Contemporary Economic Issues
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Course Introduction
This course explores pressing economic challenges facing societies in the 21st century, incorporating both theoretical frameworks and real-world case studies. Students will examine issues such as globalization, income inequality, technological disruption, environmental sustainability, labor markets, and international trade. Through critical analysis of current events and policy debates, the course aims to develop an understanding of how economic principles apply to complex social problems and equips students with the tools to assess policy responses to todays most urgent economic concerns.
Recommended Textbook
Microeconomics Today The Macro View 17th Edition by Roger LeRoy Miller
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Page 2
Chapter 1: The Nature of Economics
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Q1) In building a model the assumption that allows economists to study only the factors being analyzed is the
A)rationality assumption.
B)ceteris paribus assumption.
C)the self-interest assumption.
D)the scarcity assumption.
Answer: B
Q2) The assumption that individuals will not intentionally make decisions that will leave them worse off is known as
A)microeconomic analysis.
B)macroeconomic analysis.
C)a model or theory.
D)the rationality assumption.
Answer: D
Q3) Which of the following statements concerning economic models is FALSE?
A)Economic models must provide usable predictions.
B)Economic models are based on pure fact and no assumptions.
C)Economic models are tested empirically.
D)Economic models relate to how people behave.
Answer: B
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Chapter 2: Scarcity and the World of Trade-Offs
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Q1) Samia has decided that with the two hours in between classes she can do one of 3 things.She has ranked her choices,from highest to lowest as,(1)chat with her friends,(2)study economics or (3)take a nap.The opportunity cost of chatting with her friends is
A)the combined value of studying economics and taking a nap.
B)the value of studying economics,the next best use of time.
C)the value of chatting with her friends.
D)zero since she does not pay her friends to talk to her.
Answer: B
Q2) Trading off capital goods for increasing amounts of consumer goods today will most likely result in
A)increased long-term growth.
B)decreased long-term growth.
C)decreased prices in consumer goods.
D)increases in the quantity of consumer goods.
Answer: B
Q3) Briefly explain why people make choices.
Answer: People make choices because of scarcity.Scarcity exists because resources are insufficient to satisfy people's every desire.
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Page 4
Chapter 3: Demand and Supply
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Sample Questions
Q1) Other things being equal,the relationship between price and quantity supplied is A)negative.
B)constant.
C)positive.
D)non-existent.
Answer: C
Q2) When economists talk about a demand schedule for a product,they mean
A)the amount of a good that consumers intend to purchase at each price in a set of possible prices in a given time period.
B)the amount of a good that consumers are able to purchase (though they might not be willing to)at different prices in a given period of time.
C)the amount of a good that consumers intend to purchase at only one particular price in a given period of time.
D)the amount of a good that producers are willing to make available for sale at a particular price in a given time period.
Answer: A
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Chapter 3: Extensions of Demand and Supply Analysis
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Q1) Rationing occurs for goods
A)that have a positive price.
B)that have a zero price.
C)that have a negative price.
D)that are not manufactured.
Q2) Rationing of resources,goods,and services
A)is not required under the price system.
B)is required because of scarcity.
C)must be done by the government.
D)happens only when the price is zero.
Q3) Prices provide the rationing function best when A)prices are flexible.
B)prices are inflexible.
C)they are used in conjunction with queuing.
D)price controls are in place and ration coupons are used too.
Q4) A price ceiling established below the market clearing price will usually cause A)nonprice rationing.
B)an excess supply.
C)no change in the market clearing price.
D)a decrease in the market clearing price.
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Chapter 4: Public Spending and Public Choice
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Q1) What type of policy does the government adopt in dealing with government-inhibited goods?
A)It subsidizes their consumption.
B)It subsidizes their production.
C)It provides them as public goods.
D)It taxes,regulates,or prohibits their use.
Q2) Use the concept of supply and demand to explain why an increase in Medicare subsidies can lead to an increase in health care spending by the government.
Q3) Which of the following statements is NOT true about the price system?
A)The price system allows resources to flow from low-valued uses to high-valued uses.
B)The price system encourages the production of public goods.
C)Individuals have freedom to purchase what they want.
D)The price system allows for economic efficiency.
Q4) The economic problem with Medicare financing is that
A)there is a built-in incentive to provide fewer services by doctors.
B)there is a built-in incentive to travel to Canada to receive medical services.
C)the cost of providing services is falling annually.
D)there is a built-in incentive to consume more services.
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Chapter 5: Funding the Public Sector
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Q1) A capital gain is defined as
A)the tax paid when one sells an asset.
B)the positive difference between the sale price and the purchase price of an asset.
C)the tax rate one pays when one moves into a higher tax bracket.
D)an unanticipated increase in income.
Q2) An example of a regressive tax is the
A)corporate income tax.
B)personal income tax.
C)Social Security tax.
D)state inheritance tax.
Q3) The marginal tax rate and the average tax rate are the same under a A)progressive income tax system.
B)regressive income tax system.
C)proportional income tax system.
D)none of the above.
Q4) Explain why an increase in the tax rate can result in lower tax revenues.
Q5) Briefly compare the three tax systems based on the relationship between the marginal tax rate and the average tax rate as income rises.
Q6) Explain how corporate profits are taxed twice.
Page 8
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Chapter 6: Demand and Supply Elasticity
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Sample Questions
Q1) The absolute price elasticity of demand would be the lowest for A)automobiles.
B)Pizza Hut pizza.
C)salt.
D)movie tickets.
Q2) Which of the following goods is most likely to have the lowest price elasticity?
A)Movie tickets
B)DVD rentals
C)Gasoline
D)Pasta
Q3) When price is $5 per unit,quantity demanded is 12 units.When price is $6 per unit,quantity demanded is 8 units.The value of the absolute price elasticity of demand is approximately
A)2.20.
B)4.00.
C)1.82.
D)0.36.
Q4) "Higher prices always yield higher revenues." Do you agree or disagree? Why?
Q5) Explain why an increase in price can raise total revenues if the price elasticity of demand is inelastic.
9
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Chapter 7: Consumer Choice
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Q1) Suppose the price of pizza falls to $1 per slice.Assuming that Tom's preferences continue to be those shown in the above table,and assuming that MU/P = 3 is still the point at which his consumer optimum is reached,how many slices will Tom now buy?
A)1 slice
B)2 slices
C)3 slices
D)4 slices
Q2) Suppose a consumer is at an optimum.What happens when the price of one good she has been consuming increases?
A)The value of the marginal utility of the last unit consumed decreases.
B)The value of the marginal utility of the last unit consumed increases.
C)The marginal utility per dollar spent on the last unit consumed of that good increases by the same proportion as the price increases.
D)The marginal utility per dollar spent on the last unit consumed of that good is now smaller than the marginal utility per dollar spent on other goods the person consumes.
Q3) Jill likes lobsters but she does not eat lobsters in every meal.How can utility theory explain this?
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Chapter 8: Rents, profits, and the Financial Environment of Business
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Sample Questions
Q1) What is the real (adjusted for inflation)present value of $104.25 that you could receive one year from now,given that the rate of interest is 4.25 percent and the anticipated rate of inflation is 1 percent?
A)$99.05
B)$100.97
C)$107.64
D)$100.00
Q2) A legal organization of a firm where the business is owned by one individual who makes the business decisions,receives all the profits,and is legally responsible for the debts of the firm is a(n)
A)corporation.
B)entrepreneur.
C)proprietorship.
D)partnership.
Q3) Accounting profit can be calculated as
A)total revenue - explicit costs.
B)total revenue - implicit costs.
C)total revenue - explicit costs - implicit costs.
D)total revenue - fixed costs.
Page 11
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Chapter 9: The Firm: Cost and Output Determination
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Sample Questions
Q1) When total product is rising,
A)fixed cost must be rising.
B)marginal product must be positive.
C)variable cost must be declining.
D)marginal product must be negative.
Q2) Refer to the above table.What is MC when output rises from 0 unit to 1 unit?
A)$0
B)$25
C)$90
D)$115
Q3) In the short run,average total cost is
A)higher than average variable cost.
B)equal to average variable cost.
C)less than average variable cost.
D)sometimes higher and sometimes lower than average variable cost.
Q4) For a hotdog vendor,the hotdog buns represents his A)fixed input.
B)variable input.
C)sunk cost.
D)none of the above.
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Chapter 10: Perfect Competition
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Q1) How do we determine whether a firm has maximized profits?
Q2) The rate of production at which marginal revenue equals marginal cost is
A)a point of negative profits for the firm.
B)what determines the equilibrium price in the market.
C)the firm's shutdown point.
D)the point where profits are maximized.
Q3) Suppose a perfectly competitive firm faces the following short-run cost and revenue conditions: ATC = $12; AVC = $10; MC = $15; MR = $13.The firm should
A)decrease output.
B)increase output.
C)increase price.
D)change nothing.
Q4) For a firm in a perfectly competitive industry,the demand curve for its own product is A)downward sloping.
B)vertical.
C)always above the marginal revenue curve.
D)the same as the marginal revenue curve.
Q5) How is the market clearing price established in a perfectly competitive industry?
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Chapter 11: Monopoly
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Q1) A monopolist faces a demand curve that
A)is perfectly horizontal at the market price.
B)is below the marginal revenue curve.
C)is downward sloping.
D)coincides with the industry supply.
Q2) The price elasticity of demand for a monopolist
A)is infinite since the monopolist is the only firm in the market.
B)decreases as more competition occurs in the market.
C)increases as similar products enter the market.
D)is undefined due to the lack of competition.
Q3) Monopolies are discouraged in the United States because
A)they are more efficient than other industries.
B)they can produce at lower cost in the short run.
C)they restrict output and boost prices.
D)they hire too many workers.
Q4) Use the above figure.Maximized economic profits are represented by rectangle
A)"A."
B)"B."
C)"C."
D)"A" + "B."
Page 14
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Chapter 12: Monopolistic Competition
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Sample Questions
Q1) Typically a mix of informational and persuasive advertising is used for A)experience goods.
B)credence goods.
C)credible goods.
D)search goods.
Q2) Which of the following short-run outcomes for monopolistic competition is not possible?
A)P = MR = MC.
B)P > MC > ATC.
C)P = ATC.
D)P > ATC.
Q3) Refer to the above figure.The profit maximizing quantity for a monopolistic competitor is
A) \(\mathrm { Q } _ { 1 }\) .
B) \(\mathrm { Q } _ { 2 }\) .
C) \(\mathrm { Q } _ { 3 }\) .
D) \(\mathrm { Q } _ { 4 }\) .
Q4) How is monopolistic competition like perfect competition? How is it like monopoly?
Q5) Why do firms in a monopolistically competitive industry advertise?
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Chapter 13: Oligopoly and Strategic Behavior
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Q1) The manner in which one oligopolist reacts to a change in price,output,or quantity on the part of another oligopolist in the industry is known as A)a positive-sum game.
B)the reaction function.
C)a noncooperative game.
D)a zero-sum game.
Q2) An association of producers that fixes common prices and output quotas is known as a A)cartel.
B)common selling organization.
C)joint-marketing arrangement.
D)trade association.
Q3) According to the above table,the four-firm concentration ratio of this industry is A)69.2 percent.
B)35.1 percent.
C)66.7 percent.
D)67.5 percent.
Q4) Why do firms form a cartel? How do cartels achieve their goals?
Q5) How can network effects lead an industry to become an oligopoly?
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Chapter 14: Regulation and Antitrust Policy in a Globalized Economy
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Sample Questions
Q1) Use the above figure.Suppose that a regulatory agency requires this natural monopolist to engage in marginal cost pricing.This would lead to A)losses,which would drive the monopolist out of business in the long run.
B)profits,which would encourage new producers to enter the industry in the long run. C)profits,but new firms cannot enter the industry in the long run due to high barriers to entry.
D)losses,which would encourage the monopolist to lower costs in the long run.
Q2) Which of the following statements regarding economic regulation is TRUE?
A)Economic regulation has failed by insisting that firms must be allowed to earn a normal rate of return.
B)Rate-of-return regulation has been much more effective than cost-of-service regulation.
C)Economic regulation deals only with rates of return,and not with prices.
D)Economic regulation deals mainly with prices firms charge,but firms can alter their return by altering quality of service,effectively raising the price per constant-quality-unit.
Q3) What are the major rationales for consumer protection in nonmonopolistic industries?
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Chapter 15: The Labor Market: Demand, supply and Outsourcing
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Q1) Refer to the above table.What does the marginal physical product equal when the amount of labor goes from 12 to 13 units?
A)58.5
B)70
C)690
D)760
Q2) Suppose at the current level of labor used,MRP = $100 and MFC = $100.To maximize profits,the firm should
A)hire more labor.
B)reduce the level of labor.
C)maintain the current level of labor.
D)shut down.
Q3) Which will NOT affect the elasticity of demand for labor?
A)the labor intensity of the production process
B)the elasticity of supply for labor
C)the elasticity of demand for the good
D)the substitutability of capital for labor
Q4) Explain the implications of outsourcing for employment and wages in the domestic and foreign labor markets.
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Chapter 16: Unions and Labor Market Monopoly Power
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Q1) A craft labor union is made up of
A)groups of workers in an individual trade.
B)all the workers in a firm such as General Motors.
C)firms that employ similar labor skills.
D)an organization that controls the labor market in a particular industry.
Q2) Monopsonistic exploitation refers to
A)the payment to the resource equal to MFC.
B)the payment to a resource less than MRP.
C)the payment to a resource equal to MRP.
D)the payment to a resource above MRP.
Q3) Labor unions composed of workers who engage in a particular trade or skill,such as carpentry,are called
A)craft unions.
B)industrial unions.
C)collective unions.
D)closed unions.
Q4) Suppose a union negotiates for its members a wage that is above the market-clearing wage.What problems does the union have to solve now? Explain.
Q5) What can a union do in order to raise the wages of its members ?
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Chapter 17: Income, poverty, and Health Care
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Q1) The merit standard refers to:
A)"To each according to her need."
B)"To each exactly the same."
C)"To each according to her productivity."
D)"To each according to his ability."
Q2) Changes in the Lorenz curve since 1929 in the United States indicate that
A)the distribution of income today is identical to what it was in 1929.
B)the distribution of income is slightly less equal today than in 1929.
C)the distribution of income is slightly more equal today than in 1929.
D)the distribution of income is much more equal today than it was in 1929.
Q3) Which of the following is NOT considered to be a factor in the determination of a person's marginal productivity?
A)Innate abilities such as high intelligence
B)Investment in human capital such as education
C)On-the-job training
D)The elasticity of supply of labor
Q4) What are the major criticisms of the Lorenz curve?
Q5) How is moral hazard related to health care?
Q6) How does the distribution of wealth differ from the distribution of income in the United States?
Page 20
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Chapter 18: Environmental Economics
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Q1) Generally,as levels of pollution are reduced,
A)marginal benefits from the reduction decrease.
B)marginal benefits from the reduction increase.
C)marginal costs from the reduction decrease.
D)marginal cost from the reduction are constant.
Q2) In a market for emission permits,firms that emit over their allowed limits
A)are forced to shut down.
B)are taxed by the government for the amount of emissions.
C)will sell their excess allowances through a trading system.
D)must buy more allowances through a trading system.
Q3) Economic theory suggests that if natural resources can be held as private property,then
A)conservation will be nonexistent.
B)owners will have an incentive not to abuse them.
C)natural resources will be sold off for immediate use.
D)people will simply hold them and refuse to make them available.
Q4) Why don't people take into consideration the external costs of their actions and reduce the amount of externalities?
Q5) What is common property? What does common property have to do with externalities?
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Chapter 19: Comparative Advantage and the Open Economy
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Q1) Suppose that opportunity costs are constant in both France and Germany.In France,maximum feasible hourly production levels are either 3 units of wheat or 5 units of wine.In Germany,maximum feasible hourly production levels are either 4 units of wheat or 10 units of wine.It is correct to state that
A)Germany has an comparative advantage in producing both wheat and wine.
B)Germany has a comparative advantage in producing wine.
C)France has a comparative advantage in producing both wheat and wine.
D)France has a comparative advantage in producing wine.
Q2) According to the above table,if these two countries trade,
A)Mexico should export computers and the United States export bicycles.
B)the United States should import computers and Mexico should import bicycles.
C)the United States should export computers and Mexico should export bicycles.
D)we cannot tell which country should export which good without knowing the amount of labor utilized in each country.
Q3) Comparative advantage is the ability,compared with another producer,
A)to produce more of a product with the same resources.
B)to use fewer inputs to produce the same amount of a product.
C)to produce a higher-quality product with fewer resources.
D)to produce an additional unit of a product at lower opportunity cost.
Page 22
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Chapter 20: Exchange Rates and the Balance of Payments
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Q1) Which of the following is a deficit item on the balance of payments?
A)Exports of merchandise
B)Foreign tourist dollars spent domestically
C)Sales of gold to foreigners
D)Purchases of foreign assets
Q2) In the balance of payments,the buying and selling of real and financial assets is represented in
A)current account.
B)capital account.
C)labor account.
D)official reserve transactions account.
Q3) If the foreign exchange rate for 1 Hungarian forint is 0.5 cent,then
A)a dinner priced at 400 forints will cost $20.
B)a wine that sells for 600 forints will cost $3,000.
C)a Big Mac hamburger priced at 50 forints will cost $1.
D)a hotel room renting for 40,000 forints will cost $200.
Q4) Suppose there was a substantial increase in political instability in the rest of the world.What would be the effects on the U.S.current account? Explain.
Q5) What brought about the end of the Bretton Woods Agreement?
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