Survey of Economics Study Guide
Questions
Course Introduction
Survey of Economics provides an introduction to fundamental economic concepts and principles, equipping students with an understanding of how individuals, businesses, and governments make choices in allocating resources. The course covers both microeconomics and macroeconomics, including topics such as supply and demand, market structures, fiscal and monetary policy, international trade, and the role of government in the economy. Designed for non-majors and those new to the subject, the course emphasizes real-world applications and critical thinking to foster informed decision-making in personal and professional contexts.
Recommended Textbook Essentials of Economics 4th Edition by
R. Glenn Hubbard
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Page 2
Chapter 1: Economics: Foundations and Models
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Q1) Which of the following statements is false?
A)Anytime you have to decide which action to take you are facing an economic trade-off.
B)Trade-offs do not apply when the consumers purchase a product for which there is excess supply, such as a stock clearance sale.
C)Every individual, no matter how rich or poor, is faced with making trade-offs.
D)Economics is a social science that studies the trade-offs we are forced to make because of scarcity.
Answer: B
Q2) If a straight line passes through the point x = 14 and y = 3 and also through the point x = 4 and y = 10,the slope of this line is
A)negative 11 divided by 6.
B)seven tenths.
C)negative seven tenths.
D)6 divided by 11.
Answer: C
Q3) What is a marginal benefit?
Answer: Marginal benefit is the additional benefit received from continuing with an activity.
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Chapter
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Q1) Refer to Table 2-14.Ireland has a comparative advantage in the production of A)both products.
B)guitars.
C)motorcycles.
D)neither product.
Answer: B
Q2) Refer to Figure 2-19.Which two arrows in the diagram depict the following transaction: Dorian Gray hires "Wild Oscar," a professional portrait artist,to paint his picture.
A)J and M
B)K and G
C)K and M
D)J and G
Answer: B
Q3) A decrease in the unemployment rate may be represented as a movement from a point inside the production possibilities frontier to a point on the frontier.
A)True
B)False
Answer: True
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Q1) In October 2005,the U.S.Fish and Wildlife Service banned the importation of beluga caviar,the most prized of caviars,from the Caspian Sea.What happened in the market for caviar in the U.S.?
A)The supply curve shifted to the left.
B)The supply curve shifted to the right.
C)The demand curve shifted to the right.
D)The demand curve shifted to the left.
Answer: A
Q2) Refer to Figure 3-7.Assume that the graphs in this figure represent the demand and supply curves for almonds.Which panel best describes what happens in this market when there is an increase in the productivity of almond harvesters?
A)Panel (a)
B)Panel (b)
C)Panel (c)
D)Panel (d)
Answer: A
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.
Page 5
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Chapter 4: Market Efficiency and Market Failure
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Q1) Refer to Table 4-4.The table above lists the highest prices three consumers,Curly,Moe,and Larry,are willing to pay for a bottle of champagne.If the price of one of the bottles is $27 dollars,total consumer surplus will be
A)$0
B)$14.
C)$26.
D)$53.
Q2) Refer to Figure 4-25.The actual price of gasoline paid by consumers after the tax is implemented is ________ per gallon.
A)$3.00
B)$3.75
C)$4.25
D)$5.00
Q3) An advantage of imposing a tax on the producer that generates pollution is that A)it forces the polluting producer to internalize the external cost of the pollution.
B)the government can keep tabs on exactly what is produced in an industry.
C)it will eliminate pollution.
D)a producer can pass the cost of the pollution to consumers.
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Chapter 5: The Economics of Health Care
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Q1) Under current U.S.tax laws individuals do not pay taxes on health insurance benefits they receive from their employers.
A)True
B)False
Q2) The rising cost of uninsured patients receiving treatment at hospital emergency rooms is one of the leading causes of the increase in health care spending as a percentage of GDP in the United States.
A)True
B)False
Q3) What is moral hazard?
Q4) What is adverse selection?
Q5) Health insurance plans which typically reimburse doctors and hospitals with payment for each service they provide are known as
A)fee-for-service plans.
B)preferred provider organizations.
C)single-health-payer systems.
D)health maintenance organizations.
Q6) Briefly describe changes in life expectancy,average height,and infant mortality in the United States since 1850.
Page 7
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Chapter
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Sample Questions
Q1) Who hires the managers of a corporation?
A)the board of directors
B)stockholders
C)managers
D)employees
Q2) How can a proprietorship or partnership raise funds for expansion?
A)borrow from someone or an institution willing to lend the funds
B)reinvest profit back into the business
C)take on a partner or more partners
D)Any of these would generate funds for expansion.
Q3) What is economic profit?
A)gross revenue minus explicit costs
B)gross revenue minus implicit costs
C)gross revenue minus explicit and implicit costs
D)the same as accounting profit
Q4) The Sarbanes-Oxley Act of 2002 requires that CEOs personally certify the accuracy of financial reports.
A)True
B)False
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Q5) What type of business has the potential for double taxation of profits and why?
Chapter 7: Consumer Choice and Elasticity
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Questions
Q1) Why do many film processing companies have a policy of printing every picture on a roll of film or a memory card,even if the picture is very fuzzy and customers are allowed to ask for refunds on any pictures they do not like?
Q2) If the demand for a life-saving drug was perfectly inelastic and the price doubled,the quantity demanded would
A)also double.
B)decrease by 50%.
C)be cut in half.
D)remain constant.
Q3) Of the following,which is the best example of good with a perfectly inelastic demand?
A)the demand for tickets in New York City when the Mets or Yankees are in the World Series
B)the demand for gasoline
C)a diabetic's demand for insulin
D)the demand for a college education by a student who has a full scholarship to an Ivy League school
Q4) What is a Giffen good?
Q5) What is marginal utility and what is the law of diminishing marginal utility?
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Chapter 8: Technology, production, and Costs
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Q1) If,when a firm doubles all its inputs,its average cost of production decreases,then production displays
A)diminishing returns.
B)economies of scale.
C)diseconomies of scale.
D)declining fixed costs.
Q2) In the long run
A)the firm's fixed costs are greater than its fixed costs in the short run.
B)all of the firm's costs are explicit costs; there are no implicit costs of production.
C)the firm is more profitable than it is in the short run.
D)all of the firm's costs are variable costs.
Q3) A firm's cost of production is determined by all of the following except
A)the technology used to produce its output.
B)the productivity of its workers.
C)the cost of raw material used in production.
D)the amount of corporate taxes it must pay on its profit.
Q4) If a firm experiences diminishing returns its marginal product must be negative.
A)True
B)False
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Chapter 9: Firms in Perfectly Competitive Markets
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Q1) Refer to Figure 9-2.Why is the total revenue curve a ray from the origin?
A)because revenue increases at an increasing rate
B)because revenue increases at a decreasing rate
C)because the firm can sell its product at a constant price
D)because the firm must lower its price to sell more
Q2) A perfectly competitive firm's marginal revenue curve is downward sloping.
A)True
B)False
Q3) When a perfectly competitive firm finds that its market price is below its minimum average variable cost,it will sell
A)the output where marginal revenue equals marginal cost.
B)any positive output the entrepreneur decides upon because all of it can be sold.
C)nothing at all; the firm shuts down.
D)the output where average total cost equals price.
Q4) Which of the following is a characteristic of an oligopolistic market structure?
A)There are few dominant sellers.
B)Each firm sells a unique product.
C)It is easy for new firms to enter the industry.
D)Each firm need not react to the actions of rivals.
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Chapter 10: Monopoly and Antitrust Policy
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Q1) Refer to Figure 10-4.What is the amount of the monopoly's profit?
A)$2,700
B)$4,200
C)$10,400
D)$12,600
Q2) Compared to a monopolistic competitor,a monopolist faces
A)a more elastic demand curve.
B)a more inelastic demand curve.
C)a more elastic demand curve at higher prices and a more inelastic demand curve at lower prices.
D)a demand curve that has a price elasticity coefficient of zero.
Q3) An example of a monopoly based on control of a key resource is
A)Major League Baseball.
B)the Paul Ecke Ranch monopoly on poinsettias.
C)Microsoft's Windows operating system.
D)the U.S.Food and Drug Administration.
Q4) The term "trust" in antitrust refers to a board of trustees that has collusive control over different companies.
A)True
B)False
Page 12
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Chapter 11: Monopolistic Competition and Oligopoly
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Q1) In what way does long-run equilibrium under monopolistic competition differ from long-run equilibrium under perfect competition?
A)Firms in perfect competition achieve productive and allocative efficiency while firms in monopolistic competition achieve neither allocative nor productive efficiency.
B)The only difference is that in a monopolistically competitive market there are many brands to choose from while in a perfectly competitive market there is one standard product.
C)Firms in perfect competition achieve productive efficiency while firms in monopolistic competition achieve allocative efficiency.
D)Firms in perfect competition achieve allocative efficiency while firms in monopolistic competition achieve brand efficiency.
Q2) Refer to Table 11-4.Victoria's profit-maximizing quantity sold (Q)and price (P)are:
A)Q = 3; P = $7.
B)Q = 4; P = $6.
C)Q = 5; P = $5.
D)Q = 6; P = $4.
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Chapter 12: Gdp: Measuring Total Production and Income
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Q1) Refer to Table 12-21.Consider the following data for a simple economy: Calculate nominal GDP and real GDP for 2013,using 2011 as the base year.Show your work.
Q2) Depreciation is
A)the value of worn-out equipment, machinery, and buildings.
B)the value of the decrease in business inventory stocks.
C)the value of the addition to the capital stock.
D)the decline in the value of the stock market, net of dividends.
Q3) Nominal GDP is GDP in a given year
A)adjusted for inflation.
B)adjusted for anticipated inflation.
C)valued in the prices of that year.
D)valued in the prices of the base year.
Q4) Gross domestic product is calculated by summing up
A)the total quantity of goods and services in the economy.
B)the total quantity of goods and services produced in the economy during a period of time.
C)the total market value of goods and services in the economy.
D)the total market value of final goods and services produced in the economy during a period of time.
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Chapter 13: Unemployment and Inflation
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Q1) Frictional unemployment is the result of
A)a persistent mismatch between the skills and characteristics of workers and the requirements of the jobs.
B)the search process of matching workers with jobs.
C)the ups and downs in inflation.
D)a slowdown in the economy.
Q2) During the month of May,10 million workers moved from being classified as "unemployed" to being classified as "employed." As a result
A)the unemployment rate rose.
B)the labor force participation rate fell.
C)the unemployment rate fell.
D)the labor force participation rate rose.
Q3) Cyclical unemployment is the result of
A)a persistent mismatch between the skills and characteristics of workers and the requirements of the jobs.
B)the search process of matching workers with jobs.
C)the ups and downs in inflation.
D)a slowdown in the economy.
Q4) Why would a firm pay efficiency wages?
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Chapter 14: Economic Growth, the Financial System, and Business Cycles
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Q1) Inflation usually increases during a recession and decreases during an expansion.
A)True
B)False
Q2) For the recessions in the United States since the 1950s
A)cyclical unemployment has been non-existent.
B)unemployment rises on average by about 1.2 percentage points 12 months after a recession begins.
C)unemployment falls on average by 2 percentage points 12 months after a recession begins.
D)unemployment rises on average about 5 percentage points 12 months after a recession begins.
Q3) In a closed economy,what is the relationship between saving and investment?
A)Saving is greater than investment.
B)investment is greater than saving.
C)Investment is equal to saving.
D)Investment may be greater or smaller than saving.
Q4) Explain and show graphically how a decrease in government spending affects the equilibrium interest rate and equilibrium quantity of loanable funds in the market for loanable funds.
Page 16
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Chapter 15: Aggregate Demand and Aggregate Supply Analysis
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Q1) Explain how each of the following events would affect the short-run aggregate supply curve.
a.A decrease in the price level
b.A decrease in what the price level is expected to be in the future
c.A price level that is currently lower than expected
d.An unexpected decrease in the price of an important raw material
e.A decrease in the labor force
Q2) 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
Q3) Refer to Figure 15-2.Ceteris paribus,an increase in the expected price of an important natural resource would be represented by a movement from
A)SRAS to SRAS .
B)SRAS to SRAS .
C)point A to point B.
D)point B to point A.
Page 17
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Chapter 16: Money, banks, and the Federal Reserve System
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Q1) If households choose to take some fraction of each check they deposit and hold it as currency,then the simple deposit multiplier ________ the real-world multiplier. A)is greater than B)is less than C)is equal to D)bears no relationship to
Q2) The quantity equation becomes the basis for a theory when we assume that velocity of money is constant.
A)True
B)False
Q3) Commodity money
A)has value independent of its use as money.
B)has little to no value independent of its use as money.
C)is backed by a valuable commodity such as gold.
D)can be used to purchase commodities, but not services.
Q4) A series of bank runs in a country should have no effect on M1 as money simply moves from checking deposits to currency.
A)True
B)False
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Chapter 17: Monetary Policy
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Q1) An increase in the domestic interest rate relative to other interest rates should
A)increase investment spending.
B)decrease consumption spending.
C)increase government spending.
D)increase net exports.
Q2) When housing prices ________,as they did beginning in 2006 following the housing market bubble,consumption spending on furniture,appliances,and home improvements declined as many households found it ________ to borrow against the value of their homes.
A)rise; easier
B)rise; harder
C)fall; easier
D)fall; harder
Q3) Use a graph to show the effects of an expansionary monetary policy moving an economy out of recession and to potential real GDP.Explain what happens to aggregate demand,real GDP,and the price level.
Q4) Mortgage lenders often resell mortgages in secondary markets.How might this make lenders act differently than if they intended to hold the mortgages themselves?
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Chapter 18: Fiscal Policy
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Q1) Federal government purchases,as a percentage of GDP
A)have risen since the early 1950s.
B)have fallen since the early 1950s.
C)have remained roughly the same since the early 1950s.
D)rose from the early 1950s until the mid 1980s, and then fell.
Q2) Which of the following would be classified as fiscal policy?
A)The federal government passes tax cuts to encourage firms to reduce air pollution.
B)The Federal Reserve cuts interest rates to stimulate the economy.
C)A state government cuts taxes to help the economy of the state.
D)The federal government cuts taxes to stimulate the economy.
E)States increase taxes to fund education.
Q3) Suppose Political Party A proposes a tax cut on business income to stimulate the economy.Political Party B opposes the tax cut on business income asserting that it would only help businesses,not the average working man and woman.If you were hired as an economist for Political Party A,explain how the tax cut on business income would help the average working man and woman.
Q4) What is the "tax wedge"?
Q5) What is the difference between federal purchases and federal expenditures?
Q6) What is fiscal policy,and who is responsible for fiscal policy?
Page 20
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Chapter 19: Comparative Advantage, international Trade, and Exchange Rates
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Q1) Refer to Figure 19-2.Without the tariff in place,the United States produces
A)9 million pounds of rice.
B)15 million pounds of rice.
C)31 million pounds of rice.
D)42 million pounds of rice.
Q2) Refer to Table 19-12.If the actual terms of trade are 1 belt for 1.5 swords and 70 belts are traded,how many belts will Estonia consume?
A)50
B)70
C)90
D)120
Q3) Refer to Table 19-11.Prior to trade,what was the opportunity cost to produce 1 clock in Denmark?
A)1/6 of a hat
B)2/3 of a hat
C)1.5 hats
D)6 hats
Q4) Today,the United States charges an average tariff rate of less than 1.5 percent.
A)True
B)False
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