Economic Analysis
Exam Materials
Course Introduction
Economic Analysis is an essential course that introduces students to the foundational principles and methods used to evaluate economic decisions, policies, and market outcomes. The course covers both microeconomic and macroeconomic frameworks, equipping students with analytical tools to assess resource allocation, cost-benefit analysis, consumer and producer behavior, market structures, and the impacts of government intervention. Through theoretical models, quantitative techniques, and case studies, students learn to interpret economic data and apply critical reasoning to real-world economic issues, preparing them for advanced study and practical decision-making in business, government, or research settings.
Recommended Textbook
Intermediate Microeconomics and Its Application 11th Edition by Walter Nicholson
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17 Chapters
577 Verified Questions
577 Flashcards
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Chapter 1: Economic Models
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Sample Questions
Q1) Suppose right (R)and left (L)shoes are only useful if produced in equal proportion and societal happiness is expressed as min(R,L).The contour lines would be
A) downward sloping lines
B) upward sloping lines
C) L-shaped
D) backward L-shaped
Answer: C
Q2) If the production possibilities frontier can be expressed as 4X<sup>2</sup> + Y<sup>2</sup> = 16 then the point X = 1; Y = 4 is
A) outside the production possibilities frontier
B) on the production possibilities frontier
C) inside the production possibilities frontier
D) in the wrong quadrant to be on the graph
Answer: A
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Chapter 2: Utility and Choice
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30 Flashcards
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Sample Questions
Q1) The X-intercept of the budget constraint represents A) how much of good Y can be purchased if no good X is purchased and all income is spent.
B) how much of good X can be purchased if no good Y is purchased and all income is spent.
C) total income divided by the price of X.
D) a and c.
Answer: D
Q2) If bundles of goods A and B lie on the same indifference curve,one can assume the individual
A) prefers bundle A to bundle B.
B) prefers bundle B to bundle A.
C) enjoys bundle A and B equally.
D) bundle A contains the same goods as bundle B.
Answer: C
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Chapter 3: Individual Demand Curves
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Sample Questions
Q1) Which of the following functional forms for utility suggests the greatest substitution effect when starting at the point where P<sub>X</sub> = P<sub>Y</sub>
A) U = min (X, Y)
B) U = X + Y
C) U = X<sup>1/2</sup>Y<sup>1/2</sup>
D) U = X<sup>1/4</sup>Y<sup>3/4</sup>
Answer: B
Q2) With only two goods,if the income effect is in the opposite direction as the substitution effect but the income effect dominates then the good is
A) normal
B) inferior but not Giffen
C) Giffen
D) There is not enough information to answer.
Answer: C
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Chapter 4: Uncertainty
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Sample Questions
Q1) Suppose a lottery ticket costs $1 and the probability that a holder will win nothing is 90%.What must the jackpot be for this to be a fair bet?
A) 10
B) 100
C) 1,000
D) 10,000
Q2) Suppose a risk-neutral power plant needs 10,000 tons of coal for its operations next month.It is uncertain about the future price of coal.Today it sells for $60 a ton but next month it could be $50 or $70 (with equal probability).How much would the power plant be willing to pay today for an option to buy a ton of coal next month at today's price? (Ignore discounting over the short period of a month.)
A) 5
B) 4
C) 3
D) 0
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Chapter 5: Game Theory
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Sample Questions
Q1) Two games that differ only in the timing of moves-one simultaneous,the other sequential move-can sometimes have completely different subgame-perfect equilibria.Why?
A) The second mover to choose non-credible threats.
B) The first mover can choose an action that it would deviate from if its action were secret.
C) Subgame-perfect equilibrium cannot be applied to simultaneous games.
D) All of the above.
Q2) In what way or ways can strategies more complicated than simple actions?
A)They can be conditioned on a first mover's action.
B)They can involve random choices.
C)Both a and b.
D)Neither a or b.
Q3) Consider the same setup with the curved final exam as in the previous question.Now suppose the students move sequentially.Which best describes the outcome in the subgame-perfect equilibrium?
A) Brainiacs study and Numbskulls party regardless of who moves first.
B) Brainiacs party and Numbskulls study regardless of who moves first.
C) The party moving first studies.
D) The party moving first parties.
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Chapter 6: Production
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Sample Questions
Q1) The marginal rate of technical substitution of labor for capital measures
A) the amount by which capital input can be reduced while holding quantity produced constant when one more unit of labor is used.
B) the amount by which labor input can be reduced while holding quantity produced constant when one more unit of capital is used.
C) the ratio of total labor to total capital.
D) the ratio of total capital to total labor.
Q2) A rise in the average productivity of labor
A) always reflects technical progress.
B) reflects technical progress if other input usage hasn't changed.
C) reflects technical progress only if labor input hasn't changed.
D) reflects technical progress only if the quantity of output is increased.
Q3) Graphically,the average productivity of labor would be illustrated by
A) the slope of the total product curve at the relevant point.
B) the slope of the marginal productivity curve at the relevant point.
C) the negative of the slope of the marginal productivity curve at the relevant point. D) the slope of the chord connecting the origin with the relevant point on the total output curve.
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Chapter 7: Costs
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Sample Questions
Q1) Suppose MP<sub>L</sub> = 20 and MP<sub>K</sub> = 40 and the rental rate on capital is $10.If the level of production is currently efficient the wage rate must be
A) $10
B) $5
C) $20
D) $40
Q2) As long as marginal cost is below average cost,average cost will be A) falling B) rising.
C) constant.
D) changing in a direction that cannot be determined without more information.
Q3) A firm's short-run average cost is defined as
A) the ratio of total output to short-run total cost. B) the ratio of short-run total cost to total output.
C) the additional cost of producing one more unit of output while some input is fixed.
D) the additional cost of producing one more unit of output while all inputs are fixed.
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Chapter 8: Profit Maximization and Supply
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Sample Questions
Q1) If price is equal to short-run average variable cost,the firm is at the point known as
A) the break even point.
B) the profit maximizing point.
C) the shutdown point.
D) the revenue maximizing point.
Q2) In general,microeconomic theory assumes that firms attempt to maximize the difference between
A) total revenue and accounting costs.
B) price and marginal cost.
C) total revenues and economic costs.
D) economic costs and average cost.
Q3) If the demand faced by a firm is elastic,selling one less unit of output will A) increase revenue.
B) decrease revenue.
C) keep revenues constant.
D) decrease price.
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Chapter 9: Perfect Competition in a Single Market
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Sample Questions
Q1) Suppose that the price elasticity of demand for a product is -1 and that the price elasticity of supply is +1.Assume also that the income elasticity of demand is +2.Then an increase in income of 10% will raise equilibrium price by A) 10%.
B) 5%.
C) 20%.
D) an annual amount that cannot be determined.
Q2) Long-run elasticity of supply is defined as
A) percentage change in quantity demanded in the long run divided by percentage change in price.
B) percentage change in price divided by percentage change in quantity demanded in the long run
C) percentage change in quantity supplied in the long run divided by percentage change in price.
D) percentage change in price divided by percentage change in quantity demanded in the long run.
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Chapter 10: General Equilibrium and Welfare
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Sample Questions
Q1) Consider three ways of allocating two goods in a two-person exchange economy.
I.Both individuals take prices as given and equilibrium prices are established by an impartial auctioneer.
II.One individual can act as a perfect price discriminator and force the other individual to pay a different price for each unit of a good that is traded.
III.One individual is a monopolist and can charge the other individual a single,utility-maximizing price.
Which of these situations is efficient?
A) None of them.
B) Only I.
C) I and II, but not III.
D) I and III, but not II.
Q2) Markets can fail to achieve efficiency when
A) there are prices consumers do not think are fair.
B) there are wages workers do not think are fair.
C) trade puts people out of work.
D) there are buyers or sellers without adequate information about the quality of goods.
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Page 12
Chapter 11: Monopoly
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Sample Questions
Q1) Consider the same monopoly situation as in the previous question.The firm's profit will be
A) 1,760
B) 1,660
C) 2,264
D) 6,728
Q2) Consider the same monopoly situation as in the previous question.The deadweight loss associated with this monopoly is
A) 966
B) 1,058
C) 2,484
D) 3,680
Q3) A profit-maximizing monopoly will produce that output for which A) marginal revenue equals price.
B) average cost is minimized.
C) marginal cost is minimized. D) marginal cost equals marginal revenue.
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Chapter 12: Imperfect Competition
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Sample Questions
Q1) Relative to the case in which two identical firms choose quantities simultaneously in a Cournot model,if one of the two moves first and is observed by the other,how would this affect its output?
A) it would increase its output, more so if it could deter the other from entering the market at all.
B) it would increase its output, but would moderate this increase if it were concerned about entry deterrence.
C) it would decrease its output if it couldn't deter entry and increase it otherwise. D) it would decrease its output whether or not it wanted to deter entry.
Q2) Consider the market for nonalcoholic beers from the previous question.Which of the following is the Bertrand reaction function for Cudweiser?
A) P<sub>C</sub> = 1 + .033P<sub>B</sub> <sub> </sub>
B) P<sub>C</sub> = 1 - .033P<sub>B</sub>
C) P<sub>C</sub> = 1.5 + .075P<sub>B</sub>
D) P<sub>B</sub> = 1.5 + .075P<sub>C</sub><sub> </sub>
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Chapter 13: Pricing in Input Markets
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Sample Questions
Q1) Consider two situations: In situation A the production of widgets is monopolized by a single firm.In situation B the production of widgets is perfectly competitive.In both situations the supply of labor to widget makers is infinitely elastic at a wage of w.Which of the following statements is true?
A) The marginal value product of labor will be the same in the two cases.
B) The marginal value product of labor is higher in case B than in case A.
C) The marginal value product of labor is higher in case A than in case B.
D) From the information given it is not possible to make a definite statement about the marginal value product of labor.
Q2) When an individual's wage rises,the income effect tends to
A) increase hours worked.
B) decrease hours worked.
C) leave hours worked unchanged.
D) it is impossible to predict what will happen to hours worked.
Q3) If a firm is a monopsonistic hirer of labor,
A) its marginal expense for labor is greater than the market wage.
B) its marginal expense for labor is equal to the market wage.
C) its marginal expense for labor is less than the market wage.
D) it is a price taker in the labor market.
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Page 15
Chapter 14: Capital and Time
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Sample Questions
Q1) The annual rental rate for a machine is
A) the yearly depreciation and maintenance costs for the machine.
B) the yearly interest costs associated with owning the machine.
C) the initial purchase price of the machine divided by the number of years the machine is expected to last.
D) the sum of the yearly depreciation, maintenance, and interest costs associated with owning the machine.
Q2) In a perfectly competitive market a firm's rental rate for a machine (v)will be given by: v = P(r + d)where r is the prevailing rate of interest and d is the depreciation rate.In this formula P represents
A) the present market price of the machine.
B) the initial purchase price of the machine (assuming this differs from its present market price.
C) the price of the firm's product.
D) the depreciated value of the machine.
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Chapter 15: Asymmetric Information
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Sample Questions
Q1) Which are social costs associated with the inability of shareholders to observe a manager's effort? (You may choose more than one.)
A) excessive insurance offered.
B) the manager has to be exposed to risk to induce effort, and risk is costly.
C) the manager ends up exerting less than first-best effort.
D) excessive effort induced.
Q2) Return to the case of education and the job market from the previous question.Which condition would be consistent with both types' obtaining an education in equilibrium?
A) c<sub>H</sub> < w < c<sub>L</sub>..
B) c<sub>L</sub> < w < c<sub>H</sub>.
C) c<sub>H</sub> < c<sub>L</sub> < w.
D) w < c<sub>L</sub> < c<sub>H</sub> .
Q3) Which of the following is an application of the adverse selection problem?
A) a customer driving more recklessly after buying car insurance.
B) a teenager "hanging out" with friends his or her parents do not approve of.
C) shareholders offering a high-powered incentive contract to a manager.
D) an auto repairman claiming that the repairs are more extensive than they actually are.
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Page 17
Chapter 16: Externalities and Public Goods
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Sample Questions
Q1) In the case of a positive externality,social marginal cost will
A) exceed private marginal cost.
B) be equal to private marginal cost.
C) fall short of private marginal cost.
D) have no specific relation to private marginal cost.
Q2) In drilling a new oil well in an existing oil field,the fact that output on existing wells is reduced means that
A) existing wells have negatively sloped marginal cost curves.
B) existing wells and new wells are owned by different people.
C) existing wells and new wells are owned by the same people.
D) there is a discrepancy between private and social marginal costs.
Q3) Suppose the market for oranges is perfectly competitive and unregulated.Suppose also that the chemicals used to keep the oranges insect-free damage the environment by an estimated $1 per bushel of oranges.Suppose Q<sub>D</sub> = 1000 - 100P and Q<sub>S </sub>= -100 + 100P.The market equilibrium quantity is
A) 400
B) 450
C) 500
D) 550
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Page 18
Chapter 17: Behavioral Economics
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Sample Questions
Q1) An economist encounters some unexpected behavior in a market or laboratory setting.How can he or she distinguish between behavior resulting from mistakes by decision makers as opposed to being decisions based on unusual preferences?
A) if the same behavior is observed repeatedly even after opportunities to learn are provided, it is probably not a mistake.
B) if the behavior is observed more often with inexperienced subjects, it is likely a mistake.
C) both a and b.
D) it is impossible to distinguish between mistakes and unusual preferences empirically.
Q2) The option-value principle can be roughly stated as "more choices can't make a person worse off." Are there any exceptions to this rule? Choose all that apply.
A) No.
B) Yes, in strategic situations.
C) Yes, in situations involving self-control.
D) Yes, for certain complicated financial derivatives.
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