Introduction to Economics Review Questions
Course Introduction
Introduction to Economics provides a foundational overview of the principles and concepts that underpin the study of economics. This course explores the mechanisms of supply and demand, market structures, and the roles of consumers, firms, and governments in economic systems. Students will examine both microeconomic and macroeconomic perspectives, analyzing how resources are allocated, how markets function, and the impact of fiscal and monetary policy on economic stability and growth. Through theoretical frameworks and real-world examples, learners will gain an understanding of how economic decisions shape societal and individual outcomes.
Recommended Textbook Microeconomics 3rd Australian Edition by Glenn Hubbard
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3350 Verified Questions
3350 Flashcards
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Page 2
Chapter 1: Economics: Foundations and Models
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160 Flashcards
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Sample Questions
Q1) All of the following are part of an economic model except A)assumptions.
B)hypotheses.
C)data.
D)opinions.
Answer: D
Q2) Define microeconomics.
Answer: Microeconomics is the study of how household and firms make choices,how they interact in markets,and how the government attempts to influence their choices.
Q3) Mr.Peabody chooses to invest in companies that produce goods and services at the lowest possible cost.Mr.Peabody is investing in companies that are A)allocatively efficient.
B)productively efficient.
C)guaranteed to make a profit.
D)all of the above.
Answer: B
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3
Chapter 2: Choices and Trade-Offs in the Market
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192 Flashcards
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Sample Questions
Q1) Refer to Figure 2-3.Consider the following events:
A.a reduction in the patent protection period to no more than 2 years
B.a war that destroys a substantial portion of a nation's capital stock
C.the lack of a secure and enforceable property rights system
Which of the events listed above could cause a movement from W to V?
A)a only
B)a and b only
C)a and c only
D)a,b,and c
Answer: C
Q2) An Inquiry into the Nature and Causes of the Wealth of Nations,published in 1776,was written by
A)John Maynard Keynes.
B)Karl Marx.
C)Alfred Marshall.
D)Adam Smith.
Answer: D
Q3) What is meant by the term 'opportunity cost'?
Answer: Opportunity cost is the highest-valued alternative that must be given up to engage in an activity.
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Sample Questions
Q1) 'Because chips and salsa are complements,an increase in the price of chips will cause the demand for salsa to decrease.This initial shift in demand for chips results in a higher price for chips;this higher price will cause the demand curve for chips to shift to the right.' Which of the following correctly comments on this statement?
A)The statement will be true if consumer tastes for chips and salsa do not change.
B)The statement is false because a change in the price of chips would not change the demand for chips.
C)The statement is false because salsa is an inferior good;chips are normal goods.
D)The statement is false because one cannot assume that chips and salsa are complements for all consumers.
Answer: B
Q2) If a demand curve shifts to the right,then
A)demand has increased.
B)quantity demanded has increased.
C)demand has decreased.
D)quantity demanded has decreased.
Answer: A
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Page 5
Chapter 4: Elasticity: the Responsiveness of Demand and Supply
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Sample Questions
Q1) The price elasticity of demand for beef is estimated to be 0.60 (in absolute value).This means that a 20 per cent increase in the price of beef,holding every thing else constant,will cause the quantity of beef demanded to
A)decrease by 12 per cent.
B)decrease by 26 per cent.
C)decrease by 32 per cent.
D)decrease by 60 per cent.
Q2) In recent years,the prices of new domestically produced cars have been falling.Suppose consumers respond by reducing their demand for used cars and mass transport services such as bus travel.This information suggests that the cross-price elasticity between new cars and used cars,and the cross-price elasticity between new cars and bus travel are negative.
A)True
B)False
Q3) Refer to Figure 4-4.The inelastic segment of the demand curve
A)is coincident with the horizontal axis.
B)is coincident with the vertical axis.
C)lies below the midpoint of the curve.
D)lies above the midpoint of the curve.
Page 6
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Chapter 5: Economic Efficiency, Government Price Setting and Taxes
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187 Flashcards
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Sample Questions
Q1) The excess burden of a tax is also a deadweight loss.
A)True
B)False
Q2) Refer to Figure 5-7.What is the size of the unit tax?
A)$2
B)$5
C)$7
D)$12
Q3) Refer to Table 5-3.The table above lists the marginal cost of cowboy hats by The Waco Kid,a firm that specialises in producing fancy dress costumes.If the market price of cowboy hats is $50,how many hats will be produced?
A)0
B)1
C)2
D)4
Q4) Marginal cost is the additional cost to a firm of producing one more unit of a good or service.
A)True
B)False
Q5) What do economists mean by an efficient tax?
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Chapter 6: Consumer Choice and Behavioural Economics
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Sample Questions
Q1) Arnold Kim began blogging about Apple products during his fourth year of medical school.Kim's website,MacRumors.com,became so successful that he decided to give up his medical career and work full time on his website,despite the nearly $200 000 he had invested in his education.In making his decision,Kim decided to ignore the money and time he spent on his education.Economists would say that Kim made a
A)rational decision to ignore these sunk costs.
B)poor decision since he had already invested his time and money on his medical career.
C)poor decision since doctors are in greater demand than bloggers.
D)hasty decision by not waiting to recoup his financial investment before giving up his medical career.
Q2) After getting an A on your economics exam,you decide to go to your favourite Mexican restaurant to celebrate.You are having trouble deciding whether to order the chipotle chicken chimichanga or the cilantro seafood enchiladas.Use the rule of equal marginal utility per dollar to determine which one to purchase: (a)the chimichanga for $8 which gives you 120 units of utility,or (b)the enchiladas for $15 which gives you 195 units of utility?
Q3) Explain the concept of network externalities.
Q4) What is an indifference curve? Why can indifference curves never cross?
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Chapter 7: Technology, Production and Costs
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300 Verified Questions
300 Flashcards
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Sample Questions
Q1) What are economies of scale? What are diseconomies of scale?
Q2) Average fixed cost can be calculated using any of the formulas below except A)TFC/Q.
B)(TC - VC)/Q.
C) (TC - VC)/ Q.
D)(TC/Q)- AVC.
Q3) Average fixed costs of production
A)remain constant.
B)will rise at a fixed rate as more is produced.
C)graph as a U-shaped curve.
D)fall as long as output is increased.
Q4) Use a long-run average cost curve graph to illustrate how diseconomies of scale would not make it beneficial for two companies to go through with a merger.
Q5) Refer to Figure 7-14.Suppose Hilda hires labour at $8 per hour and capital costs $10 per unit.What is the minimum cost of producing 200 gooseberry pies?
A)$3600
B)$1120
C)$592
D)$560
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Chapter 8: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) If a typical firm in a perfectly competitive industry is incurring losses,then
A)all firms will continue to lose money.
B)some firms will exit in the long run,causing market supply to decrease and market price to rise,increasing profits for the remaining firms.
C)some firms will exit in the long run,causing market supply to decrease and market price to fall,increasing losses for the remaining firms.
D)some firms will enter in the long run,causing market supply to increase and market price to rise,increasing profit for all firms.
Q2) Refer to Table 8-1.The firm will not produce in the short run if the output price falls below
A)$8.
B)$4.
C)$3.20.
D)$2.80.
Q3) A perfectly competitive firm in long-run equilibrium produces output at the lowest possible average total cost.
A)True
B)False
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Chapter 9: Monopoly Markets
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281 Flashcards
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Sample Questions
Q1) Whenever a firm can charge a price greater than marginal cost
A)the firm must be a monopolist.
B)there is some loss of economic efficiency.
C)consumers have the ability to choose a close substitute.
D)the firm will earn economic profits.
Q2) Refer to Table 9-3.Suppose Julie's marginal cost of providing this service is constant at $7 and she charges $7.How many hours will be purchased and what is her total revenue?
A)5 hours;total revenue = $35
B)4 hours;total revenue = $28
C)3 hours;total revenue = $21
D)2 hours;total revenue = $14
Q3) Refer to Figure 9-9.At the profit-maximising quantity,what is the difference between the monopoly's price and the marginal cost of production?
A)$8
B)$11.50
C)$21
D)There is no difference.
Q4) What is a public franchise? Are all public franchises natural monopolies?
Q5) Identify four reasons for high entry barriers.Briefly explain each reason.
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Chapter 10: Monopolistic Competition
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253 Flashcards
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Sample Questions
Q1) Refer to Figure 10-17.What is the allocatively efficient output for the firm represented in the diagram?
A)Q<sub>f</sub> units
B)Q<sub>g</sub> units
C)Q<sub>h</sub> units
D)Q<sub>j</sub> units
Q2) The demand curve of a monopolistically competitive firm
A)is horizontal because the firm must cut its price to sell more.
B)is perfectly elastic.
C)is downward sloping because it sells an identical product.
D)is downward sloping because it must cut its price to sell more.
Q3) Refer to Figure 10-14.Economies of scale are exhausted at which output level?
A)Q<sub>1</sub> units
B)Q<sub>2</sub> units
C)Q<sub>3</sub> units
D)more than Q<sub>1</sub><sub> </sub>units
Q4) What is the difference between zero accounting profit and zero economic profit?
Q5) What are the key factors that determine the profitability of a firm in a monopolistically competitive market?
Q6) What is the difference between the terms 'marketing' and 'advertising'?
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Chapter 11: Oligopoly: Firms in Less Competitive Markets
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186 Flashcards
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Sample Questions
Q1) Suppose we want to use game theory to analyse how an oligopolist selects its optimal price.The cells of the payoff matrix show
A)the profit that each producer can expect to earn by pursuing a single strategy.
B)the profit that each producer can expect to earn from every combination of strategies by the firms in the market.
C)the strategy that a firm must pursue to earn various levels of profit.
D)the expected profits of rival firms.
Q2) A member of a cartel earns more profits by producing more than its quota and selling at a price higher than the cartel's price.
A)True
B)False
Q3) Which of the following statements is generally true?
A)The larger the number of firms in an industry,the less rivalry there is.
B)The smaller the number of firms in an industry,the greater the rivalry.
C)The larger the number of firms in an industry,the greater the rivalry.
D)The degree of rivalry in an industry is largely independent of the number of firms.
Q4) Explain why OPEC is caught in a prisoner's dilemma?
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Chapter 12: The Markets for Labour and Other Factors of Production
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Sample Questions
Q1) Which of the following will not cause the labour demand curve to shift to the right?
A)an increase in the price of the firm's product
B)a technological improvement that increases labour productivity
C)an increase in human capital in the labour force
D)an increase in the market wage rate
Q2) Let MP = marginal product,P = output price,and W = wage,then the equation that represents the condition where a competitive firm would hire another worker is
A)P × MP = W.
B)P × MP < W.
C)P × MP > W.
D)P × W > MP.
Q3) What are the five most important variables that cause the market demand curve for labour to shift?
Q4) An increase in the wage rate causes
A)a rightward shift of the firm's labour demand curve.
B)a leftward shift of the firm's labour demand curve.
C)a decrease in the quantity of labour demanded.
D)an increase in labour's marginal productivity.
Page 14
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Chapter 13: International Trade
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131 Flashcards
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Sample Questions
Q1) Refer to Table 13-1.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.
Q2) Selling a product at a price below its cost is known as dumping.
A)True
B)False
Q3) Between 1960 and 2010,Australia's imports increased from approximately
A)15% of GDP to 20% of GDP.
B)10% of GDP to 18% of GDP.
C)24% of GDP to 30% of GDP.
D)35% of GDP to 50% of GDP.
Q4) Refer to Table 13-5.
a.Which person has an absolute advantage in the production of bows? arrows?
b.Which person has a comparative advantage in the production of bows?
c.Which person has a comparative advantage in the production of arrows?
Q5) What does it mean for a country to have an absolute advantage in producing a product?
Page 15
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Chapter 14: Government Intervention in the Market
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Sample Questions
Q1) Adverse selection occurs in the market for used cars because used car buyers
A)have more information than used car sellers.
B)have less information than used car sellers.
C)have less incentive to maintain the value of their cars than new car buyers.
D)tend to have more accidents than new car buyers.
Q2) Why might a young,healthy person choose not to buy health insurance?
Q3) Private producers have no incentive to provide public goods because
A)the government subsidy granted is usually insufficient to enable private producers to make a profit.
B)production of huge quantities of public goods entails huge fixed costs.
C)they cannot avoid the tragedy of the commons.
D)once produced,it will not be possible to exclude those who do not pay for the good.
Q4) Many biologic drug manufacturers are pushing for patent protection to be extended to 12 years before generics are allowed to be introduced to the market.This reflects which of the following barriers to entry?
A)control of a key resource
B)network externalities
C)entry blocked by government action
D)economies of scale creating a natural monopoly
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Chapter 15: Externalities, Environmental Policy and Public Goods
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Sample Questions
Q1) Private producers have no incentive to provide public goods because A)the government subsidy granted is usually insufficient to enable private producers to make a profit.
B)production of huge quantities of public goods entails huge fixed costs.
C)they cannot avoid the tragedy of the commons.
D)once produced,it will not be possible to exclude those who do not pay for the good.
Q2) All of the following are examples of public goods except
A)broadcast television with commercials.
B)clean water systems.
C)stock of knowledge in the public domain.
D)crime prevention.
Q3) 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
Q4) An externality is an example of a market failure.
A)True
B)False
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Chapter 16: The Distribution of Income and Social Policy
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Sample Questions
Q1) If the marginal tax rate is less than the average tax rate as taxable income increases,the tax structure is
A)regressive.
B)proportional.
C)progressive.
D)unfair.
Q2) A tax bracket is
A)the per cent of taxable income paid in taxes at a specific income bracket.
B)the income range within which a particular tax rate applies.
C)the type of tax structure for which a range of taxes applies.
D)the range,from the high to the low tax rate,of a particular type of tax.
Q3) All of the following occur whenever a government taxes a product except A)the quantity consumed of that product falls.
B)the price of that product rises.
C)the marginal benefit of the last unit sold exceeds the marginal cost of producing it.
D)there will be no excess burden if the government's tax revenue is sufficiently large to offset the deadweight loss.
Q4) What is a Lorenz curve and what is a Gini coefficient?
Q5) What is the difference between the poverty line and the poverty rate?
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