Principles of Economics
Mock Exam
Course Introduction
Principles of Economics introduces students to the fundamental concepts and analytical tools used to understand how individuals, firms, and governments make choices about scarce resources. The course covers both microeconomic principles, such as supply and demand, market structures, consumer behavior, and production costs, and macroeconomic concepts, including national income, inflation, unemployment, fiscal and monetary policy, and international trade. Emphasis is placed on developing critical thinking skills for analyzing real-world economic issues and understanding the implications of economic decisions at both personal and societal levels.
Recommended Textbook
Fundamentals of Economics 6th Edition by William Boyes
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18 Chapters
2262 Verified Questions
2262 Flashcards
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Page 2
Chapter 1: Economics and the World Around You
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110 Verified Questions
110 Flashcards
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Sample Questions
Q1) The main reason villagers in Xiaogang produced more rice than those in surrounding villages was
A) they had better farmland.
B) they were given better seeds.
C) they were able to keep the output they produced individually.
D) they made each family responsible for a certain, higher quota
Answer: C
Q2) Which of the following is an example of capital?
A) Education
B) Natural resources
C) Machinery
D) Training
E) Money
Answer: C
Q3) Diamonds are more expensive than water because diamonds are a necessity of life.
A)True
B)False
Answer: False
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Chapter 2: Markets and the Market Process
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174 Verified Questions
174 Flashcards
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Sample Questions
Q1) The quantity supplied is
A) the amount sellers are willing and able to offer at a given price during a particular time period, everything else held constant.
B) the amount sellers are willing and able to offer for sale at all possible prices.
C) a set of price and quantity-supplied combinations, everything else held constant. D) a list of prices and the corresponding quantities supplied.
E) a downward-sloping line that relates expenditures to different levels of output.
Answer: A
Q2) Suppose that sales of a product depend directly on economic growth. If producers of that product expect an economic recession in the near future, there is likely to be
A) a rightward shift of the supply curve.
B) a movement to the left along the supply curve.
C) a leftward shift of the supply curve.
D) a movement to the right along the supply curve.
E) none of these.
Answer: C
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Chapter 3: Applications of Demand and Supply
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97 Flashcards
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Sample Questions
Q1) An effective price ceiling on gasoline means that
A) long lines occur at gas stations.
B) the lines at gas stations will disappear.
C) people will quit driving.
D) people will be able to drive more.
E) a shortage of cars will result.
Answer: A
Q2) In Table 3.3, if the price is $3, a ____ of ____ units will occur.
A) shortage; 15
B) shortage; 12
C) surplus; 12
D) surplus; 15
E) surplus; 45
Answer: D
Q3) "Efficiency" means you get the same amount at a higher cost.
A)True
B)False
Answer: False
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Chapter 4: The Firm and the Consumer
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122 Verified Questions
122 Flashcards
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Sample Questions
Q1) If a university charges a set tuition for 12 credit hours or more, its marginal revenue from students taking an overload is zero.
A)True B)False
Q2) If the price elasticity of demand is equal to 4, a 1 percent increase in the price will cause quantity demanded to increase from 100 to 104 units.
A)True B)False
Q3) Assume that the price elasticity of demand is 0.20. Given a 10 percent increase in price, we will see a
A) 20 percent increase in the quantity demanded.
B) 2 percent decrease in the quantity demanded.
C) 20 percent decrease in the quantity demanded.
D) 0.2 percent decrease in the quantity demanded.
E) 2 percent increase in the quantity demanded.
Q4) The price elasticity of demand measures how much price changes given a change in demand.
A)True B)False
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Chapter 5: Costs and Profit Maximization
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119 Verified Questions
119 Flashcards
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Sample Questions
Q1) After hiring three new employees, a manager sees that total output increases. If the manager hires two additional employees and discovers total output has fallen, the result is due to
A) diseconomies of scale.
B) a poor hiring procedure.
C) diminishing marginal returns.
D) the lack of skills of newest employees-the best workers are hired first.
E) economies of scale.
Q2) Assume that marginal revenue equals rising marginal cost at 100 units of output. At this output level, a profit-maximizing firm's total fixed cost is $600 and its total variable cost is $400. If the price of the product is $10 per unit and the firm produces 100 units, the firm will earn an economic profit of
A) zero.
B) $400.
C) more than zero but less than $100.
D) $100.
E) more than $100.
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Chapter 6: Competition
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152 Verified Questions
152 Flashcards
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Sample Questions
Q1) Under monopolistic competition, firms always earn positive economic profits.
A)True
B)False
Q2) The characteristic that distinguishes a perfectly competitive market from a monopolistically competitive market is
A) ease of entry.
B) large number of firms.
C) degree of government regulation.
D) product differentiation.
E) market share.
Q3) Compared to a brand name firm, a firm with no obvious stake in the future has an easier time persuading potential customers that it will make good on its promises.
A)True
B)False
Q4) Only the governments in developing countries create oligopolies.
A)True
B)False
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Chapter 7: Business, Society, and the Government
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157 Verified Questions
157 Flashcards
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Sample Questions
Q1) If the market system is so efficient, why is it not universally used?
A) The rich get richer, and the poor get poorer.
B) Goods and services cannot freely move from one part of the world to another.
C) People are evading taxes, so not all transactions go through the market.
D) The market does not work very well in all situations.
E) Some governments want to control every aspect on their country's economy.
Q2) If polluting firms are forced to pay a tax for the right to pollute the air, the tax externalizes the internality.
A)True
B)False
Q3) If the owners of SUVs are not forced to compensate the people affected by their pollution, the market result will be
A) a lower equilibrium price.
B) a higher level of demand.
C) a price that is too low and too many SUVs being driven.
D) a price that is too high and too few SUVS being driven.
E) impossible to determine from the information provided.
Q4) A result of competition is creative destruction.
A)True
B)False
Page 9
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Chapter 8: Government Intervention Versus Free Markets
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103 Flashcards
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Sample Questions
Q1) When demand is inelastic, prohibition results in driving down prices and significantly reducing demand.
A)True
B)False
Q2) Physicians are paid on the basis of procedures or tests, rather than by results.
A)True
B)False
Q3) The government's war on drug focuses primarily on the demand side of the market.
A)True
B)False
Q4) Coal and natural gas are renewable resources.
A)True
B)False
Q5) According to the text, what makes health care different from any other good or service is that
A) there is no scarcity of health care.
B) people do not have to make choices when it comes to health care.
C) the demand curve for health care does not slope down.
D) the supply of health care does not slope up.
E) people feel that they have an inalienable right to health care.
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Chapter 9: An Overview of the National and International Economies
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137 Verified Questions
137 Flashcards
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Sample Questions
Q1) Multinational firms
A) export products to foreign countries.
B) are engaged in joint ventures with foreign firms.
C) possess production facilities in more than one country.
D) license their products to foreign distributors.
E) employ foreign agents to sell their products abroad.
Q2) Which of the following is most characteristic of the corporate form of business?
A) Owners face unlimited liability.
B) Corporate earnings are not taxable.
C) A corporation is created by verbal agreement.
D) Owners are called partners.
E) A corporation is a legal entity.
Q3) Who formulates fiscal policy in the United States?
A) The Federal Reserve
B) Congress and the president
C) The president and the Council of Economic Advisers
D) The secretary of the Treasury and Congress
E) The director of the Office of Management and Budget and the secretary of state
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Chapter 10: Macroeconomic Measures
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111 Verified Questions
111 Flashcards
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Sample Questions
Q1) National income accounting generates useful and accurate measures of economic activity in most countries.
A)True
B)False
Q2) In Table 10.3, the merchandise trade balance for Germany is
A) 4.
B) 13.
C) - 4.
D) - 13.
E) none of these.
Q3) National income accounting provides economists with a statistical summary of the transactions between residents of one country and residents of the rest of the world.
A)True
B)False
Q4) Other things being equal, an increase in Italian demand for U.S. computers would lead to an appreciation of the U.S. dollar relative to the Euro.
A)True
B)False
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Page 12
Chapter 11: Unemployment, Inflation, and Business Cycles
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134 Verified Questions
134 Flashcards
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Sample Questions
Q1) At point D in Figure 11.1, lagging economic indicators should show that real GDP
A) is expanding.
B) growth has reached a trough.
C) is contracting.
D) growth is zero.
E) growth will be positive over time.
Q2) The three types of indicators classified by the Department of Commerce are
A) leading, contractionist, and passed indicators.
B) leading, coincident, and lagging indicators.
C) primary, contractionist, and passed indicators.
D) optimal, contractionist, and passed indicators.
E) optimal, coincident, and lagging indicators.
Q3) Including discouraged workers in the labor market statistics would
A) reduce the labor force and increase the unemployment rate.
B) increase the labor force and increase the unemployment rate.
C) increase the labor force and reduce the unemployment rate.
D) reduce the labor force and decrease the unemployment rate.
E) affect neither the size of the labor force nor the unemployment rate.
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Chapter 12: Macroeconomic Equilibrium: Aggregate
Demand and Supply
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117 Flashcards
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Sample Questions
Q1) When aggregate supply increases, all of the following result except:
A) equilibrium level of real GDP increases
B) unemployment decreases
C) the price level decreases
D) cost-push inflation results
E) none - all of these result when aggregate demand increases
Q2) Long-run aggregate supply increases as
A) new production technology is introduced.
B) the quality of labor declines.
C) the average price level increases.
D) natural resources deplete.
E) corporate wage rates increase.
Q3) The slope of the aggregate supply curve becomes steeper the faster the costs of production adjust and the smaller the amount of excess capacity in the economy.
A)True
B)False
Q4) Net exports are equal to imports minus exports.
A)True
B)False
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Chapter 13: Fiscal Policy
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141 Verified Questions
141 Flashcards
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Sample Questions
Q1) Refer to Figure 13.2. If you were a member of Congress who wanted to increase the amount of taxes collected, what would you recommend if the current tax rate was 80 percent?
A) Increase the tax rate to 100 percent.
B) Decrease the tax rate to 30 percent.
C) Decrease the tax rate to 70 percent.
D) Increase the tax rate to 90 percent.
E) Decrease the tax rate to 0 percent.
Q2) The national debt is the
A) current budget deficit.
B) product of past budget deficits.
C) product of past budget deficits plus the interest outstanding.
D) current budget deficit plus the interest outstanding.
E) stock of government bonds outstanding.
Q3) Which of the following constitutes a transfer payment?
A) Income taxes
B) Corporate salaries
C) Fiscal spending
D) Dividend payments
E) Welfare benefits
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Chapter 14: Money and Banking
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116 Verified Questions
116 Flashcards
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Sample Questions
Q1) As a measure of money, M1 emphasizes the use of money as a(n)
A) medium of exchange.
B) store of value.
C) unit of account.
D) non-liquid asset.
E) standard of deferred payment.
Q2) The $5 price tag on a sandwich at the school cafeteria is an example of money being used as a
A) medium of exchange.
B) store of value.
C) unit of account.
D) standard of deferred payment.
E) barter transaction.
Q3) Commercial banks
A) are nonprofit banking institutions.
B) are owned by the Federal Reserve.
C) are overseen by the Federal Savings and Loan Insurance Corporation.
D) control U.S. monetary policy.
E) are financial institutions that offer deposits on which checks can be written.
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Page 16
Chapter 15: Monetary Policy
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125 Verified Questions
125 Flashcards
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Sample Questions
Q1) The quantity theory of money assumes which of the following is constant?
A) The quantity of money
B) Real GDP
C) The price level
D) The velocity of money
E) Nominal GDP
Q2) To reduce political pressures on the Federal Reserve Board of Governors, legislation provided that
A) a given president may elect the entire board.
B) the Federal Reserve district banks may elect the board.
C) Congress may elect a board member every five years.
D) one board member's term expires every second year.
E) only bankers are allowed to be appointed as board members.
Q3) The Fed controls GDP
A) directly through government spending.
B) indirectly through the foreign exchange market.
C) indirectly through the money supply.
D) directly through price indexing.
E) indirectly through tax collections.
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Page 17
Chapter 16: Macroeconomic Policy, Business Cycles, and Growth
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135 Verified Questions
135 Flashcards
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Sample Questions
Q1) Developing countries lag behind the industrial nations in developing and implementing new technology due to:
A) the size of the labor force and capital stock.
B) lack of abundant natural resources and lack of education.
C) the level of education of the population and spending on research and development
D) spending on research and development and lack of abundant natural resources
E) government mandate and lack of education.
Q2) The observed unemployment rate would be less than the natural rate of unemployment if
A) the inflation rate is lower than expected.
B) the reservation wage is adjusted to account for higher inflation.
C) the inflation rate is expected.
D) reservation wages go up with the rate of inflation.
E) the inflation rate is higher than expected.
Q3) The long-run Phillips curve assumes that every unemployed worker who is looking for a job has a constant reservation wage.
A)True
B)False
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Chapter 17: Issues in International Trade and Finance
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126 Verified Questions
126 Flashcards
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Sample Questions
Q1) If the Mexican peso is pegged to the U.S. dollar, the U.S. dollar is pegged to the Mexican peso.
A)True
B)False
Q2) The national defense argument could be applied to which of the following industries?
A) Textbooks
B) Shrimp
C) Oil
D) Motorcycles
E) Sugar
Q3) Subsidies mean that infant industry firms can charge
A) higher prices while competing with foreign producers.
B) higher prices than foreign producers are able to receive.
C) a price equal to the world price and still earn a profit.
D) a price equal to marginal revenue.
E) the tariff to other customers of the foreign firm.
Q4) Quotas are limits on the quantity or value of goods imported and exported.
A)True
B)False
Page 19
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Chapter 18: Globalization
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Sample Questions
Q1) Financial crises result in declining stock markets.
A)True
B)False
Q2) Free trade helps developing countries when
A) multinational corporations take over government infrastructure projects.
B) the government subsidizes local production.
C) the government blocks foreign investment.
D) workers lose their jobs.
E) restrictions on goods that developing countries produce efficiently are removed.
Q3) Which of the following is not one of the categories used in the Foreign Policy globalization rankings?
A) Political engagement
B) Technology
C) Personal contact
D) Personal economics
E) Economic integration
Q4) The World Trade Organization is part of the United Nations.
A)True
B)False
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