number of apple producers and a decrease in the number of apple trees as a result of disease.
D)A decrease in the wages of apple workers and an increase in the price of oranges, a substitute for apples.
Answer: A
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Chapter 4: Market Efficiency and Market Failure
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Q1) Briefly explain the command-and-control approach in dealing with an externality such as pollution.Give an example of the U.S.government using the command-and-control approach to deal with the pollution problem.
Q2) If there are no externalities a competitive market achieves economic efficiency.If there is a negative externality,economic efficiency will not be achieved because A)too little of the good will be produced.
B)too much of the good will be produced.
C)a deadweight loss will occur that is equal to the area under the demand curve for the good.
D)economic surplus is maximized.
Q3) Refer to Figure 4-1.Arnold's marginal benefit from consuming the second burrito is A)$1.00.
B)$1.50.
C)$2.00.
D)$4.50.
Q4) What is a private cost of production? What is a social cost of production? When is the private cost of production equal to the social cost of production?
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Chapter 5: The Economics of Health Care
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Q1) In the United States,health care spending per person based on income per person is ________ the average for most other countries.
A)slightly lower than B)significantly higher than C)significantly lower than D)comparable to
Q2) Economists who support market-based reforms for health care believe that increased competition among providers of health care would
A)decrease costs but decrease economic efficiency.
B)decrease costs and increase economic efficiency.
C)increase costs but increase economic efficiency.
D)increase costs and decrease economic efficiency.
Q3) In the United States from 1981 to 2011,deaths from which of the following increased?
A)cancer
B)kidney disease
C)heart attacks
D)strokes
Q4) What is adverse selection?
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Chapter 6: Firms, the Stock Market, and Corporate Governance
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Sample Questions
Q1) When you buy newly-issued shares of Facebook stock,this transaction takes place in the
A)primary market.
B)bond market.
C)secondary market.
D)bear market.
Q2) A corporation's management
A)owns the corporation.
B)hires the board of directors.
C)are liable for the corporation's debts.
D)operates and controls a corporation in its day-to-day activities.
Q3) Which type of business has the least government rules and regulations affecting it?
A)sole proprietorship
B)partnership
C)corporation
D)They all have the same set of rules and regulations affecting them.
Q4) What is corporate governance?
Q5) Who is the seller in a primary market and who is the seller in a secondary market?
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Chapter 7: Consumer Choice and Elasticity
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Sample Questions
Q1) Of the following,which is the best example of good with a perfectly inelastic demand?
A)the demand for tickets in New York City when the Mets or Yankees are in the World Series
B)the demand for gasoline
C)a diabetic's demand for insulin
D)the demand for a college education by a student who has a full scholarship to an Ivy League school
Q2) At a price of $8 per dozen,Chuy sells 40 dozen homemade tamales per week.When he raised her price to $12 per dozen,he still sold 40 dozen per week.Based on this information,the demand for his tamales is
A)perfectly elastic.
B)inelastic.
C)perfectly inelastic.
D)unit-elastic.
Q3) The economic model of consumer behavior explains how consumers' tastes and preferences are formed.
A)True
B)False
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Chapter 8: Technology, production, and Costs
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Sample Questions
Q1) Refer to Figure 8-10.Identify the minimum efficient scale of production.
A)Q
B)Qb
C)Qc
D)Qd
Q2) Refer to Figure 8-7.When output level is 100,what is the total cost of production?
A)$20
B)$1,000
C)$1,200
D)$2,000
Q3) In economics,technology only refers to the development of new products.
A)True
B)False
Q4) Economic costs include implicit costs but not explicit costs.
A)True
B)False
Q5) What is minimum efficient scale? What is likely to happen in the long run to firms that do not reach minimum efficient scale?
Q6) State the law of diminishing marginal returns.
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Chapter 9: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) If a perfectly competitive firm raises the price it charges to consumers,which of the following is the most likely outcome?
A)The firm's revenue will not change because some consumers will refuse to pay the higher price.
B)The firm will not sell any output.
C)The firm's total revenue will increase only if the demand for its product is inelastic.
D)The firm's total revenue will increase only if the demand for its product is elastic.
Q2) What is meant by allocative efficiency? How does a perfectly competitive firm achieve allocative efficiency?
Q3) Refer to Table 9-1.Suppose the fixed cost of production rises by $500 and the price per unit is still $8.What happens to the firm's profit-maximizing output level?
A)It must fall.
B)It must rise to offset the increased cost.
C)It will remain the same.
D)The firm will shut down.
Q4) Under what conditions should a competitive firm shut down in the short run?
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Chapter 10: Monopoly and Antitrust Policy
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Sample Questions
Q1) Long-run economic profits would most likely exist in which market structure?
A)monopoly, monopolistic competition and oligopoly
B)monopoly and oligopoly
C)monopoly and monopolistic competition
D)monopoly only
Q2) The reason that the Fisherman's Friend restaurant in Stonington,Maine had a monopoly on selling seafood dinners in that town is most likely due to
A)a government-imposed barrier.
B) occupational licensing.
C)no competitors apparently found the profit level attractive enough to enter the market.
D)the restaurant owned all the fresh seafood in the state.
Q3) A product's price approaches its marginal cost as market concentration increases. A)True
B)False
Q4) What is a monopoly? Can a firm be a monopoly if close substitutes for its product exists?
Q5) Explain why the monopolist has no supply curve?
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Chapter 11: Monopolistic Competition and Oligopoly
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Q1) How does the long run equilibrium of a monopolistically competitive industry differ from that of a perfectly competitive industry?
A)A firm in monopolistic competition will earn economic profits but a firm in perfect competition earns zero profit.
B)A firm in monopolistic competition will charge a price higher than the average cost of production but a firm in perfect competition charges a price equal to the average cost of production.
C)A firm in monopolistic competition does not take full advantage of its economies of scale but a firm in perfect competition produces at the lowest average cost possible.
D)A firm in monopolistic competition produces an allocatively efficient output level while a firm in perfect competition produces a productively efficient output level.
Q2) One reason why the coffeehouse market is competitive is that
A)demand for specialty coffee is very high.
B)it is trendy and therefore is likely to have a customer following.
C)barriers to entry are low.
D)consumption takes place in public.
Q3) What is the difference between zero accounting profit and zero economic profit?
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Chapter 12: Gdp: Measuring Total Production and Income
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Sample Questions
Q1) Refer to Table 12-5.The value of each automobile in gross domestic product equals
A)$7,000.
B)$15,000.
C)$18,000.
D)$25,000.
Q2) To make the calculation of real GDP more accurate,in 1996 the BEA switched to using A)base-year prices.
B)current prices.
C)chain-weighted prices.
D)market prices.
Q3) If income is unequally distributed in an economy,increases in GDP may not raise well-being in an economy.
A)True
B)False
Q4) What is the underground economy and how could it hurt an economy? How does it hurt developing economies?
Q5) Give two reasons why GDP does not reflect total production in an economy.
Q6) Why do we subtract import spending from total expenditures?
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Chapter 13: Unemployment and Inflation
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Q1) The unemployment rate is an important economic statistic that can tell us about the health of the economy.If the unemployment rate turns out to be high or higher than anticipated,we would expect
A)it is more likely that an incumbent president will be re-elected.
B)that stock prices are more likely to fall.
C)that jobs are less difficult to find.
D)that investors will be more optimistic about the economy.
Q2) The stated interest rate on a loan is the A)real interest rate.
B)nominal interest rate.
C)actual inflation rate.
D)expected inflation rate.
Q3) Explain whether you agree or disagree with the following statement: "The reason that inflation is bad is because it increases the cost of living-the costs of goods and services we buy-without increasing income in general."
Q4) The unemployment rate is higher with a minimum wage law than it would be without a minimum wage law.
A)True
B)False
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Chapter 14: Economic Growth, the Financial System, and Business Cycles
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Sample Questions
Q1) According to the National Bureau of Economic Research,the United States experienced ________ recessions since 1950.
A)4
B)7
C)10
D)15
Q2) Public saving in the economy can be increased by
A)lowering taxes.
B)raising government spending.
C)raising taxes.
D)raising transfer payments.
Q3) Explain what happens to inflation during the business cycle.Give an intuitive explanation as to why inflation changes the way it does over the business cycle.
Q4) Which of the following is most likely to be able to sustain economic growth in an economy?
A)sustained increases in the labor force participation rate
B)technological change
C)increases in capital per hour worked
D)accumulations of economic resources
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Chapter 15: Aggregate Demand and Aggregate Supply Analysis
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Sample Questions
Q1) What is the relationship among the AD,SRAS and LRAS curves when the economy is in macroeconomic equilibrium?
Q2) If stricter immigration laws are imposed and many foreign workers in the United States are forced to go back to their home countries
A)the long-run aggregate supply curve will shift to the right.
B)the long-run aggregate supply curve will shift to the left.
C)we will move up along the long-run aggregate supply curve.
D)we will move down along the long-run aggregate supply curve.
Q3) A decrease in aggregate demand in the economy will have what effect on macroeconomic equilibrium in the long run?
A)The price level will fall, and the level of GDP will be unaffected.
B)The price level will fall, and the level of GDP will fall.
C)The price level will rise, and the level of GDP will fall.
D)The price level will rise, and the level of GDP will be unaffected.
Q4) Stagflation occurs when aggregate supply and aggregate demand both increase.
A)True
B)False
Q5) Using an aggregate demand graph,illustrate the impact of an increase in the price level on aggregate demand.
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Chapter 16: Money, banks, and the Federal Reserve System
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Sample Questions
Q1) If bankers become more uncertain regarding future deposits and withdrawals and choose to hold more excess reserves against deposits,the money multiplier will increase.
A)True
B)False
Q2) Hyperinflation can be caused by
A)the government selling bonds to the central bank.
B)the central bank selling bonds to the public.
C)the government selling bonds to the public.
D)the central bank selling bonds to the government.
Q3) The largest proportion of M1 is made up of A)currency.
B)checking account deposits.
C)traveler's checks.
D)savings account deposits.
E)time deposits.
Q4) The real-world money multiplier is greater than the simple money multiplier (1/RR). A)True
B)False
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Chapter 17: Monetary Policy
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Sample Questions
Q1) The Federal Reserve responded to the 2008 financial crisis in several ways.Which of the following is one of the ways the Fed responded?
A)The Fed banned investment banks from obtaining discount loans.
B)The Fed lent investment banks Treasury securities in exchange for mortgage-backed securities.
C)The Fed lowered the required reserve ratio on demand deposit accounts in order to increase the amount of bank reserves.
D)The Fed helped Citibank to acquire General Motors and Chrysler.
Q2) What is a banking panic,and what role did banking panics play in the decision by Congress to establish the Federal Reserve?
Q3) According to the Taylor rule,the Fed should set the target for the federal funds rate equal to the sum of the equilibrium real federal funds rate,the current inflation rate,one-half times the ________,and one-half times the ________.
A)interest rate gap; inflation gap
B)interest rate gap; output gap
C)inflation gap; output gap
D)unemployment gap; government-spending gap
Q4) What problems can high inflation rates cause for the economy?
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Chapter 18: Fiscal Policy
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Sample Questions
Q1) If the federal government's expenditures are less than its tax revenues,then
A)a budget surplus results.
B)a budget deficit results.
C)the budget is balanced.
D)No conclusion can be drawn here regarding the budget surplus or deficit without information regarding government purchases versus other outlays.
Q2) Crowding out refers to a decrease in government purchases as a result of an increase in private expenditures.
A)True
B)False
Q3) Which of the following best describes supply-side economics?
A)Labor productivity affects aggregate supply.
B)Education affects labor productivity which affects aggregate supply.
C)Education affects the incentive to work, save, and invest and, therefore, aggregate supply.
D)Tax rates, particularly marginal tax rates, affect the incentive to work, save, and invest and, therefore, aggregate supply.
Q4) List the five categories of federal government expenditures.
Q5) What is fiscal policy,and who is responsible for fiscal policy?
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Chapter 19: Comparative Advantage, international Trade, and Exchange Rates
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Sample Questions
Q1) Refer to Figure 19-5.The tariff revenue collected by the government equals
A)$10 million.
B)$15 million.
C)$19.875 million.
D)$35 million.
Q2) You're traveling in Japan and are thinking about buying a new kimono.You've decided you'd be willing to pay $175 for a new kimono,but kimonos in Japan are all priced in yen.If the kimono you're looking at costs 14,000 yen,under which of the following exchange rates would you be willing to purchase the kimono? (Assume no taxes or duties are associated with the purchase.)
A)24.5 yen per dollar
B)65 yen per dollar
C)80 yen per dollar
D)You would purchase the new kimono at any of the above exchange rates.
Q3) If the dollar appreciates against the Mexican peso
A)Mexican imports to the U.S.become more expensive.
B)U)S.exports to Mexico become less expensive.
C)U)S.exports to Mexico become more expensive.
D)The value of Mexican imports to the United States does not change.
Q4) What is autarky?
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