Survey of Economics Practice
Questions
Course Introduction
Survey of Economics provides a comprehensive introduction to the fundamental principles of economics, covering both microeconomic and macroeconomic concepts. The course examines how individuals, firms, and governments make choices in the face of scarcity, exploring topics such as supply and demand, market structures, consumer behavior, production, fiscal and monetary policy, and international trade. Students will develop a basic understanding of how economic systems function, gain insight into real-world economic issues, and learn to analyze economic data to make informed decisions. This course is designed for students in a wide range of disciplines who seek to build a strong foundation in economic thinking.
Recommended Textbook
Survey of ECON 3rd Edition by Robert L. Sexton
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Chapter 1: The Role and Method of Economics
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Sample Questions
Q1) Wealthy consumers do not have to make decisions on what to buy or how much to save.
A)True
B)False
Answer: False
Q2) A decrease in the price of corn signals to consumers and producers that:
A)consumers are buying more corn than before.
B)corn is relatively more abundant than before.
C)corn is relatively less abundant than before.
D)producers are stocking up on corn.
E)producers are more willing to supply corn in the current period.
Answer: B
Q3) To be a positive economic statement, an assertion must be true.
A)True
B)False
Answer: False
Q4) Normative analysis focuses on statements that can be tested against data.
A)True
B)False
Answer: False
Page 3
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Chapter 2: The Economic Way of Thinking
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Sample Questions
Q1) Which of the following is most limited in scope under a pure market economy?
A)Freedom of choice
B)Consumer sovereignty
C)Entrepreneurship
D)Government
E)The labor force
Answer: D
Q2) A production possibilities curve is negatively sloped because:
A)the price of a good falls as you move down along the curve.
B)resources are wasted as you move along the curve.
C)it is not possible to adjust production decisions at all once an economy operates on the curve.
D)once on the frontier, it is only possible to increase production of one good by reducing production of the other.
E)of the law of diminishing returns to scale.
Answer: D
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Chapter 3: Supply and Demand
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Sample Questions
Q1) Only sellers determine prices and output in competitive markets.
A)True
B)False
Answer: False
Q2) A decrease in demand for a good could be caused by:
A)a decrease in the price of the good.
B)a decrease in the price of a complement of the good.
C)a technological advancement that decreases the cost of production of the good.
D)a decrease in the price of a substitute of the good.
E)an increase in the income of the consumers of the good.
Answer: D
Q3) In economics, a market does not primarily refer to a specific place, but rather to the process of buyers and sellers exchanging goods and services
A)True
B)False
Answer: True
Q4) If the price of pizza falls, the demand for pizza will rise.
A)True
B)False
Answer: False
Page 5
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Chapter 4: Using Supply and Demand
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Sample Questions
Q1) The demand curve for a good is also referred to as the:
A)marginal benefit curve.
B)consumption possibility frontier.
C)derived demand curve.
D)indifference curve.
E)isoquant curve.
Q2) If the demand for a good is price inelastic, a decrease in the price of the good will result in a decrease in the total revenue of a firm producing the good.
A)True
B)False
Q3) Which of the following goods is likely to have a more elastic demand curve?
A)A good without close substitutes
B)A nondurable good
C)A necessary good
D)A good with complements
E)A luxury good
Q4) A price floor set above the equilibrium price is not binding.
A)True
B)False
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Chapter 5: Market Failure and Public Choice
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Sample Questions
Q1) A free rider is someone who does not contribute toward covering the cost of a desired good but he or she cannot be excluded from receiving the benefits of the good.
A)True
B)False
Q2) If a negative externality results from the refining of petroleum, in the eyes of the oil refinery the cost of production:
A)does not include external costs.
B)includes external costs.
C)does not include fixed costs.
D)includes external benefits.
E)does not include variable costs.
Q3) Moral hazard occurs when an informed party benefits in an exchange by taking advantage of knowing more than the other party.
A)True
B)False
Q4) How do moral hazard and adverse selection differ in the timing of their effects?
Q5) Why is television broadcasting over the air considered a public good?
Q6) What distinguishes public goods from private goods?
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Chapter 6: Production and Costs
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Sample Questions
Q1) One would expect to observe a diminishing marginal product of labor when the office space is overcrowded
A)True
B)False
Q2) Total variable costs:
A)are the costs of short-run fixed capital equipment
B)are so named because they vary from firm to firm within an industry.
C)are costs that increase as production increases.
D)are costs that decrease as production increases.
E)are costs that are excluded by an economist while computing profits.
Q3) The total fixed cost curve is an upward-sloping curve that starts from the origin.
A)True
B)False
Q4) Explain why some costs are considered to be variable and some fixed. How is time related to variable and fixed cost?
Q5) In the long run, firms can vary all inputs in the production process.
A)True
B)False
Q6) How short is the short-run production period?
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Chapter 7: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) In the short run, if a firm's price is greater than its AVC but less than its ATC, the firm should:
A)shut down immediately because it is generating an economic loss.
B)shut down temporarily because it is generating an economic loss.
C)continue operating at the same level of output because it is generating an economic profit.
D)continue operating even though it is generating an economic loss.
E)increase its output in order to earn more profits.
Q2) If the market demand curve in a perfectly competitive industry shifts right, the demand curve for each existing firm will:
A)shift up.
B)shift down.
C)shift right.
D)shift left.
E)become negatively sloped.
Q3) The behavior of an individual perfectly competitive firm has a perceptible influence on the market price.
A)True
B)False
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Chapter 8: Monopoly
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Sample Questions
Q1) A natural monopoly exists when one large firm can produce a product at a lower per-unit cost than can smaller firms.
A)True
B)False
Q2) Which of the following is consistent with a monopoly?
A)A horizontal demand curve
B)The free entry of competitive firms
C)An increase in average total cost with increase in output
D)Marginal revenue that is less than the selling price
E)A single buyer
Q3) Patents tend to slow down research and development.
A)True
B)False
Q4) Monopolies tend to produce a greater quantity and charge higher prices than perfectly competitive industries.
A)True
B)False
Q5) Along which portion of the demand curve will profit-maximizing monopolists choose to operate: the inelastic portion or elastic portion? Why?
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Chapter 9: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) Monopolistic competition is common in:
A)retail selling
B)farming.
C)basic manufacturing.
D)electric power generation.
E)banking.
Q2) Explain how economic profits are reduced to zero as new firms enter a monopolistically competitive industry.
Q3) Identify the correct statement.
A)A price leader is a perfect competitor who sells as much as it wants at a given price.
B)A price follower has substantial influence over the market price.
C)A price follower is a firm that produces a large portion of the total output produced in an oligopolistic market.
D)A price leader sets the price that maximizes its profits.
E)A price leader sets the price that maximizes its sales.
Q4) Define monopolistic competition.
Q5) Explain how losses of existing firms are reduced as some firms exit a monopolistically competitive industry due to economic losses.
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Chapter 10: Labor Markets, Income Distribution, and Poverty
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Sample Questions
Q1) The marginal revenue product (MRP) curve for labor:
A)is the same as the demand curve for labor in a competitive market
B)is the same as the supply curve of labor in a monopolistic market.
C)will shift up if the market wage increases.
D)will become steeper if the market wage increases
E)will become flatter if the market wage decreases.
Q2) An example of an in-kind transfer is
A)a welfare payment.
B)a cash grant.
C)a housing subsidy.
D)an unemployment check.
E)a state-subsidized high school.
Q3) A typical 50-year-old male earns approximately _____ as a male in his early 20s in the United States.
A)twice as much
B)the same
C)half as much
D)one-third as much
E)one-fourth as much
Q4) Why does an increasing divorce rate tend to increase income inequality?
Page 12
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Chapter 11: Introduction to Macroeconomics:
Unemployment, Inflation, and Economic Fluctuations
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Sample Questions
Q1) Which of the following exclusively measures the trend in the prices of certain goods and services purchased by a typical household?
A)The GDP deflator
B)Nominal GDP
C)Real GDP
D)The Consumer Price Index
E)Purchasing power parity
Q2) Economists use the term "business cycle" to refer to:
A)the growth of small businesses into major corporations.
B)qualitative changes in products resulting from improved technology.
C)fluctuations in economic activity, measured by GDP or unemployment.
D)increases or decreases in the rate of inflation.
E)big business houses taking over small inefficient firms.
Q3) High rates of unemployment are undesirable because:
A)they encourage high levels of per capita savings.
B)they result in the loss of potential output of goods and services.
C)they lead to high rates of inflation
D)they lead to high levels of individual consumption.
E)they lead to excessive increases in informal activities.
Q4) What are the three major types of unemployment? What are their causes?
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Chapter 12: Economic Growth
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Q1) The nominal gross domestic product (GDP) in the United States in 2013 was $10,000 billion, but the real GDP was only $9,000. It follows that the price index in 2013 was equal to _____.
A)111
B)100
C)90
D)80
E)70
Q2) The standard of living in a nation is measured by:
A)its inflation rate
B)the rate of growth of nominal gross domestic product.
C)its unemployment rate
D)the rate of growth of real gross domestic product per capita.
E)its employment rate.
Q3) The amount of income received by households before taxes is called:
A)national income
B)gross domestic product
C)personal income
D)gross national product
E)net national product
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Chapter 13: Aggregate Demand and Aggregate Supply
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Q1) Which of the following would be true if the exports of a country fell more than its imports?
A)The country's budget deficit would decrease.
B)The country's aggregate supply would increase.
C)The country's aggregate demand would decrease.
D)The country's aggregate demand would increase.
E)The country's aggregate demand would remain unaffected.
Q2) Investment will increase if:
A)business taxes and real interest rates increase at the same time.
B)business taxes increase and real interest rates decrease at the same time.
C)business taxes decrease and real interest rates increase at the same time.
D)business taxes and real interest rates decrease at the same time.
E)business taxes remain the same and real interest rates increase.
Q3) In the short run, an increase in the price level:
A)decreases output prices relative to input prices.
B)decreases the profit margins of many producers.
C)decreases real GDP supplied.
D)increases aggregate supply.
E)increases output prices relative to input prices.
Q4) Explain how changes in the stock of capital affect aggregate supply.
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Chapter 14: Fiscal Policy
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Sample Questions
Q1) In 2012-13, more than one quarter of federal government spending went to Social Security and income security programs in the United States.
A)True
B)False
Q2) An excise tax is an example of a regressive tax.
A)True
B)False
Q3) A flat tax would increase the possibilities of abuses and misrepresentations that go with tax deductions.
A)True
B)False
Q4) The U.S. government funds deficit spending by:
A)issuing bonds
B)redeeming bonds.
C)increasing taxes
D)selling government services.
E)decreasing taxes.
Q5) Why don't governments avoid budget deficits under all circumstances?
Q6) What are the advantages of a flat tax system?
Page 16
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Chapter 15: Monetary Institutions
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Sample Questions
Q1) Rapid inflation makes holding a large amount of money:
A)wiser because more and more money is required to buy goods and services.
B)less wise because the opportunity cost of holding money is high.
C)less wise because someone might steal it, or it might be destroyed.
D)wiser because the opportunity cost of holding money is high.
E)less wise because inflation leads to a decrease in the supply of money.
Q2) Banks create money when they increase demand deposits through the process of creating loans.
A)True
B)False
Q3) Which of the following assets is the most liquid?
A)Funds in a checking account
B)A car
C)Ten acres of land
D)A television
E)Stocks and bonds
Q4) A reserve requirement ratio of 10 percent implies a money multiplier of 10.
A)True
B)False
Q5) What are money market mutual funds?
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Chapter 16: The Federal Reserve and Monetary Policy
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Q1) There is a positive correlation between a nation's average annual inflation and the degree of independence of its central bank
A)True
B)False
Q2) When the economy is in a recession, a(n):
A)expansionary monetary policy can potentially result in increased real output, but only in the short run
B)expansionary monetary policy can potentially result in increased real output in both the short run and the long run.
C)contractionary monetary policy can potentially result in increased real output, but only in the short run
D)contractionary monetary policy can potentially result in increased real output in both the short run and the long run
E)expansionary monetary policy can further increase the recessionary gap due to the impact of the negative sentiments in the market.
Q3) Why is the change in reserve requirement not frequently used to control the supply of money?
Q4) Name the six primary functions of the central bank of a country.
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Chapter 17: Issues in Macroeconomic Theory and Policy
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Q1) A problem associated with targeting inflation at zero is that:
A)it could lead to hyperinflation in the long run.
B)it could lead to deflation.
C)it could lead to a deficit in the government budget.
D)it could reduce aggregate demand.
E)it could reduce net exports.
Q2) According to the rational expectations view, the government has the ability to control the level of real output and unemployment:
A)only in the short run if it makes unexpected changes in aggregate demand
B)only in the short run if it announces policies well in advance so that expectations are affected
C)only in the long run if it shifts aggregate supply instead of aggregate demand
D)only in the long run if it uses monetary policy instead of fiscal policy
E)only in the long run when the aggregate supply curve is vertical
Q3) Critics of targeting a zero inflation rate believe that achieving zero inflation is almost impossible and the costs are too high.
A)True
B)False
Q4) Can monetary policy be used to successfully fine-tune the economy?
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Chapter 18: International Economics
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Sample Questions
Q1) Suppose the exchange rate between yen and dollars were 120 yen per dollar. When an American purchases a Japanese good valued at 600 yen, its cost in dollars would be:
A)$5.
B)$600.
C)$72,000.
D)$120.
E)$10.
Q2) In a two-country framework, at the world price of a good, _____.
A)the supply of and the demand for the good are equal within each country
B)the excess demand in the importing country is just equal to the excess supply in the exporting country
C)the excess demand in the exporting country is equal to the excess demand in the importing country
D)there is no excess demand in the exporting country
E)there is no excess supply in the exporting country
Q3) A depreciation in the U.S. dollar would discourage foreigners to buy American goods.
A)True
B)False
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