Principles of Economics
Exam Materials
Course Introduction
Principles of Economics introduces students to the foundational concepts and analytical frameworks used to understand how societies allocate scarce resources. The course covers both microeconomics and macroeconomics, exploring topics such as supply and demand, market structures, consumer and producer behavior, fiscal and monetary policy, inflation, employment, and economic growth. Through real-world examples and problem-solving, students develop a practical understanding of how economic principles influence personal, business, and government decisions. This course provides essential tools for critically analyzing contemporary economic issues at local, national, and global levels.
Recommended Textbook
Essential Foundations of Economics 6th Edition by Robin Bade
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20 Chapters
5980 Verified Questions
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Page 2
Chapter 1: Getting Started
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Sample Questions
Q1) Two variables are unrelated if their graph is i.a vertical line.
Ii.a 45 degree li
Iii.a horizontal line.
A)i only
B)ii only
C)iii only
D)i and iii
E)i, ii, and iii
Answer: D
Q2) The table above shows data on two variables. If these data were graphed, the slope of the line would be
A)1/2.
B)4/3.
C)2/3.
D)3/4.
E)2.
Answer: D
Q3) In the figure above, what can you deduce about the slope of the curve?
Answer: The slope is positive and increasing in size as we move rightward along the curve.
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Chapter 2: The Us and Global Economies
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Sample Questions
Q1) Of the following, the country with the highest average income per day in the world is
A)Japan.
B)the United States.
C)France.
D)Germany.
E)China.
Answer: B
Q2) A real flow in the circular flow diagram is i) a firm's payments of wages to its workers
Ii) a household's purchase of a new car
Iii) a farmer's use of land to grow corn
A)ii and iii
B)i only
C)i and iii
D)ii only
E)i, ii and iii
Answer: A
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Chapter 3: The Economic Problem
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Sample Questions
Q1) Robinson Crusoe divides his time between catching fish and gathering fruit. Part of his production possibilities frontier is given in the above table. Mr. Crusoe, while lonesome, is efficient and always stays on his PPF. Mr. Crusoe is consuming 20 pounds of fish. Then he decides to slowly become a vegetarian and decrease his consumption of fish to 9 pounds. This decision means that Mr. Crusoe will
A)incur an opportunity cost of 9 pounds of fruit.
B)incur an opportunity cost of 20 pounds of fish.
C)be able to enjoy a gain of 9 pounds of fruit.
D)incur an opportunity cost of 99 pounds of fruit.
E)incur an opportunity cost of 9 pounds of fish.
Answer: C
Q2) When a country's production possibilities frontier shifts outward over time, the country is experiencing
A)no opportunity cost.
B)economic growth.
C)higher unemployment of resources.
D)a decrease in unemployment of resources.
E)an end to opportunity cost.
Answer: B
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Page 5
Chapter 4: Demand and Supply
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Sample Questions
Q1) Which of the following increases the supply of gasoline?
A)a situation where the quantity of gasoline demanded exceeds the quantity supplied
B)an increase in the price of gasoline
C)a decrease in the price of a resource used to produce gasoline, such as crude oil
D)a decrease in the demand for gas-guzzling, sport utility vehicles
E)an increase in income if gas-guzzling, sport utility vehicles are a normal good
Q2) Assume a competitive market is in equilibrium. There is an increase in demand, but no change in supply. As a result the equilibrium price ________, and the equilibrium quantity ________.
A)rises; increases
B)rises; does not change
C)falls; does not change
D)falls; decreases E)falls; increases
Q3) Soft drinks and milk are substitutes for consumers. Draw a graph showing the effect of an increase in the price of milk on the demand for soft drinks.
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Chapter 5: Elasticities of Demand and Supply
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Sample Questions
Q1) When income increases from $20,000 to $30,000 the number of home delivered pizzas per year increases from 22 to 40. The income elasticity of demand for home delivered pizza equals
A)1.45.
B)0.69.
C)0.58.
D)0.40.
E)2.86.
Q2) In the figure above, if the price falls from $8 to $7 demand is A)elastic.
B)inelastic.
C)unit elastic.
D)income elastic.
E)perfectly elastic.
Q3) If the price elasticity of demand for razors is 0.32, the demand for razors is A)elastic.
B)unit elastic.
C)inelastic.
D)perfectly inelastic.
E)perfectly elastic.
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Chapter 6: Efficiency and Fairness of Markets
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Sample Questions
Q1) In general, the marginal cost curve
A)has a positive slope.
B)has a negative slope.
C)is horizontal.
D)is vertical.
E)is U-shaped.
Q2) In December 2010, Kansas had a severe ice storm that caused electrical blackouts. The Fictitious Portable Generator firm of Lawrence had several portable generators that could be used by homeowners to provide electricity. Which of the following would be the fair-rules way to provide them?
A)The government confiscates the generators owned by Fictitious and distributes them.
B)Fictitious is forced by the state to rent the generators at half the normal rate.
C)The state sets up a lottery to determine who rents the available generators at the normal rate.
D)Fictitious rents generators at the equilibrium market price.
E)Fictitious follows government commands about who gets to use the generators.
Q3) Compare and contrast production efficiency and allocative efficiency.
Q4) When economists refer to "the invisible hand," what do they mean?
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Page 8
Chapter 7: Government Actions in Markets
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Sample Questions
Q1) In order to have an impact, a ________ must be set below the equilibrium price and when this occurs, ________.
A)price ceiling; consumer surplus increases
B)price floor; consumer surplus decreases
C)price ceiling; producer surplus decreases
D)price support; total revenue increases
E)price support; consumer surplus increases
Q2) Tax incidence is the
A)burden buyers have to absorb from a tax on goods and services.
B)burden sellers have to absorb from a tax on goods and services.
C)lost revenue the government endures from goods and services that are not taxed.
D)division of the burden of a tax between the buyer and the seller.
E)deadweight loss created by a tax.
Q3) One of the reasons a minimum wage is unfair is because it
A)benefits all workers.
B)blocks voluntary exchange.
C)is imposed by government.
D)is below the equilibrium wage rate.
E)cannot be enforced.
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Page 9
Chapter 8: Global Markets in Action
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Sample Questions
Q1) Goods and services that the United States sells to other nations are called A)exports.
B)imports.
C)bartered goods.
D)exchanges.
E)world goods.
Q2) Who gains from imports?
How do they gain?
Who loses?
How do they lose?
Does the overall economy gain or lose from imports?
Q3) The above figure shows the U.S. market for wheat. With international trade, consumer surplus is equal to ________.
A)area A + area B + area C
B)area E + area F
C)area B + area C + area D
D)area A + area B + area C + area D
E)area A
Q4) How do imports affect buyers' consumer surplus?
Q5) How do exports affect buyers' consumer surplus?
Page 10
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Chapter 9: Externalities: Pollution, Education, and Health Care
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Sample Questions
Q1) Producing leather creates external costs in the form of water pollution. The figure above illustrates the market for leather. If the government sets a pollution limit that achieves efficiency, how many tons of leather are produced?
A)0 tons
B)200 tons
C)300 tons
D)more than 300 tons
E)more than 0 tons and less than 200 tons
Q2) The figure above shows the market for college education. Left to itself without any government intervention, a competitive market would create a deadweight loss equal to A)zero.
B)the area d.
C)the area a + c.
D)the area b + c.
E)the area b + d.
Q3) "External benefits lead to overproduction so that more than the efficient quantity is produced." Is the previous statement true or false?
Q4) Why is it not efficient to eliminate all pollution?
11
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Chapter 10: Production and Cost
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Sample
Questions
Q1) Anna owns a dog grooming salon in Brunswick, Georgia. The above table has Anna's total product schedule. Anna pays each worker $300 per week and she pays rent of $600 a week for her salon. These are her only costs. When Anna has a staff of 2 workers, her average variable cost equals
A)$2,400.
B)$300.
C)$6.00.
D)$10.00.
E)$600.
Q2) The average fixed cost curve
A)is always positively sloped.
B)is U-shaped.
C)has an upside-down U shape.
D)is always negatively sloped.
E)is horizontal.
Q3) What is the relationship between the marginal product of labor and the marginal cost?
Q4) A firm increases its output and its average total costs remain unchanged. Is the firm experiencing increasing returns to scale, constant returns to scale, or decreasing returns to scale?
Page 12
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Chapter 11: Perfect Competition
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Sample Questions
Q1) A monopoly occurs when
A)each of many firms produces a product that is slightly different from that of the other firms.
B)one firm sells a good that has no close substitutes and a barrier blocks entry for other firms.
C)there are many firms producing the same product.
D)a few firms control the market.
E)one firm is larger than the many other firms that make an identical product.
Q2) A market in which many firms sell identical products is
A)a monopoly.
B)an oligopoly.
C)only perfect competition.
D)only monopolistic competition.
E)both perfect competition and monopolistic competition.
Q3) Based on the figure above, what is the price of a can?
A)$0
B)$8.00 per can
C)$5.10 per can
D)None of the above prices is correct.
E)More information is needed to determine the price of a can.
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Chapter 12: 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) Firms that can effectively price discriminate
A)can be either perfectly competitive firms or monopolies.
B)can prevent the resale of their products.
C)have only one class of buyers, buyers willing to pay a high price.
D)Both answers A and B are correct.
E)Both answers A and C are correct.
Q3) "The theory that regulation seeks an efficient use of resources is called the capture theory of regulation." Is the previous statement correct or incorrect?
Q4) What is the relationship between the marginal revenue curve and the demand curve for a single-price monopoly?
Q5) What is the social interest theory of regulation?
How does it differ from the capture theory of regulation?
Q6) What are the conditions that define a monopoly?
Page 14
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Chapter 13: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) In the long-run, a firm in monopolistic competition produces at an output level where
A)P > ATC and MR = MC.
B)P > ATC and MR > MC.
C)P = ATC and MR = MC.
D)P = ATC and MR > MC.
E)P = ATC and MC = ATC.
Q2) The above figure shows a motel engaged in monopolistic competition with other motels. the figure above shows the ________ equilibrium in which the motel is
A)short-run; earning an economic profit
B)short-run; earning a normal profit
C)long-run; earning an economic profit
D)long-run; earning a normal profit
E)short-run; incurring an economic loss
Q3) How would a merger between Coca-Cola and Pepsi Cola affect the four-firm concentration ratio for the soft drink market? How would it affect the Herfindahl-Hirschman Index for the soft drink market?
Q4) For a firm in monopolistic competition, define efficient scale and excess capacity. Briefly explain each.
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Chapter 14: Gdp: a Measure of Total Production and Income
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Sample Questions
Q1) The relationship between real GDP and potential GDP over the business cycle can be best summarized by which of the following statements?
A)Real GDP fluctuates around potential GDP.
B)Real GDP is always equal to potential GDP.
C)Real GDP cannot be greater than potential GDP.
D)Real GDP cannot be less than potential GDP.
E)Real GDP cannot be equal to potential GDP.
Q2) Undistributed profits ________ counted as part of GDP because ________.
A)are not; households are not paid by the firms
B)are; they can be used to buy other goods
C)are ; they are considered income paid to households and loaned back to firms
D)are not; they are considered an intermediate good
E)are; firms are required to pay corporate income taxes on them
Q3) "If country A has a higher level of real GDP per person than country B, then people in Country A must enjoy a higher standard of living than people in Country B." Is this statement true or false and explain your answer.
Q4) Can nominal GDP ever be less than real GDP?
Q5) If you sell your textbook to your friend this year, does the sale count in this year's GDP?
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Chapter 15: Jobs and Unemployment
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Sample Questions
Q1) Suppose the population is 220 million people, the labor force is 150 million people, the number of people employed is 130 million and the working-age population is 175 million people. What is the unemployment rate?
Q2) The natural unemployment rate occurs
A)at the full employment level of unemployment.
B)when the structural unemployment rate equals zero.
C)when the frictional unemployment rate equals zero.
D)when the sum of frictional and structural unemployment equals zero.
E)when the unemployment rate equals zero.
Q3) Using the table above, the working-age population is
A)155 million.
B)170 million.
C)195 million.
D)250 million.
E)220 million.
Q4) Based on the information in the above table, what is the unemployment rate?
Q5) Explain the difference between frictional and structural unemployment.
Q6) The unemployment rate is 6 percent. If the population is 300 million, and the number unemployed is 6 million and the number employed is 94 million, what is the size of the labor force?
Page 17
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Chapter 16: The Cpi and the Cost of Living
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Sample Questions
Q1) The price of dishwashers has remained relatively constant while the quality of dishwashers has improved. The CPI
A)is adjusted monthly to reflect the improvement in quality.
B)is increased monthly to reflect the increased quality of dishwashers.
C)has an upward bias if it is not adjusted to take account of the higher quality.
D)has an upward bias because it does not reflect the increased production of dishwashers.
E)should not take account of any quality changes because it is a price index not a quality index.
Q2) The value of the CPI for the reference base period is always A)100.
B)0.
C)1.
D)50.
E)None of the above, because the value of the CPI is not always the same for all reference base periods.
Q3) Define the nominal interest rate and the real interest rate. Discuss the relationship between the nominal interest rate and the real interest rate.
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Chapter 17: Potential Gdp and Economic Growth
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Sample Questions
Q1) Economic growth in Cuba has been slow; what can best explain the slow growth?
A)Lack of economic resources
B)Lack of incentive mechanisms and economic freedom
C)Labor productivity is low.
D)A non-democratic form of government
E)Too much competition within the economy
Q2) What is the effect on real GDP per person if labor productivity increases? What is the effect on the nation's standard of living?
Q3) Suppose the price of a product is $4 and the nominal wage that the firm must pay is $20. Then the firm's real wage is
A)$20.
B)$80.
C)$5.
D)$0.20
E)$4.
Q4) A country's leadership believes that the neoclassical growth theory is correct. The country already has the necessary preconditions for growth, so suggest policy changes the government might enact to help speed economic growth.
Q5) What are the sources of human capital?
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Chapter 18: Money and the Monetary System
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Sample Questions
Q1) At any point in time, a single bank can loan an amount equal to A)its excess reserves.
B)its required reserves.
C)its government securities.
D)the amount of loans the bank made in the past.
E)its total reserves.
Q2) When we put a price tag on goods and services, we are using money as a A)store of value.
B)medium of exchange.
C)barter token.
D)unit of account.
E)means of payment.
Q3) Banks can make loans as long as they have A)deposits.
B)reserves.
C)required reserves.
D)excess reserves.
E)excess government securities.
Q4) Are the members of the Board of Governors of the Federal Reserve System elected officials?
Page 20
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Chapter 19: Aggregate Supply and Aggregate Demand
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Sample Questions
Q1) The aggregate demand curve shifts when any of the following factors change EXCEPT
A)foreign income.
B)the price level.
C)monetary policy.
D)expectations about the future.
E)fiscal policy.
Q2) When the macroeconomic equilibrium is such that real GDP is less than potential real GDP, the economy is suffering from ________, and the government policy to eliminate this gap will ________ real GDP to ________ the price level.
A)a recessionary gap; decrease; decrease
B)an inflationary gap; increase; decrease
C)a recessionary gap; increase; increase
D)an inflationary gap; decrease; increase
E)a recessionary gap; decrease; increase
Q3) Can actual real GDP exceed potential GDP?
Q4) What is demand-pull inflation?
Q5) How does a fall in the money wage rate affect the aggregate supply curve?
Q6) Explain how changes in foreign income can impact real GDP in a country.
Q7) Describe how a demand-pull inflation can occur.
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Chapter 20: Fiscal Policy and Monetary Policy
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Sample Questions
Q1) Since 2000, the U.S. government has generally had a government budget ________ and so the national debt has ________.
A)surplus; decreased B)surplus; increased C)deficit; decreased D)deficit; increased E)deficit; not changed
Q2) In order to help the economy recover from a recession using fiscal policy, the government can ________ so that aggregate demand increases.
A)cut taxes
B)raise taxes
C)cut government expenditure on goods and services
D)raise interest rates
E)decrease the quantity of money
Q3) Depending on the relative size of the federal government's expenditures and tax revenues, the federal government's budget can be in three possible conditions. What are the three possible conditions and what is the relationship of federal government expenditures and tax revenues for each?
Q4) Explain how a tax cut effects employment, labor productivity, and potential GDP.
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