Economic Analysis
Practice Exam
Course Introduction
Economic Analysis provides students with a comprehensive understanding of how individuals, firms, and governments make decisions about allocating scarce resources. The course covers fundamental economic concepts such as supply and demand, market equilibrium, elasticity, production and cost analysis, and the role of incentives. Students will explore both microeconomic and macroeconomic perspectives, learning how to evaluate economic outcomes and assess policy impacts through models and real-world applications. Emphasis is placed on critical thinking, quantitative reasoning, and the interpretation of economic data to support sound decision-making in various sectors.
Recommended Textbook
Microeconomics 3rd Australian Edition by 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.Car owners purchase more petrol from a petrol station that sells petrol at a lower price than other rival petrol stations in the area.
B.Banks do not take steps to increase security since they believe it is less costly to allow some bank robberies than to install expensive security monitoring equipment.
C.Firms produce more of a particular DVD when its selling price rises. Which of the above statements demonstrates that economic agents respond to incentives?
A)b only
B)c only
C)a and b
D)a,b,and c
Answer: D
Q2) Refer to Figure 1-2.Calculate the area of the triangle A.
A)$1.3 million
B)$2.6 million
C)$3.4 million
D)$5.2 million
Answer: B
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3
Chapter 2: Choices and Trade-Offs in the Market
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Sample Questions
Q1) Refer to Figure 2-6.Suppose Vidalia is currently producing 120 dozen roses per period.How many orchids is it also producing,assuming that resources are fully utilised?
A)20 dozen orchids
B)32 dozen orchids
C)44 dozen orchids
D)68 dozen orchids
Answer: B
Q2) Refer to Table 2-6.China has a comparative advantage in the production of A)wheat.
B)digital cameras.
C)both products.
D)neither product.
Answer: A
Q3) The attainable production points on a production possibility curve are A)the horizontal and vertical intercepts.
B)the points along the production possibility frontier.
C)the points outside the area enclosed by the production possibility frontier.
D)the points along and inside the production possibility frontier.
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) If a decrease in income leads to in a decrease in the demand for mac and cheese,then mac and cheese is
A)a normal good.
B)a neutral good.
C)a complement.
D)a necessity.
Answer: A
Q2) An increase in the price of off-road vehicles will result in
A)a smaller quantity of off-road vehicles supplied.
B)a larger quantity of off-road vehicles supplied.
C)an increase in the demand for off-road vehicles.
D)a decrease in the supply of off-road vehicles.
Answer: B
Q3) The phrase 'demand has decreased' means that
A)a demand curve has shifted to the left.
B)there has been an upward movement along a demand curve.
C)there has been a downward movement along a demand curve.
D)a demand curve has shifted to the right.
Answer: A
Page 5
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Chapter 4: Elasticity: the Responsiveness of Demand and Supply
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Sample Questions
Q1) With the increased usage of mobile services,what has happened to the price elasticity of demand for land-line telephone services?
A)It has become more price inelastic.
B)It has become more price elastic.
C)It has become more income elastic.
D)The absolute value of the price elasticity coefficient has probably gone down.
Q2) Suppose a decrease in the supply of wheat results in an increase in revenue.This indicates that
A)the decrease in quantity sold is proportionately larger than the resulting change in price.
B)the resulting increase in price is proportionately greater than decrease in quantity sold.
C)the demand curve for wheat must be vertical.
D)the supply curve for wheat must be vertical.
Q3) List the five key determinants of price elasticity of demand and explain how each determinant indicates if demand tends to be elastic or inelastic.
Q4) Most food products have low income and price elasticities of demand.
A)True
B)False
Page 6
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Chapter 5: Economic Efficiency, Government Price Setting and Taxes
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Sample Questions
Q1) Economic surplus
A)does not exist when a competitive market is in equilibrium.
B)is equal to the sum of consumer surplus and producer surplus.
C)is the difference between quantity demanded and quantity supplied when the market price for a product is greater than the equilibrium price.
D)is equal to the difference between consumer surplus and producer surplus.
Q2) If the demand curve for a product is vertical,any tax increase on the product is paid for entirely by the consumer.
A)True
B)False
Q3) Refer to Figure 5-5.What is the value of producer surplus after the imposition of the ceiling?
A)$40 000
B)$100 000
C)$300 000
D)$430 000
Q4) Black markets only exist in developing nations.
A)True
B)False
7
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Chapter 6: Consumer Choice and Behavioural Economics
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Sample Questions
Q1) For which of the following products is social influence likely to have the greatest impact?
A)toothpaste
B)restaurants
C)high-blood pressure medication
D)school textbook
Q2) What is behavioural economics?
A)the study of how people make wealth-maximising decisions
B)the study of how people behave in the face of scarcity
C)the study of situations in which people act in ways that are not economically rational
D)the study of how people make decisions at the margin
Q3) A budget constraint
A)represents the bundles of consumption that make a consumer equally happy.
B)refers to the limited amount of income available to consumers to spend on goods and services.
C)reflects the desire by consumers to increase their income.
D)shows the prices that a consumer chooses to pay for products he consumes.
Q4) What is a Giffen good?
Q5) Explain the concept of network externalities.
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Chapter 7: Technology, Production and Costs
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Sample Questions
Q1) If a firm's long-run average total curve shows that it can produce 5000 DVDs at an average cost of $2.00 and 15 000 DVDs at an average cost of $1.50,this is evidence of A)diminishing returns.
B)economies of scale.
C)diseconomies of scale.
D)the law of supply.
Q2) The law of diminishing marginal returns
A)sets in because not all workers are equally productive.
B)applies only in the short run.
C)holds even when there are no fixed factors.
D)ultimately explains why production displays diseconomies of scale.
Q3) Average fixed costs of production
A)remain constant.
B)will rise at a fixed rate as more is produced.
C)graph as a U-shaped curve.
D)fall as long as output is increased.
Q4) In the long run,the relevant cost is total cost.
A)True
B)False
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Chapter 8: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) Competition has driven the economic profits in the video rental business to zero.Surya Bacha,who owns a video rental business,would be better off leaving the industry for another alternative.
A)True
B)False
Q2) The perfectly competitive market structure benefits consumers because
A)firms do not produce goods at the lowest possible price in the long run.
B)firms are forced by competitive pressure to be as efficient as possible.
C)firms add a much smaller markup over average cost than firms in any other type of market structure.
D)firms produce high quality goods at low prices.
Q3) The marginal revenue curve for a perfectly competitive firm
A)is downward sloping.
B)is the same as its demand curve.
C)is perfectly inelastic.
D)is the same as its marginal cost curve.
Q4) Under what conditions should a competitive firm shut down in the short run?
Q5) If firms do not earn economic profits in a competitive equilibrium,why would the firms choose to stay in business?
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Chapter 9: Monopoly Markets
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Sample Questions
Q1) Are restaurant coupons a form of price discrimination? Why or why not?
Q2) Identify two ways by which the government controls monopolies?
Q3) 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.
Q4) Suppose a monopoly is producing its profit-maximising output level.Now suppose the government imposes a lump-sum tax on the monopoly,independent of its output.As a result,the monopolist will increase the price of its product to cover its higher cost.
A)True
B)False
Q5) How do the price and quantity of a monopoly compare to that of a perfectly competitive industry?
Q6) Both first-degree price discrimination and optimal two-part tariff pricing maximise economic surplus.
A)True
B)False
Page 11
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Chapter 10: Monopolistic Competition
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Sample Questions
Q1) Which of the following is not a characteristic of a monopolistically competitive firm in long-run equilibrium?
A)Marginal revenue is equal to marginal cost.
B)Price is equal to average revenue.
C)The firm has excess capacity.
D)Price is equal to marginal cost.
Q2) To maximise their profits and defend those profits from competitors,monopolistically competitive firms must
A)lobby government to erect barriers to entry in their industries.
B)limit foreign competition in their markets by encouraging the government to impose tariffs and other trade restrictions.
C)differentiate their products.
D)achieve economies of scale.
Q3) Explain the similarities and differences between the long-run equilibrium for a perfectly competitive firm and a monopolistically competitive firm.Illustrate your answer with a graph demonstrating the long-run equilibrium for the two types of firms.
Q4) What are the key factors that determine the profitability of a firm in a monopolistically competitive market?
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Page 12
Chapter 11: Oligopoly: Firms in Less Competitive Markets
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Sample Questions
Q1) Prisoner's dilemma games imply that cooperative behaviour between two people or two firms always breaks down.But reality teaches us that people and firms often cooperate successfully to achieve their goals.Why do the results from prisoner's dilemma games fail to predict real world results?
A)Prisoner's dilemma games do not permit people or firms to renege on agreements,which often occurs in real word situations.
B)The prisoner's dilemma does not apply to most business situations that are repeated over and over.
C)Prisoner's dilemma games predict the behaviour of people and firms that engage in illegal activity;most people and firms do not resort to illegal activity.
D)Most real world situations involve more than two people or firms;the prisoner's dilemma is only applicable to situations that involve two parties.
Q2) The equilibrium in the prisoner's dilemma is a dominant strategy Nash equilibrium. A)True B)False
Q3) List the competitive forces in the five competitive forces model.
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Chapter 12: The Markets for Labour and Other Factors of Production
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Sample Questions
Q1) Along an upward sloping labour supply curve,as the wage rate increases,the opportunity cost of leisure ________,causing individuals to supply a ________ quantity of labour.
A)increases;greater B)increases;lower
C)decreases;greater D)remains constant,constant
Q2) Which of the following would cause an increase in the equilibrium wage?
A)The supply of labour increases more than the demand for labour.
B)The supply of jobs increases more than the demand for jobs.
C)The demand for labour increases faster than the supply of labour.
D)The supply of labour increases and the demand for labour decreases.
Q3) A monopsony is a term used to refer to a firm that is the sole seller of a good or service.
A)True B)False
Q4) Net worth and stockholders' equity are both equal to the difference between assets and liabilities.
A)True B)False
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Chapter 13: International Trade
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Sample Questions
Q1) What is a tariff?
Q2) Refer to Table 13-4.
a.Which country has an absolute advantage in the production of handbags and jackets?
b.Which country has a comparative advantage in the production of handbags?
c.Which country has a comparative advantage in the production of jackets?
Q3) Under autarky,consumer surplus is represented by the area
A)above the supply curve and below the equilibrium price.
B)above the supply curve and below the demand curve.
C)below the demand curve and above the equilibrium price.
D)above the demand curve and below the supply curve.
Q4) One of the main sources of comparative advantage is internal economies.
A)True
B)False
Q5) Why do domestic firms offshore production processes?
Q6) Refer to Table 13-5.
a.Which person has an absolute advantage in the production of bows? arrows?
b.Which person has a comparative advantage in the production of bows?
c.Which person has a comparative advantage in the production of arrows?
Q7) Distinguish between a voluntary export restraint and a quota.
Page 15
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Chapter 14: Government Intervention in the Market
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Sample Questions
Q1) Refer to Figure 14-1.The figure above represents the market for pecans.Assume that this is a competitive market.If 8000 pounds of pecans are sold,
A)the deadweight loss is equal to economic surplus.
B)producer surplus equals consumer surplus.
C)the marginal benefit of each of the 8000 pounds of pecans equals $9.
D)marginal benefit is equal to marginal cost.
Q2) Refer to Figure 14-1.The figure above represents the market for pecans.Assume that this is a competitive market.Which of the following is true?
A)If the price of pecans is $3,the output will be economically efficient but there will be a deadweight loss.
B)If the price of pecans is $9,consumers will purchase more than the economically efficient output.
C)Both 4000 pounds and 12 000 pounds are economically inefficient rates of output.
D)If the price of pecans is $3,producers will sell 12 000 pounds of pecans but this output will be economically inefficient.
Q3) What is adverse selection?
Q4) Why might a young,healthy person choose not to buy health insurance?
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Chapter 15: Externalities, Environmental Policy and Public Goods
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Sample Questions
Q1) Goods differ on the basis of whether their consumption is rival and excludable.Explain the terms 'rivalry' and 'excludability' as they are used to define goods.List the four categories of goods,and define these categories in terms of rivalry and excludability.
Q2) Refer to Figure 15-3.The private profit maximising output level is
A)Q<sub>m</sub>.
B)Q<sub>n</sub>.
C)Q<sub>o</sub>.
D)Q<sub>o</sub><sub> </sub>- Q<sub>m</sub>.
Q3) A public good that is a good that is both rival and excludable.
A)True
B)False
Q4) Which of the following is an example of a quasi-public good?
A)cable television
B)organic apples
C)stock of knowledge in the public domain
D)crime prevention
Q5) An externality refers to economic events outside a market.
A)True
B)False
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Chapter 16: The Distribution of Income and Social Policy
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Sample Questions
Q1) If the marginal tax rate is less than the average tax rate as taxable income increases,the tax structure is A)regressive.
B)proportional.
C)progressive. D)unfair.
Q2) If the marginal tax rate is equal to the average tax rate as taxable income increases,the tax structure is A)regressive.
B)proportional.
C)progressive. D)unfair.
Q3) Refer to Figure 16-1.The excess burden of the tax is represented by the area
A)B + C.
B)F + G.
C)E + H.
D)B + C + F + G.
Q4) Explain the effect of price elasticities of supply and demand on tax incidence.
Q5) If your income is $40 000 and you pay taxes of $4650,what is your average tax rate? Show your work.
18
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