Survey of Economics
Exam Answer Key
Course Introduction
Survey of Economics provides a comprehensive introduction to the principles and concepts of both microeconomics and macroeconomics. The course covers fundamental topics such as supply and demand, market structures, consumer behavior, production and costs, the role of government in the economy, fiscal and monetary policies, and global trade. Designed for students from a variety of academic backgrounds, this course emphasizes real-world applications, critical thinking, and the impact of economic decisions on individuals and society as a whole. By the end of the course, students will have a solid foundation for understanding economic issues and policy debates in everyday life.
Recommended Textbook
Microeconomics Today The Macro View 17th Edition by Roger LeRoy Miller
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Chapter 1: The Nature of Economics
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Sample Questions
Q1) A politician says that the government should tax behavior they want less of and subsidize behavior they want more of.This is an example of
A)cynical behavior in modern democracies.
B)failing to consider the alternatives available to the government.
C)a concern that people are not rational when they make decisions.
D)using incentives to alter behavior.
Answer: D
Q2) Which of the following is NOT a positive statement?
A)The unemployment rate is 5.8 percent.
B)The inflation rate for 2002 was 2.3 percent.
C)The national debt is too high.
D)The federal government budget for 2004 is $2.2 trillion.
Answer: C
Q3) Why do economists test their hypotheses?
A)to see whether people are motivated by self-interest
B)to see whether their models predict the choices people will make
C)to determine whether government policies have effectively achieved their goals
D)to learn what people are thinking when they make the choices they do
Answer: B
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Chapter 2: Scarcity and the World of Trade-Offs
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Sample Questions
Q1) The high opportunity cost of voting in the United States is due to A)the value of time devoted to casting a ballot.
B)the inability of candidates to differentiate themselves from one another.
C)the inability of the typical voter to change the election outcome by voting.
D)the confusion generated by the voting machines.
Answer: A
Q2) Suppose the current unemployment rate is 15 percent.If it rises to 20 percent,
A)the economy will move up along the production possibilities curve.
B)the economy will move closer to the production possibilities curve.
C)the production possibilities curve will shift inward.
D)the economy will operate farther inside the production possibilities curve.
Answer: D
Q3) "Economics deals with human needs." Do you agree or disagree? Why?
Answer: Disagree.The concept of needs is difficult to define objectively for each person,so that economists consider people's unlimited wants instead of their needs.
Q4) What does a production possibilities curve show?
Answer: A production possibilities curve shows the combinations of maximum outputs that can be produced with a fixed amount of resources.
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Chapter 3: Demand and Supply
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Sample Questions
Q1) Refer to the above figure.The rightward shift of the curve indicates
A)an increase in demand.
B)an increase in supply.
C)a change in quantity demanded.
D)a change in quantity supplied.
Answer: B
Q2) When there is an excess quantity supplied in the market,
A)the price of the product will increase,causing a decrease in demand and an increase in supply.
B)the price of the product will increase,causing a decrease in quantity demanded and an increase in supply.
C)the price of the product will decrease,causing an increase in quantity demanded and a decrease in quantity supplied.
D)the price will increase,causing a decrease in demand and an increase in quantity supplied.
Answer: C
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Chapter 3: Extensions of Demand and Supply Analysis
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Q1) The rationing function of prices refers to
A)the situation when government must intervene in a market when there is a large shortage or surplus.
B)the synchronization of decisions by buyers and sellers that leads to an equilibrium.
C)the synchronization of decisions by buyers and sellers through the direction of government agencies.
D)the situation when only the rich get the goods they want.
Q2) In which of the following situations will both market clearing price and the equilibrium quantity increase?
A)an increase in demand with no change in supply
B)an increase in supply with no change in demand
C)a decrease in supply with no change in demand
D)a decrease in demand with no change in supply
Q3) Which rationing system leads to the most efficient use of available resources?
A)free market
B)physical force
C)first come,first served
D)random assignment
Q4) Who gains and who loses from rent controls?
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Chapter 4: Public Spending and Public Choice
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Q1) Medicare
A)subsidizes the care of older people,which gives them NO incentive to consume more medical services.
B)subsidizes the care of older people,which gives them an incentive to consume more medical services.
C)subsidizes the care of young people,which gives them an incentive to consume less medical services.
D)subsidizes the care of middle aged people,which gives them an incentive to consume more medical services.
Q2) If a corporation were forced to absorb the cost of a spillover from the production of a good,this would likely cause the supply curve for the good to A)shift out.
B)shift to the left.
C)shift to the right.
D)None of the above are correct.
Q3) Explain why ensuring economic stability is an economics function of government?
Q4) What is an effluent fee? Graphically,show how an effluent fee can correct an externality.
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Chapter 5: Funding the Public Sector
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Q1) If a new unit excise tax is levied on bottles of wine,the
A)demand for wine shifts to the left.
B)demand for wine shifts to the right.
C)supply of wine shifts to the right.
D)supply of wine shifts to the left.
Q2) Which of the following is NOT an important source of revenue for the federal government?
A)individual income taxes
B)property taxes
C)social insurance taxes and contributions
D)corporate income taxes
Q3) Jamal earns $160,000 per year and Josephina earns $80,000 per year.If Jamal pays $16,000 in income taxes and Josephina pays $5,000 in income taxes,the income tax system would be
A)regressive.
B)progressive.
C)proportional.
D)marginal.
Q4) What are the three sources of funding for the public sector? Can the government rely on all of these sources in the long run? Explain.
Page 8
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Chapter 6: Demand and Supply Elasticity
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Sample Questions
Q1) Price elasticity of demand is measured using percentage changes.Why?
Q2) An absolute price elasticity of demand equal to 0.4 indicates that a A)4 percent increase in price leads to a 10 percent decrease in quantity demanded.
B)1 percent increase in price leads to a 4 percent decrease in quantity demanded.
C)0.4 percent decrease in price leads to a 1 percent increase in quantity demanded.
D)10 percent decrease in price leads to a 4 percent increase in quantity demanded.
Q3) When the absolute price elasticity of demand equals 0.67,demand is A)elastic.
B)unit-elastic.
C)inelastic.
D)undetermined without more information.
Q4) When total revenue and price are directly related,demand is A)unit-elastic.
B)inelastic.
C)elastic.
D)not related.
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Chapter 7: Consumer Choice
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Sample Questions
Q1) If the price of a product increases,then
A)the budget line rotates and the optimal quantity demanded,which corresponds to the higher price,decreases.
B)the budget line rotates and the optimal quantity demanded,which corresponds to the higher price,increases.
C)the budget line shifts outward and the optimal quantity demanded,which corresponds to the higher price,decreases.
D)the budget line shifts inward and the optimal quantity demanded,which corresponds to the higher price,increases.
Q2) The additional utility or satisfaction that one derives from consuming one more unit of any good or service is referred to as A)total utility.
B)substantive utility.
C)average utility.
D)marginal utility.
Q3) Why can't an indifference curve be a straight line?
Q4) What is the relationship between marginal utility and total utility? What happens to total utility as marginal utility declines?
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Chapter 8: Rents, profits, and the Financial Environment of Business
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Q1) By definition,a firm is
A)a business organization that makes profits.
B)a business organization that utilizes resources to produce goods or services with the goal of making a profit.
C)a business organization that consists of more than one person.
D)an organization,whether private or public,that may or may not make a profit.
Q2) Consider an NBA superstar Kobe Bryant and one of your economics professors.Who is likely to receive more economic rent in his/her job? Explain your answer.
Q3) When economic rent exists,
A)the price is equal to the opportunity cost of the resources.
B)price is the same as the discount rate.
C)resources are allocated inefficiently.
D)resources are allocated efficiently.
Q4) Proprietorships are
A)the most common form of business organization in the country.
B)responsible for most of the profits in the country.
C)generally large relative to other business organizations.
D)easy to form but difficult to dissolve.
Q5) Which method of corporate finance is used the most? Why?
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Chapter 9: The Firm: Cost and Output Determination
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Sample Questions
Q1) Which of the following is correct?
A)AFC = TC/Q - TVC/Q
B)AVC = TVC - AFC
C)TC = AVC Q
D)MC = TC - TVC
Q2) For an economist,the short run means a time period
A)during which new firms are prohibited from entering the industry.
B)during which firms are not allowed to change the amount of imported resources they use.
C)that is between one and five years.
D)during which the firm is unable to change its plant size.
Q3) A production function is a(n)
A)cost relationship.
B)economic relationship.
C)accounting relationship.
D)technological relationship.
Q4) What is the law of diminishing marginal product? Is it a realistic concept for describing the real world? Explain.
Q5) What is the most important determinant of the firm's short-run cost curves?
Q6) What is a production function?
Page 12
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Chapter 10: Perfect Competition
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Sample Questions
Q1) Refer to the above table.If the price is $5,the perfectly competitive firm should produce
A)104 units.
B)105 units.
C)106 units.
D)107 units.
Q2) In principle,how do we determine a perfectly competitive firm's profit-maximizing output and maximum profits given information about the market clearing price,and about the marginal cost and average total cost curves of the firm? Explain in words.
Q3) The perfectly competitive firm's total revenue curve
A)is linear and upward sloping.
B)has a constant slope.
C)has a positive slope.
D)all of the above
Q4) What are signals? How do profits function as signals?
Q5) "A perfect competitor should maximize total revenues." Do you agree or disagree? Explain.
Q6) "A firm should shut down immediately when it earns zero economic profits." Do you agree or disagree? Explain your answer.
Page 13
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Chapter 11: Monopoly
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Sample Questions
Q1) The price-output combination that maximizes profits for a monopolist occurs at the point where
A)total revenues and total costs are equal.
B)the difference between total revenues and total costs is the greatest.
C)total revenues are the greatest.
D)the elasticity of demand equals one.
Q2) "A monopolist refers to any firm that is large in size." Do you agree or disagree? Why?
Q3) In the above figure,the monopolist's profit-maximizing output level is A)A.
B)B.
C)C. D)D.
Q4) Other things being equal,a price-discriminating firm will charge less to the customers who
A)have the lowest incomes.
B)have the least elastic demand for its product.
C)have the most elastic demand for the product.
D)are the most rational in making their decisions.
Q5) Using a graph,show why marginal revenue is always less than price.
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Chapter 12: Monopolistic Competition
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Sample Questions
Q1) The two economists associated with the development of the theory of monopolistic competition were
A)Joan Robinson and Edward Chamberlin.
B)David Hume and Adam Smith.
C)John Neville Keynes and John Maynard Keynes.
D)Carl Menger and Eugen Von Bohm-Bawerk.
Q2) Marginal cost for an information product would
A)first decrease and then increase as quantity increases.
B)increase constantly as quantity increases.
C)decrease constantly as quantity increases.
D)remain constant as quantity increases.
Q3) Since the firm in the above figure is operating in a monopolistically competitive industry,in the long run we can expect to see
A)the typical firm's economic profits expand as production becomes more efficient.
B)more firms entering the industry until economic profits are zero.
C)the typical firm producing at the minimum point on its ATC curve.
D)each firm expand its share of the total market.
Q4) Why can't a monopolistic competitor earn economic profits in the long run?
Q5) Explain how advertising can act as a signal.
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Chapter 13: Oligopoly and Strategic Behavior
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Sample Questions
Q1) All of the following are true regarding oligopoly EXCEPT
A)there are few sellers.
B)there is some ability to set price.
C)there is no competition.
D)entry and exit is partially restricted.
Q2) Suppose there are four firms in an industry.The market shares of the four firms are 5 percent,20 percent,35 percent,and 40 percent.The Herfindahl-Hirschman index for that industry is
A)6,650.
B)3,250.
C)1,250.
D)100.
Q3) The dominant strategy allows a firm to
A)obtain the highest benefit,regardless of its rivals' actions.
B)transform a negative-sum game into a positive-sum game.
C)transform a zero-sum game into a positive-sum game.
D)escape from a Prisoners' Dilemma situation.
Q4) Explain the basic operations of an economic game.
Q5) "Oligopoly is the only market structure in which rivalry among firms takes place." Do you agree or disagree? Why?
Page 16
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Chapter 14: Regulation and Antitrust Policy in a Globalized Economy
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Sample Questions
Q1) Which of the following acts outlawed selling products at "unreasonably low prices" with the intent of reducing competition?
A)Sherman Act
B)FTC Act
C)Robinson-Patman Act
D)Wheeler-Lea Act
Q2) In the above figure,if this natural monopolist were unregulated,the profit maximizing firm would produce
A)at Q<sub>1</sub> output rate.
B)at Q<sub>2</sub> output rate.
C)at Q<sub>3</sub> output rate.
D)past the Q<sub>3</sub> output rate.
Q3) Regulation that is based on allowing prices to reflect only the actual operating cost of production is known as
A)average cost regulation.
B)marginal cost regulation.
C)rate-of-return regulation.
D)cost-of-service regulation.
Q4) Explain the capture hypothesis.
Page 17
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Chapter 15: The Labor Market: Demand, supply and Outsourcing
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Sample Questions
Q1) When MFC = MRP,a firm in a competitive market will
A)stop hiring.
B)hire more workers.
C)earn additional profits.
D)layoff workers.
Q2) A fall in the price of the final product produced by a firm will cause
A)a decline in the price of an input used to produce the good.
B)a movement down the demand curve for an input used to produce the final product.
C)a reduction in demand for an input used to produce the final product.
D)a reduction in the supply of an input used to produce the final product.
Q3) Outsourcing is
A)only beneficial to a few select countries.
B)another way for residents of different nations to conduct trade with one another.
C)not beneficial to any country.
D)not beneficial to the consumers who purchase outsourced goods.
Q4) What does a monopolist's demand curve for labor look like? How does it compare to the market demand curve for a competitive industry? What does the supply curve of labor to a monopolist look like? Explain.
Page 18
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Chapter 16: Unions and Labor Market Monopoly Power
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Sample Questions
Q1) In a monopsonistic market,
A)employment is lower but wages are higher than in a comparable competitive market.
B)employment is higher but wages are lower than in a comparable competitive market.
C)both employment and wages are higher than in a comparable competitive market.
D)both employment and wages are lower than in a comparable competitive market.
Q2) Negotiations between the management of a company and the management of a union for the purpose of setting a mutually agreeable contract on wages,fringe benefits and working conditions for all employees in a union is know as
A)a closed shop.
B)a union shop.
C)collective bargaining.
D)an industrial union.
Q3) Distinguish between a closed shop and a union shop.Are either or both shops legal? Explain.
Q4) Why might a union find that attaining the goal of employing all its members and the goal of maximizing total union wage receipts to be incompatible objectives?
Q5) What can a union do in order to raise the wages of its members ?
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Chapter 17: Income, poverty, and Health Care
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Q1) The Social Security system is financed by
A)a tax on individual retirement accounts.
B)a payroll tax paid only by employers.
C)a payroll tax paid by both employers and employees.
D)a tax on luxury goods.
Q2) Suppose there is a high inequality in household income between the highest and the lowest income groups in one country.In response,the government raises the income tax for the highest income group and provides subsidies to the lowest-income group.What would happen to the Lorenz curve as a result of the government programs? Explain.
Q3) The poverty income threshold in the United States was originally calculated by
A)multiplying a nutritionally adequate food plan for emergency use by 4.
B)multiplying a nutritionally adequate food plan for emergency use by 2.
C)multiplying a nutritionally adequate food plan for emergency use by 3.
D)multiplying a nutritionally adequate food plan for emergency use by 5.
Q4) The government finances Social Security through A)excise taxes.
B)payroll taxes.
C)the sale of goods and services.
D)state taxes.
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Chapter 18: Environmental Economics
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Q1) Which of the following is a true statement?
A)Externalities cannot be solved by market solutions and always require government action.
B)Externalities would never be a problem if people were willing to comply with government regulations.
C)Voluntary agreements can solve externality situations by making the party incurring the costs bear the costs of his or her actions.
D)Externalities can only be handled by government regulation and emission taxes cannot work effectively.
Q2) Joe has broken the mirror of my car.I have legal recourse to sue for damages because of
A)social costs.
B)transactions costs.
C)common property rights.
D)private property rights.
Q3) What is common property? What does common property have to do with externalities?
Q4) Explain how the optimal quantity of air pollution is determined.
Q5) Why are most endangered species belong to common property?
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Chapter 19: Comparative Advantage and the Open Economy
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Q1) Suppose that opportunity costs are constant and that Fred can either bake a maximum of six pies or three cakes in a day.Ethel can produce a maximum of eight pies or two cakes in a day.Ethel has an comparative advantage in the production of A)cakes.
B)pies.
C)both cakes and pies.
D)neither cakes nor pies.
Q2) All of the following are reasons that trade between nations is beneficial EXCEPT A)gains from specialization.
B)exchange of ideas.
C)protection of domestic industries.
D)gains from trade.
Q3) Trade restrictions tend to make domestic products
A)cheaper because they do not have to compete with foreign goods.
B)cheaper because they do have to compete with foreign goods.
C)more expensive because they have to compete with foreign goods.
D)more expensive because they do not have to compete with foreign goods.
Q4) Why is it impossible to make everyone better off in the long run by imposing import restrictions?
Page 22
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Chapter 20: Exchange Rates and the Balance of Payments
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Q1) If the U.S.interest rate,adjusted for people's expectation of inflation,increases sharply relative to the rest of the world,then
A)there will be a decrease in the demand for dollars in foreign exchange markets.
B)there will be no change in the demand for dollars in foreign exchange markets but there will be an increase in demand for foreign currency.
C)the dollar will appreciate.
D)the dollar will depreciate.
Q2) A financial strategy that reduces the chance of suffering losses arising from foreign exchange risk is referred to as
A)hedging.
B)foreign exchange leverage.
C)conversion depletion.
D)transaction mitigation.
Q3) The demand for dollars will increase when
A)real interest rates in the United States fall.
B)U.S.labor productivity increases relative to the world.
C)the world is perceived as more stable than it used to be.
D)U.S.residents develop a taste for more imported products.
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