Survey of Economics
Mock Exam
Course Introduction
Survey of Economics provides students with a comprehensive overview of fundamental economic principles and concepts, encompassing both microeconomics and macroeconomics. The course explores how individuals, businesses, and governments make decisions regarding the allocation of scarce resources, as well as how economic systems operate and interact at local, national, and global levels. Key topics include supply and demand, market structures, the role of government in the economy, monetary and fiscal policy, economic growth, and international trade. Emphasis is placed on applying economic reasoning to current events and everyday life, equipping students with the analytical tools needed to understand the economic forces shaping society.
Recommended Textbook
Survey of Economics Principles Applications and Tools 7th Edition by Arthur OSullivan
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Chapter 1: Introduction: What Is Economics
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Sample Questions
Q1) Slope is calculated as rise / run.
A)True
B)False
Answer: True
Q2) Refer to Figure 1A.2. The slope between points a and c is
A) -5.
B) -6.
C) 10.
D) 30.
Answer: B
Q3) Jerome has a "C" average in his philosophy course and a "B" average in his economics course. He decides to study an extra hour for his philosophy exam. This is an example of
A) thinking at the margin.
B) using assumptions to simplify.
C) ceteris paribus.
D) caveat emptor.
Answer: A
Q4) What is meant by the term "marginal change"?
Answer: A marginal change is a small, one unit change in value.
Page 3
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Chapter 2: The Key Principles of Economics
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Sample Questions
Q1) Refer to Figure 2.1. What is the opportunity cost of increasing production of manufactured products from 500 tons to 600 tons per year?
A) 200 tons of agricultural products per year
B) 400 tons of agricultural products per year
C) 500 tons of agricultural products per year
D) 600 tons of agricultural products per year
Answer: A
Q2) When applying the marginal principle, you should pick the level at which the activity's marginal benefit equals its marginal cost.
A)True
B)False
Answer: True
Q3) The principle of opportunity cost
A) is more relevant for firms than for individuals.
B) only refers to monetary payments.
C) is only relevant in economics.
D) is applicable to all decision-making.
Answer: D
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4
Chapter 3: Demand, Supply, and Market Equilibrium
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Sample Questions
Q1) Suppose that in 2011, 4 million plasma TVs were purchased at $950 each, while in 2012, 3 million plasma TVs were purchased at $800 each. What might have caused this change?
A) The price of LCD TVs (a substitute for plasma TVs) fell.
B) The price of LCD TVs (a substitute for plasma TVs) rose.
C) Plasma TV manufacturing technology increased.
D) Plasma TV manufacturing technology decreased.
Answer: A
Q2) Suppose that the quantity of cars demanded exceeds the quantity of cars supplied. We would expect that
A) the price of cars will increase.
B) the price of cars will decrease.
C) the supply will increase (supply will shift to the right) to meet the demand.
D) the demand will decrease (demand will shift to the left) to meet the supply.
Answer: A
Q3) Excess supply in an unregulated market will cause the price of a product to fall.
A)True
B)False
Answer: True
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Chapter 4: Elasticity: A Measure of Responsiveness
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Sample Questions
Q1) If the income elasticity of a good is greater than one, we say that its demand is
A) price sensitive.
B) income-inelastic.
C) income-elastic.
D) price insensitive.
Q2) Gloria works for a museum in a large city with many other museums. Her boss proposes that the museum should raise the price of admission to increase revenues. Gloria was a good student in her economics principles course. How should she advise her boss?
Q3) Suppose that in a month the price of pizza increases from $4 to $5. At the same time, the quantity of pizzas demanded decreases from 200 to 190. The price elasticity of demand for pizza (calculated using the midpoint formula) is A) zero.
B) inelastic.
C) unit elastic.
D) elastic.
Q4) If demand elasticity of airline tickets is 3, what percentage change in quantity would the airlines expect from a 10% increase in price?
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Chapter 5: Production Technology and Cost
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Sample Questions
Q1) The long-run marginal cost (LMC) is the increase in the cost incurred by the firm when producing one additional unit of output, holding
A) neither the workforce nor the production facility constant.
B) the workforce and the production facility constant.
C) the workforce constant.
D) the production facility constant.
Q2) Table 5.3 presents the cost schedule for Candy's Cakes. If Candy produces three cakes, Candy's marginal costs are
A) $0.
B) $25.
C) $41.67.
D) $75.
Q3) If the long-run average total cost curve is rising as output increases, then the firm faces diseconomies of scale.
A)True
B)False
Q4) If average cost is falling, marginal cost must also be falling.
A)True
B)False
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Chapter 6: Perfect Competition
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Sample Questions
Q1) Figure 6.5 shows the short-run and long-run effects of an increase in demand of an industry. The industry is
A) a constant-cost industry.
B) an increasing-cost industry.
C) a decreasing-cost industry.
D) There isn't sufficient information.
Q2) What are the similarities between perfect competition and monopolistic competition?
Q3) A perfectly competitive firm that is maximizing profit produces the quantity of output at which price equals marginal cost.
A)True
B)False
Q4) Monopolistically competitive industries are characterized by no barriers to entry. A)True
B)False
Q5) Explain why a firm's shut-down decision does not incorporate the fixed costs of the production facility.
Q6) What is marginal revenue?
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Chapter 7: Monopoly and Price Discrimination
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Sample Questions
Q1) All patent protected products would not have been developed without patent protection.
A)True
B)False
Q2) Figure 7.1 shows a monopolist's demand curve. If the monopolist were to maximize its total revenue, it would produce ________ units of output and charge a price of
A) 3; $5
B) 4; $4
C) 5; $3
D) 6; $2
Q3) Which of the following would NOT be considered price discrimination?
A) charging business travelers more money than leisure travelers for plane tickets
B) charging houses in expensive neighborhoods more money for mowing the same size lawn than in a less expensive neighborhood
C) charging a lower price for dry cleaning men's shirts than women's shirts
D) charging more money for a large luxury car than a small economy car
Q4) What is a patent?
Q5) What is a network externality?
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Chapter
8:
Market Entry, Monopolistic Competition, and Oligopoly
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Sample Questions
Q1) The Robinson-Patman Act of 1936
A) prohibited selling products at "unreasonably low prices" with the intent of reducing competition.
B) made it illegal to monopolize a market.
C) repealed the Sherman Act.
D) outlawed price discrimination for the purpose of reducing competition.
Q2) In the short run, monopolistically competitive firms find their profit-maximizing quantity by setting price equal to marginal cost.
A)True
B)False
Q3) Monopolistically competitive firms differentiate their products by A) selling products with slightly different physical characteristics.
B) selling products at different locations.
C) creating a special aura or image for the product with advertising.
D) all of the above
Q4) Recall the Application. In a market subject to monopolistic competition, a restaurant's rational response to more elastic demand is to increase its price.
A)True
B)False
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Chapter 9: Imperfect Information, External Benefits, and External Costs
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Sample Questions
Q1) Recall the Application. Assume a firm that produces CO2 has a marginal cost of abatement of $90 per ton and faces a carbon tax of $70 per ton. If the cost of carbon washing is $50 per ton, the firm could save ________ per ton and emit ________ carbon into the atmosphere by using a carbon washing machine.
A) $40; less
B) $40; more
C) $20; less
D) $20; more
Q2) In the U.S. health care market, the uninsured typically receive health care for A) emergencies, but not for preventative care.
B) preventative care, but not for emergencies.
C) both emergencies and preventative care.
D) neither emergencies nor preventative care.
Q3) Recall the Application. When a state makes car insurance compulsory, decreasing the number of uninsured drivers, roads tend to become less hazardous.
A)True
B)False
Q4) What are the main differences between adverse selection and moral hazard in the insurance market?
Page 11
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Chapter 10: The Labor Market and the Distribution of Income
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Sample Questions
Q1) If the equilibrium wage is below the actual wage
A) the demand for labor will increase.
B) the demand for labor will decrease.
C) the wage rate will fall.
D) the wage rate will rise.
Q2) Suppose that the wage for teachers decreases relative to other occupations. We know that ________ people will work as teachers, and the total number of hours worked will ________.
A) more; increase
B) more; decrease
C) fewer; increase
D) fewer; decrease
Q3) The poverty rate in the United States has been growing for people over age 65.
A)True
B)False
Q4) The substitution effect of an increase in the wage rate influences a worker to consuming more leisure.
A)True
B)False
Q5) Explain the possible benefits of labor unions.
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Chapter 11: Measuring a Nations Production and Income
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Sample Questions
Q1) GDP ignores all of the following EXCEPT
A) household production.
B) the value of leisure time.
C) products produced in other countries that are sold in the United States.
D) changes in the environment that occur in the production of output.
Q2) Not including transactions from the underground economy will tend to ________ GDP, and not including environmental changes caused by pollution will tend to ________ GDP.
A) overvalue; undervalue
B) undervalue; overvalue
C) overvalue; overvalue
D) undervalue; undervalue
Q3) In the circular flow model, firms sell the services of factors of production to households.
A)True
B)False
Q4) Nominal GDP uses current year prices to measure GDP.
A)True
B)False
Q5) Explain why only final goods are included in GDP.
Page 13
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Chapter 12: Unemployment and Inflation
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Sample Questions
Q1) Critically evaluate the statement "Honolulu is an expensive place to live. Therefore the inflation rate must be high in Honolulu."
Q2) According to this Application, the failure of including cell phones in a timely manner when calculating the CPI caused the telecommunications component of the price index
A) to be biased downward.
B) to be biased upward.
C) to actually register no perceptible bias.
D) to become negative.
Q3) At full employment there is no
A) structural unemployment.
B) cyclical unemployment.
C) frictional unemployment.
D) all of the above
Q4) The real-nominal principle can be stated as
A) production generates income.
B) only final goods and services should be counted in GDP.
C) what matters to people is the purchasing power of money or income.
D) only the manufacture of real goods is production.
Q5) What is frictional unemployment?
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Chapter 13: Why Do Economies Grow
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Sample Questions
Q1) Gross investment minus net investment is equal to A) depreciation.
B) nominal investment.
C) real investment.
D) consumption.
Q2) Using the rule of 70, if the GDP per capita growth rate in the United States is 4.4 percent, real GDP per capita doubles every
A) 6.72 years.
B) 15.91 years.
C) 44 years.
D) 65.6 years.
Q3) Which of the following is the best example of a person NOT having clear property rights?
A) a city parks worker who inherits his uncle's town house
B) a dairy farmer who pays off the mortgage on his farm
C) a medical student who lives on campus for his first year of studies
D) a retired college professor who builds a bungalow on her oceanfront property
Q4) Will increased imports of supercomputers for industry promote economic growth?
Q5) In what two ways can education contribute to economic growth?
Q6) Explain the effect of trade deficits on economic growth.
Page 15
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Chapter 14: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) Figure 14.1 shows three aggregate demand curves. A movement from curve AD to curve AD could be caused by a(n)
A) increase in the money supply.
B) decrease in taxes.
C) increase in the price level.
D) decrease in government spending.
Q2) In the long run
A) price and output levels are mutually dependent.
B) the level of output depends on the price level.
C) the level of output is independent of the price level.
D) the price level depends on the level of output.
Q3) Assuming the price level has not changed, how would an increase in the aggregate demand affect real GDP?
A) It decreases.
B) It increases.
C) It only changes with changes in imports.
D) It only changes with changes in exports.
Q4) The price system always works instantaneously.
A)True
B)False
16
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Chapter 15: Fiscal Policy
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Sample Questions
Q1) Due to the ________ effect, the final shift in aggregate demand is larger than the initial shift in aggregate demand.
A) income
B) multiplier
C) substitution
D) crowding-out
Q2) Suppose an economy has a balanced federal budget, and a large increase in oil prices plunges the economy into a recession. Tax revenues will ________ and expenditures on transfer payments will ________, resulting in a budget ________.
A) fall; increase; deficit
B) increase; increase; surplus
C) fall; fall; deficit
D) increase; fall; surplus
Q3) The time it takes for a policy to actually work is known as
A) fiscal policy.
B) crowding out.
C) inside lags.
D) outside lags.
Q4) What are the two basic reasons inside lags occur?
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Chapter 16: Money and the Banking System
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Sample Questions
Q1) If the prices of goods and services were expressed in terms of carved wooden beads, then the carved wooden beads would be serving as a
A) medium of exchange.
B) store of value.
C) unit of account.
D) mechanism for transforming present purchases into future purchases.
Q2) A bank's excess reserves are the fraction of a bank's deposits held at the Federal Reserve.
A)True
B)False
Q3) Describe the relationship between the Federal Reserve and the legislative and executive branches of the U.S. government.
Q4) Money solves the problem of double coincidence of wants that would regularly occur under a system of credit.
A)True
B)False
Q5) What is a gold standard?
Q6) What are the three properties of money?
Q7) Define "money."
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Chapter 17: Monetary Policy and Inflation
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Sample Questions
Q1) Outside lags occur because
A) firms must change investment plans before monetary policy can be effective.
B) it takes time to identify a problem.
C) once a problem is diagnosed, it still takes time to implement policy changes.
D) once changes are finally diagnosed and implemented, policies are immediately effective.
Q2) When the Federal Reserve buys bonds on the open market, it decreases the money supply.
A)True
B)False
Q3) Recall the Application. The Fed's goal of this policy was to ________ the prices of government bonds and mortgage securities and ________ the interest rates on both bonds and mortgages.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
Q4) The prime rate is the interest rate at which banks can borrow from the Fed.
A)True
B)False
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Chapter 18: International Trade and Finance
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Sample Questions
Q1) According to this Application, workers in the EU were more productive than workers in Latvia in the 1990s, yet EU nations still purchased products from Latvia. This is because Latvia ________ in the production of the products it sold to EU nations.
A) had an absolute advantage
B) had a comparative advantage
C) used fewer resources
D) had a higher opportunity cost
Q2) If the price of smoothies is $3.50 in the United States and the exchange rate is 110 yen per dollar, then what is the yen price of smoothies?
A) 110 yen
B) 240 yen
C) 318 yen
D) 385 yen
Q3) Foreign exchange market intervention involves the purchase or sale of currencies by governments to influence the market exchange rate.
A)True
B)False
Q4) Would consumers benefit more from a tariff or a quota on imports?
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