Course Introduction
Principles of Economics Exam Review
Principles of Economics introduces students to the foundational concepts and tools of economic analysis. The course explores both microeconomic and macroeconomic principles, including supply and demand, market structures, consumer and producer behavior, economic efficiency, national income, economic growth, inflation, unemployment, and the role of government in the economy. Through real-world examples and basic models, students will develop an understanding of how economic agents interact within markets, how resources are allocated, and the impact of economic policies on individual and societal well-being.
Recommended Textbook
Essentials of Economics 4th Edition by R. Glenn Hubbard
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20 Chapters
4093 Verified Questions
4093 Flashcards
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Page 2
Chapter 1: Economics: Foundations and Models
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142 Verified Questions
142 Flashcards
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Sample Questions
Q1) Even if the population declines,scarcity will still exist.
A)True
B)False
Answer: True
Q2) Which of the following statements is true?
A) Anytime you have to decide which action to take, you are experiencing economic equity.
B) Trade-offs do not apply when the consumers purchase a product for which there is excess supply, such as a stock clearance sale.
C) Every individual, no matter how rich or poor, is faced with making trade-offs.
D) Economics is a social science that studies the trade-offs we are forced to make because resources are unlimited.
Answer: C
Q3) Optimal decisions are made at the point where marginal cost equals zero.
A)True
B)False
Answer: False
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Chapter 2: Choices and Trade-Offs in the Market
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192 Verified Questions
192 Flashcards
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Sample Questions
Q1) Refer to Figure 2.6.Suppose Vidalia is currently producing 60 dozen orchids per period.How many roses is it also producing,assuming that resources are fully utilised?
A) 40 dozen roses
B) 50 dozen roses
C) 60 dozen roses
D) 100 dozen roses
Answer: B
Q2) The basis for trade is comparative advantage,not absolute advantage.
A)True
B)False
Answer: True
Q3) Refer to Table 2.7.What is Horace's opportunity cost of bathing a cat?
A) Half a groomed dog
B) Two groomed dogs
C) Two-thirds of a groomed dog
D) One and a half groomed dogs
Answer: D
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4
Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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241 Verified Questions
241 Flashcards
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Sample Questions
Q1) Draw a supply and demand graph showing an equilibrium price of $50 and an equilibrium quantity of 200 units.Explain what would happen if the selling price was $75,and illustrate this on the graph.Explain what would happen if the selling price was $25,and illustrate this on the graph.Be sure to label each axis and curve on the graph.
Answer: 11ea83fd_fd8a_5fd8_aeff_a944401e8c5b_TB6606_00_TB6606_00
Q2) If,for a product,the quantity supplied exceeds the quantity demanded,the market price will fall until
A) the quantity demanded exceeds the quantity supplied. The market will then be in equilibrium.
B) quantity demanded equals quantity supplied. The equilibrium price will then be lower than the market price.
C) all consumers will be able to afford the product.
D) quantity demanded equals quantity supplied. The market price will then equal the equilibrium price.
Answer: D
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Page 5
Chapter 4: Elasticity: The Responsiveness of Demand and Supply
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Sample Questions
Q1) What does price elasticity of demand measure? When is demand elastic? Inelastic? Unit-elastic?
Q2) If the absolute value of the price elasticity of demand for DVD moves is 0.8,then what should be the elasticity of demand for the DVD for the movie The Hangover?
A) Less than 0.8 in absolute value
B) Greater than 0.8 in absolute value
C) Equal to 1 in absolute value
D) Equal to 0 because the DVD of this movie has been out for several years
Q3) If at a price of $24,Octavia sells 36 homegrown orchids and at $30 she sells 24 homegrown orchids,what is the demand for her orchids?
A) Elastic
B) Inelastic
C) Unit-elastic
D) Perfectly elastic
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Chapter 5: Economic Efficiency,government Price Setting and Taxes
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169 Flashcards
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Sample Questions
Q1) If equilibrium is achieved in a competitive market,_________.
A) there is no dead-weight loss
B) the dead-weight loss will be maximised
C) the dead-weight loss will equal the sum of consumer surplus and producer surplus
D) the dead-weight loss will be the same as the opportunity cost of the last unit of output sold
Q2) Refer to Table 5.4.Suppose that the quantity of labour supplied increases by 40 000 at each wage level.What are the new free-market equilibrium hourly wage and the new equilibrium quantity of labour?
A) W = $8.50; Q = 550 000
B) W = $12.50; Q = 630 000
C) W = $9.50; Q = 610 000
D) W = $11.50; Q = 610 000
Q3) The sum of consumer surplus and producer surplus is called economic surplus. A)True
B)False
Q4) If the market price is at equilibrium,the dead-weight loss is maximised. A)True B)False
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Chapter 6: Technology,production and Costs
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255 Verified Questions
255 Flashcards
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Sample Questions
Q1) Refer to Figure 6.11.In the short run,if the firm sells fewer than 5 000 picture frames per month,__________.
A) it should produce with the scale of operation associated with ATC<sub>a</sub>
B) it should produce with the scale of operation associated with ATC<sub>b</sub>
C) it should produce with the scale of operation associated with ATC<sub>c</sub>
D) it will experience constant returns to scale
Q2) 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
Q3) As output increases,__________.
A) average variable cost becomes smaller and smaller
B) the difference between average total cost and average variable cost decreases
C) marginal cost increases continuously
D) the difference between average total cost and average variable cost becomes greater and greater
Q4) Average total cost is equal to average variable cost minus average fixed cost. A)True B)False
Page 8
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Chapter 7: Firms in Perfectly Competitive Markets
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269 Verified Questions
269 Flashcards
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Sample Questions
Q1) Refer to Figure 7.7.Identify the firm's short-run supply curve.
A) The marginal cost curve
B) The marginal cost curve from a and above
C) The marginal cost curve from b and above
D) The marginal cost curve from d and above
Q2) Which of the following describes a situation in which a good or service is produced at the lowest possible cost?
A) Productive efficiency
B) Allocative efficiency
C) Marginal efficiency
D) Profit maximisation
Q3) Perfectly competitive firms produce up to the point where the price of the good equals the marginal cost of producing the last unit.This condition is referred to as
A) productive efficiency.
B) constant returns to scale.
C) allocative efficiency.
D) perfectly competitive efficiency.
Q4) In a decreasing-cost industry,the entry of new firms lowers average cost at each level of output.
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Chapter 8: Monopoly Markets
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187 Flashcards
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Sample Questions
Q1) Refer to Figure 8.4.The profit-maximising/loss-minimising output level is -.
A) 600 units
B) 800 units
C) 940 units
D) 1160 units
Q2) Compared to perfect competition,the consumer surplus in a monopoly
A) is unchanged because price and output are the same.
B) is lower because price is higher and output is lower.
C) is higher because price is higher and output is the same.
D) is eliminated.
Q3) Microsoft hires marketing and sales specialists to decide what prices it should set for its products,whereas a wealthy corn farmer in Iowa,who sells his output in the world commodity market,does not.Why is this so?
A) Because Microsoft is large enough to hire the best people in the field
B) Because Microsoft could potentially lose sales if it sets prices indiscriminately
C) Because the wealthy corn farmer is a price taker who chooses his optimal output independently of market price but Microsoft's optimal output depends on the price it selects
D) Because unlike Microsoft, the wealthy corn farmer is probably a monopolist
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Page 10
Chapter 9: Monopolistic Competition and Oligopoly
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350 Flashcards
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Sample Questions
Q1) Refer to Figure 9.4.The area that represents the total fixed cost of production is
A) 0P<sub>1</sub>aQ<sub>a</sub>
B) P<sub>0</sub>adP<sub>3</sub>
C) P<sub>1</sub>bdP<sub>3</sub>
D) That information cannot be determined from the graph.
Q2) Firms are more likely to find themselves in a prisoner's dilemma in sequential games as opposed to simultaneous games.
A)True
B)False
Q3) If economies of scale are relatively unimportant in an industry,the typical firm's long-run average total cost curve will reach a minimum at a level of output that is a ________ fraction of total industry sales.The industry will be ________.
A) large; competitive
B) large; an oligopoly
C) small; competitive
D) small; an oligopoly
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Chapter 10: The Markets for Labour and Other Factors of Production
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250 Verified Questions
250 Flashcards
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Sample Questions
Q1) The most important factor contributing to wage differences in the labour market is differences in the level of education and training among workers.
A)True
B)False
Q2) Seth's grandmother gave him a $50 savings bond for his birthday.The bond pays $50 at maturity,which is in 5 years.If the interest rate is 5 per cent,the bond has a present value of $43.19.
A)True B)False
Q3) What could cause an increase in a perfectly competitive firm's demand for labour?
A) A decrease in the market wage rate.
B) An increase in the amount of human capital among the labour force.
C) An increase in the supply of labour.
D) A decrease in the market price of the product the firm produces.
Q4) A profit-maximising firm should hire workers up to the point where labour's marginal revenue product equals the wage rate.
A)True
B)False
Page 12
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Chapter 11: Government Intervention in the Market
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325 Flashcards
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Sample Questions
Q1) Economist A.C.Pigou argued that to deal with a negative externality in production,the government should impose a tax equal to the cost of the externality.What did Pigou believe should be done in the case of a positive externality in consumption? How would his recommendation impact the demand and market equilibrium for the product which is generating the positive externality?
Q2) Of what is pollution an example?
A) Public good
B) Positive externality
C) Private cost
D) Negative externality
Q3) One problem with using a command and control approach to pollution reduction is that the monitoring costs may be too high.
A)True
B)False
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Chapter 12: Social Policy and Inequality
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125 Flashcards
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Sample Questions
Q1) A marginal tax rate is
A) the fraction of income that must be paid in taxes.
B) the fraction of each additional dollar of income that must be paid in taxes.
C) the incremental income one must earn to offset each additional dollar of tax.
D) the ratio of a change in income to a change in taxes paid.
Q2) Exempting food purchases from sales tax is consistent with the ability-to-pay principle,although not necessarily consistent with vertical equity.
A)True
B)False
Q3) Most economists agree that some of the burden of the corporate income tax
A) is reduced because the tax is progressive.
B) is shared by the federal government.
C) is reduced because the tax is used to attain a social objective.
D) is passed on to consumers in the form of higher prices.
Q4) The term 'payroll taxes' is often used to refer to
A) individual income taxes that are withheld from paychecks.
B) corporate income taxes.
C) Social Security and Medicare taxes.
D) sales taxes.
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Chapter 13: Gdp: Measuring Total Production, income and Economic Growth
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202 Verified Questions
202 Flashcards
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Sample Questions
Q1) 'New growth theory' states that increases in ________ capital will result in ________ at the ________ level.
A) knowledge; increasing returns to scale; firm
B) physical; decreasing returns to scale; firm
C) knowledge; decreasing returns to scale; economy
D) knowledge; increasing returns to scale; economy
Q2) The Soviet Union's economic growth rate slowed despite rapid increases in capital per hour worked.
A)True
B)False
Q3) Define each of the three methods of calculating GDP used by the Australian Bureau of Statistics.
Q4) Technological change causes a movement along a per-worker production function. A)True
B)False
Page 15
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Chapter 14: Unemployment and Inflation
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230 Flashcards
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Sample Questions
Q1) Which of the following individuals would be most negatively affected by 'anticipated inflation'?
A) A retired railway engineer who receives a fixed income payment every month
B) A union contractor whose pay is adjusted based on changes in the CPI
C) A full-time employee at a pizza shop who earns more than the minimum wage
D) A student who borrows $10 000 at a nominal interest rate of 5% to finance educational expenses
Q2) Which of the following is not an incentive for people to provide inaccurate employment information to the Australian Bureau of Statistics (ABS)?
A) People are embarrassed about being in low paid jobs.
B) Some people are employed in illegal activities.
C) People want to avoid paying taxes on earnings.
D) People think they might lose unemployment benefits if they declare that they have been working.
Q3) To calculate real wages in Year 1,it is correct to divide nominal wages in Year 1 by the CPI in year 1,and multiply the resultant figure by 100.
A)True
B)False
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Page 16
Chapter 15: Aggregate Demand and Aggregate Supply Analysis
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166 Flashcards
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Sample Questions
Q1) Monetarists believe that the quantity of money should be increased at a constant rate.
A)True
B)False
Q2) When the price level in Australia rises relative to the price level of other countries,ceteris paribus,________ will rise,________ will fall,and ________ will fall.
A) imports; exports; net exports
B) exports; imports; net exports
C) net exports; exports; imports
D) net exports; imports; exports
Q3) The distinction between the short-run and long-run aggregate supply curve is necessary because in the long run
A) technology is fixed, but in the short run it changes.
B) changes in the price level do not affect the level of real GDP but do in the short run.
C) the aggregate supply curve is horizontal, but in the short run it is upward sloping.
D) the price level is constant, but in the short run it fluctuates.
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Chapter 16: Money,banks and the Reserve Bank of Australia
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Sample Questions
Q1) An open market purchase of government securities by the Reserve Bank of Australia causes the reserves of banks to rise.
A)True
B)False
Q2) List the five criteria necessary in order for a good to be suitable as a medium of exchange,and explain whether Australian currency is suitable to use as a medium of exchange.
Q3) Explain whether credit cards are considered to be 'money'.
Q4) A person's 'wealth' is the same as her or his income.
A)True
B)False
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Chapter 17: Monetary Policy
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Sample Questions
Q1) In which of the following situations would the Reserve Bank of Australia conduct contractionary monetary policy?
A) The RBA believes that aggregate demand was growing too slowly to keep up with potential GDP.
B) The RBA fears that unemployment is climbing above the natural rate of unemployment.
C) The RBA is concerned that aggregate demand would continue to exceed the growth in potential GDP.
D) The RBA is worried that deflation will become a problem.
Q2) The Reserve Bank of Australia
A) can easily distinguish the minor ups and downs of the economy from a recession.
B) can have difficulty shifting aggregate demand to keep the economy at its potential GDP level.
C) always times its policy responses correctly.
D) can easily determine if a drop in production means a recession is inevitable.
Q3) The main goal of monetary policy in Australia is a low inflation rate.
A)True
B)False
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19
Chapter 18: Fiscal Policy
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Sample Questions
Q1) 'Crowding out' will be smaller if _________.
A) consumption spending is more sensitive to changes in the interest rate
B) equilibrium GDP is further below potential GDP
C) investment spending is less sensitive to changes in the interest rate
D) the economy is at or above full employment
Q2) A federal budget deficit acts as an automatic stabiliser because ________.
A) government tax revenues decrease during a recession
B) unemployment benefit payments decrease during a recession
C) tax receipts decrease during expansionary periods
D) Medicare payments increase during expansionary periods
Q3) Government budget deficits can lead to higher real interest rates,which will reduce private investment.
A)True
B)False
Q4) The largest source of revenue for the Australian federal government is ________.
A) personal income tax
B) company and petroleum resource tax
C) petrol excise
D) superannuation tax
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Chapter 19: Comparative Advantage and the Gains From International Trade
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131 Verified Questions
131 Flashcards
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Sample Questions
Q1) Many people assume that if child workers in developing countries weren't working in factories,they would be in school.In fact,children in developing countries _________.
A) split their time evenly between work and school
B) usually have few good alternatives to work
C) are only allowed to work if they have attended school up to age 15
D) who work are relatively rare, as most do attend school full time
Q2) What do economists call trade between countries that is without restrictions?
A) Unobstructed commerce
B) Unabated trade
C) Free trade
D) Unencumbered trade
Q3) Refer to Table 19.6.If the actual terms of trade are 1 hat for 1.8 clocks and 150 hats are traded,how many hats will Belize gain compared to the 'without trade' numbers?
A) -100
B) 0
C) 150
D) 250
Q4) What is autarky?
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Chapter 20: Macroeconomics in an Open Economy
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Sample Questions
Q1) Explain the difference between a 'floating exchange rate',a 'managed float',and a 'fixed exchange rate'.
Q2) Suppose that the euro depreciates against the dollar.Assuming all other factors remain constant,the real exchange rate of euros to Australian dollars will ________. A) increase B) decrease C) increase and then decrease D) remain constant
Q3) Why do countries peg their currencies? What problems can result from pegging?
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Page 22