Survey of Economics
Exam Answer Key
Course Introduction
Survey of Economics provides an introductory overview of the fundamental principles and concepts in both microeconomics and macroeconomics. Students will explore topics such as supply and demand, market structures, the role of government in the economy, national income, unemployment, inflation, and global economic interactions. Emphasis is placed on understanding how economic decisions affect individuals, businesses, and society as a whole, equipping students with the analytical tools to interpret economic issues and apply basic economic reasoning to real-world situations.
Recommended Textbook Essentials of Economics 6th Edition by R. Glenn Hubbard
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Page 2
Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) The term "market" refers only to trading arrangements that have been approved by the government.
A)True
B)False
Answer: False
Q2) Two-dimensional graphs have a horizontal and a vertical axis and are used in economics to illustrate
A) relationships between two economic variables.
B) one variable.
C) a flow chart.
D) a pie chart.
Answer: A
Q3) Refer to Figure 1-1.Using the information in the figure above,calculate the percentage change in revenue from alcoholic beverage sales between 2012 and 2016.
A) 30%
B) 50%
C) 66.7%
D) 100%
Answer: D
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Page 3
Chapter 2: Trade-Offs, Comparative Advantage, and the Market System
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Sample Questions
Q1) Refer to Figure 2-8.The linear production possibilities frontier in the figure indicates that
A) Vidalia has a comparative advantage in the production of orchids.
B) Vidalia has a comparative disadvantage in the production of roses.
C) the tradeoff between roses and orchids is constant.
D) it is progressively more expensive to produce orchids.
Answer: C
Q2) When Feeding America changed its food allocation system to one that resembled a market,each food program was given a number of "shares" that they could use in bidding against other food programs for the types of food that best met the needs of the people using their programs.This is an example of how the market leads firms to provide consumers with the goods they want,which Adam Smith described by using the metaphor
A) the invisible hand.
B) ceteris paribus.
C) don't look a gift horse in the mouth.
D) don't bite the hand that feeds you.
Answer: A
Q3) List the four broad categories of factors of production.
Page 4
Answer: labor,capital,natural resources,and entrepreneurship
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Chapter 3: Where Prices Come From: The Interaction of
Demand and Supply
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Sample Questions
Q1) Suppose that when the price of oranges decreases,Sarita decreases her purchases of peaches.To Sarita,
A) oranges and peaches are complements.
B) oranges and peaches are inferior goods.
C) oranges and peaches are normal goods.
D) oranges and peaches are substitutes.
Answer: D
Q2) In a perfectly competitive market,there are ________ buyers and ________ sellers.
A) many; few
B) few; many
C) many; many
D) few; few
Answer: C
Q3) Refer to Figure 3-4.If the price is $20
A) there is a surplus of 600 units.
B) there is a shortage of 600 units.
C) quantity demanded is zero.
D) the market is in equilibrium.
Answer: D
Page 5
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Chapter 4: Market Efficiency and Market Failure
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Sample Questions
Q1) Refer to Table 4-5.The table above lists the highest prices five consumers are willing to pay for a concert ticket.If the price of one ticket is $50
A) everyone will buy a ticket.
B) consumer surplus will be maximized.
C) Violet's consumer surplus is $2.
D) no one will buy a ticket.
Q2) Refer to Figure 4-6.At the price P ,consumers are willing to buy the Q pounds of granola.Is this an economically efficient quantity?
A) No, the marginal benefit of the last unit (Q ) exceeds the marginal cost of that last unit.
B) Yes, otherwise consumers would not buy Q units.
C) Yes, because the price P shows what consumers are willing to pay for the product.
D) No, the marginal cost of the last unit (Q ) exceeds the marginal benefit of the last unit.
Q3) What is a private benefit from consumption? What is a social benefit from consumption? When is the private benefit from consumption equal to the social benefit from consumption?
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6
Chapter 5: The Economics of Health Care
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Sample Questions
Q1) If a hospital knows that an insurance company will pay for most of a patient's bill,the hospital has more of an incentive to require additional medical procedures and tests,even if the patient may not require them.This is an example of A) moral hazard.
B) the principal-agent problem.
C) asymmetric information.
D) adverse selection.
Q2) One of the provisions of the Patient Protection and Affordable Care Act (ACA)is that in 2017,someone without health insurance was fined $695 or 2.5 percent of their income,whichever amount was higher.A growing number of younger and healthier people chose to pay the fine and not purchase health insurance,which resulted in A) many additional insurance companies joining the ACA-established insurance marketplaces.
B) some insurance companies leaving the ACA-established insurance marketplaces.
C) the government tripling the fines for not purchasing health insurance.
D) the total repeal of the ACA.
Q3) Why might a young,healthy person choose not to buy health insurance?
Q4) What is moral hazard?
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Page 7
Chapter 6: Firms, The Stock Market, and Corporate Governance
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Sample Questions
Q1) Of the types of business organizations in the United States,corporations account for ________ percentage of firms and ________ percentage of profits.
A) the smallest; the largest
B) smallest; neither the largest nor smallest
C) neither the largest nor smallest; the largest
D) the largest; the largest
Q2) Why do corporate boards of directors sometimes link top managers' compensation to the corporations' stock prices? How might tying compensation too closely to stock prices create an incentive for corporate fraud.
Q3) Jake sells Star Wars memorabilia on eBay.His annual revenue is $42,000 per year,and the explicit costs of his business are $10,000.What is his accounting profit?
A) $10,000
B) $22,000
C) $32,000
D) $42,000
Q4) Define a sole proprietorship.
Q5) What type of business has the potential for double taxation of profits and why?
Q6) How is economic profit calculated?
Page 8
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Chapter 7: Consumer Choice and Elasticity
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Sample Questions
Q1) Marginal utility is
A) the change in total utility divided by the price of the last unit of a good or service consumed.
B) the change in total utility a person receives from consuming an additional unit of a good or service.
C) the utility from consuming a given quantity of a good or service.
D) the decrease in total utility from consuming more and more units of a good or service.
Q2) One reason college students do not study enough to get high grades is that they are unrealistic about their future behavior.
A)True
B)False
Q3) The demand for gasoline is perfectly inelastic because most people need gasoline to drive their cars.
A)True
B)False
Q4) The demand curve for a Giffen good slopes upward.
A)True
B)False
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Chapter 8: Technology,Production,and Costs
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Sample Questions
Q1) The River Rouge plant was built by the Ford Motor Company in the 1920s to produce the company's Model A car.Which of the following is evidence that the River Rouge plant suffered from diseconomies of scale?
A) Despite an expensive advertising campaign the Model A did not earn the company a profit.
B) Model A cars made at the River Rouge plant failed to earn Ford a profit. Ford eventually constructed smaller plants to make the Model A at a lower average cost.
C) Model A cars made at the River Rouge plant failed to earn a profit. Ford reduced the average cost of the Model A by cutting its employees' wages.
D) Model A cars made at the River Rouge plant failed to earn a profit because the price of steel used to manufacture the Model A rose when workers in the steel industry went on strike.
Q2) The basic activity of a firm is
A) to set the prices of its products as high as possible.
B) to compete with other firms that produce similar products.
C) to provide jobs for its employees.
D) to use inputs to produce outputs of goods and services.
Q3) State the law of diminishing marginal returns.
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Chapter 9: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) Refer to Table 9-4.If the market price is $45 the firm will produce
A) 60 units.
B) 80 units.
C) 100 units.
D) 120 units.
Q2) Letters are used to represent the terms used to answer this question: price (P),quantity of output (Q),total cost (TC)and average total cost (ATC).Which of the following equations is equal to a firm's profit?
A) P - ATC
B) (P × Q) - TC
C) (P × Q) - (P × ATC)
D) P - TC
Q3) Refer to Table 9-1.What is the fixed cost of production?
A) $0
B) $500
C) $1,000
D) It cannot be determined.
Q4) What is meant by the term "long-run competitive equilibrium?
Q5) What is the difference between "shutting down temporarily" and "exiting the industry"?
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Chapter 10: Monopoly and Antitrust Policy
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Sample Questions
Q1) Compared to a monopolistic competitor,a monopolist faces
A) a more elastic demand curve.
B) a more inelastic demand curve.
C) a more elastic demand curve at higher prices and a more inelastic demand curve at lower prices.
D) a demand curve that has a price elasticity coefficient of zero.
Q2) Which of the following is a characteristic shared by a perfectly competitive firm and a monopoly?
A) Each must lower its price to sell more output.
B) Each sets a price for its product that will maximize its revenue.
C) Each maximizes profits by producing a quantity for which marginal revenue equals marginal cost.
D) Each maximizes profits by producing a quantity for which price equals marginal cost.
Q3) For a natural monopoly,the marginal cost of producing an additional unit of its product is relatively small.
A)True
B)False
Q4) What is a public franchise? Are all public franchises natural monopolies?
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Page 12
Chapter 11: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) Refer to Figure 11-11.What is the amount of excess capacity?
A) Q - Q units
B) Q - Q units
C) Q - Q units
D) Q - Q units
Q2) Suppose a monopolistically competitive firm sells 25 units at a price of $10.Calculate its marginal revenue per unit of output if it sells 5 more units of output when it reduced its price to $9.
A) $270
B) $20
C) $4
D) $2.50
Q3) Refer to Figure 11-4.What is the area that represents the loss incurred by the firm?
A) the area P adP
B) the area P bcP
C) the area P acP
D) the area P cdP
Q4) Why do economists refer to the pricing strategies of oligopoly firms as a prisoner's dilemma game?
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Chapter 12: GDP: Measuring Total Production and Income
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Sample Questions
Q1) Presently,GDP is ________ to compensate for the costs of environmental damage.
A) fully adjusted
B) partially adjusted
C) adjusted on a chain-weight basis
D) not adjusted
Q2) In the circular flow diagram,the value of all the income in the economy is greater than the value of goods and services produced in the economy.
A)True
B)False
Q3) Investment,as defined by economists,would not include which of the following? Ford
A) buys a new robotic machine (from a plant in Ohio) to assemble cars.
B) adds 1,000 new cars to inventories.
C) builds another assembly plant in the United States.
D) buys U.S. government bonds.
Q4) The values of real GDP and real GNP are almost the same in countries where a significant fraction of domestic production takes place in foreign-owned firms.
A)True
B)False
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Page 14
Chapter 13: Unemployment and Inflation
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Sample Questions
Q1) Most economists believe that the biases in the consumer price index cause the CPI to overstate the true inflation rate by about
A) one-half to one percentage point.
B) one to two percentage points.
C) one quarter percentage point.
D) one and one-half percentage points.
Q2) If the CPI changes from 125 to 120 between 2017 and 2018,how did prices change between 2017 and 2018?
A) Prices increased by 5%.
B) Prices decreased by 5%
C) Prices increased by 25%.
D) Prices decreased by 4%.
Q3) Emma is a road construction worker.During the winter months,Emma finds it more difficult to get work.The unemployment Emma experiences in the winter is
A) structural.
B) cyclical.
C) seasonal.
D) functional.
Q4) Describe how inflation can be costly even if it is anticipated.
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Chapter 14: Economic Growth, The Financial System, and Business Cycles
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Sample Questions
Q1) A decrease in the real interest rate will
A) increase consumption and reduce investment.
B) increase saving and investment.
C) decrease investment and government spending.
D) increase consumption and investment.
Q2) Potential GDP in the United States
A) does not change over time.
B) grows as the economy grows.
C) changes over a given business cycle.
D) declines over time.
Q3) The demand for loanable funds has a ________ slope because the lower the interest rate,the ________ number of investment projects are profitable,and the ________ the quantity of loanable funds demanded.
A) negative; greater; greater
B) negative; greater; lesser
C) negative; lesser; greater
D) positive; lesser; lesser
Q4) Economists have not found a way to predict when recessions will begin and end.
A)True
B)False
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Chapter 15: Aggregate Demand and Aggregate Supply Analysis
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Sample Questions
Q1) The dynamic aggregate demand and aggregate supply model assumes that potential GDP increases over time.
A)True
B)False
Q2) When potential GDP increases,short-run aggregate supply also increases,but long-run aggregate supply does not change.
A)True
B)False
Q3) During 2008,oil price increases
A) shifted the short-run aggregate supply curve farther to the left than similar increases had 30 years earlier.
B) shifted the aggregate demand curve farther to the right than similar increases had 30 years earlier.
C) did not shift the short-run aggregate supply curve as far to the left as similar increases had 30 years earlier.
D) shifted the aggregate demand curve farther to the left than similar increases had 30 years earlier.
Q4) What are sticky prices,and how can contracts make them "sticky"?
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Chapter 16: Money,Banks,and the Federal Reserve System
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Sample Questions
Q1) The supply of money is easier to control with commodity money than it is with fiat money.
A)True
B)False
Q2) Refer to Table 16-1.Suppose a transaction changes a bank's balance sheet as indicated in the T-account,and the required reserve ratio is 10 percent.As a result of the transaction,the bank has excess reserves of
A) $0.
B) $400.
C) $3,600.
D) $4,000.
Q3) If banks receive a greater amount of reserves and do not hold all of these reserves as excess reserves,the money supply expands.
A)True
B)False
Q4) Liquidity increases as we move from the M1 to the M2 definition of the money supply. A)True
B)False
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Chapter 17: Monetary Policy
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Sample Questions
Q1) When housing prices ________,as they did beginning in 2006 following the housing market bubble,consumption spending on furniture,appliances,and home improvements decline as many households find it ________ to borrow against the value of their homes.
A) rise; easier
B) rise; harder
C) fall; easier
D) fall; harder
Q2) Write out the expression for the Taylor rule.Use the Taylor rule to explain how a decline in real GDP below potential GDP will affect the Federal Reserve's target for the federal funds rate.
Q3) Refer to Figure 17-12.In the dynamic AD-AS model,if the economy is at point A in year 1 and is expected to go to point B in year 2,the Federal Reserve would most likely A) increase interest rates.
B) decrease interest rates.
C) not change interest rates.
D) increase the inflation rate.
Q4) What problems can high inflation rates cause for the economy?
Q5) List the Fed's four main monetary policy goals.
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Chapter 18: Fiscal Policy
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Sample Questions
Q1) Which of the following is an appropriate discretionary fiscal policy if equilibrium real GDP falls below potential real GDP?
A) an increase in government purchases
B) an increase in the supply of money
C) an increase in individual income taxes
D) a decrease in transfer payments
Q2) What is the difference between federal purchases and federal expenditures?
Q3) Refer to Figure 18-6.In the dynamic model of AD-AS in the figure above,if the economy is at point A in year 1 and is expected to go to point B in year 2,and no fiscal or monetary policy is pursued,then at point B
A) the unemployment rate is very low.
B) firms are operating at below capacity.
C) the economy is below full employment.
D) income and profits are falling.
E) there is pressure on wages and prices to fall.
Q4) An appropriate fiscal policy response when aggregate demand is growing at a slower rate than aggregate supply is to cut taxes.
A)True
B)False
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Chapter 19: Comparative Advantage, International Trade, and Exchange Rates
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Sample Questions
Q1) Refer to Figure 19-2.With the tariff in place,the United States produces
A) 9 million pounds of rice.
B) 15 million pounds of rice.
C) 31 million pounds of rice.
D) 42 million pounds of rice.
Q2) Under autarky,consumer surplus is represented by the area
A) above the supply curve and below the equilibrium price.
B) above the supply curve and below the demand curve.
C) below the demand curve and above the equilibrium price.
D) above the demand curve and below the supply curve.
Q3) Refer to Figure 19-1.Suppose the government allows imports of leather footwear into the United States.The market price falls to $18.What is the value of consumer surplus?
A) $0
B) $270
C) $305
D) $320
Q4) If the exchange rate between the Mexican peso and the U.S.dollar expressed in terms of pesos per dollar is 13.5 pesos = 1 dollar,what is the exchange rate when expressed in terms of dollars per peso?
Page 21
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