Social Sciences: Economics
Final Test Solutions
Course Introduction
This course in Social Sciences: Economics provides an introduction to the principles and concepts that underpin economic systems and behavior. Students will explore topics such as supply and demand, market structures, consumer behavior, production, and the role of government in the economy. The course emphasizes the application of economic reasoning to real-world issues such as inflation, unemployment, international trade, and economic development. Through lectures, discussions, and case studies, students will gain a foundational understanding of how economies function and the factors that influence economic decision-making at both individual and societal levels.
Recommended Textbook Essentials of Economics 6th Edition by N.
Gregory Mankiw
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Chapter 1: Ten Principles of Economics
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Q1) Under what conditions might government intervention in a market economy improve the economy's performance?
Answer: If there is a market failure,such as an externality or monopoly,government regulation might improve the well-being of society by promoting efficiency.If the distribution of income or wealth is considered to be unfair by society,government intervention might achieve a more equal distribution of economic well-being.
Q2) Your professor loves her work,teaching economics.She has been offered other positions in the corporate world that would increase her income by 25 percent,but she has decided to continue working as a professor.Her decision would not change unless the marginal
A) cost of teaching increased.
B) benefit of teaching increased.
C) cost of a corporate job increased.
D) benefit of a corporate job decreased.
Answer: A
Q3) Economics is the study of how society allocates its unlimited resources.
A)True
B)False
Answer: False
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Chapter 2: Thinking Like an Economist
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Sample Questions
Q1) Which of the following transactions does not take place in the markets for factors of production in the circular-flow diagram?
A) a landowner leases land to a farmer
B) a farmer hires a teenager to help with harvest
C) a construction company rents trucks for its business
D) a woman buys corn for dinner
Answer: D
Q2) Macroeconomics is the study of
A) individual decision makers.
B) international trade.
C) economy-wide phenomena.
D) markets for large products.
Answer: C
Q3) The trade-off between the production of one good and the production of another good can change over time because of technological advances.
A)True
B)False
Answer: True
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Chapter 3: Interdependence and the Gains From Trade
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Sample Questions
Q1) Refer to Figure 3-6.If the production possibilities frontier shown for Maxine is for 3 hours of work,then how long does it take Maxine to make one pie?
A) 1/4 hour
B) 1/3 hour
C) 3 hours
D) 4 hours
Answer: A
Q2) Refer to Table 3-4.The rancher has a comparative advantage in the production of A) meat.
B) potatoes.
C) both goods.
D) neither good.
Answer: A
Q3) A country that currently does not trade with other countries could benefit by A) restricting imports and promoting exports.
B) promoting imports and restricting exports.
C) restricting both imports and exports.
D) not restricting trade.
Answer: D
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Page 5
Chapter 4: The Market Forces of Supply and Demand
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Sample Questions
Q1) Most studies have found that tobacco and marijuana are substitutes rather than complements.
A)True
B)False
Q2) Which of the following would cause price to decrease?
A) a decrease in supply
B) an increase in demand
C) a surplus of the good
D) a shortage of the good
Q3) Refer to Figure 4-19.All else equal,an increase in the income of buyers who consider turkey to be an inferior good would cause a move from
A) D<sub>A</sub> to D<sub>B</sub>.
B) D<sub>B</sub> to D<sub>A</sub>.
C) x to y.
D) y to x.
Q4) The two words economists use most often are
A) inflation and trade.
B) supply and demand.
C) competition and prices.
D) markets and equilibrium.
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Chapter 5: Elasticity and Its Application
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Q1) If demand is perfectly elastic,the demand curve is horizontal,and the price elasticity of demand equals 1.
A)True
B)False
Q2) Refer to Figure 5-5.The maximum value of total revenue corresponds to a price of
A) $18.
B) $30.
C) $42.
D) $48.
Q3) Refer to Figure 5-7.For prices above $8,demand is price
A) elastic,and total revenue will rise as price rises.
B) inelastic,and total revenue will rise as price rises.
C) elastic,and total revenue will fall as price rises.
D) inelastic,and total revenue will fall as price rises.
Q4) Refer to Table 5-2.Using the midpoint method,if the price falls from $80 to $60,the price elasticity of demand is A) zero.
B) unit elastic.
C) inelastic.
D) elastic.
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Chapter 6: Supply,demand,and Government Policies
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Sample Questions
Q1) Refer to Figure 6-14.The per-unit burden of the tax on sellers is
A) $6.
B) $8.
C) $10.
D) $14.
Q2) Which of the following is correct?
A) Rent control and the minimum wage are both examples of price ceilings.
B) Rent control is an example of a price ceiling,and the minimum wage is an example of a price floor.
C) Rent control is an example of a price floor,and the minimum wage is an example of a price ceiling.
D) Rent control and the minimum wage are both examples of price floors.
Q3) The economy contains many labor markets for different types of workers.
A)True
B)False
Q4) If a good or service is sold in a competitive market free of government regulation,then the price of the good or service adjusts to balance supply and demand.
A)True
B)False
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Chapter 7: Consumers, producers, and the Efficiency of Markets
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Sample Questions
Q1) A simultaneous decrease in both the demand for MP3 players and the supply of MP3 players would imply that
A) both the value of MP3 players to consumers and the cost of producing MP3 players has increased.
B) both the value of MP3 players to consumers and the cost of producing MP3 players has decreased.
C) the value of MP3 players to consumers has decreased,and the cost of producing MP3 players has increased.
D) the value of MP3 players to consumers has increased,and the cost of producing MP3 players has decreased.
Q2) Refer to Table 7-9.The equilibrium market price for 10 piano lessons is $300.What is the total producer surplus in the market?
A) $50
B) $150
C) $1,050
D) $1,500
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Chapter 8: Application: the Costs of Taxation
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Sample Questions
Q1) Which of the following statements is correct?
A) A decrease in the size of a tax always decreases the tax revenue raised by that tax.
B) A decrease in the size of a tax always decreases the deadweight loss of that tax.
C) Tax revenue decreases when there is a small decrease in the tax rate and the economy is on the downward-sloping part of the Laffer curve.
D) An increase in the size of a tax leads to an increase in the deadweight loss of the tax only if the economy is on the upward-sloping part of the Laffer curve.
Q2) The deadweight loss of a tax rises even more rapidly than the size of the tax.
A)True
B)False
Q3) The deadweight loss from a tax of $8 per unit will be smallest in a market with
A) elastic demand and elastic supply.
B) elastic demand and inelastic supply.
C) inelastic demand and elastic supply.
D) inelastic demand and inelastic supply.
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Chapter 9: Application: International Trade
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Sample Questions
Q1) When a nation first begins to trade with other countries and the nation becomes an exporter of soybeans,
A) this is an indication that the world price of soybeans exceeds the nation's domestic price of soybeans in the absence of trade.
B) this is an indication that the nation has a comparative advantage in producing soybeans.
C) the nation's consumers of soybeans become worse off and the nation's producers of soybeans become better off.
D) All of the above are correct.
Q2) Trade among nations is ultimately based on A) absolute advantage.
B) strategic advantage.
C) comparative advantage.
D) technical advantage.
Q3) Refer to Figure 9-15.Producer surplus with trade and without a tariff is A) G.
B) C + G.
C) A + C + G.
D) A + B + C + G.
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Page 11
Chapter 10: Externalities
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Sample Questions
Q1) Which of the following policies is not an example of a command-and-control policy?
A) subsidies
B) Pigovian taxes
C) tradable pollution permits
D) None of the above is an example of a command-and-control policy.
Q2) The difference between social cost and private cost is a measure of the A) loss in profit to the seller as the result of a negative externality.
B) cost of an externality.
C) cost reduction when the negative externality is eliminated.
D) cost incurred by the government when it intervenes in the market.
Q3) Refer to Figure 10-4.The socially optimal quantity would be
A) Q<sub>1</sub>.
B) Q<sub>2</sub>.
C) Q<sub>3</sub>.
D) Q<sub>4</sub>.
Q4) Research into new technologies conveys neither negative externalities nor positive externalities.
A)True
B)False
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Chapter 11: Public Goods and Common Resources
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Sample Questions
Q1) Which of the following would be considered a private good?
A) national defense
B) a public beach
C) local cable television service
D) a bottle of natural mineral water
Q2) Refer to Table 11-2.Suppose the cost to install each streetlight is $180 and the families have agreed to split the cost of the streetlights equally.If the families vote to determine the number of streetlights to install,basing their decision solely on their own willingness to pay (and trying to maximize their own surplus),what is the greatest number of streetlights for which the majority of families would vote "yes?"
A) 1 streetlight
B) 2 streetlights
C) 3 streetlights
D) 4 streetlights
Q3) Without government intervention,public goods tend to be
A) overproduced and common resources tend to be overconsumed.
B) overproduced and common resources tend to be underconsumed.
C) underproduced and common resources tend to be overconsumed.
D) underproduced and common resources tend to be underconsumed.
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Page 13
Chapter 12: The Costs of Production
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Sample Questions
Q1) Suppose Jan started up a small lemonade stand business last month.Variable costs for Jan's lemonade stand now include the cost of A) lemons and sugar.
B) paper cups.
C) the wages paid to her hourly workers.
D) All of the above are correct.
Q2) Refer to Table 12-9.The total cost of producing 1 poster is
A) $1.00.
B) $10.00.
C) $11.00.
D) $22.00.
Q3) A difference between explicit and implicit costs is that
A) explicit costs must be greater than implicit costs.
B) explicit costs do not require a direct monetary outlay by the firm,whereas implicit costs do.
C) implicit costs do not require a direct monetary outlay by the firm,whereas explicit costs do.
D) implicit costs must be greater than explicit costs.
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Chapter 13: Firms in Competitive Markets
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Sample Questions
Q1) Sam sells soybeans to a broker in Chicago,Illinois.Because the market for soybeans is generally considered to be competitive,Sam maximizes his profit by choosing
A) to produce the quantity at which average variable cost is minimized.
B) to produce the quantity at which average fixed cost is minimized.
C) to sell at a price where marginal cost is equal to average total cost.
D) the quantity at which market price is equal to Sam's marginal cost of production.
Q2) In a competitive market the current price is $7,and the typical firm in the market has ATC = $7.50 and AVC = $7.15.
A) In the short run firms will shut down,and in the long run firms will leave the market.
B) In the short run firms will continue to operate,but in the long run firms will leave the market.
C) New firms will likely enter this market to capture any remaining economic profits.
D) The firm will earn zero profits in both the short run and long run.
Q3) If identical firms that remain in a competitive market over the long run make zero economic profit,why do these firms choose to remain in the market?
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Chapter 14: Monopoly
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Sample Questions
Q1) Refer to Figure 14-7.What is the area of deadweight loss?
A) the rectangle (F-D)xA
B) the triangle 1/2[(F-D)x(B-A)]
C) the triangle 1/2[(F-G)x(B-A)]
D) the rectangle (F-D)xA plus the triangle 1/2[(F-D)x(B-A)]
Q2) For a typical natural monopoly,average total cost is
A) falling,and marginal cost is above average total cost.
B) falling,and marginal cost is below average total cost.
C) rising,and marginal cost is below average total cost.
D) rising,and marginal cost is above average total cost.
Q3) Refer to Figure 14-3.The marginal cost curve for a monopoly firm is depicted by curve
Q4) Price discrimination can increase both the monopolist's profits and society's welfare.
A)True
B)False
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Chapter 15: Measuring a Nations Income
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Sample Questions
Q1) Social Security payments are
A) included in GDP because they represent current income.
B) included in GDP because they represent potential consumption.
C) excluded from GDP because they are not private pensions.
D) excluded from GDP because they do not reflect the economy's production.
Q2) George lived in a home that was newly constructed in 2005 for which he paid $200,000.In 2008 he sold the house for $225,000.Which of the following statements is correct regarding the sale of the house?
A) The 2008 sale increased 2008 GDP by $225,000 and had no effect on 2005 GDP.
B) The 2008 sale increased 2008 GDP by $25,000 and had no effect on 2005 GDP.
C) The 2008 sale increased 2008 GDP by $225,000; furthermore,the 2008 sale caused 2005 GDP to be revised upward by $25,000.
D) The 2008 sale affected neither 2008 GDP nor 2005 GDP.
Q3) Refer to Table 15-1.The market value of all final goods and services produced within Bahkan in 2010 is
A) $95.
B) $100.
C) $110.
D) $120.
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Page 17
Chapter 16: Measuring the Cost of Living
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Q1) Changes in the consumer price index are useful in predicting changes in the producer price index.
A)True
B)False
Q2) The second largest category,by relative importance,in the CPI calculation is
A) housing.
B) apparel.
C) transportation.
D) medical care.
Q3) Refer to Table 16-3.The inflation rate was
A) 22.6 percent in 2007 and 12.9 percent in 2008.
B) 25.9 percent in 2007 and 14.8 percent in 2008.
C) 35 percent in 2007 and 14.8 percent in 2008.
D) 35 percent in 2007 and 20 percent in 2008.
Q4) The U.S.income tax system is completely indexed for inflation.
A)True
B)False
Q5) The CPI is always 1 in the base year.
A)True
B)False
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Chapter 17: Production and Growth
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Q1) Over the last ten years productivity grew faster in Oceania than in Freedonia and the population and total hours worked remained the same in both countries.It follows that
A) real GDP per person must be higher in Oceania than in Freedonia.
B) real GDP per person grew faster in Oceania than in Freedonia.
C) the standard of living must be higher in Oceania than in Freedonia.
D) All of the above are correct.
Q2) If a country's saving rate increases,then in the long run
A) productivity is higher but real GDP per person is not higher.
B) real GDP per person is higher but productivity is not higher.
C) productivity and real GDP per person are both higher.
D) neither productivity nor real GDP per person is higher.
Q3) Country A and country B are the same except country A has a capital stock of 5,000 a population of 12,000 and employment of 10,000.Country B has a capital stock of 8,000 and a population of 24,000 and employment of 20,000.
A) Country A has a higher standard of living and country B will not catch up.
B) Country A has a higher standard of living but country B will catch up.
C) Country B has a higher standard of living and country A will not catch up.
D) Country B has a higher standard of living but country A will catch up.
Q4) Compare and contrast the population theories of Malthus and Kremer.
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Chapter 18: Saving,investment,and the Financial System
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Q1) We would expect the interest rate on Bond A to be higher than the interest rate on Bond B if the two bonds have identical characteristics except that
A) the credit risk associated with Bond A is lower than the credit risk associated with Bond B.
B) Bond A was issued by the city of Philadelphia and Bond B was issued by Red Hat Corporation.
C) Bond A has a term of 20 years and Bond B has a term of 2 years.
D) All of the above are correct.
Q2) What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income?
A) The supply of loanable funds would shift rightward and investment would increase.
B) The supply of loanable funds would shift leftward and investment would decrease.
C) The demand for loanable funds would shift rightward and investment would increase.
D) The demand for loanable funds would shift leftward and investment would decrease.
Q3) What are the basic differences between bonds and stocks?
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Chapter 19: The Basic Tools of Finance
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Q1) According to the rule of 70,if the interest rate is 10 percent,about how long will it take for the value of a savings account to double?
A) about 6.3 years
B) about 7 years
C) about 7.7 years
D) about 10 years
Q2) Abby buys health insurance because she knows that she has health risks that wouldn't be obvious to an insurance company.Brad buys home owners insurance and then is less careful to make sure he's put out his cigarettes.The example with Abby A) and the example with Brad illustrate adverse selection.
B) and the example with Brad illustrate moral hazard.
C) illustrates adverse selection; the example with Brad illustrates moral hazard.
D) illustrates moral hazard; the example with Brad illustrates adverse selection.
Q3) In the 15 years ending June 2010,most active portfolio managers failed to beat the market.
A)True
B)False
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Chapter 20: Unemployment
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Q1) Refer to Table 20-3.What is the adult labor-force participation rate in Meditor?
A) 37.5 percent
B) 62.5 percent
C) 66.7 percent
D) 95.8 percent
Q2) When a minimum-wage law forces the wage to remain above the level that balances supply and demand,the result is a surplus of labor.
A)True
B)False
Q3) Full-time students and homemakers are included in the Bureau of Labor Statistics' "unemployed" category.
A)True
B)False
Q4) Today,the four industries with the largest employment in the United States are autos,aircraft,communications,and electrical components.
A)True
B)False
Q5) What is the theory of efficiency wages? Provide four reasons that employers might pay efficiency wages.
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Chapter 21: The Monetary System
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Q1) Refer to Table 21-1.What is the M2 money supply?
A) $125 billion
B) $296 billion
C) $351 billion
D) $431 billion
Q2) If the reserve ratio is 9 percent,then a decrease in reserves of $6,000 can cause the money supply to fall by as much as
A) $60,000.00.
B) $66,666.67.
C) $90,900.00.
D) $100,555.56.
Q3) Which of the following might explain why the United States has so much currency per person?
A) U.S.citizens are holding a lot of foreign currency.
B) Currency may be a preferable store of wealth for criminals.
C) People use credit and debit cards more frequently.
D) All of the above help explain the abundance of currency.
Q4) What is the difference between money and wealth?
Q5) If the reserve ratio is 20 percent,how much money can be created from $100 of reserves? Show your work.
Page 23
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Chapter 22: Money Growth and Inflation
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Q1) Inflation is costly only if it is unanticipated.
A)True
B)False
Q2) If when the money supply changes,real output and velocity do not change,then a 2 percent increase in the money supply
A) decreases the price level by 2 percent.
B) decreases the price level by less than 2 percent.
C) increases the price level by less than 2 percent.
D) increases the price level by 2 percent.
Q3) If the quantity of money supplied is greater than the quantity demanded,then prices should fall.
A)True
B)False
Q4) The Fisher effect
A) says the government can generate revenue by printing money.
B) says there is a one for one adjustment of the nominal interest rate to the inflation rate.
C) explains how higher money supply growth leads to higher inflation.
D) explains how prices adjust to obtain equilibrium in the money market.
Q5) Why did farmers in the late 1800s dislike deflation?
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Chapter 23: Aggregate Demand and Aggregate Supply
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Q1) According to classical macroeconomic theory,changes in the money supply affect
A) variables measured in terms of money and variables measured in terms of quantities or relative prices
B) variables measured in terms of money but not variables measured in terms of quantities or relative prices
C) variables measured in terms of quantities or relative prices,but not variables measured in terms of money
D) neither variables measured in terms of money nor variables measured in terms of quantities or relative prices
Q2) In 1986,OPEC countries increased their production of oil.This caused
A) the price level to rise.
B) aggregate supply to shift right.
C) unemployment to rise.
D) None of the above is correct.
Q3) Stagflation exists when prices
A) and output rise.
B) rise and output falls.
C) fall and output rises.
D) and output fall.
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Chapter 24: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Q1) While a television news reporter might state that "Today the Fed lowered the federal funds rate from 5.5 percent to 5.25 percent," a more precise account of the Fed's action would be as follows:
A) "Today the Fed told its bond traders to conduct open-market operations in such a way that the equilibrium federal funds rate would decrease to 5.25 percent."
B) "Today the Fed lowered the discount rate by a quarter of a percentage point,and this action will force the federal funds rate to drop by the same amount."
C) "Today the Fed took steps to decrease the money supply by an amount that is sufficient to decrease the federal funds rate to 5.25 percent."
D) "Today the Fed took a step toward contracting aggregate demand,and this was done by lowering the federal funds rate to 5.25 percent."
Q2) The interest rate would fall and the quantity of money demanded would
A) increase if there were a surplus in the money market.
B) increase if there were a shortage in the money market.
C) decrease if there were a surplus in the money market.
D) decrease if there were a shortage in the money market.
Q3) Explain how unemployment insurance acts as an automatic stabilizer.
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