Principles of Economics Study Guide
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Principles of Economics is an introductory course that explores the fundamental concepts and theories underlying the functioning of modern economies. The course examines both microeconomic principles such as supply and demand, market structures, consumer behavior, and the role of government and macroeconomic topics, including economic growth, unemployment, inflation, and monetary and fiscal policy. Through real-world examples and analytical tools, students will gain an understanding of how individuals, firms, and governments make decisions, and how those decisions impact the allocation of scarce resources within society.
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Economics 20th Edition Volume I and Volume II by Campbell R. McConnell
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21 Chapters
2785 Verified Questions
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Page 2
Chapter 1: Limits, Alternatives, and Choices
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Sample Questions
Q1) Economists:
A) always put the independent variable on the horizontal axis and the dependent variable on the vertical axis.
B) always put the dependent variable on the horizontal axis and the independent variable on the vertical axis.
C) are somewhat arbitrary in assigning independent and dependent variables to the horizontal and vertical axes.
D) measure the slope of a line differently than do mathematicians.
Answer: C
Q2) Microeconomics:
A) is the basis for the "after this,therefore because of this" fallacy.
B) is not concerned with details,but only with the overall big picture of the economy.
C) is concerned with individual economic units and specific markets.
D) describes the aggregate flows of output and income.
Answer: C
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3
Chapter 2: The Market System and the Circular Flow
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Sample Questions
Q1) If consumer desire for product X increases,all of the following will occur except:
A) an increase in the profits of industry X.
B) an increase in the quantity of resources employed by industry X.
C) an increase in the output of industry X.
D) a decrease in the quantity of resources employed in industry X.
Answer: D
Q2) Private property:
A) discourages cooperation because people don't want to part with what they own.
B) discourages innovation,as people are often afraid to risk losing their own property.
C) encourages owners to maintain or improve their property so as to preserve or enhance value.
D) does everything indicated by the other answers.
Answer: C
Q3) Specialization may expand total output even though the individuals involved may have identical abilities.
A)True
B)False
Answer: True
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4
Chapter 3: Demand, Supply, and Market Equilibrium
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Sample Questions
Q1) A market that achieves productive efficiency is producing the quantity of goods most desired by society.
A)True
B)False
Answer: False
Q2) The construction of demand and supply curves assumes that the primary variable influencing decisions to produce and purchase goods is:
A) price.
B) expectations.
C) preferences.
D) incomes.
Answer: A
Q3) Digital cameras and memory cards are:
A) substitute goods.
B) complementary goods.
C) independent goods.
D) inferior goods.
Answer: B
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Page 5
Chapter 4: Market Failures: Public Goods and Externalities
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Sample Questions
Q1) (Last Word)In a cap-and-trade program:
A) government fixes the price of pollution rights and firms choose how many permits to purchase.
B) government fixes the maximum amount of a pollutant that firms can discharge and issues permits that firms can buy from and sell to each other.
C) each firm is provided a fixed number of permits for a particular pollutant and no individual firm is allowed to acquire additional permits.
D) firms can emit whatever type of pollutant they want,so long as the total tonnage does not exceed a government-established quantity.
Q2) (Last Word)A cap-and-trade program:
A) assigns a property right to the atmosphere.
B) mandates that every firm individually cut its emissions to below a certain level.
C) assigns a property right to polluting the atmosphere.
D) is easy to establish and enforce.
Q3) Asymmetric information always results in adverse selection.
A)True
B)False
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Chapter 5: Governments Role and Government Failure
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Q1) Which of the following impacts would economists expect to result from chronic budget deficits?
A) Greater economic efficiency resulting from the abundance of public goods produced.
B) Permanently high levels of output and continued economic growth.
C) Greater political control over monetary policy.
D) Government control of an inefficiently large share of the economy's resources.
Q2) Public choice economists contend public bureaucracies are inefficient primarily because:
A) the value of public goods is more easily measured than is the value of private goods.
B) of the absence of competitive market pressures.
C) public sector workers are more security-conscious than are private sector workers.
D) relatively low pay in government attracts workers of lesser quality.
Q3) The paradox of voting is that under majority voting rules the median voter decides the election outcome.
A)True
B)False
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Chapter 6: Elasticity
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Sample Questions
Q1) A firm can sell as much as it wants at a constant price.Demand is thus:
A) perfectly inelastic.
B) perfectly elastic.
C) relatively inelastic.
D) relatively elastic.
Q2) Which of the following is correct?
A) If demand is elastic,an increase in price will increase total revenue.
B) If demand is elastic,a decrease in price will decrease total revenue.
C) If demand is elastic,a decrease in price will increase total revenue.
D) If demand is inelastic,an increase in price will decrease total revenue.
Q3) A leftward shift in the supply curve of product X will increase equilibrium price to a greater extent the:
A) more elastic the supply curve.
B) larger the elasticity of demand coefficient.
C) more elastic the demand for the product.
D) more inelastic the demand for the product.
Q4) If the demand for wheat is highly price inelastic,an extraordinarily large crop may reduce farm incomes.
A)True
B)False
Page 8
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Chapter 7: Utility Maximization
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Sample Questions
Q1) It is possible for a consumer's indifference curves to intersect.
A)True
B)False
Q2) (Last Word)Theft and burglary:
A) can be viewed as attempts to maximize utility,given certain marginal costs and marginal benefits.
B) are examples of irrational behavior.
C) are applications of the law of increasing opportunity cost.
D) are less economically rational than crimes of passion and violence.
Q3) The law of diminishing marginal utility explains why:
A) supply curves slope upward.
B) demand curves slope downward.
C) addicts can never get enough.
D) people will only consume their favorite goods and not try new things.
Q4) A product has utility if it:
A) takes more and more resources to produce successive units of it.
B) violates the law of demand.
C) satisfies consumer wants.
D) is useful.
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Chapter 8: Behavioral Economics
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Sample Questions
Q1) Placement of goods in grocery and other retail stores is often done with the objective of encouraging impulse buying.
A)True
B)False
Q2) Neoclassical economists generally believe which of the following about human behavior?
A) While individuals attempt to make rational decisions,poor computational skills often lead to systematic errors.
B) People care a lot about fairness and are often willing to sacrifice some of their own well-being to treat others fairly.
C) When individuals make mistakes in decision making,they adjust to these errors and rarely repeat them.
D) When individuals are selfless and act for the good of others,the invisible hand guides the collective behaviors to promote the good of society.
Q3) The availability heuristic refers to people purchasing what is most easily accessible. A)True B)False
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Chapter 9: Businesses and the Cost of Production
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Sample Questions
Q1) Production costs to an economist:
A) consist only of explicit costs.
B) reflect opportunity costs.
C) never reflect monetary outlays.
D) always reflect monetary outlays.
Q2) Variable costs are costs that change directly with output.
A)True
B)False
Q3) Which of the following represents a long-run adjustment?
A) A farmer uses an extra dose of fertilizer on his corn crop.
B) Unable to meet foreign competition,a U.S.watch manufacturer sells one of its branch plants.
C) A steel manufacturer cuts back on its purchases of coke and iron ore.
D) A supermarket hires four additional clerks.
Q4) Accounting profits equal total revenue minus:
A) total explicit costs.
B) total implicit costs.
C) total economic costs.
D) economic profits.
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Chapter 10: Pure Competition in the Short Run
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Sample Questions
Q1) (Last Word)Fixed costs for a firm are analogous to:
A) the dirt that fills up the financial hole.
B) digging a deeper financial hole by producing when prices are too low.
C) the cost of the shovel needed to fill the financial hole.
D) starting out in a hole that represents economic losses if the firm produces nothing.
Q2) If a purely competitive firm is maximizing economic profit:
A) it is necessarily maximizing per-unit profit.
B) it may or may not be maximizing per-unit profit.
C) then per-unit profit will be minimized.
D) it is necessarily overallocating resources to its product.
Q3) A competitive firm will produce in the short run so long as its price exceeds its average fixed cost.
A)True
B)False
Q4) In a purely competitive industry competition centers more on advertising and sales promotion than on price.
A)True
B)False
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Chapter 11: Pure Competition in the Long Run
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Q1) Which of the following would not be expected to occur in a purely competitive market in long-run equilibrium?
A) Consumer and producer surplus will be minimized.
B) P = MC = lowest ATC.
C) The maximum willingness to pay for the last unit equals the minimum acceptable price for that unit.
D) We would expect all of these to occur in the long run in a purely competitive market.
Q2) Creative destruction is least beneficial to:
A) workers in the "destroyed" industries.
B) workers in the "created" industries.
C) consumers.
D) society as a whole.
Q3) A decreasing-cost industry is one in which:
A) contraction of the industry will decrease unit costs.
B) input prices fall or technology improves as the industry expands.
C) the long-run supply curve is perfectly elastic.
D) the long-run supply curve is upsloping.
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Chapter 12: Pure Monopoly
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Sample Questions
Q1) When a firm is on the inelastic segment of its demand curve,it can:
A) increase total revenue by reducing price.
B) decrease total costs by decreasing price.
C) increase profits by increasing price.
D) increase total revenue by more than the increase in total cost by increasing price.
Q2) If profits are maximized (or losses minimized),which of the following conditions is common to both unregulated monopoly and pure competition?
A) MC = P.
B) MC = ATC.
C) MR = MC.
D) P = MR.
Q3) (Last Word): Amazon's rise to become the world's largest online retailer was largely driven by:
A) an exclusive license granted by the U.S.government.
B) patents on online selling that keeps other firms out of the market.
C) far superior products than other online sellers could offer.
D) massive economies of scale in distribution logistics and data storage.
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Page 14
Chapter 13: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) If some firms leave a monopolistically competitive industry,the demand curves of the remaining firms will:
A) be unaffected.
B) shift to the left.
C) become more elastic.
D) shift to the right.
Q2) All other things equal,the larger the number of firms in an oligopolistic industry,the more difficult it is for those firms to collude.
A)True
B)False
Q3) The less elastic a monopolistic competitor's long-run demand curve,the:
A) less its excess capacity.
B) higher its price relative to that of a pure competitor having the same cost curves.
C) higher its long-run profits.
D) lower its average total cost at its equilibrium level of output.
Q4) Collusion among firms always involves formal agreements.
A)True
B)False
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Chapter 14: Technology RD and Efficiency
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Sample Questions
Q1) We know with certainty that a consumer will buy a newly introduced product rather than an existing product when the:
A) MU/P of the new product exceeds the MU/P of the existing product.
B) price of the new product is less than the price of the existing product.
C) MU of the new product is more than the MU of the existing product.
D) law of diminishing marginal utility applies to the existing product.
Q2) Which of the following correctly orders,highest to lowest,the relative magnitudes of U.S.spending by businesses on components of R&D?
A) Invention,basic research,innovation.
B) Invention,innovation,basic research.
C) Innovation,invention,basic research.
D) Basic research,invention,innovation.
Q3) (Last Word)The percentage of the U.S.federal budget spent on R&D has:
A) risen significantly over the past 50 years.
B) remained stable over the past 50 years.
C) declined substantially over the past 50 years.
D) risen dramatically in the past few years after a steady decline starting in 1980.
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Page 16
Chapter 15: The Demand for Resources
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Sample Questions
Q1) Employers will hire more units of a resource if the:
A) price of the resource increases.
B) productivity of the resource increases.
C) price of the good being produced declines.
D) price of a complementary resource rises.
Q2) "Income receivers should be paid in accordance with the value of output each produces." This statement is consistent with the:
A) monopoly theory of income distribution.
B) marginal productivity theory of income distribution.
C) least-cost,but not profit-maximizing,combination of inputs.
D) concept of compensating wage differences.
Q3) The MRP curve for labor:
A) is downsloping and shows the relationship between wage rates and the quantity of labor demanded.
B) is perfectly elastic if the firm is selling its output competitively.
C) is upsloping and lies above the labor supply curve.
D) will shift location when the wage rate changes.
Q4) Producers should hire resources until the total output of each is equal.
A)True
B)False
Page 17
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Chapter 16: Wage Determination
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Sample Questions
Q1) If a firm is hiring a certain type of labor under purely competitive conditions:
A) its labor demand curve will be perfectly elastic at the market-determined wage rate.
B) the labor supply curve will lie above the marginal labor cost curve.
C) the labor supply and marginal labor (resource)cost curves will coincide and be upsloping.
D) the labor supply and marginal labor (resource)cost curves will coincide and be perfectly elastic.
Q2) In which of the following U.S.occupations is the rate of unionization the lowest?
A) Transportation workers.
B) Teachers.
C) Legal workers.
D) Sales workers.
Q3) A firm hiring labor in a perfectly competitive labor market faces a:
A) downsloping labor supply curve and upsloping labor demand curve.
B) upsloping labor supply curve and downsloping labor demand curve.
C) upsloping labor supply curve and horizontal labor demand curve.
D) horizontal competitive wage curve and downsloping labor demand curve.
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Chapter 17: Rent Interest and Profit
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Sample Questions
Q1) Rent performs an incentive function,but no rationing function.
A)True
B)False
Q2) Unlike most demand curves,the demand curve for loanable funds is upsloping.
A)True
B)False
Q3) The incentive function of prices:
A) indicates that price increases bring forth more of that resource.
B) is the idea that competitive markets will always clear.
C) applies to all resources.
D) only applies to land.
Q4) Economic profits are the salaries received by the hired managers of business corporations.
A)True
B)False
Q5) The time-value of money refers to the idea that a given amount of money is more valuable to a person the sooner it is received.
A)True
B)False
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Chapter 18: Natural Resource and Energy Economics
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Sample Questions
Q1) Individual transferable quotas are limited in their effectiveness because:
A) they are only enforceable within 200 miles of a nation's shores.
B) government,rather than the market,sets their price.
C) they encourage wasteful spending by fishers in ITQ areas.
D) they are not tradable.
Q2) Total allowable catch (TAC):
A) explicitly limits the number of days in a season that particular fish may be caught.
B) explicitly limits the number of boats allowed to fish in a particular area.
C) explicitly limits the number or tonnage of fish that can be harvested from a particular fishery.
D) issues tradable permits limiting the number of fish a particular fisher can catch.
Q3) ITQs generate the most efficient use of resources when everyone keeps and fills their own quotas.
A)True
B)False
Q4) Higher user costs imply that a resource should be extracted more quickly.
A)True
B)False
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Page 20
Chapter 19: Public Finance: Expenditures and Taxes
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Sample Questions
Q1) If the supply of a product is perfectly elastic and demand is downsloping,an excise tax of $2 per unit will increase price by:
A) more than $2.
B) less than $2.
C) $2 and increase equilibrium output.
D) $2 and reduce equilibrium output.
Q2) An income tax is progressive if the:
A) absolute amount paid as taxes varies directly with income.
B) percentage of income paid as taxes is the same regardless of the size of income.
C) percentage of income paid as taxes increases as income increases.
D) tax rate varies inversely with income.
Q3) The total amount of U.S.tax revenue needed to finance the public sector:
A) has been a declining percentage of the domestic output in this century.
B) equals about 40 percent of domestic output.
C) equals about 15 percent of domestic output.
D) is larger today,as a percentage of total output,than in 1960.
Q4) "Tax Freedom Day" in the United States typically occurs in mid-July.
A)True
B)False
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Chapter 20: Antitrust Policy and Regulation
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Sample Questions
Q1) (Consider This)The Consider This box "Of Catfish and Art (and Other Things in Common)" lists examples of recent antitrust cases involving:
A) monopolization.
B) tying contracts.
C) price-fixing.
D) horizontal mergers.
Q2) Which one of the following is not prohibited by the original Clayton Act?
A) The purchase of the stocks of rival firms that lessens competition.
B) The purchase of the assets of rival firms that lessens competition.
C) An exclusive dealer or tying agreements that lessen competition.
D) Price discrimination that lessens competition.
Q3) All of the following are regulatory commissions dealing with industrial regulation (as distinct from social regulation)except the:
A) Food and Drug Administration.
B) Federal Energy Regulatory Commission.
C) Federal Communications Commission.
D) 50 state public utility commissions.
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Chapter 21: Agriculture: Economics and Policy
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Sample Questions
Q1) The demand for agricultural products is:
A) relatively elastic with respect to price.
B) relatively inelastic with respect to price.
C) relatively elastic with respect to income.
D) downsloping to the individual farmer but perfectly elastic to farmers as a group.
Q2) Which of the following best describes the main problem faced by farms in the long run?
A) Lagging technology has decreased the productivity of farmers and therefore resulted in low farm prices and incomes.
B) The highly inelastic nature of agricultural demand has caused small year-to-year fluctuations in farm output to result in highly unstable farm incomes.
C) The supply of farm products has increased relative to the demand for them,and,because demand is inelastic,farm prices and incomes have therefore declined.
D) The demand for farm products has increased relative to their supply,but the highly elastic nature of agricultural demand has caused these shifts to result in declining farm incomes.
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