Introduction to Economics Test Questions
Course Introduction
Introduction to Economics provides students with a foundational understanding of the principles that govern how individuals, businesses, and societies allocate scarce resources. This course introduces both microeconomic and macroeconomic concepts, exploring topics such as supply and demand, market structures, consumer behavior, production costs, national income, inflation, unemployment, and government intervention. Emphasis is placed on real-world applications, critical thinking, and the development of analytical skills necessary to interpret economic events and policies in a rapidly changing global environment.
Recommended Textbook
Foundations of Economics 6th Edition by Robin Bade
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Page 2
Chapter 1: Getting Started
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Sample Questions
Q1) As a shoe factory adds more workers,shoe production grows,reaches a maximum,and then shrinks.In a diagram that has the number of workers on the horizontal axis and the number of shoes on the vertical axis,the relationship between the number of workers and the number of shoes starts as ________ and then,after the maximum point,is ________.
A) positive; negative
B) negative; positive
C) linear; negative
D) positive; linear
E) positive; nonexistent
Answer: A
Q2) A graph of two variables is a vertical line.What is the interpretation of this result?
Answer: When the graph of two variables is a vertical line,the variables are not related because,with this graph,whenever the variable measured along the vertical axis changes,the variable measured along the horizontal axis does not change.
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3
Chapter 2: The Usand Global Economies
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Sample Questions
Q1) Factors of production are the
A) goods that are bought by individuals and used to provide personal enjoyment.
B) goods that are bought by businesses to produce productive resources.
C) productive resources used to produce goods and services.
D) productive resources used by government to increase the productivity of consumption.
E) goods and services produced by the economy.
Answer: C
Q2) Margo orders a MacBook Pro computer from The Apple Store online to use it in her graphic design business.How will this be reflected in the figure above?
A) As a flow of a factor of production
B) As a flow of goods and services bought
C) As expenditures on goods and services
D) As goods and services supplied
E) It won't be shown in the figure because this transaction takes place neither in goods markets nor in factor markets.
Answer: A
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Chapter 3: The Economic Problem
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Sample Questions
Q1) The figure above shows how the PPF for cell phones and new cell-phone factories can expand.In the figure,if the economy chose the point on this year's PPF that is above point K,the next year's PPF would
A) shift outward along the horizontal axis farther than the new PPF shown in the figure.
B) shift outward along the horizontal axis, but not as far as the new PPF shown in the figure.
C) shift outward along the vertical axis, not along the horizontal axis.
D) shift inward along the horizontal axis.
E) shift inward along the vertical axis.
Answer: A
Q2) What is the opportunity cost of economic growth?
A) Current period consumption goods
B) Current period capital goods
C) Land
D) Both current period consumption and capital goods
E) Both current period capital goods and land
Answer: A
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Chapter 4: Demand and Supply
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Sample Questions
Q1) The above figure illustrates the market for corn.If point "a" represents the original equilibrium and point "b" the new equilibrium,which of the following could have caused the change?
A) an increase in consumers' preferences for corn
B) an increase in consumers' income if corn is a normal good
C) an increase in labor costs of producing corn
D) an improvement in the technology of producing corn
E) an increase in consumers' income if corn is an inferior good
Q2) Consumers can use either natural gas or heating oil to warm their houses.Suppose the price of natural gas increases.Use a demand and supply diagram to show the impact of the higher price of natural gas on the market for home heating oil.
Q3) In the above figure,the shift in the supply curve from S to S might reflect
A) a decrease in the cost of the tomato sauce used to produce pizza.
B) a decrease in the number of pizza producers.
C) an increase in the price of a pizza.
D) an increase in income if pizza is a normal good.
E) an increase in the price of a good that is a substitute for consumers.
Q4) When the demand for blue jeans increases,what happens next?
Q5) What leads to a decrease in the quantity supplied of a good or service?
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Chapter 5: Elasticities of Demand and Supply
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Q1) What is an inferior good?
A) a product of low quality that we do not want to purchase
B) a product for which demand increases when income increases, and demand decreases when income decreases
C) a product for which demand increases when income decreases, and demand decreases when income increases
D) a product that is complementary
E) a product that is a substitute for another, better good
Q2) In the figure above,at which point (a,b,or c)along the linear demand curve illustrated would demand be
a.most elastic?
b.most inelastic?
Q3) Is supply more elastic or less elastic as more time passes after a price change? Explain your answer.
Q4) Studies have shown that the price elasticity of demand for necessities,such as food,are higher in developing countries and lower in developed countries.What is the reason for this difference in elasticity?
Q5) Explain the total revenue test.
Q6) List factors that increase the price elasticity of supply.
Page 7
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Chapter 6: Efficiency and Fairness of Markets
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Sample Questions
Q1) The figure above shows the market for brooms.If 400 brooms are produced,
A) consumer surplus is maximized.
B) producer surplus is maximized.
C) market failure and a deadweight loss occur.
D) marginal cost is greater than marginal benefit.
E) consumer surplus equals zero.
Q2) Outcomes are fair according to the
A) rules view if private property rights are established and trade is voluntary.
B) results view if private property rights are established and trade is voluntary.
C) rules view if there is not too much inequality.
D) results view if there is not a big tradeoff.
E) results view if there is equality of opportunity.
Q3) Draw and describe a marginal cost curve for slices of pizza where the opportunity cost of producing a slice of pizza is a taco.
Q4) Why is the demand curve the same as the marginal benefit curve?
Q5) What allocation method is the primary method used in the United States?
Q6) The demand curve is the same as another curve.Which curve is the same as the demand curve? Why are the curves the same?
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Chapter 7: Government Actions in Markets
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Sample Questions
Q1) What are the effects of a rent ceiling set below the equilibrium rent?
Q2) The demand and supply schedules for pizza are in the table above.A price ceiling of $2 per slice results in
A) a surplus of 20 slices of pizza.
B) a shortage of 20 slices of pizza.
C) a shortage of 40 slices of pizza.
D) a shortage of 60 slices of pizza.
E) neither a shortage nor a surplus.
Q3) The graph shows the labor market for teenagers in Atlanta.If the government sets a minimum wage of $6 an hour,the number of teenagers employed is ________.
A) 7,000
B) 5,000
C) 4,000
D) 3,000
E) less than 3,000
Q4) What is a price support program in an agricultural market? Explain its impact on a market.
Q5) Suppose that producers are richer than consumers.Is a price support program fair? Explain your answer.
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Chapter 8: Taxes
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Sample Questions
Q1) The above figure shows the demand curves in four different markets.If each of the markets has an identical upward sloping supply curve and the same tax is levied on suppliers,which market would produce the smallest amount of deadweight loss?
A) A
B) B
C) C
D) D
E) C and D
Q2) At harvest time the supply of wheat is perfectly inelastic.If the government taxes wheat at $1 a bushel,then
A) the seller pays the entire tax.
B) the buyer pays the entire tax.
C) the seller and the buyer split the tax evenly.
D) the seller and the buyer split the tax but the seller pays more.
E) no one pays the tax because the wheat must be harvested or it will go to waste.
Q3) Why are sales taxes,which require that everyone pay the same percentage tax,considered regressive taxes?
Q4) How does the elasticity of demand affect the incidence of a tax?
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Page 10
Chapter 9: Global Markets in Action
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Sample Questions
Q1) The average U.S.tariff was highest in the A) 1930s.
B) 1940s.
C) 1970s.
D) 1980s.
E) 1990s.
Q2) The table above has the domestic demand and domestic supply schedules for a good.If the world price of the good is $10 and international trade occurs,then according to the table
A) domestic production is higher before trade than after trade.
B) the country imports 16 units a day.
C) the country imports 6 units a day.
D) the country exports 6 units a day.
E) the country exports 22 units a day.
Q3) How do exports affect sellers' producer surplus?
Q4) How do exports affect buyers' consumer surplus?
Q5) How does the United States attempt to compensate losers from lower trade restrictions?
Q6) How can a nation and its producers determine whether or not it has a comparative advantage in producing a particular good or service?
Page 11
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Chapter 10: Externalities
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Sample Questions
Q1) External benefits are the extra
A) benefits a consumer gets from consuming a good.
B) costs a producer creates in producing a good.
C) benefits that accrue to people other than the consumers.
D) costs a producer bears for producing a polluting good.
E) benefits a producer obtains for reducing production of a polluting good.
Q2) Explain the process by which a private subsidy corrects an external benefit.
Q3) The figure above illustrates the marginal private cost and the marginal social cost to the city of Seattle for each rock concert that is offered.At 10 concerts,the
A) marginal private cost equals the marginal external cost.
B) marginal social cost equals $60,000.
C) marginal private cost is more than $40,000.
D) marginal external cost equals $60,000.
E) marginal external cost equals $80,000.
Q4) Why does an external cost lead to inefficient overproduction?
Q5) Describe some of the external benefits associated with education.What can government do to encourage production of the efficient amount of education?
Q6) Explain the difference between marginal social benefit and marginal external benefit.
Page 12
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Chapter 11: Public Goods and Common Resources
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Sample Questions
Q1) Is a sailboat purchased in Victoria,British Columbia,a private good or a public good?
Q2) Inefficient overproduction of a public good by the government is
A) the only efficient method of producing public goods.
B) not likely to occur when voters choose rational ignorance.
C) the term used to describe a surplus of a public good.
D) one explanation of why government might be large.
E) not likely to occur if voters are rationally ignorant.
Q3) An office in the Empire State Building is
A) a private good.
B) nonexcludable, because it is possible to restrict access to it.
C) a common resource.
D) a public good because many people can be in the Empire State Building.
E) excludable and nonrival.
Q4) If you can prevent someone from consuming a good,that good is called A) rival.
B) nonrival.
C) excludable.
D) nonexcludable.
E) a public good.
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Chapter 12: Markets With Private Information
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Sample Questions
Q1) JCPenney guarantees to refund a customer's money if the customer returns poorly made clothing.This guarantee is an example of
A) the adverse selection. problem.
B) the moral hazard problem.
C) the cost of risk.
D) signaling.
E) a lemon problem.
Q2) In the insurance market,moral hazard and adverse selection are the result of A) poorly functioning markets.
B) government intervention.
C) private information.
D) treachery.
E) a separating equilibrium.
Q3) What is private information and what problems does it create?
Q4) The lemons problem in the used car market is that
A) the price of a lemon is too high.
B) the price of a lemon is too low.
C) no lemons are bought and sold.
D) only lemons are bought and sold.
E) Both answers A and D are correct.
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Chapter 13: Consumer Choice and Demand
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Sample Questions
Q1) How is a budget line similar to a production possibilities frontier? How do they differ?
Q2) Any point above a given indifference curve ________ affordable and is ________ to any point on the indifference curve.
A) is not; inferior B) might or might not be; preferred C) is not; preferred D) might or might not be; inferior E) is; preferred
Q3) Marginal utility per dollar is calculated by ________ the price of the good. A) multiplying the marginal utility from a good by B) dividing the marginal utility from a good by C) multiplying the total utility from a good by D) dividing the total utility from a good by E) averaging the marginal utility from the good with
Q4) What does the slope of the budget line equal?
Q5) Suppose Abe is allocating his entire income and he receives 100 units of utility per dollar from the tenth slice of pizza and 200 units of utility per dollar from his second soda.Is Abe maximizing his utility? Should Abe change his consumption of pizza and soda?
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Chapter 14: Production and Cost
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Sample Questions
Q1) The main source of economies of scale is
A) better management.
B) constant returns to plant size.
C) specialization.
D) long-run cost curves eventually sloping downward.
E) increases in the labor force not matched by increases in the plant size.
Q2) The above table shows the total product schedule for Hair Today,a hair styling salon.
a.What is the first worker's marginal product? The second worker? The third worker? The fourth worker? The fifth worker?
b.Over what range of workers is there increasing marginal returns? Over what range is there decreasing marginal returns?
Q3) "In the short run,even when output is zero,the firm still has some variable costs it must pay." Is the statement correct or incorrect? Briefly explain your answer.
Q4) Draw an average total cost curve,an average variable cost,and a marginal cost curve all on the same graph.Make sure to correctly label the axes.What relationship must exist between the marginal cost curve and the average total cost and average variable cost curves?
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Chapter 15: Perfect Competition
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Sample Questions
Q1) The above table has the total revenue and total cost schedule for Omar,a perfectly competitive grower of rutabagas.Omar's total profit is maximized when he produces ________ bushels of rutabagas.
A) 3
B) 5
C) 6
D) 8
E) 7
Q2) Jerry's Jellybean Factory produces 2,000 pounds of jellybeans per month and sells them in a perfectly competitive market.The marginal cost is $3 per pound,the average variable cost is $2 per pound,and the beans sell for $4 per pound.Jerry
A) is maximizing profit.
B) is incurring an economic loss and should shut down.
C) could increase his profit by producing more beans.
D) could increase his profit by producing fewer beans.
E) could increase his profit by raising the price of his beans.
Q3) Why does the profit-maximizing level of production occur at the point where marginal revenue equals marginal cost?
Q4) Why are perfectly competitive ranchers in Montana price takers?
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Chapter 16: Monopoly
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Sample Questions
Q1) The table above gives the demand for a monopolist's output.Between which two quantities is demand elastic?
A) 6 and 5
B) 5 and 4
C) 4 and 3
D) 3 and 2
Q2) Using the figure above,which of the following statements are correct?
i.MR = MC = $42 when 3 haircuts are produced.
ii.If the firm charges each customer the same price for a haircut,the price of a haircut is $14.
iii.The firm's economic profit is $12.
A) i only
B) ii only
C) i and ii
D) i and iii
E) i, ii, and iii
Q3) "Under the social interest theory of regulation,regulators attempt to maximize profits for the owners of the firms being regulated." Is the previous statement correct or incorrect?
Q4) Why do some utilities have an incentive to exaggerate their costs of production?
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Chapter 17: Monopolistic Competition
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Sample Questions
Q1) When a firm maximizes its profit,which of the following is correct for firms in monopolistic competition and perfect competition?
A) P = MC for both types of firms.
B) P = MR = MC for firms in perfect competition and P > MR = MC for firms in monopolistic competition.
C) MR = MC for firms in perfect competition and MR > MC for firms in monopolistic competition.
D) P > MR = MC for firms in both perfect competition and monopolistic competition.
E) P = ATC always for firms in both perfect competition and monopolistic competition.
Q2) Which of the following is an advantage to society of monopolistic competition?
A) production at the lowest possible average cost
B) product variety
C) Only essential costs are incurred.
D) long-run profitability
E) The firms have excess capacity so they are are always willing to increase their production.
Q3) What is the Herfindahl-Hirschman Index and what does it measure?
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Chapter 18: Oligopoly
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Sample Questions
Q1) "The Clayton Act repealed the Sherman Act so that only the Clayton Act remains in force." Is the previous statement correct or incorrect?
Q2) Tying arrangements are
A) illegal if they substantially lessen competition.
B) used by regulators to force a monopoly to produce an efficient amount of production.
C) used by regulators to force a monopoly to charge an efficient price.
D) illegal according to the Sherman Act.
E) necessary in order for a firm to price discriminate.
Q3) A Nash equilibrium is defined as
A) making zero economic profit in the long run.
B) forming a cartel with strong penalties for cheaters.
C) relying on other game players to realize the benefit of cooperation.
D) each player taking the best possible action given the action of the other player.
E) each player taking the action that is best for all the players.
Q4) In a cartel,how does the number of firms affect the likelihood that the cartel will be able to successfully maintain a high price?
Q5) Describe the Department of Justice's claims against Microsoft.
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Chapter 19: Markets for Factors of Production
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Sample Questions
Q1) Which of the following statements about a firm's demand for labor curve and its value of marginal product of labor curve is true?
A) The value of marginal product curve slopes upward and the demand for labor curve slopes downward.
B) The demand for labor curve shows the amount of labor firms will hire based on the wage rate while the value of marginal product curve shows the amount of output supplied based on the wage rate.
C) The value of marginal product curve is steeper than the demand for labor curve.
D) The demand for labor curve is the same as the value of marginal product curve.
E) The value of marginal product curve lies above the demand for labor curve.
Q2) If the supply of labor increases,then the equilibrium wage rate ________ and the equilibrium quantity of labor ________.
A) rises; increases
B) might rise, fall, or not change; increases
C) rises; might increase, decrease, or not change
D) falls; increases
E) falls; does not change
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Page 21
Chapter 20: Economic Inequality
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Sample Questions
Q1) When government redistributes income,one dollar collected from a rich person translates into ________ received by a poor person.
A) exactly one dollar
B) less than one dollar
C) more than one dollar
D) zero dollars
E) either exactly one dollar or, with some programs, more than one dollar
Q2) Of age,marital status,family size,education,and race,which is the single biggest factor affecting the household income distribution?
Q3) Describe the characteristics of the typical lowest income household in the United States and the characteristics of the typical richest household in the United States.
Q4) Skills are costly to acquire.What forms do these costs take?
I9rnings while attending higher education
A) i only
B) ii only
C) iii only
D) i and iii
E) i, ii, and iii
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