Survey of Economics Practice Exam
Course Introduction
Survey of Economics provides an introduction to the fundamental concepts and principles of economics, covering both microeconomic and macroeconomic perspectives. Students will explore topics such as supply and demand, market structures, consumer behavior, production and cost analysis, as well as national income, fiscal and monetary policy, inflation, unemployment, and international trade. The course is designed to equip students with a broad understanding of how economic systems operate, the factors that influence economic decision-making, and the role of government in the economy, making it ideal for non-majors seeking a comprehensive overview of the field.
Recommended Textbook
Essentials of Economics 4th Edition by R. Glenn Hubbard
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Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) Cassie's Quilts alters,reconstructs and restores heirloom quilts.Cassie has just spent $800 purchasing,cleaning and reconstructing an antique quilt which she expects to sell for $1,500 once she is finished.After having spent $800,Cassie discovers that she would need some special period fabric that would cost her $200 in material and time in order to complete the task.Alternatively,she can sell the quilt "as is" now for $900.What is the marginal cost of completing the task?
A)$200
B)$500
C)$1,000
D)$1,000 plus the value of her time
Answer: A
Q2) Scarcity is a problem that will eventually disappear as technology advances.
A)True
B)False
Answer: False
Q3) Explain the term "economics."
Answer: Economics is the study of the choices people make to attain their goals,given their scarce resources.
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3
Chapter
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Q1) The points outside the production possibilities frontier are A)efficient.
B)attainable.
C)inefficient.
D)unattainable.
Answer: D
Q2) Refer to Figure 2-4.Consider the following events:
a.an increase in the patent protection period to 30 years
b.an increase of a nation's capital stock
c.an improved property rights system
Which of the events listed above could cause a movement from V to W?
A)a only
B)a and b only
C)a and c only
D)b and c only
E)a, b, and c
Answer: C
Q3) List the four broad categories of factors of production. Answer: labor,capital,natural resources,and entrepreneurship
Page 4
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Q1) If more insurance companies decide to cover part of the price of voluntary laser eye surgery and more doctors decide to enter the field of laser eye surgery,what will happen in the market for laser eye surgery as a result of these two factors?
A)Demand will increase, but these two factors will not shift the supply curve.
B)Supply will increase, but these two factors will not shift the demand curve.
C)Demand and supply will both increase.
D)Demand will increase and supply will decrease.
Answer: C
Q2) The ________ effect refers to the change in quantity demanded for a good that results from the effect of a change in the good's price on consumer's purchasing power.
A)ceteris paribus
B)population
C)substitution
D)income
Answer: D
Q3) Explain the difference between substitutes and complements.
Answer: Substitutes are goods and services that can be used for the same purpose.Complements are goods and services that are used together.
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Chapter 4: Market Efficiency and Market Failure
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Q1) Refer to Table 4-8.If a minimum wage of $9.50 is mandated there will be a A)shortage of 10,000 units of labor.
B)surplus of 10,000 units of labor.
C)shortage of 20,000 units of labor.
D)surplus of 20,000 units of labor.
Q2) State and local governments subsidize college students with grants and low-interest loans.The loans and subsidies are examples of A)positive externalities.
B)Coase subsidies.
C)Pigovian subsidies.
D)emission allowances.
Q3) Refer to Figure 4-1.If the market price is $1.00,what is the maximum number of burritos that Arnold will buy?
Q4) The private cost of a good or service is the cost borne by the producer. A)True B)False
Page 6
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Chapter 5: The Economics of Health Care
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Q1) Suppose that in a market for used cars,there are good used cars and bad used cars (lemons).Consumers are willing to pay as much as $9,000 for a good used car but only $3,000 for a lemon.Sellers of good used cars value their cars at $7,500 each and sellers of lemons value their cars at $1,500 each.Buyers cannot tell if a used car is reliable or is a lemon.Based on this information,what is the likely outcome in the market for used cars?
A)Sellers of good used cars will drop out of the market.
B)Sellers of good used cars will incur losses.
C)Sellers of lemons will drop out of the market.
D)Used cars will sell for $6,000.
Q2) About ________ of pharmaceutical patents are issued to U.S.firms.
A)10 percent
B)one-half
C)two-thirds
D)90 percent
Q3) In the United States,private health insurance companies
A)are all for-profit firms.
B)are all not-for-profit firms.
C)can be either for-profit or not-for-profit firms.
D)are all government-run firms.
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Chapter 6: Firms, the Stock Market, and Corporate Governance
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Sample Questions
Q1) An asset is
A)anything of value owned by a person or a firm.
B)a payment by a corporation to its shareholders.
C)a nonmonetary opportunity cost.
D)anything owed by a person or a firm.
Q2) Laura's Pizza Place incurs $800,000 per year in explicit costs and $100,000 in implicit costs.The restaurant earns $1.3 million in revenues and has $5 million in net worth.Based on this information,what is economic profit for Laura's Pizza Place?
A)$200,000
B)$400,000
C)$500,000
D)$2.8 million
Q3) Which of the following takes place in the direct finance market?
A)Firms borrow funds from banks.
B)Deposits from savers are accumulated and loans made to borrowers.
C)Ownership in corporations is sold in the form of preferred stock.
D)Banks offer savings accounts to customers.
Q4) What is corporate governance?
Q5) What is a corporate bond and what does it specify?
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Chapter 7: Consumer Choice and Elasticity
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Q1) Assume that the market for barley is in equilibrium and the demand for barley is inelastic.Predict what happens to the revenue of barley farmers if a prolonged drought reduces the supply of barley.The drought will cause farm revenue to
A)rise because there will be a shortage of barley.
B)rise because the percentage decrease in quantity sold is less than the percentage increase in price.
C)rise because the percentage increase in quantity sold is greater than the percentage increase in price.
D)fall because of the decrease in the quantity of barley sold.
Q2) Refer to Table 7-6.What is Antonio's marginal utility from consuming the fifth beer?
A)4 utils
B)13.6 utils
C)69 utils
D)134 utils
Q3) When diminishing marginal utility sets in,total utility must be negative.
A)True
B)False
Q4) Briefly explain the economic concept of elasticity.
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Chapter 8: Technology, production, and Costs
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Q1) A downward sloping marginal product of labor curve demonstrates the law of diminishing marginal returns.
A)True
B)False
Q2) Refer to Table 8-8.Elegant Settings experiences
A)economies of scale up to an output level of 400.
B)diminishing returns up to an output level of 400.
C)increasing returns beyond an output level of 400.
D)economies of scale at an output of 300 or less and diseconomies of scale at an output level above 400.
Q3) Which of the following equations is incorrect?
A)ATC - AFC = AVC
B)AVC + AFC = ATC
C)AFC = ATC - AVC
D)ATC = AVC - AFC
Q4) If the firm is producing no output in the short run,then its total costs are zero.
A)True
B)False
Q5) Describe the relationship between marginal cost and average total cost.
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Chapter 9: Firms in Perfectly Competitive Markets
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Q1) Which of the following characteristics of a farmers' market make it a good example of a perfectly competitive market?
A)Selling product at a farmers' market was very profitable for farmers in the early 2000s.As result, many farmers sold their farms to larger firms.
B)Farmers who sell product at a farmers' market are similar to other entrepreneurs who introduce products that earn short-run profits but invite competition that drives down prices and profits in the long run.
C)Farmers who sell product at a farmers' market are similar to other business owners who take advantage of the willingness of some consumers to pay high prices for new and different products.
D)Farmers selling product at a farmers' market provide a product that is a necessity, rather than a luxury.
Q2) What is always true at the quantity where a firm's average total cost equals average revenue?
A)The firm's revenue is maximized.
B)The firm's profit is maximized.
C)The firm breaks even.
D)Marginal cost equals marginal revenue.
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Chapter 10: Monopoly and Antitrust Policy
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Q1) If a monopolist's marginal revenue is $25 a unit and its marginal cost is $25,then
A)to maximize profit the firm should increase output.
B)to maximize profit the firm should decrease output.
C)to maximize profit the firm should continue to produce the output it is producing.
D)Not enough information is given to say what the firm should do to maximize profit.
Q2) Relative to a perfectly competitive market,a monopoly results in
A)a gain in producer surplus equal to the gain in consumer surplus.
B)a gain in producer surplus equal to the loss in consumer surplus.
C)a gain in producer surplus less than the loss in consumer surplus.
D)greater economic efficiency.
Q3) Refer to Figure 10-15.What is the economically efficient output level and what is the price at that level?
A) Q , P
B)Q , P
C)Q , P
D)Q , P
Q4) What happens to a monopoly's revenue when it sells more units of its product?
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Chapter 11: Monopolistic Competition and Oligopoly
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Q1) Refer to Figure 11-1.The marginal revenue from the increase in price from P? to P? equals
A)the area A.
B)the area (B + D - A).
C)the area (A - D).
D)the area (C - B).
Q2) The value of the four-firm concentration ratio that many economists consider indicative of the existence of an oligopoly in a particular industry is
A)anything greater than 10 percent.
B)anything greater than 20 percent.
C)anything greater than 30 percent.
D)anything greater than 40 percent.
Q3) A market comprised of only two firms is called a
A)competitive market.
B)duopoly.
C)monopoly.
D)monopolistically competitive market.
Q4) What is an oligopoly? Give two examples of oligopolistic industries in the United States.
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Chapter 12: Gdp: Measuring Total Production and Income
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Q1) Refer to Table 12-13.Nominal GDP for Vicuna for 2009 equals
A)$4,920.
B)$5,100.
C)$5,300.
D)$5,850.
Q2) Between 2013 and 2014,if an economy's exports rise by $8 billion and its imports fall by $8 billion,by how much will GDP change between the two years,all else equal?
A)Net exports will increase GDP by $8 billion.
B)The increase in exports is offset by the decrease in imports, so there is no change in net exports and no effect on GDP.
C)Net exports will increase GDP by $16 billion.
D)Net exports will decrease GDP by $8 billion.
Q3) Refer to Table 12-24.Suppose that a very simple economy produces three goods: pizzas,haircuts,and backpacks.Suppose the quantities produced and their corresponding prices for 2007 and 2013 are shown in the table above.Use the information to compute real GDP in the year 2007 and 2013.Calculate real GDP in 2013 assuming the base year is 2007.Do the same calculation assuming the base year is 2013.Are the calculations different? Why?
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Chapter 13: Unemployment and Inflation
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Q1) Refer to Table 13-17.Looking at the table above,real average hourly earnings in 2010 were
A)$3.67.
B)$5.63.
C)$10.24.
D)$11.37.
Q2) If the CPI falls from 142 to 140 between two consecutive years,this implies that prices fell by 2% between those two years.
A)True
B)False
Q3) Since 1948,the labor force participation rate for adult men has ________ and for adult women has ________.
A)increased; increased
B)increased; decreased
C)decreased; increased
D)decreased; decreased
Q4) Why would a firm pay efficiency wages?
Q5) When the actual inflation rate turns out to be greater than the expected inflation rate,who gains - the borrower or the lender - and who loses? Explain why.
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Chapter 14: Economic Growth, the Financial System, and Business Cycles
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Q1) A period of expansion in the business cycle ends when
A)real GDP is equal to potential GDP.
B)the business cycle reaches its peak.
C)the business cycle reaches its trough.
D)real GDP is less than potential GDP.
Q2) If net taxes rise by $150 billion would you expect household saving to fall by $150 billion,by more than $150 billion,or by less than $150 billion?
Q3) The lengths of the recession and expansion phases and which sectors of the economy are most affected will rarely be the same in any two business cycles.
A)True
B)False
Q4) The period between a business cycle peak and a business cycle trough is called A)expansion.
B)recession.
C)diffusion.
D)recalculation.
Q5) Explain why increasing the government budget deficit can decrease investment spending.
Q6) How are unemployment,inflation,and the business cycle related?
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Chapter 15: Aggregate Demand and Aggregate Supply Analysis
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Q1) Refer to Figure 15-1.Ceteris paribus,a decrease in the growth rate of domestic GDP relative to the growth rate of foreign GDP would be represented by a movement from A)AD to AD .
B)AD to AD .
C)point A to point B.
D)point B to point A.
Q2) Refer to Figure 15-1.Ceteris paribus,an increase in interest rates would be represented by a movement from A)AD to AD .
B)AD to AD .
C)point A to point B.
D)point B to point A.
Q3) There has been a decrease in investment.As a result,real GDP will ________ in the short run,and ________ in the long run.
A)increase; increases further
B)increase; decrease to its initial value
C)decrease; decrease further
D)decrease; increase to its initial level
Q4) What are sticky prices,and how can contracts make them "sticky"?
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Chapter 16: Money, banks, and the Federal Reserve System
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Q1) If you transfer all of your currency to your checking account,then initially,M1 will ________ and M2 will ________.
A)increase; not change
B)not change; increase
C)not change; not change
D)decrease; increase
Q2) Which of the following is not a consequence of the Fed changing the reserve requirement?
A)Changes in the ratio are easily incorporated into banks' routine management.
B)Decreasing the ratio will increase excess reserves.
C)Increasing the ratio will decrease the amount of reserves banks have to loan.
D)Changes in the ratio effectively places a tax on banks' deposit taking and lending activities.
Q3) An increase in the discount rate ________ bank reserves and ________ the money supply if banks respond appropriately to the change in the rate.
A)increases; increases
B)increases; decreases
C)decreases; increases D)decreases; decreases
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Chapter 17: Monetary Policy
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Q1) A monetary policy target is a variable that
A)the Fed can affect directly.
B)equals one of the Fed's main policy goals.
C)the Fed has no ability to change.
D)the Fed cannot affect directly.
Q2) When the Federal Reserve System was established in 1913,its main policy goal was
A)encouraging strong economic growth.
B)promoting price stability.
C)preventing bank panics.
D)keeping employment high.
Q3) The Fed uses a "core" price index,one that excludes food and energy prices to measure inflation.It does so because
A)food and energy are inelastic goods and consumers will buy them regardless of their price.
B)it wants to avoid the blame for high gasoline prices causing inflation.
C)food and energy prices have wide swings that are not related to the causes of general inflation.
D)food and energy prices do not change all that much during the short run, so are irrelevant to the calculation of inflation.
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Chapter 18: Fiscal Policy
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Q1) A one-time tax rebate,which is not expected to be extended in future years,will
A)have a small positive effect on consumption and aggregate demand.
B)have no effect on consumption and aggregate demand.
C)have a significant positive effect on consumption and aggregate demand, with aggregate demand growing by a multiple of the tax rebate.
D)increase aggregate supply and aggregate demand.
Q2) The increase in government spending on unemployment insurance payments to workers who lose their jobs during a recession and the decrease in government spending on unemployment insurance payments to workers during an expansion is an example of
A)automatic stabilizers.
B)discretionary fiscal policy.
C)discretionary monetary policy.
D)automatic monetary policy.
Q3) If Congress and the president pursue an expansionary fiscal policy at the same time as the Federal Reserve pursues an expansionary monetary policy,how might the expansionary monetary policy affect the extent of crowding out in the short run?
Q4) What is expansionary fiscal policy? What is contractionary fiscal policy?
Q5) What is the difference between federal purchases and federal expenditures?
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Chapter 19: Comparative Advantage, international Trade, and Exchange Rates
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Q1) In 2012,the largest exporter in the world was
A)Japan.
B)Germany.
C)China.
D)the United States.
Q2) Textbook examples of trade between two nations are simplified in order to show how two nations both benefit from trade.These examples are misleading because A)in the real world, rich countries can take advantage of poor countries.
B)they do not account for the reduction in wages that occurs in both countries as a result of trade.
C)some individuals in both countries may be made worse off because of trade. D)trade restrictions are likely to be imposed as trade grows over time.
Q3) Which of the following is an example of a trade restriction?
A)Japan places a tax on all Korean automobiles.
B)Domestic wine is more expensive than wine imported from Chile.
C)The United States, Canada, and Mexico sign the NAFTA agreement.
D)Consumers prefer German beer to domestic beer.
Q4) What are the three main sets of factors that cause the supply and demand curves in the foreign exchange market to shift?
Page 21
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