Survey of Economics Exam Solutions
Course Introduction
Survey of Economics provides an overview of fundamental economic concepts and principles, introducing students to both microeconomics and macroeconomics. The course explores topics such as supply and demand, market structures, consumer behavior, production costs, national income, economic growth, monetary and fiscal policy, and international trade. Emphasis is placed on understanding how economic choices impact individuals, businesses, and governments, as well as current issues and policies influencing the global economy. This course equips students with foundational knowledge to analyze real-world economic problems and participate in informed decision-making.
Recommended Textbook
Essentials of Economics 3rd Edition by Glenn Hubbard
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19 Chapters
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Page 2
Chapter 1: Economics: Foundations and Models
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160 Flashcards
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Sample Questions
Q1) Suppose that to increase sales of hybrid vehicles,auto manufacturers are offering large cash incentives.This is an example of a macroeconomics topic.
A)True
B)False
Answer: False
Q2) Economic models do all of the following except
A) answer economic questions.
B) portray reality in all its minute details.
C) make economic ideas explicit and concrete for use by decision makers.
D) simplify some aspect of economic life.
Answer: B
Q3) In economics,choices must be made because we live in a world of A) unemployment.
B) scarcity.
C) greed.
D) unlimited resources.
Answer: B
Q4) What is marginal cost?
Answer: Marginal cost is the additional cost associated with continuing with an activity.
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Chapter 2: Trade-Offs, comparative Advantage, and the Market System
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Sample Questions
Q1) Refer to Figure 2-7.Which country has a comparative advantage in the production of cashews?
A) Indonesia
B) They have equal productive abilities.
C) Pakistan
D) Neither country
Answer: C
Q2) What shape does a production possibility frontier take if it displays increasing opportunity costs? What shape does a production possibility frontier take if it displays constant opportunity costs? Which shape is most common in production situations?
Answer: A production possibility frontier which displays increasing opportunity costs is bowed out.A production possibility frontier which displays constant opportunity costs is linear.A bowed-out production possibility frontier is most common in production situations.
Q3) The basis for trade is comparative advantage,not absolute advantage.
A)True
B)False
Answer: True
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Sample Questions
Q1) Let D = demand,S = supply,P = equilibrium price,Q = equilibrium quantity.What happens in the market for electric vehicles if the government offers incentives to manufacturers to produce more electric vehicles?
A) D increases, S no change, P and Q increase
B) S increases, D no change, P decreases, Q increases
C) D and S increase, P and Q decrease
D) D no change, S increases, P decreases, Q decreases
Answer: B
Q2) Refer to Figure 3-2.A decrease in productivity would be represented by a movement from
A) A to B.
B) B to A.
C) S<sub>1</sub> to S<sub>2</sub>.
D) S<sub>2</sub> to S<sub>1</sub>.
Answer: D
Q3) An increase in the quantity of a product supplied is caused by an increase in the price of the product.
A)True
B)False
Answer: True
Page 5
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Chapter 4: Market Efficiency and Market Failure
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226 Flashcards
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Sample Questions
Q1) Refer to Figure 4-3.At the midpoint of the demand curve,in absolute value
A) the price elasticity coefficient is at a maximum.
B) the price elasticity coefficient is at a minimum.
C) the price elasticity coefficient is zero.
D) the price elasticity coefficient is one.
Q2) Suppose the value of the price elasticity of demand is -3.What does this mean?
A) A 1 per cent increase in the price of the good causes quantity demanded to increase by 3 per cent.
B) A 1 per cent increase in the price of the good causes quantity demanded to decrease by 3 per cent.
C) A 3 per cent increase in the price of the good causes quantity demanded to decrease by 1 per cent.
D) A $1 increase in price causes quantity demanded to fall by 3 units.
Q3) When Audrina raised the price of her homemade cookies,her total revenue increased.This suggests that the demand for Audrina's cookies is elastic.
A)True
B)False
Q4) What factors would make you more sensitive or less sensitive to price when purchasing petrol?
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Chapter 5: The Economics of Healthcare
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169 Flashcards
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Sample Questions
Q1) If there is a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and consumer surplus plus producer surplus is maximised,then A) maximum deadweight loss occurs.
B) economic efficiency is achieved.
C) profits are maximised.
D) costs are minimised.
Q2) In a city with rent-controlled apartments,all of the following are true except A) apartments usually rent for rates lower than the market rate. B) apartments are often in shorter supply than they would be without rent control. C) it usually takes more time to find an apartment than it would without rent control. D) landlords have an incentive to rent more apartments than they would without rent control.
Q3) If marginal benefit is greater than marginal cost,output is inefficiently high.
A)True
B)False
Q4) What is economic surplus? When is economic surplus at a maximum?
Q5) What is the difference between scarcity and a shortage?
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Chapter 6: Firms,the Stock Market,and Corporate Governance
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255 Flashcards
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Sample Questions
Q1) Refer to Figure 6-7.When the output level is 100 units,average fixed cost is
A) $10.
B) $8.
C) $5.
D) This cannot be determined from the diagram.
Q2) The change in a firm's total cost from producing one more unit of a good or service is
A) the result of economies of scale.
B) the definition of marginal product.
C) the definition of marginal cost.
D) impossible to observe in large firms with many manufacturing plants.
Q3) When the average total cost is $16 and the total cost is $800,then the number of units the firm is producing is
A) impossible to determine with the information given.
B) 12 800.
C) 784.
D) 50.
Q4) What are economies of scale? What are diseconomies of scale?
Page 8
Q5) Describe the difference between technology and positive technological change.
Q6) Describe the relationship between marginal cost and average total cost.
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Page 9
Chapter 7: Consumer Choice and Elasticity
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Sample Questions
Q1) In long-run competitive equilibrium,the perfectly competitive firm produces where price equals minimum average total cost.
a.What is this efficiency criterion called?
b.How does it benefit consumers?
Q2) Refer to Figure 7-7.Identify the firm's short-run supply curve.
A) the marginal cost curve
B) the marginal cost curve from a and above
C) the marginal cost curve from b and above
D) the marginal cost curve from d and above
Q3) A firm would decide to shut down if its production resulted in
A) MR < ATC.
B) ATC > AVC.
C) AFC > AVC.
D) MR < AVC.
Q4) Which of the following is not a characteristic of a monopolistically competitive market structure?
A) There is a large number of independently acting small sellers.
B) All sellers sell products that are differentiated.
C) There are low barriers to entry of new firms.
D) Each firm must react to actions of other firms.
Page 10
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Chapter 8: Technology, production, and Costs
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Sample Questions
Q1) Refer to Figure 8-13.Which of the following would be true if government regulators require the natural monopoly to produce at the economically efficient output level?
A) This results in a misallocation of resources.
B) The marginal cost of producing the last unit sold exceeds the marginal benefit.
C) The firm will sustain persistent losses and will not continue in business in the long run.
D) The firm will break even.
Q2) Governments grant patents to A) compensate firms for research and development costs.
B) encourage competition.
C) encourage low prices.
D) encourage firms to reveal secret production techniques.
Q3) Most pharmaceutical firms selling prescription drugs continue to earn economic profits long after the patents on the prescription drugs expire because they have established a strong foothold in the market.
A)True
B)False
Q4) What is a public franchise? Are all public franchises natural monopolies?
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Chapter 9: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) A monopolistically competitive firm should lower its price if its marginal revenue exceeds its marginal cost.
A)True
B)False
Q2) An example of a government-imposed barrier to entry gives a firm the exclusive right to a new product for a period of 20 years from the date the product is invented.This entry barrier is known as
A) a copyright.
B) a patent.
C) an exclusive marketing agreement.
D) a tariff.
Q3) An example of a barrier to entry is
A) product differentiation.
B) high profits.
C) superior technological knowledge.
D) increasing marginal costs
Q4) What effect does the entry of new firms in a monopolistically competitive market have on the economic profits of existing firms in the market? How might existing firms attempt to counteract this effect?
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Chapter 10: Monopoly and Antitrust
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253 Flashcards
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Sample Questions
Q1) At low wages,the labour supply curve for most people slopes upward because A) the supply of labour is perfectly inelastic at low wages.
B) as wages increase, the opportunity cost of leisure increases.
C) as wages increase, income also increases unless hours worked decrease.
D) the demand for labour is perfectly elastic at low wages.
Q2) Marginal revenue product falls as more labour is hired because
A) the price of the product must fall for a perfectly competitive firm to sell more.
B) the wage rate rises as more workers work more hours.
C) the marginal product of labour is negative as additional units of labour are hired.
D) the marginal product of labour falls as a result of the law of diminishing returns.
Q3) An increase in a perfectly competitive firm's demand for labour could be caused by A) a decrease in the market wage rate.
B) an increase in the market demand for the firm's product.
C) a decrease in the marginal product of workers.
D) an increase in the quantity of labour supplied.
Q4) What is a monopsony?
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Page 13
Chapter 11: Monopolistic Competition and Oligopoly
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304 Flashcards
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Sample Questions
Q1) It is difficult for a private market to provide the economically efficient quantity of a public good because
A) by law, governments cannot use cost-benefit analysis to determine this quantity.
B) public goods produce positive and negative externalities.
C) individual preferences are not revealed in the market for the good.
D) it is too expensive to produce the necessary amount of the good.
Q2) Refer to Figure 11-9.What is the incremental cost of increasing the quantity of pollution reduction from QB to QE units?
A) PE
B) The value of the area QBBEQE
C) PE × QE
D) The value of the area BEF
Q3) When there is a negative externality,the competitive output is more than the economically efficient output level.
A)True
B)False
Q4) What is an externality?
Q5) How does a positive externality in consumption reduce economic efficiency?
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Chapter 12: GDP: Measuring Total Production and Income
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200 Flashcards
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Sample Questions
Q1) In periods when prices are falling on average
A) real GDP will grow slower than nominal GDP.
B) real GDP will grow faster than nominal GDP.
C) real GDP will grow as fast as nominal GDP.
D) we cannot calculate real GDP.
Q2) A weakness of the measurement of GDP is that it includes the value of intermediate goods,therefore some double counting occurs.
A)True
B)False
Q3) The economic growth model focuses on the long-run increase in the productivity of capital.
A)True
B)False
Q4) The only way the standard of living of the average person in a country can increase is by increasing ________ faster than ________.
A) production; population
B) income; population
C) population; production
D) population; income
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Chapter 13: Unemployment and Inflation
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Sample Questions
Q1) When the Australian Bureau of Statistics conducts surveys to estimate the rate of unemployment,one of the survey questions asked is?
A) Does the person have any skills?
B) Has the person looked for work during the past year?
C) Is the person currently available to start work?
D) Has the person worked for 10 hours or more in the past week?
Q2) Anticipated inflation increases the amount of taxation paid by firms and individuals.
A)True
B)False
Q3) Explain the difference between the price level,inflation and the inflation rate.
Q4) Hyperinflation occurred in Germany after World War I,when its inflation rate rose to 3.25 million per cent.
A)True
B)False
Q5) Hyperinflation is caused by a country's central bank when it reduces liquidity,thereby creating a shortage of money,leading to inflation.
A)True
B)False
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Chapter 14: Economic Growth, the Financial System and Business Cycles
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172 Flashcards
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Sample Questions
Q1) Which of the following will shift the aggregate demand curve to the left,ceteris paribus?
A) An increase in interest rates.
B) An increase in disposable income.
C) An increase in expected profits for firms.
D) An increase in net exports.
Q2) The short-run aggregate supply curve has a
A) negative slope.
B) positive slope.
C) vertical slope.
D) horizontal slope.
Q3) Which of the following would not be considered a positive addition to household wealth?
A) The equity that homeowners have in their own homes.
B) 1000 shares in Qantas Airlines.
C) A credit card balance.
D) The balance in your savings account.
Q4) Starting from long-run equilibrium,use the basic (static)aggregate demand and aggregate supply diagram to show what happens in both the long run and the short run when there is a decline in wealth.
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Chapter 15: Aggregate Demand and Aggregate Supply Analysis
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Sample Questions
Q1) A farm worker gets paid today in money,but waits to spend the money until next week.Which function of money does this illustrate?
A) Medium of exchange
B) Unit of account
C) Store of value
D) Standard of deferred payment
Q2) ________ is the ease with which a financial security can be exchanged for money.
A) Risk
B) The face value
C) Liquidity
D) The rate of return
Q3) Retained earnings are usually sufficient to finance a firm's rapid expansion in a high-growth economy.
A)True
B)False
Q4) Explain whether a cash deposit into a bank is an asset or a liability for the bank.
Q5) Explain why Australia's currency is suitable to use as a medium of exchange.
18
Q6) Explain whether credit cards are considered to be money.
Q7) Why is gold not a good medium of exchange?
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Chapter 16: Money, banks, and the Federal Reserve System
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Sample Questions
Q1) If interest rates rise
A) an investment in shares becomes relatively more attractive.
B) an investment in shares becomes relatively less attractive.
C) this does not change the attractiveness of investments in the share market.
D) investors will respond by cutting back on investments in interest-earning assets such as government bonds.
Q2) Consider the hypothetical information in Table 16.2 for potential GDP,real GDP and the price level in 2012 and in 2013 if the Reserve Bank of Australia (RBA)does not use monetary policy.If the RBA wants to keep real GDP at its potential level in 2013,it should
A) buy government securities.
B) sell government securities.
C) decrease interest rates.
D) decrease income taxes.
Q3) The Reserve Bank of Australia engages in open market operations only when it wants to change interest rates.
A)True
B)False
Q4) How does monetary policy affect the share market?
Q5) What is inflation targeting?
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Chapter 17: Monetary Policy
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Sample Questions
Q1) Which of the following is the largest category of Australian federal government expenditures?
A) Defence spending
B) Social security and welfare payments
C) Interest on debt
D) Health care
Q2) What is long-run crowding out?
Q3) Just as real GDP ________ potential GDP in the long run,the unemployment rate ________ the natural rate of unemployment in the long-run.
A) is not related to; is not related to B) is greater than; is greater than C) equals; equals D) is less than; is less than
Q4) Give examples of automatic stabilisers.Explain how automatic stabilisers work when there is an economic boom.
Q5) The increase in revenue taxation received by the government during an economic boom is due to discretionary fiscal policy.
A)True
B)False
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Chapter 18: Fiscal Policy
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Sample Questions
Q1) The main purpose of most tariffs and quotas is to
A) raise revenue for the government.
B) reduce the prices consumers pay for goods and services.
C) reduce the foreign competition that domestic firms face.
D) improve the quality of goods and services imported into the country.
Q2) Imports are goods and services bought domestically
A) but produced in other countries.
B) and resold at a profit.
C) and produced domestically.
D) and not subject to tariffs.
Q3) Refer to Table 18-6.All of the following are terms of trade that could possibly benefit both countries except
A) 1/5 of a hat : 1 clock.
B) 1/3 of a hat : 1 clock.
C) 1/2 of a hat : 1 clock.
D) 3/4 of a hat : 1 clock.
Q4) Jobs lost to foreign trade are generally easy to identify,but jobs created by foreign trade are generally less easy to identify.
A)True
B)False
Page 21
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Chapter 19: Comparative Advantage, international Trade, and Exchange Rates
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Sample Questions
Q1) Assume that a Big Mac burger costs $3.57 in Australia and 7.80 zlotys in Poland.If the exchange rate is 3 zlotys per dollar,purchasing power parity predicts that the dollar will
A) appreciate as the demand for dollars rises in the long run.
B) appreciate as the supply of dollars falls in the long run.
C) depreciate as the demand for dollars falls in the long run.
D) depreciate as the supply of dollars rises in the long run.
Q2) Suppose an Xbox costs $150 in the United States of America (USA)and £75 in Great Britain.Suppose the exchange rate is $US1 = £1.Does purchasing power parity suggest that the dollar should appreciate or depreciate against the pound? What will happen if consumers in Great Britain like the Xbox less than United States (US)consumers?
Q3) Suppose the prices of Australian goods are rising faster than prices of goods in Great Britain.If purchasing power parity holds,then
A) the Australian dollar will depreciate against the British pound.
B) the Australian dollar will appreciate against the British pound.
C) the value of the Australian dollar relative to the British pound will remain the same.
D) it will take fewer Australian dollars to buy one British pound.
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