Survey of Economics Practice Exam
Course Introduction
Survey of Economics provides students with a comprehensive overview of fundamental economic principles, encompassing both microeconomics and macroeconomics. The course explores key concepts such as supply and demand, market structures, consumer behavior, production costs, and the role of government in the economy. Additionally, it introduces students to national income determination, monetary and fiscal policy, inflation, unemployment, and international trade. Throughout the course, real-world applications and current economic issues are examined to help students develop a practical understanding of how economic theories impact societies and inform public policy.
Recommended Textbook
Essentials of Economics 6th Edition by
R. Glenn Hubbard
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Page 2
Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) Consider the following statements:
A.Consumers buy more MP3 players from an electronics store that sells MP3 players at a lower price than other rival electronics stores in the area.
B.Schools take steps to increase security since they believe it is more costly to allow vandalism than to hire additional security guards.
C.Citrus growers produce more oranges when the selling price of oranges falls. Which of the above statements demonstrates that economic agents respond to incentives?
A) a only
B) b only
C) c only
D) a and b
E) a, b, and c
Answer: D
Q2) An economic model is a complex version of reality used to analyze real-world economic situations.
A)True
B)False
Answer: False
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Chapter 2: Trade-Offs, Comparative Advantage, and the Market System
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Q1) Refer to Figure 2-15.In the circular flow diagram,economic agents M represent A) households.
B) product markets.
C) firms.
D) factor markets.
Answer: A
Q2) Firms
A) have no influence on the circular flow in a market economy.
B) purchase resources in the product market.
C) sell goods in the product market.
D) sell resources in the factor market.
Answer: C
Q3) If the best surgeon in town is also the best at cleaning swimming pools,then according to the theory of comparative advantage,this person should
A) pursue the activity he enjoys more.
B) specialize in cleaning swimming pools because it is more labor-intensive.
C) split his time evenly between being a surgeon and cleaning swimming pools.
D) specialize in being a surgeon because its opportunity cost is lower.
Answer: D
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Chapter 3: Where Prices Come From: The Interaction of
Demand and Supply
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Sample Questions
Q1) Factory incentives on cell phones have encouraged consumers to upgrade their phones.How does this affect the market for bluetooth headsets?
A) The quantity of bluetooth headsets demanded increases.
B) The quantity of bluetooth headsets demanded decreases.
C) The demand for bluetooth headsets increases.
D) The demand for bluetooth headsets decreases.
Answer: C
Q2) One would speak of a movement along a supply curve for a good,rather than a change in supply,if
A) the cost of producing the good changes.
B) supplier expectations about future prices change.
C) the price of the good changes.
D) prices of substitutes in production change.
Answer: C
Q3) An decrease in quantity supplied is represented by a leftward shift of the supply curve.
A)True
B)False
Answer: False
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Chapter 4: Market Efficiency and Market Failure
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Sample Questions
Q1) Refer to Figure 4-3.Kendra's marginal benefit from consuming the third ice cream cone is
A) $13.00.
B) $2.50.
C) $1.50.
D) $0.50.
Q2) Refer to Figure 4-25.The efficient equilibrium quantity of gasoline is ________ million gallons per month.
A) 20
B) 32
C) 48
D) 56
Q3) Refer to Figure 4-8.What is the value of the portion of producer surplus transferred to consumers as a result of the rent ceiling?
A) $50,000
B) $100,000
C) $150,000
D) $200,000
Q4) How does a positive externality in consumption reduce economic efficiency?
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Chapter 5: The Economics of Health Care
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Sample Questions
Q1) 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.
Q2) What are the main sources of health insurance in the United States?
Q3) Which of the following is a part of the "employer mandate" provision of the Patient Protection and Affordable Care Act (ACA)?
A) Every firm with more than 3 full-time employees must offer health insurance to its employees and must automatically enroll them in the plan.
B) Small businesses with fewer than 50 employees are exempt from being required to participate in the program.
C) Firms with 50 or more full-time employees must offer health insurance or pay a fee up to $3,390 to the federal government for every employee who receives a tax credit from the federal government for obtaining health insurance through a health insurance marketplace.
D) Every resident of the United States must have health insurance that meets certain basic requirements.
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Chapter 6: Firms, The Stock Market, and Corporate Governance
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Sample Questions
Q1) If a firm has implicit costs as well as explicit costs
A) net income will always be less than accounting profit.
B) accounting profit will be zero.
C) net income will always be greater than accounting profit.
D) economic profit will be less than accounting profit.
Q2) How is economic profit calculated?
Q3) Traditionally,Wall Street investment banks had been organized as partnerships,but by 2000 they had converted to being publicly traded corporations.As partnerships,the principal-agent problem is ________,but as publicly traded corporations,the principal-agent problem is often ________.
A) increased; more severe
B) increased; less severe
C) reduced; more severe
D) reduced; less severe
Q4) The principal-agent problem is
A) often more severe for partnerships than for corporations.
B) often less severe for partnerships than for corporations.
C) severe for corporations but nonexistent for partnerships.
D) most severe for sole proprietorships.
Q5) Define a sole proprietorship.
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Chapter 7: Consumer Choice and Elasticity
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Sample Questions
Q1) Refer to the Article Summary.Based on the difference between the face value of 'Hamilton' tickets sold by the Pantages Theater and Ticketmaster,and the prices being charged in the resellers like StubHub and SeatGeek,the demand at the face value of the tickets is
A) elastic.
B) inelastic.
C) unit elastic.
D) perfectly elastic.
Q2) Refer to Figure 7-8.The section of the demand curve labeled "A" represents A) the inelastic section of the demand curve.
B) the unit-elastic section of the demand curve.
C) the elastic section of the demand curve.
D) the perfectly elastic section of the demand curve.
Q3) A network externality causes firms to sacrifice profits in the short run in order to satisfy their customers and increase their long-run profits.
A)True
B)False
Q4) Define the economic concept of elasticity.
Q5) Describe the demand curve for a Giffen good.
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Chapter 8: Technology,Production,and Costs
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Sample Questions
Q1) Which of the following is typically considered a fixed cost by academic book publishers but a variable cost by companies that print books?
A) postage and supplies
B) travel
C) rent
D) wages and salaries
Q2) Refer to Figure 8-3.For what quantity of labor does production start to display diminishing returns?
A) for more than 1 units of labor
B) for more than 4 units of labor
C) for more than 5 units of labor
D) for more than 8 units of labor
Q3) All of the following cost curves are U-shaped except
A) the marginal cost curve.
B) the average fixed cost curve.
C) the average total cost curve.
D) the average variable cost curve.
Q4) Use a long-run average cost curve graph to illustrate how diseconomies of scale would not make it beneficial for two companies to go through with a merger.
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Chapter 9: Firms in Perfectly Competitive Markets
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Q1) A perfectly competitive industry achieves allocative efficiency when
A) goods and services are produced at the lowest possible cost.
B) goods and services are produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it.
C) it produces where market price equals marginal production cost.
D) firms carry production surpluses.
Q2) A perfectly competitive firm in a constant-cost industry produces 3,000 units of a good at a total cost of $36,000.The prevailing market price is $15.What will happen to the number of firms in the industry and to the industry's output in the long run?
A) The number of firms and the industry's output increase.
B) The number of firms and the industry's output decrease.
C) The number of firms remains constant and the industry's output increases.
D) The number of firms remains constant and the industry's output decreases.
Q3) 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?
Q4) Under what conditions should a competitive firm shut down in the short run?
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Chapter 10: Monopoly and Antitrust Policy
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Sample Questions
Q1) Wendell can sell five motor homes per week at a price of $22,000.If he lowers the price of motor homes to $20,000 per week he will sell six motor homes.What is the marginal revenue of the sixth motor home?
A) $10,000
B) $12,000
C) $20,000
D) $22,000
Q2) In the United States,government policies with respect to monopolies and collusion are embodied in
A) the U.S. Constitution.
B) common law, which the United States adopted from English law.
C) the Supreme Court.
D) antitrust laws.
Q3) Refer to Figure 10-4.What is the price charged for the profit-maximizing output level?
A) $13
B) $21
C) $27
D) $34
Q4) If you own the only bookstore in a small town,do you have a monopoly?
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Chapter 11: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) An agreement among firms to charge the same price or otherwise not to compete is called
A) a payoff matrix.
B) a subgame-perfect equilibrium.
C) a Nash equilibrium.
D) collusion.
Q2) Oligopoly differs from perfect competition and monopolistic competition in that A) barriers to entry are lower in oligopoly industries than they are in perfectly competitive and monopolistically competitive industries.
B) demand and marginal revenue curves are more useful for analyzing oligopoly than they are for analyzing perfect competition and monopolistic competition.
C) because oligopoly firms often react when other firms in their industry change their prices, it is difficult to know what the oligopolist's demand curve looks like.
D) the concentration ratios of oligopoly industries are lower than they are for perfectly competitive and monopolistically competitive industries.
Q3) What are the formulas for total revenue,average revenue,and marginal revenue.
Q4) Firms in an oligopoly are said to be interdependent.What does this mean?
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Chapter 12: GDP: Measuring Total Production and Income
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Q1) Which of the following is likely to increase measured GDP?
A) A greater number of women decide to stay at home and provide day care for their children under age 5.
B) Marijuana becomes legal to grow and sell.
C) Tax rates increase and more people attempt to underreport their income for tax purposes.
D) More people decide to do their own lawn maintenance and give up using a professional service.
Q2) Which of the following is included in both the U.S.GDP and U.S.GNP?
A) the value of all cars produced by General Motors in the United States
B) the value of all cars produced by Ford in Mexico
C) the value of all cars produced by Toyota in the United States
D) the value of all cars produced by Nissan in Japan and the United States
Q3) Which of the following is counted in GDP?
A) the value of goods and services produced in the underground economy
B) the cost of a speed boat purchased by drug smugglers
C) the value of do-it-yourself work
D) the value of leisure
Q4) What is the underground economy and how could it hurt an economy? How does it hurt developing economies?
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Chapter 13: Unemployment and Inflation
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Q1) If your nominal wage rises faster than the price level,we can say your real wage has ________ and the purchasing power of your income has ________.
A) fallen; fallen
B) fallen; risen
C) risen; risen
D) risen; fallen
Q2) You borrow $10,000 from a bank for one year at a nominal interest rate of 5%.The CPI over that year rises from 180 to 200.What is the real interest rate you are paying?
A) 15%
B) 5%
C) -1.1%
D) -6.1%
Q3) The nominal interest rate will be less than the real interest rate when
A) the rate of inflation is positive but decreasing.
B) the rate of inflation is positive and increasing.
C) the rate of inflation is negative.
D) the real interest rate is negative.
Q4) Describe the three types of unemployment.
Q5) Describe how inflation can be costly even if it is anticipated.
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Chapter 14: Economic Growth, The Financial System, and Business Cycles
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Sample Questions
Q1) Countries without well-developed financial systems are able to sustain high levels of economic growth.
A)True
B)False
Q2) Which of the following is most liquid?
A) a mutual fund share
B) a government bond
C) a corporate bond
D) a dollar bill
Q3) Refer to Scenario 14-1.Based on the information above,what is the level of private saving in the economy?
A) $3 trillion
B) $4 trillion
C) $5 trillion
D) $8 trillion
Q4) Potential GDP is defined as
A) the maximum of GDP that the economy can produce.
B) the amount of GDP produced if there is no frictional unemployment.
C) the level of GDP attained when all firms are producing at capacity.
D) the amount of GDP produced if there is no structural unemployment.
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Chapter 15: Aggregate Demand and Aggregate Supply Analysis
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Sample Questions
Q1) An increase in the price level shifts the aggregate demand curve to the left.
A)True
B)False
Q2) When the price level in the United States rises relative to the price level of other countries,________ will rise,________ will fall,and ________ will fall.
A) imports; exports; net exports
B) exports; imports; net exports
C) net exports; exports; imports
D) net exports; imports; exports
Q3) Refer to Figure 15-1.Ceteris paribus,an increase in government spending 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.
Q4) Use the dynamic model of aggregate demand and supply to illustrate a situation where the economy is growing but experiencing inflation in the long run.
Q5) Explain the three reasons the aggregate demand curve slopes downward.
Page 17
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Chapter 16: Money,Banks,and the Federal Reserve System
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Q1) A bank's assets are
A) things owned by or owed to the bank.
B) things the bank owes to someone else.
C) a measure of the bank's net worth.
D) always greater than the bank's liabilities.
Q2) In an economy with ________,there are more prices than in an economy with ________.
A) barter; money
B) money; barter
C) fiat money; commodity money
D) fiat money; barter
Q3) Suppose that the required reserve ratio is 20 percent and you deposit $50,000 of currency into Comerica Bank.What is the potential increase in deposits in the banking system brought about by your deposit? What is the potential change in the money supply?
Q4) Which of the following is an asset for a bank?
A) deposits of its customers
B) short-term borrowing
C) shareholders' equity
D) loans
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Chapter 17: Monetary Policy
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Q1) If the probability of losing your job remains ________,a recession would be a good time to purchase a home because the Fed usually ________ interest rates during this time.
A) low; lowers B) low; raises C) high; lowers D) high; raises E) low; does not change
Q2) The money supply curve is vertical if
A) banks and the Fed jointly determine the money supply.
B) the Fed is able to completely determine the money supply.
C) banks and households determine the money supply.
D) households and the Fed jointly determine the money supply.
Q3) If the Federal Reserve targets the money supply,and the money demand curve shifts to the left,then the Fed
A) cannot maintain the money supply target.
B) can maintain the money supply target, but at a lower interest rate.
C) can maintain the money supply target, but at a higher interest rate.
D) can maintain the money supply target with no change in the interest rate.
Q4) List the Fed's four main monetary policy goals.
Page 19
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Chapter 18: Fiscal Policy
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Q1) Suppose real GDP is $12.6 trillion and potential GDP is $12.4 trillion.To move the economy back to potential GDP,Congress should
A) lower government purchases by an amount less than $200 billion.
B) lower government purchases by $200 billion.
C) raise taxes by $200 billion.
D) lower taxes by $200 billion.
E) raise taxes by an amount more than $200 billion.
Q2) If the federal budget goes from a budget deficit in Year 1 to a budget surplus in Year 2,does it follow that the federal government acted to raise taxes or cut government spending in Year 2?
Q3) Data indicates that recessions following financial crises ________ recessions which do not follow financial crises.
A) are more severe than B) are less severe than C) are equally severe as
D) Data does not show any link between the severity of recessions following financial crises.
Q4) What is expansionary fiscal policy? What is contractionary fiscal policy?
Q5) What is the "tax wedge"?
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Chapter 19: Comparative Advantage, International Trade, and Exchange Rates
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Sample Questions
Q1) When Americans decrease their demand for Japanese goods
A) the demand for dollars will rise, and the demand for yen will rise.
B) the demand for dollars will fall, and the demand for yen will rise.
C) the supply of dollars will rise, and the demand for yen will rise.
D) the supply of dollars will fall, and the demand for yen will fall.
Q2) Refer to Figure 19-10.The appreciation of the euro is represented as a movement from
A) D to A.
B) D to C.
C) B to C.
D) A to C.
E) A to B.
Q3) Refer to the Article Summary.All else equal,a depreciation of the Uzbekistani soum relative to a currency such as the U.S.dollar should ________ foreign investment in Uzbekistan and ________ exports from Uzbekistan.
A) increase; increase
B) increase; decrease C) decrease; increase
D) decrease; decrease
Q4) What is a tariff?
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