Survey of Economics
Final Test Solutions
Course Introduction
Survey of Economics provides a comprehensive introduction to the basic principles of both microeconomics and macroeconomics, highlighting the essential theories, concepts, and terminology used to analyze economic activity. The course examines the allocation of scarce resources, the functioning of markets, the role of supply and demand, consumer and producer behavior, and the impact of government policies on the economy. Additionally, students explore broader topics such as national income, inflation, unemployment, monetary and fiscal policy, and international trade, building a foundation for understanding how economic forces shape societies and influence everyday life.
Recommended Textbook
Essentials of Economics 9th Edition by
Bradley R Schiller
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17 Chapters
2470 Verified Questions
2470 Flashcards
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Page 2
Chapter 1: The Challenge of Economics
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135 Verified Questions
135 Flashcards
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Sample Questions
Q1) A HEADLINE article in the text indicates that North Korea is expanding its missile programs.Assume North Korea is currently on its production possibilities curve.If the increase in missile production results in a decrease in food production,this is an example of:
A) Market failure.
B) An inward shift of the production possibilities curve.
C) Opportunity cost.
D) A reduction in available resources.
Answer: C
Q2) In the model where we assume that all parcels of land are the same,the relationship between food and timber produced when all land is in use is:
A) Linear and inverse.
B) Direct and linear.
C) Inverse and nonlinear.
D) Direct and nonlinear.
Answer: A
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Chapter 2: The US Economy
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131 Flashcards
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Sample Questions
Q1) Changes in real GDP serve as a better measure of the health of the economy than changes in nominal GDP because real GDP is affected by changes in:
A) Output only.
B) Prices and output.
C) Prices only.
D) Average wages.
Answer: A
Q2) Investment goods are a different type of output.Discuss the types of investment goods and its relationship to production possibilities.
Answer: Investment goods include the plant,machinery,and equipment that are produced for use in the business sector.These investments are often used to replace worn-out equipment and factories,which maintains production possibilities.
Investment goods increase and improve the stock of capital.This expands production possibilities.
Inventory is also counted as investment goods.
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Chapter 3: Supply and Demand
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148 Flashcards
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Sample Questions
Q1) Which panel of Figure 3.4 represents the changes in the market for chicken when farmers use hormones to increase the production of chicken,but consumers are concerned about eating the chicken?
A) A
B) B
C) C
D) D
Answer: B
Q2) Ceteris paribus,the quantity demanded of a good will decrease in response to:
A) Higher income.
B) A higher price for the good.
C) A rightward shift of the supply curve.
D) A lower price for the gooD.
Answer: B
Q3) A market:
A) Is any place where goods are bought and sold.
B) Must have a physical location so buyers and sellers can meet.
C) Does not exist for the exchange of illegal goods and services.
D) Must be approved by the government before it can exist.
Answer: A
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Chapter 4: Consumer Demand
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137 Flashcards
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Sample Questions
Q1) As long as marginal utility is positive,total utility must be increasing.
A)True
B)False
Q2) The demand for _______ is relatively elastic.
A) Water
B) Electricity
C) Vacation travel
D) Coffee
Q3) According to the law of diminishing marginal utility:
A) Total utility from consuming a good always rises.
B) Total utility from consuming one more unit of a good eventually falls.
C) Marginal utility of a good declines as more of it is consumed in a given time period.
D) Marginal product of labor declines as more of a variable input is useD.
Q4) Which of the following does NOT influence the price elasticity of demand?
A) The availability of substitutes.
B) The price of the item relative to your budget.
C) The costs of production.
D) Successful advertising.
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6
Chapter 5: Supply Decisions
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151 Flashcards
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Sample Questions
Q1) During the short run:
A) All inputs can be changed.
B) Some inputs are fixed.
C) Factory size can be changed.
D) The number of workers cannot be changeD.
Q2) The decision to build,buy,or lease a plant is known as the:
A) Output decision.
B) Profit-maximizing decision.
C) Production decision.
D) Investment decision.
Q3) Marginal cost is equal to the change in variable costs divided by the change in output.
A)True
B)False
Q4) Economic costs include only the explicit payments made for a factor of production.
A)True
B)False
Q5) Why in the short-run does marginal physical product increase but beyond some point start to decrease and eventually become negative?
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Chapter 6: Competition
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146 Flashcards
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Sample Questions
Q1) Which of the following is considered a barrier to entry?
A) Price taking
B) Standardized products
C) Brand loyalty
D) Economic profit
Q2) For a perfectly competitive industry,as long as an economic profit is attainable,new firms will enter the market.
A)True
B)False
Q3) In a competitive market,in the long run,economic profits will cause:
A) New firms to enter the market.
B) Existing firms to leave the market.
C) Supply to decrease.
D) Demand to decrease.
Q4) Assume that for an individual firm MC = AVC at $6 and MC = ATC = $10 and MC = price = $12,then the firm will be operating:
A) at a loss.
B) where economic profits are negative.
C) at a point where firms will leave the market.
D) where economic profits are positive.
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Chapter 7: Monopoly
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149 Flashcards
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Sample Questions
Q1) A contestable market is:
A) A perfectly competitive market.
B) An imperfectly competitive situation with high barriers to entry.
C) An imperfectly competitive situation that is subject to entry.
D) A market with only one producer.
Q2) In Table 7.2,at the profit-maximizing rate of output,marginal cost is:
A) $50.
B) $60.
C) $70.
D) $80.
Q3) Monopolies tend to inhibit technology and innovation by keeping competition out of the market.
A)True
B)False
Q4) Which of the following firms is likely to have the greatest market power?
A) A farmer who can sell as much lettuce as he can grow.
B) A single soft drink company serving a campus with no barriers to entry.
C) The sole producer of the latest computer microchip technology.
D) A regulated natural monopoly selling natural gas service.
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Chapter 8: The Labor Market
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Sample Questions
Q1) At the intersection of labor demand and labor supply,some people who are willing to work for the equilibrium wage will not be employed.
A)True
B)False
Q2) Tiger Woods is paid high endorsement fees by companies because:
A) His agent insists on it.
B) His marginal physical product is very low.
C) His marginal revenue product is very high.
D) He cannot live on the money made from playing golf because he has too many girlfriends.
Q3) Ceteris paribus,for an upward-sloping labor supply curve,there is an increase in the quantity of labor supplied when the:
A) Demand for labor increases.
B) Amount of leisure time increases.
C) Tax rate increases.
D) Wage rate increases.
Q4) What would we expect to occur to the wage rate and number of persons hired if they workers formed a union?
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Page 10
Chapter 9: Government Intervention
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150 Flashcards
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Sample Questions
Q1) The market will:
A) Always provide the optimal mix of output.
B) Overproduce goods that yield external benefits.
C) Produce an optimal amount of goods that generate external costs.
D) Under produce goods that generate external benefits.
Q2) The market mechanism always leads the economy to the optimal mix of output.
A)True
B)False
Q3) The market under produces public goods because:
A) The government is mandated to produce public goods.
B) People do not want public goods as much as private goods.
C) People are less willing to pay for public goods than for private goods.
D) Of concerns about equity.
Q4) Income transfers are a government response to the market's failure to provide an equitable distribution of goods.
A)True
B)False
Q5) What are the two characteristics of public good? Explain why each characteristic makes it a public rather than a private good?
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Chapter 10: The Business Cycle
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Sample Questions
Q1) In Table 10.1,what is the unemployment rate in Year 1?
A) 50 percent
B) 41.7 percent
C) 16.7 percent
D) 8.3 percent.
Q2) The CPI is used to measure the change in the average price of consumer goods and services.
A)True
B)False
Q3) In Table 10.1,what is the number of unemployed in Year 1?
A) 15 million.
B) 75 million.
C) 90 million.
D) 105 million.
Q4) Which of the following is an essential part of the market mechanism?
A) Changing relative prices
B) Constant prices
C) Falling average prices
D) Rising average prices
Q5) Define a recession and the effects of recession on rate of growth.
Page 12
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Chapter 11: Aggregate Supply and Demand
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149 Flashcards
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Sample Questions
Q1) According to monetary theories,an increase in the money supply shifts the aggregate:
A) Supply curve to the left.
B) Supply curve to the right.
C) Demand curve to the left.
D) Demand curve to the right.
Q2) Keynesian theory is referred to as a:
A) Supply-side theory.
B) Demand-side theory.
C) Full-employment theory.
D) GDP gap theory.
Q3) According to the foreign trade effect,when the U.S.price level decreases,U.S.consumers are likely to buy:
A) More American-made products.
B) Different American-made products.
C) More foreign-made products.
D) Less of all products,both American made and foreign made.
Q4) Macro equilibrium always occurs at an optimal level of output.
A)True
B)False
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Chapter 12: Fiscal Policy
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150 Flashcards
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Sample Questions
Q1) If consumers save 21 cents out of every dollar received,the:
A) MPS is 0.79.
B) MPC is 0.21.
C) Multiplier is 0.21.
D) MPS is 0.21.
Q2) The multiplier is equal to:
A) 1 - MPC.
B) MPS ÷ MPC.
C) 1 ÷ MPS.
D) 1 ÷ MPC.
Q3) In Figure 12.1,assume aggregate demand is represented by AD<sub>3</sub>.Which of the following could cause a shift to AD<sub>2</sub>?
A) An increase in government spending on goods and services
B) An increase in taxes
C) A decrease in consumer confidence
D) A decrease in investment spending
Q4) The use of government spending and taxes to change the level of aggregate demand is fiscal policy.
A)True
B)False
Page 14
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Chapter 13: Money and Banks
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149 Flashcards
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Sample Questions
Q1) Initially a bank has a minimum reserve requirement of 15 percent and no excess reserves.If $200,000 is deposited in the bank,then ceteris paribus:
A) The bank can increase its loans by $30,000.
B) The bank can increase its loans by $230,000.
C) Excess reserves will increase by $170,000.
D) Required reserves will increase by $200,000.
Q2) Suppose a bank has $1,500,000 in deposits,a minimum reserve requirement of 20 percent,and total reserves of $350,000.Then the bank has excess reserves of:
A) $1,850,000
B) $350,000
C) $300,000
D) $50,000
Q3) Professor Williams tutors her next-door neighbor's son in economics.Instead of paying her for this service,the neighbor washes the professor's car.This is an example of:
A) A market transaction.
B) Barter.
C) A monetary transaction.
D) A store of value.
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Chapter 14: Monetary Policy
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148 Flashcards
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Sample Questions
Q1) The 12 regional Fed banks do all of the following except:
A) Clear checks between private banks.
B) Lend money to individuals.
C) Provide currency to banks.
D) Hold bank reserves.
Q2) One News Wire article in the text has the title "Fed Cuts Key Interest Rate Half-Point to 1 Percent." The Fed has most likely reduced the:
A) Discount rate.
B) Rate for purchasing bonds in the open market.
C) Prime lending rate.
D) Rate for foreign exchange.
Q3) Congress and the president are the key decision makers for U.S.monetary policy.
A)True
B)False
Q4) The principal mechanism for directly changing the reserves of the banking system is:
A) The discount rate.
B) The reserve requirement.
C) Open-market operations.
D) The federal funds rate.
Page 16
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Chapter 15: Economic Growth
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131 Flashcards
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Sample Questions
Q1) In order to maximize the potential of workers,managers should:
A) Watch workers closely so they don't become lazy.
B) Offer incentives to workers.
C) Require a certain level of productivity from each worker.
D) Limit coffee breaks and shorten lunch hours.
Q2) By using all available resources and technology the economy will:
A) Shift aggregate supply to the right.
B) Shift the production possibilities curve to the right.
C) Experience long-run economic growth.
D) Produce at a point on the production possibilities curve.
Q3) A major goal of long-run economic policy is to:
A) Increase food production.
B) Reduce transfer programs.
C) Increase potential GDP.
D) Increase population.
Q4) To calculate real GDP for each year,the value of goods and services is measured in the actual prices of each year.
A)True
B)False
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Chapter 16: Theory and Reality
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Sample Questions
Q1) The United States has repeatedly made mistakes in the economic policy options it has chosen.
A)True
B)False
Q2) Which of the following is the appropriate order of policy responses?
A) Design,recognition,impact,implementation.
B) Recognition,design,implementation,impact.
C) Design,implementation,recognition,impact.
D) Recognition,design,impact,implementation.
Q3) Which of the following is an example of fiscal policy?
A) The Federal Reserve cuts interest rates sharply in 2007.
B) The use of wage and price controls to curb inflation.
C) The Deficit Reduction Act of 1984.
D) Family Leave Act of 1993.
Q4) Refer to Figure 16.1.A shift from AS<sub>2</sub> to AS<sub>1</sub> could be caused by:
A) A decrease in government spending.
B) An increase in the money supply.
C) An increase in government regulation.
D) A decrease in the marginal tax rate.
Page 18
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Chapter 17: International Trade
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Sample Questions
Q1) Exchange rates are affected by changes in:
A) The supply of a currency only.
B) The demand for a currency only.
C) Both the demand for and supply of a currency.
D) The export of goods only.
Q2) Comparative advantage refers to the:
A) Total amount of resources needed to produce a good.
B) Gains from trade that some countries are able to experience.
C) Comparison of production processes in two different countries.
D) Relative opportunity costs of producing a particular good.
Q3) Suppose Chile has a lower opportunity cost in producing salmon than South Korea,and South Korea has a lower opportunity cost in producing cars than Chile,then Chile has:
A) An absolute advantage in producing both salmon and cars.
B) A comparative advantage in producing both salmon and cars.
C) A comparative advantage in producing cars,while South Korea has a comparative advantage in producing salmon.
D) A comparative advantage in producing salmon,while South Korea has a comparative advantage in producing cars.
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Page 19