Survey of Economics Exam Preparation Guide
Course Introduction
Survey of Economics provides an accessible introduction to the fundamental concepts and principles of both microeconomics and macroeconomics. The course explores topics such as supply and demand, market structures, consumer behavior, production costs, government intervention, national income, inflation, unemployment, fiscal and monetary policy, and the global economy. Designed for students from various academic backgrounds, this course offers a comprehensive overview of how economic decisions impact individuals, businesses, and society, equipping learners with the analytical tools to better understand everyday economic issues and policy debates.
Recommended Textbook
Survey of ECON 3rd Edition by Robert L. Sexton
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Page 2
Chapter 1: The Role and Method of Economics
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Sample Questions
Q1) Which of the following is true of hypothesis and theory?
A)They are interchangeable terms meaning the same thing
B)A hypothesis may result from a tested and confirmed theory.
C)A theory may result from a tested and confirmed hypothesis.
D)A hypothesis is a theory whose formulation relies on mathematics.
E)They are economic terms with opposite meanings.
Answer: C
Q2) "The government should do all it can to slow the process of global warming." Is this a positive or a normative statement? Explain your answer.
Answer: Answers will vary. This is a normative statement. The key is the inclusion of the word "should" in the statement, which indicates a value judgment. REJ: Please see the section "Positive and Normative Analysis" for more information.
Q3) "Wanting more goods makes us greedy." How would an economist respond to this statement?
Answer: Answers will vary. Economists do not view the unlimited human desire for goods and services to be an indication of "greediness." Economists assume that all individuals want more resources in order to reach greater levels of satisfaction. REJ: Please see the section "Economics: A Brief Introduction" for more information.
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3
Chapter 2: The Economic Way of Thinking
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Q1) When a country possesses a comparative advantage in the production of one good or service, it:
A)means that the country's opportunity cost is higher than of the other countries.
B)discourages specialization.
C)promotes greater self-sufficiency.
D)permits gains from trade to be realized due to a more efficient use of resources.
E)means that the country uses a capital intensive method of production.
Answer: D
Q2) An economy that has many unemployed workers and idle factories is not operating efficiently.
A)True
B)False
Answer: True
Q3) The production possibilities curve marks the boundary between attainable and unattainable combinations of output.
A)True
B)False
Answer: True
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4
Chapter 3: Supply and Demand
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Sample Questions
Q1) A decrease in the price of a good will:
A)increase the demand for the good
B)decrease the demand for the good.
C)increase quantity demanded of the good
D)decrease quantity demanded of the good.
E)decrease the slope of the demand curve.
Answer: C
Q2) As the price of DVD players has fallen over the last two years, more DVD players have been sold by consumer electronics firms. Is this a violation of the law of supply?
Answer: Answers will vary. No. Very likely, the reduction in price is due to an increase in supply (not an increase in quantity supplied). As DVD technology has progressed, DVD players have become standardized and more efficiently mass-produced, leading to an increase in supply. What has likely been observed is a rightward shift of the supply curve, not a movement along the supply curve. REJ: Please see the section ''Supply'' for more information.
Q3) If the price of pizza falls, the demand for pizza will rise.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Using Supply and Demand
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Q1) If the elasticity of demand for mothballs is 0.50, then which of the following is true along the demand curve for mothballs?
A)A 20 percent increase in the price of mothballs will lead to a 10 percent decrease in the quantity of mothballs demanded.
B)A 10 percent increase in the price of mothballs will lead to a 20 percent decrease in the quantity of mothballs demanded.
C)A 20 percent increase in the price of mothballs will lead to a 10 percent increase in the quantity of mothballs demanded.
D)A 10 percent increase in the price of mothballs will lead to a 20 percent increase in the quantity of mothballs demanded.
E)A 20 percent increase in the price of mothballs will lead to a 5 percent decrease in the quantity of mothballs demanded.
Q2) Arrange the following goods from the least to the most elastic, explaining your ordering: gasoline, Shell gasoline, and Shell gasoline at a particular gas station.
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Chapter 5: Market Failure and Public Choice
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Q1) As it is difficult to establish and enforce ownership rights over air, people have less incentive to preserve air quality than if its ownership was clearly defined.
A)True
B)False
Q2) The free-rider problem arises whenever:
A)goods cannot be provided exclusively to those who pay for them.
B)the price of a good is very low.
C)the government provides goods or services.
D)there is an excess demand for a good.
E)the price of a good is very high.
Q3) The fact that some voters choose not to vote in elections is attributed to:
A)screening.
B)horse-trading.
C)the median voter model.
D)rational ignorance.
E)logrolling.
Q4) Various new cars are sold with sensors that automatically turn on the headlights at night or during low light conditions. Would these sensors create a positive externality or a negative externality? How?
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Chapter 6: Production and Costs
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Q1) Brad worked as a contractor for a year, earned revenues of $120,000, and incurred an explicit cost of $70,000. If he could have earned $80,000 working for a computer company, his accounting profit as a contractor would be _____.
A)$50,000
B)$50,000.
C)$40,000
D) $50,000
E) $10,000
Q2) Where does the marginal cost curve intersect the short-run average variable cost curve and the short-run average total cost curve? Why does the marginal cost curve intersect the short-run average variable cost curve where the short-run average total cost curve is still declining?
Q3) How short is the short-run production period?
Q4) The average fixed cost curve approaches the horizontal axis but never touches it
A)True B)False
Q5) Total cost equals total variable cost plus marginal cost. A)True B)False
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Chapter 7: Firms in Perfectly Competitive Markets
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Q1) The shape of the long-run industry supply curve in a perfectly competitive industry is largely determined by:
A)the shape of the short-run industry supply curve.
B)the price of inputs as the industry expands.
C)the price elasticity of market demand.
D)the shape of the average fixed cost curve.
E)the shape of the marginal cost curve.
Q2) A perfectly competitive firm has no influence over price because:
A)its output is insignificant relative to the market as a whole.
B)antitrust laws constrain perfectly competitive firms.
C)consumers establish the prices of products.
D)it is unaware of the demand curve it faces.
E)there is only one buyer in a perfectly competitive market.
Q3) Which of the following market structures is characterized by many sellers, easy entry, and homogeneous products?
A)Perfect competition
B)Monopolistic competition
C)Oligopoly
D)Monopoly
E)Duopoly
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Chapter 8: Monopoly
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Q1) A natural gas monopoly currently sells 100 cubic feet of gas at $1.10 per cubic foot. To sell one more cubic foot, the natural gas company must lower the price of gas to $1.09. Which of the following best describes the marginal revenue of the 101st cubic foot of natural gas?
A)The marginal revenue equals the price, which is$1.09.
B)The marginal revenue equals the change in price, which is $ 0.01.
C)The marginal revenue is less than $1.09.
D)The marginal revenue is greater than $1.09.
E)The marginal revenue equals $1.10
Q2) A welfare loss occurs when a monopolist chooses not to produce units of output that are of greater marginal value to consumers than the marginal cost of producing them.
A)True
B)False
Q3) U.S. public utilities are often:
A)perfect competitors.
B)created through patent protection.
C)regulated natural monopolies.
D)employee-owned public enterprises.
E)subject to diseconomies of scale.
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Page 10
Chapter 9: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) Identify the correct statement about game theory.
A)The prisoners' dilemma is an example of a cooperative game.
B)The Nash equilibrium is a dominant strategy.
C)Collusion is an example of a noncooperative game.
D)The prisoners' dilemma does not have a dominant strategy.
E)In a cooperative game, each firm sets its own price without consulting other firms.
Q2) Oligopoly, like perfect competition, is a market structure in which firms can easily enter and leave the industry.
A)True
B)False
Q3) Why does inefficiency exist in monopolistic competition?
Q4) The following graphs show two firms operating in a monopolistically competitive market. In Graph A, the profit-maximizing firm is making a profit, shown by the area
A)P<sub>1</sub>XZP<sub>2</sub>
B)P<sub>1</sub>XYW
C)P<sub>2</sub>Zq<sub>1</sub>O
D)WYZP<sub>2</sub>
E)WYq<sub>1</sub>O
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Chapter 10: Labor Markets, Income Distribution, and Poverty
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Q1) Why does an increasing divorce rate tend to increase income inequality?
Q2) Large-scale income redistribution in a country would make:
A)incomes in the country more equal and larger.
B)incomes in the country more equal and smaller.
C)incomes in the country less equal and larger.
D)incomes in the country less equal and smaller.
E)the gross domestic product of the country increase
Q3) The wage of a unit of labor used in the production of a good or service is:
A)inversely related to the demand for the final good or service.
B)directly related to the demand for the final good or service.
C)not related to the demand for the final good or service.
D)inversely related to the supply of the final good or service.
E)not related to the supply of the final good or service.
Q4) Would an increase in the productivity of labor lead to an increase or a decrease in the demand for labor? Why?
Q5) What is meant by "derived demand," and how does it relate to the factors of production?
Q6) Labor unions create barriers to entry in certain work settings.
A)True B)False
Page 12
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Chapter 11: Introduction to Macroeconomics:
Unemployment, Inflation, and Economic Fluctuations
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Q1) A college student who is enrolled in school full-time and not seeking employment is considered:
A)out of the labor force.
B)a job leaver.
C)employed in the underground economy.
D)underemployed.
E)a reentrant
Q2) The unemployment rate in a town in which 65,400 persons are employed and 11,000 persons are unemployed equals:
A)11 percent.
B)14.4 percent.
C)16.8 percent.
D)18.2 percent.
E)15.4 percent.
Q3) Suzie works in her home as a full-time caretaker and homemaker. She is _____.
A)officially employed
B)officially unemployed
C)out of the labor force
D)a discouraged worker
E)underemployed
13
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Chapter 12: Economic Growth
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Q1) _____ shows roughly how long it will take a nation to double its output at various growth rates.
A)The production possibilities curve
B)The Rule of 70
C)The GDP deflator
D)A per-worker production function
E)The rules of the game
Q2) In an economy with an unstable government or judiciary, entrepreneurial activity _____.
A)is more because of higher reliance on private enterprises
B)is less because of an unreliable infrastructure for protecting property rights
C)is more because of fewer governmental restrictions
D)is less because of less taxation of commercial and research activities
E)is more because of higher incentive to invest in the economy
Q3) Which of the following is an example of an intermediate good?
A)A pair of jeans sold by a clothing retailer
B)A piece of cloth sold to a suit manufacturer
C)A share of Walmart stock
D)A used Ford Mustang sold from one neighbor to another
E)A cargo ship purchased by the U.S. Navy
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Chapter 13: Aggregate Demand and Aggregate Supply
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Q1) What is the natural level of output?
Q2) The long run refers to:
A)a time period long enough for the prices of both output and inputs to adjust to changes in the economy.
B)any time period of more than a year.
C)a time period in which input prices can change but output prices have not had time to adjust.
D)a time period in which output prices can change but input prices have not had time to adjust.
E)a time period in which a firm's output doubles.
Q3) If some non-price level determinant causes total spending to decrease, there will be a(n):
A)upward movement along the aggregate demand curve.
B)downward movement along the aggregate demand curve.
C)leftward shift of the aggregate demand curve.
D)rightward shift of the aggregate demand curve.
E)increase in the slope of the aggregate demand curve.
Q4) Explain how changes in the stock of capital affect aggregate supply.
Q5) Discuss the impact of efficiency wages on unemployment and wage inflexibility.
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Chapter 14: Fiscal Policy
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Q1) Does the benefits-received principle work well for all public goods?
Q2) A feature of automatic stabilizers is that they:
A)guarantee that the federal budget will be balanced over the course of the business cycle..
B)do not require any legislative action by Congress to take effect.
C)simultaneously stabilize an economy and reduce the size of the public debt
D)automatically result in surpluses during recessions and deficits during economic booms
E)automatically decrease the price level during inflation and increase the price level during deflation.
Q3) When payroll taxes and Medicare are taken into consideration, the tax system in the United States becomes more progressive than when viewing the federal income tax individually
A)True
B)False
Q4) In 2012-13, more than one quarter of federal government spending went to Social Security and income security programs in the United States.
A)True
B)False
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Chapter 15: Monetary Institutions
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Q1) Identify the correct statement.
A)Paper and metallic currency have replaced demand deposits and other checkable deposits as the major source of money used for transactions in the United States.
B)A credit card is a long-term loan.
C)Most of the money used for day-to-day transactions is legal tender.
D)A debit card is money.
E)Paying for goods and services with checks is easier and less risky than paying with paper money.
Q2) In general, a bank that held excess reserves would earn higher profits as a result.
A)True
B)False
Q3) Rapid inflation makes holding a large amount of money:
A)wiser because more and more money is required to buy goods and services.
B)less wise because the opportunity cost of holding money is high.
C)less wise because someone might steal it, or it might be destroyed.
D)wiser because the opportunity cost of holding money is high.
E)less wise because inflation leads to a decrease in the supply of money.
Q4) What are the inherent disadvantages of a barter system?
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Chapter 16: The Federal Reserve and Monetary Policy
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Q1) During the sixteenth century, Spanish conquistadors like Hernan Cortes overwhelmed the Aztecs and other indigenous peoples in America by pillaging their cities and taking their gold and silver. The gold and silver was sent back to Spain, causing its money supply to increase tenfold. Assuming that the velocity of money (V) remained stable and real GDP (Q) increased slightly, what happened to prices in Spain during this period?
Q2) According to the equation of exchange, an increase in money supply in an economy, other things equal, would
A)decrease real GDP
B)decrease nominal GDP
C)increase nominal GDP
D)increase the rate of unemployment
E)the velocity of money
Q3) What can the Fed do to restore stable prices during a period of persistent, high inflation
Q4) Higher rates of interest increase the opportunity cost of holding money balances
A)True
B)False
Q5) Name the six primary functions of the central bank of a country.
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Chapter 17: Issues in Macroeconomic Theory and Policy
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Q1) Before the global economic crisis, the United States had discouraged the mortgage industry by raising lending standards for low-income families.
A)True
B)False
Q2) Which of the following is an expansionary monetary policy?
A)The Federal Reserve increasing the discount rate for commercial banks
B)The Federal Reserve increasing commercial bank's reserve requirements
C)An increase in taxes imposed by the government
D)The Federal Reserve buying government bonds from commercial banks
E)A decrease in government's expenditures
Q3) It is easier to adopt an economic policy when a recession is caused by a supply shock rather than a demand shock.
A)True
B)False
Q4) Because of lag problems, policies intended to stabilize the economy may actually destabilize the economy.
A)True
B)False
Q5) Can monetary policy be used to successfully fine-tune the economy?
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Chapter 18: International Economics
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Q1) Karl can produce either 10 tons of oranges or 5 tons of apples in a year, while Adam can produce either 5 tons of oranges or 10 tons of apples. If there are only two goods in the world-apples and oranges-and the exchange rate between apples and oranges in international markets is 1 ton of apples per 3 tons of oranges, which of the following is likely to be true?
A)Karl and Adam will not trade apples and oranges with one another, since both will specialize in and export oranges to other countries.
B)Karl and Adam will not trade apples and oranges with one another, since both will specialize in and export apples to other countries.
C)Karl has a comparative advantage in oranges and will specialize in only oranges.
D)Adam has a comparative advantage in oranges and will specialize in only oranges.
E)Karl has an absolute advantage in apples and will specialize in only apples.
Q2) With free trade and exports, domestic consumers gain more than domestic producers lose.
A)True
B)False
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